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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:Â
Tech Plunge Hits Early Stage Startups
Founders Biggest Pitch Mistake
Why I Just Invested in Deft, the Best Way to Shop Online
Photo: “Startup” by Skley is marked with CC BY-ND 2.0.
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