For anyone reading this advice. The number 1 reason why Matt’s fundraising process went as well as it did is because he has a world-class personal track record. This dwarfs all other reasons by a long way. Quite frankly Matt would have been able to raise with complete air (assuming that his cofounders have similar personal track records).
That’s not to take anything away from Matt. He’s clearly an accomplished individual and his advice is still sound. But he hasn’t included the glaringly obvious reason why he got funded - he was a professor in CS at Harvard and has had a string of prestigious roles in industry.
Yes and he was also part of the boys club by knowing a bunch of VCs. Who you know is more important than what you are building in the modern game of venture capital.
Your amount-of-luck is the surface area of a rectangle. A side is the interestingness of what you do, B side is how many know about it. The bigger the rectangle, the more opportunities you get.
This is how you get opportunities when you aren’t even in the room. Someone says ”Oh yeah I know <ksec>, they’re doing cool things X in the area you just mentioned an interest in”. Or ”Oh yeah for problem Y, you should ping <ksec>, they’re the expert”
I was trying to gauge some interest for a seed round as well a few months back. For someone with my background, most investors want to see a prototype with some users, at the very least.
It’s actually worked out better for me since it’s made me realize that I don’t need that much funding that soon. Working on the prototype and getting some users has also given me far more clarity about the product and customer acquisition strategy.
OP here. Thanks for the kind words. I certainly didn't feel like this was an easy raise, but then again it's the only time I've done this and my comparison points were other first-time founders who raised 2x what we did with less than we had done. Yes, these are all pretty senior, well-established folks, not kids straight out of college.
The main point of my article was the surprise around the extent of the VC network and the helpful interactions with them. Before going through this process, VC was a black box to me. Now, a lot less so.
A few folks below have pointed out that I must have had an extensive VC network to draw on. Not quite. I knew 3-4 VCs casually from having worked at a couple of other startups. None of them invested in us by the way. It certainly didn't hurt to get their advice. Now, of course, I have a rolodex full of dozens I could potentially call up at some point, which is useful. I can see how founders who have done it before likely find it a lot easier to get the ball (and the checks) rolling.
Absolutely agreed -- without knowing the specifics of the idea, this is the world's easiest raise. I'll add a few other tailwind factors here:
1. He didn't raise that much money. I know this sounds obscene (isn't $5M a lot of money?!), but to a VC, this is a small bet. In particular: this is a bet small enough that a single VC can just... do it -- they don't need the firm to buy in. (Or that buy-in is perfunctory.)
2. He's not a solo founder -- and his founders have startup experience. This might be a push, but if one of his co-founders was a previous startup founder and that company had a successful exit, that co-founder can raise on literally anything -- especially from the VC for whom they made money.
3. This sector is still hot. We don't know much about what he's making, but "it relies heavily on AI" (and, um, it's the TLD), which -- unlike web3 -- has remained (for the moment, anyway) white-hot.
4. The environment is (paradoxically!) great for this kind of startup. I know this sounds absurd because the environment has gotten worse (and he's certainly right that the valuation would have been higher a few months ago!), but because we are coming off of very frothy times, there is tons of dry powder out there: VC firms have raised massive funds, many of them targeting early stage (Seed/Series A). Those firms have to put that capital to use, and the ones that are queasiest about the macro prospects (for good reason!) want to go as early as they possibly can (i.e., first capital in) because that gives the macro factors the longest possible time to sort themselves out.
5. They have deal heat. In part because they have all of these other tailwinds, they got a additional huge tailwind in that multiple firms are vying for a deal. This is every entrepreneur's fantasy, and it results in the kind of behavior he sees: VCs absolutely tripping over themselves to be helpful. This is absolutely the exception, and highlights just how much all these other factors have lined up.
The title of this piece is what he wishes he had known, but it's not really clear what the true lessons are. That it's easier if you've actually built something? That your pitch deck gets around? Perhaps fixie.ai will just live a charmed life where everything is easy (and hey, more power to them), but if they are like most, the blog entry to read will be the one two to three years from now: "What I wish I had known about how hard a Series A is relative to a Seed."
> The title of this piece is what he wishes he had known, but it's not really clear what the true lessons are.
he restates the lesson at the end: he thought that raising money would be like a grant submission, not realizing that it would be more collaborative (after all you're gonna have the investors along for a while, unlike a grant agency).
There were a few other small lessons too (e.g. your deck will be passed around, which used to be a no-no in the "old days")
I am shocked -- shocked! -- that our deck is being passed around. ;)
Given that they did have deal heat, I would love to know what they actually did for round composition and how they made that decision -- especially if it was on something deeper than firm prestige or valuation.
> I am shocked -- shocked! -- that our deck is being passed around. ;)
Often there is important insight and market detail in a deck, especially first-financing deck, that could help a fast follower, so you wouldn't want it shared widely.
But in the end there's a big, big difference between idea an execution, and if a fast follower could get it from a deck, perhaps there isn't much differentiation in what you do.
Decades ago I was advised to act as if any competitor had full access to our internal systems (payroll #s, marketing plans, the works) and assume that prospects and customers not only don't know anything about what we do but also that they could not care less. I've taken this to heart.
For my current company (self-funded for the past year, raising about the same size seed round now) I have a goal of 1/3 strategic partner, 1/3 customer, 1/3 professional investor. But I know if I get a professional investor(s) to cover more than 1/3, or all of the round I'll just take it and move on to the next task. Fundraising always takes too long and is too distracting to try to optimize on this scale at this point in time.
A strategic investor is extremely rare at the seed stage, and for many of the reasons that it is rare, it usually a problem when you do it. Our plan is a very special case...but still it's unlikely, despite expressed interest.
If there's an actual business, then the VCs will evaluate and choose whether to bet on that. If there's no business, then the VCs will evaluate the founders and choose whether to bet on them. A real (successful) business AND extremely impressive founders don't have to reach out to VCs because they're already beating a path towards them.
LOL exactly. A Harvard CS professor who had also worked in industry wouldn't even need to share the deck or idea to raise $5m. John Carmack just raised $20m for his AGI startup and doubt he had to share any plans or decks either, and guarantee you that Carmack was oversubscribed.
That and "being able to call up a few VC friends of mine" also means he is a lot better connected than 99% of startup founders. This just reinforces the idea that raising VC is more about your background than it is about your ideas or ability to execute.
> This just reinforces the idea that raising VC is more about your background than it is about your ideas or ability to execute.
At the seed or pre-seed stage that Matt was at, what else would it based on? If you have no product or barely an MVP, you're almost certainly not near product-market fit and you probably have close to zero traction. As an investor, you have practically no signal to go off of at that point.
Ideas aren't worth much at that stage, so ability to execute is key. And given that there's been so little done, the best signal for someone's ability to execute should be their background.
Growth is the most convincing metric. If you have growth, you will get funding. So how to get growth? Build something users want/like. How to know what they want/like? Talk to them. Build. Talk. Build. Talk.
> number 1 reason [...] a world-class personal track record.
> That’s not to take anything away from Matt.
Why would that take anything away from Matt? That's tremendous.
Anyway I'd disagree. The number 1 factor is luck. I like this video https://www.youtube.com/watch?v=3LopI4YeC4I but there are plenty like it. Luck accumulates/aggregates/concentrates. I don't know if they cover it that way in that video.
Looking at this as a founder thats currently raising a seed round (or pre-seed, tho as I understand, same position as OP) in Europe with an MVP.
Some parts ring true, as in VC's you never heard of contacting you on LinkedIn, sharing decks between their contacts and keeping in touch to build a relationship. The part about common pitch deck advice being geared towards live pitches especially - we haven't done a single pitch with a deck live. If it was a live meeting, they've already seen the deck or we've done a short pitch over zoom already. The "stand in a meeting room and pitch to VC's" thing is mostly a myth nowadays.
But a 5 million raise without even having a product just sounds insane. We've been offered 50-100k offers due to our team and product, but rarely anyone wants to invest more than that in a pre-revenue/pre-launch startup. And if they do, they would do it in tranches and by the time they would invest 500k we'd be giving them more than 20% equity.
The difference in valuations is just insane, with even VCs straight-up telling us that if we were raising in US we'd be offered 5-10x more than here.
Honestly, this whole ride makes me think I should just get a job at a US startup and use the cost of living difference to pay devs out of my own salary.
This is 100% a symptom of not being in the US. Seed stage VC might as well not even exist in Europe. It’s so risk averse that it’s something else. It’s not VC.
In the US, you can raise money ($1m+) with just an idea if you have some combination of the following (often times just one of these is enough)…
- you have some traction in the form of pre-signed customers
- you have previously had startups success (multiple rounds, an exit, etc.)
- you are a master networker with a very large Twitter/LinkedIn following
- you are well known within your circle of expertise. Could be that you run a large newsletter, or podcast, or blog
- you know VCs personally, and are close enough with them that they’re willing to take on some risk with you
- you have a world class team of co-founders. Could be someone that built something open source, or lead some large branch of a FAANG company (I’ve seen former AWS employees raise on the simple fact that they worked for AWS)
- you went to a prestigious university like Harvard or Stanford. Many VCs attended these universities and are more willing to work with you in these cases (as much as people don’t want to believe this it’s true)
There are probably dozens of other scenarios and combinations of scenarios that would allow you to raise with just an idea. But it’s 100% possible (I’ve done it).
> Honestly, this whole ride makes me think I should just get a job at a US startup and use the cost of living difference to pay devs out of my own salary.
I know this was an off-hand remark that you're probably not thinking much about, but you're absolutely right, and it might be worth seriously considering it. Moving to the US is probably the single biggest improvement you can make to your career and opportunity options. You will never have as much opportunity in Europe as you will in the US, not in the tech world. You might be able to eke out some success in Europe, but it'll pale in comparison to what you could've achieved in the US.
Oh it's not just an off-hand remark, been thinking a lot lately, especially the closer we are to closing a round the more it's on my mind.
I know that career-wise I'd have more opportunity in US, but besides that, not much attracts me there - quality of life is way better here. Especially if I can work remotely for a US based company and use 50% of my salary to hire at least 2-3 developers locally to work on my product. The difference in salaries and cost of living is huge.
Be careful, US companies usually have you sign IP contracts and do not approve of moonlighting.
They could well try to claim stake or ownership on your company, even if they lost, the distraction and money it would cost to defend probably aren’t worth it.
> They could well try to claim stake or ownership on your company...
Note that not only is this not legal in California (but is in others -- Texas is particuarly notorios) but any employment agreement in California must specifically include a copy of the relevant section of law so that the employee is a aware of their rights. But don't use any of the employer's property (e.g. computer, IP) or do it when you are supposedly working: in that case the law does not apply and the employer does get the rights.
If they hire as a contractor, then it's easy to say no to these clauses.
If they hire through a local subsidiary then these clauses are against the law in much of the Europe.
How the hell can they justify this habit of telling a developer what they can and can't work on in their own time, or making any claim to it afterwards just because someone worked at company X during the same time they made side project Y? The whole tendency seems grossly onerous and unjustifiable to me.
Then why is there no widespread pushback against this idiocy? It's grossly unfair and seems like a lite version of some notion of serfdom, by which you belong to your emplo0yer just because you spend part of your day working for them during some time period.
Not many of them are willing to invest in EU startups at early stage - a lot explicitly say they invest in NA only, and I assume a lot of them just don't want the legal difficulties - also it's much harder to get warm intros to US investors if most of your network is based in Europe, and logistics to do a in-person meeting are way harder if somebody is on the other side of the world.
Serious answers (from someone who just raised €10M from European VCs for a pre-revenue, pre-launch company):
1) While US investors can and will invest in Europe, they are more likely to do so at a later stage.
2) Not everybody wants to move to the US on a pipedream, particularly those with family, kids, and roots on this side of the Atlantic. Again, at later stages, when there is more stability to the company, this can change.
3) the lower cost of operations in most of Europe partially makes up for the lower amount you raise - our monthly personnel cost is a fraction of what it would be in the bay area. And again, as you grow, and need to hire really senior experienced talent, this changes.
4) there is early stage money in Europe. Maybe you don’t raise 5M with a PowerPoint, but you can raise. There is also a vibrant startup scene with several hubs (Berlin, London, Barcelona). Though I will admit, it’s not as crazy as Silicon Valley where everyone I meet seems to have a crazy startup idea.
The biggest downside I see is that, as a European founder, you likely have to go through one if not two pre-seed rounds before you can raise ‘decent’ money, which dilutes you and puts you at a disadvantage for when you eventually move to the US (which you probably will do at some point, at least in terms of incorporation).
Yet, despite knowing this, I’m not sure I would have done that much different in my journey so far.
Having raised a (preish) seed round on Europe, I'd like to add that it's even quite common in Europe that they expect you to be able to raise some first money (lead investor) in your home country first. Raising remotely (country wise) is definitely a much bigger challenge, at least in early phases.
How much harder is it for an SFBA investor to keep up with what's going on in a Berlin or London startup vs, say, an Atlanta or Miami startup? As long as you need to board a flight to get there isn't it more or less the same, whether that's a 4 hours flight or an 8 hour flight?
I'll ask - what's your startup? As an American living in Europe who really doesn't want to move back this is disheartening to say the least. Moving here did basically mean taking a sledgehammer to my career, admittedly.
In a way it is, the more you know about the US tech scene - the more it feels like you're handicapped in Europe - especially if you're not living in a tech hub.
It's weird. I do remote work for a US company from the middle of Ireland. I make more than virtually exerybody I know here, and less than any of my friends in tech back in CA. Comparison is the thief of joy I guess.
1. Not really, since we don't have enough connections in the US to make relevant warm intros to the VC's.
2. Also, not really - we did the YC style one but had to explain a lot more in the slides, which means adding more pages and more tradeoffs in what's important/what's not. Also influences the design a lot, since you can't just do the "pretty minimal slides" presentation. If you are used to speaking at conferences/meetups/companies, this will probably throw you off guard since you have to completely switch-up your style.
This post is all true. One caveat (which is mentioned in the post): this person has multiple VC’s in his network and knows multiple founders who have raised on nothing but a deck.
Many, many, many future founders are not as lucky.
So, I guess rule -1 is: get to know VC’s, Angels and other previously funded founders.
Yeah, reading the sentence "Before starting the fundraising process, my first stop was to call up some VC friends of mine and ask them how to get things going" made me roll my eyes.
1. SAFEs are convenient if everyone is amenable, but be careful about having SAFEs sitting around too long or with different terms. They're like the Mogwai in the Gremlins films. They're kind and cuddly unless you feed them after midnight or get them wet.
2. Stay in touch with your angels even if they don't initiate. It'll help in tons of ways and they can interpret lack of contact as a sign that you're dying and that they shouldn't think about you anymore. This isn't good.
3. Be careful about any terms (e.g. in side letters) that might allow someone to stand in the way of a priced round in the future. Even if someone doesn't use them to play hardball for terms (they can), it might make things inconvenient and add dangerous delays.
4. Have a lawyer look things over BEFORE you get into priced round negotiations with VCs or you might end up dragging the process out and risking losing the deal because the lawyers find a problem that needs fixing.
5. If you use standard/canned documents, check (3).
Generally all this boils down to: keep terms simple and universal as much as possible, be communicative, and don't let things sit too long.
It's possible to do a priced round without a lead if you have SAFEs/notes sitting around too long. You can use standard documents to minimize legal. It may be necessary to clean up your cap table.
> 1. SAFEs are convenient if everyone is amenable, but be careful about having SAFEs sitting around too long or with different terms. They're like the Mogwai in the Gremlins films. They're kind and cuddly unless you feed them after midnight or get them wet.
Your analogy is funny but you don't actually explain why SAFEs are dangerous, could you develop?
If you have SAFEs with different terms the calculations for your cap table can become onerous and complicated and confusing.
If things get confusing some SAFE holders might feel like they're getting a worse deal than others, which can cause acrimony on your investor team.
If they sit around too long the risk of these things increases. SAFEs are so easy someone can offer to invest and you say yes and BAM you sign one... without bothering to carefully look over all previous SAFEs etc. and make sure terms are in line with expectations. They're almost too easy to execute.
My analogy came from the fact that if you have these problems you can get a complexity explosion during the next priced round.
Isn't this really an issue with SAFEs that have pre-money terms? Genuinely asking bc idk. I thought post-money SAFEs kinda solved for this. Less favorable for the founder, but far less complex when dealing with multiple investors.
One interesting thing I learned from my previous startup is that when you're raising, you need to find investors that understand your market.
The more niche the market, the more difficult it'll be for you to find an investor. But when you find that investor the likelihood of them investing will be higher.
Why is that? Because if you have to educate your VC as to what you're doing, you've lost.
Let's say I'm building an AI that helps agencies set pricing for their ad inventory. Ideally I would want a VC that understands adtech, because they already understand the problems in that field (at some level) and how big it us.
I don't have to explain how much of a fucking pain in the ass it is to manage all the line items, creatives, placements, and pricing rules. Someone who wasn't in adtech would be like "google's GAM does that for you." Uh, not really.
A VC in adtech would be all "here's my money and a LOC."
And, the VC will be able to help you with some client introductions, so you can get more customers.
That said, my business co-founder couldn't sell water to a man in the desert, so we crashed and burned. Live and learn.
My experience is that timing is a huge element. VC groups have teams that specialize in certain areas (biotech, hospitality, crypto, whatever), but those specialties change over time as the business landscape changes.
If your pitch lands in the sweet spot of the kinds of things they are looking to fund right now (and you can back it up with experience/traction/team quality/whatever), you will have a relatively easy time raising money. If your idea is good but the timing isn't right for the VC market and they don't have people that understand your idea, you will have a very hard time raising money.
Likewise, different VCs are experts in different areas (even between big name firms). We met VCs who knew our market extremely well and had a very deep network in our specific niche. We also met VCs where we had to explain the basic premise of our market from zero. Do some research to find the VCs that work in the niche you work to have the best chance of not only raising money quickly, but getting access to a network of people who can actually be beneficial to your company.
Might be a very unpopular opinion here, but the overall attitude I'm seeing IRL these days is favoring bootstrapping. I asked why and was told essentially suits provide a very specific and targeted value with limited application outside of those areas. It's no longer an accelerator for an exit, it's someone buying the position of your employer and the choices are no longer yours to make. I can see that.
I raised a few $M with just 10 slides during the VC frenzy last year. I agree with the post but I view this from a social angle. The entire VC industry is driven by BullShit. VCs raise money from LPs (pensions, rich people) by claiming they have deal flow (they can get into the next big thing) and an “investing thesis” (some BS about the future, usually a bombastic spin on a current fad). VCs are finance bros that believe their own BS.
Your pitch should fit the current investing zeitgeist. If you pitch some oddball idea then you need to move your audience from 0 to 100% in 1 hr. If you pitch “AI generated metaverse for basketweaving” then the background hype has sold half your story. But also, VCs need other VCs to co-invest. They need to explain this investment to their LPs. It’s easier to pitch AI nonsense than something truly novel.
Every VC wants to see Matt’s pitch because he’s got a great resume. VCs don’t invest alone, so they will pass the deck around to their VC network. But it’s also sharing deal flow: I send you this, please send me the decks you’ve got.
VCs like to keep their options open. Even if they hate your idea, if A16Z invests then they’ll want to get back in. Or if you succeed then they’ll want to get into the next round. I had a VC offer a very low valuation. When I got 10X more elsewhere, they called back that they wanted in. The numbers are all BS: valuations, seed size, etc. Remember, their goal is to invest as cheaply as possible. Your goal is to sell as little of your company as possible.
Strangely, BS artists love other BS artists. Adam Neumann is a God-tier bullshit messiah with sociopathic self-confidence. It’s no wonder that he raised billions after the self-dealing disaster at WeWork. Matt is right: confidence is insanely important. Your company is a $1T opportunity that will change the course of humanity. (In fact, outrageous confidence is important everywhere. Humans are just really gullible fools.)
If you are in a flyover state, learn about venture tax credits and other startup investment incentives. You can often get investors a state tax credit that is up to 25% of the amount they invest. For angels, this is basically a 25% discount on their investment, and substantially reduces financial risk. Also, at least until you take in institutional money, being an LLC can unlock loss cary-forwards for your investors.
+1 this helps even if your angels are out of state. At least in Kansas, they can sell the tax credit to someone in-state for maybe 80% of its face value.
I disagree with your approach on deciding if YC is worth it. I feel like VCs are particularly biased against YC and are incentivized to tell you it's not worth it. I think what you should have done is also seek out as many YC alumni as you can and ask what their opinion was. I guarantee you all of them would've said it's worth it.
This article is not useful for a typical entrepreneur. Most work for many years with little chance of raising capital. This guy makes it sound like all you need is some experience and a good idea. And now he’s writing a “all I learned” article about his past 3 months. Give me a break.
(And no offence OP but I do feel it sounds out of touch)
I felt like I wasted time reading this. It was someone with a terrific network talking about how amazing he is (yet with limited substantiation how that translated to success), with shitty DALL-E artwork interspersed between paragraphs. Yawn. Been there, seen that.
That’s not to take anything away from Matt. He’s clearly an accomplished individual and his advice is still sound. But he hasn’t included the glaringly obvious reason why he got funded - he was a professor in CS at Harvard and has had a string of prestigious roles in industry.