Reasons For Thinking Like An Investor

By Matt Tarses

Most entrepreneurs do not think of investors as people. Instead, they think of investors as money – a fatal error.

When it comes to private investing, it is not like picking a stock on NASDAQ. With private investing, it is personal. The investors, like the entrepreneurs, also have goals, preferences, fears, and problems. They bleed when cut. They worry when things go wrong. This means that the relationship you build with investors is essential to obtaining money from them.

In the simplest of terms, subjective and objective are known as the two categories of investors.

Subjective describes an investor who is somehow emotionally connected to the entrepreneur or the company and its product or offering. They have a comfort level regarding the entrepreneur’s ability to perform because they know the entrepreneur directly or through a third party. Either that or they are familiar with the product or more specifically the need for the product and wish they had thought of it or could have bought one a year ago. Typically, these investors get involved at a very early stage, may be even in the “friends and family” round. Either they may be accredited or they may not. They are more forgiving of missing elements to the business plan or business model because of the emotional connection. In order for them to justify their emotional decision, they want to invest and look for reasons to invest.

When it comes to an objective investor, he is in the business of investing. Due to the fact that they have many projects they are considering investing in, they therefore look for reasons to invest. For instance, they have to eliminate at least 3 to narrow down their choices if they are considering 5 projects and trying to make a decision. In other words, things that are incomplete are what they are looking for. As for the business that is difficult to read or understand, it is also the easiest factor to use. The financial projections are unrealistic or incomplete because they use some standard formula rather than real data, so the investor knows that entrepreneur is just “guessing”. The other big cause for elimination by an Objective investor is that the company has an inadequate plan for execution once the money is received. Their use of funds is vague and also they haven’t completely figured out what they will do with the money. What an Objective investor want is not to have their money used to “figure stuff out” but rather they want it to go directly to activities that will help the company scale and generate revenue, and can be measured through milestones or project plans.

In fact, actually writing the check will ultimately be an emotional decision for the investor. You won’t get to the point where the investor can make the decision to invest if you are seeking serious investor money if you have flaws in your business plan or business model.

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