
How Justin Kan fundraises - lukasschwab
https://blog.atrium.co/behind-the-scenes-how-justin-kan-fundraises-6bae1003aabe
======
birken
Story time: In early 2012, the startup I was working for, Thumbtack, had
struggled for 6-8 months to raise a Series A but finally got to the finish
line. Around the same time, Justin Kan co-founded a company called Exec, and
within a few months raised a "party round" that was nearly as much as our
Series A, with a valuation twice as high. Our company was years old and had
serious traction, Kan's company had done essentially nothing. At the time it
was a quite upsetting turn of events.

But there was a valuable lesson... How Justin Kan fundraises is irrelevant for
you and me, because we aren't Justin Kan. There was no rational basis for Exec
to have been worth so much at that time, but when you are Justin Kan that
isn't relevant. And look, good for the Justin Kans of the world who can take
advantage of that, but that doesn't mean it is helpful advice for the rest of
us.

I can say from experience that going into VC meetings with a bunch of false
bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly
irrelevant advice. By far the most important thing for the average founder is
getting the VCs to look up from their phones and care or be interested in your
pitch, which isn't going to happen unless you've created the right fundraising
dynamic for your company.

One of my favorite Paul Graham essays of all time, "How To Raise Money" [1],
fully captures what my experience was in the fundraising realm, both when it
went well and when it went poorly. I'd point you there for more practical
advice.

1: [http://paulgraham.com/fr.html](http://paulgraham.com/fr.html)

~~~
jacquesm
Exactly. It's FOMO rather than anything tangible, which can work quite well as
long as you don't mess up completely.

Anybody remember color.com?

[https://www.fastcompany.com/3002341/color-failed-what-
happen...](https://www.fastcompany.com/3002341/color-failed-what-happens-
its-41-million)

I don't think Bill Nguyen would be able to repeat that sort of raise.

~~~
pwaai
I find that a lot of articles shared on HN along the lines of "This is how you
do X" conveniently cherry picks anecdotes from the perspective of an
individual blind to their own intrinsic edge and attempts to generalize which
poses many problems for the average reader.

For example, charging people before you make a software product. Very rarely
can you convince someone you never met over the phone or email to give you
money for something that doesn't exist yet but this is apparently what you
need to do as an average joe.

~~~
tebugst
I never understand one point. I am using bunch of paid services and many free
services. For paid services, I am paying from first day but in case of free
services when they start charging I find alternatives.

------
sethbannon
Dangerous advice. From the article: "if a VC sends a follow-up email asking
factual questions, they’re already emotionally uninterested. Many
entrepreneurs get caught up in this process: they send the VC a fact and
citation, which the VC nitpicks, etc., but it’s already too late. The
entrepreneur has failed by not creating the type of confidence necessary to
de-risk the investment."

If you want investors that actually understand what you do generally, or even
better yet understand what you do on a technical level, this is terrible
advice to follow. Investors literally become co-owners of your company, and
there is no easy way to get rid of them. Raising from the right people slowly
is better than raising from just anyone fast. It's a positive sign when
investors actually dig in with real substantive questions after thinking
things over, and an indication of how thoughtful they'll be as co-owners.

~~~
lpolovets
As an investor, I agree with you and disagree with the article. I dig in with
factual questions _because_ I'm excited, not because I'm not. If I'm not
interested, that's when I pass instead of asking questions.

FWIW the real truth is somewhere in the middle: some investors invest based on
their gut, and if they _are_ asking factual questions then that means they are
not emotionally interested enough. Other investors invest based on their
brain, and if they _are not_ asking factual questions then that means they are
not intellectually interested enough. (Or your presentation answered all of
their questions, which is very rare.) Interpreting the actions of both
investors in the same way is a mistake.

~~~
keithwhor
Hey Leo,

There's probably no objective truth, but let me offer a perspective: a founder
sees 1 founder (themselves) and 100 VCs and a VC sees 100 founders and 1 VC.
In the same way you look for patterns in founders, teams, products and markets
to determine who to invest in, founders look for patterns in VCs to see who's
likely to invest. A useful and common pattern founders pick up on is VC tire
kicking: the ones who are interested enough to dig in but not excited enough
to invest immediately. Asking questions in a meeting is one thing, but
following up in an e-mail with an itemized list of; "how do you think about
[x], what about [y] competitor, have you thought about [z]" is a surefire
indicator that an investor's not willing to move _right now_ (not enough
confidence in founder, team, product or market) and, as a founder, you need to
move on.

So you may sit here and proclaim, "hey, this advice isn't accurate, because I
ask questions when I'm interested!" Well... yeah, sure. There's (1) selection
bias involved, you're a well-known VC and you're likely meeting with, on
average, more experienced founders (by the time a first-time founder gets to
you they may have been through an accelerator, faced tens of rejections or
more, etc.) and this can lead to more mature relationship building, and (2)
for every 1 in 100 founders you invest in this way, you passed on the other
99, making _you_ one of _their_ 99 they need to pattern match and learn from.

Viewed through this lens, founders should _absolutely_ take this advice to
heart. If you, as an investor, _really wanted_ to invest in a founder and they
snubbed you a bit after a follow up question (not rudely, they just have to
choose where to focus), would you suddenly lose interest, or would you pursue
a great deal / great opportunity? I have a hard time believing you'd let
somebody you thought was the next Zuck walk out of the room without a term
sheet. Founders should try to find the investor who thinks they're the next
"Zuck", or some reasonable facsimile of such given the product and market.

Hope that helps clarify. I've seen friends put through the ringer by getting
too caught up in the weeds with VCs that clearly weren't interested, or were
tire-kicking. Can happen to amazing founders and it's wildly distracting.

~~~
lpolovets
First, thanks for the thoughtful reply. Second, I agree that sometimes VCs
aren't that interested but still waste a founder's time. That really sucks. I
also agree with you that I have much more data on founder behavior vs.
investor behavior because I rarely work with other investors directly.
Inversely, founders often have a better view of investor behavior.

Where my opinions differ:

> Asking questions in a meeting is one thing, but following up in an e-mail
> with an itemized list of; "how do you think about [x], what about [y]
> competitor, have you thought about [z]" is a surefire indicator that an
> investor's not willing to move right now

That's not true in my case, and also not true for many funds I sometimes share
notes with (w/the founder's permission). I often see Q&A email exchanges that
either the founder or an investor in a startup forwards to me. So I can see
firsthand that other investors are asking email questions (and then making
investments), too.

Furthermore, how much follow-up there is depends on check size. If someone is
investing $15k or $50k as an angel, they might make a decision after a single
meeting because that meeting is often their sole shot to meaningfully interact
with a founder. But if a fund is writing a $400k or $1m check, more diligence
will be required. My fund can't write a $1m check just because I really hit it
off with someone. That would be extremely irresponsible financially.
Similarly, a founder shouldn't take a $1m check from me (or any other
investor) without doing some of their own due diligence.

> For every 1 in 100 founders you invest in this way, you passed on the other
> 99

Yes, but if most investors (esp. funds) want to do more diligence, and you
have to go through more diligence to be the 1 in a 100, then avoiding
investors who want to do more diligence means you might not end up _anyone 's_
1 in a 100. A crude dating analogy: a typical person might need to go on a
date with 100 people to find their life partner. But if you set a filter like
"if you want a second date before deciding whether we should get married then
you obviously don't like me that much," then you might end up filtering out
most or all of your suitable partners.

> If you, as an investor, really wanted to invest in a founder and they
> snubbed you a bit after a follow up question (not rudely, they just have to
> choose where to focus), would you suddenly lose interest, or would you
> pursue a great deal / great opportunity?

It depends. If I already want to invest, then being snubbed would give me
pause, but I would probably continue trying to make the investment work. If I
wasn't sure I wanted to invest, then being snubbed would make it much less
likely that I'd try to invest. Whether you're a founder or an investor, how
someone treats you during the diligence/courtship process is a decent
indicator of what working with them will be like after the investment. Working
together might be worse than the preview, but in my experience it's very
unlikely to be better.

> I have a hard time believing you'd let somebody you thought was the next
> Zuck walk out of the room without a term sheet.

FWIW, my fund has made ~65 investments in the last 5+ years. Exactly one of
those investment offers was made during the first meeting while the founder
was in the room. The majority of investments took 2-4 meetings, a few email
questions between meetings, and several reference calls. From what I know,
most funds that write $250k+ checks work in a similar manner.

> I've seen friends put through the ringer by getting too caught up in the
> weeds with VCs that clearly weren't interested, or were tire-kicking. Can
> happen to amazing founders and it's wildly distracting.

100% agree here. This behavior really upsets me.

~~~
keithwhor
> FWIW, my fund has made ~65 investments in the last 5+ years. Exactly one of
> those investment offers was made during the first meeting while the founder
> was in the room. The majority of investments took 2-4 meetings, a few email
> questions between meetings, and several reference calls. From what I know,
> most funds that write $250k+ checks work in a similar manner.

Sure: but let's dig in. I'm interested. Out of those 65 investments, how many
did you explicitly lead? Sure: the majority took 2-4 meetings. But...

(1) What's a meeting to you? Keep in mind that your Principals and / or
Associates conducting meetings and diligence should not qualify as meetings.
If it's not with a GP it's not really a fundraising meeting and no founder
should reasonably consider it such. Yes, I'm adding a semantic layer here, but
this semantic layer is _extremely_ important to founder psychology and how we
classify meetings, fundraising success and more.

(2) How many of these investments had a term sheet _after only one_ meeting?
Not necessarily with the founder in the room, but this is, for all intents and
purposes, functionally equivalent to an investment offer made in the room?

On top of that, is the a correlation between _leading_ an investment round and
a fewer number of meetings with a founding team before investing? My intuition
based on my own experience and anecdotes of other founders would be that there
_should be_ a correlation - happy to be wrong, though.

Also, out of the investments that took "2-4 meetings", did the founders ever
roadblock you from investing (i.e. it's a meeting but the founder "isn't
fundraising"?) - because this is pretty common (some use it as a tactic but
often it's just flat out true), in which case "2-4 meetings" isn't actually
"2-4 _fundraising_ meetings." If a founder is at this stage, they don't need
this Medium Article's advice: they've already developed the maturity to
execute upon a fundraising strategy, you just might not see it due to
selection and / or survivorship bias (seems natural, and just how things are
done). In fact, they're executing the latter part of the strategy outlined
here (have found a lead via "focus", or relatively confident in their ability
to receive a term sheet when they pull the fundraising trigger).

We're really pulling apart the fabric at the seams here: there's a reason this
article isn't a hundred pages or more, which is realistically the volume of
information a founder has to internalize while they're developing their own
understanding of the fundraising and investment landscape. They'll also find
their experience to be very personal. This advice is meant as a launchpad, and
I think it's a good starting point for novice founders.

If I were to give advice to new founders (and I do get asked occasionally, but
I'm literally _nowhere close_ to a celebrity fundraiser and still a fledgling
entrepreneur) it's, "I still don't understand fundraising. Just be yourself
and build something you're passionate about, have confidence, be persistent,
be kind, and the right people will come along. You'll probably trick yourself
into thinking you understand something about the process, but realistically,
fundraising is just about people and relationships, and shit is messy. Be
humble and thankful, and try not to waste too much time discussing fundraising
strategy with investors on Hacker News."

Disclaimer: I often don't follow my own advice.

~~~
confiscate
Better example. Imagine, as an investor:

\- an Early Stage, pre-traction startup gave a pitch to you at a meeting

\- you came out feeling "default not invest" (i.e. if nothing new happens you
won't invest)

\- you later emailed them a Factual question

\- they replied with an elaborate Graph/Pie/Chart with lots of numbers to
clarify some detail, that the founders decided were not important enough to be
in the original pitch

\- that Graph/Pie/Chart turned you from "no" to "yes"

when was the last time that happend?

~~~
lpolovets
Good question. Speaking just for me: if I leave feeling "default not invest"
then I will just write a pass email. If I leave feeling interested but wanting
to know more, that's when I will ask more questions. If it's 2-5 questions,
it'll probably be over email. If it's >5, I'll probably suggest a quick call
instead.

Factual answers have sometimes swayed me in a positive direction when I'm
skeptical about some number or claim and the founder's answer is strong and
changes my mind. They've also swayed me in a negative direction when I'm
skeptical or confused about something and a so-so answer takes me from a
"maybe" to a "no".

~~~
confiscate
Interesting, thanks for the clarification

------
mfringel
How much of this is relevant to other people who are not Justin Kan?

~~~
tw1010
Just learn to emulate his mannerisms. Fake it till you make it.

~~~
teej
Hard to fake a billion dollar exit.

~~~
pedalpete
Isn't it multiple billion dollar exits?

~~~
pkaye
What were the other major exits other than twitch.tv?

~~~
syassami
cruise.

~~~
irq11
He had nothing to do with Cruise.

~~~
TaylorGood
He was in Cruise seed round.

(Cruise was funded entirely by Vogt and a small circle of investors, including
Kan and other Twitch veterans.)

~~~
irq11
There were lots of people in Cruise’s seed round.

Justin founded Justin.tv and Exec. Justin.tv became Socialcam and Twitch.

------
kyleschiller
It's worth noting that Atrium's Series A had a mind-boggling 92 investors [0].

Read the article out of curiosity, but understand that this was in no way a
normal process.

[0] [https://www.crunchbase.com/funding_round/atrium-lts-
series-a...](https://www.crunchbase.com/funding_round/atrium-lts-series-a--
8f3868a1#section-overview)

~~~
tedmiston
> It's worth noting that Atrium's Series A had a mind-boggling 92 investors
> [0].

In the article somewhere it suggested that Justin was more or less testing the
waters and getting investors interested as future customers in their product.
It sounds like a weird mix between sales and fundraising, but a smart
interesting one none the less.

If 100 investors write $50k checks, it's a small amount of money to them
compared to the value the legal automation software could potentially deliver.

100 * $50k = $5M let's say for 20% of the company --> $25M round for them.
Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't
just raise $10M off that many checks.

------
fatjokes
Still an interesting read, but should be framed less as advice and more as a
day-in-the-life piece on a rockstar founder with a lot of cred.

------
philfrasty
Klaus raised the money, Justin is just the mascot

------
keithwhor
> Consistently, if a VC sends a follow-up email asking factual questions,
> they’re already emotionally uninterested. Many entrepreneurs get caught up
> in this process: they send the VC a fact and citation, which the VC
> nitpicks, etc., but it’s already too late.

One million times this. Especially for entrepreneurs (like myself) with an
engineering background, this is something that’s hard to grasp intuitively at
first. If you’re asked for financial projections, for example, it’s already
over. You can win that investor over more reliably by following up a month
later with, “[famous Angel investor] joined our round,” than responding with a
spreadsheet.

I’m nowhere near Justin Kan’s level of experience and expertise, but another
favorite piece of advice it can take some time to internalize is: “if you
didn’t get a term sheet, it wasn’t a good meeting.”

This doesn’t mean investors dislike you or won’t invest if you don’t get a
term sheet right away. It’s that when you find an investor highly aligned and
/ or motivated to invest, they will move quickly, like sub-24h quickly. The
easiest way to burn yourself out as an entrepreneur is getting too attached to
“not good meetings”, with “but I really like that firm!” Or “and they were so
nice and understood our business!” You’ll drive yourself nuts wondering why
everybody says nice things and yet nobody wants to invest.

The saying is not that it’s a _BAD_ meeting if there’s no term sheet, just
that it wasn’t a _good_ meeting. Stay grounded. It can be a long journey.

Remember: actions speak louder than words, always, and the fundamental action
an investor can take to show support is to invest.

[Edit] I will add that, in my own experience, investors can be all over the
map and there’s actually no such thing as “one size fits all” fundraising
advice. Fundraising is a hyperpersonal activity that’s just as much about
relationship building as anything else, if not moreso. You’ll want your first
checks from investors that don’t fuck around (see above advice) and who are
willing to bet on you. As you grow as an entrepreneur and become more
confident in your ability to build relationships and “bullshit detect”, you’ll
become more comfortable with long term relationships. In my admittedly limited
experience, the people who spend time with you and learn to appreciate you and
your business before they invest are _the most valuable_ to both your bottom
line and personal psychology.

But, hey, the above one size fits all advice is still a good launchpad :). If
you’re starting your fundraising journey, good luck, it’s a hell of a ride but
if you’re deeply passionate about your business it is more than worth it!

~~~
jacquesm
I work with quite a few (European, not SV) investors and while with some
investors follow on questions might indicate dis-interest I have never seen a
case of that. Asking for follow on questions is usually done after an internal
discussion between partners has taken place and whoever is champion of the
deal has been asked questions to which they did not yet have the answers.
Almost all deals that I've seen that eventually were closed had quite a bit of
back-and-forth over details like that prior to agreeing on terms.

------
maxcan
Hi everyone, I'm Max and I run AI at Atrium. @birken's point is absolutely
correct that having sold a previous startup for nearly 1B really is a big part
of what makes this strategy viable.

But, on a completely unrelated note, if you're an experienced ML engineer and
you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-
industries there is as part of a very fast growing team, drop me a note: max
<AT> atrium.co.

------
beambot
Justin's previous article was much more helpful on SeriesA strategy & tactics:
[https://blog.atrium.co/the-founders-guide-to-raising-a-
serie...](https://blog.atrium.co/the-founders-guide-to-raising-a-series-a-
venture-financing-1de4f5aff312)

------
lisabethhan
Hey, I'm Lisa @ Atrium - here to answer any questions.

I run our fundraising bootcamp Atrium Academy w/Justin to help founders meet
the right investors and raise a great Series A.

Check it out/Apply here for our next one in March: www.atrium.co/academy

~~~
jacquesm
Maybe it would be good to apply some 'star power' discounts here and there,
what works for Justin most likely will not work in the same way or even at all
for others. Justin has the pick of the litter when it comes to raising funding
and some of the advice given really does not translate to 'the real world' of
founders doing their first raise.

~~~
lisabethhan
Hey Jacques, you're absolutely right given Justin's background.

We started Atrium Academy to help democratize the fundraising process for
founders (ie. speaking with first time founders who just raised their Series
A, reviewing pitch decks and narratives with mentors, being matched with
recommended investors based on industry and expertise)

~~~
scotthtaylor
So you're introducers, taking a 5% fee?

~~~
lisabethhan
Hey Scott,

Atrium Academy doesn't take any fees, or charge any money. Our mission is to
help founders by offering free, educational workshops for the startup
community.

Check it out here: atrium.co/academy

------
rdlecler1
As someone who has been on both sides of the table, this article is basically
irrelevant for 99.9% of founders. There is an HOV lane for successful
entrepreneurs that the rest of us don’t get to take.

------
sharemywin
what if startups got appraisals like real estate. As well as "subject to"
appraisals like property that needs repairs.

So, I'd value the company at X but, I'd value the company at X+Y if you added
a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many
new accounts in this time frame.

~~~
rstephenson2
You can do that, and often times debt providers will attach those sorts of
provisions: "we'll lend you X and you can keep it as long as you achieve Y or
maintain Z". One of the challenges with that is that you can set up domino
effects where you miss one goal, and then as a result you don't get the money
you need to hit the next and it spirals downwards.

~~~
tedmiston
I've been in a company like this and know of others — it's a real pain point
when those metrics that funding is tied to turned out to be less relevant than
you initially thought or distraction more than true traction indicators. For
example, measuring the number of sessions a user has in your app vs the amount
of engaged time per user.

