Do Investors Back First-Time Entrepreneurs?

Most investors will look at investment opportunities and categorize the opportunities based on the track record of the entrepreneur. The top spot is reserved for the person who has raised money for a venture and provided investors with a documented handsome return. Next in line will be entrepreneurs who have either:

1. Raised money and provided modest returns that are well explained, or
2. Achieved some level of success in ventures that were self-funded.

The first-time entrepreneur will fall to the bottom of the pile.

Why? The answer is that investors work the numbers. They know what has worked in the past. The numbers say that first-timers don’t understand cash flow, that they don’t understand the need to seek advice and that they likely don’t have the right mix of toughness and flexibility to work through the challenges they will likely face.

There are, however, times when an investor will need to look past their ideal profile to put their dollars to work. There are also investors who have a different perspective. Some savvy investors recognize that the first-time entrepreneur is likely to have more grit and determination. These investors have to work harder to evaluate each opportunity, but the payoff can be worth the extra time to study and help develop the business. Attributes that these investors are seeking include vision, energy, determination and a refusal to take no for an answer.

Investors are looking for maximum return and minimal risk, but understand that every opportunity comes with trade-offs. Likewise, the typical entrepreneur is looking for full funding at a reasonable cost with little interference in how the business is run. This first-time entrepreneur also needs to recognize that trade-offs are required. Expect to start more slowly than you would like. Prove that the concept can generate cash flow to justify the next round of funding. And unless you can bootstrap the entire operation, recognize that investors will have to be paid and that experienced investors will insist on having more than a small amount of oversight.

If it gets you up and running, and doesn’t rob you too much equity, you can likely live with the trade-offs.