Solving a StartUp’s Catch 22 Nightmare: Revenue and Customers

Novel Catch 22 by Joseph Heller

Most early stage businesses have a common pain point. I call it the revenue *Catch 22.

In circa 2017 Silicon Valley, I frequently see start-ups stuck in a revenue Catch 22: they have a solid concept and business model and key talent in place, and a product/approach mapped out that will solve a big problem and generate a lot of value for founders, investors and customers. To get to that point, they need resource to hire more people and finish, test and launch that product or platform. But to raise that kind of money, you need to prove revenue (ideally, monthly recurring revenue). And particularly for start ups aiming to enter the B2B large enterprise space, it’s nearly impossible to bootstrap yourself to a self-funded machine. We are not talking lemonade stands here; it usually takes money in the form of paying customers to make money. For a lot of startups, that situation is like being in a war zone with no way out of the bunker.

So as a VC focused on early stage B2B startups who are unlocking value in large, established industries, Draper Nexus decided to do something to help start-ups solve the revenue Catch 22 conundrum. About once a month, we organize an invite only demo day for particularly promising start-ups — often way before we’ve decided to invest in them. We invite many of our limited partners and/or major enterprises, executives, and some of our well-networked colleagues from both inside and outside the Draper Ventures Network. No press, no hype; just a platform for these start-ups to present their story and, ideally walk away with contacts that can quickly turn into customers, new hires and real revenue.

Sometimes, we end up investing in a company who participates in the Demo Day. Sometimes, we elect not to (at the time), but we might down the road. And sometimes, the company goes with another VC. But ultimately, everyone who participates in a Draper Nexus Demo Day (we call it “GoPilot”) gains something.

When cognitive computing company App Orchid participated in one of our pitch meetings, we were able to introduce them to executives at well-known, established businesses — some, our limited partners; others not — who we believed might benefit from learning about their technology. We knew there might be synergies in connecting them with some of our portfolio companies. As an investor in Haven, whose technology is dramatically changing the way business works with the the $300 billion ocean freight business, we gathered a broad spectrum of potential customers. While I can’t share specifics, let’s just say the meeting worked to the mutual benefit of all participants. For autonomous vehicle company Nauto, whose AI-powered system is helping commercial fleets operate smarter and safer, we introduced them to key contacts from within our limited partners as well as to non-LPs; some of whom went on to invest. And manufacturing analytics company Sight Machine also benefitted from key introductions to attendees.

We arrange these pitch meetings because it’s true: what comes around, goes around. We see it as an important part of getting to know a potential company better, and also as a way of providing value to our partners. The payoffs can come in many forms. But we see it as a high-value exercise that’s always worth our time investment, whether we end up investing cash or not.

If you are an early stage startup tackling established industry, I would love to chat.


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