You only need one yes

The story

In 1999 Horowitz and Marc Andreessen started Loudcloud, selling computing infrastructure as a service years before anyone called it the cloud. It grew at a frightening pace. Close to 200 people joined in the first six months, and while the market was hot the money to pay for them arrived easily.

Then the spring of 2000 came and the Nasdaq started to fall. Loudcloud needed a large round to keep building, so Horowitz went out to raise $120 million. Most of the investors he pitched said no. A company that had been the hottest name in Silicon Valley a few months earlier had become a hard sell, and every meeting made it feel harder.

That is where he learned what he calls the most important rule of raising money privately: “Look for a market of one.” You are not trying to win over the whole room. You are looking for the single investor who sees what you see, and the other thirty, as he puts it, do not get a vote. In June 2000 Loudcloud closed the round: $120 million at a $700 million pre-money valuation.

It got harder from there. By late 2000 the company had 477 employees. It had forecast $100 million in bookings for the third quarter and booked $37 million. The private market shut completely, so Horowitz took Loudcloud public in March 2001, into the worst market for technology listings in a generation, and had to cut the price from $10 to $6 a share to get it away. The IPO raised $162.5 million. In 2002 he sold the Loudcloud hosting business to EDS for $63.5 million and kept the software, renamed Opsware. In 2007 HP bought Opsware for $1.6 billion.

The same rule runs through that whole sequence. What saved the company each time was not a consensus. It was one counterparty prepared to act when the rest would not. Had Horowitz treated the chorus of no’s as a verdict, there would have been nothing left for the one yes to buy.

Why the rule works is simple arithmetic. A raise is a search, not an average. Rejections do not add up to a judgement on your business; each one is a single data point about a single fund, its timing and its appetite for risk that month. Most of what a no tells you is about them. And the search ends the moment you find the one, however many you passed on the way. Twenty no’s and one yes is a closed round. Twenty maybes is a dead one.

There is a trap in the opposite direction too. If you chase the room, you reshape the deal after every meeting to suit whoever last turned you down, and you arrive at the right investor with a story sanded smooth by the wrong ones. The rule is as much about holding your shape as holding your nerve.