How to Raise Money
paulgraham.com
How to Raise Money
1–10 of 125 posts
Re: How to Raise Money
#2Incidentally, 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.
Re: How to Raise Money
#3This is interesting and contradicts a bit of "disrupt" meme:
"You can't trust your intuitions. I'm going to give you a set of rules here that will get you through this process if anything will. At certain moments you'll be tempted to ignore them. So rule number zero is: these rules exist for a reason. You wouldn't need a rule to keep you going in one direction if there weren't powerful forces pushing you in another."
What this seems to be saying (to young people) is "it's ok to ignore what other older more experienced people say (or what established practices are) and try to disrupt in those situations because the guidelines and experience they have is bogus but I am telling you that my rules are right so just trust me".
Re: How to Raise Money
#4This 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.
Re: How to Raise Money
#5Incidentally, 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.
Thank you for posting this advice in a clear cut manner. As someone looking to raise money, but not currently residing in the valley, a thorough map to guide my thoughts and presentation development before venturing out into the West Coast VC waters is amazingly helpful.
Re: How to Raise Money
#6From my experience, one of the most important realizations of fundraising is that it's an enormous mind game.
The hardest part of fundraising was getting the startup to a point where I actually believed in it. When I looked at our projections and where the company could go, I was no longer thinking, "Yeah, if a miracle happens," but rather, "It'll be hard, but I really, really think we can do that. We just need some help to get there."
Fundraising was a relative cakewalk when I was no longer selling investors on our company; I was explaining to investors that we were taking off, and asking them if they'd like to jump on board.
Re: How to Raise Money
#7> Being proud of how well you did at fundraising is like being proud of your college grades.
What a great line.
Re: How to Raise Money
#8For years I've been toying with making a start-up board game. This essay could easily serve as the basis for that.
Slight disagree with the line:
"For example, if a reputable investor is willing to invest on a convertible note, using standard paperwork, that is either uncapped or capped at a good valuation, you can take that without having to think."
A good valuation means you're going to have to think anyway and if you don't need it you don't need it so then you're just going to have an obligation + temptation to use the funds. There is no such thing as 'free money' and a convertible note is simply deferring a part of the process and you'll need to take care of it sooner or later by going for funding (or paying back the loan). So if you are not sure if you are going to do a follow up round just yet I'd advise against getting a convertible loan, you now have a good chunk of the hassle of having an investor without having properly gone through the process required. Of course you could simply bank the money and pay back the loan if you are still of the same opinion later on but this rarely happens. It's the start-up equivalent of easy credit card debt, and if the valuation turns out to be low you could end up regretting taking the money (for instance, you could lose control like this). Better to negotiate it when you're strong or if you feel very secure about your future valuation.
Having seen a lot of this from the other side of the table quite a few of the passages strike me as extremely negative about investors, I'm sure Paul has a ton more experience than I do so this carries a lot of weight with me but I don't recognize the behaviours he sketches with the investors that I normally work for. Maybe they are the exception (I'm sure they'd like to think that :) ), but I can't imagine it is this black.
Investors look at the process of investing mostly as risk elimination, and as a second best as risk reduction by enumerating the risks. If an investors bails at the last moment (for instance after you've already agreed on terms) that would either reflect very bad on the investor, or more commonly on the party invested in. It's not as clear-cut imo as it is sketched here that all start-ups are angelic and innocent and investors are all sharks to a man and employing dirty tactics to get you to sign on the dotted line.
Again, it's clear on which side my bread is buttered but I simply wouldn't work for investors deploying such tactics, but have yet to see this sort of behaviour in any VC of some stature. Otoh I've seen plenty of trickery by companies about to be invested in (and lots of good companies too).
Re: How to Raise Money
#9Incidentally, 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.
The thanks to Moriarty is a nice touch pg.
Re: How to Raise Money
#10This is interesting and contradicts a bit of "disrupt" meme: "You can't trust your intuitions. I'm going to give you a set of rules here that will get you through this process if anything will. At certain moments you'll be tempted to ignore them. So rule number zero is: these rules exist for a reason. You wouldn't need a rule to keep you going in one direction if there weren't powerful forces pushing you in another."…
Your intuitions != what older more experience people say
pg and YC has more qualified investing experience than probably any other "experienced person" you could talk to. When you are doing a startup, it's generally a good idea to focus on innovating in your core area of expertise - which would be some combination of product/market/technology - and take the best practices of all the other areas, like financing.