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

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

#71

Post by bg24 »

bendavis381 wrote: post #41
modi15 wrote: post #19

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 invest…

I think the sentiment behind #5 is right, but your wording is wrong. It's not about bullshitting. It's about storytelling and choosing which parts of your story to emphasise and how to frame them. People don't realise the extend to which raising money is simply storytelling. And with any story, you dictate where your story takes somebody. Investors want to believe in your story (especially angels / early VC) so give…

+1. Storytelling is necessary.

#4 looks reasonable if you remove the first sentence (“treat investors as shit”).

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

#72

Post by kenneth »

qaq wrote: post #62
kenneth wrote: post #38

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…

Turning things around a bit why would people care enough to spend time to get a meeting with you? 30M is a tiny fund the advice you give is pretty much what all VCs say but you are wording it in a very master of universe type of language. I would be slightly surprised if Doug Leone phrased it like this but to see such wording from a small fund partner to me is already a big red flag.

Ha, I like the way you think! The truth is, most VCs are fairly undifferentiated. We provide value in a number of ways, but then again, it's hard to say why we're better than any other decent seed fund.

Another why many of our investments come through referrals. People who know how we operate as a fund and as value-add investors recommend us to companies just as much as they recommend companies to us.

Thinking of it in the other direction: our LPs invested into us based on our access and ability to get into good deals that match our fund thesis. We are able to find companies that match that thesis, and able to get founders to accept an investment. Rarely do these deals end up being the same ones that cold email us.

If you're a hedge fund with a specific strategy, you go out and specifically pick stocks, it isn't the stocks coming to you to pitch you. VC investing isn't that different. We are strategically positioned such that we hear about companies as they're fundraising and find a way to invest in the ones we like that match our thesis.

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

#73

Post by siruncledrew »

kenneth wrote: post #39
modi15 wrote: post #19

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 invest…

This is terrible advice if I've ever seen any. You do not start a productive long-term relationship my lying to investors or treating them like shit. I have noticed a growing trend in generally arrogant founders in the past few years, and it's disappointing to see. I do have a strong "no assholes" criteria, and won't fund such founders no matter how good everything else looks. At the end of the day, a startup is peop…

OP is clearly misguided if their "advice" is be an asshole who lies and treats people like shit until they get what they want.

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

#75

Post by coffeemug »

AriaMinaei wrote: post #69
coffeemug wrote: post #17

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…

Eloquently put! Can you recommend books/articles that'd go along with this advice?

The Art of Strategy[1] is a good layperson level game theory book that will put you in the right mindset. It's not about fundraising at all, but that doesn't matter -- it's the mindset that's important IMO.

[1] https://www.amazon.com/Art-Strategy-Theorists-Success-Busine...

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

#76

Post by thethimble »

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.

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

#77

Post by kumartanmay »

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.

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

#78

Post by AriaMinaei »

coffeemug wrote: post #75
AriaMinaei wrote: post #69

Earlier quoted context omitted.

Eloquently put! Can you recommend books/articles that'd go along with this advice?

The Art of Strategy[1] is a good layperson level game theory book that will put you in the right mindset. It's not about fundraising at all, but that doesn't matter -- it's the mindset that's important IMO. [1] https://www.amazon.com/Art-Strategy-Theorists-Success-Busine...

Many thanks :)

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

#80

Post by antonkm »

wiz21c wrote: post #46
antonkm wrote: post #29

Earlier quoted context omitted.

You cut out the context. It wasn't "do bullshit", but "Do bullshit padding around your entire story." That is pretty much every company out there. Company leaders revise their history to make them more attractive, come up with visions in hindsight and add ethic concerns etc. OP did not say what you claim he/she did.

So, if I read correctly : "add ethic concerns" is "bullshit padding". Right ?

No, you did not read that correctly. What has happened to HN? Suddenly there's trolls everywhere.
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