Kamal Hassan's Insider Guide to Startup Fundraising

So go out there and get your customers to either pay you upfront or sign contracts promising to pay you. And the more of that you can get in there— if you go to an investor, imagine there's two companies pitching to a VC, and the first one walks in and says, here's the problem, here's the solution, and we believe it's really going to work. And the second one walks in and says, here's the problem, here's the solution, and oh, by the way, I have, um, uh, 10 10 signed pre-orders ready, ready to go as soon as we finish building it. It's clearly a lot less risky to fund the person who's got this 10 signed pre-orders. So go out there, talk to your customers, get the signatures, get the validation from the market even without spending a penny, just telling a good story, showing some slides, showing some mock-ups. Uh, so I'm Kamal, one of the founding partners of Loyal VC. Uh, we were founded in 2018. We've invested in over 300 companies so far in over 65 countries in the world. PitchBook ranked us as the number 7 most active early-stage investor in the world this past quarter. We do 6 new investments every month. 3 of those are Founder Institute graduates, which we, we work with the local directors to help select the top grads in their programs. And the other 3 are alumni of INSEAD Business School. So those are the two sources. So definitely a strong partnership with, with Founder Institute for sure. My personal background, undergrad engineer, MBA, INSEAD, Bain Company consulting, then 20 years as an entrepreneur, 15 years of that angel investing, 7 years of that working with Founder Institute, co-launched their program in Toronto, helped relaunch their program in London, spent a few years as a global director working on the curriculum, the assignments. And yeah, I guess that's— and probably two other stats: I've advised over 500 startups in my life so far, and I've traveled to over 100 countries. Look forward to speaking with you.

Impressive. All right, so we already have a lot of questions in the chat. So let's start with a very simple question here, and from Solmón, he's asking, what do you look for in an investee? Very simple.

So there's some very simple questions. One thing which I should let you know as a backdrop before I answer— I can answer questions two ways. I can answer questions the way most VCs think, and I can answer questions the way we at Loyal think. And we at Loyal think very differently than most VCs. Um, so, um, the basics that people are looking for, and I'll answer most investors generally, um, there's 3 areas in your business. There's people, there's product, there's sales, market. Um, and people, uh, investors don't like risk, so investors are looking to minimize risk, and they want to minimize risk by making sure at least 2 of those areas are properly covered off. The first way an investor can cover things off on the people side is they already know you. So wonderful, they know you. They'll invest in you. That's sort of one of those two things checked. If people don't know— and that, by the way, is why people recommend friends and family. If you have friends and family, people who already know you, then they want to see a product, and a product and knowing you is enough. If somebody doesn't know you personally, then they want to see both a product and they want to see traction. They want to see, um, they want to see markets. So I mean, I don't like to evaluate companies' products based on people doing a pitch to me. I like to evaluate them based on them actually having customers for what they do. So that's a big thing I look at when I evaluate is, um, do you have people actually using what you're making, paying you for it? Because that's a pretty clear indication that someone likes it. And I'm not going to try to pretend that I can understand your market if I'm not your target customer.

Good answer. Thanks, Kamel. So we have another question here from Enzo. He's asking, as a founder without access to a large network of investors, how can one get warm intros and expand his or her investor network considering cold outreach is ineffective?

And Enzo is based in South Africa. I was wondering about that. Look, one of the things I often hear from people in developing countries, they say, oh, I don't know any investors, I wish I knew investors in place XYZ. Yet if you ask someone, do you know any wealthy— are there wealthy individuals in South Africa? The answer is very quickly, yes, there's a lot of very wealthy people in South Africa. So, um, and then the question is, it depends what your business is, but there's lots of wealthy individuals who write checks directly to companies. They don't advertise it, they don't do it systematically, but they have money. If they find a company they like, they could give some of it to you. This works especially well when you are in a specific industry area. So for instance, if you're doing something in shipping or logistics, or you're doing something in groceries, whatever it is, find the people locally who started the biggest grocery stores, who started the biggest shipping companies, and go to them because they, they are wealthy, and if they like you and like what you're doing, they can give you some of their money.

That's cool. Okay, so let's take another question here from John, and he's asking, what is your thesis for investing in pre-revenue companies?

Okay, my particular— by the way, I just realized I didn't answer the last question. Of course, the other thing I could have done is do a quick plug for Founder Institute, which is build your network. And Founder Institute is a fast way to do it, but you can do it yourself. Get to know a lot of people who are well connected, and You may not know investors directly, but you may know people who know investors. And if you wanna build your network, get out there and do it. Meet interesting people and convince them that you're doing something interesting and go from there. So the question from John was, what do we look for in pre-revenue companies? We're really simple, which is we look for, we use the Founder Institute as our screening tool, which is to say, look, you do a 14-week program. The people who run that program, you've got local directors who, sit with you every week. They watch your business evolve. They give you assignments. They see basically tasks to build your business, talk to customers, come up with branding, marketing, etc. And rather than trying to judge you ourselves from a pitch, we simply go to the directors of that program and we say, you've seen 30 people running through this program every week for 14 weeks. Who do you think is the best company there, given everything you know, given everything you've seen. And for us, that's— so that— so what are we looking for? We're looking for someone to impress the people we do reference calls with. And if you impress the people who do reference calls with, then that for us is good enough. Now, we do an unusual way of investing. Our first investment is only $10,000. Doesn't matter who you are, where you are in the world, you get the $10,000. Why would people take $10,000? I mean, if you're in South Africa, maybe you $10,000 is really valuable. If you're in Silicon Valley, you'll say, who needs $10,000? But what we also have is we have a network of 1,000 advisors around the world who support our portfolio companies. So our first investment, it's a $10,000 investment. We can do that based on somebody else's reference. We don't need to make a decision ourselves, we just do the references for that.

Cool. So we have now a question from Martin. And he's asking, what factors do you, do you prioritize when making an investment decision?

So the way we do all our investment decisions is we do them on a relative ranking scale. So whether it's to get into the program, first of all, with the $10,000, you're being ranked compared to everyone else in the Founder Institute program you've done, or for follow-on investments, because we do a series of larger follow-on checks, $200,000, $1 million, $3 million, and successively one after the other. So we are always trying to compare every company against every other company and try to get the best overall. So we don't think there's any one formula, any one thing that you can, any one factor. We look at it overall. Having said that, it does break down pretty simply, which is around 30% of the time the companies that do get more money, the follow-on money from us, do so because of, well, actually 60% of the time is because of sales. Either half of those is B2C sales, half it is B2B signing contracts. And another 15% is based on tech traction validated by the customer. The customer saying this tech does what we want it to do and it's exciting. So 75% of the time, that's what matters. Now, the other 25% of the time, it's based on other factors. I mean, for instance, if you're a consumer business, we're going to look at the consumer behavior. Maybe you're making no revenue, but you've got really sticky users who keep coming back and look like they might have a willingness to pay. Or we may see a company that just makes steady progress month in, month out. And when we're doing follow-on investment, We have a call with you every month. We really get to know your business, and that will impress us.

Yeah, interesting. Thanks, Kamal. So we have now a question from Eylul. We get this question a lot. So he's asking, what are 3 red flags that make you decide negatively about a product and invest in?

So there's a number one red flag, which is a really obvious one, which is I can't trust you. If I can't trust you, then I can't trust anything you've told me. And I can't trust anything you've told me, then what am I doing talking to you? So that is the number one red flag, is people saying yeah, is people lying to you. And by the way, you as an entrepreneur may unknowingly lie to an investor. And one thing to warn you about that people often do is they say, um, you'll say, well, who are your competitors? And come back and say, oh, I have no competitors. Um, and then I'll go online and I'll do a Google search and using terms that sort of sound like what you're doing, and I'll find 20 startups listed, and I'll be like, you don't know what you're talking about. Now, you may be strictly tiny because there might be a very narrow, narrow way in which you don't have competitors. But, um, just really do that Google search yourself, which is who are other companies who do this thing? And then you won't make that mistake of saying we have no competitors. You'll be able to say, well, we don't have competitors in this narrow area, but here in the broader sense, or who our competitors are. Um, so that is one big thing to watch out for, because if you tell me that, okay, well, number one, I'm looking for people who are lying, your choices are either you're lying or you're very naive about business to think you have no competitors. So, okay, so maybe you're very naive about business, but that's not a great start to start with. You asked for 3 things which are red flags. Um, what else is a red flag? Look, I'll tell you a standard red flag for most VCs, and certainly something we're aware of too. Most companies fail because the founding team splits up and the founders give up. And a surprising number of times it's because of friction within the founding team. So another, uh, for us it isn't a full red flag, it's a yellowish flag. But for a lot of people, a red flag would be if you have two co-founders in the, uh, in the, in the pitch and they're arguing with each other. They very clearly, one wants the other's job, one wants, one is the CEO and the other one wants to be the CEO. The second you see stuff like that, you just go What am I doing here? I guess the last red flag would be there are certainly personality red flags. Founder Institute does an entrepreneurship assessment. And one of the things they're looking out for there is there's sort of red flags. Do you have a personality type which isn't suited to entrepreneurship? So that is— and a great example I like, I mean, many of you may have been in a work environment where you had a coworker who didn't do their work. Blamed everyone else because the work wasn't done and didn't take responsibility themselves. And if you work like that, well, okay, you probably have a job for life in the government, but you certainly don't have a job as an entrepreneur because you need to get stuff done. So yeah, I guess those would be the 3 red flags: the lying, the, um, uh, well, lying, uh, founders fighting, and then, uh, personality flags, which are, which are just sort of not conducive to success as an entrepreneur.

Yeah, and speaking of the founder personality, we have like an entrepreneur DNA assessment that we, uh, that you can take at Founder Institute. Uh, we will share this in the chat in a bit. So it really helps you use that as your, as your green card. I mean, like it gives you like a detailed explanation of what is your entrepreneurial personality and the, the, the strengths, the weaknesses, and like an overall analysis of that. So feel free to take the test that we will share it in the chat. Cool. Uh, we have a question here, uh, from Zirshan. I hope I'm pronouncing the name correctly. So, uh, it's asking, what is the realistic return percentage does a VC expect from a startup and in how many years? In the current market scenario, what kind of growth does a VC expect from a non-tech startup to produce?

So let me answer the how many years first and then talk about the return. Um, venture capital funds— 99% of venture capital funds— we're different, we're, we're an open-ended. So 99% of venture capital funds need to shut the fund down in 8 to 10 years. Maybe they can get an extension to 12 years, but they basically, when they start off, they have to shut the business and sell all the companies, exit from all the investments within 8 to 10 years. Um, so, uh, if the fund closed their financing 2 years ago and you talk to them They want to sell you in 6 years because they need to give the money back to their investors in 8 years. So they are on a very, very tight time clock because they have rules in their fund. Their fund will literally shut down and they have to give back all the money to the people who gave it to them. Now we are different. We're an open-ended fund. We think that's a silly way to run a fund. We don't— so, but I mean, we are— we think it's a silly way to run a fund. We are the 1%. The 99% are fixed-term funds. So that is why really understand if you're talking to a VC, um, when their fund was raised, and from there just sort of add 8 years and that's when they want to sell you. Um, and it's easy enough to ask them when their fund was raised. When did you do your first closing on this fund that you're investing out of? Would be the specific words you use. Okay, in terms of returns, um, there is a lot of data on venture capital. And the data on venture capital is that two-thirds of venture capital companies fail. Um, there are, well, 65%. 31% of venture capital-funded companies give you a return of anywhere between 1 to 10 times your money, but it averages out to 3 times your money. So imagine for a second what it's like being a VC. If you're a VC, 65% goes roughly to zero. Um, 31% gives you 3 times your money back. And if you want to do the math on that, you will see that in 96% of your investments totaled up, you've made your money back and not a penny more. So if you tell me as an entrepreneur that you're going to give me 3 times my money back, I'm not impressed because I need to cover for the 2 other companies that failed. And you might fail. You've got a 2/3 chance of failing. But 3 times money doesn't impress me. What does impress me? Well, VCs, we make all our money from, uh, so we get our money back from the 3x companies that give us 3x, the 1/3 that give us 3x, and then the last 4% of companies is where we make the same amount of money again, all of our profits. And those are the companies that give us sort of more than 10 times our money back. So 10 times, 20 times, 50 times. So, um, what sort of return is a VC looking for? If a VC doesn't see a return of at least 10 to 20 times their money back again, they're just not interested. Because then you're just one of those modest winners. And we'd rather swing at home runs and get a chance to get your 20 times your money back, which is where you make money. So that's what we're looking for. If we can see 20 times our money back, then we're interested in making the investment. And by the way, I'm talking about the industry in general. We, we run slightly different math because, uh, we, we get to know the companies in depth so we can look at the risk versus return. But most VCs, I mean, you just, you take the standard risk profile of the, of, of venture capital industry, and you say, give me 20 times my one year, I'm not interested.

That's, that's pretty interesting. Thank you, Kamel. Let's take a more simple, a simpler, like, question, uh, talking about pitches. And, um, Kaywana is asking, what are your pitch dos and don'ts, things that you don't want? Pitch and pitch deck, I guess she means.

Yeah, so I would say the biggest thing to do with your pitch, the biggest don't, is Never give a pitch that you haven't practiced with people who don't know your business. I often say the grandmother test. Could your grandmother understand your pitch? And if not, redo it. And the problem is you are an expert in your business. Your problem is you're too smart about your business. So, there's all this knowledge you have which you assume everyone else has. And you need to practice your pitch. And look, I'm the same way. We're a venture fund. We raise money. So, we pitch to our limited partners to get money. And I'm the same way. I can give all sorts of advice to an entrepreneur on how to improve their pitch. But when it comes to my own pitch, I screw it up all the time. And I only know I screwed it up when I give the pitch to somebody and I get their feedback and they say, this is what I understood from that. Or they'll ask questions like, that's a crazy question. Where'd that silly question come from? And then you figure out how to answer that question, address the concern, et cetera, in your pitch. So practice over and over. Find people you don't know, strangers, and just practice the pitch with them bit by bit by bit. Obviously, a don't is don't lie in the pitch. Obviously, a do is— look, two of the dos which I find people often make a mistake over. People think that there's a standard formula, which is you start with your problem, then you do the solution, then you do— and there's sort of this 10 order of 10 slides. And the thing is, I believe what you should do is adjust your pitch. To your business. So for instance, um, we have a portfolio company of ours which we really struggled with at first, um, and the pitch was they said, we are going to go to life insurance companies and large employers and we are going to get them to pay us to train the employees in the, in the companies to be more healthy, and the company and the insurance company are going to pay for it. And we're just like, come on, you're nuts, nobody's ever going to go for that. And then they came back and they said, oh, by the way, we've signed up Salama. It's this in the Middle East. One of the largest insurance companies in the country has signed up with us and is already doing this. And here are the 3 employers we're working with and they're willing to pay for it. And all of a sudden that was really impressive. All of which to say, if you have traction, don't give me a problem solution and all this stuff, stuff, stuff. Give me a one slide which describes what you do, and then hit me up with your traction slide. Here's attraction. Here's how it's working. I mean, Airbnb is another great example. Airbnb was first starting, people thought, oh, you're nuts. How are you ever going to get a— how are you ever going to get people to let strangers who might be ax murderers sleep in their spare bedroom? Forget it. It's never going to happen. And in fact, I've never seen one of Airbnb's earlier pitches. Is they had a slide on the concept, but something like the third slide in was just this lovely little graph of the number of people staying there. And if you have traction, do stress the traction and stress it early. So I'm not having to buy into a concept. I just need to buy into the fact that people are actually using what you want. Another do to make sure you have in there is make sure you talk about yourselves as people. We're always interested in the people. I said there's three things: it's the people, it's the product, and it's the, it's the sales. So make sure you've got a slide in there on people. Many people forget or are modest or whatever. They don't think about putting the people in early, and you should absolutely get the people concept in there pretty early on. Yeah, another thing to be very aware of is making sure that you have— sorry, another thing to be sure to be aware of is making sure that you have enough Um, uh, uh, make sure that you do a decent job on the graphics. There's no excuse nowadays to have really crappy graphics out there. It's easy enough to get someone on Fiverr or wherever else who can take a pitch deck and just beautify it so it looks cohesive all the way through. The skill sets are out there. Use the skill sets. You don't have to be amazing perfect, but just make sure that it isn't something embarrassing. And that, that's another thing when you're testing the pitch The people you show it to, say, tell me, what do you think of the quality of the slides? Could we improve the quality of the slides? There's other good stuff too. I mean, the good old rule of thumb. Now, I'm older now, so I really understand this well. But they always talk about if you want people to be able to read the words on the slides, make sure you have— well, the old rule of thumb was take the age of the person seeing the slides and divide it by 2, and that's the size font you should use. So, when you're pitching to 40-year-olds, make sure you have 20-point font. Make sure that any sentence on a slide doesn't have more than 5 or 6 words. Make sure you don't have more than like 4 or 5 bullet points. Just sort of good slide construction like that to make sure you minimize the number of words, you give people the basic concepts, that you use graphics, ideally a graphic on every page or certainly every second page, etc.

Thank you, Kamal. Thank you so much for the answer. That's pretty cohesive. Let's take a question from Joshua, and he's asking, uh, is it worth the time and effort to pitch VCs if the company is in the ideation stage? If yes, what information would need to be provided to the VCs to show market viability of the idea?

So it is not worth time and effort to pitch a VC company when you're in the ideation stage, but it is worthwhile spending the time to build a relationship. Because remember, I said it's people, product, uh, sales. And one way to get to know someone is you can get to see them early in their progress and get to hear how the business is doing. So absolutely reach out to VCs and say— and most VCs, we're different, um, so this doesn't apply to Loyal. Loyal, go do Founder Institute, be selected by the local director, it's simple. But Um, most VCs like to look at over 200 investments for every one investment they make. So they need to be staying on top of 200 different stories for everyone they actually invest in. So they will want to hear about what's out there because they need to tick off, okay, I saw my, saw my 200 companies this, this month, whatever it is. It's probably 100 companies a month is what each VC will normally look at. So they want to see their 100 companies a month, so they'll be interested to hear. So what you should do is, as you approach the VC, say, look, I know we're too early for investment right now. We're just in the ideation stage, but I'd like your advice. And that actually is one of the jokes in the industry. People joke that if you want, if you want money, ask for advice. If you want advice, ask for money. So if you ask us for money, we'll say no, we'll give you some advice. But if you, but really think about building that relationship early on. Hi, I'm doing this business. We're doing this in the, in the industry. I see you've invested a fair bit in the industry. Tell me a little bit about what you're seeing, what types of companies you're seeing. Before you ask that question, make sure you've looked at their portfolio so you know all their portfolio companies, although all those what they do. But you, they remember, they've, they hear pitches from 200 companies for everyone they invest in. So for every one portfolio company they have, they have another 199 where they have heard the pitch, where they have learned things. So yeah, 'Love to get your advice on this. Tell me what are the sorts of things which you've seen the industry struggle with, the sorts of pitfalls for us to be aware of. Tell us of the sort of things that will impress us.' And then what you can go back at this, the sort of things, the sort of progress you would like to see us make. And then you can really stand out by going back to them 6 months later and saying, 'Remember we talked about this and that's where we were, and you suggested this and this. Well, we went away and we took the, the second thing you said was amazing. We built on it. Look at how far ahead our business is now. And yeah, the first and thing. They were interesting feedback, but we found the market is actually different. It's more like this. And, uh, would you like to hear a little bit more about how the story's evolved? Um, and if you do that sort of every 6 to 12 months or so, people are probably happy to hear again, and then they're getting to know you, and they'll be really impressed that you started early. You said you were going to do something, and then you went away and did it.

That's interesting. Um, Yeah, so another question here from Milena. How well, how well do investors know the market sector founders seek investment with it? Can investors be wrong about it? Do investors like when a founder is trying to prove them wrong when investors are wrong about the market size, etc.?

So investors are wrong all the time. And one nice thing to do if you've never done it before, and well, sometime when you're feeling really discouraged after being rejected by a VC, go to the Bessemer Ventures, um, here I'll just— I think I can type this in— Bessemer anti-portfolio. I, I put it in the chat also. So Bessemer Ventures has their anti-portfolio, a selection of companies they said no to and why. Um, and this includes Apple, Google, Facebook, Airbnb, uh, Tesla. Um, and, and, you know, you go look at the reasons they said no, it's Facebook. They said, hey kid, have you never heard of Friendster? It's over, give up. So, um, yeah, VCs get it wrong all the time. Now, smart VCs recognize that we get it wrong all the time, and we're sort of okay with it. And we're always looking to be disproven. I mean, we've had companies that we said no to. Um, that company I mentioned earlier, um, we, uh, uh, which was doing the health insurance. We said no to them the first time they came to us. And they came back to us. And we were really happy to be proven wrong. You know, people think as an entrepreneur, I mean, I was an entrepreneur for 20 years. I used to think VCs are so stupid. It's like, why are these investors so stupid? They just don't get it. They think they know my market. They don't know my market at all. And what I realized is it's not that investors are stupid. It's that they are being put in a very difficult position where they have to hear 200 pitches and decide on one out of the 200. And making those decisions, yes, no, yes, no, for every one of those pitches is actually mentally really challenging, really taxing thing to do. So, what's happening is people may have a very good idea about your industry, have good experience, but they're making snap judgments. And the default snap judgment is a no because they have to say no 199 times for every one they say yes to. So it's just they're really being put in a position where they're being overwhelmed with new ideas. Your brain shuts down, it overloads, it can't accept new ideas that easily, and you start to fall back on simple patterns, etc. So that's, um, yeah, so we get it wrong. We get it wrong because the whole situation, the whole pitch situation, is a stupid situation. By the way, one of the things which there's some good science on, um, is there's a good study out of Harvard where they gave identical pitches voiced by male and female actors, and they discovered that, um, uh, these— and then they showed pictures of the people they said was doing the pitch. And those was all made up. I mean, they just had a script and it was read by actors and they showed pictures, but they found that the same company pitched by a good-looking man would score— it was like a 5.3 out of 10 on whether it should be invested in. And the same business pitched by a woman was a 4.7. So there are some really dumb things happening because of the pitch process. That's why we use references, because we think pitches really don't work. But 99% of our industry uses pitches. So that's the game you need to learn. And that's one of the reasons we believe— I mean, there's good science that says For whatever the reasons, the observed effect is clear that when a woman makes a pitch, she is less likely to get invested in, whereas— and yeah, and that's one of the things we do. That's one of the reasons we like references, is a woman might be modest about presenting herself and her own idea, but she will give a wonderful reference about her friend and her friend's idea. So we use references rather than pitches because of that.

Cool. Speaking about women founders, we have here a question. About that. So, um, Eylul is asking, uh, or she's asking, what would you advise to women founders preparing for investment rounds?

So one of the, one of the things, um, and this applies whether you're a woman or you're a man who has sort of been trained to be more modest about things, um, but there are a subset of people, largely men, who not only, who believe that they're starting a billion-dollar company, who believe that they walk on water, and they just, they are so convinced of it that it sort of brings everyone else along with them. So one of the ways to address that if you're someone who's more modest about your own skills is there's a built-in story, which is the way I, a built-in question to ask yourself or words to say, which is if you're asked a question, 'How big do you think this business can get?' In your head, say, 'If everything goes right,' and then answer the question. Because you are pitching against people who will just automatically say, 'Boom, it's going to be a billion-dollar company.' Now, we all know it's only going to be a billion-dollar company if everything goes absolutely right. So just think about that in the back of your mind when you're asked a question, when you're doing a pitch, and when you're preparing a pitch. Think about 'If everything goes right,' and then answer, then present your business, and really present it from that positive 'if everything goes right.' We all know this: if everything goes right, this will happen, and maybe it won't happen, but if everything goes right, it will. And just don't say those words. You just say it will.

That's a good approach. Uh, okay, so guys, if those are not answering questions, there's like an upvote button at the end of the bottom of the questions. Feel free to upvote the questions that you like so that we can No, we can ask them here on the, on the session. So our next question here, let's put it on screen. Can a country's region or region's negative history with previous VCs affect VC interest in a product, even if the product itself shows great promise? I love this question myself.

Yeah, sure. Um, absolutely it can, because remember, VCs are human beings. And human beings fall prey to the same. I mean, human beings are all victims of our own brain. And what our brain is, is our brain is a sort of processing machine. It takes a lot of energy to think. So, we start to fall into pitfalls and we start to generalize. So, we see one entrepreneur from Nigeria who who lies and cheats their investors. And we think all entrepreneurs, because it just— you program your mind to fall into this. And I mentioned Nigeria specifically because we've made a number of investments in Nigeria. And there's one of our team members on the investment committee who was saying, hold on, guys, how can you make investments in Nigeria? I mean, you can't trust companies and countries from that region. And this is someone who has actually worked at other VCs, who's sort of very much from the industry and is very clearly expressing the way the industry thinks. And we're like, well, it doesn't matter if someone's from Nigeria or not. You should judge them on the person, not in their business. Don't judge them on the country they're from. But there is absolutely— I mean, we as human beings do it all the time. We program ourselves. Men are like this. Women are like this. Oh, I mean, we'll do it on stuff which is just random stuff. It's like, oh, my sports team won the game. They're a brilliant team. And you sort of start saying all these things about them, like it was so predictable, etc. It's like, no, it was a random chance. They just happened to win. They may be slightly stronger, slightly weaker, but there's no guarantee, especially in a football game. I mean, there's no guarantee who's going to win the match. So, and I'm speaking the story of football, European football rather than American football, but the concept is still the same. So yeah, it's, yeah, people will make snap decisions about your country just because of past experience. And yeah, it happens all the time and it's a shame when it happens, but that's That's how human brains work.

Interesting. Let's take a question here from Samad, and he's asking, how do you test your startup idea when you have no funds, or particularly people from not financially stable backgrounds, or lack of connection?

So the number one company which I love, Australian company, give me a second here, Jira. So, uh, Jira, um, when they launched the business, they got funding from the best possible investor. And the best possible investor is your customers, because your customers will give you money without expecting part of your company back again. It's just like, I want to buy from you, here's my money. So a great thing to do is to go to your customers, talk to customers. If you want to build something, talk to customers. I don't care, in fact, I don't care if your product's any good or not. Use mockup tools. Use something. I mean, use mockup tools for software, specific mockup software. My brother was in, was in a hardware business doing some sort of printer, printer for gas station pumps. And he did a little mockup of what the printer would look like before the printer, the printer was even built to take it to the customers and say, hey, we're going to build printer which looks like this. Are you cool with that? And let's sign a contract to do that so that our corporation has enough pre-signed contracts to build it. So, go out there and get your customers to either pay you upfront or sign contracts promising to pay you. And the more of that you can get in there. If you go to an investor, imagine there's two companies pitching to a VC. And the first one walks in and says, here's the problem. Here's the solution. And we believe it's really going to work. And the second one walks in and says, Here's the problem, here's the solution, and oh, by the way, I have, um, uh, 10 signed pre-orders ready, ready to go as soon as we finish building it. It's clearly a lot less risky to fund the person who's got this 10 signed pre-orders. So go out there, talk to your customers, get the signatures, get the validation from the market, even without spending a penny, just telling a good story, showing some slides, showing some mock-ups.

Great answer. Uh, let's— you have another question, let's put it on the screen. So statistically, how many VCs a startup should reach out to be able to win a seed round of under $1 million USD?

Well, I take that question and, and ask it the other way around, which is, um, I told you already that VCs invest in 1 in every 200 companies they see. So in principle, then, uh, you should need to reach out to 200 VCs in order to get funded. That is, that's pretty simple math, and I know it's really discouraging math, but that, that sort of is the way it is. By the way, I noticed that that question was from somebody in Pakistan. And the other thing to be aware of is there's lots of people get very hung up on what's going on in Silicon Valley, and you will see in Silicon Valley companies raising pre-seed rounds at $5 or $10 million. Um, that is what happens in Silicon Valley. Typically because the person is raising money from people they already know they've already made money for. I have a personal example of that. I know a person here in Canada who raised a pre-seed round of $3.2 million into their business to do medical health records, and the business was 6 weeks old, and he didn't even have his full programming team together. How— and he raised $3.2 million, including from some of the top VCs in the country. The reason why is he had run a previous business, um, Kobo Reader, which had been sold for $120 million or something, and he made money for all the investors. So he went back to those same investors and said, I made you $120 million, do you want to invest $4 million back into my business? Oh, and by the way, I'm putting a million of my own money in, do you want to put $3 million back in? And it was just a really easy thing to do. So just be very aware, um, when you talk about a pre-seed round of a million dollars, be sure that you're not talking about— you need to adjust that for whatever country you're in, wherever you're raising, because what may be a pre-seed round in one country could be a Series A in another.

Thank you, Kamal. So let's take a question here from Claudia. It's been getting like the, a lot of votes, um, and she's asking, how important is the startup team? What are you tracking, measuring regarding the team before deciding to invest in a startup?

Yeah, well, in our case, um, so I'll do the loyal answer first and then the rest of the industry. The loyal answer is, what are we tracking, measuring? We're looking at what the team has actually managed to accomplish working together and building the business. That's what we look at. That's why we love working with Founder Institute, is the local director can say, 14 weeks of building the business, this is what the person has done, this is what we can track, this is what we can measure, and we can see the results. So that's very specifically what we look for. More generally, um, I feel like not enough investors do the tracking, measuring, and looking at sort of how companies proceeded. I think they should do much more of that. Um, um, but what people will look for— I mean, there's many people who look for a specific school. They sort of feel founders, MIT engineers or Stanford engineers better to invest in than people from University of Kansas or whatever it may be. Um, uh, so people will look at education, they'll look at what you've done in the past, what your past jobs are. They'll look at whether you've been involved in a company that's exited before in a meaningful way. There's lots of investors who believe that repeat founders are much, much safer than first-time founders. I personally— and first, uh, repeat successful founders— actually think that having experience as an entrepreneur, whether you succeeded or failed, You learn— in fact, you often learn more from failure than from success. But people will look at what you've done before, where your degrees are, the names you've been associated with, etc. Yeah. So that's, that's really what they're looking for is what your pedigree is. Also, one thing people often do look for is they look at has the team worked together in the past? Because I mentioned one of the biggest failure factors is teams that fight and break apart and companies shut down because the founders give up. So if people have worked together in the past, then you're minimizing the risk there.

Cool. I have a follow-up question to, to, to Claudia's question. So if, if a startup has like a history of co-founder breakup, does that affect your decision to invest?

So it depends how the breakup happened. Um, for many people, they just won't touch it. Um, in our case, if you had— so first of all, if you're starting up a business, someone make sure you have vesting on the shares, um, on your founder shares. And the vesting should be— the industry minimum is 4 years. I actually think— I mean, my partner and I have 8-year vesting on our on our shares in our business. Um, so, um, yeah, so, um, uh, sorry, I've just lost track of the question again. We talked about the vesting. What was the question again?

Yeah, my question is, as a follow-up to Claudia's question, if the startup has a history of co-founder breakup.

Yeah, yeah, so they've got history of co-founder breakup. So look, if you had vesting in place and you followed through and you did things per your investing and the other founders walked away and was broke up because for a simple reason like one person was doing all the work and the other person wasn't working, that won't bother us. Um, remember that a lot of VCs invest in one in every 200 companies they look at. And if you hear— if you're looking for a way to get rid of the 199 out of 200 companies, a simple rule of thumb to use is, okay, co-founders fighting or co-founder breakups, it's messy, I don't want to waste my time. So yeah, it will affect a number of people. But I think in our case, we tend to look a little deeper. What are the reasons? Not just do a blanket rule like that.

Cool. So we seem to have like a lot of early stage tech startups, you have a lot of questions about tech startups, AI. So I'm just gonna take a simple one. Which, which tech do you think VC find most attractive? Nowadays?

So it depends on the VC. One thing to remember is VCs raise money from other people, and when we go raise money from other people, we tell them a story of what we're going to use that money for. So if I'm an AI fund, then yeah, I need to invest in AI tech. But if I'm a blockchain company, I don't care if AI is hot right now and blockchain isn't. My mandate is to invest in blockchain. Or in agriculture, or in health, or in whatever my mandate is. So I think it's hard to say that VCs are excited in any one area nowadays, just because VCs all have different mandates. Understand what their theme, understand what their mandate is. Our mandate, we don't have an industry mandate. We have a mandate which is Founder Institute in Seattle alumni startups. That's our mandate. So really understand what people's mandates are. Having said that, yeah, of course everyone's excited about AI nowadays because there's a lot of potential for what it can do. And we see a lot of people who are doing the same business as they did 5 years ago. They just talk about it as an AI business now, whereas 5 years ago it was a health business without mentioning the word AI because AI is hot. But yeah, I don't feel like there's just any one theme any one theme will get you in the door with certain investors or not. Understand their specific theme and pitch to those people.

Good. Which takes us to a more specific questions about tech startup here. And he's asking, what's your advice for a company that has 3 iterations after 9 months of research but no revenue on product and needs financial support to build the MVP?

So my advice is go out and get customers. Go out and get customers who love what you're building, love what you're doing so much how much that they're willing to buy it ahead of time and use that customer validation, perhaps in the form of letter of interest. If they won't sign a formal contract, use that, um, or letter of intent, LOI. If you've got that letter of intent, that expression of interest from your customers, get a whole bunch of that together. And then when you're going to investors to raise, you're not raising blind on no product, on no, on no traction. You're raising on customer-expressed willingness to buy the thing you're building. And then you can say, hey, we have customers ready to buy it. We have a team which is experienced at building things like this. Therefore, we have, we have product and customers settled off, even if you don't know us, the team.

Good, thanks. So let's take a question here. Also, also a specific question about AI and AI startups. So it's from Muhammad. He's asking, what is an investment expecting from an AI startup that has not been funded at all and just, uh, and has just a prototype? Because AI applications take a lot of compute power, and without any funding, it is difficult to implement whole functionality of an AI product.

So first of all, um, remember that investors are human beings just like everybody else, and human beings are each different. We each think differently, we each have different things which matter to us. So the rules, uh, that apply to one investor don't apply to others. I mean, I mentioned how Bessemer Ventures said no to, uh, Facebook, for instance. Um, Facebook did find other people to fund them, and it's partly just a game. You've got to get out there and talk to enough people. Um, bluntly, investors don't care what you need. Investors don't care that you need a bunch of money. Your needs are not their concern. Investors are concerned with their own needs, and their own needs are to say, where do I find the business that I can invest in which is going to give me 20 times my money back or more? So where do I see that business, um, and what is the time at which I'll jump into that business? So there's a lot of investors just won't invest in a company without a product because it's like, look, I've got lots of companies with products I can invest in. It's easier to evaluate companies with products. Therefore, I'm not going to invest in your business. Sure, you may need money to build your product, but that's not my problem. That's a you problem. And the me problem is I'm comparing you to other companies that already have a product. Therefore, I'm not interested. The best solution for you is I'll repeat the other solution I gave the prior answer, which is go out, get customer interest, get customer validation, get everything you can to prove from third-party resources that the things you're saying about interest in your product is there. And that, that third-party references, that customer references will also help you know if you should be building the thing you're building. One of the things I found very valuable about Founder Institute is it makes it— it doesn't just help you launch your business, it also makes it really easy to understand if your business is going to fail. And you can fail with your business in the first 2 and a half months rather than keeping going for 2 years, deluding yourself into thinking you have a business when nobody wants to buy what you're making.

Yeah, that's, that's good. Okay, um, let's take a question from Abdullah here, and he's asking how to reach out to get funding from VCs while protecting your idea if it's relatively easy to imitate or produce. I think you get this question a lot.

Do you know, there's a really famous quote on this, and I'm trying to remember the exact wording. But the basic message is, as an entrepreneur, nobody's interested in your stupid idea. And your biggest challenge is to get people to actually care enough about your idea. Now, I will have a caveat there, which is if you're talking to somebody who has weak ethics, who is knowledgeable about your space, like, for instance, when you're talking to a corporate who's working in a specific area and you're pitching to people from the corporate your idea, The corporate will much likely say, oh, we have a team of people, this is in our space, we're going to go ahead and build it ourselves, we don't need them. But if you're talking to a VC, VCs don't have teams of people ready to build stuff. They have no interest. They're trying to say no to 199 companies so they can say yes to the 200th so that they can fund the people who are going out and building them. They are not building— VCs are not company builders. VCs are company investors and let other people build. And by the way, if I like your idea, I think you're amazing idea, why wouldn't I do it with the person who brought me the idea in the first place? It just makes so much sense. So, um, be aware of who the investor is. There are small subset of investors where you should be concerned about that. Um, uh, and by the way, uh, one thing to watch out for when a VC reaches out to you, um, to find out about your business, there's a good chance that VC— well, there's a non-zero chance that that VC is actually involved, uh, invested in or considering investing in another company in your space. And I'm just trying to understand the, the space and what it looks like. So, um, watch out also when you have an outreach from somebody. Be careful and be aware. Maybe they are working for a competitor or thinking of investing in competitor. And in that case, share only the stuff that doesn't matter. Share only stuff you don't mind being publicly known competitors. And that's, that's another way of how to answer the question. Look, if you answer the question for me about, about what your product does, this is generally the problem it solves, and this is, this is the traction we have in the marketplace. You haven't given much away there because people can find out what your product does. They just look at your website, they can find out your traction in the marketplace. You might even have the logos on your website, or if they go talk to customers and they'll know who your customers are. So, um, you don't, when asked, have to say, oh, this is the secret IP we have, here is the algorithm we use, it's a really cool algorithm, it's written like this, and this is a— stuff like that, it's not stuff an investor should care about in a first meeting. So be very careful. There's IP, things like that. Don't get carried away as a techie geek. Now, for those of you who watch the Silicon Valley, um, uh, TV show, and if you haven't watched it, I recommend it, it's like 4-season TV show. I think it's on Netflix, um, and it's brilliant because I mean everything I've seen— I mean literally everything I saw in each of those episodes I've seen happen in real life. Every— there's always these twists, this crazy thing happens, and it's happened to me in real life. And one of the things which happens in one of the episodes is the team from the startup is brought in by a VC to pitch, and they, uh, there's a few people in the V— from the VC side, and they start talking about their algorithm and exactly how it works and really cute insight they have, and then they realize about 3/4 of the way through the pitch that the VC has no interest in investing. They've actually brought another portfolio company into the room who are sitting there scribbling down notes on exactly how the algorithm works so they can copy it. So watch out for bad actors, but generally don't share stuff, don't share like, uh, intellectual property, but do feel very comfortable talking about generalities, talking about enough to get people interested what you do.

Oh, I will definitely watch the show. Thank you for the recommendation, Kamel. Okay, so let's take another question here, um, from Sabina. She's asking, when would you advise not to work with investors but instead stay with the bank loan, etc.?

So look, bankers are in the business of, um, getting their money back, um, and, uh, you should take a bank loan when you're doing something which has very low risk. So if you are, if you've already got a, if you've already got a product which you sold a bunch of and you need to do a manufacturing run because it's a hardware product and you know that there's customers to buy it after you make it, go get a bank loan. That's very low risk. You know you can make the stuff, you've already made it a couple of times before, it's your second or third run, and you've got customers to buy it, therefore the risk is very low. I think a bank loan is a really stupid thing to do when you're doing something very risky because bankers in their business are getting their money back and they will come after you and do everything they can to get your money back. And you need to be honest with yourself. Two-thirds of venture-funded businesses fail. That is the venture-funded, the 1 in 200 who made it through to getting money from a venture capitalist. So those are probably the best odds you can dream of, um, for yourself. So there's a two-thirds chance you fail. And if there's a two-thirds chance that the, that you fail and the, the bank still wants their money back and they're going to come after you personally, typically how it works, then you're in pretty bad shape. So don't, yeah, that is my advice is only use bank loans. I mean, match the type of capital to the type of risk. Venture capital, angel money, etc., is high-risk capital, and bank loans are low-risk capital. So get the low risk to do the, to fund the low-risk activities and take high-risk capital to fund high-risk activities.

Logical answer. Thanks, Kamal. So we have a question here from From Amirul, he's asking, what do you look for in a solo founder? And I would add maybe to this question, would you invest in solo founders?

Sure, absolutely. We invest in solo founders all the time. What I look for in a solo founder is I look for, like I do with any business, have they made progress? Have they moved their business forward? And remember, the biggest concern people have with the solo founder is that you're, the business is all on its own and nobody cares about it other than you. So get other people working with you. It doesn't really matter if, if you have 3 full— if you have 3 full-time people working with you, working hard on the business, really dedicated, caring about it, and give them some equity, give them like, give them some options, etc. But they don't have to be a co-founder title. It's just like, hey, this person manages to get other people around them to build the business. I care about the fact that they can build a team of people and get stuff done. They can make product and sell to customers. And if you can show that you can make products, sell to customers, and attract people to work with, it doesn't really matter, uh, if you're a solo founder or co-founder pairs. I mean, that doesn't make any difference. You get stuff done. That's what we care about.

Cool. So let's take a question from Maria, and she's asking, what areas or countries do you think are more likely to produce better profit in investments?

So some people call me an idealist, and I believe very much in microeconomics, which is supply and demand. And where do you get the best returns? You get the best returns where there's the most demand and the least supply. So I believe you're going to get your best returns from, uh, markets— inefficient markets. So whether it is a country with less capital, whether it's an industry area with less capital, whether it's a type of business which other people struggle to fund, whether it's a founder, if it's a female founder, if it's— in fact, there's some good data on that actually from, uh, BCG did a study and they found that the dollar— they did a study with MassChallenge, another accelerator, and they found out that the dollars generated per dollar invested in MassChallenge companies was 2.5 times greater for women if there was a woman the woman founder CEO than it was if it was a male founder. So, but to me, that's a great example of what's going on. I just told you how the pitch process discriminates against women. Therefore, a smart investor says, oh wow, if I put more money in women, then I'll get a better return there. But just more generally, anything which is out of fashion, out of favor, a place where there's less of, I believe that if there's not enough supply to match the demand, that's where you're going to get the best returns.

Thank you, Kamal. Um, I think we're running out of time. I will take one last question, uh, here, and, um, it's from Muhammad, and he's asking— this question is repeating a lot in the Q&A section— so, are you interested in investing in tech and AI startups? If yes, would you be— how would be the best way to reach out to you?

So our mandate is very simple. It's top Founder Institute grads and top INSEAD alumni. If you are not an alumnus of INSEAD, if you haven't done the Founder Institute, don't reach out to me because that's not in our mandate. We can't invest. The best way to get to us is either if you are an INSEAD alum, and it's all on our website, loyal.vc. There's a form you can fill in. It doesn't matter who you are, how connected you are, everyone goes through the same form. So you can just go straight to the form, the little questionnaire which says who and what we invest in. and you can fill that in. So if you are not an alumnus of INSEAD, then the solution is to go, is to go do the Founder Institute program, fi.co. Good program to look at. And that gives us a chance to get third parties to validate what you do so we can look closely. There is a backdoor, which I don't think anyone has ever successfully taken, just so you know. I mean, No one's even tried to take it. So just, you know, we have a backdoor currently open that our investors into our fund can actually pick companies. We've had 3%, we've, so I guess 3%, we've had about 10 investments referred in by our limited partners. So if you brought a limited partner into our fund and that limited partner recommended you, that is the backdoor you can take. Like I said, no one has ever tried to do that. Don't, don't see this as a request to do so. I'm just telling you transparently the 3 ways into our fund.

Thank you so much, Kamal. Thank you everyone. We still have a lot of good questions in the Q&A section, but it's not— honestly, we couldn't finish them in just 60 minutes. But Kamal can dedicate like few minutes of his time in the networking lounge. You can ask him his question yourself if he has the time, of course, for it. And if you're interested to apply for Founder Institute program, please go to fi.co/join. You can choose the city that is is the closest to you, to your location, and you can see which cities are recruiting right now. You can apply to the cohort and we will help you build your fundable startup and we will, uh, follow you through all your journey. So thank you everyone for today. Thank you, Kamel, so much for all the answers. It was really, really insightful. You will have the recording after the session, or you can also have it on our YouTube page. Keep an eye on our landing page. We do host these AMAs a lot, so I think that's it. Kamel, if you have any final advice you'd like to give to the audience, then let's close the event.

Sure, the very final advice I'll give is doing a startup is hard. It's much easier, you will make more money on average by getting a day job. So only do it if it really matters and you're doing something really meaningful to you. Don't do it because you want to make money, you won't. Do it because the business you're starting matters so much that you don't care if you lose money doing it. It just matters so much to you, you'll do it anyway.

Perfect. Thank you so much, Kamal. So let's meet in the networking lounge. Let's talk and ask your questions there. So have a good day, everyone, and thank you for being here.