How an event led to multimillions of dollars in product revenue

Last Friday, I attended the 5th Hustle Con.  I could not be more proud of The Hustle team.  It was the best Hustle Con to date in my opinion.  Perhaps even the best event I’ve ever attended.

The Hustle, the company that runs Hustle Con, is a fast growing media company that serves up tech news in an edgy way.  Today, they have around 1 million subscribers, are doing multimillions in revenue per year, and have only 20 employees.  It all started with just one event.  Here are my learnings about events from the last 5 years:

1. A simple event with simple value-proposition can lead to a scalable company.

The Hustle is best known for its avant-garde daily newsletter.  In the beginning, they started out with just one event called Hustle Con that happened once a year.  The premise or mission for Hustle Con was to provide tactical company-building advice for non-technical founders.  That first event in 2013 was held at Intuit, and less than 200 attendees paid between $100-$200 per ticket.

Photo credit: Lesley Grossblatt

Compared to the 2500 people – both technical and non-technical – who come from all over the globe to attend Hustle Con today, the look-and-feel back then was janky as all hell.  But the value has remained the same every year. You will learn at least one tactical thing from each talk to help you with your business.

Photo credit: Eric Bahn

Early adopters can easily overlook bugs and janky-ness as long as you are providing a clear, differentiated value proposition.  Even in that first year, Hustle Con delivered on that.

2. It’s easy to get feedback on events.

We know the first Hustle Con went well because of the concrete feedback that came back from the attendees.  At the first event, all the attendees were asked to fill out their feedback right then and there on index cards at the close of the event.

The #1 thing that people thought could be improved was allocating more time for bathroom breaks.  People were so engaged with the content that they felt they could not leave the room.

It is from this feedback that you can build upon your value proposition online beyond the event.

3. People pay to be in your audience when they attend events.

The interesting thing about events is that they are a good way to jumpstart your audience for a new product.  And in fact, people will pay you to be a part of your audience to whom you can later market other products and services.

This is unlike any other marketing channel where you, as the company, need to pay to get potential users.

4. People will help you with your event for free

There is no other marketing channel where people will help promote your company for free.  In fact, volunteers often make all the difference in running an event, and for a good event, volunteers sign up in droves because they want to attend for free.

5. Being an event organizer allows you to meet influential people.

Organizing events is one of the best ways to meet influential people.  People love being asked to speak at conferences – no matter how famous they are.  If you can get your speakers in front of a high quality audience, it makes them feel extra special.  This is one of the easiest ways to meet influential people!  As it would turn out, The Hustle ended up raising their first angel money from many Hustle Con speakers.

Entrepreneurs work so hard to network with investors and potential customers, and it’s hard to get attention.  Instead, run an event.  It’s one of the best hacks ever.  Even if an investor or potential investor isn’t able to attend, chances are, he/she will at least respond to you to decline.  That response opens the door for you to get to know him/her.

6. Influential people like meeting other influential people.

For that first event, you’ll have nothing to offer your influential speakers.  Why should they speak at your event?  You probably won’t be able to get that many attendees.  That first event may have a lot of bugs or flaws.  But speakers like networking, too. That’s a big tactic that many events use to try to draw in influential speakers.

At Hustle Con, for example, they hold a speaker dinner, which happens the night before the event.  This dinner is invite-only, and they invite all the speakers to have dinner together as well as other people they think the speakers would like to meet.  Most large events do similar “VIP dinners” as well.

One tactic I’ve used over and over again to get people to speak at various events is to name drop other people who have already committed to speaking.  Landing that first speaker (usually from within network or close to network) is critical because all your other speakers will come as a result of that first person being there.

7. You have to get creative when cold-emailing.

Warm introductions are, of course, great if you have them.  At some point, cold-emailing is necessary in order to get star speakers.  Sam Parr, the CEO of The Hustle, used a great cold-email to get speakers in the early days of Hustle Con.

He even included personalized gifs like this:

Gif credit: Sam Parr

8. Engage your list and build off of it.

After an event, you have a captive audience (assuming you pulled it off well).  You need to engage your list of attendees immediately (make sure you have the proper permission from them to do so).  If you are doing an event to get people to do customer development, you need to stay top-of-mind.  Don’t let your list sit around and become obsolete.

One strategy is to put everyone in a FB group and have them ask each other questions.  Another strategy is to create a relevant news digest to send to your list.

9. Culture is set at that first event

What I didn’t realize 5 years ago is that the culture and tone of The Hustle would be heavily influenced by that first event.  In that first event, there was gender balance amongst the speakers: 4 women and 4 men.  Even in the audience, there was a fair percentage of female attendees.  As part of the culture of that first event, there was also a “no asshole” rule.

At the 5th Hustle Con on Friday, I noticed that there was near parity on gender balance (the ticket purchases show 55% men and 45% women).  The attendee makeup was fairly racially diverse as well.  Attendees came from everywhere globally and held just about every job occupation (though primarily from tech).

Most importantly, the ethos of Hustle Con has always been about sharing – sharing information and genuinely trying to be helpful.  And even though the conference now has thousands of attendees, that ethos is still there.  I learned so much about various fields from other attendees.  Unlike at other tech conferences where I often feel like people are trying to size each other up or talk about how they are killing it with their startup, people at Hustle Con just want to share knowledge and learn from each other.  This may sound cheesy, but every year when I walk around the venue of Hustle Con, I get this feeling of happiness, a feeling of “this is how the world should be.”

Setting a tone for culture is a lot easier at an event than online, and you can carry this audience and ethos over to your online product afterwards.

10. Events are overlooked.

Events are overlooked.  I’m not suggesting you necessarily run an events business (though those are lucrative bootstrapped businesses in themselves), but I rarely see startups doing events as a way of customer acquisition to jumpstart a new product or a new company.

If I were to start a company today, I would start by amassing an audience by running an event.  It could be a small event, maybe only 1 to 3 hours, like a meetup.  It could be held at a corporate office for free.  I could have that audience pay to attend and then follow up afterwards with each person individually to do customer development.  Then, I would build out a product and would continue holding these events to amass a larger audience and eventually start to sell to all of these people as my first customers.

Events allow you, as an entrepreneur, to really convey who you are as a person.  Ultimately, this is how you gain followers for your brand. In the beginning, your company is less about your product and more about you.  Your potential customers want to support you because of you, and this is a lot easier to convey in person with that first group of early adopters.

Cover photo by The Climate Reality Project on Unsplash

On building a meritocracy in our startup ecosystem

Happy New Year!  I am so excited and hopeful for 2018.

I grew up here in the Silicon Valley during the dot com boom.  It was an exciting time.  My childhood very much had a strong influence on my career choices.  My parents were not in the tech industry.  I went into engineering simply because of where I grew up and the mentors who surrounded me.  Had I grown up anywhere else, I seriously doubt I would have even thought about starting a company.

Dot com changed the world

When most people think of the dot com era, they immediately think about all the money that was made (and lost).  They think about bubbles.  Or speculation.  To me, the dot com era was about changing billions of lives in a fast and impactful way.  For example, this era made information immensely accessible.  Today, if we want to learn things, we go online, and we search for information.  We no longer go to the library and look in books.  This has made information accessible to not only those with means but also accessible to everyone worldwide who can get online.  The dot com era also made commerce pervasive and convenient.  If we want to buy something, we no longer need to go to the store during business hours. We just buy them online at anytime from just about anywhere in the world.  The dot com era made the world a smaller and more equitable place.  It democratized access.  It was a big step in the right direction for building a better society and a better world.

But our work is not done.

Investors change the world

It is entrepreneurs who do all the hard work of building companies, but one of the things I’ve noticed through investing in seed startups these past few years is that early stage funding is incredibly skewed towards certain types of founders or ideas.  How you look.  Where you went to school.  Where you worked.  How you talk.  All of these things matter tremendously in your ability as an entrepreneur to raise money.  So it is investors who have influence on what problems in the world are solved.

At 500 Startups, I had the honor of seeing 20k+ startup pitches.  I championed, signed-off on, and/or coached ~200 companies.  Through seeing more companies than most VCs will see in a lifetime, I was able to do my own pattern matching, which didn’t align with what most of the industry looks for.  Namely, the best founders can come from anywhere.  Where you went to school or worked, what you look like, and how well you talk are all things that actually don’t matter to your ability to build a successful company.  Other traits or skills that do matter include things like the ability to learn new skills quickly.  Having tenacity and grit.  Teamwork.  Recruiting.  Building a product or service that your users and customers love.  My favorite, the one trait that all the best founders have, is the ability execute with speed.  These traits are what matter in founders.

Originally posted by yoshis

There’s a huge disconnect in how we fund founders today at the earliest stages, and over the last couple of years, that began to frustrate me. I saw founders who were really awesome, as defined by fast executors with great VC-sized opportunities ahead of them, who struggled to raise money.  This is because these founders didn’t fit what most early stage investors were looking for.  Silicon Valley purports itself as being a meritocracy – the “best ideas” and “best people” win.  But, it’s not.

(Listen to my conversation with Harry Stebbings about this.  Thank you Harry!)

There are huge implications for all of this.  There are big world problems that are neglected because the right founders who understand these problems are not funded to solve them. This is because their demographics do not fit the pattern that many investors are looking for.  Beyond the loss of innovation, there are also additional implications.  Last summer, for example, we saw a lot of breaking news come out of our industry.  We saw news of sexual harassment and sexual assault.  Beyond this, we have all seen investors treat founders whose businesses don’t interest them rudely or with disrespect.  I will never forget how I was treated as an entrepreneur by some investors in this industry. Now, I see some of these same people act 180 degrees differently around me simply because we are now peers.  Many founders will not be able to raise money successfully, but everyone deserves respect and professionalism regardless of what he/she is building.  Much of this inappropriateness, I think, stems in large part from some of the power dynamics and demographic imbalances that exist in this industry.

I can change the world

When I turned 35 over a year ago, I had a bit of an existential crisis – what was I doing with my life?  Through this blog, talks, and 500 Startups, I’d coached so many founders on how to play this early stage fundraising game.  What to say.  What not to say.  How to sell yourself so that you look and sound good.  How to fit into the mold that investors are looking for as best as you can.  This didn’t fully sit right with me.  On one hand, I was helping a lot of founders raise money.  On the other hand, I was just helping people navigate our current, broken fundraising system and not actually changing it to make it better.

Through some soul searching, I realized that what I wanted to do for the next 30 years or so is to make our startup ecosystem (more of) a meritocracy.  The lack of a meritocracy in our startup ecosystem is hampering world progress.  If you are a great founder, you should be able to access resources.  You should not have to put up with weird bullsh*t to do so.  Period.

This work will take a long time.  There are actually a lot of reasons why our industry is so antiquated and why progress has been slow to date.  One reason is that, as a smaller investor, I am beholden to what other investors out there are interested in backing, otherwise my companies will die due to lack of downstream capital or co-investors.  As a microfund or angel, you can have some conviction that goes against the grain but not a lot.  That’s just one of many reasons why it has been difficult to affect change quickly.  So in the beginning, I will continue to coach my founders on how to best navigate our current fundraising channels, but over time, this will change.

I’ve never had so much hope for our startup ecosystem as I do now.  2018 is the start of groundbreaking change in our industry.  We now have new micro VCs cropping up left and right who are spiritually aligned with the idea that great founders can come from anywhere. I am also seeing interesting new fundraising mechanisms crop up really quickly – crowdfunding and ICOs.  Both of these fundraising channels don’t require you to go to a conference room on Sand Hill; you raise money online from people who may never have met you in person.  I think we will look back on 2018 and say that was the year that everything really started to change.

There’s a lot of work ahead, and I’ll talk more about what I’m investing in and the groundwork I’m trying to lay in future blog posts.  I will also spend more time in 2018 resuming my blog posts on tactical fundraising tips as the fundraising landscape for early stage startups evolves.

I am so excited to roll up my sleeves and get started on this 30 year mission.  Oprah said it best this week, “A new day is on the horizon.”  Let’s go level the playing field for entrepreneurs!

Trust starts at 100% and goes down

Investors (especially those who have been in the game for a little bit) are jaded.  Winning over investors is not just about showing traction and progress (although that is a big component to getting investors onboard).  It’s also about trust.  Fundamentally, investors have to trust you in order to invest in you. Most investors will give entrepreneurs the benefit of the doubt…until they cannot.

So, their level of trust in you starts at 100% on first interaction and only goes down from there.  Your job is to make sure that you don’t screw that up. There are lots of ways to screw up and not even realize that you are doing so:

1. You name-drop and overstate your friendship with a bunch of famous people who don’t know you really well

I cannot tell you how many people tell me they are bffs with Dave McClure.  If you’ve hung out with someone a few times socially, that does not make you best friends with him/her, and name-dropping here does not help you build rapport.

If you really want to name-drop to build rapport, it’s much more effective to say how a particular person has affected you; for example: “Dave McClure’s no-BS blog has been a great resource for me in my startup journey, and it’s been fun being able to hang out with him once or twice.”

2. You mix up the definition of common software startup KPIs

This is unfortunate.  Often, I see entrepreneurs get the definition of common startup KPIs wrong, and it comes back to bite them even if it’s just an innocent mistake.  For example, a lot of entrepreneurs of, let’s say, marketplace businesses will say they are doing $1m per year in revenue.  But really, they mean GMV (in most cases).  This is a really important distinction — especially if your business is making money by taking small margins between transactions (such as in a marketplace).

Originally posted by yabookscentral

3. You act cagey about information

Early stage investors understand that there is a lot of work to do in an early stage startup and that you may not have all the answers – or even most of the answers!  But that’s ok.

What looks really bad is when founders try to be evasive about their answers.  If you don’t know the answer to something, just own up to it!  But then, explain your plan to  figure it out.  At this point, a big reason why people will invest in your company is related to their trust in you and your competency.  How you think about solving problems or getting to answers is actually very telling about a founding team.  You could say that your ability to answer questions well when you have little-to-no information is actually an opportunity to prove yourself.

A lot of founders will act cagey, evade questions, or beat around the bush when faced with difficult questions.  This leads investors to believe that there is something either really wrong with your business or that you, as a founder, are not very sharp.

4. You get defensive

I think a lot of founders who get defensive don’t even realize they are doing so.  It’s actually really helpful to do mock investor meetings with other people before you start fundraising  (we do this in our program at 500 Startups).  Investors can sense defensive founders from a mile away — it’s not just about what you say and don’t say, but also about your body language.

You are going to get tough questions.  You may even get inappropriate or borderline inappropriate questions.  For example, what if an investor says to you, “You know I’ve only invested in founders with CS degrees from MIT, Stanford, or Cal, because if things don’t go well, I can always broker an acquihire.  Why should I invest in you?”  No joke; people ask stuff like this.  Investors will ask all kinds of things — if you and your co-founder are married, you will get questions about that.  If you didn’t go to a name school, people will ask about that.  If you are pregnant, people will ask you about how you will balance your job with your kid.  People will ask you about how your race may make it harder for you to fundraise and what you will do about that if you can’t raise.

Some of these questions may be so inappropriate that you may not want to take money from those investors.  Many other questions will be fair questions but tough to answer and will take you aback.

Practice mock investor meetings.  Ask a friend to ask you the most inappropriate questions possible.  Practice taking a deep breath before answering anything.  You just cannot get defensive.

5. You don’t or are unable to address discrepancies between your answers

If you have discrepancies in your answers, investors will ask you about them.  You definitely need to be able to address this well, otherwise it will, at best, confuse an investor and at worst, make him/her think you’re a liar.  For example, let’s say you tell me you have thousands of leads for your SaaS product that you cannot convert due to a lack of resources.  Later, you tell me that you need money to pour into lead generation.  If I then ask you, “Oh, why aren’t you focused on converting those existing leads?”, you need a really crisp answer.  Either your existing leads are junk and not qualified  (in which case, you should own up to it),  or you actually have tried to covert your leads into sale but there is something wrong with your conversion or on boarding process.   Whatever it is, something doesn’t add up, and you need to be able to address this.

There are a number of other reasons why trust decreases with more interactions over time, but these are the primary ones I’ve seen in my interactions with founders.

Why you shouldn’t (always) hire that Stanford Engineer

So you’ve raised some money, and now it’s time to make your first hire or two.  This is where a lot of entrepreneurs make their biggest mistakes.  Your first couple of hires solidify your company culture, which sets the tone of the rest of your company.  Most entrepreneurs tend to look at candidates purely based on skill.  But looking at a person based on just one axis is a huge fallacy.

People aren’t drones — their skills are affected by all kinds of things: happiness, friendships, and camaraderie at work; independence and autonomy; the job itself; growth potential; etc.  The people with the best skills for the job can be your worst performers if the environment isn’t a good fit for them.

When I started LaunchBit, I made the mistake in the beginning of dismissing things like setting your company’s mission statement and values, from which company culture and hiring culture develops.  It was only a few years later, after my co-founder Jennifer coaxed me into taking a meeting with a potential startup coach, that I started looking at culture.  It was probably one of the best meetings I’ve had in my life, but it was much too late for our company to be only starting to look at that.

Setting your company culture consciously from day 1 is probably the most important thing you can do for your business and hiring.  What do you value?  What sort of employees reflect those values?  If teamwork is one of your values, it doesn’t make sense to hire someone who is very strong technically but isn’t a team player.

This isn’t a post about setting your mission statement or your team values,  but before you make your first hires, you should come up with a rough outline of that mission statement and those values.  Then, take a first crack at writing down what your employee persona should look like.  We all do this with our customers all the time — we write down what a typical customer looks like, but we don’t do this for our own companies.  Aren’t your employees just as important as your customers?  At some companies, employees are considered even more important!

Here’s a quick persona of what I’m looking for in all of my team members at 500 Startups:

  • Open minded
  • Brings diverse backgrounds, perspectives, and ideas to the team
  • Good sense of humor; doesn’t take himself/herself too seriously
  • Efficient; able to build processes to scale activities
  • Competent skills
  • Decent organizational skills
  • Eager and quick to experiment and try new ideas to solve problems
  • Able to prioritize
  • Not afraid to articulate ideas

Basically a team that looks like this:

image credit: Peppermint Soda

Once you have a list, it’s important to think about the ramifications of bringing onboard a new employee to your team and impact on that team as well as your ability to hire going forward.  My friend and former colleague Andrea Barrica wrote a great piece on diversity debt – namely, if you have too many of the same kind of person at your company, it will hinder your ability to hire other types of people going forward.  In this post, she focuses more on race, gender, and sexual orientation, but this also applies loosely to other areas as well.  For example,  if you have too many extroverts, they may drown out any new introvert hires from being heard.  It’s important to keep this in mind.

Beyond this, it’s also important to visualize how your employees will work.  Will they be remote?  Do you expect them to stay really late?  Will they work all the time?  Do you expect them to socialize with each other?  Do you expect them to be like family?  Or just colleagues you see in the office?  Will you offer awesome compensation?  Or do you see your group as a learning environment?

All of this is an exercise that’s worthwhile for every hiring manager to do — not just startup founders — because this really sets the tone for how your group or company will congeal and work together.  This is something that took a long time for me to figure out and that I wish I’d paid attention to several years ago.

We’ll be talking more about this at 500′s Unity and Inclusion Summit in LA in a couple of weeks.

Dear elizy: How much should I pay myself at my startup?

Dear elizy: What’s reasonable for a founder salary?  For example: I’ve got 13 years of professional experience, an MBA and I have run several of my own businesses.

– Salary Concerns in LA

Dear Salary Concerns: Hmm…lots of thoughts here…

1) Your MBA doesn’t matter here

Sorry.  Your MBA is good for negotiating a salary at large companies or even possibly for jobs at other people’s startups but not with yourself and the company you own.  When you own such a large equity stake in your own company, you should be looking at the tradeoff between short term gains (your salary) and long term gains (the worth of your company and what it could be with the extra investment of cash that you are not taking as salary).

I understand that you may have paid a pretty penny for your MBA  (I certainly did), but hopefully you were able to recoup the cost of it prior to starting this company.

2) There are lots of other considerations

I’ll break these down here:


Although I think you’re in LA, I’ll speak to this more generally.  The cost of living will influence your salary a lot.  The cost to get a startup up and running in the Bay Area will probably be about 2-5x higher than, say, in Las Vegas.  And if you are in Chiang Mai, starting up will probably be 5-10x better economics.  So a “reasonable salary” will depend a lot on location.

Your runway

This is tied to how much money you’ve raised and/or how much money you are profitably making.  If you have a long runway – say, 18+ months – then I think it’s OK to pay yourself better.  But if you are going to run out of money in, say, 3 months, you may not even want to pay yourself anything.  If you’ve raised money, you should aim to have at least 12 months of runway, preferably 18-24 months.

Venture backing 

If you’re not venture backed, you have more optionality.  If your company is set up as a partnership, for example, you may pass through all of your earnings as part of your partnership, effectively removing all cash from the entity.  But if you are venture backed, you’ll likely re-invest all profits into the business instead of issuing cash bonuses or higher salaries.

Your equity stake

If you’re a “founder” brought into a startup a bit later and are given, say, 5% of the company (on a vesting schedule), this is very different from being an “original founder” who likely owned 25-50% of the business starting out.

If your equity stake is much more akin to an early employee’s stock plan, then your salary should be what an early employee at a startup earns rather than a founder’s salary.

3) I get it — you really want me to put numbers on this… 

But everything I just wrote was vague.  It doesn’t help anyone figure out what their actual salary should be.  So, here are some rough ranges of founder salaries that are fairly common amongst ventured-backed, seed companies in the San Francisco Bay Area.  Unfortunately, I’m not aware of salaries in other markets, so if you’re outside the Bay Area, you’ll need to ask other founders.

Raised < $500k: In this range, a lot of startup founders pay themselves < $50k per year.  If you have a team of 4 people, aren’t making any money, and have minimal other expenses, then you can see how this raise can last you 1-2 years to get you to your next milestone.  Ramen, baby, ramen.



Raised $500k-$1.5M: In this range, you probably have a slightly bigger team – say, 4-8 people – and some of these later hires are going to be commanding closer to market-rate salaries.  On the flip side, you may be generating some revenues to offset costs.  Again, shooting to have at least 12 months of runway, a typical founder who has raised in this range but is generating limited revenue is probably paying himself/herself $50k-$75k per year.  If you are generating a fair bit of revenue ($1m net runrate), then you might be paid a low 6-figure salary.

Raised $1.5M+: Lastly, if you’ve raised a large seed round, you’re probably a post-seed company indicating that you have significant revenues ($1m net runrate) coming in the door.  You are likely paying yourself $75k-$125k at this point.

4) Burn rate is a signal to investors 

Your overall burn rate is a signal to investors.  It gives them a sense of how seriously you want to invest in the longterm viability of the business as well as how well you manage cash.

If your burn is “too high” per your stage of the business, this could hurt your ability to raise money.  Some investors also ask about how much money you are paying yourself and will use that as an indicator of commitment.  Here are some other people’s thoughts on founder salaries that I think are spot-on.  Post-seed rounds are a bit more akin to series A rounds these days, and so you should adjust your definitions to reflect these responses, which are a couple of years old:

How do seed investors benchmark startups?

Understanding how investors benchmark different kinds of companies is all very confusing.  When I was an entrepreneur, I had no idea how this all worked.  How does a social app such as Snapchat get funded as compared to, say, a developer tools company like New Relic?  Obviously, their milestones and KPIs are very different.

In this post, I’m going to very simplistically dive into some high level categories and talk about how early stage investors consider each.  In my mind, I’ve divided companies into 4 categories. This is not an industry standard — this is just how I personally see things.  However, most early stage investors probably think along similar lines:

  1. Super high-tech companies
  2. High infrastructure companies
  3. Free consumer apps
  4. Everything else — aka companies that can make money immediately

There is a lot to say for each category, but there isn’t enough space to do so here.  (Disclaimer: all of this really only applies to software investors).

Super high-tech companies

I think a lot of software companies would like to think they belong in this category, but the reality is that most software products are pretty easy to build.  Even the vast majority of all those “AI” and “big data” and “machine learning” pitches that I see are not in this category.  Open source libraries (such as TensorFlow) make technology more accessible for less-skilled or self-taught developers such as myself to use.  A lot of previously “super high-tech” ideas are no longer that high-tech.

So what is in this category?  Essentially, my definition for companies in this category is that the technology is so difficult to build that only a small subset of people in the world can build it. As a result, this is a constantly moving target.  I suppose the way that I actually benchmark this in my head (just to be perfectly candid here) is by asking myself if a product is something that, as a mediocre self-taught developer, I could personally teach myself to build within a year. If the answer is yes, then it’s not really that high tech.  And it turns out a lot of ideas are just not that high tech.  (There are just a lot of things you can learn these days on YouTube and by Googling…)

Originally posted by genniside

As a result, the most important criteria in this category is the team.  To be more specific, I’m talking about the team’s backgrounds. The team is important in every category, but for super high-tech companies, it is extra important that it is the right team to accomplish the particular idea. Teams that thrive in this category have strong and often niche backgrounds in whatever it is they are doing.  For example, in the self-driving car category, most of the teams that stand out have previously done a PhD in a related topic, participated in the DARPA Grand Challenge for a few years, or have worked for a company (e.g., Google) on a self-driving car or vision-related project.  If you are competing in this category, your team’s resume, or pedigree, is really critical — more so than anything else.  You don’t see a lot of “self-taught” folks in this category.

High infrastructure companies

Traditionally, software investors have loved being in the software industry because the capital costs are low and because you can get something to market quickly.  However, a lot of software investors are now dabbling in fields that don’t necessarily have these characteristics.  Investors are pouring a lot of money into health and fintech companies even though many of these companies have a number of hurdles to overcome.  Getting licenses, FDA approvals, etc. are not trivial, but they are also barriers to entry for would-be competitors.

As a result, for these kinds of businesses, investors often don’t expect that companies can earn revenue right out of the gate because they may not be able to do so legally.  Similar to the super high tech category, investors often look at the backgrounds of the team very closely because understanding clearly what needs to be done is really important.  Has the team worked in the same area prior to starting the company?  Is the company already in the middle of overcoming regulatory hurdles?  Does the team know exactly what they need to do to go into business?  These are some of the most important criteria for investing in seed-stage teams.

Free consumer app companies

In contrast to the last two categories, successful founders of free consumer apps tend to come from any background.  Companies in this category include companies like Twitter, Facebook, Instagram, Pinterest, and Snapchat.  These are all companies that need a TON of users, great retention and engagement, and continued-fast-growth of user adoption in order to make money off of ad revenue later.

If your startup is in this category, you’ll need to craft a story around the following:

  • Hypergrowth
  • How this hyper growth is happening organically.  Do you have virality built into the product? How do new users find your product without your having to pay money?
  • High engagement. Users spend a TON of time on your platform, app, or site. When Facebook first raised their seed round, investors were compelled by just how many hours per day their users were using their platform.
  • High retention rate

In fact, the business model matters very a little. Most investors who invest in free consumer apps don’t particularly care about monetization at the early stages.  But you need to be growing FAST.  Really, really fast.  Investors just want you to keep growing quickly and retain and engage these people.  (Of course, you should also be able to articulate at least a high-level plan around future monetization.)

You’ll want to show that you are making progress on optimizing your free customer acquisition funnel (e.g., growing quickly) and that you are also improving stickiness over time.

The thing about this category is that it’s HARD.  I mean REALLY HARD.  Growing a business is already quite hard, but for free consumer app categories, there are a couple of things to consider:

1. Because you are not monetizing, if you are unable to fundraise, it becomes difficult to keep the boat afloat.

In the beginning, this may not be a problem — you can bootstrap.  However, once you get to, say, a series A or B level and have say 30 people on payroll, if you cannot raise, it’s really difficult to bootstrap a company of that size.

2. The fundraising landscape gets more competitive as you progress.

Generally for all companies, going from the seed to the A to the B rounds is difficult.  The number of series B investors is way smaller than seed investors.  It is even harder for free consumer companies because there are even fewer “free-consumer investors.”  In this category, you are competing with other pure-consumer apps who may be doing something different but are vying for the same consumer attention.  Certainly when it comes to competing for fundraising dollars, you will be benchmarked against other free consumer apps on user base and growth of that engaged user base.

“Everything else” companies

Lastly, there’s everything else.  The vast majority of pitches that I see tend to end up in this category.  These are products that can and should generate revenue right out of the gates in both B2B and consumer ideas.  Obviously, there are a LOT of verticals within this category that are looked at very differently — everything from e-commerce to B2B SaaS to marketplaces.  What specific things investors look for very much depend on the particular vertical and business model, and that is a topic for many more blog posts.  But the one commonality amongst all startups in this category — regardless of vertical — is that most investors would really like startups to start monetizing right out of the gate.

Team backgrounds matter in the “everything else” category but not nearly as much as in the first two categories because anyone can start a business in this category. Instead, execution and traction are often a measure of the team rather than their resumes.

I’ve outlined these categories because it can be rather confusing as an entrepreneur to know what you need to achieve in order to get funding.  On one hand, you may see friends in fintech getting funded when they have zero traction, and on the other hand, if you’re in e-commerce, you may need to hit $1M GMV runrate to capture that same investor’s attention.  It just doesn’t seem to make sense.  Hopefully this post illuminates why investors think along these lines.