How do I raise funding from investors who don’t believe in the market we’re targeting?

We’re a pre-revenue startup trying to raise funding. We’re launching a product to address an existing market, but investors believe our market no longer exists, despite our target customers telling us they want our product and they would use it. They are even signing up pre-launch. How do I tell investors, who rightly feel they know quite a bit to have reached their position, that they are wrong, or perhaps more that our feedback from users says the market does exist and they would use the app?
We have later stage investors in our industry interested, but the earlier stage investors are not interested.

What you’re seeing is an instance of a general problem: how do you prove that customers will buy your product when you don’t yet have a single one?

You’re right that many investors think they know more than entrepreneurs about this — and to some extent, they’re right, because they’ve often made optimistic investments in dozens of companies whose products they believed in pre-launch, but which turned out to be complete fails afterwards. Investors feel their grizzled cynicism is more likely to be right than your starry-eyed optimism.

Which is a clue to how you counter that. The more evidence you can provide that customers won’t just want your product, but will also buy it and will buy it at the price you propose, the more chance you have of raising money.

I’ve judged a number of startup competitions at business schools where the teams that pitch all included in their presentations a survey or piece of research they did asking potential customers whether they’d buy the product and how much they’d pay. They often seem to do this on the advice of business-school professors. But like many VCs, I view this kind of research as worth almost nothing, since consumers are notoriously bad at predicting their own future preferences. Recall the line wrongly attributed to Henry Ford: that if he’d asked people what kind of car they wanted, they’d have said a faster horse. (See The Mom Test for a better way to find out consumer preferences.)

Since predicting what people will buy is notoriously hard, even for veterans, here are some good ways to bolster your case before you’ve even built your product:

  1. Use the freebie promotions available everywhere to get $100 of free advertising on Google, Facebook and other platforms.
  2. Create campaigns to advertise the product you haven’t yet built.
  3. Build landing pages to point the ads to, and payment funnels to take people’s cash.
  4. Carefully measure the clickthroughs and conversion rates, and report them to your investors.
  5. Immediately refund all the customers who buy, explaining that the product isn’t ready yet, and politely ask their permission to alert them when it is.

PS: Beware of late-stage investors who say they’re interested but you’re too early. That’s usually French for no, with the twist that VCs know there’s option value in having you come back in six months or a year (who knows, your crazy idea just might catch on), and so most of them think they gain nothing by telling you frankly if they think it’s not going to work.

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