Have you ever bought a dog? Did you notice that good looking puppies cost more than ugly puppies? Weimaraner’s are gorgeous puppies (and then grow up into crazy, high-energy dogs). Labs are almost as cute as puppies (and then grow up into loving, slobbering, meat heads–and I love mine). You can easily spend several hundred dollars for a purebred if not over a thousand for a dog with champion bloodlines. Whereas to get a mutt from the pound, it is the cost to get it fixed plus $35.
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How does this relate to investing in startups? Ugly puppies don’t cost as much as buying a purebred. When you talk with an investor you need to have your “dog house” in order. The more prepared you are to deliver all due diligence material in a single organized repository, have articulated the vision of the company and how you are going to use the funds, and most importantly how have you endeared yourself to the investor. People only invest in people they like, and just like buying a dog, it is the one that meets your needs and you have a bond with that gets purchased.
The more prepared you are and the more you have formed a “bond” with the investor, the more generous they are going to be with terms. By showing up prepared and ready, you demonstrate to an investor that you are serious and are going to be an outstanding steward of their capital. When you have demonstrated that you have the traits to be best in breed and have a personal attachment with the investor, that is when you get to charge a significant premium.