2 Sep 2009: Week 1 Thoughts

Paul Graham
Fundraising Survival Guide

* Fundraising is brutal. It's the most difficult thing after finding a good idea.
* Investors evaluate startups the way customers evaluate products, not like bosses do employees.
* Raising money from investors is harder than selling to customers, because so few investors
* Investors are very random. By ordinary standards, they're incompetent.
* Investment decisions are always big decisions (no matter how big or small monetarily).
* Investors make decisions based on other investors (not always on you).
* Don't let fundraising get you down. Startups live or die on morale.


* Bootstrapped companies that were actually funded by their founders through savings or a day job either (a) got really lucky, which is hard to do on demand, or (b) began life as consulting companies and gradually transformed themselves into product companies. (e.g. Like CDN consulting ProLiteracy or like Mitch consulting the Overtons, the Iversens, the Otts, Emily Bates etc.?)

* Importance to provide a service in the interim until the funding gets to where we are (somehow we need to kick it off the ground before a funder will join on board).

* I don't think we'll ever reach the point where most startups can do without outside funding. Technology tends to get dramatically cheaper, but living expenses don't.

1) Have low expectations. Avoid disappointment. Deals fall through (often at the last moment). When it comes to deals, you have to consiously turn them off and become pathologically cynical.

2) Keep working on your startup. Raising money mysteriously sucks up all your attention. More often than not, the company comes to a standstill while raising money. Meet with investors in your spare time, rather than doing development in the spare moments between meetings with investors. One of the main ways investors judge you is by your morale.

3) Be conservative. When things go bad, you want to play it safe. Approach fundraising as if it were always going badly. (Does this dovetail with the morale thing?) Things could always turn out much worse than they seem.

4) Be flexible. Don't answer "Who else are you talking to?" and "How much are you trying to raise?" The fact should be: "we're going to succeed no matter what. Raising more money just lets us do it faster."

5) Be independent. Be "ramen profitable" - making just enough to pay your [minimal] living expenses. You still need investment to make it big, but you don't need it this month. Investors like it when you're ramen profitable. It shows you've thought about making money, instead of just working on amusing technical problems; it shows you have the discipline to keep your expenses low; but above all, it means you don't need them. There is nothing investors like more than a startup that seems like it's going to succeed even without them. They like to help a startup but don't like knowing it would die without that help.

Best compliment: "Those guys can take care of themselves. They'll be fine" (vs. smart, good idea)
Qualities needed to win: toughness, adaptability, determination.