
How to Raise Money as a First Time Founder - WadeF
http://wadefoster.net/post/58039721398/how-to-raise-money-as-a-first-time-founder
======
soneca
I have the impression that the importance of traction heavily outweights all
others. So much that it is not even worth reading about these small victories
like introductions and other tactics if you don't have traction yet.

The only substitute for traction is past traction (on previous startups) or a
very big credential (as being on YC or being early employee on a big hit -
Facebook, Google, etc). And this narrows the audience to only a few
individuals for whom these tactics might apply.

Not by chance Paul Graham recent essays are aimed at this YC batch aproaching
Demo Day. And, as interesting as is to us, regular folks, reading this; it
sounds like reading advices from a pro driver on how to drive a Ferrari. They
may be somehow useful, specific tips that you must know if you want to drive a
Ferrari. But you first must own a Ferrari. Before you do it, they are just
fiction.

And if you do have traction, I guess all these tips will have just a marginal
influence on the outcome. Posts from VCs and succesfull fundraisers always
seems like hindsight rationalization about why it worked. Forgetting that
traction was the single most important reason by far.

I mean, traction is 99,9% if you are a regular founder, not a star. So
wondering about the 0,1% is more of a Maseratti problem.

~~~
SurfScore
I think you're right, but I don't think the breakdown is as drastic as 99%.
Traction is most important by a wide margin, because it proves that you're
doing something right. This is a capitalist society where the market dictates
what succeeds, and if the market dictates you're succeeding, then you're a hot
commodity.

As far as YC goes, most HAVE traction by Demo Day, significantly so. It's not
like these companies have an early beta with 20 users and are raising on a
name. Most of the time they achieve early traction from a combination of YCs
guidance and the fact that if you get into YC, you're typically a pretty good
entrepreneur and have a higher likelihood to succeed.

~~~
badclient
Not to mention traction is a very subjective thing, especially for b2b
companies.

And even after you get traction, the _type_ of traction begins to matter. For
example, you can go sign up 100 paid customers for your product in a week by
contacting your Dad's rolodex. You may have see that as traction; most VCs are
going to have major questions about how you'll get your next 1,000 customers
and why you haven't proven any of those channels yet.

------
johnrob
While we are getting more and more advice about "how to raise money?", the
startup community really needs to raise the prominence of another question:
"should I raise money?". If properly addressed, I think the latter would be a
good filter for companies that aren't impressive or committed enough.

The worst outcome isn't failing to raise money; it's raising money and wishing
you hadn't (wrong team, wrong idea/market, etc).

~~~
argumentum
_it 's raising money and wishing you hadn't (wrong team, wrong idea/market,
etc)._

Great point, though from personal experience I think 1st time founders will
never get this until things go wrong after you raise. Raising money is
attractive, not just for the money, but for the validation it brings. One of
the hardest parts of doing a startup is talking with non-founders about what
you do .. it's so easy to say "I work at Google" or "I'm in med school". The
closest equivalent, for founders, is being able to say "our investors .. ".

I remember PG mentioned this .. that one reason Y-Combinator was so successful
is it gives high-acheivers "a program" to talk about, almost a vetted excuse
for why founders who could be otherwise working at Google or Goldman, or
studying at Stanford are instead living in a cramped apartment and subsisting
on ramen.

But I think it's ok to get seduced by money and prestige for the 1st time. You
learn, you move on and up and get better at this stuff. Mainly you learn that
the most important skill of being a founder is separating yourself from how
non-founders think. Then you no longer focus on external validation and start
thinking about building a real company.

~~~
dragonwriter
> One of the hardest parts of doing a startup is talking with non-founders
> about what you do .. it's so easy to say "I work at Google" or "I'm in med
> school".

Is it really hard to say "I founded and run a business which does _< X>_"? I
mean, its more words than "I work for _< foo>_", but its not really that much
more complex of an idea, or unfamiliar to most speakers and listeners.

~~~
argumentum
Yeah actually, it's quite hard unless you have traction, revenue or investors.
At least it's hard when all your friends are working at <X> BigCo or doing
grad school at <Y> BigSchool. And when your parents know that your friends are
doing <X> or <Y> and the path you've chosen is so vague and uncertain ..

~~~
dragonwriter
By "hard" are you saying it causes problem with _communication_ or a problem
with a _desire of the speaker to be able to present an image consistent with
expectations (personal or social) of success /security_?

~~~
argumentum
Latter ..

------
7Figures2Commas
How to raise money as a first-time founder? Start a company at a time when a
first-time founder can write a _serious_ blog post entitled "How to Raise
Money as a First Time Founder" that contains the following two sentences back-
to-back:

1\. "When we went out to raise money, we raised with only a couple thousand
dollars in monthly recurring revenue."

2\. "But we had a solid product, strong weekly revenue growth (10% week over
week), and two distribution/marketing channels that were already paying
dividends."

------
dakrisht
Traction doesn't apply to a hardware startup. Quite simply, it's impossible to
get any sort of "traction" when you don't have the cash required to
commercialize hardware and release it to customers. Not to mention the
manufacturing fiasco.

And not all startups are app-driven. Most are, since hardware is hard and a
lot of startups like to ride the app-wave but this post only takes those into
account.

Sure, social startups and other "apps" playing the users + page views +
engagement numbers game can easily make an app, grow an audience and have
their "traction" but this blog post applies only to those types of companies.

MANY factors are taken into consideration when raising money - not just
traction. Where you went school matters, who you are, your team, your product,
your business model, your ability to start and run a business, your past
experiences with running a business, and etc.

It's not just traction.

VC's aren't stupid.

~~~
pbiggar
Traction applies to everything. Look at the hardware startups that used
Kickstarter to gain traction before shipping! Lockitron and pebble for
example.

But you can get traction in lots of ways. Got 200 customers on your waiting
list? 10000 people follow your blog? 20 enterprise customers with verbal
commitments to buy? Those are all traction.

~~~
dakrisht
I agree with you that having customers on a waiting list or a pre-order list
is a great move with regards to pre-money traction, but there are certainly
companies out there with proprietary technologies that require funding before
they can be brought to life. Particularly, in the life sciences,
biotechnology, and other high-IP areas, it's not very intelligent (or
feasible) to launch a Kickstarter campaign in order to get traction.

But you make a _great_ point - traction doesn't apply to just users, which is
something this particular post heavily emphasizes. Having 10,000 blog
followers, pre-orders, enterprise customers, commitments, even endorsements
from influencers who can promote and/or sell the product once commercialized,
are all traction. Totally. Even IP is traction if done right.

Additionally, two years ago we didn't have any crowdfunding and there were
plenty of companies that raised money without any "traction" as it's commonly
understood in the Techcrunch arena today.

------
Patrick_Devine
It's funny. I _just_ got back from seeing a VC earlier today on Sandhill Road,
and when I told them we were working on building out a product, they told me I
shouldn't focus on that and should come back instead with a business plan. I'm
fairly convinced that if I'd gone in with a business plan they would have told
me to come back with a product.

Ultimately I think PG is correct. Focus on building out the business. If you
spend all of your time planning instead of shipping, you're going to fail.

~~~
JustinJ70s
This sounds like the start of VC goose chase. They'll never say no but instead
just keep you busy on the off chance that you'll hit on something. The only
thing that snaps them out of it is the serious prospect of actually making a
ton of money with managed risk.

