How To Raise Funding When Investors Hate Your Market
There’s a Specific Strategy For Getting Capital When Sentiment Turns Sour
“There’s only one thing that entrepreneurs have complete control over, and that’s picking the market they want to operate in.” I’m paraphrasing wisdom shared by entrepreneur/investor Jeff Kearl at a conference. Jeff was pointing out there are a host of attributes tied to the market you’re deciding to operate in and you should be thoughtful about that selection. “Attractiveness to VCs” might be one consideration that you consider, but what happens if after you get started building, the market turns and all of a sudden, you’re in a category that investors view skeptically? Founder pain! But don’t worry, there are some tactics you can deploy to try and navigate through.
Before we launch into that playbook though, let me give some examples of how this ‘category chill’ plays out. You can think of it most broadly as an area of innovation which is trendy, new or thought to have high potential. However some high profile failures and/or sub-VC scale outcomes start investors questioning whether it’s worth continuing to fund the problem space right now or is there some fundamental limit on value creation. For example, consumer hardware startups post-Juicero or 3D printing a decade ago. More recently podcasting ventures seem to have only reached exit values which have been solid for founders and angel investors, but well below “fund returning” for multibillion AUM firms.
When faced with this ‘new information’ you, as an early stage founder working in the industry, have a choice to make: have you learned something about this market which suggests you need to pivot away from where you were focused (or ween yourself off venture capital to other forms of funding); or, are you more convicted than ever, having learned from the other startups and using their outcomes to inform your path forward? If it’s the former, well, this post would end right here, so let’s assume it’s the latter: you’re still a believer. Raising capital just got much harder, but here’s how to play it in your fundraising conversations:
A. Don’t Ignore The Elephant In The Room
Leaving the issue undiscussed with potential investors doesn’t mean “whew, we got out…