How to convince investors

Read piece from Paul Graham and found it really useful. Doing this summary for my own learning and record. Since my last one I did seem quite popular on Tech in Asia, I feel motivated to do it again. Please enjoy 🙂

Formidable: The most important ingredient is formidable founders. Most investors decide in the first few minutes whether you seem like a winner or a loser, and once their opinion is set it’s hard to change.

Truth: The way to seem most formidable as an inexperienced founder is to stick to the truth. How formidable you seem isn’t a constant. It varies depending on what you’re saying.

Market: Founders think of startups as ideas, but investors think of them as markets. If there are x number of customers who’d pay an average of $y per year for what you’re making, then the total addressable market, or TAM, of your company is $xy. Investors don’t expect you to collect all that money, but it’s an upper bound on how big you can get.

Rejection: Experienced investors are well aware that the best ideas are also the scariest. They all know about the VCs who rejected Google. If instead of seeming evasive and ashamed about having been turned down (and thereby implicitly agreeing with the verdict) you talk candidly about what scared investors about you, you’ll seem more confident, which they like, and you’ll probably also do a better job of presenting that aspect of your startup.

Different: You can convince yourself, then convince them. And when you convince them, use the same matter-of-fact language you used to convince yourself. You wouldn’t use vague, grandiose marketing-speak among yourselves. Don’t use it with investors either. It not only doesn’t work on them, but seems a mark of incompetence.

Recipe for impressing investors:

• Make something worth investing in.
• Understand why it’s worth investing in.
• Explain that clearly to investors.