PG led the charge on the idea you should start a company instead of going to grad school or taking a safe job. It's very important that he's now also saying, "your startup, despite needing money, might not be ready to raise money yet" because it adds an important constraint on your decision to take the plunge - either be sure you can reach the goal in a few months or have more personal runway.
How to Convince Investors
31–40 of 119 posts
Re: How to Convince Investors
#32"The people who are really good at acting formidable often solve this problem by giving investors the impression that while no investors have committed yet, several are about to. This is arguably a permissible tactic. It's slightly dickish of investors to care more about who else is investing than any other aspect of your startup, and misleading them about how far along you are with other investors seems the compleme…
PG seems to be saying that the other side "drew first blood".
Of course that is an assumption that because they ask a question they care. While I'm sure they probably do care (because it's a well known fact and human nature) asking doesn't prove that the answer matters to them.
That said in business bluffing and telling lies in certain circumstances about certain things (especially negotiation with an adversary) is a given. There is a line that is walked and it is walked differently by different people according to what they feel comfortable with.
After all if you were at a car dealer and asked them "are you selling me this car cheaper than to any other customer" how do you think they would answer? And if they asked you "tell me the price the other dealer quoted you" how would you answer?
One thing I do know is that if you don't know how to be devious in business you will have problems. This is not to say you should be a thief lying all the time and ripping people off. But you need to have some common sense about what is done in a business transactions and what is generally considered acceptable. And how in some cases you could even be viewed negatively for being "to honest".
Re: How to Convince Investors
#33The only thing you need is traction. Anything else doesn't matter. It seems insane, but investors are blinded by traction. If you are a startup that has low scalability, but you have traction, you will get funding If you are insanely scalable, a great idea, but you don't have traction, you just won't get funding. It doesn't matter how awesome your team is. Investors just can't see good ideas through the traction curt…
"If you are a startup that has low scalability, but if you have traction, you will get funding" To be fair, I think most people tend to underestimate the scalability (as well as the Total Addressable Market) of successful startups at the early stage. As PG puts it, the big winners often look like bad ideas in their earliest stages. Take Rap Genius, for example. I'll freely admit that, when I first heard about the sit…
Yes and it's funny that the 99% I mentioned are all followers, who look for pattern matches. YC also goes so strongly after patterns and they have also gone for lots of startups with very low scalability recently. What they don't realise is that when you go for startups that match the pattern, you actively sign up to not pursue the outliers and this not the big hits.
Investors should exclusive pursue the outliers and for that reason MUST look for the startups that don't match any elements of the "pattern". (except for a team that executes)
But they dont get that.
Re: How to Convince Investors
#34"Inexperienced founders... try to convince with their pitch. Most would be better off if they let their startup do the work—if they started by understanding why their startup is worth investing in, then simply explained this well to investors." This advice applies to many things in life -- getting a job, proposing marriage, networking in general. For instance, I've occasionally met people who obsess about crafting th…
I feel like this may be a tech-centric phenomenon, unfortunately. In a lot of industries, omitting the right keyword from your CV will exclude you from interviews.
The over-focus on resume is true across all industries. Missing a keyword on the resume can be symptomatic of a bigger problem. If you're impressing the right people (through work, networking, etc) your resume gets put to the top of the pile without going through HR or an on-line keyword search.
Re: How to Convince Investors
#35This is a really fantastic essay, but I was disappointed by this: The people who are really good at acting formidable often solve this problem by giving investors the impression that while no investors have committed yet, several are about to. This is arguably a permissible tactic. By engaging in this tactic, you are working to make foolish behavior on the part of the investor successful, which then leads to the very…
"This will reform the investor climate over the long-term if the best startups consistently use it, and after all, these best startups are the target of your essay."
Seems that the target of PG's advice is a particular individual and what benefits them. Not what benefits all startups. If he were writing to investors he might write differently.
Re: How to Convince Investors
#36This is a really fantastic essay, but I was disappointed by this: The people who are really good at acting formidable often solve this problem by giving investors the impression that while no investors have committed yet, several are about to. This is arguably a permissible tactic. By engaging in this tactic, you are working to make foolish behavior on the part of the investor successful, which then leads to the very…
Fundraising climates cycle from optimistic to pessimistic. If you take a ten year view, this would be an average to above average time to raise money in my view.
In the difficult environments, everyone has their wallets stashed in their pockets and it's hard for even good startups to raise money. In that environment I think engaging in "permissible levels of salesmanship" is probably rational.
But in an average to strong market, I agree, why compromise even at the margin? If it's a good idea you'll get funded.
Re: How to Convince Investors
#37"Inexperienced founders... try to convince with their pitch. Most would be better off if they let their startup do the work—if they started by understanding why their startup is worth investing in, then simply explained this well to investors." This advice applies to many things in life -- getting a job, proposing marriage, networking in general. For instance, I've occasionally met people who obsess about crafting th…
I feel like this may be a tech-centric phenomenon, unfortunately. In a lot of industries, omitting the right keyword from your CV will exclude you from interviews.
"omitting the right keyword from your CV "
Agree.
Even omitting the right word from you web page if you are a freelancer will cost you business. Outsourcer looks at qualifications and if, say, they are looking for php and the page doesn't list php the freelancer might not get a call for the particular project even if it seems reasonable that they do know php.
Similarly if you are looking for a plumber and you need a water heater put in having "we install water heaters" is much better than "we do all sorts of plumbing". People key into specifics and hot buttons.
Re: How to Convince Investors
#38The only thing you need is traction. Anything else doesn't matter. It seems insane, but investors are blinded by traction. If you are a startup that has low scalability, but you have traction, you will get funding If you are insanely scalable, a great idea, but you don't have traction, you just won't get funding. It doesn't matter how awesome your team is. Investors just can't see good ideas through the traction curt…
"The only thing you need is traction. Anything else doesn't matter.
It seems insane, but investors are blinded by traction."
Very true, but why is this insane? Investors see tons of people with great big ideas who talk about passion. Since you have to winnow the field, why not do it on something that matters (traction) versus something that doesn't (the alma mater of the founder, or how they dressed).
Re: How to Convince Investors
#39[deleted]
Re: How to Convince Investors
#40"But while Microsoft did really well and there is thus a temptation to think they would have seemed a great bet a few months in, they probably didn't. Good, but not great. No company, however successful, ever looks more than a pretty good bet a few months in."
As an example, Bessemer Venture Partners passed on investing in Apple, Google, Intel, eBay, FedEx, and many other big companies. Their "anti-portfolio" makes amazing reading, and vividly demonstrates how hard it is to pick winners: