The #1 Metric for Startup Fundraising
It’s Awesome.
TL/DR: Making your startup awesome is a lot of work and is incredibly hard. Put your head down, work hard, get into an awesome place, and update investors as you go. Funding wont help you get there, funding is the result once you are there.
Recently I attended a quintessential early stage startup event. Exactly when I entered the event space I realized I hadn’t attended one in a long time.
The event concluded with an open Q&A of a well known seed V.C. The line for the microphone quickly filled with new founders hoping to make a good impression. The first founder to the mic changed the format from a Q&A to an impromptu pitch session and almost everyone behind him followed suit; Hoping to peak the interest of the 1 outed investor in the room. Needless to say no one left the event with a cheque in hand…
The event reminded me of where I was years ago when we first started SoapBox. Fundraising was a mysterious process wherein, at the end, you have money to achieve your goals. The mystique came from the fact that almost everyone I knew wasn’t raising money — but blogs were covered in silly app ideas getting millions of dollars… What were we doing wrong?
I would read posts of how to pitch to V.C.’s and what people wanted to hear and talk about. We would try to construct that and present to investors. In ernest, we knew we were on to something bigger than most companies and were achieving tangible milestones towards it… Yet, no bites. None…
What were we doing wrong that others weren’t doing? Or, What were they doing that we weren’t? There must be some secret. Some secret metric, or story, or graph, or design that made investors excited.
Good news: I’ve found that secret element.
Right after we closed our seed round I started talking to a group of awesome founders, with awesome companies who have closed funding before. Talking to dozens of great entrepreneurs I realized what investors were really looking for.
It’s the number 1 metric that investors care about. It’s universal. It doesn’t matter what industry, vertical, sector, space, model, or technology you’re in or using. It is the silver bullet for the fundraising process.
Awesome.
Yes, that’s it: Awesome. Please don’t leave now… hear me out.
An awesome product, with awesome an opportunity, an awesome team, and awesome traction will get funded. But there’s a big problem… investors won’t know if you’re awesome on day one.
So how do you tell investors about how awesome your startup is? You don’t. Everyone thinks their startup is awesome— more importantly, everyone says their startup is awesome. You need to prove that yours is.
There is only one method to prove that you’re awesome. It consists of two steps:
- Be awesome.
- Keep people up to date on your awesome.
On Being Awesome
From my experience you can break down most technology startups into two types of awesome: Awesome User & Awesome Revenues.
Awesome User-Based Startups:
To user-based startups, the main metric that matters is the amount of engagement. How much engagement are you seeing? Where were you last month? What’s your goal for 3-6 months from now?
If you’re able to build an app that a very large amount of people want to use, and they keep using it, then you’re doing great. Keep it up. Decrease your viral cycle time. Keep growing.
What’s awesome? Exponential user growth curves — your investment thesis is that you will be able to make money off of these users. If you don’t get enough users it will be hard to monetize. If there are many users then you have better chances.
People criticized Yo when they announced their $1.5M funding round.
Without talking about what Yo does consider this: In 4 months it got over 2 million downloads, 2,000 developers using it’s api, and peaked at 4 million “yo’s” in one day.
That’s awesome. Try and beat that. It wont be easy.
Revenue Based Startups:
As a B2B SaaS company, SoapBox, is firmly in the revenue based awesome stream. Yes, users using our application are unbelievably important — but B2B needs are valued by businesses spending money and not simply MAUs.
If you’re able to build an application that a bunch of people want to pay for and continue to pay for then you’re doing great. Keep it up. Increase LTV, decrease CAC and Churn. Go, go, go!
What’s awesome? Exponential revenue growth curves — your investment thesis is that people need your product and you just need to get in front of them. Get in front of those people and show that when you are in front of them your revenue graph goes up. Re-invest those dollars into doing it again and show that your startup a spin-wheel of money.
No one picks on startups making money. Because it’s awesome.
On Showing Your Awesome
If you walked up to someone and said, “Hi, I’m [Name] and I’m awesome because [a, b, c].” you will only experience a very awkward social encounter that doesn’t convey the message you want.
Founders: do not confuse a forced, strange social experience with “hustle”…
How would you convince a future friend that you are personally awesome? You wouldn’t just bump into them at an event and say, “Be my BFFL!”.
Awesome is a story that unfolds and builds over time. Think of a movie that was awesome... It didn’t have just one scene and it certainly didn’t last the length of an elevator pitch.
Ever wonder why Gandalf didn’t just fly the ring straight into Mordor on those giant eagles?
How about: Because it wouldn’t be awesome. Your story to investors should last longer than Lord of the Rings and should convey a journey.
Show them where you are. Tell them where you’re going. Send them updates along the way. Do a larger catchups in person. Then, when you need it, call in the eagles to help you go seriously fast.
Ideally you to start this communication before you start your journey. However, it is more likely that you’ve started your company and then started looking for help. In that case start telling investors now. Share the good, your challenges, and state your goals. Make sure they are listening and then remind them where you’ve been when giving them updates.
Remember, the best time to plant a tree is 20 years ago, the second best time is now.
If you’re working really hard, keeping enough people up to date, and spreading it out over some time then—eventually—one of them will perk up and say, “Oh man, this is awesome”.
Bingo.
Would love to hear your thoughts on twitter @i_am_brennan or hn.
