How to Get Meetings with Investors and Raise Money by Aaron Harris

[Applause] hi everyone thank you for having me so I'm gonna do more than just talk about investor meetings I also want to talk about who the investors are that you're gonna be raising money from maybe one day and what motivates them because in order to have a good meeting you need to know what you're doing and how to achieve that goal so when we think about investor meetings there's a question of when you need them who you need them with how to actually get the meetings and actually how to do the meetings this might seem weird but a meeting isn't just walking into a room and sitting across the table from someone staring into each other's eyes you need to actually talk you need to make points and you need to know what points to make and kirstie just ran you through the debt the the mechanics of what fundraising actually means but in order to actually get the money from somebody you usually have to know they are track them down find them convince them to meet with you convince them to give you money and then get the money in the bank so there's a lot of steps that come up ahead of time so this is going this this talk is kind of your magical plan to automatically raise money if you follow these tips no one will ever say no to you if they do it's your fault all right so the first thing is figuring out when you actually need to raise money right not every business needs money MailChimp famously has never raised a dollar an outside financing and is worth billions of dollars so before you think about whether or not you or or before you think about meeting with investors to raise money you first need to answer the question of if you actually need to raise money and there's a bunch of different steps in this you can raise money when you're just at the idea stage you can raise money if you just have a prototype you can raise money when you have users in fact it gets easier and easier as you have each of these things because they're demonstrations of progress but you need money when you actually need it to grow your business and figuring out whether or not you need money to grow your business is a very particular decision about your company so if you think about this think about raising money as a continuum right if you have nothing and no understanding of how you would spend money if you had it don't try to raise money it's a waste of time instead focus on building your product and building your company if you get a little further along you have your idea or your prototype you start to see oh if I actually had a little more money I'd be able to do X Y & Z which would make me go faster now flip yourself into the mind of the investor and think about okay well if I'm an investor why am i giving this person money I have to have a reason right and the reason is because I expect it to be very very very large one day and I also expect them to be able to use this money appropriately there are some uses that are good for money and some uses that I would say are bad the first thing people always say about why they need to raise money is they need to hire employees this is very attractive because companies love to talk about how many employees they have it's a great metric when you don't have revenue or actual progress but the truth is because you are building startups which hopefully leverage software you need to hire far fewer people than you think you do and in fact hiring is the single best way to kill your company if you don't need to do it because people cost money and so if you are already hiring you already need money whether or not your idea is any good whether or not your idea is growing so think very careful about carefully about whether or not the blocker between you and the next step of growth is actually hiring the next thing people love to say is well we need to do user acquisition we need to spend money on Google Ads this is usually a very bad way to grow your business especially early you start spending money on Google ads and you start looking at your user numbers and say look are you numbers are growing up so we need to pour more money into it and what many people don't think especially if it's their first startup is whether or not they're acquiring people profitably customers profitably and whether or not they're doing that profitably on a timeline that allows them to recycle capital and keep growing so before you start spending money on user acquisition it probably makes sense to start acquiring people for free get users who love your product to tell their friends about how much they love the product and then you get them for free and you don't need to raise money then some of you will need customer service if your customers are getting angry because you're not doing enough to make them happy you're not answering their questions that's actually a pretty good reason to raise money and is actually one of the first limiting factors that a lot of companies hit and the reason this is a good one is because you as founders will be able to deal with customer service for quite a long time and you'll only stop being able to do that when you have enough users and customers that you get overwhelmed and what's interesting is that if someone's using a product that is free their expectation of customer service is much lower which means you can handle a lot more and if they're paying you your customer service that level has to be higher but you're making more money so you can afford to hire more people to do customer service before you actually have to look for outside capital now part of the reason I'm saying and warning so actively against fundraising before you're ready is the earlier you raise money the more diluted that capital is right people aren't going to give you a 5 a 3 million dollar valuation a 5 million dollar valuation a 10 million dollar valuation unless you have something to show them so every dollar raised is more of your equity in your eventual multi-billion dollar business that you're giving away you don't want to do that if you don't have to let's talk a little bit about the types of investors in your neighborhood first we have friends and family then there are accelerators there are angels there are seed funds there are VC funds and there's crowdfunding there are so many different ways to raise money in so many different places from which to raise it but the important thing in figuring out who these investors are how to get meetings with them and how to convince them that they should actually give you money is understanding a little bit about them what motivates them and how to get in touch with them so first let's talk about accelerators accelerators are basically investors that have education programs attached to them YC is an accelerator right we take you in for three months we work with companies we try to make them better and better and better and better and better by teaching them what we know and helping them avoid mistakes and then we launch them out into the world in demo day and give them a community on the other side now there are thousands of accelerators all over the world we see applications from all over the world and I think the number of accelerators is proliferating faster than the number of startups and this terrifies me because most of the people who are advising companies in accelerators have no idea what they're doing they've never worked at a startup they've never started a startup they've never funded a start-up outside of the accelerator you got to ask yourself why on earth should I take advice from this person who's never done any of the things that they're telling me I should do never gotten never seen any of these things work and actually what you notice is most accelerators actually hurt companies so be very careful about going to an accelerator none of you need an accelerator to succeed as a company if the accelerator is helpful that's great but if not it damages your company because of the word accelerate if you do an accelerator come out the other side and you were the same or worse than you were when you started it didn't accelerate you very well did it and every other investor that looks at you will look at you and think huh that didn't work what's it actually going to take to the accelerate this company it's probably not money there must be something wrong with the founders and it might not be you it might have been the accelerator right that hurt you so be careful and think very carefully and look at the track record that those accelerators have next up friends and family this is probably the most common source of funding for early-stage startups at the earliest earliest stages friends and family are moms dads rich uncle's Grammy and pop-pop people who have hopefully a little bit of extra money that they can give you because it feels good let's be honest your friends and family don't usually think you're going to build the next Google right they love you they remember when you were in diapers and they're basically giving you money because you have conviction that you can do something and they want to support you and be nice don't take advantage of that niceness only take money from friends and family if you know that they can afford to lose every single dollar that they give you because let's be honest you're probably gonna lose every single dollar they give you let that sink in most startups that raise venture capital do not produce a return so be very thoughtful about whether or not you take money from friends and family and don't make the terms really really onerous don't raise $50,000 from your grandma at a 50 million dollar valuation it doesn't make any sense you're probably gonna get the inheritance anyway so it just doesn't work but seriously if you artificially set a very high price at this point in your life you can probably set the price because again they're being nice but that makes every other fundraising you do increasingly difficult because the price is so high when you do want money from a friend or a family member treat it like a real meeting treat them as if they're real investors be respectful of their time going with an actual pitch and an actual understanding of what you're doing not just can you please give me money now thank you right don't do that really treat this as a as an important thing because it'll help train you for the next stage of raising money which is usually angels angels are basically rich people with a little too much time and money their hands they invest mostly as a sport all right have you ever noticed on Twitter angels will often say oh my billion dollar company this my billion dollar company that it's basically trophy hunting right you have no idea how much money they invested in those companies or whether or not they actually made money or whether or not the money that they made is meaningful to them but they really like to invest in new companies and there's actually a lot of reasons it's actually not just about trophy hunting there's a lot of angels who invest because they really want to see new technologies exist or because when they were new founders someone gave them a chance and they want to pay it forward angels are usually pretty easy to get in front of because they well professional angels are easy to get in front of all they want to do is invest in exciting new interesting companies and spend time with founders who make them feel interested right and who teach them things so email them and if they seem really really busy you can usually network to them pretty quickly especially if they're local whatever city you're in pretty much around the world has at least a few Angels the one last thing I would say about angels is that you should be careful of angel groups forget what they're called but there are basically these groups of angels that like to get together for meals and grilled new founders and then not invest and it's the sport of ripping people apart because they're successful investors or something and they just want to show you how good they are so before you take money from or before you go chase an angel down do some research ahead of time to figure out whether or not they actively invest that's the signal have they made an investment in the last six months 12 months five years ten years they haven't made an investment in a year - they're probably not investing actively so it's probably not a good idea to waste your time chasing them down next up the cow stack is seed funds seed funds are kind of super professional angels who have raised some amount of the outside capital that they are investing they're usually investing on behalf of angels who maybe don't have enough money to be lp's in really big funds these are usually newer but professional investors who are trying to learn the ropes they're often great they're often recent founders they're probably pretty aggressive about finding good deals they have quick processes because they know they have to move quickly do research on them their whole job is to meet new founders who they want to talk to and invest in so email them cold emails to these people are fine if you can get a warm email great but you should just reach out to seed funds their entire job is meeting with you to see if they can invest in you and remember that they are investing for a return so that they can raise their next fund so they're not interested in things that are just going to produce a small return they're not interested in lifestyle businesses which an angel might be interested in investing in if there's cash flow they need you to return capital then there's the VC funds these are obviously the the big deal in fundraising VC funds run the gamut their VC funds that invest million-dollar checks and their VC funds that invest billion-dollar checks know what you need for your stage of capital they all have or almost all have multiple LPS which are limited partners will give them money and say hey we need you to produce X percent return on an annual basis it's called an IRR target and these people these LPS are looking across all the venture funds in the world and saying where can i allocate money and then they're looking at all of the different alternative asset managers and saying where can i allocate money and then they're looking across all of investable assets and saying where can i allocate money and so if i'm a VC partner if I'm a GP I have to think not only do I have to be one of the better VCS I have to return more at a better risk than anything else this investor could put money into for me to get that LP capital so when they're looking you they don't just need you to return five or 10x they're looking at every single investment saying will this investment return my entire fund so as you're thinking about how to meet with these people right you got to think about oh shoot when I walk into that meeting I can't just pitch a small vision of what I'm doing I got to do something big here now VC is when they invest usually have a pretty specific structure of what they do and how they make decisions you might be with a partner at first and then two partners and five partners and then the whole general partnership if you're raising something like a Series A but the earlier stages most of the bigger VC funds can make a decision off a meeting meeting with one single partner so if you're all thinking about sort of that first check probably don't even think about these guys this comes later in the process when you're ready to raise a lot of money the last kind of investor that I can think of is crowdfunding websites these are a little bit of a strange thing to think about when it comes to say a meeting or getting in front of them because they split this crowdfunding that can be done via syndicate where there's one person who's kind of like an angel who has a bunch of money from other people to say hey we're gonna invest in this thing and then everyone follows them along they were kind of like professional investors do where you'll meet with them talk to them then they'll say hey we're gonna back you can we put you on there's private syndicates in public and public syndicates you do not have to meet with every member of a syndicate in order to raise money on a crowdfunding site and there's also the option on any crowdfunding sites to simply list your company subject to a few checks to make sure you're not committing fraud where they'll just put you up and then people will send money your way without you ever meeting anyone this is a good way to raise money if you can't figure out another way to do it or there's no investors near you or you don't want to be bothered with the time it's usually not a good way to raise lots and lots and lots of money because one is usually not there and to it if you have all these individual tiny little investors on your cap table they become a nightmare to manage so think carefully about this option and think about what it will do for you and what it can do to you so a couple of these investors as I mentioned are susceptible or open to receiving cold emails actually everyone is receptive to cold emails I think I respond to pretty much every cold email I get if I can but there's good ones and bad ones so here's a bad cold email dear sir or madam I have noticed in my research on the Internet that you are an investor in technology companies I'd like to introduce you to an opportunity to make money in this new and exciting field may I come to your office for an hour to present you with this opportunity sincerely Aaron I would not take a meeting with this person I have no idea what they do they don't seem to have done any work to understand what I'm interested in Who I am what I've done in the past and they're asking for an hour of my time in person that's a lot of time remember that professional investors sure there they meet with people all day long but the only thing that limits them is their time and so they want to give that to the people who matter most so how do you think about sending a good cold email the answer is by doing research most investors are very happy to tweet about things that interest them companies they've invested in they write blogs about ideas that they have in companies that they want to see exist they have prolific profiles online based on the companies that they've started in the past you should go and research every single investor that you want to talk to and figure out a way to get in front of them with a custom introduction that is relevant to them and to you so here's one you could send to adora Oh Dora I'm building a marketplace for home cleaners I have a novel approach to this all of the cleaners or robots we've launched and are just starting to grow so let's stop for a second if you've done research on a Dora you know that she built a marketplace for home services so you know that this is relevant to her you also might know she thinks robots are cool so that's another good hook you tell her the stage that you're at launched and are just starting to grow now launched is great because it proves that you're actually doing things starting to grow is intriguing because it makes me want to ask how much are you starting to grow how fast well how are you measuring growth how do these things work then I think you'd be a great investor for us because of your experience with homejoy I think we've solved unit economics and reliability can we discuss this for 15 minutes happy email if that's better for you sincerely Aaron so let's think of all the different things here that are good you've only asked for fifteen minutes of time that's easy and can be done by the phone you also offered to do it over email if a Dora happens to be busy or is traveling she can just deal with the first set of questions over email I love to do this I always go to email first and if someone really gives good email responses and is thoughtful and asks good questions I'm much more inclined to meet them and be happy when I'm meeting them walk into the meeting with a positive understanding of what they're doing and context to understand the entire conversation right that's a that's a prepared mind for what you're thinking of doing you reference her past with homejoy and you'll know if you watch some of Edoras lectures and videos online that she thinks a lot about unit economics and reliability so you know that these things are important and you're saying we've solved these two key critical issues that are important to you this is a slam dunk right this is a cold email that is likely to get a response whether or not you know the person you're emailing because it's so specific it's the same thing by the way if you are sending lots of email to people you don't necessarily know to try to convince them to use your service there's a big difference between spamming people right and sending them a relevant email about a relevant service that they will find interesting don't spam investors it doesn't work they're immune to it investors are not usually sitting around waiting for an email from someone they've never met introducing them to an investment opportunity what they are waiting for is the company that no one else knows that is secretly amazing that nobody else has talked to yet that has no connections that is the company that if you find it and is actually as good as it seems that's the one that makes you all of the money so an investor who gets a cold email this good is already starting to think oh crap this is my Google and no one else knows about it I better move fast meet them figure out what's going on give them a bunch of money and then help them IPO that's the response you want to get out of someone in fact that that's what you want to walk out of every meeting with an investor who's excited to move on to the next steps now as you move through meetings with investors there are a whole bunch of different meeting types that you'll have to navigate and different investors do different kinds of these meetings so let me list them and then I'll walk through a little bit more about what they are first up there's the intro meeting all investors do intro meetings except the crowdfunding sites then there's a follow-up meeting pretty much all investors do this except some angels who might decide to invest in you after that first meeting then you've got the decision meeting this is really only professional investors this will be a meeting with multiple partners or with that one partner but to really dig in and make sure that they want to do the deal after well depending on how competitive your fund raises which is a whole other set of things there's diligence a diligence meeting might be with you might be with your team might be with your lawyer sometimes it's handled by the VC themselves or the investor themselves and sometimes it's handled by someone on their team and then finally if it all goes according to plan you get fancy dinners fancy dinners are the goal not not raising money for your company getting to eat for free different investors will use fancy dinners differently sometimes it's used to sell you on an offer that they've made where they really want to get to know you better and show you how great they are and then usually after that everything's done you can finagle a closing dinner out of someone it all seriousness the the reason that I put this on here is that every investor that you take onto your cap table is going to be with you for the life of your company you need to make sure the people you're taking money from aren't jerks if you can't sit through an hour dinner with someone you should think very carefully about whether or not you want to take their money this is a little less relevant at very early stages with small cheque size for small cheque sizes from angels but anyone who's giving you a material amount of money you need to think very carefully about whether or not you want them there all right what you need for each of these meetings changes the intro meeting is really simple all you really need is a clear explanation of your idea that's actually the base level of everything a super clear this is the elevator pitch right the reason this is important is because research shows that people make decisions about what they want to do in an interview sometimes in the first 30 seconds of a meeting right you can't necessarily get to yes in 30 seconds but you can often get to know and if someone comes in and cannot explain what they do that's a really bad sign so make sure you really understand what it is that you want to say and how you want to explain it if you have a demo of what you've built that's awesome investors love to engage with real products and see and not only do they want to see that because they love playing with things this is evidence that you are doing the things that you were saying you're gonna do the entire purpose of meeting with investors is to show them that you are inevitably going to be gigantic and progress is critical to that I would also recommend having a reasonably clean shirt does it have to be spotless I understand what it's like to be a founder but don't show up looking like you just rolled out of bed all rumpled you can get away with that sometimes but again people unfortunately judge based on first impressions if you walk into the room looking like you don't give a crap about the meeting the investor isn't gonna give a crap about the meeting if you get past the intro you're gonna get to a follow-up meeting again except for the Angels that invest off the first meeting follow-ups start to dig a little more deeply into your business so you need to understand your metrics now in some cases this will be the metrics that your business already has and in other cases it'll be the metrics that your company will have in the future so if you're building a consumer business but you haven't launched yet you need to have a framework for understanding that monthly actives are important to you or weeklies or Daly's or hourly actives are important to you and talk about how you're thinking about those things and how you're gonna focus on them you need to be able to explain your progress up to now and remember that progress is in an absolute value progress is slope how long have you been working on what you're working on and how far have you gotten in that time if you've been working on something for five years and have yet to launch not great if you've been working on it for a month and have a prototype ready that's amazing so it's all relative and you want to be able to dig a little more deeply on your insights into why you're doing what you're doing then you did in that first introduction meeting remember that that introduction meeting can be 15 minutes it could be an hour but it's probably pretty short so this is your chance to show just how much you understand about what you're doing when you get to an actual decision meeting this is really when you need the deck again this is mostly for professional investors most angels don't need to see a deck it's not really that relevant I kind of think that some people spend more time on their deck than they do working on product which is usually a bad trade because customers don't generally buy decks some do but that's just weird so you need to have your deck and the deck doesn't have to be long actually the simpler the deck the better this deck is really really long that I'm running through today if you're a seed company eight slides maybe 10 your opportunity your team what you're gonna build or what you've already built and your early metrics that's it I actually put up a sample slide deck on though on the YC blog go check it out it's really short you can actually just use that deck and replace your name with the deck company I think is what it's called at this point if you have metrics you need to know them cold if someone asks you what six month or 12 months retention is know it off the top of your head don't have to pull up your computer and look for it obviously there are levels and layers of metrics underneath that you don't need but any top-level metric that's important know that and for your most important metrics be able to dig in a couple layers the critical part of a decision meeting and again this is because this is for professional investors is that you need to take where you are now and project what the biggest future actually is I remember when I sat down and pitched Sequoia for my decision meeting like me and five partners in the room and the thing that they really dug in on was what my company could be in 10 or 15 years and that was all they cared about at that point they were already sold on the basics of the business at that point they were sold mostly on me but the thing that they wanted to understand I think is how I thought about the future and whether or not they thought I could actually do that thing could we become a globe spanning company because again that's the only thing they care about and your ability to dig into that and explain it is the difference between whether or not you're just another company or something with huge vision that they think you can achieve after that comes the diligence meetings these meetings aren't usually that hard on you if you've done your homework ahead of time and again this is later the earlier in your life as a company the less diligence you have make sure you have your legal docs in order make sure your financials if you have them make sense we've seen some really insane things come up during diligence where a company has you know 50% less cash than they thought they did don't do that it's usually some other problems at work if that happens and have a metrics dashboard again if you have the metrics be able to bring up your full dashboard so that people can really do way down into everything that you're doing so if you walk through all of those things if you understand the framework for your meetings you'll get to the final step which is that fancy dinner there is food and you'll need another reasonably clean shirt but this is the end and doesn't even necessarily happen and honestly even if it doesn't the thing that you were trying to get to is actually money in the bank whether or not an investor takes you out for a meal or an investor seems fancy or other people think the investor is cool none of that matters right at the end of the day the thing that you need as a company if you need money to grow is just money and honestly all of these meetings are irrelevant if you can get that money without them so never put yourself in a position where an investor that you have researched is great you know they're great they email you and say hey I'm traveling this month but I really want to invest can I send you a quarter of a million dollars and we'll catch up afterwards don't say no because you haven't met for coffee right I'd recommend getting on the phone with them and chatting with them and trying to do your own diligence right check references but don't turn people down just because they haven't fit into whatever we believe or you believe is the perfect process a few things to remember about meetings about investors most importantly meetings do not equal progress I run into so many founders who tell me all about all of the different meetings that they're having and how they met with this person and that person in that famous person it's irrelevant the only thing that matters is building a big company and if you are meeting with investors when you don't need to raise money you are taking your time and focus away from the thing that matters which is building the big company so only start meeting with investors when you know that you need money when you are in a fundraising process the only thing that counts as a yes I will invest is yes I will invest signed documents and wired money investors hate saying no because every time they say no they closed off the opportunity to invest in something that's going to make them a lot of money and they risk looking stupid for having said no so they will do everything they can not to what I've actually found is the best investors are the ones who will say no fastest not say yes fastest who will say no fastest because they're the ones who understand what it is they're looking for and how to make decisions quickly and if you find yourself in a situation you're going on meeting after meeting after meeting after meeting after meeting after meeting after meeting after meeting nothing takes that long right this is a gamble and at some point someone has to make a decision and indecisive investors you usually don't make good decisions so when you're meeting with people push to a close the final piece is a warning for you to watch out for I hate having to talk about these things because I wish they didn't happen but they do the first piece of bad behavior is what I just mentioned investors who just waste your time this is honestly kind of harmless but just watch out for it the next thing is investors who are jerks this takes lots of different forms there are investors who will try to impress you with how much money they have who will try to impress you with the people they know who will talk down to you because you're new and they're old they're investors who will try to make you feel as if your idea is stupid without giving you any help or understanding of where their thought process is coming from don't take it if someone's a jerk leave or say hey you're being an I have a lot of people that I can talk to and I'd rather not talk to you thanks don't be a jerk yourself but be honest before thright and leave a meeting if you have to if someone's being a jerk don't take another meet with them then tell your friends that this person was a jerk to you this behavior corrects itself pretty quickly now sometimes people are being jerks without realizing it they just think that's what they're supposed to do or they're not so good in social interactions try giving feedback if that happens and see what happens there investors who will meet with you just to do diligence on you for one of their portfolio companies this is usually pretty obvious because they'll just ask you question after question after question after question about like process and metrics and who your suppliers are and who your special relationships are and what are their phone numbers and when can they go see them and can they introduce you to someone else who seems to be working on a competitive product but no don't worry it's not really a competitive product oh wait wait wait a second so before you meet with someone just check to see if they are already invested in competitors and talk to them about it ahead of time for a lot of investors they explicitly say we're happy to invest in competitors over time and we compartmentalize information actually YC does this we are happy to invest in competitors we sometimes do it in the same batch we tell both companies were doing it but we'll do in the same batch and we'll do it across batches and we've developed a system whereby we're very careful about what information can or would be shared and violating that trust is something keeping that trust secret is something that we are very serious about the last thing and this has importantly become an issue is harassment this could be sexual harassment it could be racism it could be any kind of bigotry unfortunately wealth has absolutely no relationship to morality right and investors some of them are not good people I'll say most of the investors that I interact with regularly are great but there are some bad apples and we just released a report this week talking about just how many YC founders have experienced sexual harassment the numbers were way higher than I would have possibly imagined so if you encounter anything like this this is absolutely grounds to walk right out no one should ever be allowed to make you feel as if you have to do anything for them to get their money other than build a big company no one should ever be allowed to violate your personal space or make you feel uncomfortable if it happens walk away and tell us we're starting to get better at dealing with this and we would much prefer a situation in which no investor meeting ever goes in a way where someone ends up feeling uncomfortable so that's how to think about investor meetings kind of think about when you need them how to get them who to do them with and how to do them I really think that if you follow these steps everything will always go perfectly for you at least I hope it does thank you all so much and I think we have time for questions yeah is it wise to approach if you see who has already invested in a competitor it's incredibly case dependent if they invested in a competitor ten years ago that company is public they might actually be a perfect investor for you because they know the playbook and they'll help you I Pio but you need to just look at the specific situation and decide whether or not it makes sense between the seed funds the angel funds and the micro VCS I don't even talk about micro VCS I'm never sure what they are what's the average check size and round size it's some dependent not just on its dependent there's so many variables the investors the market the geography the company and what it needs I mean there are seed rounds that get done for $50,000 and seed rounds that get done for ten million dollars so it's it's really dependent I think the way to think about it is more what do I need smaller funds or most smaller funds and angels are most likely to write small checks somewhere between I don't know ten and a hundred thousand dollars and larger funds are beyond that we gave you the garbage how do you figure out which angels are credible ask them for references look at their portfolios angel list usually if someone's an active angel angellist usually records what they do and what they've invested in and again angels who are really active tend to talk about it a lot not for a bad reason actually by talking about it that's how they get deal flow right if you know someone's an active angel you're going to approach them so you should be able to do some amount of diligence obviously this is harder in emerging markets where there isn't as hell like as large of an investor ecosystem but you just have to do the footwork to figure it out [Music] can I talk about the mechanics of investor FOMO or fear of missing out that would be a whole hours worth of conversation the basic idea though is investors investors want to invest in the largest companies they possibly can and get as much ownership as they possibly can but at the early stages of a start-up there's very little data to say whether or not this company is likely to succeed and so investors are always looking for other pieces of confirmatory data essentially one of the most powerful pieces of that data set is whether or not other smart people seem to think this is a good idea and so the reason FOMO exists is because if you see other smart investors getting in on something you infer that that company is good and likely to be big and you don't want to miss out on that and so that's why a lot of investors sit back and wait for someone else to make the move I think those are generally the less good investors again the best investors really are the ones who make their own decisions faster than anyone else and actually the best investors are the ones who have incredibly fast diligence processes so they are the ones way out ahead of everyone you can still pressure them a little bit by having other investors lined up behind so they know that they have to move quickly but that's the shortest possible answer I could give you on it mistakes that founders often make while communicating vision some go too big in a way that makes them seem scattered so if I were to pitch you on a company that is well or a search engine we also have self-driving cars we make phones speakers we built this crazy balloon that beams the internet down we have ads and display ads and artificial intelligence and a whole department that just works on crazy ideas you'd say oh this is a lot even for me right so that's kind of going too big it'll it'll make you seem scattered on the other side but sometimes people go too small and they say well if we're gonna conquer 10% of our market that's worth 50 million dollars and we're getting a hundred percent of it okay then what okay so there has to be there there that isn't too wild those are think are sort of the two extremes to think about how do you pitch family and friends who can't afford to lose money no I think that's very dependent on your relationship with those friends and family you know if I wanted Jeff to give me money I'd camp out outside of his house and show up every morning with doughnuts and coffee I think that would get to him pretty well that was seriously I think it really depends on who it is I'd recommend working on an elevator pitch maybe even a deck just for practice right that's the friendliest audience you're ever going to get now this is different by the way if your friends and family happen to be incredibly successful founders who know what they're doing or venture investors then you can use them as real practice and say hey here's how I'm planning on building my business you built a business does this make sense so as much ask for advice as much as you're asking for money in that case and and really just treat it like a professional interaction [Music] we have do we have to drop everything we're doing for fundraising and if so how long pretty much yes you're either fundraising or you're working on your company which is why you shouldn't try to fundraise unless you need it and for how long is however long it takes I mean I mean you should be prepared to take six months a year I mean it it really depends now if it's if you are a very early-stage company and it's taking you a year to fundraise and you're not working on your product for a year that's probably pretty bad right that means you're not making any progress so I wouldn't do that but again this is a question of figuring out whether or not you really need money if you're just starting out you try to raise money for a month or two no one's giving you money I'd say try to figure out how to grow without without raising anything and then come back later [Music] sorry some investors will only fund women founders what I think of that yeah I think that's great I think that if the way that I think about fundraising and company building in generals press every unfair advantage that you have this is like this is a corrective narrative where there's investors who are specifically trying to fund female founders because investors have been pretty bad at that in the past and if you can use that to your advantage you absolutely should I think it's great should all founders be focused on the fundraising process no this is the CEOs job if you are lucky enough to have co-founders who can do other things have them do other things again that will help you not completely stop progress on the business while you're while you're fundraising right if you can you want to keep pushing the business forward while the CEO goes and fundraisers with the professional investors with the venture investors for later larger later rounds they're eventually going to want to meet the entire team but they don't need it at the beginning and in fact you shouldn't bring the entire team to meetings for the following reason if you are in an investor meeting and someone makes you an offer if the entire team is there you have to make a decision on the spot but you're at a severe disadvantage there because professional investors professionally negotiate and make offers you've probably never done this before and the rest of your team is back home you can say thank you so much for that offer it's really interesting I need to talk about it with my co-founders and then you can go back and talk to your co-founders and buy yourself some time to really think through the plusses and minuses thank you all you you

Channel: Y Combinator

Views: 152,671

Rating: 4.943944 out of 5

Keywords: YC, Y Combinator, Aaron Harris, Startup School

Id: Jzz4AEIddzY

Length: 47min 44sec (2864 seconds)

Published: Wed Oct 17 2018

Reddit Comments

[u/midael]

00:55: To get capital from someone, you probably need to 1) know who they are, 2) track them down, 3) find them, 4) convince them to meet with you, 5) convince them to give money to you, 6) get the $$$ on your bank account
01:50: Before meeting an investor, as yourself ‘Do you need money to grow’? That’s the ONLY reason to meet the investor.
03:20: What NOT to use money for: adding headcount is not best use of money often, User acquisition (e.g. doing Google adds)
05:00: OKish purposes to use raised money: customer service (frees you to do other things..). Others
06:30: Types of investors: friends and family, accelerators, angels, seed funds, vc funds, crowdfunding
07:40: There appears to be more accelerators than startups, and it appears that many of them are in fact damaging to your company. At least find out if accelerator people actually have ever been successful entrepreneurs themselves.
10:00: Don’t take money from your friends and family unless they are OK you losing ALL of IT.
11:30: About Angels. Should be pretty easy to get in front of. Be careful of ‘angel groups’. And find out are they actively investing. If no investments in ~1 year -- maybe not best use of time to meet them
13:30: Seed funds - ‘professional angels’. Not interested in lifestyle businesses. Angels might be.
14:30: recap of VC funds. Likely later in life of a startup; A++ rounds
17:30: Crowdfunding probably should be your last resort of raising money
18:00: examples of good and bad cold-emails to investors. TL;DR; most people actually respond to cold emails. They just have to be to the point / good.
21:40: do NOT spam investors. They are Immune to it. They respond to cold emails from companies that they will believe will be next google that others havent heard of yet. Those cold emails have to be custom.
23:02: meetings you will/may have [with VC]: Intro, follow-up, Decision meeting, Diligence, ‘Fancy Dinner’
24:30: You need to make sure people you’re taking money aren’t *jerks*. Anecdotally, if you hate sitting through 1h dinner with them, maybe not a good idea to get money from them
26:00: unfortunately looks matter. If you walk into the room (clothed, etc.) like you don’t care about a meeting, there's a good chance counterparty won’t either. Don't overdo it though.
27:30: Until you meet VCs (vs. angels, seed funds) you don’t necessarily need a deck. REALLY! But in decision meeting, you should come with a deck. Max 8-9 slides.
29:15: in a decision meeting -> be able to explain your BIGGEST possible vision. In 10-15 years. And how you can execute that.
30:10: Diligence: have your data in order. And have metrics dashboard.
33:10: Investors hate saying NO. They try to delay decision (e.g. saying NO may make them look stupid later when they passed a great opportunity). Seemingly best investors are those that say NO fastest.
34:00: Long list of signs of a jerk/bad investor. If someone is a jerk - don’t take it. Leave the meeting if need be.
35:30: Lastly, watch out for VC gathering competitive intelligence for their portfolio companies