Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
So, how do investors decide to commit to a startup investment?
Entrepreneurs look at the opportunity in the deal. Investors look at the risk.
There are two factors that help the investor decide to invest or not.
The first is the worst-case scenario approach. They ask, “What is the worst that can happen?” Most oftentimes the answer is, “You’ll lose all your money.”
Sometimes the answer is, “You could be in the deal for the next 10 years with very little return.”
If the investor can live with the worst-case scenario, then they move forward.
The second is the reputation factor.
The investor will ask how this will impact their reputation. Many have a standing in the community and in their investor circle and they don’t want to be seen as “the fool”.
If the deal turns out to be a dud or even goes sideways, their reputation takes a ding.
The investor cares about reputation because it impacts how other investors treat them.
In presenting your deal to an investor, consider how the investor will view the deal and its impact on them.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
Let’s go startup something today.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.