I recently met with an entrepreneur who was incredulous at the fact that he had steadily gained a small user base for his applications but couldn’t convince investors to fund his company. This wasn’t shocking to me. I’ve learned from experience that prototypes and soft launches do not impress investors.
This usually is a trap that technical CEOs fall into. To a technical (or even just perfectly rational) person a functional prototype is impressive. It proves the ability to execute. To most investors, a prototype is an application with no traction. As we’ve discussed before, traction is a key element of social proof investors look for when evaluating opportunities. Plus, it’s usually not immediately obvious that your ability to acquire a small user base scales with investment.
When pitching cokeheads, it’s important to create a reality distortion field. A gifted pitcher can pump up everyone in the room about how game changing his company will be accompanied by lots of hockey sticks and absurd 3-year projections. With rare exceptions, seeing your product in action shatters this illusion.
If you show a prototype, investors are confronted with reality. Reality is usually not as impressive as the grandiose mental images inspired by a slick PowerPoint delivered with some effective table dynamics. “Oh wait–that’s what it is?” “Why don’t you add this feature and come back to us later?” This rabbit hole leads nowhere.
Even worse–If you’ve soft-launched your service, you further deflate this bubble. Where are your users? Why is your growth so low? It’s not proof that you can execute. After all, investors think developers are cattle. Execution is a given. What’s more important is making sure that hockey stick is real.
When raising money, you may find it much easier if you haven’t written a line of code but have your pitching strategy down. Only build something that you know you can launch and monetize without outside investment. If you need to raise money early–stop building and start talking.