Tag Archives: Entrepreneur

Venture Capitalists Don’t Invest in Ideas

A few months back, a very nice young lady contacted me. She had an idea for a software product and wanted me to hear it.

I had to think of a very polite way of explaining that…

Venture Capitalists Don’t Invest in Ideas.

Many people think that angels and VC’s spend their days evaluating ideas. When they find an interesting and original concept, they shake hands and write a big check.

This isn’t how it works.

There are countless ideas, but only a skilled and determined founder can turn her concept into a real product. And then it takes even more perseverance to find customers who need the product and get their money.


Never miss a post…subscribe!


Traction Over Everything

So rather than attempting to read the tea leaves and find out which idea will work, most investors look for evidence that it’s already working. That evidence is called “traction.”

If you have several thousand dollars a month in revenue coming in the door, growing 30% month over month, there is clearly a very strong demand for your product. You’ve proven its value in the market.

If you can show an investor traction like that rather than just a deck or even an MVP, your odds of getting funded skyrocket.

Why are investors so stingy? Because they know that most startups will never even get to dollar 1 of revenue.

If investors dump cash on too many companies that don’t succeed in the market, they will soon have no more money left to invest. And then, even the best startups won’t be able to raise capital.

Venture Capital Is to Help You Scale, Not to Help You Start

Venture capital is really for scaling a business, not starting one. If you clearly have strong demand for your product in the market, we can help you staff up and meet that demand.

But few investors, if any, want to give you money to build a product.

What we’re trying to avoid is a team that raises money, works on the product, but misses their launch date. The date is postponed, and they miss it again.

Soon, they’re back asking for more money with no real progress to show.

But What About Pre-Seed?

Even for pre-seed deals, most investors want to see a Minimum Viable Product (MVP) built. Without that, it’s difficult to tell what you’re even investing in.

It’s also hard to say if the founders will ever be able to deliver on their plans.

Even the Best Bring More Than an Idea

Last year, I got a deal memo in my inbox for Callin, a social audio app co-founded by David Sacks.

Sacks is part of the famed PayPal Mafia and served as the company’s COO. After that, he founded Yammer and sold it to Microsoft for $1.2 billion in 2012.

He has a stronger track record than almost anyone. But even he didn’t show up with just an idea.

Sacks and his team had a nicely functioning app in private beta available for iOS. Numerous users were already creating podcasts on the platform.

Alas, the round was massively oversubscribed and I never got my allocation. But I did come away with an interesting lesson.

Wrap-Up

If you want to raise money, show up with more than an idea. Show up with an MVP you can show investors.

Better yet, come with a couple of customers and a little money coming in the door. Nothing impresses investors like real customers and real revenue.

Building an MVP with minimal resources and finding customers on your own is very hard. But so is contacting investor after investor with little chance of success.

What misconceptions have you seen about fundraising? What still mystifies you about the process?

Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on tech:

Inside Today’s Early Stage Venture Market

What the Best Founders I Know Have in Common

Amp It Up

Never miss a post…subscribe!

Photo: “Startup” by Skley is marked with CC BY-ND 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Inside Today’s Early Stage Venture Market

The good times are over. And they didn’t even last that long.

The NASDAQ quickly bounced back from an over 30% fall in early 2020 as COVID raged. The tech stock index reached all-time highs last November, only to plummet a further 29% since.

Now, the tech stock rout is making its way into private markets. So what does this mean for early stage startups and angel investors like me who fund them?

Here’s what I see going on inside today’s market:

1) Deals are taking longer to close. A deal that might have closed in 1-2 months last year is taking 3-4 months now.

2) Valuations are down moderately. I am seeing declines of around 10-20% from the 2021 peak.

Publicly released numbers show less of a correction, but remember that there is often a several month lag between when a deal is priced and when it’s publicly announced. If valuations drop, it won’t be apparent to the general public until months after it happened.

3) High growth companies are still getting plenty of funding.

Seed stage and Series A startups that are growing revenue rapidly, in the range of 10-20% month over month or more, are raising almost as before. These are the strongest startups, and in a tougher market, investors will gravitate toward them.


Never miss a post…subscribe!


4) Some investors are increasing their pace of capital deployment.

I’ve actually invested a bit more than usual in the last two months as valuations have retreated. If you can invest in great companies for less than you could 6 months ago, you may want to deploy more cash than usual.

5) Crypto/NFT projects continue to command crazy valuations.

Bitcoin has fallen by more than half since November. NFT trading volumes on major exchange OpenSea are also down more than 50% since the beginning of this year.

Yet this, the most rah-rah of all venture sectors, seems to be going full speed ahead. I still see extremely expensive rounds in blockchain companies that have few if any customers and often not even a launched product.

The NFT area seems the most overheated of all. I recently saw a $1 billion valuation for an early stage NFT company.

It not only didn’t have a product yet, it didn’t even have a deck.

I expect a brutal correction in these markets in the coming months, leaving behind only the most useful and widely adopted projects.


In all, if startups focus on good, cash-efficient growth, I’m confident they’ll still find the funding they need in today’s market. But companies with no revenue, no product in market, heavy burn, and/or anemic growth are in trouble.

What are you guys seeing in early stage venture markets? And what do you think the future holds?

Leave a comment at the bottom and let me know!

More on tech:

What the Best Founders I Know Have in Common

Amp It Up

The Startup Pitch Checklist

Never miss a post…subscribe!

Photo: “2016/366/238 Proceed with Caution” by Edna Winti is marked with CC BY 2.0.

If you found this post interesting, please share it on Reddit/Twitter/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

If you found this post interesting, please share it on Reddit/Twitter/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

What the Best Founders I Know Have in Common

Hi everyone, hope you had an awesome weekend! Today, I want to talk to you about some of the smartest people I know.

As an angel investor, I meet with a lot of startup founders. As I took a walk on the Hudson today, it occurred to me that the most successful ones all remind me of each other.

So what distinguishes the best founders from the rest? Here are a few thoughts:

1) They have all the facts at their fingertips. Whenever I ask them a question, they tend to know the answer cold.

I could be asking about a product feature, customer acquisition strategy, or a metric like gross margin. Whatever it is, they’ve thought about it already and know all the relevant facts.

2) Strong customer focus. The most successful founders I’ve seen are obsessed with their customers.

They know everything about them and what they need. And they tailor their product ever more carefully to those needs as time goes on.

What are the less successful founders focused on? Often their competitors, someone “stealing their idea,” or endless fundraising.


Never miss a post…subscribe!


We should always remember that the business’s goal is to serve the customer. Don’t let distractions take you away from that.

3) Openness to questions and criticism.

The best founders I’ve seen gladly answer any question an investor asks. They’re eager to show off their awesome product and happy customers!

The less successful ones evade questions and try to convince investors the business is going better than it really is. I sometimes suspect they’ve convinced themselves too, at their peril.

If we’re forthcoming with information and open to constructive criticism, we can learn from others and improve!

One of the most exciting moments for me as an investor is when a new founder reminds me of one of the best I’ve met. That’s when I start to salivate and reach for my checkbook. 🙂

The good news is that the best founders have a lot to teach all of us about how to up our game, if only we’re willing to listen!

What do you think makes a great founder? What did I miss?

Leave a comment at the bottom and let me know!

More on tech:

The Startup Pitch Checklist

Amp It Up

How to Write a Deal Memo

Never miss a post…subscribe!

Photo: “A Street Called Awesome” by moonlightbulb is marked with CC BY 2.0.

If you found this post interesting, please share it on Reddit/Twitter/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Amp It Up

“Only the government can print money; the rest of us have to take it from somebody else.”

Frank Slootman

Frank Slootman has been the CEO of three companies: Data Domain, acquired for $2.4 billion, ServiceNow, market cap $94 billion, and now Snowflake, market cap $52 billion. His track record has few parallels.

But Slootman wasn’t always a big success. As a teenager in the Netherlands, he cleaned toilets for a living. When he moved to the United States, he had his heart set on joining IBM.

They rejected him. 12 times.

So how did Slootman go from obscure Dutchman to one of the biggest names in tech? By bringing a warrior’s mentality to business.


Never miss a post…subscribe!


Slootman focuses like a laser on destroying the competition, on breaking their will to fight. And the most powerful weapon in his arsenal is growth.

When you grow much faster than your competitors, it demoralizes them. And as you become the winner, you can begin poaching their best people, causing the rest to lose all confidence.

The importance of growth to Slootman’s approach is impossible to overstate. It’s also born out by data:

“‘Grow Fast or Die Slow’ is the title of a 2014 McKinsey & Co study that examined thousands of software and services companies between 1980 and 2012. It concluded that growth trumps everything else as a driver and predictor of long-term success. ‘Super grower’ companies, which McKinsey defined as 60% or more annual growth, had five times higher returns than medium growth companies (which had less than 20% annual growth). Super growers also had an eight times greater likelihood of reaching $1 billion in annual revenue. “

So how do you grow fast? Slootman recommends focusing on one key thing.

Many priorities means no priority.

You should also push everyone to move faster at all times:

“Leaders set the pace. People sometimes ask to get back to me in a week, and I ask, why not tomorrow or the next day? Start compressing cycle times.”

Frank Slootman

But not just any team can achieve this. Finding the very best talent will make or break your business:

“Hire more for aptitude than experience and give people the career opportunity of a lifetime.”

Frank Slootman

This talented group of people also must be motivated by an important mission. Snowflake is making data queries 10-100x faster, leading to a total revolution in how humans use data to make decisions.

That’s the kind of mission that will put pep in your step!

Slootman also has some interesting info for investors in startups, such as myself. The way he spotted “super grower” companies to take the helm of was by looking for a fast growth track record, a huge market, and extremely happy early customers.

We can use the same criteria to find great investments.

Slootman’s book is energizing, exciting, and a true page turner. That’s rare in the world of business books.

I strongly recommend getting this slim volume for yourself! After reading Slootman’s words, I felt ready to run through a wall.

You will too!

Let’s close with a great quote from Frank:

“Only in hindsight will you truly realize what your experiences have meant. That is why it’s okay to embrace your inevitable challenges and setbacks as part of your journey. They are there for a reason.”

Frank Slootman

What do you think Slootman got right, and did he leave out?

Leave a comment at the bottom and let me know what you think.

Have a great day everyone!

More on tech:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

The Startup Pitch Checklist

The Lean Startup

Photo: “Frank Slootman” by Thomas Hawk is marked with CC BY-NC 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

How to Answer Investor Questions

There’s tons of advice out there on how to pitch investors. But what about what comes next?

After any pitch, investors are likely to ask numerous questions. How do you answer them in the most effective way?

Here are some tips:

Pacing

One of the biggest mistakes I see founders make is taking too long to answer a question. The answer should be about the same length as the question.

When you take too long answering one question, you run out of time to address others. You’re also more likely to start rambling and lose the investors’ attention.

Be Direct

Investors may have some tough questions for you.

Tough as they may be, you should answer these questions as directly and specifically as possible. If someone asks for your churn figures, give them numbers, not a story.

Whenever I sense a founder isn’t giving me the information I need to make a decision, I start mentally moving on to the next company.

Don’t Get Defensive

For early stage startups, no one is expecting you to have everything dialed in just right. If you had that, you wouldn’t be a startup.

You’d be a Fortune 500 company!


Never miss a post…subscribe!


So when investors ask the tough questions, don’t feel like we’re attacking you. We’re not.

We just need certain info to make a financial decision.

It’s Okay to Not Know

An investor might ask you for some very specific info in a meeting.

It’s perfectly okay to say you don’t have that information in front of you. What’s important is to promptly follow up and get the investor the information they asked for.

Always Be Honest

Many founders have wanted to put a company logo on a slide when that company isn’t really a customer…yet. Or maybe claim a big name investor is in the round when in reality you’re just talking with her.

Don’t give into these temptations. When you make presentations to investors as part of a fundraise, you’re opening yourself up to serious legal liability.

If you make a knowingly false statement, you could go to prison for securities fraud.

Most founders would never cross this line, but for those who might be tempted, I urge you to protect yourself and just give the truth.

Be Glad for the Grilling!

Answering a ton of questions can be really tough! But be glad for each one.

One of the surest signs I’m not interested in a startup is when I don’t ask any questions. I’ve already ruled the company out.

I often ask questions when I’m wondering if there’s any reason not to invest. And I’m not alone.

Wrap-Up

These investor questions are often the last step before a check.

Keep your answers brief, concise, and factual. When founders crisply answer questions with detailed information, I find it enormously impressive.

Best of luck!

What has it been like for you answering investor questions? What did I miss?

Leave a comment at the bottom and let me know.

Have a great day everyone!

More on tech:

The Startup Pitch Checklist

Growing Veggies on Mars

Startups’ Secret Marketing Weapon: Blogging

Never miss a post…subscribe!

Photo: “interrogation-room-light.jpg” by r.nial.bradshaw is marked with CC BY 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

The Startup Pitch Checklist

Last Thursday, I was preparing to judge a startup pitch competition. I thought to myself, “How can I make sure every startup hits the key points?”

Then, it came to me: a checklist!

Every time you pitch investors, you need to give them certain key pieces of information. Without those details, they may just move on to the next company.

Make sure that never happens to your business! Whenever you pitch, make sure you check off these 6 key elements:

1) ☑️ Problem. What problem do you solve? For example, Uber solved the problem of expensive, hard to get taxi rides.

2) ☑️ Solution. How do you solve that problem?

Uber makes it easy to get a ride with a simple smartphone app. You always know exactly what you’re paying and where your driver is.

3) ☑️ Traction. Show us a chart of your revenue, broken down monthly or quarterly. Also, compute a growth rate using a tool like this.

Investors want to see a strong growth trend. Make absolutely sure you give them that, if at all possible.

Don’t have revenue yet? Show us monthly active users, signups, etc.


Never miss a post…subscribe!


4) ☑️ Market + Competitors. How big is your market? Who do you compete with?

I don’t get too hung up on complicated market size calculations, but here is a resource on how that is typically done.

I’m more interested in your competitors. Who do you lose deals to? Who do you beat for deals? And why?

Hint: “we don’t have any competitors” is rarely the right answer. Maybe no company does exactly what you do, but who is close?

5) ☑️ Team. This is especially critical for early stage startups. At this point, there usually isn’t a ton of performance to sell.

So you have to emphasize the quality of the team. Why are these the best possible people to take on this challenge?

6) ☑️ Ask. Here’s one of the strangest things I see: a founder telling a great story with solid traction, and then saying “thank you” and sitting down.

Umm, don’t you want something from us? 🙂

Never forget to tell the investors exactly what you’re asking for! Tell us how much you’re raising, at what valuation, and specify if that’s pre or post-money. (If the valuation includes the money you’re raising, that’s “$X post-money,” also referred to as “$X cap.”)

It’s also good to specify what type of fundraise you’re doing. Is it a SAFE, a priced round, or a convertible note?

Say something like this: “We are raising a $1 million SAFE at a $10 million cap.”

If you hit these 6 key elements, you’ll have a solid pitch that gives investors the details they need. You’ll also have a leg-up on other founders who provide incomplete or unhelpful information.

Best of luck on your fundraise!


What do you think makes a great pitch? What did I miss?

Leave a comment at the bottom and let me know!

More on tech:

How Startups Can Dominate the Elevator Pitch

How to Write a Deal Memo

Startups’ Secret Marketing Weapon: Blogging

Never miss a post…subscribe!

Photo: “Startup” by Skley is marked with CC BY-ND 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Startups’ Secret Marketing Weapon: Blogging

For startups, customer acquisition ain’t what it used to be.

Apple effectively ended ad targeting last year. Google plans to do something similar in 2023.

Without targeting, you could be advertising a US woman’s underwear brand to men in Germany. Those precious marketing dollars go…poof.

But some startups have found a secret weapon. Hint: you’re reading one right now.

Blogging for Customer Acquisition

Every day, your potential customers are searching Google to find solutions to their problems. You can help solve their immediate problem, while subtly directing them toward your service.

Let’s look at a startup with an excellent blog: Capbase. (I’m a small investor in the company.)

Capbase makes software to incorporate, manage your cap table (list of company owners), handle employee stock options and a lot more.


Never miss a post, subscribe!


Capbase’s potential customer may be a new founder who isn’t sure how to get started. How do I incorporate, or pitch investors?

So the company wrote an excellent article on the do’s and don’ts of investor pitches. This helps solve a problem a new founder is likely to have.

At the same time, Capbase subtly introduces them to its software. This platform can solve the problems they’ll have in the near future, like incorporating and issuing stock options.

Keeping it Fresh

Notice that Capbase doesn’t just have a bunch of text posts by a single author. It has a mix of authors with different perspectives, and even includes podcasts to keep things interesting.

So how can you come up with topics?

Think about problems your potential customers might be having. You can even interview current customers to find out.

Or if your startup is solving a problem you’ve had yourself, draw inspiration from your own life!

Evergreen topics are best. Provide content that will be useful years from now, rather than topical commentary that will be outdated in days.

This helps you capture traffic in the long term.

Keeping it Consistent

You should publish articles on the same days, regularly. If every day is too much, try Tuesday and Thursday, for example.

The key is consistent new content.

Readers like it. So do Google search algorithms.

Wrap Up

Online ads are not as well targeted as they once were, and are only likely to get worse. Meanwhile, a search shows user intent.

If I search “how to pitch investors,” I’m probably a startup founder at the early stage. So, I’m an ideal Capbase customer.

If I search “how to meditate,” I’m already interested in meditation. Perfect time for an app like Calm to slide in and give me some tips, while also making me aware of their product.

A company blog can deliver more customers than online ads while costing far less. Master it and stop handing your money to trillion dollar corporations that provide little in return.


Do you have a company blog?

If so, what have you learned from writing it? If not, why not?

Let me know in the comments at the bottom!

More on tech:

How to Write a Deal Memo

How to Ace a 3 Minute Pitch

The Lean Startup

Never miss a post…subscribe!

Photo: “Kendra” by c.a.s.e.y is marked with CC BY-NC-ND 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

How to Write a Deal Memo

Everyone running a startup knows about the deck.

There are countless tutorials about how to write this PowerPoint presentation that forms a key part of a startup’s pitch. Shoot, I’ve even written one.

But what about the deck’s mysterious cousin: the deal memo?

Founders generally send potential investors a deal memo along with the deck when they’re trying to raise money. You would generally send one once you’ve confirmed some interest from the investor. (For the first introduction, a short deck is good.)

But when an investor is ready to take a serious dig into your business, it’s time for the deal memo. So what does a good deal memo look like?

I see over 200 of them every month as an investor. Here are how some of the best look:

Length

Generally more than 2 but fewer than 10 pages. About 6-8 pages is good.

More important than the exact length is that you cover important elements thoroughly but concisely.

Which brings us to…

Topics

Here are the sections I like to see, ideally in this order.

A paragraph or two for each section is good.

  • Deal Terms: How much are you raising at what valuation? And what type of security is it (SAFE, priced round, etc.)?
  • Prior Investors: Who has invested before and who is investing in this round?
  • Company Description: What do you do?
  • Traction: Show us your revenue growth in a monthly or quarterly chart. If you have no revenue, at least show us user growth. You should also compute the growth rate for the last 6-12 months using a tool like this.
  • Market Opportunity: How big is this market? Show VC’s that your market is big enough for you to become a billion dollar company, because that’s what they’re looking for.
  • Why Now?: Why is now the right time for this company to dominate? Why is the market ready? For example, imagine starting a videoconferencing company in 2019 versus 2020. The 2020 market would’ve been far more receptive.
  • Why Us?: Why are you and your team the right people to take on this problem? Tell us about your skills and also why the problem matters to you. If you’re solving a problem you’ve had yourself, you’ll probably be better at it and less likely to quit.
  • Competition & Defensibility: Who are your competitors, and why is your solution better? Many companies say “We don’t have any competitors. No one else does what we do.” That’s usually not a good answer. Maybe no other company does exactly what you do, but who is close? And why are you the better bet?
  • Use of Funds: What will you use the money you’re raising for? A simple breakdown like 60% engineering and 40% sales is fine.
  • Hiring: Who are you hiring now? Investors might be able to introduce you to a great candidate!
  • Key Risks: What are the top few reasons this business could fail? For example, you may struggle to hire talented engineers in this tight labor market.

Wrap-Up

Writing a good deal memo is a lot of work. But when investors are seriously considering your company, this document can seal the deal.

Leave nothing to chance! Get the deal memo right and give yourself the best shot at a fat check.

What questions do you have about deal memos? What did I miss?

Leave a comment at the bottom and let me know!

Glad to be back with you guys for another fun week! 👋

More on tech:

How to Ace a 3 Minute Pitch

The Lean Startup

Robot Pizzas and the Future of Fast Food

Photo: “Asleep at the Wheel” by Aaron Jacobs is marked with CC BY-SA 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Judging a Startup Pitch Competition

Never miss a post…subscribe!

Last night, I had the honor of judging a startup pitch competition. Each founder in the Starta Accelerator in NYC had 3 minutes to pitch a panel of judges in front of a live audience.

I was so impressed with the hard work these entrepreneurs are putting into building their companies and pitching investors!

I also came away with some insights that might help other founders. Maybe you!

1) Be sure I know what your company does within the first minute.

Some founders do an amazing job of summarizing a problem, but aren’t as clear on how they’re solving it. The most important thing you can convey in your pitch is what your company does.

Don’t bury the lead!

2) Tell us exactly how you make money. Some founders do a great job of explaining what their product does, but don’t tell us how they actually get paid.

One of the key things investors are trying to learn about your company is the revenue model. So make it a big part of your pitch.

3) Clearly state the terms you’re raising at. After watching 6 companies present, I noticed they all had one thing in common: not one said what valuation they’re raising funds at!

Tell us how much you’re seeking to raise and at what valuation. And be clear as to whether the valuation is pre-money or post-money.

You also want to mention how much money is already committed to the round, if any.

Here’s a good example sentence: “We are raising a $1 million seed round on a $7 million pre-money valuation with $500,000 committed.”

Some founders are reluctant to ask for anything out of modesty. Others don’t want to be pinned down to a particular valuation because they want to negotiate it later.

But you must ask investors for something specific. Otherwise, what’s the point of your presentation?

You can always negotiate those terms later, but be sure to offer a starting point.

4) Give us some key numbers.

We investors love metrics. So show us your month-over-month revenue growth rate, gross margin, churn rate, net revenue retention, etc.

A good story is essential, but good metrics close the deal.

And finally, on a hopeful note…

5) You can improve your pitch enormously in a short period of time, if you do the work.

I saw one of the founders that pitched last night two weeks ago. In that early pitch, I honestly had no idea what the company did.

When I saw him last night, he was polished and crisp. I knew exactly what his company did and why.

And I almost found myself reaching for my wallet. 😄

If you put the work in, you can improve. Repetition goes a long way!

What do you think makes a great pitch? And what questions do you have for me about speaking to investors?

Leave a comment at the bottom and let me know.

Have a wonderful weekend everyone! 👋

More on tech:

How Startups Can Dominate the Elevator Pitch

Why Your Startup Shouldn’t Be an LLC

Find Code Faster Than Ever

Never miss a post…subscribe!

Photo: “JudgeThumbUp” by cali.org is marked with CC BY-NC-SA 2.0.

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Why Your Startup Shouldn’t Be an LLC

Every now and then, I see the unthinkable: an LLC trying to raise venture capital.

You want to give your startup every chance of success. So don’t shut yourself out from venture capital with this rookie mistake!

Repeat this mantra every night before bed: “investors want a Delaware C Corp.”

Why Don’t Investors Like LLC’s?

Here are a few reasons:

1) Issuing stock options to employees is difficult and expensive.

Almost all startups use options to recruit and retain employees. You don’t want your legal structure to make that nigh impossible.

2) Investor taxes become a nightmare.

3) The venture fund’s own investors won’t have it.

These limited partners (LP’s) who put their money in the venture fund don’t want to deal with the tax complexity of LLC’s.

What’s more, many LP’s are tax exempt foundations and endowments. They don’t want the taxable income an LLC will pass through to them.

4) LLC’s don’t qualify for a big tax loophole.

Qualified Small Business Stock (QSBS) can shelter up to $10 million in capital gains from any taxation whatsoever. Pretty sweet, eh?

But LLC’s don’t qualify. C Corp’s do.

LLC’s Advantages Are an Illusion

I know, I know, C corp’s cause double taxation of profits, both at the corporate level and the individual level. But given that most startups make bupkus for years, you don’t need to worry about that.

And yes, LLC’s are very simple to form. But if you’re issuing options and raising capital, the LLC soon becomes far more complex than the C Corp.

From Harvard-trained attorney Jose Ancer:

The amount of tax and legal analysis that has to be done to issue equity compensation and/or raise capital in an LLC is (without exaggerating) 10x that of a corporation.

What’s the Obsession with Delaware?

Simply put, it’s the standard. Delaware has well-established corporate case law and investors are used to dealing with Delaware companies.

Delaware also has some sweet tax advantages.

What If I Already Screwed Up?

I’m sending you to bed with no dinner!

Just kidding. If you initially formed an LLC and now realize you need to be a C corp, it’s okay! Just make sure to convert before raising any money.

Once you’ve raised money, converting becomes a lot harder and more expensive.

Here’s Becki DeGraw, a partner at top tech law firm Wilson Sonsini, explaining the conversion process on This Week in Startups:


How Do I Make a Delaware C Corp?

You’re in luck! It’s much easier than it once was.

There are online services that can handle the whole thing for you. Stripe Atlas is one popular choice.

Another is Capbase, which can not just form the company but manage your cap table (list of company owners) and a lot more. Full disclosure: I’m an investor in Capbase.

Whichever method of incorporation you choose for your tech startup, just be sure it’s a C Corp registered in Delaware and you’re off to a great start!

Happy building!

More on tech:

Why I Just Invested in Capbase, The Startup in a Box

How Startups Can Dominate the Elevator Pitch

The Lean Startup

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been great so far.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order.