What Do Investors Want to See?
“What do investors want to see?” It’s a simple question I hear frequently when helping Founders develop business models or prepare for fundraising. It’s a well-intentioned question, but, it also carries some dangerous implications. Let’s start with the answer then explore the dangers of the question. At a high level:
Investors want to see compelling businesses run by Founders with conviction.
The answer is simple, but it’s not easy. Asking what investors want to see implies a willingness to defer to investors on the plan for your business. This is problematic for several reasons:
Fundraising is a means, not an end
Overemphasizing investors suggests that receiving funding is the end goal. Fundraising is a means to an end — not an end in itself. It’s easy to lose sight of that fact in a world fraught with funding announcements about unicorn valuations, but it’s important not to conflate a resource that enables success with success itself. The goal is to build a successful company that generates significant value for shareholders.
Investors aren’t customers
With clarity on the end goal — building a big, successful business — it’s clear that relying too much on what investors want may be misguided. Investors are not customers. Your business model and pricing must fit within the economics of your industry and appeal to your target customers. If your business model doesn’t appeal to customers, you don’t have much of a business. It’s a bad idea to force a subscription model on an incompatible market just because investors like MRR.
Lack of Conviction Shows
While fundraising is not the end goal, it is important. As mentioned above, investors want to back Founders with conviction. Letting the whims of investors — who may not know your market or customers as well as you — dictate your business model shows a lack of conviction. Investors are good at detecting this and it may prove a major impediment to raising funds. Even if you succeed in raising your first round of funding, if your business model doesn’t work, you may not achieve commercial growth needed to raise the next round.
A Better Question to Ask
If “What do investors want to see?” is the wrong question, what is the right question? I hesitate to say there is a “right” question, but a better question is:
What is the best strategy to rapidly acquire customers and build a defensible business?
The answer differs from business to business, but includes attractive unit economics; a rapid, scalable customer acquisition strategy; and some form of defensibility. This is a subtle framing shift, but if you can answer the question, with conviction, you’ll be showing investors what they want to see.
