Venture Capital Firms

Building Trust with Investors

Ever heard the saying, “bet on the jockey, not the horse”? It may be an old cliché but it holds firm in the world of venture capitalism. What it means is that smart investors pay more attention to the people than the ideas when it comes to investing.

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Of course, this does not mean that a useful product, solid industry research, sound marketing, well-defined markets and a solid operations plan are not important; a starving horse will not win any races either.

It takes the entire package to convince potential investors, your management team aka the jockey, must be qualified to take your business through each step quickly and successfully. Anything less than this and you will never get the funds you need. Investors must trust your management team.

As you put together your business plans for potential investors you want to highlight the successes and experience of all the people involved in your business. Investors like to see people who:

have success in startup and business growth
are experienced in their position
are experienced in the market your business competes in
have access to networks or resources that will help grow the company
have a good reputation in their chosen field
If you are seeking investments but your team is not yet fully fleshed out, you will have to explain to lenders and investors exactly:
positions that need to be staffed
why these positions will be crucial for your company both in daily operations and growth
what you will need to hire capable individuals for these positions

This will aid you in making up the difference between critical vacant positions and the trust of any investor you are trying to win over. It proves to any investor that you are aware of your company status and ready to handle any challenges to your success.

In addition to your management team, investors will also look into your board of directors or advisory board. Think of them, as an extension of your “jockey” and investors will also be looking to them when they decide to advance the money you need. Be up front about who is on the board and how these people will provide strategic networking and guidance.

At some point in your business plan creating you will come to the section entitled “management team”, be sure to include the biographies of the highly qualified team you have put together. Keep in mind the points above when putting this part of the plan together. As your team grows, you will want to update this section, and the qualifications.

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This of course does not mean you can neglect the rest of your business plan. Everyone benefits from a good plan, you, the management team, lenders, investors and even internal staff. So do not let the fact that your management team is generally the deciding factor on whether an investor is willing to take the risk, steer you away from creating a full business plan.

All the best,

-Peter

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