I have often tried to explain the dynamic of fundraising by analogizing it to a human behavior most entrepreneurs are familiar with -- dating and relationships. In saying this I often get nervous laughs from an audience. My guess is that it reflects an internal thought process in the listener that goes like this. "Hmmm, that makes no sense.... Wait, I think I get it.... Oh man, when I think of the goofy things I have done to get ____.... Ugh (nervous laugh)."
Anyway, to extend on the analogy please consider this. What are you most interested in doing when you are dating: Getting someone to like you, of course. Think about how you accomplish this goal. Are you engaging, interested, a good listener, prompt, well turned out or some other positive characteristic? Think about all the ways you have acted to try to gain someone's engagement and attention. Now, think about the ways that you can undermine this goal. Have you been clingy, a liar, unpleasant, unkempt, removed or otherwise been negative in some way? Hopefully, you now see the point in the analogy; connection comes from what you do and how you act. And, connection with an investor is essential.
Investing, whether done by an Angel, Venture Capitalist, friend or family member requires at its most basic level that the investor like you and trust you. If you can point to an investment decision in a start-up company where the investor going in said "I don't like and trust the founder, but what the heck, let's roll the dice" I will publish your comment and give you major kudos. I have never seen that. This doesn't not mean that other factors are not also important -- particularly the more that the investor is motivated by achieving financial gains. Still, at some level the decision to invest is very much about making a connection and the entrepreneur being perceived in a positive way.
My experience with the importance of a positive connection extends after the initial investment. The reality of start-up life is that it is hard to achieve success, and it is at best a circuitous path. There will be times when disaster seems behind every turn, and moments when all that seems to remain is to count the money that is about to come in. The mayhem of being in a start-up is only really analogous to raising a child (but that is another story for another blog).
If an investor does not trust the entrepreneur then at these times of uncertainty for the start-up, the lack of trust will result in a higher likelihood of investor disappointment, intervention and recrimination. Having a positive engagement with the investors in a start-up is essential. So, again, we go back to Dr. Phil and relationships. Think of all the ways you keep a relationship going. And, all the ways you mess them up. It all applies to start-up life and how you work with investors.
So, raising money and interacting with investors is like dating. It is, but it's also much more difficult. You know why? It's a lot easier to have a positive result out of a date.... Here's what I mean. There are roughly 70,000 Angel investment deals done a year, and roughly 4,000 VC deals. Compare that to the number of new businesses started each month -- roughly 500,000. The percentages for getting an investment from a stranger is just not that favorable.
The implication of this is that if you are looking to raise money for a start-up then for each investor meeting that you take, there is only ONE positive outcome that truly matters: you get the investor to invest. Who really cares if you have a nice time, or enjoy each other's company? You just want the investor's money. There are many, many more ways for a date or relationship to be a positive experience. And, that brings me to my last point.
Before you look for capital, you need to be ready for rejection. A high percentage of rejection, and much higher than the rejection (hopefully) you have experienced at any other time of your life, including dating. For an activity that requires so much personal attention and energy, fundraising is unbelievably hard for that reason. Moreover, it is hard not to take the failure to raise money personally, since it feels for the entrepreneur that he is extending himself in the most vulnerable way: "look what I have built, don't you just love it?"
Therefore, my best advice for entrepreneurs who are going to seek capital is to appreciate that it is like dating, but with a much lower likelihood of success. Does that mean you shouldn't try? Of course not, but just understand that it is an activity that will tax your psyche and challenge your own sense of self-worth and happiness. Get your helmet on and get out there, but be ready too!