You’ll be able to fundraise once you understand what investors really want to see.

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When I chat with venture capitalists, I’ll usually ask them to share a rough estimate of the number of companies they get contacted by in a given year. Answers usually range somewhere between a dramatic eye roll and a hearty laugh accompanied by some version of the phrase: “I can’t even begin to tell you.”

In other words, they hear from lots of companies. That means, just to get the attention of a VC when you’re fundraising, you’ve got to find a way to stand out. How are you going to do that?

Despite what most entrepreneurs think, I guarantee the solution isn’t to start by telling investors your idea. Of the countless companies investors have heard about by the time you’re contacting them, they’ve almost certainly already been pitched some version of your idea. They’ve probably heard it more than once. Heck, they’ve probably heard it more than once in the past week.

So, if your idea isn’t the thing that’s going to capture the attention of a venture capitalist, what is? That’s exactly the conversation I had with Michael “Fuzzy” Mauldin. Fuzzy is a legendary entrepreneur who invented Lycos, perhaps the most popular pre-Google search engine. Lycos would eventually raise millions of dollars in venture capital and ultimately exit for over $12 billion.

The success of Lycos wasn’t because it was the only search engine company in the world. In fact, at the time, dozens of search engines were competing for market share, meaning the idea for Lycos wasn’t unique. Instead, Lycos had something much more valuable than a unique idea, and that’s what ultimately propelled it to success.

{*} Fuzzy’s story is based on a podcast and interview I conducted with him on July 9, 2021. Quotes have been edited for clarity.

Fundraising without email 🔗

Admittedly, a search engine startup that existed before Google might seem like a strange example when trying to teach entrepreneurs about fundraising in 2021. But that’s why I like it. Back when Lycos launched in 1994, most people still didn’t have email addresses.

In a world without email, how would you share your startup idea with potential investors?

If you were like most entrepreneurs at the time, you would send business plans or a company prospectus via the mail. This meant VC offices were filled with piles upon piles of physical papers. These huge stacks were colloquially known as “the slush pile.” If you wanted to raise capital, it meant your company needed something to help it stand out from — quite literally — the enormous piles of competition.

Fuzzy recounted what it was like back when he was fundraising for Lycos:

I remember when we were going public. We’d go into all these venture capitalists and you’d walk in and there’d be stacks and stacks of prospectuses over the floor, on the desk, there were prospectuses everywhere.

Even though we’re long past the days of sharing physical business plans (thankfully!), as you fund-raise I suggest you maintain a mental image of what it was like back then. Imagining those huge slush piles gives a clearer sense of exactly what you’re competing against.

In contrast, when you walk into a VC’s office today, you’ll most likely encounter a slick, clean, well-organized, and relatively quiet office with a minimalism that’ll make you feel as though you have the investor’s full attention. But that’s only because the thousands of other entrepreneurs competing for that investor’s attention are being obfuscated by an email inbox.

Don’t be fooled. The slush pile is still there, and you still have to escape it. How are you going to do that?

Investors invest in businesses 🔗

In addition to helping entrepreneurs better visualize the overwhelming amount of startups competing for the attention of venture capitalists, I like sharing the story of Lycos because it also illustrates the best way to overcome the challenge. In part, that’s because Fuzzy didn’t start Lycos with the intention of launching a successful startup. Instead, Fuzzy built Lycos to help solve a problem. Specifically, Lycos helped people search the Web back before web search was a solved problem. Or, as Fuzzy puts it:

I didn’t [sart Lycos] looking to be a business. I had an idea and discovered that business was the only way for the idea to live.

Fuzzy is making an important distinction here between entrepreneurship and business. Entrepreneurship is about helping people solve problems. In contrast, businesses are designed to generate revenue. Those are two different goals. As a result, a business might not be the best way to solve a problem. In fact, businesses are rarely the best way to solve problems because businesses, themselves, create lots of new challenges.

In the case of Lycos, Fuzzy was building a search engine at a time when the only companies offering searches of large information sets — companies you may have heard of like LexisNexis — charged lots of money for their search products. Lycos wanted to make web search freely accessible to everyone, but providing that service was still expensive. The best way to solve the problem of giving people free web search was to find other ways of monetizing on users. Monetizing required including advertising, and selling advertising meant building a business. As a result, Lycos became a business, but it didn’t start that way.

Understanding that the idea for Lycos didn’t begin as a business idea is important. It means if Fuzzy had approached VCs with his idea for free web search, they wouldn’t have invested. In fact, they couldn’t have invested because investors don’t invest in ideas. They need to generate a return on their investments, which means they can only invest in businesses. As a result, Fuzzy had to pitch VCs a business. And that’s exactly what he successfully did after launching the idea. According to Fuzzy, here’s how he and the early Lycos team pitched investors:

We’d walk in and we’d say we’ve got 4 million eyeballs and we’re looking for someone to help us make it 40 million eyeballs. That’s an easy business proposal. It’s easy to explain to someone why they should invest with you when you’re resource limited, and it’s keeping you from making even more money. That’s a good proposition to give to investors.

Notice how Fuzzy didn’t try to get investors interested by talking about his idea for a search engine. Instead, Fuzzy got investors interested by focusing on his traction. Fuzzy’s 4 million users, and the fact that advertisers were already paying to access them, proved to venture capitalists that he had a product people wanted, which meant he had a business worth investing in.

What proves your business? 🔗

As the story of Lycos reminds us, ideas alone aren’t good enough to excite investors. In fact, investors can’t get excited about ideas because they don’t know whether an idea — even if it solves a real problem — is capable of becoming a profitable business.

Despite the fact that investors invest in businesses, most of the countless pitches they receive are pitches for ideas. That’s bad for them because it leaves them with a huge slush pile of ideas they have to struggle through in order to find valuable investments.

Luckily, what’s bad for investors creates a great opportunity for entrepreneurs who understand what investors really need to see.

If you’re a fundraising entrepreneur, the way to get an investor’s attention isn’t to pitch yet-another-idea they’ve already heard dozens of times. Instead, the way to get an investor’s attention is to show off your traction. What’s your equivalent of Fuzzy’s 4 million users?

When you show VCs the kind of traction that proves you’ve got a real business, they’ll instantly notice you and your company, and they’ll want to learn more. It’s not a guarantee of funding, but it’ll at least get you out of the slush pile and into a real conversation about investing in your startup.

Listen to Fuzzy’s entire story by searching for “Web Masters” on Apple, Google, Spotify, Stitcher, or wherever you listen to your favorite podcasts.