How to begin with raising money for a new startup

[wulfmann]

In response to this tweet

Feel free to close if this is too broad a question.

What would your advice be on how to start raising money for a new startup?

There are many articles on this subject, but I’m particularly interested in YOUR opinions on:

• What stage a product/service should be in before seeking money
• How COVID-19 factors in

Thanks!

[jasoncwarner]

This will obviously be generalized and not applicable in all cases, and many angels and VCs might disagree with some or all of the suggestions. That said, I'm going give what I think is likely best path to highest % chance of getting attention and raising a round.

The # 1 easiest way to raise a round is already be making money as a business. If can bootstrap to some adoption or revenue number, your chances of being noticed and taken serious go way up.

Now, let's get into the other ways.

1. Warm intros to angels and VCs always work best.

If you largely think of SV/SF and really any and all people who are investing money as "trust proxy" people, ie, they likely need to trust someone new via trust they have in someone else, it makes sense why warm intros matter. If you don't have a network of people here, use twitter, a lot. Start to make connections, comments in threads, DMs with people you respect. Start to build some reputation. This is going to take time.

2. Have a working demo, preferably with some customer validation, ideally with active users.

Yes, you really do need this. Unless your parents are GPs at a firm, or you are somehow connected via the LAX club at Stanford/Harvard, you'll need to have something working that users do want and have validated some senseless of pricing on.

3. FOMO

The single easiest way to raise a round outside (# 1 above) is to have the market be frothy with what you are doing. Look at scooters a few years ago. Scooters were very likely a really really bad business. But, bc some top tier firms invested in scooters, a super hot market emerged for them. Same goes for AI startups or bitcoin/crypto exchanges a few years ago.

You can't always predict these though you can get a sense for the trends if you watch the market. However this won't help you unless you are in one of those markets.

4. Proxy validation

This is where seed and angels come in to play really really well. If you are able to get attention of a few very prominent angel investors and get even one "name" on your roster, it's super likely you get a seed round pulled together. And then you have to execute, but even then by the strength of your angels, you likely get some good A interest.

I cannot stress this enough. Good "named" angels are gold. Particularly if you are raising from an industry expert on what your startup is doing.

5. Design - Simple, a well crafted product demo, deck, and landing page actually matter.

(remember we are optimizing your chances)

6. Did I mention networking yet? Make twitter talk about you.

That is a good enough list to get started. You don't need all of those but you need some combination of them. It's very rare to raise on a napkin sketch unless the person raising comes from an already privileged situation. If this is not you, figure out which optimized path is best and get to work. If you hate marketing and "selling", it's going to be a tough road ahead FYI.

[jasoncwarner]

Though to reinforce the easiest way to raise money: not needing it.

If you have validated the idea, have a product "in market" with people either paying you, raving about you, or both, that is the maximally optimized path to raising money.

If you are not raising from SF investors, like x100 or something like that.

[wulfmann]

Thank you for the in-depth response! This was super helpful. Hopefully helpful for others as well.