Startup fundraising: Invest in lines, not dots
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The first time someone
The first time someone meets you, you are a single data point. A dot.
They have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower.
Because you have no observation points from the past, you have no sense of where you will be in the future. Thus, it is very hard to make a commitment to fund you.
Entrepreneurs You might be pumped
Entrepreneurs
You might be pumped up with that super quick round done at a high price.
But remember that raising money is a bit like Ireland in the 90’s — no divorces allowed.
For some companies — they become deal breakers on further funding rounds.
By definition, if somebody is investing in you as a dot they are a dot to you, too. You can’t really know them in 2 minutes yet you’re letting them own part of your business.
Meet your potential investors
Meet your potential investors early.
Tell them you’re not raising money yet but that you will be in the next 6 months or so.
When you’re with them, lower the bar by telling them, “we haven’t shipped a product yet, we have lots of decisions still to make, but we’d like to show you our prototype”.
Investors The market is moving
Investors
The market is moving uber fast on deals. Investors are writing checks for dots. This is happening with both angels and VCs.
If you invest in dots don’t be surprised when the trend isn’t in the direction you would have hoped.
Dots produce bubbles. And some argue that bubbles have positive externalities for entrepreneurs.
But many bubbles wreak more havoc than positive effects. And those of us who have lived through the past 2 funding bubbles saw all this at close range.
Most importantly tell them
Most importantly tell them what you plan to achieve by the next time you see them.
You’ll be able to give them an update on key hires, pilot customers, and key tech innovations.
Keep these interactions low-key and short.
Swing by their offices to make it easy for them to say yes and promise not to take up more than 30 minutes for the update.
Lines versus dots If you’re
Lines versus dots
If you’re an investor looking at dots, somebody else may be looking at lines.
Meet entrepreneurs early and watch how they perform — maybe even at their previous startup.
Meet people before they’re officially fund raising. It helps to spot patterns.
Don’t allocate two months
Don’t allocate two months of each year to “hardcore funding activities” but allocate a regular amount of time each month to it like any other job function.
Finance is a major job function in any company — startup or public company.
Note that “performance” is
Note that “performance” is a loose term for the definition of perceived progress that can take the form of product, customer adoption, employees, investors, or press.
It is basically a perception that you are making progress in your business and not standing still.
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