How to Raise Money • Hacker News Board

Re: How to Raise Money

#61

Post by mehuldesai » Tue, Sep 17, 2013, 9:34 PM UTC

The article gives valuable insights into raising capital and the art of negotiation in this domain.

Overall, negotiation and funding could almost be expressed as a rule table. Certain heuristics and rules. Rather than flip flopping strategies on how to negotiate and deal with investors, I think it may be good to have a set of rules/heuristics to follow and see if it leads to your goal. If it fails, alter it and see the result. Anyhow, thats what I intend to do for my company, GridCrowd.

For negotiation PG mentions that its may be ok to just admit your a noob or not knowledgeable on certain aspects of funding. I respectfully wonder if there is another stratedgy from what I've learnt in negotiations in the non-funding world?:

Negotiate from a perceived position of strength.

You don't have to say your a noob, miss the detail and expose it if it becomes necessary. This way you may be able to attain more action on behalf of the investor moving through their process. The noob strategy allows them to indicate a process that could be tailored to their advantage. I don't know investors, so its hard for me to understand their objectives and how they behave. I'll re-read PGs advise again, he does have great credibility and wiseness so maybe I need more study on this strategy.

Re: How to Raise Money

#62

Post by burgreblast » Tue, Sep 17, 2013, 9:34 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…

Not, because the this framework is for high-growth potential startups, not regular businesses.

The first decision is "Will it work? Does this team good business here?"

If yes, the expectation for high-growth must be "huge". At that point price is less important because 100X or 50x is still a big yes.

[edit: what he said]

Re: How to Raise Money

#63

Post by danmaz74 » Tue, Sep 17, 2013, 9:43 PM UTC

pg wrote: post #49

danmaz74 wrote: post #23

Earlier quoted context omitted.

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.

You're more than welcome

Re: How to Raise Money

#64

Post by namenotrequired » Tue, Sep 17, 2013, 9:49 PM UTC

tomasien wrote: post #16

You'll notice a common theme in this (excellent) piece: it's for startups that have some reason to believe they can actually raise a bunch of money. Startups who have either sufficient demonstrable talent behind them, are growing in some interesting way, or some other form of validation. If you can't find some confidence that you're in that group, find a way to delay fundraising: keep your job, do consulting, work on…

pg also points this out in http://paulgraham.com/convince.html :)

Re: How to Raise Money

#65

Post by ffrryuu » Tue, Sep 17, 2013, 10:11 PM UTC

It's who you know, not what you know.

Re: How to Raise Money

#66

Post by ig1 » Tue, Sep 17, 2013, 10:12 PM UTC

jacquesm wrote: post #57

diminish wrote: post #32

Earlier quoted context omitted.

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…

You should absolutely do this, always speak to founders of companies who've raised money from a given investor before taking money from them. You can also ask investors about other investors (as in "have you co-invested with X before, would you ?").

Re: How to Raise Money

#67

Post by YuriNiyazov » Tue, Sep 17, 2013, 10:29 PM UTC

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…

A question on a side digression: "falls within our thesis" - I often hear/read the term "thesis" being used by investors, and I am curious what exactly is meant by it. Is a thesis a tome of 100+ pages? Is a thesis two sentences, something like "we think that local/mobile/social will be hot this year"?

Re: How to Raise Money

#68

Post by adambenayoun » Tue, Sep 17, 2013, 10:38 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.

The main problem with such a list is that the experience with an investor is very subjective and you need to get a lot more information about the said situation in order to assess what really happened there.

I imagine people will likely contribute to such a list only if they are anonymous (The bay area is very small and you don't want to upset investors).

It kind of reminds me of thefunded.com where I find little value in the reviews since I have no idea who's behind it and what was the situation that led the entrepreneurs to leave that review.

Where can it be very valuable? When you have a small network of peers who trust each other (an accelerator for example) and are willing to share more details on the interaction with the investor (and could possibly take a call if needed).

I also believe that YC has a secret list of all of the investors with some comments from the staff (I also know that startups are asked to give some feedback on interaction with investors - that list is probably a curation of the feedback given).

When dealing with an investor I always ask them to provide me with 2 references: 1 entrepreneur they backed who is doing well and 1 entrepreneur who is not doing so well (that helps me understand if the investor is helpful when things are not going so well and believe me there will be some point when things will be a train wreck).

Additionally I always end up pinging my network and doing some backchannel references on the investors knowing that the references they are providing me are probably curated.

Re: How to Raise Money

#69

Post by 001sky » Tue, Sep 17, 2013, 10:43 PM UTC

YuriNiyazov wrote: post #67

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…

A question on a side digression: "falls within our thesis" - I often hear/read the term "thesis" being used by investors, and I am curious what exactly is meant by it. Is a thesis a tome of 100+ pages? Is a thesis two sentences, something like "we think that local/mobile/social will be hot this year"?

what exactly is meant...

It means, not much. More akin to the ivestor has thought about it before. In this case, 'thesis. As in 'Hypothesis', but abbreviated. Not like a shorter version of a dissertation. The investment is "hypothesis testing", by creating a data set, to see if it should be rejeceted. etc

Re: How to Raise Money

#70

Post by ekanes » Tue, Sep 17, 2013, 10:43 PM UTC

YuriNiyazov wrote: post #24

Do investors read these essays? You've had some strong words for some of the types, e.g. "contemptible subspecies of investor". Would any of them email you and say, hey man, f u?

Everyone in the community reads these essays. I would hazard that pg's goal in them is to coach both startups AND investors in how to behave toward each other. In this case, such bold language is him saying, "don't be this guy".