Jeff Seibert discusses common fundraising mistakes with Tim Draper. Raising money typically takes six months, and investors want to see progress over time, not a single pitch. Choose your VC partner carefully, since value concentrates at the top firms.
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All right, so then the other thing, the other mistake I see lots of people make is they're going along, they're building their company, they decide, okay, it's time to raise. And all right, I do a meeting, and wait, the investor didn't say yes. Why not? Like, I expect I do a meeting and I get funding, right? And that's totally wrong. On average, it takes 6 months to raise money. And so how can you build this in? You can't afford 6 months of your time only spent fundraising. And the bigger issue is The reason here is, in my view, investors don't fund dots. And a dot is just a meeting. And so you've been invisible to them before. You're going along building your company. You meet with them, and you put a dot on their radar. But that's just one point. And so you could argue, okay, well, investors don't fund dots because who knows, it might fall off after that. They need more data points. Well, okay, you could say no, investors need at least 2 meetings. Investors fund lines. And there's a very famous blog post by Mark Suster who— that's exactly this, that investors They just fund lines, they don't fund dots. And so I'm going to actually respectfully disagree with Seuster and say I don't think investors fund lines, because they're looking for nonlinear return to the capital they invest. And if they're funding a line, then you're not going to provide that. You're just going to provide a linear return. And so I'm going to argue that investors fund curves. And we all know it takes 3 points to define a curve, so you need at least 3 meetings so they can see the ramp of your product or your dream or your traction, whatever it might And so this is why, on average, it takes 6 months to raise funding, because you need time to do these meetings and show them this progress. And so, okay, well, how then do we make this fit into our schedule, fit into our timeframe of when we need to raise? I can't just stop working on the product and then spend 6 months doing meetings and hope funding comes out at the end, because then I'll have a product that's 6 months obsolete. And so the key is to always be raising. And by this I mean meet with investors constantly. constantly throughout the life of the company. And that's how you get these dots, how you start forming this curve, because they're seeing you as you're progressing. And I think some of the most powerful and most helpful meetings with investors are when you don't need funding, because then it can be clearly focused on feedback and they can give you advice. And anything they talk about with advice, you should take as signals of what they're looking for, of what's important to them. And it might not mean exactly following what they said, because you don't want to sort of take your company in every different direction possible, but you want that to be a sign of maybe what they're thinking about, of what your company causes them to worry about, and what you'll need to address better at the next meeting. And so by always raising, and like, I met with a VC yesterday. I don't even have a company. I work for Twitter. But it doesn't matter. Like, now, if I go and do something in the future, they'll still, you'll build the relationship, they'll know who you are, and hopefully then when the time comes to actually close your round, they'll be ready to close the deal and write the check. Does that make sense?
Yeah. Closely related, I think Steve Jurvetson a couple You a couple weeks ago said that something like 90% of VCs are not really of a significant caliber.
Yep.
Is that— should we avoid taking most people's money if at all possible?
I would, yes. I think it's very, very important to— the most important thing is to have a good relationship with the partner. The firm, I think, is largely irrelevant. You want to find a partner you deeply trust and believe in because they're the ones that are going to be by your side throughout the next 5 years, and You need to have a good working relationship with them. So I think that's most important. But I agree with that. I think that the value, the sort of the extra value firms add, is probably controlled largely by the top firms. Because they have the best networks and the best connections, the best recruits they can intro you to, simply because of their reputation. But it is true. I read that 75% of investors have never made money in their history of VC firms. And it makes sense, because they raise And so they raise a fund, it takes 10 years for the fund to mature, and so who knows what will happen. And they might even be able to raise a second fund before it's proven that their first fund was a failure. So it's only the top 10% of VCs repeatedly make money.
So how do you know what's a good investor to take money from? You say you'll always be raising money, so—
So it's— that's a good question. We're lucky in that Silicon Valley is the hotbed of top investors in the world. DFJ is certainly among them. And so if you go up and down Sand Hill, I mean, there's a ton of awesome firms. One way to look at it is look on Crunchbase. Are you familiar with Crunchbase?
Yeah.
So it's TechCrunch's sort of data segment. They list all the firms that have invested in all the different companies. So pick some of your favorite companies, see what firms are active. That's probably a good way to go about it.
