Are Investors Hedging, Or Is Your Baby Ugly?

Q: About a year ago a colleague and I started putting together a business plan for a new kind of social-media tool. We still haven't closed any investment (though we've gotten close). The economic crisis didn't help, obviously. The puzzle is that every time we show an investor our concept and our prototype, they absolutely love it. How can we get the investors to get over their fear and pull the trigger?
- Moneyhungry

ugly baby

Dear Moneyhungry,

I don't know enough about your situation to make any pronouncements, but let me share a story that may help. When I co-founded a company years ago, I had exactly the problem you're having. We'd developed a business plan that displayed unprecedented brilliance, or so we thought. Hell, it even looked good—colorful, well-designed, full of graphics. We felt sure that a million-dollar investment would drop in our laps any minute. But then we found ourselves in Entrepreneurial Groundhog Day. Every pitch meeting was the same: We'd present our idea, and the investors would ooh and aah about the concept. They'd express interest and promise to get back with us.

They never did.

And we'd wring our hands about it—They seemed so excited! What happened? Finally, one of our advisors gave us some advice that was difficult to hear: He said "No one is going to tell you that your baby is ugly. Why would they? Even if they hate your concept, they'd rather hedge their bets—because if you turn out to be Michael Dell, then they don't want to be the people who told you that you had an ugly baby." Bottom line: Don't trust nice talk in a meeting. The only authentic sign of approval you can get from an investor is an investment.

Needless to say, this wasn't what we wanted to hear. But it made us think. Instead of fretting about why the investors weren't calling, we started trying to empathize with them. What was it about our plan that spooked them? We started asking people to level with us about what was wrong. And once we got the answers, we were able to adapt. (We did attract investment eventually, once we'd prettied up the baby, but I'm sad to report, though, that we never became Michael Dell.)

So now let me ask you the hard question: You implied that the investors aren't buying because they're fearful, but is it possible they're clear-eyed? Is it possible you've got an ugly baby?

I don't know. Worse, though, you don't know. And you can't adapt until you know the truth. So I think the first thing you need to do is: Find out why investors aren't buying. The *real* answer. Beg, plead, cajole—do whatever you need to do to get some straight answers. Maybe investors think that your business model is flawed, or that your technology isn't distinct enough, or that there's not enough experience on your team. (By the way, if you're not already reading Guy Kawasaki's blog, start today. He's the ultimate coach for high-tech entrepreneurs.)

Maybe the problem will be fixable and maybe it won't. But either way, you'll get out of Groundhog Day.

Ask Dan is a weekly column. Read last week's entry: Can You Make Complex Things Simple?

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