Category: Fundraising

No one funds ideas anymore.

If you’re planning to raise money, your goal is to be the least-worst pitch that an investor’s heard in any given time period. You don’t have to be the best.

your goal is to be the least-worst pitch that an investor's heard in any given time period. Click To Tweet

Let that sink in for a minute. I’m dead serious.

I’m sure we all know “idea guys” – people that have been talking about an idea for a long time but haven’t ever built it. (These people are notorious for hanging around networking events every week and repeating the same ideas week after week.) Don’t be that person.

At the very least, hack together a “ghetto, but useful” prototype and get it in front of users. Better yet, get that prototype in front of potential customers. If you can’t get a prototype together for some reason, then pull together some slides / visuals and put that in front of people.

Just. Ship. Something.

In the worst case, that shows others — including investors — that you can hustle. In the best case, you’ve gotten at least one person you don’t know to buy something from you and that shows others you know how to build a business.

Jason Calacanis said it best:

Simply put, showing up without product today is like showing up without a business plan in 1995 — you simply won’t be taken seriously by most investors.

On a related note, come to the table with the right founding team: you need some combination of the hacker, hustler and designer on the team.

NOOB MISTAKE: avoid outsourcing any of your early work unless you have solid experience with that model. You’ll probably pay too much and, worse, you’ll scare off a huge set of investors that avoid early stage companies that outsource too early.

Founders should look at more deals.

There’s something obvious about investors that every entrepreneur gets wrong: an investor’s job is to end up with financial stakes in potentially successful companies and projects.

No one cares about your idea. No one believes you when you say you want to change the world. No one wants to fund your app.

That’s because there are too many people claiming to be founders out there and you’re competing with them whether you know it or not.

If you’re trying to raise money today, you should know that it’s only getting harder: the entire market is getting noisier. Everyone wants to be an entrepreneur. Everyone claims to be an entrepreneur. And your pitch is getting lost in the thick of it all.

Everyone claims to be an entrepreneur. And your pitch is getting lost in the thick of it all. Click To Tweet

Before you even think about raising money, you should know your space inside and out. That includes knowing which companies exist, which have raised money, which investors appear to be most active in those markets. Thankfully, AngelList makes that super easy.

Take a look at the companies that have listed themselves on AngelList. (While you’re at it, follow me on AngelList.) Use the “Market” filter to reduce the list down to the companies that are actually in your space. (Don’t forget to hit “Save” so you begin to receive the weekly emails on deals happening in the markets you select.)

Once you’ve narrowed the list down, I recommend sorting the list by the amount of money raised. Now click to open the top 10 companies in separate tabs. Now, study everything those companies have disclosed.

More founders, from all over the world, are going after the same finite pool of money. The fundamental investor-founder relationship is based on asymmetric information. The bottom line is that the investor sees (in some cases) hundreds of deals while you probably are only thinking about yours.

Whether you decide to raise outside money or bootstrap things entirely, you can’t afford to not keep an eye on your entire industry at all times.

The problem isn’t local investors, it’s you.

Investor pitches, particularly outside Silicon Valley and NYC, generally fall into two buckets: the founder either asks for too little cash or aims too low.

When founders ask for too little cash, usually in the realm of <$250K, alarm bells start ringing for most investors. We worry that you have no idea what you’re talking about, how much it costs to build a business or worse. If we give you too little money to hit a significant milestone, the likelihood of you hitting that milestone (or even surviving for 12-18 months) is small. That’s bad for everyone at the table.

When founders aim too low, it’s often even worse. This is when you get called a lifestyle company, regardless of whether it’s true, and the investor stops paying attention. It sucks, but it happens. As Charlie O’Donnell says,

Venture investing is hard.  You’re going off of very little in the way of predictive data–so if you’re not telling a big story, it’s hard for us to imagine one if we don’t hear it from you first.

Look, I get it though. Outside the big hubs, the local tech community will often tell founders to lower their ask to align with the local investor’s checkbooks. That advice is well-meaning, but terrible — ignore it. The problem isn’t the local investors, it’s you. No one’s a gatekeeper anymore.

The problem isn’t the local investors, it’s you. No one’s a gatekeeper anymore. Click To Tweet

Get on AngelList, look for other companies in your industry and align your ask with the average seed round. If you can’t find the money locally, go elsewhere.

Understand that learning how to pitch a business is just as important as building the business itself.

It’s the same everywhere.

I’m hiding in the corner of a Starbucks in Dupont Circle this morning when someone walks up to me.

Her: “Are you the same Paul Singh that’s been driving around in an Airstream? I met you when you came through Tulsa and parked your trailer in front of 36 Degrees North.”

Me: “Well, yes. Also, fun fact, I survived a tornado that same week! Well, actually, the tornado was three blocks away but I’m pretty sure that still counts.”

It turns out that she and her husband had moved to DC for grad school after our visit to Tulsa.

During the conversation, we got into the topic of how Tulsa’s tech scene compared to other places I’d been on the tour through 2016.

In short, it’s pretty much the same everywhere.

Most cities of less than 300,000 people seem to only have one coworking space. Maybe they have one angel group. If they’re lucky, they’ve got one code school.

Other than that, they’re all spread thin just trying to keep things afloat.

The local entrepreneurs are just trying to build their businesses. The local elected officials are trying to figure out what tech companies actually do. The local community leaders are trying to figure out how to get things organized — and how to pay for it all.

If you want to level up, doing more is just the baseline. It’s important to hop on an airplane (or get in the car) and go visit other places. Go meet your peers in similar cities. It’s really that simple.

I’m not sure that entrepreneurship can be taught but I do know that it can be learned.

Whether you’re trying to build a company or a community, the best thing you could do is visit other places and talk to as many people as you can. Figure out what’s working, what’s not working and think about how to apply that to your own city. Don’t forget to give back a little bit too.

Pro tip: just go hang out at coworking spaces in other cities. You have no excuse anymore. Better yet, join us on the North American Tech Tour through the US & Canada.

Tactical Tips for Taking Advantage of Demo Days or Any Other Investor Hotspots

Demo days are a funny thing. Everyone seems to think it’s about bringing startups and investors together but my observation is that many of these events turn out to be nothing more than a social event for investors (and wanna-be investors) to catch up with each other. If you’re the startup trying to raise money at your demo day event, you’re a sucker. Smart founders use demo days as forcing functions when they’re generating heat for their startup. I’ve been to a number of demo days over the past few years and helped host ours here at 500.
A couple of observations for both founders and the good people that run these events:

Founders

If you remember nothing else, your #1 goal in fundraising (and in life) is: don’t be weird. People invest in other people, despite what you might have read elsewhere.

Some additional tips:

  • Keep the pitch tight, three minutes is the max. Your pitch is traction, problem and solution – in that order. If you finish early, you’re a winner. Remember that the goal of the presentation is to get the meeting, not to convince them to invest from the comfort of their chair.
  • If you’re looking for sample decks and real pitch videos, check out out slideshare.net/500startups and livestream.com/500startups. We post everything there within ~24 hour of our events so you’ll always have the latest stuff.
  • Practice, practice, practice. At 500 Startups, it’s not uncommon for presenters to go through 40 hours of practice (usually in 3 hour blocks over the course of 2-3 weeks).
  • If your team is hanging out together during the demo day, you’re doing it wrong. Spread out, engage the audience and bring ‘em back to the person leading the fundraising for your team.
  • When in doubt, tag team with someone from *another* startup. Talk each other up, it’s much more refreshing to an investor than pitching your own startup. Bonus points if you pair up with someone that’s at a startup that has already raised money from known investors.
  • Don’t waste space on your slides. Make sure your twitter handle and/or email (always founders@COMPANY.com to keep things simple) address are in the headers of every slide. Don’t thank people at the end of your pitch, make your ask instead.
  • Get commitments for your round before demo day. Ideally, you want to close your pitch with something like “We’re raising $X and Y% is committed. Come talk to us afterwards if you’d like to be involved.”
  • Don’t spend more than 15 minutes with any one investor during the event. Setup a coffee meeting for the next day, but work the room during the event.

People Running The Show

If you’re brave enough to put on an event to bring founders and investors together, you deserve a pat on the back (and probably a few beers). At the end of the day, you should spend an awful lot of time thinking about how to incentivize both founders and investors to want to meet each other.

 

  • Invest in quality AV. No awkward silences: use music for the transitions, preferably upbeat music that the presenters choose and get a DJ to handle the transitions between mics and music. You’ll make liven up the event, keep people’s energy high and it’s the easiest way to make the event more polished.
    • Pro tip: USE MUSIC FOR THE TRANSITIONS BETWEEN PRESENTERS. I really can’t stress this enough — it’s hard to describe but you’ll know what I mean when you see it.
  • Be ruthless on the invite list – priority goes to investors that have written checks in the recent past. Your startups will notice. The investors in the audience will notice. Everyone will be much happier.
    • If a founder crashes your demo day, keep them out. Each one you let in will mean one less conversation that your presenting founders will get to have with meaningful investors.
    • If an investor crashes your demo day, require them to show you their AngelList profile. It sets the right tone before they walk in the door.
  • Each type of attendee should have a different colored name badge. One for staff, one for press, one for investors, one for founders… you get the idea.
  • Try to do more than one demo day. Preferably in a very short amount of time. At 500 Startups, we run our accelerator cohorts through four separate demo days within a ~10 day period on both coasts of the US. Not only does it expose the startups to a broader range of investors but it creates a sense of pressure for the investors in the audience (“hmm… I better go talk to these founders because they’re about to see 200 more investors tomorrow…”).
  • This probably goes without saying but try to limit the booze until the pitches are done. Enough said.
  • For the love of all that is holy, make sure the right people are coaching your presenters. (Hint: they’re probably not your event sponsors.) Bring in successful founders that have raised money — they’ll have the most relevant advice. Maybe a few investors that have made multiple investments in the past few months.

Raising money is getting tougher: more startups from all over the world are competing for a finite pool of investor money. Founders need to tell crisp stories and make the most of the 2-3 minutes attention spans. Event producers need to create useful events that attract the best people from both sides of the table. Hopefully some of these tips are helpful.

Have a question of your own? Ask the VC anything you want.

Rocking Out Your AngelList Profile

AngelList is awesome. In fact, we encourage all of our startups to use AngelList to raise money – it’s clearly useful to both founders and investors. Two-way transparency FTW! First things first, don’t make your startup profile public immediately — take a few minutes to check out the tips below. It’s better to spend an extra hour up front to polish things up, first impressions count.

  • Start with a little bit of research. AngelList makes it so easy to browse through the different tags that can be associated with your profile. If you’ve picked a tag that doesn’t have a lot of investors following it, ask yourself whether it’s better to pick a slightly broader tag instead. You should also be looking at the startups that seem to be getting the most followers/activity within those tags. Check out their profiles and identify why the startup is particularly appealing – it’ll make the next few bullet points easier for you to knock out as well.
  • You should always be updating your AngelList profile, not just when you’re fundraising. If you’re not fundraising now, you’re trying to get investors to follow your startup. If you *are* raising money, you’re trying to get investors to request an intro to you. It’s not rocket surgery, update your profile at least once a month – the more investors that are following your profile, the better off you’re going to be in the long run.
  • Pay attention to what you put above the fold. That real estate is precious, don’t fuck it up. Everything above the fold should be designed to (a) encourage the investor to click the follow/intro button or (b) scroll/click around your profile. Make no mistake though, the goal is to get them to request an intro – you’re raising money, right?
  • Pick the right product images/videos for your product. Humans are visual, spend an extra few minutes capturing the right screenshot or cropping the image to help clarify what you’re trying to show. Bonus points if you use shading or other techniques to draw the eye to the exact part of the image you want the visitor to look at. If you decide to use video, please be careful – you need to capture the visitor’s attention in <30 seconds. So uploading a three minute video is usually not a good idea.
  • Don’t tell people what you do, tell them why you’re awesome. Your readers are busy, so opening your product description with some vague statement about being the “X for Y” is lame. Explain your startup like you’d explain it to your non-startup friends. Or, better yet, as if you were explaining it to my mother. If you’ve received press mentions from recognizable places, I often recommend you lead with “As featured in the NYT, WaPo, and TechCrunch and on NBC, ABC, CBS…” and then leave one line of whitespace before you continue.
  • Speaking of whitespace, please use it. Paragraphs in your profile should not be more than 3-4 sentences. Make it super easy for the visitor to skim the profile. (And no, leaving the whitespace out isn’t going to “force” me to do anything. If your profile is hard to read, I’m probably going to move on to the next thing on my todo list.)
  • Sweat the details. I hate seeing profiles with unconfirmed team members. Seriously? These people are on your team, ask them to spend 100milliseconds to click the confirmation link that AngelList sent them – it seriously can’t get easier than that. Ask your investors and advisors to confirm their roles as well. (I’m guilty of taking a little while to confirm my investor roles with some companies but I’ll ask that you cut me some slack — our investment pace is, to put it lightly, on the aggressive side.)
  • It’s all about the faces. When I see the default avatar on AngelList, I die a little bit inside. SHOW ME YOUR FACE. Investors want to give money to real people, spend 30 seconds finding an image to upload. Once you’re done with that, make sure every other person on your profile has a face associated with their account as well.
  • Tell people how much you’re raising, but don’t share too many details. It’s important to mention the total amount of your fundraise and, optionally, how much of that is committed/closed already. However, I’d recommend that you avoid posting the actual terms of the round. IMHO, the goal of the AngelList profile isn’t to get me to make the funding decision on the spot — it’s to get me to request an intro and actually talk to you. You want to avoid the scenario where you may potentially lose interested investors because they simply don’t like your terms.

When in doubt, just remember that short and crisp is much better than the alternative. Show me enough to want to speak with you – not more, not less.