VCs buy your stock, not your product.


Door to door sales cat.Last Friday, I had the honor of speaking on a panel at the MIT Sloan Sales Conference, alongside Peter Levine (MIT, Andressen Horowitz), George Roberts (ex-Oracle, OpenView Partners), Jules Pieri (The Daily Grommet), and Lara Shackelford (QlikTech). No one has ever taught me sales formally, but I find it fascinating and have the privilege of working with several ex-sales guys at Highland. I also find myself on the receiving end of multiple pitches each day, so I have begun to envision raising money as a sales process itself.

There are many similarities between selling product and raising money. Both require progression through a sales funnel, which starts with lead generation and ends with a close. Also, both require aggressive time management and the constant re-allocation of resources towards the most promising leads. Finally, both suffer from a classic adverse selection bias, wherein what is easy is not what is desirable. Put differently, VCs often want what they can’t have. Managing their level of interest lies at the heart of the sales process.

The metaphor, however, is not perfect. Selling a customer and selling a VC differ greatly in one respect:

Customers buy product. VCs buy stock.

A customer purchases your product because it uniquely solves a problem he has, for a reasonable price. He cares about things like features, ROI, and service. You probably speak his language and can empathize with what he goes through on a daily basis.

A VC buys stock in your company. The big question in his head is, “What are the chances this stock will appreciate into something worth >10x what I paid for it?” While he will certainly care what customers think about your product (and may even call himself a “product guy”), don’t be fooled. Investors care about making money first, and all other measures are proxies for the likelihood of value creation. As such, starting off a pitch with a deep dive into your product will often derail what could otherwise be an exciting conversation about creating a big, valuable company.

As obsessed as we are with the “product CEO” today, let me offer one word of advice to those of you selling your stock to VCs:

Don’t lead with product because that’s not what VCs buy. Instead, lead with team and vision.

We all love cool products, but products are a means to an end. Talk about the end first, and you will close that sale.

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This entry was posted in Advice, Entrepreneurship, Product philosophy, Venture capital. Bookmark the permalink.

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