Raising money, not telling fantasy stories.

Tell a Story

Venture capitalists are always trying to find the best in their next industry, which they call "dragons" and "unicorns". Entrepreneurs also need to show enough potential in the start-up phase of the project to convince investors that they are the next "dragon" or "unicorn". The doorway includes both the ability to tell stories, and the down-to-earth thinking and data.

Recently, the cloud-hunting network compiled a TC called "Unicorn and Dragon", and analyzed different investment theories in VC. One investor has stated that it is a good metaphor for a "unicorn" to describe a good investment, but the "dragon" is better.

I reviewed the good words investors used to describe good investment opportunities and found an interesting thing: there is no doubt that in the financial world, both men and women, when they want to describe good investment opportunities, they invariably apply the words in the fantasy literature.

To be extreme, venture capital not only believes in the existence of "unscientific" things in the world, they even think that good investment and boring investment are all things that exist in two worlds, each with its own rules and laws. The "Unicorn and the Dragon" article dawned on me: I suddenly realized that investors wanted you to prove to them your uniqueness and the value of your investment.

But many entrepreneurs in the realization of this point will easily fall into the misunderstanding, that to attract investment, spelling is who told the story more gorgeous. But that is not the case. VCs have long been trained in the essence of the eye, in those grandiose stories to capture the core of the entrepreneurial imagination and our market driven by the reality of the key evidence. But when investors perceive that the story of the entrepreneur is reliable enough and dare to defy all standards, he is no longer a realistic critic; he will concentrate on the stories of the founders with gusto, as if they were addicted to the children of Tolkien's magical tales.

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When I listen to entrepreneurs selling themselves, what disappoints me most is not their stories, but the fact that they fail to give me a specific scientific data point so that I can take their stories to the ground (hopefully at least in my ideal world). Entrepreneurs should understand that investment is based on a certain basis. It is only when entrepreneurs and investors reach a common agreement that the company's dream of a legendary story is something that both sides are worth believing in before they can talk about investment.

Now that you're talking about the genre of fantasy literature, let me emphasize the areas that investors focus on.

Are the people on this team called Heroes?

Venture capitalists Tim Draper his commercial incubators and entrepreneurial camps as "Hero City", a hero metropolis. When investors analyze a team, the first thing they want to know is whether the team is united, honest, focused, farsighted, and disciplined. Every time we hear an original story, we pursue a story that is reliable enough to link the founders to the actual opportunities in the marketplace, and to get them to prevail in the competition when they build the company.

When we look at the slides of a team, we want the entrepreneur to show all the talent and technology that the company needs to develop, and let us see a "spadger, spite" entrepreneurial team. When the team talks about how these founders are converging, we want to see a strong bond between them, brotherly loyalty and affection, shared goals, and the ability to share their joys and sorrows. We are looking for a team of tough spirit will, everyone in the group can be in the unknown environment independently create great value. When we listen to the history of a company, we want to see the flexibility and ingenuity of the team that can accomplish great products with little resources.

When we learn how a company is investing money, we want to hear that they are in a deep understanding of market demand, customer habits and development model, the capital of strict and principled control and management.

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Is this innovation based on undisclosed facts?

As investors, we always prefer companies that have unique insights into the market. As Peter Thiel emphasizes, it would be better if the company's insights into the market were unique and unpopular. Because of this, the company can keep enough time to nurture and develop itself before others realize it's a good idea and start competing.

A special life experience, field of study or major, these will lay a solid foundation for you. I am seeking to understand the customer and their habits and needs of the ability, I will become a "market empathy." I believe that the depth of empathy, or empathy, is the source of unique market insights. If we think that our insights into opportunities are deeper or better than other investors, then we will be more inclined to a company because we can more effectively sponsor the company or get better valuations.

Is this company a magic bean?

Magic Beans from the fairy tale "Jack and Magic Beans", the magic of the Beanstalk in a night long to hate days high. Some companies grow faster than others, even if their products are positioned in a similar way, and their speed is a few blocks away. (Mike Maples vividly describes this as "the Lightning Lizard") investors will find out how such companies enter the market, obstruct market barriers and attract customers.

Some companies are quite flexible in planning their marketing strategies and are therefore more efficient at attracting customers. Some teams have a well-designed marketing approach, but most of them are occasionally found to be inspired. What's more, even after a breakthrough to find answers, you don't know what you've done. Investors are generally the "magic Beans" team bole, because they have seen many teams have done similar things.

One day, a little-known team suddenly broke into your field of vision, then grew up madly, and left the rest of the team far behind. The tricky thing about the "Magic Beans" team is that they're too prominent to grow too fast, so everyone can easily see them. So as an investor, you have to do it quickly, before anyone else finds out. Of course, you also have to bear the risk and the wrong estimate, or your hopeful "magic beans" for some reason eventually failed to grow. When an investor has a magic bean, they usually throw in the money and don't let anyone beat the bullet.

Will the company make money?

The best investment machines are always so beautiful that they don't seem fair to the industry. This opportunity is like a pie in the sky for investors--it is as magical as magic to create a staggering wealth. All profit models, pricing strategies and profits have never been equal (Bill Gurley has discussed this topic). In Silicon Valley, investing in the Internet industry often means that you have to add the stakes to the "magic beans" when the profit model is not yet clear.

But occasionally there are a few companies that have found a crazy profit model when we find them. I call this alchemy. "Alchemy" is great for investors because they can sponsor their own development, or valuations rise to a high level, and as early investors you have a relatively small chance of dilution.

Can the company dominate this category or market in the future?

Companies that compete in emerging and volatile markets often have a different share of the market. The market leader usually takes up a share of 40-70%, followed by half of the second, while the third is half the second, and so on, until a series of providers meet the needs of the customers in the market. So when it comes to investing, one of the critical points of the market research is to predict whether there will be a mob of people making a start to grab the market's resources and instead become the market leader.

Can the company foresee its own fate?

There are a lot of companies and the market changes they represent that are unavoidable in the eyes of others. Investors need to do more than just tap the "king" of a particular product, and they have to predict whether the company is large enough to have a high enough value to take on a staggering share of a large market. Sequoia's partner likened such an entrepreneur to a surfer, whose fate is destined to be pushed to the top of the wave at this moment, because of the right place and the heights that others cannot reach.

It takes a long time for investors to think, to assume, to predict, to speculate, and sometimes even to investigate the future market. They all have a sharp intuition, can smell the door of fate, and can see how the fate of the future can lead. Entrepreneurship, products, and the development of the company are unpredictable, but their future and what investors foresee is usually not too bad.

Can this investment become a unicorn?

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Cowboy Ventures CEO, Aileen Lee is famous for his definition of "unicorn". She defined the company as a "unicorn" with 0.07% of its venture capital-backed companies valued at $1 billion. The economy and impetus of venture investment are not to be neglected. Most of the rewards for VCs depend on the few companies that have been extremely high-performance in the market to dominate, exclusive market opportunities. Yes, you are right: Most companies are not up to "high performance".

So investors want to make sure that every good company has a decent market opportunity to make the company a 1 billion dollar valuation. This "good performance" company is too rare, and venture capitalists are always obsessed with finding them. So, "unicorn" so that only the myth of the animals, used to describe these companies, seems to be more suitable.

Will this investment become a "dragon"?

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The founder of New Atlantic Ventures, Jhon Backus, in the Unicorn and the dragon, defined the dragon as an investment that could return money to a limited partner. He pointed out that every investor today wants to make a "unicorn" type of investment, and they naturally hope that the higher the value the better. But if investors are overly stubborn in valuations and invest small sums of money in high valuations, they ignore the original meaning of investing in the industry: creating higher-than-market returns for a limited number of partners.

Even if the investment companies succeed, VCs will only look at the rewards of the success of the investment projects themselves, such as the total share of their shares, or whether the companies they invest in have a significant increase in valuations. (The success of an investment project is usually measured by the internal rate of return method MoC, listbox of invested capital, and the income multiples of the investment funds).

Companies in their marketing to investors, always racking their brains to establish a powerful image. But if you're not a real legend, you can't pretend to be a force in front of investors. You have to make your company a real story, a legendary story that investors will believe in.

Ironically, however, founders always forget to build and implement the evidence that they are legendary, and then put the evidence in front of investors and stress them out. They always do not quantify and prove their extraordinary place and product and market pertinence. Raising money is not a simple thing to tell a fantasy story. You have to gather good evidence and prove to investors that your company is a legend, just as you believe it.