Thursday Mar 24, 2011 by Lee Hower - Partner and Co-Founder, NextView Ventures
I'm fond of saying that raising capital for a startup (or any risky early-stage venture for that matter) is not about convincing the skeptics, but rather finding the true believers.
When someone says they're skeptical about the market size, or concerned about the distribution/sales plan, or unconvinced the technology/product will ship on time the entrepreneur's natural impulse is to try to persuade. With anecdotes, market data, and sheer force of will... I shall convince Mr. Investor of the flaws in his or her thinking.
This does occasionally happen. Lightning also does occasionally strike twice in the same spot and people occasionally win the lottery. In general though, it's a massive waste of time trying to convince an already skeptical investor. People who invest in risky early-stage ventures need to have a pretty high degree of enthusiasm about an opportunity to ultimately invest. So unless the starting point of the investor's confidence is quite high, an investment is unlikely to ever be consumated.
Assuming an entrepreneur is pitching the right prospective investors (e.g. ones who invest in that stage, sector, and type of company), fundraising is ultimately about finding the folks who are already true believers at some level. Some of the people you think could be true believers will turn out to be skeptics, and similarly some of the folks you thought were low probability will surprise you wth their enthusiasm.
But ultimately successful fundraising outcomes are produced by navigating to those true believers, rather than convincing skeptics. Remember that and allocate time accordingly.
Lee Hower is a Partner & Co-Founder with NextView Ventures. You can find this blog post, as well as additional content on his blog called AgileVC. You can also follow Lee (@leehower) on Twitter by clicking here.