What I learned from Geoff Ralston by watching the video «Fundraising Fundamentals.» My #summary of it.
1\ Venture capitalists care about why the startup is going to matter in the future. They invest in startups because returns can be huge.
2\ Find the right investors for you.
a) Do research.
b) Talk to other founders.
c) Create a spreadsheet with the list of everyone you'll talk to, reach out to, and get intros to.
d) Pitch again, again and again, to find your story. When you're pitching investors, you will suck in the beginning. You'll get better at it as you iterate.
e) And eventually, you'll meet the right investors.
3\ Sometimes, the right investor will be the person you resonate with the best and who you think will be the best-added value.
Sometimes, the right investor will be the person who is willing to write you a check first.
4\ Startups raise money to pay for stuff, hire people, rent offices, and grow. Startup equals growth. And to grow, you almost always have startup capital.
5\ It's possible to bootstrap, and some companies do, but it's tough. Having venture money can be a competitive advantage.
6\ You should raise money when you need it. But the best time to raise money is when you don't need it. When you don't need money, investors see the most enormous opportunity.
7\ If you're profitable, it helps a lot. If you're desperate, VCs can smell that mile away.
8\ Raise enough. Assume that this is the last time you'll ever be able to raise when you raise money.
9\ You should know what you're going to spend the money on. Do some math. Figure out what your average employee is going to cost. Engineer, for example, might be $15k per month.
10\ If you need to explain the use of funds when you raise your seed, say:
a) Look, with a million dollars we get here, we achieve [this] milestone.
b) We get to [this] level of revenue.
c) And the way we're going to do that is by hiring 3 engineers, 2 salespeople, and 3 support people.
d) That stuff is going to cost us this much money, and that's why we're raising a million.
11\ There is a rule of thumb at a seed round of about 18 months. This is a time frame that you need to:
a) raise more money
b) hit milestones that will be persuasive than
c) get to profitability
d) hire the number of folks you're going to hire
12\ Investors invest in you. Ask yourself:
a) if you are an investor, would you invest in yourself?
b) are you persuasive enough?
c) are you the kind of person who can take an idea and turn it into a reality that matters, into a big company?
13\ Investors are going to invest in the story of your startup. The story of your startup should be persuasive.
14\ If you have millions of users and growing like crazy, that's pretty persuasive. But the very best investors want to get you before you have all that stuff because you're expensive by then.
15\ Convertible is not equity. It represents equity, it represents dilution, but it's just not dilution right at the time.
It's suitable for startups because it's fast and straightforward. You don't need a lawyer for this because it's super cheap.
16\ Equity when you issue new shares to a shareholder. It's slow, almost always expensive, you almost always need lawyers. You will be giving those investors rights that you don't have to provide when you do a convertible.
17\ Dilution is simple. You're a shareholder in your company. If you sell 20% of your company, you now own 20% less.
If you raise a $1M on a $5M post-money valuation, you've just sold 20% of your company. If you owned 50% of your company, you've just sold 10% of that, and now you own 40%. That's dilution.
18\ If you raise money with lots of different convertibles notes, understanding the actual dilution is complicated.
When you do a pre-money convertible, the actual dilution that you're selling is difficult to know because it depends on how much other money you raise besides that convertible.
It's difficult to calculate the price that you get when you convert, includes future option pools.
19\ YC's post-money SAFE solves that problem.
a) If I invest a $50k at a $5M valuation, I have a 1%.
b) If later you invest a $100k at a $10M SAFE after me and it's a post-money SAFE, you own 1%.
c) It's good for investors because they understand.
d) It's equally suitable for founders because they have a good feeling of what their cap table looks like.
20\ Angels are usually wealthy people that invest their own money. They typically invest for similar reasons to VCs, but they also invest because they're passionate about things.
21\ A VC who is a professional investing someone else's money. Limited partners. They have a very different approach and a different process for closing.
22\ Do not leave an investor meeting without some sort of conclusion.
a) The best conclusion is a check or an agreement for a check. Getting a handshake for a deal and get someone to agree to give you money.
b) But most people won't give you money at the first meeting. Try to understand whether it's a firm «no» or whether there are next steps so you can work towards getting that.
23\ For raising, seed decks are not that useful. Investors just want to look at the founders and hear their story and see how they tell it.
Sure, many founders won't be comfortable speaking it without a deck, and some investors want a deck.
24\ Don't create a story around the deck. Create a story around you and your product in the future. And figure out how to tell it without a deck.
25\ Fundraising is not the goal. You're building a business, you're building a product that people want, you're trying to make something sustainable over the long term. Fundraising is just one small step on the way to that.
26\ The most important thing about fundraising is to get it done, let you back to the actual work on the real goal, which is building your incredible company.
27\ Most exclusively US-based Venture Capitalists will not invest in an overseas entity, or they'll do it with a lot of hesitation. Become a Delaware corporation.
If you intend to raise in Silicon Valley or elsewhere in the US, create a US entity.
28\ The definition of traction is the usage of some kind. If no one's using your product, you have no traction. It can be free usage or paid customers. But usually, the one thing to look at with traction is how fast you are growing.
29\ The best way to connect with an investor is via who knows that investor. The ultimate best way to connect with an investor is via an investor who invested in your company to connect you to another investor.
30\ The very best thing to do to research angels and VCs is to talk to as many founders as you can who are familiar. You can look up what their portfolio company is. If you know anyone in that portfolio company, try to connect to someone who knows how that investor was.
31\ You shouldn't make long-term financial projections that are complete and utter bullshit. And the vast majority of you who try to make a long-term financial projection pre-product or when you have 1 or 2 customers, it's a joke. You can't do that.
You can talk about your opportunity like:
a) This business opportunity is enormous.
b) We have these customers who have started using our product in a very fundamental, intense way, and they're going to be our customers forever.
c) It shows the customers need and there're many many many thousands of those customers.
d) Imagine if we just get 5% of that customer base, we'll have a $100M in revenue, and then we're a billion-dollar company.
That's different than making a financial projection.
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