The unexpected benefits of failing to raise VC
The painful reality of pitching VCs with my non-venture scalable idea and how I found product-market fit as a result.
Hi, it’s Melissa, and welcome to “your founder next door”, a bi-weekly column with relatable stories of my journey bootstrapping eWebinar to $5m ARR. No BS, just straight-up truth bombs on what it’s like to build a company without an abundance of resources or friends in high places.
💡 This is the story of what happened when I tried pitching VCs with my mediocre, non-venture scalable idea and found product-market fit (and profitability!) as a result of getting repeatedly rejected.
Backstory 👩🏫
I’ve written extensively about “How I went from chasing unicorns to bootstrapping”, why I’m anti-VC, and why every founder should prioritize their happiness over a check + Techcrunch write up.
Despite my highly opinionated opinions, I think pitching VCs, especially with a mediocre idea, comes with a few benefits. It certainly did for me. When I moved to New York to build my last startup, I thought I needed venture capital like everyone else in order to succeed. I was broke and in debt from trying to find that one product someone would pay for and saw venture capital as a way out (probably the worst reason to raise, but that's besides the point…) I was desperate and didn’t know better, and wanted to be on the same path as my peers. It took 2.5 years for the first person to pay us $10, but that only happened because of what felt like a never-ending series of failed VC pitches.
This is a story I haven’t shared widely or publicly. Let me tell you what happened…👇
The problem: Meetings overload and false positives 😵💫
For context, my last startup, Spacio, was (and still is) an open house lead gen and check-in system for real estate agents, which we sold as an enterprise SaaS solution for brokerages and franchises. While we founded Spacio as an “open house technology”, the idea wasn’t always that fleshed out and succinct. We went through multiple pivots iterations before it became what it was and we continued to expand on it after getting some initial traction.
In the 2.5 years before we found our first customer, I pitched a number of small and medium-sized VC firms. If I had to guess, it was probably ~20 funds and ~20 accelerators, angel networks, and pitch events combined.
The biggest problem with raising VC is most of them will take a meeting with you, especially if it’s through a warm intro. I’m not referring to the top 1% of the 1%, the Sequoias of the world, but most. If you’re “in the scene” like I was when I was living in NYC and everyone and their dog was either raising, related, or friends with a VC or family office…you have no issues getting intros. If you’re doing something real (as opposed to being a wantrepreneur), you can have a meeting every day if you want, distracting yourself from focusing on what’s most important – revenue.
Here’s the kicker:
VCs say a lot of shit and, unfortunately, outright rejection is not one of them.
The industry norm is such that you’ll get rejected a bunch of times before one fund decides to take a chance on you, but let’s not forget that only 1% of startups are venture backed; more likely than not, your startup is not investible for a variety of reasons beyond being “not-venture scalable”. It’s even more unlikely that you’re the next Uber or Airbnb. It could be that your idea has no economic viability whatsoever, but most VCs will not tell you that.
This means that you could be constantly getting false positives from VCs who are “somewhat interested if only you were farther along”. This leads you to believe you might be onto something, even when you’re not. I also fell into this trap until I realized the ridiculousness of the game I was trying to play.
Sh*t VCs say (everything but ‘no’) 💩
When you pitch to VCs, you’re supposed to run conversations like a sales process and ask qualifying questions before and during the pitch so you can shorten the amount of time it takes to close the round and get back to your business.
You’re also supposed to act confident and abundant, not show desperation no matter how broke you are, and set a closing date to avoid conversations being dragged out (otherwise known as: create false urgency).
It doesn’t matter how well you follow the rules or how good of a salesperson you are if your idea is not compelling to them. VCs say a lot of shit they don’t mean, which contributes to the false sense of imminent success that could prevent you from doing what is right for your business, like changing course on a product or business that isn’t currently feasible.
Let me give you some real-life examples:
Me: What type of companies do you invest in?
Pre-pitch: These types, but we can make exceptions.
Post-pitch: We don’t invest in your category. (Translation: No thanks.)
Me: What stage of companies do you invest in?
Pre-pitch: We invest in startups at all stages.
Post-pitch: You’re too early for us, but keep me posted on your progress. (Translation: No thanks, but let’s stay on good terms.)
Me: How much traction do you need to see before investing?
Pre-pitch: It doesn’t matter, we can come in pretty early.
Post-pitch: We’d like to see more traction first. Who else are you talking to? (Translation: No thanks, but I’m nosy.)
Me: Do you lead?
Pre-pitch: Yes, sometimes.
Post-pitch: We don’t typically lead, but come back when you have one. (Translation: I’m a sheep.)
Me: What do you think about our product/business?
Pre-pitch: It’s interesting.
Post-pitch: It’s interesting. (Translation: It’s not that interesting.)
Me: Is it okay for me to add you to our investor updates list and stay in touch?
Post-pitch: Yes! Let me know how I can help. (Translation: I’ll never respond again.)
I’ve heard these scripts over and over when I was pitching Spacio. It took me a while before I realized my idea was just not good enough for venture capital. It wasn’t venture-scalable; the market I was in was too niche, the total addressable market was too small. The product only served (1) real estate agents in the US (2) who did open houses and (3) would be willing to replace pen and paper with technology. It was never going to be a billion dollar idea no matter what I did to twist reality. I didn’t believe the narrative I was selling. I told the story I thought they wanted to hear so they would give me money. A story that was carefully crafted by other people who advised me on my pitch.
In the end, it doesn’t matter what they say. Unless they’re coming with a check in hand, what they really want to say is: I’m not interested in investing in your startup because I don’t believe in the business or that you are the one to execute.
Why won’t they just reject you and tell you your idea sucks? Because deal flow is good business.
They know this game is a gamble, they know they could be wrong, and in case another big name fund invests in you, they don’t want to miss out. There’s zero downside for them to keep you on their good side and be open to the possibility that maybe you’ll become actually interesting to them later.
Remember that movie, “He's Just Not That Into You”? The same principle applies - if they’re into you, you’ll know. If you’re not sure, they’re just not that into you.
The benefits of learning to raise VC 📋
The theory of raising VC is not hard as it’s a standardized process founders can follow. When you plan to raise, your friends and mentors will teach you these general rules to help increase your chances of success, as my network did for me.
Learning these things forced me to evaluate my pre-revenue business more quickly, which was good for the numerous product iterations we made and customers we wanted to serve. It gave me more clarity on what we should and shouldn’t focus on than consumer research ever did.
Some of my biggest takeaways from the process:
Tighten your one-liner elevator pitch, for when you get stuck in an elevator Paul Graham.
Make a compelling 10-slide pitch deck. If you have 43 slides, put 33 in the appendix because whatever’s there doesn’t count toward the total. 🤪
Only send an executive summary (a condensed one-pager of your pitch deck.), never the deck itself before a meeting to pique their curiosity.
Rate your target VCs and practice on the low priority ones first so you can sharpen your pitch, learn how to handle objections, and make improvements before meeting with your top tier choices.
Ask for feedback on your pitch and product so you can refine both, it’s free advice from “smart” people.
Putting together my pitch deck meant doing extensive market and competitor research, as well as financial projections (see my SaaS financial projections template here), which I would have never done if I didn’t need to put all those things on slides. Going through this exercise was so useful that it was the first thing I did for eWebinar, even though we weren’t planning to pitch VCs. Slide deck material is also great for pitching potential customers and partners in the early days when you don’t have much to show.
Most of the “free advice” you get from VCs needs to be taken with a grain of salt because most of them have never built a company from scratch (hence, “smart” people above). Some give the worst advice because they’re like consultants who know how things work from a textbook but have never executed, so they lack real-life experience and empathy.
Don’t let this stop you from asking, though, if you can properly filter their comments and not let it discourage you. Because once in a blue moon, you get a few golden nuggets from VCs who have been in the trenches, which is fortunately what happened to me.
The best thing that happened from pitching investors: Product-market fit 💰
One day, after pivoting many times with Spacio with no luck, we found ourselves cash-strapped, with only 90 days of runway left, and still no product.
Someone once said to me, "When you have 3 months left is when you need to do something radically different."
Determined to find a way to stay alive, I reached out to any investor who would take a meeting with me, with the secondary goal of getting feedback on our product.
One investor told me he thought we were onto something but our product was too bloated. He said our product was 10x bigger than it should be and we should start with one feature that everyone uses at open houses, a visitor sign-in form, and strip away all other features. (This was my second Aha! Moment that got us to acquisition in 5 years: 10 Aha Moments that got us to acquisition in 5 years.)
“Why would anyone pay for a one page digital sign-in form?!”, I thought.
At the time, we had nothing left to lose so we decided to follow that advice and came up with what was the first real version of Spacio. Our MVP. (I wrote about underestimating simplicity here.)
Because we trimmed down our product to a single high-value feature and solved one problem first (moving from paper sign-in to digital), we made our first $10 after 2.5 years of burning cash and getting in debt. 🤑
💌 PS. If you're iterating on a product right now, consider shedding features instead of adding more. You may be pleasantly surprised.
With every version of our product prior to that, we had beta customers – but they just did what we asked them to do: provide feedback on the product, which meant endless criticism without real usage or adoption. No customer could’ve told me to cut out features because they all wanted a bleeding-edge shiny object that does everything without realizing it’d be too difficult to understand and therefore adopt. (This is why I don’t believe in beta customers - if you want someone to tell you what’s wrong with your product, ask them to pay for it.)
The best thing that happened to us from pitching investors over and over was finding product-market fit.
Unexpected benefits of failing to raise VC 🤓
Because I wasn’t able to raise venture capital, we focused on driving revenue in order to sustain the business. Slowly but surely, we did better and better, closing bigger deals and got our name out there in our industry. We hit profitability 12 months after making our first $10. I no longer needed to do the dog and pony show, and could finally design the life I wanted to live, on my own terms.
Failing to raise VC and hitting profitability taught me that revenue > everything.
The only people who have to give you money are your customers.
When you don’t have to rely on someone else to survive, you have a “forever business”. I can’t think of a bigger accomplishment or better feeling than that.
The biggest lesson I learned through all of this is:
Failing to raise VC makes you rethink your entire business strategy and founder values because you have no other choice but to be profitable. Desperation breeds creativity, and that’s an incredible place to be in because it’ll get you one giant step closer to the freedom you want so badly. The freedom you quit your job for.
Reflections 🪞
The process of raising capital from people you don’t know for the future of your company can be so soul-crushing that it'll empower you to rethink whether that’s even a life you want – because once you get on the venture train, you can’t get off. Your life will continue to be all about the next round at a higher valuation, and the next, and the next. Once you conquer one fund, there’ll be 100 more in your future. This is what my co-host, Lloyed Lobo and I talked about on episode one of our New podcast, UnicornPrn: Ep1 The Internet is for UnicornPrn.
However, learning to raise and pitching to a peanut gallery can be a good exercise to hone in on your business. I think this is something every founder should try. You’ll realize how much conviction you have after being told “no” (or “not-no”) multiple times, and if you want to keep persisting or go a different direction.
The more VCs you talk to, the more you’ll understand the game, and the more you’ll realize whether that’s the game you want to play. As my friend, Greg Head from PracticalFounders always says, “To play the game, you first have to understand the rules of the game you’re playing.”
Many people think funding is a financial decision, when funding is a lifestyle choice.
Some stuff you might find interesting 👇
Why I’m anti-VC: 9 unconventional ideas I can live by because we're bootstrapped
Article: The only way to live the life you want is to design it
Article: 10 Aha Moments that got us to acquisition in 5 years
Thank you for reading!
— Melissa ✌️
Newsletters I follow (and think you should too) 🗞️
Kyle Poyar: Growth Unhinged - In-depth case studies and deep dives on pricing & packaging, go-to-market strategy, SaaS metrics, and product-led growth.
Leah Tharin: ProducTea - Product-led B2B expert with 25 years of operator and executive experience, curating actionable advice for founders and CXOs who want to connect their product to revenue at scale.
Greg Head: PracticalFounders - Weekly interviews with founders who have built valuable software companies without big funding.
Kristi Faltorusso: The Journey - Relatable stories, learnings, and advice from 13+ year professional journey in Customer Success, leadership and SaaS.
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eWebinar - Pre-recorded webinars with chat
ProfitLed Podcast, eWebinar’s Journey to $1M ARR
UnicornPrn Podcast, peels back the glossy veneer of startup life