
Fundraising isn't predictable - runesoerensen
http://www.aaronkharris.com/fundraising-isnt-predictable
======
todayiamme
This may be subjective, but it feels like there is a lot of cargo culting
going on in the VC industry. To a certain extent this makes sense as
predicting the future is hard. There will always be a large gap between
observed metrics and the end results, because companies are being launched
into an unpredictable landscape and the conditions necessary for success
change all the time. As a result these uncertain conditions create a strong
incentive to pick up "best practices" even if they don't make sense at the
time.

However, at the same time, the cargo culting creates inefficiencies and a lot
of group pressure which forces companies to conform to the metrics du jour to
raise funds. From a vantage point outside of the industry, these metrics feel
almost memetic in nature. It seems that a lot of these hoops exist _because_
other people have used these set of hoops before, therefore they must be valid
in some shape or form. It's a recursive sort of logic whereby the rationale
behind an investment metric is reinforced by the social signals around it.
Plus, I'm sure that it doesn't help that most VCs don't actually have a quant
styled background and most VCs don't model their investments in any shape or
form. (while the modeling may not be accurate - it is still a useful tool for
thinking through investments)

Of course all of this is actually an opportunity for the enterprising VC. A
smart VC firm could theoretically create a better, more quantitative process
and pick up unconventional companies for cheaper and get better returns as a
result.

edit: Just in case it wasn't clear, I'm not accusing the OP of cargo culting -
it's rather the opposite. It's more of a meta-observation / addendum to his
observations.

~~~
amorphid
Speaking only for myself, I was enamored by VCs when I first moved to the Bay
Area. I definitely put them up on a pedestal, and selectively listened to
people who did the same. After spending about 12 months trying to raise money
for my "business guy w/ no traction & no product" startup idea, I learned that
VCs are highly visible & accessible because they need to generate leads for
themselves. But I didn't understand for quite a while that I was bringing them
a lead they would never fund. That was a hard lesson to learn.

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mikekij
10% weekly revenue growth would be great. That means a company doing $1M in
revenue at t=0 will be doing $1.6T in revenue in 3 years.

I'm always dubious of these sorts of metrics.

~~~
akharris
While it's not something you could sustain indefinitely, it's doable over
shorter time frames. For instance, I've seen a number of companies do it
during YC and for some time after that.

~~~
mikekij
Absolutely, Aaron. Didn't mean to challenge the value of your article. And
it's certainly possible over short time periods. But I'm a big fan of growing
at ~20% per year, if you can demonstrate that this could continue over a very
long time period. (I bet Yo grew at 500% a week for a while.)

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abiekatz
Great post!

I think if a founder speaks to a small handful of VCs and/or other
knowledgable startup people: they can get a good sense of how easy or
difficult fundraising will be...and that will be more useful than any one
guideline that can be provided. Series A lead VCs need to see a potential path
to $100 million in revenue going to $300 million to be a home run...and a
combination of the team/product/market/traction combo gives an investor the
necessary conviction and excitement to propose an investment.

The limitation with growth + revenue guidelines for fundraising is that it
will never be enough information as there are so many factors that go into an
investment decision. And there has been a proliferation of startups that reach
$1 million in revenue growing ~15% a month and still the vast majority won't
get to the scale that makes a series A VC happy.

As a side note, I'd love to see any company with "Engagement rates that are
higher than Facebook" that can't fundraise. :) I think there may be some off
the charts positive indicators: team with incredible track record, off the
charts engagement + retention in a large market, amazing unit economics + high
growth that the ability to fundraise is all but inevitable.

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qwrusz
I don't mean this as an attack on the author, it's clear he is smart and
trying to be helpful, thoughtful and kind in writing this advice.

But I see this type of sweet/safe/simple advice post so often on many sites.
The tone reads like how one would talk to a child while trying to be careful
not to hurt their feelings or confuse them.

I realize many founders are young with limited experience, maybe even still in
school. And there's no reason to be rude about things. But who is the audience
for these types of advice posts with this level of handholding?...

 _Are there would-be founders out there pretty much ready to be in charge of
millions of dollars of other people 's money, ready to hire strangers, ready
to figure out finding/keeping customers, ready to stave off ruthless
competitors, but don't yet know that many things in life and in business can
be complex and are not predictable and they need this explained??_

Also I am quite sure one can explain life and business are complex and not
predictable - and so obviously a single metric like $1mm ARR doesn't guarantee
funding or anything - without having to borrow (the much more confusing topic)
of parametric insurance as part of the explanation...

For a VC screening, if a founder needs such simple, obvious advice and
handholding, doesn't that speak to bigger issues?

Again, really really appreciate when VCs share their knowledge and experience,
just sometimes when I see the advice they do give I wonder who/how many
founders are they meeting who lack such basic knowledge and common sense and
need things explained like this.

~~~
akharris
In a word: yes.

Creating a product, starting a company, and finding users/customers doesn't
actually prepare you for raising money. That's a whole other set of skills,
and it's one in which founders are at an inherent disadvantage to investors.
This isn't a good/bad thing, it's just a function of investors being experts
at fundraising conversations, and founders being inexperienced.

Which is all to say that it wouldn't be fair be so hard on people for not
knowing certain things. It isn't a reflection on overall quality and
intelligence.

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ikeboy
>$1mm ARR

>Repeat founders who were previously funded

Interesting. I applied to YC with
[https://icanpriceit.com/](https://icanpriceit.com/), not much traction yet. I
was hoping I'd get an interview at least, based in part on my existing
experience of building an ecommerce/Amazon business to 100k in sales (plus my
answer to the "hack" question was pretty good).

I didn't get invited. I know that
[https://www.ycombinator.com/whynot/](https://www.ycombinator.com/whynot/)
says I pretty much can't get a direct answer why, but my own takeaways were
that one of the following must be true. Either:

1\. Solo founder+no traction was just too low to meet their bar.

2\. I messed up some other part of the application, which is very possible.

or 3\. 100k in sales isn't that impressive, relative to the kinds of
impressive things other founders did; and the fact that it's not the startup I
applied under dilutes the achievement.

Now in the month and a half since I applied, sales (on my amazon business)
have jumped and I'm looking at close to a $1 million ARR (~$4500 sales today,
~$22500 sales 7 days, ~$78000 sales 30 days, majority of which are from
nonseasonal, replenished products, so can reasonably extrapolate yearly i.e.
no Q4 boost). Maybe in 5 months that will be impressive enough to get an
invite, at least, assuming I still want YC. Without funding I likely won't be
doing too much work on the startup and will mostly focus on my existing
business and college.

(I actually talked to Aaron briefly after a talk in NYC, he said I shouldn't
worry too much about being a solo founder.)

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dustingetz
what size raise is this article about?

~~~
mck-
Based on what's mentioned in the article ($1m ARR, 15% MoM, post demo day) I'm
guessing it's talking about the first institutional money – which could be
either Seed or A; between $1m-$10m depending on market/geography

