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Fundraising Mistakes Founders Make

blog.samaltman.com

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Re: Fundraising Mistakes Founders Make

#21

Post by namenotrequired »

nairteashop wrote: post #19
namenotrequired wrote: post #11

> So don’t do obviously dumb things like talk about potential acquirers in a seed round pitch - that will suggest you’re not trying to build a really big company. Question, should one talk about potential acquirers - specifically, those you have offers from - at any point during fundraising?

Acquisition offers are a great external validation of both your product and the market you're in. So my take is that it's a very positive thing to talk about any potential acquisition offers, as long as you stress that that's not your end game . Take for example Drew Houston turning down the acquisition offer from Jobs/Apple back in the day; probably did wonders for Dropbox's valuation in the following round (and ver…

Great point, thank you!

Re: Fundraising Mistakes Founders Make

#22

Post by davros »

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.

Re: Fundraising Mistakes Founders Make

#23

Post by DenisM »

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 wants to finance the actual validation... Am I missing something?

Re: Fundraising Mistakes Founders Make

#24

Post by ddt »

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…

The "graph moving in the right direction" doesn't have to be impressive in absolute terms. If I can prove that I have 100 paying, engaged customers this week, 50 last week, 25 the week before, etc. I've proved that the idea resonates with a market, and its growing. Note that this is still early stage. You have to be able to prove some indication of longterm value though.

Re: Fundraising Mistakes Founders Make

#25

Post by lawnchair_larry »

chollida1 wrote: post #13

I don't know Sam, but I really like this experiment he's doing with writing. Lot's of decent articles being written a a high speed. It's almost like he's trying to replicate Paul Graham circa 2004- 2008. I haven't seen an article yet that breaks any new ground, ie he's still looking for his "blub paradox" article, but all his articles generate discussion. Just look at his article on AI from yesterday. It didn't reall…

Except unlike PG, he hasn't really established authority on what he is writing about (other than perhaps a confusing endorsement from PG). What are Sam's big hits?

Edit: That sounds meaner than intended, but it's actually an honest question. How does this guy share a top 5 list spot with Jobs, Larry, and Sergey? How do we know we should take him at his word when he didn't learn these things be being successful doing them? I feel like I'm missing something.

Re: Fundraising Mistakes Founders Make

#26

Post by jkarneges »

ddt wrote: post #24
DenisM wrote: post #23

Earlier quoted context omitted.

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…

The "graph moving in the right direction" doesn't have to be impressive in absolute terms. If I can prove that I have 100 paying, engaged customers this week, 50 last week, 25 the week before, etc. I've proved that the idea resonates with a market, and its growing. Note that this is still early stage. You have to be able to prove some indication of longterm value though.

If you have paying customers with consistent growth then you are well past idea stage.

I think DenisM's point is that founders often need to be somewhat wealthy on their own in order to create a product in the first place. This doesn't seem like an optimal division of responsibilities.

Re: Fundraising Mistakes Founders Make

#28

Post by wellboy »

Normally, I find Sam's articles maybe interesting, but not that insightful.

However, this one is really awesome, it pins down the dynamics happening in fundraising exactly. It actually feels a bit Paul Graham like, very good article.

Especially liked the part about not being arrogant. I'm always trying to be very assertive while actually sounding really nice and likeable, it's a very important art to master.

Re: Fundraising Mistakes Founders Make

#29

Post by gailees »

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…

Marc Andreessen kind of touches on this in Why Software is Eating The World: http://online.wsj.com/news/articles/SB1000142405311190348090...

The barriers to entry for startups have gone down, and thus there's higher quality startups competing for the same funding. As development becomes cheaper, easier, quicker we are just going to see the bar go up for early stage investment because investors will have more and better options.

Re: Fundraising Mistakes Founders Make

#30

Post by ballard »

Business people that don't add value tend to focus on appearances than substance because it's an easier business theather to bikeshed than to show progress and interest. The upside is that anyone that's built a business before is unlikely to be fooled by clever packaging or a well-defended presentation.
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