
Raising funding as a first-time founder - joelg87
http://joel.is/post/18315636274/raising-funding-as-a-first-time-founder
======
andrewhillman
Investors invest in people and not product/services unless that service has
some traction. If the product/service has traction then the person generally
becomes someone of importance.

Generally speaking, someone with a track record will have an easier time
getting funded with a shitty product/service than a first time founder who has
a great product/service, will have a more difficult time 9/10 times.

The strange this about this is that a 'track record' seems to be loosely
defined. In SV, it seems like if you're associated with a success story as an
employee you will also have an easier time raising money than a first timer.
So working for a funded startup can be helpful.

I am wondering if anyone has stats that shows it is better to invest in
someone with a "track record" vs someone who is going at it for the first
time. Seems like hitting it out of the park twice is rare unless you are the
the "lucky" exception, which doesn't seem to happen often.

All in all, I think the easiest way to decide whether to invest or not is...
traction.

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tdp
My experience so far as a first-time founder is similar. We invested thousands
of hours of our spare time into building a strong foundation and a working
product running on top of it, but lack traction mainly because we had day jobs
and truly pushing and marketing our product was impossible.

The incubators and investors we've talked to seem undeterred by our presence
of a product without traction, but the equity they're seeking puts us more on
par with a couple guys with an idea. It makes sense, but the low valuation
means we're now looking at consulting options and other means to build out
enough infrastructure to attract paying customers.

I don't regret the route we've taken (yet) and I'm excited to see how creative
we can get, but it is interesting to see our experience eloquently presented
by someone else and some reasons why. It's obvious now, but like most obvious
thing it wasn't obvious until it was.

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easymode
Loved the info. Very informative. Thanks for sharing. We are building a web
command prompt portal <http://www.kaanzi.com/> . We have a working prototype
out there. We've pitched the idea to a few investors, and as impressed as they
are, everyone seem to have their eyes on traction. We are working to push our
prototype to the next level, get real traction, and then hopefully raise money
for this. Your post was very reassuring in that we are giving priority to the
right problem at the moment.

~~~
krobertson
I would highly suggest having someone proofread your site. Your about page
says you're from Dallas, so it sets the assumption you're American, but the
grammar is very poor.

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harscoat
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based on number of tweets you load into the buffer. Up to 10 tweets is free,
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[http://www.readwriteweb.com/archives/take_the_hassel_out_of_...](http://www.readwriteweb.com/archives/take_the_hassel_out_of_tweet_scheduling_with_buffe.php)

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sarbogast
Makes sense. But if I should delay fundraising until I have enough traction,
how do I fund the development of the product. Should I keep a day job with a
high risk of slowing down development a lot? Or should I just jump for it,
reduce my expenses as much as possible and hope for the best?

~~~
yaliceme
This is a good question. Everyone's situation is different, but if you are
young with no family to support, I think it's best to minimize expenses so you
can minimize time spent at a day job, and thus maximize "free time" to work on
your project. You may have to be creative and/or lucky about finding a free or
cheap living situation, that is still conducive to productivity. If you are
really passionate about your startup, though, it will be worth it; you'll know
for yourself what sacrifices are worth it to you.

If you can find a part-time job with relatively high wages per hour and some
flexibility, that's a good compromise between working a full time day job and
being completely unemployed.

Depending on your personal risk tolerance and risk attitude, you can
supplement/replace your part-time income with savings or credit.

If you're really creative, you can do something akin to Airbnb's cereal stunt
to raise money. :-p

Again, the answer to this question is going to vary depending on your
situation, and even for the same situation, people will have different advice
based on their own experiences and values.

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WadeF
This is a great post. I loved seeing the numbers behind it too. And the
stages.

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shingen
The general statements go too far.

You can absolutely raise a strong seed round from high profile investors
without either traction or a strong track record. I know because I've done it.

You have to compensate with either a great product that you've already built
or an ok product with a great concept of where it can go. As a founder you
have to be able to craft that storyline and make it believable. It's extremely
possible.

~~~
webwright
All generalizations are just that. I don't think he was saying that anything
is impossible. A first-timer could also raise if they had great luck (bumps
into the RIGHT investor), great connections, great salesmanship, great
pedigree (went to Stanford, worked at Twitter), etc.

He's saying that first-timers (generally!) have pretty crappy odds of closing
quickly, with good terms, and with top-tier investors.

~~~
shingen
I don't disagree with the difficulty involved, I think that's prominent in any
attempt at starting a business.

I believe the odds / luck factor can be substantially altered in a favorable
way by having at least an above average product to show off, combined with a
vision for where you're going to take it.

Most good investors will spot very quickly whether your product is crap or
not; they'll obviously size you up based on what you say, how you act, your
confidence in your product and vision for it, and so on. If you have it,
they'll see it, but you've gotta have a product to show off and you have to
speak confidently to where you're taking it and how. You've gotta sell the
investor on you + the product + the future.

Do those things, and any investor worth having will take notice regardless of
your background or traction.

~~~
tptacek
I don't find this very convincing.

If you have an "above-average product to show off", the first question any
investor is going to ask is, "how are people liking it?". If you have a lot of
satisfied users, you have traction! If not, having the completed "above-
average" product does two bad things:

(a) it gives the investor an easy "out" ("let's work on getting you in front
of users and see how that goes"), _and_

(b) it creates a signaling problem ("great looking product; no paying users;
what's wrong with this idea?").

All that aside, I've done the VC tour a couple times, once in the first bubble
and once out of it, and my experience has been that without a thrumming
business already built, it's all about your track record. If you've made money
for investors recently, they'll pay attention. Otherwise, they'll string you
along.

Sometimes people get lucky. It's possible to flop 7-7-2. That doesn't mean
it's a good idea to go all in on pocket 7-2. Courting investors is
tremendously expensive. It probably does make some sense to divert some or all
of that effort into building up a business instead.

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infocaptor
Can you shed some light on what percentage of the company do the investors own
now? How did you or they did the valuation?

I see the funding numbers everywhere but rarely see how much equity was given
away in the transaction.

~~~
webwright
Most people are pretty close to the vest with founder dilution numbers. It
also tends to be complicated and hard to sum up. Convertible note or priced
round? If it's a note, is there a cap, a discount, warrants? Participating
preferred shares or no? Liquidation prefs?

For a $400k seed round, it'll usually be a convertible note-- nowadays usually
with a cap (reading: [http://startuplawyer.com/convertible-notes/the-
convertible-n...](http://startuplawyer.com/convertible-notes/the-convertible-
note-discount-price-cap)).

Here's Fred Wilson's take on Founder dilution:
[http://www.avc.com/a_vc/2009/02/founder-dilution-how-much-
is...](http://www.avc.com/a_vc/2009/02/founder-dilution-how-much-is-
normal.html)

