I really resonate for planning with the 'debate from hell' and while its fun to posit a world class debater on the other side, sometimes it helps to imagine a clueless idiot as well.
Founders are clearly founders because they really like their idea, and people "just don't get it" and are spewing irrational arguments at it in an offensive way can easily get under your skin if you haven't already thought about them attacking you. Sometimes you'll just have to walk away and if you really want their support that can be really hard to do.
Yes. This is like debating a rational knowledgeable opponent as opposed to debating an irrational unknowledgeable opponent. You really need to be prepared for both. The one is more like vetting. The other is more like selling.
I think investors especially want an answer to the irrational because frankly, the rational knowledgable argument is hard to understand. That gets worse the deeper into a bubble we get.
Did I just say that investors are not rational? Yes, I just said that investors are not rational. I'm not a believer in the Efficient Market Hypothesis:
"during first meetings, most investors are looking for "reasons to say no"
Is that true? There's always a reason to say "no" to a startup. I would think that they are looking for reasons to say "yes", and then getting more skeptical as they get interested.
It's not exactly true but it's a decent approximation. Because the investment rate is so low (~1%), and because professional VCs often see 1000+ pitches per year, red flags are a quick way to allocate time more efficiently. If I see 1000 pitches, 100 might be very strong right off the bat, 200 have promise, and 700 have a number of aspects that would make me reluctant to invest. I will pass on the 700 quickly so that I can focus more on the other 300. If my investment rate were higher -- say 15% -- then I might drill into some of those 700, too. But because it's 1% and there are only so many hours in a year for meetings, if I see a red flag or a few yellow flags in a first meeting, I'll use that as justification to give a quick pass. I think most VCs are similar.
I think it's worded funny. Most investors are already saying "no" in their head, and looking for reasons to justify it. The trick is to get them to trying to justify a "yes".
This was always the power of a crazy revenue graph — impressive revenue growth immediately flips people around.
"Execution skills" - yup, nearly everyone thinks they're above average but do note that in business those supposed "execution skills" very frequently turn out to be trade secrets instead - that is, intellectual property that's confidential and invisible. If anyone uses the phrase "execution skills" (even if just in internal dialogue) and isn't referring to specific trade secrets, they're probably just pumping out hot air, with extra jazz hands.
> If you need more capital to keep the company alive but don't have a clear plan for using that money then you're probably not ready for your next major round of financing.
That's a polite way of hinting that you really should consider shutting down.
Kind of :). But this is also what bridge/extension rounds are for. Perhaps you raised a $1.5m seed round and your goal was to validate 4 key hypotheses with that capital. If you validated all 4, then that's usually a great segue into raising a Series A. If you validated 0-1, that probably means your company isn't viable. If you validated 3 out of 4, or maybe even 2 out of 4, there's evidence that you might be on the right track, and you can often raise another $1m or $2m extension from investors who believe that you will validate the remaining hypotheses if you have a little more runway.
Just in case you got trapped, this is mostly a boilerplate which goal is not to help you but the author to get the appropriate image that would allow him to invest in companies that are doing well.
> How do competitors view you? Think about your 2-3 closest competitors. If you asked their CEOs to truthfully describe your company's strengths and vulnerabilities
Well, your 6 months old startup has no "strengths and vulnerabilities". It should also not have direct competitors. Only big companies have this kind of things. You have code, users and growth.
> Are you ready for a Series A?
> Imagine that instead of being the founder of your company, you're an investor
You already ask yourself these questions.
> The debate from hell
This one is decent and I'm nice. You already did this with your cofounder most of the time.
> Was your MVP truly minimal?
Who cares, you've survived.
> Stomach-churning churn numbers
You will stress automatically about churn.
> The missing key
Don't hire "key role". Only big companies do that.
> Laughed out of the room
Decent and I'm nice.
> Unexpectedly large market
By the way, only investors say market when talking about startups. While this has sense, it's kinda a concept for big companies again. Your startup has early users and say pool / niche of those.
> Unexpectedly small market
You rarely have an unexpectedly small market. Most of the time you have no market at all: you have built something people don't want.
> How does the trajectory of the world over the next 5-10 years align (or misalign) with what you're doing?
If you're growing, you're "aligned".
And on and on. The intention is not really to help you here I believe.
This sort of dismissal based on platitudes ("Most of the time you have no market at all") is the sort of comment we don't want on Hacker News. Anything can be dismissed this way, and anyone can do it. It feels good, gets upvotes, and generates more of the same—and thus the discourse clogs up up with more and more of this. That's bad. And what does your apparent critique boil down to? "The intention is not really to help you here I believe"—in other words, (a) you read minds and (b) you assume your conclusion.
For higher-quality discussion, we should apply the Principle of Charity: that is, assume the strongest plausible interpretation of an article and respond to that. Poking holes in a weak one may be fun but it is not substantive.
I think you're dismissing the competitors too early. It can be viewed more broadly as well.
You are not just competing with similar businesses, but also the potential that customers literally 'do nothing'.
In addition to that, there could also be legacy solutions or alternative ways of avoiding the issue that your company seeks to solve.
Another important spin on this might be if you /should/ have had competition but they no longer exist. That's something that the search here can turn up and provide further input for the other thought points.
[+] [-] ChuckMcM|9 years ago|reply
Founders are clearly founders because they really like their idea, and people "just don't get it" and are spewing irrational arguments at it in an offensive way can easily get under your skin if you haven't already thought about them attacking you. Sometimes you'll just have to walk away and if you really want their support that can be really hard to do.
[+] [-] CalChris|9 years ago|reply
I think investors especially want an answer to the irrational because frankly, the rational knowledgable argument is hard to understand. That gets worse the deeper into a bubble we get.
Did I just say that investors are not rational? Yes, I just said that investors are not rational. I'm not a believer in the Efficient Market Hypothesis:
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
[+] [-] jeffdavis|9 years ago|reply
Is that true? There's always a reason to say "no" to a startup. I would think that they are looking for reasons to say "yes", and then getting more skeptical as they get interested.
[+] [-] lpolovets|9 years ago|reply
It's not exactly true but it's a decent approximation. Because the investment rate is so low (~1%), and because professional VCs often see 1000+ pitches per year, red flags are a quick way to allocate time more efficiently. If I see 1000 pitches, 100 might be very strong right off the bat, 200 have promise, and 700 have a number of aspects that would make me reluctant to invest. I will pass on the 700 quickly so that I can focus more on the other 300. If my investment rate were higher -- say 15% -- then I might drill into some of those 700, too. But because it's 1% and there are only so many hours in a year for meetings, if I see a red flag or a few yellow flags in a first meeting, I'll use that as justification to give a quick pass. I think most VCs are similar.
[+] [-] mrkurt|9 years ago|reply
This was always the power of a crazy revenue graph — impressive revenue growth immediately flips people around.
[+] [-] Nomentatus|9 years ago|reply
[+] [-] CalChris|9 years ago|reply
That's a polite way of hinting that you really should consider shutting down.
[+] [-] lpolovets|9 years ago|reply
Kind of :). But this is also what bridge/extension rounds are for. Perhaps you raised a $1.5m seed round and your goal was to validate 4 key hypotheses with that capital. If you validated all 4, then that's usually a great segue into raising a Series A. If you validated 0-1, that probably means your company isn't viable. If you validated 3 out of 4, or maybe even 2 out of 4, there's evidence that you might be on the right track, and you can often raise another $1m or $2m extension from investors who believe that you will validate the remaining hypotheses if you have a little more runway.
[+] [-] btrautsc|9 years ago|reply
[+] [-] highCs|9 years ago|reply
> How do competitors view you? Think about your 2-3 closest competitors. If you asked their CEOs to truthfully describe your company's strengths and vulnerabilities
Well, your 6 months old startup has no "strengths and vulnerabilities". It should also not have direct competitors. Only big companies have this kind of things. You have code, users and growth.
> Are you ready for a Series A? > Imagine that instead of being the founder of your company, you're an investor
You already ask yourself these questions.
> The debate from hell
This one is decent and I'm nice. You already did this with your cofounder most of the time.
> Was your MVP truly minimal?
Who cares, you've survived.
> Stomach-churning churn numbers
You will stress automatically about churn.
> The missing key
Don't hire "key role". Only big companies do that.
> Laughed out of the room
Decent and I'm nice.
> Unexpectedly large market
By the way, only investors say market when talking about startups. While this has sense, it's kinda a concept for big companies again. Your startup has early users and say pool / niche of those.
> Unexpectedly small market
You rarely have an unexpectedly small market. Most of the time you have no market at all: you have built something people don't want.
> How does the trajectory of the world over the next 5-10 years align (or misalign) with what you're doing?
If you're growing, you're "aligned".
And on and on. The intention is not really to help you here I believe.
[+] [-] dang|9 years ago|reply
For higher-quality discussion, we should apply the Principle of Charity: that is, assume the strongest plausible interpretation of an article and respond to that. Poking holes in a weak one may be fun but it is not substantive.
[+] [-] mjevans|9 years ago|reply
You are not just competing with similar businesses, but also the potential that customers literally 'do nothing'.
In addition to that, there could also be legacy solutions or alternative ways of avoiding the issue that your company seeks to solve.
Another important spin on this might be if you /should/ have had competition but they no longer exist. That's something that the search here can turn up and provide further input for the other thought points.