It is crazy how many times I’ve been asked if “investors will fund my idea.” So I’m writing this blog to save a lot of people a lot of futile energy.
I get it, starting a company is hard. It costs money and you probably don’t have the resources. That’s just life. You’re full of beans and enthusiasm, you want to make magic happen. But you need the help to do it… So you need someone to just fund you to get your idea off the ground.
Unfortunately, life is about lemons. You need to figure out how to make lemonade. You might not even have the money for a literal lemonade stand, though, right? Look I can smack you down quickly, but I like to help you think for yourself.
Pretend you are an investor
If you were an early stage investor, what would you want to invest in? What would the characteristics be?
Stop, think about it.
Seriously, if you really are looking for an answer to this question, pause and answer it in your head.
Something that was proven and a sure thing… or hopes, dreams and rainbows?
The sure thing, right?
Every step of validation creates more certainty that your hard earned cash you are investing is not going up in smoke.
The best case is a startup that is profitable (well, depending on growth rate), then revenue generating, then users, mad press coverage, a super product………. then an idea, right? Every step below the ideal creates uncertainty and your valuation drops millions.
Thinking like an investor yourself helps create a lot of clarity to questions like this. You don’t know, that’s fine, but when you think like an investor, it becomes (more) obvious.
Why would you invest in an idea as an investor when there are literally hundreds of thousands of startups around? You wouldn’t would you? You have the choice.
There are always exceptions to the rule
There are always exceptions, sorry to say, 99% if you are reading this, you aren’t one of them.
Famous people get funded.
People who made money for their investors before get funded.
Why? They made their investors cash before and they want to make it rain again!
With your investor hat back on, if you invested in a founder that paid for your new boat, would you be more or less likely to give that founder $ again?
So, if you are wondering if you are the exception, I simply ask… how much money have you made for investors before?
So there you go, you either are or are not the exception regardless of how amazing your idea is.
Ideas just aren’t worth much
It’s realllllly hard to come up with a really solid idea with a compelling business model and market size that you are well positioned to execute on (Founder/market fit). It’s easier to come up with an ‘eh’ idea. But maybe you don’t know the difference, yet.
Let me tell you, great ideas are hard to come by. I know, I’ve worked with some founders for a year to review the next hair-brained scheme they came up with. But with the millions of founders globally, in aggregate there are a lot of good ideas. And frankly you may be feeling smug with your self with your idea, but it’s pretty likely that someone else has had it and/or is already working on it.
And… there may already be a company funded with $40m you haven’t heard of.
Ideas just aren’t that valuable. If you disagree, try selling it.
Unfortunately, ideas are worthless. They are worthless because whatever circumstances existed for you to have your idea in a pool of 7 billion people also exist for someone else. Which means that ideas aren’t unique.
On top of which the general idea has to go through a gestation period to truly thread the needle with the consumer.
So take a look at DigitalOcean, we’ve built a successful company with the idea of building a cloud provider. Is this a new idea? No. Was there competition? Yes. So what was the idea worth? N0. Because it had been done before. But we found a specific opportunity in a market segment that we felt was underserved and delivered a product that resonated with those consumers.
Moisey Uretsky, Cofounder DigitalOcean
Ideas aren’t enough to get funded
The whole point of this blog is getting funded with an idea, so yes, your idea has value, but that doesn’t make your company fundable.
Investors are not investing in an idea, they are investing in a combination of things which together create an investment opportunity.
Most investors will agree that ‘70% of their investment decision is the team.’ They’ll never say 70% of my investment decision is the team. In fact, investors mainly pass because of the team.
Furthermore, investors will never invest if your market size is not large enough. If you can’t address the market sizing question by the second meeting, you’re getting a pass too. you can read more here to understand market sizing.
There are also so many crazy ideas out there (which are often a prerequisite for getting the 100x outcome), that if an idea is bonkers, but the team are awesome and have some traction to show the idea actually works, they will invest! Um, Snapchat, Twitter etc for example 😉
David Rose sums this up pretty well:
“Having value” and “being fundable” are two completely different things. While a good idea is usually a necessary ingredient for the formation of a good company, it is not sufficient by itself for any serious investor to fund.
Why? Because there are also other good ideas out there, some of which have already been developed, tested and put into practice, thus decreasing the amount of risk an investor will be taking. The bottom line is that ideas by themselves are simply not fundable by professional investors.
David Rose, CEO Gust
I just don’t trust you
Who are you? Like most founders, you are a nobody (for now!). You haven’t earned your place in the founder hall of fame. So… who the hell are you and why should I trust you?
I can’t really judge people from paper. Getting good grades, a CS degree from Stanford or IIT are not predictors of founder success, just academic.
You rolling up your sleeves and showing you kick ass is the best way to separate yourself from the crowd. Traction is the great divider. No matter where you came from, people will think you are going places with great traction.
Ideas are easy, and investors know that. You need to prove you can build the product by, well, building the product. Bootstrap something together first and then you’ll have something to present.
Ben Parr, DominateFund
Edison’s ratio is true with startup: it’s 1% inspiration, 99% perspiration.
Look at Ring. I have so many investor friends that can’t get their head around the acquisition by Amazon. I did some digging, and honestly, I think it comes down to the execution. The product isn’t that good, but how these guys executed is 110%. They just did more than others wouldn’t attempt. That’s cool to me. Execution is the core skill of a founder, not the inspiration of ideas.
Derek Silvers wrote this (which whilst an oversimplification) really does drive the point home.
Ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.
|AWFUL IDEA||= -1|
|WEAK IDEA||= 1|
|SO-SO IDEA||= 5|
|GOOD IDEA||= 10|
|GREAT IDEA||= 15|
|BRILLIANT IDEA||= 20|
|NO EXECUTION||= $1|
|WEAK EXECUTION||= $1000|
|SO-SO EXECUTION||= $10,000|
|GOOD EXECUTION||= $100,000|
|GREAT EXECUTION||= $1,000,000|
|BRILLIANT EXECUTION||= $10,000,000|
To make a business, you need to multiply the two.
The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000.
That’s why I don’t want to hear people’s ideas.
I’m not interested until I see their execution.
I’m not going to labor the point. Investors don’t fund ideas (unless you are famous). There are too many other opportunities, and all an idea shows is you see opportunities. It doesn’t show you execute them. So execute, get traction and try to get investors to knock on your door and throw cash at you.
I hope this was useful to help you think about how to start your company. If you need some help figuring out if your business model makes sense or not, you can book a one on one call with me and I can help you with the thinking. Book a time here.
Need help with your deck?
Head over to Perfect Pitch Deck. Competitive pricing and expert assistance to get you fundraise ready and confident.
Looking for something interesting to read
- The real reason founders aren’t funded you will never hear a VC say
- This is how to get introductions to venture capital investors for your startup fundraise
- Why I want a pitch deck before a pitch
- Why you are making a financial model for your fundraise is wrong
- What’s your startup valuation is the wrong question. Here’s why and what the better approach is
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Also published on Medium.