Startup Fundraising Q&A: Meet Investors from the FI Venture Network - Feb 22, 2023

Hey everyone, how's it going? My name is Eon, I'm the Head of Global Growth. Thank you so much for taking your time out to join this online event. This is FI's global webinar on, you know, meeting the venture network. We have two really, really awesome panelists for you. I'll let them kind of self-introduce themselves, but in the meantime, you know, let us know in the chat where you're coming in from. We had over 500, exactly 534 people people sign in, sorry, register. We have about 156 people online now. We typically see 5, a lot of individuals jump in over the next few minutes, but this is gonna be an exciting session. Let's kind of get introductions out of the way. Like I said, my name's Ehan. I'm the head of global growth for the Founder Institute. For those who don't know, Founder Institute is an early-stage accelerator. We're around in 200+ cities. We offer early-stage programs to take somebody from ideation to execution. That's enough about me. I'll kick it over to Alex. Alex, do you want to give a quick intro to yourself, who you are, and like tell us a little bit about your involvement with F5?

Certainly. Hi everyone, my name is Alexander Morsink. I'm a co-founder and managing director of Equivesto. Equivesto is one of Canada's equity crowdfunding platforms, and online investment portal. So we, Equivesto, helps companies raise capital from investors, both angel investors and the general public, typically pre-seed through Series A. Myself as well, I'm an angel investor on my own and, and through the platform. Obviously, I'm a member of the, uh, the mentor Venture Network with FI. Happy to be here and chat about all things capital raising.

Perfect.

Hi everyone.

Yeah, Sush, go ahead. Okay.

Okay. Hi everyone. Um, so my name is Sush, uh, I'm based out of London. Um, I run an early-stage fintech fund, uh, which invests in, you know, pre-seed and seed-stage fintech startups across UK and Europe. Um, we typically like to go in very, very early. So, you know, that's where Founder Institute is. I'm also involved in Founder Institute through different programs, the Venture Advisor program and through VC Lab. So, and we are actually on our second fund now. So you can go check us out at digital.space. That's our URL.

What a wicked URL, digital.space. That's awesome. All right, folks, just to give you an idea of what the agenda is, we're going to do things very, very differently. This isn't going to be your typical panel event. I'm going to ask 1 or 2, maybe 3 questions about the economic situation and just to get to know these great panelists. But like, this event is for you. So if you're, if you're on your, I guess, iPad or laptop, you will see on the right-hand side there's a Q&A button. Click that, you should be able to feed us your questions into, and I'll be able to see it. From there, people will be able to upvote it. So we want to answer as many questions about angel investing, VC investing, what's happening in the economy today, and really keep it centered around this, because this is, are the topics that people really want to cover. They don't want to hear just the three of us babble on for for hours, which I'm sure we could do and we can have a lot of fun. But again, like, this event is for you, so like, use the Q&A button, start throwing your questions in. In about 10 minutes, I'm going to start burning through those and we'll kind of take it from there. Um, all right, so Alex and Serge, again, thank you so much for joining us. I think we'll have a good fun, uh, 30-40 minutes here just to talk about what's going on. But let's kind of start off with the economic environment. We're kind of, I don't know if it's official, but like we're in this midst of a recession. A lot of things are going down. People are calling it economic downturn, mini recession. There's a bunch of different names for this. As an early stage founder, someone who's watching this online webinar, and if I'm looking to raise capital, and like we have both sides here, we have the angel investor, We have a pre-seed, seed-level VC perspective. What should I be doing? And what should I really, like, how can I really prepare for this? And maybe the last bit of that question is like, how can I set the most realistic expectations for myself? Like, I'm not gonna go and raise a pre-seed round with angel or VC fund for like $250K in like 3 weeks. Those days are gone, right? Like, what does that look like for me? So, um, yeah, Alex, maybe why don't we start with you, and then, uh, Sush, feel free to interject at any point.

Certainly, I'll try to make my responses as international as possible, but I do want to note, you know, as I mentioned, I am, uh, from Canada. We're based in Toronto, and so the, the capital raising, certainly for early stage angel raising, is going to be a little bit different country to country. Um, and so when you're thinking about raising, just something to keep in mind when you're gathering information listening to panels like this one, keep in mind where the investors are from and, and that sort of background that they have, because the sort of space in Silicon Valley will be a little bit different than the one in Houston or Austin, but will also be different than the one in Toronto or London. Um, that being said, I think internationally we're seeing a sort of pullback from the huge mega rounds at early stages that we were seeing in you know, 2020 and 2021. I think we've moved a little bit more into lower valuations, maybe back to, you know, a little bit what I would describe as more realism when it comes to valuations. We sort of, after 2016, we started going up and up and up, and I think we've kind of stepped back. It's not like you're suddenly going to be potentially valued massively lower than maybe you should be, but I think the potentially over-expanded valuation period has ended. I would also note the timeline for raising I would typically recommend companies plan and allocate at least 6 months sort of end-to-end for a raise. I think that would be a strategic move to make. And then the biggest change really in the early stage rounds with sort of pre-seed and seed raising from angels is prior to this, it was sort of growth before anything else. So, okay, as long as you have some, you know, some sort of traction or something, that's fine. I think the unit economics of your business has also come into play a little bit more rather than, Okay, you've, you're maybe you've got your MVP, but you haven't gone to market yet, but you've got a great product. That's enough for you to raise on. I think more earlier stage investors are looking to see more proof of traction. So if you don't have revenue, then show more people who are sort of lining up potential customers on your waitlist, things like that. If you do have revenue, then don't sort of sacrifice your entire burn rate in 2 or 3 months to sort of balloon your revenue. You want to think about having a little bit more longevity. And make sure to raise, uh, rather than like a 12 to 16 month burn rate, make sure you're raising closer to 2 years, uh, of burn rate to make sure your company will survive to the next round.

Yeah, I think, I mean, just, just adding a, a few more points to what, uh, what Alex mentioned, I think the key, the key here is that you need to work on your product a lot more than you did in the past. The, the, the level of advancement is very important. That's the first part. The second and the third part are more about the two Ps that I call them, patience and persistence. So you will not see all the seed stage or pre-seed stage investors engage very, very quickly because the deal flow has suddenly gone up. So you need to give that some time. The other part is that make your pitch or your messaging very crisp and very clear. I mean, I have typically got a 15 to 20-second timeframe within which I read an email and file it. So you have to be that crisp and that clear. And you're looking at a ticket size of anywhere between $50K up to $250K or half a million. And for that kind of money, you know, you, you have to be very, very precise, uh, for, for me to, to respond to you or just tell you, send you a message saying that let's connect, you know. So, so focus on that and focus on the fact that you, you have to wait and you have to be patient and you have to just make sure that you're still building your product while you're trying to raise Very, very—

So sorry, go ahead.

Go ahead. No, that's it.

Yeah, very interesting. So just to recap for the folks, 'cause I do wanna get into questions, I think we're already getting, we're at like 20 questions already. So we'll have, we'll kind of start going through this in a minute, but let me just summarize what I heard here because I think it's some valuable insights and nuggets here. So Alex said that, you know, you need to be raising for at least two, like, north of 12 months, even potentially 24 months. You're looking at a 6-month timeline, you know, and he's coming from an angel perspective, which I find really interesting because I remember back in the day, it was never like, it was like a few months, right? Now you're talking like 6 months to raise your smaller rounds. And he also said that the valuations are a little bit more realistic now because, which goes into what Sush was saying, there's just a lot more deals on the table. So as a founder, you have to be like, you have to know that the current environment is very competitive. So you would need to elbow your way all the way to the front, even if it's for $15K to $20K or $50K as Sush mentioned, be extremely, extremely crisp. Very, very good insights for a lot of different folks. Really, really good stuff. Just to give a quick, so we're at 210 people online now. I think let's, do you guys, are you okay with starting off with questions?

Sure.

I'm gonna go with— with the questions that, like, again, there's an upvote button. So if you like a question, keep upvoting it, and then let's kind of go, go from there. Um, so, uh, Anas, you asked this question, but a lot of people upvoted it. I'm just going to throw it on stage. Uh, Anas from, um, Ecoflex, he's like, hey, can you walk us through the process of a pre-seed funding? I think there's a lot that goes into this question, so maybe Sush and Alex, like what are your key piece of advice of like, if you're raising a pre-seed round, like what should the founder be doing? Like actually be doing like from a tactical perspective? Should they be cold email outreach to investors? Should they be signing up for your platform, Alex? Should like at a very high level.

Yeah, maybe Sush, I can take a stab at this first if that works for you. Sure, go ahead. I think the first thing you'd want to determine is specifically who are you targeting for your pre-seed funding round? Have you raised from anyone previously? Who do you want to raise from? You need to figure that piece out first because the way you approach different investors will be different. You, for example, if you're deciding, okay, I want to target pre-seed VCs and that's who I want to raise money from, then you need to go, yeah, find your list of pre-seed VCs, make sure that they match industry check size, everything that you're looking for, that they're currently, you know, deploying capital and, you know, you're not a direct competitor to a company they've already invested in. And then you want to start doing your, your cold outreach. And I'll kind of let maybe Sush talk more about how he would recommend doing that to, to get in front of him. From an angel perspective, certainly if you're coming from Canada, which I think you are, you're based in Vancouver, you know, there's not a magical database necessarily of listing every single angel investor in Canada. So most of the angels that you're probably wanting to be target, at least The lower hanging fruit would be members of angel networks or angel groups. So you wanna be thinking about which angel groups do you wanna be pitching? You wanna make sure, you know, you're updated on Dealum and Gust. You have all the information up to date there, and then you wanna be reaching out to pitch them. You wanna reach out from multiple sources. So if you're going to be reaching out to an angel group, you wanna be applying on their website. You wanna be reaching out to them through Gust, and you wanna pick a member of the angel group or somebody on the executive committee that maybe you can reach out to try to get a coffee or something like that. That'll be sort of more effective over LinkedIn. Once you actually go and are able to start getting some of the meetings, you know, you'll have to go and meet with the vetting committee before they'll let you actually pitch to the angel group. So you have to make your way sort of through that. You'll finally have the angel group pitch. Angel groups typically allow one session of pitches per month. So that's why I'm saying it's going to take 6 months because you probably won't even get into pitch the angel group for the first month or two depending on that. And then After that process, you have to go pitch. Hopefully the pitch goes well and the angels decide to participate. You should also really work on building your exposure to angels outside angel groups. So, um, one way you can do that is using the Equivesto platform in Canada. We make it easier for companies to prepare their round. We do initial due diligence, we get everything structured, and then you can reach out to people about participating in your angel round. All the paperwork and everything is structured so they can easily transact online. What whether you use a platform or not, you then need to start basically doing, yeah, cold outreach to angels. Obviously, any sort of warm introductions that you would have would be better. So if you have individuals in your network that know angels or can connect you to angels, that's what you wanna prioritize first. And you wanna start sort of working through those connections. If you are not as connected and you don't happen to know a lot of angels personally, the easiest, most low-hanging fruit would be reaching out to those angel groups and trying to, um, get some connections or introductions there. I would certainly recommend doing that.

Okay, I think that was pretty amazing. So one thing I have to put it out there to, I think we have got about 200, over 200 people, is that fundraising is more than a half-time job or more than a side desk, side of your desk job, okay? It's one of the main things that you will do, you know, whether it's for us as VCs or whether it's for you as startups, that is, you know, really time-consuming. So you need to make sure that you have— you make enough time for that and you do a proper outreach. Now, for pre-seed or seed, the, the idea or the point that Alex mentioned, that you need to look at people who have the thesis that you are going in with. If you don't, if you're not a match, most likely people will not respond to you. So first thing you need to do is make sure that you have a match with the thesis, then try and meet the investors. You know, like for us, as an example, we like to spend a lot of time with the founders in the pre-seed and seed stage. And the reason is that's when you are developing the products and you need to build a relationship with VCs to make sure that you are actually working with them, and it's not just about money. Like, in our case, we call ourselves a smart money fund for a reason, because we help you build that product that you're looking to build, or we help you find industry connections. So all those things put together, it'll become a lot easier to, to do an outreach. A lot of research goes into that, by the way. So, so, so be prepared. Um, See if you like any investors, you know, if you like some investors and you want to make sure that you have them on board, then do a specific outreach with making sure that you are aligned with their thesis and you're aligned with what they're trying to do for future, and that would put you in good stead. Hope that helps. Ayan, you're on mute.

Sorry, the mute button and the MacBook menu were being interfered. Sorry, I have nothing additional to add to that. I think though Sush and Alex answered those perfectly well. Let's just move on to the next question. We got quite a bit going here, so let's put this up. So I hope I say this correct. IKE from Berlin is asking, um, I really like this question, is like, how do you evaluate a pre-revenue startup? Uh, she says she's got a bunch of traction but no revenue. I'm assuming this is B2C, um, because if you have traction, I don't know what other metric you're referring to, but I'm assuming it's, uh, yeah, we got a thumbs up emoji. So, um, yeah, so Maybe Alex, let's start with you.

Yeah, certainly. Valuing startups is very challenging. Everyone likes to say, you know, it's a balance of art and science, but the earlier stage the company is, the more it is art and the less it is science, you know. And I'll give some sort of general framework information here, but by no means is this sort of the, the best thing to go off. It's important to recognize also how you're raising. If you're raising on a priced equity round, you're looking for a valuation for your business. If you're raising on a SAFE or a convertible note, which is more popular these days, given the risk of the market, and they, you know, having it structured as convertible debt is a bit safer for the investor. If you're doing a convertible note or a SAFE, you're actually raising based on a valuation cap, which is essentially a future valuation target that you want to make sure your company is worth when you do your next raise. And so those are two different numbers. It's important to keep that in mind. Your valuation cap is not your valuation right now, right? It is your potential valuation that you will be achieving in— you want to achieve in time for your next raise. And so the earlier stage companies will often use a convertible note or a SAFE because it allows you to push the valuation decision later on so that more sophisticated investors can sort be involved and help determine that valuation. And there's a discount baked in for the investors who participate earlier so that they get to benefit, um, and, and still not have to make that valuation decision. However, that being said, at Equivesto, we do a ton of work to value early-stage companies. And so if you're pre-revenue and you're post-MVP, typically, uh, and it again, it really does depend country to country because valuations are tied to investor risk levels and they're totally different country to country. I know the valuation you'd get in Canada is probably half the valuation you'd get from investors in the United States. So that's important to sort of keep in mind. But from a Canadian perspective, if you're a post-MVP but pre-money company with some traction, you're probably looking between a $3 and $5 million, maybe up to $8 million, but probably between $3 and $8 million valuation for your business, assuming You know, you do have the potential target market and all those, all the right things that VCs and investors are looking for in a startup. That's probably where you would end up. When we do valuations for companies, we essentially use a combination of something called the Chicago Method. So we look at the potential future cash flows of the business and the forward-looking projections created by the founder. We know that they're basically fake and sort of pie in the sky. So we take those as a basis, seeing the potential outlined by the founder. We look at the assumptions, we assess those assumptions and make sure that the assumptions are actually valid and actionable. And then rather than using a regular sort of discounting rate to the cash flows, like a 10 or 20% cost of capital, we start at a 99% discount rate and we slowly lower the discount rate based on all of the art factors. So all of the strength of the team, the industry, the preparedness of the business, the quality of the product, all those sort of other factors to basically earn a lower and lower discount rate on those cash flows. And so we'll end up usually around that sort of $3 to $8 million mark. And then of course you'll also look at competitors and where they've raised at that sort of same stage. But that was maybe too much detail. But, uh, Sush, I'll let you, uh, I'll let you continue.

No, I think you've covered pretty much everything there is. The only point I would add is that Everybody does their own bits and pieces of analysis. So, you know, don't be bothered or disturbed by it. In fact, you know, if you can challenge it, feel free to do that. And I would say the biggest metric that you can use out there, and especially to everyone who looks at the data from 500 Startups or Plug and Play or whoever, just look at the, the similar kind of products and how they are being priced, and you'll get a very good idea without actually, you know, if, if you really want to start thinking about how people are going to value your startups and to give you a starting point, basically.

Awesome, thanks so much. Uh, I, uh, I think both Sush and Alex discussed that and explained it pretty well. Valuation is a very, very tough topic, and I'm sure there's a lot of content that's also out there that covers it. All right, let's, we have still quite a bit of questions. Again, folks jump into the Q&A section. That's the only thing I'm really looking at. And then upvote because I'm just going by the most voted questions.

I just wanted to add something quickly on the, on the valuation piece, if that's all right. One piece of advice that I'd give to founders, oftentimes when you're going to raise your first round, your goal is always to get the highest valuation possible that you can. I would say that would be the incorrect goal. Typically, when you're raising your first round, you're gonna be raising from friends and family, people who know you well. And if you push too high for a valuation that, sure, you wanna sound fancy and like, oh, it's a $10 million company, invest in it. The people who will be investing at later stages, the professional investors, they will not be willing potentially to entertain such a high valuation. And if your earlier stage investors are less sophisticated and you get them in at an overinflated valuation, when you raise the next time, your valuation will potentially be lower. And so what you end up actually doing is punishing the people who came in and invested and believed in you initially, because the later stage investors will require a lower valuation, and those people who invested will lose money on their investment. So I understand the, the very emotional physical desire to get the highest valuation you can early on, but it's actually important to be much more realistic. And sometimes, you know, you don't want to severely underprice your valuation, but you want to make sure that you're giving yourself ample space to raise again and grow your valuation as you scale. And therefore, you're protecting and actually rewarding the family and friends investors who supported you at the beginning instead of accidentally screwing them over. Thanks.

I think that's like one of the best pieces of advice anybody can hear. So Alex, thanks for that. As you get— folks can see, you can see some emojis popping at the bottom. You know, if you find the content helpful, please, that's the only way we as the three speakers can see what you're— how you're reacting with it. All right, let's move. We are at 24 minutes. I hope everyone's enjoying this format of just trying to get the Q&A portion done. Usually There's only 5 minutes for Q&A, but we just wanted to bring up everything up ahead. This has probably the most upvotes. I think it's a very good question, and it's a really hard question to answer. So like, how much of your company should you be willing to let go for your seed funding? And what are the 3 major pieces of information you're looking for in an early-stage startup? The following question as well, they're kind of asking the same thing, like what are the pieces of information people need to kind of present to a potential investor. Um, this is a loaded question, so maybe Sush, why don't you start, because I think you have some good insights.

Okay, um, so this is a very, very, very good question, and I'll take the first part, um, because I've already forgotten the second part. What sort of percentage you should be raising in terms of equity, uh, for seed funding. Now what we see, or what we used to see, is that people would come in with $5 million, $25 million valuation. That's about 20%, 25%. Um, that has now changed to 2 on 20 or 1 on 5 or, or 1 on 10. So, so the range is quite broad. What you really want to be doing is thinking about not just your seed funding but your entire deal life cycle. And by that, what I mean is think about what would you like, or where you would like to be if you were doing a Series C, Series D round. How much equity would you want at the point when you're doing your Series D round. And typically you shouldn't be having, I mean, less than 40 to 50% equity. What that means is that you've done 5 rounds before that and you work your way upwards, or you work your way around it. The, the key part to, to the seed stage fundraising is the value that you can think you can enhance. So it's not about the money you're raising, it's about the eventual value. Or, and what I would suggest is, you know, anywhere between 5 to 15 is kind of reasonable. Anything beyond that is a bit problematic because you're giving away too much too early, and then you fall into the trap of what's going to happen after that. Um, Alex, you want to—

yeah, happy to take it. I think, I think you're like— I agree with everything what, uh, what Sush is saying is you're usually going, yeah, between 5% and maybe 20% of your raise. You know, for the longest time it was basically, okay, you know, it's a $10 million valuation, you're offering $2 million, and you kind of— that's the ratio that you raise sort of all the way up through the thing. As a founder, one of the biggest things you need to be emotionally prepared for is you're going to be diluted every time you raise capital. And so your goal is not, I need to keep 50% of the company. You're going to end up at the end, you know, if you have the sort of moonshot success of we're going to IPO in 10 years, whatever, you're going to have 20% of the company, 25% of the company. That's your goal. What you want to be thinking about is every time you're raising, when you're giving up control of your business, Are you bringing in people who you trust, who you respect, who are going to really add value? You don't want to be the only one steering the car. You want to make sure you've got navigators and people in the car who you trust. You don't want to have 100% control. You want the other people with control to be people who you want to question you, who you want to push back and save you from making that stupid idea that's going to drive the car off the cliff. In terms of What, what are investors looking for? I think the second part of the question, um, I always think about investing in early stage companies in terms of sort of 4 pieces. The first piece is, is the company fraudulent? Is it a fraud? So okay, we're assuming none of you are frauds, so we take that off the table. The remaining 3 is essentially about reducing the risk that any investor is going to face investing into your business. So the first risk facing all companies is, can this company actually make a valuable product? Can they go from ideation to a great product that's useful? So that's the first risk. The second risk is once they've made this product, is there product market fit? Are there people in the market who want to actually buy this product at the price that they're going to be selling it at? That's the second big risk. And then the third risk is, is this the right team to scale that very small successful product market fit to a large national or international company that really starts to make money. And so if you think about the stages of raising capital, your pre-seed and seed round is can they build a good product? That's the piece that you can kind of COVID And the remaining two risks are something investors are willing to take on. Once you get to Series A, that's where you should have already demonstrated, demonstrated the product market fit. And so then the investors are saying, okay, Is there actually a good match, you know, with, with this product and the potential investors? And then the last phase is, you know, Series B and beyond. Now it's just a sort of scaling proposition. Are they the right people to scale the business? So as a founder, anything you can do to demonstrate how you're covering off those three core risks is going to de-risk the, the investment decision from an investor perspective and make them more likely to participate. So the first thing is, have you built a good product? Is it a great, great product? And, you know, Sush in a previous question was talking about the importance of spending even more time on building a really high quality product. And that is so true. So have you built a fantastic product? So now you're going out to raise and you've built your product, but you don't have any revenue yet. How can you, what else can you provide that de-risks that, that product market fit? Challenge. And so that's where traction comes in. Obviously, the best traction is really strong revenues. But if you don't have any revenues, the next best thing is if you're, you know, a B2B company signed agreements with like 15 clients that, you know, you haven't been paid yet, but they're ready to start using your product. If you don't have that, it's letters of intent. If you don't have that, it's, you know, discussions that you're having. Basically, the further you can move the ball on the traction perspective, the more that's gonna de-risk it. And then when it comes to the scaling perspective, the is this the right team to scale it? Know your areas of strength and your areas of weakness and add to your advisory board really amazing players who are experts in their industry who could help bolster your areas of weakness. If you're not a marketer, find somebody who's amazing at marketing on LinkedIn, who's some pro, you know, CEO of a marketing company and ask them for some advice, build that relationship, and then eventually ask them to join your advisory board. So when you're approaching investors at a, as a pre-seed company, you're like, okay, we've built this great MVP, you can look at it, you can see it's a great product, we've got 35 customers who want to sign with us, you know, when we go live, even though we're not live yet, and here's our advisory board of amazing individuals who are going to help us build that scale. And that's sort of de-risking it. And then we'll you know, help strengthen your valuation as well.

I'll just quickly add, add to that, uh, one, one, one point, uh, which is around if you have a B2C concept, what you need to make sure is that especially in the early stages, because it's all about customer traction in within the B2C, you know, phase, or be within the B2C startup at the, at the early stage phase. And you're not gonna get critical mass at a seed stage, but you have to be prepared to answer tough questions around user acquisition because that's where, in my view, most of the startups fall apart because, you know, we are not, we are past the stage of Facebook, WhatsApp, you know, Telegram, we are past that stage now. You need something unique. You need to be really, really strong. In why you are the one who will do the next B2C billion users. And that's, that's where I think you need to be very well prepared for that.

Awesome. Thanks so much, Sush and Alex. I think there's a lot of sound advice here, folks. I'm going through the questions and I'm like already marking the ones answered that Alex and Sush have already indirectly or directly answered. But I think there's a lot of knowledge you guys can really, uh, uh, like think about and, and let it sink in. I think there's a lot of gold nuggets that both these gentlemen are bestowing upon the audience. Um, I'm gonna pull up the next question. I think we've had it upvoted already a few times. So it's like, what advice can you offer to solo founders? And let me— like, the reason I like this question is I can Founder Institute, we really advocate heavily for co-founders, not necessarily that you need it, but it really definitely helps with the whole journey of being an early-stage entrepreneur. It's a very lonely place, you're more likely to get funding, you can bet you can have a complementary balance, whether it's on product development, marketing, technical, whichever it is. So whoever wants to kind of go first, this would be Interesting.

All I'll say is, if you're a solo founder, if you're a technical person, go find a business person next to you. Or if you're a business person, go find a CTO who sits next to you. Because that is, you know, for me, when I meet founders, if you're a solo founder and if you're a one-man band or a one-woman band, I get scared. I get worried because it's a key person risk. And which is why what you need to do is make sure you have one, at least one, or maybe two, or maybe three people who are actually working with you and who understand the vision and the idea of your product. It may be your baby, it may be your product, but you know, if you have a solid team around you that buys into what you are building, then it's easier for me to buy into it. So, so that's the advice I would give. Go find, uh, and if you, if you have trouble finding those people, tap into your old friends, tap into the people who you've worked, worked in the past, tap into the people who you never got along with. You know, those people will, will become excellent co-founders with you.

And just to plug one thing in for FI, every 6 weeks, roughly 6-7 weeks, we have a free Find a Co-Founder event. It's exactly in the same format with virtual tables and like you can just go and meet other individuals. We're gonna have a networking component after this panel discussion. So there's always opportunities online to find a co-founder. At FI, we plug it in for every single event. So I just wanted to kind of put that out there. Alex, I'll kick it over to you to answer this question on solo founders.

Yeah, I agree again with what Soush said. I think, you know, there's two angles to approach it, right? One is, you know, the demonstration of having other people really believe in and support your idea. That's why, you know, 2 co-founders, you're at least, you know, you're able to convince one other person of it. I think one thing I also want to mention though is you don't want to have a ton of co-founders either though. As soon as we see like 4 or 5 co-founders, that's too many. Um, some of those people are not actually co-founders, that maybe they're employee number one or whatever it is, but they shouldn't be co-founders. You really want 2 to 3 is like the perfect kind of range. Because also, like, let's say you have 5. I just mentioned in my last question that at the end, you know, your magical exit, you're gonna have like, what, 25-30% of your company. Divide that by 5 people. That's not usually enough incentive for the founding team to continue all the way to the end. Because you get diluted so much before you've even started. And so that can throw off your decision-making when raising capital. So you don't want 5. But as a solo founder, my, my challenge is, as, as a founder of a company myself, founding Equivesto, that made me an angel investor, like, the amount of work that goes into starting a company is so gargantuan that there is literally not enough time for you to do every task. And at an early stage company, you cannot afford to pay people people full salaries to do every founder-level role. There's things that the founders have to be doing nobody else is going to do, and no one can afford to pay anyone, so they have to be given equity to do those tasks. And so if you're thinking about like the, the marketing, the actual operations, the development of the product, the cap— like, capital raising itself is a full-time job. It's a full-time job for, for at least a couple of months. If you're raising capital. So if you're a solo founder, you've just stopped all operations, all product development, all growth to do the capital raise. And so that can, that can be kind of problematic. I haven't met anyone yet that is so— not, not lots of people are smart enough to potentially be a solo founder. The challenge is the time. I haven't met anyone who somehow magically has more than 24 hours in a day Even if you work 24 hours a day, you still won't have enough time to do half of all the founder tasks. And so some will just get dropped. And so that's where I get a little bit concerned when it's a pure solo founder. I get if you're very like ideation stage, you're just building your product. Yeah. Then you maybe just build it in isolation to kind of see if you can actually create it. But when you start looking at, okay, now I'm going to run a business out of this, having a solo founder can be, can be challenging.

Yeah, one thing I'll just add to that is I heard this from Andreessen Horowitz, is that he said like, that's like the first testament of what a founder should be doing. Like, it's like if you can't go sell somebody on a vision and a dream to join your company, then like, how are you gonna go and close additional like customers and all of that, like customers, investors, and so on and so forth. So I think I would say it's highly encouraged to get a co-founder, but also you don't wanna just jump into that relationship, right? You probably wanna make sure it's properly vetted and you both share that same vision and you're both willing to work pretty hard to achieve those respective goals and dreams and all of that. Cool, just a quick time check. We're at the 40-minute mark. We're gonna wrap up in about 10, maybe 15 minutes just to be respectful of everyone's times here. There are close to 30 questions here. We're not going to go through 30 questions. I'm sure Sush and Alex would love to and myself, but we have other things that unfortunately we need to attend to. So again, we're just going off to the most upvoted ones. I think we can do maybe 2 to 3 more. So if you're in there, just smash that upvote button if possible.

And make sure you're putting your questions in the Q&A, not in the chat, because I keep seeing questions show up in the chat. He's only looking at the Q&A section. So put your questions in the Q&A sections, not the chat.

Yeah, thanks, thanks for that clarification, Alex. Yeah, only Q&A section, folks. This one would probably be more for you, Alex, but Sush, I think would love to kind of get your thoughts on it. You folks briefly touched upon it in the start, but like folks who are trying to raise, you know, that F&F round, like, and they don't have wealthy people and they kind of want to get small checks going, where, like, what should they be doing? This is from Andre from Irvine.

Yeah, yeah, no, that's a, it's a great question. And, and one of the really frustrating realities of being an entrepreneur and a startup founder for a very long time is essentially you needed to have initial wealth to essentially build the product. Because I just mentioned those 3 risks, right? The risk of can they actually build a product, and then is their product market fit, and can they scale the business? Those are the 3 core risks. The challenge with can they build a product is that choice is purely based on who you are as a founder. And so oftentimes, if you don't have a network of people that know you personally and trust you personally and are willing to take a bet on you to give you the money that you need to to do that thing, other people who don't know you aren't often going to be willing to take that chance on you by yourself. And so oftentimes, like for example myself, I worked, uh, you know, a corporate job for 5 years before quitting to start this Equivest of my business because I needed the money to start the company, but also to be able to live and then work for free for 5 years, uh, to grow the business. So I needed to have that sort of cash cushion for myself. One area that my business is really trying to change, though, is that accessibility to early-stage investors. So with equity crowdfunding, it gives you that opportunity to allow people to invest in your business from as little as $100. So for Canadian companies only, because we can only work with Canadian companies, Equivesto helps you raise from your extended network and you can take as little as $100 per person. And we start with raises as small as $25,000. I would note though, most equity crowdfunding platforms require you to have at least a minimum viable product. So you need to have built that because the risk level of letting the general public invest into a company that's pure ideation is so, so high because again, it's can the founder actually deliver on that creation? It's very challenging. So if you're looking to raise a friends and family round and you don't have an MVP and you're in Canada, We can help you run a private round to help raise that capital, and some other platforms will help you do that as well. So that's sort of what you'd want to think about because there are rules that exist that allow you to raise in those very small check sizes. But it does kind of, it does have some additional legal paperwork and things that, that will get involved. But yeah, that it is a real challenge for founders.

I mean, there are a couple of options I can recommend. So, and, you know, each would be different in their jurisdiction or in their geography. One is to look at grants as to how in your area or in the work you're doing, what kind of government grants, university grants, or research grants are available. So that's an option on the table always. Or not always, but in most cases. The second choice would be if you can find, so like for example, in the UK, you can find different types of accelerators where if you have an MVP, you apply to that, and if you have a good product, you'll get in and you get your funding to kick off the project, so to say. Aside from that, you know, you just have to, you know, keep pitching to the investors. And at the end of the day, it's about people, right? So if it depends on the personality, it depends on the product, but if you are persistent and if you have a good product, you know, you will find the funding. But like Alex said, you have to be prepared. You know, he saved up for 5 years to work for free for 5 years. I'm not saying everybody will have to do that, but but, you know, keep in mind that there are grants and stuff available within different jurisdictions.

Yeah, certainly. And Sush is totally right. I, you know, I was focused on raising around, which I interpret as issuing ownership for funds, but certainly grants, you know, government money, accelerators, incubators are often, you know, even pitch competitions. Can, can earn you a potential additional capital there. So definitely look for some other ways to get non-dilutive funding for sure. I will say that certainly in Canada, the grant application process is so difficult that you often have to pay someone like $30,000 to write the grant application for you. So I know that can be a whole kettle of fish to get into, but it's certainly options to consider, of course.

Yeah, just to add to that, grants, 100%. I got my first funding through that grant, and then also like through government loans, um, which are usually smaller amounts. And then I think Alex said great, like pitch competition. I was judging at one of the pitch competitions here in the Dubai, UAE today. I think the winner of that, out of 30 startups, um, I think they get like 100 grand or something. So pitch competitions are really, um, are beneficial as well. And I think while you prepare for those pitch competitions, you'll perfect your pitch and like you'll also get a lot of good exposure. So there's a lot of those additional benefits that come along with it. All right, quick time check, we're at 46. Let's try to do 2 more. I like this question, maybe we can answer it quickly between the two of you, we can extend it to VCs, but like what's the best format to, I'm assuming this means like a cold pitch rather than like an actual, like long-form pitch, but like what's the best way to get in touch maybe with angels and VCs? Is it better to like email them, send a personal video? Alex, you talk—

warm introduction is always the best. If you don't know them yourself directly, finding a warm introduction should be rank 1 on your list. So if you don't know them, check your LinkedIn to see if somebody else knows them who you know, something like that. So I have to just include that cuz that's always the best option. If you don't have that, then this is where it becomes really about personality of who you're talking to. And this is where the fundraising becomes that full-time job that Sush was talking about. Like, for example, I know in Canada there's a number of VCs that are really— they love Twitter. They're very tech savvy and they tweet all the time. Go read their Twitter and you'll see them complaining about ways that founders pitch them that they don't like and ways that they do like. And this sort of stuff. So that's my like hidden tip. Research who you're going to pitch to and see if they're basically telling you how they want to be pitched. It's not easy because, you know, you're going to have to go pitch 100, 200 people and you want me to say, send an email with these 3 lines in it and just cold blast all 200 people. You can do it in an afternoon. I'm sorry. I wish it was that easy. You can try that, but it might not be as effective. The most effective way is Know who you're pitching, know about them, and reach out to them in some personalized way that fits their preferred method of communication. If somebody's posting videos and TikToks all the time and they're an investor, send them a personal video, reference some stuff that they've done, why you like what they're doing and why you want to have a meeting with them. I'm sure that will work. If somebody else is really all about emails and asking for people to apply through their website and they've said I won't take pitches from cold emails. I will only take them if you apply through our VC portal, then apply through the VC portal. People will usually tell you how they wanna be contacted, but you just have to find where that information is.

Research, guys, research.

That's, that's the response that Sushi just gave. Research, identify who it is. Like, I'll kind of throw an additional thing, like, guys, there's a lot of info that's out there. As Alex mentioned, check out Twitter, Crunchbase is there, you can very easily check out, and also check out an investor's portfolio. Between Crunchbase, LinkedIn, Twitter, you have, you can get a, and the VC's website, you can get a pretty good idea of who this VC's in, invested in and how you can kind of elbow your way to the front and get a warm introduction. So I like, I like both responses. All right, we can do one more, trying to do stuff that we've not picked. All right, so this is, I think, relevant stuff on the pre-seed side, you know, can you raise on a prototype? For pre-seed. And let me add to this because I think, let me add a little bit of a spin. I see this question a lot at FI, and the number one I think I lean on, I'm like, it really depends on what industry you're in. And let me explain. If you're in biotech, very different if you're in SaaS versus if you're in health tech versus you're in pharma tech or versus if you're in fintech planning to work with banks and like, and all that. So I'll throw that in there, is like, you know, if you're an early stage company, um, when, when is a prototype enough to go raise pre-seed funding? And when— and the inverse also, when's it not enough, right?

Okay, I'll answer that question. I'll answer that question in a very simple way. I think all the verticals that Ayaan mentioned, most of them would qualify for that, that you have to show some degree of traction. Traction does not mean revenue. Traction means you can get any industry expert to sit up and say, okay, I like this, okay. Or they might just say, you know what, this has been done multiple times, you can't do this. It's gonna fail unless you bring something that is completely out of the ordinary or something nobody's ever seen. It is very, very hard if you don't have traction. So I would say focus on the fact that, you know, so we are specialists, right? We invest in fintech or everything that is related to fintech. Now, if you bring me a startup, I've worked 20 years in banks. I pretty much know all the problems there are to be known within the back and middle office, operationally, within retail, wealth, institutional space. If you bring a problem to me, I will know pretty quickly if this will fly or not, and I will introduce you to a lot of people. I mean, it's not about me pitching, but, you know, typically that, that's the process that would follow, that people will introduce you to relevant network people, or who will basically tell you whether this will work or not. Or you should reach out to those kind of people with a product saying that, you know, I built a product, I'd love to pick your brains on it. So traction, traction, traction, traction.

Great. Alex, anything to add to that?

Yeah, no, I agree entirely with what Sous said. You know, traction is the most critical thing, right? So, okay, you don't have revenue. What else do you have? Like, and this, it would be very rare for this to happen, but let's say you're building a B2B SaaS company that's in fintech and selling to banks. And you don't even have your prototype yet, but you have personal connections to the CTO of the 20 biggest banks in the UK, and you went up to Sush and you said, hey Sush, I know all these people, you know them all too, they all want to use this thing, I need a million dollars from you to build it, or, you know, half a million pounds, and you presented it that way and you showed these connections, then he might say, okay, you know what, let's have a conversation. That traction makes a huge difference, but the most people are not gonna have that. And so getting as far as you can and getting as most traction as you can, you know, that's, that's really gonna help. So yes, there are unique scenarios where if you have, uh, just a prototype, but you have really strong traction, then that could work. But typically, you know, the investor wants to see that you've at least built something that is close to going to market, that is close to functionality.

Perfect. I think that you both answered those, that question really well. We're gonna do our last question, and I think I'm gonna pick this one because we talked a lot about software, we talked a lot about SaaS, fintech and stuff, but this gentleman, who I think is a gentleman, Yanev from Tel Aviv is asking like, hey, like, what do you do if you have a hardware product? You know, VCs are a little bit scared to invest. Maybe some angels are scared. And I really like this because we get asked this a lot at EFI, which is like, what do we do if I have a hardware product? Like, how do we even approach those conversations? So folks, this will be our last question. And then we'll talk about housekeeping. Stuff after, like how networking works, but just so everyone knows. But yeah, Alex Souches, if you want to give your high-level thoughts on this, this would be great.

Yeah, and I may need to drop off in the next few minutes, so I'll try to address this quickly so we can close out. But yeah, essentially I would just say look for VCs or angels that do invest in hardware. There's going to be, you know, angels or VCs that do specialize in hardware. They have experience in hardware, they feel comfortable with it. And also there will probably be accelerators. I know at least in Canada there are accelerators who have a focus or a connection to hardware-focused startups. And so they will then have connections to the VCs and the investors who like hardware. So just look for people who already operate in the hardware space.

And, and add to that, the third one will be the potential customers. So whoever you say are your potential customers, and considering you've said you're from the industry, I would recommend you go to your customers and you say, we need help to scale this up. If you can't find any VCs, if you can't find anything else, go to those customers and say, can you fund us? Can you give us some more money to, you know, build more products or scale? And you can have a stake in us. There is no exclusivity. Never give exclusivity. But you can always say to them, you know, we'll happily partner with you. You get the first right, you get the first right to use, you get the first right to test the prototypes and all those kind of things. So if you're getting traction and if you are hardware and if you struggle to find, um, VCs, that's a typical problem that you have in specialist products like yours. People will not know how the lead times work. People will not know how long it'll take to manufacture. And that's, you know, for traditional VCs, that becomes kind of a black hole and they don't want to go down that route. Or even if they do, that's not good for you. So, and if you can't find specialist ones, then you, you go and talk to your customers and ask them to, to help you out.

Exactly. Perfect, thank you. Thanks so much, Sush, Alex. The only thing I'd add to that is like Alex and Sush said, is crowdfunding. Try to create some good prototype videos, put them up on Kickstarter. Those tend to do also pretty well. Folks, we've answered about 10 to 15 questions by my count. Usually we only answer 3. Did you like this format? If you did, give me a thumbs up. We wanna do more of this. Would love to get the feedback. Okay, I see a few thumbs up in there. Sush and Alex are gonna drop off. Sush, Alex, thank you so, so much for joining us. I hope you've had fun and obviously, you know, Sush and Alex are both mentors at Founder Institute. So if you're considering, please do apply to your local chapter. What's gonna happen now is we're gonna end the session, but you will see all these virtual tables. I would recommend you folks just jump on a table, talk to one another, talk about what's going on. In the ecosystem, talk what's happening in the, in your respective geography, and just network. Spend like 20-30 minutes networking with each other and then really try to learn from each other as well, and even discuss some of the topics here and try to ask your questions that you asked here with one another. Once again, thank you, thank you for joining everyone. We have more events like this coming up, fi.co/events. I'm sure you've you'll get a few emails from us as well. All right, thanks everyone. Take care.