Dharmesh Shah explains why investors prefer funding startups before launch. Once a product exists, investors scrutinize actual metrics instead of buying the vision. A startup valued at $2 million pre-launch may struggle to raise at a higher valuation post-launch, even with positive revenue trends, because the numbers are small enough to invite skepticism.
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The weird thing about entrepreneurship is you learn these things and you learn things that like thousands of people have learned before you. Like, wow, it's like watching a show for the first time, even though all your friends have seen it and they know what the ending is. So what we learned is that it's much easier to sell a vision and a story than it is reality, even though the reality should be better. For instance, like here's the canonical example. Let's say you haven't launched the product yet. And let's say the company is worth $2 million. And let's say you were able to raise money at $2 million. You would think the day after, when you actually have a product out there, the company would be worth more. So maybe it's worth $2,001,000. You would think that the valuation would have gone up because you've now taken some risk out. The product is out there now. Turns out, in most cases, that's not true. Oh, wow. And the reason it's not true is because once you launch your product out there, now there's data to look at. And so once there's data, now there's something for investors to poke at. And if there's something for investors to poke at, They will poke at it. That's their job. We had a revenue-generating product that we'd been selling for a while, and the numbers were trending correctly, but they just weren't big. The resistance from the Series B investors was, well, you guys are expecting a step up in valuation from your Series A, which is reasonable for an entrepreneur to expect because the company was doing well. But we don't feel like you've taken enough risk off the table to warrant that valuation. That's what made it hard. We actually had evidence. We had numbers, and they were all pointing in the right direction, but they were just small.
