Today let’s talk about handling investor objections.
An “Objection” is a concept from sales, and since fundraising is sales, objections are very relevant to raising capital from investors.
In fact, I believe it’s crucial for every founder to know how to handle objections because often they are what stand in between you and closing a given investor on your round.
If you have followed our 7 step process for closing investors, by the time you arrive at handling objections you’ll have already gone through the first three 4 steps of the process. As a reminder the 7 step process we teach for closing investors is as follows:
Step 1: Engage
Step 2: Build Rapport
Step 3: Qualify
Step 4: Enroll
Step 5: Handle Objections
Step 6: Test Close
Step 7: Close
I’ve written about step 1, 2, 3, and 4 elsewhere so I’ll just do a quick recap:
Step 1 is to engage the investor. Get their attention and get a good quality of attention, You do this by getting a solid intro, and bringing beautiful energy into your investor meeting. Step 2 is to spend a minute or so at the beginning of the meeting building rapport or connection. You do this by asking questions about mundane things like the weather or the investor’s family or using humor. Connection is important to establish early because it’s the foundation you are going to build on throughout the rest of the meeting. Get rapport and keep it. Once rapport has been established the next step (Step 3) is to qualify the investor. Qualifying is another series of questions that tell you crucial information about how this investor likes to invest, and how they make investment decisions. it’s important to qualify upfront so you don’t waste your time and also so that you know how to close this investor. Once qualifying is done you move into Step 4 – Enroll. In this stage, you are focused on transferring your excitement and certainty about your opportunity to the investor. In this phase, you want to keep things natural, take the lead and bring your mojo as you walk the investor through your slides, story and demo, and answers to questions.
As you do this you’ll get clarifying questions from the investor which will help the investor understand your company, your opportunity, your business model, etc.
However, at some point, you’ll start to get questions that are different. They are questions that “Object” to the case you’ve just made about how your startup is a good investment opportunity. They will be questions of the “Yeah, but” variety. When this happens it is a very good sign because it means that the investor understands your opportunity, and cares enough to try to poke some holes in it.
When you start to get these “Objection” questions you know that you have transitioned into Step 5 of the seven-step process and your job is now to handle objections until there aren’t any left.
With that context set, I want to give you the best objection handling formula I know of. This is a formula from a Tony Robbins sales program I took. I’ve used this model and it works great with investors.
Before I give you the model, however, I want to tell you what NOT to do. The worst thing you can do when you get an objection from an investor is to get defensive. I’ve seen this so many times in pitch competitions and been guilty of it many times myself. The investor says something like “I think this market is too small” and the founder says something “No it isn’t. You’re wrong because blah blah blah”. Now the thing is it doesn’t really matter if the investor is right or the founder is right because getting defensive like this in the face of objections is a sure-fire way to “kill the sale” and make it pretty certain that this investor won’t invest.
The reason is because people have egos, and when the founder gets defensive like this they have not pitted the investor’s ego against the investment. If the investor is right, from her perspective she shouldn’t invest. And by fighting the objection head-on, it actually strengthens the objection.
So let me give you a better way. This is a three step process to handle any investor objection:
First, align with the objection
Second, present some new information relevant to the objection, and
Third, ask a question
This is an incredibly powerful way to handle investor objections in a way that feels really nice for the founder and for the investor. Let me give you a couple examples:
Investor: “Thanks for showing me this presentation, however, I think your market is too small to make this interesting”
So as the founder when you hear this, in your mind you should say “Ah here’s an objection. The first thing I need to do is align with it” and so you can say something like:
Founder: “Yes. You are right to say that. I thought the exact same thing when I started this company.”
This maintains connection and as opposed to strengthening the objection, tends to weaken it somewhat. And it gives you an opening. Once you have aligned with the objection the next thing to do is to present some new information relevant to the objection so you might say something like:
Founder: “In fact, I spent a lot of time looking at the macro markets and the micro markets”
By saying something like this you are widening your opening by presenting new information.
And now that you have aligned and presented, you can move to step 3 and ask a question. So you might say:
Founder: “And do you know what I found?”
To which the investor will say something like “No what?”
To which you can now handle the objection by saying something like “I found out that while this market is small today, it is growing at 30% year over year, and within 10 years will be $100Bn. So if we build something meaningful in this space today, we’ll be able to reap huge rewards in a few years”
Handling objections like this is verbal juijitsu. Instead of fighting them head on, you use their weight against them.
Remember this is a three step process: Align, Present, Ask
It’s really eye opening to practice this. In Fundraising Mastery one of my favorite sessions is when I role-play this process with our founders, and I recommend all founders practice it with somebody until you get really good at handling all the objections you might get about your company.
So let’s do another example:
Investor: “I don’t think you have the scientific skills you need on your team to bring this product to market”
Founder: “You are right” (Align)
“And I realized this early on. So I went out and found three of the world’s top authorities on reverse osmosis and got them to agree to advise me and my co-founders. We’ve been working with them for 6 months. In fact, learning so much about reverse osmosis is changing the way I see our company” (Present)
“Do you know how many reverse osmosis technologies there are out there currently being used in industry” (Ask)
In this example, you as the founder give yourself an opportunity to teach the investor and show expertise.
Etc. etc. etc.
For every objection, there is a way you can handle it deftly with the Align, Present, Ask framework that will have you coming out of the objection connected to the investor.
You’ll know you’ve deftly handled the objection when the investor smiles and gives you a new objection.
At that point, you just rinse and repeat. As objections keep bubbling up, keep handling them using this framework.
You might get just one objection or you might get 20. As you do more and more investor meetings you’ll get a better idea of the objections that are most important for you to handle. And if you do your homework after every meeting you’ll build an arsenal of scripts to handle each objection that you hear from investors.
And what happens when there are no more objections?
Well at that point you are ready to move on to the next phase in the process: Test Close. I’ll go over this in my next blog post.
Happy Objection Handling!