As founders, we tend to look at funding as an event. But we should look at funding as shifting of rails to make you go faster. It is part of the process, not one point in time when you prepare a deck and get some money in the bank. Think of it like surfing more than skydiving.
As a startup grows, ideally with exponential potential, investors would want to thrust that growth with some money and get an upside of it. This is the wave. You have to position and re-position and try different things until you hit one of these waves where users or revenue starts coming in.
Great VCs will not invest on fomo. They would want to see some proof of the founder being formidable and the product / market being conquerable.
One of the founders that I have been working with got tailwinds. They were paid little attention by chains and investors alike. But as their numbers started growing, they started getting inbounds – from every top VC including a16z.
I have seen many founders get into this position. Many of them don’t know how to act once they’ve caught the wave and they fall multiple times before raising good money or giving up by raising from tier 2 investors.
So here are some tips:
- You need to know the next milestone and have a reasonable view on how you will get there. Taking money is just the start of bigger challenges. You will be standing on the surfboard instead of paddling now. The risks are higher, your burn is higher. So you better have a reasonable idea of where you are going to get with this money. Communicate that to your investors. Get their buy-in.
- Remember, external market conditions in web3 are subject to change every week. So just because your sector is hot today doesn’t mean it will remain forever. Make sure your investors aren’t investing on hype. This will make them bad partners or even drivers of bad behaviour (like premature token launches).
- Don’t become egoistic. It is the wave that is pushing you, even if you achieved a great product or good growth numbers. Many founders reject good tier1 VCs because they want a slightly better valuation or are waiting for someone better. If the investors have great reputation and believe in what you are doing, close the deal.
- Vision expansion. I have made this mistake earlier. Because we are getting more money than we want to raise, we sometimes end up broadening the vision. This takes away focus. More money doesn’t mean you can conquer one layer above/below you or an adjacent market. Startups have to be razor-sharp and the aim is to conquer 60%+ in one vertical. This results in making loose promises of grand visions to the investors. Don’t do this. Raise only what is needed.
- Make sure you know the weakest links in your chain. Just because top VCs are courting you doesn’t mean you have everything figured out. If you have, great. But most founders haven’t. This is an exercise that keeps you grounded, lets your investors know that you aren’t too delusional, and helps you stay on course.
- Don’t pit investors against each other. This is very counter-intuitive but every VC back-channels with their competitors. At a point where you pitched to 5 VCs, they have evaluated you from every major angle.
- There will most likely be the one investor/operator who doesn’t believe in what you are doing and will make sure they communicate it to all others. Admitting what you know and what you don’t know reasonably is the best way to be transparent and make such back-talk die. Believers will step forward and others will be bogged down by the market gossip. If you are building something on the cutting edge, there are multiple risks and a great VC understands that.
Surf the wave well. You are in a rare special spot!
Will keep adding to this and writing much more. Subscribe from the sidebar.
To be written:
All money is not equal.
The aim should always be to raise from the best.
Investors are like partners.
Startups got to dominate or die. Power law applies