Startup Fundraising and Exits

"Ultimately, fundraising is an exercise in building trust. Each investment is incredibly significant to each fund and in order to convince a fund that you are worthy of that big check, you need them to feel incredibly confident that you will take the money and use it to take your business to a new level, whereby you could raise future funding and ultimately build a huge business."

"I typically recommend spending at least 4 weeks building the deck and supporting materials. I find founders realize there are stronger elements they should have included 1-2 weeks into the pitch process. Taking time to get the narrative right and letting your points crystallize will likely result in a stronger deck from the start."

"Typically I recommend founders prepare their materials to about 70% completeness and then test them before going into battle. Put together a coherent story with great supporting data (not necessarily heavily designed). Practice your pitch with them. Testing your materials and thesis before you hit the full pitch gauntlet will build your confidence and reps on the pitch."

"Planning your outreach is probably the most overlooked and tedious part of building a successful process. Your goal at this stage is to build a long list of funds who could lead your round."

"Generally the way to think about whether you are ready for a Series A is whether you’ve proven a credible value hypothesis. This is a combination of factors including the market you’re attacking, the features you’ve built to exploit the opportunity, and how well your product is finding its fit in the market."

"The key is that your materials tell a compelling story. They need to explain what you’re building, why you’re building it, and how your strategy will capture considerable revenue in the future. The better this story ties everything together, the more your business will seem insightful."

"Generally I recommend having at least 8 months of runway when going out to raise. The most important thing is that your business is showing the signs that you should raise Series A. If you only have 4-6 months of runway, it might make sense to raise a bridge round from inside investors to gain leverage in the fundraising process."

"One thing that Covid has changed is that building a relationship with a VC, with fewer in-person meetings, is now harder. To make up for the lack of in-person face time, you need to find more digital approaches to building this relationship than before."

"A person with high degree centrality is a mayor of a small town, or the most popular kid in high school. Within the context of a network where everyone knows each other, they are the most connected person in that dense network. A failure mode of building a network that is optimized for degree centrality is that everyone ends up being similar, and it’s extremely limiting when you have a request that is outside of your normal area of influence."

"If I had to simplify what makes for a good investor ask into three main concepts, they would be: Targeted: Only send them to the people who are relevant. Time-bounded: Ideally, executing the request should take less than a minute. Specific: Be specific in your request, and limit the scope of the request."

"If you expect your investors to be actively involved, you should let them know before you accept their money. This is really important because it gives you permission to hold them accountable to what they’ve agreed to, and many investors will opt out. That’s fine!"

"From June 27, 2019, to October 26, 2022 (about 3 years and 4 months), I personally sent 2,626 requests to our investor network. Of those emails sent out, 1,664 received a response, and 1,151 were able to deliver on what was asked."

"Every month, my EA sends a message to our team asking them for two things that they could use help with. The responses are consolidated and added to our investor update, and I add them to my list as well."

"When I say it needs to have a good wedge, I’m looking for an entry point that provides some sort of power to the startup."

"Selected founders receive $500,000 in seed funding in exchange for roughly 7% equity. Four times a year, founders are immersed in a three-month cohort, or “batch,” with about 125 other startups, which are sorted into groups and mentored by successful founders. It’s an exclusive program—with an approximately 1% acceptance rate—offering founders a powerful network, future funding opportunities, and instant credibility."

"If there were a Surgeon General warning on this drug, it might read, “Beware. VC funding may lead to dependence and complication. Some users have reported extreme anxiety, loss of control, and nightmares of being on a never-ending treadmill.”"

"The top funds are a known quantity, but the top angel investors are not. And that’s who generally makes up the majority of early-stage funding and cap tables. Especially if you’re trying to bootstrap and take just a few small checks."

"Classic top-level growth for Tier 1 ventures investors is 3x, 3x, 2x, 2x, 2x after 1M in revenue, so 1M to 3M to 9M to 18M to 36M, etc. Anything above that is obviously great, but many other factors come into play."

"Generally, 0 to $1m ARR in 12mo or shorter is great. There are obvious exceptions to this—not every company’s success can be measured in ARR since launch (Figma, OSS, etc.)."

"For consumer, I focus on engagement and retention first and foremost. >50% DAU/MAU or >50% D30 retention is excellent. If you have both of those, only then do I worry about whether you can grow it."

"Raise capital when you are confident that you can use it to attain a higher growth rate and the higher growth rate is worth a trade-off in dilution. Higher growth rates increase the value of a business. Higher growth rates fetch greater multiples."

"For every good idea, there are probably dozens of founders over the years who have attempted to build a company around a similar premise. And most of them are like those ships that never returned. It follows from there that, if you’re working on an idea, someone probably tried it before and failed, so what’s different now?"

"Of course any startup benefits from the tightest definition of*****why now*****—if the company literally couldn’t have existed without the ‘why now.’ Platform, technology, regulatory shifts are all examples of this."

"The importance of the ‘why now’ has a lot to do with the reason venture capital exists. Venture capital works because there is justification for being an unprofitable company at the outset because the opportunity later on is so huge, compounded by the fact that getting in early enables the startup to gain advantage."

"Bootstrapping is for lifestyle businesses that want cash flow, and (venture) funding is for companies trying to create a billion dollars in annual revenue. Simple as that."