Entrepreneurs and early stage tech CEO's all need money and spend an awful lot of time seeking it. But so few actually get it. How come? Perhaps it’s because they haven’t taken the required creative deal-making steps in their own value chain. Just like bank financing, CEO’s have a better shot at attracting funding if they can tell investors, "We don't need your money." It may seem counter-intuitive, but when you really think about it, it's not that strange. Let me explain.
Investors only want to know a few key things:
1. That you are an entrepreneur and a good business person.
2. That you can influence / convince / recruit people over to your vision, despite the risks.
3. That your technology works as advertised.
What better way to do all 3 than convince a strategic partner or a big customer with a creative revenue or royalty sharing deal? By orchestrating and crafting a deal with a key player in your value chain, you immediately communicate that you are a serious player in the segment, and proved you are a real entrepreneur at the same time. Demonstrating business savvy with a win-win for both the David and Goliath is no small feat. Investors MUST take notice now - particularly any investors who are seriously playing in that segment!
An article about fashion eyeware e-commerce co. Warby Parker highlighted this phenomenon and said it best .... "The more we tell these guys we don't need their money, the more they want us", co-founder David Gilboa said, as reported in WSJ.com in 2011. http://online.wsj.com/article/SB10001424052702303654804576347170689688438.html
I’m not suggesting that you be arrogant and communicate this “We don’t need your money” phrase verbatim. The way you communicate it to investors is very important. For example, you have to show your financials and how they look after your creative deal with a partner. You could suggest that a new revenue (or profit) line, with $1M of funding, could look like this. But you are proving that you are able to make a small amount of money on your own accord.
I know that you might be thinking, “I can convince so-and-so it's a great play". Well stop thinking about convincing investors, and start thinking more about convincing customers. Why? Because Investor so-and-so only wants to hear about how you are doing with partners in your value chain!
In summary, the more energy you put into crafting and customizing that early strategic customer/ partner deal, that energy translates into real valuation. And guess what happens next, investors actually start pursuing you. Go figure.