4 Questions You Have to Nail to Raise Seed Funding

Quick thoughts on what investors want to hear in a startup pitch

Floodgate has been a super humbling education in how to source, evaluate, and build early stage startups. It’s hard to capture everything that Ann, Mike, Arjun, and Iris have started to teach me. At the moment, I’m in full-on apprentice mode, working through rotations with each of the partners to calibrate my investor judgement and attune it to their unique points of view on what they look for in entrepreneurs. It feels a bit like joining a new family (I sort of mean that literally — I met everyone’s kids and puppies in the first month on the job!), except your tiger mom is on the board of Lyft and your crazy uncle mentors unicorn founders on the weekends.

Floodgate’s in the business of backing prime movers — the founders who will start iconic companies — before the rest of the world believes in them and their ideas. By design, we only invest in a handful each year. This is harder than ever to do, as there are so many new startups being built that I think are awesome. As Mike likes to say, it’s getting crazy out there! To give you a sense of what my personal dealflow funnel looks like, 25–40 startup pitch decks land in my inbox every week through referrals from trusted founder and investor friends (I can only imagine how many more pitch requests veteran investors get). I spend time reading through every single one of them, but at most, I will meet with 5 of these companies each week in my own time when I’m not actively working with my partners on their deals. I’ll flag up to 1 company each week to the relevant Floodgate partner.

My takeaway from this experience is this — many founders miss the mark by not fully capturing what makes them special. Founders often only get one shot at a first impression, and many tragically don’t tell their story in a way that makes them stand out. To make sure this doesn’t happen to you, I think you need to anticipate four important questions. If you knock these out of the park in your narrative, I think it will help you correctly explain why your startup is a gamechanger that investors should take a venture bet on.

What is the hard problem you’re trying to solve?

Arjun often challenges me to dig into this topic. It makes a ton of sense given his deeply technical background and his focus on enterprise technology. At the root of this question, we’re trying to understand your defensibility. If it’s very difficult to build solutions for the pain point you’re tackling and you have unique IP, bravo! On the flip side, if it’s relatively easy to hack together solutions or it’s not necessarily a “hair on fire” problem for the buyer, we’d be less confident that you’re the clear winner. I think it’s important for you to educate us on the depth of the problem and walk us through your take on it.

What are your earned secrets?

Mike teaches a small class on startup roadmaps at Stanford GSB that I’m fortunate to support him on, and he frequently stresses the importance of “earned secrets”. This is a concept coined by Ben Horowitz and refers to proprietary insights that you’ve discovered that no one else knows yet. One of the classic examples of an earned secret can be found in our portfolio company Lyft, where the cofounders Logan and John learned that people were willing to get in the cars of strangers to get to where they wanted to go. They built a $20B+ company around an insight that we now all know to be obvious. We will love our conversation with you if you can clearly articulate your profound earned secrets. If you do, Mike likes to say we hope you’ll see us as your “co-conspirators” who are in on it with you.

Why now?

Iris co-hosts a bootcamp dinner series for angel investors with Ann, and she will push folks to ask why founders believe “now” is the right time to build a particular business. The key to this question revolves around change events. In my mind, the most interesting change events relate to new technology, new regulation, or new shifts in consumer behavior. As an example, our portfolio company Twitch was only made possible by a) internet speed and video compression becoming good enough to support livestreaming and b) the rise of esports. I’d encourage you to explain why no one could have successfully built your business in the past as well as how a particular change event has created a window for new possibilities.

Why is this your life’s work?

This is probably my favorite question, and one that I’ve noticed Ann particularly enjoys asking. If you’re a founder, you’re a special breed of talented hustler. You can do so many other interesting things with your time. We want to know why, in your heart of hearts, you care about spending a decent chunk of your life working on this particular problem. When the going gets tough, we want to understand what motivates you to keep pushing through. I’ve seen limited success with entrepreneurs who are more “in search of a problem”. I think the best founders are the authentic ones who care more about solving the problem than they are about building a unicorn business.

I hope this gives you some insight into what we want to press on when a founder comes to pitch us. Remember to take this advice with a grain of salt! This framework is by no means a perfect one. For what it’s worth, I’ve learned that we’re wrong more often than we’re right in this business. However, if you do have slam dunk answers to the above, we’d love to chat. Feel free to ping me anytime at shawn@floodgate.com if you’re interested in getting more founder pitch feedback!