The Search for Product-Market…I mean Company-Investor Fit

By By Krista Nylen

We spent much of the first half of the course discussing how to achieve product-market fit, and then transitioned into scaling the business. But as we rounded out the course with the business model exercise, I found myself thinking a lot about identifying company-investor fit, which seems to be a key linkage between the two stages. In order to scale effectively, you need to move quickly, often maniacally towards a goal that you’ve deemed as the “be all, end all” for your company. But somewhere in the midst of it all, you need to convince a very skeptical audience to fund these activities, while simultaneously awarding you the freedom to make the dream happen.

One thing that I don’t think HBS entrepreneurship courses teach us in the first year (which was more effectively communicated in our final LTV business model exercise), is that you have to be creative and persistent in finding your “ideal investor” in the same way that you approach identifying your target customer.

From what I’ve learned in the class and from experiences that I hear across my peer group and advisors, there are a variety of dimensions by which you can evaluate investors to find the right fit. The first, and most obvious, is that the person or firm sees something in your business or team. Most entrepreneurs therefore focus on “the pitch”. How can we pull together a simultaneously analytical and color-coordinated powerpoint deck that will blow them away? While I think there’s huge value in that, and in doing what Fred Wilson said, which is “communicating the big picture” as quickly as possible. I think that often inexperienced, young founders forget that they can control the other side of the equation too. It’s not just about what you say during that pinnacle moment in the conference room or coffee shop, but it’s also about the person sitting across from you. As I’ve thought about fundraising for my business, and spoken to others entering the same process, I’ve realized that we all tap the most obvious sources such as the HBS network or Angellist. Which, on one hand, is an understandable and often effective approach given the breadth and quality of contacts, but, what I didn’t understand is that you ultimately have to expand your network so you end up with 100s of potential investors that you can use to get experience in the process of refining your pitch (analogous to refining the product after customer research). It’s also extremely important to understand who those people are before even walking into the room. Are they individuals that might have a previous interested in your space? Are there any elements of their professional background that you can use to relate or appeal to them as you mold your pitch? For some reason it’s not always natural for the entrepreneur to approach the fundraising process with the same discipline and creativity that they do in the product development stage, but I believe it’s 100% necessary.

Another way to think about targeting and categorizing potential investors relates to Clay Christensen’s theory on customer segmenting around “the job to be done”. What does the investor “hire” you to do, and do they expect to get out of a successful partnership? If you’re trying to raise a round to provide proof of concept that will eventually allow you to raise a seed round at a much higher valuation, then identify the people that are comfortable with a lower expected return, but may have the funds that you need to meet your requirements. With my venture, giftplum, we’re in the process of deciding whether we should position ourselves as an add-on to amazon. We’ve projected that this could amount to a multi-million dollar annual revenue business. So we need an investor or partner that has the same objective. If we go this route, we should stop focusing our energy on the General Catalysts of the world and look at more untraditional small, private investors, or even operational partners who would be comfortable with that kind of outcome.

Overall, I believe in the immense value that investors or corporate partners provide beyond just $$$. However, I think that on average the entrepreneurial community doesn’t spend enough time optimizing that partnership, and it could be a huge opportunity for improvement in the future.