(Previous Post - #4 in a series)
#5 - Mitigate Investor Risk
Early stage investors are not risk averse, but they are cautious when
evaluating totally unproven technology.
Ways to reduce investor hesitancy include obtaining referenceable customers
and having demonstrable technology. If you have a weak management team, try to
engage industry leaders as company advisors, so investors feel that there is
“adult supervision” in place.
I would go even further to say that it is preferable to get a marquee
customer/pilot-ready account. Early stage investors see companies who have
pilots ready to start all the time. What will make your company stand out from
all the rest is having a well-known company ready to test-drive your product or
As far as demonstrable technology goes, the level of development will also
determine the valuation of your company in the eyes of investors. The further
along you are, the greater the valuation. The more you can develop your product
with your own funds, family and friends, etc., the more you’ll reduce
technology risk to the investor.
Once you’ve attained the level of development you can before starting your
funding search, be honest with investors about your description of the stage
your product or service is in. I can’t tell you how many times a company says
they have a “beta” version of their product, when they really don’t even have
an alpha version - it’s just barely a prototype. That results in a big letdown
by the investor and is the wrong way to start. Investors will find out the
stage of your widget anyway during due diligence anyway - just be candid up
How do you get industry leaders as advisors? If your solution really is a
big advancement, they should be able to see it. Add some stock options and
limit their time and effort required and with a little luck you’ll be able to
put their name on your PowerPoint deck.