- "Investors will try to lure you into fundraising when you're not. It's great for them if they can, because they can thereby get a shot at you before everyone else."
- "What investors would like to do, if they could, is wait. When a startup is only a few months old, every week that passes gives you significantly more information about them."
- "Though you can focus on different plans when talking to different types of investors, you should on the whole err on the side of underestimating the amount you hope to raise."
- "You will be in a much stronger position if your collection of plans includes one for raising zero dollars—i.e. if you can make it to profitability without raising any additional money."
- "If you have multiple founders, pick one to handle fundraising so the other(s) can keep working on the company."
- "It's a mistake to behave arrogantly to investors." (I also think it's a mistake for investors to behave arrogantly to founders)
That said, I wanted to comment on a few of the other points in this (awesome) essay:
"To founders, the behavior of investors is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you."
That's a strong statement. First, not all investors mislead -- many are honest people. Second, startups are also often guilty of misdirection, which doesn't mean you shouldn't call out shitty investors, but I do think you should call out both sides instead of making one side sound like the bad guy.
"Do you have to be introduced? In phase 2, yes."
I think this is true 95% of the time, but it's not 100% true. My partners and I get pitch decks emailed to us by random people. Most of the time the pitch decks are subpar, but I think that's because not being able to get a real intro is a sign that your team/idea/traction/something else is subpar. However, this is just a signal, and there is no rule - written or unwritten - that says "if we don't know the sender then the deck goes in the trash." If you email us something that falls within our thesis and looks promising, we'd love to talk to you.
"Never leave a meeting with an investor without asking what happens next. What more do they need in order to decide?"
This is great advice. Most founders we talk to already ask "what's next" at the end of a meeting, but not all of them do.
"And while most investors are influenced by how interested other investors are in you, there are some who have an explicit policy of only investing after other investors have. You can recognize this contemptible subspecies of investor because they often talk about "leads.""
I guess I'm one of the members of that contemptible subspecies. My partners and I are in the middle of raising a fund, but we were investing with our own money for the better part of this year. Our checks were too small to lead, but there were lots of startups that didn't have terms. If you're raising 1m on a 5m pre, then we don't need a lead to invest. If you're raising 1m-2m on a ??? pre, then we would prefer to wait to find out what ??? is. We're not super valuation sensitive, so 7m vs 8m is fine, but there's a big difference between a 6m pre and an 10m pre. What makes this more difficult is that founders will not reveal terms for obvious reasons. They can't say, "we're going to be raising at a 6m-9m pre" because that immediately shows that they would be willing to go to 6m. They may as well not mention 9m. So instead, they say something like, "we'll know terms once we get a lead." Okay, fine.. then we'll wait for the lead. =)
"Sometimes an investor will ask you to send them your deck and/or executive summary before they decide whether to meet with you. I wouldn't do that. It's a sign they're not really interested."
I'm surprised by this advice. As an investor, it saves everyone a ton of time when I can look at a deck before a meeting. I will sit down for 15-45 minutes before a meeting, go through deck, do some internet research, and think of questions I want to ask. This saves time because I can find out answers to the basic questions that I would ask in the deck, and then we can focus on more interesting questions and concerns during the meeting.