Investors for Business Ideas
I've been working with entrepreneurs now for close to 25 years, and throughout that time one thing hasn't changed: Only 5 percent of all entrepreneurs get funded. Can it be that only 5 percent of the ideas generated are good enough to succeed? Why is it that this "magic" number never seems to change?
I believe there are three fundamental reasons contributing to this impasse. Finding ways to address these issues could significantly improve the flow of viable, creative ideas in this country and have a dramatic impact on our economy.
1. The system for evaluating entrepreneurs is arbitrary and inefficient. When you think about it, the methodology investors employ to find and qualify a potentially viable entrepreneur places almost all the responsibility on the entrepreneur. Once they have an idea, they must take the initiative to package it and promote it all to potentially interested parties. There're two problems with that system:
- It's the entrepreneur who decides what information gets presented, and
- Everyone who receives this information must process it from a cold start.
To illustrate how ridiculous that system is, it would be the equivalent of you going into a bank to ask for a loan and instead of filling out their application form, you just created your own. How would the banking system operate if everyone made up their own application? What entrepreneurs need is a scoring system similar to the one Venture Alliance uses to determine if you're really ready to get in front of professional investors. It'll also help you find quality resources if you're not. What the system won't do is help you bridge the gap between having a need for capital and actually being ready for it. That part is up to you.
2. Entrepreneurs don't understand the difference between having a need for capital and being to ask for it. In a system where the entrepreneur chooses the application, it's not surprising that their timing for when to submit that application is often out of sync with the very investors they're trying to impress. Why? Because entrepreneurs are motivated to seek capital based on need, not readiness. What do I mean by that? Here's the difference. When an entrepreneur is driven by a strong sense of need, the message they send to an investor is one or more of the following:
- I need you to bail me out of my bad management of the limited capital I had.
- I'm unwilling to invest any more of my money, so I need yours.
- I haven't been able to raise money from anyone else, so I need you to save me.