Why a Company That Exited for $400M in 18 Months Had Trouble Raising Its First Round of Funding | by Aaron Dinin, PhD | Nov, 2021

Even though millions of people around the world needed a service like Hotmail, the venture capitalists Sabeer was talking with didn’t need free webmail. Instead, when Sabeer originally pitched Hotmail, rather than getting tons of investor interest, he got lots of skepticism and resistance. Sabeer told me that:

Rather than considering the broader market, the investors Sabeer was pitching were responding based on their own personal needs. They didn’t need email because, back in the early days of the Web, your Internet Service Provider (ISP) also gave you an email address. If you were someone fortunate enough to have your own computer and your own Internet access, it meant you already had “free” email. As you might imagine, the venture capitalists of Silicon Valley that Sabeer was talking with were, of course, exactly the types of people with personal computers and personal Internet access. They weren’t Hotmail’s target customers and didn’t have the necessary perspective to appreciate the enormous market demand.

This gap between what your target investors will recognize as a legitimate and valuable problem versus what your target customers actually struggle with is one of the hardest obstacles to overcome in fundraising. Simply put, investors — like all people — only know what they know. As a result, it’s often hard for investors to appreciate the enormity of problems that they’ve never personally experienced.

When you fundraise, there’s a good chance you’ll have to figure out how to overcome this challenge. True, the challenge might not be quite as extreme as the one Hotmail faced, but, in most cases, the VCs you’re pitching won’t also be potential customers. How do you demonstrate the investment potential of solving a problem they don’t personally have?


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