How Your Experience Helps Entice Investors

You're an entrepreneur with an idea and a dream you'd like investors to back. One of the key factors investors look for in risky situations like these is experience, from you and your management team.

Experience that could help you win over investors comes in many forms. Here, in order of influence, is the type of experience investors look for:

• Previous successful IPO or sale: In an ideal world, your resume includes founding a previous startup. You then grew your startup rapidly and sold it for a good price, or took it public and reaped substantial profits for your investors. These are called "successful exits" in the investor world. This means the investors in your previous company made a high return on their original investments, optimally within three to five years. The sale or IPO allowed them to cash out the money they had tied up in your company and take their profits. In the high-stakes world of investing in startups, this is exactly what investors hope to achieve.
• Startups: Rapidly growing startups come with unique challenges, and investors like to see that you've already made your mistakes in this area at a previous company. In the best-case scenario, you've run a previous startup in the same field as your current business.
• Industry background: If you've spent years as a manager with a major tech firm, your tech startup will get a boost from that experience because it's in the same field.
• Small business: Investors like to see that you've previously run a small business and can show you created a profitable and successful venture, even if your past experience is in another industry.
• Idea cred: It's not as strong as hands-on business management experience, but if you've sold or licensed an invention or idea to a company and it became successful, or you launched a company based on your concept but then weren't involved day to day, it’s still a plus in investors’ eyes.

Don't have any of these types of experience? There's still hope. When entrepreneurs want to find funding but don't have a strong business track record themselves, they often bring on a partner who has the experience investors seek. Another common move is to replace yourself in the chief executive slot with someone who brings a powerful business resume. This technique is known as "professionalizing the management team." Often, several experienced industry hands will be brought in to fill key roles beyond the top slot, including chief financial officer, chief technology officer, or vice president. It takes some control out of your hands, but if you can’t get anywhere without investor funding, it’s a sacrifice you may have to make.

Yet another technique is to recruit a powerhouse executive board or advisory board replete with successful current or retired business leaders. Investors know these pros will offer the founders both a bounty of sage advice and fat rolodexes full of useful contacts who might help the business as it grows. With a strong team, investors feel more confident the founders will be able to grow their startup successfully.

Business reporter Carol Tice contributes to several national and regional business publications.