Eric Romo discusses building AltspaceVR, arguing that download numbers mean nothing without engagement and product-market fit. He covers seed through Series B fundraising, warns against over-engineering deal terms, and notes that few VR projects have real traction.
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OK, traction. So in a very pixelated version, this is something about the number of app downloads you need to be per day to be a top 25 in some category. It's not incredibly relevant. But the point is, don't pretend to have traction. I see a lot of slides where— a lot of presentations where there's supposed to be a traction slide. And so therefore, you make some stuff up that sounds like you have traction. And what it ends up sounding like is you don't know what you're talking about. So what you have to do instead is figure out, okay, what data can you show that foretells, that says, okay, when we are out there more broadly, our product is going to fit in the market? Unless you are one of these apps with thousands of downloads a day or whatever it is to be in the top 25, you probably don't actually have traction. Getting your friends and family to download your app so that you have month-over-month growth of 200% or whatever from a base of 5 people is not relevant. So unless you really have traction, show something instead about how people are using your product. How are they engaging with your product? How long are they using it? When you do customer surveys, what do they say? When you bring people in for user studies, what do they say? So find the things that show product-market fit rather than assuming that you just need to fit into this widget of, here we have this growth month over month, therefore we have traction. I've seen so many presentations like that that just They just, again, scream at you that I don't actually understand what traction means. So instead of showing that, just show what— why do you think that people are going to use your product? What data do you have that means people are going to use your product? In VR in particular, by the way, nobody has traction. So it's always— it's insane to me that anybody would show any slide that has anything about traction. We don't have traction. Nobody does. You can't— it's impossible to have traction, in fact, in our market right now. So the other thing, though, about traction and about where you're headed is, do you have a track record of getting things done quickly? Do you have a track record of delivering revisions to your product, of learning from your product quickly, getting data back, and then putting those revisions back in, shipping them again, and measuring? Do you have this? Can you show that loop churning for you? Because as you become a company that's looking for product-market fit that's out there, you need to be a company that's learning and revising and reshipping over and over and over again. So, can you as an individual or you as an organization that you're building show that background of being able to innovate really quickly, really rapidly cycle through things? This is in and of itself not traction, but that is a thing that says that you are an individual or a company that can get on the road to have traction. Okay, so the deal. Once you get to the point where you're actually talking about what is the funding deal, what is the structure of the deal, How much money are you raising, all this sort of thing. There are a few different structures that people use in seed rounds and Series As and Series Bs. There are a few ways to skin this cat. If you think you're innovating there, if it's something you're spending tons of time on trying to figure out what structure is, you really shouldn't. It's not a place to get fancy. This is a place to get the deal done and get back to work as quickly as possible. So if you find yourself at a place where investors are saying, hey, I want to give you money, and you can't come to terms on what the structure is, that's a problem. There's something wrong there. It's on either your side or their side. But this should be something that's very easy for you to figure out. Okay, we're going to use this set of documents from this lawyer, which that lawyer will have executed that set of documents like a dozen times the last week. And so you should really get through that very quickly. And if you're not, there's something going wrong. The other thing that this is— and all of this is my opinion, I guess. This is an opinion that I, again, I hear this from entrepreneurs all the time of, oh man, I just raised $500 grand and somebody else wants to give me another check for $200 grand, but I'm just not sure if I want to take it because it's going to be a little more dilution. Just take the money. So the thing in startups is if you can put that money to work well, if you can find a way to hire that next person that's going to get you to the next milestone faster, that's going to reduce the risk, If you can put that money to work well, the answer usually is you should probably take it. I get that that will dilute you more, and you'll own less as a founder, and that will be rougher. But the risk-reward of how much more likely am I to succeed because I have this money is outsized of the dilution most of the time. I'm sure there are counterexamples to this. But every time I have had this conversation with an entrepreneur, and I've gotten into the specifics of how that will affect them, Always the answer has been take the money. And so if you are getting to a point where you're worried about, OK, well, I think this is maybe a little too much dilution, you really need to step back and say, OK, well, will this actually increase the probability that we're alive a year from now, or 18 months from now, or that our product hits the market well? And if that probability increases enough, then it's definitely worth the dilution hit. So, yeah. So just to recap real quick. So figure out what market you're in and what problem you're solving. Not what type of company you want to be. Make sure that your demo is just awesome. It's a huge part of what you do. Figure out how to stay alive long enough for the market to actually arrive. I think the unsaid thing there, by the way, is that fundraising markets swing this way and that. The availability of capital changes all the time. And so you can't necessarily assume that your next round will be as easy to raise as your Your current round. Don't pretend you have traction. Don't innovate on seed round structures. It's just not a useful use of your time. You've got a lot of other things to do. And oh yeah, the other thing I hear all the time— it's funny— entrepreneurs come and they start the fundraising process. They go, I hate this. I've got to talk to all these people. How many people did you talk to for your fundraising process? They probably called like 200 people. Right. And you have dozens and dozens and dozens of meetings. It's all you do for months on end. And then people just come and they say, oh my God, I cannot stand this. There's just so many people. I'm pitching constantly. I'm talking to these people constantly. I have selling, selling, selling all the time. I just want to get back to my business. I just want to get back to being a CEO. And the reality is, if you're a CEO, this is what you do now. What you do now is you raise money. That's a big part of what you do, because your company doesn't go unless you have the resources. to make your company a real thing. And so to get those resources, nobody else. You look around, there's nobody else. You can't— this is not ever going to be something you can abdicate to the CFO, or maybe if you're super, super lucky, you have another co-founder that wants to dive in and do it. But if you're the CEO of a startup, fundraising is what you do. So either get used to it, or you probably should find something else to do, because it's a big part of the job.
