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We deal with thousands of companies in the process of fundraising. Last year, I spoke
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to over 1,000 founders, and I've set a personal goal to beat that this year.
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These companies mostly come to me for office hours, and most of the time, their questions
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revolve around fundraising. One thousand people are enough to detect some patterns: the mistakes
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these companies are making when approaching their fundraising.
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First, fundraising to hire the essential team
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This is probably the most common question I get: a solo founder is looking to raise
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money to find a CTO, or a CMO/growth hacker.
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My theory on where this issue comes from is that typically, the personality of an entrepreneur/founder/CEO/hustler
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is not the kind of individual that will choose software engineering as a career path.
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A lot of the founders I come across have a ton of ideas for product, and a ton of ideas
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on how to sell them, but can't build the products themselves: we end up with CEOs looking for
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their CTO and not being able to find them.
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That is just the reality of the world, and there's little we can do about it. I've said
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it before: finding that product co-founder is probably one of your first tests as an
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entrepreneur.
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An alternative is... you know, learning to code: the problem is you'll soon find yourself
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swamped and unable to split your time between building the product and selling it.
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Investors expect you to have a team by the time you get to meet with them. Few investors
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will fund a company where a team isn't built, because nobody wants that essential personnel
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to come for the money/salary that you'll offer them. The first 2-3 team members need to come
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on board because they believe in the product and are willing to take a WAY BELOW market
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salary until the company can afford it.
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Requesting an NDA
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This is just plain rookie.
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Investors don't sign NDAs to see your pitch deck. No matter how groundbreaking the product
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is, no matter how many patents you can get.
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A Pitch Deck is supposed to be an introduction to the business. It shouldn't dive deeply
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into sensitive economics or technology aspects: that comes later.
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If you are concerned, somebody can steal your idea and beat you to market by just looking
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at your pitch deck, then that risk will continue to exist when you launch. Companies don't
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succeed because of ideas: they succeed because of execution: building great products and
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bringing them to market.
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Most investors look at hundreds of deals every month, and it's a terrible liability to have
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NDAs with all these companies.
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Approaching the wrong kind of investors
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Not all companies can (or should) approach venture capital investors. We talked about
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this in our Startups vs Small Businesses video.
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If you want to raise money from Silicon Valley-type investors, you need to have a business that
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can scale to, say, $100MM/yr in revenue- it needs to have a tech variable/aspect and small
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human capital requirements.
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That excludes most consulting businesses as well as companies without a tech advantage.
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Silicon Valley investors putting money on a seed-stage round company will generally
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invest in the range of $500K to $1MM in exchange for 15-25% of the business (usually done through
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a Convertible Note, check out our video on that).
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They expect the business to increase its value in 10X within five years: which requires exponential
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growth. That's the only way to get to 10X that fast.
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Companies that don't fit this profile can access other types of financing, like loans.
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They can also raise capital from an investor willing to come in as a 50/50 partner and
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to be directly involved in the business. There's also stuff like Kickstarter, which is ideal
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for hardware products.
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It's about understanding the kind of business you have in your hands, what it is, and what
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it's not.
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Trying to raise too much money.
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I've seen entrepreneurs with no team, no product, no revenue, pitching a round of $5MM, which
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for most industries and most founders, will also be, a rookie move.
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Raising money is diluting your company ownership: you always want to raise the least amount
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of money possible, and that's why a good Financial Model is important.
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We're doing a webinar on how to build a Financial Model. Check the links below to subscribe.
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Finally, showing you are desperate
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Investors like healthy, fast-growing companies. They are drawn to the promise of great returns!
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Few investors will want to join to save a business from bankruptcy, because that's usually
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just bad business. The least you need them, the better position you have, not only to
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pitch the company but to have the leverage to negotiate better terms.
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And that's it for today! Remember to subscribe to our channel and hit that bell to receive
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notifications when new content is published.
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Starting today, we're going to do a live session as soon as this video goes live.
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Check out slidebean.com/live to join our Discord.
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Finally a couple months back, we announced that I ran out of t-shirts.
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I'm starting to use the t-shirts that you guys send.
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Today's t-shirt is from Beelinguapp. You can learn languages through audiobooks and
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songs.
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Remember that you can send your company's T-shirt for me to wear in our next videos.
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Look for the link with more information in the description of this video.
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Thanks a lot for watching. See you next week.