How to combat negative investor sentiment? Use your customer references

By boris, April 25, 2017

Sometimes there’s a disconnect between investor sentiment and the product’s value. The same thing happens in the market: good companies can have a lower stock price due to public sentiment and market factors outside of their control.

Not every start-up can play in a vertical that’s an investor darling. For example, you may be in a crowded market. Maybe there have been some high profile failures in the past. Or, investors lost money in your category before.

Fighting negative sentiment is tough. It’s like swimming upstream. The most effective strategy I’ve seen is for founders to push investors to call their customers in order to understand the value of the product.

Our portfolio company, Outreach.io, used this tactic when they tried to raise a seed round after a pivot. The company started out as Group Talent (a marketplace for developers) but pivoted into sales automation after finding their original idea didn’t scale.

Many investors were skeptical about their prospects: sales automation is a crowded vertical and Outreach had a bunch of well-funded competitors.

However, Outreach had one very important thing going for it: passionate customers who LOVED the product. So whenever an investor voiced a concern about the category, Outreach simply asked that investor to call a few customer references. Those references always came back incredibly strong and Outreach was able to close an over-subscribed seed round with our friends at MHS Capital and Floodgate. They have since gone on to raise a Series A with Mayfield and a B with Trinity.

There is nothing more powerful than customers telling an investor how much they love a product. But sometimes you can’t wait for investors to ask for those references; you’ve got to push them to talk to your customers.

  • gurjot

    Thanks Boris for sharing this wisdom. This gives us a lot of confidence as we are going to embark on our journey to raise a seed fund. We have learnt a lot from your and Angela’s posts. Thanks a lot.

  • bwertz

    Glad to hear!

  • Armen Gulesserian

    Great tip. Unfortunately, our team has been victim of this negative sentiment. Our industry vertical in Mexico hasn’t performed well in the past years and many investors have stayed clear of this category, making it difficult to connect. We’ll make sure to try this out when we get an opportunity.

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