Anchor is the easiest way to record audio and start conversations with people from all around the world. The following questions and answers are transcribed excerpts from an audio interview that was held on Anchor; people in the app asked and Satya answered. We’ve chosen some of our favorite responses from his AMA below; you can download Anchor on iOS (or sign up for our Android Beta) to join the conversation.
Hi, I’m Satya Patel from Homebrew. I’m here on Anchor to talk about fundraising in an increasingly difficult environment for early stage companies. I don’t think there’s much that’s changed between now and six months ago or twenty-four months ago in terms of what it takes to raise money; at the end of the day the only thing you have to do is convince every potential investor to believe in what you’re doing. The two keys to that, in my mind, are the people behind the company, and the potential of the market opportunity and the business.
There’s not much that you have in the form of data at the very earliest stages, so you can’t use that. It’s really about creating what I refer to as “emotional resonance” with the problem you’re going after and the team that’s key to unlocking the dollars from investors. In terms of people, you really need to communicate why it is that you guys and gals are best suited to go after the problem that you’re addressing, and what your “secret” is, as Peter Thiel refers to it. What is it that you believe that others don’t about the opportunity? In terms of potential, it’s not that there’s a huge existing market today, but in our minds we think about:
Is there a problem that’s not being addressed that’s large, acute and valuable? Are there a lot of people who feel the pain? Do they feel it intensely? Is there some way of unlocking monetary value for addressing that pain?
But at the end of the day, the real thing you have to do is make people believe.
Q: How do you suggest building “emotional resonance” when a founder is serving a market that doesn’t immediately resonate with investors?
Emotional resonance is definitely difficult to achieve, but for a seed stage company, the number one thing to focus on is your personal story, particularly if you’re in a market that isn’t perfectly aligned with an investor’s personal background or history.
Secondarily, if you can get them to be excited about the mission, that’s another way to create emotional resonance.
But I think it’s important to target investors that are most likely to be excited about what you’re doing and have that emotional resonance, because otherwise they might not be the right long-term investors for you anyway.
Q: Do you have some examples of “secrets” from your portfolio companies?
In the case of The Skimm, the secret was that they believed that in the busy life of millennial women, the current way in which news was delivered was all noise and no signal. If they could deliver curation in a really simple way, (this turned out to be email) they could create a big business with email as the starting point. There’s nothing rocket science-y about that, it’s just something that they believed to be true that not necessarily everyone saw.
In the case of Shyp, their secret was thinking the opportunity was in the first mile of logistics as opposed to the last mile, which is where everyone was focused on (same day / immediate delivery).
Q: Should you approach VCs before or after launching your product?
I think most investors want to be able to touch and feel and play with a product, and they also want to be able to evaluate how quickly a team is learning.
My general advice would be to have your product out in some form and have some kind of data that you’ve responded to, and be able to talk about it.
In many cases for a lot of investors, it’s easier to bet on the promise than on the reality, and that’s why you hear it’s sometimes easier to raise without a product or pre-product, but I think that’s rare.
Q: What type of backgrounds do you look for in your founders?
I’d say there are three things that we like to see in the teams that we back. One is that we like to see some professional, if not personal, history together. It definitely makes it easier to build a company when you’re already speaking the same language.
Two is that we like teams that have already experienced the pain that they’re addressing first-hand. And then three is we like teams that have a very tight hypothesis that they’re testing, but a flexibility in their thinking and a willingness to be wrong and adjust on the fly.
Q: When it comes to fundraising, what do you believe is true that very few people agree with you on?
I think lots of investors say that the team is the most important thing, but my point of view is that the team is necessary, but not sufficient. Just as important is the market fit and the product vision. We’d really need to see all three of those things.
Inherently a lot of investors think about all three, but some maybe overweigh just the team, even when they may not have the conviction around the market or the product vision. I really think all three are important.
There are a lot more answers from Satya in his full Q&A. You can check out the full conversation here, or download Anchor from the App Store to chime in.
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