Startup Fundraising Q&A with the FI Venture Network

Alright, welcome everyone to the Founder Institute event on startup fundraising Q&A featuring investors from the FI Venture Network. We have a great international audience today with just under 1,000 registrations, so please make sure you say hi, tell us where you're coming from in the chat, and we'd love to get to your questions today on the call. So we're also joined by an incredible panel of international startup investors, and I'm excited to kick things off as your host. So my name is Ryan Michaeletti. I'm head of global operations for the Founder Institute and a venture capitalist at the Veteran Fund. For those of you who don't know, the Founder Institute is the world's largest pre-seed startup accelerator. And since 2009, we've grown it into an international sensation, launching over 6,000 startups across 200 cities with a mentor network of 25,000 mentors. Over the last 8 years, I've had the pleasure of leading the operations team, and I've directly launched over 600 startups that have raised $200 million through my accelerator programs, and I've worked with thousands of other founders throughout the world. So since the beginning of Founder Institute, our mission has always been to help entrepreneurs build meaningful and enduring technology startups. And I'm proud to say that now we are officially the largest company creator in the world. And the work that our team is doing at VC Lab makes them the largest venture capital firm creator in the world. So we recently created what's called the FI Venture Network, which is at the intersection of Founder Institute and VC Lab to help our alumni raise investment capital through our global network. So if you're interested in learning more about Founder Institute, how we can help you launch, build, and fund a global startup, we're currently enrolling across 6 continents. So you can see the list of those cities by going to fi.co/enrolling. Alright, let's jump into the agenda for today. So there is more opportunity today than any other time in human history to launch a startup. However, with the coming looming recession and the potential for an economic downturn, investors are tightening their belts and getting a little bit more disciplined and strict with the investment criteria. And so it's critical that founders check all the boxes in order to become one of the top companies that these investors look at. And today we're gonna discuss the best practices for fundraising as well as this shifting economic landscape. So for the agenda, in a moment I'll introduce the investors on the panel today, then we'll kick it off with a panel discussion with audience Q&A. So please note, this is a live event. We want to get to your questions. So please, if you have a question at any time, put it in the chat and our producer here will send it to me and we'll get through as many questions as possible. And then finally, at the very end, we're hosting a network event where you can meet people from the audience. So stick around and we'll share the link to join Airmeet, which is the tech we use for running networking events. And we'll have a fun networking event after this. So without further ado, I'd like to introduce Ankur Srivastava, the managing partner at Momentum Capital. Ankur, thank you for joining us today. Do you wanna do a quick intro on yourself?

Thanks, Ryan. Yes, absolutely. My name is Ankur. I founded the largest cross-border investment platform for India and US about 7 years ago. Or so. We did about 70-odd investments that valued collectively at about $2 billion today. And now I run Momentum Capital, which is a small micro VC fund based out of Toronto and India to invest in Indian founders across the globe.

Awesome. Thank you for joining us. Next up, I'd like to introduce Diane Yu, founding general partner at Philcore Capital. Diane, thanks for joining us. Do you want to do an intro?

Hi everybody, welcome, and we're so glad to have you here today. Philcore Capital is the first Asian American woman VC fund here in the United States.

Awesome, thank you, Diane. Next up is Lance Cottrell. Not only is Lance a longtime FI mentor, but he's also CEO of Feel the Boot, which has incredible content for founders, and he's also an angel investor. So Lance, do you want to do a quick intro on your side as well?

Sure, yeah, um, Lance Cottrell, lapsed astrophysicist. I founded in 1995 the world's first internet privacy company for consumers, pivoted to building platforms for conducting online undercover operations for the national security community. After I sold that in 2008, I went into angel investing. I'm on the board of directors of the North Bay Angels and run our selection committee. I'm a global entrepreneur in residence with Founder Institute. Uh, Ryan already mentioned Feel the Boot, and I'm a venture partner with Veteran Fund. So Fingers in a lot of pies, and I advise a large number of startups all over the world.

Awesome. Thanks, Lance. Good to see you here. Last but certainly not least, Mike Shcherbakov, general partner at the Veteran Fund and managing director of Founder Institute San Diego.

Yeah, thanks so much. It's great to meet everyone. I look forward to the conversation today. So just by way of background, I spent 5 years active duty as a Marine, ended up going to school, and then spent 10 years as a founder-operator. Had some early wins, which allowed me to do angel investing, made some early investments investments that didn't work out, so learned what not to do, and then ended up launching the Founder Institute program in San Diego, which has now expanded to the Southern California region. I run that alongside the veteran vertical, and as of the end of last year, came together alongside Ryan and two of our other general partners, and we launched the Veteran Fund. So we're an early-stage venture capital fund. We invest primarily in veteran-led companies. We're open to larger members from the military community, and we have a heavy focus into dual-use technology. So meaning a government and commercial application. And given what's happened, what's happening on a global stage, we're leaning even harder into national security and defense tech. So we like to be the first check-in. We like to say that we kind of invest as late pre-seed as possible. So happy to talk more about investment thesis, what we kind of look for in the companies, what we say yes to, what we say no to. And at the end of the hour, I hope any information we share is just more helpful and you walk away a better founder or investor for it.

Awesome. Well, you know, thank you to all the panelists for joining us today. So while the audience is sending us their questions, I'm going to go ahead and ask the first one, which is to really talk about your thesis as an investor, as well as tell us a little bit more about the criteria you look for in terms of startup traction, or like, what is it that you look for in these founders prior to making an investment? So why don't we start with Ankur first?

Sure.

So as I said, I think we focused on Indian founders, but I think there are 3 or 4 themes that we focused on in the fund. One is SaaS, because I think India is a very great place to build SaaS startups for the world today. Second is climate. We're really deeply invested in climate as a vertical. The third is consumer, to take care of the— to almost take part in the large growing market in India. And the fourth is health again. Same for India. So I think these are the 4 themes that we focus on today, but we're largely sector agnostic in general, open to most ideas, remain a pre-seed and seed check writer, and look at primarily Indian founders, India, US, and Canada being the 3 domains that we're most comfortable with.

So we can dive into like valuations and traction and benchmarks. Before we do that, I also want to share a resource here really quickly with everyone in the audience. I'm just going to share my screen and Bharat, if you could share this link in the chat. We recently launched something called Startup Funding Benchmarks. And the reason we built this is because there's a lot of misunderstanding amongst early-stage founders of what is the exact traction you need to raise capital. And so for anyone, this is a free open link. You can kind of look at it, but based upon the work that we've done in the investment community and through our fundraising program, Fundy Lab, Here's some of the things that we're seeing that will help founders determine if they're pre-seed, seed, what they should look for in terms of traction. I think what's really interesting down here is regardless of the different industries, we'll list out what is the traction you need. So one of the common things that I've seen is a founder will come to us and say, hey, we need to raise $2 million in a seed round, but they don't have any traction, or maybe they've built a very basic MVP with barely customer traction. Traction or validation. And so what this is supposed to do is really give founders an idea of the traction they should have before going out and trying to raise this capital. Um, and we can dive into some more of the theory here, but I wanted to share this link just so everyone can kind of take a look at it in the background and we can dive into some of this after. So why don't we go to Mike next? Mike, why don't you talk a little bit more about like the Veteran Fund thesis and kind of what we look for in terms of prior to investing in the company and what sort of returns, you know, that those companies need to provide.

Yeah, I'll share hopefully what are some helpful insights. So I mentioned the stage that we invest in. I think every founder needs to be aware of the kinds of returns that investors are looking for depending on the stage that they're investing in. And so obviously, as we invest early on, every investor wants to mitigate as much risk as possible, but the earlier they invest, the higher returns they're generally looking for. And as you move into the later stage rounds after pre-seed, like seed, Series A, Series B, and beyond, you're getting smaller returns. Now you're looking at 2, 3, 5, 10, maybe 20x. But at the early stage for us, the lens at which we look at companies through is, do we think this company has the potential to 100x? Again, every firm is different and every investor is different, but that at the very core is the lens at which we're looking through. So from a valuation standpoint, if we're coming in and investing at a $5 million valuation or for simple math, a $10 million valuation, do we think that this has the realistic potential to become a billion-dollar company? So Through that, is there a market opportunity for it? So that's one lens at which we look through. I talked a little bit about the founders and the team that we look for. So yes, we say we are tech-centric, industry agnostic, and the reason that we love tech is because of economies of scale. That's the opportunity to kind of have that venture-style growth. But for us, we're really betting on great founders. And for us, we believe that the skills that the founders develop in their military service translate incredibly well to business leadership, and that's why we choose to bet on kind of this military community. It's why we love dual-use technology. So, you know, from a founder and market perspective, that's what we look for. A lot of the milestones and benchmarks that Ryan shared earlier, we look for depending on the industry they're in, right? Whether they're in e-com and B2B SaaS, every industry is going to be a little bit different, but at the end of the day, do we think they have the potential to 100x do we feel confident placing that bet?

Awesome. Thanks, Mike. Diane, let's go to you and then we'll go to Lance. So what, what sort of criteria do you look for in founders and in different deals you're assessing?

Yeah, we're a marketplace consumer, early, anywhere from seed-ish to Series A. And if you are a marketplace consumer, we would love to talk to you.

All right. And then Lance, maybe, I mean, you wear a bunch of different hats from being an individual angel to angel group, and then also you're an LP in a couple of funds. But what do you typically look for? Like if you're going to write an angel check, let's say, like what is it that you want to see?

Yeah, so typically most of the direct angel investments I make end up being through the North Bay Angels. And so that tends to be the lens I look through there. I'm pretty sector agnostic. I invest all over the place. Geographically, I and we are US only for direct investments, just because I don't know enough about all the complications of investing farther away. And we're looking at pre-seed. So I'd like to see pretty early stage companies, valuations, I used to say sub $10 million, but with recent inflation and what, maybe we'll stretch to $15, but You know, with the recession, maybe back down to 10. But again, in that, you know, kind of range, and probably most of them are more like 5, 6 in the deals we do. Because we're in the North Bay, so we're north of San Francisco, up in the wine country, we probably see more ag, wine, food and beverage, hospitality kind of deals than a lot of people. But we also do a lot of conventional tech, SaaS, consumer tech as well. It's all about the team, right? Because I assume you're probably going to pivot at some point. So the details of your business plan are not as important to me as the team, but I want to know that you're going into a big market with that 100x potential on the exit. You know, as we know, most startups are not really good fits for, for angel or VC funding. And then I want to see some validation and traction, ideally paying customers, But if not that, waiting lists and really thorough validation of all the technology, of the market, of the need. Any question marks that you can eliminate increase the chances that you'll get through our team.

Yeah, that's really helpful. And I think one thing I can share too, we have a program called Funding Lab that we run for all of our alumni to help them raise capital. One of the criteria we look for is, do they have a team that's full-time? Do they have a product that has some kind of like minimal validation at least? So it could be an MVP, could be a full-blown product, but has a customer used it? And is there like some kind of repeatability there that proves the underlying thesis and value of the product? And then, you know, when you have those things together, then that's sort of the, I guess, like the table stakes for going out and raising capital. And so I want to share that just because a lot of founders here, I saw some questions here around like, do I need a team? Like, can I still raise funding without it? I would say yes, you absolutely need a team, not just to one, make the journey a lot more enjoyable, but two, you know, there are some really successful solo founders, but investors will also judge your ability as a leader. And part of that is attracting really great talent. So it doesn't necessarily need to be a co-founder, but you certainly need a team prior to going out and raising capital. So let's dive into some questions here. All right. The very first one, um, I think is kind of interesting is what criteria should founders consider in selecting an investor? Would anyone like to jump in on that?

You definitely should look for value add. It's a great question. It's, uh, you know, if, if you can look up a VC before you talk to them, definitely research them and see what type of exits have they had. What is the track record they've had in your industry and ask what type of value-add or smart money would they be providing. If you were to go to an investor or a VC without experience in your industry, I think you're more at high risk and it's better to go to someone who is more industry-aligned and has experience and has exits.

Awesome. Thanks, Diane. Anyone else want to chime in on that?

Yeah, I think definitely do some reference checking on these people. When you bring someone onto your cap table, you're going to be married to them for years and You just don't want to have jerks on your cap table who are going to make your life painful. So talk to some other founders who have had investments from these people to make sure they're good and make sure they have experience at your level. I've talked to a lot of people who've gotten investments from people who typically do A and B rounds who invested pre-seed and their expectations are completely out of whack with the realities of that stage of company. So someone who does regular investments at your kind of stage is also really key.

Yeah, I would add two things. One is that you also have to look at not just the firm, but the specific partner that you're going to work with, because I think that relationship is really important for the long term. So, so how comfortable you are with that specific partner, can you have very honest, transparent conversations on the good and the bad, right? Because these are 6, 7-year, I don't know, 10-year relationships that you have to build. So the comfort with that specific Specific partner is also important. The second is the rounds today at early stage are really— there are multiple investors that come through, right? So you can also carefully curate the rounds such that you have a few industry, uh, you have advice on the industry side, you have probably a few brand names just for the brand, probably, uh, you know, as well as other people who are very comfortable with who will give you the, uh, straight and the go, uh, as it is, right? So I would say two things: the relationship with that specific partner, comfort with that partner, and curate the round with getting in investors so that you cover all bases.

You know, there's a follow-on question here that's sort of related. This comes from Lana, which is, what percentage of your investments fall outside of your thesis and how do you vet those? And I think like there's sort of different requirements if you're a fund versus if you're an individual angel. Anyone want to take that?

I'll just jump in quickly and say, you know, angels have much more wiggle room and can open up their aperture much wider. Legally with funds, because we bring on other investors, which are known as limited partners, they sign agreements, LPAs, otherwise, which have very specific mandates around what you can and can't invest into. Generally in funds, I'm just speaking very generally, you can invest 20% of the fund outside of the whatever mandate you select. But for the most part, especially early on, it's very important as a fund manager that they kind of make investments that are bullseye within their mandate. So if you say you're pre-seed investing in a specific industry with a very specific check size support, that you stick to that. Because also from what Diane, Lance, and Ankur just shared earlier, you want to be, as a VC, you want to be value-add to all these portcos. So depending on the stage, the industry that they're coming in, it's much easier to do that when all of them are kind of at the same stage, similar industries, and aligned where they can help each other. I do want to quickly just touch on what everyone shared earlier and double-click and say the importance of vetting a VC. As important as it is for the investors to vet the founders, it's very important for the founders to vet the investors. Lance talked about it. This is a relationship that you're entering into for a minimum of 5 years, probably closer to 10. So talking to the companies that they've invested in before, talking to their other partners, all this, the investments that they previously made, all of this information is publicly available using resources like Crunchbase or PitchBook. So make sure that you're doing enough research on them before you enter into that kind of relationship.

So I don't know if the panelists have anything else to add, but there's a question here which I think is interesting. It comes from Ivan. Um, how do you find 150 potential investors? Um, they essentially want to analyze those investors to see a fit there. One of the things we teach at, uh, Funding Lab is you, in order to raise your round, you need to have somewhere between 100 to 200 investor meetings. And so not everyone just has 150 investors like on speed dial. So what recommendations do you have to find those investors?

Being in a group, I tend to think in terms of groups. The Angel Capital Association has a list of almost every angel investment group in the US, many around the world, most of which will accept unsolicited applications in the door. You always do better if you can network in some kind of a warm intro, and that gets you in front of, you know, 20 to 100 people at a time with each pitch there. So that can really kickstart things. There's, There is a lot of curation. So just 'cause you apply doesn't mean you get to present. That's just a couple percent.

To make things— Oh, sorry, go ahead, Ankur.

Yeah, to add to what Lance was saying, I think your peer founders are another very great source because in a way they filter down that big list to who's active, who's the good ones, right? And I would say, A lot of our founders have found us through our portfolio companies, right? So I would believe that through other founders, you can get lists of active investors in your area, in your domain, in your stage actively as well. So that's another resource to sort of tap into your ecosystem.

I'll just add, I think that advice is spot on, is talking to founders that are maybe just a few steps ahead of you and asking them who their investors are. And also, I would say for every conversation you have with an investor, Even if they decide to pass, which again, I want to preface, the majority of them will pass, right? Just prepare for 99 nos for every 1 yes. When they do pass, asking them for feedback and then at the end, asking them if they know any other investors, VCs that could be a good fit. Sometimes if they pass, they may not want to make that introduction. They kind of reserve those introductions for companies that are portfolio companies of theirs and ones that they say yes to. So it can be a double-edged sword. Because you may not want an introduction from someone that said no to you, depending on why they said no, right? Maybe they really love the company, but they just don't invest in that specific industry. So I think it's definitely, it's always okay and actually encouraged at the end of every conversation you have, you'll grow your list of, do you know any other investors or VC firms that I should talk to that could be a good fit for us?

To make the matter more complicated, not only do you need a list of 150 investors, but you also need warm intros into those investors. Most of the time, like, if you get a cold email from someone, like, it's just you get so many of them, you have no choice but to just delete them or archive them. I mean, it's just the reality. And so, like, warm introductions are usually the best way to go. So if you think about that process, right, how do you network your way to get warm introductions to 150 investors? That takes a lot of time, right? So this again goes back and highlights the importance of needing a team. Because while the CEO and founder is out there beating the bushes, focusing on fundraising, what you need to do is make sure you have a team that's also progressing and getting traction for your company. Because there's a question here, I think this comes from Julia, is how long does it take from first contact to getting the deal? It could take 3 to 6 months, right? Usually the fastest is somewhere around like 2 to 3 months. But especially like now that investors are slowing down the amount of investments they're doing, or they're taking a little bit more time. You're gonna have to show progress with every single meeting you have. So day zero is like your first meeting and you have a certain level of traction. Let's say, you know, then 30 days later you have your second meeting, you're gonna have to show increased traction. But while you're focused on fundraising and going out and meeting these investors, someone has to be captain of the ship and making sure that the company is also making that progress. So again, that's one of the reasons we require full-time founders with teams because they're really the only way that you're going to realistically be able to achieve that. I'd love to get some thoughts here from the other investors about what you've seen in terms of first contact, a deal, or other best practices.

I'd quickly jump in, Ryan, and just share one thing. I think you made a great point, which is because the sales cycle, call it, with investors will take, you know, 3, 6 months, sometimes longer. I think in addition to asking them if they know anyone else at the end of the conversation, asking them if they're open to being added to your update list. Using free resources like PaperStreet.VC is a great way to just send updates consistently. So, you know, again, 99% of founders I talk to, we don't invest in, but I get their updates every month. And then when I talk to them 3 or 6 months later, I can see the progress that they've been making. And so that's always a really good resource. I want to add something because I'm seeing in the chat a lot of the founders that are joining us today are pre-seed and they're asking about, you know, pre-seed investments and all this. I'm going to make a plug for Founder Institute and an accel— just a local accelerator. One of the benefits, in addition to kind of plugging the holes in the bucket and making sure your legal's in order, you know, you have your customer validation, that you have your accounting, your revenue models, your pitches, all of that is generally with accelerators, certainly Founder Institute. I also mentor with Techstars, and others, they on a weekly basis are introducing you. You're building your mentor, potential investor, and advisor network as you go through an accelerator program like that. So I would recommend if you haven't gone through an accelerator and you're a first-time founder, go through an accelerator because that'll also kind of— you'll get to that point. Again, I'm just basing this on the comments in the chat here. You'll get to that point where you have some type of early MVP, you have some early traction or validation, and generally if you you don't have those things or you haven't gone through an accelerator program, I don't know a single VC. I know some angels that will, but it's mostly friends and family at that point that will just fund ideas. You need to have everything buttoned up. You know, you need to be incorporated, and accelerators will help you get to a point that at least, you know, most investors would feel comfortable taking a look at it.

Any other comments, Lance?

Yeah, I want to double down on that, that comment about the update emails to the people you talk to. Uh, I think it's hugely important. It's a great opportunity to ask for help. So even if someone didn't invest in you, they'll often be willing to make introductions or give feedback on things. But also a large fraction of nos are not nows. Uh, and so I'm just not quite ready for you. If you put me on the list, as you're going through this process and continuing to hit milestones in 3 to 6 months, Maybe that's a yes because you've now hit a threshold of validation and traction that would make me more comfortable investing. Plus, I've seen you make commitments and hit them over those months, and that carries a lot of weight.

Yeah, that's so interesting you mentioned that, Lance, because a lot of the time, like, founders are just not ready. Like, it could be an interesting company, or maybe even the valuation's off. I'm seeing that a lot right now. Where founders are coming in with a certain expectation on valuation and it's not as good of a deal as another company that maybe has the same amount of traction but a lower valuation. And so at the end of the day, an investor's job is to buy stock that is going to appreciate in value. And so if you have a higher-than-market-rate validation, you're kind of shooting yourself in the foot. And so I'd love to jump here to a few other questions. There's some questions around grants. It comes from Thayer. Is it better for pre-seed startups to focus on grants and making cash rather than going for equity and debt investing? I have some comments on that, but I'll wait for the other panelists to jump in.

Well, I wouldn't know as much about grants to give a very, very qualified answer, but I would say if you have access to them, right? Then sure, I think non-dilutive capital in whatever form is good for the company. You have to be very, very protective of your equity if you can. But I would also believe that the grants are, especially in India, for example, right? They also come at a slightly growth stage more so than at early stage, right? So you have to look at the stage, what's the ecosystem availability, but in any fashion you can protect your equity, do it. That's my probably one bigger advice to VC, to founders today.

Yeah, I think it really depends on the kind of company you are. Certain kinds of company that have health or social benefit or ecological benefit, there are, or indeed sort of DOD, military, energy, there are a lot of programs that have grants available for very early stage companies in the United States. And if you can qualify for those, Absolutely. It's always better to get money with no strings or minimal strings, doesn't dilute your cap table, and allows you to make more progress and check off more of those validation boxes and get more traction before you need to go out to investors. You'll, you'll be able to get easier time raising at better valuations. So if that's available to you, I think it's a great deal usually.

Awesome. Yeah, there's a lot of really great grant opportunities in the US. There's the SEIBER program, there's STTRs. That's something that we help our veteran founders with at the Veteran Fund is how do you secure those types of grants. And, you know, there's been some really strong outcomes of founders who've been able to use that money to either bootstrap or help build the company and the product. There's another question in here sort of around like financial projections and like the size of like the opportunity. You know, one question is around like, should we focus on cash flow versus like growth and market share? I think like what I'd like to do is kind of consolidate some of these questions and really ask the panel, what revenue projections are you looking at? Is that one of the drivers of your decision? And you know, how does that kind of then play into like what your model is as a fund? Who would like to jump in first?

Well, if I can begin, I think Mike mentioned earlier, right, that all of us would look at founders who can probably 100x, right? So the plan is really to see whether in 7 to 10 years, are you on that trajectory, right? Now, for early stage, honestly, financial projections are anybody's guess, right? So I look at financial projections more from a perspective of how high is the founder targeting, right? So what is the target? And hence, to reach that target, what what is the budget that they have in mind? Does that then make sense? The amount of growth that they want to have, are they investing enough in marketing activities, are they hiring enough people? So that gives a sense of the execution plan. But in the sense of putting any financial projections, focusing on cash flow, etc., out there, I would say, at least personally, to me, those things matter much less— financial projections and Excel model— than what is the target in mind, how you plan to utilize the funds, and how You plan to be like a VC fundable company that can return funds to a VC, VC attuned investor, right?

Yeah, you go.

I'll jump in actually in regards to the grants. Move quickly on that one. It's more difficult to get grants, I would say, just because of timeline. So if you're on a time crunch, you know, grants have— you have timeline to follow in order to to, to qualify, and then you go through interviews maybe. So there may be some hurdles. I think everyone has spoke about the pros, but just on the con side, I think there is a time constraint. And yes, they are, uh, less available than asking your friends and family. And I like to say fools, FFF, as they taught us in business school. But going back to this question here is really, I think it's on the pre-seed round we're looking for is ARR. If you're at pre-seed of a million, in round A typically $2 to $5 million, and it range, but that's what we are looking for.

Yeah, I mean, for me, financial projections, I mean, I see these amazingly detailed spreadsheets and in general my feeling is that if you're within a factor of 5 of what happens in 2 years, I'm shocked. I don't know whether it'll be high or low, but it's going to be wrong. You know, if you're right, it was by blindest chance. So I'm typically looking at what's the market opportunity. So if you win, What are we looking at? And then I do like to see financials because it tells me how you think about the business. What are you modeling out? Do you understand your unit economics? Is this a plausible business? Does this work even in principle? And then especially during a market downturn, I do like to see that your business model enables some cash flow in the fairly short term because it means you have the ability to adjust your burn throttle more effectively and potentially extend that runway if you're not in a good fundraising environment at that time. Whereas in the boom times when cash is super available, I'm less concerned with that.

Awesome. I think just to add a quick note to that, I think given the fundraising environment and general kind of market conditions, I'd say the last several years in this boom cycle, it was kind of growth at all costs. And I think investors didn't care as much about revenue, specifically profitability. While now I think I'm noticing this as I talk to other VCs in their diligence process, they're certainly being much more disciplined. And not only are they making sure that rounds are getting you instead of 12 to 18 months, you know, from your current fundraise until the next one, they're now, do you have enough to get you to 18 to 24 months, first of all, but then is there a durable is there a clear path to profitability versus growth at all costs, pour as much money or as much fuel on the fire as possible just to grow this thing as big as possible? So investors are looking for durable revenue.

Yeah, that's a really great point. You know, just to kind of share with the audience some backwards math here. So, you know, let's just say you're raising at a $5 million post-money valuation, um, and the investor is looking for a 100x return, you know, not including dilution, that means that you have to sell your company for $500 million at some point in the future to get that 100x return. So how do you get, how do you build a $500 million company? Well, we know that revenue multiples for valuation are somewhere between 5 to 10x. It can go up to 20x or beyond, but in general, like 5 to 10x is a pretty good guesstimate. So that means you need to have revenue that is within that 5 to 10x multiple. So for example, if you have a B2B SaaS company where revenue multiples are pretty high, if you get to $50 million in revenue and you have a 10x multiple, well then there's your $500 million valuation. If you're doing something that has lower multiples, let's say some kind of hardware device and it's a 5x multiple, that means you need to get to $100 million in revenue. And so this is just like, think of this as the space that you need to occupy and the opportunity that you need to pursue. Anything that you put in terms of getting to $50 to $100 million revenue is going to be suspect. However, what we're looking for are, okay, what are the underlying assumptions? If getting to $100 million in revenue equates to only capturing like a small percentage of customers, that's pretty impressive. And then can you figure out like, what is the actual go-to-market strategy that this, this company is using to acquire those customers? Is it realistic? Can they achieve that? And so So even though, you know, you'll always hear from investors that the projections are essentially, you know, they're soft and they're not going to be 100% accurate. That is absolutely true. But you also want to make sure that you're not making like $10 million in 7 years because that's just not a fundable company. So it's important for you to go through the exercise of building out the model, figuring out what your underlying assumptions are for customer acquisition. What does that translate to revenue? And you might realize that like, oh, you know, even if we captured 100% of the market, we're still only at $20 million in revenue. That's probably a signal you should not go out and fundraise and you need to figure out a way to bootstrap. All right, let's keep going. We got a lot of questions here. So there's a lot of questions around like, what do pre-seed investors look for? Bharat, maybe you could share like that benchmarks link again, just so people can take a look at it. Got it. There's some questions around like the importance of finding a lead investor and how to find them. So this comes from Laura. Any recommendations on finding lead investors for a convertible note round?

I'll jump in and say, you know, as part of, again, just plugging accelerators, like when you go through an accelerator and as a founder, you have to understand the competitive landscape. In fact, Lance led a session last night for our cohort talking about one of the most important being your competition in your pitch deck. And when you do a competition slide, you really need to understand who are the other players in the space and specifically who are the ones that are a few steps ahead of you. So as you look at your competitors, the ones that have raised rounds in front of you, again, you can use those resources like Crunchbase and see what firms, what individuals have been making investments into those companies. right? I think reaching out to them, because if they're, you know, or, or anyone tangentially involved and finding those in your industry, we kind of talked about this earlier, talking to co-founders, that, that's probably the best way to start. Does that remind me, was that the question?

That's helpful. But Lance, I see you're, I think, so you're gonna say something.

Yeah, I mean, I think, I think the key is that People who lead investments lead investments, right? There are sort of categories of investors. There's most angels don't want to lead. And if you look at what they've done, they never have led and they probably never will. And so they may be great people to have on your cap table. You can soft circle them, but you're going to then need to build up to someone who has a history of leading these either as an individual or as an institution where that's a position they're comfortable in. But you don't need to start with a lead, right? If you can get a whole bunch of follow-on investors soft circled who say, yeah, I'm interested when you find a lead, that actually makes it easier to find a lead because you now have a lot of the round sort of ready to go once you find someone. And the person who's leading likes to know that they don't need to do a whole lot of footwork. Most of the rounds already filled once someone comes in and, and takes that lead position and negotiates terms. A lot of investors, most investors have, have a fairly sheep-like aspect. We like to follow someone smart. And so it's hard to get someone to step out first.

Yeah. So the, the lead investor is your biggest investor. It's gonna take on the most responsibility. They'll be doing the term sheets. How do we get to them actually? So one of the advice I give entrepreneurs is ask portfolio companies to give you an introduction to those VCs. Because a warm intro is what you want, not a cold intro. You know, I probably have 60 emails in my inbox, cold. I would rather take a warm intro, and sometimes you can get through to the actual partner. Um, I have led investments before through my VC firm. Overwhelmingly, we have been asked by entrepreneurs, and that is because the value-add we bring as industry experts. Uh, and so that's the type of VC that you want to look for. You want to look for someone who has a track record, who's had exits, and knows how to really take you and grow you.

Yeah, thank you, Diane. There's some questions here from Ivan, and then even I think, Jean, you mentioned this. It's really around like, how can we work full-time on an early-stage startup when it's not making money, but you need to make money for your families? And I think this is like, this is like the tough question, because, you know, we see this all the time. Mr. Investor, I just need $1 million and then I can go out and build this really awesome thing. And here's the reality for everyone here. It's really hard. It's really hard to build a startup. It's really hard to raise capital. And if you're not full-time on your startup, essentially what you're doing is you're shifting the risk onto the investor. You're basically saying, I'm not willing to go full-time here, until I have money in the bank and I'm ready to go, which is not a good signal. It means you don't actually believe in what you're doing. You're not willing to burn the boats and proceed forward. And so, you know, although it is sort of cruel that you do need to kind of, you know, have that savings reserved in order to like make that— to bridge that gap. One of the things that I really recommend, if you are— if you do have a full-time job or you're trying to like bridge that gap, it's incredibly important to join programs like Founder Institute because we'll get you as— we'll bridge that gap as much as possible. At some point, you're still going to have to make the leap before you go and fundraise to go out and quit your job and focus full-time on it. But, you know, you can at least make sure you do it in a de-risked way where you're not putting your family at risk and your livelihood at risk. I'd love to kind of get thoughts from the other panelists around like, how do you de-risk that? And like, you know, do you actually require founders being full-time?

If I can go first, I think personal financial viability is something that you need to really think through before you jump in as an entrepreneur, right? Paul Graham talks about ramen profitability, right? That's great. You can survive on ramen, but that's probably for very early stage young founders who can do that. If you have a family, then you really need to plan for about 3-4 years, unless you're a Series B funded company, I would assume that you don't get market salary at all. You cannot, right? So that's a journey of 5, 6, or 5 years, right? So you really have to plan for how will you survive with your family for that duration. And if you're coming up short in terms of personal runway, then probably the timing is not right in your own life to sort of take that leap.

So one is passion, but also there is pragmatism that has to go through in becoming a Yeah, my experience is, and I often encourage founders to quit their job as late as they can, right? Do as much as they can before they quit, extend that out. I have done deals where the founder has committed in writing to quit their job as soon as the round closes, right? Or as soon as they do the first closing. But absolutely, there's no way I want to put money into the company and it sounds sounds sort of cruel, but I don't want to invest in you when you have a plan B. You know, if you have a retreat that is comfortable, then I question your willingness to suffer the pain that you are probably going to experience as a founder. And so, you know, we really do want you to burn those bridges behind you, burn the boats and be 100% in. And yeah, compensation is probably going to be low. We want to make sure that you're not suffering in terms of food, shelter, and clothing. You have to cover the very, very basics. But generally, I want to see you pretty hungry. I want to see you desperate to build that company bigger so that you can justify making a little bit more money. And that is really hard for people who are late career, have kids, are looking at college tuition. That's a bad time. I think that's why a lot of startups are dominated Like when I started, I was a grad student and I had a conversation with my wife where I said, well, currently we're renting a house from my parents. And so the worst case scenario involves bankruptcy but not homelessness. And so I'm okay with that. And, you know, but that's a serious conversation to have.

Certainly not to be taken lightly. Go ahead, Diane.

I'll jump in. I'll flip the question actually. The greatest Risk is we talk a lot about the founders, and on our scale, when we look at startups, we actually have a scorecard internally. Giving you some secret sauce from a venture capitalist to you guys is founders are one of the biggest risks. So we really vet the founders. And another thing too is that founders, there's a lot of breakups that happen, unfortunately. As you know, you're going into a partnership, it's much like a marriage for a long time with your co-founders. Many co-founders And so we look at that, you know, not only are you doing this full time, but how are you working with your co-founders? Because halfway through, we might put a lot of money as investors in your— you are dismantling your company because of a huge fight.

I'm just looking at the chat, and I think there's something around when can one founder come in, you know, earlier than the other. And I think to add to that, to what Lance was saying earlier, that you can quit as late as you can, but once you quit, you have to basically stick to it, right? So an investor would probably be ready to invest if one co-founder is not yet full-time but comes on board full-time as soon as they invest. But once you're— once we've invested, we would want everybody to be full-time and plan for 3 or 4 years of personal runway as well, right?

Yeah, and Ryan, I feel like I'd be remiss if I didn't share this piece, given how many founders are on the call with us, is I think it's very important to, before you take any investment, whether from friends and family, angel investors, VCs, or beyond, to actually pause and think about, is this what I want to do? It's one thing to be building a kind of lifestyle business and to be working on something you're passionate about. Gary Vaynerchuk says it's not about the 9 to 5, it's 5 to 9. So it could be the things you're working on the evenings, you're enjoying it, you're having fun doing it at your pace. The moment you take in outside capital, the clock starts ticking and you now have, for lack of better words, a boss. You have someone that's going to— and there are passive investors, sure, but certainly on the VC side, you are now responsible for providing updates, you are responsible for completing, hitting and completing milestones, you are responsible for getting to the next round, the next round, and beyond. So it's important that you kind of pause and ask yourself, is this the journey that I want to beyond. And again, accelerator programs help you decide that. Is this something that I want to build as a hobby and a passion, or is this the unicorn business that I want to grow? So just an important consideration.

Yeah. And the truth is, like, even like once you do the grinding of 2 years bootstrapping and then getting to fundraising, guess what? Your salary is going to be low and you're not going to be making like, you know, $1 million a year. You know, you might be able to to get that when you get to Series B, not $1 million a year, but you'll get a decent salary. But early on, you're still making a meager salary that basically gets you to basic break-even. So it's really, really important, especially as we move up against this potential economic downturn people are talking about. You want to make sure that you are in the best position possible. So maybe we could go there right now. Are there any trends that you're seeing change, or how are investors now looking at the next for the next 6 to 12 months of investing for either your fund or your angel group? Who'd like to start?

I'll just quickly kick it off and say, I love this environment. And I say that from an investor, but I also say that to founders in that we have an opportunity to slow down. I talked about the diligence process instead of FOMO. For those that don't know what that means, fear of missing out, there would be FOMO rounds where investors would would jump in just because these rounds were closing in companies. I've seen deals done in 24 to 48 hours, something I've never seen before. Now, everyone's slowing down and saying, "Let's actually do our job. Let's reset valuations." It's not that valuations have dropped, it's that they've come back down to reality and they're priced at reasonable valuations. Investors are taking their time with diligence. Founders are taking their time and being thoughtful about their actual business models and again, building that durable revenue and default to live businesses. So from kind of an overall market condition and landscape, I'd say it's a really healthy time for founders to be building something meaningful. It's a really great time to be an early-stage investor, taking your time and picking great companies, but investments are absolutely being done. But as a founder, just prepare for investors to be spending a little more time looking under the hood and making sure that there's a there there. There with your business.

Any other comments, Ankur?

Yeah, I think there's a lot of dry powder in the ecosystem. So many new funds have been raised in the US and India over the last 2-3 years or so. So a lot of people are sitting on, investors are sitting on a lot of dry powder. So there is capital and that capital needs to be deployed as well. It's just that I think everybody can take a deep breath and analyze, do the due diligence, as Mike is saying. And I think, thankfully, the FOMO has reduced a little bit in the market, right? So deals are getting done, as Mike is saying, and money is available. It's just that it'll take— you have to plan for a sane amount of time to get the round closed.

Yeah, I think people who set their expectations a couple of years ago, when that's sort of of where they learn to understand the space, need to reset a lot of that. I think we're, we're not necessarily going into terrible times, but we're going back to reality a little bit in terms of speed, in terms of valuations, in terms of expectations for the business. And so as long as you can get your head around that as an investor, I think it's a huge time for opportunity because whenever there's disruption and difficulties, that creates a tremendous amount opportunity to, to take advantage of that and to move into those spaces, because this is the time when a lot of great startups are going to be built, is when things are rough.

Yeah, that, that's absolutely correct. I mean, if you're a founder working on a good company, there's probably no better time to be doing this, because with all the layoffs and talent that's now entering the marketplace, it's an incredible time to be building your teams. Now, if you're working on a startup that's not that great, like, it's going to be harder for but for the ones that actually take the time, do the work, build the products, get the customers, and lay all of that groundwork, it's going to be a lot easier for you to raise capital because you're going to be in the top 20% of deals that investors look at. So I tend to agree with Mike both on the investor side, but also on the founder side. This is a really, really good time to do that, but the name of the game is de-risking. Scheme, right? So if you're a founder and you're like asking, how much traction do I need to get? Get 20% more traction than you thought you need to, or 50% more. So that means getting customers, it means getting LOIs, getting some kind of validation. And there's a question here that I can just kind of quickly ask, which is like, well, what if I need to raise pre-seed funding and I can't build a product yet? You know, how do I go about doing that? The only time I've really seen, like, not including like the FOMO stuff, Mike and I saw a really incredible deal that was like an insane valuation with literally have done nothing. They had just formed the company. It was just a couple founders. And so not including those things, the times where you can actually raise money without a product is when you're doing deep tech. We had a really good quantum company raise, I think it was like $1.5 million or so right out of the gate of the program we ran, the Silicon Valley Founder Institute, and it was because he was a top expert with an incredible team in this massive opportunity in deep tech where like literally it takes millions of dollars to build a product. So in situations like that, you, you know, you can potentially raise capital without it. But if you're building like a basic like B2B SaaS product and you don't have a tech team, like it's going to be hard for you. You need to go out and build that team. So in the last 5 minutes here before we start the networking piece, we've got, you know, a lot of people here. So would love to see everyone over at the networking event in a couple minutes. We'll paste that link here in the chat. Let's ask one final question to the panelists. And this is more general. This is really about like, what is one piece of advice or a best practice that you'd like to share with founders who are looking at raising capital right now? Ankur, maybe we could start with you and then go to Diane.

I think I'm not sure if I'm answering your question. I don't know if I heard your question correctly, but I think the one piece of advice I would give is what Mike said earlier, which is, do you really want to do this thing right now in your life, right? And that has certain inputs built into it, right? Whether this is the specific domain or problem that you want to solve, is this something that you have evidence that this is a big problem that probably can bring you 100x or so returns? And the second is whether you are in your personal life situation can actually invest those years in answering this or building the solution for this problem, right? So I would say that's the thing that you have to really, really think about. And it may— it's time-tested advice, right? Whether in a downturn, whether in a, in a very heavy market, this is something that you have to really think about. Because before you take anybody's investment, if you've not sorted this question out in your mind, things are going to unravel in the future.

Yeah, really good advice, Ankur. Diane, let's go to you.

Yeah, I would say prove yourself, you know, in terms of competitive advantage, market opportunity, traction, as we talked about before. What is your go-to-market strategy? The more specific and succinct you are, it would be great. Practice your pitch every chance you get. Get into 3 minutes. For example, personally, when I did my tech firm a long time ago, I had over 100 100 customers in 2 days confirmed there is a demand for the service that I was providing. So the more ammunition you have to prove that there is truly something there and an advantage and a wide open market opportunity, etc., I, I just admonish you guys, you should practice to excellence and create an incredible pitch.

Awesome. Lance, let's go to you and then Mike.

Yeah, I think validation, you know, really there's a huge number of assumptions that go into your business. Many of which are completely unspoken. And you really want to, not just for your investors, but for you, dig into those because this is going to be a long, hard slog. The last thing you want to do is quit your job, eat ramen for 5 years, and discover at the end of 5 years that fundamentally this was actually a stupid idea because you ignored some underlying question and assumed that this thing was true, but never really dug plug in to make sure it was right. Like with customer demands, people go talk to their friends and say, you know, would you like something like this? Everyone's like, yeah, sure, I'd like something like that to exist. But, you know, a lot of times the question is, would you pay for it? Would you actually use it? Why wouldn't you use it, right? What are the negatives? What are the barriers that would cause people not to buy this? Even a bigger issue in B2B. Dig, dig, dig to make sure make sure that you know the answer to all those. And then make sure you have a distinctive insight, right? I see way too many me too companies where it's, oh, someone else is doing something. God knows right now in blockchain, I'm inundated with them. I really want to hear from you and you should have a sense yourself of what is the thing you understand about the market, your marketing, your pricing, your business model, whatever it is that is fundamentally not aligned with what everyone else is doing and why. And then demonstrate to yourself and to me that that is in fact a true advantage that is gonna be sustainable for you.

Yeah, I love it. Then that goes directly to de-risking it. Mike, let's go to you.

Yeah, and I'll just wrap here by saying, and this is kind of meta, which I like to, I like to go meta, which is like, just be a good person. I know, and let me elaborate on that is like, Be kind, be helpful, give. One of the other, again, a plug for going through an accelerator program is you're going through a cohort with a number of other founders, and those founders are supporting each other. As much as it seems like this is a big world, which it is, and big startup community, people kind of know everyone, or you start to meet people, especially if you're in similar industries. So investors are always talking to each other, founders are always talking to each other. Just because a founder doesn't succeed on their first one, You know, if they have a reputation of being kind and giving first and helping others, you know, it's much easier to make an investment in them in their second venture. And so like, I know you're approaching this as a founder with like, what can I get? How do I get to talk to these investors and get something from them? But I would kind of encourage you to flip the lens of how can I be as helpful to as many other founders, as many of these investors that I'm talking to? I don't have that many founders asking me on calls, Hey, thanks for taking this call. How can I be helpful to you? And they'll usually say no, that there's nothing, but what a nice gesture. So be a good person, be kind, be helpful.

I love it. What a great note to end on.