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  • We deal with thousands of companies in the process of fundraising. Last year, I spoke

  • to over 1,000 founders, and I've set a personal goal to beat that this year.

  • These companies mostly come to me for office hours, and most of the time, their questions

  • revolve around fundraising. One thousand people are enough to detect some patterns: the mistakes

  • these companies are making when approaching their fundraising.

  • First, fundraising to hire the essential team

  • This is probably the most common question I get: a solo founder is looking to raise

  • money to find a CTO, or a CMO/growth hacker.

  • My theory on where this issue comes from is that typically, the personality of an entrepreneur/founder/CEO/hustler

  • is not the kind of individual that will choose software engineering as a career path.

  • A lot of the founders I come across have a ton of ideas for product, and a ton of ideas

  • on how to sell them, but can't build the products themselves: we end up with CEOs looking for

  • their CTO and not being able to find them.

  • That is just the reality of the world, and there's little we can do about it. I've said

  • it before: finding that product co-founder is probably one of your first tests as an

  • entrepreneur.

  • An alternative is... you know, learning to code: the problem is you'll soon find yourself

  • swamped and unable to split your time between building the product and selling it.

  • Investors expect you to have a team by the time you get to meet with them. Few investors

  • will fund a company where a team isn't built, because nobody wants that essential personnel

  • to come for the money/salary that you'll offer them. The first 2-3 team members need to come

  • on board because they believe in the product and are willing to take a WAY BELOW market

  • salary until the company can afford it.

  • Requesting an NDA

  • This is just plain rookie.

  • Investors don't sign NDAs to see your pitch deck. No matter how groundbreaking the product

  • is, no matter how many patents you can get.

  • A Pitch Deck is supposed to be an introduction to the business. It shouldn't dive deeply

  • into sensitive economics or technology aspects: that comes later.

  • If you are concerned, somebody can steal your idea and beat you to market by just looking

  • at your pitch deck, then that risk will continue to exist when you launch. Companies don't

  • succeed because of ideas: they succeed because of execution: building great products and

  • bringing them to market.

  • Most investors look at hundreds of deals every month, and it's a terrible liability to have

  • NDAs with all these companies.

  • Approaching the wrong kind of investors

  • Not all companies can (or should) approach venture capital investors. We talked about

  • this in our Startups vs Small Businesses video.

  • If you want to raise money from Silicon Valley-type investors, you need to have a business that

  • can scale to, say, $100MM/yr in revenue- it needs to have a tech variable/aspect and small

  • human capital requirements.

  • That excludes most consulting businesses as well as companies without a tech advantage.

  • Silicon Valley investors putting money on a seed-stage round company will generally

  • invest in the range of $500K to $1MM in exchange for 15-25% of the business (usually done through

  • a Convertible Note, check out our video on that).

  • They expect the business to increase its value in 10X within five years: which requires exponential

  • growth. That's the only way to get to 10X that fast.

  • Companies that don't fit this profile can access other types of financing, like loans.

  • They can also raise capital from an investor willing to come in as a 50/50 partner and

  • to be directly involved in the business. There's also stuff like Kickstarter, which is ideal

  • for hardware products.

  • It's about understanding the kind of business you have in your hands, what it is, and what

  • it's not.

  • Trying to raise too much money.

  • I've seen entrepreneurs with no team, no product, no revenue, pitching a round of $5MM, which

  • for most industries and most founders, will also be, a rookie move.

  • Raising money is diluting your company ownership: you always want to raise the least amount

  • of money possible, and that's why a good Financial Model is important.

  • We're doing a webinar on how to build a Financial Model. Check the links below to subscribe.

  • Finally, showing you are desperate

  • Investors like healthy, fast-growing companies. They are drawn to the promise of great returns!

  • Few investors will want to join to save a business from bankruptcy, because that's usually

  • just bad business. The least you need them, the better position you have, not only to

  • pitch the company but to have the leverage to negotiate better terms.

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  • Finally a couple months back, we announced that I ran out of t-shirts.

  • I'm starting to use the t-shirts that you guys send.

  • Today's t-shirt is from Beelinguapp. You can learn languages through audiobooks and

  • songs.

  • Remember that you can send your company's T-shirt for me to wear in our next videos.

  • Look for the link with more information in the description of this video.

  • Thanks a lot for watching. See you next week.

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B1 US fundraising product raise pitch rookie company

Rookie startup mistakes when raising money

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    吉川友章 posted on 2020/07/15
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