How to Raise Money • Hacker News Board

Re: How to Raise Money

#51

Post by sillysaurus2 » Tue, Sep 17, 2013, 8:54 PM UTC

zaguios wrote: post #30

I have a question. Since I'm nowhere near the valley and the start-up community in my community might as well be non-existent, I was wondering how I might go about meeting and getting introductions to investors. Not being well connected with a very poor local community makes it hard for me to know where to start.

Since I'm nowhere near the valley and the start-up community in my community might as well be non-existent, I was wondering how I might go about meeting and getting introductions to investors.

In that case, it's probably good to think of ways to move to the valley.

It sounds like the only investors in your area are probably individuals who happen to be wealthy, i.e. potential angel investors. But outside of the valley, angels tend to be family or people you're already acquainted with. And even if you can get them to invest in you, they're going to be less experienced than valley angels, meaning they may be dangerous to you. E.g. they'll probably rely heavily on their lawyer to structure the deal, and since you're not in the valley, that lawyer probably isn't a startup specialist, so you'll need to be extra careful they're structuring the deal properly (and structuring your company properly, if they're incorporating you).

Investment can be had in places other than the valley, of course. But the reason you want to be in the valley is because (a) that's where the top investors are, and (b) there are a lot of them. Raising investment anywhere else therefore increases the risk of having bad terms forced on you by clueless angels or predatory VCs.

Choosing to seek investment in the valley is like choosing the high ground in a battle: it's naturally suited to protect you from dying. And since avoiding death is every startup's most important goal, the valley is therefore the most important place to be.

http://paulgraham.com/hubs.html

http://paulgraham.com/startuphubs.html

http://paulgraham.com/siliconvalley.html

http://paulgraham.com/cities.html

Re: How to Raise Money

#52

Post by wpietri » Tue, Sep 17, 2013, 9:02 PM UTC

I'm sure I'm not the only one thinking back on some long-ago startup and thinking, "Oh! Those assholes! I knew it!"

Not that what PG says here is exactly news to me at this point, but his wide experience and resulting confidence is fantastic confirmation of things that I now know to suspect, but at the time seemed so reasonable. Oh, you don't lead? Oh, you want to see just a little more progress? Well of course you do. And I, earnest nerd, took them at their word.

Re: How to Raise Money

#53

Post by mhartl » Tue, Sep 17, 2013, 9:05 PM UTC

kori wrote: post #17

Paul Graham on dating: s/investors/women/ && s/investor/woman/ (works the other way too) When you talk to women your m.o. should be breadth-first search, weighted by expected value. You should always talk to women in parallel rather than serially. You can't afford the time it takes to talk to women serially, plus if you only talk to one woman at a time, they don't have the pressure of other women to make them act. Bu…

PG makes the comparison explicit later in the essay:

"There are many analogies between fundraising and dating, and this is one of the strongest. No one wants you if you seem desperate. And the best way not to seem desperate is not to be desperate. That's one reason we urge startups during YC to keep expenses low and to try to make it to ramen profitability before Demo Day. Though it sounds slightly paradoxical, if you want to raise money, the best thing you can do is get yourself to the point where you don't need to."

Re: How to Raise Money

#54

Post by mikeg8 » Tue, Sep 17, 2013, 9:12 PM UTC

Felix21 wrote: post #4

This couldn't have come at a better time. For the first time we have an investable business (revenue, growth, profits, big market, happy customers). Just as we were thinking: how do we go about this? Do we even have the time? Then such an informative article comes along. Thanks a lot PG.

Feeling the exact same way. So much insight and time-saving advice, I can't believe it just falls into my lap.

Re: How to Raise Money

#55

Post by dpapathanasiou » Tue, Sep 17, 2013, 9:20 PM UTC

tlb wrote: post #47

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.

Alas, like the YC application form.

Re: How to Raise Money

#56

Post by wpietri » Tue, Sep 17, 2013, 9:24 PM UTC

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…

I think showing the product alone works well only if the investor is in the target audience. I just met with an entrepreneur who has what I believe is a great product, but the investors he has talked with so far are just not going to be users of it.

In his case, I think having a couple of slides to help demonstrate the problem is very helpful. Otherwise there isn't a sufficient aha moment when he gets to the solution.

Re: How to Raise Money

#57

Post by jacquesm » Tue, Sep 17, 2013, 9:24 PM UTC

diminish wrote: post #32

ig1 wrote: post #15

Earlier quoted context omitted.

"I don't know of a single VC investment that began with an associate cold-emailing a startup." I can vouch from personal knowledge that this has happened a number of times at a number of different European VCs, and at least once with a major US VC in the last year. I'm guessing it's far less common for YC startups because YC startups have demo day which essentially initiates the process. They also have a strong netwo…

we need to combine individual experiences and create a curated tabular list of investors classified by different dimensions in pg's great article. such a list combined with this article would be the ultimate cheatsheet for fundraising.

That is an excellent idea and barring a pile of non-disclosure agreements I could see a lot of people contributing to this.

Deal details with investor names attached are not likely to materialize until long after the fact and even then someone is breaking a promise, which professionals with ties to VCs are not going to do. Founders could technically get away with this, especially if a deal fell through but this world operates largely on reputation and such a thing could easily pop up at a moment when you really don't need it later on.

Crunchbase has quite a wealth of info in it, as does duedil.com , those you could use to get an idea of who is on the other side of the table as well as google. The best source of info for a company looking for funding from 'party x' is to go and find out who else 'party x' has invested in and then to see if there are connections that can be sounded out off the record as well as companies that 'party x' was going to invest in but where the deal fell through (this is a lot harder to come by though).

Re: How to Raise Money

#58

Post by fieldforceapp » Tue, Sep 17, 2013, 9:30 PM UTC

Thank you, pg. I would amend the summary by including an encouraging word to the founders:

"Avoid investors till you decide to raise money, and then when you do, talk to them all in parallel, prioritized by expected value, and accept offers greedily; build rejection into your plans by having a range of realistic, acceptable fundraising targets. Get back to work quickly."

Re: How to Raise Money

#59

Post by pg » Tue, Sep 17, 2013, 9:31 PM UTC

nimble wrote: post #48

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…

In practice few to zero investors make money that way. All the money in startup investing is in the big hits. Which means the way to make money as a investor is to try to invest in the companies you think will be big hits, and pay whatever the price happens to be.

Re: How to Raise Money

#60

Post by jacquesm » Tue, Sep 17, 2013, 9:33 PM UTC

sillysaurus2 wrote: post #51

zaguios wrote: post #30

I have a question. Since I'm nowhere near the valley and the start-up community in my community might as well be non-existent, I was wondering how I might go about meeting and getting introductions to investors. Not being well connected with a very poor local community makes it hard for me to know where to start.

Since I'm nowhere near the valley and the start-up community in my community might as well be non-existent, I was wondering how I might go about meeting and getting introductions to investors. In that case, it's probably good to think of ways to move to the valley. It sounds like the only investors in your area are probably individuals who happen to be wealthy, i.e. potential angel investors. But outside of the valle…

> But outside of the valley, angels tend to be family or people you're already acquainted with.

Find out who the LPs are of any private equity fund, there are your angels (by the 10's if not the 100's), and none of them will be family or people you are already acquainted with. Additional upside for those locations where this matters: and all of them will already be vetted as qualified investors.