As a VC and angel investor Collier is well-positioned to observe what can lead to failure to secure investment, as well as success. We asked her to share her experience and insights.
How does an entrepreneur grab your attention as an investor?
That’s a perfect question. It relates to where there’s a strategic alignment with something I’m already doing. Personally I’m interested in HealthTech and EdTech, yet people contact me about things like FinTech, and I know nothing about that.
But strategic alignment goes deeper than sector focus. Investors are usually looking for an opportunity and businesses that can reach scale, but they will often have already identified gaps in the market and are hoping that they can find a company that can fill it.
What’s the key to fitting with an investor’s portfolio?
I’d say it’s research – researching the market and the investors you want to approach. This means looking at their website and portfolio of companies and seeing if they’ve funded something similar or whether they have interest in that market or vertical.
However, you won’t necessarily know from my website, or any website, what an investor is thinking about strategically, but if you network and have conversations with people in the market then you will get an inkling.
How can you guard against failure to find the right investor?
There are many things people can’t control, like insular networks you are unable to access and also unconscious bias, but you can control your research and your evidence of alignment, your prototype, your business model and so on.
There is also a real misperception that investors fund ideas. Most investors want to see traction. Even if you don’t have sales yet, you can have purchase agreements, for example. Show that the market is willing to invest in you in the form of patronage. That’s the kind of groundwork you can do to best position yourself.
How about pitching failures?
Investors aren’t just looking at the individual and their pitch; they’re looking at financial statements, projections and the proposition. It’s not a cult of personality. Of course people are influenced by charisma and good pitching skills – but it’s not the whole picture.
Do you have any other tips for pitching?
Yes, two things. If you do decide to look at venture funding, you need to be very clear on your exit path and your exit multiple. Some people think it’s enough to show they’re growing fast and their idea is innovative but you need to demonstrate how the investor will make their return.
Second, the most important investor is your customer. I really wish more companies that are so emphatically focused on VCs would remember that. Your customer is the first and most important investor and your customer is what makes a sustainable company.
Can businesses fail because they grow too quickly?
Yes. I’ve seen companies grow so fast that they have to hire a lot, and too quickly, and they become unprofitable. Or they hire unwisely. There are many examples of companies growing too fast in the beginning; it’s like having much too much champagne – a good thing turns into not such a good thing!
Research shows that the majority of startups fail to get off the ground. Why is that, in your experience?
Starting a business can be hard. Some of this is down to the entrepreneurs themselves. Not everyone has the wherewithal or the confidence to endure a lack of stability. And part of it is down to the market. Not every idea has a market fit or demand.
Does fear of failure hold many entrepreneurs back?
Some people never launch a business because of the fear of failure. We have this stereotype that the CEOs running angel-backed companies are twenty-somethings – but most successful companies that scale are led by people who are middle-aged and older who have already tried and learned from it and tried again.
My favourite example is Abraham Lincoln, who experienced numerous failures before becoming president. It’s the perseverance that’s really valuable. Instead of worshipping entrepreneurs who succeed the first time, we have to realise for many people it’s a more iterative journey where we learn along the way. It’s about falling down seven times and getting up eight.