One of the most frequent questions I get from founders, and one I had myself when I was founding companies, is “When should I approach investors?”
It’s a tricky question, and the answer would be different in 1990, 1995, 2000, 2005, 2010, and 2015. The benchmark for when “you’re ready for a meeting” changes based on the competition in the overall industry (now at record highs), the profile of the investor you’re meeting with (first year investor vs. year 20 investors), and your track record.
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One thing is for sure going into 2016: do not show up at a meeting without a functional prototype (aka an MVP, ‘minimum viable product’).
Simply put, showing up without product today is like showing up without a business plan in 1995 — you simply won’t be taken seriously by most investors.
There are two exceptions to this:
- You’re meeting an investor who worked with you previously and you set the meeting in the context of “can I float an idea by you?”
- You sold your last company and returned 10x for your previous investors, and you put this meeting in the context of “I sold Weblogs Inc. 18 months after I started it, for 10x the valuation at which Mark Cuban invested. I’m working on my next idea and I want to show you the research.”
[ Note: that is how exactly how I landed Sequoia Capital for Mahalo, and got two other offers from big firms. I showed them my research on search results. Wouldn’t work today. Folks don’t invest millions to make an MVP anymore. ]
The bottom line is, the MVP is the business plan and your resume. It’s the business plan because you can show it to customers and get feedback on it immediately, and it’s the resume because an investor can see if you know how to build a product.
ASKING PEOPLE QUESTIONS ABOUT THEIR MVP IS THE BEST WAY TO UNDERSTAND IF YOU SHOULD INVEST IN THEM.
To give you the view from the other side of the table, here are some things I want to know about before I invest in someone, and how I might ask the questions about their prototype to understand their ability better.
- Design and UX skill: “What was your inspiration for this design?”
- Ability to sell and communicate ideas: “Explain why you decided to have/not have an onboarding process.”
- Passion for the idea: “Rank these three features in order of importance…”
- Knowledge of their customers: “How many user interviews did you do and how did it inform this product?”
- Competitive landscape knowledge: “Who else has tried this same thing and failed before?”
- Ability to hire a team: “Who coded this? Where did you find them?”
Every investor is a little different, but all investors know that product and culture are huge factors in the success of a company. If you nail the product portion of the discussion with an investor you’re on 3rd base because it’s very rare that people who make exceptional products fail in the long-term.
If a mockup is worth a thousand slides, then a prototype is worth a thousand meetings.
[ Sidenote: All that being said, I accepted someone to the World’s Greatest Incubator yesterday who didn’t have an MVP, just a deck and with basic mockups. Of course, he is a very successful founder of a company that Sequoia Capital invested in previously.
At 40 years old, he’s also wise enough to understand that the “old” salty vets of the first 20 years of internet commercialization are far behind the knowledge curve than 20 year olds today who have been using new tools and techniques.
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I think 1/3rd of the LAUNCH Incubator founders are going to be people WHO HAVE DONE STARTUPS BEFORE! That’s not surprising to me. If you’ve done this before, you’ve seen the wicked skills folks have coming out of accelerators and understand exactly what an advantage that can be!
Said another way, 2/3rds of people in the incubator are — still — going to be first-time founders.
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