In our previous post we talked about the 3 elements every demo day pitch must have, and the biggest takeaway was to show traction: lead with real success indicators like monthly revenue and revenue growth. And this doesn’t just pertain to demo day. Many investors will say they want to see more traction before they’re ready to invest. You might be thinking, “Well, they just aren’t the right investor. They’re too risk averse!”
A lot of founders discard this investor feedback and just keep pitching to others, thinking that they’ll eventually find the right set of investors who are willing to take the risk and bet on a company with little revenue. That might be the case, but if you don’t have revenue, you’re negotiating from a position where you don’t have much leverage.
Founders need to face the new reality that they often must show revenue before an investor will write them a check.
Think about it this way: if you can tell every investor that you meet that your revenue is growing 20-40% month-over-month, you’re set to break even in 3 months, and you’ll hit profitability in 6 months, how do you think they’d react?
They’d recognize that you don’t need their investment, but they don’t want to miss out on an opportunity to invest and fuel your growth.
Headout helps travelers book experiences on demand using their mobile devices, while Pop Up Archive makes sound searchable through cutting-edge speech-to-text technology.
When we first met Varun Khona, the CEO and co-founder of Headout, he told us he was having a hard time raising capital. We asked him what the investor feedback had been, and he said that investors were unanimously telling him that he needed to 2X his revenue and grow in excess of 30% month-over-month.
So we recommended that he stop pitching and focus on sales and ramping up on revenue. He was nervous about pausing his fundraising activities, but we reassured him that if he focused on revenue, fundraising would be a cinch come demo day.
Headout, at the time, was operating only in NYC. They needed to think about how they could increase their sales. Here were the methods they used:
- Added more suppliers to appeal to tourists
- Increased awareness among tourists with more effective marketing campaigns and doubling down on existing distribution partnerships; counterintuitively, this actually led them to focus on fewer channels instead of more
- Pushed for repeat sales with a new email marketing campaign, because many people frequent NYC multiple times a year
- Added one additional city to grow the market: they launched in Vegas, thereby also addressing scalability concerns for the investor community
- Focused on product-driven innovation to increase conversion rates, including but not limited to intelligent push notifications, relevant pop-ups, and UX-focused revamps
Their focused efforts during a 3-month period in the accelerator led to 3X in revenue. Varun was still pretty nervous about what investors would say, but we reassured him by pointing out that he now had more leverage. With his current run rate he didn’t need investment. He and his team could continue to grow for the next 6-9 months and would hit profitability. But investment could propel him past profitability by helping him open up additional cities and move faster than the competition, and that would be an opportunity no investor would want to miss out on!
Headout ended up closing a $1.8M seed round in February 2015.
Sometimes you get stuck because prospects are giving you the run around. So while you’re spinning your wheels trying everything to get traction, you’re stuck in the mud because customers are indecisive.
When we met Anne Wootton, the CEO and co-founder of Pop Up Archive, she told us how she had about 10-15 prospects in the pipeline who were all very eager to sign up, but they were all taking their sweet time to get back to her.
Their indecision was holding up sales, and without sales she was concerned that investors wouldn’t take her seriously.
To help Anne out, we started out by asking her what would be a reasonable price point for her service that would also close customers quickly, without the need for them to go through lengthy internal approval processes. She said around $5K-$10K.
So we suggested she create a pilot program with a clear product offering that would be aligned with what they were looking for, at a price point that would make the decision fly through approvals. And to get them to close quickly, she needed to “SUE” them:
- Scarcity: Anne would open just 10 spots for her pilot program.
- Urgency: If prospects were interested, they would need to reply by May 15, 2014, no extensions. But she’d of course send out reminder emails to reiterate the value proposition of the pilot and nudge them along.
- Exclusivity: The program would only be available to customers that met a certain set of criteria. This way, they felt like they were getting premium service and working with a company that cared about their specific needs.
Anne set up a 3-part email campaign series, and after just the first email, her phone started to ring with interest! But unlike before, these customers were ready to move forward and make a decision.
Of course, there were people who said no, but creating a forcing function made it clear whether a prospect was actually interested or just shopping around.
Anne closed her pilot and used the resulting sales to show a 6-figure run rate, which appealed to investors and helped her close a round of funding of $1M+ in 2014.
For more techniques on closing customers, check out Poornima’s latest talk: How to Build a Sales Pipeline with Customers You Can Close. You can find the slides here.
Remember, it’s easier to close checks when you offer investors an opportunity to grow a business that’s already thriving with sales!