A Pocket Guide to How Investors Think

Understanding how investors think is an essential tool for every entrepreneur. Only when their thinking processes have been demystified can you attempt to negotiate with confidence.

This infographic, visualised from investor Paul Graham’s famous essay “The Hacker’s Guide to Investors” by Anna Vital from Funders and Founders, is your pocket guide to getting inside their heads.


Selling Investors the Problem and the Solution

The most important thing when writing a business plan or pitching to angels is selling the problem your solution solves. Nobody is going to buy a solution for a problem they don’t have, which obviously means you don’t have a viable business.

I recently saw an entrepreneur pitching for funding, and it had all the right ingredients – a slick pitch, a good PowerPoint presentation and a nice-looking website. All very impressive, except for one thing… Her business solved a problem that didn’t exist. By the end of the evening, I think even she had realised that she was onto a loser.

The pitches that get the investors most excited offer a solution to a problem they have or a problem someone they know has. An avid golfer, for example, will get very excited about a new golfing invention. Or, if an investor is listening to you thinking “My mate Bob was complaining about this last week, and I think this guy’s onto something”, you’ve got them hooked.

The best businesses evolve from an entrepreneur who finds a problem in their life or business and figures out a product or service that fixes this problem for others. However, before you spend your valuable time and money figuring out the solution, you need to find out whether:

1) Other people have the same problem you do;

2) Enough people have the problem to make a successful business.

After selling them the problem, you then need to give a quick and compelling description of the solution. Time is limited and you don’t want to bore the investors, so don’t get bogged down in the technology and technical details behind your solution. Try to keep it as simple and concise as possible and explain what your solution is and what makes it better than the competition. Is it faster, cheaper, more eco-friendly? If the investors want to know more about what makes it is faster and how you can make it cheaper, they’ll ask later.

Your pitch is meant to give an introduction or overview and a pitch – and a short one at that – to capture the attention of a potential investor. If you manage to sell them the problem and then convince them you have a valid solution, you should have them hooked.  Then you’ll have their attention for the rest of your pitch, and hopefully you’ll manage to get some business cards and line up some meetings.