In this episode of the B2B Sales Show, SaaStr founder Jason Lemkin talks about how he knows instantly whether he wants to invest in a small company--and what they can do before a meeting to convince him he wants to be a part of what they do.
Listen to the episode on iTunes, Spotify, or read the highlights below:
Experienced investors have very specific criteria when deciding to fund a startup.
Does your SMB have what investors are looking for?
In our latest episode of the B2B Sales Show with Don Erwin, SaaStr founder and investor, Jason Lemkin, shares why he instantly knows whether or not to invest in a small company—and what startups can do to increase their chances of obtaining funding.
What Investors Look for When Investing In Startups
Despite having founded several successful companies of his own, Jason Lemkin is quick to recognize and applaud the achievements of more accomplished CEOs. In fact, according to Jason, a high-impact CEO is the most crucial element to consider when evaluating an investment opportunity.
“I like to keep things simple, which is why I look for companies with CEOs who are better than me,” said Jason Lemkin, Founder of SaaStr, the world’s largest community of SaaS executives, founders, and entrepreneurs. “Some CEOs are just better at seeing the future and understanding their markets, which, to me, could be even more important than a company’s product or industry.”
Growth trajectory and prior successes should also play a role in the decision-making process.
“The cloud is bigger and more competitive than ever, but some startups figure out how to grow faster and easier than I was able to,” Lemkin said. “If you can grow to a million in revenue faster than me, then most likely you’ll beat me to a hundred million, too.”
The combination of an elite CEO and the right mix of circumstances creates a “unicorn” moment that an investor like Jason Lemkin cannot resist.
“If you’re better than me and having an easier time than I did, you’re the unicorn that I’m looking for,” Lemkin said. “When I hear or smell that in the conversation, I’m usually ready to invest after about twenty minutes.”
Getting & Preparing for an Investor Meeting
Even if your company has a stellar CEO and an unbelievable growth trajectory, you can’t win investors until they understand and buy into your story. And, according to Jason, serious investors want to know your entire story—the good, the bad, and the ugly—before they ever invest a single dollar.
“Don’t send me a teaser deck with two slides or ask to pick my brain over coffee,” Lemkin said. “Send me everything you’ve got. Send me the numbers, tell me about the journey you’re on, and show me why you’re doing something amazing.”
Founders must also remember that an investor meeting is much more than just a friendly conversation between two people; it’s actually a sales activity.
“Meeting with investors is a niche version of sales,” Lemkin said. “Founders usually get really good at this type of sales by their fourth or fifth round of venture capital or if they have the opportunity to be a repeat founder.”
Transparency is a vital element of establishing long-lasting relationships with potential investors.
“Investors are hard-wired for good and bad news,” Lemkin said. “Surprises really freak investors out, which is why it’s important to be upfront about your bad metrics, too.”
To keep the funding pipeline open, Lemkin recommends sending out regular updates to investors via email.
“Founders sometimes get their initial money and then stop communicating with investors, which is a big mistake” Lemkin said. “Investors want to help you win and join you on the journey, so sending out a monthly investor email is essential.”
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