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Promo. Code BTL. All right, let's jump into the first.
We'll the first and only question, come on James. Get it
together. Making mistakes in this intro left and right.
Here we go.
Hey James Brandon from La, I've been listening to your show for over a year. Thank you for going deep deep into each guest, more than any other show on startups, actually love it. So, I have a question for you. I'm about to start fundraising for my startup and
You smell in your experience. What are the biggest mistakes? That founders.
Nope, another mistake there.
Hey, for one reason, process that I should try to avoid. I'd love to hear your thoughts. And thank you so much for the shows we've been really every episode, offers me a new insights that have changed my life, so thank you. All right,
Brandon from La. Thank you. Thank you, man.
Appreciate that, the kind words at the end there. So what are the top
lessons around fundraising? Or the mistakes to
avoid when fundraising it? That is a
Very good question because it is
such a strange such a
strange.
Exercise to go through when you're building a company
and you are an expert on
X Y or Z domain. You are, let's say you're a chef rate, you know, when you and you focused on
making amazing
food and you have this Exquisite, you know, intricate palette to be able to
choose the most amazing combination. And then you have to like put a deck together and
raise two million dollars for your restaurant. Such a
strange
exercise that is
Many
ways orthogonal to to your
business and hopefully these these
top mistakes that I give you
are.
Are actually relevant to whether you are raising for a seed round or a series be for your startup or you are a restaurateur and you're opening up your first restaurant or you are at
that Chef
that wants to move from just being a chef to to fundraising three own restaurant. I actually think these mistakes that I made all along the way are
helpful and
And I mean who the hell am I to talk about mistakes? I don't know if I
am the world's
best at it. I have raised about a hundred million for my own things over the last 14 years of
startups and there have been the
first thing that I treasure tried to raise capital for took a year, didn't raise any money, couldn't raise any money outside of 25k, from my parents
that just out of
Pure sympathy, they wrote a
check my next thing. Took nine months
before I raise 500
K and then nine
days, a few months later, nine days to raise two
million and and then after that about two weeks to raise 20 million, or sorry, 12 million for our series, a from Andreessen
Horowitz, and then they did our series
B and raised
Capital after that four things in just long story
short. I do not mean that
as as a brag
just to give some context for people that are coming across this podcast player, YouTube and wondering, who the hell is this guy?
So I think it is a great question because I made so
many mistakes early on because I just had no idea what I was doing. And I thought
that the things that were compelling to me would be
compelling to an investor. The truth is
One of the biggest mistakes you can make is not really understanding where an investor is
coming from. I'll talk about that in a sec. But
the first, the biggest mistake that I think Founders make, is that right off the bat.
One of the most critical things to get wrong is when you think that it is all about the pitch and the meeting with the investor, that is 10% of the
equation. That is 10% of the equation that coffee that you've secured with this angel investor and Austin that you that, you know, is is right, you know, right.
This your business opportunity is right up their alley and you you getting
excited for it. Drinking Red Bull before. You should be drinking a magic mind before. But
Let's see your previous first mistake, was drinking Red Bull before and you think? Oh, right.
This is a big moment. The truth is that's 10% of the equation. 90% of the equation, happens way before
that coffee with an investor, 90% of it happens way before the pitch.
An example would be, if you can grow a minimum viable product, a minimum viable version of your of your startup. If you or your restaurant, you can start serving it on, you know, farmers markets and come up with a minimum
viable version and you can show traction
and growth of what you're selling and revenue or growth in users. That is for instance, I had no growth and I pitch for nine months got nowhere.
Then five months later. It was growing 30 percent month-over-month, for five months and nine days, raised two million dollars. That's how big of a difference. Those five months of focusing on growing the business versus nine months of thinking. Well, I need
a gatekeeper to give me permission to build my business. So, I need to get
some angel investor to validate what I'm doing and write me a check before I can go out and do it. And then I that went, I
just spun my wheels with
It and it had no idea that investors really want to. They don't
want to invest in Risky. Business has,
that is the biggest
misconception about startup fundraising startup investing that there is sort of
investors I've invested in maybe 80 startups, I don't want to invest in a risky startup.
Yes, there is a risk adjustment that you make when investing in startups versus, you know, investing in apple or Amazon.
public in the public markets, but
for the most part, I'm looking to eliminate risk. In one
of the biggest ways that investor can eliminate risk is seeing traction of the business
and not understanding that night and then there's the additional
parts that come in. That are part of that. 90%
is, what kind of intro did you get to that? Investor, was it a sage veteran entrepreneur. That's giving the intro and saying, hey, I'm investing in this company
or have been advising this company or one of the strongest intros I've gotten in the last
week or two.
Someone just saying a Founder that isn't an investor saying in their
intro. I've watched I've watched this founder
she's I've watched her over 15
months I've been so impressed by her over
the last 15 months of what she's said she's going to do then she goes out and does it. You really should take the meeting. I'm really really Blown Away by what they've
accomplished that single sentence.
Cascading is so much
more
importance of the rest of that email, the deck that thread and my mind because there was this warm intro, a 15 months of exposure to this founder. In this, the person making the
introduction seeing that, that is all of the work way before, even the
intro to another investor versus much less. The actual coffee with the other investor with this.
You're so 90% of it, traction how the introductions are made to the investor, you understanding things like how to
position your business in a world. Where,
you know, okay, these are going to be the top three questions investors are going to ask because of your, you know, other nine failed coffee meetings, that is going to go into how you position it, how you answer those things right up, top in the first three, five, seven
minutes and all of
that work happens way.
Before this this big pitch that you think is is
going to be the majority of the equation
and ends up not being the majority at all. So 90% comes Way by 90% of the work of getting a yes from an investor is way before the first interaction with said investor
next is thinking that it's about vision.
Early stage investing vision is
important but to underscore something from the last point and one of the biggest mistakes, Brandon you could, potentially make is thinking that it's all about Vision.
Vision is actually, maybe it's the
Capstone to the pitch, meaning Capstone coming from the the metaphor of how stones are stacked together and you have one stone at the very end that holds all of the stones around a gate, or
Archway together. So it is, it is
absolutely invaluable. It
is, it is so critical having great vision, but it is only Capstone. And all of the other store on Stones building up to that Vision, or your background is Founders, or the most important, and in my opinion, is your background is, as founder and your co-founders. What has the team done before? This also goes into that, 90% of the equation is before that, first interaction is, what is your background?
And what have you shown a pattern of of overachieving in previous Endeavors or taking risk and seeing some rewards and these previous Endeavors?
But the around this hyper-focus that so many Founders, take around
the vision, having this big Vision. Well, if you
have a Capstone in, none of the other Stones like founder. But team background,
like the product that you could order
already demo the brand that you're
building the brand Universe, not just the low.
Go. But what is the brand universe that you're building for? People? Nike is so much more than just a logo or pithy. Phrase it is a whole universe that that they're building. The same thing
goes for a business, like Airbnb, whole brand
universe, that goes into it
and then traction of the business.
I'd say I would take traction
all day long over vision and again, great traction,
even on Tiny numbers could be thirty percent month-over-month for five months straight and I had tiny numbers and we're able to grow. We are able to close a large seed, round tiny numbers, but 30 users then going into 36, then going into 44, whatever. That the mathematical growth is
of customers for five months, that is so much more valuable than
We're going to build the corporate version of
Clubhouse, you know, for the New York Times to have their own editorial Clubhouse, rooms or whatever. I don't know what the pitch would be. But that is so that is the Capstone. But it is so far from the full equation and so many Founders, just start with the
start and end with a vision.
Third, the third mistake that Founders make an often, first time founders,
Is that they don't arm the investor with a pitch that that
investor can then make to others. So many investors whether it is with their spouses significant other when they are deliberate of whether to invest in a business or it is with other
other like-minded investors
or specially Adventure a VC firm Venture Capital firm.
They need to be armed with a pitch. Maybe they're leaning in their
excited, but they need to be armed with a pitch for them to take it back to two of the partners that they really like,
Bouncing ideas off of
this is a this is a mistake and essentially a lesson that no one talks about. But you essentially need to arm the investor with the pitch that they are going to make two others
to make a final call, no matter how Sage your veteran the investor. Is they every one of us once the validation of smart, people around us to say this is a smart idea. I actually bounce things off. My wife is not in Tech at all all the time.
To see what she thinks. And if I can't articulate the
pitch very easily, and this gets down to essentially this this lesson that it's not just about pitching to the investor, but also
having a 30-second
articulation of what you're building for them to pitch to others. Some people like to deride the x4y pitches where it's where we're building the Airbnb for, you know, for why we're building the Uber for why we're building the. I already mentioned a clubhouse for
For, you know, this other segments, the reason that is so valuable, especially when you can you can actually pair it up with. You could pair it up with founder background and early
traction so valuable. Because then that investor is 99 times out of a
hundred, going to make the pitch or bounce the idea off of someone else. For my last business, I basically said we're going to build a social network for money.
And that was so simple for and then we actually attraction and growth, but the social network for money and I don't know what your articulation is Brandon, but you've got to work like a like a
samurai, making a
sword or no samurais. They probably didn't make their swords, but
if they did make their own
sword there, lay the thing that thing over and over and over again hammering away leaving it, laying it over and over again. And,
and refining the hell out of that.
To have the most solid version of a sword. You could possibly
have that work of just in it, lay them me, just laying the
metal over and over again and hammering it out to get rid of all pockets of are all making it so airtight and that's ultimately what is the job for the founders is to make the pitch. So airtight that there are no cracks that come out of it, but in that exercise highly recommend you also coming up with this very
Very seemingly pithy
phrase, 30 seconds because
ultimately, you need arm that investor with the pitch to pitch others because
that's how it comes, two days later. They say, all right, I'm
in and
I have someone else that's in or that wants to meet, or it's just me and my wife, I pitch it over dinner. I see what she says, and if I can't articulate, it,
simply then it usually doesn't go very well. Next and fifth on the list is not understanding things from them.
Investor seat.
I would highly recommend you approach this
this exercise as much as you
can from the investor side of things. What are they thinking about?
Try to have a coffee with an investor where you're just trying to understand not even pitching a business saying, can you walk me through what you wake
up, every morning
thinking about and try it. What you're trying to solve for
and the reason this is important is because
many
first-time, Founders might think I need to pitch a business. That is my airtight pitch is going to be that
it is
there's no way it's going to fail because this is how we can at the very least. Let's say you're you're a chef and you're like, I'm going to start this food truck and it's going to be low risk. And you eliminate risk, not through structural
or team or product or traction
facets of the equation of making investment. But you eliminate
I actually thinking really small
and not having this Grand Vision, but thinking like, hey, you should invest in. I had a
friend pitchman, AstroTurf company, making AstroTurf for for backyards
and they didn't really
understand that what I'm trying to solve for each day. My portfolio is made up of companies
that are
the highest of risk super early stage and he was trying to say that I was going to get a 3X return on my money.
Me over three
years and actually what in that might be a great business but it was it was
strange for him to hear that. I need a business that isn't going to be a sure thing 3x I because of the way that my portfolio is built
in terms of
two years or a year where I might make 15 Investments. Every single one of those is so high
risk. That the only way to counter that high
risk is for the other 14 to be high risk, High reward to I need every investment to have a 50 x.
Potential. Which means that something could be
3 x could be great but that's for a different type of investor and people that invest in early stage companies they all have different profiles of what they're looking for. So try to understand what they're trying to solve for what I'm trying to solve Force. I'm looking for Network effects based businesses and won't go into too much detail. What a network effect is
but a network effect based business, that
has a chance at
ax potential return. And I have to look for those because I made all these other potential 50x, which also means very high likelihood of not working out. I have to counter that risk by taking on more risk, but
1 out of 15, if that ends up getting 60 x, that's
for Exxon on all of my capital.
And the only way that I can get there is not by making a few
potential 50x, return Investments. And then a few 3x, return
Investments, that isn't enough.
Exposure to one of those companies making that 60x
return. That then again on those other
14 that could all go to 0 and it still 4X my Capital. So the fifth mistake is not truly understanding what the investor on the other side is trying to solve for. I remember those first nine months, I just thought okay they don't want any
risk and I'm going to eliminate from the
business model and the truth is no they actually many investors, many startup investors, they're
okay with risk.
On the business side of things,
what they? And they are
definitely trying to D
risk, it minimize as much as possible,
but they want maximal
upside potential.
And once I learned that, and then I oriented the
pitch towards maximal, upside upside potential social network around money, trillion-dollar potential opportunity. Those are things that I would say and then backed it up with this, my background. I built a financial technology company before this. Here's my
Are there super strong, his super, super strong background, this is our traction to date. Once I started to assemble those things together, then it was the right type of risk and the right type of pitch for for what investors were solving for.
All right, next up. Number six, not managing the conversation when you are
in that pitch or when you
are in the first email to that investor
as someone really smart told me either. You're with
board. Members said, either, you manage the board or the
Board manages you,
that's true for board members board of directors, your company. It's also true for the pitch meeting with
anyone that you're interacting with for a potential
investment,
either you manage the conversation
and you're on the offensive, not an aggressive way but on the offensive
with having the deck in your laptop but saying hey I have a deck that actually would love to
just tell you a little bit about my background and what we're
building right off the bat start to manage the conversation.
That is not only so,
Strong. But that's to be able to cater to what you want to get across in the meeting and I'll touch on what you want to get across in that meeting and in your deck here in a sec. But it is also sets the tone for the relationship with the
investor. And at the end of the day, investors want to invest and people that they would want to work for that within seven minutes, their grip, they're hooked. They actually
like I want to follow you wherever you want to. Go take me there. So Brandon manage the conversation, man.
Judge the interactions and start off with. I always love it. When founders say I have a deck but I and actually have a deck because I don't know two or three times. You might want to pull up a visual because a picture is worth a thousand words. But then say, but I actually just before I get to deck, would love to tell you a little bit about my background and what we're building
and boom right off the bat
within the first 30 seconds like oh sweet. Okay, I'm subliminally already captivated by this founder and I'm following them. So right,
Off the bat, one of the biggest mistakes that I see Founders make is going to going into the conversation
thinking that maybe it's going to be this
contentious Shark Tank like type of dynamic. And and I'm going to wait to see how they strike first, or, or
just honestly lose the attention of the investor and the first 30
seconds to minutes as the investor thinks through how they want to kick off the conversation and it starts way over in this territory. When right off the bat,
You wish you had brought it to you know the territory over here you get to control that Dynamic so don't miss that opportunity to manage the conversation.
Okay second-to-last is what goes into a deck and honestly what goes into the verbal
articulation of why there is a compelling investment opportunity here and the first three minutes of your conversation literally first three minutes but certainly in the deck as well and it's answering these three key questions why us so why why you as a founder?
Why this
why is this
really compelling and interesting and then why now,
why is this the right time? The exact perfect time for you to build whatever you're building versus five years ago. Eight years ago or five years from now. Why us? Why this and why. Now
and again you want that to be in the deck.
Implicitly don't have to explicitly, call it out of those three questions, but you want that to be implicitly be in
there with your
background, your traction to date your approach. Why? This your approach? Why it's working so well? And why everything else is is failing to solve this problem. And then third y. Now
what is unique about right now? Uber would be mobile Airbnb. It would be the fact that
people are going online first and they're looking for a place to stay.
And travel versus
20 years ago using travel agents or only wanting to go through some reputable hotel Hotel chain. There are so many of these examples where
you have this, this inflection point in technology
covid being a perfect example. And let's say telemedicine or remote work, whatever it is you want to hit that why now. And you want to be able to articulate that in the first three minutes, Paul Graham in one of his recent essays, the founder of Y combinator maybe the best investor of all time.
I'm
so that he can judge a good investment in seven minutes and they make investment interview 10 minutes because seven just sounded
too arbitrary. But how can you articulate that without a deck because you can't use a deck with Y, combinator's interview structure. How can you articulate? Why Us why this, why now, and seven minutes or ideally in the first three specially if you're managing the conversation from the get-go.
Okay. Last and certainly not least perhaps the most important lesson and
fundraising
Biggest mistake that I have made
and I see Founders make all the time
is focusing too much on the
results instead of the process.
You think you are focusing on raising two million dollars for your seed? Round, the truth is what you should be
focusing on, is 30 different investors and conversations with all of them having a when Excel spreadsheet that has,
that has the list of the
30-year, going to go after where you are with them lessons learned from each conversation, it is so much more about the process than it is about the results,
the best sales person in the world.
A great, great sales rate close rate would be 30%, realistically, you know, it's more like 20%. If you have a great salesperson and you got a great list and you have an
actual, yo, an efficient price on what
you're selling. Maybe you're only closing
10% or 15% of the time. You could be a millionaire sales person working at Google Cisco. Anyone of
Of the great sales force, any one of the great sales organizations and you are top of the food chain, if you're selling, if you're closing 10%, 15% of the time.
So that means, when you are fundraising
especially first-time fundraiser, you should, you should expect maybe
5%, close, 10% closed. That means that out of a list of 33 are going to say, yes. And that means two very important. Things one means you need to build out a list of 30 to get
Get three yeses.
And they're also means that you should expect. 27
knows even if you are, you know, really season
fundraiser. That still means that maybe your closing 20% 30% of the time, let's hear even close in 30 percent of time.
That means that for every yes you're going to nose.
And in that list of 30, you're getting 20 plus
people saying, no, I don't think it's a fit for me because of X Y, or Z. It's not best of luck to you, but I really doubt this business because
of whatever reason, that's a lot of
notes and for a first-time founder for Brennan. If this is your first time fundraising, then that means that you might get 25 nose. So, one build
a list for 30, if not
40 or 50, if you want to get, if you need to get more than three yeses.
That's not that big of a deal. By the way, you're going to look at a daunting list of 50 that will go by and two
months. You'll have gone through it systematically, maybe three months, but that's a short period of time. Much better than winging it too because you will, you're going to get to that list of fifty one way or the other, you might as well do it efficiently.
The other thing is you're just going to deal with a lot of rejection and when you
know that sales that sales quotient of 15% is world-class, you know, you're kicking ass of first.
I'm founder. If you're closing 15% of time, then that means that you can take the other. Nose can really roll off, roll off your back. So
hopefully these are the lessons that I learned the hard way that you can learn
the easy way with me. Answering your question, Brandon. And hopefully you can avoid what I think are the top mistakes. First time Founders, really any founder that's fundraising makes
over and over and over again. And hopefully, this has been valuable for you, so that has been another episode.
Code of below the hotline, feel free to hit us up. If you got any questions of your own until next time, everybody.
