1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures (Part 3)

Sramana Mitra: What you’re saying is that you are open to doing even pre-seed investments?

Greg Sands: Yes. They tend to be in more experienced founders or people that we’ve known for a longer period of time. At ACME and Alation, we’ve invested, effectively a company formation.

Sramana Mitra: I think that is the trend. If you are a first-time founder, your journey of getting pre-seed investment is very tough. If you’re a repeat founder and have experience, then everything takes on a different color. The vast majority of our community that is looking for financing is first-time founders.

I tend to tell them to get more validation done. People don’t really know you. People are not betting on your 

track record. They’re betting on your future. That’s harder to prove without some traction and validation from the market.

Greg Sands: That’s certainly right. One of the ways to think about it is that it’s very hard for an investor to make a decision in the context of a two or three-week sales cycle about somebody they’ve never met. This idea of longitudinal data helps. I would say that it’s productive to get to know people that are potential future investors – to keep them a part of the progress of the business.

If they see you articulating goals and then going out and hitting those goals and doing that repeatedly, that’s very impressive. It’s also the case that even if the business changes or evolves, if you end up interpreting that data really well and they see you continuing to navigate to a better place, that’s productive. Even if it turns out that they’re not the right investors, they may say, “The place that you’ve evolved to isn’t for us. If you call my friend, this is the kind of thing that she’s working on.”

Sramana Mitra: The thing that really works like magic is if you can start to show product-market fit and some promise of velocity within that market. If you can do that with a bootstrapped situation, then the probability of funding goes up.

Greg Sands: Product-market fit is magic. The way we’ve tried to operate as a firm is our partners are people who have not only been product managers and shipped products but they’ve shipped great products. The work that we do around customer discovery involves amorphous questions. As a Founder, the fundamental thing that you’re trying to do is to get to product-market fit. Once you get to product-market fit, you’ve earned your way into the next set of problems.

The challenge is product-market fit has a very amorphous definition and it now gets thrown around wildly. People come in and say, “We’ve got one customer. We’ve got product-market fit.” You got people just repeating Marc Andreessen who’s like, “It’s hair on fire. I can’t fulfill demand.” That’s an extreme form of product-market fit. Product-market fit is to find customer profiles for which you consistently serve their needs and consistently win in those deals and had been able to sell repeatedly.

Sramana Mitra: And with velocity. That’s very important.

Greg Sands: The next level is somebody other than one of the founders has been able to sell it repeatedly and with velocity. Then you can go build process. You can build a marketing machine around it. You can’t build a sales and marketing machine if the founder is the only person who can sell it.

We preach that methodology that nothing important happens until you get product-market fit. Then being real and methodical about building sales and marketing machinery which starts out with, “Who’s the first person to hire?” As I’ve written, the idea that someone who’s a multi-skilled Swiss Army knife is usually better at figuring out what that sales cycle looks like than your traditional coin-operated salesperson who’s used to being handed a playbook and handed sales enablement.

Sramana Mitra: Early stage startup sales is a very different ball game than just pure sales. There is still some level of product discovery and some level of process discovery going on. It’s a different animal.

Greg Sands: I couldn’t agree more.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Greg Sands of Costanoa Ventures
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