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Fundraising Mistakes Founders Make

blog.samaltman.com

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Re: Fundraising Mistakes Founders Make

#31

Post by ballard »

webwright wrote: post #2

To me, one of the biggies is raising too early. To Sam's point, you want a competitive environment. To get that you want to obviously be a good investment to as many investors as possible. If you don't have some combination of an amazing v1 product, a traction graph that's moving in the right direction, credible investors already on board, a big/timely market, or a top 5% team, you're almost certainly fundraising too…

Founders have to have enough credibility to find customers and a business model to seek out profit, or it seems like a risky proposition no amount of selling can overcome.

Re: Fundraising Mistakes Founders Make

#32

Post by cwp »

michaelochurch wrote: post #3

Beware, though, that saying things like “our round is closing really fast” when you have no offers usually backfires. Investors talk and will call your bluff. True, but this sort of investor collusion is unethical and only (possibly) legal because private stock isn't regulated in the way that publicly traded stock is. In fact, the whole and only purpose of the VC-funded economy is to take stock strategies that were m…

Hmm. The founder lies to investors while trying to raise money, and the investors check his story to see if it's true. This makes the investors scumbags?

Re: Fundraising Mistakes Founders Make

#33

Post by ballard »

jheriko wrote: post #10

No 1. by miles and miles is fundraising at all. Just saying, but nobody successful I know spends or spent any time raising funds for their company that wasn't just saving their wages. The one case I know of where they tried (after already being successful I would add) they were already doomed before going down that path ... it just took a while for it to come to fruition. Given that the only people I know who thought…

It's push vs pull. If you build value, investors will beat down your door.

Re: Fundraising Mistakes Founders Make

#34

Post by ballard »

michaelochurch wrote: post #3

Beware, though, that saying things like “our round is closing really fast” when you have no offers usually backfires. Investors talk and will call your bluff. True, but this sort of investor collusion is unethical and only (possibly) legal because private stock isn't regulated in the way that publicly traded stock is. In fact, the whole and only purpose of the VC-funded economy is to take stock strategies that were m…

Only B-players of second string shops investors and founders behave in such a manner. The valley is too small for such to be sustainable. The top people aren't stupid and are hemmed in by social and reputation considerations. The B-string shops will only fuck with you if they assume you don't have powerful enough friends.

Re: Fundraising Mistakes Founders Make

#35

Post by yid »

> Some founders try things like carefully timing news articles, casually mentioning to one investor that they'll be having dinner with another investor, claiming their schedule is really packed except for one specific hour, and other tricks - but if you just build a good company, you generally won’t need to.

(Non-italics mine) This is such wonderfully simple advice. Investors, by definition, want to make money. Build something that can, show them it will, and they will give you an investment. If you can't raise money, you're doing something wrong with the first two -- so that should show you where to focus on instead of using poorly thought out social engineering tricks.

Re: Fundraising Mistakes Founders Make

#36

Post by crapshoot101 »

DenisM wrote: post #23
webwright wrote: post #2

To me, one of the biggies is raising too early. To Sam's point, you want a competitive environment. To get that you want to obviously be a good investment to as many investors as possible. If you don't have some combination of an amazing v1 product, a traction graph that's moving in the right direction, credible investors already on board, a big/timely market, or a top 5% team, you're almost certainly fundraising too…

It's sort of silly though - founders already take risk with years of their life going nowhere, why should they also bear the entirety of the financial risk? Isn't the purpose of early stage investment to validate the idea? And by contrast late-stage investment is to grow the validated idea? It feels like these days everyone wants to invest only in validated ideas. It just feels suboptimal that hardly anyone ever want…

Be that as it may, why is this true just for founders? Ie, we sometimes forget the echo chamber we live in around here - ie, no one owes anyone a "fundraising" opportunity. Early stage investment is absolutely about validation, but does that mean anyone who's interested should be able to raise money for it? If it was your own money, wouldn't you do everything you could to minimize the risk for a given upside profile?

Re: Fundraising Mistakes Founders Make

#37

Post by lawnchair_larry »

minimax wrote: post #5
michaelochurch wrote: post #3

Beware, though, that saying things like “our round is closing really fast” when you have no offers usually backfires. Investors talk and will call your bluff. True, but this sort of investor collusion is unethical and only (possibly) legal because private stock isn't regulated in the way that publicly traded stock is. In fact, the whole and only purpose of the VC-funded economy is to take stock strategies that were m…

Collusion is a pretty big charge. If investors are upfront about the fact that they talk to each other (and, hey, it's right there in the blog post) then investor A calling up investor B to verify he has made an offer to a startup isn't collusion. It's just due diligence. I'm also unclear about the analogous situation in the public markets that you alluded to.

It's really not a big charge, and being upfront about it doesn't make it acceptable.

http://en.wikipedia.org/wiki/Angelgate

That was the one time someone actually caught them. Anyone who thinks that is the only time it happened is very bad at statistics.

Re: Fundraising Mistakes Founders Make

#38

Post by michaelochurch »

davros wrote: post #22
michaelochurch wrote: post #3

Beware, though, that saying things like “our round is closing really fast” when you have no offers usually backfires. Investors talk and will call your bluff. True, but this sort of investor collusion is unethical and only (possibly) legal because private stock isn't regulated in the way that publicly traded stock is. In fact, the whole and only purpose of the VC-funded economy is to take stock strategies that were m…

Whoah there - that's a huge leap from investors finding out that the entrepreneur is lying to them to the investors colluding on price. One is fine, the other is not.

No. They are the same crime. You are wrong, both morally and factually. As a founder you have the right to represent investor interest however you see fit. It is up to them to judge you independently and, if they cannot do that, then any gain you make in dealing with them is rightfully yours.

Re: Fundraising Mistakes Founders Make

#39

Post by beat »

This basic point is something I keep thinking, too… either you have your shit together, or you don't. If your fundamentals are strong, you should be able to get funding easily. If your fundamentals are weak, no amount of would-be cleverness will make funding viable.

If you want to impress investors, impress your customers.

Interestingly, this just falls out of something I've learned from years of developing big systems, which is that the line between success and failure is narrow, but the grounds on either side of that line are broad. So back of the envelope calculations that strongly suggest one conclusion or the other are almost always right, assuming there's nothing wrong with your analysis. Because of this, I've learned to not be pedantic about precision. Quick decisions are usually more effective than cautious ones.

Maybe that's why I've set out on a path away from the enterprise and toward entrepreneurship.

Re: Fundraising Mistakes Founders Make

#40

Post by tlogan »

This is great but I will offer a simplistic view how to raise money.

First, you need to get "social proof". Getting accepted into Y-combinator is a very good one. Or if you already sold a company then you are golden. But if you are super smart working in large tech company such as Yahoo! for 15+ years - good luck. Especially if you are over 40. When you are 40 it is easier to convince Discovery Loan to give you 100K loan than seed round from any VC.

Second, you should not have any revenue or god forbid any profit. You might think that is needed but actually revenue and profit are bad for raising money: investors will look your numbers and make projection based on these numbers. It much easier to sell "blue sky" than business with actual revenue and profit.

So to raise money:

  1 build "social proof", 
  2 make powerpoint presentation, 
  2 go raise money
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