Everyone is familiar with the Gartner Magic Quadrant, iconic branding for that global research firm and a tool seen somewhere in nearly every pitch deck. Your goal is always to prove your venture belongs in the upper right section and that you can swat away all your competitors in the other three boxes.
Allow me to opine on a particular emphasis on this for startups: putting yourself in the upper right quadrant for potential investors in your company when the only thing you and other supplicants have in common is a possible return on investors’ money.
If you have applied to pitch at any organized venture conference or competition, you well know that you are vying for time on the stage against other deals that are totally unrelated to your mission. You may be grouped with companies at similar stages or in roughly similar business sectors, but you’re unlikely to see any of your head-to-head competitors sharing the venue with you. Your software technology may be in the running against a chicken processing invention. And, it may happen that a poultry magnate is sitting in the audience and eager to write a check. You immediately drop in the “pecking order.” (Sorry but your author has to throw in a bad pun once in a while.)
I see an avalanche of deals every month, and many entrepreneurs seem oblivious to the fact that, for their funding quest to succeed, they’ve got to muscle their way into the zone where dollars will flow their way. Let’s talk about some specific suggestions:
Pick your venue. Do your homework on any competition or even any private meeting with an investor and only pitch where someone is likely to get what you do, has an investment thesis with which you conform, can add value to your company in addition to raw dollars, has a history of funding deals that look like yours, and is not loaded with opportunities that generally seem prettier than yours. That may be obvious, but it’s often a basic rule that is ignored.
Understand just how pretty you are relative to those applying to the same funding source. If you have a deal that is in a very narrow niche that is not easily explained and not very likely to match an existing interest of your prospective investor, you will not be as immediately attractive as somebody with a guaranteed FDA-approved cure for glioblastoma cancer. If you are a first-time entrepreneur with a limited history and not enough funding to create your MVP, you will get blown away by a team with several start-to-exit credentials and some pilot customers for their newest gig. That’s not to say your cause is hopeless; there’s money to go around at all stages and for all legitimate categories. And, valuations tend to level the field like golf handicaps. Your niche product might only take $500K to bring to fruition and be valued at $2M post-money, while the cancer cure may take $500M and be valued at $2B pre-revenue. Your job is to find the investors that like you, your concept, your stage, and the valuation you are seeking and who have the capital resources that enable you to get the job done. All investors have their limits and their criteria, and you just may be the dream deal for one of them.
Realize what things make you ugly, and deal with them. Obviously, any sloppiness in employee and customer agreements and all other legal and administrative matters can come back to bite you in a due diligence process. If your cap table hasn’t followed a logical value progression and is littered with inactive former employee shares or trades of equity for services, you will give rise to considerable doubt about your organizational skills. If your IP is not tightly defined and protected, you’ll lose more points. I could go on. The best way to fix all these is never to let them occur in the first place. A buttoned-up operation is a thing of beauty; a poorly administered start is a beast, even if the underlying product is a likely winner. If you got yourself in that jam, the best you can do after the fact is roll some heads, bring in some wisdom and experience, and laboriously tie up all the loose ends. No investor wants to spend time cleaning up a mess when he or she has an inbox full of streamlined and well-organized companies. Those companies will easily crowd you out of that highly preferred upper right quadrant.
Simplicity is your friend when you are marching up and to the right. Clear messaging about what you do and how you will grow that into a successful company earns the interest of investors. If they have to ask you to explain it again after they’ve heard your pitch once, you’ve not accomplished your mission. Complex organizational structures around multiple product lines can be particularly hard to clarify. It’s difficult enough to make a bet on one product and one strategy under one corporate umbrella, but I see many companies that become mini-conglomerates early on and beg the question of who owns what and where management is most highly motivated to succeed. Your full attention to what is generating returns for investors is expected. Your best product line may ultimately arise from following multiple pathways early on; it’s only natural to react to what your customers and your marketplace tell you. I’ve been through that cycle myself many times before the real winning strategy came into focus. But, the sooner you coalesce around one primary thrust the sooner you will merit your inclusion in the most desired quadrant.
Do the sales job to the best of your ability. You’re selling a 10X pot of gold at the end of your rainbow, and somebody has to want to buy that deal. You’ve got to present in a way that would be considered of upper right caliber. If you’re in a competition and have only an allotted 4 minutes, you are effectively creating a TV commercial that needs to tell a heart-warming and compelling story in a series of lovely images and almost no words. Your only objectives for those minutes are to knock some others to less desirable quadrants and to get for yourself some meetings with investors in your target zone. When you are doing a full-blown deck exposition and demo for an investment committee, that’s when you bring out all your most convincing details in an understandable way that erases doubts and wins over the decision makers. There’s your chance to stay in the preferred quadrant and not let some other deal move you aside. It’s not exactly a zero-sum game, but always treat it like one. You may believe you have a great plan and the ability to execute, but you are always competing for a positive outcome with other deals under consideration that you may or may not even know about. If you fail, all you’ll be told is something like “this deal is just not a good match for us,” or “it’s too early,” or “keep in touch.”
Remember my oft repeated line that it’s not who you know but who knows you. I chair a monthly meeting of startup and early stage angel and institutional investors. Of about 100 on the list, generally 30 or so will appear on any given month just to talk about deals in play. We compile and distribute a spreadsheet of those and try to foment some matchmaking and cooperation. No pitches are made. It’s purely for the collaboration of active investors, and deals often do get propelled by mentions in this venue. Nothing is more valuable for you as a seeker of funding than having one of these folks around the table put in a plug for your company and for you as being worth a look. You are getting a third-party endorsement to the right crowd from a known investor with an interest in your deal. That’s the kind of word-of-mouth you want. I am very often asked to help startups with investor leads. I don’t have visibility into what’s in the upper right quadrants of each investor in my group, but I can at least insert a deal into the discussion. I also from this monthly exercise have a really good idea of what deals and deal terms and entrepreneurs are attracting the funding. The flip side of that is that I often have a pretty good idea of what isn’t selling, and it’s hard to help an entrepreneur who is in the wrong quadrant and lacks a personal following.
One thing that is common to all those who seek funding and find it, eventually, is an abundance of perseverance. Nothing I’ve suggested above ultimately outweighs that trait. I see examples every day of entrepreneurs who have made a lot of mistakes and have never had the prettiest deal, but they have never given up, have creatively worked around every roadblock, and have eventually achieved a successful outcome. It might have been 10 pivots down the road, but it got done.