They say when you start dating someone, you have to put your best foot forward to get to the next phase. The same rules apply to getting funded. Blockchain investors, just like any other investor, have put a ton of hard work to earn their money, and that is why startup businesses seeking investors find it more than challenging to gain their trust. The question that we hear all the time is what do investors really want? Monika and Tracy try to examine what goes inside an investor’s mind – learning what they want, what they are looking for, how much do you have to raise, and how to be investment-worthy.
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What Do Blockchain Investors Want
We are going to talk about blockchain investors on this episode. You’ve been making a lot of rounds talking to a lot of investors. I hear this all the time, “What do investors want?” If you’re going to be pitching them and you’re going to be presenting them, what are they looking for?
It does depend on the investor. It depends on the phase of your company if they’re the right investors. Some of them are like, “That’s too much you want to raise. That’s too little.”
Let’s talk early phase.
You’re not raising a lot of money but you’re raising critical money that it has got the greatest likelihood of a 100X return because it’s in so early. That is amazing money to get. As a founder who has bootstrapped everything I’ve done and is bootstrapping now, it is so amazing when you get your first investor in. We are getting our first lead investor, our first piece of money that’s not mine, which is so validating. As much as you get validation by being out in the market and having people sign LOIs or want to do business with you or want a partner, when you get someone else’s money, it matters. As someone who’s never taken money before, I didn’t realize that it was as important as it is. I think for starters, you’ve got a raise when you don’t have to raise because if you walk in hungry, they know it. They’re like, “I can see the skins hanging off of you. You’re hungry. You haven’t eaten in a while.”
They smell that blood in the water.
Make sure you raise when you don’t need to because then you can talk to them like an equal to a degree. You’re investing in the company actively. You’re putting your own money in. You have money to put in, do they? They can be like you. I think it also comes into play when you think, “How much should I raise?” Because there are two philosophies that I’ve at least been told about. I was a babe in the woods when I started this on the racing side and I was, “I know how to make a business but I don’t know how to make an investor think it’s a business before it is.” You got to think about how much you’re going to raise because that means how soon are you going to go. You have to either make sure you’re revenue positive, sink or swim or rather than sink, go back and raise more money. That can take you off mission from the actual business. If you don’t raise enough, you’re going to be distracted in a few more months after you run out of money again, not that you necessarily will be. You’re taking a bigger risk if you don’t raise a little too much and you’re taking a big risk if you raise too much and you don’t hit your marks.
Then this is a real-time management issue at the earliest stages too. I think that people don’t realize that raising money is a full-time job. If you are the only person in your business making everything happen and moving everything, you cannot do both and so it makes a difference as to getting enough money so that you can make some progress in that business before you have to go on the dog and pony show of raising capital again.
You have two full-time jobs. One is building a business and the other is building the investor base. It’s a lot and that’s why I think why I’ve chosen to bootstrap for so long. I’ve chosen to bootstrap exclusively in my last companies. I’d rather make the business work than convince someone it’s going to work. It’s very difficult to get up in the morning, committed to your vision, committed to your company, putting your own money in and then pitch to a bunch of people that have no interest, no skin in the game. They have no care about it. They probably have a lot more money than you and then they tell you, “Your idea is bad.” Who wants that? Who wants it? I’m like, “I’m not going to talk to you guys about that.”
I have a good friend who came out of the entertainment industry and built a business. She always says that it was worse coming out and trying to raise money for a business than it was going to auditions and being rejected every single day. She said, “It’s like a bigger ego hit.”
You start with a question, “What are they looking for?” Sometimes you have to be psychic to figure that out because you don’t always know. They are individuals. They have their own preferences. They have their own backgrounds. They have their expertise or at least they have their experience and that then informs their bias. Aside from any gender bias, it’s the bias of what they know. I’ve had one guy grill me on accounting. Why? Because one of his last company companies was an accounting company. It has nothing to do with my core business, but I had to listen and I had to respond to a bunch of detailed accounting questions because that made him feel smart. What did he do? He turned around, “I don’t feel comfortable.”
I think as somebody on the pitching side, as a founder, you need to know when to go, “Thank you so much. My next meeting is coming up. I got to go,” because you know it’s off. You don’t have to sit there kissing the ass of somebody who’s not going to come through. My time is just as valuable but when you find that person and they go, “I get it. It clicks. I’m trying to push those poke holes in it and I can’t,” and they are interested. It’s the most validating and it’s like dating. You go on a whole bunch of dates, you kiss a bunch of frogs and then you’re like, “This is what it feels when it feels right.”
Do you do a bunch of research before on the people you’re going to be meeting with, your investors?
I do research to the point where I want to know what their areas of expertise are because they’re probably going to lean on their expertise, especially if they’re hearing about a new concept. What do people do no matter who they are, people like to feel smart. That means they stay to where they’re comfortable and what the things they know. When the conversation makes them feel stupid or they don’t feel like they can ask that question, they go back to asking questions they’re familiar with the answer to. It’s an ego-based thing. I will do some research into the investors and what their backgrounds are because that’ll give me a sense of, “They know real estate investment trust really well.” I’m going to use that as a touchstone. When I use my metaphors, I’m going to use that as a place where we start and depart from.
Then we’re staying in a realm that they understand and when they do ask questions, they can retreat to a place that we’ve already related ourselves to. If it’s a crypto investor, we’ve got to start with tokenization, assets, secondary markets and the technology. That’s fine but you need to know and if you don’t have time to research, if you say, “Listen, it’s a lot like dating. If you do too much internet stalking beforehand, you don’t have anything left to talk about. Would you please be willing to tell me a little bit about your background?” Sometimes they don’t tell you the stuff that you need to know to be relevant to them but at least then you get the conversation going. More than anything, people do invest in people. You’ve got to be dateable.
You are great at this. You’re great at simplifying the technology, simplifying everything so we don’t feel stupid about it. You tell stories and you do all of that. Has that served you well?
Absolutely, because sometimes people look down at it and say, “I already know about that analogy. That’s fine,” and you say, “I understand. I’m sorry to talk down. It’s just that there are so many people that this is new to. I’m so glad I’m talking to an expert.”
This is the thing that I found as I’ve been doing the show and asking people questions. I’ve been getting out comments and engagement from our community who are saying, “Thank you for asking that question because I’ve been wondering that for a while and I’ve been afraid to ask it.” I don’t feel like there’s a dumb question out there when I’m learning something and I’m curious about it. When you’re in that room, you have the, “I’m supposed to be the expert. I’m supposed to have it all together,” and so often I find that when I listen to pitches. I do a lot of that on the product side. I listen to a lot of product pitches and when I do, I realize that they don’t understand the question sometimes, but they don’t flip back and clarify it because they don’t want to appear not an expert. That in and of itself is actually the first red flag I have when I sit on that side and of course I’m not investing in them. They’re simulated pitches at events and things like that, so I’m voting on them. It’s usually my number one sign that that person is not coachable and doesn’t listen well and I would say no to them. That’s an interesting play. You do need to be able to allow yourself to step back from being the expert and clarify questions.
You can say, “Did that answer your question? Is there any other part of your question that you wanted to ask?” “What I think I’m hearing you say is,” that active listening is so important but again, your first question, “What are investors looking for?” I think it ranges. Most people, myself, yourself, all of us included, whether we’ve invested in an Apple stock or we’ve invested in real estate, we invest in what we know and what we feel comfortable. “This is now in my domain of knowledge. I feel I know enough to put my money here.” If people are going to invest in the familiar, that’s where a lot of gender bias things come in because women are not considered familiar as CEOs yet.
We take up only 6% of the C-Suite in across all industries. We are not familiar but if you get over that familiarity bias in the gender side and people go, “I’m familiar with your concepts. I’m familiar with your business. I feel comfortable,” that’s what you want. That’s why it’s important to tell those stories. It’s important to find their area of expertise and relate this new information back to it. They take a little baby steps into the new direction and then they get to assume them and own them and say, “Now, I have ownership of this new knowledge. It’s not new to me. I’m an expert. I feel comfortable. I will invest.”
I also do think that we have to realize at the end of the day, they’re investors. They’re not builders and this is a real distinction. Their mindset is very different. I had this heated debate with my dad about one of our shows because he feels that a lot of what’s going on is day trading. It’s like gambling to him and I said, “Dad, I think you’re not looking at it from the perspective of people who only make money on money.” Because he used to build oil refineries, multibillion-dollar job sites and things like that so it was really big business, but it was building something at the end of the day. It was not just trading in the currency or trading in the commodity. When you look at it from that standpoint, how you make money and what your mindset, is completely different from you as the startup builder because you’re building something.
In terms of not just how you make money but how you make meaning, what you make your life about. I used to be surrounded by high-quality art because I was always around artists and I made better art when I was making it more. I would even notice my arm would get tired after hour ten if I hadn’t been doing it a lot and then I’d be, “I’m out of practice,” and also the work isn’t as good but then you get it going. If you focus on something, you get high quality of that. If I focus on writing, I will get high-quality writing. If I focus on podcasts, I will have high-quality podcasts. If I focus on a business, I will have high-quality business. If I’m a person who’s trading currency, I will have a high-quality currency exchange operation. Investors want to have a high-quality investment.
As a builder, you have to position it. The thing that making is now their commodity. If you don’t understand that, they are going to make a high-quality decision about a high-quality investment and so you are a high-quality product, rather than they’re going to come build with you. Not necessarily, maybe if you have smart money early on that’s a very important thing to get because you do have a lot more overlap and aligned interest but most of the time you are a product. You have to be a high-quality product, they peddle in products, they are going to compare you, contrast you and invest if you’re the highest quality.
I also think that if you understand that mindset of making money on my money, it means that I have a different risk level than you do. This was a thing that my dad was saying and I was, “Dad, you don’t understand it. For a lot of these people, it’s less than 1% of what they’re willing to lose, not even what their livelihood, what they’ve earned or what their wealth is.” It’s not big for them. We were having this debate about all the people who invested in Theranos. I was like, “They didn’t care. That was not a lot of money to them.” They were expecting either a high return or failure. It’s a very different evaluation of it. It was like, “Do I want to be in this cool thing? Do I like this person? Do I think they can do it?”
There’s a different set of criteria in their mindset. It’s really important for us to take a look at that within our own businesses objectively. I do this and that’s part of the reason I’m headed out on a trip. I’m going to meet with a group that I’m going to get some advice about, “Is this investible? Is it worth it?” I know that I don’t need the money, but I could use the accelerated growth. The question is, “Is it attractive to someone?” I’m going to go to people that I know and trust to start to ask those questions. Did you do a lot of that advice-seeking in the beginning?
No, because I wasn’t seeing if it was investible to somebody else. As an entrepreneur myself, I have two speeds. I sit on my hands and I think and think and think. I don’t say a word. I don’t say, “I’m going to.” I don’t waste my time getting anyone’s feedback. I’m a little bit of a lone wolf that way. I think it through and people are like, “What are you thinking about?” I’m like, “Nothing,” and then when I have it formulated and I’ve gotten off on my own objections. I truly believe I’ve got a good idea, then I’m ready to make a move on it. I had a good idea of Rise Markets for sixteen years. I didn’t make a move on it until 2017. I sat there thinking it through and realizing it was a great idea and nobody else did it. I thought they would do it. I was totally happy to let it go. Then nobody did it, I started looking at the technology.
I found the technology and I figured out why nobody did it sixteen years ago. I talked to one mentor and I said, “I’ve been throwing this idea out to people for over a decade.” She’s like, “Monika, some ideas really belong to you.” I went for it and I didn’t ask a bunch of people’s opinions about it. I knew what it was in my head and I knew I was going to have to overcome the messaging part of it once I was committed to it. Before I was committed, I didn’t need a bunch of noise telling me should I do it or not. I needed to convince myself. Once I was convinced, then I was off to the races. From one speed it’s like, “Sit on your hands and do nothing but think it all through,” the other one is, “Run like hell at it and never stop until it happens.” Those are my two speeds.
I think you’re right. There is that about the business. I would never have done that in the early stage of our business that’s why we bootstrapped it and formed it ourselves but we’re profitable now. We’re in a different stage of it but my question and the reason I’m out seeking advice is, “What would make it worth an investor’s time?” Then question back to myself that I need the answer for is, “Am I willing to give that amount of my business up?” The real question is, “Is what I’m offering big enough for someone that it makes it worth their time, energy and their money?”
If you built it to a point where it’s worth that. I have different valuations and different valuation caps from an early round. When I found a val cap that I believed in that I thought wasn’t bull crap and that I could defend when I talk to investors, that was when those conversations got some traction. When they said, “Why do you value this?” This is why. “Why would you cap it at that?” This is why and this is what it means to your money when we have this timeline. We do have this accelerated growth that your money will bring in. You’re basically putting your money in to grow something and get a good 4X return in 90 days, in 120 days or a 10X return in a year. This is our roadmap and we’re going to start with this. The valuation was very important because then you could metricize the growth, metricize their piece of it and then they could say, “This is why it’s worth it to me.”
Did you screen those valuations in that cap with investors or did you just do it with the advisors?
Both, I did it with advisors, then I went to investors and tried to defend it until they said, “No and this is why,” or they said, “Yeah, I accept that.”
Making a decision for a right reason is a good place to be.CLICK TO TWEET
You did both.
I started with the advisors because I want it to have discreet conversations, where I could be wrong. Once I felt like I was right, I went to investors and I tested it.
The thing is we are not in their heads. We are builders at the end of the day and if we’re not in their heads, we’ve got to be able to ask those questions. We got to be able to get that feedback. This is a part that happens a lot when people are out there seeking investment. They’re not listening to the investors. They were like, “They didn’t get it. That guy’s a jerk.” Whatever the attitude about it when you need to listen because there are objections in there that either you didn’t properly address, then answer and maybe you have the answer. You didn’t express it in a way that they heard it and so that helps you reformulate your message, get a better story, get a better way of speaking about it, get a better chart if you need it, whatever that might be to communicate better. The opposite of that might be that there’s a flaw in my plan that I didn’t see. I need to sit back, rethink this part of my business and go in deep because if I fix this, now I’m truly investment-worthy.
Just finding out that, “I keep getting the same question, how is this different than a REIT?” I’m like, “I need a slide for that. You need to get ahead of it.” They don’t get to ask you a question in a way that makes you have to defend your theory because you don’t want to talk defensively ever. You always want to be talking about market capture, growth, awesomeness, and good stuff. When you have to defend, why not? How are you going to do this and how are you going to be better than that? It’s a bad place to start. If you can get in front of one of those defensive objections then the conversation becomes, “How are you going to expand?” You could end the pitch on a very positive note.
I think this is a good conversation for us to be having. There are going to be some questions about there and as we move both move forward in what we’re doing, the next question is what’s the next stage? How is that next stage different? Both of us don’t have experience beyond this first stage of seed Angel. I’ve never taken in anything but Angel investors. I’m not taking VC money.
It’s not even just the post-money part. I believe you have built a business beyond this level, beyond this profitability and revenue. I think that if you’re raising, you don’t have to raise. If you do, fine. If you don’t, fine. I think of it like this, “The next phase, no matter who puts money into my business or into yours, is bigger strategic partnerships. Taking what you’re doing at 1X, calling at 5X, going to 10X, going to 25X.” You can do that on your own and you should continue because the more you do and you leave the door open to maybe take investment, the right investors are going to say, “How can I work with you?” That’s the conversation you want to have. You don’t want to say, “Would you please work with me?” “No.” How about, “How can I work with you?” That’s where I wanted to start.
That’s a little bit what the impetus to actually why I decided that I would go through this process of exploring it was because I had so many people saying, “I want to hear more about the investment side of your business.” I was, “There is no investment side. I did it all myself.” Then I thought, “Why am I saying that? Why don’t I explore it because what would it bring to me?” That was what I looked at is, “What would it bring to this business? What would it bring to the growth of it? Is it worth exploring?” I came to the decision that it was a yes. That I had bootstrapped it and we’re profitable. I actually don’t have any monetary needs on that right now, but I cannot grow as fast as the market is growing. That’s the caveat right there. Making a decision for a right reason is a good place to be as well. You can say, “This is why I’m seeking it.” It’s valid and they can see that in the numbers. Anything else you want to leave our community with?
I’ve thought about the familiarity thing and I realized that there is an inherent advantage that people have when their personal networks have higher net worth. Have you heard that you’re the average of the five people you spend the most time with? Also, your income is usually the average of the five people you spend the most time with as well. The more often you can invest in your network, to expand that network, to the direction that you are going towards. It’s not just building your business and it’s not just pitching to investors. You have to become familiar to them and a warm introduction is always better than a cold one. Having the table manners to sit at the table. The metaphor is, “Did you use the right fork?” They’re watching you and they do use the right fork because they’ve known that fork since they were born with that fork or that silver spoon and to be able to move in those circles means that you have to be exposed to them.
I think that not only are we investing in our businesses as founders but if we’re going to grow and we’re going to be taking investor money, we have to invest in our networks beyond just networking. We actually have to go, “Can I make friends with these people? Does this jive with me? Can I fit in here and what do I need to do to fit in here?” If that’s needed to be able to get the money out of this community, to be able to push my business forward. If it doesn’t fit, if you’re like, “I can’t listen to the NRA. I’m not interested in people that are super into the NRA. It’s just not my thing. I know that I can’t actually make friends even though there’s money there.”
You’ve got to find the people that align with your personality, what you’re doing, your mission of your business enough and who you are but also, intrinsically make you grow towards a higher net worth group, a more investing group and also a group that may have some of your values that it may stretch you a bit. There’s nothing that’s asked me to grow as an individual more than becoming an entrepreneur because it’s is a path of personal development. Truly, you meet people that are not just like you and then next thing you turn around, you realize you’re not just like you either. You grow at a rapid pace if you’re going to grow a company at a rapid pace.
What I found is serving that community. If you are a great service and you can network in in-in a way that you are providing them something of value to that group. I’m not providing money. I may not be providing all the things that other people are bringing in, but I’ve got a lot of tools and I’ve got a lot of services. I’ve got a lot of mind share that I can bring to the table. When you bring that at a high level of service, of curiosity in service, that’s what I find, those two things, you find them attracted to you and inviting you and it’s easy. It’s easy to access new communities, grow with them and learn from them.
We should definitely talk about that one next time.
If you guys are working on startups, if you’re working on seed investing, if you’ve found some things, we’d love to hear about it. Please reach out to us at New Trust Economy anywhere on social media and NewTrustEconomy.com is the website. We’d love to hear from you.
I would love to hear more questions from all of our readers.
Thanks again for listening everyone. We really appreciate your time.
We’ll catch you next time. Thanks guys.