I'm a 12 year veteran of early stage startups. One thing I found interesting about the whole experience was that on the technical side, smarts-based meritocracy was valued above all else, or at least that was the line we told ourselves. However, when it came to raising money, the most archaic, beers in the back-room, who-knows-who-knows-who boys-club approach was the norm. The things I saw would have made a 1920s Harvard admissions officer, or a 1950s hiring manager at an investment bank blush.
That said, the most successful startup I worked at raised money in an almost mechanical manner, with little or no beer drinking, or even much contact with the investors. YMMV.
"That said, the most successful startup I worked at raised money in an almost mechanical manner, with little or no beer drinking, or even much contact with the investors. YMMV."
That would make an excellent how-to blog post or other elaboration. :)
It wasn't that interesting.
It was sort of like the normal route of obtaining funds, there was just no long, drawn out bromantic courtship. We just asked for the money, they said ok, and we signed stuff.
while i agree you can raise money with no beer drinking and pure mechanics, my whole point is you're optimizing for the money and not the person.
for me, grabbing dinner with investors, getting to know them, getting them to know me, is much more important. So i want to have as much contact with the investors as possible.
They aren't just money. You will be working with them closely for years.
It's not just what you suggest, that it makes it harder to get money. The other impact is that you don't have time optimize for best person, you have to optimize for getting cash fast. Also, it is much easier to get to know a person when you aren't asking for money. We had a similar approach as Posterous and are really happy we took the time to get to know VCs before raising money.
Right - I think that's actually the most valuable lesson in your post. Start making friends a year or more before you raise.
There may be a small caveat - it's worth debating this because I'm not sure I'm right but I'll throw it out anyway: Some investors like a fresh face with a fresh idea. If you become a groupie and hang out at every single event for a year before you raise, you may be less attractive to investors than a fresh face with the same traction and idea. Not sure if this is true but just a thought.
I partially agree with your caveat. In our case we went to almost zero events, all of our meetings were face-to-face with a single firm. After that we stayed in touch and gave updates on our progress. This also let them get comfortable with our ability to work together and execute on a product. We were also able to show more and more traction over time.
Investors will get tired of you if you are raising money for a long time. Once you decide you are raising, get all your meetings done as quick as possible, hopefully in only a couple of weeks.
It may not need to be a year. We started these discussions in June and started raising in September. They key is just before you need money.
It's Ironic how people who are really among the best and brightest in the industry, can have such different observations:
Sachin Agarwal (Posterous)
"A couple months before you're going to raise, schedule a coffee meeting with all the VCs. No pitching, no deck. We did this and it was a great way to meet VC partners in a more casual setting. If they like you, they will even help you with your pitch."
"However, many VCs who want to have coffee with me are none of the above. Worse yet, they have no agenda and no purpose. They just want to “compare notes.”
When I was CEO, I didn’t take meetings with no agenda and no purpose. I’m not sure why I should take them as a VC. Of course, when I was CEO, people knew better than to request a meeting with me with no agenda and no purpose. I think that these VCs have mammas that didn’t raise them right."
But there is a reason for the informal intros over coffee. It's understood that it is coming before a pitch. By the time you're pitching, it's good to have at least a baseline of a relationship going. Good VC's understand this, and won't be left wondering why some guy wants to have coffee.
There's a big difference between two VC's getting together "for no reason" and an entrepreneur introducing himself to an investor before they are ready to take money.
"Beware of associates". I cannot stress this enough.
DO NOT EVER WASTE YOUR TIME MEETING WITH ASSOCIATES IF THERE ARE NO PARTNERS PRESENT. They have no freaking clue. By associates I mostly mean MBA's with no startup founding experience.
Infact there are VC partners in India who are more like associates in the US, with absolutely zero founding experience. Stay as far away from them as possible. Do not cold call them and dont take their calls - they are not worth the time and dont know shit.
I guess you can do other things to show you know how to relax and your not just 100% business all the time. I think that's the main thing entrepreneurs are looking for by having a few beers with their investors.
"If you ask me about barriers to entry, you don't understand the internet."
Asking about barriers to entry does not mean the potential investors don't understand internet. This comment says to me the author does not understand business or investing.
I disagree. He's right. What investors should be asking is, "what is it about your idea, people and product" that is unique and difficult to replicate, whilst being crucial for your success. Typical barriers typically come via patents and strategic alliances. Who has those?
There are several other sources of barriers. Network effects is one; goodwill/brand is another; execution/operational excellence, etc.
Think about Ebay, Paypal, Facebook, Amazon. The vast majority of what they do is pretty far from rocket science. (By that, I mean a startup could create a technically credible competitor for their core business.) However, those companies have erected enormous barriers to entry in the form of network effects, brand/trust [of buyers], network effects, and brand/breadth/operational excellence.
Probably because they have no decision making power at all. My only experience with associates is on the phone--they often get tasked with cold calling businesses like mine in order to collect data for later analysis. For that reason, I think of them as little more than interns.
You also want the strongest introduction to a partner that you can get, and I think other entrepreneurs and investors can make stronger introductions than most associates.
Sage advice. More generally "work with people you like."
Life's too short to work with jerks. Making a point to surround yourself with quality people will enrich your life. I sometimes forget this and almost always regret it.
This 'cultural' matching process is the most important element of having anyone join your business - investors, board members, staff, even clients if your business involves ongoing interaction with them.
I like to think of the 'have a beer with' as having the 'family photo fit' - if you can't picture this person fitting into a photo of your business family, then you don't want to work with them. Especially if they are bringing money you need, because personal differences will painfully divide the business.
"There are plenty of posts online about valuations, term sheets, and how to negotiate. I'm not going to get into that stuff here. This post is about the personal side of finding investors."
Really? From my point of view, I constantly find articles about personal fit, finding the people who have the same goals, etc. I'd love an article about valuation, term sheets and how to negotiate.
On the internet, there are few barriers to entry. It's incredibly cheap and easy to build most startups these days. That's not where the value is. The value is that you think you can do it bigger and better than anyone else.
Except for maybe Google search, I can't think of a product that I couldn't build tomorrow if i wanted to enter that space.
The fact that there are fewer barriers to entry also make startups where there are barriers to entry more valuable. Some of the big successes this time around are e-commerce operations which require a lot of capital for the parts of the business associated with moving physical inventory.
I don't know about this, if you're a new business trying to do something similar to an existing competitor that's well known and well liked, that's a big competitive advantage and barrier to entry for newcomers.
Mindshare isn't very easily quantifiable, but it's very real. But maybe the barriers to entry you're talking about that VCs fret over are more traditional things that just don't really apply to the internet.
Here's what I think he meant. There must be a VC who would've thought Posterous can be substituted by a Wordpress plugin. Any 14 year old can create that. Obviously, Posterous is more than just blogging via email and the VC must not have got that.
> Obviously, Posterous is more than just blogging via email.
What does Posterous do that is absolutely unique and useful that wordpress or other blog platform doesn't do?
I know saying anything negative towards YC funded startup is not looked upon here, but I will take a shot.
Posterous is nothing unique, it doesn't do anything that other blog platforms don't have or can't be configured to do the same thing. The only thing working for Posterous IMO is that they have done a really good at their landing page which is short an informative. They also have good ideas to promote their platform.
Personally I don't understand why would any tech savvy online user would "switch to" Posterous or even use any of the hosted blogging solutions out there for that matter. Its not only mindlessly easy to setup and maintain your own blog (wordpress or whatever), it makes more sense to host your own stuff and have 100% control over your own blog.
Posterous makes sense for grandpa and the guy/gal who just discovered blogging, not for a seasoned blogger/internet user.
I ran a hosted Blogger, which became a hosted Wordpress, which I threw away and now I have a Posterous.
Let's say I run Wordpress on a shared host, which I did for years. That means I have to keep Wordpress updated. Easy, but takes time and effort to do a boring housekeeping task. There's no 100% control because you have a CMS controlling your site instead of writing your own HTML and CSS files. Then you have to pay for hosting and stress over things like storage and bandwidth, or pay enough money that you don't have to, and then stress over the money. On the other hand, you could run your own domain name with email and so forth (and then worry about storing all the spam you ever receive on the server and the fact that your hosting provider has terrible anti-spam systems).
Or you could just point your domain to point at a Posterous and get Google Apps for your domain, spend 10 minutes playing with DNS settings and maybe an hour waiting for the DNS to propagate, and have a blog at your domain, the best email client in the world, and no stress.
If I needed more control, I'd write my own CMS and do the same thing except with Heroku instead of Posterous, because that's more fun than hosting my own installation of someone else's CMS. If I needed even more control I might consider a VPS and my own CMS. But hosting your own wordpress doesn't fit anywhere useful in terms of fun, control, or convenience.
> What does Posterous do that is absolutely unique and useful that wordpress or other blog platform doesn't do?
From the top of my head: Intuitive user interface, awesome iPhone application, vibrant community, ease of usage, works out of the box.
It's not aiming for the serious blogger. It's the easiest way to post stuff online. The rationale is most people aren't tech savvy and there are tech savvy people don't care about whether the index should have 8 or 10 posts, whether the date is YMD or DMY. It's for people who want to just post stuff online easily and share it with others.
> From the top of my head: Intuitive user interface, awesome iPhone application, vibrant community, ease of usage, works out of the box.
Intuitive, Awesome, Vibrant are all subjective personal opinion/taste. I could perhaps rightfully (based on user-base) argue that wordpress/tumblr has intuitive interface, Awesome iPhone application, bigger and very active community, easy of use and works out the box (which one doesn't work of out of the box?).
Whats so unique about these qualities with posterous?
>It's not aiming for the serious blogger. It's the easiest way to post stuff online. The rationale is most people aren't tech savvy and there are tech savvy people don't care about whether the index should have 8 or 10 posts, whether the date is YMD or DMY. It's for people who want to just post stuff online easily and share it with others.
You repeated exactly what I said. But there are also some serious tech-savvy users also using posterous. Which makes me think that they have some good marketing ideas and got these guys to throw in some blog posts on posterous so that others will think "wow, so and so is using posterous, it must be cool or something. Must be the new fad"
Reading my own comments, I feel like I am coming across someone who has something against posterous. But honestly I don't, its just yet another blogging platform and if it wasn't funded by YC we wouldn't see it so often here on HN or even talk about it.
While posterous is an easy way to post stuff on line, twitter and facebook also have easy ways to post stuff online. tumblr and weheartit's bookmarklets are also easy ways to post stuff online.
Hosting your own blog makes it vulnerable to Slashdot (and now HN, Reddit, etc.) effect. Also, a server (and even a shared hosting account) requires maintenance and monitoring to make sure you aren't serving viruses to your users. Many seasoned bloggers just want someone to take care of all this for them.
There probably would have been others than got it but didn't invest because of the amount of competition in the blogging space. Sure it may be the easiest way to start up a blog online but your presented with plenty of different options if you decide to create a blog, each of which will serve the purpose.
Also I think it is in area where there is a risk of someone like Facebook leveraging their large user base with an improved integrated version of their current notes feature.
Posterous may well pay off nicely for investors but it's by no means a sure thing.
I would assume that, in this situation, "drink beer with" really means "engage in mostly-informal social interaction with". Most places that sell beer will also sell a variety of non-alcoholic beverages.
Buying a beer is a figure of speech. It doesn't actually have to mean beer, it just shows that you have a stronger relationship with them than "You gave me money and I gave you equity".
The host or whoever organized the meeting does the introduction. Most non-Americans will probably be reluctant to introduce themselves with much enthusiasm and might underplay their achievements, specially Asians.
If there is no designated Toastmaster, the most neutral party should step forward and do the formalities. Try not to drop dollar figures that someone might have or manage, instead, stress their successful exits and other accomplishments.
This is strictly from my experience in the Mideast and China, btw.
Thanks for the advice. In your section about getting to know vc's you mention a few methods. What method have you found to be most successful? Do you believe coming out of ycombinator gave you an instant "in" with VC's?
That said, the most successful startup I worked at raised money in an almost mechanical manner, with little or no beer drinking, or even much contact with the investors. YMMV.