9 ms·

How Justin Kan fundraises

121 points by lukasschwab 9y ago

philfrasty 9y ago
Klaus raised the money, Justin is just the mascot
sharemywin 9y ago
what if startups got appraisals like real estate. As well as "subject to" appraisals like property that needs repairs. So, I'd value the company at X but, I'd value the company at X+Y if you added a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many new accounts in this time frame.
- rstephenson2 9y ago
  You can do that, and often times debt providers will attach those sorts of provisions: "we'll lend you X and you can keep it as long as you achieve Y or maintain Z". One of the challenges with that is that you can set up domino effects where you miss one goal, and then as a result you don't get the money you need to hit the next and it spirals downwards.
  - tedmiston 9y ago
    I've been in a company like this and know of others — it's a real pain point when those metrics that funding is tied to turned out to be less relevant than you initially thought or distraction more than true traction indicators. For example, measuring the number of sessions a user has in your app vs the amount of engaged time per user.
deleted 9y ago
[deleted]
keithwhor 9y ago
> Consistently, if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late. One million times this. Especially for entrepreneurs (like myself) with an engineering background, this is something that’s hard to grasp intuitively at first. If you’re asked for financial projections, for example, it’s already over. You can win that investor over more reliably by following up a month later with, “[famous Angel investor] joined our round,” than responding with a spreadsheet. I’m nowhere near Justin Kan’s level of experience and expertise, but another favorite piece of advice it can take some time to internalize is: “if you didn’t get a term sheet, it wasn’t a good meeting.” This doesn’t mean investors dislike you or won’t invest if you don’t get a term sheet right away. It’s that when you find an investor highly aligned and / or motivated to invest, they will move quickly, like sub-24h quickly. The easiest way to burn yourself out as an entrepreneur is getting too attached to “not good meetings”, with “but I really like that firm!” Or “and they were so nice and understood our business!” You’ll drive yourself nuts wondering why everybody says nice things and yet nobody wants to invest. The saying is not that it’s a BAD meeting if there’s no term sheet, just that it wasn’t a good meeting. Stay grounded. It can be a long journey. Remember: actions speak louder than words, always, and the fundamental action an investor can take to show support is to invest. [Edit] I will add that, in my own experience, investors can be all over the map and there’s actually no such thing as “one size fits all” fundraising advice. Fundraising is a hyperpersonal activity that’s just as much about relationship building as anything else, if not moreso. You’ll want your first checks from investors that don’t fuck around (see above advice) and who are willing to bet on you. As you grow as an entrepreneur and become more confident in your ability to build relationships and “bullshit detect”, you’ll become more comfortable with long term relationships. In my admittedly limited experience, the people who spend time with you and learn to appreciate you and your business before they invest are the most valuable to both your bottom line and personal psychology. But, hey, the above one size fits all advice is still a good launchpad :). If you’re starting your fundraising journey, good luck, it’s a hell of a ride but if you’re deeply passionate about your business it is more than worth it!
- jacquesm 9y ago
  I work with quite a few (European, not SV) investors and while with some investors follow on questions might indicate dis-interest I have never seen a case of that. Asking for follow on questions is usually done after an internal discussion between partners has taken place and whoever is champion of the deal has been asked questions to which they did not yet have the answers. Almost all deals that I've seen that eventually were closed had quite a bit of back-and-forth over details like that prior to agreeing on terms.
deleted 9y ago
[deleted]
birken 9y ago
Story time: In early 2012, the startup I was working for, Thumbtack, had struggled for 6-8 months to raise a Series A but finally got to the finish line. Around the same time, Justin Kan co-founded a company called Exec, and within a few months raised a "party round" that was nearly as much as our Series A, with a valuation twice as high. Our company was years old and had serious traction, Kan's company had done essentially nothing. At the time it was a quite upsetting turn of events. But there was a valuable lesson... How Justin Kan fundraises is irrelevant for you and me, because we aren't Justin Kan. There was no rational basis for Exec to have been worth so much at that time, but when you are Justin Kan that isn't relevant. And look, good for the Justin Kans of the world who can take advantage of that, but that doesn't mean it is helpful advice for the rest of us. I can say from experience that going into VC meetings with a bunch of false bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly irrelevant advice. By far the most important thing for the average founder is getting the VCs to look up from their phones and care or be interested in your pitch, which isn't going to happen unless you've created the right fundraising dynamic for your company. One of my favorite Paul Graham essays of all time, "How To Raise Money" [1], fully captures what my experience was in the fundraising realm, both when it went well and when it went poorly. I'd point you there for more practical advice. 1: http://paulgraham.com/fr.html http://paulgraham.com/fr.html
- jacquesm 9y ago
  Exactly. It's FOMO rather than anything tangible, which can work quite well as long as you don't mess up completely. Anybody remember color.com? https://www.fastcompany.com/3002341/color-failed-what-happens-its-41-million https://www.fastcompany.com/3002341/color-failed-what-happen... I don't think Bill Nguyen would be able to repeat that sort of raise.
  - kayhi 9y ago
    It’s funny in life that a person who may not be able to that type raise again doesn’t need to do one (ie. has enough money to never work again)
    - 9y ago
sethbannon 9y ago
Dangerous advice. From the article: "if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late. The entrepreneur has failed by not creating the type of confidence necessary to de-risk the investment." If you want investors that actually understand what you do generally, or even better yet understand what you do on a technical level, this is terrible advice to follow. Investors literally become co-owners of your company, and there is no easy way to get rid of them. Raising from the right people slowly is better than raising from just anyone fast. It's a positive sign when investors actually dig in with real substantive questions after thinking things over, and an indication of how thoughtful they'll be as co-owners.
- lpolovets 9y ago
  As an investor, I agree with you and disagree with the article. I dig in with factual questions because I'm excited, not because I'm not. If I'm not interested, that's when I pass instead of asking questions. FWIW the real truth is somewhere in the middle: some investors invest based on their gut, and if they are asking factual questions then that means they are not emotionally interested enough. Other investors invest based on their brain, and if they are not asking factual questions then that means they are not intellectually interested enough. (Or your presentation answered all of their questions, which is very rare.) Interpreting the actions of both investors in the same way is a mistake.
  - keithwhor 9y ago
    Hey Leo, There's probably no objective truth, but let me offer a perspective: a founder sees 1 founder (themselves) and 100 VCs and a VC sees 100 founders and 1 VC. In the same way you look for patterns in founders, teams, products and markets to determine who to invest in, founders look for patterns in VCs to see who's likely to invest. A useful and common pattern founders pick up on is VC tire kicking: the ones who are interested enough to dig in but not excited enough to invest immediately. Asking questions in a meeting is one thing, but following up in an e-mail with an itemized list of; "how do you think about [x], what about [y] competitor, have you thought about [z]" is a surefire indicator that an investor's not willing to move right now (not enough confidence in founder, team, product or market) and, as a founder, you need to move on. So you may sit here and proclaim, "hey, this advice isn't accurate, because I ask questions when I'm interested!" Well... yeah, sure. There's (1) selection bias involved, you're a well-known VC and you're likely meeting with, on average, more experienced founders (by the time a first-time founder gets to you they may have been through an accelerator, faced tens of rejections or more, etc.) and this can lead to more mature relationship building, and (2) for every 1 in 100 founders you invest in this way, you passed on the other 99, making you one of their 99 they need to pattern match and learn from. Viewed through this lens, founders should absolutely take this advice to heart. If you, as an investor, really wanted to invest in a founder and they snubbed you a bit after a follow up question (not rudely, they just have to choose where to focus), would you suddenly lose interest, or would you pursue a great deal / great opportunity? I have a hard time believing you'd let somebody you thought was the next Zuck walk out of the room without a term sheet. Founders should try to find the investor who thinks they're the next "Zuck", or some reasonable facsimile of such given the product and market. Hope that helps clarify. I've seen friends put through the ringer by getting too caught up in the weeds with VCs that clearly weren't interested, or were tire-kicking. Can happen to amazing founders and it's wildly distracting.
lisabethhan 9y ago
Hey, I'm Lisa @ Atrium - here to answer any questions. I run our fundraising bootcamp Atrium Academy w/Justin to help founders meet the right investors and raise a great Series A. Check it out/Apply here for our next one in March: www.atrium.co/academy
- jacquesm 9y ago
  Maybe it would be good to apply some 'star power' discounts here and there, what works for Justin most likely will not work in the same way or even at all for others. Justin has the pick of the litter when it comes to raising funding and some of the advice given really does not translate to 'the real world' of founders doing their first raise.
  - lisabethhan 9y ago
    Hey Jacques, you're absolutely right given Justin's background. We started Atrium Academy to help democratize the fundraising process for founders (ie. speaking with first time founders who just raised their Series A, reviewing pitch decks and narratives with mentors, being matched with recommended investors based on industry and expertise)
    - scotthtaylor 9y ago
      So you're introducers, taking a 5% fee?
      - lisabethhan 9y ago
        Hey Scott, Atrium Academy doesn't take any fees, or charge any money. Our mission is to help founders by offering free, educational workshops for the startup community. Check it out here: atrium.co/academy
  - sisun1030 9y ago
    I'm one of the founders (82 Labs, Inc.) who attended the Academy. Met top tier VC partners (all decision makers in their funds) on the spot, pitched, got great feedback, and found the process extremely efficient. One of them gave us term sheets for Series A few weeks (and more meetings) later :) Highly recommend.
mfringel 9y ago
How much of this is relevant to other people who are not Justin Kan?
- tw1010 9y ago
  Just learn to emulate his mannerisms. Fake it till you make it.
  - teej 9y ago
    Hard to fake a billion dollar exit.
    - pedalpete 9y ago
      Isn't it multiple billion dollar exits?
      - pkaye 9y ago
        What were the other major exits other than twitch.tv?
        syassami 9y ago
        cruise.
        irq11 9y ago
        He had nothing to do with Cruise.
        TaylorGood 9y ago
        He was in Cruise seed round. (Cruise was funded entirely by Vogt and a small circle of investors, including Kan and other Twitch veterans.)
fatjokes 9y ago
Still an interesting read, but should be framed less as advice and more as a day-in-the-life piece on a rockstar founder with a lot of cred.
beambot 9y ago
Justin's previous article was much more helpful on SeriesA strategy & tactics: https://blog.atrium.co/the-founders-guide-to-raising-a-series-a-venture-financing-1de4f5aff312 https://blog.atrium.co/the-founders-guide-to-raising-a-serie...
kyleschiller 9y ago
It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0]. Read the article out of curiosity, but understand that this was in no way a normal process. [0] https://www.crunchbase.com/funding_round/atrium-lts-series-a--8f3868a1#section-overview https://www.crunchbase.com/funding_round/atrium-lts-series-a...
- tedmiston 9y ago
  > It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0]. In the article somewhere it suggested that Justin was more or less testing the waters and getting investors interested as future customers in their product. It sounds like a weird mix between sales and fundraising, but a smart interesting one none the less. If 100 investors write $50k checks, it's a small amount of money to them compared to the value the legal automation software could potentially deliver. 100 * $50k = $5M let's say for 20% of the company --> $25M round for them. Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't just raise $10M off that many checks.
rdlecler1 9y ago
As someone who has been on both sides of the table, this article is basically irrelevant for 99.9% of founders. There is an HOV lane for successful entrepreneurs that the rest of us don’t get to take.
maxcan 9y ago
Hi everyone, I'm Max and I run AI at Atrium. @birken's point is absolutely correct that having sold a previous startup for nearly 1B really is a big part of what makes this strategy viable. But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max <AT> atrium.co.

121 points by lukasschwab 9y ago

Klaus raised the money, Justin is just the mascot

what if startups got appraisals like real estate. As well as "subject to" appraisals like property that needs repairs. So, I'd value the company at X but, I'd value the company at X+Y if you added a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many new accounts in this time frame.

rstephenson2 9y ago
You can do that, and often times debt providers will attach those sorts of provisions: "we'll lend you X and you can keep it as long as you achieve Y or maintain Z". One of the challenges with that is that you can set up domino effects where you miss one goal, and then as a result you don't get the money you need to hit the next and it spirals downwards.
- tedmiston 9y ago
  I've been in a company like this and know of others — it's a real pain point when those metrics that funding is tied to turned out to be less relevant than you initially thought or distraction more than true traction indicators. For example, measuring the number of sessions a user has in your app vs the amount of engaged time per user.

deleted 9y ago

[deleted]

keithwhor 9y ago

> Consistently, if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late. One million times this. Especially for entrepreneurs (like myself) with an engineering background, this is something that’s hard to grasp intuitively at first. If you’re asked for financial projections, for example, it’s already over. You can win that investor over more reliably by following up a month later with, “[famous Angel investor] joined our round,” than responding with a spreadsheet. I’m nowhere near Justin Kan’s level of experience and expertise, but another favorite piece of advice it can take some time to internalize is: “if you didn’t get a term sheet, it wasn’t a good meeting.” This doesn’t mean investors dislike you or won’t invest if you don’t get a term sheet right away. It’s that when you find an investor highly aligned and / or motivated to invest, they will move quickly, like sub-24h quickly. The easiest way to burn yourself out as an entrepreneur is getting too attached to “not good meetings”, with “but I really like that firm!” Or “and they were so nice and understood our business!” You’ll drive yourself nuts wondering why everybody says nice things and yet nobody wants to invest. The saying is not that it’s a BAD meeting if there’s no term sheet, just that it wasn’t a good meeting. Stay grounded. It can be a long journey. Remember: actions speak louder than words, always, and the fundamental action an investor can take to show support is to invest. [Edit] I will add that, in my own experience, investors can be all over the map and there’s actually no such thing as “one size fits all” fundraising advice. Fundraising is a hyperpersonal activity that’s just as much about relationship building as anything else, if not moreso. You’ll want your first checks from investors that don’t fuck around (see above advice) and who are willing to bet on you. As you grow as an entrepreneur and become more confident in your ability to build relationships and “bullshit detect”, you’ll become more comfortable with long term relationships. In my admittedly limited experience, the people who spend time with you and learn to appreciate you and your business before they invest are the most valuable to both your bottom line and personal psychology. But, hey, the above one size fits all advice is still a good launchpad :). If you’re starting your fundraising journey, good luck, it’s a hell of a ride but if you’re deeply passionate about your business it is more than worth it!

jacquesm 9y ago
I work with quite a few (European, not SV) investors and while with some investors follow on questions might indicate dis-interest I have never seen a case of that. Asking for follow on questions is usually done after an internal discussion between partners has taken place and whoever is champion of the deal has been asked questions to which they did not yet have the answers. Almost all deals that I've seen that eventually were closed had quite a bit of back-and-forth over details like that prior to agreeing on terms.

deleted 9y ago

[deleted]

birken 9y ago

Story time: In early 2012, the startup I was working for, Thumbtack, had struggled for 6-8 months to raise a Series A but finally got to the finish line. Around the same time, Justin Kan co-founded a company called Exec, and within a few months raised a "party round" that was nearly as much as our Series A, with a valuation twice as high. Our company was years old and had serious traction, Kan's company had done essentially nothing. At the time it was a quite upsetting turn of events. But there was a valuable lesson... How Justin Kan fundraises is irrelevant for you and me, because we aren't Justin Kan. There was no rational basis for Exec to have been worth so much at that time, but when you are Justin Kan that isn't relevant. And look, good for the Justin Kans of the world who can take advantage of that, but that doesn't mean it is helpful advice for the rest of us. I can say from experience that going into VC meetings with a bunch of false bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly irrelevant advice. By far the most important thing for the average founder is getting the VCs to look up from their phones and care or be interested in your pitch, which isn't going to happen unless you've created the right fundraising dynamic for your company. One of my favorite Paul Graham essays of all time, "How To Raise Money" [1], fully captures what my experience was in the fundraising realm, both when it went well and when it went poorly. I'd point you there for more practical advice. 1: http://paulgraham.com/fr.html http://paulgraham.com/fr.html

jacquesm 9y ago
Exactly. It's FOMO rather than anything tangible, which can work quite well as long as you don't mess up completely. Anybody remember color.com? https://www.fastcompany.com/3002341/color-failed-what-happens-its-41-million https://www.fastcompany.com/3002341/color-failed-what-happen... I don't think Bill Nguyen would be able to repeat that sort of raise.
- kayhi 9y ago
  It’s funny in life that a person who may not be able to that type raise again doesn’t need to do one (ie. has enough money to never work again)
  - 9y ago

sethbannon 9y ago

Dangerous advice. From the article: "if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late. The entrepreneur has failed by not creating the type of confidence necessary to de-risk the investment." If you want investors that actually understand what you do generally, or even better yet understand what you do on a technical level, this is terrible advice to follow. Investors literally become co-owners of your company, and there is no easy way to get rid of them. Raising from the right people slowly is better than raising from just anyone fast. It's a positive sign when investors actually dig in with real substantive questions after thinking things over, and an indication of how thoughtful they'll be as co-owners.

lpolovets 9y ago
As an investor, I agree with you and disagree with the article. I dig in with factual questions because I'm excited, not because I'm not. If I'm not interested, that's when I pass instead of asking questions. FWIW the real truth is somewhere in the middle: some investors invest based on their gut, and if they are asking factual questions then that means they are not emotionally interested enough. Other investors invest based on their brain, and if they are not asking factual questions then that means they are not intellectually interested enough. (Or your presentation answered all of their questions, which is very rare.) Interpreting the actions of both investors in the same way is a mistake.
- keithwhor 9y ago
  Hey Leo, There's probably no objective truth, but let me offer a perspective: a founder sees 1 founder (themselves) and 100 VCs and a VC sees 100 founders and 1 VC. In the same way you look for patterns in founders, teams, products and markets to determine who to invest in, founders look for patterns in VCs to see who's likely to invest. A useful and common pattern founders pick up on is VC tire kicking: the ones who are interested enough to dig in but not excited enough to invest immediately. Asking questions in a meeting is one thing, but following up in an e-mail with an itemized list of; "how do you think about [x], what about [y] competitor, have you thought about [z]" is a surefire indicator that an investor's not willing to move right now (not enough confidence in founder, team, product or market) and, as a founder, you need to move on. So you may sit here and proclaim, "hey, this advice isn't accurate, because I ask questions when I'm interested!" Well... yeah, sure. There's (1) selection bias involved, you're a well-known VC and you're likely meeting with, on average, more experienced founders (by the time a first-time founder gets to you they may have been through an accelerator, faced tens of rejections or more, etc.) and this can lead to more mature relationship building, and (2) for every 1 in 100 founders you invest in this way, you passed on the other 99, making you one of their 99 they need to pattern match and learn from. Viewed through this lens, founders should absolutely take this advice to heart. If you, as an investor, really wanted to invest in a founder and they snubbed you a bit after a follow up question (not rudely, they just have to choose where to focus), would you suddenly lose interest, or would you pursue a great deal / great opportunity? I have a hard time believing you'd let somebody you thought was the next Zuck walk out of the room without a term sheet. Founders should try to find the investor who thinks they're the next "Zuck", or some reasonable facsimile of such given the product and market. Hope that helps clarify. I've seen friends put through the ringer by getting too caught up in the weeds with VCs that clearly weren't interested, or were tire-kicking. Can happen to amazing founders and it's wildly distracting.

lisabethhan 9y ago

Hey, I'm Lisa @ Atrium - here to answer any questions. I run our fundraising bootcamp Atrium Academy w/Justin to help founders meet the right investors and raise a great Series A. Check it out/Apply here for our next one in March: www.atrium.co/academy

jacquesm 9y ago
Maybe it would be good to apply some 'star power' discounts here and there, what works for Justin most likely will not work in the same way or even at all for others. Justin has the pick of the litter when it comes to raising funding and some of the advice given really does not translate to 'the real world' of founders doing their first raise.
- lisabethhan 9y ago
  Hey Jacques, you're absolutely right given Justin's background. We started Atrium Academy to help democratize the fundraising process for founders (ie. speaking with first time founders who just raised their Series A, reviewing pitch decks and narratives with mentors, being matched with recommended investors based on industry and expertise)
  - scotthtaylor 9y ago
    So you're introducers, taking a 5% fee?
    - lisabethhan 9y ago
      Hey Scott, Atrium Academy doesn't take any fees, or charge any money. Our mission is to help founders by offering free, educational workshops for the startup community. Check it out here: atrium.co/academy
- sisun1030 9y ago
  I'm one of the founders (82 Labs, Inc.) who attended the Academy. Met top tier VC partners (all decision makers in their funds) on the spot, pitched, got great feedback, and found the process extremely efficient. One of them gave us term sheets for Series A few weeks (and more meetings) later :) Highly recommend.

mfringel 9y ago

How much of this is relevant to other people who are not Justin Kan?

tw1010 9y ago
Just learn to emulate his mannerisms. Fake it till you make it.
- teej 9y ago
  Hard to fake a billion dollar exit.
  - pedalpete 9y ago
    Isn't it multiple billion dollar exits?
    - pkaye 9y ago
      What were the other major exits other than twitch.tv?
      - syassami 9y ago
        cruise.
        irq11 9y ago
        He had nothing to do with Cruise.
        TaylorGood 9y ago
        He was in Cruise seed round. (Cruise was funded entirely by Vogt and a small circle of investors, including Kan and other Twitch veterans.)

fatjokes 9y ago

Still an interesting read, but should be framed less as advice and more as a day-in-the-life piece on a rockstar founder with a lot of cred.

beambot 9y ago

Justin's previous article was much more helpful on SeriesA strategy & tactics: https://blog.atrium.co/the-founders-guide-to-raising-a-series-a-venture-financing-1de4f5aff312 https://blog.atrium.co/the-founders-guide-to-raising-a-serie...

kyleschiller 9y ago

It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0]. Read the article out of curiosity, but understand that this was in no way a normal process. [0] https://www.crunchbase.com/funding_round/atrium-lts-series-a--8f3868a1#section-overview https://www.crunchbase.com/funding_round/atrium-lts-series-a...

tedmiston 9y ago
> It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0]. In the article somewhere it suggested that Justin was more or less testing the waters and getting investors interested as future customers in their product. It sounds like a weird mix between sales and fundraising, but a smart interesting one none the less. If 100 investors write $50k checks, it's a small amount of money to them compared to the value the legal automation software could potentially deliver. 100 * $50k = $5M let's say for 20% of the company --> $25M round for them. Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't just raise $10M off that many checks.

rdlecler1 9y ago

As someone who has been on both sides of the table, this article is basically irrelevant for 99.9% of founders. There is an HOV lane for successful entrepreneurs that the rest of us don’t get to take.

maxcan 9y ago

Hi everyone, I'm Max and I run AI at Atrium. @birken's point is absolutely correct that having sold a previous startup for nearly 1B really is a big part of what makes this strategy viable. But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max <AT> atrium.co.