How to deal with conflicting advice from investors
Just recently, I had a sales office hour with a bright founder, and it was not about how to sell to customers, but how to sell to investors.
He’s running a startup with good traction and is currently trying to raise their Series A. Several investors were expressing interest, but there was a problem: he was getting conflicting advice from all investors, and felt really confused.
VCs wanted him to accomplish different numbers in order to raise a Series A.
Some of the conflicting advice he got from investors
- “You need more user traction.”
- “You need to build more features into the product.”
- “You need to get rid of all these extra features and focus on doing just that one thing really well.”
- “You need to generate revenue.”
- “Don’t mind revenue at this stage, just focus on becoming a platform.”
Trying to make sense of this contradictory advice from smart and successful investors, he turned to his advisors. And guess what? THEY gave him different advice on how to proceed too!
Some told him he was just talking to the wrong investors altogether. Others told him to listen to their advice and focus on a particular strategy they liked.
Even more confused, he now sat in my office and asked me: “Whose advice should I be taking?”
“You’re not alone”, I said. “Every founder that is raising money from investors has encountered this confusion.”
The reason for that is simple: investors have a clear bias based on their past successes.
If all you have is a hammer, everything looks like a nail
If an investor had massive success as a founder, employee or executive in a startup in a specific way—e.g. enterprise sales or mobile or viral or building a marketplace—it will influence how they look at everything they encounter in the world. Including your startup.
So they will advise you to do things their way. Their advice is tainted by their own history of success.
"Advice = Limited life experience + Overgeneralization" —Paul Buchheit
It all sounds like good advice, which is the problem!
It comes from intelligent people, with a proven track-record of success and often times good reasoning. Investors are influential people, hence why they so easily influence your way of thinking.
Time is your enemy
Every time you meet an investor, you’ll be tempted to share the advice and ideas you received with your team and do a course correction. If you have one investor meeting a week, you can take away all the momentum your team has, because every week you’re changing direction.
How should you as a founder deal with this? After all, it’s your business
There are several things you can do to get maximum benefit from your fundraising activities, with minimum confusion and distraction.
1. Have lots of meetings in very little time
Compress your first-time meetings with investors into a very short time period. Rather than having ten meetings in ten weeks, you want to have ten meetings in five days.
It will help you pick the advice you think is best for your startup. If you talk with only one VC, you will probably feel inspired by it and tempted to go back to your team and change course.
You can’t afford to distract your team during the fundraising efforts. Their job is to execute and maintain momentum while you spend all your time talking to investors.
The worst thing that can happen is changing direction every few weeks after a new investor meeting and, by that, effectively stopping all real progress. That’s the fundraising kiss of death.
If you meet with all investors in one week, you can bring all ideas back to your team and evaluate if there is need for any course corrections once.
2. Create a fundraising silo
The person who is fundraising should be disconnected from the startup team in the fundraising process as much as possible. The rest of the team needs to keep building product and momentum while you’re out raising money.
Everyone wants to hear the latest fundraising progress and all the things investors said to you but you need to resist the urge to do that on a daily basis. Maybe you give the team an update once every two weeks but you can’t be the guy that constantly distracts the team's productivity by telling your investor tales.
For this to work well, the entire team needs to fully trust the person in charge of fundraising. They need to be comfortable with the fact that they don’t get regular updates and put their faith and future in the hands of the founder who’s out to close the round.
3. Find a fundraising therapist
Whenever the person doing the fundraising comes out of a stimulating meeting with a VC or investor, there’s that strong urge to talk about it. Don’t use your team for that.
Instead, talk to “coaches”, experienced founders who have recently raised similar funding, and use them as your personal “fundraising shrinks”. Their job will be more about listening to you than giving you additional advice (you got plenty of that). You just need someone who can relate to your situation and is willing to pick up the phone and listen.
If you can't find anyone good to be your fundraising shrink, ping me at Steli@close.io and I'll do my best to help :)
4. Realize it’s not about making every investor fall in love with you
Your goal should not be to get as many investors interested in your startup as possible. Your goal should be to find the one or two investors that are the most excited about who you are and what you are trying to do. Don’t let investors turn you into an insecure little teenager.
5. Differentiate between bullshit buying signals and real intent to invest
A lot of investors might see great potential in your future. They might have lots of ideas where you could be tomorrow. But they need to like what they see today enough to invest right now.
If an investor tells you that she’s interested, but you should completely change what you’re doing, and keep her in the loop … then she’s basically getting a free option to invest in the future. It costs her nothing to do that, but it can cost you your business. Don't fall for that. Either they are interested to invest today, or they're not.
Pay attention to real investor buying signals:
- Do they seem interested and excited?
- Do they lean forward when you talk?
- Do they ask a lot of (good) questions?
- Do they ask a partner to join the meeting?
- Do they follow up with you after the meeting within a day?
- Do they act with a sense of urgency?
Set the right priorities
There is no simple solution to make sense of conflicting investor advice. At the end of the day, you need to learn to listen to your own intuition and go with the investors that are most aligned with your vision of the future. The strategies I outlined above can help you and your team stay focused during this emotionally tense process.
And staying emotionally balanced and focused while raising funding for your startup is often times a recipe for success :)