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Sunday, May 06, 2007

Do VCs need trust your product ?

Most startup founders approach me after their direct pitch to VCs go without a trace. Factual reasons could be many – a lousy pitch, bad timing, no homework done on target customer segment, market size, competition or made the pitch to the wrong one. But almost everyone have the same explanation – the VCs just want web apps ; they don’t understand our product. As if making amends, many often confound me with this first question – Do you trust our product ?

My standard (yet honest) answer is “I would have to”. Some of them are baffled at that. It’s time that I set the record straight thro this post. By using it as a template, I can avoid wasting my vocal energies with the next carper that comes along.

I would never say you abandon the product of your labor in one mighty fling because half of the world found it crappy. If deep inside, you have a feeling that it’s a winner, it probably is. Do not prevaricate. Rather than expecting others to *trust* your product, you must go the extra mile to disprove them by demonstrating on your own how well the market welcomes it.

Nobody, I repeat nobody will *understand* or even try to understand your product as much as you do and your customer will ; just because you are the only pair having an interest in its functionalities and outcome. A VC’s interest is focused on your team’s ability to market it, its scaling / revenue potential and based on that, the ultimate enterprise value. It's impossible for any VC to have mastery over every technology or product. If that's a criteria, the VC model would've never survived. For instance, it's the same John Doerr of KPCB who built the unrivalled record of backing industry defining startups in fields as diverse as Computing ( Sun Microsystems, Compaq), Software (Lotus, Intuit), Biotechnology (Genentech, Millenium), and the Internet (Netscape, Amazon).

A VC often bets on the team, not on the product. He does not take the risk entirely, he just partakes in it. If the team is good, it will try, err and entrench the product in its logical destination – the customer’s mind. VCs know it only too well and smart consultants know the VCs ways much better because they track the deal world closely.

When founders pop the question prematurely “do you trust my product”, they have no choice but to reply in the affirmative simply because it’s not the VC/consultant’s business to get pleasure out of knocking an upstart cold – they just meant `if your product is indeed great as you say, let’s hear it from the market”. They stopped just short of elaboration of the obvious.

The founders get judgmental too soon, blame the VC mentality, self-inflict the wounds in an impulsive tirade and begin to sink in a sea of wallow even as the game has just begun. My advise - don't.

Also read my related post here.

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