But there was a valuable lesson... How Justin Kan fundraises is irrelevant for you and me, because we aren't Justin Kan. There was no rational basis for Exec to have been worth so much at that time, but when you are Justin Kan that isn't relevant. And look, good for the Justin Kans of the world who can take advantage of that, but that doesn't mean it is helpful advice for the rest of us.
I can say from experience that going into VC meetings with a bunch of false bravado, hoping to "hold the tension" and out-negotiate the VCs is mostly irrelevant advice. By far the most important thing for the average founder is getting the VCs to look up from their phones and care or be interested in your pitch, which isn't going to happen unless you've created the right fundraising dynamic for your company.
One of my favorite Paul Graham essays of all time, "How To Raise Money" [1], fully captures what my experience was in the fundraising realm, both when it went well and when it went poorly. I'd point you there for more practical advice.
Anybody remember color.com?
https://www.fastcompany.com/3002341/color-failed-what-happen...
I don't think Bill Nguyen would be able to repeat that sort of raise.
For example, charging people before you make a software product. Very rarely can you convince someone you never met over the phone or email to give you money for something that doesn't exist yet but this is apparently what you need to do as an average joe.
If you want investors that actually understand what you do generally, or even better yet understand what you do on a technical level, this is terrible advice to follow. Investors literally become co-owners of your company, and there is no easy way to get rid of them. Raising from the right people slowly is better than raising from just anyone fast. It's a positive sign when investors actually dig in with real substantive questions after thinking things over, and an indication of how thoughtful they'll be as co-owners.
FWIW the real truth is somewhere in the middle: some investors invest based on their gut, and if they are asking factual questions then that means they are not emotionally interested enough. Other investors invest based on their brain, and if they are not asking factual questions then that means they are not intellectually interested enough. (Or your presentation answered all of their questions, which is very rare.) Interpreting the actions of both investors in the same way is a mistake.
There's probably no objective truth, but let me offer a perspective: a founder sees 1 founder (themselves) and 100 VCs and a VC sees 100 founders and 1 VC. In the same way you look for patterns in founders, teams, products and markets to determine who to invest in, founders look for patterns in VCs to see who's likely to invest. A useful and common pattern founders pick up on is VC tire kicking: the ones who are interested enough to dig in but not excited enough to invest immediately. Asking questions in a meeting is one thing, but following up in an e-mail with an itemized list of; "how do you think about [x], what about [y] competitor, have you thought about [z]" is a surefire indicator that an investor's not willing to move right now (not enough confidence in founder, team, product or market) and, as a founder, you need to move on.
So you may sit here and proclaim, "hey, this advice isn't accurate, because I ask questions when I'm interested!" Well... yeah, sure. There's (1) selection bias involved, you're a well-known VC and you're likely meeting with, on average, more experienced founders (by the time a first-time founder gets to you they may have been through an accelerator, faced tens of rejections or more, etc.) and this can lead to more mature relationship building, and (2) for every 1 in 100 founders you invest in this way, you passed on the other 99, making you one of their 99 they need to pattern match and learn from.
Viewed through this lens, founders should absolutely take this advice to heart. If you, as an investor, really wanted to invest in a founder and they snubbed you a bit after a follow up question (not rudely, they just have to choose where to focus), would you suddenly lose interest, or would you pursue a great deal / great opportunity? I have a hard time believing you'd let somebody you thought was the next Zuck walk out of the room without a term sheet. Founders should try to find the investor who thinks they're the next "Zuck", or some reasonable facsimile of such given the product and market.
Hope that helps clarify. I've seen friends put through the ringer by getting too caught up in the weeds with VCs that clearly weren't interested, or were tire-kicking. Can happen to amazing founders and it's wildly distracting.
Read the article out of curiosity, but understand that this was in no way a normal process.
[0] https://www.crunchbase.com/funding_round/atrium-lts-series-a...
In the article somewhere it suggested that Justin was more or less testing the waters and getting investors interested as future customers in their product. It sounds like a weird mix between sales and fundraising, but a smart interesting one none the less.
If 100 investors write $50k checks, it's a small amount of money to them compared to the value the legal automation software could potentially deliver.
100 * $50k = $5M let's say for 20% of the company --> $25M round for them. Numbers are hypothetical but that'd be a pretty big A round. I bet he didn't just raise $10M off that many checks.
One million times this. Especially for entrepreneurs (like myself) with an engineering background, this is something that’s hard to grasp intuitively at first. If you’re asked for financial projections, for example, it’s already over. You can win that investor over more reliably by following up a month later with, “[famous Angel investor] joined our round,” than responding with a spreadsheet.
I’m nowhere near Justin Kan’s level of experience and expertise, but another favorite piece of advice it can take some time to internalize is: “if you didn’t get a term sheet, it wasn’t a good meeting.”
This doesn’t mean investors dislike you or won’t invest if you don’t get a term sheet right away. It’s that when you find an investor highly aligned and / or motivated to invest, they will move quickly, like sub-24h quickly. The easiest way to burn yourself out as an entrepreneur is getting too attached to “not good meetings”, with “but I really like that firm!” Or “and they were so nice and understood our business!” You’ll drive yourself nuts wondering why everybody says nice things and yet nobody wants to invest.
The saying is not that it’s a BAD meeting if there’s no term sheet, just that it wasn’t a good meeting. Stay grounded. It can be a long journey.
Remember: actions speak louder than words, always, and the fundamental action an investor can take to show support is to invest.
[Edit] I will add that, in my own experience, investors can be all over the map and there’s actually no such thing as “one size fits all” fundraising advice. Fundraising is a hyperpersonal activity that’s just as much about relationship building as anything else, if not moreso. You’ll want your first checks from investors that don’t fuck around (see above advice) and who are willing to bet on you. As you grow as an entrepreneur and become more confident in your ability to build relationships and “bullshit detect”, you’ll become more comfortable with long term relationships. In my admittedly limited experience, the people who spend time with you and learn to appreciate you and your business before they invest are the most valuable to both your bottom line and personal psychology.
But, hey, the above one size fits all advice is still a good launchpad :). If you’re starting your fundraising journey, good luck, it’s a hell of a ride but if you’re deeply passionate about your business it is more than worth it!
But, on a completely unrelated note, if you're an experienced ML engineer and you want to help distrupt one of the most needing-to-be-disrupted-stodgy-old-industries there is as part of a very fast growing team, drop me a note: max <AT> atrium.co.
I run our fundraising bootcamp Atrium Academy w/Justin to help founders meet the right investors and raise a great Series A.
Check it out/Apply here for our next one in March: www.atrium.co/academy
We started Atrium Academy to help democratize the fundraising process for founders (ie. speaking with first time founders who just raised their Series A, reviewing pitch decks and narratives with mentors, being matched with recommended investors based on industry and expertise)
So, I'd value the company at X but, I'd value the company at X+Y if you added a new phd in XYZ or a CTO from a fortune 1000 company or if you add this many new accounts in this time frame.
