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How to Raise Money

paulgraham.com

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Re: How to Raise Money

#41

Post by lpolovets »

stonemetal wrote: post #38
lpolovets wrote: post #26

There's a lot of great advice in this post, and much of it rings true. Specifically, the following tidbits are true ~100% of the time in my limited experience: - "Investors will try to lure you into fundraising when you're not. It's great for them if they can, because they can thereby get a shot at you before everyone else." - "What investors would like to do, if they could, is wait. When a startup is only a few mont…

"Sometimes an investor will ask you to send them your deck and/or executive summary before they decide whether to meet with you. I wouldn't do that. It's a sign they're not really interested." I can look at a deck before a meeting. I will sit down for 15-45 minutes before a meeting, ... more interesting questions and concerns during the meeting. It sounds like you want a deck before a meeting, which isn't contradicte…

Ah, it looks like I misunderstood the point. Thanks for the correction.

Re: How to Raise Money

#42

Post by lpolovets »

ecuzzillo wrote: post #35
lpolovets wrote: post #26

There's a lot of great advice in this post, and much of it rings true. Specifically, the following tidbits are true ~100% of the time in my limited experience: - "Investors will try to lure you into fundraising when you're not. It's great for them if they can, because they can thereby get a shot at you before everyone else." - "What investors would like to do, if they could, is wait. When a startup is only a few mont…

Seems to me like the bottom two are not really disagreements. For the second to last, if they gave you terms, you'd invest, right? For the last, you presumably aren't deciding whether to meet with them based on the deck; it's just nice to be able to review it so your mind is prepared.

You're right on both counts. On the first point, I was trying to say that there are legitimate reasons to wait for a lead, and waiting for one is not always a matter of vacillating or stalling.

Re: How to Raise Money

#43

Post by saturdayplace »

My favorite thing about these essays, is summarized by PG's remark in this one: "sorry, we think you're great, but PG said startups shouldn't ___, and since we're new to fundraising, we feel like we have to play it safe."

The card it gives to inexperienced players. This whole thing feels like a way to even out the information asymmetry inherent in these transactions.

Re: How to Raise Money

#44

Post by cdixon »

I'd strongly recommend having a presentation in the pitch meeting. It helps control the flow of the meeting and ensure you cover all the important points.

Re: How to Raise Money

#45

Post by sfrjay »

Unsurprisingly, 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 resources to make the prettiest deck, and which investors can do the math on your '30% growth' number to figure out that you're growing from 3 to 4 users.

The advice about valuation is also great. I listened in on a conversation with very smart founders who are used to optimizing things, and they were super concerned about having a great pre-money valuation. It's tempting to focus on it because it's your only benchmark at a really stressful stage, but if things go badly it won't matter, and if things go really well it... won't matter either.

Re: How to Raise Money

#46

Post by sillysaurus2 »

agrona wrote: post #39

Forgive my ignorance, but what does it mean for a founder to be "formidable"? e.g. in this context: > The founder who handles fundraising should be the CEO, who should in turn be the most formidable of the founders.

http://www.paulgraham.com/convince.html

"But the foundation of convincing investors is to seem formidable, and since this isn't a word most people use in conversation much, I should explain what it means. A formidable person is one who seems like they'll get what they want, regardless of whatever obstacles are in the way. Formidable is close to confident, except that someone could be confident and mistaken. Formidable is roughly justifiably confident."

Re: How to Raise Money

#47

Post by tlb »

sfrjay wrote: post #45

Unsurprisingly, 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…

Another problem with emailing decks is that investors read them and decide, without much feedback to the founders. When founders can talk through the deck interactively with investors, they can learn which parts work and which don't, and what questions are unanswered.

Re: How to Raise Money

#48

Post by nimble »

pg wrote: post #2

Incidentally, this is the actual advice we give startups about fundraising at YC. This batch I finally wrote it all down, and the s2013 startups used it when raising money.

> 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.

Can someone explain the reasoning here? Investing at a lower valuation means that for the same money in, the investor gets a higher cut of any payout, right? If an investor judges your company to have a 1% chance of ending up worth $100m and a 99% chance of it ending up at $0m, then they should be willing to invest if the valuation is > $1m. Or not?

Re: How to Raise Money

#49

Post by pg »

danmaz74 wrote: post #23
pg wrote: post #2

Incidentally, this is the actual advice we give startups about fundraising at YC. This batch I finally wrote it all down, and the s2013 startups used it when raising money.

Considering that this essay will be read for years, maybe you might like to fix this little typo: "If you're in a wizard at fundraising". Edited: "equity round valuation might me". PS By the way, thank you so much for all this incredibly valuable free advice!

Thanks, fixed.

Re: How to Raise Money

#50

Post by [deleted] »

sfrjay wrote: post #45

Unsurprisingly, 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…

[deleted]
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