Entrepreneur Office Hours - Issue #62
The secret to getting your first investor check
For entrepreneurs struggling to fundraise, getting that first check from an investor can feel like the hardest thing in the world. I remember my first check was for only $5,000, but it might have been the most important $5,000 of my career because it gave me the confidence and knowledge and skill to get the next $5k. And the next $50k, $500k, and more. But sometimes getting that first check takes a little extra nudging of investors. In this issue’s Q&A, I explain how.
As for Web Masters this week, the conversation blew my mind. I spoke with the founder of 3Com, Bob Metcalfe — as in Metcalfe’s law. You’ve surely heard of it (even if you don’t know what it means without Google). What shocked me was that Metcalfe’s law wasn’t the product of dedicate academic or scientific research. It was an entrepreneurial sales pitch for when he was building 3Com, which possibly makes it the greatest sales pitch of all time.
Take a listen, and let me know if you agree.
-Aaron
What I Learned About Pricing From the Entrepreneur Who Gave the Greatest Sales Pitch in History
Pricing is hard in part because the best strategy might be a bit counterintuitive. In fact, the best way to get customers buying more of your product might surprise you.
The Man Who Invented Ethernet
You might not know exactly what it is off the top of your head, but you've surely heard of Metcalfe's Law. Where did it come from? What does it mean? And why does it matter? That's what you'll learn on the new episode of Web Masters featuring Bob Metcalfe, inventor of ethernet, founder of 3Com, and namesake of Metcalfe’s Law.
Listen now on:
…or search “Web Masters” wherever you listen to your favorite podcasts.
FROM THE ARCHIVES…
What I Wish Someone Had Told Me About Venture Capitalists
As a young entrepreneur, I used to be in awe of VCs. To me, they seemed like rockstars. That wasn’t healthy, and here’s why.
Office Hours Q&A
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QUESTION:
I feel like I’m super-close to locking down my first round of funding. I’ve got a group of angels who, collectively, seem willing to put in around $250k. But, for the life of me, I can’t get them to move forward. It’s like they’re all dragging their feet and waiting for someone else to “lead” the round, so to speak.
How the heck do I get one of them to actually pull the trigger so everyone else follows? What’s the secret to getting that first check? There has to be a secret, right? Please tell me there is and that you know it.
Desperately yours,
Alexander
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Actually, there is a secret. At least, there is for a round like what you’re describing.
When you’re working with a small group of angels on a first round, you don’t necessarily need a lead investor. Instead, you can be the person who leads the round.
Go to a lawyer and get paperwork drawn up for reasonable terms. And I really do mean reasonable. Don’t try to nickel and dime anyone. Make the deal attractive. Your first investors are taking a big risk on you, and they deserve to be rewarded for taking that risk. Plus, assuming things go well and you move on to professional investors at some point in the future, your first small round of angels are going to be the people who can protect you from the potential downsides of VC, so treat them well. They really are your allies.
Once you have the terms, send the paperwork to all the investors you have lined up and present it confidently. You’re sharing the terms that, based on your conversations, are the terms everyone has agreed to go in on and is planning to sign. Frame them as such. Don’t ask for feedback or advice or thoughts.
That’s kind of it. That’s the secret.
Admittedly, this isn’t a very sophisticated strategy, but that’s kind of the point. It sounds like you’re over-thinking and trying to over-engineer the round. If the investors you’ve spoken with really are as ready to go as you suggest, all they need is a little nudge. You give that to them by making the deal simple and attractive, and you make them feel like someone else has done the work of setting things up.
One more thing: If any of them hem and haw and try to negotiate the terms with you, don’t get discouraged. It’s actually a great thing. Congratulations! That person who wants to negotiate the exact terms just became the “lead investor” you were looking for.
Settle on terms with that person, then go back to the other investors and say, “We tweaked some things on the original deal for one investor, and we wanted to be fair and make sure everyone got the same thing, so we’ve made XYZ concessions.” That’ll only make your deal more attractive and more likely to get done.
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!