What I learned from funding 55 companies in 16 months with $10M

Lessons for Founders

Background

We launched FundersClub on July 25, 2012 as part of the Y Combinator Summer 2012 batch. Since then, I have co-led the Investment Committee, which does the first pass curation of companies for our platform, with my co-founder Alex.

In the ~16 months from launch, our community of over 7,400 investors has invested ~$10M via FundersClub to fund 55 companies from both here in the US (Silicon Valley to Indianapolis to New York) and beyond in the Philippines, India, Chile, Brazil, and Canada (yes that’s a foreign country.)

Our investments have spanned a wide range of industries, from ecommerce (Teespring) to bitcoin payments (Coinbase) to recruiting (Talentbin) to enterprise security (Meldium) to consumer hardware (Boosted Boards) and many more.

It’s been an amazing ride so far with many lessons learned. The following is a list of some of the lessons I learned that I hope can be helpful to founders (there are as always exceptions to the lessons below). I plan to save lessons learned for investors for a different day. Short version below followed by longer version.

Lessons Learned For Founders (Short Version)

1. Only talk to investors when you are ready to raise money
2. Make it easy for investors to research/find you online
3. Timing matters for fundraising
4. Raising money is about momentum
5. Investors don’t want to invest in your startup until they suddenly do
6. Investor interest is a lagging indicator
7. Show, don’t tell
8. If you can’t show, then tell effectively
9. If it’s not in writing you don’t have it
10. Time kills everything, so close fundraising quickly
11. Be confident with investors
12. Do not be overly aggressive and arrogant with investors
13. Focus on getting feedback from your customers, not investors
14. Know who you are working with
15. Be able to answer “why now?”
16. The market you are in is incredibly important to how big you can go
17. It’s not closed until the money is in the bank
18. Investors will talk to each other, act accordingly

Lessons Learned For Founders (Longer Version)

1. Only talk to investors when you are ready to raise money: as a founder your time is incredibly valuable and limited, particularly during the earliest stages of your company. Investors may want to talk to you before you are ready to raise money, but you should avoid this until you are actually ready.
2. Make it easy for investors to research/find you online: investors will research your company online and you need to make sure they can easily find this information (i.e. CrunchBase, Mattermark, etc.) Andy Sparks has a good post on this.
3. Timing matters for fundraising: as a general rule of thumb, don’t raise money in August or December, these are slow months when lots of venture capitalists and angel investors take time off. You can get away with raising money in those months if you’re closing out a round that has momentum (see #4), if you’re raising from friends and family, or if you’re raising money online (where the market tends to be less seasonal).
4. Raising money is about momentum: momentum of your business and momentum of your fundraising. Don’t lose either.
5. Investors don’t want to invest in your startup until they suddenly do: I’ve seen companies get no traction in fundraising and then 6 months later get massive interest with investors lined up down the block and fighting to get into the round. A few things can trigger this. One is your space suddenly gets hot and every investor wants to get in on the space. Two is your growth goes into high gear and every investor wants to invest in your company. Three is you land an investor who has strong signaling power and other investors want to follow. These can happen at the same time as well.
6. Investor interest is a lagging indicator: somewhat related to (#5) above; important to keep for mental perspective. If you’re really far out on the edge of innovation and working on something completely new, many people will think what you’re doing is a joke in the beginning. As Chris Dixon writes, “the next big thing always starts out being dismissed as a “toy.” Most investors lag behind.
7. Show, don’t tell: metrics/graphs/numbers paint a better picture than words. This is true for fund raising pitches and for investor update letters.
8. If you can’t show, then tell effectively: If you’re pitching investors on a concept or idea-stage business, how you communicate your business becomes crucial. Reid Hoffman has this advice: “concept pitches depend more on promised future data rather than present data. When you’re doing a concept pitch, it’s especially important to consider pitching by analogy.”
9. If it’s not in writing you don’t have it: this covers customer contracts and term sheets.
10. Time kills everything, so close fundraising quickly: markets move quickly and for really big opportunities you are likely not the only one in the hunt. Trends also come and go (see #13 below) so you may not always be in a position where investors are interested. With this in mind, founders should optimize for speed in fundraising. I know of one particular case of a company in a rapidly growing space that dragged its feet with investors and was overly aggressive on terms. It took them a while to close their round. They are now watching from the sidelines while others are owning the space.
11. Be confident with investors
12. Do not be overly aggressive and arrogant with investors
13. Focus on getting feedback from your customers, not investors: the feedback you most need will come from people who will or will not validate the value proposition of your product/service. These are your customers. Don’t forget this.
14. Know who you are working with: reference check investors with other founders. Read up on the social media posts from investors.
15. Be able to answer “why now?”
16. The market you are in is incredibly important to how big you can go: “The #1 company-killer is lack of market.” -Marc Andreessen. A bad market will absolutely sink a company regardless of how smart the founders are or how good the technology is. The difference between being in a red-hot growing market and a flat or slowly growing market is difficult to conceptualize. “Unicorns” are built in big, fast growing markets. As Paul Graham writes, “In startups, the big winners are big to a degree that violates our expectations about variation. I don’t know whether these expectations are innate or learned, but whatever the cause, we are just not prepared for the 1000x variation in outcomes that one finds in startup investing.”
17. It’s not closed until the money is in the bank
18. Investors will talk to each other, act accordingly

Boris Silver is Co-Founder and President of FundersClub.

twitter: @borismsilver

essays: www.medium.com/@borismsilver