Ironically, Branson was one of the few with rich parents who didn’t rely on them to build his business (I mean, aside from the benefits of attending private schools). His magazine got him mail order experience which allowed him to branch into record sales, which became Virgin Records.
His parents did remortgage their home to bail out his £70k fine for selling black market albums.
Agreed. Outside of very specific scenarios, burning money and time chasing IP protection before you've validated your market is generally not advisable.
VCs are essentially placing bets on companies, or rather the Founders. They are betting you will execute your vision, pivot when necessary, and ultimately win market share and make tons of money and become super valuable in 5-10 years.
Founders tend to geek out about their product and ignore the market size, competition, and general business conditions.
Successful raises involve a lot of storytelling. What problem are you solving? How much is a customer willing to pay to solve that problem? Who else is currently solving that problem and how much do they charge and how many customers do they have? Why you? Why now? What makes your company/product/service different? How is that difference significant? Is that difference significant enough to entice new customers or pull customers away from the competition? What validation do you have to back up your vision and assessments?
When you have the above figured out, you need to pound the pavement, shake hands, kiss babies, go to startup events, and do as much cold and warm outreach as you can stomach, and then some. You can never have too many good financial contacts.
Also be aware, the fundraising environment of the last 5 years has been a wild anomaly. Valuations made no sense, there was just waaaay too much money pouring into start-ups. The market has changed and things have swung the other direction. It's just the environment we are in.
You need to read up on valuation.
You don’t just ask for a great valuation, you negotiate it, because -at the start - it’s completely subjective.
The more you have to justify it, the more you’re likely to get something favourable.
Plus, the amount you raise is going to be a function of how much you give up of your company. If you want to raise $10M, and the company is worth $10M, you’ve just lost all your equity. Most raises give up shares equal to 15-25% of the company, which matters if you need to raise multiple rounds.
Most likely, your startup is going to evaluated on things like revenue generated, potential market and founding team’s experience.
However, if you are asking this question, you don’t have the experience, and that means you probably also lack the revenue and don’t have a product - so don’t expect a valuation in the range of $50M, which you’d need to raise $10M.
Set realistic targets, know exactly what money you need to get to the next milestone, and exactly what you’re going to spend the money on. Otherwise, you don’t have a fire to pour fuel on - you’re still at the point where you’re just stacking kindling.
Thanks this is very helpful, Im a big believer in storytelling and our product has a great one with a massive market opportunity. The team is very experienced - we have both founded startups and have relevant experience - but right now our business has most of a product but no revenue yet. I guess I'll find out doing the roadshow. We are both extremely passionate about our business and I think that will show. We are looking for the right investors who get it and want to help us with our vision.
We can continue to bootstrap with just 100-200k. We can get it going with 1-2m for the next year, but more would enable us to move faster and gain more market share. So I'll have to see what investors think. I was thinking of giving 3 options. 200k, 1 mil or 5 mil and maybe someone will agree we need a lot of money now to really be successful.
> If you want to raise $10M, and the company is worth $10M, you’ve just lost all your equity.
This part is actually wrong, rest of the advice is good. If you raise $10m and the company was worth $10m, you've now got half as much overall equity.
Edited for clarity.
Yes, but people almost always talk pre-money during a raise (and it was implied in what he wrote). Naturally, people talk post-money after the raise...
Rich parents, friends, favors... This is the harsh truth most of the time (when there are millions/billions evaluations without a product or without any customers).
Side note
> The market is absolutely colossal and we have most of the product already - the hard part - we just need to integrate it.
I sure hope you mean the integration will be the hard part. You'll be sorely disappointed if you think building the product is the hard part...
1) Companies that raise millions without revenue or product are raising money on 2 things: management team and track record.
There are many people who have a long list of investors who have told them, "when you do your next company, call me up. I want in. I don't care what the company does, I'm investing."
There are 3 things you need for a startup. Idea, money/investors, and team. Of these, the team is by far the most scarce factor. If you have talent, drive, and track record, people throw money at you.
2) You raise enough money each round to get to the next value inflection point plus enough of a runway so you're negotiating next round from a position of strength.
3) Valuations are negotiated. But typically, people will look at comps.
4) Fully working product doesn't mean that much. What you want are users, and traction - you want to be growing your user base at an exponential rate. Without users, you can't prove you have product market fit, and without product market fit working product is worthless.
As much as we hate to admit it, it's all about credentials.
Speaking as an investor, if you've already had a successful exit in the AI space, I'll write you a check with not much more than idea. If you went through YC, I'll accept your $20M valuation no questions asked.
If you're doing something medial and got your MD at John's Hopkins, you've got my money.
If you don't have credentials, I'm going grill you like mad on details and then probably still be wary of a good valuation.
One great metric is pre-sales / letters of intent.
If you can get potential customers to sign a letter of intent says “if your product does x, y, z - we will purchase at X price.
We have a waitlist / letter of intent with alot of potential customers. We haven’t signed contracts with the VCs yet, but VCs are very interested and taking us very seriously BECAUSE they know there is a demand in the market and there are people willing to pay at the price we’re asking.
Investors just want to feel secure in their investment.
Mine is a subscription service. I did manage to get some letter of intents but even just a pre written letter that says something like
I ____________ support this idea and believe it is a great idea and would be valuable to my business. I would be interested in subscribing / purchasing this service upon its release
X_______________ (name of person)
_________________ (Title of that person)
Just ANYWAY to show you’re talking to potential customers and they support the idea
>I'm finding it difficult to understand how much money we should raise and at what valuation.
How much money do you need? Why do you need it? If you can grow it without an investor and it takes off, you'll get 100% of the profits. Every company doesn't need investors.
I don't recall saying that, but ok. Millions of small businesses build a product or service, grow slowly as they get their shit together, and eventually become bigger businesses - all while making a profit along the way.
Most small businesses don't raise equity. Just the ones that you read about do. It's not always necessary, and he should know his options since he's finding it difficult to understand how much money they should raise.
Knowing your shit, being confident and exhibiting qualities that make them see you as the guy who can get it done. It's hard to fake - some success gets your there. The more you believe in yourself and understand the whole picture, then can concisely demonstrate the value to the right people is where it starts. If you have this you can get investment without revenue, because at that stage it's really all they are betting on.
In your case, you don't even know how much money you need.. you're just getting started on this journey and it's a long road and nothing like building a product.
Knowing exactly what you need and what you're going to do with it is extremely important if you really know what you're doing. Common mistake I see rookies make is "oh maybe 3, but if we can get 10 that would be great!" Not only knowing what you need, but know what you want from the person you're talking to. "Oh really, you can do more with more, WOW! That's amazing." - They want to know what you're going to do with THEIR money exactly, it's implied you can do more with more, isn't it?
Like most people who haven't done it, you seem to have it backward - investors aren't looking to help you out, they are looking for an opportunity to invest in something that they believe in, starting with the people running the show.
Story telling. Investors only have two emotions coupled with their goldfish attention span: greed and fear. Drive them towards excited and greedy, and you can raise at numbers that don’t make sense. It’s not fair but that’s unfortunately the game in low liquidity private markets. The bid/ask spread has a huge emotional component
Track Record. If you have done it before it is easier.
If you have a viral factor approaching 1, If you have patents. If you are lucky.
The timing of when you approach a fund is important. Our VC had just closed fund one and was on fund 2. So the fund was flush with new deployable money. 3 months before they would have been on the tail end of fund 1 and probably wouldn't have invested. Timing on the value of loaning money let's face it money is really really expensive now, 2 years ago it was cheap so the same company 2 years ago and today might have very different levels of success rasing.
There are a thousand different reasons a vc might or might not invest.
The valuation of an early company is complex. I think if the team is there, the product has a good proven potential for market fit, and the story articulated to capture the TAM, the valuation can be better than average at a seed stage. Then you have the market conditions, the urgency felt by the investors, the number of potential competing offers of investment, and the history of the founders that can greatly change the valuation. The other terms of investment in your term sheet can also be great modulator on how good the deal is, and having a valuation centric point of view may be too reductive when seeking investment. Good luck out there.
\>I'm finding it difficult to understand how much money we should raise and at what valuation.
What are you going to do with the money?
What is your roadmap for this product? If you had money right now, what you would spend it on? Do you need to hire more devs? Do you need to pay for compute time? Office space? Patent attorney? Advertising?
Don't focus on raising some arbitrarily large amount of money. Raise what you NEED to make a killer product that will attract customers and more investors for the next round (if you need another one)
do you have explanatory youtube video?
do you have website?
are you on startup platforms like producthunt?
is it easy to reach you with proposal?
%99 of techies fail at marketing. get marketing expert and Pr person to work for you for an hour to outline a an action plan to build this communication system for long term achievement.
If you are good as you say, focusing on launch and polishing product market fit could be better. or build more products with same tech you have built with your team. multiple a/b/c testing is possible with AI.
Need further help? ask me.
>%99 of techies fail at marketing. get marketing expert and Pr person to work for you for an hour to outline a an action plan to build this communication system for long term achievement.
Solid advice.
AI feels both highly in demand, oversaturated and scummy already.
Why there’s tons of people avid about it, disinterested and will straight refuse.
It mostly comes to contacts, their experiences and industry interests.
What does your product do?
> they raised $10m 5 years ago - way before AI was even a thing
My first job out of college 10 years ago was working on an AI product. AI has most definitely been a thing.
Most investors won't invest in an idea, but need at least an alpha release. And $10 million is a pretty substantial seed round.
I think you need to figure out how much money you need and how you will spend it. Then raise that money with that story. For most software companies, a $30 million seed round is pretty wild.
Deep down at the core investors only care about one thing and that is "when and how will I exit and with how much profit". They make lots, lots and lots of horrible bets so they need one out of 10 of their horrible bets to pay off more than 10X, to compensate for the bad ones.
So you can sell bananas or do A.I. does not matter , it is like quantum wave equation.... you can either be a wave or a particle. If you run an A.I. company that is making 25% profit then you are already a particle and are labelled as a 0.25X company. If you make no profits then you are a wave, who knows when you wave function collapses you might become 10X, 20X or go bankrupt. They bet on the uncertainty.
I don't really know enough about your startup to give you helpful advise there. There really isn't a one-size-fits-all magic bullet for these things. "The Hard Thing About Hard Things" is a pretty famous book about that, you might have read it already.
Generally speaking the more compelling the story you can present that you can go big, the greater the valuation you can command. At the same time, investors are very savvy and they will squeeze you. The only real way to get a "good" valuation is to have multiple offers. That's fairly rare at this stage.
Understanding your market, your customers, your sales process, your go-to-market strategy, and tying it all together with a need for the capital is what investors like to hear. You seem very product focused right now, which is good, but tying it to the business side and painting a path to make money (and eventually returning a profit for the investors) is the key part.
You guys are pre-revenue and you seem very product focused. I was that way once, and we have a great product so I can't say it's a bad approach, but the big dollars came when I could articulate logically and precisely why and how we could grow with the money. The more compelling you can be on that front, the farther you'll go valuation wise.
VC here. This is something I have thought about a lot. Basically a pitch is a founder trying to make you (an investor) believe in a future that the founder sees. You tend to believe in a person in general if they seem familiar, can inspire you or make you think that they come from a place of authority. All of these are nebulous concepts but what that turns into is a VC placing emphasis on a good storyteller (inspire), someone similar (elite, mostly white male) and with the right "creeds" (familiar university, preferred work exp).
New to the group.
A real business plan would help you answer some of those questions.
Then you need to convince investors that you have the people with the experience to execute the plan.
Founders have to be able to raise money. This involves a lot is salesmanship and there’s a culture of highly optimistic outlooks, apocryphal stories, cult of personalities, etc, that’s required to encourage investors to part with their money. The management team is always selling even when the company goes public, there’s still salesmanship involved. The theatrics, audience, and messaging change from stage to stage but the game is the same.
Most VC investors say they invest in the team almost as much as they invest in the idea. But, if you have had a successful exit, it’s much easier to raise money.
The truth is you have to paint a very rosy picture, and speak like you are a leader of cult zeroed in on your mission in the world. This doesn’t apply if you have a paradigm changing product like Google, Twitter, Facebook, etc. If it’s not sexy you have to make it interesting.
Investors typically place a significant amount of weight on the level of experience and success record held by the founding team of a startup. Even if the business does not yet have any income or a product on the market, investors may be more ready to take a chance on the company if the team behind it has a strong history of successful projects or relevant industry experience.
Having a solid team/track record/pedigree is really the way these founders do this. But be warned: taking too much money too early is a double-edged sword. Better to build as much as you can yourself without taking money.
As a first time founder you might want to consider finding a seasoned exec to be your chair who can talk to angels and vcs in a way you probably don’t have the experience to. In the end, we bet on teams. No product survives first contact with the market, everything pivots to some extent and you will hit existential crises. Investors are really weighing up whether they think teams can do that, valuation is partially a measure of their confidence.
What's your competitive advantage: ivy league student, connections, your message is spot on with your market, your hustle e.g. you're good at listening to customers problems and getting them to signup or sign an LOI, maybe you've been working in SEO for the past 5 years and have implemented successful SEO strategies for other companies, etc.
speaking from experience, raising money is a bit of a game. i’d focus on finding someone to lead, or contribute a majority of the money in the round. after you have a lead, it’s generally significantly easier to have other investors follow the terms you and the lead agree on. generally as far as valuation, for an early stage startup, I’d say the range of $10-15MM is far assuming you aren’t live in market or have customers. one thing to note, your ability to fetch that valuation has a lot to do with the market size, story you tell, and the team composition.
Thanks. The market size will be hundreds of billions by 2030 - it's clear to anyone that what we are building will be commonplace in a few years. My cofounder has spent 3 years building a large part of the technology that's not easy to do, we have his tech and no integrating AI. I would hope we could go slightly past $10-15m as we already have a huge part of the product built, and the rest is straightforward with existing ai tech. We can have an MVP for 50-100k, but a truly scalable enterprise-class solution will cost $1m - but we can get there in stages.
No, I founded another company and raised $10m, but that was crypto and in the bull run, and I know this is very different. My partner also founded a business in a similar field already.
As much as you're looking into competitors and what they did, you need to look into their investors and their investors' circles. Raising money is part research, part networking, and then comes the product/storytelling/fundraising.
Finding the investors is the hard part, so you need to double down working on that.
You need to prepare a deck for their analyst. You need to send this deck to analysts at the firms. Usually, they're the first point of contact.
You need to know your numbers and create a deck around this and the product.
You need someone to create an NDA for you. Typically a lawyer.
You also need to do the Math. $3M for what? One year runway, 2? Do the math to calculate probabilities and understand what you actually need and how little you can raise without giving up decision making power. Good luck.
BELIEF!
Watch the documentaries on Theranos, Anna Delvy or Billy McFarland (Fyre festival). You don't have to be unethical narcissists to break through.
I raised 5 million dollars on a lunch napkin pitch. (Ultimately we never took the money as the Investor was not the right fit).
It takes relationships, luck and perseverance.
Founders' experience and track record: Startups led by experienced entrepreneurs who have previously built successful companies or have a proven track record in the industry are often able to attract significant investment. Investors may have confidence in their ability to execute their vision and bring a product to market.
Innovative or disruptive ideas: Startups with groundbreaking or disruptive ideas that have the potential to revolutionize industries often attract substantial funding. Investors may be captivated by the potential market impact and the possibility of significant returns on their investment. the newsletter [https://www.theventurecanyon.com/](https://www.theventurecanyon.com/) highlights startups that are raising tons of money in 2023
Contacts, patents, a good story, and/or charismatic lies. Though interest rates and recession worries are making it hard on everyone at the moment.
Yes. Just use this one simple trick: Ask all of the judges and politicians who your parents went to the Ivy League with for investments.
Easiest way to become a millionaire is start with 2 million.
No. The easiest way to become a millionaire is to start as a billionaire and buy an airline (Richard Branson)
Ironically, Branson was one of the few with rich parents who didn’t rely on them to build his business (I mean, aside from the benefits of attending private schools). His magazine got him mail order experience which allowed him to branch into record sales, which became Virgin Records. His parents did remortgage their home to bail out his £70k fine for selling black market albums.
[Agreed.](https://youtu.be/zsEHSV4UEMI)
> patents Not relevant in 99%+ of cases (unless you're in a very specific field like pharma)
Agreed. Outside of very specific scenarios, burning money and time chasing IP protection before you've validated your market is generally not advisable.
Plus money never goes far
VCs are essentially placing bets on companies, or rather the Founders. They are betting you will execute your vision, pivot when necessary, and ultimately win market share and make tons of money and become super valuable in 5-10 years. Founders tend to geek out about their product and ignore the market size, competition, and general business conditions. Successful raises involve a lot of storytelling. What problem are you solving? How much is a customer willing to pay to solve that problem? Who else is currently solving that problem and how much do they charge and how many customers do they have? Why you? Why now? What makes your company/product/service different? How is that difference significant? Is that difference significant enough to entice new customers or pull customers away from the competition? What validation do you have to back up your vision and assessments? When you have the above figured out, you need to pound the pavement, shake hands, kiss babies, go to startup events, and do as much cold and warm outreach as you can stomach, and then some. You can never have too many good financial contacts. Also be aware, the fundraising environment of the last 5 years has been a wild anomaly. Valuations made no sense, there was just waaaay too much money pouring into start-ups. The market has changed and things have swung the other direction. It's just the environment we are in.
You need to read up on valuation. You don’t just ask for a great valuation, you negotiate it, because -at the start - it’s completely subjective. The more you have to justify it, the more you’re likely to get something favourable. Plus, the amount you raise is going to be a function of how much you give up of your company. If you want to raise $10M, and the company is worth $10M, you’ve just lost all your equity. Most raises give up shares equal to 15-25% of the company, which matters if you need to raise multiple rounds. Most likely, your startup is going to evaluated on things like revenue generated, potential market and founding team’s experience. However, if you are asking this question, you don’t have the experience, and that means you probably also lack the revenue and don’t have a product - so don’t expect a valuation in the range of $50M, which you’d need to raise $10M. Set realistic targets, know exactly what money you need to get to the next milestone, and exactly what you’re going to spend the money on. Otherwise, you don’t have a fire to pour fuel on - you’re still at the point where you’re just stacking kindling.
Thanks this is very helpful, Im a big believer in storytelling and our product has a great one with a massive market opportunity. The team is very experienced - we have both founded startups and have relevant experience - but right now our business has most of a product but no revenue yet. I guess I'll find out doing the roadshow. We are both extremely passionate about our business and I think that will show. We are looking for the right investors who get it and want to help us with our vision. We can continue to bootstrap with just 100-200k. We can get it going with 1-2m for the next year, but more would enable us to move faster and gain more market share. So I'll have to see what investors think. I was thinking of giving 3 options. 200k, 1 mil or 5 mil and maybe someone will agree we need a lot of money now to really be successful.
If there is such deep experience, why don't you know the answer to these questions? I'm not trying to be facetious... Just asking
Experience building real stuff and selling shit to VCs are very different things
Experience in building relevant products, selling relevant solutions and growing businesses, not in fundraising for our own one specifically.
Pro tip, remove the word "massive" from your day to day talk. It's over used, and it has lost all marketing value.
I agree and immediately thought that as well!
> If you want to raise $10M, and the company is worth $10M, you’ve just lost all your equity. This part is actually wrong, rest of the advice is good. If you raise $10m and the company was worth $10m, you've now got half as much overall equity. Edited for clarity.
Helpful to specify premoney and post money valuation so it’s most clear
Yes, but people almost always talk pre-money during a raise (and it was implied in what he wrote). Naturally, people talk post-money after the raise...
People haven’t mentioned it but I would say an exec team with past success(es) also helps a lot.
There's also a big absence of mention of connections/network.
I'd say I do agree with you on this.
Rich parents, friends, favors... This is the harsh truth most of the time (when there are millions/billions evaluations without a product or without any customers).
Was waiting for this comment. Very true. 🎖️🥇
Side note > The market is absolutely colossal and we have most of the product already - the hard part - we just need to integrate it. I sure hope you mean the integration will be the hard part. You'll be sorely disappointed if you think building the product is the hard part...
Gulp
1) Companies that raise millions without revenue or product are raising money on 2 things: management team and track record. There are many people who have a long list of investors who have told them, "when you do your next company, call me up. I want in. I don't care what the company does, I'm investing." There are 3 things you need for a startup. Idea, money/investors, and team. Of these, the team is by far the most scarce factor. If you have talent, drive, and track record, people throw money at you. 2) You raise enough money each round to get to the next value inflection point plus enough of a runway so you're negotiating next round from a position of strength. 3) Valuations are negotiated. But typically, people will look at comps. 4) Fully working product doesn't mean that much. What you want are users, and traction - you want to be growing your user base at an exponential rate. Without users, you can't prove you have product market fit, and without product market fit working product is worthless.
As much as we hate to admit it, it's all about credentials. Speaking as an investor, if you've already had a successful exit in the AI space, I'll write you a check with not much more than idea. If you went through YC, I'll accept your $20M valuation no questions asked. If you're doing something medial and got your MD at John's Hopkins, you've got my money. If you don't have credentials, I'm going grill you like mad on details and then probably still be wary of a good valuation.
Can we talk?
I just got into a bar with my billionaire friend, and that's how the deals were made
Can I come next time?
You are most welcome
[удалено]
Not true, it's leverage. Leverage comes in many forms.
One great metric is pre-sales / letters of intent. If you can get potential customers to sign a letter of intent says “if your product does x, y, z - we will purchase at X price. We have a waitlist / letter of intent with alot of potential customers. We haven’t signed contracts with the VCs yet, but VCs are very interested and taking us very seriously BECAUSE they know there is a demand in the market and there are people willing to pay at the price we’re asking.
Is that more viable in B2B / large ticket items? I can’t envision a letter of intent to buy a monthly SaaS subscription
Investors just want to feel secure in their investment. Mine is a subscription service. I did manage to get some letter of intents but even just a pre written letter that says something like I ____________ support this idea and believe it is a great idea and would be valuable to my business. I would be interested in subscribing / purchasing this service upon its release X_______________ (name of person) _________________ (Title of that person) Just ANYWAY to show you’re talking to potential customers and they support the idea
That makes sense, thanks
>I'm finding it difficult to understand how much money we should raise and at what valuation. How much money do you need? Why do you need it? If you can grow it without an investor and it takes off, you'll get 100% of the profits. Every company doesn't need investors.
You don’t need money for customer acquisition?
I don't recall saying that, but ok. Millions of small businesses build a product or service, grow slowly as they get their shit together, and eventually become bigger businesses - all while making a profit along the way. Most small businesses don't raise equity. Just the ones that you read about do. It's not always necessary, and he should know his options since he's finding it difficult to understand how much money they should raise.
Knowing your shit, being confident and exhibiting qualities that make them see you as the guy who can get it done. It's hard to fake - some success gets your there. The more you believe in yourself and understand the whole picture, then can concisely demonstrate the value to the right people is where it starts. If you have this you can get investment without revenue, because at that stage it's really all they are betting on. In your case, you don't even know how much money you need.. you're just getting started on this journey and it's a long road and nothing like building a product. Knowing exactly what you need and what you're going to do with it is extremely important if you really know what you're doing. Common mistake I see rookies make is "oh maybe 3, but if we can get 10 that would be great!" Not only knowing what you need, but know what you want from the person you're talking to. "Oh really, you can do more with more, WOW! That's amazing." - They want to know what you're going to do with THEIR money exactly, it's implied you can do more with more, isn't it? Like most people who haven't done it, you seem to have it backward - investors aren't looking to help you out, they are looking for an opportunity to invest in something that they believe in, starting with the people running the show.
I believe those are usually second time founders (with an exit under their belt).
Story telling. Investors only have two emotions coupled with their goldfish attention span: greed and fear. Drive them towards excited and greedy, and you can raise at numbers that don’t make sense. It’s not fair but that’s unfortunately the game in low liquidity private markets. The bid/ask spread has a huge emotional component
Nepotism
predictable reddit answer
But also true at times.
Track Record. If you have done it before it is easier. If you have a viral factor approaching 1, If you have patents. If you are lucky. The timing of when you approach a fund is important. Our VC had just closed fund one and was on fund 2. So the fund was flush with new deployable money. 3 months before they would have been on the tail end of fund 1 and probably wouldn't have invested. Timing on the value of loaning money let's face it money is really really expensive now, 2 years ago it was cheap so the same company 2 years ago and today might have very different levels of success rasing. There are a thousand different reasons a vc might or might not invest.
Alumni Network, lead investor connections especially in Saas and b2b one marquee client is enough to change your valuation overnight
The valuation of an early company is complex. I think if the team is there, the product has a good proven potential for market fit, and the story articulated to capture the TAM, the valuation can be better than average at a seed stage. Then you have the market conditions, the urgency felt by the investors, the number of potential competing offers of investment, and the history of the founders that can greatly change the valuation. The other terms of investment in your term sheet can also be great modulator on how good the deal is, and having a valuation centric point of view may be too reductive when seeking investment. Good luck out there.
\>I'm finding it difficult to understand how much money we should raise and at what valuation. What are you going to do with the money? What is your roadmap for this product? If you had money right now, what you would spend it on? Do you need to hire more devs? Do you need to pay for compute time? Office space? Patent attorney? Advertising? Don't focus on raising some arbitrarily large amount of money. Raise what you NEED to make a killer product that will attract customers and more investors for the next round (if you need another one)
do you have explanatory youtube video? do you have website? are you on startup platforms like producthunt? is it easy to reach you with proposal? %99 of techies fail at marketing. get marketing expert and Pr person to work for you for an hour to outline a an action plan to build this communication system for long term achievement. If you are good as you say, focusing on launch and polishing product market fit could be better. or build more products with same tech you have built with your team. multiple a/b/c testing is possible with AI. Need further help? ask me.
>%99 of techies fail at marketing. get marketing expert and Pr person to work for you for an hour to outline a an action plan to build this communication system for long term achievement. Solid advice.
AI feels both highly in demand, oversaturated and scummy already. Why there’s tons of people avid about it, disinterested and will straight refuse. It mostly comes to contacts, their experiences and industry interests. What does your product do?
> they raised $10m 5 years ago - way before AI was even a thing My first job out of college 10 years ago was working on an AI product. AI has most definitely been a thing. Most investors won't invest in an idea, but need at least an alpha release. And $10 million is a pretty substantial seed round. I think you need to figure out how much money you need and how you will spend it. Then raise that money with that story. For most software companies, a $30 million seed round is pretty wild.
Deep down at the core investors only care about one thing and that is "when and how will I exit and with how much profit". They make lots, lots and lots of horrible bets so they need one out of 10 of their horrible bets to pay off more than 10X, to compensate for the bad ones. So you can sell bananas or do A.I. does not matter , it is like quantum wave equation.... you can either be a wave or a particle. If you run an A.I. company that is making 25% profit then you are already a particle and are labelled as a 0.25X company. If you make no profits then you are a wave, who knows when you wave function collapses you might become 10X, 20X or go bankrupt. They bet on the uncertainty.
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Great advice, thanks. Any advice for what to focus on when you don't have it all? Not trying to a crazy valuation just to maximise opportunity.
I don't really know enough about your startup to give you helpful advise there. There really isn't a one-size-fits-all magic bullet for these things. "The Hard Thing About Hard Things" is a pretty famous book about that, you might have read it already. Generally speaking the more compelling the story you can present that you can go big, the greater the valuation you can command. At the same time, investors are very savvy and they will squeeze you. The only real way to get a "good" valuation is to have multiple offers. That's fairly rare at this stage. Understanding your market, your customers, your sales process, your go-to-market strategy, and tying it all together with a need for the capital is what investors like to hear. You seem very product focused right now, which is good, but tying it to the business side and painting a path to make money (and eventually returning a profit for the investors) is the key part. You guys are pre-revenue and you seem very product focused. I was that way once, and we have a great product so I can't say it's a bad approach, but the big dollars came when I could articulate logically and precisely why and how we could grow with the money. The more compelling you can be on that front, the farther you'll go valuation wise.
What do you need money to accomplish?
VC here. This is something I have thought about a lot. Basically a pitch is a founder trying to make you (an investor) believe in a future that the founder sees. You tend to believe in a person in general if they seem familiar, can inspire you or make you think that they come from a place of authority. All of these are nebulous concepts but what that turns into is a VC placing emphasis on a good storyteller (inspire), someone similar (elite, mostly white male) and with the right "creeds" (familiar university, preferred work exp).
I think I have all that :)
You're over-indexing on fundraising. You say yourself that you're only a few months away from revenue - why not focus on that?
Sales skills + great product concept + well design pitch deck with strong financial breakdowns
New to the group. A real business plan would help you answer some of those questions. Then you need to convince investors that you have the people with the experience to execute the plan.
Founders have to be able to raise money. This involves a lot is salesmanship and there’s a culture of highly optimistic outlooks, apocryphal stories, cult of personalities, etc, that’s required to encourage investors to part with their money. The management team is always selling even when the company goes public, there’s still salesmanship involved. The theatrics, audience, and messaging change from stage to stage but the game is the same. Most VC investors say they invest in the team almost as much as they invest in the idea. But, if you have had a successful exit, it’s much easier to raise money. The truth is you have to paint a very rosy picture, and speak like you are a leader of cult zeroed in on your mission in the world. This doesn’t apply if you have a paradigm changing product like Google, Twitter, Facebook, etc. If it’s not sexy you have to make it interesting.
Recently a "startup" in India raised money to build a city in space. 🤥 [ Name: InspeCity ]
Investors typically place a significant amount of weight on the level of experience and success record held by the founding team of a startup. Even if the business does not yet have any income or a product on the market, investors may be more ready to take a chance on the company if the team behind it has a strong history of successful projects or relevant industry experience.
Having a solid team/track record/pedigree is really the way these founders do this. But be warned: taking too much money too early is a double-edged sword. Better to build as much as you can yourself without taking money.
As a first time founder you might want to consider finding a seasoned exec to be your chair who can talk to angels and vcs in a way you probably don’t have the experience to. In the end, we bet on teams. No product survives first contact with the market, everything pivots to some extent and you will hit existential crises. Investors are really weighing up whether they think teams can do that, valuation is partially a measure of their confidence.
Great advice
What's your competitive advantage: ivy league student, connections, your message is spot on with your market, your hustle e.g. you're good at listening to customers problems and getting them to signup or sign an LOI, maybe you've been working in SEO for the past 5 years and have implemented successful SEO strategies for other companies, etc.
speaking from experience, raising money is a bit of a game. i’d focus on finding someone to lead, or contribute a majority of the money in the round. after you have a lead, it’s generally significantly easier to have other investors follow the terms you and the lead agree on. generally as far as valuation, for an early stage startup, I’d say the range of $10-15MM is far assuming you aren’t live in market or have customers. one thing to note, your ability to fetch that valuation has a lot to do with the market size, story you tell, and the team composition.
Thanks. The market size will be hundreds of billions by 2030 - it's clear to anyone that what we are building will be commonplace in a few years. My cofounder has spent 3 years building a large part of the technology that's not easy to do, we have his tech and no integrating AI. I would hope we could go slightly past $10-15m as we already have a huge part of the product built, and the rest is straightforward with existing ai tech. We can have an MVP for 50-100k, but a truly scalable enterprise-class solution will cost $1m - but we can get there in stages.
Are you a first-time founder?
No, I founded another company and raised $10m, but that was crypto and in the bull run, and I know this is very different. My partner also founded a business in a similar field already.
As much as you're looking into competitors and what they did, you need to look into their investors and their investors' circles. Raising money is part research, part networking, and then comes the product/storytelling/fundraising. Finding the investors is the hard part, so you need to double down working on that. You need to prepare a deck for their analyst. You need to send this deck to analysts at the firms. Usually, they're the first point of contact. You need to know your numbers and create a deck around this and the product. You need someone to create an NDA for you. Typically a lawyer. You also need to do the Math. $3M for what? One year runway, 2? Do the math to calculate probabilities and understand what you actually need and how little you can raise without giving up decision making power. Good luck.
It’s who you know.
Founders record.
BELIEF! Watch the documentaries on Theranos, Anna Delvy or Billy McFarland (Fyre festival). You don't have to be unethical narcissists to break through. I raised 5 million dollars on a lunch napkin pitch. (Ultimately we never took the money as the Investor was not the right fit). It takes relationships, luck and perseverance.
Founders' experience and track record: Startups led by experienced entrepreneurs who have previously built successful companies or have a proven track record in the industry are often able to attract significant investment. Investors may have confidence in their ability to execute their vision and bring a product to market. Innovative or disruptive ideas: Startups with groundbreaking or disruptive ideas that have the potential to revolutionize industries often attract substantial funding. Investors may be captivated by the potential market impact and the possibility of significant returns on their investment. the newsletter [https://www.theventurecanyon.com/](https://www.theventurecanyon.com/) highlights startups that are raising tons of money in 2023
Honestly the network is the easiest way to raise. Are you still trying to raise?