3 things you need to get “interested” early-stage investors to start writing checks
"James I just don't get it. We just closed a huge deal with ABC Corp." or "We have 5 huge potential customers already working on deals with us, why aren't more investors coming in?" It's something I hear very often. Starting with a few disclaimers: that you're speaking with the right investors, that you're speaking with enough investors, and that your company is fundamentally a venture backable company, then if the above phrase describes you, chances are you are missing one of 3 key things to make investors go from being "interested" to writing checks.
Proven sales with customers that fit your customer profile
Proven sales strategy with predictable economics
Strong pipeline of qualified prospects fitting your customer profile
So let's quickly break down each of those points.
Point 1: Proven sales with customers that fit your customer profile.
Implied in this point is that you have already proven your customer profile, or another way of saying this that you have strong indication (from customer data) of product-market fit. There are plenty of examples out there of companies raising seed rounds without this proven out, I won't deny that. Ideally though there's at least some indication of product-market fit here. Really that's to your benefit as the entrepreneur as well because you'll be able to accelerate growth faster and more capital efficiently after closing your round. More explicitly however, this point calls out sales, not "in discussions with", not "submitting a proposal to", not even "free trials with", SALES. Paying customers. Customers who have indicated they buy-in to your value prop. If you don't have that then all of your "customers" aren't really "customers" yet. They may seem like done deals to you but to everyone else the deal isn't done until the money is in the bank. Prove this point and investors know customers truly see the value you are offering and are actually willing to pay for it. Your business model is being tested.
Point 2: Proven sales strategy with predictable economics
Proven sales strategy basically refers to a recurring theme with this blog, a repeatable, scalable sales process. You know who your customers are, what value your selling them, how to capture some of that value in revenue, how to find more customers, how to close customers, how to on-board customers, and how to keep customers in a repeatable fashion. Each one looks 99% like the last. Scalable refers to the fact that by all indications there's an endless supply of them that you can add to the top of your funnel with proven sales & marketing activities. You have control over the volume coming into the top of your sales funnel. Scalability also ties into the economics. It means you understand the economics of your sales funnel and have at least a strong indication that your CAC will be heavily outweighed by your customer LTV.
Point 3: Strong pipeline of qualified prospects fitting your customer profile
Point 3 is sort of like saying of Point 2 that the proof is in the pudding. In other words, if you do have a proven sales strategy, then you should in theory have a strong pipeline of qualified prospects you're working through your sales funnel and most of those prospects should fit your customer profile. If you don't have that, investors start to wonder whether your answer to Point 2 is just theory and not practice. If Point 2 really is proven, then the results should indicate that. Point 3 also reduces the risk for investors of the company burning cash to run experiments instead of closing customers. It's the icing on the cake. There's not just a great strategy in place but also near-term cash flow and growth opportunities ready to close.
If you have all 3 points down, you're in an ideal spot to raise the next round. You now will have proven: who your customers are, that they are looking to buy your product, that your unit economics are profitable, that you know how to acquire more customers and scale those activities, and that you have near-term visibility into more revenue opportunities. What that all translates to is when you take the investor's money you know how to put that to work efficiently to grow the value of your company in a short amount of time and that at the end of the day is what investors (and founders) are looking for.
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