When venture capitalists hate your company
An entrepreneur wonders who to trust: The venture capitalists dismissing his company or the users who love it.
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(FORTUNE Small Business) -- Dear FSB: Hi, I created and just launched TripnTale.com, a social networking website for traveling. I'm one month away from the public launch and so far I'm only inviting friends and relatives. I've talked to several VCs and they don't think my site will take off, although the feedback from all users is very positive. Should I listen to the VCs or the people who are already using my site?
- Darwin Widjaja, Alameda, Calif.
Dear Darwin,You should listen to both.
According to Jeffrey S. Davis, chairman and founder of Mage, a small-business consulting firm based in Needham, Mass., venture capitalists have become more conservative in the past 15 years. If positive revenue potential isn't immediately apparent, you can't always rely on them to support a good idea.
"You need to show you can make money with your idea before taking it to investors," Davis says. "Fund it yourself, or through investments from friends or family, and show them the sweat equity."
While a positive user response is a definite plus, you need to show some growth so you can demonstrate to VCs that you have a viable business, not just a viable idea.
There's a slight chance you can appeal to investors without proving your growth - if you have concrete market research to illustrate the website's potential. You could start by asking your current users to complete a survey about your website. (Wufoo.com provides a free service which helps you create your own online questionnaire in a few simple steps.) The answers to these questions should reveal information about your users and also about your competition.
Ready to pitch venture capitalists? Here's what you need to prepare.
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