There was once a time when technology reigned supreme, and investors flocked to developments that had the potential for scale and monetization. Back then, the marketplace rewarded innovation and experimentation. That time, however, has passed. In today’s market, technology takes a back seat to the business model.
Modern entrepreneurs must recognize this shift and position their companies accordingly. Increasingly, the ability to scale quickly is becoming a prerequisite for attracting investment of any kind.
My company, BodeTree, has been through two fundraising rounds and is currently in the midst of a third. Over the course of our fundraising journey, we’ve learned a thing or two about what investors want to see.
The quest for scale
The overwhelming majority of investors today care about only one thing: scale.
For those that aren’t privy to tech industry lingo, scale simply refers to a company’s ability to grow its user or customer base. By gaining scale, companies can use their significant market footprint to give them the room they need to figure out how to monetize their product.
Investors are not interested in slick technology that doesn’t lend itself to quick adoption. When my team and I first launched BodeTree, we found ourselves with a great technology that lacked a strong distribution channel. While there was no doubt that software provided a huge benefit to our customers, our direct-to-consumer business model did not lend itself to scale.
Attracting and retaining small businesses was akin to hand-to-hand combat, and potential investors recognized that fact. A quick lesson in the harsh realities of the venture capital market taught us that we needed to focus on how to scale before we could raise money.
Ultimately, it was this process that led us to our institutional sales strategy. Rather than sell directly to small businesses, we chose to sell through large institutional partners like banks. This was a fundamental shift to how we did business, but it provided us with the one thing we desperately needed: a clear path to scale.
Instead of winning over businesses one at a time, now we could focus on individual sales relationships that would result in tens of thousands of potential users. Our core technology remained the same, but our business model evolved. Investors soon took notice, and we went on to raise over $5 million in our first two rounds.
The need for speed
Fixing our business model was a huge step in the right direction, but it was not a panacea. We still had a significant problem on our hands: speed. We had a path to scale, but it was slow and painful.
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Our slow but steady pace has proven to be an ongoing thorn in my side. Investors, acquirers, and other strategic partners value speed almost as much as they value the ability to scale. The fatal flaw of BodeTree’s model was that the tremendous access our institutional channel provided often came at the cost of an 18 month-long sales cycle.
At first, I felt as though there was not much we could do to fix this. After all, banks are not typically nimble organizations. They move on a geologic time scale when compared to startups, and I’ve learned that all the effort in the world cannot change such a deep-seeded behavior.
Fortunately, we managed to improve our situation not by changing the banks, but by changing ourselves. We shifted our focus from partners to our own people. By hiring a sales team with experience in the financial and banking space, we cut our sales cycle down by about two-thirds in most cases. It still takes a long time to sell to banks, but we’re nowhere near the 18-month timeline we used to see.
It all comes down to distribution
When I think back to the early days of BodeTree, I’m embarrassed by my naivete. I truly believed that our innovative technology would be enough to attract customers and investors alike.
Now, six years and many battle scars later, I understand that distribution matters more than technology. Investors seek out businesses that scale rapidly, and if your company hasn’t solved for those two variables, you’re going to have a tough time raising capital.
