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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's a few thoughts on "reality distortion fields" that people think are a Founder'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
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're the best person to do it
1/ The Opportunity is HUGE
2/ The timing will reward growth ("secular tailwinds")
3/ And they'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
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
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't credibly draw a path, they won't invest).
Conviction is strange. If the founder doesn't have it, the VC cannot see it.
Conviction is strange. If the founder doesn'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's trajectory.
To win a BIG market, VC $$ aren't enough. You need "secular tailwinds" https://www.investopedia.com/terms/s/secularmarket.asp
The founder has to credibly show *PRESENT* trends boosting the startup's trajectory.
To win a BIG market, VC $$ aren't enough. You need "secular tailwinds" https://www.investopedia.com/terms/s/secularmarket.asp
So VC thinks *NOW* is the time.
So:
3/ Why are you the best person to do it:
The right founder balances *PAST* credibility, with ethical *AMBITION* to prove they're the right person to back.
Short diligence processes hurt this process. Don't LIE about the past
Build your cred.
So:
3/ Why are you the best person to do it:
The right founder balances *PAST* credibility, with ethical *AMBITION* to prove they're the right person to back.
Short diligence processes hurt this process. Don't LIE about the past
Build your cred.
The key to raising $$ 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's the future that *I* see"
Combine all these and its called a "reality distortion field" which is code for "Here'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'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'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.
