Navigating Early-Stage Funding: Nate Bek Answers Your Questions

Welcome everyone to our Ask an Investor Anything Q&A with Nate Beck from Ascend VC. My name is Ryan Micheletti. I've been head of global operations for the Founder Institute for the last decade, helping us scale to 8,000 portfolio companies across 200 cities. I'm also a venture capitalist, a general partner at the Veteran Fund, which invests in critical technology companies with military veterans on the leadership team. Today, we want to get all of your questions answered pertaining to early-stage investment and venture capital. So, um, at any point in time, you can use the Q&A feature to put your questions in the chat. Our producers here on the back end will be able to answer them and put them on screen, and then we'll walk through those questions. So don't be shy with any question that you have around, um, investment or early-stage venture capital. The other thing is, you know, please keep self-promotion to a minimum. Everyone's here to connect with others in the startup ecosystem, but it's not a great place to be selling services. If you're spamming people in the chat, we'll remove you from the event to keep it sane for everyone else. And so it's my pleasure today to first welcome our guest Nate. Nate, thank you so much for joining. Do you wanna share a little bit more about your background to get started and then we'll go ahead and dive into Ascend as well?

Sure. Yeah, happy to. And quick apologies, I got a little bit of a head cold this weekend, so if there's a little congestion or my eyes are a little red, it's because of this thing I'm fighting. But yeah, again, thanks for having me. It was a super privilege to be here. But yeah, a little bit about me. I grew up in Hawaii, so I grew up on Oahu on the west side of the island. So as you can imagine, venture is not really a thing there. I think the biggest fund or the biggest ventures there are all agriculture tech or like billionaires that move there and have little side projects. So it's not really baked in the DNA the way it is in Silicon Valley or even like Seattle or some of the other cities like New York or Austin. And so the way I kind of got introduced into this world was in college, I started as a finance major and quickly joined the entrepreneurship program and we had like a venture program growing. And I was pretty familiar with, you know, like the Silicon Valley movies of the world and like You know, the Mark Zuckerberg movie, but didn't really understand the mechanics of tech and how embedded that is into the whole ecosystem. And so through that experience, I got to work at an accelerator. I got to work at our student venture fund, got to work at the entrepreneurship program and got to see it through different lights. And while I was doing that, I also picked up a second major in journalism. Big reason for that was like, I just really were fascinated by entrepreneurs, venture capitalists and the ilk and As a student, you don't necessarily get to talk to them as much unless they're your professor. And so journalism was a good way for access into writing a story about them or including them in some kind of trend piece. And so that was a really cool opportunity and launching point for me to kind of, I guess, get paid to write about the thing I was interested in learning about more so than like a case study. It was kind of like I got to actually publish the work. So there's more incentive to get the story right and get the story from a fresh perspective. And through that, I had a really cool opportunity to work with the Dow Jones News Fund, which if you're not familiar, they train business reporters at the Wall Street Journal and they kind of match you with a publication that matches your interest. So I worked with the Wall Street Journal for a few months and then they were like, GeekWire in Seattle is looking for a startups and venture capital reporter. I know that's kind of like up your interest and I, Seattle's a lot closer to Hawaii than the East Coast. So I kind of jumped off that opportunity. Was an intern there and then started full-time for about a little, like close to 2 years as a startup and venture capital reporter full-time. Through that experience, it was, it was pretty cool. I got to, I think what I think is a little different than if I were to start as an analyst or an associate was the people I was talking to were either they disclosed around or they're about to go public or they failed spectacularly that it was newsworthy. So I got a good sense of what really good looks like and what really not good looks like from a very early stage. And like through that, I've published, you know, maybe 300, 400 stories through GeekWire on startups, venture capital trends, things that are impacting, you know, the landscape. And it was also a really interesting time. I joined around 2022, so that was kind of at the troughs of. You know, post-2021, everything was exuberant and then things came back down. So that was a big story. Obviously in November of that year, ChatGPT came out. So that was another huge story. The crypto FTX downfall, Silicon Valley Bank. There was just a lot of big national stories that really propelled my reporting and put me in a kind of a big track there. And then fast forward a few years, I got really close with one one of the general partners in the ecosystem in Seattle, Kirby Winfield at Ascend. And the other partner, Jed Haller, was also kind of just around the ecosystem. And Kirby's the guy, he likes to talk. He just will, you know, will say whatever's on his mind. He was very open book, loved talking about his portfolio companies, loved talking about venture broadly. So he was a great source for me. And then eventually he was like, why don't you do the stories that you're working on at GeekWire for me as like research and then also talk to founders the way you have at GeekWire for me as like a, as an associate. And eventually maybe you can start betting on the ones you like. And so been at Ascend now for about 2 years, graduated to senior associate, meaning I have a little more autonomy on the kind of the deals that I look at and what I get to invest in. We're a team of 4, so it's a small team that we all look at deals together and kind of have autonomy and ownership over what we like to invest in. But yeah, I think that's a, it's a good place to end it. I can talk more about the specifics of the fund, but that's me. Yeah.

Thank you. Well, thank you so much for the background. Why don't you talk a little bit about Ascend VC? What do you guys invest in? What stage, industry, et cetera?

Sure. So Ascend, we're a small pre-seed micro VC type fund in Seattle. First and foremost, we like to say we're Seattle first, but not Seattle only. So if you look online at our research and our marketing, it'll We're very loud about Seattle, and I think that's kind of the role we play in the ecosystem here is, you know, we try to elevate the local talent. We think we're bar the same as Silicon Valley in terms of talent, but, you know, lagging in terms of capital. So don't get scared off if you're not in Seattle. We'll still take a look. We have probably 60% of our portfolios here, but the rest is in the Bay Area, Austin, New York, if we have a reason to see it, or We get conviction on a founder, we'll invest. And I should say that we're pre-seed, so we like to be in that first institutional round of funding. So if you're working on a SAFE note and you're trying to raise $1 to $3 million, we're usually kind of playing in that ballpark. Our average check size out of our Fund 3 is $750,000. So we like to take about 5 to 8% ownership through that, but we can be pretty flexible when it comes to you know, what the, what the round dynamic and the portfolio construction looks like, especially if you have high conviction on the founder. In terms of thesis, we kind of break it out into 3 buckets. The overall arching theme is B2B AI, like most funds, but the way we kind of describe it is in 3 buckets. The first is what we call SaaS 3.0, and the way we think about that is basically think of software as a service, but with AI baked in, AI native. So If you're a Salesforce, this is an AI-native CRM or a fully autonomous CRM. If you're, uh, doing sales training, this is a fully, um, automated sales training where you can go back and forth and do roleplay via GenAI. So that's the way we think about SaaS 3.0. Um, we kind of are pretty agnostic about what industry, as long as it's B2B facing. Um, the second bucket, which is kind of informed by SaaS 3.0, is, uh, infrastructure. So AI infrastructure, things that support the app makers, things like orchestration, things like agent builders, things like even foundation models. We've done a vision model, we've done a large language model foundational company, we've done GPU software, things like that. So those kind of go hand in hand, they inform each other. And the last I would say is a little bit disparate from that is what we call frontier AI. So AI that interacts with the physical world. This is where we have a lot of our moonshot, fun to talk about bets. I think the, the beachhead in that is Overland AI. Overland is, uh, they started at the University of Washington as a research project for off-road autonomy through the DARPA RACER program and quickly scaled into, you know, one of the premier off-road autonomy programs for the U.S. military and allied nations. And we're in that from pre-seed all the way up to their Series A. And what they do is basically build autonomy kits for off-road vehicles. So think of self-driving Humvees, self-driving tanks, and they even have their own fully embedded Polaris ATV that they sell called Ultra. And so that's, you know, a little bit of a, a little bit of a far cry from, you know, a B2B SaaS application, but still we think falls into our, our purview. But yeah, we are, like I said, we're on fund 3. We have about 80 portfolio companies now. Prefer not to take a board seat. Usually don't lead unless it's the biggest check in a safe round, but not taking board seats, not pricing, usually a follow-on, very friendly with Valley VCs and New York VCs and stuff like that. And yeah, that's Ascend.

Yeah, appreciate that. So there's a couple of questions here about traction. I've got one question on Ascend though, before we dive into that. Which is, how do you guys think about your follow-on investing? So going from the pre-seed check of, you know, $750K into seed and Series A, do you do one follow-on investment? Do you follow on multiple times or do it through SPVs?

Yeah, it's a great question. Um, something that's kind of evolving. Um, so we have a 70/30 split, so 70% new investment, 30% allocated for follow-on. Sometimes we'll tranche the initial investment if, uh, if we only have like $250K at the initial entry point, then we'll, we'll follow on at the next round with that. Again, we have some reserves for follow-on. I wouldn't say we have a hard and fast rule on follow-on, but we have, we have done multiple SPVs anywhere from the seed to Series B level SPVs that can, you know, really range a lot higher, like 10x the initial, the entry point. And so we have a great relationship with our LPs where we can do pretty sizable follow-ons via SPV, and then we have a little bit of allocation for out of the main fund as well.

So let's get to some of these audience questions. So let's start at the very beginning, which is this question from Alexander. What do you look for in a founder before you invest? And also, would you ever invest in companies led by solo founders?

Two good questions. I'll start with the second one. Solo founders are I'd say it's a controversial take. By and large, no, especially if it's a first-time founder. And the reason for that is like, we kind of think that there's a technical founder and there's a more go-to-market. Obviously both are probably a little bit of both, but if it's a repeat founder, sure. And if there's a little bit more traction that we can, or history that we can lean on to underwrite the investment. First time solo founder, again, it's not a hard and fast rule where it's always a no. We've done it in the past, but I think it does make it a little more tricky when you're balancing both the product execution and the go-to-market execution as a solo first time founder. It's hard for even the best people in the world to do that. And so I would say it's a little more tricky. I wouldn't say we wouldn't do it, but it's something we, are not normally doing, I would say. And the second question, what we look for before we make an investment, I would say by and large, we're betting on founders, we're betting on people at the earliest stages. So a lot of times that's pre-product, pre-revenue, or sometimes there's an MVP and a little bit of traction with pilots or design partners. Pretty typical of a pre-seed fund, what we look at. I would say we lean more towards the Valley approach where we'll go day zero and invest before there's anything on the table if we really like the founders. And the way we kind of underwrite founder credibility and founder execution is that we're always doing technical founders. So if you've have, you're coming from a great university, if you're a PhD like Byron at Overland, you know, we can think to a certain degree that you're going to be able to build the product or you're coming from a big tech or another startup where You have, you're very hands-on with the product. We can underwrite that, you know, the technical execution is there. And I think that's kind of bar zero for us is the technical execution. We're almost never concerned about the technical execution and the companies we've already invested in. What I think makes the difference now is the go-to-market or the sales motion. And I think again, to the original point is if you have a co-founder with industry experience or certain connections, domain expertise in that, it really helps. Or if you just have a certain ability to sell the product. If one question we always ask right before we make an investment is, would you leave Ascend to go work for the startup right now? And if the answer is, eh, then it's usually a pass. And if it's, hell yeah, like sign me up if they would hire me as a co-founder, then it's a guarantee. And I think the way we can get to that point of conviction is their ability to hire insane people, their ability to sell the product before it might really be its full final frontier and their ability to, you know, sell us as investors and our thinking of, hey, they can go to the Valley and raise whatever money they want. And that gets us really excited. And so it's kind of a visionary sales storytelling aspect beyond the product execution. And yeah, if we don't want to work for that company, then we probably won't invest. Cool.

And so let's, you know, I'm going to take us on a building block journey here that ties into attraction metrics. So the very core foundation of this is the founder. So you like technical founders, you know, if, you know, or maybe a technical person on the team. You don't like the second, you don't like solo founders necessarily because there is extra risk associated with the deal. Let's just double-click on that a little bit because I think it's important for a lot of the solo founders here to understand that dynamic and understand from the VC's perspective why it's more risky. You mentioned it before around some of the execution risk of the technical side and the go-to-market side, but what is some of the other conventional wisdom when it comes to making sure you have a team versus being a solo founder?

Yeah, so I mean, I think it's— I read this on LinkedIn a few times and my boss always says this. You can always sell a product that doesn't exist, but you can't sell a product that does exist all the time. And so I think the risk that, especially if you're super technical and you have this vision for a product and you're a solo founder, one thing that I think can be difficult is being able to find product market fit on your own while also adapting and building the product in the way that your customers will pay for. And you might be able to underwrite that with, you know, a co-founder who has domain expertise or is focused, is almost like a founding, you know, growth product person that's working directly with customers, that's bringing in that feedback and helping to evolve the product and, you know, moonlighting as a coder as well. But by and large, as a solo founder, balancing both of those things can be difficult on top of, you know, hiring. A founding engineer, talking to investors, talking to your customers, building the product. I think it can be difficult, but I think the way it can be done and the way we've seen it be successful is folks that have very good time management and triaging and maybe are, maybe they're coming from a big tech where they built this product and they already understand the customer very well and they know exactly what they need to build. And they know that they're gonna be able to sell it, or they've done the homework with a ton of customer interviews or a ton of research before building the product that the market exists. And then from there you can really hire some killer founding engineers to really help you with the product while you steer the ship. I'm not saying it's impossible, and I think there's some incredible solo founders. I would just say underwriting that challenge is just something that we haven't done a ton of. But it can be done and I, we're usually wrong about these things.

Yeah. Well, I mean, some good disclaimers in there. There is a lot of data out there that shows that second-time founders are more successful and then solo founders tend to fail more. So I think part of it is like you definitely like in the beginning, You're essentially using your equity in the company to help grow the business because you don't have capital, you don't have revenue. And so you need to, there's a certain set of things that you have to do as the founder. And if you can divide that up across multiple founders or at least two co-founders, it makes it a little bit easier for you to manage the nuance of all the different things that are on your plate as the founder. Some people can thrive in that environment. That's why you do see really good solo founder companies out there. It's, you know, certainly there's, it's not a hard and fast rule, but just if you look statistically, like the failure rates are higher for solo GPs. So in order to compensate for that, you should probably find a co-founder that complements your skill sets. You should probably also, if you, if you're, let's say maybe a little bit too mature to bring on a true co-founder, surround yourself with just exceptional people, right? They could be like a really good, you know, team of 3 people that are early team members, but not necessarily co-founders. That also diversifies the risk. So I think people kind of get stuck on the word co-founder. I think it's powerful to have that because they're motivated by the same thing that the early investors are, which is early stage equity in your company and growing the value of that. But certainly, like, you know, if you're just a team of one, that's probably a bit of a big red flag. But if you're a solo founder, but you've got a team of like 4 full-time people behind you, that certainly also de-risks it as well. So think of it as more of like, the team bucket, 2 co-founders or 3 co-founders, that's great. But a solo founder with a team is better than just a solo founder with the only person on the deck. So let's go then to this next step. So you wanna have an exceptional team, you've got, you know, really good founder background, good founder product fit. Now, what do you guys look for in terms of traction? Is there like a baseline level of traction that you wanna see with companies how do you think about that universe?

Yeah, it's a good question. Again, I think as a pre-seed investor, it's hard to label anything, but I would say what's really helpful for us is your design partners or your, I wouldn't necessarily label it as ARR or MRR at this point. It could be unpaid pilots or unpaid design partnerships. With very quality firms that at least lead to the, complement your narrative, right? Like when you're telling your, when you're pitching your company to us and you say, I think our ICP is this, right? Like at the pre-seed, you think you have assumptions that your ICP is, you know, maybe a mid, mid SMB, mid-level enterprise, or it's Google, Microsoft, Amazon, right? You have your assumptions, but you don't necessarily know yet unless you've You know, uh, have a million ARR, you found product market fit. Um, and so I think what's, what's helpful is if you're testing that, those assumptions, right? We think, uh, it's mid-level, uh, enterprise, like Home Depot, for example. They, they might be the perfect customer for us. Um, or a company like that. Um, and you have this narrative. We think this is why this type of company is gonna be our customer because maybe they don't have a great ML engineering team or. Maybe they're really struggling with SKU count, whatever insight you have that lends itself to theoretically think, okay, this is our customer and our ICP at this point. The way to complement that I think is pretty obvious. It's like, okay, we have a design partnership. Maybe it's not Home Depot at this point, but maybe it's a regional hardware or a regional store that has like 30 retail fronts that has agreed to work with you with your product. Or it's, maybe it's Lowe's or maybe it's something even bigger that kind of lends itself to that. And I think if you have more than one theory, if it could be this, but it could also be this, it could be SMBs and you have another design partnership with a really cool restaurant or something that might be using your software for managing internal operations and they have maybe 10 storefronts regionally. Then I think that's really helpful for us to see like, okay, they can work with these different types of customer profiles, learn very quickly what they're looking for, and also learn very quickly what's gonna be really sticky and what's gonna produce a lot of revenue and what's gonna be easiest to grow. Because if you're going for that Home Depot type and you're learning what they want and you're assuming there's gonna be a lot of parallels between the different companies, you start with Home Depot, You approach Lowe's and they have similar set of things that they're looking for. Then we can kind of underwrite that risk of, okay, there's, there's some go-to-market execution here. There's some product execution and product growth that they can get from these things. So I think a really good, I think logos are really important at the pre-seed stage, or at least just like kind of early traction on what customers you're going after. Do they match the ICP narrative you're telling us? And do we think that's going to be really helpful, whether or not it drives ARR right now, it's less important than is it gonna drive a ton of learning and eventually, you know, a big multimillion dollar enterprise contract or drive big growth in SMB. I think those are, those are really important for us. And the way you can kind of suss that out in your data room is obviously LOIs or things like references from those types of companies are great, or you have like a really sophisticated pipeline of Hey, we're talking to the VP of sourcing at this company. We're talking to the VP here. We think it's an 80% probability we'll close a contract with them. Those types of pipelines are also really helpful for us to diligence. But again, there's not a hard and fast rule on ARR or MRR, but I think those types of things are really helpful.

I'm gonna share my screen real quick just to give the audience an idea and then Uh, Cassio, if you could post this link, fi.co/benchmarks, in the chat. I just want to walk through it. And Nate, I would love to get your thoughts on this as well. So we, we always get questions like, okay, when is the right time to fundraise? Do I do pre-seed? Do I do seed? How much should I raise? So we created this benchmarks page and we up this, you know, every like quarter or so based on what we're seeing our companies raise at and in the market. So Here you can squarely see pre-seed, seed, and Series A. You can see like generally what traction, what your monthly revenue might look like. So in pre-seed, you might have nothing or up to $50,000, right? Team size is 2 or more. Product, you could just have an MVP. And then the round sizes tend to be within, you know, $25K to $2 million. Although I'm seeing pre-seed go up to like $2.5 or even up to like $3.5 now for a certain one. So I think maybe it's time we update some of these numbers. But, but yeah, in general, you know, you could see kind of like what the valuations are for pre-seed. And then what I think is really important is kind of going down to what you were saying, like you might have some paid pilots or unpaid pilots, right? What investors want to see is validation on the thing that you're building, right? Do people want the product you've built? And then are there enough people out there to buy it to make this a billion-dollar company? And if so, what is your pathway to revenue to then get to the next million? And one thing that I always tell founders is, um, you're raising money to unlock the next round of funding. So let's say you go out and you raise a million dollars in a pre-seed round. You should make sure that that million dollars gets you to the level where you can now unlock this seed round, meaning do you have $50K to $200K in revenue? Do you have a team of 4? What does your product look like, right? Robust is kind of vague, but you can, you can see it there. What does your next seed round look like? And then what, what kind of valuations are within that? So the reason I'm sharing this is because you want to think about each funding round as like a puzzle that connects to the next funding round, and you can actually like be very strategic with this. So if someone came to you, Nate, and they were like, hey, we're raising $1 million, that will let us, that will unlock our, you know, raising a $4 million seed round because we're going to get to, you know, $2 million in revenue. Like, that's a pretty good story, right? But then the question is, well, show me how you're going to get to $2 million in revenue. Then as Nate's going through the data room, he's saying, oh, they've got an LOI here, or they have a signed contract that gets activated. There. And so you can start to build up what that pipeline looks like. And for founders, the more you can kind of de-risk the assumptive leap of, yes, we're going to be able to get to that $2 million in revenue, or we're going to hit the traction milestones needed to get to that next round of funding, the more you can de-risk that by showing the LOIs, showing the contracts, you know, making sure that those contracts and LOIs are very robust with pricing in it. That's going to make it really easy because Nate's like, oh wow, like, okay, all we have to do is write our check and then, you know, they already have everything set to get to that $2 million, this looks like a pretty de-risked and interesting deal. And so this is kind of some of the parts of the framework that investors think through in their mind, maybe not with so much structure, but this is a good way for founders just to kind of triangulate where they are in that process. Nate, do you have thoughts on that or anything you'd want to add?

Yeah, I was just going to say this is excellent. This is, I think, I hope delivers my point a little bit further, but Yeah, I think Founders Institute resources. I always point to the advisor articles you guys have on like how to, how much equity on advisors. Sidetracked. It's founders. It's excellent stuff. Yeah, I would say like that table looks pretty accurate. I would say there's one company we're working with right now that almost fits exactly this, right? They're at that $48K ARR. You know, they have a pretty solid MVP that they're working with. Some incredible customers, right? They're working with. Big manufacturers, like big logos that you'd recognize. But they're not quite like there in terms of hockey stick ARR, right? They don't have like, they didn't go from $50K to $5 million ARR right away. And so they're, we pre-seeded them. They raised $1 million on 10, like pretty standard, 1 on 10. And 2 co-founders came from, one was from Oracle, the other one was from SpaceX. Very much complemented each other's skillset. The CEO was very technical, worked on building AI models. The co-founder was a lot more people-oriented and worked on kind of the production manufacturing line and knew how to talk to customers very well. And right now we're working on kind of that exact point, right? We gave them a million, you know, use this to build a small team, build the product, work to increase your, footprint within these companies that you're working with. Footprint means like, you know, maybe they're buying more features and maybe, um, it's kind of the land and expand theory, right? You start with one little feature on, say, note-taking for meetings, and then it goes into, uh, entire workflows, right? And then that really expands the amount of money you can extract from these, these enterprise contracts. Um, and right now we're working on, okay, they're looking we did the $1 million pre-seed and they're probably gonna have to raise $5 million for their seed. And where we come in is we gave them enough runway to kind of get to that point where some of the numbers on there that you were looking at, what you need for a seed can be really hard if you're just starting at the seed. So we exist to, you know, give you enough lift to get to that seed. Some people bypass that and just go straight to seed. And then I think what's helpful or what, you know, we try to promise our founders or what other pre-seed accelerators, incubators can offer as well is introductions and the right guidance on when that seed round makes sense or when the narrative is there. I think the one thing to avoid or one thing to be wary of, especially when you're looking at a table, is maybe you think you have all your ducks in a row. Maybe the ARR looks right. Maybe you think the product looks right. Maybe you think you have some sense of PMF. But if you have investors or advisors or just anyone that can like take a second look and understand what the seed investors are looking for right now, that can also be really helpful. And like just before you go run a process, meaning you go schedule a bunch of meetings with seed investors, you want to kind of double check, am I there? Am I, is, am I, is this the right time to go run a process? And what I mean run a process is usually, maybe Ryan can double, double-click on this, but usually when you're raising a round, especially a bigger seed round or a Series A, you wanna schedule a bunch of meetings with investors, create that FOMO or create that timeline, that urgency to close the round, 'cause you don't wanna be raising forever. You usually wanna try to get in and out within 2 to 3 months is usually the standard for a seed. And so you wanna schedule as many meetings back to back as possible. And before you do that, you wanna make sure you work with your investors or your advisors or your whoever you're working with to make sure that, uh, those, everything is in a line, even if it looks great on, uh, you know, the, the spreadsheet that we just looked at. Um, maybe, you know, the types of investors you're going after are looking for something different right now, or maybe the ballpark has moved a little bit. Um, maybe they're more strict these days, they want higher ARR. Um, so that's another thing to keep in mind of is just like, uh, even if you are, you know, filling kind of the theoretical buckets, like there could be another external factor if, it's macro right now. If like interest rates are higher, people are just only investing in AI right now and you're not technically AI. Like there's other weird little things that can throw off a seed round.

There's a, so we kind of talked a little bit about traction and founding team. Let's go back to the beginning here. There's a question here from Gen B, which is for pre-product, pre-traction, what do founders need to show investors to successfully raise and how much is appropriate? Let me just take a stab at this real quick and then you can jump in, Nate. So let's, for everyone, all the founders here, let's forget about fundraising for a moment. Okay? Because it gets distracting where it's like the point, founders often think like, hey, I'm gonna go and raise $1 million and then I've made it. I can pay myself those big tech salaries and then continue to grow and become a billionaire one day. The reality is that even if you successfully raise $1 million, you're still paying yourself a very low salary to keep the burn low. It's not until you really get to the Series A that you can pay yourself a decent salary. And at that point, you know, you're probably like 4 years into your journey, you know, and that would be going fast to get to your Series A. And so I just want to clarify and just say this, like the goal of being a founder, especially in the early stage when you're first starting out, forget about fundraising. The goal is to get to $1 million in revenue. Fundraising can help you get there and it could potentially help you get there faster, but that is the North Star. Build everything around trying to get to that first million in revenue. And so, Jen, you might say, well, I'm pre-product and pre-traction, so how do I do that? You wanna think about the founder cockpit as team product traction, right? So as the CEO of your business, you should be making progress on building your team, building your product, and getting traction every single week. And you can actually kind of map out and figure out, okay, how do I get to $1 million in revenue by the end of 2026, let's say. And you could say, well, I know that in order to get to $1 million in revenue, I need to have a fully built product and I need to sell it for X dollars, whatever the product is, however much you're selling. Which means I need Y amount of customers. And in this case, let's just say you need 1,000 customers, right? So you can then work backwards and then say, okay, if I need 1,000 customers and a fully built product by the end of next year, what do I need to do like quarterly going backwards? And more importantly, what do I need to do right now? And so if you're pre-product and pre-traction, right, you have like a zero on, on product, you have a zero on traction, What's the other bucket? Team. So who do you need to bring on your team to enable you to build your product and get to traction, right? What are the things that you can do to build out that team? So it's a team of really strong people, ideally a technical co-founder, ideally someone that's, that can go to market. And then what is that plan to go to market to then eventually get to that million in revenue? If you build around that, that will ultimately allow you to attract investment once you hit certain milestones. It's rare that founders will get funding pre-product and pre-traction. When you do, it's usually a friends and family round, meaning it's people that know you because they can't validate your business, they can't validate your product. So the only thing they can validate is your team. And if that's all you have, strangers are probably not gonna invest in you unless your name is Elon Musk. And so you probably need to either go to people that you know who know and trust you and say, okay, Jen's awesome, we're gonna back her 'cause she's a rockstar. 'Cause you're essentially trading that social capital for real capital. Or you have to start building out your team and enabling them using the equity in your startup to incentivize them to build the product and to get to traction. So Nate, what would you, what's your response when you see the question, you know, for pre-product and pre-traction companies, what do founders need to show to investors to successfully raise?

Yeah, I mean, I think you hit the main points here. I mean, to your point, like you're probably not gonna, if you're leaving a big tech role, you're gonna have to take a much reduced salary of just basic cost of living. Another thing I maybe a little bit more in the weeds that I would look for too is like when you are formulating your team or when you're thinking about, okay, I need to raise and I have Say like, a lot of times founders will come to us with, they have their idea, they have kind of the things we mentioned on like what their go-to-market is, what their roadmap is, like the roadmap, like we need to do these things in the next 2 years to hit a million ARR. That's kind of the narrative. A lot of times founders will come to us with all of that and then they're saying we're raising so that we can hire these 3 people. And usually like the dirty secret is the founders get paid, or like the co-founders get paid way less than the founding engineers. At least in the early days, the co-founders will obviously have a bigger equity stake, but the founding engineers will get, you know, at least somewhat comparable salary, definitely a cut from what they were making before, but they'll be making, you know, somewhere in the six figures. And, you know, I think a lot of. Founders will understand that dynamic and they'll come to us and be like, we need to hire these 3 people. They said as soon as we raise, we will, they will join full-time. And I think that dynamic when you're building your team, when you're raising just to pay salaries, can be kind of tricky because like, for us it's like, well, okay, like, why didn't they join already just based on the equity? So I think you can, the way you finesse that can be kind of interesting, but the way I think what works the best is that when it's, when you come to us with just co-founders and then you, and then you say like in a few months we'll need to do that, but burn can go really quickly if you're hiring a team right away and you're paying those founding engineers somewhat comparable prices to what they're getting paid before. So I think it's kind of a catch-22 when we keep using the team thing. And you wanna hire and create a great team, you gotta make sure you're being very cautious about how much you're willing to pay for that team. And the way to counteract that is just a lot of belief. We talk about like, you know, visionary and people sacrificing a little bit of salary for a higher equity percentage 'cause they just believe so much in the company. So I think the only thing I would counter with Ryan is just when you are developing that team and you're coming to us, pre-product, pre-revenue, pre-traction is like also a firm understanding of how much you'll need to raise and how much you're able to convince these founders or these founding engineers to come on at a reasonable, reasonable price.

Let's dive into a couple other areas here. So let's see. There's a, there's a lot of questions in the chat around financial metrics. We kind of went over some of those. Um, and so I'm just gonna go down this list then. Um, this kind of touches on what you're just saying, but what is the best time to then contact VCs to raise a pre-seed round? Their context is considering the holidays are coming up, right? Probably don't want to reach out on Christmas, but like, can you talk a little bit about like how you view the fundraising seasons and then just in general when you're pre-seed, What is the right time to actually start talking to investors?

Yeah, that's a good question. Like the winter and the summer, it's kind of colloquial, but it's kind of true. Like investors take holiday, so be wary of that. Deals don't move too quickly, at least from my experience in those times. Some will, but by and large, it's, it's a little bit slower. I would say like the best time to reach out would be I think there's two ways, right? I think my biased perspective is that a lot of firms will have an associate, an analyst, or a principal, what we, I guess, classify as like junior investors, myself included, that are usually working a lot through the holidays and the summer, and they take in a lot of the inbound. And I think one of, I guess, one advice I would say is if you approach some of the, I guess, less decision maker types like the analyst or the associate. A good, a good approach would be to just get the initial reactions, right? It doesn't have to be every firm ever, but maybe like connect with a few on LinkedIn or email a few and like be like, hey, like I'm, this is what I'm working on. Like is the, the, the top line is like, is it even a match for your fund? And if it's not, then you'll probably get churned out pretty quickly. But if it is and you do find someone, maybe it's a friend or maybe it's a friend of friend, maybe it's someone close to you in age or just some kind of mutual relationship there. It can be really helpful to work with some of the junior investors because they have a lot more times, a lot more time than the GP and, or the GPs at the fund to kind of take on, take on founders way before they might be ready to make that partner meeting or to go through the formal process of due diligence. And you can just work with them, be like, hey, like this is what we have so far. Like what, what else are you looking for? What do you think your GP would say to this? What, where are you guys at right now in terms of deployment? That's, it's always a good question to ask because like a lot of VCs won't publicly share how much they're looking to spend, you know, in a given quarter or month. Maybe they're, they haven't called capital or they don't have money to deploy right now and they're probably looking to invest in Q1 or it's very, you know, the way they call capital is, is very cyclical. So A good way to, I think, approach that is going to a junior investor and just going at it from like a, hey, like, I really like what you guys are doing, or hey, like, maybe you guys aren't the right fund, but maybe you can help me just understand where I'm at and what you guys, what your response would be, what do you think your friend's response would be? I'm always an advocate for that approach. I guess it's a little self-serving, but I think a lot of junior VCs will agree in that we have more time than the GPs to, to kind of work with founders a little bit earlier on than, the formal process and say it's, it's a really great product or you guys really hit it off and there's something there. You can then though, that, that junior VC will be your biggest advocate for the, in the GP meeting and maybe speedrun some of the diligence process to get you a check faster. But it is really important even like in the best of times, right? Like in the spring or in the fall when you think everyone's investing right now, some specific VC firms might be in the middle of their own fundraise or they might have called and deployed all their capital, and they might not be deploying. So the best way to approach that is just go to the juniors. And if there is no junior VC, then, you know, you can always contact the GP. But I would say the best approach is start with a conversation, start with the advice versus the, hey, I'm going to pitch you approach. And I think a lot of founders finding success in that.

Yeah, there's some follow-up questions I want to dive into there. Let me first address Nate from New Zealand. You're asked, you basically said in the chat, I'd like to ask if I need to raise money to find customers, then a VC says, we'll give you money once you found customers. How is that a seed fund? And I just wanna like address that really quickly, 'cause I think it's really important. You're asking that question from the perspective of a founder who needs money. You're not looking at it through the lens of, We're VCs and we see thousands of deals that already have customers. So basically what the real question you need to ask is, how can I be in the top 10% of companies that investors are seeing? Because Nate's looking at, I don't know what company you're building, Nate, but whatever industry it's in, Nate's probably looking at at least 5 or 10 other companies that are in the same industry, maybe not the same product, but at least like similar industries that they probably already have some customers or a product built and all these different things. So what you really need to realize here is that in order to break through the noise of the investment ecosystem, you need to be a really strong company of what we call in, what I call in the top 10%, really just to pique the interest of them. And if you don't have customers, Or if you don't have a product and you don't have revenue, then you're at the bottom. You're not at the top 10%. You're in the lower category. And while that may or may not be fair, that's the reality of the ecosystem right now is there's tons of companies out there that have good traction and metrics. And so if you want to get investment capital, it's simple. Compete. Be the best in your category, right? Like go out and build the best team, build the best product. And while that's really hard to do, right? It's easy to say, it's hard to do. That's just the reality of entering in that space. And so you have to, if you're gonna step into this arena, you need to have that reality check and really understand what you're doing, what's at stake there. So I say that because going into this next question, Ether, you're asking, is it weird that as a founder, you may potentially not have angel investors in your network? And if you have to start building that network, what would you advise? I'll just, I'll go first and then Nate would love to hear from you. Um, everyone has to start somewhere, right? You're never going to start off in the top 10% of deals. You're never going to start off with like a network of hundreds of investors that you just already know. The important thing is that you get started and that you slow, you have to realize you're building your network up over time. And so it does take time. And so maybe what you should do is just focus on network building before you build a company. Or maybe if you're already in the midst of building a company, just put more emphasis on going out and networking and building that network. But it takes decades to build up that network of trusted investors and people with capital who can back your companies. That's why it's much easier for second-time founders to go and raise money because they already know those people. And so what, I guess, Nate, what advice would you have for founders that need to build up that network of investors?

Yeah, it's a great question. And I think, you know, sometimes we hear like it's unfair that folks that don't have, they don't come from rich families, they don't have, you know, and I empathize with that. Like if I started something, my parents wouldn't be able to give me a seed check. And I think it is a very real reality for founders that are trying to do the friends and family that just don't have, friends and family with the liquidity to give them, you know, $150K to $200K off the bat. And the way I think to counteract that, if that's what you're getting after, or just like, you know, angel networks of folks that maybe you've worked with that have, you know, are active angel investors. I'll be honest, I don't have a massive angel network myself. You know, I know my LPs, but I don't know off the top of my head just like who in the ecosystem writes angel checks because that's kind of hard to, unless they blast it on their LinkedIn, it's not super obvious usually. And usually the good angels don't make that distinction. So I think it's hard, like to, if you're looking for angels, it can be extremely hard when you're getting started to decipher who's actually has the ability or the appetite to make those investments. And then the investor or the VC side, like that's a lot more public facing and a lot more easier to find those people, but as Ryan mentioned, there's, you know, a bunch of other founders looking to network with us. So it can be hard to get in that. But I would say like, a good way that I've seen, you know, folks that are not as networked get, you know, in that world, I think Ryan makes a good point, like start early before you need to, before you need money, you know, get active in that world. Obviously there's events you can go to, there's things like this, there's, there's different things like that. And one thing that I found that has been really helpful for me that I built a lot of trust with folks that are, you know, maybe a little outside the venture startup ecosystem is, you know, offer support with diligence, offer support with referrals. Like if you have friends, you know, if you, if you know folks that are great founders, you can always send those over to VCs or Volunteer at their events to set things up. Like this all sounds very self-serving, but in my experience, like those, there are folks in the ecosystem that, you know, kind of started from nothing, but have, you know, always showed up the events, always, you know, offered introductions to some of their friends that maybe starting a company or have just been around. And then eventually, you know, maybe 2 years later, they're like, hey, I'm starting something. And every VC in town takes the meeting. I think that process takes a little bit of time, but again, junior investors are always looking for an edge or alpha and stuff like that. So you can start there and then work your way up to the GPs.

Yeah, that's a great suggestion. I mean, the other piece is like you just got to get out into events, right? You got to be super proactive with meeting people. You have to be very intentional with, you know, the folks that you're, you're meeting, um, and like what and how, how you could work together, right? Like, building a relationship's a two-way street, so you don't want to just like go out there and just collect investors for collecting investors. One of the things that I love asking when we're talking to potential investors in our fund is, you know, what are some ways that we can add value to, to them, right? It's— you don't want to just have it be a one-way street where, you know, you're, you're just getting your ask done, but you're not actually figuring out ways to add value to the other person. There's a question. So Nate, we have a lot of international founders here. So Josh is asking, I think Josh is from South Africa, how can startups from around the world access American or other foreign investment, given South Africa's challenging funding environment?

It's a good question. Um, I don't— I— Ryan, maybe you can answer that. I would be honest, we don't work too much with, uh, international founders. Um, like, I wish we did, we just don't have a ton of capacity for that.

Well, so Nate, you, you kind of answered it for me, which is the earlier stage you are in your company's journey, the less likely an international founder who invests at that— or an international investor who invests in that stage will invest in you. Because you also have to remember team, product, traction, right? Those 3 buckets, right? If your team is in a completely different country that the investor doesn't really know, I mean, that adds a lot of team risk. Now, if you were like the Elon Musk of South Africa, which I guess is Elon Musk, right? Then like, maybe that could potentially unlock dollars, but there's still a lot of risk. So generally what we see is at the pre-seed and seed stage, you're still raising money locally. It's rare that you're going to come across, I guess, except for Founder Capital and Founder Institute. I mean, we'll— Sorry, I think— can you hear me okay? I think my internet cut out for a second there. All right, cool. So most of the time, in pre-seed, American VC is not going to invest outside of the US, and most of the time it'll be in like a Delaware C corp. The further up the fundraising stack you go to seed to Series A, mainly Series A, that's when international investors will start to look at you because now they can de-risk the investment not just based on where your team is located, but on your progress. What is the traction? You know, how much revenue do you have? What is the team size? And so you start seeing more of that international investment, the more mature the company is, because it de-risks it from an investor perspective. So the bottom line is pre-seed and seed, you're raising locally or regionally. Series A, you might be able to tap into international investors more easily, but it's still a little bit of a challenge unless you're planning to move to the US or re-domicile in the US. Most US investors want to invest in Delaware C-corps. All right. Any— I don't know if there— well, I guess you already kind of answered that, Nate. So let's move on to the last question here. So this is more of like a theoretical question. Do you invest in a startup that may compete or overlap with an existing investment? So how do VCs look at two startups in a similar space?

Yeah, great question. The way we approach it is, yes, I mean, we will invest in conflicting companies, but by and large, we'll get it cleared with our existing portfolio company first. If it's a clear conflict, we'll go to the founder and be like, hey, is there any reason not to invest here? Is it going to— are we stepping on your toes too much? So by and large, we're always clearing and backchanneling with our existing portfolio companies because we have responsibility to them to not backstab them in that way. And if they're okay with it and we really like the founder, then we'll do it. I'm not sure what the other— I think bigger funds have different philosophies around that. But yeah, I mean, there are certain technologies that have just too big of a market to not invest in multiple entrants in that. And so we'll look, but by and large, like, if we have something specific in like computer vision for theft detection and we already made an investment in that space and another competitor pitches us and we really like the founder, by and large we're going to pass because like, one, if the founder is like, no, like that's our competition, or two, like there is also some portfolio math with that specific market is just like, we don't want to over-index on that one specific vertical. And so we try to be really clear with our, with our founders that are pitching us off the bat, like, hey, we have an existing investment. We clear it both ways. Like before we take the meeting, we'll say, hey, we have an investment here. Like, do you see any conflict? And if we do lean in or like want to take a second meeting, we'll clear it with our existing portfolio companies. And we'll also talk it over internally if like, do we want to over-index on this one specific category? And a lot of times it's no, and we'll just let the founder know right away how we feel there. I know different firms have different philosophies, but we do a lot of backchanneling with our existing portfolio. We try to be super transparent with the companies pitching us, and then we also think about it internally about how much we want to index on a specific category. So I wouldn't say it's a no, never, but it's also like if we have a specific bet in a specific company, it's it can be optically kind of weird to back a competitor also. So a lot of things to consider in that category.

Yeah, that's great, Nate. So I know I want to be mindful of time. I know we only have a couple minutes left here. So if we kind of go back to the beginning, build a founding team, right, that has multiple skill sets, right? Incentivize them with equity so that they work and get you to as much traction as possible. Once you think you're within that kind of top 10% of companies, that could be a good time to go out and fundraise. And again, that's like relative to your stage and how much you're raising and what your valuation is. So everyone go look at that benchmarks page just to take a look. And then when you're raising capital, you want to raise enough money to get to the milestones that unlock that next round of capital. So Nate, final question here before we wrap. A lot of times the standard wisdom in the industry is get warm introductions to VCs. That's a much better way than trying to do cold outreach. How do you view cold outreach in general versus like the warm introductions and any tips on how founders can get the warm introductions?

Yeah, we fall into the camp of we prioritize warm introductions from our LPs and our founders or other VCs, we just have way too much cold inbound to triage everything correctly. And for us, it's, if it's a warm intro from any of those three stakeholders, we'll almost always consider it and take a meeting. And cold outreach does work. I would say like a custom LinkedIn message or a custom email works best. Personally, I prefer if you're cold outreaching, do it through LinkedIn because my email has a lot of filters on it, so it might get triaged to my pitch deck and or my pitch folder and it might be a while till I respond. I try to respond as much as I can, but you know, we're all pretty busy. But on LinkedIn it's a little easier to write a personal message. If you're, if, if it's very spammy and it's like, yeah, it looks like every other AI pitch that I get, I'm just not gonna respond. Or that's, I think that's pretty standard. But if it's very unique to our fund and you have like a specific message, then I really try hard to respond. And then I would say like the best practice for getting warm intros, we have like a pretty, we have like a blog that we could share, but yeah, it's great. Founders are always like top priority for founders and LPs are always top priorities for us. We don't make our LPs public, so that's probably a little harder. But if you know any of our founders and you are able to ask them for an introduction, that goes a long way. And the best way, I think also, just practical advice is it's like create a forwardable. It's basically like a blurb of what you're doing. If you have a pitch deck or a one-pager or whatever, make it super easy for the person that you're asking the intro from to just forward it and be like, hey, hey Nate, hey Kirby, this founder is someone I know, like to work with. They're raising capital, would love for you guys to take a look. Whatever is super easy for them instead of them having to write out all the information unless they want to, but usually Portables are really helpful. And yeah, I mean, I, by and large, if we have like 80 portfolio companies and we have, you know, other investors and stuff, you know, if you do take a meeting with an investor, always ask them if they can make introductions for you or be like, hey, do you know any VCs in your network that might be interested in taking a look here? A lot of VCs are pretty happy to do that because, you know, we like to trade deal flow as much as we can. And yeah, just make it personable, make it easy for the person you're asking the intro from and just try not to over-index on the cold outreach as much as you can. There's times where it's inevitable, but it's easier to go through the warm route.

Yeah, great advice. Speaking of building your networks, we're about to start the network working session of this event. So in a moment, everyone's going to head back over to the networking lounge. That's where you can meet with other entrepreneurs, investors, ecosystem leaders who are in the audience today. So Nate, thank you so much for joining us. Really appreciate your insights, and, uh, I know you're not feeling well, so appreciate you sticking it out and joining us today. Um, and then for everyone in the audience, we do record this session, so you'll get a recording from this, uh, afterwards in the next 48 hours. So looking forward to seeing everyone in the networking side, and we'll talk to you then. Thanks, Nate.

Thanks so much, Ryan. Thanks, everyone.