5 ms·

Speed is one of the most underemphasized traits of a great VC for founders. While fundraising, a quick yes is the best answer, but a quick no is the second best

by iseff 8y ago

Speed is one of the most underemphasized traits of a great VC for founders. While fundraising, a quick yes is the best answer, but a quick no is the second best. Investors who follow this are truly founder friendly: it's easy to stall and wait for more data, but it's actually helping the entrepreneur to just say no. Those are the investors I want to pitch again later. It's no surprise founders rank speed highly while investors don't. Find investors who care about speed and you'll find a great partner.

jasode 8y ago
>It's no surprise founders rank speed highly while investors don't. There may be some nuance missing in the slide.[1] Based on the article's text, that right column should actually be subtitled "what VCs think the founders rank as most important" instead of "important to VCs". The left side is self-reporting (founder's ranking). But the right side is a "Theory of Mind"[2] exercise (what VCs think founder's ranking would be). I'm not a VC but it seems to me that that "network/rolodex" should be higher rank than "speed". I wonder if founders rank speed above "rolodex" because many startups' bank accounts are near zero and they can't make payroll next week if the VCs drag their feet. Financial duress scenarios like that during fundraising may make founders overemphasize "speed of a deal" to the detriment of other more important factors. [1] https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ [2] https://en.wikipedia.org/wiki/Theory_of_mind https://en.wikipedia.org/wiki/Theory_of_mind
- thrav 8y ago
  I think it’s as simple as, VCs want to believe Founders care about the things they’re investing in heavily. The same way we would all like to think hiring is about qualifications and skills, but really it’s almost always more heavily about relationships.
- wpietri 8y ago
  At least anecdotally, I don't hear much from founders who are that close to zero. In my experience, speed is important because slowness drastically increased cognitive load and somewhat increases risk during fundraising. And also because fundraising is a distraction from why they got into it. One way to think about it is in terms of a graph of number of VCs they have to think about/deal with at once. They're going to start the fundraising process with a list of firms, people, etc. Let's say that each week they take on n new items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many of the conversations in different states. Complexity goes up and/or throughput goes down. It's painful. I suspect for entrepreneurs speed it also code for clarity, in that the "vc no" (and specifically the "California no" [1]) often present as slowness when it's really about something else inside the VC. [1] http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html
logicallee 8y ago
>Speed is one of the most underemphasized traits of a great VC for founders. Definitely. Well that, and writing checks. If you're printing money, live in the United States, and have an IQ of 120 (a bit over 1 std deviation above mean) from a high-tech startup, it should take less than an hour to raise $100,000 seed round on standard terms. Okay, call it a week, even a few weeks or months. Instead, for 90% of founders who match that description, 1 year of full-time work trying to raise the mentioned seed round would not be sufficient to do so (about 2,000 hours of work). In fact "impossible" may be a good description of the possibility for them to do so. Without reference to sources, take a guess: how many first financings for startups will have happened in 2018? Let's work through this together, I'll give you some data, you can use it to work on your guess, then I'll reveal the answer. A good place to start your thinking is that if we take a single academic cohort, say, people graduating college this year, there will be about 2.03 million bachelor's degrees conferred[1]. If we then look at every single year (you can try to raise money any year from when you're 18 to 80), and if we add people who dropped out without an undergraduate degree -- this is true for Bill Gates and Steve Jobs for example -- we might expect, say, around 200,000 seed-stage financings nationally at the very, very lowest-end. On the high end, I'd be pretty shocked if there were 2 million, since that would be 1 out of every 162 people living in the United States receiving seed funding this year (or 0.6%) and not that many people are starting companies every year. As mentioned, that's the number of undergraduates graduating annually. Some more data for you: the number of businesses in the United States less than a year old is around 650,000[2]. Okay, ready? Here is the actual number of startup first financings that will have occurred in 2018: 1,750 [3] That is less than half of the number of undergraduates who are just right now enrolled at just MIT. [4] Would you fund one of them who just started printing money? How about someone who graduated from there (or dropped out) 4, 5, 6, 7, 8, 9, or 10 years ago? Or from Stanford? Or Harvard? Or UC Berkeley? Or indeed anywhere else where they learned to program and start printing money. If you're a VC the answer is "No, you wouldn't". Do these numbers make sense to you? At the moment I can't raise < $150K with paper millionaire cofounders. I can't get a term sheet even at an 80% discount (discount I offered on a safe note). (Okay a VC offered me <$20K for effectively 51% on non-standard terms.). But I shouldn't be doing that - trying to raise money, I mean. I should be selling cereal: because Airbnb, a technical company that was renting apartments over the Internet, found it easier to sell cereal profitably on national television than to get first financing.[5] --- [1] https://www.quora.com/How-many-students-graduate-college-in-the-US-each-year https://www.quora.com/How-many-students-graduate-college-in-... [2] https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm/ https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.ht... [3] https://imgur.com/a/HZIIY0h https://imgur.com/a/HZIIY0h (I just counted pixels, the precision is shown by comparing 2007). Reuploaded from: https://www.economist.com/business/2018/06/02/american-tech-giants-are-making-life-tough-for-startups https://www.economist.com/business/2018/06/02/american-tech-... [4] http://web.mit.edu/facts/faqs.html http://web.mit.edu/facts/faqs.html [5] http://www.businessinsider.com/how-a-box-of-cereal-and-being-like-a-cockroach-helped-airbnb-become-a-billion-dollar-business-2013-3 http://www.businessinsider.com/how-a-box-of-cereal-and-being...

by iseff 8y ago

jasode 8y ago

>It's no surprise founders rank speed highly while investors don't. There may be some nuance missing in the slide.[1] Based on the article's text, that right column should actually be subtitled "what VCs think the founders rank as most important" instead of "important to VCs". The left side is self-reporting (founder's ranking). But the right side is a "Theory of Mind"[2] exercise (what VCs think founder's ranking would be). I'm not a VC but it seems to me that that "network/rolodex" should be higher rank than "speed". I wonder if founders rank speed above "rolodex" because many startups' bank accounts are near zero and they can't make payroll next week if the VCs drag their feet. Financial duress scenarios like that during fundraising may make founders overemphasize "speed of a deal" to the detriment of other more important factors. [1] https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ [2] https://en.wikipedia.org/wiki/Theory_of_mind https://en.wikipedia.org/wiki/Theory_of_mind

thrav 8y ago
I think it’s as simple as, VCs want to believe Founders care about the things they’re investing in heavily. The same way we would all like to think hiring is about qualifications and skills, but really it’s almost always more heavily about relationships.
wpietri 8y ago
At least anecdotally, I don't hear much from founders who are that close to zero. In my experience, speed is important because slowness drastically increased cognitive load and somewhat increases risk during fundraising. And also because fundraising is a distraction from why they got into it. One way to think about it is in terms of a graph of number of VCs they have to think about/deal with at once. They're going to start the fundraising process with a list of firms, people, etc. Let's say that each week they take on n new items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many of the conversations in different states. Complexity goes up and/or throughput goes down. It's painful. I suspect for entrepreneurs speed it also code for clarity, in that the "vc no" (and specifically the "California no" [1]) often present as slowness when it's really about something else inside the VC. [1] http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html

logicallee 8y ago

>Speed is one of the most underemphasized traits of a great VC for founders. Definitely. Well that, and writing checks. If you're printing money, live in the United States, and have an IQ of 120 (a bit over 1 std deviation above mean) from a high-tech startup, it should take less than an hour to raise $100,000 seed round on standard terms. Okay, call it a week, even a few weeks or months. Instead, for 90% of founders who match that description, 1 year of full-time work trying to raise the mentioned seed round would not be sufficient to do so (about 2,000 hours of work). In fact "impossible" may be a good description of the possibility for them to do so. Without reference to sources, take a guess: how many first financings for startups will have happened in 2018? Let's work through this together, I'll give you some data, you can use it to work on your guess, then I'll reveal the answer. A good place to start your thinking is that if we take a single academic cohort, say, people graduating college this year, there will be about 2.03 million bachelor's degrees conferred[1]. If we then look at every single year (you can try to raise money any year from when you're 18 to 80), and if we add people who dropped out without an undergraduate degree -- this is true for Bill Gates and Steve Jobs for example -- we might expect, say, around 200,000 seed-stage financings nationally at the very, very lowest-end. On the high end, I'd be pretty shocked if there were 2 million, since that would be 1 out of every 162 people living in the United States receiving seed funding this year (or 0.6%) and not that many people are starting companies every year. As mentioned, that's the number of undergraduates graduating annually. Some more data for you: the number of businesses in the United States less than a year old is around 650,000[2]. Okay, ready? Here is the actual number of startup first financings that will have occurred in 2018: 1,750 [3] That is less than half of the number of undergraduates who are just right now enrolled at just MIT. [4] Would you fund one of them who just started printing money? How about someone who graduated from there (or dropped out) 4, 5, 6, 7, 8, 9, or 10 years ago? Or from Stanford? Or Harvard? Or UC Berkeley? Or indeed anywhere else where they learned to program and start printing money. If you're a VC the answer is "No, you wouldn't". Do these numbers make sense to you? At the moment I can't raise < $150K with paper millionaire cofounders. I can't get a term sheet even at an 80% discount (discount I offered on a safe note). (Okay a VC offered me <$20K for effectively 51% on non-standard terms.). But I shouldn't be doing that - trying to raise money, I mean. I should be selling cereal: because Airbnb, a technical company that was renting apartments over the Internet, found it easier to sell cereal profitably on national television than to get first financing.[5] --- [1] https://www.quora.com/How-many-students-graduate-college-in-the-US-each-year https://www.quora.com/How-many-students-graduate-college-in-... [2] https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm/ https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.ht... [3] https://imgur.com/a/HZIIY0h https://imgur.com/a/HZIIY0h (I just counted pixels, the precision is shown by comparing 2007). Reuploaded from: https://www.economist.com/business/2018/06/02/american-tech-giants-are-making-life-tough-for-startups https://www.economist.com/business/2018/06/02/american-tech-... [4] http://web.mit.edu/facts/faqs.html http://web.mit.edu/facts/faqs.html [5] http://www.businessinsider.com/how-a-box-of-cereal-and-being-like-a-cockroach-helped-airbnb-become-a-billion-dollar-business-2013-3 http://www.businessinsider.com/how-a-box-of-cereal-and-being...