11 ms·

Pitching your early-stage startup

264 points by matthewhelm 9y ago

ploggingdev 9y ago
Since the guide is partly focused on the YC application process, I have one thought (potentially misconception) that I would like others to weigh in on. For context : I'm working on a Disqus alternative with a focus on privacy, so no ads, no tracking scripts ( https://www.indiehackers.com/@ploggingdev/building-my-first-saas-a-disqus-alternative---the-research-baa806bdfd https://www.indiehackers.com/@ploggingdev/building-my-first-... ). I started working on it a little over two weeks ago and am a few days away from launching. So by the application deadline, I would have only onboarded beta users. Being a single founder who has been working on a product for less than 3 weeks, even if I follow all the advice and craft a well written YC application, I just don't see why YC would consider funding me instead of the numerous other applicants with serious revenue and something that might resemble product-market fit. In other words, I think when talking about crafting a YC application, it's important to discuss that there exists a certain baseline above which such guides really make sense. Sure, I could apply the actionable advice to my application, but will it move the needle at all when I'm a single founder with an MVP? On the other hand the only impressive part about the application might be that I built it in under 3 weeks and onboarded beta users. Thoughts?
- wjossey 9y ago
  I wouldn't jump to say that your story is exactly limiting in terms of why you should or should not apply. If you had launched your product with beta customers, but they were in fact all paying, I'd say that time frame actually makes you even more interesting, not less. Much of the "magic" that happens in technology occurs over remarkably short periods of time when you look at "when the work happens". But, in reality, I'm assuming you've been noodling on the Disqus alternative for a long while, and you just felt comfortable now putting down pen to paper. The bigger concern I would have with applying to YC in your case is the existential question, "Should I take VC money or not?" What I don't see above is an understanding of the why behind financing. How will financing accelerate your business? If I give you $1M, what will you do that makes it worth $10M in X timeframe? While not necessarily a deal breaker for a lot of seed funds, I think anytime one is looking at taking on multiple hundreds of thousands of dollars of investment, they should have some basic answer to that question.
  - ploggingdev 9y ago
    > The bigger concern I would have with applying to YC in your case is the existential question, "Should I take VC money or not?" What I don't see above is an understanding of the why behind financing. How will financing accelerate your business? So it goes back to my earlier point about a baseline for getting accepted which my application would not cut since I don't have hard data to show CAC, LTV and other relevant metrics. It's certainly not set in stone as a small number of very early stage companies do get accepted, but in general products have to be much further along to have a serious chance of acceptance, or at least that's the impression I get.
- briandear 9y ago
  We need your product: email me at discusalternative@icouch.me Your solving a big problem: having commenting that protects user privacy. We are happy to pay if the product works in our use case. Totally off the parent topic, but you do seem to be building something that is incredibly useful, at least for us.
  - pchristensen 9y ago
    This is a great example of a company with a "hair on fire" problem that needs a solution - his first words are "We need your product" and a solicitation to a custom email address. And this is based on a one sentence description and a link to a blog post. This is the kind of reaction you want to see in your customers.
  - ploggingdev 9y ago
    Email sent!
sebg 9y ago
Also worth checking out Patrick's tweet storm following his tweet about this new resource -> https://twitter.com/patio11/status/909800194509758464 https://twitter.com/patio11/status/909800194509758464
- deleted 9y ago
  [deleted]
Kiro 9y ago
> Do not cite gross merchandise volume (GMV) as revenue; if you facilitate a transaction between two parties and collect a fee then the total transaction is GMV but only your cut is revenue. I thought revenue was a "protected" term, like how it's described in the books. In that case isn't GMV the same as revenue? Since that's the money you actually invoice. And your cut is "net revenue", profit or something instead.
- StephenCanis 9y ago
  I think the difference in these cases is that the business never owned or controlled the merchandise being sold. For example I would expect a real estate agent to report their commission as revenue rather than the price of the house sold. However, the price of the houses sold may make good marketing material.
- amrrs 9y ago
  Even though I agree with you in financial terms. GMV shown as revenue doesn't make much of a sense to picture how much a company would do in future which would be something of VC's interest. Of course, A few years back every Uber of X and ecommerce company managed to raise $$$$ showing GMV and maybe it's time to bring some robustness and understand the importance of unit economics. So considering the 'cut' as revenue the inflated number that exaggerates the picture is eliminated (even though both these numbers are directly proportional)
- mikeyouse 9y ago
  Uber deals with this by calling their topline "Gross Bookings" (which includes the driver portion of each ride) and then starting a new P&L below that with Revenue as the new topline. The GAAP guidance instructs companies to make the determination whether they're the principal or the agent with the following criteria: 1. You are the primary obligor in the sales transaction. This means, are you responsible for providing the product or service, or is the supplier? If you’re doing the work or shipping the product, you can probably record at gross. 2. You have general inventory risk. If you take title to the inventory before you sell it to the customer, and you take title to any returns from customers, you can probably record revenue at gross. 3. You can select suppliers. This one is important, since it implies that there isn’t some key supplier operating in the background who’s actually running the transaction. 4. You have credit risk. This means that if the customer does not pay, then you absorb the loss, and not a supplier. However, if you’re only at risk for losing a commission if the customer doesn’t pay, then you’re probably looking at recording the revenue at net. 5. If you get to set the price, then you probably have control over the entire transaction, and you can record the revenue at gross. 6. The amount you earn is fixed. This indicates a commission structure, which is sometimes set up as a fixed payment per customer transaction. If you earn a percentage of what the customer pays, this is also an indicator that you report revenue at net. In either case, you’re really just an agent for someone else. 7. The other two guidelines for reporting at net are just the reverse side of some earlier guidelines. If a supplier has credit risk, or if a supplier is responsible for providing products or services to the customer, then you’re probably looking at reporting revenue at net. There's a pretty comprehensive document from the 'Emerging Issues Task Force' of the FASB here: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220143525&acceptedDisclaimer=true http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=121...
ricokatayama 9y ago
Great stuff! It isn't mindblowing, but insightful enough to take a look. "Focus on nascent greatness" is particularly a great section, because tries to solve some misconception about bizplan and ideas
lpolovets 9y ago
I'm a VC, and this list is great. At a high level, VCs care about three things: team, product/idea, and market. Every VC cares about all of these things, but their prioritizations vary. Most of Patrick's excellent advice can be lumped into these three buckets. Specifically: 1) You have to establish the credibility of the team: you've done impressive things before; you have a deep understanding of what you're working on now; you can read your audience and know how to communicate effectively; you can get a strong intro (nice-to-have); etc. 2) You have to establish the viability of the market: it's big; it has a real problem; the existing competitors are not doing a good job in a clear way; etc. 3) You have to establish the quality of the idea/product: you have a unique insight or approach relative to competitors; the prototype/early validation is strong; etc. A lot of the pitches become mediocre when founders are handwavy in one or more of these areas. For example, if the founder spends a lot of time talking about the market and the product idea, but not enough time explaining why the team is uniquely/extremely qualified to succeed. Or the founder has good answers to product/team/market questions, but their answers show they don't know how to read the audience or explain their idea. (Example of not reading the audience: the investor is non-technical and the founder, who is productizing their PhD thesis, spends 90% of the pitch geeking out about technical details.) Also, I'll add a few tips: - Don't exaggerate or mislead. An investor will pass if they doubt one of your statements ("silverware is a $150 billion dollar market!") or realize that you're spinning facts (e.g. you say Dropbox is a customer, but later it turns out you meant that one of your free users has an @dropbox.com email). If it turns out that one statement you made is false, then investors will assume there might be more. - Understanding risks is better than sweeping them under the rug. If your competitor landscape is missing key companies (mentioned in Patrick's post) or you dismiss some $1b+ company as a competitor without any rationale, your audience will become very skeptical. Admitting something is a problem and explaining how you will address is it much more compelling. - Really know the ins and outs of everything about your company -- at least relative to the audience. If I ask a question or make a product suggestion that the founder hasn't considered, that's a yellow flag. Someone who has been living and breathing their startup for several months should have a much, much deeper knowledge of their domain than an investor who is hearing about it for the first time.
- godzillabrennus 9y ago
softwareqrafter 9y ago
Great writeup, though I have to be completely honest here and say that I love Patrick's writeups for independent hackers, makers, micropreneurs, bootstrappers etc. His writings and practical case studies gave me the power, as a nobody, to make tens of thousands of dollars in order to be more with my wife and child, while doing the work I love. I kind of miss those essays.
- stefantheard 9y ago
  Have you written anything about your experience executing whatever you did to make that happen? I would be interested in hearing more, I always like hearing stories about how developers think of something, make it, and then generate revenue from it. Especially if you were able to make it happen as one person.
- patio11 9y ago
  Really happy to have helped. That kind of company is pretty near and dear to my heart, for all the obvious reasons, and it is very, very in scope for us at Stripe Atlas. Not everything we publish will be laser-targeted to the needs of the Italian diner on the Internet, just like not everything will be appropriate for the want-to-ride-a-rocket-ship folks, but I hope you like some of the stuff coming down the pipe over the next few months.
graycat 9y ago
The OP is from Stripe, and their Stripe Atlas program seems to want to have a startup pay $500 and, thus, have Stripe get the startup a Delaware C-corporation. Good grief: Why would a startup, prior to equity funding, want to be a Delaware C-corporation instead of just an LLC?
- pbiggar 9y ago
  If you are planning to do equity funding, the $500 to Atlas is cheaper than the $4000 to a lawyer to convert your LLC to a C-corp later. Disclaimer: happy Atlas user who did previous C-corps the old-fashioned way and did not enjoy doing that.
  - graycat 9y ago
    Then start with an LLC and, when have an equity check in hand, don't count those chickens before they hatch, use Atlas to convert the LLC to a C-corp or, simpler, just use Atlas to form a C-corp and f'get, or some such, about the LLC.
    - pbiggar 9y ago
      Often, that LLC will have important IP that isn't trivial to convert. (Hence paying the lawyers way more than $500 to fix it). What's the advantage of doing it in 2 (expensive!) steps if you know the plan already?
      - graycat 9y ago
        > convert? I'd wonder about that. But, all the IP is on just a little portable, USB interface, hard drive I own, so I bring a copy with me when the C-corp is formed? Shhh, don't tell anyone! For two steps, easy: For a solo founder and 100% owner, an LLC is a total sweetheart and a C-corp. with a BoD is a forever continuing total pain in the back side. So, very much do not want a C-corp until need it for equity funding where the founder is no longer 100% owner, and such equity funding is chancy. Equity funding is not easy to get. I'm not counting on equity funding and, really, have given up on it -- by the time VCs will write me a check, I will long since have not been willing to accept it. My startup is deliberately designed to get to plenty of money for growth with just my labor and my thin checkbook. And, I'd greatly prefer to remain 100% owner of an LLC.

264 points by matthewhelm 9y ago

Since the guide is partly focused on the YC application process, I have one thought (potentially misconception) that I would like others to weigh in on. For context : I'm working on a Disqus alternative with a focus on privacy, so no ads, no tracking scripts ( https://www.indiehackers.com/@ploggingdev/building-my-first-saas-a-disqus-alternative---the-research-baa806bdfd https://www.indiehackers.com/@ploggingdev/building-my-first-... ). I started working on it a little over two weeks ago and am a few days away from launching. So by the application deadline, I would have only onboarded beta users. Being a single founder who has been working on a product for less than 3 weeks, even if I follow all the advice and craft a well written YC application, I just don't see why YC would consider funding me instead of the numerous other applicants with serious revenue and something that might resemble product-market fit. In other words, I think when talking about crafting a YC application, it's important to discuss that there exists a certain baseline above which such guides really make sense. Sure, I could apply the actionable advice to my application, but will it move the needle at all when I'm a single founder with an MVP? On the other hand the only impressive part about the application might be that I built it in under 3 weeks and onboarded beta users. Thoughts?

wjossey 9y ago
I wouldn't jump to say that your story is exactly limiting in terms of why you should or should not apply. If you had launched your product with beta customers, but they were in fact all paying, I'd say that time frame actually makes you even more interesting, not less. Much of the "magic" that happens in technology occurs over remarkably short periods of time when you look at "when the work happens". But, in reality, I'm assuming you've been noodling on the Disqus alternative for a long while, and you just felt comfortable now putting down pen to paper. The bigger concern I would have with applying to YC in your case is the existential question, "Should I take VC money or not?" What I don't see above is an understanding of the why behind financing. How will financing accelerate your business? If I give you $1M, what will you do that makes it worth $10M in X timeframe? While not necessarily a deal breaker for a lot of seed funds, I think anytime one is looking at taking on multiple hundreds of thousands of dollars of investment, they should have some basic answer to that question.
- ploggingdev 9y ago
  > The bigger concern I would have with applying to YC in your case is the existential question, "Should I take VC money or not?" What I don't see above is an understanding of the why behind financing. How will financing accelerate your business? So it goes back to my earlier point about a baseline for getting accepted which my application would not cut since I don't have hard data to show CAC, LTV and other relevant metrics. It's certainly not set in stone as a small number of very early stage companies do get accepted, but in general products have to be much further along to have a serious chance of acceptance, or at least that's the impression I get.
briandear 9y ago
We need your product: email me at discusalternative@icouch.me Your solving a big problem: having commenting that protects user privacy. We are happy to pay if the product works in our use case. Totally off the parent topic, but you do seem to be building something that is incredibly useful, at least for us.
- pchristensen 9y ago
  This is a great example of a company with a "hair on fire" problem that needs a solution - his first words are "We need your product" and a solicitation to a custom email address. And this is based on a one sentence description and a link to a blog post. This is the kind of reaction you want to see in your customers.
- ploggingdev 9y ago
  Email sent!

sebg 9y ago

Also worth checking out Patrick's tweet storm following his tweet about this new resource -> https://twitter.com/patio11/status/909800194509758464 https://twitter.com/patio11/status/909800194509758464

deleted 9y ago
[deleted]

Kiro 9y ago

> Do not cite gross merchandise volume (GMV) as revenue; if you facilitate a transaction between two parties and collect a fee then the total transaction is GMV but only your cut is revenue. I thought revenue was a "protected" term, like how it's described in the books. In that case isn't GMV the same as revenue? Since that's the money you actually invoice. And your cut is "net revenue", profit or something instead.

StephenCanis 9y ago
I think the difference in these cases is that the business never owned or controlled the merchandise being sold. For example I would expect a real estate agent to report their commission as revenue rather than the price of the house sold. However, the price of the houses sold may make good marketing material.
amrrs 9y ago
Even though I agree with you in financial terms. GMV shown as revenue doesn't make much of a sense to picture how much a company would do in future which would be something of VC's interest. Of course, A few years back every Uber of X and ecommerce company managed to raise $$$$ showing GMV and maybe it's time to bring some robustness and understand the importance of unit economics. So considering the 'cut' as revenue the inflated number that exaggerates the picture is eliminated (even though both these numbers are directly proportional)
mikeyouse 9y ago
Uber deals with this by calling their topline "Gross Bookings" (which includes the driver portion of each ride) and then starting a new P&L below that with Revenue as the new topline. The GAAP guidance instructs companies to make the determination whether they're the principal or the agent with the following criteria: 1. You are the primary obligor in the sales transaction. This means, are you responsible for providing the product or service, or is the supplier? If you’re doing the work or shipping the product, you can probably record at gross. 2. You have general inventory risk. If you take title to the inventory before you sell it to the customer, and you take title to any returns from customers, you can probably record revenue at gross. 3. You can select suppliers. This one is important, since it implies that there isn’t some key supplier operating in the background who’s actually running the transaction. 4. You have credit risk. This means that if the customer does not pay, then you absorb the loss, and not a supplier. However, if you’re only at risk for losing a commission if the customer doesn’t pay, then you’re probably looking at recording the revenue at net. 5. If you get to set the price, then you probably have control over the entire transaction, and you can record the revenue at gross. 6. The amount you earn is fixed. This indicates a commission structure, which is sometimes set up as a fixed payment per customer transaction. If you earn a percentage of what the customer pays, this is also an indicator that you report revenue at net. In either case, you’re really just an agent for someone else. 7. The other two guidelines for reporting at net are just the reverse side of some earlier guidelines. If a supplier has credit risk, or if a supplier is responsible for providing products or services to the customer, then you’re probably looking at reporting revenue at net. There's a pretty comprehensive document from the 'Emerging Issues Task Force' of the FASB here: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220143525&acceptedDisclaimer=true http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=121...

ricokatayama 9y ago

Great stuff! It isn't mindblowing, but insightful enough to take a look. "Focus on nascent greatness" is particularly a great section, because tries to solve some misconception about bizplan and ideas

lpolovets 9y ago

I'm a VC, and this list is great. At a high level, VCs care about three things: team, product/idea, and market. Every VC cares about all of these things, but their prioritizations vary. Most of Patrick's excellent advice can be lumped into these three buckets. Specifically: 1) You have to establish the credibility of the team: you've done impressive things before; you have a deep understanding of what you're working on now; you can read your audience and know how to communicate effectively; you can get a strong intro (nice-to-have); etc. 2) You have to establish the viability of the market: it's big; it has a real problem; the existing competitors are not doing a good job in a clear way; etc. 3) You have to establish the quality of the idea/product: you have a unique insight or approach relative to competitors; the prototype/early validation is strong; etc. A lot of the pitches become mediocre when founders are handwavy in one or more of these areas. For example, if the founder spends a lot of time talking about the market and the product idea, but not enough time explaining why the team is uniquely/extremely qualified to succeed. Or the founder has good answers to product/team/market questions, but their answers show they don't know how to read the audience or explain their idea. (Example of not reading the audience: the investor is non-technical and the founder, who is productizing their PhD thesis, spends 90% of the pitch geeking out about technical details.) Also, I'll add a few tips: - Don't exaggerate or mislead. An investor will pass if they doubt one of your statements ("silverware is a $150 billion dollar market!") or realize that you're spinning facts (e.g. you say Dropbox is a customer, but later it turns out you meant that one of your free users has an @dropbox.com email). If it turns out that one statement you made is false, then investors will assume there might be more. - Understanding risks is better than sweeping them under the rug. If your competitor landscape is missing key companies (mentioned in Patrick's post) or you dismiss some $1b+ company as a competitor without any rationale, your audience will become very skeptical. Admitting something is a problem and explaining how you will address is it much more compelling. - Really know the ins and outs of everything about your company -- at least relative to the audience. If I ask a question or make a product suggestion that the founder hasn't considered, that's a yellow flag. Someone who has been living and breathing their startup for several months should have a much, much deeper knowledge of their domain than an investor who is hearing about it for the first time.

godzillabrennus 9y ago

softwareqrafter 9y ago

Great writeup, though I have to be completely honest here and say that I love Patrick's writeups for independent hackers, makers, micropreneurs, bootstrappers etc. His writings and practical case studies gave me the power, as a nobody, to make tens of thousands of dollars in order to be more with my wife and child, while doing the work I love. I kind of miss those essays.

stefantheard 9y ago
Have you written anything about your experience executing whatever you did to make that happen? I would be interested in hearing more, I always like hearing stories about how developers think of something, make it, and then generate revenue from it. Especially if you were able to make it happen as one person.
patio11 9y ago
Really happy to have helped. That kind of company is pretty near and dear to my heart, for all the obvious reasons, and it is very, very in scope for us at Stripe Atlas. Not everything we publish will be laser-targeted to the needs of the Italian diner on the Internet, just like not everything will be appropriate for the want-to-ride-a-rocket-ship folks, but I hope you like some of the stuff coming down the pipe over the next few months.

graycat 9y ago

The OP is from Stripe, and their Stripe Atlas program seems to want to have a startup pay $500 and, thus, have Stripe get the startup a Delaware C-corporation. Good grief: Why would a startup, prior to equity funding, want to be a Delaware C-corporation instead of just an LLC?

pbiggar 9y ago
If you are planning to do equity funding, the $500 to Atlas is cheaper than the $4000 to a lawyer to convert your LLC to a C-corp later. Disclaimer: happy Atlas user who did previous C-corps the old-fashioned way and did not enjoy doing that.
- graycat 9y ago
  Then start with an LLC and, when have an equity check in hand, don't count those chickens before they hatch, use Atlas to convert the LLC to a C-corp or, simpler, just use Atlas to form a C-corp and f'get, or some such, about the LLC.
  - pbiggar 9y ago
    Often, that LLC will have important IP that isn't trivial to convert. (Hence paying the lawyers way more than $500 to fix it). What's the advantage of doing it in 2 (expensive!) steps if you know the plan already?
    - graycat 9y ago
      > convert? I'd wonder about that. But, all the IP is on just a little portable, USB interface, hard drive I own, so I bring a copy with me when the C-corp is formed? Shhh, don't tell anyone! For two steps, easy: For a solo founder and 100% owner, an LLC is a total sweetheart and a C-corp. with a BoD is a forever continuing total pain in the back side. So, very much do not want a C-corp until need it for equity funding where the founder is no longer 100% owner, and such equity funding is chancy. Equity funding is not easy to get. I'm not counting on equity funding and, really, have given up on it -- by the time VCs will write me a check, I will long since have not been willing to accept it. My startup is deliberately designed to get to plenty of money for growth with just my labor and my thin checkbook. And, I'd greatly prefer to remain 100% owner of an LLC.