Notes from Founder’s Showcase Keynote: Mark Suster & Naval Ravikant
by Damian Madray on June 23rd, 2011 in Business, Start-ups
At the event I met with Max Wendkos an entrepreneur working on a great idea in the sport space. Turns out Max is a much better note taker than I am which he shared and granted me permission to share with my readers.
Max is currently seeking a technical co-founder for his start-up so if interested, connect with him on Twitter. Extra points if you’re into sports. I’d recommend working with Max, he’s the type of person you can spend your days with.
Here are the notes on the two keynotes which you’ll find interesting:
“Getting Funded in a Frothy Market”
Elephant in the Room: Of course there’s a bubble. Duh.
Whom Should You Raise Money From?
- Every type of investor has positives & negatives.
- Friends, Family, & Fools: Worst people to raise money from because it creates problems if you don’t make money.
- Angels: Best angels are those that are sophisticated and understand that not every investment is going to up and to the right. Angels are often the first to run for the door when times get tough.
- VCs: Expect rocket ships. Want 10x their money. Will stick by entrepreneurs in good times & bad.
- Seed investors (Micro VCs): Expect to work with early stage companies and know what the problems are with them. Best source for most early stage companies. In tough times, they can’t save everybody.
- You’re an “angel” if you invest your own money; you’re a “VC” if you invest somebody else’s. There’s no such thing as “Super Angels.”
Try to raise 18-24 months of capital.
- This will give you enough time to hit enough proof points to get an uptick in valuation.
Go lean –> fat.
- This means that once you hit that inflection point when you get a lot of attention and traction and other bigger companies start to pay attention to you, you better beef up your operations or you’re dead.
There aren’t many exits > $100M.
When Should You Raise Capital?
When markets turn, progress may not equal valuation.
- So, just because you’ve made progress w/ the company, doesn’t mean your value is going up.
If raising Angel/Seed rounds, you need an anchor.
- Show proof and the rest usually follow.
Don’t cold-call VCs.
- In the era of social networks, it should be very easy to get access to a VC.
- The best intros are from portfolio companies, entrepreneurs, lawyers, angels, etc.
- VCs want management (quality people, at least 2-3), market size, money, and momentum.
- VCs want meaningful ownership (25-33%). If you’re really hot, you can get it down (to 18-22%).
Be aware of exploding term sheets from VCs. If they say you have to sign by a certain date or they’re pulling out, probably not the best people to work with.
Where Are We All Headed?
The market is flowing right now, but there are some worries.
- Unemployment remains high.
- States and cities have to make cutbacks in gov’t jobs, services, etc.
- Housing stock overhang
- Political malaise in DC
- Middle East unrest
But, again, the market IS flowing right now. This means that fundraising is available. So take advantage!
Angel/seed deals are going through the roof, but the number of active VCs is decreasing.
Final Closing Thoughts
- Don’t drink your own Kool Aid.
- Go and get yourself funded. If you don’t, you won’t be around to tell your story.
- Only join an incubator if there’s a full-time person there that has real entrepreneurial experience.
- Get investors that are passionate and knowledgeable about your space.
- VCs want to help; get them involved in problem-solving.
Anatomy of a Fundable Startup
- AngelList has ~2100 investors
- 9000 companies on AngelList & 300-500 have been funded
- investors are looking for an exceptional outcome, so they want one thing about the company to blow them away
- instead of doing a lot of things good, do one thing AMAZINGLY
- investors will invest because there is ONE thing that really grabs them
2) the team
3) the product – visually appealing
4) social proof
6) high concept pitch
If you want to raise money, you have to be in Silicon Valley or New York.
Markets and Approaches
- Avoid services, small markets, dead platforms, conquered markets with network effects (aka ebay, craigslist), market isn’t too large or too small
- Don’t call yourself a visionary.
- Don’t outsource development and be completely business-heavy.
- Don’t be a solo founder.
- Don’t be a part-timer.
- Don’t describe your free-time hobbies.
- Give quantitative and precise descriptions.
- Recruit only the best.
- Don’t make promises and just give your vision.
- Show, don’t tell.
- Be quantitative and precise.
- Expect competition.
- It should be something hard to build and require specific knowledge.
- This is the whole grail for investors.
- Don’t predict traction.
- Don’t give cumulative graphs to describe growth. Show incremental growth.
- Know your microeconomics. If you be quantitative about how you acquire customers (e.g., cost $x to acquire one customer and that customer is worth $y), investors will love it.
- Get referred by other entrepreneurs and committed investors.
- Don’t rely on social proof for funding; instead, just build a great company.
- Do an advisory round of investing. Give a discount.
- Cast a broad net and move simultaneously.
- It’s easier to pitch a brand new investor than it is to change someone’s mind.
- It’s easier to raise money is you’re issuing equity than it is if you’re issuing convertible notes.
- Sell an option. This means to give the investors and option to invest later if the company takes off.
- Get to a funding hub. (SV, NYC)
- Recruit an exceptional team.
- Build something that you’re passionate and knowledge about. And is hard to build.
- Test it against customers.
- Get social and customer validation.
- Raise on at least one exceptional characteristic.
- Assume fierce competition.
- Don’t sell more than 20% in a seed round.
- When looking for investors, look for people that are nice people and you want to spend time with.