Shattering the Illusion: Understanding Investors in the Real World
As an aspiring entrepreneur in the early stages of my career, I held investors and high-level decision-makers in awe. They seemed like vaulted individuals, almost like royalty, wielding power that could significantly impact the lives of many, including my own.
But as I gained more experience and knowledge, I realized that my perception was flawed. Investors, executives, and other key players weren't all-knowing and invincible as I once believed. They were still navigating the complexities of the business world, just like the rest of us.
In this article, we'll delve into the realities of investors, debunking myths and shedding light on their motivations and priorities.
The Power of Investors
The influence investors possess cannot be underestimated. Their decisions can lead to massive layoffs and alter the course of entire companies. However, it's important to recognize that their power stems not just from their wealth, but also from their ability to shape events that impact livelihoods. Growing up, I witnessed my father, an employee, being beholden to this power dynamic, which instilled in me a deep understanding of the value of money and the importance of cash flow management.
Demystifying the Investor Persona
Contrary to popular belief, investors, particularly venture capitalists (VCs), do not solely rely on their funds to sustain their lifestyles. The 2% management fees on assets under management (AUM) may amount to $200,000, but this is insufficient to fund a comfortable lifestyle. Moreover, as the fund grows, the costs associated with investor relationships, deal flow management, portfolio management, and marketing increase substantially. This realization underscores the fact that investors are not untouchable figures; they are grappling with financial obligations like everyone else.
Investors and Short-Term ROI
When engaging with investors, it's crucial to cut through the noise and focus on what truly matters to them: generating returns on their investments. While there are exceptional cases, such as companies in cutting-edge fields like AI, most investors are seeking short-term return on investment within a 2-5 year timeframe. The pressure to deliver results arises from the need to repay their own investors and fulfill their financial obligations. Consequently, entrepreneurs must demonstrate how their business plans will generate profits and increase the net worth of both themselves and their investors.
The Pursuit of Financial Independence
Beyond the glamorous façade, investors, founders, bankers, and other players in the business world are all striving for the same objective: attaining financial independence. The ability to live without having to work for a living is a shared aspiration, driving individuals to pursue ventures that offer substantial returns. Rather than getting caught up in the awe of certain individuals, it is essential to recognize that everyone is working towards a similar goal and that success hinges on generating wealth.
The Importance of Focusing on Net Worth
In times of economic downturn, it becomes crucial for entrepreneurs to align their goals with those of their investors. Presenting a clear plan that outlines how the business will increase the net worth of both parties is paramount. It is no longer sufficient to merely discuss ideas or lofty visions; entrepreneurs must demonstrate how they will make more money with the investor's capital. By emphasizing tangible financial outcomes and focusing on the dollars and cents, entrepreneurs can align themselves with investors' objectives and increase their chances of success.
Investors are People too
Investors, once perceived as vaulted and all-knowing figures, are in reality, individuals navigating the same intricacies of the business world as everyone else. Understanding their motivations and priorities is vital for entrepreneurs seeking investment. By aligning their goals with those of investors and demonstrating a clear path to profitability, entrepreneurs can increase their chances of securing funding and forging successful partnerships. Remember, the world of investments revolves around generating wealth and increasing net worth, and by focusing on these core principles, entrepreneurs can navigate the investor landscape with confidence and purpose.