The Ultimate Cheat Sheet to Starting and Running Your Own Business
http://www.jamesaltucher.com/2013/08/the-ultimate-cheat-shee...
How to Raise Money
121–125 of 125 posts
Re: How to Raise Money
#122Re: How to Raise Money
#123Earlier quoted context omitted.
> Since phase 2 prices vary at most 10x and the big successes generate returns of at least 100x, investors should pick startups entirely based on their estimate of the probability that the company will be a big success and hardly at all on price. To give concrete numbers to pgs statement: Pick 2 hypothetical startups: A and B. A will go on to be a 10 billion dollar company and B will be a 100 million dollar company.…
> Therefore, if you believe the company to be of the A type ... That's the problem I have with this line of thinking. An investor doesn't "believe" it to be type A. An investor gambles that it's going to be type A. Reasoning after the fact that you should have been willing to spend more on the winner, without accounting for probabilities, is flawed reasoning. If anyone could see five years ago that the company was ce…
Haha, good catch on the math goof.
> without accounting for probabilities, is flawed reasoning.
This is the problem. It is rather illogical to believe that one can come up with an accurate probability of success for a given company given the multitude of variables both known and unknown. For example, AirBnB was thought to be not only bad, but a terrible idea initially yet it is one of the biggest winners in all of the YC batches. What probability of success did investors give it? Think of it from the point of view of an investor who passed up on AirBnB. How much do you think that these probabilities that you come up with mean when you know how bad you are at deciding whether to invest at all.
Re: How to Raise Money
#124Earlier quoted context omitted.
> Therefore, if you believe the company to be of the A type ... That's the problem I have with this line of thinking. An investor doesn't "believe" it to be type A. An investor gambles that it's going to be type A. Reasoning after the fact that you should have been willing to spend more on the winner, without accounting for probabilities, is flawed reasoning. If anyone could see five years ago that the company was ce…
Haha, good catch on the math goof. > without accounting for probabilities, is flawed reasoning. This is the problem. It is rather illogical to believe that one can come up with an accurate probability of success for a given company given the multitude of variables both known and unknown. For example, AirBnB was thought to be not only bad, but a terrible idea initially yet it is one of the biggest winners in all of th…
Who says the probabilities are going to be accurate? The point is that it's better to guess at probabilities for outcomes and then calculate than it is to blind guess at valuations. Presumably, YC will be in a better position than most to estimate the probabilities.
Re: How to Raise Money
#125Unsurprisingly, excellent advice phrased as succinctly as it could be for such an enormous topic. I'm glad Paul Graham think that decks are on the way out, because they're a ludicrous (or at least inefficient) way of understanding what a startup does. If you have a product, show me that. If you have financials, show me those. Otherwise it becomes a competition to see which companies can dedicate their design resource…
I think showing the product alone works well only if the investor is in the target audience. I just met with an entrepreneur who has what I believe is a great product, but the investors he has talked with so far are just not going to be users of it. In his case, I think having a couple of slides to help demonstrate the problem is very helpful. Otherwise there isn't a sufficient aha moment when he gets to the solution…
Certainly the business case is important to lay out, especially in the case you describe. Many decks don't do that though - they don't stand alone without a verbal pitch. They lack context and sometimes even topic headings.
I've seen many decks that have a page with a heading like "Opportunity" and a number (along with the obligatory graph going up and to the right). What is that? Competitor sales? Expected market share? Entire market size? Even if the investor is watching you pitch out loud, they may refer back to the deck and find they have forgotten what you said about that slide.