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Why Your Startup Hasn’t Gotten Funded.

Clarence Wooten
Oct 20, 2015 · 5 min read

Startup funding is largely driven by The Golden Rule: He who has the gold, makes the rules.

Let’s face it, the rules for getting a startup funded at the seed stage aren’t very clear. Note: When I say “seed stage startup,” I’m specifically referring to software/app startups that are either pre-product or early product.

Many founders read the daily headlines on TechCrunch announcing that…

“Startup X launches with XX millions of dollars of seed capital from a star-studded list of investors”

… and wonder to themselves, “Why can’t I do that?” You can. But probably not how you’d think. If you’re spending your time pitching investors, you’re more than likely wasting energy that could be spent moving your startup forward. If you’re of the mindset that you can’t move your startup forward without first raising capital, this post won’t help you so there is no need to read any further.

If you are a founder who is a hacker or a hustler and you want to build a startup without wasting time, continuing reading. I wrote this for you. With that having been said, there are two ways to get your seed stage startup funded:

  1. The Traditional Way, which I’m calling TVR; or
  2. The New Way, called Traction.

TVR: The traditional way of raising seed funding

“To get funded the traditional way, you need at least 2 of the 3 letters in TVR, but preferably all 3.”

Here is what I mean by each.

Team means “smart team” as defined by the investor. What makes a smart team? Here in Silicon Valley the rule-makers define smart teams solely based on pedigree. Which means that your founding team consists of engineers, a product guru and designers who’ve been associated with Facebook, Google, a hot startup, Stanford, MIT or another top Ivy League or equilivaent school. Or, you’re a founder with a prior successful exit under your belt that produced significant returns for your investors. This is a relatively small and exclusive club thus lacks diversity, as a result produces a lot of “sameness” and blind spots that Silicon Valley investors are increasingly being criticized for.

Vision equates to an idea big enough that it’s capable of producing a significant return multiple to justify the risk for an angel investor or is capable of returning the entire fund for a venture capital firm. Venture Capitalist have investors as well. They need to return multiples of their current fund size to be successful enough to raise their next fund. Consequently, venture capital is a hits business. Historically, successful funds end up with one company out of every ten investments that return the entire fund. If your vision isn’t scalable enough to potentially return their fund within a 4–7 year timeframe, it’s not a big enough vision. Furthermore, your vision also needs to be relatable to another business model that investors have seen be successful. Therefore you must communicate the scale of your vision using phrases like “Uber for Dry Cleaning” or “Airbnb for Pets.”

Last, but in no way least, Relationship: You are known to the investor. Either they know you personally and are comfortable placing a bet on you, or they know you through someone in their trusted network who can vouch for your “it” factor. Perhaps they met you through another entrepreneur that they’ve backed or you worked at a successful startup that they invested in. Bottom line: Investors back people they know and trust. So if you aren’t connected to the investor in some way shape or form, you’re pretty much shit outta luck.

If you are unable to raise money using the TVR formula described above, don’t feel bad — most can’t. You may bring one aspect of the formula to the table but not the required two or three. If you don’t have at least two, I promise, you are waisting your time and will be eliminated from consideration by the selection bias that has kept seed stage funding un-obtainable for many for decades. The good news is over the past few years a better way has emerged to raise seed stage capital. It’s called traction.

Traction: The new way of raising seed funding

Traction is the best option because regardless of your gender, race, location or team pedigree, founding teams that hack and hustle their way towards generating traction have no problem raising several million dollar seed rounds for their startups and usually have their pick of investors.

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Traction as a means of seed stage fundraising is viable today for two reasons: 1) over the past few years it has become cheaper than ever to create a software startup due to free open-source development frameworks, APIs, on-demand cloud hosting, and inexpensive storage; and 2) because it’s cheaper then ever, more startups are launching — creating more competition to get the attention of end-users. As a result, building a product isn’t the hard part. The hard part is getting customers to love it and spread the word despite a vast array of choices.

With the explosion of web and mobile apps, many seed and early stage investors today take a “wait-and-see” approach before deploying capital. They’ve recognized that there is no better predictor of future success, then present success.

“Investors are pinched between two kinds of fear: fear of investing in startups that fizzle, and fear of missing out on startups that take off.” — Paul Graham

So if you’re NOT having success raising a seed round for your startup the traditional way or would prefer to focus your energy on building your startup vs pitching it…

Grow. Don’t pitch. Let your data do the pitching. Sign up for VentureFund.io and privately build relationships with investors by sharing your data while you hack and hustle your way towards achieving traction.

VentureFund io

Grow. Don’t pitch. Let your data do the pitching.

Clarence Wooten

Written by

Multi-successful, multi-failure tech entrepreneur. Founder of ImageCafe (acquired by VeriSign), Progressly (acquired by Box), Groupsite, VentureFund.io etc.

VentureFund io

Grow. Don’t pitch. Let your data do the pitching.

Clarence Wooten

Written by

Multi-successful, multi-failure tech entrepreneur. Founder of ImageCafe (acquired by VeriSign), Progressly (acquired by Box), Groupsite, VentureFund.io etc.

VentureFund io

Grow. Don’t pitch. Let your data do the pitching.

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