The 4 Traits Investors Look For In Founders

This week's tip: the 4 traits investors look for when investing into founders

I talk all the time about how investors invest into founders, not companies.

Hopefully you realise this fact, however here is why:

There are three constants to the future of your startup.

1. The future is unknown
2. Everything is up to chance
3. Fundamentally everything is decided by your decisions

Because of this, investors try to latch onto anything they can to find the conviction they need to invest.

And the only thing they can latch onto to is you.

So how do you actually show that you are the right founder to back?

What traits do investors actually look for when they are talking to you?

Here are the 4 traits investors look for:

1. You are authentic

Building a business over a decade-long period can be hard and stressful, with many peaks and troughs and more failures than successes. Investors understand this and know how challenging the journey will be. They also know that having the right mindset and drive is essential for success. That's why they look for founders who are authentic, deeply personal about their "why", and mission-driven.

Unfortunately, many founders fail to show their authenticity because they are afraid of being vulnerable.

You think that investors will dislike you if you put yourself into a vulnerable position. However, the opposite is true. Investors are looking for vulnerability and the emotional reasons for why you started your business. They want you to be authentic and driven to succeed in every way possible.

To help you find the deeper, personal reasons for why you are building your business, here is a quick exercise in four steps:

1. Set 15-20 minutes of time without any distractions
2. Ask yourself, “Why am I building this business?”
3. Once you have finished answering that, re-read that answer and then ask yourself again, “Why?”
4. Keep doing this with all of the previous answers you make

2. You are logical

Investors are busy people who are not going to be experts in your particular sector, industry, or company. As they review multiple investment opportunities, they are also quite scatter-brained. All they are looking for are founders who make their life simple.

So to succeed in fundraising, you must communicate your company's potential for success in simple, uncontroversial steps that are clear and concise.

Remember that investors are investing in your knowledge, not their own. They want to understand your own unique insights of your industry and why that means you will win.

Therefore, it's important to make the narrative of your opportunity simple. Ask yourself:

"If we solved our problem, how would the world look differently?"

Then focus on painting a clear picture of what that future world would look like.

Clarity always beats complexity. And when you simplify you can then invite the investors to ask questions on what they want to go deeper on.

3. You are empathetic

The biggest problem I see with founders is that they are not communicating with investors in a language the investors understand. Instead, founders tend to speak to investors either in their own language as a product-driven domain expert, or as if the investor were a customer.

Both of these approaches prevent you from building a deeper connection with the investor you are speaking to. You are essentially speaking in two different languages and not understanding each other.

So how do you communicate in an investor's language?

Show them the pain points of the customer, agitate that pain until the investor feels that it needs to be solved right now, and then demonstrate how you and your solution will be able to make the customer happy.

4. You are relevant

Many companies at my previous fund, Octopus Ventures, failed. However, these companies were not necessarily bad. In fact, they had fairly good ideas with clever founders. The problem for them was that the timing wasn't right. For example, the pet food delivery start-ups during the dotcom bubble were great ideas that unfortunately didn't have the infrastructure or online demand to succeed. They were great ideas, just maybe a decade too early.

The success of Tails ($x00m exit), Katkin, or Butternut Box more recently shows how important timing really is.

To show that you and your opportunity are perfectly timed to succeed, you need to demonstrate the trends and your own background. Investors want to find founders who are the exact right person on earth to solve the problem. They don't want to invest in the second-best founder, as that won't work.

So, what makes you the best founder in your industry?

Ask yourself these four questions:

1. What makes you a great founder?
2. What’s your unique insight?
3. Are you a domain expert?
4. Why will you succeed?

And make sure you can answer all of them with confidence.

Let me know what you think about these four traits.

Otherwise, see you next week.