

If you can't buy your investor a beer, don't take their money - a4agarwal
http://sachin.posterous.com/know-your-investors

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starkfist
I'm a 12 year veteran of early stage startups. One thing I found interesting
about the whole experience was that on the technical side, smarts-based
meritocracy was valued above all else, or at least that was the line we told
ourselves. However, when it came to raising money, the most archaic, beers in
the back-room, who-knows-who-knows-who boys-club approach was the norm. The
things I saw would have made a 1920s Harvard admissions officer, or a 1950s
hiring manager at an investment bank blush.

That said, the most successful startup I worked at raised money in an almost
mechanical manner, with little or no beer drinking, or even much contact with
the investors. YMMV.

~~~
SkyMarshal
_"That said, the most successful startup I worked at raised money in an almost
mechanical manner, with little or no beer drinking, or even much contact with
the investors. YMMV."_

That would make an excellent how-to blog post or other elaboration. :)

~~~
starkfist
It wasn't that interesting. It was sort of like the normal route of obtaining
funds, there was just no long, drawn out bromantic courtship. We just asked
for the money, they said ok, and we signed stuff.

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mmaunder
"If you need money, you are too late."

really means

"If you appear to need money, you are too late."

and restated the way one of my investors once put it

"If you have the stench of death about you it's impossible to raise."

If you don't need money, don't raise.

~~~
jmintz
It's not just what you suggest, that it makes it harder to get money. The
other impact is that you don't have time optimize for best person, you have to
optimize for getting cash fast. Also, it is much easier to get to know a
person when you aren't asking for money. We had a similar approach as
Posterous and are really happy we took the time to get to know VCs before
raising money.

~~~
mmaunder
Right - I think that's actually the most valuable lesson in your post. Start
making friends a year or more before you raise.

There may be a small caveat - it's worth debating this because I'm not sure
I'm right but I'll throw it out anyway: Some investors like a fresh face with
a fresh idea. If you become a groupie and hang out at every single event for a
year before you raise, you may be less attractive to investors than a fresh
face with the same traction and idea. Not sure if this is true but just a
thought.

~~~
jmintz
I partially agree with your caveat. In our case we went to almost zero events,
all of our meetings were face-to-face with a single firm. After that we stayed
in touch and gave updates on our progress. This also let them get comfortable
with our ability to work together and execute on a product. We were also able
to show more and more traction over time.

Investors _will_ get tired of you if you are raising money for a long time.
Once you decide you are raising, get all your meetings done as quick as
possible, hopefully in only a couple of weeks.

It may not need to be a year. We started these discussions in June and started
raising in September. They key is just before you _need_ money.

------
ghshephard
It's Ironic how people who are really among the best and brightest in the
industry, can have such different observations:

Sachin Agarwal (Posterous)

"A couple months before you're going to raise, schedule a coffee meeting with
all the VCs. No pitching, no deck. We did this and it was a great way to meet
VC partners in a more casual setting. If they like you, they will even help
you with your pitch."

Ben Horowitz:(Andreesen Horowitz) ([http://bhorowitz.com/2010/04/13/four-
things-some-vcs-do-that...](http://bhorowitz.com/2010/04/13/four-things-some-
vcs-do-that-i-dont-like/))

"However, many VCs who want to have coffee with me are none of the above.
Worse yet, they have no agenda and no purpose. They just want to “compare
notes.”

When I was CEO, I didn’t take meetings with no agenda and no purpose. I’m not
sure why I should take them as a VC. Of course, when I was CEO, people knew
better than to request a meeting with me with no agenda and no purpose. I
think that these VCs have mammas that didn’t raise them right."

~~~
bluethunder
I think the internet has this culture going of generalizing (making rules)
even with little experience.

It really takes a couple of tries, experience and insight to decouple
correlation with causation.

Sachin is still too early in the game, I would go with Ben.

~~~
nir
> _I think the internet has this culture going of generalizing (making rules)
> even with little experience._

Well said, and probably the biggest issue with HN submission quality.

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bluethunder
"Beware of associates". I cannot stress this enough.

DO NOT EVER WASTE YOUR TIME MEETING WITH ASSOCIATES IF THERE ARE NO PARTNERS
PRESENT. They have no freaking clue. By associates I mostly mean MBA's with no
startup founding experience.

Infact there are VC partners in India who are more like associates in the US,
with absolutely zero founding experience. Stay as far away from them as
possible. Do not cold call them and dont take their calls - they are not worth
the time and dont know shit.

------
Eliezer
I don't drink alcoholic beverages. Guess I can never be a VC.

~~~
ScotterC
In contrast I feel like I have been building my tolerance up for the past
decade just waiting for my moment to perform.

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jagjit
"If you ask me about barriers to entry, you don't understand the internet."

Asking about barriers to entry does not mean the potential investors don't
understand internet. This comment says to me the author does not understand
business or investing.

~~~
adrianwaj
I disagree. He's right. What investors should be asking is, "what is it about
your idea, people and product" that is unique and difficult to replicate,
whilst being crucial for your success. Typical barriers typically come via
patents and strategic alliances. Who has those?

~~~
sokoloff
There are several other sources of barriers. Network effects is one;
goodwill/brand is another; execution/operational excellence, etc.

Think about Ebay, Paypal, Facebook, Amazon. The vast majority of what they do
is pretty far from rocket science. (By that, I mean a startup could create a
technically credible competitor for their core business.) However, those
companies have erected enormous barriers to entry in the form of network
effects, brand/trust [of buyers], network effects, and
brand/breadth/operational excellence.

------
arthurdent
Sage advice. More generally "work with people you like."

Life's too short to work with jerks. Making a point to surround yourself with
quality people will enrich your life. I sometimes forget this and almost
always regret it.

------
vidar
Out of curiosity, what are the downsides to talking to associates?

~~~
tonystubblebine
Probably because they have no decision making power at all. My only experience
with associates is on the phone--they often get tasked with cold calling
businesses like mine in order to collect data for later analysis. For that
reason, I think of them as little more than interns.

~~~
jmintz
You also want the strongest introduction to a partner that you can get, and I
think other entrepreneurs and investors can make stronger introductions than
most associates.

------
JacobAldridge
This 'cultural' matching process is _the_ most important element of having
anyone join your business - investors, board members, staff, even clients if
your business involves ongoing interaction with them.

I like to think of the 'have a beer with' as having the 'family photo fit' -
if you can't picture this person fitting into a photo of your business family,
then you don't want to work with them. _Especially_ if they are bringing money
you need, because personal differences will painfully divide the business.

------
arnorhs
"There are plenty of posts online about valuations, term sheets, and how to
negotiate. I'm not going to get into that stuff here. This post is about the
personal side of finding investors."

Really? From my point of view, I constantly find articles about personal fit,
finding the people who have the same goals, etc. I'd love an article about
valuation, term sheets and how to negotiate.

Can anybody tell me where to start?

~~~
dcurtis
There is a lot of awesome information at <http://venturehacks.com>

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danest
Can someone explain what he meant by this. "If you ask me about barriers to
entry, you don't understand the internet."

Is he saying that you should not worry about your competition?

~~~
a4agarwal
On the internet, there are few barriers to entry. It's incredibly cheap and
easy to build most startups these days. That's not where the value is. The
value is that you think you can do it bigger and better than anyone else.

Except for maybe Google search, I can't think of a product that I couldn't
build tomorrow if i wanted to enter that space.

~~~
starkfist
The fact that there are fewer barriers to entry also make startups where there
are barriers to entry more valuable. Some of the big successes this time
around are e-commerce operations which require a lot of capital for the parts
of the business associated with moving physical inventory.

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rue
What about the teetotaler investors?

~~~
stevenbedrick
I would assume that, in this situation, "drink beer with" really means "engage
in mostly-informal social interaction with". Most places that sell beer will
also sell a variety of non-alcoholic beverages.

~~~
rue
Sure. I was just poking fun at the, shall we say, "alcohol-normative" society
we live in :)

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michaelfairley
> Before starting your pitch, make everyone in the room introduce themselves.

What's the proper way of asking for this?

~~~
mkramlich
"Let's go around the room introducing ourselves first. Ok? I'll go first.
I'm..."

~~~
mahmud
The host or whoever organized the meeting does the introduction. Most non-
Americans will probably be reluctant to introduce themselves with much
enthusiasm and might underplay their achievements, specially Asians.

If there is no designated Toastmaster, the most neutral party should step
forward and do the formalities. Try not to drop dollar figures that someone
might have or manage, instead, stress their successful exits and other
accomplishments.

This is strictly from my experience in the Mideast and China, btw.

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keytweetlouie
Thanks for the advice. In your section about getting to know vc's you mention
a few methods. What method have you found to be most successful? Do you
believe coming out of ycombinator gave you an instant "in" with VC's?

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ironfroggy
What if your investor is a recovering alcoholic?

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bsnss-mn-cdr
IMHO it depends on the type of business, the type of investor but most
importantly of all who is being invested in.

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dan00
I read: If you can buy your investor a beer, don't take their money.

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seldo
This seems biased against teetotal investors.

