Investors consider many factors when evaluating a startup.
However, what makes them ‘sign on the dotted line’ falls into one of three categories: they believe in you (ethos), they believe in the idea/concept (pathos) or they believe in the process (logos). As an investor falling in the third category, let me share some tips and tricks to appealing to someone driven by logos.
Hook by emotion
Irrespective of investor type, all investors need to be first hooked by a concept, an idea bigger than you or them. It needs to go beyond just identifying a problem. Like many, if a startup pitches me a problem that I connect with, and a great solution, there’s still the hurdle of inertia – why should I make the effort to invest now?
Focus on the bigger picture
If there is no immediate benefit, sales impulses may not assist with gaining traction. Overcome this inertia by focussing on the bigger picture – the what-ifs:
- What if every person with problem X had solution Y?
- What are the benefits to them all?
- How would this change their lives?
Now your investor is hooked. But before they commit, they scrutinise your processes and ask you how you’re going to implement your solution. Not just the high-level plan. What are the nuts and bolts of your solution? This is where you follow up with process.
Close with process
When I was starting out, I pitched my concept — the problem and solution — to potential investors. I hooked them. Then the process questions followed: “How do you manage your risk?” My initial response was “which risk?” Investment, operational, trading/execution, post-trade, reputational, business, cyber, market, liquidity, credit, counter-party, currency, regulatory/legal, derivative…? The list is long; you get the picture.
Are your processes sound?
An investor in the first two categories above (ethos and pathos) might be asking “what’s the risk that I lose my money if I invest in your business?”. An investor driven by logos is different. They want to know that your processes are sound. If they are, they won’t mind losing money if your solution doesn’t succeed. But to convince them, you need to have to have market leading processes. The following needs to be well documented (consider storing them in your data room) and at the front of your mind when meeting with a logos investor:
- Business work streams: governance, key business offering, operations/systems, marketing, sales, etc.
- Strategy: set out in a strategic plan document or schematic (4 to 6 key concepts, how they fit
into your solution and why they are necessary).
- Operation: Your strategy should be ‘given life’ through an operational plan setting out how
each of your key strategies will be achieved. Think of this as an ‘implementation plan’.
- Action plan: Isn’t this an implementation plan? No. Each outcome stated in your implementation plan may require a number of steps to achieve them (a procedure). Your action plan will include the immediate and near-future steps for each implementation item.
- Risk management: Every business has risks. Do not ‘sell’ or be ‘high-level’ on the risks as there can be severe consequences. Consider using risk registers and matrices.
- Evaluation: have in place time or event-based prompts for evaluating business progress and set how who, and how these evaluations will take place and what consequence will follow if a review results in an unfavourable outcome.
This is a start for developing sound processes. If you’re not a ‘process’ person, build a team around you — draw on contacts who are, or consider outsourcing. When a logos investor sees your sound processes, they’ll be more likely to sign on the dotted line.
Being process-driven is an important part of bring your ideas into reality and scaling them to a commercial size. Entrepreneurial founders are creative problem-solvers but we see them all too often fail to succeed because they don’t record their processes. If you are a founder looking for advice on how to structure your processes, get in touch with us at email@example.com.