How to fundraise & bootstrap in 2014

Agenda• Investors

– 7 surprising things about investors

– How investors become investors

– What to look for in an investor

– Paul Graham about investors

– Investors think in boxes

• Fundraising

– How to play the fund raising game

– Traction trumps everything

– Traction

– Momentum

• Bootstrapping

– How to build a sustainable business

– Kamikaze Style

– Normal style

Investors

7 surprising things about investors

I always thought investors are really smart, they have all built their own startup before, they are visionaries, they’re curios, they have the deep desires to change the world. They are none of that

1. Investors don’t understand startups

2. 98% of investors have no idea about startups, they have never built a company

3. Investors are herd animals, they don’t know what’s going on and can only rely on what other people say

4. 60% of the decision if an investor invests, maybe even more, is determined by what others say about your startup, instead of what your company actually does. Example disaster Clinkle, where a 20 year old founder raised $25 million on an idea from billionaires.

5. It really helps you in your fund raising process if you think of investors as mindless drones

6. Be extremely wary of investors who have not built their own company before. It doesn’t count if they were CEO somewhere, they need to have FOUNDED the company.

7. Investors, especially VCs come across as really confident and as a first time founder, it might seem as if they know what they are talking about. Most of the time, they don’t.

There is now a second generation of exited entrepreneurs growing up that actually understand startups. Look out for them.

How investors become investors

• They never started their own company. Instead they1. Studied business at Harvard, then started as an intern as “Investment Analyst” at a VC

firm. Then 5 years later, they became partner

2. Worked at Facebook, Google, Twitter and were one of the few thousands of employees that became millionaires when they IPOd

3. Were CEOs at some bigger company

4. Are lawyers, dentists, investment bankers

• They have no idea how to start a business or how a small app could become a billion dollar company.

• They have no imagination, they are not inventors, because if they were, they would start their own company and make much more money than as a VC

Paul Graham - Investors

• A lot of founders mentioned how surprised they were by the cluelessness of investors:They don't even know about the stuff they've invested in. I met some investors that had invested in a hardware device and when I asked them to demo the device they had difficulty switching it on. Angels are a bit better than VCs, because they usually have startup experience themselves:VC investors don't know half the time what they are talking about and are years behind in their thinking. A few were great, but 95% of the investors we dealt with were unprofessional, didn't seem to be very good at business or have any kind of creative vision. Angels were generally much better to talk to. Why are founders surprised that VCs are clueless? I think it's because they seem so formidable.

The reason VCs seem formidable is that it's their profession to. You get to be a VC by convincing asset managers to trust you with hundreds of millions of dollars. How do you do that? You have to seem confident, and you have to seem like you understand technology.

• http://www.paulgraham.com/really.html

Investors think in boxes

• An investor of a prestigious startup accelerator once told me investors think in boxes. This is horrible.

• That’s why investors don’t find the next Twitter, Facebook, Snapchat, Google, AirBnb, Pinterest because they are all outside the box, they don’t fit the pattern

• So, if you don’t fit into the pattern, you will have a hard time convincing 98% of investors.

• For that reason, seek out the 2%. Look out for entrepreneurs that you admire and that you love to read about. Investors like that – Have almost always founded and built up their own company to huge scale

– Have a really good blog. You can feel their love about startups

– Examples are Naval Ravikant, Mark Suster

What to look for in an investor

1. They NEEDED to have founded their very own company

2. They NEEDED to have been completely broke when they built their company and have bootstrapped their company

If you find investors who have done these two things, then you know that they have EXTREMELY valuable advice for you. They have been in the startup grind and they share the same ideals as you.

How to play the fundraising game

How to play the fundraising game

• With this in mind, you need to know how to play the fundraising game

• Give investors their boxes to put you in. Compare yourself with other existing businesses to explain to them what you do, they won’t understand otherwise what you do

• Rely a lot on social proof, which is

– Other investors telling them that you are an awesome investment opportunity

– What other people have said, customer statements and press statements on your website

Traction trumps everything

• As you can see, the way your pitch deck looks, almost doesn’t matter. (Credit venturehacks)

• If you have a lot of traction, you can walk into a VC meeting with one slide and drool hanging down your face

Traction

• If you don’t have strong traction (> 5,000 users or > $5,000 revenue within the last 6 months), you can look at 6 months of fundraising in Europe, if you get money at all

• In San Francisco, you raise twice as fast and you get double the valuations

How to build a sustainable business/startup

• Solve a really, really painful problem

• The largest factor determining the success of a startup by far is how painful the problem is that the startup is solving

• Everything follows the painfulness of the problem Building the product

Finding a cofounder

Strength word-of-mouth

Getting press

Finding partners

Monetization

Finding investors

Exiting

The funding landscape in 2014

• 5 years ago you could raise money on an idea

• 3 years ago you could raise on a prototype

• Nowadays, there are so many startups, probably 20 times more than 5 years ago, that you need to raise on traction (5,000 users or $5,000 revenue within the last 6 months)

How to fund raise

1. Friends and Family. Fundraising depends HUGELY on how well a person knows you.

2. If you ask for money, you get advice. If you ask for advice, you get money twice – Pitbull. Take them on your journey. If you ask them for advice and they see how their own advice turns into your progress, they will have a hard time rejection you when you ask for money, because they would reject themselves. Investors usually have a lot of pride, they don’t like to reject themselves.

3. Be investable, have traction/revenue and a potential to become a billion dollar company with 50 employees = scalability

1. What’s app had 50 employees when they sold for $19B

2. Instagram had 13 employees when they sold for $1B

Momentum

• Fund raising is all about momentum

• Time kills deals

• Start with a small amount first (50,000€-200,000€)

• Once you have your first 30,000€ committed, you can find the rest of the money much much faster. You get A LOT more momentum and you can get the remaining amount in. Normally, you spend two months to find the first $50,000 and one month to get another $300,000

Bootstrapping

Bootstrapping

• There are two ways to start a startup

• First, the Kamikaze way, that’s what I did.

• I started 3 years ago with $3,000 in my pocket and refused to work for anyone else for the first two years. One of my biggest mantras was that a real entrepreneur NEVER works for someone else. I was a bit lucky and had over 1000000 downloads on my apps, which allowed me to survive for the first two years by myself.

• This can be very exciting and it will make you very, very capable. I wanted to do this, because I had the expectation to myself that I wanted to build the BEST startup that the world has ever seen

Bootstrapping Kamikaze Style

• Throwing yourself 100% into your own company, will make you create a great company, full of innovation, however, it will come with a lot of sacrifice. You won’t have

– Friends

– A Girlfriend/Boyfriend

– Time for sports

– Time with family

• However, it can be worth it. Who cares about not having much time for friends, a girlfriend etc. for 3 years if you can take all your time for these things for 40 years, because you don’t need to waste SO MUCH time in a full-time job anymore

• There is probably nothing in our world right now that can give you more personal development, push your mental and physical limits, teach you more than doing a startup

• Forget PhDs, having done a startup, your wisdom and capabilities will exceed even university professors by far. Do it Kamikaze style and you can up that even another five notches.

Bootstrapping Kamikaze Style

• However, Kamikaze style can also break a person

• These things protect you from breaking. If one of these things do not apply to you, you need to be careful

1. Having had a great childhood

2. Having great parents

3. Having good friends

4. Not being prone to depression. Some people are chemically simply more prone to depression than others. Look into your family history, is there much depression? Do you often just feel down for now reason? If not, great go Kamikaze. If so, reconsider if you want to go Kamikaze.

5. Being a genuinely happy person

6. Doing a lot of exercise whenever possible. It keeps you grounded and prevents you from going crazy

• So, if you have these 6 things in place, you can do Kamikaze style and you can become one of the most capable founders in existence

• The Kamikaze way of bootstrapping is not possible to do for more than a year or two. Afterwards, you will notice how much friends, sports and these things matter. You will also surely never forget how important they are in the remaining 50 years of your life, because you will learn how MUCH they matter.

Bootstrapping – normal style

• There is a second way of bootstrapping. I have resorted to this way of bootstrapping after the first two years, because it’s just not sustainable. Still, Kamikaze style was nice while it lasted. I would have never wanted to have not done it.

• Do contract work and always have $10,000 available

• Why? To be ready to spend $10,000 on Ads or a developer to build that one feature, just when you have found product market fit and need to show investors lots of growth=momentum

• However, think hard when you will spend these $10,000. You also don’t need to spend it all at once.

• The difference of having $10,000 or can decide if you need to give 20% equity to a coder or to an investor or not, because you can simply pay people $1,000 to develop that feature or pay for growth when you need it

Bootstrapping success Github

• They grew and grew until they raised their first round of $100M

• This is how you should do it. However, this is not always possibly of course. You need to have a really good product for that.

How to fundraise & bootstrap in 2014 – Summary

1. Start building relationships and ask those people for advice from day 1. In other words, 5% of your time, always do fundraising to get feedback, polish your pitch deck a bit, get feedback (sometimes it’s valuable), ask for advice ;)

2. Build a sustainable business

3. When the time has come, reach out to all of the relationships you have build and raise your round within 2 weeks. For this it’s crucial to build up momentum

• Exception: If you know someone really, really well, those are most often from your friends and family, you can raise a small round ($50,000-$250,000) before having built a sustainable business

How to fundraise as a Founder Institute Graduate

• As a graduate, you now have quite some credibility for a month or two now. If you have a prototype, you have quite some momentum now, enough to raise a smaller round.

• Get in touch with 15 key mentors from the Founder Institute relevant to your space as many of them are Angel investors. Also apply to accelerators like Techstars, Ycombinator

• Try to raise 100,000€ from them and from who they know

Founder Institute Ycombinator/Angel round VC

• Don’t forget to build a sustainable business, investors like to see progress

Little final wisdoms

• The best way to fund raise is not having to fundraise

• Having an actual business is the best way to fundraise

How to fundraise & bootstrap in 2014

Marius Kraemer

Mentor Founder Institute

Co-founder http://tennisbuddyapp.com

Get in touch marius@tennisbuddyapp.com