Aaron Harris provides seed fundraising advice for companies in the context of Y Combinator or other accelerators. The seed fundraising process involves prioritizing product development and customer acquisition before seeking investment. When emailing investors, it is important to research and tailor the email to the investor's interests, include information about progress made, and make a clear and concrete ask. Understanding leverage, managing the fundraising process effectively, and parallelizing the fundraising process are also important aspects. Meeting with investors involves listening more than talking, allowing investors to get excited about the company, and focusing on how the company will rewrite the future. Overcapitalization in the seed market can lead to poor decision-making and a lack of urgency. Communicating a credible and continuous plan to investors is crucial. When evaluating investors, founders should prioritize getting the necessary funding without losing control and consider the incentives and transparency of potential investors. Fundraising for a Series A company involves building relationships with investors and strategically sharing limited metrics. Meeting Series A investors requires leveraging angel investors, demonstrating progress, and not being limited by location. After a demo day, founders should find the right balance in life and not compare themselves to others.
Intro
- Aaron Harris provides seed fundraising advice for companies in the context of Y Combinator or other accelerators.
Seed fundraising process
The seed fundraising process involves prioritizing product development and customer acquisition before seeking investment. Founders should focus on building a good product and gaining customers for about three months before approaching investors. Cold emailing investors can be effective, but building a customer base should be the priority. A demo day can serve as a forcing function for founders to focus on fundraising.
Emailing investors
Emailing investors requires a short and informative email. It is important to do research on the investor and tailor the email to their interests. The email should include information about the progress made, such as traction with customers or technical achievements. It is not necessary to fully communicate a unique insight, but rather to show the investor something interesting that they may not know.
- Research and tailor the email to the investor's interests
- Include information about progress made, such as customer traction or technical achievements
- Show the investor something interesting they may not know
When emailing investors, make a clear and concrete ask. Provide a brief overview of the project and ask what else they would like to know or if they would be interested in meeting to discuss an investment. Be direct and avoid being coy or casual. Avoid attaching a big deck upfront unless asked for, but a well-crafted deck can effectively tell your story and convince investors.
- Make a clear and concrete ask
- Provide a brief overview of the project and ask what else they would like to know
- Be direct and avoid being coy or casual
- Avoid attaching a big deck upfront unless asked for, but consider pitching it in person first
Emailing investors requires understanding the leverage you have as a founder when fundraising. Respect the investor's process and be aware of where you stand in terms of leverage. Manage the fundraising process effectively and don't underestimate or overestimate your leverage. The video briefly touches on the ideal process for fundraising.
- Understand the leverage you have as a founder when fundraising
- Respect the investor's process and be aware of your leverage
- Manage the fundraising process effectively
- Don't underestimate or overestimate your leverage
Parallelized fundraising process
The most profound aspect of the topic is the importance of parallelizing the fundraising process.
Key points:
- Many founders make the mistake of talking to investors one at a time, which can be detrimental to their chances of securing funding.
- Scheduling multiple meetings within a tight time frame prevents investors from sharing negative information and increases the chances of generating buzz and attracting more investors.
- Storytelling plays a crucial role in conveying the company's story and attracting investors during investor meetings.
- Parallelized fundraising differs from customer interviews as it involves more listening and is completely different in nature.
Meeting with investors
- The most profound aspect of meeting with investors is to listen more than talk.
- Investors should be allowed to get excited about your company and talk themselves into a deal.
- The story you tell to investors should focus on how your company will rewrite the future and be an integral part of it.
- Customers care more about how you solve their problem.
- Avoid jumping immediately to a grand vision, instead start small and gradually build up the conversation.
Overcapitalization
Overcapitalization in the seed market is becoming a problem, with companies raising excessive amounts of money. However, being overcapitalized can lead to poor decision-making and a lack of urgency. Time is the most valuable resource for startups, not money. Some startups use their excess funds for unnecessary expenses like fancy offices and swag, which is just signaling. While socking away money and not hiring too many people may seem like a good idea, it can create challenges when seeking future financing. Investors expect more from companies that have raised more money, making it harder to meet their expectations.
- Overcapitalization in the seed market is a growing issue, with companies raising excessive amounts of money.
- Being overcapitalized can lead to poor decision-making and a lack of urgency.
- Time is the most valuable resource for startups, not money.
- Some startups use their excess funds for unnecessary expenses like fancy offices and swag, which is just signaling.
- Socking away money and not hiring too many people may seem like a good idea, but it can create challenges when seeking future financing.
- Investors expect more from companies that have raised more money, making it harder to meet their expectations.
- Overcapitalization refers to the situation where investors expect significant progress and growth in a company in exchange for the money they invest.
- Investors want the money to be spent to accelerate growth, not sit idle in the company's bank account.
- This creates a cycle where investors provide more money to own a larger portion of the company, allowing for faster growth.
Communicating your plan to investors
- Have a credible and continuous story outlining milestones over the next 18-24 months
- Present a big and ambitious vision that is believable
- Avoid discontinuity or gaps in the plan
- Show progress and use past achievements to demonstrate feasibility
Evaluating investors
When evaluating investors, founders should prioritize getting the necessary funding without losing control. Key points to consider include:
- Focus on the money needed to succeed, rather than valuations or investor reputation.
- Carefully consider the incentives of potential investors and whether they align with the founder's goals.
- Be cautious of investors who are not transparent about their funding sources, as this is unethical.
- Some investors may have hidden agendas or may not be upfront about their true identity or the source of their funds.
- Be suspicious of individuals representing themselves as single investors but actually being part of larger VC firms.
- Question why an investor is being dishonest about their identity and funding.
The discussion also touches on the process of evaluating investors for Series A funding.
Fundraising process for a Series A company
Fundraising for a Series A company involves building relationships with investors and strategically sharing limited metrics. The process takes 6-24 months and aims to secure around 20% of the company. It is important to create a situation where investors see potential without giving away too much information. Filtering through companies efficiently is crucial for investors.
Meeting Series A investors
- Strategies for reaching out to Series A investors include leveraging angel investors for introductions and conducting research on potential investors.
- Angel investors can provide valuable introductions to Series A investors.
- Researching potential investors helps tailor the pitch and approach.
- Persistent follow-up emails can be effective in getting the attention of investors.
- Regularly following up shows determination and commitment.
- Personalizing follow-up emails can increase the chances of a response.
- Demonstrating progress is crucial when meeting with Series A investors.
- Investors want to see growth and traction in the business.
- Highlighting milestones and achievements can build confidence in the startup.
- Location is not a barrier for good investors.
- Good investors are open to opportunities regardless of location.
- Founders should focus on finding the right investors rather than being limited by geography.
- Founders may experience psychological challenges after a demo day.
- The pressure to impress investors can lead to self-doubt and anxiety.
- It's important for founders to stay focused and resilient during this time.
Post-Demo Day psychology
The most profound aspect of the topic of Post-Demo Day psychology is the importance of finding the right balance in life and not comparing oneself to others.
Key points:
- Achieving great success requires sacrifice in other areas of life
- Different people have different priorities and must choose what to focus on
- Talking to others who have gone through similar experiences can provide valuable insights
- If a startup has taken venture capital and pitched a big vision, it becomes necessary to find a way to make it work and avoid disappointing others
- Being realistic about what one can achieve and not wanting everything is important
- Having a healthy family life and friends is what builds long-term happiness
- The impact and change made in the world is what successful entrepreneurs are most proud of
- Startups have the potential to fundamentally change the world