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Ask HN: What's your advice for someone who's raising capital for the first time?

246 points by certainstartup 8y ago

I'm a noob founder raising Angel/VC for my startup, what are the common pitfalls and other things that I need to be aware of?

mirianbert 8y ago
Apply to YC.
brryant 8y ago
Some basic things I've learned along the way: 1. be authentic. 2. don't sell. 3. explain your vision of the future in simple terms
adventured 8y ago
Prepare for the process to be draining, frustrating, and to take a lot longer than you expect. As the owner/operator of your start-up, it's like adding another job to your list of responsibilities. Also prepare yourself for a hundred no responses to get to a yes. Eating rejection is more often than not a hefty part of the process. Try to not get upset at the rejections, waste minimum amounts of time on that aspect; spending unnecessary amounts time dwelling there is dangerous to your start-up, it'll eat your valuable time and mental health (which is already being heavily taxed by the start-up itself).
- torgian 8y ago
  So it’s like going to job interviews! :)
meritt 8y ago
Ask yourself if you actually need the capital. Between the ubiquity of pay-per-minute cloud computing for every imaginable service, tools to enable extremely productive remote employees, and thousands of software companies ready to handle the complexity of payments, email, ecommerce, hosting, etc, starting a tech company is easier and cheaper than ever.
- jeletonskelly 8y ago
  This is great advice. The further you can get on your own dime will save you equity and get you better terms when you really do need capital investments. Early on, the biggest expense will be your time.
arikr 8y ago
Read everything in the fundraising section here: https://www.startupschool.org/library https://www.startupschool.org/library
synaesthesisx 8y ago
Be wary of raising too much too fast/having too many investors to deal with early on.
jboggan 8y ago
You're better off spending the time improving your product.
lonelyw0lf 8y ago
Don't
deleted 8y ago
[deleted]
ei8htyfi5e 8y ago
Find a way to get to profitability before raising, even if you're only making $1.
anthony_barker 8y ago
If you are in EU consider the new ICO rules... Up to 8 million within eu countries. Have MVP if you want to limit dilution. Draw a small salary... Don't work for free.
- a_imho 8y ago
  If you are in EU consider the new ICO rules... Up to 8 million within eu countries. What rules? Could you elaborate?
deleted 8y ago
[deleted]
osi1647 8y ago
Make sure you actually need capital. When I worked on my startup I noticed I was more busy finding investors than building the software. One day I was done with spending so much time on funding, and started to spend my time programming on the actual project, which was a great relief.
ydau 8y ago
- Do you actually need to raise? If so, is now the right time? If you don’t have a product with any users, it may be more valuable to prioritize this. Raising money is a huge distraction. Approach with caution. - A clear, succinct, well-designed deck does make a difference. - Talk to your users. How do they use your product? How often? Include this in your deck. - Venture Deals and Mastering the VC Game are helpful books - Read early slide decks of now successful companies. Many are available online (e.g. Airbnb). - Warm intros help. If you know someone who knows a VC and can intro you, ask! - Different VCs have different investment strategies. Your TAM might not move the needle on a 1B fund, but it could on a 20M one. - The best story is a growth curve that’s up and to the right. - For later stage: not to sound demeaning, but VCs often act like lemmings. An offer on the table makes rallying others easier — reach out to those who gave you a “VC pass” (ie nevder responded to your email, or didn’t follow up after a meeting) and see if they’re interested now. - If possible, get feedback on your deck from someone who has successfully raised. - Don’t tell VCs which other VCs you’re talking to. You’ll be tempted, but don’t. - Take notes after each meeting. What were the objections? Stumbling points? Use this feedback to improve your deck. - Giving a range for your valuation or amount you want to raise makes you appear indecisive and lacking in confidence. Give specific figures. - Be capable of justifying why you want to raise X. How’d you come to this figure? - Stories help. How’d you come to this idea? If you have direct exposure to the problem you’re trying to solve - especially if it’s a business problem - incorporate this into your pitch. - Make sure you’re talking to people who can make a decision within the firm. - Don’t copy and paste cold emails. Personalize them. - This can be a discouraging process. But it’s a numbers game. You only need one yes to get the ball rolling. - Multiple offers help with negotiation :) - Good luck!!
coffeemug 8y ago
Speak softly and carry a big stick. VCs constantly talk about supporting entrepreneurs through tough times, enabling creativity, building amazing companies, etc. They're not lying -- they really believe it, and it's an important thing for them to believe. But while they say all this stuff, they're also human. And humans follow their incentives. They do that before they do anything else. So your job is to make it easy for them to act ethically. That means talk the talk -- you want to build a great product, scale it to an amazing company, hire a great team, etc. That's the only thing you care about. Building a great company that builds amazing products and makes everyone lots of money. But act game theory. Have lots of great alternatives to negotiated agreements with any given VC. Put yourself in a powerful position where you can get favorable terms. Don't give up power/equity on the assumption that "it doesn't matter", or that they'll act magnanimously, or anything like that. It's way, way easier to have a lovely relationship with people when you're in a position of power. Put yourself into that position. (There are some investors you can unequivocally trust to act their talk -- notably YC, winfunding, and a few others, but don't rely on that as a general rule)
- greenspot 8y ago
  This. So true and extremely well framed. The only thing I can add: At the beginning of a relationship, everybody is kind. Background checks not just help, they are essential, do them. Getting into conflicts and power plays with VCs, or just any person at some point, should be expected but there are still huge differences in how people deal in messy situations in terms of morale and ethics. You will find everything between feeling uneasy and facing a nuclear war.
  - wiz21c 8y ago
    >>> there are still huge differences in how people deal in messy situations in terms of morale and ethics. so true. Problem is that in my small business experience, those in power are there because they have very flexible views on morale and ethics (i.e. they think they have morale/ethics, but they actually forget it when their company is at stakes). Being the ethical guy I'm of course totally biased. But the parent post is so right : having ethics/morale can be extremely damaging for you because you'll have to work with people who absolutely don't get how you think and that'll be super exhausting. Know yourself before going into that game.
Frodo478 8y ago
Make a good pitch https://blog.ycombinator.com/how-to-pitch-your-company/ https://blog.ycombinator.com/how-to-pitch-your-company/
modi15 8y ago
1. First figure out plan B - what happens if you are not able to raise funding in the next 6 months. 2. Assume a position of power - you will make this company big even without funding because plan B is in place. 3. Talk to investors from this position. You are smarter than them. You know more about this business. You don't need this particular investor to invest because others have already signed up. 4. Treat investors like shit. Dont look too eager to setup meetings. Schedule meetings a week out atleast. When you drop into a meeting do NOT spend more than half an hour to 45 minutes. Do NOT answer all questions for investors - be selective about information you disclose - push answers to next meeting - make yourself scarce. 5. Do bullshit padding around your entire story. If something doesnt sound too good dont disclose that information. Make up stuff to make things look good. There are people who will find the points above ethically questionable. These people most likely dont know what it takes to raise money.
- deleted 8y ago
  [deleted]
- skrebbel 8y ago
  I agree with most of what you wrote but: > Make up stuff to make things look good. That's gonna backfire.
  - jamiegreen 8y ago
    Agreed, lying is never a good long term strategy
  - godzillabrennus 8y ago
    Theranos is a good example of why that doesn’t work.
    - icedchai 8y ago
      I'd say the opposite. It actually worked for about 15 years... that's a pretty good run and shows you just how susceptible to bullshit some of these guys are...
mindgam3 8y ago
Oh man, where to begin. Here are a few things I learned the hard way from my first time fundraising in 2011 (3 months full time, a few all nighters working on the deck, closed $1M+). It’s a power game. Every single aspect of it. The typical situation is they have power over you because you need money and they have money. Your job is to convince them that they need you more, because money is easy to find but future billion dollar startups are actually quite rare. In order to do this, you need to create a reality in which they are losing out on a limited time opportunity by not meeting you and then handing you a big check. Borrowing a term from poker, the best way to walk out of the meeting with a firm commitment or big check is to walk in with “position” on the investor. Ways of having position include: - warm intro from another investor who already put money in - any chart showing a core metric (revenue, users, deals) going up and to the right - any press Basically anything that conveys a sense of momentum. Momentum is a huge part of the game as well. It’s critical to create a sense of urgency. Investors are pack animals. Getting the first close or “lead” is at least half the battle. After one person commits, it becomes much easier for others to fall in line due to social proof. Do whatever it takes to generate momentum and communicate that to investors. The train needs to be leaving the station by a certain date, are you in, yes or no. Try to find a good candidate for a lead investor. You could do a “party round” of $1M with a ton of people all writing smaller checks from $25-200k. But in my experience this is a bad idea, because none of the investors have enough skin in the game to really dig deep and help you out if the shit hits the fan. And if this your first funded startup, the chance of shit hitting fan approaches 100%. You want at least one investor who is deeply, deeply committed to your vision and most importantly to you. This will help you navigate pitfalls and avoid a situation where, say, you raise a convertible note (debt) and after 1-2 years when you’re still trying to find product market fit, some disgruntled investors try to ask for their money back. Don’t use a convertible note with a due date. Use a SAFE if you can get away with it. If the investor doesn’t want to use a safe, get a very specific and detailed explanation why. Do treat all the investors with respect. But don’t let them get away with power tripping. This is one thing infuriatingly common especially among big names. If you take their shit, they won’t respect you. But you also can’t blow your cool. Call them on it, explain that you’re serious and don’t want to play games, and be prepared to walk out of the meeting if necessary. Don’t walk out unnecessarily or be a dick yourself. But be prepared to show you mean business, and if they don’t, then you have better things to do. Do listen to investor feedback, especially if they are ex founders or have domain expertise. But don’t lose sight of your vision or try to shift your entire strategy bass on one person’s feedback. Make sure you take time for self care and have strong support networks during fundraising. It is very emotionally intense to pitch your heart out, the stakes are high, and not everyone is nice. Take time and space to recover and recharge emotionally. Remember that you’re selling investors first and foremost on you and your team. And mostly you. If you seem tired or stressed, or anything other than happy, alert, comfortable, and crushing it, that is a bad signal. Don’t be afraid. Remember why you’re doing what you do. Realize that even if you get destroyed in the next pitch meeting, nobody is going to die. You’ll sleep it off. Tomorrow is another day and another chance to try again. Every pitch is an opportunity to practice and to improve your craft. Celebrate every success, even if it’s just learning one tidbit from a VC who decided to pass. And embrace the failures, because you will have them. It hurts to get rejected when you have so much on the line. But if it was easy to close seed rounds then everybody would be doing it. Don’t worry too too much about valuation, at least compared with investor quality. Better to have a committed lead investor who backs you 100% at a $3M valuation than some rando coming in $5M. Finally, after you close the big bucks, shred your pitch deck and don’t use it to inform your next product plan. The exciting part of the pitch deck is typically big picture vision stuff. Don’t lose sight of that, but focus on the next step of product. Go back to being scrappy even with $1M in the bank. Good luck!
graycat 8y ago
For my startup, I went to hundreds of VC Web sites, saw their stated interests in leading edge, disruptive, etc. technology. I sent hundreds of pitch decks, polished to close to perfection, following lots of rules, e.g., only 10 foils, large fonts, total of only about 300 words and other alternatives, etc. My foil decks promised everything short of Pluto in the solar system. From the VCs I heard back next to nothing. Net, I wasted huge amounts of time. So, I had to ask, what was missing from my pitch? It became clear: The VCs want most of all traction, significant and growing rapidly. They want more, but traction is the biggie. So, they want at least real users, hopefully real revenue, hopefully real after tax earnings. Basically the VCs want to buy part of an airplane already at 5000 feet up and at Mach 0.5 and gaining altitude quickly. They wouldn't buy into a Boeing 787 still on the ground. But for information technology startups, the world has changed a LOT since the start of Google, Facebook, Microsoft, Cisco, Apple, etc. Now, for lots of startup opportunities, by the time you have the traction the VCs want, you can very well no longer need the VCs check and certainly not want the VCs term sheet, BoD seats, or much of anything else. VCs are not for all startups. My joke is that the VCs are looking for traction significantly high and growing rapidly where there are five co-founders, each with credit cards maxed out, and each with a pregnant wife. True, some startups will need a big shot of equity capital, but that's nearly impossible since such a startup will have a tough time getting the traction for an equity check for even 10 cents. IMHO, at this point, information technology VC is a goofy thing that has to find some really strange situations. Instead of strange situations, now often or usually, a startup with the required traction won't need or want a VC equity check. One way to handle VCs at low effort is to follow the Hollywood advice, "Don't call us. We'll call you.". Really, if your startup has the traction the VCs want to see, then they might notice you and call you. So, get on with your work. If some VC calls, maybe listen. Otherwise waste no time contacting VCs.
JHM168 8y ago
Yoo Ok.. first thing you'll hear from blogs, interviews on Youtube, and everyone else in the echo chamber is about growth. Growth growth growth growth. Just for a moment, forget growth. Think about engagement. What VCs and investors realllly care about is stickiness ie how often are people using your product. This is true across B2B + B2C. (yes there are examples of low touch point high revenue businesses, but let's forget about those for a second). What you want to prove in the early days is how good your product is for a small subset of people, not how good your product is to everyone. (this is where the (in)famous saying "do things that don't scale" comes from.. partly anyway) Instead of saying to an investor that you acquired 100k users.. tell them: - 30% of our users acquired in the first 7 days return back to the platform every day for 10 days - 20% of users acquired within 3 days of a company key event sign up and make a 'revenue' transaction - 20% of users refer their friends with a 80% conversation rate - time on site is X minutes and users typically return 4 times per day - social media / community engagement on your main channels - site traffic is split 30/70 new vs returning users There's that thing that Paul Graham from YC said to Brian Cheksy from Airbnb. "Go out and find 10 people that absolutely love your product, and go from there"* Also.... one of the biggest pieces of advice with VCs I can give you: Make sure you set the agenda and set deadlines to work to. Don't let investors lead this. This is your business, don't suffer fools or people that are 'too busy'. *Might not be an exact quote :).
startupdiscuss 8y ago
Focus on sales growth to the exclusion of (almost) everything else. If you focus on the product, change the features to increase sales. If you hire a new tech person, you do it because you need a feature that was asked for by a customer. As you set prices, aim for the highest revenue growth.
lbriner 8y ago
* Know your audience so you can use appropriate language * Think about it from their point of view. How clear is your message? * Take advice on how much to ask for so you don't sound too green * They will care about ROI but also the quality of the team. Theory is great but only a good team can deliver the theoretical ROI. * Try and back up claims with facts e.g. We have a market of X billion - according to whom?
luca_m 8y ago
I suggest you reading Venture Deals.
kenneth 8y ago
I run a $30M early stage venture fund. Here's what I wish first-time founders knew: • Don't bother cold emailing me, you'll end up straight in the trash. Don't even think about reaching out on LinkedIn, I open it once a month to mark everything as spam. Instead, find someone we know in common and ask for a warm intro. I receive way too much inbound, and a referral from someone I trust is one of the best ways to skip the line. • Have a good deck, and make sure I see it before I talk to you. For the majority of new startups, a deck is the best way to share your story, and I will make my decision of whether to spend time talking to you in person while reviewing a deck. • Understand what I'm looking for: (1) solving a real problem that matches my investment thesis (look it up on our website), (2) a team that's worked together before and is uniquely qualified to solve this problem, (3) a market that has the potential to build a billion-dollar monopoly, and (4) a real business model and a realistic path from zero to a billion.
- CPLX 8y ago
  This almost reads like a parody of the entitled God-complex VC mentality. I wonder how long it will be before people feel some shame advocating for overtly classist and exclusionary network-only policies in public at least.
  - vincentmarle 8y ago
    You can try to shame them but I rather have them being open and honest about it.
  - pjc50 8y ago
    If you're giving out millions of dollars, you'll drown in spammy suggestions. Filtering it through a personal network is an old, effective way to limit it to those people more likely to be genuine. Which is a shame for the reasons you say - it limits it to the old boys' network.
  - kenneth 8y ago
    Getting into YC is a great way to jump-start your network. Ultimately, having a strong network is key to building a successful venture business. Expecting otherwise is unrealistic. VCs aren't charities. Seed investing is a business with very high quantity and low quality at the top of the funnel. Any investor who tells you they aren't giving more weight to a lead that comes recommended vs. one that doesn't is lying to you. It could be as simple as 5min to review the initial pitch vs. 1min.
m3nu 8y ago
Startup School had a video about it last week. By Geoff Ralston. https://www.startupschool.org/videos/48 https://www.startupschool.org/videos/48 My tl;dr: - be honest, don't exaggerate facts - find a shared vision, find the right investor - get it done and get back to work
rsweeney21 8y ago
I've started a few modestly successful companies over the past decade. Most of them were bootstrapped, but for one of them I went the VC route. I raised $16M over 4 years, starting with Angel, then VC, then "top-tier" VC. Taking VC funding made the experience of owning and operating a business worse in almost every way. There are many reasons why I wouldn't recommend raising VC money, but I'll focus on just two right now. First, once you take VC funding, it's no longer your company. Think about that - this business that you created from nothing, sacrificed so much for, know inside and out, and poured years of your life into - now you share control with someone who you've spent maybe 8 hours with. And you're going to have to do that again and again over the years. The second reason is the disparity in the invested interest between the VCs and you. You have EVERYTHING riding on this startup. The VC has almost nothing riding on your company. It's not their money, they get a great salary either way, and they are expected to have most of their investments fail. There seemed to be more worldly prestige running a VC backed company, but that's probably because we bought press coverage. :-) In terms of my own personal happiness, I've never been happier than when I was running my own bootstrapped company...and I also made a ton of money.
- nobody271 8y ago
  How do you know what type of company to start and how much of your own money did you invest when bootstrapping a company. I heard about startups that do something like make medical insurance billing easier. That raises a lot of questions, actually. * How does one even learn that is an issue? * It seems like something where getting started is driven entirely by having contacts in the industry. * There has to be a ton of prohibitively expensive red tape to cut through. Would you just pay a lawyer to figure all that out? Lawyers are expensive! * It doesn't seem like something that really makes the world better although I'm sure you could tell yourself that it does if it was your business. Is having your business do something you consider positive important? * Where do you get the knowledge you need to get started in an industry. Say you're really only good at programming and want to start a ...fashion business. How do you even start? It can be hard to use Google when valuable information is buried under an ocean of click bait articles.
  - 8y ago
JAdamMoore 8y ago
Don't take VC money. Fight for Universal Basic Income and tax the rich at a MUCH higher percentage. VC's just sit around waiting for a regular startup to get so hot, so fast, that they simple CANNOT scale without major dollars. With the cloud and so much physical overhead available as an online service, you don't need any VC when you reach this point. You can crowd-fund, or get a loan from a bank (shocking, I know), or (and this is my favorite) go to as many VC's as you can while you are the hot startup and demand ridiculous terms and walk away from all of them.
tylerfoster 8y ago
Anything other than a yes, is a no.
- ryanSrich 8y ago
  Anything other than a signed a term sheet with wired funds is a no.
ajcodez 8y ago
Keep everything incredibly simple. Follow the standard 10 slide deck pattern. Focus on the value your service provides in concrete terms. It’s not the time for subtlety. Spell things out explicitly in big font. Set the price of shares at $0.10 or a round number. Raise a normal amount of money like $150k or $250k at a normal valuation like $1M (depends on industry etc). Get someone close to you to put in any nominal amount like $10k and tell investors you already have committed funds. If possible use a SAFE contract to accept funds faster. Hire a freelance designer to clean up the deck and website home page if that is an issue. Ask friends to review both deck and home page. If possible make a product video walkthrough. In meetings keep things friendly. Stick to the plan. Pitch and then ask if they are interested. Answer questions truthfully but in line with expectations. Never complain or give excuses for anything. Follow up frequently because investors are often busy and literally might forget they agreed to invest in your co. Source - closed $250k seed round this month. Woohoo. Back to work.
3pt14159 8y ago
There is a book out there that is short and underrated: https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-First/dp/1491940263 https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-Fir...
ChuckMcM 8y ago
First, read "Pitch Anything" by Oren Klaff[1]. No seriously, read that book cover to cover, you can do it in a weekend. Next do everything @coffeemug said :-) [1] https://www.amazon.com/Pitch-Anything-Innovative-Presenting-Persuading/dp/0071752854 https://www.amazon.com/Pitch-Anything-Innovative-Presenting-...
thethimble 8y ago
Hi certainstartup. Please reach out to me if you want to have a deeper discussion. Notes: 1. Be certain that you want to raise capital. By raising you're irrecoverably giving up leverage to investors. You will always be beholden to investor expectations going forward. If you're a mission-motivated founder, you will inevitably reach a point where investor motivations will be at odds with your motivations. This isn't necessarily a bad thing, but it's important for you to go into this eyes wide open. 2. If this is your first round, this will likely be the point where CEO, board, shareholder rights get defined (e.g. what needs to happen to approve an acquisition? fire the CEO? issue more shares?). Make sure you have a good legal team that can help walk you through all of the minor consequences of the structure. 3. Make sure you're educated regarding share classes and different treatment for classes. Make sure you understand "preference" and "participation". Make sure you're getting favorable terms on these points. Having a good legal team helps a ton here. 4. The best way to create leverage is to increase demand. Optimize your process so that it culminates in an auction dynamic - where multiple interested parties are bidding to win. This requires intentionally shepherding parties through a gated process, pulling back people who are trying to move too fast and pulling forward laggards. Having been through this several times, I've been bitten by all of the above. I'm happy to have a deeper discussion if you would like. Please reach out to me at advait at goguardian dot com.
kumartanmay 8y ago
This is one of the least asked questions that I learned today. If you are raising a seed round from VC, please check the size of fund. If you can make a case of return 20% of their fund during the exit after series A, go for it. e.g. you have raised $1m from $10m fund for 10% equity and your company gets an acquisition offer for $20m. The VC would favour your acquisition because you would contribute 20% to his fund. However if you raise $1m from a $100m fund, the $20m exit wouldn’t excite your VC and instead he would ask you to raise a bridge round and push you to aim for $100m exit in the future. A 20m in hand is better than $100m in bush. P.S: I am not suggesting you to become short sighted at series A but it was a context to help you understand my point. Just wanted to remain grounded and help you understand with achievable targets.
koolhead17 8y ago
Ask yourself: 1. Do you really need an investment. 2. GOTO step 1.

I'm a noob founder raising Angel/VC for my startup, what are the common pitfalls and other things that I need to be aware of?

mirianbert 8y ago

Apply to YC.

brryant 8y ago

Some basic things I've learned along the way: 1. be authentic. 2. don't sell. 3. explain your vision of the future in simple terms

adventured 8y ago

Prepare for the process to be draining, frustrating, and to take a lot longer than you expect. As the owner/operator of your start-up, it's like adding another job to your list of responsibilities. Also prepare yourself for a hundred no responses to get to a yes. Eating rejection is more often than not a hefty part of the process. Try to not get upset at the rejections, waste minimum amounts of time on that aspect; spending unnecessary amounts time dwelling there is dangerous to your start-up, it'll eat your valuable time and mental health (which is already being heavily taxed by the start-up itself).

torgian 8y ago
So it’s like going to job interviews! :)

meritt 8y ago

Ask yourself if you actually need the capital. Between the ubiquity of pay-per-minute cloud computing for every imaginable service, tools to enable extremely productive remote employees, and thousands of software companies ready to handle the complexity of payments, email, ecommerce, hosting, etc, starting a tech company is easier and cheaper than ever.

jeletonskelly 8y ago
This is great advice. The further you can get on your own dime will save you equity and get you better terms when you really do need capital investments. Early on, the biggest expense will be your time.

arikr 8y ago

Read everything in the fundraising section here: https://www.startupschool.org/library https://www.startupschool.org/library

synaesthesisx 8y ago

Be wary of raising too much too fast/having too many investors to deal with early on.

jboggan 8y ago

You're better off spending the time improving your product.

lonelyw0lf 8y ago

Don't

deleted 8y ago

[deleted]

ei8htyfi5e 8y ago

Find a way to get to profitability before raising, even if you're only making $1.

anthony_barker 8y ago

If you are in EU consider the new ICO rules... Up to 8 million within eu countries. Have MVP if you want to limit dilution. Draw a small salary... Don't work for free.

a_imho 8y ago
If you are in EU consider the new ICO rules... Up to 8 million within eu countries. What rules? Could you elaborate?

deleted 8y ago

[deleted]

osi1647 8y ago

Make sure you actually need capital. When I worked on my startup I noticed I was more busy finding investors than building the software. One day I was done with spending so much time on funding, and started to spend my time programming on the actual project, which was a great relief.

ydau 8y ago

- Do you actually need to raise? If so, is now the right time? If you don’t have a product with any users, it may be more valuable to prioritize this. Raising money is a huge distraction. Approach with caution. - A clear, succinct, well-designed deck does make a difference. - Talk to your users. How do they use your product? How often? Include this in your deck. - Venture Deals and Mastering the VC Game are helpful books - Read early slide decks of now successful companies. Many are available online (e.g. Airbnb). - Warm intros help. If you know someone who knows a VC and can intro you, ask! - Different VCs have different investment strategies. Your TAM might not move the needle on a 1B fund, but it could on a 20M one. - The best story is a growth curve that’s up and to the right. - For later stage: not to sound demeaning, but VCs often act like lemmings. An offer on the table makes rallying others easier — reach out to those who gave you a “VC pass” (ie nevder responded to your email, or didn’t follow up after a meeting) and see if they’re interested now. - If possible, get feedback on your deck from someone who has successfully raised. - Don’t tell VCs which other VCs you’re talking to. You’ll be tempted, but don’t. - Take notes after each meeting. What were the objections? Stumbling points? Use this feedback to improve your deck. - Giving a range for your valuation or amount you want to raise makes you appear indecisive and lacking in confidence. Give specific figures. - Be capable of justifying why you want to raise X. How’d you come to this figure? - Stories help. How’d you come to this idea? If you have direct exposure to the problem you’re trying to solve - especially if it’s a business problem - incorporate this into your pitch. - Make sure you’re talking to people who can make a decision within the firm. - Don’t copy and paste cold emails. Personalize them. - This can be a discouraging process. But it’s a numbers game. You only need one yes to get the ball rolling. - Multiple offers help with negotiation :) - Good luck!!

coffeemug 8y ago

Speak softly and carry a big stick. VCs constantly talk about supporting entrepreneurs through tough times, enabling creativity, building amazing companies, etc. They're not lying -- they really believe it, and it's an important thing for them to believe. But while they say all this stuff, they're also human. And humans follow their incentives. They do that before they do anything else. So your job is to make it easy for them to act ethically. That means talk the talk -- you want to build a great product, scale it to an amazing company, hire a great team, etc. That's the only thing you care about. Building a great company that builds amazing products and makes everyone lots of money. But act game theory. Have lots of great alternatives to negotiated agreements with any given VC. Put yourself in a powerful position where you can get favorable terms. Don't give up power/equity on the assumption that "it doesn't matter", or that they'll act magnanimously, or anything like that. It's way, way easier to have a lovely relationship with people when you're in a position of power. Put yourself into that position. (There are some investors you can unequivocally trust to act their talk -- notably YC, winfunding, and a few others, but don't rely on that as a general rule)

greenspot 8y ago
This. So true and extremely well framed. The only thing I can add: At the beginning of a relationship, everybody is kind. Background checks not just help, they are essential, do them. Getting into conflicts and power plays with VCs, or just any person at some point, should be expected but there are still huge differences in how people deal in messy situations in terms of morale and ethics. You will find everything between feeling uneasy and facing a nuclear war.
- wiz21c 8y ago
  >>> there are still huge differences in how people deal in messy situations in terms of morale and ethics. so true. Problem is that in my small business experience, those in power are there because they have very flexible views on morale and ethics (i.e. they think they have morale/ethics, but they actually forget it when their company is at stakes). Being the ethical guy I'm of course totally biased. But the parent post is so right : having ethics/morale can be extremely damaging for you because you'll have to work with people who absolutely don't get how you think and that'll be super exhausting. Know yourself before going into that game.

Frodo478 8y ago

Make a good pitch https://blog.ycombinator.com/how-to-pitch-your-company/ https://blog.ycombinator.com/how-to-pitch-your-company/

modi15 8y ago

1. First figure out plan B - what happens if you are not able to raise funding in the next 6 months. 2. Assume a position of power - you will make this company big even without funding because plan B is in place. 3. Talk to investors from this position. You are smarter than them. You know more about this business. You don't need this particular investor to invest because others have already signed up. 4. Treat investors like shit. Dont look too eager to setup meetings. Schedule meetings a week out atleast. When you drop into a meeting do NOT spend more than half an hour to 45 minutes. Do NOT answer all questions for investors - be selective about information you disclose - push answers to next meeting - make yourself scarce. 5. Do bullshit padding around your entire story. If something doesnt sound too good dont disclose that information. Make up stuff to make things look good. There are people who will find the points above ethically questionable. These people most likely dont know what it takes to raise money.

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skrebbel 8y ago
I agree with most of what you wrote but: > Make up stuff to make things look good. That's gonna backfire.
- jamiegreen 8y ago
  Agreed, lying is never a good long term strategy
- godzillabrennus 8y ago
  Theranos is a good example of why that doesn’t work.
  - icedchai 8y ago
    I'd say the opposite. It actually worked for about 15 years... that's a pretty good run and shows you just how susceptible to bullshit some of these guys are...

mindgam3 8y ago

Oh man, where to begin. Here are a few things I learned the hard way from my first time fundraising in 2011 (3 months full time, a few all nighters working on the deck, closed $1M+). It’s a power game. Every single aspect of it. The typical situation is they have power over you because you need money and they have money. Your job is to convince them that they need you more, because money is easy to find but future billion dollar startups are actually quite rare. In order to do this, you need to create a reality in which they are losing out on a limited time opportunity by not meeting you and then handing you a big check. Borrowing a term from poker, the best way to walk out of the meeting with a firm commitment or big check is to walk in with “position” on the investor. Ways of having position include: - warm intro from another investor who already put money in - any chart showing a core metric (revenue, users, deals) going up and to the right - any press Basically anything that conveys a sense of momentum. Momentum is a huge part of the game as well. It’s critical to create a sense of urgency. Investors are pack animals. Getting the first close or “lead” is at least half the battle. After one person commits, it becomes much easier for others to fall in line due to social proof. Do whatever it takes to generate momentum and communicate that to investors. The train needs to be leaving the station by a certain date, are you in, yes or no. Try to find a good candidate for a lead investor. You could do a “party round” of $1M with a ton of people all writing smaller checks from $25-200k. But in my experience this is a bad idea, because none of the investors have enough skin in the game to really dig deep and help you out if the shit hits the fan. And if this your first funded startup, the chance of shit hitting fan approaches 100%. You want at least one investor who is deeply, deeply committed to your vision and most importantly to you. This will help you navigate pitfalls and avoid a situation where, say, you raise a convertible note (debt) and after 1-2 years when you’re still trying to find product market fit, some disgruntled investors try to ask for their money back. Don’t use a convertible note with a due date. Use a SAFE if you can get away with it. If the investor doesn’t want to use a safe, get a very specific and detailed explanation why. Do treat all the investors with respect. But don’t let them get away with power tripping. This is one thing infuriatingly common especially among big names. If you take their shit, they won’t respect you. But you also can’t blow your cool. Call them on it, explain that you’re serious and don’t want to play games, and be prepared to walk out of the meeting if necessary. Don’t walk out unnecessarily or be a dick yourself. But be prepared to show you mean business, and if they don’t, then you have better things to do. Do listen to investor feedback, especially if they are ex founders or have domain expertise. But don’t lose sight of your vision or try to shift your entire strategy bass on one person’s feedback. Make sure you take time for self care and have strong support networks during fundraising. It is very emotionally intense to pitch your heart out, the stakes are high, and not everyone is nice. Take time and space to recover and recharge emotionally. Remember that you’re selling investors first and foremost on you and your team. And mostly you. If you seem tired or stressed, or anything other than happy, alert, comfortable, and crushing it, that is a bad signal. Don’t be afraid. Remember why you’re doing what you do. Realize that even if you get destroyed in the next pitch meeting, nobody is going to die. You’ll sleep it off. Tomorrow is another day and another chance to try again. Every pitch is an opportunity to practice and to improve your craft. Celebrate every success, even if it’s just learning one tidbit from a VC who decided to pass. And embrace the failures, because you will have them. It hurts to get rejected when you have so much on the line. But if it was easy to close seed rounds then everybody would be doing it. Don’t worry too too much about valuation, at least compared with investor quality. Better to have a committed lead investor who backs you 100% at a $3M valuation than some rando coming in $5M. Finally, after you close the big bucks, shred your pitch deck and don’t use it to inform your next product plan. The exciting part of the pitch deck is typically big picture vision stuff. Don’t lose sight of that, but focus on the next step of product. Go back to being scrappy even with $1M in the bank. Good luck!

graycat 8y ago

For my startup, I went to hundreds of VC Web sites, saw their stated interests in leading edge, disruptive, etc. technology. I sent hundreds of pitch decks, polished to close to perfection, following lots of rules, e.g., only 10 foils, large fonts, total of only about 300 words and other alternatives, etc. My foil decks promised everything short of Pluto in the solar system. From the VCs I heard back next to nothing. Net, I wasted huge amounts of time. So, I had to ask, what was missing from my pitch? It became clear: The VCs want most of all traction, significant and growing rapidly. They want more, but traction is the biggie. So, they want at least real users, hopefully real revenue, hopefully real after tax earnings. Basically the VCs want to buy part of an airplane already at 5000 feet up and at Mach 0.5 and gaining altitude quickly. They wouldn't buy into a Boeing 787 still on the ground. But for information technology startups, the world has changed a LOT since the start of Google, Facebook, Microsoft, Cisco, Apple, etc. Now, for lots of startup opportunities, by the time you have the traction the VCs want, you can very well no longer need the VCs check and certainly not want the VCs term sheet, BoD seats, or much of anything else. VCs are not for all startups. My joke is that the VCs are looking for traction significantly high and growing rapidly where there are five co-founders, each with credit cards maxed out, and each with a pregnant wife. True, some startups will need a big shot of equity capital, but that's nearly impossible since such a startup will have a tough time getting the traction for an equity check for even 10 cents. IMHO, at this point, information technology VC is a goofy thing that has to find some really strange situations. Instead of strange situations, now often or usually, a startup with the required traction won't need or want a VC equity check. One way to handle VCs at low effort is to follow the Hollywood advice, "Don't call us. We'll call you.". Really, if your startup has the traction the VCs want to see, then they might notice you and call you. So, get on with your work. If some VC calls, maybe listen. Otherwise waste no time contacting VCs.

JHM168 8y ago

Yoo Ok.. first thing you'll hear from blogs, interviews on Youtube, and everyone else in the echo chamber is about growth. Growth growth growth growth. Just for a moment, forget growth. Think about engagement. What VCs and investors realllly care about is stickiness ie how often are people using your product. This is true across B2B + B2C. (yes there are examples of low touch point high revenue businesses, but let's forget about those for a second). What you want to prove in the early days is how good your product is for a small subset of people, not how good your product is to everyone. (this is where the (in)famous saying "do things that don't scale" comes from.. partly anyway) Instead of saying to an investor that you acquired 100k users.. tell them: - 30% of our users acquired in the first 7 days return back to the platform every day for 10 days - 20% of users acquired within 3 days of a company key event sign up and make a 'revenue' transaction - 20% of users refer their friends with a 80% conversation rate - time on site is X minutes and users typically return 4 times per day - social media / community engagement on your main channels - site traffic is split 30/70 new vs returning users There's that thing that Paul Graham from YC said to Brian Cheksy from Airbnb. "Go out and find 10 people that absolutely love your product, and go from there"* Also.... one of the biggest pieces of advice with VCs I can give you: Make sure you set the agenda and set deadlines to work to. Don't let investors lead this. This is your business, don't suffer fools or people that are 'too busy'. *Might not be an exact quote :).

startupdiscuss 8y ago

Focus on sales growth to the exclusion of (almost) everything else. If you focus on the product, change the features to increase sales. If you hire a new tech person, you do it because you need a feature that was asked for by a customer. As you set prices, aim for the highest revenue growth.

lbriner 8y ago

* Know your audience so you can use appropriate language * Think about it from their point of view. How clear is your message? * Take advice on how much to ask for so you don't sound too green * They will care about ROI but also the quality of the team. Theory is great but only a good team can deliver the theoretical ROI. * Try and back up claims with facts e.g. We have a market of X billion - according to whom?

luca_m 8y ago

I suggest you reading Venture Deals.

kenneth 8y ago

I run a $30M early stage venture fund. Here's what I wish first-time founders knew: • Don't bother cold emailing me, you'll end up straight in the trash. Don't even think about reaching out on LinkedIn, I open it once a month to mark everything as spam. Instead, find someone we know in common and ask for a warm intro. I receive way too much inbound, and a referral from someone I trust is one of the best ways to skip the line. • Have a good deck, and make sure I see it before I talk to you. For the majority of new startups, a deck is the best way to share your story, and I will make my decision of whether to spend time talking to you in person while reviewing a deck. • Understand what I'm looking for: (1) solving a real problem that matches my investment thesis (look it up on our website), (2) a team that's worked together before and is uniquely qualified to solve this problem, (3) a market that has the potential to build a billion-dollar monopoly, and (4) a real business model and a realistic path from zero to a billion.

CPLX 8y ago
This almost reads like a parody of the entitled God-complex VC mentality. I wonder how long it will be before people feel some shame advocating for overtly classist and exclusionary network-only policies in public at least.
- vincentmarle 8y ago
  You can try to shame them but I rather have them being open and honest about it.
- pjc50 8y ago
  If you're giving out millions of dollars, you'll drown in spammy suggestions. Filtering it through a personal network is an old, effective way to limit it to those people more likely to be genuine. Which is a shame for the reasons you say - it limits it to the old boys' network.
- kenneth 8y ago
  Getting into YC is a great way to jump-start your network. Ultimately, having a strong network is key to building a successful venture business. Expecting otherwise is unrealistic. VCs aren't charities. Seed investing is a business with very high quantity and low quality at the top of the funnel. Any investor who tells you they aren't giving more weight to a lead that comes recommended vs. one that doesn't is lying to you. It could be as simple as 5min to review the initial pitch vs. 1min.

m3nu 8y ago

Startup School had a video about it last week. By Geoff Ralston. https://www.startupschool.org/videos/48 https://www.startupschool.org/videos/48 My tl;dr: - be honest, don't exaggerate facts - find a shared vision, find the right investor - get it done and get back to work

rsweeney21 8y ago

I've started a few modestly successful companies over the past decade. Most of them were bootstrapped, but for one of them I went the VC route. I raised $16M over 4 years, starting with Angel, then VC, then "top-tier" VC. Taking VC funding made the experience of owning and operating a business worse in almost every way. There are many reasons why I wouldn't recommend raising VC money, but I'll focus on just two right now. First, once you take VC funding, it's no longer your company. Think about that - this business that you created from nothing, sacrificed so much for, know inside and out, and poured years of your life into - now you share control with someone who you've spent maybe 8 hours with. And you're going to have to do that again and again over the years. The second reason is the disparity in the invested interest between the VCs and you. You have EVERYTHING riding on this startup. The VC has almost nothing riding on your company. It's not their money, they get a great salary either way, and they are expected to have most of their investments fail. There seemed to be more worldly prestige running a VC backed company, but that's probably because we bought press coverage. :-) In terms of my own personal happiness, I've never been happier than when I was running my own bootstrapped company...and I also made a ton of money.

nobody271 8y ago
How do you know what type of company to start and how much of your own money did you invest when bootstrapping a company. I heard about startups that do something like make medical insurance billing easier. That raises a lot of questions, actually. * How does one even learn that is an issue? * It seems like something where getting started is driven entirely by having contacts in the industry. * There has to be a ton of prohibitively expensive red tape to cut through. Would you just pay a lawyer to figure all that out? Lawyers are expensive! * It doesn't seem like something that really makes the world better although I'm sure you could tell yourself that it does if it was your business. Is having your business do something you consider positive important? * Where do you get the knowledge you need to get started in an industry. Say you're really only good at programming and want to start a ...fashion business. How do you even start? It can be hard to use Google when valuable information is buried under an ocean of click bait articles.
- 8y ago

JAdamMoore 8y ago

Don't take VC money. Fight for Universal Basic Income and tax the rich at a MUCH higher percentage. VC's just sit around waiting for a regular startup to get so hot, so fast, that they simple CANNOT scale without major dollars. With the cloud and so much physical overhead available as an online service, you don't need any VC when you reach this point. You can crowd-fund, or get a loan from a bank (shocking, I know), or (and this is my favorite) go to as many VC's as you can while you are the hot startup and demand ridiculous terms and walk away from all of them.

tylerfoster 8y ago

Anything other than a yes, is a no.

ryanSrich 8y ago
Anything other than a signed a term sheet with wired funds is a no.

ajcodez 8y ago

Keep everything incredibly simple. Follow the standard 10 slide deck pattern. Focus on the value your service provides in concrete terms. It’s not the time for subtlety. Spell things out explicitly in big font. Set the price of shares at $0.10 or a round number. Raise a normal amount of money like $150k or $250k at a normal valuation like $1M (depends on industry etc). Get someone close to you to put in any nominal amount like $10k and tell investors you already have committed funds. If possible use a SAFE contract to accept funds faster. Hire a freelance designer to clean up the deck and website home page if that is an issue. Ask friends to review both deck and home page. If possible make a product video walkthrough. In meetings keep things friendly. Stick to the plan. Pitch and then ask if they are interested. Answer questions truthfully but in line with expectations. Never complain or give excuses for anything. Follow up frequently because investors are often busy and literally might forget they agreed to invest in your co. Source - closed $250k seed round this month. Woohoo. Back to work.

3pt14159 8y ago

There is a book out there that is short and underrated: https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-First/dp/1491940263 https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-Fir...

ChuckMcM 8y ago

First, read "Pitch Anything" by Oren Klaff[1]. No seriously, read that book cover to cover, you can do it in a weekend. Next do everything @coffeemug said :-) [1] https://www.amazon.com/Pitch-Anything-Innovative-Presenting-Persuading/dp/0071752854 https://www.amazon.com/Pitch-Anything-Innovative-Presenting-...

thethimble 8y ago

Hi certainstartup. Please reach out to me if you want to have a deeper discussion. Notes: 1. Be certain that you want to raise capital. By raising you're irrecoverably giving up leverage to investors. You will always be beholden to investor expectations going forward. If you're a mission-motivated founder, you will inevitably reach a point where investor motivations will be at odds with your motivations. This isn't necessarily a bad thing, but it's important for you to go into this eyes wide open. 2. If this is your first round, this will likely be the point where CEO, board, shareholder rights get defined (e.g. what needs to happen to approve an acquisition? fire the CEO? issue more shares?). Make sure you have a good legal team that can help walk you through all of the minor consequences of the structure. 3. Make sure you're educated regarding share classes and different treatment for classes. Make sure you understand "preference" and "participation". Make sure you're getting favorable terms on these points. Having a good legal team helps a ton here. 4. The best way to create leverage is to increase demand. Optimize your process so that it culminates in an auction dynamic - where multiple interested parties are bidding to win. This requires intentionally shepherding parties through a gated process, pulling back people who are trying to move too fast and pulling forward laggards. Having been through this several times, I've been bitten by all of the above. I'm happy to have a deeper discussion if you would like. Please reach out to me at advait at goguardian dot com.

kumartanmay 8y ago

This is one of the least asked questions that I learned today. If you are raising a seed round from VC, please check the size of fund. If you can make a case of return 20% of their fund during the exit after series A, go for it. e.g. you have raised $1m from $10m fund for 10% equity and your company gets an acquisition offer for $20m. The VC would favour your acquisition because you would contribute 20% to his fund. However if you raise $1m from a $100m fund, the $20m exit wouldn’t excite your VC and instead he would ask you to raise a bridge round and push you to aim for $100m exit in the future. A 20m in hand is better than $100m in bush. P.S: I am not suggesting you to become short sighted at series A but it was a context to help you understand my point. Just wanted to remain grounded and help you understand with achievable targets.

koolhead17 8y ago

Ask yourself: 1. Do you really need an investment. 2. GOTO step 1.