As someone who has been on both sides of the table, this article is basically irrelevant for 99.9% of founders. There is an HOV lane for successful entrepreneurs that the rest of us don’t get to take.
How Justin Kan fundraises
51–60 of 63 posts
Re: How Justin Kan fundraises
#52Earlier quoted context omitted.
Asking factual questions isn't just for learning facts, it's also for seeing how someone things. Example: "During the call you mentioned the market potential for a CRM for plumbers is $3b. When I did some napkin math I came up with $400m. Can I ask how you arrived at the $3b number?" Bad answers: "Gartner says the market is $3b" or "CRMs are a $100b market overall, and plumbers are 3% of the workforce." These are fac…
I think I'm getting rate-limited by HN so this may be my last response, buuuut: I think that, unless this was a real example with founders you can name, this is a dangerous example, and even then it's suspect. I have literally not once swayed a "maybe" investor via an email. It's "maybe" and not "yes" for a reason, and the way you've framed it here is as if "maybe" converts to "yes" with enough elbow grease and a cle…
I can't name specific companies because I don't want to violate their privacy. I will say that just in the last few weeks, I can think of one instance where I asked a few questions over email and the answers made me realize that a company wouldn't be a good fit (so they "wasted" time on the email but "saved" time from a 2nd meeting that would've led to a pass). And another instance where I asked a few questions and got really excited by the depth and clarity of the founder's answers. My fund is still talking to this second company, but I am even more excited about investing than before.
I can empathize with founders at least somewhat because funds have to raise money too. Our first fund required 100+ investor meetings, took about 8-10 months to close, and consisted of a lot of small checks. So I do know what a slog fundraising can be, how frustrating investor signals and behavior can be, how hard it is to change someone's mind if they have a strong bias, etc.
> So what you read as a simple e-mail response may realistically have been half a day of lost fundraising productivity, for, at best, a 10% chance they convert your gut-feeling "maybe" to a "yes."
I hope it's not half a day =(. I do have a different framing of time spent though: if you can invest 30 minutes (or even half a day) into an email that has a 10% chance of converting a Maybe to a Yes, then that's very worth it. If you talk to 10 funds like mine that all write $750k checks, then spending 30 minutes x 10 funds to get a $750k commitment means your time is earning $150k/hour. Even if it's half a day instead of 30 minutes -- and I hope it's not -- that's ~$20k/hour. That's a great ROI when you might be trying to raise $1m or $3m.
Re: How Justin Kan fundraises
#53Re: How Justin Kan fundraises
#54Re: How Justin Kan fundraises
#55Earlier quoted context omitted.
> FWIW, my fund has made ~65 investments in the last 5+ years. Exactly one of those investment offers was made during the first meeting while the founder was in the room. The majority of investments took 2-4 meetings, a few email questions between meetings, and several reference calls. From what I know, most funds that write $250k+ checks work in a similar manner. Sure: but let's dig in. I'm interested. Out of those…
> Sure: but let's dig in. I'm interested. Out of those 65 investments, how many did you explicitly lead? Our first fund wrote $200k-$300k checks and made 40+ investments. Those checks were small parts of seed rounds, and we only led about 10% of the time. The current fund writes ~$750k checks and has done 20+ investments, and we've led (or co-led) about 50% of the time. > (1) What's a meeting to you? Keep in mind tha…
> We don't do a great job of outbound tbh
I can only speak personally, of course, but all the time you spend here on HN, and the helpfulness of your posts, have definitely established you as someone I will want to talk to when the time comes.
Re: How Justin Kan fundraises
#56Earlier quoted context omitted.
I think I'm getting rate-limited by HN so this may be my last response, buuuut: I think that, unless this was a real example with founders you can name, this is a dangerous example, and even then it's suspect. I have literally not once swayed a "maybe" investor via an email. It's "maybe" and not "yes" for a reason, and the way you've framed it here is as if "maybe" converts to "yes" with enough elbow grease and a cle…
I can't name specific companies because I don't want to violate their privacy. I will say that just in the last few weeks, I can think of one instance where I asked a few questions over email and the answers made me realize that a company wouldn't be a good fit (so they "wasted" time on the email but "saved" time from a 2nd meeting that would've led to a pass). And another instance where I asked a few questions and g…
It’s not simply a per hour cost basis: it’s the psychology of pouring your heart into being rejected when, statistically speaking, the writing was on the wall. I’ve seen founders pushed to breaking (myself included) by absolutely mundane shit investors don’t think twice about. Yeah, the “good ones” get over it and move on. Doesn’t change the impact.
Fundraising, for founders, is not a back-of-the-envelope ROI calculation. It’s purely founder psychology management. You’ve raised multiple funds from LPs and should be insanely proud of that fact. Kudos. I’m sure it’s one of the more, if not most, difficult things you’ve ever done.
However: you did that based on, correct me if I’m wrong, a pre-existing network and a safety net of wealth from previous exits as an employee. I’m not trying to “class shame”, that’s not wrong or bad and it doesn’t diminish you, your abilities, your insights or your fund, but founders’ predicaments are often very different and they have a lot more riding on the success of their startup. (Please - if I’m wrong, correct me! I’m not trying to be an ass here and I am making assumptions. I’m prepared to be very wrong.)
My guess is that Justin Kan’s fundraising style is an emergent result of his initial conditions (circumstances at first fundraise) and intuition, and that it’s designed to minimize psychological risk (harmful self-doubt, second-guessing) as much as it’s designed to optimize for a successful close, because the two are tied hand-in-hand.
My only conclusion is that it shouldn’t be dismissed based on anecdotal evidence from a VCs perspective without considering how wildly different founders’ perspectives can be. Again, probably no objective truth, just a whole ton of things to think about!
Re: How Justin Kan fundraises
#57Earlier quoted context omitted.
> It's part of our process. If you don't do well with the first meeting -- regardless of whether it's with a partner, associate, or both -- the process ends. If you do well, again regardless of whom it's with, we'll ask to do a 2nd meeting where we can go deeper. Great post, going to nitpick here: it doesn't matter what you consider a meeting, it matters what the founder considers it. A meeting with an Associate is n…
But isn't a 1st meeting with a GP not a real meeting as well in that case? Because if money is not on the table at meeting #1 (whether with a GP or associate), then it's not a real meeting. And that means the only real meeting is the 3rd meeting (partner meeting)... but you can't get there without the first two "encounters" :).
Associates cannot generally make investment decisions, and do not generally factor heavily into the decision to invest. A GP does; thus, impressing the GP on the 1st meeting makes it a real meeting. Impressing an associate on the 1st meeting is effectively useless, except for getting you to the real '1st meeting.'
That's how most founders see it, and why the advice of most former founders is 'avoid associates unless there is absolutely no way you can get in front of a GP directly.'
That's not meant to sound offensive, but it's definitely how most founders I've spoken to see it.
Re: How Justin Kan fundraises
#58Earlier quoted context omitted.
I can't name specific companies because I don't want to violate their privacy. I will say that just in the last few weeks, I can think of one instance where I asked a few questions over email and the answers made me realize that a company wouldn't be a good fit (so they "wasted" time on the email but "saved" time from a 2nd meeting that would've led to a pass). And another instance where I asked a few questions and g…
It’s not simply a per hour cost basis: it’s the psychology of pouring your heart into being rejected when, statistically speaking, the writing was on the wall. I’ve seen founders pushed to breaking (myself included) by absolutely mundane shit investors don’t think twice about. Yeah, the “good ones” get over it and move on. Doesn’t change the impact. Fundraising, for founders, is not a back-of-the-envelope ROI calcula…
Good point abot the psychological costs.
Re: safety net -- I had some cash saved up from a previous exit, but certainly not enough to not work again. And the first year of Susa Ventures was pretty stressful because I was taking $0 salary, not sure how successful we'd be at fundraising, and getting staler and staler on the coding side (which makes going back to sw development jobs harder). Having a financial safety net definitely helped though.
Re: How Justin Kan fundraises
#59Earlier quoted context omitted.
> Sure: but let's dig in. I'm interested. Out of those 65 investments, how many did you explicitly lead? Our first fund wrote $200k-$300k checks and made 40+ investments. Those checks were small parts of seed rounds, and we only led about 10% of the time. The current fund writes ~$750k checks and has done 20+ investments, and we've led (or co-led) about 50% of the time. > (1) What's a meeting to you? Keep in mind tha…
> We don't do a great job of outbound tbh I can only speak personally, of course, but all the time you spend here on HN, and the helpfulness of your posts, have definitely established you as someone I will want to talk to when the time comes.
Thanks, Scott! I appreciate that and look forward to hearing from you someday :)
Re: How Justin Kan fundraises
#60Hi everyone, I'm Max and I run AI at Atrium. @birken's point is absolutely correct that having sold a previous startup for nearly 1B really is a big part of what makes this strategy viable.
But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max atrium.co.