Dave McClure’s recent post on investing before product/market fit inspired me to address a few observations I’ve made as an entrepreneur when pitching to investors (angels and VCs), crafting my product proposal, and explaining the vision of my current startup.
Risk and Rejection
As a first time entrepreneur I understand that I’m seen as a huge risk, even though I was on the founding team of a startup that successfully exited recently. I’ve pitched at several events and met with angels and VCs. I don’t know if a lot of other entrepreneurs feel this way, but from what I’ve observed and read I’ve developed some empathy. I understand that all investors are just as concerned about their portfolio companies, and delivering value to their shareholders as I as an entrepreneur am to my employees and customers. Investors have have to raise funds, and maintain a certain return/revenue stream to stay in business. Given the current market conditions, their past experiences, and the overly zealous and optimistic nature of entrepreneurs investors have to be cautious.
I’m a big girl, I can take rejection, and I welcome it as a challenge to the way I think and present my product. If I wanted someone to tell me I’m awesome I would just call my mom up everyday…
Following up with Feedback
I’ve found it immensely valuable to hear from an investor right on the spot: “I understand the first part of your pitch when you explained how you were trying to solve problem A. But I don’t understand how problem B fits into it. Perhaps you should focus on A first. Or make it clearer to me.” Or the investor who tells me on the first meeting that they wanted to meet with me, but are averse to space that I’m in, or just don’t feel like they know enough to add value. Being clear and forthright makes the process not only easier for me, but then I start to learn and understand how investors think and what they are looking for. I also have other founder friends who are fundraising and farther along that I am that I can then refer the investor to.
Followup calls and emails are really helpful too. I’ve received a few of these where the investor will tell me that they aren’t sure about my distribution model, think that there maybe a conflict with one of their existing portfolio companies, or want to see how customers will react to make sure that I’m solving the right problem.
I’m not saying its mandatory to give feedback. Its just useful, and I’m the type of person who wants someone to lay it on thick. How else am I going to improve as an entrepreneur, and build a product and company if I don’t get beat up once in a while? I think its important for investors to do this to test the strength of entrepreneurs.
What I’ve found hard to dissect is vague feedback. The investors who take a meeting with me and state they are early stage, but early stage doesn’t include before Product/Market fit. Or are very excited and like the concept of my product, but want to wait and see traction. Whats hard to pin down is their criteria of traction. And maybe that’s just an exercise for me as an entrepreneur to discover.
Before Product/Market Fit Push Back
I’ve been bootstrapping my startup and have taken in a small amount of angel investment. For the last 7 months I’ve devoted myself to my startup: building the product, the team, acquiring customers, fundraising, and creating a vision. As an entrepreneur I think its important to show a vested interest and belief in your own product, vision, and risk taking abilities. And while these are all positives I know they aren’t enough to compel investors to invest. When faced with push back the onus of proof is still on the entrepreneur to prove they are worthy of a large round. Go home, get more customers, refine the problem, product and pitch. Competition and market conditions will always be against you, but those are natural forces that you have to work against, its just part of the fun of fundraising.
I think one thing to note as well is that finding the right fit with the right investor is also important during these conversations. The other is figuring out the signaling you may have or create among investors you see.
Steven – Yes you’re right. I’ve started to develop an intuition for knowing who is interested or wants to wait, and if they would be a good investor/advisor going forward.
Poornima, I’m an angel investor and I understand your frustration with the feedback (or lack of it). Sometimes it’s because we really don’t know why a deal doesn’t appeal to us – there is often no rational reason, sometimes just a hunch or gut feel. And you’re right, there are vague definitions regarding what stage a company is at, what constitutes “traction” etc.
If you can bootstrap a company like yours – that is usually the best way. The customers are always your best source of funds anyway. And with no outside money you are more in control.