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Ask HN: How to raise a seed round for people with no elite connections?
157 points by srameshc on July 26, 2018 | hide | past | favorite | 63 comments
How can someone with a product but no elite connections or degree raise a seed round ?

I work in a fashion exposed to thousands of startups worldwide, and can report that many of them do factually raise money without having pre-existing connectedness to prestige investors. The only thing required to raise a seed round is to convince people who have money to give you money. There are a lot of people in the world with sufficient money to fund startups. Substantially all of them are on the same Internet you are.

The trend in the industry has been to more openness on this question recently, in no small part driven by YC, which basically pioneered investing at scale in companies without requiring a social connection.

Also, quick fact of life in entrepreneurship: there are many ways to skin the cat, but if you are hypothetically in a situation where the business needs connections, then the job is going and getting connections. If you e.g. take a random named person with checkwriting authority in Silicon Valley, and ask "How many people have social permission to introduce me to this person?", that answer is likely in the high hundreds to mid single-digit thousands. Substantially all of those people have an email address. Many of them respond to emails very quickly, particularly when they're interesting. This suggests that the immediate problem is less having elite connections and more organizing your life such that you send an uncomfortably large number of interesting emails.

At least for well-known Silicon Valley investors, I think that model is wrong, or at best incomplete. It's easy to imagine "oh, there are hundreds of investors out there, all you need is one, just keep trying till you find somebody". However, these hundreds of people are so close socially that their opinions will be very strongly correlated. (See, eg., how everyone in VC-world got fascinated with chatbots at exactly the same time.) IME, a more accurate model is that VCs form an invisible private club, and to get investment you need a "club membership card". Otherwise, you'll find that when you (say) go to a conference, even if there are lots of VCs there, they won't take you seriously; they'll act polite and then forget to return your calls.

> these hundreds of people are so close socially that their opinions will be very strongly correlated

Having raised a seed round myself, this is definitely not true. Opinions, approach, and attitude of individual investors varies WILDLY. For VC it is more standard, but for "rich person with money in silicon valley" it is not.

Isn't it more efficient to just write to the `random named person with checkwriting authority`?

I'm sure said person can see that you cold emailed the person now introducing you. And thus that intro is based on a very flimsy relationship.

Or is it all just part of the social dance? There's got to be a better way.

The problem is that responding to e-mails is usually a threshold game: you need to meet the threshold of interestingness. That threshold is higher if the recipient gets a lot of e-mails (as rich & prominent people usually do), and lower if the sender is someone the recipient knows well.

If you are a founding CEO and you e-mail another founding CEO of a related but non-competing industry, there are lots of ways you can make yourself interesting enough to be worth having lunch with. Sharing market knowledge, sharing hiring tips, referring promising candidates that would've been better-suited for the other company, explaining your experiences with particular technology the other company is thinking of adopting, etc. If you then ask the other founder for an intro to their VCs, it's a relatively small ask, and you've already delivered value to them. That founder, in turn, is someone well-known to their investors, who has already delivered significant value to them. If an intro comes through them, it is far more likely to meet the threshold of interestingness than a cold-email from a random person seeking money, particularly when they get a lot of cold emails seeking money.

> The only thing required to raise a seed round is to convince people who have money to give you money

One of the huge issues I see is experienced (at least a subset "prestige") investors have the terms best suited to startups succeeding.

I've seen less experienced investors have draconian (almost nonsense) terms -- crazy terms that probably hurt their investments considerably. However, these investors are less accustomed to managing risk in a technology startup.

This is much, much less common in the SFBA ecosystem. However, if you look globally the startup investor maturity can be really poor.

If you’re not willing to walk away, you’re going to pay retail. Good terms happen when you have multiple interested investors, bad terms happen when you don’t.

That said, investment is difficult if you’re in a place that has few exits (anywhere but Silicon Valley or Beijing/Shanghai). Investors are motivated by the percent chance of an exit, and that chance is higher in the Bay Area than in most places. The chance for exit drops off a pretty steep curve as you go down the “top cities” list (I live in Seattle so apologies to the local scene).

> The chance for exit drops off a pretty steep curve as you go down the “top cities” list.


Which either means you're either: going to get a bad/mixed bag on terms -or- you need to raise in one of those cities as an outsider.

Raising as an outsider works just fine if you have traction. As if you don’t, why would you be trying to raise money?

Getting a seed round is a form of negotiating. If you know very little about negotiating, it would be a good idea to read up before you do anything so high stakes.

Two good books that are research based:

Getting to Yes

The mind and heart of the negotiator

The first is a quick and easy read. The second is much meatier. They were both required texts for a college class I had on the subject.

I've found Never Split the Difference to be a good complement to the two books you mentioned. It offers some additional approaches that might work well when negotiating startup financing.

> in no small part driven by YC, which basically pioneered investing at scale in companies without requiring a social connection.

Here in the UK - having participated in one of the leading (in terms of exits) accelerators - it's better to have a good accent. You meet the investor then talk about which college at Cambridge you went to. Or they stare at you like you're some kind of space alien.

Jeez that's depressing. Old school tie still in effect. Is anyone else running into this? Have to hope that this is a diminishing segment.

> The only thing required to raise a seed round is to convince people who have money to give you money.

The thing is that to do that, you need access to those people. And to get access with a previous network is where it gets tricky. Lots of people want that money.

You can build a pretty strong network much more quickly than you'd think, esp in the Bay Area. Getting to know just one or two well connected people can give you access to dozens of potential investors.

Getting to know those one or two people is also easier than you'd think. One thing you could do is make a list of a few startup founders who've raised money from ppl you'd like to get to know, and email those founders. Steve Blank has a great article on this, but just write an email that adds value to their lives [0]. One easy way to do this is find founders in a technical area similar to your domain, so you can connect over a shared professional / intellectual interest, and maybe you can teach them something valuable to their business

[0] https://steveblank.com/2013/08/12/how-to-get-meetings-with-p...

You need to be thinking about what's in it for them. Yes, you want money. But they don't invest out of the goodness of their heart. They want something out of it.

Don't be the one of a bazillion people with their hand out. Be the one with something that interests them.

Aren't there brokers out there who do this? Scratch that - you need to be the evengelist for what you are selling. Believe in it on every mental level and sell it on every channel you can. If customers come, so will the investors.

Excellent advice, very well-said.

It’s that regex joke paraphrased:

You have a problem: you have no connections.

You organize your life such that you send an uncomfortably large number of interesting emails.

Now you have two problems.

Jokes aside, life is short, don’t chase.

Good question. Before I answer, why do you think you need to raise a round? Communities like this one (although I’m much indebted to it) create a presumption that investment is a good thing. And sometimes it ain’t. Think carefully about your personal objectives. They won’t necessarily be satisfied by an investment.

That said, the way to raise capital if you need to is: 1. Work for income and to fund basic build-out 2. Look for grants. In some sectors such as green tech these are widely available. A friend just raised 1m, no loss of equity. 3. Look for opportunities where big raises are not needed. If your main advantage is that you have a shit ton of cash to build your business, that’s going to get competed away pretty quickly, as theirs a lot of cheap money swilling around.

And remember mo’ money, mo’ problems. It sort of burns a hole in your pocket, makes you lazy, allows you to take inefficient decisions.

As an addition: I once went to an accelerator where one of the slick VCs said, “if you want to raise money from me, you’ll need to find me through my business school network”. What a divot. Would you honestly want to work for an investor with attitudes like that?

> that’s going to get competed away pretty quickly

There are lots of great businesses with moat characteristics. You spend some capital to dig the moat (i.e. lock in key suppliers or customers) and then enjoy a period of imperviousness.

Funding strategy is an important component of a business plan. Bootstrapping a business that needs scale, or raising venture capital for an idea which can’t scale, can both be game overs.

The reason this is so confusing is that investors outright lie to themselves and everyone else about it. They pretend to invest based on product vision or founder traits but it's almost universally untrue.

Investors actually invest based on their ability to justify their investment to their LPs, peers, and themselves if it fails. The fear of loss drives most people, and if you have traction they can say "Hey, it's not my fault, they had traction!" and if you have pedigree "Hey, it's not my fault, they went to Stanford/MIT/Harvard!"

So, there are essentially just two routes: 1) traction 2) pedigree.

If you don't have pedigree, then you need traction. And even if you have pedigree, at some point you're going to need traction anyway. Of course it's usually easier to get traction with funding but there's a reason so many pedigreed founders fail, and it's because they can't game the system indefinitely.

There are exceptions to this rule but it's much easier to get traction than it is to find an investor that has genuine conviction about your startup.

Do you need to raise a seed round?

We're bootstrapped. Never took money, never really tried.

At some point in our company's traction, investors started reaching out to us. You have to remember that their job is to find the best companies, and convince them to take their money. Make your company one of the best companies, and investors will find you.

Not all companies/products can be started with an oily rag. Many of the best companies we see in our sector are drive by entrepreneurs that are able to marshall significant resources before they build.

For sure. I think there are way more startups who try to raise capital that shouldn't than the other way around though. It's definitely worth questioning whether it's necessary.

Which sector?

Ag and food tech.

Tech, maybe?

A few things:

1. A lot of advice on here is "Don't raise, just bootstrap". Recognize that while bootstrapping is an option, it puts 100% of both upside and downside risk on you. If your business does well, great! If it doesn't, it's all on you. You've invested (and lost) your own money. Seed funding allows you to hedge that. If the business does well, your investors get x%, but x is generally fair. If it doesn't do well (and most don't statistically), both you and your investors share in the hit.

2. You've said "someone with a product". How's traction and adoption for that product? Do you have users? Are they paying you? What's your current growth rate? If you have strong answers to these questions, don't be shy about reaching out directly to investors. Warm intros are preferred by investors (hell, by anyone), but investors are in the business of making investments. If you have a solid company, you'll get a meeting.

3. Network like your life depends on it. No elite connections? Start making some connections. Go to a conference or a meetup. Are there any accelerators in your area? (e.g., I'm in Toronto and we have MarsDD and CDL here). Get known in your community. Talk to other entrepreneurs. Entrepreneurs, for the most part, like to pay it forward. They asked for intros when they were new and they're generally happy to do the same for newcomers. If you network well, you can expect to meet with 50+ investors over a period of 2 - 3 months.

I bootstrapped a business I exited. Would never do it again. There is a reason most of the world, where bootstrapping is the only option, doesn’t look like Silicon Valley. Venture capital is a big piece of that.

That makes sense if you think a world looking like Silicon Valley is a positive thing; you do, I do not. I am happy most of the world doesn't look like Silicon Valley or, in most cases, even remotely like it.

Can you elaborate on why you think that way?

To raise you have to talk to lots and lots of people.

To build a company you have to talk to lots and lots and lots of people.

So one reason funders try to make it hard to talk to them is to see if you can grind out all the conversations you're going to have to have with people that you have no connection to. Hire staff, lease buildings, sell products, get more investors, get accountants/lawyers/bankers, develop channel and consulting relationships....

So make connections with people. Get to know your local angel community (whether or not they write actual checks there are people who think they are angels), find people from your school or area that have built a company, find people that are in your space (customers, competitors, experts...). Meetups, conferences, twitter, hn, slack channels, youtube+++

I know a firm that got a capital markets fintech funded by pitching a commercial real estate investment firm (who bought strip malls and such) and getting $5MM from them. Not someone who would be in your top 1000 prospects but it worked and it was all just from talking to lots and lots and lots of people.

If you decide you really need funding, talk to everyone and everyone they know.

A guy I had met a few times before asked me for some advice about an offer he had from a start-up. At the end of our conversation, I mentioned to him that we were raising a round of financing and were looking for introductions to angel investors.

This guy is not an "elite connection", but he mentioned that he did know a guy who had invested in a start-up and offered to do an introduction.

I met his contact for coffee a few days later and he brought on a few of his other friends and contacts and we closed a seed round.

I learned in the process that you may not be looking for "elite connections". Our investors are not flashy "elite" types, they are hard-working people who have managed their money wisely. They don't have the net worth to invest as an LP, so they invest as angels.

That to me was an interesting realization, that most angels aren't the ones who have made it to the top, but rather they are still in the fight, and managing their risk trying to get to the next level.

They are also keen to offer their help and advice.

What would you like to raise money for?

HN has plenty of people that invest in seed rounds, use the opportunity to pitch them directly by putting what it is that you are doing and how much you are looking to raise right here. Also, if you mail me your deck (assuming you have any) I will look it over and pass it on to parties that may be interested.

Is there a good way to message people on HN or let them know your interest in them investing?

Try to look for their email on the profile, and if that fails, give them the yours (it can be a temporary one).

My product is a business management platform for a niche industry (pet care). Think CRM+POS+ERP.

We tried the traditional VC route to no avail. The niche was too small for the big players.

We ended up finding a bigger player within our industry who had some cash to invest. He got the product his business needed and earned some interest in the process.

Just my 2c. Good luck!

Two ways:-

1)Ask. Ask everyone. Tell them what you are doing. Take their feedback. Good or bad. Improve your idea and update the person who made the suggestion.

And be ready for rejection. 99% will say no. Thank them for listening. You just need 1-2 investors to say yes.

2) Focus on a few people you think will be a good match. Really understand what their ideas are and how they see the world. Find a way to meet them and show them how what you are doing fits their ideology. Easier said than done. But very effective if done right. Lots of work involved in preparation.

The answer is: make elite connections. It’s entirely possible for someone with something real to offer but no other connections.

It’s a bit like saying, “How do I become a basketball player?” Answer: get a ball and start practicing. Sure, it’s easier if you’re 7 feet tall, and raising a seed riju is easier if your last name is Rockefeller. But you can get a long way on your own.

You might want to put some contact information in your HN profile so investors can get in contact with you.

Also contract work in the market you want to approach might bring you the connections for seed funding.

Or even just contract work in general. Lots of code needs to be written.

Aren't there brokers to acquaint you with investors? Scratch that - you need to be an evangelist for what you're selling and try your f-ing hardest to gain traction with customers - the angels will then start showing up.

There are a lot of assets that you can bring to raising a seed round, and "elite connections" is only one of many. Others include: a great dream, a great team, a working proof of concept, a working MVP, customer validation, and customer traction.

I've been a founder at two companies that raised unusually large A rounds. In both cases, it was because we had an experienced founding team. One was stuffed with folks with "elite connections", one was not. In both cases, seed was no problem even though we didn't have even a proof of concept.

The real answer is that you need to get your product noticed by having spectacular growth. If you have that, no one will care what your background or connections are.

Only a small fraction of the products got that. Almost no product is getting organic spectacular growth. We overly remember the ones that do, but I would say 99% of the products are being created and funded without anyone knowing about it.

This is only the case for the most selective VCs.

it's so true that SV is missing out on so many talents because they didn't graduate from Stanford and don't attend cocktails parties in SF

How can someone with a product but no elite connections or degree raise a seed round ?

Isn't that what kickstarter is for?

Empirically, at least among people I've met, what seems to work best is partnering with another person who does have elite connections. Of course, it's true that it might be hard to find such a person. But you only have to find one, rather than already having a whole elite social network.

Grants, friends and family, network to find one or two individuals, bootstrap. These seem to be the realistic options if you're not exposed to VC (if you even want VC).

The problem is how to do all that on top of everything else when there are only 7 days in the week.

you could bootstrap instead. literally and figuratively beat the pavement to move your product.

Incubators, startup battlefields can be a good place to start

have you considered fundraising on an investment platform that operates under Regulation Crowdfunding and allows all of your non elite connections (and everyone else out there) to invest? Check sizes can be small and it gets the word out there and drives demand for your business while fundraising. Lots of platforms out there, Republic spun out of AngelList and does that for example.

Being in the Bay Area is a big advantage.

Have something actually worth investing in, and pitched well, with a capable team ready to execute.

Go to where the money is. The Bay.

Angellist is an option.

Angel List has never been an option. You still need, and always have needed, "warm introductions" from other connected people to gain even a modicum of interest. It's effectively Facebook for the already-connected.

As others in this thread have pointed out, just bootstrap. It's what we did, and as a consequence we don't answer to any of the rent-seeking parasites of the finance world.

Apply to ycombinator?

product traction

Try to make elite connections by attending to important events and if you're without a degree, enroll your team in a online degree

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