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How to Raise Money

paulgraham.com

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Re: How to Raise Money

#71

Post by natejenkins »

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.

Hey Paul, I found another small typo:

"but if we raise a few hundred thousand we can hire a one or two smart friends"

Should be:

"but if we raise a few hundred thousand we can hire one or two smart friends"

Thanks again for the article, very useful.

Re: How to Raise Money

#72

Post by alain94040 »

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.

http://thefunded.com comes pretty close to solving that issue already.

Re: How to Raise Money

#73

Post by pg »

natejenkins wrote: post #71
pg wrote: post #49

Earlier quoted context omitted.

Thanks, fixed.

Hey Paul, I found another small typo: "but if we raise a few hundred thousand we can hire a one or two smart friends" Should be: "but if we raise a few hundred thousand we can hire one or two smart friends" Thanks again for the article, very useful.

Fixed, thanks.

Re: How to Raise Money

#74

Post by nimble »

pg wrote: post #59
nimble wrote: post #48

Earlier quoted context omitted.

> 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.

What do you mean they don't make money that way? Do you just mean that $100m isn't a hit? If that's all you mean, change that number to $1b or $10b or one hundred... billion dollars (pinky to lip). But I think what you mean is that investors make money by finding companies that are grossly undervalued, to the point that an order of magnitude change in valuation shouldn't affect the decision. I'm still skeptical of this claim. How many companies valued at $10m do you think have a 10% chance of ending up at $1b+?

Re: How to Raise Money

#75

Post by wellboy »

An interesting point here is arrogance towards investors. The art of "arrogance" is to be arrogant in what you are saying while being very kind and nice in the way you say it.

It's very hard as a first time founder to mimic the arrogance that is natural for experienced founders. If you can do it, it's great, if you can't, it will burn your bridges and blacklist you.^^

If you can pull it off though, you're the master. It's the pinnacle of hustling, having nothing to offer but being as confident as the next Mark Zuckerberg.

So you'd need to be as confident as Mark Zuckerberg when he had $1M users when you only have 1000 users. However, that also only works if you intrinsically think of yourself as a very high-value individual and if you have worked for several on you to think that way. Otherwise, investors will quickly spot your fake.

Re: How to Raise Money

#76

Post by melindajb »

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.

Thanks Paul for taking the time to share this wisdom outside the YC Collective. These words will have long lasting, positive effects on the ecosystem. Much appreciated.

Re: How to Raise Money

#77

Post by pg »

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.

If you're a programmer, the best route to investors is probably through other programmers you know. If you know any who are founders or early employees at a startup, they can introduce you to their investors. They can also introduce you to other founders, who can introduce you to their investors.

Re: How to Raise Money

#78

Post by ecuzzillo »

nimble wrote: post #74
pg wrote: post #59

Earlier quoted context omitted.

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.

What do you mean they don't make money that way? Do you just mean that $100m isn't a hit? If that's all you mean, change that number to $1b or $10b or one hundred... billion dollars (pinky to lip). But I think what you mean is that investors make money by finding companies that are grossly undervalued, to the point that an order of magnitude change in valuation shouldn't affect the decision. I'm still skeptical of th…

Almost all phase 2 startups will be worth zero, or nearly zero. Some will be worth $BIGNUM. If you invest in the latter, you will be rich irrespective of whether you invested at a valuation of $BIGNUM/100 or $BIGNUM/200. If you invest in the former, you will not be rich.

Moreover, whatever money you make on any startups that do not make $BIGNUM is rounding error by comparison.

Re: How to Raise Money

#80

Post by wellboy »

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.

Get 1,000 users in a month and you don't need any introductions. You can cold email them and they will jump you. Maybe not jump you, but that should give you an idea.

Don't waste any idea on fundraising until you have product fit, market fit and first initial traction. Trying to fund raise before that is the sign of an amateur and if you actually get an investor interested before product fit, you will get a very shitty deal and the whole process will kill you.

Been there done that.

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