
Why fundraising is a terrible experience for founders: Lessons learned - jenthoven
https://www.kapwing.com/blog/the-terrible-truths-of-fundraising/
======
paulddraper
> _Blatant unfairness:_ VCs rely on their network for meeting, evaluating, and
> closing deals with entrepreneurs. Founders need “warm intros” to the
> investors, which generally come from people they know because of luck,
> circumstance, and social circles rather than merit or professional aptitude.
> The result is that well-liked entrepreneurs with shitty business ideas get
> funding immediately while shrewd founders outside of the Club can’t get a
> foot in the door. It’s not fun to play a game that isn’t fair, even if you
> win.

As much as that sucks to be on the bad end of...this is really common and
really understandable.

Ask yourself: Suppose you needed to hire someone to fix your lawn sprinklers,
or hire an emply to work at your start up, or invest in a business. What role
would personal connections and the trusted endorsements play?

"Professional aptitude" is extraordinarily difficult to judge by other
professions, and even more difficult in a reasonably brief amount of time. And
character is a still more difficult judgement. Therefore, we rely on our own
prior working relationships and recommendations of others.

You can argue this is "unfair" and that everyone be treated at anonymous and
unknown for sprinkler repair, early employment, and investment, but what you
would call a "fair" strategy (by that standard), I would call a decidedly sub-
optimal strategy.

~~~
lkrubner
" _Ask yourself: Suppose you needed to hire someone to fix your lawn
sprinklers, or hire an emply to work at your start up, or invest in a
business. What role would personal connections and the trusted endorsements
play?_ "

I've always been curious why people like you feel the need to write comments
like this. What is the gender neutral phrase for mansplaining, or mansplaining
done to a mostly male audience? Do you really think we don't understand all
the various reasons why the system is unfair? We can all easily point out why
the system is unfair, without having to remind ourselves of how the unfairness
of the system perpetuates itself. The question we need to answer is, how to
make this system more fair? Because we can all easily think of a few ways the
system could be made more fair, if the will existed to make it more fair.

~~~
paulddraper
Apologies for the potentially _patronizing explanation._

Contrary to your comment though, I've found lots of people who put "decisions
businesses/rich people make" and "decisions I make" on different planes.

Example: A business looking to save money on their workforce is inherently
Bad. But me looking to save every dollar I can on consumer goods is inherently
Good (and different).

I've found lots of people think in this "separate universes" mentality.

~~~
sudosteph
Hopefully I'm not being too pedantic, as I do agree that saving money is not
inherently good or bad based on the entity doing so, but the general concept
that those in power should have a higher ethical standard for their actions
than those without, is not without precedence. And it's not exclusively the
domain of some sort of "separate universes"/cognitive dissonance type of
thinking either.

I'm thinking here of Plato's "Philosopher King" ideal. It seems reasonable for
an average person to think that those who wield greater power (in this case,
via money) have a greater obligation to consider the potential negative
externalities associated with using that power. Now, whether or not that
average person truly has the information and wisdom to tell if the decision
being made was indeed the most ethical one is it's own matter of discussion,
but holding the powerful to higher standards doesn't seem to be all that
unreasonable.

------
waytogo
> we closed a $1.7M seed round led by Kleiner Perkins [...] in a little over 8
> weeks

This is fast and it's hard to believe that it was a terrible experience. How
would have been your post if you needed 8 months or didn't raise at all after
one year?

~~~
EpicEng
When you've been handed everything in life, eight weeks is an eternity to
wait.

------
crsv
I want to take the high road in reading this, but it's hard to not take this
in as some new form of humble brag.

Affluent duo with super privileged private school educational pedigree land
top tier entry level jobs @ big tech co and bootstrap for an incredibly modest
6 months before raising a relatively fat seed round from big VC firms _IN 8
WEEKS_ and bemoan "how terrible the process was".

Oh woe is fucking me.

~~~
CPLX
I wonder if they're like vaguely aware that most people would need a year of
relentless networking and work to even get 1/3 of the _meetings_ they seem to
have gotten in a matter of days.

I mean they raised an average of over $200k a _week_. Maybe they could have
written something with a headline more like "Here's how to get yourself into
this privileged class of people who VC's will meet with and fund".

That's not snark, an article like that could lend some genuine insight to this
topic.

~~~
trocadero
>headline more like "Here's how to get yourself into this privileged class of
people who VC's are eager to fund".

Not to mention become paper millionaires because some VC think you have a 1%
chance of being the next Instagram.

I mean, that $1.7 million is more than I expect to bring home after tax for
the next 10 years. And my income is probably top 95-99% for the area I live in
so it's not like I have a hard life. I can't imagine what someone who is
actually struggling thinks of their "terrible experience"

~~~
jiveturkey
wrong comparison. that 1.7mm is also 10x what the founders individual net
incomes can be expected to be. 1.7mm is not a lot of money to a SV startup.
it’s seed money. they’ll have to offer embarrassingly small salaries to a
desperately small (efficient) number of employees so as to spread it as far as
possible.

------
Aqua
I'm not an expert, but writing "My advice to founders: fake it." on a publicly
accessible blog doesn't sound wise, it's like saying "I will almost certainly
lie to my future investors during the interview". If I were the investor and
came across this article when doing startup due diligence, that would have
raised some serious concerns about the CEO and her company.

~~~
jenthoven
My advice was not "lie to investors." My advice was to fake your confidence
and certainty, even if you're not feeling confident or certain. Investors want
to know that the CEO has courage and the ability to evangelize.

~~~
lstodd
CEO is now "Courageous Evangelizing Officer"?

My, my, what the world came to, etc, etc..

~~~
mmt
I don't see much, if any, novelty here, especially if one substitutes the
synonym "Marketing" for "Evangelizing". I vaguely recall it being something of
a trope in the software industry (perhaps not even limited to that) decades,
if not longer, ago that CEOs were really CMOs.

------
kenneth
I spent the bulk of this year fundraising, something which I was previously
unfamiliar with (I've been in startups a few times, but there was always
another "fundraising guy" who took that role. This time I rolled up my sleeve
and helped with it.). We managed to get $12M+ and still going.

The big surprise was that I loved it. Pretty much every bit of it.

Everyone says it, but it'll never sink in until you experience it for
yourself: fundraising is always an absurdly slow process where you get nowhere
for months, until suddenly everything comes together last minute. For us, it
took 4 months of mostly nos, until we got a big name to say yes and suddenly
we went from 10% subscribed to 3x oversubscribed with investors calling us
with a raging case of FOMO. This is always the process, in any deal I've ever
been involved in, as investor or on the other side.

------
AndrewKemendo
Having done the same rounds on Sand Hill plus many up and down the business
district of NYC and in Tysons Corner in DC, I will say that was still a
flowery writeup - with a happy ending of a sizeable seed.

I've come to the conclusion that 99% of startups raise money way too early -
hence why it's such a terrible experience for most.

Companies that are doing great business, don't need to pitch, and don't "go
fundraising." Those companies seem to be actively sought out by money, and
refuse checks more than they take them.

That's probably 1/100 companies and the ones that should actually raise money.

It's all about leverage.

------
xseven
I messaged the CEO on LinkedIn to indicate interest in funding them. No
response :(. A "No, thank you. We have bigger fish raise from" would've been
nice.

------
neom
Having done this at various scales I can attest to the truth in this article.
Fundraising is never fun, doesn't matter if it's $100k or 100MM. Fundraising
is exhausting, it creates the deepest amount of imposter syndrome that builds
with every meeting. The need to stay focus on what you're doing, how you got
to where you are, and why you're doing it becomes a primary concern, having
people around you who believe in you is key during this period, but even that
often only treats the symptoms. This was an email I got from a VC a couple
years back: [http://john.je/tA3S](http://john.je/tA3S) \- that wasn't a fun
day. I think there is a lot of romance is building a scaled startup, but a lot
of folks I know, even those who have had large exits say they'd preferred to
have built a much smaller lifestyle business in a more organic manner. The
real fact is, building and maintaining any business from zero is really
difficult. Even though it can be incredibly rewarding, it's certainly very
rarely much fun.

~~~
x0x0
The email is interesting but maybe consider removing fred from it?

~~~
wolco
Are you Fred?

~~~
x0x0
No.

Is it that hard to comprehend that it's rude to share private correspondence
without permission? Particularly from a VC that went above and beyond and
shared reasons instead of "not a fit" or "maybe".

~~~
xseven
but then this just shows him in good light, no?

------
x0x0
We're in a similar place -- finished our first priced round.

Comments:

Blatant unfairness: yes, warm intros are required. Yes, this is unfair.
However, the onus is on you to make this happen. If you want to found a
startup, put your time in to building your network. If you're at a startup
now, get intros to the VCs. Ask to go to VC meetings.

When you're building the network of people you're going to ask for angel cash,
do the same. Lots of them will be happy to give you those warm intros. So
start now building a network of people you can ask for $10-$25k. This wasn't
obvious to me, but an intro to a vc from an angel who has invested counts as a
great intro.

The same network will get you into one of the good lawyers (cooley, sonsini,
gunderson) with a warm intro who will also do a deferred fee deal for
$15-$25k. You want this.

The other thing that is unfair is, at least in b2b, the more customers you
have the easier a raise will be. How do you get those first customers when you
have nothing except a site that breaks all the time and a tiny team? That's
your problem; make it happen.

Passionate origin story: we build a b2b tech. Most VCs seemed happy with

1 - we understood this problem from working on/near it

2 - we're building a solution

Oh, and read the book _venture deals_ by brad feld and jason mendelson [1].
Seriously. It's extraordinarily valuable.

Seriously consider doing the YC pre-YC program. It's all funnel for YC, but
the info is good. Though it can be summed up (only somewhat facetiously) as,
"Have you talked to customers yet? Maybe you should talk to customers. If
you've talked to customers, talk to more! If you've talked to more customers,
talk to even more! And after that... talk to some customers!"

Understand that the seed and A all want 25%; plan accordingly. Within that
range, they are less price sensitive.

If you have questions, I'm happy to answer them, but I'm busy (the startup
experience is everyone in your life is grumpy at you for flaking on them) so
no promises on response time.

[1] [https://www.amazon.com/Venture-Deals-Smarter-Lawyer-
Capitali...](https://www.amazon.com/Venture-Deals-Smarter-Lawyer-
Capitalist/dp/1118443616)

~~~
siamakf
How can I reach you for fundraising q's :)

~~~
x0x0
put an email in about and ill contact you. I try to say anon on this site.

~~~
azal
Would like to get some fund raising advice as well. Email in about. thnx

------
ummonk
Replace “investors” with “women” and “founders” with “men”, and you could
accurately describe dating in the valley. Low hit rate, the need for warm
intros, the need to fake it till you make it for confidence, ghosting, all
part of the dating experience.

Which makes me wonder - could male founders be more immunized to this
experience due to practice from the dating arena?

------
brink
> "Humility is the opposite of confidence."

Humility is _not_ the opposite of confidence; uncertainty is.

Humility is thoughtlessness of self.

------
nsmog767
I thought this post had more humility and self-awareness than it's getting
credit for.

"The result is that well-liked entrepreneurs with shitty business ideas get
funding immediately while shrewd founders outside of the Club can’t get a foot
in the door. It’s not fun to play a game that isn’t fair, even if you win."

Coming from someone who was successful, this is a pretty unbiased observation!

------
CryoLogic
Is there anyway you could have bootstrapped the company? My issue with VCs
isn't anything you focused on but instead the unfavorable terms. Liquidation
preference and such.

~~~
kenneth
Liquidation preferences are not unfavorable terms. A 1x non-participating
liquidation preference is standard and protects investors against cheap
acquihires founders would otherwise be inclined to take.

~~~
paulddraper
1x non-participating liquidation is not unfavorable. There are unfavorable
terms (and historically it has been more common)...but yeah, that's very
reasonable.

------
koolhead17
This post is a fluf, more like marketing piece. If your pedigree is Google and
you are able to raise in 8 weeks, feel blessed.

It would be great to hear VC side of story as well like:

* 4X return to LP's.

* Show enough exits in 7-8 years fund cycle.

* Always on the road for raising next fund.

* Coordinating with portfolio founders or other bigger investors for follow on.

* Managing on a limited management fees.

* How every fund has it's own investment thesis and they keep getting emails from rookie founders.

------
graycat
Best I've seen about what early stage information technology VCs want to see:

(1) Product/service in and/or exploiting information technology with
_traction_ significant and growing rapidly. _Traction_ can be number of paying
customers, traffic to Web site (e.g., Comscore numbers) or, better, revenue,
or best, earnings.

(2) The market large enough to permit a company worth $1+ billion in five
years, no longer than 10 years.

(3) Something serious in a _Buffett moat_ , that is, a way to beat, i.e.,
block, competitors. E.g., network effects, high switching costs, cases of lock
in, technological advantage, e.g., _secret sauce_ , a _platform_ company that
has advantages because others build on, depend on, the work of the company,
etc.

(4) Team of at least two that does well covering both business and technology.

(5) Nothing obviously wrong, e.g., not depending on only one or just a few
customers, no on-going co-founder disputes, no signs of being sloppy, no signs
of criminality, no signs of drug or alcohol problems, no big problems with
communications, no bad prior investor situations, etc.

My guess from reading VC Web sites was that they would make a "seed"
investment, say, $150,000, with (A) a highly qualified team, (B) some
excellent, powerful, valuable _secret sauce_ , work difficult to duplicate or
equal, for (C) a service likely of interest to nearly everyone on the
Internet, with (D) so far nothing comparable on the Internet, where (E) if
successful, worth $0.5-1+ T. Nope. Instead, I conclude (A)-(E) flops and
(1)-(5) is about it.

Okay. Wish I'd known that.

Indeed, in the last year or so there was a post by USV's Fred Wilson on his
blog AVC.com of a company his firm had their eye on and off and on over some
months pursued the company and finally talked them into taking the company's
first equity investment. Lesson: If you really have what they want, then they
will notice you and call you.

Indeed, likely the best "warm introduction" is that the VCs have already
discovered the product/service and really, in the word of Paul Graham, "love"
it.

A big surprise to me was the reaction of the information technology community
to _secret sauce_ technology: In my career, I've been used to seeing new
technology carefully evaluated. I saw this in the beginning of my career in
applied math and computing for mostly US national security around DC. E.g., I
worked in the group that did the navigation satellites for the US Navy (GPS by
the USAF was the second version; the Navy did the first version) and heard the
stories of how the work was approved from just the basic physics, essentially
back of the envelope. A long list of projects for US national security was
funded just from proposals on paper that were carefully reviewed, e.g., the
SR-71. My Ph.D. dissertation was carefully reviewed. My published papers were
carefully reviewed.

For US information technology VCs, I had to conclude that under no
circumstances would they take seriously anything technical about the
technology or any technical reviews of the technology and, indeed, quite
solidly would absolutely refuse any reviewing of the technology at all.
Period. No exceptions. Feet locked 5' deep in reinforced concrete, they simply
will not, Not, NOT, _NOT_ consider a technical review of technology. NSF, NIH,
ONR, etc. will review technology, insist on it, but information technology VCs
will, in a word, _NOT_.

My understanding is that bio-medical VCs will review and take seriously
reviews of the claimed new, powerful, valuable bio-medical technology.

The information technology VCs commonly claim on their Web sites that they
want leading edge technology; they neglect to say that they will never
consider any such technology in funding decisions and, indeed, will _NEVER_
review it or consider any reviews of it. It was a surprise to me!

Okay by me; I just wish I'd known. The VC information technology Web sites
were highly misleading. Okay -- gotta beware of that in business!!!! Being a
determined entrepreneur ready to keep going after a few dozen "No" responses,
the misleading VC Web sites cost me a LOT of important time, money, and
effort. I was ripped off.

But, this is cast in concrete, wrapped in cast iron, and protected with a
layer of uranium -- never but _NEVER_ will an information technology VC pay
any attention at all to a theorem and proof in measure theory!!!! Not in this
solar system!!! Sure, uh, the flip side of that situation is an
opportunity!!!!

Finally I reminded myself that in the US, coast to coast, from barns behind
farm houses on 50 acres to cross road villages to ... the largest cities,
entrepreneurs start and grow successful businesses without equity funding.
How? Do well running 10 fast food restaurants -- pizza carryout, McDonald's,
... Chinese -- and can do well. Also, run a successful, local independent
insurance agency that knows nearly everyone in town and, thus, has a
fantastically good "loss ratio". Run the local, dominating electrical supply
house, plumbing supply house, building materials house, or any of many cases
of "big truck, little truck" businesses, that is, where buy with a big truck
and sell with several little trucks. Commercial real estate. On and on. Can
see a lot of examples on Main Street.

I used to go to yacht clubs; saw some big boats and some well off people;
never saw anyone who took equity funding.

A guess: For nearly all the students at Ivy League colleges whose parents pay
the tuition, the money was from running a successful family owned business
without equity funding.

For starting a business, information technology should be a big advantage:
E.g., last I checked, the price, quantity one, retail, of the AMD FX-8350
processor, 64 bit addressing, 8 cores, 4.0 GHz standard clock speed, goes for
less than $100 (commonly was $300+ -- the one I have looks terrific). For less
than $2000, can put together a Web server that is, in the history of computing
back 20 years, just astoundingly powerful. If can build a Web site that is
popular enough to keep that server half busy 24 x 7 and run ads at the rates
suggested in the Meeker KPCB reports, then should be able to get revenue
$100,000+ a month.

So, we're talking capex ballpark $2000. So, compare that with the capex for,
say, just a grass mowing service -- riding mower, $10,000+, trailer for the
mower, ~$5000, truck to pull the trailer, $30,000, etc. Or compare with the
capex for a pizza carryout, an auto repair shop, and auto body shop.

With revenue of $100,000 a month, why bother with a dinky seed round of $1.7
million with the term sheet, vesting schedule, loss of control, too many
lawyers, BoD, C-corp, etc.?

With revenue of $100,000 and the rest of (1)-(5), let the VCs call you while
you have a dozen nice ways to tell them "No".

Don't be cruel to them: They are only finance guys who likely have never
written much code and got an MBA instead of a Master of Science! They are
unable to review any very technical _secret sauce_. And likely what they can
fund is highly constrained by agreements with their limited partners who
supplied nearly all the money.

------
nanananananana
We have been working in our startup full time for the last 18 months. We have
a MVP. We have paying customers. We are working with cutting edge web
development technologies. We failed to raise $100K.

So I'm sorry, but this is not an advice for founders, this is just plain
stupid humblebrag. You don't have to do this, seriously.

~~~
plantmanfive
Why does the degree of success indicate how hard fundraising felt for the
founders?

------
type0
tl;dr

fake it till you make it

------
machinecontrol
I know blockchain gets a lot of hate on HN, but democratizing fundraising via
crypto tokens and taking some power away from Silicon Valley VCs is a massive
shift.

The merit of the projects themselves can be debated, but the fact that
technology entrepreneurs all over the world have easier access to capital has
got to be a net positive.

~~~
mandelbrotwurst
It's a net positive for technology entrepeneurs, certainly.

What's less obvious is whether it's a net positive for everyone, e.g. if that
"access to capital" comes in the form of naive investors pouring money into
projects that are likely to fail (i.e. have been arguably a poor use of
capital / a net negative).

~~~
nine_k
_Almost all_ projects are likely to fail. The key tenet of _venture_
investment is investing in 500 companies, and have 499 fail, while one would
give a 1000x return.

A "retail" investor is likely not able to follow this strategy, so people who
would invest in a few apparently great projects via blockchain technologies
may be in for disappointment.

But I don't see why small-scale venture investment via an appropriate
technology could not work. Invest $10 in 500 companies, get $10k back...
eventually.

~~~
mandelbrotwurst
Fair point. Where I said "likely to fail" what I meant was "so likely to fail
that they represent a poor use of capital" (for even a large investor and also
for society as a whole).

As you've pointed out, there's a distinction between poor use of capital for
the individual and a poor use of capital for society, and other groups in
between.

I'm not proposing that this is the case about any particular investment it
just seemed worth pointing out that such a type of investment does exist.

------
arikr
This is a great post.

I think one way to look at it is that the process of fundraising kind of
sucks, and that it could be more efficient. I agree with this.

Another way to look at it is that fundraising is one of the easiest parts of
building a multi-billion dollar company (and if you're aiming to raise from
VCs like A16Z, Sequoia, Greylock, then you need to be building a multi-billion
dollar company). The "100% responsibility" mindset for fundraising would
involve "owning" all of this difficulty. E.g. getting a deep understanding of
the business of fundraising by talking to other founders who have raised
recently (much more accessible than VCs, in general), accepting that it's a
sales process, accepting that it's hard and that it'll suck, but that there'll
be many much harder things.

I guess I just react with some concern that readers of this post will take the
wrong things away from a post like this. So I wanted to emphasize this
perspective: It is hard. Like you note, it _should_ be hard to convince
strangers to give you a few million dollars. It would certainly be great if it
was purely merit based. But for many (not all) companies, sales is a critical
part of success of the business, and fundraising is another sales process - so
it's a good approximation. And yes, that's not true of all businesses and it
would be better if it was perfectly merit based.

I think the most helpful takeaway for readers is that fundraising is hard, and
that it should be approached with a mindset of "it's really hard so I'm going
to figure out why people succeed and fail at fundraising so that I maximize my
chances of success." If readers take away a victim mindset with respect to the
difficulty, then they'll find it much harder to succeed in fundraising.

I know this isn't really what people want to hear, but fundraising is hard,
building a company is harder, you don't have to choose to start a startup.

