Startup Advice: How Entrepeneurs Gain Credibility

While talking with young founders in Europe and the US over the last couple months, I have been asked the same question repeatedly -- how can an entrepreneur just starting out gain the necessary credibility to attract capital? It is an important question because, at its heart, a startup investment is an investment in the entrepreneur. And the earlier stage the investment, the more so this is true.

We all know the allure of the elusive "serial entrepreneur" -- the rare breed who has done it before (successfully) and will not fall victim to the same business pitfalls (he'll have to discover new ones). I have backed serial entrepreneurs before and will continue to back them. They have valuable startup knowledge to bring to bear on the company building process that we in the venture business clearly covet. But I have also backed first time entrepreneurs, sometimes just out of school. I did not back their extensive startup knowledge. I did not back their record of success. In many cases, I did not even back their domain expertise. In fact, some of the very best entrepreneurs with whom I have worked lacked any of the standard indicia of success that a venture investor might look for in a successful founder.

So how does an entrepreneur with little or no track record gain credibility? In my experience, they gain credibility in two ways -- they borrow it and they demonstrate it. Borrowed credibility runs on the same principle as guilt by association. If entrepreneurs surround themselves with people who have credibility, they gain credibility themselves. In the business world, reputations are paramount. As a result, when well-respected individuals vouch for an up-and-comer, it is meaningful. There are lots of ways someone can vouch for you as an entrepreneur. They can provide services to your company (awesome lawyers, accountants, recruiters, etc. are in great demand -- if they work with your company it means they were willing to bet on your success). They can lend their name to the company as an official advisor (ideally you will be able to clearly explain how they are working with your company other than merely lending you their name). They can invest in the company (if industry experts or startup/product/marketing gurus invest in your company, it is a huge vote of confidence in what you are doing). They can go on your board (business leaders have no more valuable resource than their time, so if they go on your board it is a huge recommendation of you and your company).

When it comes to borrowed credibility, there is perhaps no more important act than the initial introduction you are given to an investor. If you have no track record and you cold call an investor, you have huge reputational obstacles to overcome. This is particularly true because many investors will assume that you were either unable to find someone to make the introduction or too naive to realize the importance of an introduction. Either way, your likely success as an entrepreneur will be sharply discounted. On the other hand, if you are introduced to an investor by someone he or she trusts and respects, you are well on your way to a trusted relationship yourself.

The other way first time entrepreneurs gain credibility is to earn it. I don't mean this in some sort of hazing way. There isn't a clear path to earning credibility. You don't produce a particular amount of diligence. You don't deliver a particular number of industry reports. You don't call or email to followup a particular number of times. What you need to do is be really smart and well informed about the business you are pursuing.

The best way to earn credibility with investors is to have good answers to the questions you are asked. At August we want to invest in people who know more about their business than we do. We want to be excited about what you're doing and get more excited as you thoughtfully answer questions about your business. That doesn't mean that you need to have all the answers. You don't. You just need to be thoughtful when you don't and explain 1) how you intend to get the answer, 2) what you predict the answer to be, based upon what you do know, and 3) how you expect to gain the answer over time. Domain experts are best positioned to answer questions about a domain specific business. But being a domain expert does not require direct experience in a particular business. It may be sufficient to borrow the knowledge of those who have worked in the industry. In fact, oftentimes the most interesting ideas come from people who are not mired in traditional ways of thinking about an industry but know everything there is to know about how things are done today.

Credibility also comes from doing what you say you are going to do. Sometimes that means following up on a question from a meeting (If you say you'll get back to an investor with an answer and you do so promptly, you'll gain credibility; if you don't, you are done). Sometimes that means hitting numbers you say you will, or closing on a customer you expect you will. I once gave a term sheet to an entrepreneur because he delivered on a number of assertions he'd made about his business at a meeting three months earlier. There's nothing better than an entrepreneur who delivers the goods.

If one of these techniques for garnering credibility is good, all of them together are great. Get introduced to an investor by someone he or she trusts. Build an advisory board and board of directors of industry experts and admired professionals. Do your homework -- know everything there is to know about the market you are pursuing. Welcome questions about your business -- answer them well when you know the answer and admit when you don't. And always do what you say you are going to do -- whether that is delivering promised followup materials or hitting your numbers. In combination, these techniques can give any entrepreneur, no matter how young and/or inexperienced, the credibility necessary to attract great investors.

Comments

[best replica watches]

All the blessings we enjoy are the fruits of labor, toil, and self-denial, and study.

[Ken Griffey Jr Shoes]

You dream of success is the flower red roses, frustration is that throughout the surrounding acupuncture. Happiness is the fruit of your hard work get, sad it is that mature before the blighted grain.

[Vincent]

I hope to pitch to potential investors in the very near future. Hopefully your advice will come in handy, it makes sense to me anyway.

Thank you

[die steel]

I like this kind mutual communication very much. I can learn much from that. The opinion that everyone gives also can be as useful information.

[Air Max Shoes]

Thank !I really love to read this post .

[Air Jordan]

Early to bed and early to rise , makes a man healthy , wealthy and wise.

[Onitsuka Tiger]

If you would know the value of money , go and try to borrow some.
http://www.onitsukatiger-australia.com/

[cialis bestellen]

Nice content..I like the statement Borrowed credibility runs on the same principle as guilt by association... Entrepreneurs have many ways to gain their credibility..

[mercurialvaporstore]

be sure that this will help me many thanks

[Cialis bestellen]

Well,it’s not so different for all employees, managers, whatever. Once you achieve reasonably solid credibility, everything gets easier...The skills of a great leader or multi faceted and include the skills of a doer' and they also include the skills of a socializer',a empathizer' and a detailer'...

[Marc by Marc Jacobs Handbag]

The main face of the cards is young and trendy women. As long as you like the bag, as long as you worship trends.

[Air Max]

The nomination of the winner depends on the capability and spirit of the personality to finish the race.I like the post very much as it contain informative in knowledge.I like pics of Chelsea shares of the beauty of running in Madison, Wisconsin.I want to congratulate the winner for the nomination race.I want to know suggestion from others.

[http://www.airjordanshoponline.com/]

I want to congratulate the winner for the nomination race.I want to know suggestion from others.

[http://www.airjordanshoponline.com/]

Hey! I just would like to give a huge thumbs up for the great info you have here on this post. I can be coming back to your blog for extra soon.

[http://www.airjordanshoponline.com/]

o matter how many times I read it, it never gets old.

[Ekmack]

Excellent article, very informative.

[Christian Louboutin]

Sorry,i don't know how to receive my response, why?

http://www.christianlouboutinshoes-store.com/

[2012 Griffey Shoes]

Life like a book, the details should be more exciting and less boring words; Life is like a song,

[Air Max 2011]

I like this blog, Ellen sat before her tall secretary each morning,Add me a feedback reader.Keep it up.

[air max shoes]

Wise man have their mouths in their hearts, fools have their hearts in their mouths.

[air max shoes]

Wise man have their mouths in their hearts, fools have their hearts in their mouths.

[Jose Cuellar]

I am considering an entrepreneurial venture. As someone that realizes that there needs to be ample start up capital invested, I appreciated the article. My biggest problem is KNOWING that I have a profitable idea, but am reluctant to include strangers in the concept for fear of it getting stolen. I have been told a confidentiality contract lends a hand to resolving this, but when you are soliciting people to invest in you...why should they sign such an agreement? Especially if they don't even know if they will invest in your project in the first place. What are your thoughts.

[nfl jerseys]

It is very good ,what do you think !

[Warfscariafus]

kJm chicago bears jerseys oEw http://www.bloggen.be/cheapuggboots4598/archief.php?ID=1516056

[PreepleLemo]

smjbk chicago bears jerseys xcvty http://uggsale48788.podbean.com/2011/12/17/dallas-cowboys-jerseys/

[aXiommign]

wJdjYswDs cheap ugg boots for women jJzzDmzQv http://www.redlight.co.nz/members/home

[aXiommign]

cRyvBdaOz ugg boots clearance wEopBasZu http://culturadigital.br/uggclearancesale179/2011/12/20/ugg-boot-on-sale-free-shipping/

[aXiommign]

iNzqUxwJz ugg boots cheap sale pHueKcvMk http://oauteck2011.com/index.php/blogs/225/4/uggs-discounted-96vj

[HexCopeHaup]

nPp ghd straightener kXt http://nso.in.ua/user/poysjmperumimd/ jCk ghd straighteners nz kYb http://gimnasic.ru/user/fqyhptoclh/ dNt replica watches nWp http://sale-agro.ru/user/qympljozq/

[north face outlet]

Excellent news , I really like this write! I enjoy it so much! I hope you give me more interesting topics to read on. Thanks for give me a good reading moment! http://www.nfdiscount.com