[iseff]

Speed is one of the most underemphasized traits of a great VC for founders. While fundraising, a quick yes is the best answer, but a quick no is the second best. Investors who follow this are truly founder friendly: it's easy to stall and wait for more data, but it's actually helping the entrepreneur to just say no. Those are the investors I want to pitch again later.

It's no surprise founders rank speed highly while investors don't. Find investors who care about speed and you'll find a great partner.

[jasode]

>It's no surprise founders rank speed highly while investors don't.

There may be some nuance missing in the slide.[1]

Based on the article's text, that right column should actually be subtitled "what VCs think the founders rank as most important" instead of "important to VCs".

The left side is self-reporting (founder's ranking). But the right side is a "Theory of Mind"[2] exercise (what VCs think founder's ranking would be).

I'm not a VC but it seems to me that that "network/rolodex" should be higher rank than "speed". I wonder if founders rank speed above "rolodex" because many startups' bank accounts are near zero and they can't make payroll next week if the VCs drag their feet. Financial duress scenarios like that during fundraising may make founders overemphasize "speed of a deal" to the detriment of other more important factors.

[1] https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ

[2] https://en.wikipedia.org/wiki/Theory_of_mind

[wpietri]

At least anecdotally, I don't hear much from founders who are that close to zero. In my experience, speed is important because slowness drastically increased cognitive load and somewhat increases risk during fundraising. And also because fundraising is a distraction from why they got into it.

One way to think about it is in terms of a graph of number of VCs they have to think about/deal with at once. They're going to start the fundraising process with a list of firms, people, etc. Let's say that each week they take on n new items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many of the conversations in different states. Complexity goes up and/or throughput goes down. It's painful.

I suspect for entrepreneurs speed it also code for clarity, in that the "vc no" (and specifically the "California no" [1]) often present as slowness when it's really about something else inside the VC.

[1] http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html

[thrav]

I think it’s as simple as, VCs want to believe Founders care about the things they’re investing in heavily.

The same way we would all like to think hiring is about qualifications and skills, but really it’s almost always more heavily about relationships.

[logicallee]

>Speed is one of the most underemphasized traits of a great VC for founders.

Definitely. Well that, and writing checks.

If you're printing money, live in the United States, and have an IQ of 120 (a bit over 1 std deviation above mean) from a high-tech startup, it should take less than an hour to raise $100,000 seed round on standard terms. Okay, call it a week, even a few weeks or months.

Instead, for 90% of founders who match that description, 1 year of full-time work trying to raise the mentioned seed round would not be sufficient to do so (about 2,000 hours of work). In fact "impossible" may be a good description of the possibility for them to do so.

Without reference to sources, take a guess: how many first financings for startups will have happened in 2018? Let's work through this together, I'll give you some data, you can use it to work on your guess, then I'll reveal the answer.

A good place to start your thinking is that if we take a single academic cohort, say, people graduating college this year, there will be about 2.03 million bachelor's degrees conferred[1]. If we then look at every single year (you can try to raise money any year from when you're 18 to 80), and if we add people who dropped out without an undergraduate degree -- this is true for Bill Gates and Steve Jobs for example -- we might expect, say, around 200,000 seed-stage financings nationally at the very, very lowest-end. On the high end, I'd be pretty shocked if there were 2 million, since that would be 1 out of every 162 people living in the United States receiving seed funding this year (or 0.6%) and not that many people are starting companies every year. As mentioned, that's the number of undergraduates graduating annually. Some more data for you: the number of businesses in the United States less than a year old is around 650,000[2].

Okay, ready? Here is the actual number of startup first financings that will have occurred in 2018: 1,750 [3]

That is less than half of the number of undergraduates who are just right now enrolled at just MIT. [4] Would you fund one of them who just started printing money? How about someone who graduated from there (or dropped out) 4, 5, 6, 7, 8, 9, or 10 years ago? Or from Stanford? Or Harvard? Or UC Berkeley? Or indeed anywhere else where they learned to program and start printing money.

If you're a VC the answer is "No, you wouldn't".

Do these numbers make sense to you?

At the moment I can't raise < $150K with paper millionaire cofounders. I can't get a term sheet even at an 80% discount (discount I offered on a safe note). (Okay a VC offered me <$20K for effectively 51% on non-standard terms.).

But I shouldn't be doing that - trying to raise money, I mean. I should be selling cereal: because Airbnb, a technical company that was renting apartments over the Internet, found it easier to sell cereal profitably on national television than to get first financing.[5]

---

[1] https://www.quora.com/How-many-students-graduate-college-in-...

[2] https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.ht...

[3] https://imgur.com/a/HZIIY0h (I just counted pixels, the precision is shown by comparing 2007). Reuploaded from: https://www.economist.com/business/2018/06/02/american-tech-...

[4] http://web.mit.edu/facts/faqs.html

[5] http://www.businessinsider.com/how-a-box-of-cereal-and-being...

[tptacek]

Most people who raise seed rounds aren't "printing money", and quite a few people who are "printing money" are printing the wrong kind of money to raise venture funding on.

[logicallee]

>and quite a few people who are "printing money" are printing the wrong kind of money to raise venture funding on.

Only if you agree with the premise that "Venture Capitalists Get Paid Well to Lose Money".[1]

(I don't agree with that conclusion, I just think they're not writing enough checks for their own purposes.)

In that case the right kind of company in 2018 is an AI social media machine learning cloud platform startup, and there's a whole lot fewer than 1000 of those total worldwide due to the simple fact -- and I think you can see the end of this sentence coming -- that I just spouted gibberish.

More seriously, when Airbnb was founded ten years ago it wasn't the right company either, and the only pivot it made is from being a "rent out your apartment to tourists over the Internet" company 9 years ago to a "rent out your apartment to tourists over the Internet" company with 4 million lodging listings in 65,000 cities and 191 countries which has facilitated over 260 million bookings and as of a year ago, closed a $1 billion round at a $31 billion after becoming profitable in 2016.[2] The founders did this by selling cereal.

[1] https://hbr.org/2014/08/venture-capitalists-get-paid-well-to...

[2] https://www.reuters.com/article/us-airbnb-funding-idUSKBN16G...

[3] https://imgur.com/a/X6Ncr5E (Source: https://web.archive.org/web/20090601000000*/www.airbnb.com )

[tptacek]

No, sorry, you're right that venture capital as an asset class underperforms most other investments, but that doesn't mean that every company that is "printing money" should receive investment. The mathematics of venture investing only work for a subset of businesses.

My company has a Y2 ARR(!) and revenue target that I think would make a lot of YC companies pretty happy, but we are not a sensible investment for venture capitalists.

[logicallee]

Actually you're an extremely sensible investment. :)

If you could close it in an hour how much money would you raise on standard terms and at what valuation? (You can list both as a multiple of any metric you pick - any metric, including unjustified projections if you want - if you don't want to name figures here.) Obviously given what I just shared I'm not a VC.

[tptacek]

No, we're a nonsensical investment: there is no story we can tell about how our equity becomes liquid in 10 years, and our growth, while very pleasant for us principals, is unlikely to lead us to a place where our eventual liquidity would pay for the failures of the other 9 companies in a portfolio that included us.

It's not a moral debate. The portfolio math has to work, and things have to work on a timescale that works for fund LPs. At the end of the day, venture capitalists are simply an adapter cable that plugs small chunks of LP endowments and funds into baskets of companies with an N% chance of exiting >7x within Y years. If your company can't do that, the adapter cable doesn't fit your company.

[dshuang]

I recently saw your other post about raising funding for a hardware startup. Have you tried another attempt at crowdfunding (if your first one failed to reach the target)? csallen's indiehackers group may have more suggestions.