Hi pg,
I admire the clarity of your thoughts.
This is a really fine and insightful article. Thank you for sharing this.
How to Convince Investors
41–50 of 119 posts
Re: How to Convince Investors
#42The 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).
It's insane, because if you invest in a startup with decent traction you don't have your 100x big hit anymore, because you invest in a valuation at say $4M.
Instead, if you had spotted the startup's potential pre-traction, maybe just 1 or 2 months before it gained traction, you could have invested half the amount at a $2M val.
And this ability,ladies and gentlemen, to spot a startup 1-2 months pre-traction, makes the difference between a 25x and a 100x.
Re: How to Convince Investors
#43I <3 this essay. "Fake it 'til you make it" seems to be the m.o. in a lot of entrepreneurial circles. I've honestly never known if this is actually a good strategy or not. It seems the answer is no.
The real problem is that most people are not convincing during the "fake it" portion.
I agree, but I think there's a bigger problem.
I think first time entrepreneurs are prone to thinking that raising money is a win. Second time entrepreneurs almost never think that, they view it as an obligation.
A lot of young, first time entrepreneurs, if you told them: you can with certainty raise a $5M Series A, but with certainty the business will not work in the end, which you will figure out in 3 years -- they would still raise the money. They have a burning desire to to be a CEO, to build something, and they'll worry about the rest later.
In my view, raising money when you either have no idea if it's a good opportunity, or believe on early data that it's actually not (but you'll figure it out or pivot later), -- this is what I see in "fake it til you make it", "hustler" thinking -- is that when you're successful, you've now signed up to use some of the most productive years of your life chasing an opportunity that is likely not to be any good, when you could have held out for something better.
Happiness research indicates that people are consistently wrong about what's going to make them happy (or sad) -- the shiny new car will lift their spirits every time they get behind the wheel, but within a few weeks, it's just another car. I think this applies to fundraising as well: raising money for an idea you're not 100% convinced on has proven to tempt many founders, but in my experience, they later come to regret it.
Re: How to Convince Investors
#44Earlier quoted context omitted.
"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).
It's insane, because if you invest in a startup with decent traction you don't have your 100x big hit anymore, because you invest in a valuation at say $4M. Instead, if you had spotted the startup's potential pre-traction, maybe just 1 or 2 months before it gained traction, you could have invested half the amount at a $2M val. And this ability,ladies and gentlemen, to spot a startup 1-2 months pre-traction, makes the…
I think they're making a rational call that they can't weed out which ones will make it. So in your example, they would need to invest in more than twice as many at the lower valuation to get the same # of successes.
Just being the devil's advocate. (Not that I intend to compare VCs to devils!)
Re: How to Convince Investors
#45"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.
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Re: How to Convince Investors
#46There's one error: Microsoft did raise venture capital. They did it a matter of months before they went public.
Re: How to Convince Investors
#47That's the secret. Convince yourself that your startup is worth investing in, and then when you explain this to investors they'll believe you.
This is one of the best advice for both fund-raising or anything else in life and it's basically the same strategy Arnold Schwarzenegger used to become the "number one star" in hollywood [1] as explained by Steve Chandler:
* ...Then I asked just how he planned to become Hollywood's top star. Mind you, this was not the slim, aerobic Arnold we know today. This man was pumped up and huge. And so for my own physical sense of well-being, I tried to appear to find his goal reasonable.
"Easy, It's the same process I used in bodybuilding," he explained. "What you do is create a vision of who you want to be, and then live into that picture as if it were already true." *
edit: attribution added - 1: http://biznik.com/articles/being-like-arnold-schwarzenegger
Re: How to Convince Investors
#48That's the secret. Convince yourself that your startup is worth investing in, and then when you explain this to investors they'll believe you. This is one of the best advice for both fund-raising or anything else in life and it's basically the same strategy Arnold Schwarzenegger used to become the "number one star" in hollywood [1] as explained by Steve Chandler: * ...Then I asked just how he planned to become Hollyw…
Similar also to "the method" in acting:
http://en.wikipedia.org/wiki/Method_acting
I use this in negotiation as well. You convince yourself that you are playing a role and do what is consistent with the role you are playing. You are an actor. Takes quite a bit of practice.
Re: How to Convince Investors
#49"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.
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Re: How to Convince Investors
#50What's also interesting about all of this (when looking at qualitative factors) is that while we have plenty of data on certain people's success after the "nth" investor took a gamble (and it is a gamble since many had passed on the same person/opportunity [1]) on their idea and we have statistics on people that they gambled on and failed, what we don't have is any statistics on someone that everyone passed on and what would have happened if one person took a chance on them and gave them an opportunity.
[1] (as with Drew Houston and the east coast))