
Ask HN: What's your advice for someone who's raising capital for the first time? - certainstartup
I&#x27;m a noob founder raising Angel&#x2F;VC for my startup, what are the common pitfalls and other things that I need to be aware of?
======
coffeemug
Speak softly and carry a big stick.

VCs constantly talk about supporting entrepreneurs through tough times,
enabling creativity, building amazing companies, etc. They're not lying --
they really believe it, and it's an important thing for them to believe.

But while they say all this stuff, they're also human. And humans follow their
incentives. They do that before they do anything else. So your job is to make
it easy for them to act ethically.

That means talk the talk -- you want to build a great product, scale it to an
amazing company, hire a great team, etc. That's the only thing you care about.
Building a great company that builds amazing products and makes everyone lots
of money. But _act_ game theory. Have lots of great alternatives to negotiated
agreements with any given VC. Put yourself in a powerful position where you
can get favorable terms. Don't give up power/equity on the assumption that "it
doesn't matter", or that they'll act magnanimously, or anything like that.

It's way, way easier to have a lovely relationship with people when you're in
a position of power. Put yourself into that position.

(There are some investors you can unequivocally trust to act their talk --
notably YC, winfunding, and a few others, but don't rely on that as a general
rule)

~~~
greenspot
This. So true and extremely well framed.

The only thing I can add: At the beginning of a relationship, everybody is
kind. Background checks not just help, they are essential, do them.

Getting into conflicts and power plays with VCs, or just any person at some
point, should be expected but there are still huge differences in how people
deal in messy situations in terms of morale and ethics. You will find
everything between feeling uneasy and facing a nuclear war.

~~~
wiz21c
>>> there are still huge differences in how people deal in messy situations in
terms of morale and ethics.

so true. Problem is that in my small business experience, those in power are
there because they have very flexible views on morale and ethics (i.e. they
think they have morale/ethics, but they actually forget it when their company
is at stakes). Being the ethical guy I'm of course totally biased. But the
parent post is so right : having ethics/morale can be extremely damaging for
you because you'll have to work with people who absolutely don't get how you
think and that'll be super exhausting. Know yourself before going into that
game.

------
rsweeney21
I've started a few modestly successful companies over the past decade. Most of
them were bootstrapped, but for one of them I went the VC route. I raised $16M
over 4 years, starting with Angel, then VC, then "top-tier" VC.

 _Taking VC funding made the experience of owning and operating a business
worse in almost every way._

There are many reasons why I wouldn't recommend raising VC money, but I'll
focus on just two right now. First, once you take VC funding, it's no longer
your company. Think about that - this business that you created from nothing,
sacrificed so much for, know inside and out, and poured years of your life
into - now you share control with someone who you've spent maybe 8 hours with.
And you're going to have to do that again and again over the years.

The second reason is the disparity in the invested interest between the VCs
and you. You have EVERYTHING riding on this startup. The VC has almost nothing
riding on your company. It's not their money, they get a great salary either
way, and they are expected to have most of their investments fail.

There seemed to be more worldly prestige running a VC backed company, but
that's probably because we bought press coverage. :-) In terms of my own
personal happiness, I've never been happier than when I was running my own
bootstrapped company...and I also made a ton of money.

~~~
nobody271
How do you know what type of company to start and how much of your own money
did you invest when bootstrapping a company.

I heard about startups that do something like make medical insurance billing
easier. That raises a lot of questions, actually.

* How does one even learn that is an issue?

* It seems like something where getting started is driven entirely by having contacts in the industry.

* There has to be a ton of prohibitively expensive red tape to cut through. Would you just pay a lawyer to figure all that out? Lawyers are expensive!

* It doesn't seem like something that really makes the world better although I'm sure you could tell yourself that it does if it was your business. Is having your business do something you consider positive important?

* Where do you get the knowledge you need to get started in an industry. Say you're really only good at programming and want to start a ...fashion business. How do you even start? It can be hard to use Google when valuable information is buried under an ocean of click bait articles.

~~~
beat
Become a technical co-founder for someone with a deep knowledge of some
valuable business, who has a great idea for a startup but lacks the technical
skill to make it work. There are lots of them.

~~~
alexhutcheson
Be careful: signal/noise ratio is extremely low here. There are lots of
people, particularly in SV, with vague ideas and a general desire to be a
"non-technical cofounder", but far less that have the deep, valuable domain
knowledge being discussed here.

~~~
beat
Well, yeah. Vet your partners. They need to have a realistic and achievable
idea that makes sense to you. "Business plan" becomes their responsibility,
and it needs to be better than "collect underpants, ???, profit!", or
"Facebook for cats" or whatever.

------
ajcodez
Keep everything incredibly simple. Follow the standard 10 slide deck pattern.
Focus on the value your service provides in concrete terms. It’s not the time
for subtlety. Spell things out explicitly in big font.

Set the price of shares at $0.10 or a round number. Raise a normal amount of
money like $150k or $250k at a normal valuation like $1M (depends on industry
etc). Get someone close to you to put in any nominal amount like $10k and tell
investors you already have committed funds. If possible use a SAFE contract to
accept funds faster.

Hire a freelance designer to clean up the deck and website home page if that
is an issue. Ask friends to review both deck and home page. If possible make a
product video walkthrough.

In meetings keep things friendly. Stick to the plan. Pitch and then ask if
they are interested. Answer questions truthfully but in line with
expectations. Never complain or give excuses for anything. Follow up
frequently because investors are often busy and literally might forget they
agreed to invest in your co.

Source - closed $250k seed round this month. Woohoo. Back to work.

------
modi15
1\. First figure out plan B - what happens if you are not able to raise
funding in the next 6 months.

2\. Assume a position of power - you will make this company big even without
funding because plan B is in place.

3\. Talk to investors from this position. You are smarter than them. You know
more about this business. You don't need this particular investor to invest
because others have already signed up.

4\. Treat investors like shit. Dont look too eager to setup meetings. Schedule
meetings a week out atleast. When you drop into a meeting do NOT spend more
than half an hour to 45 minutes. Do NOT answer all questions for investors -
be selective about information you disclose - push answers to next meeting -
make yourself scarce.

5\. Do bullshit padding around your entire story. If something doesnt sound
too good dont disclose that information. Make up stuff to make things look
good.

There are people who will find the points above ethically questionable. These
people most likely dont know what it takes to raise money.

~~~
skrebbel
I agree with most of what you wrote but:

> Make up stuff to make things look good.

That's gonna backfire.

~~~
godzillabrennus
Theranos is a good example of why that doesn’t work.

~~~
icedchai
I'd say the opposite. It actually worked for about 15 years... that's a pretty
good run and shows you just how susceptible to bullshit some of these guys
are...

------
ydau
\- Do you actually need to raise? If so, is now the right time? If you don’t
have a product with any users, it may be more valuable to prioritize this.
Raising money is a huge distraction. Approach with caution.

\- A clear, succinct, well-designed deck _does_ make a difference.

\- Talk to your users. How do they use your product? How often? Include this
in your deck.

\- Venture Deals and Mastering the VC Game are helpful books

\- Read early slide decks of now successful companies. Many are available
online (e.g. Airbnb).

\- Warm intros help. If you know someone who knows a VC and can intro you,
ask!

\- Different VCs have different investment strategies. Your TAM might not move
the needle on a 1B fund, but it could on a 20M one.

\- The best story is a growth curve that’s up and to the right.

\- For later stage: not to sound demeaning, but VCs often act like lemmings.
An offer on the table makes rallying others easier — reach out to those who
gave you a “VC pass” (ie nevder responded to your email, or didn’t follow up
after a meeting) and see if they’re interested now.

\- If possible, get feedback on your deck from someone who has successfully
raised.

\- Don’t tell VCs which other VCs you’re talking to. You’ll be tempted, but
don’t.

\- Take notes after each meeting. What were the objections? Stumbling points?
Use this feedback to improve your deck.

\- Giving a range for your valuation or amount you want to raise makes you
appear indecisive and lacking in confidence. Give specific figures.

\- Be capable of justifying why you want to raise X. How’d you come to this
figure?

\- Stories help. How’d you come to this idea? If you have direct exposure to
the problem you’re trying to solve - especially if it’s a business problem -
incorporate this into your pitch.

\- Make sure you’re talking to people who can make a decision within the firm.

\- Don’t copy and paste cold emails. Personalize them.

\- This can be a discouraging process. But it’s a numbers game. You only need
one yes to get the ball rolling.

\- Multiple offers help with negotiation :)

\- Good luck!!

------
meritt
Ask yourself if you actually need the capital.

Between the ubiquity of pay-per-minute cloud computing for every imaginable
service, tools to enable extremely productive remote employees, and thousands
of software companies ready to handle the complexity of payments, email,
ecommerce, hosting, etc, starting a tech company is easier and cheaper than
ever.

~~~
jeletonskelly
This is great advice. The further you can get on your own dime will save you
equity and get you better terms when you really do need capital investments.
Early on, the biggest expense will be your time.

------
thethimble
Hi certainstartup. Please reach out to me if you want to have a deeper
discussion. Notes:

1\. Be certain that you want to raise capital. By raising you're irrecoverably
giving up leverage to investors. You will always be beholden to investor
expectations going forward. If you're a mission-motivated founder, you will
inevitably reach a point where investor motivations will be at odds with your
motivations. This isn't necessarily a bad thing, but it's important for you to
go into this eyes wide open.

2\. If this is your first round, this will likely be the point where CEO,
board, shareholder rights get defined (e.g. what needs to happen to approve an
acquisition? fire the CEO? issue more shares?). Make sure you have a good
legal team that can help walk you through all of the minor consequences of the
structure.

3\. Make sure you're educated regarding share classes and different treatment
for classes. Make sure you understand "preference" and "participation". Make
sure you're getting favorable terms on these points. Having a good legal team
helps a ton here.

4\. The best way to create leverage is to increase demand. Optimize your
process so that it culminates in an auction dynamic - where multiple
interested parties are bidding to win. This requires intentionally shepherding
parties through a gated process, pulling back people who are trying to move
too fast and pulling forward laggards.

Having been through this several times, I've been bitten by all of the above.
I'm happy to have a deeper discussion if you would like. Please reach out to
me at advait at goguardian dot com.

------
ei8htyfi5e
Find a way to get to profitability before raising, even if you're only making
$1.

------
JHM168
Yoo

Ok.. first thing you'll hear from blogs, interviews on Youtube, and everyone
else in the echo chamber is about growth. Growth growth growth growth.

Just for a moment, forget growth.

Think about engagement. What VCs and investors realllly care about is
stickiness ie how often are people using your product. This is true across B2B
+ B2C. (yes there are examples of low touch point high revenue businesses, but
let's forget about those for a second).

What you want to prove in the early days is how good your product is for a
small subset of people, not how good your product is to everyone. (this is
where the (in)famous saying "do things that don't scale" comes from.. partly
anyway)

Instead of saying to an investor that you acquired 100k users.. tell them:

\- 30% of our users acquired in the first 7 days return back to the platform
every day for 10 days \- 20% of users acquired within 3 days of a company key
event sign up and make a 'revenue' transaction \- 20% of users refer their
friends with a 80% conversation rate \- time on site is X minutes and users
typically return 4 times per day \- social media / community engagement on
your main channels \- site traffic is split 30/70 new vs returning users

There's that thing that Paul Graham from YC said to Brian Cheksy from Airbnb.
"Go out and find 10 people that absolutely love your product, and go from
there"*

Also.... one of the biggest pieces of advice with VCs I can give you:

Make sure you set the agenda and set deadlines to work to.

Don't let investors lead this.

This is your business, don't suffer fools or people that are 'too busy'.

*Might not be an exact quote :).

------
kumartanmay
This is one of the least asked questions that I learned today. If you are
raising a seed round from VC, please check the size of fund. If you can make a
case of return 20% of their fund during the exit after series A, go for it.
e.g. you have raised $1m from $10m fund for 10% equity and your company gets
an acquisition offer for $20m. The VC would favour your acquisition because
you would contribute 20% to his fund. However if you raise $1m from a $100m
fund, the $20m exit wouldn’t excite your VC and instead he would ask you to
raise a bridge round and push you to aim for $100m exit in the future. A 20m
in hand is better than $100m in bush.

P.S: I am not suggesting you to become short sighted at series A but it was a
context to help you understand my point. Just wanted to remain grounded and
help you understand with achievable targets.

------
adventured
Prepare for the process to be draining, frustrating, and to take a lot longer
than you expect. As the owner/operator of your start-up, it's like adding
another job to your list of responsibilities. Also prepare yourself for a
hundred no responses to get to a yes. Eating rejection is more often than not
a hefty part of the process. Try to not get upset at the rejections, waste
minimum amounts of time on that aspect; spending unnecessary amounts time
dwelling there is dangerous to your start-up, it'll eat your valuable time and
mental health (which is already being heavily taxed by the start-up itself).

~~~
torgian
So it’s like going to job interviews! :)

------
brryant
Some basic things I've learned along the way:

1\. be authentic. 2\. don't sell. 3\. explain your vision of the future in
simple terms

------
osi1647
Make sure you actually need capital. When I worked on my startup I noticed I
was more busy finding investors than building the software. One day I was done
with spending so much time on funding, and started to spend my time
programming on the actual project, which was a great relief.

------
graycat
For my startup, I went to hundreds of VC Web sites, saw their stated interests
in leading edge, disruptive, etc. technology. I sent hundreds of pitch decks,
polished to close to perfection, following lots of rules, e.g., only 10 foils,
large fonts, total of only about 300 words and other alternatives, etc.

My foil decks promised everything short of Pluto in the solar system. From the
VCs I heard back next to nothing. Net, I wasted huge amounts of time.

So, I had to ask, what was missing from my pitch? It became clear: The VCs
want most of all traction, significant and growing rapidly. They want more,
but traction is the biggie. So, they want at least real users, hopefully real
revenue, hopefully real after tax earnings. Basically the VCs want to buy part
of an airplane already at 5000 feet up and at Mach 0.5 and gaining altitude
quickly. They wouldn't buy into a Boeing 787 still on the ground.

But for information technology startups, the world has changed a LOT since the
start of Google, Facebook, Microsoft, Cisco, Apple, etc. Now, for lots of
startup opportunities, by the time you have the traction the VCs want, you can
very well no longer need the VCs check and certainly not want the VCs term
sheet, BoD seats, or much of anything else.

VCs are not for all startups. My joke is that the VCs are looking for traction
significantly high and growing rapidly where there are five co-founders, each
with credit cards maxed out, and each with a pregnant wife.

True, some startups will need a big shot of equity capital, but that's nearly
impossible since such a startup will have a tough time getting the traction
for an equity check for even 10 cents.

IMHO, at this point, information technology VC is a goofy thing that has to
find some really strange situations. Instead of strange situations, now often
or usually, a startup with the required traction won't need or want a VC
equity check.

One way to handle VCs at low effort is to follow the Hollywood advice, "Don't
call us. We'll call you.". Really, if your startup has the traction the VCs
want to see, then they might notice you and call you. So, get on with your
work. If some VC calls, maybe listen. Otherwise waste no time contacting VCs.

------
mindgam3
Oh man, where to begin. Here are a few things I learned the hard way from my
first time fundraising in 2011 (3 months full time, a few all nighters working
on the deck, closed $1M+).

It’s a power game. Every single aspect of it. The typical situation is they
have power over you because you need money and they have money. Your job is to
convince them that they need you more, because money is easy to find but
future billion dollar startups are actually quite rare. In order to do this,
you need to create a reality in which they are losing out on a limited time
opportunity by not meeting you and then handing you a big check.

Borrowing a term from poker, the best way to walk out of the meeting with a
firm commitment or big check is to walk in with “position” on the investor.
Ways of having position include: \- warm intro from another investor who
already put money in \- any chart showing a core metric (revenue, users,
deals) going up and to the right \- any press

Basically anything that conveys a sense of momentum. Momentum is a huge part
of the game as well. It’s critical to create a sense of urgency. Investors are
pack animals. Getting the first close or “lead” is at least half the battle.
After one person commits, it becomes much easier for others to fall in line
due to social proof. Do whatever it takes to generate momentum and communicate
that to investors. The train needs to be leaving the station by a certain
date, are you in, yes or no.

Try to find a good candidate for a lead investor. You _could_ do a “party
round” of $1M with a ton of people all writing smaller checks from $25-200k.
But in my experience this is a bad idea, because none of the investors have
enough skin in the game to really dig deep and help you out if the shit hits
the fan. And if this your first funded startup, the chance of shit hitting fan
approaches 100%. You want at least one investor who is deeply, deeply
committed to your vision and most importantly to you. This will help you
navigate pitfalls and avoid a situation where, say, you raise a convertible
note (debt) and after 1-2 years when you’re still trying to find product
market fit, some disgruntled investors try to ask for their money back.

Don’t use a convertible note with a due date. Use a SAFE if you can get away
with it. If the investor doesn’t want to use a safe, get a very specific and
detailed explanation why.

Do treat all the investors with respect. But don’t let them get away with
power tripping. This is one thing infuriatingly common especially among big
names. If you take their shit, they won’t respect you. But you also can’t blow
your cool. Call them on it, explain that you’re serious and don’t want to play
games, and be prepared to walk out of the meeting if necessary. Don’t walk out
unnecessarily or be a dick yourself. But be prepared to show you mean
business, and if they don’t, then you have better things to do.

Do listen to investor feedback, especially if they are ex founders or have
domain expertise. But don’t lose sight of your vision or try to shift your
entire strategy bass on one person’s feedback.

Make sure you take time for self care and have strong support networks during
fundraising. It is very emotionally intense to pitch your heart out, the
stakes are high, and not everyone is nice. Take time and space to recover and
recharge emotionally. Remember that you’re selling investors first and
foremost on you and your team. And mostly you. If you seem tired or stressed,
or anything other than happy, alert, comfortable, and crushing it, that is a
bad signal.

Don’t be afraid. Remember why you’re doing what you do. Realize that even if
you get destroyed in the next pitch meeting, nobody is going to die. You’ll
sleep it off. Tomorrow is another day and another chance to try again. Every
pitch is an opportunity to practice and to improve your craft. Celebrate every
success, even if it’s just learning one tidbit from a VC who decided to pass.
And embrace the failures, because you will have them. It hurts to get rejected
when you have so much on the line. But if it was easy to close seed rounds
then everybody would be doing it.

Don’t worry too too much about valuation, at least compared with investor
quality. Better to have a committed lead investor who backs you 100% at a $3M
valuation than some rando coming in $5M.

Finally, after you close the big bucks, shred your pitch deck and don’t use it
to inform your next product plan. The exciting part of the pitch deck is
typically big picture vision stuff. Don’t lose sight of that, but focus on the
next step of product. Go back to being scrappy even with $1M in the bank.

Good luck!

------
3pt14159
There is a book out there that is short and underrated:

[https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-
Fir...](https://www.amazon.ca/Funded-Entrepreneurs-Guide-Raising-
First/dp/1491940263)

------
synaesthesisx
Be wary of raising too much too fast/having too many investors to deal with
early on.

------
Frodo478
Make a good pitch [https://blog.ycombinator.com/how-to-pitch-your-
company/](https://blog.ycombinator.com/how-to-pitch-your-company/)

------
jboggan
You're better off spending the time improving your product.

------
ChuckMcM
First, read "Pitch Anything" by Oren Klaff[1]. No seriously, read that book
cover to cover, you can do it in a weekend.

Next do everything @coffeemug said :-)

[1] [https://www.amazon.com/Pitch-Anything-Innovative-
Presenting-...](https://www.amazon.com/Pitch-Anything-Innovative-Presenting-
Persuading/dp/0071752854)

------
lbriner
* Know your audience so you can use appropriate language

* Think about it from their point of view. How clear is your message?

* Take advice on how much to ask for so you don't sound too green

* They will care about ROI but also the quality of the team. Theory is great but only a good team can deliver the theoretical ROI.

* Try and back up claims with facts e.g. We have a market of X billion - according to whom?

------
startupdiscuss
Focus on sales growth to the exclusion of (almost) everything else. If you
focus on the product, change the features to increase sales. If you hire a new
tech person, you do it because you need a feature that was asked for by a
customer. As you set prices, aim for the highest revenue growth.

------
tylerfoster
Anything other than a yes, is a no.

~~~
ryanSrich
Anything other than a signed a term sheet with wired funds is a no.

------
arikr
Read everything in the fundraising section here:
[https://www.startupschool.org/library](https://www.startupschool.org/library)

------
anthony_barker
If you are in EU consider the new ICO rules... Up to 8 million within eu
countries.

Have MVP if you want to limit dilution.

Draw a small salary... Don't work for free.

~~~
a_imho
_If you are in EU consider the new ICO rules... Up to 8 million within eu
countries._

What rules? Could you elaborate?

------
luca_m
I suggest you reading Venture Deals.

------
koolhead17
Ask yourself:

1\. Do you really need an investment.

2\. GOTO step 1.

------
m3nu
Startup School had a video about it last week. By Geoff Ralston.

[https://www.startupschool.org/videos/48](https://www.startupschool.org/videos/48)

My tl;dr:

\- be honest, don't exaggerate facts

\- find a shared vision, find the right investor

\- get it done and get back to work

------
lonelyw0lf
Don't

------
mirianbert
Apply to YC.

------
kenneth
I run a $30M early stage venture fund. Here's what I wish first-time founders
knew:

• Don't bother cold emailing me, you'll end up straight in the trash. Don't
even think about reaching out on LinkedIn, I open it once a month to mark
everything as spam. Instead, find someone we know in common and ask for a warm
intro. I receive way too much inbound, and a referral from someone I trust is
one of the best ways to skip the line.

• Have a good deck, and make sure I see it before I talk to you. For the
majority of new startups, a deck is the best way to share your story, and I
will make my decision of whether to spend time talking to you in person while
reviewing a deck.

• Understand what I'm looking for: (1) solving a real problem that matches my
investment thesis (look it up on our website), (2) a team that's worked
together before and is uniquely qualified to solve this problem, (3) a market
that has the potential to build a billion-dollar monopoly, and (4) a real
business model and a realistic path from zero to a billion.

~~~
CPLX
This almost reads like a parody of the entitled God-complex VC mentality.

I wonder how long it will be before people feel some shame advocating for
overtly classist and exclusionary network-only policies in public at least.

~~~
kenneth
Getting into YC is a great way to jump-start your network. Ultimately, having
a strong network is key to building a successful venture business. Expecting
otherwise is unrealistic.

VCs aren't charities. Seed investing is a business with very high quantity and
low quality at the top of the funnel. Any investor who tells you they aren't
giving more weight to a lead that comes recommended vs. one that doesn't is
lying to you. It could be as simple as 5min to review the initial pitch vs.
1min.

