The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way to pitch a startup idea to investors?” is written by Andrew Filev, founder and CEO of Wrike.
I’ve always been conservative when it comes to fundraising. I bootstrapped Wrike, and we had over 2,500 customers before I began pitching to investors. There’s an old saying, “It’s easiest to raise money when you need it the least.” My focus in those early days was to prove we had a working model that was generating revenue so I could pitch investors the strength of the business—not just the strength of the idea.
That’s where a lot of young entrepreneurs stumble in their strategy. When money flows as easy as it has in Silicon Valley during the last decade, many founders view investment capital as a way to finance the design and launch of their products. My philosophy is that you should bootstrap your minimum viable product, and then look for investment to help you scale your success.
See also: How I Pitched My Startup to Russell Simmons
This is to your advantage as a first-time founder because you’ll get much better terms if your business already has traction. If you ask for money with an unproven idea, you probably won’t get very far. And if you do, you’ll have to make concessions, like giving up a lot of equity for a low price. However, if you can show investors concretely that every two dollars you spend on customer acquisition gets a $10 return, they’re going to want in.
Getting to that point is no simple feat, though. It starts with building a product users love. It doesn’t necessarily need to be a mass-market product that will appeal to millions of people, but your target market should get immediate value. These are your evangelists, and they will give you great reviews and referrals. VCs will also want to talk to them to learn why this is a business that can solve the same problem for many others.
Once you’ve got a loyal base of champion users, you can start to hone the efficiency of your marketing. If $5,000 in AdWords brought in your first 50 customers, try to get your next 50 for $2,000. The more optimized your machine, the more likely you are to get an investment with favorable terms.
In the book Great by Choice, Jim Collins uses the analogy of “bullets and cannonballs,” where you use low-cost tests (or bullets) to learn how to solve a problem, and once you’ve locked in, you dump more resources (or cannonballs) into conquering it for good. Your work in bootstrapping is to aim the bullets. Once you’re on target, investment money is your cannonball.
When you do decide it’s time to pitch, get a warm introduction to a VC. I’m a big believer in finding experienced mentors, and this is another area where they might help. Incubators like YC or Founder Institute offer pre-built support networks with a great reputation for building success, and I recommend trying to get into one of those programs.
Other than that, always think about what’s next. You built a product—what’s next? You generated a million in revenue—what’s next? You closed a round of funding—what’s next? Businesses aren’t built by one defining moment, but rather by a series of small steps. Keep your mind open, and if you’re not sure what to do, focus on solving one problem at a time.
