6 Brutal Truths About Fundraising

Q: What’s the Brutal Truth About Fundraising for Startups?

The brutal truths are:

1. Everyone wants to fund the same thing. The earlier stage you are, the more different folks will come to different conclusions based on very limited data. E.g., just the team. Or just a few customers. But almost everyone is still looking for the same thing. Unicorns. They just may roll the dice differently in the early days based on whatever tiny signs of pre-success you may have.

2. Pattern matching is rampant. If you are really going to “meet” with 100+ founders a year, that’s really too much to process. There are good types of pattern matching, and bad types. Bad types create huge hurdles to founders that do not look, act and talk like privileged founders.

3. You are just a product. And so are VCs themselves. You may just 1 shot at it, but investors need to make 20–40 per fund. So each start-up they invest in is a bet, and really, a product. And their own investors (the LPs) literally view VC firms as different financial products to potential pick from.

4. Most successful start-ups are new versions of existing categories and existing products. Yes, you can create a category. But since most software companies are improvements on large markets, it’s hard to get anyone’s attention if you are doing something truly novel.

5. Folks invest in who they know, if they can. It’s just less risky. Investing in start-ups is a bit scary. The money could disappear. You often only have a tiny bit of time to get to know someone you’ll be economically “married” to for a decade. It’s just easier to invest in people you know and already trust. And that creates barriers to folks that don’t know anyone with money to invest.

6. You have to go much, much further without privilege and credentials. Get into YC if you can. Get the best warm intro you can. Get 1 angel to invest in you with a brand, if you can. Almost everyone is looking for signals. Signals you might be the next Zoom or Uber or Slack. Without any signals, it is much much harder. This is not fair. It is a reality today.

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