VC money for a Single Founder
I recently received an email from a friend and fellow founder.
I don’t consider myself as someone to advice as I too am yet to boast of triple-digit MM fund-raises. But I enjoy sharing my learnings on the journey so far and it so happens that some find value in these stories from time to time.
So, here is my reply to his email:
The little success that I’ve had was mostly driven by a combination of showcasing ambition, building trust in my ability to efficiently use resources and proving beyond reasonable doubt that our team is most likely to emerge victorious.
My theory about raising $ is that ‘Success is Magnetic. Failure is Plague’
When you “really need it” no one gives it to you. But when you have enough and poised for success, everyone will flock towards you. So its important to get into these meetings when you’re able to showcase with enough specificity that you know more about an opportunity that exists than the investors. This might seem like philosophy and not a data-driven approach, but in early stage investments the bet is on a person not so much the idea or product.
I trust that you have heard this too often for my contribution to be relevant, but single founders have a much harder time trying to raise serious money. Having a co-founder not only proves your capability of convincing another really smart person to give up their opportunities in life but also protects investors from absolute worst case scenarios like death of a single founder. There is more science than art to this argument and while some people have done it before, I would personally advice against shooting for the sky without a partner in crime.
Apart from the above, the 3 things that I highlight in my presentations are:
1) Team — I only build stellar teams. They take some convincing and cajoling to start, but if you can build a team that can sit in a meeting with industry experts (during due diligence) and prove their super intelligence + understanding of the domain, it will build a lot of trust. In fact as a CEO, I believe that our greatest skill should be our ability to build and manage frighteningly smart teams.
2) Validation — No matter how well you do any of the above, what matters most is convincing data that increases your probability to be a winner. This is the reason why its important to understand and choose wisely between valuable metrics that unlock insights and vanity metrics (eg: Total Installs) that don’t really mean much. Unless you can prove that you’re on a trajectory leading to success, it will be an uphill battle.
3) Revenue — Unlike some founders who wish to acquire a certain scale before speaking about revenue, I like to play with ideas early. A company/startup/business by definition is a vehicle for commercial activity with the objective of making revenue and eventually profits. It’s okay to not be profitable in the early years, but I find that having some revenue (no matter how little) or at least ideas that have been experimented with as useful points of conversation while raising $.
The best advice I got while fund-raising — Get to a $50k Monthly Run-Rate ASAP.
Here is LinkedIn’s Series B pitch deck that I highly recommend going through : reidhoffman.org/linkedin-pitch-to-greylock/
I can understand that in a sinking ship (financial context) situation one may not have the luxury of building teams or making revenue. I know this because I have been in this situation more than once. Often the only way out of that is a leap of faith that someone takes based on their belief in you. If this is the case with you, I’d stop meeting with large/traditional VC firms and look for a bridge round from someone who sees the potential in your leadership.
A story worth reading in this context is that of Steve trying to raise money for NeXT:
NeXT was burning through money. By late 1986, though NeXT was still far from shipping the Cube, it had used most of the initial $7 million investment Jobs had made.
Jobs could invest more of his own money, but that would look bad to potential customers. Jobs and his CFO, Susan Barnes, started making the rounds of venture capital firms, but nobody was interested.
Jobs was offering a 10% stake in the company for $3 million. That meant NeXT was worth $30 million, an outlandish figure considering that NeXT had no customers and no products — and wouldn’t for at least a few more years.
In 1987, after Jobs had nearly given up on finding an outside investor, NeXT had received an unexpected call from Ross Perot. Perot had founded IT giant, EDS, and had recently sold his company to GM. Perot had seen the series The Innovators on PBS, which had featured a segment on NeXT. Jobs, Perot, and several executives met at the Fremont factory, which was still empty (supposedly because Jobs was unable to decide on a color scheme) and discussed Jobs’ vision for NeXT. Jobs charmed Perot into making the investment, except instead of a 10% stake for $3 million; Perot paid $20 million for 16%, valuing NeXT at $125 million.
Pretty sweet, eh?
First published on my website: akhilaryan.com