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Based on a few posts about VC, and my tweet about raising incrementally that got mixed reactions, and an Alex Danco post about if Founders lie, here& #39;s a few thoughts on "reality distortion fields" that people think are a Founder& #39;s excuse to lie.
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Lets get some of the seemingly obvious stuff out of the way (surprisingly sometimes not that obvious)
1/ Startups are ambitious.
2/ The right Startup is trying to solve a big, hairy problem.
3/ Successful Startups own a lot in a big market
4/ Hence Startups raise venture $$
1/ Startups are ambitious.
2/ The right Startup is trying to solve a big, hairy problem.
3/ Successful Startups own a lot in a big market
4/ Hence Startups raise venture $$
Early Stage Startups get funded for many reasons. Core to those reasons are:
1/ Timing is right.
2/ Unique Market / User Insight as a wedge
3/ Founder background = advantage
4/ Opportunity is Big.
1/ Timing is right.
2/ Unique Market / User Insight as a wedge
3/ Founder background = advantage
4/ Opportunity is Big.
The way Venture Capital operates is to put in a seemingly large amount of $$ (as it looks to a layman) into a seemingly risky company for seemingly worthless equity at a price that is based on nothing, it seems.
But that is not how Venture works. Its how it seems (which is why you get sanctimonious mis-informed posts like this one https://www.newyorker.com/magazine/2020/11/30/how-venture-capitalists-are-deforming-capitalism">https://www.newyorker.com/magazine/...
For a founder to raise money, they need to successfully convince a Venture Capitalist (who are often sharp, smart, well read & intelligent) of the following:
1/ The Opportunity is HUGE
2/ The timing will reward growth ("secular tailwinds")
3/ And they& #39;re the best person to do it
1/ The Opportunity is HUGE
2/ The timing will reward growth ("secular tailwinds")
3/ And they& #39;re the best person to do it
Lets break that down:
1/ The Opportunity is HUGE:
For reasons mentioned below, every deal a VC closes has to potentially "return the fund". So if the startup is not going to be worth $10B in 7-10 years, the VC is not going to write a check - https://twitter.com/Samirkaji/status/1331014982985773063?s=20">https://twitter.com/Samirkaji...
1/ The Opportunity is HUGE:
For reasons mentioned below, every deal a VC closes has to potentially "return the fund". So if the startup is not going to be worth $10B in 7-10 years, the VC is not going to write a check - https://twitter.com/Samirkaji/status/1331014982985773063?s=20">https://twitter.com/Samirkaji...
The founder *has* to paint a *FUTURE* vision of the opportunity and a practicable, believable roadmap to get to $10B (not all VCs = fantasists. If you can& #39;t credibly draw a path, they won& #39;t invest).
Conviction is strange. If the founder doesn& #39;t have it, the VC cannot see it.
Conviction is strange. If the founder doesn& #39;t have it, the VC cannot see it.
So the VC believes that the vision is AMAZING.
Next:
2/ The timing will reward growth:
Many founders lose the plot here. If you cannot objectively map out WHY today makes sense for your startup, the VC can wait. They have 3-4 years to deploy a fund + raise 2 more.
Next:
2/ The timing will reward growth:
Many founders lose the plot here. If you cannot objectively map out WHY today makes sense for your startup, the VC can wait. They have 3-4 years to deploy a fund + raise 2 more.
Timing is a function of trends, not just as a 1st order effect, but also as a 2nd order effect.
The founder has to credibly show *PRESENT* trends boosting the startup& #39;s trajectory.
To win a BIG market, VC $$ aren& #39;t enough. You need "secular tailwinds" https://www.investopedia.com/terms/s/secularmarket.asp">https://www.investopedia.com/terms/s/s...
The founder has to credibly show *PRESENT* trends boosting the startup& #39;s trajectory.
To win a BIG market, VC $$ aren& #39;t enough. You need "secular tailwinds" https://www.investopedia.com/terms/s/secularmarket.asp">https://www.investopedia.com/terms/s/s...
So VC thinks *NOW* is the time.
So:
3/ Why are you the best person to do it:
The right founder balances *PAST* credibility, with ethical *AMBITION* to prove they& #39;re the right person to back.
Short diligence processes hurt this process. Don& #39;t LIE about the past
Build your cred.
So:
3/ Why are you the best person to do it:
The right founder balances *PAST* credibility, with ethical *AMBITION* to prove they& #39;re the right person to back.
Short diligence processes hurt this process. Don& #39;t LIE about the past
Build your cred.
The key to raising $$ to build an ambitious, fast growing, scalable startup is a credible vision, incredible timing, and a strong case for founder-business fit.
Combine all these and its called a "reality distortion field" which is code for "Here& #39;s the future that *I* see"
Combine all these and its called a "reality distortion field" which is code for "Here& #39;s the future that *I* see"
The best founders codify this "reality distortion field" into bite-sized chunks, and feed it to:
- Potential hires
- Customers
- Partners
- Downstream Investors
Parts of this are:
- Culture
- Vision
- Product Roadmap
- Customer Experience
- Potential hires
- Customers
- Partners
- Downstream Investors
Parts of this are:
- Culture
- Vision
- Product Roadmap
- Customer Experience
Whats not part of this "reality distortion field"
- Unit Economics
- Features and UI / UX
- Business Model
- Operations and Finance.
- Customer Success
Those parts of the biz are where the founder needs to tactically, and credibly *OPERATE* the business, not sell dreams.
- Unit Economics
- Features and UI / UX
- Business Model
- Operations and Finance.
- Customer Success
Those parts of the biz are where the founder needs to tactically, and credibly *OPERATE* the business, not sell dreams.
Media, observers, bystanders confuse founder vision (especially when public & LOUD) with founder business execution.
(Some founders make this mistake too)
The Vision is FUTURE.
The Execution is PRESENT.
The Results is PAST.
Separate the Three. You& #39;ll stay out of Jail.
(Some founders make this mistake too)
The Vision is FUTURE.
The Execution is PRESENT.
The Results is PAST.
Separate the Three. You& #39;ll stay out of Jail.
so tl;dr:
Raise based on the future
Execute based on the present.
Establish TRUST based on the past.
/fin.
Raise based on the future
Execute based on the present.
Establish TRUST based on the past.
/fin.
