Venture Capital seeks opportunity, not a sales pitch. The mindset to have is that you don’t want to have to seek VC, you want investors to seek you. Of course, that doesn’t mean you won’t have to do the work and start the conversation; it’s a mindset – what are you doing to build the kind of company they’ll want and find?
Some popular discussion sparked a checklist to consider…
- Two notions are complete nonsense
- You have to have revenue. No, you don’t. Read that perspective. Seek out advisors who understand how that isn’t the case if all you’re hearing is that it is.
- You have to be a unicorn. Society’s fixation with unicorns is fascinating to watch. Venture Capitalists aren’t looking for the next billion dollar company; but they are seeking work that can achieve far greater value than the capital they invest.
- What isn’t nonsense?
- You must be capable of and willing to deliver a return on their investment. Venture Capital is not a loan and it’s not a business partnership; if that’s what you want, seek those sources of capital. Venture Capital is investment in innovative ventures that are more likely to deliver out-sized exits. If you aren’t willing to exit, or capable of doing so, don’t bother.
- All capital comes at a cost!
- Customers aren’t “better,” startups fail all the time that have customers and the cost of being wrong is expensive
- Convertible notes aren’t “better,” the terms and obligations *can* be a problem
- Bootstrapping isn’t “better,” it is a burden to do it yourself and you’d hate to lose to competitors better capitalized
- Venture Capital isn’t better either! VCs take ownership and rightly expect to have a voice
- Venture Capitalists generally alleviate their risk by focusing on your team.
- Get to know them. I’m much more inclined to invest in you, knowing you, than I am because you have solid business metrics
- You alone are NOT capable of being successful and competing; no matter how confident and capable you are. Have you filled your gaps and built a team that is?
- Traction != Customers. That’s some annoying advice right there.
- Do you have co-founders?
- Do you have Advisors?
- Do you have Letters of Intent?
- Have you surveyed hundreds of people?
- Can you show me consistent traffic growth?
- “Startup” means a venture in search of a business model. Meaning…
- You will fail along the way, it’s expected
- Your numbers will be wrong, it’s presumed
- You will pivot; you’d better
- You should not have to prove anything through customers. When you create value, customers will manifest. Peter Drucker, “businesses exist for only one reason: “to create a customer.” How? Here’s how.
- “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
IMO VC are needed for companies and startups that need to scale at a very rapid pace. Imagine being on the brink of springing the first mobile medical marijuana company in a state that just passed the bill? This is a very necessary KPI that many people overlook – TIMING of a product requires FUNDS QUICKLY.
Great share Paul O’Brien!
fantastic insight! thanks for sharing Paul O’Brien
ike good marketing it’s framed as “controversial” but good common sense advice.
I would say this aligns well with my North Star ? and having this roadmap is an advantage when everyone else is running in a slightly different direction…
Most helpful for me is “traction != customers” … one of those things I know, but can slip from my mind…
Obsessive, “fanatical” customer service can still create myopic tendencies…
Generally what I prize as a founder is what I call “elasticity” of perspective—
Being able to obsess over fanatical customer service, for example, and then being able to detach from that obsession to keep customers framed in the appropriate context but not to let them own you… or monopolize KPIs / traction metrics.
To move from sincere passion/ obsession to objective detachment is a bizarre skill, but one helpful to keeping calm and carrying on with good strategy.
You’ve sparked a topic: The Obsessions of Entrepreneurs.
For some it’s customer service, for others it’s the insatiable need to code and build, speaking for myself, thinking about this, it’s analytics and teaching.
I’m curious if there is a correlation between such obsessions and success as a founder. Not that any one obsession is right/better, rather than an obsession is necessary and the secret it figuring out how to accomplish all the *other* things in which one doesn’t obsess: building the team or resources for everything else.
I’ve long wanted to brainstorm too the notion of a founder personality test… Doesn’t seem that Myers Briggs and the like actually nail the founders.
Bootstrapping, bank loan or VC. The word “capital” is the only thing they share. As a “traditional” banker, “you don’t have to have revenue” and “traction not equal to customers” spook me. But I agree VC is not a traditional loan nor a partnership. It’s a business looking for valuable exits. Exit means giving up ownership, in the journey and the goal. And as for startup, it’s definitely a journey, a “search to create customers”. Failure and pivoting are expected. Help, marketing and financial, also expected, at a price you are willing to pay
Paul O’Brien and even more audacious I try to hold multiple obsessions and (attempt to) simply release them when they’re not convenient…
I guess what I consider my positive obsession because it’s a great motivator are the people who depend on me… whenever someone is actively “expecting” something of me…
For my Team that’s hourly, daily…
For my customers that’s ~weekly…
For my investors that’s monthly, quarterly…
Paul, great perspective here especially your point on traction. I agree. One thing I consistently notice when working with successful startups is not that they have a load of customers that ultimately do not settle into their desired product-market fit but rather that they are keen on accurate opportunity validation from the get-go. The second attribute I have noted is a growth mindset that takes long-term, sustainable growth into account from the beginning. Keep the insights coming.
Precisely Ronnie! Those early customers on which many founders will focus and attempt to scale, being wrong, are the leading cause of misdirection. Putting it nicely, we can refer to it as “confirmation bias,” – that is, something is happening that I expect and want to be happening; therefore we must be right. Startups aren’t right until they’ve established a sustainable and competitive business model that scales; acquiring some customers neither that nor evidence of it. Are customers an indicator? Absolutely, but having them doesn’t prove anything until it does 😉
Great post! I always tell people that you have a real business once marketing generates consistent and steadily increasing demand.
We need more early stage/seasoned founders who are willing to share the battle scars, war, and horror stories regarding their path to raising or failing to raise funds. What I have experienced is the startup theatre effect which raised quite a few wantreprenuers on a mission to pitch ideas rather than focus on problem/solution, revenue/growth generation and founding team needs.
This is excellent
This article lead me down a path of articles that has offered me the epiphany I needed this week.
Damn Russell, thank you! That input is more valuable to me personally than anything. All we can really leave behind on this world is a positive impact that changes the lives of others in a way that our spirit lives on.
I try to pour myself, perhaps too much for my sake, into helping others; because it’s personally rewarding and I think morally what we’re all called to do.
What we have to be careful of is claiming or conveying, in sharing/teaching/advising, that we know best. That we know what’s right. All we can do is share experiences and lead others to explore and learn more down those paths that hopefully lead to their self discovery and definition of success.
You made by day, and I hope it ends up a valuable path for you.
Investors are great and can absolutely give a company the push they need to be highly successful. However; way to many startups spend all their time chasing them instead of customers. I’ve seen a lot of companies tailor their business model & products to sell investors and end up making things customers don’t want.
My learning is; you’re not ready for investors until they are selling you. The startups I know that made it, had investors chasing them. When you’re on to something special and you have a team that can execute on it, it’s pretty obvious.
The other thing is to really understand how different types of investment strategies work. So many great lifestyle businesses (pays a bunch of money to small group of people but can’t scale) are destroyed because the investors need to hit a specific multiplier for their strategy to work. You really need to be in alignment from the very begining.
Yep, that’s my very first point. “what are you doing to build the kind of company they’ll want and find?”
Love this. Nice perspectives.