
How to Raise Money - oBeLx
http://paulgraham.com/fr.html
======
pg
Incidentally, this is the actual advice we give startups about fundraising at
YC. This batch I finally wrote it all down, and the s2013 startups used it
when raising money.

~~~
ig1
"I don't know of a single VC investment that began with an associate cold-
emailing a startup."

I can vouch from personal knowledge that this has happened a number of times
at a number of different European VCs, and at least once with a major US VC in
the last year.

I'm guessing it's far less common for YC startups because YC startups have
demo day which essentially initiates the process. They also have a strong
network because of YC so it's much easier for a VC to get a warm intro to any
YC startup.

It may just be a Europe vs US thing but I'd be surprised if it didn't happen
frequently in the US as well especially at less well connected startups.

Certainly referrals have significant value but most major VCs will be able to
use their network to get references on pretty much any startup in any case.

~~~
diminish
we need to combine individual experiences and create a curated tabular list of
investors classified by different dimensions in pg's great article. such a
list combined with this article would be the ultimate cheatsheet for
fundraising.

~~~
jacquesm
That is an excellent idea and barring a pile of non-disclosure agreements I
could see a lot of people contributing to this.

Deal details with investor names attached are not likely to materialize until
long after the fact and even then someone is breaking a promise, which
professionals with ties to VCs are not going to do. Founders could technically
get away with this, especially if a deal fell through but this world operates
largely on reputation and such a thing could easily pop up at a moment when
you really don't need it later on.

Crunchbase has quite a wealth of info in it, as does duedil.com , those you
could use to get an idea of who is on the other side of the table as well as
google. The best source of info for a company looking for funding from 'party
x' is to go and find out who else 'party x' has invested in and then to see if
there are connections that can be sounded out off the record as well as
companies that 'party x' was going to invest in but where the deal fell
through (this is a lot harder to come by though).

~~~
ig1
You should absolutely do this, always speak to founders of companies who've
raised money from a given investor before taking money from them. You can also
ask investors about other investors (as in "have you co-invested with X
before, would you ?").

------
austenallred
From my experience, one of the most important realizations of fundraising is
that it's an _enormous_ mind game.

The hardest part of fundraising was getting the startup to a point where I
actually believed in it. When I looked at our projections and where the
company could go, I was no longer thinking, "Yeah, if a miracle happens," but
rather, "It'll be hard, but I really, really think we can do that. We just
need some help to get there."

Fundraising was a relative cakewalk when I was no longer selling investors on
our company; I was explaining to investors that we were taking off, and asking
them if they'd like to jump on board.

~~~
unclebucknasty
I believe that making that mental transition (to believing in your company)
impacts the way you approach other areas of your business as well (not just
fundraising).

For instance, when courting a large potential client or partner, your
confidence goes up and you are not selling, so much as explaining. People pick
up on this, and your results will show it. Plus, it just plain feels better
when you really believe in your company's potential vs. merely hoping.

------
kori
Paul Graham on dating:

s/investors/women/ && s/investor/woman/

(works the other way too)

When you talk to women your m.o. should be breadth-first search, weighted by
expected value. You should always talk to women in parallel rather than
serially. You can't afford the time it takes to talk to women serially, plus
if you only talk to one woman at a time, they don't have the pressure of other
women to make them act. But you shouldn't pay the same attention to every
woman, because some are more promising prospects than others. The optimal
solution is to talk to all potential women in parallel, but give higher
priority to the more promising ones.

~~~
tlb
The analogy to dating is problematic. Such a strategy is indeed effective for
dating, but feels mercenary or even sociopathic to most people. Making the
analogy raises moral issues that aren't relevant to fundraising.

~~~
wellboy
Every human interaction is just analogous to dating, because human
interactions are based on interest and the whole thing is called social
dynamics. Be high value and wanted and everybody wants you, be desperate and
low value and nobody wants you.

In dating, it is sexual interest, in business, it is monetary interest , the
underlying principles are the exact same.

------
tomasien
You'll notice a common theme in this (excellent) piece: it's for startups that
have some reason to believe they can actually raise a bunch of money. Startups
who have either sufficient demonstrable talent behind them, are growing in
some interesting way, or some other form of validation.

If you can't find some confidence that you're in that group, find a way to
delay fundraising: keep your job, do consulting, work on alternate revenue
streams, whatever, because fundraising when you're no in the group the bulk of
this article applies to - trying to fundraise is hell. Not just hell like
"it's really, really hard and frustrating" but hell like you could actually
lose yourself in it, like you could actually get destroyed by it.

~~~
namenotrequired
pg also points this out in
[http://paulgraham.com/convince.html](http://paulgraham.com/convince.html) :)

~~~
tomasien
He's done a great job of explaining this in the past - just making sure to
clear it up. The worst thing in raising money is realizing you're not there
yet - because NOBODY will tell you that, especially not investors.

------
cdixon
I'd strongly recommend having a presentation in the pitch meeting. It helps
control the flow of the meeting and ensure you cover all the important points.

------
saturdayplace
My favorite thing about these essays, is summarized by PG's remark in this
one: "sorry, we think you're great, but PG said startups shouldn't ___, and
since we're new to fundraising, we feel like we have to play it safe."

The card it gives to inexperienced players. This whole thing feels like a way
to even out the information asymmetry inherent in these transactions.

------
sfrjay
Unsurprisingly, excellent advice phrased as succinctly as it could be for such
an enormous topic.

I'm glad Paul Graham think that decks are on the way out, because they're a
ludicrous (or at least inefficient) way of understanding what a startup does.
If you have a product, show me that. If you have financials, show me those.
Otherwise it becomes a competition to see which companies can dedicate their
design resources to make the prettiest deck, and which investors can do the
math on your '30% growth' number to figure out that you're growing from 3 to 4
users.

The advice about valuation is also great. I listened in on a conversation with
very smart founders who are used to optimizing things, and they were super
concerned about having a great pre-money valuation. It's tempting to focus on
it because it's your only benchmark at a really stressful stage, but if things
go badly it won't matter, and if things go really well it... won't matter
either.

~~~
tlb
Another problem with emailing decks is that investors read them and decide,
without much feedback to the founders. When founders can talk through the deck
interactively with investors, they can learn which parts work and which don't,
and what questions are unanswered.

~~~
dpapathanasiou
Alas, like the YC application form.

------
Felix21
This couldn't have come at a better time.

For the first time we have an investable business (revenue, growth, profits,
big market, happy customers).

Just as we were thinking: how do we go about this? Do we even have the time?

Then such an informative article comes along.

Thanks a lot PG.

~~~
mikeg8
Feeling the exact same way. So much insight and time-saving advice, I can't
believe it just falls into my lap.

------
bryanh
> Being proud of how well you did at fundraising is like being proud of your
> college grades.

What a great line.

------
wpietri
I'm sure I'm not the only one thinking back on some long-ago startup and
thinking, "Oh! Those assholes! I knew it!"

Not that what PG says here is exactly news to me at this point, but his wide
experience and resulting confidence is fantastic confirmation of things that I
now know to suspect, but at the time seemed so reasonable. Oh, you don't lead?
Oh, you want to see just a little more progress? Well of course you do. And I,
earnest nerd, took them at their word.

------
larrys
This is interesting and contradicts a bit of "disrupt" meme:

"You can't trust your intuitions. I'm going to give you a set of rules here
that will get you through this process if anything will. At certain moments
you'll be tempted to ignore them. So rule number zero is: these rules exist
for a reason. You wouldn't need a rule to keep you going in one direction if
there weren't powerful forces pushing you in another."

What this seems to be saying (to young people) is "it's ok to ignore what
other older more experienced people say (or what established practices are)
and try to disrupt in those situations because the guidelines and experience
they have is bogus but I am telling you that my rules are right so just trust
me".

~~~
jasonshen
Your intuitions != what older more experience people say

pg and YC has more qualified investing experience than probably any other
"experienced person" you could talk to. When you are doing a startup, it's
generally a good idea to focus on innovating in your core area of expertise -
which would be some combination of product/market/technology - and take the
best practices of all the other areas, like financing.

~~~
larrys
Re-read what I said.

I'm not talking about what PG or YC recommends with regards to investing.

I'm talking about the general idea that if anyone else said something like
this and asked for blanket trust:

"you can't trust your intuition....rule number zero is: these rules exist for
a reason"

Well those other people of course can't be trusted like PG and what they say
doesn't matter as much. So if a person with 30 years in the taxi industry said
to you "trust me these things are for a reason" and you saw he was as
accomplished in what he did as PG would you just "trust him" or would you dig
a little deeper?

Interesting but expected that I would get downvoted for stating an opinion on
something I said "what this seems to be saying". In a classroom would a
teacher takes points off for stating a thought like that?

Quite frankly I don't know why it's so necessary to walk on eggshells when
stating a thought that seems to question what PG may say.

Much of "disrupt" goes against a pattern of previously accepted behavior that
others have questioned.

~~~
wooster
I had to reread your original comment a couple of times to get what you were
saying. I think you might be getting down-voted because of writing style and
confusion more than anything else.

~~~
larrys
I agree that if my my writing style is not good, and adds to confusion, then
that is something that I need to work on.

But I sometimes feel that there is a definite emotionality involved when
people hit the vote button and people jump to a quick conclusion depending on
either the particular subject or the person who the commenter is making their
thoughts known on. It seems that when discussing these "protected" individuals
or subjects you have to take extra care to say things in a way to protect
against downvotes. And sometimes that is just not worth the effort so you
don't say anything.

~~~
jfarmer
> But I sometimes feel that there is a definite emotionality involved when
> people hit the vote button and people jump to a quick conclusion depending
> on either the particular subject or the person who the commenter is making
> their thoughts known on.

I agree with everything you said, although, per my other comment, I think it
was you who "jump[ed] to a quick conclusion" in this case. :)

------
YuriNiyazov
Do investors read these essays? You've had some strong words for some of the
types, e.g. "contemptible subspecies of investor". Would any of them email you
and say, hey man, f u?

~~~
j_baker
I would imagine not. Not only is PG very influential at many of the companies
these investors would want to invest in, but most of these investors are also
going to be hesitant to out themselves as being a "contemptible subspecies of
investor".

------
agrona
Forgive my ignorance, but what does it mean for a founder to be "formidable"?

e.g. in this context:

> The founder who handles fundraising should be the CEO, who should in turn be
> the most formidable of the founders.

~~~
sillysaurus2
[http://www.paulgraham.com/convince.html](http://www.paulgraham.com/convince.html)

"But the foundation of convincing investors is to seem formidable, and since
this isn't a word most people use in conversation much, I should explain what
it means. A formidable person is one who seems like they'll get what they
want, regardless of whatever obstacles are in the way. Formidable is close to
confident, except that someone could be confident and mistaken. Formidable is
roughly justifiably confident."

------
jacquesm
For years I've been toying with making a start-up board game. This essay could
easily serve as the basis for that.

Slight disagree with the line:

"For example, if a reputable investor is willing to invest on a convertible
note, using standard paperwork, that is either uncapped or capped at a good
valuation, you can take that without having to think."

A good valuation means you're going to have to think anyway and if you don't
need it you don't need it so then you're just going to have an obligation +
temptation to use the funds. There is no such thing as 'free money' and a
convertible note is simply deferring a part of the process and you'll need to
take care of it sooner or later by going for funding (or paying back the
loan). So if you are not sure if you are going to do a follow up round just
yet I'd advise against getting a convertible loan, you now have a good chunk
of the hassle of having an investor without having properly gone through the
process required. Of course you could simply bank the money and pay back the
loan if you are still of the same opinion later on but this rarely happens.
It's the start-up equivalent of easy credit card debt, and if the valuation
turns out to be low you could end up regretting taking the money (for
instance, you could lose control like this). Better to negotiate it when
you're strong or if you feel very secure about your future valuation.

Having seen a lot of this from the other side of the table quite a few of the
passages strike me as extremely negative about investors, I'm sure Paul has a
ton more experience than I do so this carries a lot of weight with me but I
don't recognize the behaviours he sketches with the investors that I normally
work for. Maybe they are the exception (I'm sure they'd like to think that :)
), but I can't imagine it is this black.

Investors look at the process of investing mostly as risk elimination, and as
a second best as risk reduction by enumerating the risks. If an investors
bails at the last moment (for instance after you've already agreed on terms)
that would either reflect very bad on the investor, or more commonly on the
party invested in. It's not as clear-cut imo as it is sketched here that all
start-ups are angelic and innocent and investors are all sharks to a man and
employing dirty tactics to get you to sign on the dotted line.

Again, it's clear on which side my bread is buttered but I simply wouldn't
work for investors deploying such tactics, but have yet to see this sort of
behaviour in any VC of some stature. Otoh I've seen plenty of trickery by
companies about to be invested in (and lots of good companies too).

~~~
mbesto
Just to add a common misunderstanding - a convertible note is debt and raising
capital is equity. Debt means you owe something (in this cause equity at a
later time), and equity means you own something. I know this is probably
"Fundraising 101" but often its the basics that people get wrong.

------
mehuldesai
The article gives valuable insights into raising capital and the art of
negotiation in this domain.

Overall, negotiation and funding could almost be expressed as a rule table.
Certain heuristics and rules. Rather than flip flopping strategies on how to
negotiate and deal with investors, I think it may be good to have a set of
rules/heuristics to follow and see if it leads to your goal. If it fails,
alter it and see the result. Anyhow, thats what I intend to do for my company,
GridCrowd.

For negotiation PG mentions that its may be ok to just admit your a noob or
not knowledgeable on certain aspects of funding. I respectfully wonder if
there is another stratedgy from what I've learnt in negotiations in the non-
funding world?:

Negotiate from a perceived position of strength.

You don't have to say your a noob, miss the detail and expose it if it becomes
necessary. This way you may be able to attain more action on behalf of the
investor moving through their process. The noob strategy allows them to
indicate a process that could be tailored to their advantage. I don't know
investors, so its hard for me to understand their objectives and how they
behave. I'll re-read PGs advise again, he does have great credibility and
wiseness so maybe I need more study on this strategy.

------
mattmaroon
"When everyone wants you, it's hard not to let it go to your head. Especially
if till recently no one wanted you. But restrain yourself."

Reminds me of a great quote from a family member. When my cousin's son started
playing football, my cousin told him "the first time you get into the endzone,
act like you've been there before".

------
zaguios
I have a question. Since I'm nowhere near the valley and the start-up
community in my community might as well be non-existent, I was wondering how I
might go about meeting and getting introductions to investors. Not being well
connected with a very poor local community makes it hard for me to know where
to start.

~~~
sillysaurus2
_Since I 'm nowhere near the valley and the start-up community in my community
might as well be non-existent, I was wondering how I might go about meeting
and getting introductions to investors._

In that case, it's probably good to think of ways to move to the valley.

It sounds like the only investors in your area are probably individuals who
happen to be wealthy, i.e. potential angel investors. But outside of the
valley, angels tend to be family or people you're already acquainted with. And
even if you can get them to invest in you, they're going to be less
experienced than valley angels, meaning they may be dangerous to you. E.g.
they'll probably rely heavily on their lawyer to structure the deal, and since
you're not in the valley, that lawyer probably isn't a startup specialist, so
you'll need to be extra careful they're structuring the deal properly (and
structuring your company properly, if they're incorporating you).

Investment can be had in places other than the valley, of course. But the
reason you want to be in the valley is because (a) that's where the top
investors are, and (b) there are a lot of them. Raising investment anywhere
else therefore increases the risk of having bad terms forced on you by
clueless angels or predatory VCs.

Choosing to seek investment in the valley is like choosing the high ground in
a battle: it's naturally suited to protect you from dying. And since avoiding
death is every startup's most important goal, the valley is therefore the most
important place to be.

[http://paulgraham.com/hubs.html](http://paulgraham.com/hubs.html)

[http://paulgraham.com/startuphubs.html](http://paulgraham.com/startuphubs.html)

[http://paulgraham.com/siliconvalley.html](http://paulgraham.com/siliconvalley.html)

[http://paulgraham.com/cities.html](http://paulgraham.com/cities.html)

~~~
jacquesm
> But outside of the valley, angels tend to be family or people you're already
> acquainted with.

Find out who the LPs are of any private equity fund, there are your angels (by
the 10's if not the 100's), and none of them will be family or people you are
already acquainted with. Additional upside for those locations where this
matters: and all of them will already be vetted as qualified investors.

------
wellboy
An interesting point here is arrogance towards investors. The art of
"arrogance" is to be arrogant in what you are saying while being very kind and
nice in the way you say it.

It's very hard as a first time founder to mimic the arrogance that is natural
for experienced founders. If you can do it, it's great, if you can't, it will
burn your bridges and blacklist you.^^

If you can pull it off though, you're the master. It's the pinnacle of
hustling, having nothing to offer but being as confident as the next Mark
Zuckerberg.

So you'd need to be as confident as Mark Zuckerberg when he had $1M users when
you only have 1000 users. However, that also only works if you intrinsically
think of yourself as a very high-value individual and if you have worked for
several on you to think that way. Otherwise, investors will quickly spot your
fake.

------
lpolovets
There's a lot of great advice in this post, and much of it rings true.
Specifically, the following tidbits are true ~100% of the time in my limited
experience:

\- "Investors will try to lure you into fundraising when you're not. It's
great for them if they can, because they can thereby get a shot at you before
everyone else."

\- "What investors would like to do, if they could, is wait. When a startup is
only a few months old, every week that passes gives you significantly more
information about them."

\- "Though you can focus on different plans when talking to different types of
investors, you should on the whole err on the side of underestimating the
amount you hope to raise."

\- "You will be in a much stronger position if your collection of plans
includes one for raising zero dollars—i.e. if you can make it to profitability
without raising any additional money."

\- "If you have multiple founders, pick one to handle fundraising so the
other(s) can keep working on the company."

\- "It's a mistake to behave arrogantly to investors." (I also think it's a
mistake for investors to behave arrogantly to founders)

That said, I wanted to comment on a few of the other points in this (awesome)
essay:

 _" To founders, the behavior of investors is often opaque—partly because
their motivations are obscure, but partly because they deliberately mislead
you."_

That's a strong statement. First, not all investors mislead -- many are honest
people. Second, startups are also often guilty of misdirection, which doesn't
mean you shouldn't call out shitty investors, but I do think you should call
out both sides instead of making one side sound like the bad guy.

 _" Do you have to be introduced? In phase 2, yes."_

I think this is true 95% of the time, but it's not 100% true. My partners and
I get pitch decks emailed to us by random people. Most of the time the pitch
decks are subpar, but I think that's because not being able to get a real
intro is a sign that your team/idea/traction/something else is subpar.
However, this is just a signal, and there is no rule - written or unwritten -
that says "if we don't know the sender then the deck goes in the trash." If
you email us something that falls within our thesis and looks promising, we'd
love to talk to you.

 _" Never leave a meeting with an investor without asking what happens next.
What more do they need in order to decide?"_

This is great advice. Most founders we talk to already ask "what's next" at
the end of a meeting, but not all of them do.

 _" And while most investors are influenced by how interested other investors
are in you, there are some who have an explicit policy of only investing after
other investors have. You can recognize this contemptible subspecies of
investor because they often talk about "leads.""_

I guess I'm one of the members of that contemptible subspecies. My partners
and I are in the middle of raising a fund, but we were investing with our own
money for the better part of this year. Our checks were too small to lead, but
there were lots of startups that didn't have terms. If you're raising 1m on a
5m pre, then we don't need a lead to invest. If you're raising 1m-2m on a ???
pre, then we would prefer to wait to find out what ??? is. We're not super
valuation sensitive, so 7m vs 8m is fine, but there's a big difference between
a 6m pre and an 10m pre. What makes this more difficult is that founders will
not reveal terms for obvious reasons. They can't say, "we're going to be
raising at a 6m-9m pre" because that immediately shows that they would be
willing to go to 6m. They may as well not mention 9m. So instead, they say
something like, "we'll know terms once we get a lead." Okay, fine.. then we'll
wait for the lead. =)

 _" Sometimes an investor will ask you to send them your deck and/or executive
summary before they decide whether to meet with you. I wouldn't do that. It's
a sign they're not really interested."_

I'm surprised by this advice. As an investor, it saves everyone a ton of time
when I can look at a deck before a meeting. I will sit down for 15-45 minutes
before a meeting, go through deck, do some internet research, and think of
questions I want to ask. This saves time because I can find out answers to the
basic questions that I would ask in the deck, and then we can focus on more
interesting questions and concerns during the meeting.

~~~
YuriNiyazov
A question on a side digression: "falls within our thesis" \- I often
hear/read the term "thesis" being used by investors, and I am curious what
exactly is meant by it. Is a thesis a tome of 100+ pages? Is a thesis two
sentences, something like "we think that local/mobile/social will be hot this
year"?

~~~
lpolovets
An investment thesis is basically a hypothesis about what sort of companies
will do well as investments. Some investors don't have a specific thesis, and
will invest in any company that looks good to them. Others have a specific
take on the startup ecosystem. For example an investor might believe that
infrastructure companies are a great bet going forward, or they might think
that the sharing economy is the right bet, or, as in case of my fund, they
might think that companies building valuable and proprietary datasets (and
tools for working with those datasets) present the best opportunities. If an
investor has a thesis, they will invest exclusively or mostly in companies
that fall within that thesis.

------
adamzerner
Ask HN/PG: This essay focuses on phase 2. What is the advice for phase 1?

~~~
2arrs2ells
[http://ycombinator.com/howtoapply.html](http://ycombinator.com/howtoapply.html)

~~~
adamzerner
What about how a phase 1 startup could find investors in the first place? PG
talks a lot about how it goes by introductions. What's the solution to the
chicken/egg problem?

------
photorized
"How not to have to raise money" should have been more useful to startups.
Unfortunately, many have been conditioned into thinking that success can't be
achieved without fundraising.

------
melbourne_mat
A few points pg missed:

\- be white

\- be under 30. Preferably under 25

\- don't sound too foreign

\- make sure you are well connected and/or went to harvard, mit or some such

\- look like Zuck if at all possible!

Did I leave anything out?

------
fieldforceapp
Thank you, pg. I would amend the summary by including an encouraging word to
the founders:

"Avoid investors till you decide to raise money, and then when you do, talk to
them all in parallel, prioritized by expected value, and accept offers
greedily; build rejection into your plans by having a range of realistic,
acceptable fundraising targets. Get back to work quickly."

------
known
The Ultimate Cheat Sheet to Starting and Running Your Own Business

[http://www.jamesaltucher.com/2013/08/the-ultimate-cheat-
shee...](http://www.jamesaltucher.com/2013/08/the-ultimate-cheat-sheet-to-
starting-and-running-your-own-business/)

------
hynahmwxsbyb
Great article PG. I'd like to see more case studies on a successful fundraise
at the individual level. How much foreplY do you need before you ask them to
bed? How many initial meetings will here likely be? How long does this take?

------
tomjohnson3
this is perhaps the most honest and accurate description of what you will
likely find in raising money - couple with _fantastic_ advice. in fact, it
accurately reflects my first experience and rookie mistakes raising money in a
secondary market: wasting time by being led on by investors who don't lead;
eventually closing a first investor, which started a rush; etc. if you're
raising money for the first time, please read this multiple times...for your
sanity's sake.

------
amattn
Know your audience. I love that pg uses distributed algorithms as an analogy
of how to treat VCs (failure is the default state).

------
graycat
The line in the essay I liked best was:

> But there may be cases where a startup either wouldn't want to grow faster,
> or outside money wouldn't help them to, and if you're one of them, don't
> raise money.

Having the essay earlier would have saved me a lot of time and effort. For my
startup, I tried for a long time to raise money, and as in the essay it was a
huge distraction from the real work. Eventually, at absurdly high cost in time
and effort, I concluded the more common half of what is in the essay.

Since I wanted to try hard to crack the nut of fund raising, I kept at the
effort until I got some decent understanding.

Also I had to conclude that VCs and I do projects and project planning and
evaluation in very different ways. Since it was quite a while ago that I was
20 years old, and I've done a lot of projects and seen a lot of business, I
prefer my approaches to project planning and evaluation. Also, for my project,
my technical background, in applied mathematics, is far above that of all but
maybe 10 VCs in the country. There is likely not a single VC in the country
who could understand the crucial core of my project, some original applied
math I derived, and only a few VCs who could even direct a competent review of
that crucial core. So, I just can't be impressed by what VCs think of the
crucial core of my project. When I was fund raising, I wondered how the VCs
would evaluate my work; the answer is, they wouldn't! So, they don't have a
clue about what they are missing.

So, net, VCs will evaluate my project based on _traction_ which should mean
that, for me, a solo founder with meager _burn rate_ , by the time a VC wants
to write a check, as in the quote above from the essay, I will no longer be
willing to accept one.

After the fund raising effort, I settled on the line in the essay I quoted
above: For me, and as often in the essay, the VCs are just too much trouble to
work with to be worthwhile. Yes, the VCs are trouble in fund raising, but also
the VCs will bring Board overhead, more time/money with lawyers and
accountants, and, then, in case of the success they want, an IPO with all the
Wall Street and SEC nonsense. Handling all that would be a full time job for
me, the CEO of my company; that's not the kind of work I want to do; and my
hands would be taken from actually building and running my company.

I see another point: In the US, businesses are started and succeed coast to
coast in big cities down to crossroads by solo founders by the millions each
year. Such a business might be a pizza shop, auto repair shop, landscaping
service, big truck/little truck business, etc.

My startup, with me as solo founder, is in _information technology_ (IT) which
should be a huge advantage: E.g., my first server farm will cost less than the
truck and lawn mower of the guys who cut grass in my neighborhood, and the
Internet connection I need will cost less than $100 a month. Moreover if I
half fill the Internet connection, then from simple arithmetic my revenue and
earnings in one year will be quite comparable with funds from a Series A.

So I just view my _startup_ as a one person pizza shop but with some big
advantages from IT; e.g., a pizza shop owner needs to be in the shop for each
dollar made, and my server farm can be making money while I sleep.

For PG's definition of a _startup_ in terms of very rapid growth, so rapid
that VC funds become important, that's not important to me. I need a nice
business; I don't have to shoot for another Google and wouldn't want to manage
anything that big anyway.

A recent remark of Mark Andreessen is that there are only about 15 startups a
year that deserve a Series A. So, the essay is talking about only about 15
startups a year and, thus, I am not disappointed the essay is not talking
about my startup.

The VCs and I will have to disagree on how to plan, evaluate, start, and build
a company. If I am successful, then likely that disagreement will have been a
big part of my success.

The VCs remind me of the Mother Goose story _The Little Red Hen_ when she
could get help only when she had fragrant, hot loaves of bread coming out of
the oven and customers lining up to buy and no longer needed any help.

For me, one really serious turnoff of VCs is that, since they have really no
chance of understanding the crucial core of my business or how I do projects,
no way would I want to report to a Board with VCs. Vinod Khosla has some
recent remarks on how _helpful_ Board VCs are!

Another big turnoff of VCs is that, as reported on Fred Wilson's blog, on
average over the past 10 years, the VC ROI has been poor. Net, VCs do not have
a lot of credibility in business.

Another big turnoff is that too many VCs were not STEM majors and have written
little to no code.

Another big turnoff is that my startup, as is recommended for startups, is
doing work that is new; well, there is some education for how to work
effectively with things that are new, a Ph.D. degree; I have an appropriate
one from a famous research university, and nearly no VCs do. I will have a
tough time viewing a VC as a helpful colleague in the crucial core of my
business.

~~~
friendstock
Just to provide a counter example to balance your assessment of VCs: Our lead
investor has a Ph.D. in EE from Stanford. Our secondary investor has an
engineering degree from MIT and is a serial entrepreneur. They have been very
helpful in terms of advice and support.

~~~
graycat
Apparently you don't have a counterexample:

I made two points, that likely the VCs could not evaluate my project and
likely only a few VCs could direct an evaluation.

For the first of these two, a EE Ph.D. very likely would not understand the
crucial, core applied math of my startup due to not taking the right
prerequisite courses in graduate school. If they studied from Luenberger at
Stanford, then maybe they would have some of the prerequisites!

For the second, directing a competent review of my work, a EE Ph.D. would
likely be able to do that, especially once I gave them a list of reviewers,
and I did indicate that a few VCs could so direct a review.

There is a huge problem with VC: Necessarily they are looking for exceptional
cases. So, what the average deal looks like provides poor guidance on what a
really desirable deal would look like. And since the VCs are also looking for
things that are new, what the best deals of the past 10 years looked like also
provides little guidance.

There are ways to know that something really is exceptional and powerful early
on, and the US DoD has provided a long list of examples for the past 70 years
or so. E.g., the first GPS was done by the US Navy for the SSBNs, and the
crucial, core work started on the back of an envelop at the JHU/APL. The
planning document was enough to remove risk, and the rest is history. Early in
my career, I wrote software in the group that did the software for the
continually updated orbit determination calculations for that Navy system and
heard the stories about how the system was invented and pushed forward. It
really is possible to evaluate projects on paper and confirm that they are
powerful and exceptional; results on paper are how nearly all of research
works, and the work really can be evaluated and seen to be powerful if it is;
but nearly no VCs can evaluate projects on paper, and maybe their LPs wouldn't
let them fund on that basis anyway.

So, the VCs are looking for exceptional projects, and there are ways to
create, present, and evaluate such projects, but VCs don't do or pay attention
to those things. This situation is so incredible that it took me a while to
believe it. No wonder their ROI is low.

------
rwaliany
Great article.

"might me" => "might be"

------
ffrryuu
It's who you know, not what you know.

~~~
adamzerner
No... it's both.

~~~
ffrryuu
Really? Recent news suggests otherwise...

