(4) Startups: How to Communicate Traction... by Brendan Baker
Best practices for raising a VC round
Having raised a number of VC rounds personally and observed many more as an investor or friend, I’ve come to think there are a set of dominant best practices that entrepreneurs should follow. 1. Valuation: Come up with what minimum valuation you’d be happy with but never share that number with any investor. If the number is too low, you’ve set a low ceiling. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Nat Turner (Thoughts on best ways to manage a VC round)
We spent too much time raising money at Invite. Raising money when running a startup is extremely distracting, because every minute you’re fundraising you’re not working on your product. Sometimes I like to think about what else we could have done at Invite if we didn’t spend probably a third of our company’s lifespan fundraising, either full-time or part-time. However, the flip-side is that if you’re building a startup there’s a pretty damn good chance that you’re going to need to raise money. So, this post is dedicated to how you as the entrepreneur can best manage the fundraising process in order to accomplish two things: (1) get what you want, and (2) get it as quickly as possible. Know what you want before you start the process. I hope this helps.
Why Startups Should Raise Money at the Top End of Normal
Editor’s Note: This is a guest post by Mark Suster (@msuster), a 2x entrepreneur, now VC at GRP Partners. Read more about Suster at his Startup Blog, BothSidesoftheTable. I have conversations with entrepreneurs and other VCs on a daily basis about fund raising, the prices of deals, how much companies should raise, etc. I’ve stopped talking about this as much publicly because it’s such a heated, emotional topic where the points-of-view are strictly subjective and for which the answers will only be revealed in the future. I’ve decided to take all of my private points-of-view on the topic and make them public in a keynote speech at the Founder Showcase in San Francisco on June 15th. I thought I’d post on one of the topics beforehand. Huh? Here’s what I mean. Every day shareholders vote on the value of the company by buying or selling shares. Private markets for stocks are the opposite. There is no great science to it. There is no such thing as a uniform price. Here’s the problem.
chris dixon's blog / Notes on raising seed financing
Last night I taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research). I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. 1. 2. 3. 4. By far the biggest influence on investors’ opinions of a startup is the opinion of other investors. 5. Make sure you have good Google results (this is your first impression in tech). 6. 6. 7. 8. 9. Have a short slide deck, not a business plan. 10. 11. 12.
The Four Main Things that Investors Look for in a Startup
I obviously don’t speak for all investors. But in my experience as an entrepreneur and now spending my time amongst investors I can generalize that almost all VC investments in early stage technology & Internet investments come down to just four key factors. And they’re easy to remember because they all begin with an M: management, market, money and above all else momentum. This post was prompted by an email exchange I had with a young entrepreneur. So I wrote to the entrepreneur and said, “Congrats. I do understand. I understand. Not everybody agrees that entrepreneurs should take investor meetings outside of “funding season” when they’re raising capital. But if you identify investors with whom you’d like to work here’s my advice: 1. Imagine the “typical” deal – somebody comes into a VC’s office, they’ve never met, they’re highly referred by a friend and they’re pitching a product demo and a PPT. 2. If you haven’t read my post on the bio slide before here it is. 3. 4. BUT WAIT?
How To Reply to Angel Investor Intro Emails
I have had a lot of entrepreneurs ask me for introductions to various investors. In some cases the entrepreneurs use their reply to the intro email as a mechanism to gain social proof, emphasize urgency, and to reduce the friction to meeting the investor and closing their round (see e.g. VentureHacks for great tips). Unfortunately, a lot of otherwise savvy entrepreneurs don't follow up with investors well. This post is focused on the small tactics that go a long way upon receiving an introduction. Example Of a Bad Reply To An Investor Intro "Thanks Ivan Introducer for the intro! Hiya Angela Angel,It is great to meet you! Elizabeth Entrepreneur" Example of a Good Reply (tailored to an angel round with a lead) "[moving the person who made the intro to BCC][1]Hi Angela Angel, It is great to meet you. Our round is coming together quickly so the sooner we can talk the better[4]. Monday 2pm-3pm; 5pmTuesday 1:30pm-3pm, 6:30pm Thanks,Elizabeth Entrepreneur----------Team bios [7] Carl Co-founder-etc."
Later-stage rounds and “setting the bar too high”
I recently had a number of conversations with CEOs of later-stage startups (generating significant revenue) that went something like this. They want to raise more money, and VCs are offering them money at a high valuation. The CEO is worried that taking money at that valuation will “set the bar too high” and make it difficult to sell the company – if the time comes when he/she thinks it makes sense to sell – at a price that isn’t a significant multiple of that valuation. These CEOs are worrying too much. VCs know what they are doing and almost always invest with a financial instrument – preferred shares – that protects them even when the valuation is very high. Preferred shares behave like a stock on the upside and a bond on the downside. Here is what the payout function looks like for common stock (for example, what you get when you buy stocks in public markets): And here is what the payout function looks like for preferred shares: Will investors be thrilled with scenario 2?
A Guide to Using Authority & Social Proof in Fund Raising
I recently read a book I’d highly recommend to every reader of this blog called “Yes, 50 Scientifically Proven Ways to be Persuasive” by Robert B. Cialdini who is also author of a very well received book called “Influence” (which I plan to read). “Yes” was given to me by one of my favorite angel investor / seed VC’s to work with – John Greathouse of Rincon Venture Partners and author of the blog InfoChachkie that you should check out because it is filled with great info from a guy who has been a very successful operator. Rincon is part of the new breed of Seed Stage VCs and with the leadership of Jim Andelman has charted out the most authentic early-stage investment strategy in Southern California. John gave me the book after I spoke at his entrepreneurship class at UCSB. The book is a layman’s guide to understanding how we as humans make decisions and is underpinned by data-oriented studies to prove his claims. But Cialdini knew they could do better. He went one step further.
