Friday, August 15, 2008

Fundraising Survival Guide (Paul Graham from YC)

Fund raising Survival
Catching up on some reading, I read this morning Paul Graham's must-read article on fund raising. He really nails it and pours the much-needed cold water on the entrepreneur's head. He deals well with the emotional side of it by presenting the numbers and strategies to deal with the downfalls.

If I read it right, entrepreneurs shouldn't assume funding will become available: they have 1 in 500 chances of getting funded. (BTW, I think I heard some statistics that post funding, 1 of 8 startups will live to "expectations"). And yes I do agree that there's a bit of herd mentality as far as the way the investment community acts (if you've been rejected by one, you have a good chance by being rejected by the other, cause a- naturally, they talk and b- your morale deteriorates with every rejection). That one, effectively, is yet another unfair advantage to the investment community: entrepreneurs, specifically first timers or younger ones (which the investment community naturally likes), are suspicious of one another. The innovation that's happening today is far more market and idea driven then IP or technology driven. So the entrepreneurs are less likely to collaborate at these early stages. And frankly, TheFunded may have been a nice little stunt, but I just can't see how other entrepreneurs on there would reveal the kind of sensitive and relevant information that'd be useful to me.

Maybe another peel of the onion, let's see:
  • "Taking care of business"/"Being independent": bootstrapping isn't the strategy; Consulting is bad. (at least according to one VC who commented: "We try to avoid companies that got bootstrapped with consulting. It creates very bad behaviors/instincts that are hard to erase from a company’s culture." I must assume that they're not the only ones to think that)
  • Keep expectations low, Don't take rejection personally, stay optimistic: So that's one of those correct, accurate, useful points to make, that probably distinguish outstanding entrepreneurs from others, and present a contradiction in themselves
  • Keep Working: I really liked that one. There's a natural tendency to bring the "mob" to the meeting, and then the question is: does everyone need to be in every meeting? How does this affect your productivity and momentum?
Perhaps another relevant input from recent learning, is "where the money is" blurb (this may be relevant only to the market I'm looking at, mobile media):
  • VC are well upstream, deep pockets, 1 of 2-3 thousend chance in getting funded etc. You need to be well established with product, revenues and very happy large set of customers
  • Angels and their groups moved well upstream, too. This may be specific to this market, but they now seem to be after plays that have product, customers and revenues ("we usually come in to accelerate market and team growth, we don't like to invest in development, for example, because we can't contribute to it with our expertise"). "We don't really do seed". A side comment, the groups I've been dealing with like to see themselves as successful entrepreneurs themselves, execution guys. "Talk to us in operational terms". I think they LOVE to give advice on your product and some of them would just LOVE to see your MySql records, but would simply like to avoid the risk and hassle of the development stage
  • Moving on...Friends & Family? sure..maybe. I've heard someone say: "would you take your mom's savings if you knew this wasn't enough and couldn't guarantee a follow up?"
Where I am today in my mind is that fund raising is a necessary evil that has to happen because bootstrapping is unlikely to happen or get you there even if you braved it. You're unlikely to get funded and even if you did, it's got so much risk attached to it.

Specifically, I find that investors and others see the mobile channel as highly unique and lucrative, however when it comes to figures or investment attractiveness, they attach web equivalents as far as ease of market entry, profitability and other measures. Perhaps because they are protecting their interests, perhaps because they have no experience to suggest otherwise, or perhaps they are well outside the demographics of users who will easily distinguish between mobile and web.

I wonder if the investment community is comfortable with that view. They probably are: there are so many of us and so few of them. must be very flattering.

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