Not too long ago, I had the fortune of chatting with a fascinating product mind. During our delightful conversation, she asked me:
Are VCs the gatekeepers of ideas?
…referencing Michael Seibel‘s recent string of tweets:
And I’m in complete accordance. I want to specifically underscore 2 of Michael’s sentences.
… and…
The only ‘exception’ to this ‘rule’ would be if investors themselves were the target market for the product. At the same time, I can see how the venture industry has led her and many others to believe otherwise. So I thought I’d elaborate more through this post.
One step further
The ultimate gatekeepers of your product should be and always are your customers. But somewhere along that road, founders are confronted with the dilemma of whether to raise external capital or not. And if they choose to pursue the former option in the pursuit towards greater visibility into the market or scale, fundraising, especially in today’s climate, can be an inhibiting factor on the path from zero to one and one to infinity.
Let’s take this, for instance, from the perspective of a role-playing game (RPG). If customers are the final bosses, VCs are the companions you pick up along the way that will make beating the final boss much easier. Of course, if paired with a companion that’s constantly making you go on side quests rather than accomplishing the main quest, they can feel like gatekeepers in beating the endgame. Yet, unlike a well-designed RPG, often times, there’s no end in sight. You aim for self-determined milestones that define progression on your own terms. But when you raise capital or plan to, you’ve given a portion of your self-written endgame to someone else to partly control. And when they have more say in your milestones than you, as a founder, do, they may seemingly take on the roles of gatekeepers.
VCs on ideas
Every so often, I meet an aspiring entrepreneur who asks me: “What ideas do you think I should pursue?” And every time I have to reply with, “I really don’t know.” ‘Cause:
- I don’t know you. I don’t know what you’re passionate/obsessed about. And how much. What gets your gears grinding? What’s frustrated you in the past? In other words, what we call founder-market fit.
- The unfortunate truth is we’re not on the forefront of many verticals. Many of us on the venture side, myself included, aren’t PhDs or haven’t spent decades researching just one segment of a vertical. We typically see ideas at least 6 months after their inception. Many VCs are generalists by nature, who are better tuners on revenue models, growth, and other business functions. And even if we did, what interests us may not interest you. For those of us who do have conviction behind an idea of our own conception, there’s a good chance we take on the founder role instead.
Of course, there are various parallels and permutations we have and can make on where we think we see the industry heading. We may also suggest Uber for X or Product Hunt for Y. But if you’re trying to squeeze something truly revolutionary out of us, we just aren’t the best touch points. As Andy Rachleff, co-founder of Benchmark Capital and Wealthfront, says:
“You want to be right on the non-consensus.”
You want to be right where people, including investors, have yet to be conditioned to think in a certain way. Think ’08. Would you feel safe sleeping in a stranger’s home? Or ’09. How likely would you just jump into a stranger’s car and ask them to take you to your destination?
If you’re interested in reading more about consensus versus non-consensus, I dive into the nuances of product-market fit and idea-market fit in another post I wrote late last year.
Similarly, VCs are humans, too. And the truly revolutionary ideas out there, we may not have seen or have thought of. If you are or were a founder who’s working on such an idea, I assume you’ve seen the fireworks go off in an investor’s head before. Bingo!
We might not have seen the idea before (which for a wide array of ideas, we have), but given our research and experience, you’ve brought it all together. The unique marriage of trends and underlying themes that we’ve noticed, and frankly, timing. And at that moment, you, the founder, click the puzzle pieces together. A general litmus test, taken with a grain of salt, is if the VC is asking you more questions about the idea (and drawing parallels to their research and experience) or asking you about the business model in the first coffee meeting. If the latter, they’ve already seen the idea before, and are shopping to find the best founder to take it to market.
Playing my own devil’s advocate, I will say, some VCs just have award-winning poker faces, so don’t be discouraged.
In closing
At the end of the day, if you’re shopping or testing for ideas, go to your customers. Go to people who will use and fall in love with your product. Sometimes it’s the VC; most of the times, it isn’t. And by the time you bring it in front of an investor, if you’ve got the numbers, we really can’t argue otherwise. If you don’t have the numbers, find proxies that suggest you will get the numbers. For instance:
- Wait list
- Engagement and Retention #’s
- LOIs
- 2- or 3-year contracts (or more)
- (Handwritten) Love letters
And I bet there’s a million more I haven’t even seen or thought of. So, stay hungry and keep hustling!
Photo by Tianshu Liu on Unsplash
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