Questions all Early-Stage Founders Want to Ask a VC with Cleo Capital Managing Director Sarah Kunst

And so start putting questions in there and then I'll read them out and answer them. And I won't read your name or you can drop them in anonymously. So think of this as a great time to ask every question that you don't wanna ask directly to an investor you're talking to, but you really, really, really wanna know an answer to. And so I'll tell you a little bit about myself. I'm Sarah Kunst, I'm the managing director of Clio Capital. And we are a pre-seed venture fund I'm based in San Francisco, although geography really doesn't matter right now. But I'm based in San Francisco, I invest all over the country. And a little bit about kind of my fund, I kind of look primarily at two sectors. I'm a generalist, but most of my investing ends up being in either complicated consumer. So think of things that are really hard to do as an individual. So fintech, legal tech, student loan debt, HSAs, FSAs, 401(k)s, legal stuff, divorce, estate planning, everything I kind of say that you let pile up on your kitchen counter because you just don't want to deal with it. And those are the things I like to invest in. And then the other piece of it is future of income, which is really just the insight that the majority of income in America is not W-2 anymore. Most Americans, people make 60% of their income in this country with everything from cow capital gains in crypto to being an Uber driver, Instacart worker. And the tools for those things have really not caught up. And so I invest in tools for those things. And, you know, I started my own venture fund prior to that. I'll give you a little bit of background and I think we'll go to the next slide. But the— yep. So this is kind of my bio. And so I've done a lot of things, but before I was in venture capital, I spent a long time on the operating side at startups primarily, although I started my career totally outside of startups at Chanel in marketing. And I tended to be kind of the first hire at startups. It would be me and a couple engineers, and I was the person who had to figure out how to actually make the product that they were building get users and make money. And so that is kind of my background, and then Then I worked at a big venture capital fund, started a company, and did all the things on the slide, and then started my fund. I think we can go to the next slide. Cool. And then, yeah, so 3 things we must know— you must know about VC. And then I see there's already a few questions in the Q&A. So after we kind of go through these things, we will jump into the AMA and we'll spend the rest of the time doing something VCs don't do enough, which is I will be listening to your questions. So 3 things you should know about VC. One, this is a probably more accessible time than ever if you're a really early-stage founder. And most of the comments today will be focused on kind of pre-seed and seed, friends and family, like really early-stage founders. So if you do have questions about kind of later stage, definitely drop them into the Q&A and flag that. If you're a really early-stage founder, this is probably one of the best times ever to raise money because access to investors is really, really democratized and flattened, meaning that, for example, instead of me being in San Jose at the convention center doing this talk live to anyone who could get to San Jose to the convention center, even though Saastr is incredibly inclusive about making sure that lots of people are in the room, there's still a geographic barrier. You could literally be watching this from anywhere in the world, right? And so, you know, there's so many crazy things about this year that have just been so tough for everyone. But one thing to remember as a founder is now people don't really have the advantage of, you know, oh, I live in San Francisco, I can run into VCs at this coffee shop or this dinner or this birthday party. Everybody's sort of in the same Zoom boat. And we're all kind of approaching this together. And so as much as it can feel like COVID has made things harder for really early-stage founders in a lot of ways in fundraising, I think it's actually made it a little bit more of a level playing field. The other thing to keep in mind is that while there is a lot of angel investment happening and there is a lot of interest in kind of COVID-related things, you shouldn't necessarily be building a company just for COVID if it's venture-backed, because the reality is that COVID's not going to last forever. Pandemics in general take about 2, maybe 3 years, depending on how well or poorly they are controlled, to kind of move their way through. And so if you're a pre-seed company, right, Facebook is, I think, like, what, 14 years old, right? So the idea that you're building a company for the next 10, 20 years at least is generally kind of what investors are expecting. And so if you're building building a company for the next kind of 20 months, that's probably not going to be something that's going to do a good job of raising venture capital. Certainly different if you say, hey, we're launching during COVID and that's going to drive early usage. And then it's groceries, it's telehealth, it's whatever. We're going to keep expanding from there. It's certainly different. And then the last thing that I'll say, and then we'll jump into the AMAs— looks like there's more questions, so keep them coming. Is, you know, I think that investors are still writing checks right now, but there's an understanding that the stock market being at an all-time high, while for the first time I think since World War II we're on track this year in America to have our national debt outstrip the— I believe it's the income of the country for this year— isn't necessarily going to hold. And so if you're thinking about raising you might, in the next kind of 6 to 12 months, you might want to think about kicking off that fundraise now in September versus waiting until January or February. Because I think in general, I'm not particularly alarmist. I'm generally alarmist. I'm always alarmist. But I don't think I'm particularly alarmist in this situation to say that you know, if you wait too long and the stock market takes a dive and we do end up kind of more in an economic recession for kind of the capital markets, like the way that we are in terms of our right now crazy levels of unemployment and everything else, it's probably going to be pretty hard for a while to get money. And so, you know, if you're thinking about raising in January, I would— really ask yourself, is there a way I can kick it off in September, October? And with that, we're going to start doing questions. I saw somebody raise their hand. We're not going to do the hand raise just because I'm too Zoom illiterate. So we'll just do the questions. And so just drop it into the Q&A, anything that you have. So the first question is, do you guys find companies outside of the US? So most funds are willing to fund companies pretty broadly in terms of where they're headquartered or where they have employees, with the caveat being that a lot of venture capital funds, mine included, need you to have a US-based entity. And so you see this a lot, actually. You'll see this kind of a lot where companies will have a US-based entity, but then maybe most of their tech is in Canada for the R&D credits, or maybe, you know, in India, like this question asker, or wherever, because either that's where they're from or there's, you know, a reason they might work in that locale versus in the US. But in general, if you are— it's my understanding there's a decent amount of venture capital in the ecosystem, local venture capital in places like India. But if you are targeting raising US VC, you generally want to find companies who are— funds who are already doing that. And angels can invest much more broadly. They don't necessarily want to because they're just one person. Instead of a fund, but they have far generally fewer restrictions on their capital, whereas I signed a contract, a 100-page contract with my investors, and one of the things in that contract is that I only invest in the US. The next question, what equity stake does Clio shoot for in a typical deal? I'll answer most of these a little bit more broadly than just my fund. I'll touch on my fund, but I also want it to be helpful. I am, as everyone is, just n of 1, and I want it to be more helpful broadly. So, you know, we don't necessarily have a huge ownership target. It depends a lot on the founders and the deal. And, you know, we are a pretty new fund still. We just started 2 years ago. And so usually in the first couple of years of your investing, you'll find that investors and VCs are a little bit more flexible because we're sort of playing catch-up in that, you know, a deal that I really wanted to do maybe, you know, 2 years ago, right before we launched, I couldn't do. And now they're raising again and they're a little bit bigger than I prefer, but I really feel strongly about the company and founder, right? Whereas a year or two from now, that won't be the case because at that point, if I didn't see it early, if they didn't want my money earlier, if I didn't want to invest earlier, it probably just isn't a fit. So we don't have a super hard target. Most investors— not necessarily most, but I would say in general, if you're a small— if you're a pre-seed company, most investors are looking to buy between 10% and 20% of your company. And that's roughly true throughout all your raises. It's different in categories like life sciences where there's a lot more risk. And so usually they're buying more like 30% to 40% of your company. But for most investors, you know, you should assume that they're going to want at least 10%. And then the nice thing about that when you're really early is it makes it super simple to price your company. Right. So if you want to raise, you know, $1 million and you know that you're going to have to sell 10% to 20% of your company, you know that your valuation cap or your valuation if you're doing a priced round, right, is going to be between $5 and $10 million because that's just the math. And so I would say in general, if you're talking to an investor and they want to write you, you know, call it a quarter-million-dollar check and above at the really early stage, and they want to buy about, you know, somewhere between 10% and 20% of the company, right, at a quarter million, you'd probably be buying 10% at most if you're very early, like first money in. Then that's probably an okay deal or a good deal. So that would be my thought. The main caveat to that, I would say, is accelerators. Most accelerators are going to invest $100,000 into your company for about 6% of the company, or, you know, $50,000 for 3% or whatever. But that tends to be because they're bringing you hopefully a lot of other value-added services and investors. But other than that, most investors are aiming to own at least 10% of the company. And so you want to kind of price it accordingly. Okay. Finding VCs want solutions with no professional services, but AI needs training. However, I think I'm going to try this question. Okay. So how are VCs dealing with kind of training AI, right? So if you want a scalable business, not a services business, it means generally speaking, you don't want a bunch of— You can have a lot of people who work for you, but you want them to be doing scalable work, not, not so scalable work. AI definitely takes non-scalable work at first in terms of teaching the algorithm. But that's a pretty well-solved problem, right? So some services use like just— some services build an algorithm and then hire people to kind of spot-check it. Some people use kind of Mechanical Turk. Some people use services like Samasource. And over time, the AI gets smarter, right? So kind of think of it like teachers, right? Or people to watch kids, right? If you have an infant that you drop off at daycare, you probably need 1 adult for every 2 kids legally, right? Meanwhile, when you're in college, you might go into a lecture hall and there's 1,000 students in the lecture with 1 teacher, right? So as the kid matures, you scale from, you know, a 1 to 2 ratio to a 1 to 1,000. And with AI, it's generally the same thing. So it's fine to have those costs upfront in AI because as it scales, those costs should go away. Da da da. What are the most important things— what are the 3 most important things that matter to you when considering people for investment? So what are the 3 most important things that matter to me when I'm thinking about investing in a company? I would say that You know, I'll caveat with this is my opinion, not everybody's opinion. But for me, I think these are generally applicable though. So for me, the number one thing is the team, right? And for me, that's not did you go to a fancy school, did you work somewhere fancy, it's are you a good person, right? Are you— I've heard like the— I remember once I was looking at a company and I Googled the founder and he'd been like arrested for, like, embezzling money. And so I was like, I'm not going to give this person money, right? That's crazy. And, you know, he hadn't disclosed it. There was no kind of explanation. It was just sort of he hoped people wouldn't find it. So things like that don't work for me. You know, I— and there's a decent amount, although I wouldn't say a ton, but there's certainly a non-zero amount of that, founders who just really have integrity issues, I would say. I know another founder who was recently out raising money and she stole from one of my founders. And she had stolen property from them when she was working for them. So like, I can't take that meeting. I'm not going to invest in that person. So the team matters a lot, particularly integrity. Then I would say, are they building something in a really big market? And do they have a unique either insight or way to win that's going to help them kind of beat out the competition, right? Because if you are a good, smart person building something in a big market, say you're building an Etsy competitor, right? So you're a good, smart person, you know, it's a big market, but why you, right? Why is your take actually going to succeed when it's pretty easy to start a marketplace and most of them fail? so those I would say are the 3 kind of biggest things for me. Okay. What are some of the best practices for a female founder raising capital for the first time? Everybody asks me this all the time. Like, what should Black people do or what should women do when they're raising money? And the answer is, like, it's exactly the same, right? With the caveat being that we live in a totally messed up world that is full often of really ugly kind of bias and obstacles. You know, the analogy I always use, which is super US-centric, sorry, is, you know, Jackie Robinson is— was the first Black man who was allowed to play professional baseball in America, right, in our sort of major baseball league. So he faced a ton of racism, fans boycotted, people spit on him, all of that. And that's like horrific, right? But at the same time, the actual rules of baseball were the same for him, right? You go up, you hit, like you get a home run, first base, second base, third base. Like the fact that he had these additional barriers to entry didn't mean that once he was in, there was a ton that was different. And so, you know, I have— people ask me this question all the time, and sometimes people don't like that that's my answer, but I truly like don't know what the other answer would be, right? Like, oh, you're a woman. Okay, well, you should only fundraise on Tuesdays. Like, of course not, right? So I don't think that there's a lot of difference. I do think that women and people of color are in our industry often judged, particularly underrepresented minorities, are often judged differently and harder, right? And so what that generally means is that, you know, you're going to probably need to have a better grasp of your numbers. There's probably a smaller margin for error, right? You probably, you know, if you need to cancel a meeting last minute or, you know, your Wi-Fi is not working, you're probably going to get marked down a little bit more for that. You're probably going to get pushed harder on how you're gonna get users, how you're gonna make money. You might need a little bit more traction. And that's like deeply unfair. And I wish I could just change that for everybody and, you know, go vote, wear a mask. Like we can do things to change that. But the reality is it's not gonna change overnight. However, the flip side is all the things that I'm saying aren't actually necessarily bad things, right? Like, okay, so you have to like really know what you're doing and you have to be like really, really strong in terms of understanding you know, your, your market, your numbers, your competition, your hiring plan, your revenue, your growth strategy, like doing all those things is good. And the flip side is if you're somebody who just sort of stumbles into raising some money accidentally, and you haven't thought about any of those things, in general, every problem, every money tends to— raising a bunch of money without knowing what you're going to do with it tends to be a a really easy way for startups to die. And it seems counterintuitive because you think, well, once I have the money, I'll figure it out. But the reality is that if you don't already kind of know what you want to do with the money, when you get the money, you're probably going to be in a position where you are not going to be able to spend it well. So the fact that you're pushed harder to be prepared is both unfair, but I would argue that instead of making it— if the world was my perfect world, right, which it should be, my goal wouldn't be to make it so that women and people of color have to be less prepared to raise money. It would be that everyone is more prepared. The next question is sort of similar. So despite the accessibility of— da, da, da. OK. Despite the accessibility of VCs due to the pandemic and social justice initiatives, it seems like it's now even more difficult for founders of color to raise. Can you speak to your opinion of that a bit? My opinion would be I don't agree. I think kind of all the things I just said, there are a bunch of barriers, but I certainly don't think that there is— that it is harder for founders of color to raise. You know, when you're in like 4th grade in American history class, they make you like do these reports. And they're like, if you could pick any time to live in, in history, what time would you pick? And I'm like, I'm a Black woman, so I literally can only pick today because like every day before it was like like worse, right? In terms of my industry and representation and funding and all those things. And that's not to say that today is great. I mean, today, like specifically today is perfectly fine. But it's not to say that today is great. It's to say that yesterday was worse and the day before was worse, right? So I haven't seen any hard numbers. I spend a lot of time talking to reporters, founders, other investors, researchers, and I haven't really seen anything that makes me think that it's specifically worse. And I think that it's maybe not getting better as quickly as it could, particularly in light of the kind of flattening of access and the focus on social justice. But I certainly, you know, don't think I would agree that it's getting worse. How has COVID impacted your view of ageism in VC? So I'm not sure if this question is about VCs like the age of VCs or the age of founders. I'll say that the age of VCs is generally not particularly young and then just gets older. In general, VC is a barbell industry where you have kind of like 25 to like, you know, maybe like I would say like 24 to like 28-year-old kind of analyst associates. And then a lot of times they're bounced back to business school and then don't come back into venture, And then on the other end, you have general partners who, you know, I'm 34 and I'm a general partner and I'm like really young to be a general partner. Most people become general partners, I would say, when they're closer to like 40, and then they probably stay in that job. The idea is if you become a general partner, you're supposed to be at your fund for like the life of the fund, which is 10 years, which means if the average general partner is closer to 40, and they're going to do 2 or 3 funds. For most VCs, VCs kind of— for most general partners, VC is sort of the last job you'll have. And then you're probably— the goal is that you're good at it, and then you can afford to retire maybe in your 60s or 70s. Although I know plenty of 70- and 80-year-old VCs who are still out there investing. On the founder side, a lot of data shows that the age of the most successful founders, the age that most correlates with being a successful founder, I think, is like 44 or something. And so, you know, I wouldn't say— I think that there's a little bit of like media obsession with like the cult of like super young founders. But, you know, I don't know how accurate that is, right? Like if you go on TechCrunch right now or open up the PitchBook newsletter, Axios Pro Rata, which are all industry newsletters, and look at funding or like who they're featuring, I would guess the vast majority of the people being featured are like in their 30s and 40s. On the flip side, are people a little bit more hesitant to fund somebody in like their 60s or 70s? I think that depends, right? I think if you're in your 60s and 70s and you're building something that you have a ton of like existing knowledge around. You know, I know somebody who started a fintech company and he used to be, you know, the president of a big credit card company. So is he getting a lot of pushback because he's in his 70s? Like, no. If you're in your 70s and switching to tech for the first time, is there probably— is it harder? Yeah. But I think most people have— most of the decks I see, most of the founders I see, people are starting companies either because they are— they've worked in the industry before, or because they, they, you know, have some unique insight into the industry, right? So you don't— even with the like kind of 26-year-old whatever, like you don't see a lot of people who are like, I've been a doctor all my life, here is my legal tech startup, right? Maybe here's my health tech startup. Well, I guess 26-year-olds aren't doctors, but whatever, you get the point. Most of the time you're making these kind of lateral moves. And I think that that has higher correlation with success, and I also think that in general it has higher correlation with ability to raise funding. And keep in mind, ageism is illegal. So unlike all the other forms of discrimination, which are, are a lot less illegal, ageism is probably, you know, if you feel like that's happening to you, you, you probably have a lot more recourse than, than, than other groups that are being discriminated against. Gets. Okay. Aside from investing, how do you support your portfolio companies? How do you allocate your time amongst them? It really depends on what they need. I have things that I'm good at and things that I like to do. But in general, it's not about me, it's about them. And so we usually talk about it before we invest, right? Think of it like dating. It'd be weird if you— if I got a new boyfriend, and I was like, I'm gonna make you coffee. And he's like, well, I don't drink coffee. And I'm like, no, I make all my boyfriends coffee. And he'd be like, I don't drink coffee. Right? Like, it would be inappropriate to say, you know, build once, deploy many is very helpful a lot of times in the tech world. In general, it's not helpful with kind of more personal relationships, like the relationship you hopefully have with your founders. And so, you know, for some founders, it's giving them a lot of strategic advice around press. Other founders, it's helping them with hiring. Other founders, you know, it's helping them think about raising money and investing. And, and, you know, some founders, it's being a sounding board, and other founders kind of have those bases covered. And so, you know, we might have more of like just a friendship. So it really depends. And I think one of the most important things to look for in an investor is an investor who's excited to help you about what you need help on, not who's like cramming a curriculum of this is how I help founders down your throat. How to pitch a pre-seed— how to pitch a seed pre-rev clean— what is happening? Sorry. How to pitch a clean seed pre-rev clean cap table that has been around for 2 years and recently pivoted to SaaS to enable the build-out of a marketplace? I mean, I think you pitch it the same way, right? Like I'm generally not— I don't really need to hear about things about your company that like aren't really relevant to what you're pitching me in the moment, right? So like, oh, you know, I was growing up, I really like dogs. So I thought I wanted to build a dog food business. And I spent 2 years trying to build a dog food business. But then I realized that the actual thing, like, you know, and now I'm running a SaaS marketplace for legal services, like, okay, but we have a short meeting and you're kind of taking up a long time telling me about dogs and like, I don't care. right? So I think that the main thing to focus on is like why people are investing in what you're putting in front of them now, right? All of the other kind of things that you're talking about, right? All of your other kind of adjectives in that question are things that will come up after the first meeting or in the second half of the first meeting, right? But to get the meeting, you're sending a pitch deck that says, Hey, you know, this is a SaaS-enabled marketplace or whatever it is that you're building. You know, here's the team, here's the problem, here's the solution, here's the traction, here's what we're raising. Can we talk? Right. And so that's all you really need to say. And then once you're in that meeting, you can kind of explain the rest of it or if they ask. But I generally think that sometimes founders kind of word vomit their entire history on you and you're like, I just ask what your product does. What do you think about marketplaces? Are they attractive? This is like super out of one of me, because like I'm just giving you my opinion. But yes, I personally like marketplaces if they're doing something different and interesting, and if there is sort of a unique insight or a unique way to make them grow. Sarah Tavel from Benchmark, you know, has a really, has a really good sort of series of Medium posts she's writing right now that you should check out. About marketplaces and kind of what makes marketplaces successful. Marketplaces are easy to start or to say you're starting, and they're really, really, really hard to scale. So I think they're great businesses if they're good businesses. And I think for you, the question would be how to make sure that your marketplace is a good business. What would early-stage institutional investors consider convertible notes. Yeah, basically everyone will sign a convertible note or SAFE. And people do it, like, people will do convertible notes even like until they're like Series C or D, if it's like a bridge before their next round. There's generally not a cap, just a discount to the next round. They're just a financing instrument. Generally speaking, in Silicon Valley and usually in New York and LA, but certainly Silicon Valley, it would be abnormal to do a pre-seed round as a priced round, even if it's with a bigger fund. you're still going to do a convertible note. How should I balance investment to get expertise, fill talent gaps, versus investment to gas up sales and hiring? I'm not totally sure what that question means because in general— and I'm assuming in this case you mean investment like as in how you're going to spend the money that you've raised. In general, you sh— all your money really just goes to hiring. And so, you know, you are— if you're a consumer business, you know, you might be spending some on ads like on Facebook, Instagram. If you are a business like a video game company or something that requires— or like a storage, a cloud storage company, you might be spending a ton on kind of AWS. Yes. But like server space, but for the most part, all your money is going to hiring. And the question is really just what are the hires that you need right now? And like, can you afford them? Right? Can you attract them? Can you afford them? It's a great time to hire right now because, you know, one, you can hire from anywhere because of COVID And two, a lot of people have been laid off. A lot of people are, are not thrilled about the place that they're working. So, you know, it is one of those things where you really do have a great opportunity to hire awesome people right now. And so especially right now, compared to like January of this year, I would say that you can probably, you know, pretty easily hire 10 to 20% better people for probably around the same price, just because there's more liquidity in the hiring markets. How do founders initiate and cultivate relationships with VCs during current COVID limitations? So, you know, I touched on this a little bit, but I'll return to it. And some of the questions I've already touched on, I'm not returning to, but this one I'll return to just because I get really frustrated. I do a lot of these, like I think I'm doing like at least one more talk today on a different platform. So I give a lot of talks, especially during COVID and inevitably there's somebody who asks like, how do we get in front of investors? And I'm like, you are literally in front of an investor right now, right? And I'm not like in— you didn't like corner me, you know, when I was going out to get coffee this morning. This is like you are in front of me because a bunch of people put together an amazing conference or panel or event. For you to meet investors, right? So I think that, you know, you're already doing it, right? And I don't know, like, why for some people that kind of doesn't click. Like, you're already doing it, right? If you go on Twitter, if you go on Instagram, if you go on Clubhouse, if you go on Reddit, if you, you know, are listening to people's podcasts, if you go on LinkedIn, right? Like, all of my VC friends, all we do all day is, as one of my friends likes to say, play in traffic and wait to get hit by a car. We're putting ourselves out there to find great companies. Some funds like mine allow anybody to cold pitch them. Other funds don't do that, but everybody's readily available. I do not believe any investor of the month, if you are retweeting them and tweeting at them and attending their talks like this and posting about, hey, they were on this podcast and they had such great insights and tagging them, right? The idea that if you are an appropriate stage, an appropriate size, sector and they're generally responsive, not all investors are, right? The same way that like, you know, I've never posted on TikTok, right? That'd be a really bad place to try to reach me. But if they're generally responsive on that platform to other founders and to other people and you are like respectful and, you know, not yelling at them like full-on Stan style, but also in not like sending them like 100 messages or liking thousands of their tweets, but just sort of like a normal cadence, they're probably going to be at least somewhat responsive to you. And if you're doing that with like 50 investors, I would say that there's no way that all 50 of them won't respond to you unless like there's something really wrong with sort of what you're saying to them or, you know, your profile, right? Like one of the things, because most connection is social— or sorry, is most connection right now is like digital. You know, this is really not the time to have like a dog avatar picture and to have your Twitter handle be like, you know, dogmom79, right? This is a really good time to— all my social profiles are a picture of me. I have people come up to me all the time like, are you Sarah? I recognize you from your Twitter picture, right? One time somebody told me I was prettier in person, which I was like, I am pretty everywhere, thank you. But like, be be available, be easy to figure out who you are, like put like your, what, your company website, you know, put like, if you're, you know, go look at my Twitter bio, right? Like the best thing I can tell you is go look at my Twitter and Instagram bio. They're not going to change your life, but you look at them and you have a really clear idea of who I am and what I do. And that's really, really helpful when you're trying to asynchronously connect with people. Or one thing I saw the other day that I thought was really smart on Zoom, I was talking to a group of founders and only one person did this, but it was so smart. They had their name and then like dash and then their company name, right? And obviously that might be a little bit harder if your name is super long or your company name is super long. But find a way to do something like that because it just sort of helps build repetition of like, oh yeah, that's who you are. Do cold emails work for raising money? They do sometimes. And the thing about cold emails, or the way to think about what work, right, relatively, is the amount of time it takes. So are cold emails an excellent way to raise money? Probably not. Especially during COVID I would say you're probably a little bit better off finding like, like, you're gonna, if you're sending cold emails, you have to have a list of people you're sending the email to, right? So I would say make a list of like 100 people, and it's totally normal to have to pitch 100, you know, to have to try to get in front of 100+ people. It's totally normal to try to get intros to 300 people to raise like one pre-seed round, right? So if you only pitch 20 people and everybody's told you no, statistically, like that's exactly what you should expect. So when you're putting that all together, you probably kind of have an idea of who's a better fit and who's a less good fit. A better fit means that they invest in your stage, they invest in your sector, and you think they— and they haven't just invested in like a direct competitor. Of yours, right? So with those people, it doesn't hurt to send a cold email. And certainly the longer tail of the list, you might be sending cold emails. But it also doesn't hurt when you're looking up their email address to like click through to their Twitter or sign up for their Substack or, or, you know, look at their Instagram and like see like where they're doing one of these next, right? If you were going to send me a cold email today, you're probably better off popping in here, say, you know, using your name and saying, hey, I'm whatever, I'm Sue Jacobs and, you know, I run whatever my company is. I'm sending you a cold email later. I just want to know how effective you think they are for raising money, right? Does that mean I'm going to invest in your company? Absolutely not. Does that like plant the seed and give you like a 1% chance, 2% better chance that I'll at least like remember and open it up and maybe be open to a call or meeting? Probably, right? So while I don't think cold emails are are bad. I think that the reality is fundraising is a slog. And, you know, it probably only takes an extra 2 minutes to, like, shoot somebody a tweet or to do some of the other tactics I've talked about before sending that cold email in a way that is going to make it, like, a little bit more likely to be successful. We don't have a ton of time, so I'm going to, like, look through some questions. I've just been kind of answering them in the order they show up, but I'm gonna kind of look through some of these questions and try to answer ones that are a little bit more differentiated than the ones we've already answered. I feel like somebody should play music in the background. Sorry. Okay. "What value props do micro VCs provide over multi VCs at seed stage?" So two things. One, most people will not have— if the money is green and the terms are clean, yeah, and the terms are clean, like you should probably take the money. Meaning that I talked to a lot of founders who are like, "Well, I wanna be really picky about which investors I take money from." I'm like, "Great, where do you have term sheets from or who's trying to invest?" And like, "Oh, nobody." I'm like, okay, like that's not bad to want to be picky, but like to be picky, you have to have like options to pick from, right? And so, you know, if you have a micro VC who you've been fundraising for a while, you know, all of the multi-seed VC, multi-stage VCs, those are like bigger VCs, haven't been particularly interested and you have a micro VC who wants to give you money and it's like a standard convertible note or SAFE, safe, take it. Like, take it. What are you talking about? If you have an offer from a really well-respected VC fund and you really, really like that VC fund and they seem amazing, then take that, right? Like, so I think that this is one of these things that I almost never hear come up in conversation when I'm talking to, like, successful founders or repeat founders who've raised money before. And I almost always hear it in context like this where it's people who maybe like haven't raised money yet. So that— what that would indicate to me, plus my own opinion, is that it's not a real problem. It's a problem that like you read about on Twitter, right? And so in terms of the real problem, if you happen to come to that crossroads, it should— it's like in a romantic comedy, right, where it's like, oh my God, do I marry this rich terrible guy or like the baker? He's so nice. Like, well, marry the person you like. And it's very unlikely that you're going to be like when you make your tea chart of who you like, that they're going to be such an absolute dead heat tie that you just cannot make the decision and that there's no data points in which, like, will tip it one way or the other, right? So this is a conversation that you probably in real life, like, aren't really ever going to have to worry about that much. And then if you do, you can probably go with your gut and pick the right partner for you. The Learn More button on my website is broken. That's weird. It's supposed to let you email me. Which you don't need to email me. You can submit your deck if you want, but that is good to know. I will have my web developer person look at it. And let me point out, Gary Goldstein, who just asked that question, this is a great example of like how to connect with VCs, right? So most people come to me and they like want something from me, right? And like Gary probably wants something from me, he wanted to email me, but it's actually a lot more, you get a lot further often by, by having something helpful, right? So whether it's like a VC you follow is like posting about like, hey, I'm going to Oregon, you know, to visit family, like, where, where should we stay? Or where should we eat? Or where should we whatever, and you're from there and you have an idea, or like spend 3 seconds Googling and tell them something, right? Or, you know, I'm moving, what moving services, like Clutter doesn't have any spots, like, oh, you should try this thing, or like your website learn more button is broken, Jason M. Lemkin. So often when it comes to VCs, people are like trying to figure out how to get an investor to give them something. And like, that's fine. That's like their job to give some people something, and that something is money. But the other thing to think about is if you're just trying to get attention from somebody, it's definitely not a bad idea to find a way to help them. And then in general, you know, it's reflexive, right? If you do something to help people, if somebody does something to help you, you generally are reflexively that much more willing, and you feel like, oh, like, how do I return the favor? Um, our investor wants a monthly income after he provides a 6-figure investment, $5K a month. Do you see that as an issue? I mean, that doesn't really sound normal, but I think, like, generally you're not paying your investors. I think if he's doing specific consulting work for you, then sure, that's fine. But it should be like really specific consulting work, meaning like a scope of work. And it should be work that, you know, is not already in the scope of what an investor does. And it should be work that you would normally be paying somebody at least $5K a month for. I would say, and I'm making this up off the top of my head, but I would say in the US, the only way I wouldn't really be confused about that situation is if if the investor was doing something, say that they ran a PR firm, right? Like, we want to put $100,000 into your company. And, you know, by the way, our PR agency normally charges clients $10,000 a month. We'll do the same work for you and charge $5,000. Like, then you're getting a good deal, right? But it shouldn't feel, you know, I would argue the fact that you're like asking the question is maybe a sign that it's not super normal. That being said, you know, the cost of capital, if he— if you really need the money, and you have to, you know, pay him $5,000 a month for like a year or whatever, like maybe that $60K you pay him, but then you're going to write off on your taxes, like is something that's worth it because you're, you're still getting $40,000 to invest. I don't— or invested net of him, but it's definitely not common. Do I have an entrepreneur in training program? Not really. We did something called Chrysalis, which was a really awesome fellowship for laid-off tech workers. But I'm not sure we're going to anniversary that. But if you follow us on social, you certainly will see if we do. How to decide how much to raise for a seed round? I think when it comes to how much to raise for a seed round, the main thing you want to keep in mind is how much you need, right? For ideally, like, 18 months of runway. That if you're doing really well, you might burn through in 12, and then you go out and raise more money, or, you know, halfway through that, you go out and raise more money. And then if you're doing really poorly, you can stretch it to 24 months, in 2 years, right? So that should be like, what are the use of funds? What money do you need? And then raise enough so that you're ideally good for like 18 months. In non-COVID times, like closer to 12 months is okay, but right now, it doesn't hurt to be a little bit more conservative. Conservative. What advice would you give to a founder when they're more of an advisor? It's totally normal for founders to kind of end up— some, if there's multiple co-founders, to kind of end up in like more of an advisory role or not like a traditional kind of full-on founder role. That's why founder vesting is really important. And if you don't already have a founder vesting schedule with your co-founders, usually it's 4 years usually kind of with a 1-year cliff or no cliff. Then once you start to raise real money, then the investors will make you have a founder vesting schedule. So that's pretty common. And then that way, you're kind of paying people for the time they're there and you're recognizing them for their contributions. But, you know, you're also able to kind of manage out people who aren't necessarily like an all-in full-time founder so that they can go do something else that's a better fit. I think we are out of time. So I'm super bummed. I'm going to answer one last thing. How do you feel about founder updates? Do founder updates every month. It's good for you. It's like balancing your checkbook. It like keeps you honest about what's going on with your company. Carta has a good thing, like a good template for founder updates to send your investors. Y Combinator writes about it a lot. but do a founder update. It makes it much easier when things are— when you need help from your investors, if you've been sending them a monthly update versus if they haven't heard from you in a year and a half, and then you're like, hey, I have an emergency, and they're like, new phone, who dis? So that's it for me, unless Caitlin, jump in and tell me if I'm totally messing up time here, but I think we're done. And super great to chat. I'm on Twitter and Instagram is @sarahkunz. The fund is @cleocapital. Cleocap.com. Anybody can pitch me, um, go on the website and there's instructions to do that. I'll get my learn more button fixed. Thank you, Sarah. This has been terrific, and you nailed it on time, so I appreciate it. Thanks, guys. We hope to see you guys at other sessions, and we hope you're enjoying SAS or Annual. Thank you again, Sarah. Bye-bye.