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.