What are the biggest mistakes founders make when they try to raise early-stage money? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
There are many nuanced "do's" and "don'ts" to the topic of fundraising. To help founders get better and smarter at this, I put together a deck that I hope you will find useful. You can find it here:
To summarize, the biggest mistakes I see are when founders stumble on four basic questions:
- What does your company do?
- How big is the market?
- How much traction do you have?
- How will you make money?
You might be surprised by how many people struggle with these. But if a founder is awesome, I will be excited about the answers to all 4 of these in less than 15 minutes.
Here are some examples to illustrate the difference between good answers and mistakes:
What does your company do?
The answer should be super simple and straightforward. Assume your audience knows literally nothing. For example, let's take Airbnb. GOOD would be "We are Airbnb and we let you rent out the extra room in your house." BAD would be "We are Airbnb and we are a marketplace for extra space."
How big is your market?
Again, the mistakes come from a lack of clarity and straight talk. GOOD would be "We are Chegg and we rent textbooks. 20 million students a year spend $30 Billion on textbooks. If people rented books for a third of the price of buying them, we only need about 10% penetration to generate $1 Billion a year in revenue." BAD would be something like "Recruiting is a $500 Billion market and it's broken."
How much traction do you have?
If you are raising a seed or A round, ideally you want to be at 30% monthly growth in an area that matters (revenues, users, etc.) If you don't have traction, you need to (a) get realistic about the size of your raise; and (b) show that you and your team are AWESOME, totally committed, and moving SUPER FAST, working full-time and not hedging until you raise money. It is a mistake to try to hide your lack of traction or talk around it in a roundabout way. A smart investor will pierce through this and the conversation will lose energy and clarity.
How will you make money?
NEVER run away from this question. Just say it and move on. If you do ads, say it; if it's virtual goods in games, say it. Direct B2B sales? Say it. If your hypothesis is that you will have a network effect with massive reach to 100M users, which will monetize like crazy at critical mass, say it. The mistake is to just say a whole bunch of stuff ... which says you have no idea ... which means you said less than nothing.
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