VentureBeat

[Editor's note: This is an Op-Ed piece by Tim Westergren, founder of the popular music service, Pandora]

In November of 2003, on my 348th try, I finally got a ‘yes’ from an investor for Pandora when Walden VC pledged the first piece of what would become an $8M Series B financing.

Larry Marcus (and shortly thereafter Larry Kubal of Labrador Ventures) took a huge gamble on a struggling startup – a gamble that looks more and more promising every day. The success we’re having now though, was far from apparent back then and I’ve had some time to reflect on why the Larrys stepped outside of what might be called standard investment practice to back us.

Pandora (then called Savage Beast Technologies) was bankrupt and weary. We were operating in an industry that was in chaos, and a host of spectacular startup failures dotted the landscape. We sagged under the weight of deferred salary, overdue bridge loans, and impatient creditors and were surrounded by dozens of small companies who had dragged millions of dollars down the drain with a promise that on the surface looked much like the one we were making. We had failed to deliver on a long series of ever-changing economic forecasts (Larry M. had already seen a number of these forecasts in the preceding years), and were struggling to find a winning business model.

As I reflect back on this most unlikely turn, I have come to a belief about what motivates an investor to say ‘yes.’ Or perhaps more accurately, what causes an investor to shift from looking for ways to say ‘no’ to looking for ways to say ‘yes’. For, in my mind, this is the key to raising money. Venture investments by their very nature require a leap of faith (none more than ours) that only comes when an investor becomes aspirational – when he or she wants the investment to make sense (even though statistically deals never do make sense). I believe that shift happens when three things come together for the investor: They personally believe in the entrepreneur; they have a sense (and it’s often just a gut feeling) that the idea could be very big; and finally they have a personal interest or background in the industry that gives them a leg up the diligence curve. Put these together and an investor will start bending their investment criteria.

Larry M. was a musician (or at least a drummer J) and an avid student of digital media. In the Music Genome Project he saw an idea that could be big, and as an expert in the sector he had the confidence to trust his own ability to spot potential, even if it was buried in mud. We also got along very well personally. So we had the three ingredients that tipped him into the aspirational mode. He wanted to make the investment and we started working together to make it happen – convincing his colleagues and other investors.

So my advice, if you’re an entrepreneur trying to raise money, is focus on these three levers. If you’re not the evangelist, ‘people person’ type, find someone who is and make them your front person. Figure out how to convincingly convey a sense that yours is a big idea then go looking for investors who love the stuff you do. Avoid the trap of pitching anyone who will listen. It’s exhausting and demoralizing. Pick your targets carefully from among those with an expressed affinity for your sector – they’ll be the ones with a tendency towards the aspirational.

Investors are like you – they want to create important companies, in businesses they are passionate about, with people they enjoy being around.

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