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Every month, I look at over 200 startups. I choose one.
Among those hundreds of companies raising funds, I always see tons of cool ideas. So what distinguishes the companies I choose from all the others?
The number 1 reason I say no to founders is that they’re raising funds too early.
Many of the pitches I see are little more than a few slides with a lot of projections. But most investors want more than projections.
We want a track record.
For companies raising seed funding, I expect at least six months of revenue, growing month over month. For consumer products that are pre revenue, I’d like to see a similar track record of user growth.
Many companies I see trying to raise seed funding are nowhere near that. They have no revenue and often not even a product!
What founders have to realize is without any track record in the market, how can investors tell if your company is a good bet?
Without a track record, the only thing an investor has to go on is the team. And talented as so many founders are, the fact is that most founders raising seed rounds are unknown.
They might build the next Uber or Airbnb, but they haven’t done it yet. 🙂
Raising money without a track record in the market is much easier for serial entrepreneurs with a big win behind them. If you sold your last company for $1 billion, I’m willing to fund you a lot earlier.
Founders will make the fundraising process much easier for themselves if they build their company to at least a few thousand a month in revenue before raising a seed round.
This gives them greater credibility among investors. It shows they know what investors are looking for.
Bootstrapping your company to thousands in monthly revenue isn’t easy. But neither is raising money without a track record to point to.
Another benefit of doing some building before the fundraising is that you’ll have a better idea how to deploy that capital because your business is more mature. A big check from a VC won’t do you much good if you don’t know how to spend it to drive growth.
Best of luck to everyone out there building!
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More on tech:
Tech Plunge Hits Early Stage Startups
Founders Biggest Pitch Mistake
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Photo: “Startup” by Skley is marked with CC BY-ND 2.0.
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3 thoughts on “The #1 Reason I Say No to Founders”
Francis, I enjoyed reading a few of your bogs on investment :). Mainly, because you are a great person for me to pick at because I am not happy with the investment world for a lot of the mentality you express. We have a stifling of innovation occurring in America – it’s like a massive problem. While America was at one point a spawning point for innovation, today I see it reversed. And from where I sit that stifling it comes from investors. Whether it comes from somewhere else before that, I’m not sure. But I knew looking out into a landscape of very little innovation in the last decade in technology and 1000s of copies of the same dating app 5 years ago when I started, that obviously the system is malfunctioning. That’s super obvious. Which is why I didn’t even try to talk to investors. It’s clear what they have produced by investing in “profitable track records”. To be frank, investors track record are poor. It’s a lot of crap they funded. So I would turn the table squarely on you and say what is your track record of producing companies that have monumentally increased our life enjoyment and pleasure of living? Is your philosophy to invest only in money-related track records really the key? Number one we are money obsessed in America and it resembles a bad disease to most young people (and me) yet money is not the same thing as progress or innovation. They are not even related. Because the real innovation doesn’t come from the people are making money reliably. It comes from people who are risking not having reliable money to do something unusual which has a chance to make an impact. The reliable money is not the indicator of any of that. The companies with the most money innovate less in proportion to their size on average – in this world. That’s obvious. So why look for money track record? Just to avoid misguided people? Can you not tell by their history what their motivations are in a couple interviews? People, individuals who are willing to take things forward are not tied to money (or user count) they don’t see it as a “track record”. In my eyes, investors have made and are still making huge errors by avoiding companies without revenue. Huge. It couldn’t be further from real progress. The founding of facebook long before it had revenue should have been an obvious clear symbol that the largest impacts can come from not-immediately-profitable ideas. But more importantly, innovation and drive to get something done is not a natural occurrence in people making money. It is more likely in those who are not. And, reliable money track record is not what the tech world needs right now, it needs people willing to take risks and take things forward instead of going after reliable money or reliable anything. Investors are causing lack of innovation (but not for me because I ignore them). The thing that should be looked for is motivation, history, and drive. What are they trying to do. How hard have they worked so far to get here? That’s it. That’s all that matters for what they are capable of, should they come into resources. You know and make sure they are not completely terrible with money. That takes like maybe two interviews to figure out. But still not even close to the importance of the vision they have.
And finally, while we’re on the point, investors are the unreliable players in this entire game – not tech startups. They are the ones who have gone from investing wildly in pre-profit (Facebook Uber) to avoiding pre-profit completely….. all the while it was never really important. The wild pendulum swing should tell you everything you need to know about investor flock mentality and lack of thinking. Investor flock mentality is at an all time high. And investors either seem to think it’s completely important or completely unimportant, with realizing it’s not even remotely the important factor to the biggest steps forward. To have a hard and set rule of no investment in pre-revenue companies (which is what all investors did last year) is one of the stupidest things I’ve observed in the overall world of progress that we all need to make. It takes judgement, but using money-track as a replacement for judgement is why we don’t all have much better things right now.