Story time: In early 2012, the startup I was working for, Thumbtack, had struggled for 6-8 months to raise a Series A but finally got to the finish line. Around the same time, Justin Kan co-founded a company called Exec, and within a few months raised a "party round" that was nearly as much as our Series A, with a valuation twice as high. Our company was years old and had serious traction, Kan's company had done essentially nothing. At the time it was a quite upsetting turn of events.
But there was a valuable lesson... How Justin Kan fundraises is irrelevant for you and me, because we aren't Justin Kan. There was no rational basis for Exec to have been worth so much at that time, but when you are Justin Kan that isn't relevant. And look, good for the Justin Kans of the world who can take advantage of that, but that doesn't mean it is helpful advice for the rest of us.
I can say from experience that going into VC meetings with a bunch of false bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly irrelevant advice. By far the most important thing for the average founder is getting the VCs to look up from their phones and care or be interested in your pitch, which isn't going to happen unless you've created the right fundraising dynamic for your company.
One of my favorite Paul Graham essays of all time, "How To Raise Money" [1], fully captures what my experience was in the fundraising realm, both when it went well and when it went poorly. I'd point you there for more practical advice.
Dangerous advice. From the article: "if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late. The entrepreneur has failed by not creating the type of confidence necessary to de-risk the investment."
If you want investors that actually understand what you do generally, or even better yet understand what you do on a technical level, this is terrible advice to follow. Investors literally become co-owners of your company, and there is no easy way to get rid of them. Raising from the right people slowly is better than raising from just anyone fast. It's a positive sign when investors actually dig in with real substantive questions after thinking things over, and an indication of how thoughtful they'll be as co-owners.
As an investor, I agree with you and disagree with the article. I dig in with factual questions because I'm excited, not because I'm not. If I'm not interested, that's when I pass instead of asking questions.
FWIW the real truth is somewhere in the middle: some investors invest based on their gut, and if they are asking factual questions then that means they are not emotionally interested enough. Other investors invest based on their brain, and if they are not asking factual questions then that means they are not intellectually interested enough. (Or your presentation answered all of their questions, which is very rare.) Interpreting the actions of both investors in the same way is a mistake.
> It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0].
In the article somewhere it suggested that Justin was more or less testing the waters and getting investors interested as future customers in their product. It sounds like a weird mix between sales and fundraising, but a smart interesting one none the less.
If 100 investors write $50k checks, it's a small amount of money to them compared to the value the legal automation software could potentially deliver.
100 * $50k = $5M let's say for 20% of the company --> $25M round for them. Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't just raise $10M off that many checks.
> Consistently, if a VC sends a follow-up email asking factual questions, they’re already emotionally uninterested. Many entrepreneurs get caught up in this process: they send the VC a fact and citation, which the VC nitpicks, etc., but it’s already too late.
One million times this. Especially for entrepreneurs (like myself) with an engineering background, this is something that’s hard to grasp intuitively at first. If you’re asked for financial projections, for example, it’s already over. You can win that investor over more reliably by following up a month later with, “[famous Angel investor] joined our round,” than responding with a spreadsheet.
I’m nowhere near Justin Kan’s level of experience and expertise, but another favorite piece of advice it can take some time to internalize is: “if you didn’t get a term sheet, it wasn’t a good meeting.”
This doesn’t mean investors dislike you or won’t invest if you don’t get a term sheet right away. It’s that when you find an investor highly aligned and / or motivated to invest, they will move quickly, like sub-24h quickly. The easiest way to burn yourself out as an entrepreneur is getting too attached to “not good meetings”, with “but I really like that firm!” Or “and they were so nice and understood our business!” You’ll drive yourself nuts wondering why everybody says nice things and yet nobody wants to invest.
The saying is not that it’s a BAD meeting if there’s no term sheet, just that it wasn’t a good meeting. Stay grounded. It can be a long journey.
Remember: actions speak louder than words, always, and the fundamental action an investor can take to show support is to invest.
[Edit] I will add that, in my own experience, investors can be all over the map and there’s actually no such thing as “one size fits all” fundraising advice. Fundraising is a hyperpersonal activity that’s just as much about relationship building as anything else, if not moreso. You’ll want your first checks from investors that don’t fuck around (see above advice) and who are willing to bet on you. As you grow as an entrepreneur and become more confident in your ability to build relationships and “bullshit detect”, you’ll become more comfortable with long term relationships. In my admittedly limited experience, the people who spend time with you and learn to appreciate you and your business before they invest are the most valuable to both your bottom line and personal psychology.
But, hey, the above one size fits all advice is still a good launchpad :). If you’re starting your fundraising journey, good luck, it’s a hell of a ride but if you’re deeply passionate about your business it is more than worth it!
I work with quite a few (European, not SV) investors and while with some investors follow on questions might indicate dis-interest I have never seen a case of that. Asking for follow on questions is usually done after an internal discussion between partners has taken place and whoever is champion of the deal has been asked questions to which they did not yet have the answers. Almost all deals that I've seen that eventually were closed had quite a bit of back-and-forth over details like that prior to agreeing on terms.
Hi everyone, I'm Max and I run AI at Atrium. @birken's point is absolutely correct that having sold a previous startup for nearly 1B really is a big part of what makes this strategy viable.
But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max <AT> atrium.co.
Maybe it would be good to apply some 'star power' discounts here and there, what works for Justin most likely will not work in the same way or even at all for others. Justin has the pick of the litter when it comes to raising funding and some of the advice given really does not translate to 'the real world' of founders doing their first raise.
As someone who has been on both sides of the table, this article is basically irrelevant for 99.9% of founders. There is an HOV lane for successful entrepreneurs that the rest of us don’t get to take.
what if startups got appraisals like real estate. As well as "subject to" appraisals like property that needs repairs.
So, I'd value the company at X but, I'd value the company at X+Y if you added a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many new accounts in this time frame.
You can do that, and often times debt providers will attach those sorts of provisions: "we'll lend you X and you can keep it as long as you achieve Y or maintain Z". One of the challenges with that is that you can set up domino effects where you miss one goal, and then as a result you don't get the money you need to hit the next and it spirals downwards.
birken|8 years ago
But there was a valuable lesson... How Justin Kan fundraises is irrelevant for you and me, because we aren't Justin Kan. There was no rational basis for Exec to have been worth so much at that time, but when you are Justin Kan that isn't relevant. And look, good for the Justin Kans of the world who can take advantage of that, but that doesn't mean it is helpful advice for the rest of us.
I can say from experience that going into VC meetings with a bunch of false bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly irrelevant advice. By far the most important thing for the average founder is getting the VCs to look up from their phones and care or be interested in your pitch, which isn't going to happen unless you've created the right fundraising dynamic for your company.
One of my favorite Paul Graham essays of all time, "How To Raise Money" [1], fully captures what my experience was in the fundraising realm, both when it went well and when it went poorly. I'd point you there for more practical advice.
1: http://paulgraham.com/fr.html
jacquesm|8 years ago
Anybody remember color.com?
https://www.fastcompany.com/3002341/color-failed-what-happen...
I don't think Bill Nguyen would be able to repeat that sort of raise.
billyhoffman|8 years ago
assetvault|8 years ago
sethbannon|8 years ago
If you want investors that actually understand what you do generally, or even better yet understand what you do on a technical level, this is terrible advice to follow. Investors literally become co-owners of your company, and there is no easy way to get rid of them. Raising from the right people slowly is better than raising from just anyone fast. It's a positive sign when investors actually dig in with real substantive questions after thinking things over, and an indication of how thoughtful they'll be as co-owners.
lpolovets|8 years ago
FWIW the real truth is somewhere in the middle: some investors invest based on their gut, and if they are asking factual questions then that means they are not emotionally interested enough. Other investors invest based on their brain, and if they are not asking factual questions then that means they are not intellectually interested enough. (Or your presentation answered all of their questions, which is very rare.) Interpreting the actions of both investors in the same way is a mistake.
mfringel|8 years ago
tw1010|8 years ago
kyleschiller|8 years ago
Read the article out of curiosity, but understand that this was in no way a normal process.
[0] https://www.crunchbase.com/funding_round/atrium-lts-series-a...
tedmiston|8 years ago
In the article somewhere it suggested that Justin was more or less testing the waters and getting investors interested as future customers in their product. It sounds like a weird mix between sales and fundraising, but a smart interesting one none the less.
If 100 investors write $50k checks, it's a small amount of money to them compared to the value the legal automation software could potentially deliver.
100 * $50k = $5M let's say for 20% of the company --> $25M round for them. Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't just raise $10M off that many checks.
fatjokes|8 years ago
philfrasty|8 years ago
keithwhor|8 years ago
One million times this. Especially for entrepreneurs (like myself) with an engineering background, this is something that’s hard to grasp intuitively at first. If you’re asked for financial projections, for example, it’s already over. You can win that investor over more reliably by following up a month later with, “[famous Angel investor] joined our round,” than responding with a spreadsheet.
I’m nowhere near Justin Kan’s level of experience and expertise, but another favorite piece of advice it can take some time to internalize is: “if you didn’t get a term sheet, it wasn’t a good meeting.”
This doesn’t mean investors dislike you or won’t invest if you don’t get a term sheet right away. It’s that when you find an investor highly aligned and / or motivated to invest, they will move quickly, like sub-24h quickly. The easiest way to burn yourself out as an entrepreneur is getting too attached to “not good meetings”, with “but I really like that firm!” Or “and they were so nice and understood our business!” You’ll drive yourself nuts wondering why everybody says nice things and yet nobody wants to invest.
The saying is not that it’s a BAD meeting if there’s no term sheet, just that it wasn’t a good meeting. Stay grounded. It can be a long journey.
Remember: actions speak louder than words, always, and the fundamental action an investor can take to show support is to invest.
[Edit] I will add that, in my own experience, investors can be all over the map and there’s actually no such thing as “one size fits all” fundraising advice. Fundraising is a hyperpersonal activity that’s just as much about relationship building as anything else, if not moreso. You’ll want your first checks from investors that don’t fuck around (see above advice) and who are willing to bet on you. As you grow as an entrepreneur and become more confident in your ability to build relationships and “bullshit detect”, you’ll become more comfortable with long term relationships. In my admittedly limited experience, the people who spend time with you and learn to appreciate you and your business before they invest are the most valuable to both your bottom line and personal psychology.
But, hey, the above one size fits all advice is still a good launchpad :). If you’re starting your fundraising journey, good luck, it’s a hell of a ride but if you’re deeply passionate about your business it is more than worth it!
jacquesm|8 years ago
maxcan|8 years ago
But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max <AT> atrium.co.
beambot|8 years ago
lisabethhan|8 years ago
I run our fundraising bootcamp Atrium Academy w/Justin to help founders meet the right investors and raise a great Series A.
Check it out/Apply here for our next one in March: www.atrium.co/academy
jacquesm|8 years ago
rdlecler1|8 years ago
sharemywin|8 years ago
So, I'd value the company at X but, I'd value the company at X+Y if you added a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many new accounts in this time frame.
rstephenson2|8 years ago
unknown|8 years ago
[deleted]
unknown|8 years ago
[deleted]