Effective way for getting funded :D
Over the course of this year, we’ve seen a lot of founders get funded in our community.
The secret sauce?
The ones who got funded had two things in common.
- Traction (50k ARR+)
- Warm VC network (a16z, Pear, Tim Draper, etc.)
Pretty simple right?
If it was, we’d all have 50k ARR and be connected to a16z.
The biggest mistake
Where we’ve seen founders struggle is:
- Fundraising when they don’t have enough traction (eg: 50k ARR)
- Cold emailing VCs when they don’t have a network (they see you as desperate)
Why is this bad
Unless you are an exited founder, fundraising without traction is hard.
A bunch of our founders (Harvard MBAs, Princeton Alums) thought they could fundraise prior to having traction because they had sexy backgrounds. They struggled and ended up actually stopping their fundraise to get traction. Once they got traction, they were able to raise their Preseed/Seed in a snap.
I would say the common mistake I’ve seen is thinking you are ready (eg: my background, my app is cool) prior to having enough traction (eg: 50k ARR).
These founders waste 2000 hours that they could be spending on building traction.
It’s like being Level 10 in pokemon and trying to kill the gym leaders.
You could have been spending that time leveling up your company’s traction to Level 50, then try again then. Or you can keep dying.
What we did instead
So we’ve started to focus our own internal efforts in Founders Cafe to help people get traction (50k ARR+) and get warm intros to top tier VCs (a16z, Pear, etc.).
So now we’ve started to focus on two categories
If you don’t have enough traction to fundraise:
- Getting mentored weekly by someone who has achieved your goal (Eg: 50k ARR) until you hit it
If you already have traction:
- Getting warm intros from founders funded by Top Tier VCs until you raise
I would say these should be some goal posts early on if you want to some day get into YC, or raise millions from a16z. If you don’t have the traction or the network, and have the funds, I would say it would be a good idea to take advantage of this resource.
We're rooting for you from founderscafe.io !!
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Generally to get funded you don't need to get funded. And if you need to get funded, you generally won't get funded. 50K ARR is already a fairly viable side-project or main project depending.
Yep. ARR is the king. Found it the hard way...
This is a good thought, but there are times when you are simply not a fit for venture-scale investment. I see a lot of folks go after VC when their business is best described as a "software business" or "small business". VC money is not the only way to raise capital to help you grow.
Another issue I see is folks not understanding how to communicate their value to investors when they do meet with them. Early-stage investing is often about showcasing your promise, not just your numbers (if you have them). I wrote more about that here:
Indie Hackers - how positioning ruins your pitch deck
I say the investment "industry" is fundamentally flawed. We tried raising money for two years, and everyone loved the idea; heck, we even won 6 international awards, but I did not need 1 Million to go on with our bootstrapped development. I just needed 50K. But no one, no bank, no angel, and no big VC wanted to hand us a lighter to start the fire. BUT, of course, everyone was waiting with their big sausages to benefit big time from you once you get that fire burning. When you get that fire burning yourself, why would you need additional funding anymore? Yes, the growth will be slower but sustainable. I have only seen founder startups throw out money as fast as they can, only to have to look for more anytime soon. In the end, nothing is left over for the founders themselves, as it is all split up by the VCs, and they are having a laugh owning your startup whole and dictating what you should do or not. Not every startup needs funding. Period. And not every small app should aim to become the next big thing. Founders should consider what they need to make a good living for themselves and set this as their goal. Not desperately becoming the next Unicorn.
Agree.
Once you have traction, you can leverage revenue based financing. Having said that, if you're at 5k MRR or so, you can probably raise 100k+ (which can be a big help), but you still keep control of the company.
Really need to read the SAFE though. I have seen SAFE's where you need to pay back the investment if you don't raise another round.