What success looks like (what investors don’t tell you)
What does my company need to look like to raise X amount of money?
Almost every founder I know has this question. The founders have a vision and some unique knowledge of the market, investors have heuristics derived from the market as a whole that they use to make investment decisions. Coming to terms with these two things to define “success” for your next round of funding is critical, and founders are looking for an answer. Here’s the thing: investors won’t tell you. It is the exceedingly rare case when an investor is willing to say “if you have 10 more customers in the next 2 months, I’ll invest”. Why? Two reasons: they don’t know the answer and they want to see if you can figure it out.
Investors don’t know what success looks like
Investors aren’t omniscient geniuses, even the great ones. Further, very rarely does any single investor have the ability to define what they would need to see to make an investment because they are not solitary actors. VC’s have other partners, angels have advisors, and in all instances the actions of others (deal competition) have a massive effect on investment decision making. Perhaps more importantly, hopefully what you’re building is somewhat revolutionary, and therefore defining success based on past data is not really possible. However, there are some pretty good category specific (SaaS, PaaS, ad driven, etc) and vertical specific (fintech, consumer, biotech, etc) models that most investors have some understanding of. In fact, I believe a large part of the value good accelerators like Y Combinator and 500 Startups provide is teaching their accelerator companies what success to other investors will look like and enforcing whether they’re achieving it. Why don’t other investors do that when they can? Part of the reason is:
Investors want to see you define success (and achieve it)
As CEO of a company, your primary job will be defining what success looks like to your team so that they can achieve it. Being able to consume a large volume of data points, combine them with your unique insights and vision, and decide what short term goals need to be met in order to be confident you’re achieving your long term vision is critical to a CEO’s ability to build a great company. Part of what investors want to see you do is define success in a plausible way and then achieve exactly what you said you were going to do. Being able to do what you say you’re going to do is impressive, and being formidable is one of the most important things an investor looks for when deciding to invest. If an investor is willing to tell you explicitly what success looks like, they lose the ability to judge whether you can define and achieve it yourself. Since investors are looking to use they’ve gained from their relationships with founders to make investments that gain an edge on the market as a whole, giving up one of those key insights makes no sense.
So what’s the solution? The solution is to learn. Learn from publicly available data, learn from other founders, learn from investors who AREN’T likely to invest in your company (later stage investors are a great start), or figure out a way to get into an accelerator who can guide you. Most importantly: be able to independently define and defend success on your own, and then let other people help you fit that into the narrative that the people you’re going to need to convince will buy. Put another way - be or become an expert at what you’re doing and learn how to tell that story. And investors: think about helping us out a little wouldja?
Want help defining success? Hit me up on twitter - I probably can’t help but maybe I know someone who can! If you’re an investor who loves to define success for entrepreneurs, definitely good me a shout as well.