What to Remember When Selling to Investors

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Sunday, 29 January 2006

What to Remember When Selling to Investors

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Often good ideas don't get funded because entrepreneurs focus on the technology itself, rather than the more important question: "How will the technology be used?"

Now that Internet technology has matured, questions about its ability to deliver have been replaced by questions about how it will be used -- to bring buyers and sellers together, create communities, educate consumers or exploit other money-making opportunities.

Technology is the least of your problems
New ventures face four risks: technology, business development, cash flow -- and partners that can work together.

Ironically, the technology is the easiest risk to manage in the technology-enabled business.

Look at successful Internet ventures. They don't sell a technology, rather combine technologies to deliver a unique experience. Enpresence, for example, isn't about Bluetooth and wireless technology. It's about alerting mobile phone users when they are near people or places that interest them.

It might be a message that the film they've been wanting to see starts in an hour at a theater around the corner -- or an extension of their online dating service that Mr. or Miss Right is at the Starbucks on the next block.  Sure, things like Bluetooth make new business ideas work, but it's the business model that must endure the rigor for funding.

Get technology questions off your critical path
If your plan's viability is dependent upon a proof-of-concept that the technology will work, get those projects out of the way before you start knocking on investor doors.

Bottom line:  if you're seeking funding for an IT-enabled business, be careful not to clutter your presentation with a bunch of technology 101 tutorials or explanations of how the technology works.

Focus your pitch on how the technology will be used to create value. Put all the tutorials in the appendix. If you must talk about how the technology works in the main body of your pitch, keep it to one slide, two at most.

Think about early Google investors. They got rich, not so much from the creation of the technology, but from the technology's ubiquitous adoption to affect a variety of business and societal outcomes.   

As CFO James Haft from USCondex said recently, "More money is made from using technology than creating it."

Posted by Richard Fouts at 03:32 PM | Permalink