Is your business the next Uber? Or the next Dropbox? Or even the next Etsy? It’s hard to know when your business is just an idea, or in the early stages of development, where your business will end up. But what do these companies have in common? They all took on investment to accelerate the growth of their company.
But how do you attract investment to your business? We’re not in Silicon Valley and it seems a huge leap of faith to turn your high potential idea to a high performance business. Let’s unpack the situation a little.
Australia as a Funding Centre
Australia has around 400,000 High Net Worth individuals holding nearly $1.4 trillion in investable assets. The capital is out there and an entire startup angel industry has emerged to facilitate private investment into high potential businesses. Especially as banks prefer to only dabble in real estate. However, how do you attract these angel investors?
Attracting investors — Think Pull, not Push
Around 80% of companies needing private investment are unsuccessful. That’s because looking for investors is fundamentally the wrong approach. Companies are trying to ‘push’ investment, when it would be more advantageous to ‘pull’ investors to you. When you push investment, you are making the assumption that investors are looking for reasons to invest. In fact, the opposite is true, they are looking for reasons to not invest.
Straw Poll: Top 5 reasons/excuses for ‘not investing’
“You’re not the right industry for us.”
“You’re too early for us.”
“You’re too late for us.”
“You’re too small, we only invest above $5million”
“We don’t understand exactly what you do?”
These stock reasons exist to allow investors to process a large number of proposals quickly. It enables them to shorten their decision-making process. But they exist because they are not excited.
The first four reasons are either genuine reasons, or polite ways of saying they are not interested. Ultimately, if an investor is fixated on an industry or stage of investment there is little you can do to dissuade them.
That said, of the five reasons, the last is the one under the control of the company. Your ability to articulate what you do, where you are going, why you will win, what your advantage is, will allow you to stand out.
If your company stands out, FOMO (Fear of Missing Out) overtakes the rational excuses of being too early or too late or too small. If an investor has FOMO then they are scared they will be too late. That someone else has a chance of getting the prize instead of them. You are changing the paradigm from push to pull.
It is so pervasive (and persuasive), Mark Cuban – the original Shark Tank shark – says FOMO is the main problem in Silicon Valley investment. From an investor's perspective, he is right, it is a problem. From a business perspective, it is a bonus. So, how can you capitalize on this trend?
How do we create FOMO?
In my view, there are three components of business FOMO – Buzz, Opportunity, and Scarcity.
Creating buzz around your product or service is crucial. This is ultimately born from having a great solution with a compelling value proposition that attract people to your business network – either as clients, fans, watchers or grazers. When you have a solution that is simple, shareable and scalable, you are in the position of having users as your authentic source of trusted recommendations. This, in combination with PR, is extremely valuable in creating buzz. Buzz attracts investors because it creates name recognition, brand validation and demonstrates demand.
Once buzz is created, the scale of an opportunity becomes immediately apparent. It becomes apparent if you have any competition, or if there are barriers you have created for your business. This could be through intellectual property or by being an early mover in a specific market. The buzz you create provides tangible evidence of the beginning of an opportunity. Investors like hearing about the billion dollar market, but they prefer it if you have proven your business model, generated revenue, and captured market share. This shows you are starting to deliver on your potential. Investors like accessing companies in this ‘pre-tipping point’ stage.
Scarcity is the hardest aspect to demonstrate in FOMO, although is perhaps the most critical. So, we have to create it! Examples include:
“We have a Kickstarter campaign that will last 14 days.”
“We are offering a Premium Subscription limited to the first 100 referrers on Instagram in September.”
“We are not looking for capital at this stage, but may look for 2 or 3 investors at the end of the year.”
When you create this kind of scarcity, around an offering with buzz and opportunity, the investor wants to be in the front of the queue. You are pulling investors in. They can see the future, they know how big it can be. This is because the Fear of Missing Out has become real.
Next best steps
So now that you know how to create FOMO to stand out to and attract some investors, what should you do next to prepare for your pitch?
I went on The Entourage's The Make It Happen Show recently to cover exactly the type of questions that every investor will be thinking about in their next investment opportunity that will help you make it happen. I share the top 10 questions every investor asks before investing in a business in this episode of The Make It Happen Show. Check it out now.
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