Pre-seed is the new seed.
The 2nd Annual Afore Capital Pre-Seed Summit, held on April 10th at The Battery in San Francisco, played host to dozens of successful venture capitalists and founders, all of whom provided rare insight into the process of attracting investors and launching a successful startup… all while raising less money, not more.
Over the course of the day, everyone from the founders of DoorDash, AppDynamics, and Overtime to partners at Benchmark, Sequoia, Union Square Ventures, and Lightspeed had actionable advice to share on what it takes to bring a company all the way from pre-seed to IPO.
For those who missed it, here are 12 key insights from the event.
VCs: Choose the right founder.
The first thing any investor should look for in a company is whether or not it has the right founder: a person with the vision and conviction to cut past the noise and bring the business to success.
Rebecca Kaden, partner at Union Square Ventures, points out that when she invested in plus-sized subscription clothing service Dia&Co, the stereotype among VCs was that larger women had very low spending power. In fact, the opposite was true: over 65% of American women are plus-sized, even though just 15% of the retail market supports them. There was huge opportunity, and what convinced Kaden of that was Dia&Co’s charismatic CEO and co-founder, Nadia Boujarwah.
“When I met her, everything about Dia&Co’s business model was broken,” Kaden remembers. “It just wasn’t clear how it could become a successful business. But Nadia’s conviction and customer-obsession was really strong,” Kaden remembers. And that more than anything convinced her to get involved at the pre-seed stage.
Charles Hudson, general partner at Precursor Ventures, agrees. “The companies that we invest in at the pre-seed stage are raw. The product’s not supposed to work yet,” he says. “So when I consider whether or not to invest, I don’t put a lot of weight on my objective assessment of the product, so much as I do a founder’s ability to talk about the market they’re after, their inflection point, and their unique strategy.”
Founders: Choose the right investor.
And the flipside of the founder coin? Finding the right investor. Alyson Friedensohn of Modern Health, a mental health platform for businesses, says that when they were looking for funding, it was hard to find the right fit. “What we wanted was someone we could call when the shit hit the fan,” she says. “Someone we could trust.” And ultimately, a lot of the investors they spoke to just didn’t hit that mark, which is why they chose Afore Capital.
Ivan Zhou, CEO of the real-time gaming data platform Visor and a fellow Afore Capital portfolio member, agrees. “When you find the right investor, everything else clicks.”
VCs: Find Your Conviction
When Sarah Tavel, General Partner at Benchmark, first had the opportunity to invest in Pinterest, the social bookmarking service wasn’t the cool kid at the party.
“At the time, around 2010, everyone in Silicon Valley was copying Twitter, even though it had an anemic product experience,” says Tavel. “But when I saw Pinterest, it was so visual–the core feature of making boards seemed so special and different. I had such conviction in what they were doing, I thought they were a hot deal.”
When you’re an investor, and your conviction sets off, it’s like a spidey-sense, says Tavel. The important thing is to hone in on what you believe in, and hold on tight. “Becoming an investor is all about figuring out who you are,” she says. And the way to do that is to figure out what you believe in.
“Don’t fall into the deal vortex: should I, or shouldn’t I?” she says. “Ground yourself in something.” And whether the founder, the market, or the product, that thing should be the thing about the company you believe in most.
Founders: You Are Sales. Convince.
Of course, conviction needs convincing, and this is the founder’s role. The best way to train? Practice the job of sales manager.
“If you have a founder who is also running the sales process, they’re exercising their confidence and conviction in their product every day,” says Alyson Friendensohn of Modern Health. “So when they go through fundraising, it feels like what they’re already doing. They’ve already built up the right muscles.”
And that doesn’t just apply to selling the product. Eric Chernoff, CEO of Retain.ai, says that the skills he’s learned selling his company to talented engineers allowed him to “narrow in” to what aspects of his pitch were working, then double down on them when fundraising.
VCs: Ignore Conventional Wisdom
In the world of investing, there’s a lot of theory. There’s a lot of belief. But evidence is often slim to none, and prevailing theories? Those who become rich prove them broken.
Charles Hudson, General Partner at Precursor Ventures, says that when he was first approached by subscription-based sports website The Athletic, no one else had invested in them. “No one wanted to fund,” he remembers. “Everyone told me not to invest in the preseed. The founders didn’t come from media, but they were both integral in the freemium-to-premium conversion success at Strava, which was what ultimately convinced me.”
Tim Young, General Partner at Eniac, has had similar experiences. “The pendulum of opinion swings back and forth about different sectors,” he says. And when he invested in the school management software solution Brightwheel, everyone was telling him that investment was wrong. “Back then, ed tech was toxic, but we just examined first principles and ignored what the rest of the valley was doing.”
Founders: Work From First Principles
When Tony Xu, co-founder & CEO, first started DoorDash, investors told him there was no market. “They incorrectly thought our space was very competitive: that the market was everyone who was already delivering, instead of everyone who wasn’t,” he says. “And that narrative just kept continuing, that no one in the space was making money, or that a big company like Uber was going to press us out.”
So how do you move forward when all the investors are betting against you? Work from first principles. “Your job as a founder is to be the exception to the rule,” Xu says. “So you shouldn’t care what other people are saying, as long as you’re being intellectually honest with yourself, and working from first principles. It’s okay to have a different point of view on the market, and wait for the data to bear it out.”
VCs: Lead The Dance
For a founder, finding your first funding can feel like being the unpopular stag kid, tapping the hottest kids on the shoulder at prom for a dance. You ask dozens of people, and most just shrug you off. Then, finally, a VC is actually interested. Not necessarily committed to fund, mind you, but willing to learn more. So what now?
“Lead the dance,” says Eric Chernoff, CEO of Retain.ai. “You have the money, and you’re working on behalf of your investors, so you have a duty to get to the bottom of the matter quickly… and to dismiss quickly.” And that’s true even if the company you’re talking about isn’t an ugly duckling, but instead has a lot of buzz around it. “Don’t worry about FOMO. Lead your dance, see if there’s a good fit, and move on. It’s your job.”
Founders: Don’t Waste Your Time On The Wrong Investors
When Dan Porter, CEO and co-founder of Overtime, first started pitching his idea of a media startup aimed at redefining how local and high school sports are covered, he got a lot of wonky looks from the biggest VC funds, who all told him that “teenagers just weren’t watching live sports.”
“When I started this, I was like, ‘I’m fucking Dan Porter, I’ve made so many people so much money, everyone will be lining up to invest,’” he remembers. “But that didn’t happen.” Things only changed when Porter discovered “this whole other world of pre-seed investors,” headed by Afore Capital, who believed in Overtime even when bigger firms didn’t.
The lesson? “I’d been wasting my time pitching the wrong people,” says Porter. “I was just too early for them.” And now that Overtime is past its Series B, Porter says he’s now in the position of some of the earlier people who passed calling him up and telling him they were wrong. “No shit you were wrong,” laughs the gleefully profane Porter.
VCs: Writing Checks Is Not Enough
A distressing number of people think that an investor’s job ends with cutting a check. But according to John Vrionis, Founder & Managing Partner at Unusual Ventures, writing a check is where a quality investor’s job starts, not ends… especially in pre-seed.
“Investors can and should help founders with a lot of things,” Vrionis says. “They can help vet hires, review compensation, and look through the paperwork for future funding rounds: founders haven’t seen these financing deals hundreds of times like you have, so you can really help think through the pros and cons for them.”
Founders: Ask ‘How’ Investors Can Help?
The flipside of that coin? According to Jyoti Bansal, former Co-founder & CEO of AppDynamics, some investors offer tons of help — but that help either never materializes, or it’s sort of useless.
“I’ve had investors say to me, ‘I’m going to get you your first ten customers,’ or ‘I’m going to find you some engineers,’ and then, all they do is send a couple introductory emails,” says Bansal. “As a founder, you’ve got to ask how. Do they have a team of people cold-calling potential customers? Do they have a team of recruiters looking for engineers? “
Bansal didn’t do that, and so before he became more experienced, he often found himself counting on empty promises that never materialized. “Investors, don’t promise things you have no way of helping with,” Bansal lectures. “And founders: ask how.”
VCs: Be Their North Star
The ultimate role of an investor at the pre-seed stage, though? Both John Vrionis, Founder & Managing Partner at Unusual Ventures, and Jyoti Bansal, former Co-founder & CEO of AppDynamics, agree: be their north star.
“Lots of founders don’t have a lot of experience, which means that it’s easy for them to wander off the track of success,” Bansal says. “That’s where investors need to help.
Vrionis says that help comes in the form of structure and accountability.
“Create real goals and hold founders accountable when they fall short, so that they’re ready for the rocket fuel of success that is coming.”
And don’t discount the importance of belief. “Never doubt a founder’s ability to be successful,” says Vrionis, “Believe in them, and you will get them through the darkest of times. Your belief will be their north star.”
Founders: Understand The Rungs On The Ladder Of Success
It sounds silly, but if you want to excite an investor and earn their confidence, nothing goes farther than a founder’s ability to break down a problem into a truly sub-atomic number of steps.
When Henrique Dubugras, founder at corporate credit card startup Brex, was brought into Y Combinator, everyone told him to spend all his time honing towards Demo Day. Instead, he practically ignored his pitch deck, and spent about a year building his product, rebuilding the whole technology stack for credit cards from scratch.
And because he spent that time building his product, Henrique had a relatively easy time securing funding, despite going against conventional wisdom. “Because we demonstrated that we understood all the steps in the middle, we were able to give investors confidence that we knew what we were doing, he says.
Alex Taussig, partner at Lightspeed, calls this the “ladder of success.” “Nothing gets me more excited than when a founder can see the throughline,” he says. “It’s very rare, but exciting when you find it: a founder who understand how getting to the top of this mountain can get them to the top of that mountain.”
Demonstrate that ability as a founder, and investors will be lining up at your door.