You’re Investment-Ready When You Have Investable Revenue

The standard to become investment-ready has changed and it now requires a systematic go-to-market strategy. Savvy venture investors are no longer distracted by a shiny new product and an ultra-large total addressable market.

The application of existing technology to a new problem and a market large enough to enable the big, fast growth required by venture capitalists will still get our attention. Combine that with initial customers and revenue, and you can secure an initial meeting with early stage-relevant investors.

To get beyond an initial exploratory conversation with an VC fund associate or angel investor, you need to show market traction that is the intentional result of a systematic go-to-market plan. That’s investable revenue.

Investable Revenue

The first step in getting to investable revenue is to differentiate between market development activities and sales activities. If you have not yet found product-market fit,  dedicate your limited resources on market development activities, not sales activities.

Sales

Sales is the pursuit of revenue for the purpose of profit. For sales activities to be performed well and efficiently, you must first go through what Mark Leslie coined the Sales Learning Curve. That is, sales presumes you know your ideal customer profile. Sales presumes you’ve defined and validated what market qualified lead (MQL) and sales qualified lead (SQL) means for your business. Sales presumes that you’ve written, tested and validated a playbook whereby known and repeatable sales activities produces known and repeatable revenue results.

In other words, sales presumes you already have product-market fit.

Market Development

On the other hand, market development is the pursuit of revenue for the purpose of learning. Market development activities propel founders through the Sales Learning Curve (and as Mark Leslie notes, those activities are led by a Renaissance Rep – or what we call, a Market Developer – not a sales person).

Learning precedes revenue because not all revenue is created equally (nor is all revenue investable).

Here’s a true scenario that unfolds on a weekly basis for us at GrowthX Capital. We’re introduced to a founder or after we review a pitch deck we’re interested enough to have a 30 minute conversation. At some point in our conversation, the founder shares their current traction in terms of their current MRR or ARR.

It’s not uncommon for this to a material amount of revenue relative to their early stage. Now that software is easier and less expensive to build, and there is an abundance of development resources, founders must win revenue earlier. That earns them the initial meeting.

Where things start to go wrong and signal to us that are likely to pass on the investment opportunity is when we dig into the details of their revenue and ask the founder to walk us through the entire revenue journey starting with how and when they first met the customer. 

Oftentimes, the customer was introduced by the program manager or mentor from an accelerator that they attended. That’s great news! Why work hard to earn your learning opportunities if they can be introduced to you via email?

The problem is that the founder pursues that customer at all costs, regardless of whether or not they are a good fit. The founder marshals a significant amount of the startup’s limited resources behind winning revenue from this customer.

There is no hypothesis to validate about whether or not this customer type prioritizes the problem that the startup solves more or less relative to other customer types. There is no mapping of the journey from first meeting to signed contract to identify potential points of friction that the founder can reduce for the next customer to optimize their sales cycle.

Which is to say, there is no systematic go-to-market strategy that gives us, as investors, the confidence that the founder is using their limited time (and, ultimately, our capital) to identify the customer type and acquisition activities that are likely to lead to the most predictable, profitable and scalable revenue.

A systematic go-to-market plan is the key to investable revenue (and finding product-market fit).

There’s no more important go-to-market strategy than identifying your Ideal Customer Profile.

Ideal Customer Profile

When most startups attempt to identify who their customers are they use a Business Model Canvas or a generic persona exercise. Those are great tools at the ideation phase. When you transition from ideation to seed stage, you need to demonstrate that you’ve captured a specific target customer (not company or industry) that will lead to actual results.

At the early-stage before you have found product-market fit, market development is all about who you can help the most right now with your MVP. You need to identify the person who feels the pain most acutely that you can solve right now with your MVP (not based on their product development roadmap) and who has a demonstrated willingness and ability to do business with early-stage companies and unproven solutions. That’s your Ideal Customer Profile (ICP).

You need to understand what they’re reading, and keep up with industry trends that matter to them. You need to know what their jobs are specifically and the metrics they’re responsible for.

Without that level of intimacy with a customer (not a company), you cannot communicate that you understand them, their industry, and their job. If you’re successful, you’ll resonate with them because they’ll immediately know why you’re reaching out.

It’s alluring to think that, all things being equal, targeting big companies with big budgets and less price sensitivity is better. But, all things in market development are not equal.

Is the need being solved generally known at a big company so that decision makers with layers of people protecting their time and budget will nonetheless move quickly to have that need resolved? And do you have the runway to withstand a high-touch, long sales cycle?

The most important part of an Ideal Customer Profile is the Customer. The individual who feels the burden of their current problems, has a need that must be solved and will feel the impact of having that issue resolved.

When building your ICP, push yourself to go beyond company generalizations and focus down to an individual buyer. It’s hard to get to investable revenue if your ICP is not focused on a specific individual.

ICP is important enough that we created an ICP Starter Kit that includes everything you need to identify the people who are most likely to become a paying customer. It includes:

  • A full-length recording of our exclusive ICP workshop that we run with founders to help them understand how to go to market;
  • Step-by-step instructions for creating your ICP; and
  • An ICP template to apply what you’ll learn immediately to your startup.

Click here to download your copy.

Conclusion

It’s no longer enough to have a pitch deck that features a large TAM and a data room with a few contracts from early customers. Being Investor-ready now means having customers and revenue that resulted from a systematic go-to-market strategy.

As a venture investor, we know that the challenge of winning customers and growing revenue is not a problem that money can solve, unless you are following a systematic go-to-market strategy.

Investable revenue that results from a systematic go-to-market strategy is table-stakes to satisfy the new standard of investor-readiness. Make sure to avoid the common mistake of confusing sales activities with market development activities, and laser-focus your resources on identifying your ideal customer profile.

Free eBook: How to Win Customers and Grow Revenue

You may also like…

How Accelerators Can Galvanize Local Investors

How Accelerators Can Galvanize Local Investors

A lack of local capital. That’s one of the most common challenges that we hear from accelerator operators (and founders) in nascent startup ecosystems around the world. In reality, when we dig deeper, in the vast majority of those ecosystems the challenge is not a...

A VC Mini-Course for Founders

A VC Mini-Course for Founders

As a tech founder, raising venture capital has become as commonplace as building an MVP.  As I'm sure you've noticed, though, resources for building your MVP are plentiful, but there are very few resources to help you understand what venture capital is, how it behaves...

What to Include in Your Pitch Deck: The #1 Slide You Need

What to Include in Your Pitch Deck: The #1 Slide You Need

The most important slide in your pitch deck is the one slide that is most often missing, buried or has the least amount of useful detail. Every pitch deck I see includes a slide showing off an ulta-large Total Addressable Market. It shows a number with lots of...