At a board meeting last week we were talking about startup products that were working well in different portfolio companies and I was reminded of our early fundraising efforts at Pardot. Three years into Pardot we decided to raise money in an effort to accelerate growth. Personally, I started asking people in my network for intros to VCs and we were connected to one in Boston. I jumped on a call with this particular VC and he said something that has always stuck with me, “I just saw Pardot metrics in one of our most recent board decks. When I saw the intro request, I immediately accepted.” Hmm, I thought, instantly knowing what Pardot customer was also a portfolio company of this particular investor.
As expected, there’s tremendous value in having a customer that’s a portfolio company of a potential investor. Potential investors want to talk to unbiased customers. Potential investors want to understand the good and bad about a startup. What better source than an existing portfolio company where there’s a strong relationship and economic interest?
In this example, Pardot was even more compelling to the VC because it was the source of truth for marketing. By incorporating Pardot’s metrics in the board deck, it was telling this potential investor that it was a mission critical product with strategic value to the business.
Ultimately, after meeting 29 VCs, we decided not to raise money due to soft valuations (this was during the Great Recession) and our continued growth without capital. Today, the calculation is completely different. Capital and valuations are much more entrepreneur friendly.
When raising money, entrepreneurs would do well to find potential investors that already work with one or more of their customers. With this comes instant credibility and interest that’s invaluable when trying to find the right financial partner.