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100% guaranteed success in fundraising. You only need one of these options: - Be a friend or acquaintance of the fund manager. - Be the child of an important

by hummel 5y ago

100% guaranteed success in fundraising. You only need one of these options: - Be a friend or acquaintance of the fund manager. - Be the child of an important client of the investment bank. - Study at a prestigious university together with other children of the bank's clients - You have sold your previous business or already own a very successful one. It is a fallacy to think that your pitch will be of any use in 2021. It is 90% personal relationships, 5% narrative and 5% luck. Not even the business plan is relevant anymore (WeWork and many others)

infocollector 5y ago
Any thoughts on how to fix this? Regulation will be gamed the same way the current system has a problem.
- shadilay 5y ago
  It's not like this isn't a hole in the market. The problem is the incentive to invest in better ideas isn't stronger.
  - sroussey 5y ago
    Please define a better idea, and why that is valuable, and how much that might be worth. I’m always surprised at how much people value an idea verses making that idea happen.
- dustingetz 5y ago
  bad investors will eventually go broke in 7 years when they have no actual exits, but what’s insane is that bad investors aren’t going broke, the insanity is insanely profitable, presumably due to the macro climate, which makes them good investors (or selection bias but what’s the difference)
- andrepd 5y ago
  Wholesale replacement of the current way of creating and allocating capital and debt with a better system.
- dv_dt 5y ago
  Basic seed funding. Every x years anyone who an complete a detailed business plan can get a 50k (adjust ad desired) seed grant. Part of that could be an automatic second round grant application, where the govt takes some shares if they hit some standardized cash flow target. After that let the private ventures in. Govt shares go into a citizens wealth fund and are setup to require a standard dividend formula that triggers based some formula of certain revenue or funding trigger/ramp up threshold.
  - kortilla 5y ago
    That’s just a proposal for basic income with some weird paperwork involved. It’s trivial to stamp out detailed business plans when you don’t have to convince people they are feasible.
    - dv_dt 5y ago
      Have you ever heard of an SBA loan? The difference here is that it becomes an grant, and has a exit gateway of demonstrating cashflow (or some other merit) to get to higher stages of funding. When you look at numbers of new business starts - even with venture capital and the yc model becoming popular, the numbers are at a multi decade low. The people who our current system selects to take a risk with look far too uniform from far to homogeneous an outlook. This would be a way to setup a monkey throwing darts at random, but the non randomly pick up the next stage winners to position them for private investment. But with society reaping benefits of wins.
      - kortilla 5y ago
        > The difference here is that it becomes an grant Yes, that’s what makes it basic income. What’s to prevent people from copy-pasting the same “local restaurant” business plan every year and just going “whoops, it failed”?
bko 5y ago
What do you base this on? I'm just curious how this works. Here are the two possible scenarios I came up with. Scenario 1: Fund managers are altruistic and not particularly interested in making money. So they give money to people they know personally. Scenario 2: Fund managers are greedy, but success is essentially random. So they are indifferent to their investments, so they invest in friends and people they know personally Is there some scenario in which fund managers are both greedy but also invest in relatively crappy ideas just due to happenstance of having a personal relationship with a founder?
- vmception 5y ago
  The fund can spare losing investments, as well as have investments where they sell all the shares at a greater price even if the business doesnt do anything revenue-positive
  - bko 5y ago
    > The fund can spare losing investments So the fund is basically a charity where it invests according to merit and uses those gains to subsidize the investments in their buddies funds. But at least some decisions are made on merit > have investments where they sell all the shares at a greater price even if the business doesnt do anything revenue-positive Who are they selling to at a higher price? Do the other investors have to have a relationship with the investor as well since they're investing in sub-par companies?
    - vmception 5y ago
      Instead of answering your specific questions, let's address the fundamentals here: the entire private equity sector is based on relationships. There is little to nothing that occurs organically. You'll basically never land an investor at a startup conference or pitch contest or any "my idea/execution is going to be more lucrative than other people that you also don't know" scenario. private equity funds "subsidize" all their losing equity investments with the winning ones, as well as additional investor capital - subsidize only being a useful term if they participate in an additional financing round for one of their poorly performing companies. The rest just fade away into nonexistence. It is not uncommon, unheard of, or odd that the founders of some of those companies has a personal relationship with a fund manager. And more likely the founders at all the companies have a personal connection to one of the private equity firms that invested in the funding round, who then convinced other firms to invest. One triggers the other, but the first one was a relationship. Most ideas work with infinite money invested, and infinite budget to convince people to purchase or otherwise buy into that idea. Typically ideas work long enough for the same organization to pivot to another idea, or have enough money to buy the better executed version of the idea they originally wanted to do. It doesn't matter. The only thing that is a waste of time is being extremely good at a discipline and hoping that translates into financial investment. It is not an important part of the puzzle.
andrei 5y ago
I think this downplays things quite a bit. I grew up as a middle class immigrant in Canada. My parents have office jobs, but basically 0 connections (certainly not the ones you're implying you need to raise). In university (which I paid for myself through internships + loans), my cofounder and I just started coding on an idea, which got us into YC, which helped us get in front of a bunch of VCs, which allowed us to raise $3m in seed funding. No connections, just lots of googling and talking/pitching to anyone that would pay attention to us. It could've been the 5% luck you're talking about, but certainly don't think that coming from a well-connected family is the only way to fundraise in 2021.
- smt88 5y ago
  I completely believe you, but anecdotes are not data. There are exceptions, but most of the VC world is a circle-jerk of nepotism and "social proof".
- ipaddr 5y ago
  You used YC's connections. You applied were accepted and now are part of that network. Leveraging YC's rep for selection is one way to break in. You were part of the lucky 1% who make it through the program from application to funding,congrats! An aside.. How did the company do?
  - Narkov 5y ago
    > You were part of the lucky 1% who make it through the program from application to funding,congrats! People aren't selected at random. There isn't any luck involved. It's hard work. I feel it's diminishing peoples achievements to say that their lotto numbers came up and YC let them in.
    - gurumeditations 5y ago
      Do you think everyone who wasn’t accepted simply did not work as hard?
      - 5y ago
andrepd 5y ago
Oh, were it only in 2021... Also, remember that banks have a license from the state to create money at their will from thin air, so it's really free money that we're talking about.
enos_feedler 5y ago
Actually things have never been easier. You have access to cloud computing, infinite free tools and learning resources. Social platforms to spread your product. If you fail its not your fundraising. Build something better. However when all else is right, a good story helps. Hence this article.
kortilla 5y ago
While those things may be helpful, they aren’t good advice because they aren’t easy to do nor are they actually required. Investors want to make money and they very frequently invest in people who do not meet that criteria. So it’s helpful to too how people were successful without the nepotistic criteria you outlined. In general your post just complains about privilege without being helpful or insightful.
KingFelix 5y ago
Also Top 40 under 40 - https://www.youtube.com/watch?v=BBbwAjhVM7M https://www.youtube.com/watch?v=BBbwAjhVM7M Start by having rich parents /s
aerosmile 5y ago
I am sorry that you seem to be in the Trough of Sorrow at the moment [0]. Sending you good vibes so you can prove to yourself that you have more power over your destiny than you currently realize. [0] https://medium.com/@BoundeHQ/what-is-the-trough-of-sorrow-anyway-d81c32023668 https://medium.com/@BoundeHQ/what-is-the-trough-of-sorrow-an...
deleted 5y ago
[deleted]
jollybean 5y ago
Sorry to say this is bad advice and essentially misleading. "You have sold your previous business or already own a very successful one." This is of course very true, and probably the #1 factor which will help you raise money, but that's an authentic reason to invest in someone. No serious fund will give you money because you 'know them' or are the 'son of an important client of some investment bank'. Graduating from a Top School will be beneficial but it's neither sufficient nor necessary.
rexreed 5y ago
This is also the case with government contracting. Just like how VCs ignore most pitches that come in cold through the "front" door, so too does the government ignore most responses to solicitations. 90% of deals go to those who are connected to the original source through personal relationships of "back door" deals. 5% of the deals go to those who know how to persistently work the system. And only 5% go to those who actually have the best product at the best price. When the worlds of venture capital and government contracting collides, it gets even more murky. There are many deals in that government folks are closing with silicon valley firms where someone within the government then ends up working for that same silicon valley firm. It's such an I scratch your back, you scratch mine world. I don't doubt that VCs tend to prefer those they know to those they don't for the very same reasons.
- hinkley 5y ago
  There are people whose job is to just write grant proposals. Someone told me they had a guy who was making almost twice as much as the developers, just because they were afraid he would leave. Which means the company decided it was better to get contracts even if it meant 1-2 less people available to fulfill them.
- dylan604 5y ago
  Isn't this pretty much true of any bidding process? The people already know who they want, but go through the mandated bids just to say they did while ultimately picking the group they already intended to use? From my experience that's the SOP for ad/creative agency bids, so I just extrapolate that to the rest of the world ;-)
  - rexreed 5y ago
    It's worse when the VCs put their own people specifically in positions of control in the government to funnel deals to their portfolio companies, and then those people in positions of control leave to then work for those portfolio companies that now have dozens or hundreds of millions of dollars in government funds. It's much dirtier than just building relationships with people before the offer goes out.
- 5y ago
MichaelMoser123 5y ago
If you don't have any of these then you might try to compensate with better skills or by being better at communicating with investors / being better at telling stories.
stereoradonc 5y ago
Relationships matter almost everywhere.
imgabe 5y ago
Will we ever stop repeating this tiresome and obvious complaint that rich people have easy access to capital? Yes, it’s true. It is tautologically true. You haven’t come up with some clever indictment of the system, you’ve only described it. That doesn’t mean nobody who comes from a modest background succeeds and it is not at all helpful to anyone in that situation to just harp on how other people have it easier.
jacquesm 5y ago
Funny, of all the investments I've done to date not a single one would have any of these attributes. And of all of the investments of all of our customers I think I might be able to point to one or two cases where one or more of these were true but I highly doubt they were the deciding factor because the bulk of those did not go through, mostly because having such a relationship - and having it declared - would cause a lot more scrutiny on the fund managers than would happen otherwise because they'd be open to claims. Now of course it is possible that a bunch of them passed under the radar without being declared. WeWork - and SoftBank in general - are weird outliers, there is very little logic (to me, maybe they do understand) to their investments.

by hummel 5y ago

infocollector 5y ago

Any thoughts on how to fix this? Regulation will be gamed the same way the current system has a problem.

shadilay 5y ago
It's not like this isn't a hole in the market. The problem is the incentive to invest in better ideas isn't stronger.
- sroussey 5y ago
  Please define a better idea, and why that is valuable, and how much that might be worth. I’m always surprised at how much people value an idea verses making that idea happen.
dustingetz 5y ago
bad investors will eventually go broke in 7 years when they have no actual exits, but what’s insane is that bad investors aren’t going broke, the insanity is insanely profitable, presumably due to the macro climate, which makes them good investors (or selection bias but what’s the difference)
andrepd 5y ago
Wholesale replacement of the current way of creating and allocating capital and debt with a better system.
dv_dt 5y ago
Basic seed funding. Every x years anyone who an complete a detailed business plan can get a 50k (adjust ad desired) seed grant. Part of that could be an automatic second round grant application, where the govt takes some shares if they hit some standardized cash flow target. After that let the private ventures in. Govt shares go into a citizens wealth fund and are setup to require a standard dividend formula that triggers based some formula of certain revenue or funding trigger/ramp up threshold.
- kortilla 5y ago
  That’s just a proposal for basic income with some weird paperwork involved. It’s trivial to stamp out detailed business plans when you don’t have to convince people they are feasible.
  - dv_dt 5y ago
    Have you ever heard of an SBA loan? The difference here is that it becomes an grant, and has a exit gateway of demonstrating cashflow (or some other merit) to get to higher stages of funding. When you look at numbers of new business starts - even with venture capital and the yc model becoming popular, the numbers are at a multi decade low. The people who our current system selects to take a risk with look far too uniform from far to homogeneous an outlook. This would be a way to setup a monkey throwing darts at random, but the non randomly pick up the next stage winners to position them for private investment. But with society reaping benefits of wins.
    - kortilla 5y ago
      > The difference here is that it becomes an grant Yes, that’s what makes it basic income. What’s to prevent people from copy-pasting the same “local restaurant” business plan every year and just going “whoops, it failed”?

bko 5y ago

What do you base this on? I'm just curious how this works. Here are the two possible scenarios I came up with. Scenario 1: Fund managers are altruistic and not particularly interested in making money. So they give money to people they know personally. Scenario 2: Fund managers are greedy, but success is essentially random. So they are indifferent to their investments, so they invest in friends and people they know personally Is there some scenario in which fund managers are both greedy but also invest in relatively crappy ideas just due to happenstance of having a personal relationship with a founder?

vmception 5y ago
The fund can spare losing investments, as well as have investments where they sell all the shares at a greater price even if the business doesnt do anything revenue-positive
- bko 5y ago
  > The fund can spare losing investments So the fund is basically a charity where it invests according to merit and uses those gains to subsidize the investments in their buddies funds. But at least some decisions are made on merit > have investments where they sell all the shares at a greater price even if the business doesnt do anything revenue-positive Who are they selling to at a higher price? Do the other investors have to have a relationship with the investor as well since they're investing in sub-par companies?
  - vmception 5y ago
    Instead of answering your specific questions, let's address the fundamentals here: the entire private equity sector is based on relationships. There is little to nothing that occurs organically. You'll basically never land an investor at a startup conference or pitch contest or any "my idea/execution is going to be more lucrative than other people that you also don't know" scenario. private equity funds "subsidize" all their losing equity investments with the winning ones, as well as additional investor capital - subsidize only being a useful term if they participate in an additional financing round for one of their poorly performing companies. The rest just fade away into nonexistence. It is not uncommon, unheard of, or odd that the founders of some of those companies has a personal relationship with a fund manager. And more likely the founders at all the companies have a personal connection to one of the private equity firms that invested in the funding round, who then convinced other firms to invest. One triggers the other, but the first one was a relationship. Most ideas work with infinite money invested, and infinite budget to convince people to purchase or otherwise buy into that idea. Typically ideas work long enough for the same organization to pivot to another idea, or have enough money to buy the better executed version of the idea they originally wanted to do. It doesn't matter. The only thing that is a waste of time is being extremely good at a discipline and hoping that translates into financial investment. It is not an important part of the puzzle.

andrei 5y ago

I think this downplays things quite a bit. I grew up as a middle class immigrant in Canada. My parents have office jobs, but basically 0 connections (certainly not the ones you're implying you need to raise). In university (which I paid for myself through internships + loans), my cofounder and I just started coding on an idea, which got us into YC, which helped us get in front of a bunch of VCs, which allowed us to raise $3m in seed funding. No connections, just lots of googling and talking/pitching to anyone that would pay attention to us. It could've been the 5% luck you're talking about, but certainly don't think that coming from a well-connected family is the only way to fundraise in 2021.

smt88 5y ago
I completely believe you, but anecdotes are not data. There are exceptions, but most of the VC world is a circle-jerk of nepotism and "social proof".
ipaddr 5y ago
You used YC's connections. You applied were accepted and now are part of that network. Leveraging YC's rep for selection is one way to break in. You were part of the lucky 1% who make it through the program from application to funding,congrats! An aside.. How did the company do?
- Narkov 5y ago
  > You were part of the lucky 1% who make it through the program from application to funding,congrats! People aren't selected at random. There isn't any luck involved. It's hard work. I feel it's diminishing peoples achievements to say that their lotto numbers came up and YC let them in.
  - gurumeditations 5y ago
    Do you think everyone who wasn’t accepted simply did not work as hard?
    - 5y ago

andrepd 5y ago

Oh, were it only in 2021... Also, remember that banks have a license from the state to create money at their will from thin air, so it's really free money that we're talking about.

enos_feedler 5y ago

Actually things have never been easier. You have access to cloud computing, infinite free tools and learning resources. Social platforms to spread your product. If you fail its not your fundraising. Build something better. However when all else is right, a good story helps. Hence this article.

kortilla 5y ago

While those things may be helpful, they aren’t good advice because they aren’t easy to do nor are they actually required. Investors want to make money and they very frequently invest in people who do not meet that criteria. So it’s helpful to too how people were successful without the nepotistic criteria you outlined. In general your post just complains about privilege without being helpful or insightful.

KingFelix 5y ago

Also Top 40 under 40 - https://www.youtube.com/watch?v=BBbwAjhVM7M https://www.youtube.com/watch?v=BBbwAjhVM7M Start by having rich parents /s

aerosmile 5y ago

I am sorry that you seem to be in the Trough of Sorrow at the moment [0]. Sending you good vibes so you can prove to yourself that you have more power over your destiny than you currently realize. [0] https://medium.com/@BoundeHQ/what-is-the-trough-of-sorrow-anyway-d81c32023668 https://medium.com/@BoundeHQ/what-is-the-trough-of-sorrow-an...

deleted 5y ago

[deleted]

jollybean 5y ago

Sorry to say this is bad advice and essentially misleading. "You have sold your previous business or already own a very successful one." This is of course very true, and probably the #1 factor which will help you raise money, but that's an authentic reason to invest in someone. No serious fund will give you money because you 'know them' or are the 'son of an important client of some investment bank'. Graduating from a Top School will be beneficial but it's neither sufficient nor necessary.

rexreed 5y ago

This is also the case with government contracting. Just like how VCs ignore most pitches that come in cold through the "front" door, so too does the government ignore most responses to solicitations. 90% of deals go to those who are connected to the original source through personal relationships of "back door" deals. 5% of the deals go to those who know how to persistently work the system. And only 5% go to those who actually have the best product at the best price. When the worlds of venture capital and government contracting collides, it gets even more murky. There are many deals in that government folks are closing with silicon valley firms where someone within the government then ends up working for that same silicon valley firm. It's such an I scratch your back, you scratch mine world. I don't doubt that VCs tend to prefer those they know to those they don't for the very same reasons.

hinkley 5y ago
There are people whose job is to just write grant proposals. Someone told me they had a guy who was making almost twice as much as the developers, just because they were afraid he would leave. Which means the company decided it was better to get contracts even if it meant 1-2 less people available to fulfill them.
dylan604 5y ago
Isn't this pretty much true of any bidding process? The people already know who they want, but go through the mandated bids just to say they did while ultimately picking the group they already intended to use? From my experience that's the SOP for ad/creative agency bids, so I just extrapolate that to the rest of the world ;-)
- rexreed 5y ago
  It's worse when the VCs put their own people specifically in positions of control in the government to funnel deals to their portfolio companies, and then those people in positions of control leave to then work for those portfolio companies that now have dozens or hundreds of millions of dollars in government funds. It's much dirtier than just building relationships with people before the offer goes out.
5y ago

MichaelMoser123 5y ago

If you don't have any of these then you might try to compensate with better skills or by being better at communicating with investors / being better at telling stories.

stereoradonc 5y ago

Relationships matter almost everywhere.

imgabe 5y ago

Will we ever stop repeating this tiresome and obvious complaint that rich people have easy access to capital? Yes, it’s true. It is tautologically true. You haven’t come up with some clever indictment of the system, you’ve only described it. That doesn’t mean nobody who comes from a modest background succeeds and it is not at all helpful to anyone in that situation to just harp on how other people have it easier.

jacquesm 5y ago

Funny, of all the investments I've done to date not a single one would have any of these attributes. And of all of the investments of all of our customers I think I might be able to point to one or two cases where one or more of these were true but I highly doubt they were the deciding factor because the bulk of those did not go through, mostly because having such a relationship - and having it declared - would cause a lot more scrutiny on the fund managers than would happen otherwise because they'd be open to claims. Now of course it is possible that a bunch of them passed under the radar without being declared. WeWork - and SoftBank in general - are weird outliers, there is very little logic (to me, maybe they do understand) to their investments.