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How to Raise Money

paulgraham.com

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Re: How to Raise Money

#91

Post by r2 »

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…

Peter Thiel (via Blake Masters) has a good discussion about this: http://blakemasters.com/post/21869934240/peter-thiels-cs183-...

Excerpt: "To a first approximation, a VC portfolio will only make money if your best company investment ends up being worth more than your whole fund." This is the big hit, and VC's are trying to optimize their chances of getting one of these. That's different from trying to precisely calculate expected return. As long as you've found it, it won't matter if you paid a bit too much.

Re: How to Raise Money

#92

Post by zmitri »

pg wrote: post #12
zmitri wrote: post #9

Earlier quoted context omitted.

The thanks to Moriarty is a nice touch pg.

It's a real person. We actually had a Professor Moriarty in the last batch: http://techcrunch.com/2013/08/05/y-combinator-startup-7-cups...

That is amazing.

Re: How to Raise Money

#93

Post by drpancake »

EvanKelly wrote: post #84
drpancake wrote: post #36

Earlier quoted context omitted.

Essentially, they lead you on. They seem like they're about to invest right up till the moment they say no. If they even say no. Some of the worse ones never actually do say no; they just stop replying to your emails.

This is an interesting analogy to me. I've never sought investment, but I always really disliked it when companies broke communication off after an interview or application without a firm rejection. On the otherhand, I think I prefer diminishing communication when it comes to dating. I don't treat dating like an application process. Most of the time when I talk to a woman, I'm not trying to ascertain her suitability…

I agree with you actually, but this quote was just too apt to miss.

Re: How to Raise Money

#94

Post by wging »

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"?

http://www.investopedia.com/terms/i/investment-thesis.asp

Note that this seems not incompatible with 001sky's notion of vagueness above.

Re: How to Raise Money

#95

Post by tomasien »

namenotrequired wrote: post #64
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 :)

He's done a great job of explaining this in the past - just making sure to clear it up. The worst thing in raising money is realizing you're not there yet - because NOBODY will tell you that, especially not investors.

Re: How to Raise Money

#98

Post by lpolovets »

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"?

An investment thesis is basically a hypothesis about what sort of companies will do well as investments. Some investors don't have a specific thesis, and will invest in any company that looks good to them. Others have a specific take on the startup ecosystem. For example an investor might believe that infrastructure companies are a great bet going forward, or they might think that the sharing economy is the right bet, or, as in case of my fund, they might think that companies building valuable and proprietary datasets (and tools for working with those datasets) present the best opportunities. If an investor has a thesis, they will invest exclusively or mostly in companies that fall within that thesis.

Re: How to Raise Money

#99

Post by adamzerner »

2arrs2ells wrote: post #97
adamzerner wrote: post #96

Ask HN/PG: This essay focuses on phase 2. What is the advice for phase 1?

http://ycombinator.com/howtoapply.html

What about how a phase 1 startup could find investors in the first place? PG talks a lot about how it goes by introductions. What's the solution to the chicken/egg problem?

Re: How to Raise Money

#100

Post by 3327 »

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…

"And now that I've written this, everyone else can blame me if they want. That plus the inexperience card should work in most situations: 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."

>> These lines will echo in the glass conference rooms of the valley for years to come...

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