Capital is cheap. The US Senate announced $1.9 trillion of stimulus and governments across countries are going to announce their own version of Covid relief packages. We should buckle up for a period of inflation as the asset prices go over the moon… but i digress.
What does this money flooding in the market mean for entrepreneurs?
New investors, more money and hence more meetings with investors..
So, how really does an investor decide if an entrepreneur is investor-worthy? What are the tell-tale signs to be looked at?
First, the ability to explain what you are working on to a layman. If an entrepreneur can clearly communicate the problem and solution without the jargons that are prevalent in that industry, that is a huge win.
Second, the entrepreneurs know about the customers and their problem more than anyone else. Any communication with an entrepreneur should leave an investor knowing something about the industry that she did not know earlier.
This can also tell more about how frequent and intense is the problem? The other question would be the customer’s willingness to pay for it and this would give an idea about the size of the problem or the market size.
Then the conversation comes to the solution.
Michael Seibel, YC Partner says from his experience of interviewing at least one thousand startups that the younger or less experienced founders take product risk, i.e. they build a product not sure if users would want it, while more experienced founders usually come up with distribution risk i.e. we know there is a need in the market, but I don’t know whether i can fill it.
Having said that, there are successful examples in both kinds. AirBnB is a product risk company while Stripe is an execution risk company.
Essentially, any investor wants to have a peek into an entrepreneur’s psyche and understand at what point she decided to leave working on anything else than this problem. And if she finds the answer convincing, she invests on the entrepreneur.