8/3/22

How fundraising works

docs on fundraising: https://www.ycombinator.com/library?categories=Fundraising %2B Investors

The 7 Myths of fundraising

• Myth 1: Startup fundraising is glamorous

  • Shark tank might come to mind, or TC Disrupt, but this is not reality- these are just for show
  • Fundraising actually just a bunch of coffee chats, but now it’s a bunch of Zoom calls, a bunch of 1-on-1 meetings, and intros

  

• Myth 2: I need to raise money before I start working on my startup

  • the best founder build v1, get users and THEN think about raising money
  • reason: it’s cheaper than ever to build a prototype , and easier than ever to find potential users
  • and then… product + users = leverage
  • example:

• Myth 3: my startup needs to be impressive to raise money
  • you don’t need to impress investors, you need to convince them
  • some best startups sound terrible at first.
    • DoorDash: food delivery for the suburbs, where it takes forever…
    • OpenSea: marketplace for selling collectibles on your computer…
  • Investors get bored when startups try to impress them
  • “I prefer to just talk about the business you’re building” - Michael Moritz, Sequoia Capital
  • Best way to convince :
    • make something people want
    • explain the 1% change it gets huge
    • use plain, simple language
  • and then… do it over and over and over again!

• Myth 4: raising money is complicated, slow and is a lot of $$

  • typical seed round $500k-2M, time to close 2 weeks, $0 legal fees
  • YC created the SAFE (simple agreement for future equity)
    • east to understand: 5 pages
    • fast: only 2-3 terms to discuss, amount, cap, discount (but people don’t usually do discounts)
    • cheap: no lawyers needed to send them
    • SAFEs give founder superpowers and allows them to move quickly

  

• Myth 5: I’m gong to lose control of my company

  • seed rounds let you keep control, founders have more control than ever, SAFEs don’t have you give up any board seats
  • founders are now selling 10-20% of company and raising millions
  • what about bootstrapping?
    • bootstrapping forever sucks:
      • scary, always about to shut down
      • miserable, can’t pay yourself
      • bootstrapping is like “taking the pain of fundraising and stretching it over the lifetime of your company.”

• Myth 6: I need a fancy network to raise money
  • investor are human, and they care a lot more about making MONEY… then you’re network or pedigree
  • also, don’t fire someone else to raise money for you!
    • always best for founders to talk to investors themselves
    • if someone offers, take the intro, but do the meeting yourself

• Myth 7: If investors reject me, my startup idea is bad
  • everyone gets rejected
  • you don’t need every investor to like what you’re doing, just a few
  • today, there are more investors than ever!

the theme of all myths: this isn’t for you, I don’t know what I’m doing… but you can do it!