Tactical fundraising by Elizabeth Yin

Welcome to the Era of Decentralization

This is an exciting time to be a software entrepreneur and investor. We’re living in a time when there’s about to be massive disruption in tech infrastructure that will affect almost every industry. I haven’t felt this level of excitement since the late 90s.

Let’s first take a step back in time. When most people think back to the late 90s, they think the dot com era was exciting because it put tech entrepreneurship on the map in a big way. Lots of entrepreneurs made a ton of money. As a high school student growing up in Silicon Valley at the time, my perspective was different. The 90s were impactful for so many reasons.

1. There was just so much opportunity.

The 90s were about moving just about every piece of software from isolated desktops to online. This wasn’t an incremental change. This was a big change. It was a big change in how software and infrastructure was written. And it was also a big change in business models.

2. As a result, it was easier for newcomers (such as myself) to break into the industry.

Existing software engineers and tech entrepreneurs needed to retool both their skills as well as their way thinking about how software should be set up and about software business models. As a student, I didn’t really know anything; in some sense, not having been in the software industry was actually an advantage. The 90s were about wrapping your head around the shift from working with isolated box software to writing software for connected boxes coupled with changes in business models. This was not an easy thing to wrap one’s head around. As a student, my mind hadn’t been influenced by the prior desktop software era, and so it was fairly straightforward to jump into the industry and learn. During this era, anyone who could write basic Javascript and had half a brain could be in business – either for yourself or at someone else’s internet company. Frankly, no one really knew anything about anything. It was all uncharted territory.

3. There were many winners and many losers.

Anyone who had been in software forever and who did not retool their skills and way of thinking about software got left behind. There were also many entrepreneurs who got caught up in the frenzy of starting new internet business ideas that didn’t actually solve problems. In general, the nature of entrepreneurship means there is a lot of failure, even for “good ideas.” But this era had many, many terrible ideas. Because it was such a gold rush, there were a lot of ideas that people pursued just for kicks. I was not an investor at that time or even in the industry full-time, but I heard about more bad ideas during this era than I do today as an investor. Because it was a gold rush, lots of people thought they could just come up with some dumb idea and would be able to make lots of money… just because.

Since the late 90s, these three characteristics have largely vanished…until now. When you think about what happened after the 90s, software business changes have been largely incremental:

80s: Desktop era
90s: WWW era
00s: Cloud / mobile era
10s: Decentralization era

Going from the 90s to the 00s was about using cloud platforms. No longer did you, as an entrepreneur, need to spend $1m on your own servers that you stored in your office closet to host your web applications. You could use Amazon Web Services (AWS) to easily scale up (or scale down) your storage needs, and you could get up and running in a day. Then, SaaS companies built their companies on AWS and offered basic services to other companies for just $x per month. These SaaS companies got you up and running with useful applications and stored all your data for you so that you, as a business owner, didn’t need to worry.

Going from the 90s to the 00s was just an incremental change. We still used the same web technologies (more optimized but still the same) and the same way of thinking (everything done online). Even the business models were still the same. (pay $x per month or per year).

During this era, we also went from using the internet on your laptop to on your mobile device when the iPhone came out. Everyone thought that this was the next big transformative era – after all, writing native apps required new software skills and ways of thinking, and the business models were different. But, it wasn’t transformative. Because mobile app distribution has proven to be difficult, legacy companies have largely resorted to focusing on improvements to their native mobile websites as opposed to distributing their native apps. These mobile sites are based on the same web technologies people have been using forever, and the legacy businesses themselves haven’t had to change their business models as a result of the rise of mobile devices.

Today

But going from the 00s to 10s is and will be a big shift. Today, we see that business owners and consumers are increasingly concerned with privacy, security, and hacking and with large companies consolidating data and power. Should we be concerned that Google knows everything about you? They track what you write to people, what you browse on the internet, and even where you go as you walk around with your Android phone. Facebook, too, knows so much about you. In fact, some even suggest that they monitor so much data that they know which startups are up and coming and try to copy them. B2B companies are also consolidating. Salesforce and Oracle are both acquiring companies like crazy and will soon know everything about how you run your business on all fronts.

Even if you’re not concerned about the powerful companies who are consolidating your data, there’s also been a rise in concern about whether they can even keep your data safe. The rise in hacking and data exposure has both consumers and businesses nervous. It’s clear that many companies are not able to keep your information safe. Even companies whose job is security are not able to store your information well!

What we’ll see in the next few years is the decentralization of information. FileCoin, which “launched” a couple of weeks ago, is a great example of this. You’ll see more of your information distributed across multiple sources. The premise for FileCoin is that many people in the world have extra bits of storage. These people will store pieces of your data instead of storing your data all in one place with one service. Then, through a new protocol, you can grab all those bits and pieces of data and reassemble it to make sense. No single entity will have all your data. The business model for this storage will also be different. Instead of paying a subscription fee to one player, you’ll use FileCoin, which is the currency on this platform, to pay a little bit of money to different people storing your data.

But it doesn’t stop there. I’m seeing new companies crop up for other business services that involve powering an application but storing data needed for that application either in a decentralized way OR in a semi-local way. For example, today, Marketo stores all of your marketing content – emails, landing page information, customer contacts, etc. –themselves. In this new model, tomorrow, they would still power the service, but your data may be decentralized or partly stored on your own servers so that Marketo cannot access and mine your information. Hackers would also not try to break into their systems to get this information. From a business model perspective, this means you may or may not pay a single subscription to Marketo – you may potentially also end up paying other players through some currency for storing your data or even powering some of Marketo’s functionality. I predict that almost every piece of business software that has these privacy concerns (or that have customers who have these concerns) will move away from the traditional SaaS model that we’ve come to love to this new decentralized model.

Some say there will be latency concerns in this new model. Pulling information stored across many sources and re-piecing them together will be a slower process. Real-time applications, such as website analytics, may not move to this new framework. The first applications to move to this model will be software that serves customers who are really, really, really concerned about privacy and who have less concern for real-time information. But over time, I believe that, since most software isn’t truly real-time, with more clever forms of caching, more software will move in this direction.

This is a total mindshift. The way software is written will be completely changed. Business models, too, will change. In fact, how this will all play out is extremely fuzzy in my mind. But that’s what makes this exciting. There are so many new possibilities – something will change, but we just don’t know what. There is so much opportunity, and we’ll see so many entrepreneurs enter the tech industry as a result.

There will be many winners. But also many losers. The losers will be the legacy companies who cannot make this jump and will get disrupted by startups who will take the customers who are concerned about privacy. There are a lot of legacy companies who are obsessed with storing as much data as possible and are stuck in the rut of thinking that data consolidation is the only way to make lots of money. This is why it may be difficult for some of these legacy companies to change to this new paradigm if a startup comes in.

There will also be many losers in other ways. I didn’t use the word “blockchain” or “tokens” in this entire blog post, which is largely what will power this new paradigm. I wanted to focus this post on the reasons why blockchain and tokens are so widely talked about. But so many tech investors and entrepreneurs today are not thinking about the fundamental problems that blockchain and tokens are solving. And much like the 90s, I’m now seeing so many ideas involving both blockchain and new tokens just for the sake of using them but not to solve actual problems.

These, of course, are my predictions (and I could be completely wrong!), but I think the Era of Decentralization is here to stay for a while and will have big impact on so many industries. Comments and thoughts very welcome!

If your VC meeting feels like it went well, it really didn’t…

“So how do you think your meeting went?”

“Oh, it went really well!”

This is a typical conversation I’ll have with a portfolio founder about his/her meeting with another seed venture capitalist (VC).

One thing I’ve noticed in the short time that I’ve been doing this job is that conversations with VCs that feel like they’re going well typically are not. What happens next is the VC lobs the founder an email saying something like, “We’ve decided this is out of our wheelhouse. Thanks for meeting.” And that’s it. The founder is confused and then frustrated.

What’s going on? Why is it so hard to discern whether a VC meeting is going well? A few thoughts…

: Originally posted by gamerzlove

1. VCs will ask you hard questions if he/she is really interested in your business

A VC’s job is to turn over every stone in your business. Because he/she is investing other people’s money, this is really, really important. This means that, by definition, there will be lots of difficult questions if the VC is doing his/her job. The flip-side is also true. If I’ve already decided to pass, I won’t even go down the path of asking difficult questions (or even ask a lot of questions) because there are enough red flags to cut the conversation short.

In fact, the easiest conversations with entrepreneurs are with the ones I’ve already decided to pass on.

I do understand this also leads to frustration. After a VC passes, entrepreneurs are often left thinking that he/she didn’t get a fair shake down with a lot of questions. “She didn’t even ask me about the team or ask to see the product!” is what I’ll often hear.

I get the frustration.

This is where that comes from. Commonly, VCs will cut a conversation short for a few reasons:

Your company is too early
Your market seems too small
You or your co-founder do not seem sharp or tenacious
The VC doesn’t like you or your co-founder

: Originally posted by failworldblog

Stage

Your stage is probably the biggest reason VCs will pass quickly. A lot of VCs have a sweet spot, in terms of traction stage, that they are investing in. It’s part of their thesis or model. If you don’t fit that right now, it’s not worth wasting time – including your own – to continue the conversation at this time. However, you should know that a pass now is not a pass forever; you should definitely go back when you have more progress.

A lot of VCs will try to tell you that they don’t have a sweet spot stage because they don’t want to miss any deals. They would much rather see you too early than too late. Truth be told, if you look at anyone’s portfolio, there are always tons of exceptions. A VC who claims to look for a fair bit of traction will often have pre-launch companies in his/her portfolio. That being said, a VC can quickly assess per your space and your idea whether it’s worth considering right now, and this is why conversations may end quickly.

Market size

If a VC is passing because your market size is seemingly too small, you can often change his/her mind about the market.

Tenacity

Early stage investors make a lot of decisions based on the founder of a startup. This works to some people’s benefit and not to other’s. If a VC sizes you up and has decided that you wouldn’t be a strong CEO, then that’s a pass for now as well. How VCs determine who are “awesome founders” is a much longer discussion – there are certainly inherent, unconscious biases that we need to work on in this industry – but the bottom line is that you, as a founder, have to roll with the punches even if life is unfair. The best way to prove you are an awesome founder is by making progress on your business and continuing to knock on those same investors’ doors to show your progress. That is what truly makes for an awesome founder – someone who can get stuff done.

Bad impressions

Lastly, a VC would cut a meeting short if he/she doesn’t like the founder. To be honest, if you are meeting an investor for the first time, you would think it would be very difficult to leave a bad impression on just one meeting. To my surprise, there are actually a lot of entrepreneurs who do not pass this bar. I will automatically pass if you:

Lie, cheat, or do something unethical
Treat my team (or your team!) rudely, meanly, or in an entitled way

: Originally posted by sir-maximillian-goof

This may sound obvious, but if we are going to start a relationship, there needs to be strong trust; I need to know that you are a decent human being. How you treat other people on my team is a proxy for how you’ll treat your own team (read: morale issues and drama), and of course, unethical people cannot be trusted.

Not only will I automatically pass today for these reasons, but I will also pass every single time for your subsequent businesses.

2. Conversations with angels can be easier

All of this said, conversations with angel investors can be very different. Angel investors invest their own money and can decide to invest for whatever reason. They can invest simply because they like your logo. They may not turn over every stone. So, you’ll see much more variation in your conversations with angel investors depending on the individual angel.

In closing, part of the problem with all of this is that you often won’t know why a VC is passing. You should definitely ask, and if the issue is around stage of your company or market, investors are usually pretty open about telling you that. If they are not able to give you more specific feedback, by process of elimination, there is likely something negative that he/she thinks about you or your co-founder.

Speaking up about sexual harassment is hard. But we must start a new chapter.

Disclaimer: Like with everything else on my blog, these opinions are solely mine and are not representative of my employer.

Like everyone else in the startup world, I read this story about Justin Caldbeck with both curiosity and disgust when it went viral on Thursday. Since then, many VCs, startup founders, and reporters have called his behavior appalling. And make no mistake, his behavior is extremely appalling and inappropriate.

At the same time, this story was not at all surprising to me. In fact, I’d heard about Justin’s reputation over six years ago through the founder grapevine — when I, myself, was a founder. While I didn’t know at the time whom he made inappropriate advances towards, I did hear from other female founders to be careful. Founders do talk; you hear about which investors have a bad reputation for inappropriate behavior. In other words: there have been a non-zero number of people who have known about Justin’s behavior and have not called this out for several years.

Victims and bystanders have a difficult time coming forward to report cases of sexual harassment because there are often limited penalties for the harasser. Given the track record of the tech and startup world so far, victims have reason to believe that nothing will be done about such behavior and that they only have everything to lose by reporting it. In many cases, victims risk societal repercussions, including lack of support from their colleagues who don’t want or care to involve themselves, being told they are exaggerating, that this is normal, and to stop complaining. Worse yet, victims have to put their sense of safety and future employability on the line, especially if their names end up being smeared publicly. Even HR departments that are charted with the responsibility of helping victims may have conflicts of interest and may not actually be helpful. For all these reasons and more, all too often, sexual harassment cases go unreported, and this becomes accepted as par for the course. When this cycle happens over and over again, it can be hard to see just how disturbing and messed up this is. So huge props to Niniane Wang, Susan Ho, Leiti Hsu, and others for their courage in coming forward to publicly report what happened to them, in spite of challenges by Caldbeck himself. Their actions help us as a community right our moral compass.

Their bravery has also paved the way for more stories like this to come out of the woodwork. My friend and freshman dormmate who was previously an entrepreneur recently posted to Facebook publicly about specific advances a couple of other VCs had made on her about a decade ago when she was fundraising for her company. I respect the courage it took for her to come forward with something so personal and specific. There need to be real consequences for sexual harassment, and that only starts when victims are able to come forward with their stories.

We have a real and undeniable problem here in Silicon Valley with sexual harassment. While the perpetrators themselves are to blame, the truth is, the rest of us are also part of the problem — myself included.

A few of my friends have been victims of sexual harassment. While I’ve been empathetic, I’ve never really pushed any of them hard to come forward with their stories. Knowing that reporting sexual harassment is fraught with so many difficulties for victims (as mentioned above), I’ve largely been a useless bystander, believing that victims should really just decide on their own whether they want to take personal risk in reporting their cases. A few weeks ago, one of my friends who was a victim of sexual harassment told me that it was very difficult to come forward with her story on her own. Although she eventually reported what happened to her, she said that she wished I had been more proactive in encouraging her to come forward. The unconditional support of friends, colleagues, and managers is so clutch in helping sexual harassment victims find courage to come forward.

And she’s right. It isn’t enough for us to be empathetic and passive. It isn’t enough for all of us to go on Twitter and say, “I won’t behave like this.” I encourage you all to also commit to proactively helping and pushing victims to come forward. In particular, people who are in positions of power — especially managers and investors — are in even more of a position to be able to help, even if they are not the victim’s direct manager or investor. It could mean taking Reid Hoffman’s “Decency Pledge.” It could mean committing to particular actions that you’ll do the next time you hear about sexual harassment in your line of work.

As I challenge all of you to think about what you can concretely do, here’s what I can concretely do to help eliminate sexual harassment and inappropriate behavior in the startup world:

For the founders I back and have backed, if other investors have acted inappropriately towards you, I want to know. We investors should not do business with bad apples, and I will address this issue head-on with them.

For employees of portfolio companies I have backed, if there is sexual harassment at your workplace that is not being addressed, I want to know about it. I will push the founders to cultivate a safe and professional work environment. If it’s the founders themselves who are acting inappropriately, I will push them to resign and/or make things right.

For the teams that I manage and have managed, if someone at the company has acted inappropriately towards you, I will be your champion to help you come forward and push to make things right.

We need to stop turning a blind eye to stories about sexual harassment and unprofessional behavior. If we hear murmurings or rumors of sexual harassment, we need to follow the trail to get to the bottom of it. We need to come together to make our workplaces safe and inclusive environments. And we need to start that new chapter today.

Feel free to discuss in the comments below.

Special thanks to Min Li Chan and Eric Bahn for reading drafts of this post and providing feedback.

The ideal email deck

Since I wrote a post on how you’ll need multiple pitch decks, I’ve gotten a number of questions around what should go into them.

Today I want to spell out the ideal email deck – at least, ideal if you’re sending it to me. :)

Short & sweet
- ~5 slides is sufficient
Should be skimmable in 10-30 seconds; E.g.
- Fonts / colors that are easy to read
- Not too much text / content
Include your contact info

The purpose of your email deck is just to get a meeting. It’s not to try to convince me that I should invest. That comes later.

Originally posted by lostforever-x-losttogether

What should go into your 5 slides?

Your email deck should cover the basics. There isn’t a hard-and-fast rule around what “the basics” means. For most companies, it will cover something like this (not necessarily in this order):

Problem
Solution / Your Product
Traction / Your Unit Metrics
Team
Market

Problem

Interestingly, most people glance over this slide. Of all the slides, this is the one that is probably the most important to address and spend the most time on.

How you articulate the problem accomplishes a few things:

It gets me excited about your opportunity
It gives me a sense of how much you’ve thought about the problem and know what you’re talking about
It gives me a sense of your communication skills – your ability to articulate something complex into just 1-2 simple sentences

For example, one of 500 Startups’ portfolio companies called EnvoyNow does on-demand food delivery to the college market. Just when you thought you could not possibly invest in yet another on-demand food delivery company, they convincingly articulated the problem. Simply: College students order a LOT of food, but existing on-demand delivery companies cannot locate and/or access on-campus locations including dormitories and specific buildings.

Their articulation of the problem not only is very specific and easy-to-grasp, but it also addresses the elephant in the room: there are so many existing on-demand food delivery companies – why would you need another one?

Solution

I see too many companies attempt to address all their features with this slide. Just make it simple. Follow the user experience. Step 1, step 2, step 3, voila!

Traction

Most companies who send me decks don’t include a traction slide. I think it’s because people are embarrassed that they are not very far along or they actually haven’t yet tested the waters.

First off, there’s nothing to be embarrassed by. I’m a seed investor – what would I expect? Any investor who is investing at the seed stage needs to be comfortable with the fact that there’s really not a whole lot of data at this stage, and if seed investors are not cool with this, they really should not be playing at this level.

Secondly, I think it’s important to understand what investors are looking for in this slide. I’m not looking for traction for traction-sake. Every company at this stage – regardless of whether they made $1k last month or $100k last month – is early and far far far away from being a billion dollar business. So, what I want to understand are your customer learnings.

If you are super duper early and don’t have meaningful revenue, show me what you’ve learned by testing the market. This is something that EVERY company should be able to do quickly even without a product.

What customer acquisition channels did you test?
- Ads?
- Cross-promotions?
What was the cost to
- Get a signup?
- Get a free user?
- Get a paying user?
What has the retention been so far (if you know)?
What is the engagement?
- Are people coming back everyday?
  - For how long?

If you don’t have a lot of information, at a minimum, you can tell me about your unit economics. What is happening with the few customers or signups you do have? What do those numbers look like right now?

At a bare bare bare minimum, everyone can create a coming-soon landing page and drive traffic to it and articulate the results for that. The traction slide needs to give me some idea that this is a product that people want and more importantly how badly.

If you are a post-seed company and you have quite a bit of data, graph your revenue (or users if you’re a pure-consumer company).

Note: please don’t graph cumulative revenue – this is a noob mistake! I understand that your numbers may not go up every month. In some cases, the time period of “months” may not make sense and you should slice and dice your data differently. For example, if you’re an adtech company, perhaps it might make sense to graph your results by quarter since budgets are on a quarterly basis for most ad buyers.

Tl;dr – tout your unit metrics. If you’re a post-seed company, I also want to see your data over time.

Team

You don’t need to list your whole team. Just the founders is sufficient. List only your notable advisors. If you/your co-founders have domain experience, definitely mention this on this slide. Also list out key accomplishments. This slide is fairly straight forward.

Market

For your market slide, you don’t need to do a crazy analysis on this slide. In fact, I would be ok with a slide with just one big number in the middle in size 108 font. E.g. “$5B market”. For me, I also don’t need it to be a $$$ number per se. It could be something like, “2B people suffer from X”. I just need to get a sense that this could be worth a lot AND GET CONVICTION.

If you are finding that investors do not have conviction about your market and are not open to meeting, you may need to re-position the problem (hence why that problem slide is so important) or find different investors to approach.

Lastly, in addition to these 5 slides, you’ll also want to make sure your contact information is on the slides. Decks do get forwarded around. For example, if let’s say someone sends me a deck for a fintech deal, I’m going to defer to one of my colleagues who specializes in that. You’ll want to make sure there’s a way for him to get in touch with you.

When is the best time to pitch an investor?

I was moderating a VC panel a couple of weeks back, and we talked about the best way to get an investor’s attention. One of the panelists said, “Well, the worst way is to bombard me at an event.” And the more I thought about it, the more I disagreed.

When I was an entrepreneur, I don’t think I had any sense just how busy most investors are. I guess I just thought they all sit in cushy chairs all day and sip tea and hang out at the Rosewood on Sand Hill (ok, maybe some investors do).

But certainly new VCs are not doing this. They have to hustle for every deal. They have to hustle to fundraise for their current or next fund. So how do you get on an investor’s radar?

Here’s a snapshot of my day-in-a-life:

I average 6-10 meetings per day (typically 20-30 min mtgs), including meetings with both current and future portfolio companies
I block off 4+ hours a day for emailing with founders
I do roadshow events or speak at conferences on average 2-5 days per month on the road, 1 day locally
Right now, my work inbox has
- 80 import ant unanswered emails
- 276 back-and-forth email threads with prospective founders
- 1500+ emails that will just never even get opened because the subject line isn’t interesting
- My personal inbox isn’t any better, unfortunately

This isn’t to say, “Oh I’m so busy that I’m holier or more important than thou.” I’m trying to paint a picture of which channels are too competitive to get attention and which channels have opportunities. I imagine that this is similar for many other investors.

Based off this, if I were pitching myself, here are some takeaways:

1. The best place to pitch an investor is when there is unstructured time

If you are at a conference or an event, investors actually have a LOT of downtime. They have blocked off time on their calendars to be at an event for x amount of time. But aside from their speaking slot or panel or whatnot, they are more or less available!

Now, a lot of investors don’t stay for the whole event, but if they are speaking, you can bet they will show up for at least that part. You have the opportunity to find them before or after their talks. Have you ever seen an investor on his/her phone emailing or texting people in the corner of a room? That is your opportunity to jump in and do an elevator pitch. Be polite and friendly, and you won’t be interrupting.

A strong elevator pitch will cover something unique about you, your story, any KPIs or metrics you may have, and why what you’re doing is important. Most elevator pitches are really weak. In part, it’s because they all sound the same and often are too long or rambly. Also, an elevator pitch does not mean you just talk at someone. An elevator pitch is a dialogue, but it’s a short one where you need to cover enough interesting points in order to get a meeting. If the investor is intrigued, you may end up having a much longer conversation at the conference itself. My longest conversations with entrepreneurs have been at events, and many of the portfolio companies I’ve championed over the last two years have been startups I’ve met at events.

Make sure that there is a strong next step after meeting with an investor. A weak next step is “Email me.” You don’t want to end up in someone’s inbox. A strong next step is a confirmed meeting — it could be at a specific time at the event itself or later on — and it should be locked down or, at least, you should be in touch with an investor’s EA.

2. Cutting through an email inbox is tough

Everyone’s inboxes are busy. If you must go the email-route, here’s how.

In some ways, this is why people say strong referrals are a great way to meet with investors. This is true — if the referral is really strong. Most of the time, referrals are weak or are just OK. For example, people I’ve met once or twice before do not make good referrals for me. You’re much better off emailing cold. Furthermore, there are even some people’s referrals who are negative signaling to me! On the flip side, there are some fellow investors’ referrals I would hop on immediately. The issue, as an entrepreneur, is that you don’t know where your mutual connection sits in an investor’s eyes. Your referrer doesn’t know where he/she stands either.

The best thing you can do is to try to get a warm referral but in parallel, send a cold-email. It won’t hurt. Sending someone an email twice isn’t going to be weird. I probably wouldn’t even notice if someone emailed me 3x.

If you cold-email an investor, whatever you do, that first email must be compelling enough to be moved into a concrete meeting slot. Asking someone for 15 minutes of his/her time while providing zero context on your business is a good way to get archived immediately. Why? Because even though it seems like it’s just 15 minutes of time for a call, that’s what — I kid you not — thousands of other entrepreneurs are asking for at the exact same time.

3. Make the most of whatever structured time you have

Once you have a concrete meeting time, no matter how short, you must have a pitch that is appropriate for that time period. Most of my first structured meetings with people are 20 minutes. This is pretty short. A lot of people try to push for longer meetings. No matter how much time you have, you should have a pitch that can fit that time slot. You should have pitches for:

30 seconds
5 minutes
20 minutes
45 minutes

The goals for each of these blocks are obviously very different. You’re not going to get investment dollars on a 30-second pitch. The 30-second pitch is to gauge if it’s worthwhile to move you to a longer pitch.

Similarly, I favor 20-minute conversations as a starting point because it’s enough time for a concise, direct entrepreneur to outline the following information:

Team backgrounds and mission (why they are doing this)
The problem they are solving
Brief solution + differentiation
Notable KPIs
High level unit metrics

The best entrepreneurs I’ve met can cover all of this and more in 20 minutes and still have time to spare. They have thought deeply about what points are important and made sure to cover all of those points while avoiding long, meaningless tangents.

This means that you’ll need to pace the conversation accordingly. If 10 minutes have gone by in a 20 minute meeting and we’ve only talked about your team, that is not good. You must drive the conversation to cover everything you want us to cover — i.e., whatever is needed to push me to the next step — in whatever allotted time. We won’t be able to schedule another time to cover anything we missed unless that first meeting is compelling enough. As an entrepreneur, it’s your job to cover everything that is compelling to get to that next step.

By the time the call is over, you should know concretely what the next steps are. If you don’t, make sure to ask and push.

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).

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.

On differentiation

Storytelling goes a long way in fundraising for your company. One of the biggest components of this is differentiating your product / your company from others.

Differentiation is very difficult — there are so many entrepreneurs who are doing something similar to you and also so many alternatives that achieve the same results as your product / solution. Even if no one has the exact same product as you, surely if you’re solving a problem, there is someone else providing a different means to the same end result. And if there isn’t…are you really solving a problem? So, differentiating your company well is tough.

So it’s important to think deeply about this. Take the time to really hammer out a clear story on why your product / company is differentiated. Here are a few areas entrepreneurs ought to think about differentiation:

1) Focus on results not features

The top way I see entrepreneurs differentiating their products is via features. “Our UX is easier to use than the competition. ABC product is so clunky.” Or, “we have DEF feature but company XYZ doesn’t”.

Most of the time, features really don’t matter. Ultimately, consumers and businesses use products as a means to an end — they want to achieve X faster or cheaper or something. It may be that your user interface makes it easier or faster to accomplish X. But, people don’t care about what buttons your product has. They care about that end result. Focus your story around that.

Case in point: In the late 90s, Google was something like the 7th or 8th major search engine to emerge. Their feature set was different from Yahoo’s — it was just one search box with nothing else on the screen. Although UI was simple, that’s not why consumers switched their searches to Google. That’s just a feature. Consumers switched because they could get search results a LOT faster – orders of magnitude faster! Consumers didn’t have to leave the computer to get a snack while waiting for their search results to load over their dial up modem connection!

2) Your results should be 10x better than competitors or alternatives not incremental

This brings me to my next point. When entrepreneurs do focus on presenting results, I find that they often tend to be incremental improvements. In an investor’s eyes, incremental improvements are not interesting. This is because incremental results are often not enough to get a consumer or a business to drop everything and make it a priority to switch from what they are already using to your product / solution.

In the case of Google, their results were not just a little bit better but an order of magnitude better. E.g. Altavista seemed slightly faster than Yahoo (at least to me), but when Google came along, it was a no-brainer to use Google all the time.

Now, sometimes, you may need reframe your story here. It’s not always possible for all your numbers to be an order of magnitude better. You may need to pick a different result to differentiate on. For example, let’s say you develop a new kind of airplane with less 2% less drag. This, in itself, may be a small number. But it could have an order of magnitude of effect on your gas costs for the plane or whatnot. It’s important to think about what axis you want to compete on.

3) You may need to differentiate your company on something other than your product

This brings me to my next point. Sometimes, it’s just not possible to compete at all on any numbers being an order of magnitude better. Not all great products are an order of magnitude better. And, that’s ok. But, it means that you need to differentiate on something else.

You will also need to do this if you’re in an industry where people can’t look under the hood and believe that your results are actually better en mass. For example: lead generation. There are so many lead generation startups (I had one too!). And they all say they provide awesome leads. And they all say their leads are 10x more cost effective than everyone else. How is this possible? Who is telling the truth? Probably everyone — for certain customers, specific lead generation platforms and services are better than others. But it’s not possible for an investor to verify this en masse, so many investors will pass outright, because they don’t believe this differentiator is true and won’t be able to prove it.

For businesses like these where an investor cannot actually verify your differentiator, you will need to get creative in your story. Usually, the best way to do this is to incorporate your personal story. If you have unique insights or domain experience, maybe this is what you use to differentiate your company from others. Don’t use a story that your competitors can use. For example, in the lead generation industry, a story I hear all the time is about how “Martha runs a flower shop and didn’t have customers. Then awesome lead gen platform ABC came in and got her customers.” All of your competitors / alternatives are telling that same story. Your story should be unique to you — a story that none of your competitors or alternatives can tell.

To come up with such a differentiated story, in many cases, you may want to make it about yourself or your personal insights that are unique. What is interesting about you? And why are *you* doing this lead generation business? If you can’t think of anything, spend the time to think long and hard.

Here’s an example that a CEO gave me the other day. He’s building a company in a vertical that is pretty crowded. He said, “Let’s take a step back – before we dive into my business, I want to tell you a bit about my life. My mom was a single mom. And I grew up poor. And I could not get into college. And everyone wrote me off as a loser. And so I had to take a job after high school to make ends meet. And, I ended up in ABC industry taking the only job I could get. From there, I did XYZ, and eventually I realized from working in this business that a) I wanted to prove myself – that I was not just this poor boy with no future. And b) that I knew more about the ABC industry than most people in the world, and here are my insights on it. And this is why I’m starting this company.”

His story was incredibly compelling. Even though his product insights were not unique, he was able to differentiate his company from many of the other ones I’ve heard pitch, because I believed he knew more than other people about this industry.

4) Think about future differentiation

Once you’ve established why your company / product is different, think about how you’ll continue to be different. Investors call this your moat. You don’t need it now — most companies are not really defensible when they first start — but investors want to know how you think about this and how you’ll work towards this.

Your strongest story will be about how you’ll continue to keep your company ahead of the pack. For example, if you have data that feeds into your algorithms to make them stronger, then your story is about growing your data access so that you’ll continue to improve your algorithms. If your story is about network effects of people on your platform, tout that story.

But there are a lot of stories about improving your product that I hear from entrepreneurs that are pretty weak. Saying, for example, you’ll continue to improve the user experience on your platform, while may be true and important, is NOT compelling. Investors would expect you to continue to improve the product, and any newcomers or future competitors would do the same. Your head start is likely minimal, so it’s moot. Any competitor can come in and build a better product than you or play catch up with a better UI.

In most cases, where you don’t have network effects in your product or viral loops or whatnot — and most companies don’t — you’ll need to tell a story about a thesis that you have. A thesis, by definition, needs to be both compelling and arguable. In other words, a good thesis will get some people excited and passionate to join your journey but will be alienating to others. Your job isn’t to get all investors to like you — your job is to find investors who believe in your vision of the world. This is hard to do, because as a fundraising entrepreneur, it’s tempting to want to tell a story that everyone will like. But, I’m saying you shouldn’t — you should come up with a thesis that at least a few people love and most people completely disagree with.

5) Don’t differentiate on price

Lastly, don’t try to differentiate on price. Price is icing on a cake but is not the cake itself. Your product should be differentiated in other ways, and it’s nice if it’s cheaper. But it shouldn’t only be cheaper. That’s the easiest way for another company to compete with you.

Good luck!

Cover photo by Randy Fath

How to close investors

Your round isn’t anywhere near closed unless you have enough investors who are very serious about investing. However, it can often be difficult to figure out if an investor is actually serious about investing or just being positive about your business. So how can you tell who is actually serious and who isn’t?

Signals to look for:

For VCs, you’ve had at least a couple of meetings with the firm, including the decision maker / makers

For everyone, you’ve discussed details of the round — e.g. how much you’re raising, what the money will be used for, and even potential valuation / terms of the round; If you are talking to angels about your company, they may not even realize you are trying to raise money from them unless you explicitly mention your round!

You will need enough serious investors to even start to close your round. How many are enough? The pipeline value of this serious investor group overall should be at least 2x the dollar amount you’re looking to raise. In other words, say you’re looking to close $500k, you will need enough serious investors such that should they all invest, they would invest approximately $1m in aggregate.

Next, you need to create strong urgency with this group of people. Founders will often create urgency the wrong way by saying nebulous things like, “We have all this interest.” Or “We’re closing our round really soon.” But these types of statements are not only not credible, but they also signal you have no idea what you’re doing…

There are several ways to create strong urgency – here are a few:

1) Have a firm deadline you can and will commit to

This is often easiest if there is a particular event coming up — such as a Demo Day or a pitch event / press event. “We are closing a tranche of funding on X date, which is our Demo Day. After that, the price will go up. So if you are serious about investing now, then let’s talk in the next 48 hours.” Then, tell all investors you’ve been talking with about this deadline — both the serious and non-serious — and see who talks w/ you in the next 48 hours and ultimately comes into your round.

2) Tell all potential investors how much money is in your investor pipeline

If all of your serious investors were to invest, how much would this pipeline be worth? (As mentioned above, it should be at least 2x…but ideally more). Then tell all investors you’ve been talking with — both the serious and non-serious — that you are closing off your round soon, because at this point you have about $X in your investor pipeline but are only raising $Y. And so if people are serious about coming into your round now, you’ll need to talk in the next 48 hours.

3) Tell all potential VCs about where your conversations stand with other VCs

If you are going into second round / later stage meetings with VCs, make sure all the VCs you’re talking to know this. “I have 4 second round meetings this week with other VCs on Sand Hill. Things are moving a bit faster than I’d originally thought, so if you think it makes sense, let’s get a meeting scheduled this week.” Keep putting pressure to shuttle your VC fundraising process along with all the firms you are talking with. Once you get terms — either verbal or bulleted in email — then tell all VCs that you are now talking specific terms with another VC and that you’re trying to figure out who is potentially in this round and who is out. Once you get a term sheet, tell everyone that you have a term sheet and that you are trying to figure out which firm(s) make(s) the most sense to move forward with. Every step of progress you make with a VC should be something you tell all the other VCs about so you keep moving all processes forward.

DO NOT TELL PEOPLE WHICH VCs you are talking with! You don’t want VCs talking to each other behind your back and then either colluding on price or talking themselves out of your deal altogether. You want them to think independently.

Also, if you get a term sheet with a valuation that is much lower than you’d hoped / anticipated, this is not the end of the world. Just getting any term sheet at all is a GREAT starting point. Valuations are the result of supply and demand — not based on your progress / revenue. Once you get a term sheet, you should focus on getting other term sheets so that the terms can get bid up and so you can have other VC options. On the flip side, a lot of entrepreneurs overly focus on valuation — you don’t don’t want to set your valuation too high (because it can bite you in the next round), and ultimately, you want to work with investors who are right for you, so make sure the relationship(s) is/are right with the VC(s) you ultimately go with.

Now, for all of these tactics, a big risk is that no one commits to your round at all and it completely falls apart! But you have to take that risk. This is why it’s so important to have enough serious investors in pipeline in order to keep moving your fundraising process forward — investors WILL drop out either because they weren’t serious in the first place or they can’t move fast enough or they don’t like the details of the round. And you need to be ok with that. If you don’t have enough serious investors in your pipeline, you either need to have more first meetings with new prospective investors or re-evaluate whether you should be raising money right now. Often it’s a better use of time to stop fundraising and then go back out and raise money later when you have a better story to tell.

Always be pitching

The old adage of “Always be selling” definitely applies to fundraising. One of the things I didn’t realize as an entrepreneur was that at the seed stage, anyone could potentially be an investor. A lot of entrepreneurs just think to pitch to VCs, well-known angel investors, or people who have signaled they are angels on Angelist. The reality is that angel investors can be anybody, especially these days, now that non-accredited investors can invest much more freely. Angel investors can be people without a tech background: doctors, lawyers, bankers, engineers, etc. They can even be your users and customers; for example, The Hustle raised $300k from its readers in 50 hours.

You no longer need to be super rich or write big checks to be an angel investor. In fact, many angel investors in Silicon Valley are not! I have friends who save $10k a year just to angel invest $1,000 in 10 companies per year via syndicates on websites such as AngelList. For them, they see this activity as an investment. They invest in startups much like they invest in index funds on the public markets by putting a little bit of money into many different companies. Many “regular” people invest in large diverse portfolios as part of their retirement savings strategy.

Furthermore, angel investors also see this as an investment in themselves. Often, being an angel investor – no matter how much money you are investing – is a great way to network. You have the opportunity to meet and get to know other investors in your portfolio companies. Investing in big index funds, while a good retirement strategy, doesn’t allow you to meet other investors in those funds. But investing $1k into a startup can often get you an invite to free VIP events that that startup throws for its investors.

Saving $10k+ per year to invest in startups, while not possible for everyone, is within reach for a lot of middle class and upper-middle class people who are interested in investing in their retirement. As a startup, there’s a huge audience to pitch to — just about anyone who is doing just fine in life can be your angel investor.

But most people who save $10k+ for their retirement per year don’t advertise that they are angel investors. They don’t have a website talking about a fund or their investments. They don’t signal they angel invest. So, it’s hard to tell who might be interested in potentially angel investing in your deal. This is why it’s really important to hone your elevator pitch and constantly get other people excited about what you’re doing in case people you meet are angel investors or know investors who might be excited to invest in you and your company.

Always be pitching.

11 Fundraising Secrets from 1600 Startups: My SaaStr talk

Last week, I had a great time at SaaStr, a conference dedicated to all things SaaS. Thanks to Jason Lemkin for inviting me to speak on fundraising there. With 10k+ attendees ranging from startups to large enterprise SaaS companies, SaaStr had impressive content for everyone and great networking opportunities. (As an aside, the other SaaS conference you should attend is called SaaStock in Ireland.)

My talk was focused on walking entrepreneurs through how investors think about their portfolios and how founders can use this information to his/her advantage to raise money.

See slides below:

11 Fundraising secrets from 1600 startups from Elizabeth Yin