I had a pleasure of interviewing Moisey Uretsky, co-founder of DigitalOcean (Boulder ’12), a close friend, and one of my all-time favorite founders. Moisey is incredibly smart, thoughtful, and had one of the best product guts and chops out there.
We talked about a lot of topics around engineering and startups, and one of the things that came up was the elevator pitch.
Moisey said that founders and investors often focus on the elevator pitch, and it’s fine, but it is not nearly as important as the customer’s elevator pitch.
I didn’t really know what the customer’s elevator pitch was. Moisey explained that it is the elevator pitch that a customer of a startup would give on behalf of a startup to a prospective customer.
The concept instantly made sense to me, and connected together two really important concepts – Product-Market-Fit and Virality or Word of Mouth.
The reason that Moisey’s articulation was particularly interesting to me is because it is a kind of litmus test for how well the company is doing, and it is also a kind of shortcut. That is, a concept of the customer elevator pitch embodies both – a successful product and the customers are so happy they talk about the product to prospective customers.
First, a Product-Market-Fit is achieved when most sales succeed and most customers don’t churn after a sale. We have written previously about the Magic Moment here. It is somewhat hard to understand, but an important concept.
The Magic Moment is a very special state—once a customer reaches that state, the probability of the customer churning in the future is dramatically lower. To put it differently:
An average customer that hits the Magic Moment will stay a customer for a long time, will have high LTV, and will be profitable for the business.
That is, the Magic Moment leads to a viable long-term business. When enough customers hit the Magic Moment, you get to Product-Market-Fit – customers buy and stay happy.
But Product-Market-Fit by itself isn’t always an indicator of a great business. If people keep buying the product or service, but don’t tell other potential customers, the cost of acquiring customers would still be high and margins of the business maybe hurting.
When the product is so great that customers tell other customers, then the cost of acquiring customers drops dramatically, and that typically leads to a great business. For the exact dynamic of how this growth happens, read this post, this post, and read up on K-factor.
Let’s now look at an example, and use DigitalOcean.
The company found Product-Market-Fit after they launched a simple, affordable hosting service using SSD drives and poured a ton of love and exceptional support on top. This offering strongly resonated with developers, and they flocked from other providers like Amazon and Rackspace to DigitalOcean.
The product was so great that developers started telling other developers – their elevator pitch was exactly this – simple, affordable and super cool hosting service. In turn, this elevator pitch resonated with new customers and more and more referrals started to roll in.
DigitalOcean took advantaged of this dynamic and put more gasoline on the fire by introducing a double referral program that gave credit to both existing and new customers. That strategy drastically lowered the cost of customer acquisition and lead to a great business and great margins.
DigitalOcean helped create a perfect customer elevator pitch.
The customer’s elevator pitch is a seemingly simple but really powerful way to look at your business. Don’t have a lot of customers? Business doesn’t work. Don’t have a lot of happy customers – business doesn’t work. Have a ton of customers but they aren’t talking about you – you are doing well, but it is expensive to acquire customers and margins suffer. But if you have a ton of customers that are talking about you, and that leads to other customers signing up, then you are doing great.
So what is your customer’s elevator pitch?
Competition is a strange topic. It is both underrated and overrated. This may seem like a contradiction, but it really isn’t.
Startups often don’t spend enough time understanding the market and spend too much time worrying about competition once they launch.
In this post, we look at different aspects of competition and how a startup can deal with its competitors.
Do the Market Research Before You Launch
Before you launch your startup, you need to study the market. Startups are about the opportunities, and to identify an opportunity, the founding team needs to do market research.
The worst way to start the company is to start without understanding the market.
Just identifying the need and talking to customers is not enough. Part of the initial research is also understanding the competition. Who else is working on this problem? Are they small startups or big companies? How long have they been at it? How are they doing? Are they succeeding? If not, why not?
Understanding the competition is critical, because the opportunity may actually not exist.
Sure, customers may want the product, but competitors may already have a good enough offering. Founders rarely spend enough time doing market research and really understanding existing competitors, yet it is a critical part of launching a successful company.
Beware of ‘No Competitors’
There are a handful of red flags that turn off investors. One of them is when the CEO of a startup says, “We have no competitors. No one else has thought about this, we are the first ones!”
No matter how you look at it, saying you have no competitors is not a good thing.
First of all, by definition, all good ideas are competitive, and all real markets have competition. Lack of competition may imply lack of opportunity. Either there is no customer need, or the opportunity is small and not compelling.
More often than not, investors know the market better than founders and can name competitors better than the founders. This is also a bad situation, because it means that the founders either didn’t do their homework or did it poorly.
Either way, when a CEO says his or her company has no competitors, this creates immediate concerns and trust issues for potential investors.
Know Your Past and Future Competitors
When investors think about opportunities, they don’t just think of them in the present moment. The founders are expected to know about competitors who failed in the past and about potential future competitors as well.
For example, people have worked on Artificial Intelligence and Virtual Reality before and those efforts didn’t quite succeed.
Many startups are working in these spaces again and say that this time things will be different. While that may very much be true, the investors want to know what exactly is different now, what conditions didn’t exist before, and why this time is going to be different.
Similarly, it is important to think about who else may enter the market. This is a much more difficult dynamic to predict because by definition, predictions are difficult.
Investors often ask the founders what would happen if Google or another large company went after their market. While not possible to predict, it is good to think about this question and be ready to answer when asked.
Figure out Your Competitive Differentiation
Market research and studying your current, past and future competitors eventually boils down to one thing—what is your differentiation?
What is your unique insight? Why and how are you different? Why does this difference matter enough for you to win?
This is why having Founder-Market Fit is particularly important. Founders who have experience in their specific market typically have unique insights and are able to come up with offerings that are differentiated.
A good differentiation is typically product, go-to-market or sales advantage. Product advantage is created when your product is substantially different in how it works from competitors’ products.
Go-to-market advantage is based on channels that you are able to secure that no competitors can lock in. Sales advantage is typically based on your experience and deep understanding of the customers.
Keep Track of Your Competition, but Ignore the Noise
Most founders spend too much time worrying about competition on a daily basis. News is extremely noisy—someone launches something every day. If you follow every single bit of news from every one of your competitors, your life is likely a major emotional roller coaster.
In the end of the day, it is not what your competitors do, but rather what you do that matters more. You don’t have control over product releases, sales and PR of your competitors—all you can control is your own business.
Focusing on creating the best possible product that your customers love is your best defense against competition.
Instead of reading daily news about competition, set up a quarterly, or at most monthly, review of both competitors’ news and more importantly, products. This way you can keep track of what’s happening without the stress involved in following your competitors daily.
Accept and Play “The Idea Exchange” Game
When I was running my startups, I remember that feeling I would get when a competitor launched something that we had previously launched. A competitor stole our idea! Even worse, they executed it better, and no one gave us credit for being first.
Founders often complain about this situation. The reality is that this is now an accepted reality. Today, companies readily copy products and iterate on each others’ ideas. There is no protection for ideas; they are basically free to take.
Founders should just stop complaining and assume that their ideas will be copied.
The product and the business needs to be able to survive in the environment where pieces of UX and user flows are being copied.
In exchange, you as a founder benefit from taking ideas from your competitors’ products. Much like they copy your ideas, you can copy their ideas.
Build Relationship with Your Competitors
While sharing secrets with competitors is a bad idea, being friendly in general makes sense. Competitors are typically the most knowledgeable folks about the space besides you, and it is interesting to talk to them and get their perspective, again, without revealing too much.
Founders tend to run into their competitors at conferences and events, and naturally have the opportunity to connect. By building the relationship with your competitors you are both helping co-create the space, and getting to know your competitors as people.
You never know what the future holds. It may make sense for you to join forces or create a partnership. Markets with big opportunities tend to consolidate, so investing in a relationship with your competitors is likely a net positive for you.
Win with Your Heart and Mind
Once you are in the market, you compete on the product and your unique approach to the problem. No one but you knows exactly what you think and what you are building.
You win because of your unique approach, not because your competitors did or didn’t do something, copied or didn’t copy you.
Ultimately, competition does not matter nearly as much as your vision and your resilience.
You win by imagining the future and taking your customers, your company and the world there. You win with the product that is unique to you, with the business execution that is yours.
No competitor can take it away from you because they don’t see the world the same way. Your competitors aren’t you.
The best founding teams have their eyes set on the vision, their true north, and go there, regardless of what the competition does or doesn’t do.
The best founding teams win with their hearts and minds.
Three years ago I embarked on what, so far, turned out to be the best job of my career.
I am not just saying it, this is actually true – running Techstars NYC city program and working at Techstars has been the best, most humbling job I’ve ever had.
Here is what I learned in the last three years:
I am now an investor in 55 startups, and the thought really blows my mind.
But here is the thing – I don’t think of these investments as investments in companies, I think of these as investments in people. To me, at Techstars, we don’t invest in startups, we invest in founders.
I’ve taken this approach since my first program back in 2014 – invest in best founders you can find. Invest in smart, fearless, resilient founders and get behind them unconditionally.
I am convinced that this 110% commitment, this almost blind belief in the founders is what matters the most. Through the inevitable ups and downs of every startup, what founders can really feel and really lean on is your belief in them.
Prioritizing founders and their interests and their needs can’t be faked. You can’t say you do it. You have to actually do it. And it is a ton and ton and ton of work.
Founders know and feel you are for real and they respond back with raw authenticity, openness and commitment back to you.
Fundraising, founder issues, business introductions, hiring, financial modeling, and just plain simple things like listening and sharing lunches and dinners and responding to phone calls on weekends and evenings all take enormous amounts of time.
But it is worth it, every single second given to the founders is worth it.
The relationships that I’ve built with my founders, the commitment that I’ve made to them have changed me in ways that are impossible to describe.
It feels right, it feels so great to be helpful. It just feels like the right thing to do that made me a much better investor, but way more importantly, a better human being.
Mentor and be Mentored
Mentorship is at the core of Techstars, and I’ve experienced its transformative power myself.
As a mentor to my founders, my core strengths are empathy, complete openness, lack of agenda and intellectual honesty.
Startups are unbelievably hard. The struggle is real. The first job of a mentor is to relate and to empathize with the founder. But it is not just empathy, it is also intellectual honesty and ability to tell them the truth, as you see it, to point them to the data, to make them sober, to help find the right path, is what has been really important.
Yet being a mentor is not the only amazing thing I was able to experience at Techstars. Perhaps most unexpectedly and in a very transformative way I’ve been mentored myself.
Truthfully, I’ve never had great mentors in my career. My closest experience with good mentorship was with my former boss, Paul Kotas who I worked with at D.E. Shaw.
But something very different happened to me at Techstars. I learned a TON from everyone in the organization. Mark Solon and Nicole Glaros have been incredibly generous and patient with me, and I learned a lot from them.
But the most extraordinary generosity and mentorship came from David Cohen himself. David has made himself available and responsive in ways I could never expect when I took the job. He has patiently, meticulously and deliberately committed to mentoring me and answering any questions I’ve had (and I’ve had and still have many!).
David Cohen truly leads by example and taught me so many things that I know today.
Network is the Magic
I’ve spent more than a decade of my life studying networks and complex systems.
My first company, which was bought by IBM, applied graph theory to software architecture. I’ve studied networks in economics, politics, biology, physics and society. My second company was a social network for entertainment.
So, I know a ton about the networks and how they work. But that knowledge is very different from being INSIDE of one of the most powerful business networks in the world.
At Techstars, the network – founders, alumni, mentors, corporate partners, Techstars staff – is the magic. Period.
Our ability to accelerate the companies, and shortcut the universe through this incredible network is unlike anything else out there. By leveraging the network we are able to go 10x, 100x, 1000x faster than people who don’t have the network.
In the last three years at Techstars, I’ve made a deliberate and conscious effort to invest in this network, my personal network and to build it out. I believe I am literally light years ahead of those who don’t have this kind of network, and I have created an unfair advantage for myself for the rest of my business career.
How to be Thankful
I am so incredibly thankful for this opportunity. I am so glad Brad Feld gave me a call a little over 3 years ago, and asked that I would consider this job.
I am so incredibly thankful for my crew at Techstars — KJ and Jill have been the A-team to help pull off this mission impossible. People at Techstars I work with, our mentors in NYC, our community, our LPs/investors have been incredibly supportive.
But saying you are thankful is not really enough. Being thankful is very different than saying you are thankful.
Being thankful is about pausing and acknowledging others around you. Being mindful of them, being attuned to their needs, spending a few seconds of your life thinking about them.
Everyone can say they are thankful, but are they really?
Being thankful by being mindful and acting on it, leaning in, offering help and being present – that’s what I learned is really powerful.
Trust Your Gut
Life is fundamentally unpredictable.
Startups and venture are so unbelievably hard. Companies that seem to be successful run out of money and fail. Founders who struggle figure things out and create great businesses.
No one can predict what is going to happen. No one knows for sure what will make money.
But ultimately, no matter how you slice this, there is no formula for the perfect startup.
You can come up with million reasons why not. You can find a hole in every single early stage company.
Ultimately, you have to trust your gut, and your gut is tied to your belief in these specific founders. Do you believe in them? Can they pull off the impossible, and if they do, will it be worth while for everyone around the table?
Ultimately, your gut comes full circle and goes back to this one very simple thing – founders first.
I am a fan of having a formal board right after the company raises seed financing.
I’ve seen how helpful the boards are and how often founders are lost and disadvantaged without the board.
To put it simply, a good early stage board helps the CEO identify key future milestones, and helps achieve them.
For 99% of early stage startups profitability isn’t possible, so the company needs to raise another round of financing. To get this follow on capital, the company needs to achieve key milestones and prove hypotheses around product market fit, revenue, customers, users and growth.
A good board helps the CEO by focusing on achieving these milestones. However, in order for the board to be helpful, the CEO needs to run an effective board meeting.
How Not to Run Your Board Meeting
Before we dive into how to better structure board meetings, let’s discuss what not to do.
1. Spending the entire meeting giving the board an update and going through the slides is the not a great use of boards’ time.
Why? Because this leads to focusing on details, nit picking and loss of the big picture.
2. Going through the updates slide by slide makes board members not review materials in advance and not think through their questions.
This format leaves no time for strategic conversations and doesn’t leverage the strength and experience of each board member. The format feels adversarial and creates an odd dynamic, because questions keep coming and CEO is seemingly constantly on the defense.
In short, this format is ineffective.
How to Run Your Board Meeting
A better format shifts the focus of the meeting from reviewing slides to a strategy discussion around just a handful of key topics.
In addition, effective board meetings have clear structure, an agenda and allow the CEO to keep everyone on track (and actually accomplish things). Here is an example of a two hour board meeting:
- Circulate materials and agenda three days in advance
- Materials review: 15 mins
- Q&A on the deck: 15 mins
- Strategic topic one: 30 mins
- Strategic topic two: 30 mins
- Budget deviations review: 10 mins
- HR/Open hires: 10 mins
- Board minutes/Wrap up & next steps: 10 mins
Send the materials in advance and also give the board 15 minutes to review the materials in the meeting. This is the strategy that Jeff Bezos uses in his executive meetings. Start the meeting by reviewing the materials. This budgets the review time into the meeting and gets everyone on the same page.
Have people ask clarifying questions about the materials. Keep the answers and discussion short. Most questions will likely be focused on KPIs and financials. You will have more time to address financials towards the end of the meeting. Table longer questions for later, follow up as necessary.
The next two segments are the most important ones — key strategic topics you as a CEO need help with. You have an open forum to engage the board and lean on their experience. Questions can range from go to market strategy, sales, competition, next financing, to company culture and hiring.
Whatever it is, the topic is part of the agenda and CEO engages the board deeply around it. This sort of focused discussion feels productive, helpful to the CEO and satisfying to board members.
Next, briefly review financials. Frame the review in terms of deviations/what is not on track. Don’t make the review too open ended, or it is going to take too long. Remind the board of what projections were and how you are doing against your projections. Explain why you are behind or ahead of the plan, particularly around the burn. Ask for feedback and create follow up as necessary.
Next, talk about open hires. Every company, no matter how early, is always focused on hires – whether it is engineers, marketing folks or any other role, it is important to create ongoing dialog with the board about hiring. Boards can be helpful, particularly when it comes to more senior hires, because the directors have experience and the network that CEOs can tap into.
Wrap up the meeting with a quick summary of takeaways and next steps. Make it clear who owns what items.
This structure should generally work for everyone, but tweak as makes sense for your company.
For example, if you feel like you aren’t getting enough time on finance or HR, you can make them strategic topics. In any case, don’t discuss too many topics per meeting as it will make the board unfocused, and the board members won’t be able to help.
Part of the art of being the CEO is to pick the right focus for each board meeting.
Try a structure like this for your board meeting, get feedback from the board on what is working and what doesn’t and keep iterating until you get to a productive and helpful format that works for you.
Só fundadores de série com conhecimento forte de domínio, e tração obtém financiamento rapidamente. Para a maioria dos fundadores, levantando uma rodada de investimento sede é muito mais trabalho, mas há um método para a loucura.
Muitas vezes escrevo aqui sobre o levantamento de capital. Capital permite que as startups possam ir mais rápido e gerar crescimento. No entanto, o aumento de capital não é simples, pelo menos para a maioria dos fundadores.
Vamos começar com o que é provavelmente o pior cenário – você é um fundador que esta sozinho, logo após a faculdade, com uma ideia em um espaço onde você não tem nada experiência. Ou seja, você não tem equipe, nem produto, nem tração, nenhuma experiência em geral, e nenhuma experiência nesse espaço especificamente.
Este caso extremo ilustra as razões pelas quais os investidores estão céticos – esta é uma situação de investimento muito arriscada. Ou seja, você pode ser brilhante, e você pode construir um negócio massivamente incrível, MAS esta claro que e uma aposta muito arriscada.
Investidores, particularmente os investidores anjo, procuram maneiras de reduzir o risco quando eles estão investindo em uma empresa. É por isso que os fundadores, que se financiam mais rápido são os que reduzem o RISCO DE INVESTIMENTO.
Abaixo discutimos os perfis dos fundadores que os investidores gravitam no seu entorno e tendem a investir em.
1. Fundadores de série
Você já sabe disso, mas vou dizer de qualquer maneira. O mundo não é justo.
Fundadores de série que já foram bem sucedidos são MUITO MAIS PROPENSOS a obter financiamento.
Eu já conheci muitos investidores que simplesmente não investem em fundadores que estão fazendo um negocio pela primeira vez. Eles não são pessoas más. Não é apenas uma parte da sua estratégia de investimento.
Quando esses investidores conseguem dinheiro do seus LPs (parceiros limitados, ou seja, investidores que dão dinheiro aos investidores), prometendo-lhes em seus decks que vão se concentrar apenas em empreendedores de serie. Isso não é diferente de um investidor dizendo que só vai se concentrar em cuidados de saúde ou que eles só vão investir em empresas de NYC. É uma estratégia de investimento, e como eu pessoalmente não acredito em investimento dessa forma, eu reconheço que é uma estratégia perfeitamente legítima.
Investir em fundadores de série com expertise de domínio faz sentido.
Em primeiro lugar, fundadores de série evitam cometer erros bobos em praticamente qualquer aspecto do negócio que os fundadores pela primeira vez fazem. Fundadores de série sabem intuitivamente o que não devem de fazer.
Eles sabem o que NÃO vai funcionar. Por causa disso, eles tendem a executar melhor, crescer empresas mais inteligentes, e obter um rendimento mais rápido. Nem sempre, mas essa é a percepção dos investidores.
2. Fundadores com o conhecimento de domínio
Quando você está começando um negócio em um espaço que você não sabe muito sobre isso, você está em uma desvantagem MASSIVA.
Pense nisso, quando você não sabe algo, você tem que estudá-lo. Para coisas como a física ou a assuntos internacionais, você vai para a faculdade. Você leva anos para aprender, e você tem que pagar para a sua aprendizagem.
Quando você começa um negócio em um espaço que você não estão familiarizado com, os investidores sentem que eles estão te pagando para você aprender o negócio. Isto é, você não está executando imediatamente, primeiro você está aprendendo.
Os investidores não são a sua mãe e seu pai; eles não querem pagar pela sua educação.
Os investidores estão atraídos a fundadores com o conhecimento de domínio. Investidores falam sobre o chamado ajuste fundador-mercado.
Por que esses fundadores estão fazendo este negócio? A resposta que os investidores estão procurando é – os fundadores conhecem muito bem o espaço e identificaram uma oportunidade. Os fundadores sabem que há uma oportunidade com base em seu bom conhecimento de domínio e anos de experiência no espaço.
3. Fundadores com tração
Enquanto seu negócio é apenas uma ideia, os investidores vão achar um 1 milhão de razões pelas quais ele não vai funcionar. Mas se você continua crescendo semana a semana, mês a mês, e crescer seu rendimento e clientes, eventualmente, todas as objeções irão embora.
Os investidores não podem resistir o crescimento de financiamento. Os investidores não podem resistir a tração financeira.
Crescimento e tração são indicadores de um ajuste de mercado e produto.
Eles são indicadores de que o negócio está realmente funcionando. Se você fez um startup antes ou se você conhece o espaço ou não, já não importa. Crescimento e tração significa que você descobriu o segredo e está funcionando, por isso os investidores querem ir a bordo.
4. Fundadores com a experiência e network
Se você não é um fundador de série e não tem uma tonelada de experiência de domínio ou tração, você ainda pode obter financiamento, mas é MUITO MAIS DIFÍCIL.
Há um padrão na indústria, onde fundadores que saem de empresas de tecnologia como Google e Facebook obtém financiamento. Se você passou anos e se provou em um papel de produto ou de engenharia em uma dessas empresas Top Tech, os potenciais investidores tendem a te levar mais a sério.
Isso é porque você provavelmente vem recomendado de uma forte rede de ex-alunos desses lugares que podem atestar sobre você e apresentá-lo aos investidores. Por exemplo, você trabalhou com um dos fundadores cuja empresa foi adquirida. Quando essa pessoa te apresenta aos seus investidores, os investidores estarão prestando atenção.
De certa forma, essa dinâmica não é muito diferente de se formar de uma escola de nível superior. Você se inclina em uma forte rede e alavanca as suas conexões para obter uma introdução aos investidores.
5. Orientados pela missão, Founders intelectualmente honestos
Alguns fundadores claramente destacam do resto. Você pode perceber o quão fixados eles são. Estes fundadores não vão embora e não vão desistir, não importa o quê. Os investidores muitas vezes se referem a esses fundadores como Conduzido pela missão.
Além de ser orientados pela missão, estes fundadores estão profundamente autoconscientes e intelectualmente honestos. Eles são socráticos e introspectivos.
Fundadores orientados a sua missão estão em uma viagem de descoberta. Eles têm um norte verdadeiro, mas são flexíveis sobre o caminho específico que manda eles lá.
Eles irradiam poder e grandiosidade, e fora que possam ser jovens e inexperientes e precoces, eles conseguem convencer os investidores com sua mistura de entusiasmo e conhecimento. Fundadores orientados com a missão tem energia contagiante que atrai investidores. Os investidores decidem lançar os dados juntamente com estes fundadores.
Ao levantar capital, pensa sobre os tipos de fundadores que tendem a obter financiamento. Qual desses fundadores é você?
Este blog foi traduzido por @SamyRusso
Este post foi traduzido por @SamyRusso
A chance favorece as mentes preparadas’ – Louis Pasteur
Um dos objetivos das companhias passando por Techstars e outras aceleradoras e assegurar financiamento. A maioria das companhias vem com o foco de acelera o seu negocio e depois assegurar capital para continua a acelera o crescimento. Como o acionista comum na empresa, Techstars está completamente alinhada com estes objetivos.
A realidade é que a maioria dos startups precisam de conseguir o financiamento para crescer e se tornar empresas reais. Não é típico que você ou a sua aceleradora podem ganhar dinheiro se você não consegui recursos, e certamente muito improvável que alguém possa ganhar dinheiro se a sua empresa não cresce.
Então, nós o amamos quando as empresas conseguem financiamento.
Mas nós já vimos um padrão claro com as empresas que se apressam em conseguir financiamento muito cedo – eles realmente têm mais dificuldade em fechar o financiamento. Por quê? Aqui estão os 9 pegadinhas de investimento seed que vai ajudar você a entender o que está errado.
Falta de Preparação
Para estar pronto para conseguir recursos, você precisa ter um bom conhecimento do problema que você está resolvendo – por que você começou este negócio; o ecossistema do seu negócio – clientes, oportunidades de mercado, a concorrência, ir ao mercado, canais de distribuição, preços, e muitas outras coisas. Vão te fazer muitas perguntas e, em seguida, alguns dos potenciais investidores. Se você não estiver preparado vai entrar e vai ser um grande turn-off.
Falta de tração
Muito poucas empresas obtem financiamento seed sem algum tipo de tração. A menos que você seja parte de uma equipe de empreendedores de série e, mesmo assim, os investidores esperam que vocês tenham tração do cliente / usuário. Isso não significa que você tenha ajuste perfeito do mercado do produto. Isso significa que tem primeiros indícios de que existe um problema e sua solução / produto vai ter uma chance de abordá-lo.
Sendo puxado para dentro do Fundraising
Então você não estava pensando em levantar dinheiro, mas você se encontrou com um grupo de investidores, e eles disseram que você realmente deve fazer. Outros fundadores do seu entorno te disseram que você deve fazê-lo também. Você, então, decidi em dar-lhe um tiro. É um erro. Você não está pronto – você não se preparo, você não planejou isso. Não levante recursos no relvado e no tempo de outras pessoas. Controla o seu destino através da preparação, marcando as caixas e, em seguida, indo e levantando dinheiro. Ninguém está indo embora, e os investidores não vão dizer não a uma reunião com você mais tarde, se você disse não a eles quando você não estava pronto.
Perseguindo as pessoas erradas
Este é um grande problema, e isso é ruim. Todos os investidores são diferentes. Eles gostam de diferentes setores. Eles escrevem cheques de diferentes tamanhos. Só porque eles são investidores não significa que eles são tem que se o investidor certo para você. Fazendo uma pesquisa, entendendo o que um determinado investidor gosta e por que você pode ser um candidato é importante. É igualmente importante obter uma introdução de alguém que você conhece e que também conheça o investidor.
Não fazendo um bom pitch para Angels e VCs
Angel investidores, micro VCs e VCs são todos muito diferentes em termos de seus objetivos e estilos e, consequentemente, como eles precisam ser abordados e como fazer o pitch. Um investidor Angel que escreve cheques de 25K-50K pode querer um par de reuniões e um micro VC que escreve cheques 100K-250K estará envolvido por um mês e podem ou não investir. VCs demoram mais, eles escrevem os cheques maiores, e gostam de lead rounds e tomar lugares no conselho. Se você não entende como envolver cada categoria de investidores corretamente, você vai perder tempo e pode não obter o resultado desejado.
Não tendo uma estratégia global
Mesmo que você saiba que você está indo atrás de que e porque, você ainda precisa de uma estratégia. Uma estratégia implicaria planejar todo o processo de captação de recursos, com quem se reunir primeiro, e com quem se reunir mais tarde. Você começa por levantar alguns quantos milhares de anjos, ou você vai direto para VCs? Tomando as decisões certas sobre a sua estratégia de financiamento, especialmente se você é um fundador fazendo isso pela primeira vez, é realmente importante. Não tendo uma estratégia aumenta a chance de não captar o capital que você precisa para crescer o seu negócio.
O problema “Eu sou especial”
Mas é claro que você é! Eu também. Quando você vai a um cassino e joga, você pensa – todos esses otários em torno de mim, eles vão perder, mas eu? Não não. Eu sou um vencedor. E isso é triste, porque como empreendedor você realmente é especial. Todos nós somos essa raça corajosa, incansável, louca, e imparável. Mas a realidade é que não é uma boa aposta para fazer quando se trata de financiamento seed. Você estará melhor estando preparado e ganhando por causa disso.
Não percebendo que você está em uma corrida
Quando você está de captando recurso, a palavra viaja ao redor. Os investidores são pessoas, e eles falam. Não porque eles são ruins ou contra você. É natural comparar as notas em qualquer indústria, e VCs não são a exceção. Quando você está indo captar recursos, você precisa fazê-lo rapidamente e manter todas as conversas alinhadas. Uma vez que você começar captar, você tem que correr a corrida até que esteja concluído ou você decida parar, porque simplesmente não está dando certo. Perceber que esta é a corrida antes de entrar.
Ficando sem balas
Pode ser uma analogia engraçada, mas faz sentido. No início do processo, você tem uma arma carregada e você começa a disparar tiros e ter todas essas grandes conversas. Em algum momento, especialmente em um ecossistema menor, você percebi que você já conversou com praticamente todos. Não há ninguém faltando. Você disparou todos os seus tiros, e sua arma está agora vazia.
A má notícia é que se você já se reuniu com todos os investidores, e eles não lhe escreverão um cheque, então você não pode voltar a eles no próximo mês e tentar de novo. A boa notícia é que se você volta a eles em 6 meses, e mostra o progresso, e o seu, desta vez, você receberá o cheque. Demora algum tempo para recarregar a arma, e as únicas balas permitidas na recarga são as balas de tração reais.
Como e quando conseguir financiamento
Então como você realmente ganha isso e obtém financiamento? Duas coisas – preparação e tração. Tenha todas as suas coisas em ordem. Sua plataforma, o seu pitch, a sua estratégia de financiamento, com quem que você está indo falar e por porque, consiga as introduções, etc. Esteja preparado.
Mas mesmo se você estiver preparado, pode não ser suficiente neste dia e idade. Vemos cada vez menos pessoas financiando ideias e plataformas. Os investidores querem ver tração cedo. Algum tipo de indicação de que não só é a sua ideia muito boa, mas que você conversou com os clientes, construiu o MVP, e ter algum tipo de tração – prova de que você pode fazê-lo e ele pode funcionar.
E se você acha que é muito difícil e complicado, peça ajuda! Converse com colegas empreendedores que fizeram isso antes. Aplique a Techstars e nós podemos ajudá-lo a acelerar o seu negócio e conseguir o financiamento. Realmente pensa muito bem do financiamento. Se prepara. Seja atencioso. Ganhe.
Last week we wrote about questions that investors ask founders during investor meetings. This week we are reversing the table and talking about questions that founders need to ask investors.
Most founders spend little time asking investors questions, and that’s too bad. Good investors love it when you ask them questions, because it shows that you are thoughtful and don’t think of them as just a walking wallet.
By asking the right questions, you can avoid happy ears, avoid a MAYBE, and really qualify investors in your funnel. By asking questions and getting clear answers, you minimize the chance of wasting your time with investors who will not invest.
1. Are you interested in potentially investing in my company, and if so, what are the next steps?
No first meeting should end without you asking this question. Be direct. Do not be shy. Whether you are meeting an Angel investor or a VC, ask this question before you end the meeting. Every investor by the end of the meeting will make up his/her mind.
They will not decide to invest, that basically never happens or happens very rarely. Most likely though, the investor will decide to pass, because most investors pass on most companies. And some investors will want to continue the conversation.
By asking this simple and direct question, you will know exactly where you stand. If the investor indicates interest in continuing the conversation, then ask about the next steps. Listen carefully to what the investor is saying.
For example, if the investor says keep me posted, or I am traveling the next few weeks or I have a lot of things I am working on – this is known as a soft NO or definitely not now. When an investor is vague, assume he / she is not interested.
On the other hand, if the investor proposes to set up a follow up meeting or a call in the next week or so, this means there is interest. Listen carefully to what the next steps are and decide if the interest is real.
2. What is your investment process, and how long does it take?
If the investor is interested in taking the next steps, you need to ask about the whole investment process. The process will vary widely depending on the type of investor.
Let’s start with an individual angel investor. Most likely, the process will be 2-3 meetings and some diligence and reference calls. It is pretty light, and depending on the check size and where you are in your round, it is totally fine to ask to commit in the end of the second meeting.
Some angels like to co-invest with others, and that often prolongs the process. If others are involved, this means more pitching and more coordination between the group or a syndicate. Ask how long will this take, what will be total check size and actively manage this process. Often times, co-investors will drag the process and the initial angel may change her mind about investing.
Similarly, angel groups have a clear process that is typically not fast and involves multiple meetings and diligence calls.
Typically, a formal angel group will assign a team of angels to an investment committee for each deal. You will need to meet with them at least a few times and then, if things go well, present to the entire angel group. After that, there maybe more diligence.
The process for Micro VC and VC firms varies, but in general takes 3-4 meetings to get a positive decision. Every firm meets regularly to evaluate the deal flow. When you hear that you will be talked about during the partner meeting this week, in general, this a positive thing, but be ready for a quick NO coming out of that meeting.
If the VC is engaged, you should be meeting with more and more partners in the firm as the process unfolds. For larger checks, you will be invited to present at a partner meeting. That would be a critical meeting for a YES decision. If a firm has a seed program and writes smaller checks, then you might be able to get a positive answer without presenting to the entire partnership. Read 8 Things You Need to Know about Raising Venture Capital for more details about raising from VC.
3. What is your check size?
Another important question to ask is the check size, because you want to know your result in case you are successful. Knowing the check size helps influence the timeline and, frankly, the effort you put into this particular pitch. For example, if you are raising a $1MM round you can’t spend a ton of time with people who write $25K checks. You simply won’t be able to get to the finish line if you focus on those.
What you are looking for is to start your round with smaller checks, but quickly move to bigger ones as you have more and more committed. For $1MM round for example, you want to spend most of your time on $50K, $100K and hopefully get one check of $250K or more.
Oftentimes you will hear a range. An angel can say I invest $25K-$200K, or a VC invests anywhere from $300K to $5MM.
Ranges, in general, aren’t great because they lack clarity. There may be complexity or another message behind them. For example, an angel who says $25K-$200K may only invest $25K personally and then syndicate out the rest. The syndicate may or may not come through, so you can’t count on that money.
Similarly, when a VC names a range, it might actually mean that they do seed exceptionally rarely. If you dig in, you will find out that the only $500K check the VC wrote was for a serial founder they knew from before and that their minimum is $2MM for other investments. This is important to understand, because if you are raising $1MM they aren’t the right investor for you for now.
4. How many more investments are you planning to make this year?
Surprisingly for founders, not all investors may be actively investing. Even more surprisingly, they would still take meetings to learn about the company. Angel Investors may be out of cash and tell you they aren’t liquid. Or they could plan for, say 6 investments per year and already did 5. In that case they would be much harder to get the check from.
Number of investments per year is called pacing, and the disciplined investors pay a lot of attention to it because they want to be investing continuously through the year. For example, if a VC has a seed program, and you are talking to them in October, and they decided to fund 10 deals a year and they already funded all 10, there are no more checks left. With this information, the founder should reduce the chance of being funded by this firm to basically 0.
Another, much more subtle issue with VC would be capacity. Some partners just don’t have the bandwidth to take on any more investments. In that case, they would still meet with the founders, but they just can’t invest. Asking about ability to invest upfront saves a lot of time.
5. Who else needs to be involved to make the decision to invest?
ABC in sales is to find a champion and to find who can cut the check. Similarly with fundraising, when you are dealing with angel groups and venture firms, it is important to understand who will be involved in making the decision.
Some angels tell you that they co-invest with friends. This can be both a good thing or a bad thing. The good is that there may be more capital available if you succeed, the bad is that the decision is distributed. Be sure to meet everyone who is involved in making a decision, don’t let other people present the business on your behalf.
Similar with VC firms, understanding the process of decision making is important. In most VC firms, associates will not be able to make a decision without involving a partner. Which partner is making a decision? Can you meet them? Again, making sure that you meet with the decision maker is critical on the path to getting a YES. Another way to think about this is that if you don’t meet the partner, it is basically a NO.
6. What is the last company backed, and why?
This is a simple but relevant question. You are testing for how quickly the answer comes, how enthusiastic the investor is and when was the investment made.
It can be quite telling one way or another. Has it been a really long time since last investment? If so, what does it mean? Is it that the investor has a high bar or is it that they don’t have capital left to invest this year? Ask about the number of planned investments question and you will have the answer.
You also want to hear the WHY. What made the investor write the check? Was it an amazing founder, vision, market, etc? Listen carefully to the answer, as it should be helpful to figure out what the investor will look for in your startup.
7. Have you invested in a competitor, or evaluating investing in one?
You should ask this question 100 percent of the time, because unfortunately, some investors will not tell you this unless you ask.
If an investor invested in a competitor, even if it is not a super close competitor, the chance of you getting a check from them is close to 0. It really is 0. VCs don’t invest in competitors, and angels avoid doing it too. The reason is that it is hard to help both companies, since they are competing. It is essentially a conflict of interest.
Evaluating investing in a competitor is much more subtle. It is typical that when a venture firm is planning to make an investment in the space, they do a lot of digging and research. Part of the research is that they would reach out to all competitors and try to get more information. A VC is trying to do its best to pick the best company in the space.
You may get a call from an associate of a firm saying that the firm is interested in the space and wants to talk. You will be asked a lot of questions, and at times, even move through the process only to find out in the end that it was a so-called “brain suck”.
This may seem very unfair to the founders, but it is the reality of what’s happening in the market. To avoid wasting time and getting hurt, ask about competitive investments or research upfront.
8. What are your concerns about our business?
This is a great question that Steve Schlafman from RRE ventures suggested founders ask.
Why wouldn’t you invest in my company? How do you see the risk here? What do you think won’t work / I am doing wrong?
By asking this question directly, you are accomplishing several things. First, you are signaling that you are open to feedback and value it. Secondly, that you respect the opinion of this investor.
More importantly, you are likely getting valuable information, a perspective of an investor who sees dozens and hundreds of companies per month.
The concerns will range from market size, to acquisition channels, to competition and pricing. Having this information can help you work through the concerns and address them during the investment process.
9. What is your follow on strategy?
Some investors follow on. i.e. put more money into the companies, and some don’t. Both strategies are perfectly fine, but it pays off to know.
Specifically, if you are raising money from angels, say $1MM round, and most of your backers do not follow on, this means that you may have a hard time raising a second seed. Most companies need more capital before they get to series A, and most of this capital comes from insiders – investors who already invested. If most of your insiders don’t follow on, you will need to go outside to raise more capital. This can be tricky, especially when you are post seed and before series A.
With VC firms, the dynamic is different. Some VC firms deploy a smaller amount of capital at the seed stage with the idea of leading series A. The follow on strategy is to lead series A. However, there is a potential issue that founders need to be aware of – IF the firm decides to not lead series A, there may be a signaling issue to the rest of the market. It pays off to connect with other founders that the firm backed to get the color on this dynamic.
10. How do you help companies you back?
Many investors talk about being a value add in addition to $. Ask how exactly does this particular investor help and ask for specific examples involving companies the investor backed.
Some investors come with a massive network. Some larger VC firms will help you recruit and scale. Some smaller angels are great at pricing and financial modeling. Some investors really understand distribution.
Whatever it is, investors like being asked this question and it is helpful for the founders to know.
11. Who are some of the founders you backed that I can talk to?
Much like how investors reference check founders, the founders should reference check investors. Ask for 2-3 founders that this investor has worked with.
You don’t necessarily need to connect with them after your firm’s meeting with the investor, but it is a good question to ask and see what the answer is.
Great investors will have raving references from the founders they supported and less than great investors will be reluctant to name names.
And now we want to hear from you. Founders, please tell us what questions you asked investors during the first meeting that you found helpful.
Applications for the Q1 2017 accelerator programs close October 15. Apply today.
We are delighted to introduce 15 Startups that are finishing our Summer 2016 Program today. As with our previous classes, this was a diverse group of founders solving a wide range of problems.
In addition to 6 teams from NYC, we had teams from Rochester, Atlanta, San Francisco, two teams from Philadelphia, a team from the UK, a team from France and two teams from Canada. Of these 15 companies, five have women CEOs.
The founders have made real progress, and grew their revenues and customers during the program. Here are Techstars NYC Summer 2016 Investor Pitches:
Electronic Gaming Federation organizes and produces college sports.
Forestry offers developers a new way to build and manage websites.
Grubbly Farms is producing a sustainable, insect based, food source for pets, aquaculture, and livestock.
Healthie is a web and mobile platform for dietitians and nutritionists to manage their practice.
IOPipe provides a toolbox for developing, monitoring, and operating serverless applications.
Leblum lets consumers buy top quality flowers directly from the growers.
MindMate is a platform for Alzheimer’s patients, families and care centers.
MyFin is the easiest way to manage and save your money.
OnFrontiers is a platform that helps businesses connect with experts around the world.
Patch Homes provides home equity financing at 0% interest and no monthly payments.
Pollen is a marketing automation platform that enables online retailers to acquire new users more simply and cost effectively than Facebook and Google.
ProcessOut is the smart router for payments that saves money by optimizing each transaction.
Purple is the easiest way to stay on top of the news and be informed. Ever.
Skopenow is a people search engine for discovering fraud and evaluating risk.
Skywatch provides API access to the world’s satellite data.
Thank you Mentors and Speakers
As always, we’ve had an amazing support from our mentors. They spent the time with the founders, gave feedback and engaged during the program.
Here is the thank you video that founders made for mentors:
We also had an amazing group of mentors who held weekly office hours, and focused on covering specific verticals.
Every week during the all hands companies did shout outs and thanked most helpful mentors. We are excited to present Most Helpful Mentor Awards for Summer 2016 Program:
Most Helpful Overall Mentors award for Techstars Summer 2016 goes to Kevin King, Dane Atkinson, Chris Fraser, Soraya Dorabi and Maya Baratz Jordan!
We also had amazing speakers who came to share their stories, and give founders feedback on their companies. Fireside chats were fun, insightful and really engaging.
What Founders Learned in the Program
Tyler Schrodt, CEO of EGF:
Take the advice of your mentors seriously, but your path is ultimately your choice.
Fundraising is a full time job.
Scott Gallant, CEO of Forestry:
The importance of building a personal network of mentors and peers
How to prepare for fundraising (the best coaching on the planet)
Sean Warner, CEO of Grubbly Farms:
Networking – you always here networking is important, but seeing the outreach that Techstars has taught us how to properly utilize our / Techstars network, mainly looking at mentor engagement.
Defining growth through KPIs – there are many ways to monitor growth and though qualitative measurements are important, quantitative measurements are easier to distinguish growth over time.
Erica Jain, CEO of Healthie:
How to focus on the important stuff: Techstars has a tradition of “big rocks” – the premise being that you can fill your days with lots of activities, but at the end of the day, if you don’t execute on certain things – whether it’s achieving a certain metric or reaching a milestone – the company isn’t actually moving forward, even if you’re “always busy”.
That relationships are everything: Whether it’s with employees, mentors, co-founders, customers, or investors, building strong and genuine connections is ridiculously important, and incredibly rewarding.
Adam Johnson, CEO of IOPipe:
The power of giving first. There’s so much energy and momentum within our class by helping each other out. No requests were unanswered during our time at Techstars. The give first mentality did not end with our class, many alumnus and friends of Techstars went out of their way to help out. It was simply amazing.
I was surprised by how much impact the high energy of all the startups going through the Techstars program had on IOpipe. It was a constant motivator to keep pushing for as much progress and growth as we could within a short amount of time. Our investors have been so impressed by how far we’ve come in a short three months. Techstars definitely played a huge part in that.
Setting weekly big rock milestones to push us harder every week has been a great motivator for us to keep the eye on the ball, and re-think what’s most important for us. IOpipe will continue this exercise long after our time at Techstars.
Sarah Corrigan, CEO of LeBlum:
Don’t abuse the Pivot. Intuition and data combined are sufficient guides and indicators of whether or not your company has a reason to exist. Consider peoples’ doubts, but never cater to them.
Accept Criticism Gracefully. A start-up starts out scrappy but eventually has to evolve into a well organized operation of systems and standards. As a founder that means that you to have to be willing to accept faults, recognize what needs to improve and be willing to make changes – without delay. So, don’t be a sh!tty human, and if you are being one – stop being a sh!tty human, immediately.
Susanne Mitschke, CEO of MindMate:
Pick ONE KPI and execute ONLY on that
Say “NO” to stuff that doesn’t move the needle! Be hard on that!
Nathaniel Harley, CEO My Fin
Marketing automation – how to think about the different states – activation, magic moment, and retention. Being very early and in product building mode, we really honed in on the activation state…. need to still work on magic moment / retention. I obviously learned this before, but it’s much different for MyFin than it was for Spoon. App is very different than content site.
Prioritization – as a team, we’ve gotten much better at doing daily sprints, focusing on what’s most important, and constantly re-prioritizing based on where we’re at, feedback, etc.
Positioning – one of the hardest things to do is narrow down the focus of the company into a few sentences. It’s been extremely helpful to get down to the essence of what we’re building, and how to articulate to people.
Sahil Gupta, CEO of Patch Homes:
Be firm yet flexible in my approach. Whether is product, market strategy or fundraising – listen to what people are saying.
Become better at using data to validate hypothesis and drive decision making.
Zack Werner, CEO of Pollen:
I have been raising money for a long time, and TS helped me get a MUCH better understanding of how to talk to investors and create a funnel for investment.
It was great for my team to learn how to operate in the same space and with a structure for operation.
Rebecca Harris, CEO of Purple:
How to define KPIs, set goals for growing them, and develop a process for achieving those goals.
I learned so much about fundraising.
Rob Douglas, CEO of Skopenow:
Thinking like a CEO – Growth strategies (sales and business development), pricing, getting ready for scaling, and finding the right hires.
Understanding the VC world – the ins, outs, and in-betweens of VC communication from intros to closings…#ABC
Thank you Associates!
Huge thank you to our associates, they’ve done an amazing job! Sara, Alli, Susan, Jay, Kashif, Dan, Mike and Oliver – massive thank you for your hard work and dedication – you were SUPER HELPFUL to founders and Techstars.
Tweets from Investors and Founders
Good luck, Techstars NYC Summer 2016!
At Techstars, we have a culture of innovation and experimentation. Our strength stems from our diversity and distributed nature. Every Techstars location adds its own local flavor and experiments constantly. We tweak the program content, how we engage mentors and corporate partners, and also how we help our founders connect with investors. We then share what works and what doesn’t to make the network better over time.
No matter if you are going to a program in NY, Boston or Cape Town, you will get the very best Techstars Demo Day experience.
A New Take on an Old Idea
Since early 2007, our Demo Days have consistently attracted hundreds of investors and community members. Demo Days are powerful community celebrations and an effective way to connect the founders and investors. Techstars companies have now raised more than $2.5B and Demo Day has been a huge part of that success.
For the past couple of years, we’ve been experimenting with additional ways we can improve and optimize this connection in addition to Demo Days.
It started back in Boulder in 2014 when Nicole Glaros, then a Managing Director and now Chief Product Officer at Techstars, launched an investor-only Demo Day for active investors.
The idea and the formula was quite simple: investors were split into groups with about 20 investors per room. The CEOs walked from one room to another and gave their Demo Day Pitch. After the pitch, investors did a quick Q&A and the founder moved onto the next room. The investors had contact information for every founder and were able to reach out directly.
This was followed by the traditional Demo Day, which was more of a community celebration, and most of the investors who were at the private event also attended that Demo Day.
An Improved Experience for Everyone Involved
This new format was an instant success. Both investors and founders loved the intimacy of the setting and the ability to interact and ask questions. Over the next few years, other Techstars programs experimented with a version of this setup, including our Seattle and Chicago programs. Jenny Fielding just ran an invite-only investor Demo Day for our FinTech program in NYC.
Our Chicago program recently rented 10 suites in a hotel with eight active investors per room. The only folks who participated were people who wrote checks in a previous class. CEOs did the pitches followed by Q&A. In addition, Chicago added another tweak – investors had five minutes to discuss the company amongst themselves. Once again, investors and founders loved the format.
This year Techstars NYC is building on the experiments from other cities and rolling our own experiment. We are introducing Exclusive Investor Preview and Investor only Demo Day.
The Investor Preview
The Investor Preview is invite-only and takes place before the Demo Day. To get invited, you need to have invested in at least one Techstars NYC company within the last four years. Each investor is pre-matched by us with six companies based on their investment focus. Before the preview, investors get elevator pitches from all companies in the class and can ask to swap out one or more companies. Similarly, founders can opt-out of the meetings with investors whom they don’t want to meet.
During the preview, each investor comes in for 2.5 hours and has six 25 minute meetings. During the first five minutes of the meeting, the investor watches the video of the company pitch and then spends 20 minutes doing Q&A with the CEO. After that, the investor moves onto the next company. When there is a mutual interest to continue, the founder and investor exchange contact information. So far we’ve gotten hugely positive feedback on this format from both investors and the founders.
For the Investor only Demo Day we are trying a new format as well.
The Investor Only Demo Day
Again, the Demo Day is invite-only for investors, but it is not required that you have previously invested in one of our companies. The Demo Day on 9/29 will take place in the Techstars NYC office, where 15 CEOs will have stations much like you would have at a conference. We issued 200 investor tickets for 10 a.m., 200 investor tickets for 11 a.m., 200 investor tickets for noon, etc.
When investors come in, they can quickly connect with each CEO or go to a theater space to watch video pitches. Techstars staff will walk around and help investors quickly send the contact information to all companies they want to follow up with.
We anticipate an amazing turn out this coming Thursday and look forward to everyone’s feedback.
The best companies constantly tweak and iterate. At Techstars, experimentation and improvement are part of our DNA. This is what we tell our founders and this is what we constantly do internally. Not only do we have cool new tweaks this year, we’ve already been thinking about new things that we will be doing in 2017.
Do you have ideas for how we can enhance Demo Days or do anything else better? Please leave a comment here or email me at firstname.lastname@example.org.
We’ve written a lot here about fundraising and how it is a complicated, and at times, confusing process. To fundraise effectively you need to prepare and have a strategy, understand different types of investors, understand how much to raise and create an investor pipeline.
We also talked about a fundraising deck and how you put it together. In addition to the deck, it is helpful to prepare answers to typical questions that investors tend to ask.
Below we discuss the typical questions you will hear from investors and discuss how you might go about answering them.
1. Who are your customers, and what problem are you solving for them?
Investors are looking for a simple and clear answer of who you are selling to. They also are looking to understand how clearly you know the pain point, and how big of a problem it is for the customers.
This question also opens up a conversation about founder-market-fit, as well as helps investors think about the size of the opportunity.
2. What is unique about your solution? What is your unique insight?
Investors want to understand how you are proposing to solve the problem, but more importantly, they are looking if you have unique insight. Has anyone else thought about this before? How is it different from other solutions? Do you have a secret?
Seriously, investors want to know this because the more differentiated you are, the more defensible the business might become in the future.
3. How does your product actually work?
Investors naturally want to see the demo of your product, because a demo is worth 1,000 words. A lot of investors want to fund product-obsessed founders – founders who get lost in details of the product, who are super thoughtful and nerdy about features they built, and really understand customer needs.
Always show your product to investors and make the demo awesome.
4. What are your KPIs? How do you measure growth? How do you know you have product market fit?
What numbers do you use to drive the business? Lack of clarity or hesitation is a major red flag for investors. If you as a founder aren’t clear about your metrics or not measuring the right things, investors won’t believe that you can grow the business.
Investors want to make sure you understand and measure your conversion and sales funnels, activation, retention, magic moment, churn, CAC, LTV, etc. Investors want to know how you think about KPIs, look at your dashboard and understand how you think about growth.
They will likely dig in on how you think about attaining product market fit as well.
5. What is your traction to date?
The question of traction is really two-fold. First, investors are literally asking what is your traction. Second, and more important, how do you define traction?
Many founders mistake progress or effort for traction. On the other hand, investors think of traction as revenue and paying customers or significant growth in weekly and monthly active users.
6. What is the size of this opportunity/total addressable market?
How big is your market – a question that matters to a lot of investors. Why? Because VCs economics force them to only focus on very large markets. VCs look for big markets with lots of money so that when they own 20 percent of your business, they get a meaningful amount to return all or a portion of their fund when you exit. Otherwise, they don’t make money.
In addition, investors expect you to size accessible markets and do the calculation bottom up. Too many founders say they are in $1BN+ markets without realizing that, because of their business model, they can’t be addressed.
Spend time sizing up your actual addressable market using your pricing and growth projections.
7. What are your CAC and LTV?
This is another typical question that investors ask founders during each round of financing to establish how fluent they are in the business.
In the early days, founders are expected to know the terms and have an idea of what the numbers are, but it’s fine to say that you are early, and the numbers are likely to change in the future (typically CAC goes up and LTV goes down).
The cost of user acquisition conversation leads to the conversation about channels, marketing and advertising spend. If you are B2B company with direct sales, you will talk about cost of sales and how it will change at scale.
Life-time value of the customer is equally important. How long does it take to pay back the amount it cost to acquire this customer? How much money will you make on the average customer?
The LTV conversation touches on churn, revenue per customer and enables investors to understand how you think about your whole customer lifecycle.
8. What is your business model?
Naturally, investors want to understand how you make money. They want to know who your customers are and how are you planning to charge them. This question combines not just pricing, but strategy and tactics. If you make money indirectly, via advertising, they would then focus on how your acquire customers.
If you are a marketplace, the conversation turns to whether you are going after supply or demand and the incentives to be on the platform. What will be the expected average revenue per user? Will you have recurring revenue? All these questions get explored when investors ask about your business model.
9. How did you come up with your pricing?
This is probably a less common question in the early stage, but it is an important one. Investors are looking for you to demonstrate that you’ve done customer research and competitor research. They are also looking for you to acknowledge that you are early and the pricing is likely to change.
In addition, if you are currently free or have a free tier, investors will look to understand when are you planning to get rid of it and what the implications will be.
10. What are your unit economics?
Unit economics give essentially an inductive case for your business. For example, for Uber, a unit would be either one ride or one driver, depending on how you model it.
The key thing in unit economics analysis is to capture all associated costs and revenues and then see if you are actually making money. Some startups have poor unit economics initially and say they will optimize costs later.
Many investors, however, are now weary of this approach because as you scale, new challenges and new unforeseen costs may arise.
11. What is your go to market strategy?
The go to market strategy question is a really important one and is often misunderstood. Investors ask this typically when founders say that their product works for everyone. Investors are skeptical, as experience says that focusing on a vertical or a segment is typically better.
For example, if you are building developer tools, you could initially focus on freelancers and individual developers. Then once the product is solid, you can move upstream to mid and large enterprises. Tesla had the opposite strategy. It first made a high end car and has been moving downstream.
You can also focus on a specific vertical. For example, if you are a security software provider, you can first focus on insurance companies or law enforcement agencies. Having a focus narrows down the opportunity but allows you to really perfect the product and sales.
When talking about your go to market, investors are really looking to understand your strategy and why you think it will work.
12. What are your customer acquisition and distribution channels?
How are you planning to acquire customers? In the consumer world, you have paid and unpaid means. You can advertise or you can use content marketing, social channels and word of mouth. Investors want to understand how deeply you understand your channels.
The challenge is that most obvious channels often do not really work or aren’t cost effective. That is when you start your CAC via Google or Facebook ads is just too high. Investors are looking to understand if you figured out a growth hack / have an insight on how to acquire customers quickly and efficiently.
In the B2B world, investors want to know if you have an unfair advantage, like you’ve worked in the space before and have a rich rolodex. They are looking to understand if you are able to secure key partnerships that can help you distribute the product faster and win the market faster.
13. Why now?
This is a question that often goes unasked, but is certainly on the investors mind. Timing is everything, and really understanding why now is the time for your company to win is important. The VC industry is full of examples when something was too early or too late, and as a result, it didn’t work or didn’t get as big.
Before Facebook, there was Friendster, before Google there was Alta Vista. Even Uber wasn’t the first company to think of on demand rides, and AirBnB wasn’t the first company to let people host people in their apartments.
Before the current wave of VR and AI, there were at least 3 other waves. Why do we believe now is different? Why do we believe now it will actually happen? Some argue that we finally have enough cheap computing power and have evolved other key technologies necessary for VR and AI to go mainstream.
When investors are asking “Why Now?”, they are really asking about conditions of the market, context and state of society – dozens of factors that will make a difference between success or failure this time around.
14. Why you? What is YOUR Founder-Market-Fit?
We’ve written here before about the importance of Founder-Market-Fit and how most investors pay close attention to it. Investors don’t want to fund accidental founders. They want to fund people with deep domain expertise, massive vision and passion. Investors want to get to the bottom of why you started the business – do you have unique insight and unfair advantage?
15. Where did you grow up? Where did you go to school and work?
In addition to understanding if you know the space, investors want to understand if you are resilient and smart. The question about where you grew up is really a question about how hard you have had to fight through your life to get to where you are. If you grew up in a well to do family where you didn’t have to struggle, investors may not be as excited about funding you compared to, let’s say, an immigrant.
There are no hard and fast rules of course, but the environment you grow up in often defines your level of resilience. When things get difficult, and they always do, will you walk away? When you get knocked down, will you get back up?
When asked where you went to school, people look to see if you went to a top school, what you studied and what you learned. Sometimes this conversation leads to a common connection. Sometimes it is just a starting point for learning more about you. Investors are looking to assess your level of intellectual curiosity and honesty.
16. How did you meet your co-founders?
This is another interesting question that doesn’t have a clear cut right answer, but is telling to investors. If you say you met at a hackathon 3 months ago, what you are saying is that you don’t really know each other well. Investors may think that the connection between you and your co-founders isn’t solid. If you are saying that you’ve been friends since high school, investors know that you trust each other.
However, they also know that you haven’t worked together. Friends don’t always make the best business partners, and startups have ruined thousands of friendships.
Most likely, investors are looking to hear that you worked together before, ideally in another startup and ideally for a while. This would imply that you get along socially, but more importantly, you can make things together under a stressful environment.
17. Who are your competitors and how are you different?
We’ve written here before how to think about competition. Investors are looking to understand how knowledgable you are about competitors and what is different about you. If you say you don’t have competition or if you bad mouth them, it is a red flag. Simply acknowledge competitors, and highlight what they are doing well. Explain how you are different and why.
18. What is your vision, your true north?
Some founders stumble on this question and this is a red flag for investors, particularly for VCs who want to back founders with big vision. What do you want your company to be in 10 years? This question reveals not only how you think about the business long term, but whether you plan for it to exist a decade or more. If your plan is to sell quick, you won’t have a broad long tem vision.
Similarly, a question about your true north is an important one. It reveals what you aren’t willing to compromise on. Great companies are always flexible on their path, but not flexible on the destination.
19. What milestones will you achieve with this financing?
We touched on this topic in our How Much Capital Should You Raise post. This topic is complex and founders often approach it with a naiveté. A typical answer might be expressed in terms of specific product milestones and scaling of the team. This is not what investors are looking for. They want to understand tangible business milestones you will reach with the capital you are given.
There are really two outcomes investors are looking for – either profitability, which is very rare in early stage startups, or the follow on financing. That is, investors are asking if you get funding and then execute and hit specific milestones, will you be fundable again? For example, if your plan says you raise $1MM, and then grow 20 percent MoM to achieve $40MRR in 12 months, to you this may sound great, but to investors it is clear that it will not be enough to raise a series A.
It makes sense to really think through your milestones and where you want to land and why.
20. How much will you be burning per month?
This is a pretty straightforward question that follows from your financial model. A few things to pay attention too: a) Your HR costs should roughly be 70K-100K per head. b) Investors will look for clarity around advertising spend — in the early days, before strong product market fit you should not me spending a lot of money to acquire customers and c) Investors will look for any outliers, anything that jumps out as out of ordinary or unusual.
21. What will be your MoM growth in customers and revenue?
Another straightforward question based on your financial model. As a startup, you need to make a growth assumption. The trick is that you don’t have a ton of historical data to back it up. Whatever data you do have, include it in the model and explain it, because it helps establish credibility.
Also, avoid cookie-cutter 20 percent MoM year round growth assumption, as it may come across as sloppy. Really think through seasonality and other factors that may influence your growth. Do your customers pay you right away or not? Does your cash in the door trail booked revenue? Reflect all the nuances in the model and your revenue forecast.
22. When will you be profitable?
Historically, many of the best startups have reinvested their revenues into the business and sacrificed profitability in favor of growth. Since the financing market has become tighter, profitability is fashionable again. Becoming profitable is important for many reasons, but the main one is that it allows you to become self sufficient and control your destiny.
When you are profitable, you are no longer in need of external capital in order to survive. Investors are looking to understand how you think about profitability, and tie this to the conversation about your burn and the need for follow on financing.
23. Why is your business defensible?
VCs want to know what happens to your business over time. Assuming you can get a lift off, investors want to know what happens year 5, year 10, etc. Why? Because this is a typical horizon over which more successful startups go public or get acquired for a significant return. Long-term defensibility is difficult to predict. That’s why many investors look for natural monopolies, winner take all markets and businesses with network effects.
This is a complex and important topic that is less likely to be top of mind for the founders, but is certainly something investors are paying a lot of attention to.
24. What is your intellectual property?
If you are startup that is creating a new technology, investors want to know about your IP. Are there things here that can be patented? What is the true innovation in your business? While software patents haven’t been effective in recent years, depending on the type of your business and depending on what kind of investors you are talking to, IP can be an important topic.
25. What is your tech stack?
This question will be particularly relevant for startups that are working in AI, VR, dev tools and other areas that require deep tech. Some investors, particularly technical ones, will want to nerd out with you on your stack.
26. What are the key risks in your business?
This is one of the hardest questions investors will ask you – why might you fail? This question is a probe for a) how do you think about risks in your business b) do you acknowledge risks and c) most importantly, are you self-aware and intellectually honest. Great founders bring up and face risks head on. They don’t try to shove them under the rug and ignore them.
Risks vastly range from building incorrect products, to the market not being there and to key distribution deals falling apart. Whatever it is, be prepared to talk about risks and show that you’ve been deeply thinking about them.
27. Who is the natural acquirer for your business?
Investors aren’t likely to ask you this question, but they will certainly think about it. Investors are putting money into your business to make more money, and historically, since the IPO market is tight, most successful companies are acquired.
Although you have no plan to sell your company, it is good to think about who might bite in the future and why.
28. How much capital did you raise so far and on what terms?
This is a simple question – just tell investors exactly how much you raised, whether you did it on the note or via equity. Don’t stumble or hesitate, because that would be a red flag.
29. Who are your existing investors?
This is another straightforward question.
30. How much capital are you raising and what are the terms?
You should have clarity on how much you are raising based on the financial model. Depending on where you are in the fundraising process, you may not have the terms set yet. If you don’t have the terms set, then just say so – investors will completely understand.
And now please tell us what we missed. Share the questions that investors asked you during your fundraising conversations.