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Optimizing for investability
In the past few weeks, I have seen a few former founders launch courses aimed at helping founders raise funds by optimizing for investability.
The idea of optimizing for investability is that instead of following the advice that I and many other longtime advisors have offered which is aimed at help you improve your pitch that instead it makes more sense to focus your efforts on changing your company so that it matches what investors are looking for.
As many of you know, when I work with companies or in this newsletter, I often talk about fundraising norms and requirements. There is definitely a type of company that is investable and a type that is uninvestable. The work I do doesn’t make you more investable it just makes your pitch better and more persuasive. To draw a parallel, I’m not making the car better; I’m making you a better car salesman. This new approach aims to research what consumers (investors) want and then build a car that matches their specifications. The focus is on changing what you are selling, not how you are selling it.
Let’s dive into the pros and cons of this strategy and share some of my thoughts on this trend.
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Pros
It works. You can raise venture capital if you successfully build a company based on insider information about what VCs seek.
Cons
You are building for investors, not consumers. Clubhouse is a great example of a company that was built for investors based on a specific view of the future that certain investors had. It was instantly a unicorn, but it flopped hard as there was no real demand for the products in the long term.
It’s unsustainable. You can’t build for the next round forever; companies like FTX did this, always aiming for fundraising metrics without an endgame in mind. Eventually, it will fall apart, and investor cash won’t sustain you forever.
You don’t learn any practical skills. When comparing this to the method I use, even if you don’t raise for your company, if you read these newsletters you are gaining valuable insights, perspectives, skills and information that you can apply throughout your life. I’ve cold-called my way into jobs using these pitching techniques. There is a practical benefit to learning these skills. One that doesn’t exist when trying to “hack” the system.
In short, following this strategy of optimizing for investors only works if you are 100% certain you can use the cash to build something sustainable in the market. Many of you will likely want to take that change. Raising Venture Capital allows you to chase your dreams, I understand the appeal. That being said, it's a very high-risk/high-reward strategy that will lead to failure in 99% of cases and leave you worse off when you fail. If you follow this strategy and fail, you’ll struggle to raise in future as investors will be skeptical, you won’t have gained any practical skills, and you’ll likely find it harder to hire people with equity compensation.
Remember this as you decide the best strategy for growing your company and getting the funding you need!
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Onwards and Upwards,
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