Fundraising isn't predictable(aaronkharris.com)
aaronkharris.com
Fundraising isn't predictable
http://www.aaronkharris.com/fundraising-isnt-predictable
6 comments
Speaking only for myself, I was enamored by VCs when I first moved to the Bay Area. I definitely put them up on a pedestal, and selectively listened to people who did the same. After spending about 12 months trying to raise money for my "business guy w/ no traction & no product" startup idea, I learned that VCs are highly visible & accessible because they need to generate leads for themselves. But I didn't understand for quite a while that I was bringing them a lead they would never fund. That was a hard lesson to learn.
10% weekly revenue growth would be great. That means a company doing $1M in revenue at t=0 will be doing $1.6T in revenue in 3 years.
I'm always dubious of these sorts of metrics.
I'm always dubious of these sorts of metrics.
While it's not something you could sustain indefinitely, it's doable over shorter time frames. For instance, I've seen a number of companies do it during YC and for some time after that.
Absolutely, Aaron. Didn't mean to challenge the value of your article. And it's certainly possible over short time periods. But I'm a big fan of growing at ~20% per year, if you can demonstrate that this could continue over a very long time period. (I bet Yo grew at 500% a week for a while.)
10% weekly growth on $1M / ARR sounds way too far fetched. I doubt you can sustain that rate for any reasonable amount of time on that base.
It means 10% weekly for 1 year, ~52 weeks, would give you $207M / ARR. Even in current climate, you can have successful IPO at $100M / ARR. Even the best companies of our time didn't grow that fast.
It means 10% weekly for 1 year, ~52 weeks, would give you $207M / ARR. Even in current climate, you can have successful IPO at $100M / ARR. Even the best companies of our time didn't grow that fast.
Great post!
I think if a founder speaks to a small handful of VCs and/or other knowledgable startup people: they can get a good sense of how easy or difficult fundraising will be...and that will be more useful than any one guideline that can be provided. Series A lead VCs need to see a potential path to $100 million in revenue going to $300 million to be a home run...and a combination of the team/product/market/traction combo gives an investor the necessary conviction and excitement to propose an investment.
The limitation with growth + revenue guidelines for fundraising is that it will never be enough information as there are so many factors that go into an investment decision. And there has been a proliferation of startups that reach $1 million in revenue growing ~15% a month and still the vast majority won't get to the scale that makes a series A VC happy.
As a side note, I'd love to see any company with "Engagement rates that are higher than Facebook" that can't fundraise. :) I think there may be some off the charts positive indicators: team with incredible track record, off the charts engagement + retention in a large market, amazing unit economics + high growth that the ability to fundraise is all but inevitable.
I think if a founder speaks to a small handful of VCs and/or other knowledgable startup people: they can get a good sense of how easy or difficult fundraising will be...and that will be more useful than any one guideline that can be provided. Series A lead VCs need to see a potential path to $100 million in revenue going to $300 million to be a home run...and a combination of the team/product/market/traction combo gives an investor the necessary conviction and excitement to propose an investment.
The limitation with growth + revenue guidelines for fundraising is that it will never be enough information as there are so many factors that go into an investment decision. And there has been a proliferation of startups that reach $1 million in revenue growing ~15% a month and still the vast majority won't get to the scale that makes a series A VC happy.
As a side note, I'd love to see any company with "Engagement rates that are higher than Facebook" that can't fundraise. :) I think there may be some off the charts positive indicators: team with incredible track record, off the charts engagement + retention in a large market, amazing unit economics + high growth that the ability to fundraise is all but inevitable.
I don't mean this as an attack on the author, it's clear he is smart and trying to be helpful, thoughtful and kind in writing this advice.
But I see this type of sweet/safe/simple advice post so often on many sites. The tone reads like how one would talk to a child while trying to be careful not to hurt their feelings or confuse them.
I realize many founders are young with limited experience, maybe even still in school. And there's no reason to be rude about things. But who is the audience for these types of advice posts with this level of handholding?...
Are there would-be founders out there pretty much ready to be in charge of millions of dollars of other people's money, ready to hire strangers, ready to figure out finding/keeping customers, ready to stave off ruthless competitors, but don't yet know that many things in life and in business can be complex and are not predictable and they need this explained??
Also I am quite sure one can explain life and business are complex and not predictable - and so obviously a single metric like $1mm ARR doesn't guarantee funding or anything - without having to borrow (the much more confusing topic) of parametric insurance as part of the explanation...
For a VC screening, if a founder needs such simple, obvious advice and handholding, doesn't that speak to bigger issues?
Again, really really appreciate when VCs share their knowledge and experience, just sometimes when I see the advice they do give I wonder who/how many founders are they meeting who lack such basic knowledge and common sense and need things explained like this.
But I see this type of sweet/safe/simple advice post so often on many sites. The tone reads like how one would talk to a child while trying to be careful not to hurt their feelings or confuse them.
I realize many founders are young with limited experience, maybe even still in school. And there's no reason to be rude about things. But who is the audience for these types of advice posts with this level of handholding?...
Are there would-be founders out there pretty much ready to be in charge of millions of dollars of other people's money, ready to hire strangers, ready to figure out finding/keeping customers, ready to stave off ruthless competitors, but don't yet know that many things in life and in business can be complex and are not predictable and they need this explained??
Also I am quite sure one can explain life and business are complex and not predictable - and so obviously a single metric like $1mm ARR doesn't guarantee funding or anything - without having to borrow (the much more confusing topic) of parametric insurance as part of the explanation...
For a VC screening, if a founder needs such simple, obvious advice and handholding, doesn't that speak to bigger issues?
Again, really really appreciate when VCs share their knowledge and experience, just sometimes when I see the advice they do give I wonder who/how many founders are they meeting who lack such basic knowledge and common sense and need things explained like this.
In a word: yes.
Creating a product, starting a company, and finding users/customers doesn't actually prepare you for raising money. That's a whole other set of skills, and it's one in which founders are at an inherent disadvantage to investors. This isn't a good/bad thing, it's just a function of investors being experts at fundraising conversations, and founders being inexperienced.
Which is all to say that it wouldn't be fair be so hard on people for not knowing certain things. It isn't a reflection on overall quality and intelligence.
Creating a product, starting a company, and finding users/customers doesn't actually prepare you for raising money. That's a whole other set of skills, and it's one in which founders are at an inherent disadvantage to investors. This isn't a good/bad thing, it's just a function of investors being experts at fundraising conversations, and founders being inexperienced.
Which is all to say that it wouldn't be fair be so hard on people for not knowing certain things. It isn't a reflection on overall quality and intelligence.
[deleted]
Side note, reply to myself, whatever this is called.
I see the author was at bwater prior to YC. Bridgewater and Y Combinator appear to have very different approaches to how they train young, ambitious people doing something new, and maybe also in how they teach ppl to be able to later on teach themselves.
A startup is very different from a hedge fund, but new founders and new HF employees tend to have a lot in common and there are a lot of similarities in what's asked of them. e.g. rethinking how they understand and solve problems
If the author reads this I would love to read and learn more about what you've seen as pros and cons of the different approaches to training you have had experience with. Or at least the pros ;)
Thanks again for all your insights.
I see the author was at bwater prior to YC. Bridgewater and Y Combinator appear to have very different approaches to how they train young, ambitious people doing something new, and maybe also in how they teach ppl to be able to later on teach themselves.
A startup is very different from a hedge fund, but new founders and new HF employees tend to have a lot in common and there are a lot of similarities in what's asked of them. e.g. rethinking how they understand and solve problems
If the author reads this I would love to read and learn more about what you've seen as pros and cons of the different approaches to training you have had experience with. Or at least the pros ;)
Thanks again for all your insights.
>$1mm ARR
>Repeat founders who were previously funded
Interesting. I applied to YC with https://icanpriceit.com/, not much traction yet. I was hoping I'd get an interview at least, based in part on my existing experience of building an ecommerce/Amazon business to 100k in sales (plus my answer to the "hack" question was pretty good).
I didn't get invited. I know that https://www.ycombinator.com/whynot/ says I pretty much can't get a direct answer why, but my own takeaways were that one of the following must be true. Either:
1. Solo founder+no traction was just too low to meet their bar.
2. I messed up some other part of the application, which is very possible.
or 3. 100k in sales isn't that impressive, relative to the kinds of impressive things other founders did; and the fact that it's not the startup I applied under dilutes the achievement.
Now in the month and a half since I applied, sales (on my amazon business) have jumped and I'm looking at close to a $1 million ARR (~$4500 sales today, ~$22500 sales 7 days, ~$78000 sales 30 days, majority of which are from nonseasonal, replenished products, so can reasonably extrapolate yearly i.e. no Q4 boost). Maybe in 5 months that will be impressive enough to get an invite, at least, assuming I still want YC. Without funding I likely won't be doing too much work on the startup and will mostly focus on my existing business and college.
(I actually talked to Aaron briefly after a talk in NYC, he said I shouldn't worry too much about being a solo founder.)
>Repeat founders who were previously funded
Interesting. I applied to YC with https://icanpriceit.com/, not much traction yet. I was hoping I'd get an interview at least, based in part on my existing experience of building an ecommerce/Amazon business to 100k in sales (plus my answer to the "hack" question was pretty good).
I didn't get invited. I know that https://www.ycombinator.com/whynot/ says I pretty much can't get a direct answer why, but my own takeaways were that one of the following must be true. Either:
1. Solo founder+no traction was just too low to meet their bar.
2. I messed up some other part of the application, which is very possible.
or 3. 100k in sales isn't that impressive, relative to the kinds of impressive things other founders did; and the fact that it's not the startup I applied under dilutes the achievement.
Now in the month and a half since I applied, sales (on my amazon business) have jumped and I'm looking at close to a $1 million ARR (~$4500 sales today, ~$22500 sales 7 days, ~$78000 sales 30 days, majority of which are from nonseasonal, replenished products, so can reasonably extrapolate yearly i.e. no Q4 boost). Maybe in 5 months that will be impressive enough to get an invite, at least, assuming I still want YC. Without funding I likely won't be doing too much work on the startup and will mostly focus on my existing business and college.
(I actually talked to Aaron briefly after a talk in NYC, he said I shouldn't worry too much about being a solo founder.)
what size raise is this article about?
Based on what's mentioned in the article ($1m ARR, 15% MoM, post demo day) I'm guessing it's talking about the first institutional money – which could be either Seed or A; between $1m-$10m depending on market/geography
While the examples I use come from early rounds, the message applies to just about any round.
However, at the same time, the cargo culting creates inefficiencies and a lot of group pressure which forces companies to conform to the metrics du jour to raise funds. From a vantage point outside of the industry, these metrics feel almost memetic in nature. It seems that a lot of these hoops exist because other people have used these set of hoops before, therefore they must be valid in some shape or form. It's a recursive sort of logic whereby the rationale behind an investment metric is reinforced by the social signals around it. Plus, I'm sure that it doesn't help that most VCs don't actually have a quant styled background and most VCs don't model their investments in any shape or form. (while the modeling may not be accurate - it is still a useful tool for thinking through investments)
Of course all of this is actually an opportunity for the enterprising VC. A smart VC firm could theoretically create a better, more quantitative process and pick up unconventional companies for cheaper and get better returns as a result.
edit: Just in case it wasn't clear, I'm not accusing the OP of cargo culting - it's rather the opposite. It's more of a meta-observation / addendum to his observations.