Startup funding

For anyone wondering this is a good piece about how things can go:

(via @sublimecoder)

Would be interesting to hear from anyone who has received funding themselves - any tips/suggestions?


Yes anyone with startup experience would be great to hear some stories and opinions. For example, what’s people’s opinion in showing your idea to an incubator/accelerator vs. keeping it to yourself and trying to launch the startup without any investors or external help?


Wow. This is a huge topic!

My background: co-founded 5 start-ups, one VC funded that went public, the rest boot-strapped or self-funded.

Regarding ideas, the key ideas are business ones if you want to grow a significant business. Software rots pretty quickly, so I’d be wary about considering that secret sauce. It might be disappointing to us developers, but a trademark can be worth more that a clever idea. If you have something you really think is unique and valuable, then you should seek a patent. Most VCs and investors, at least in the US, won’t sign NDAs, so you need to have several levels of disclosure ready. Your elevator pitch and your one-pager doesn’t have to describe a significant level of technical detail.

There’s another round before seed round: friends and family. But you need to make sure they realize there are no guarantees and later funding rounds might even displace them if you hit a bump on the road.

Unless you run very lean, you will always be seeking funding, so if you do close a round, the first thing you need to do is start thinking about the next one! You also need to talk to funding sources way before you need them. Many investors and VCs will set aside 5 minutes for a phone call or maybe a coffee break to talk about your idea and give you some feedback. If you go back to them over the course of building out your business and can show traction and then some growth, they will be eager and you will be in a strong position. The way VC funding works for companies that slip or are in trouble is that the last firefighter into the burning house, gets the house. I’ve know many founders that were shocked when all of a sudden they went from founder with significant ownership to an unemployed, non-owner!


This is a particularly salient, though nuanced, point. Its often said that ideas are worth nothing, its the implementation that counts. While there is some truth to that, I prefer to put it thusly: an implementation is not a moat. Data that’s hard to get is a moat. An established network is a moat, even moreso if its an essential network, and a well-developed bidirectional network (aka marketplace) has piranha to fill it up. As much as I hate the idea of patents on software, a strong and defensible patent is a big indicator to investors. In most of these scenarios, the implementation is secondary—it doesn’t have to be the best implementation you can imagine, because there are other competitive advantages to fall back on. In a scenario where it really is a war of implementations and features, you’re probably going to find it hard to raise money after your seed round without strong indications of growth. Unless, of course, you find yourself in a gold rush, which has its own pitfalls.

I’ve raised money once with partners and been part of several startups that were funded at various levels from totally bootstrapped to small (<100k) friends and family rounds up through several institutional rounds. My feeling on it is that the F stands for “Fucked”, so the further you can stay away from a Series F the better you are (which is probably an obvious sentiment.) There’s an enormous amount of freedom that comes with bootstrapping, if you can do it. The problems are that you can’t always seize an opportunity because you don’t have the funding (obvious) but the benefits are that nobody can tell you that you have to seize an opportunity even if its not right for your business or where you are as a company. Even a seed round can be treacherous, with the wrong investor. So when you take that leash, consider very carefully who’s holding the other end of it. Ask around with other founders they’ve invested with and try to get some opinions about it.

As far as incubators and accelerators go, consider carefully why you think you need one. The most valuable thing I think you can get out of one is a network—other founders who have been through what you’re going to experience as you grow a company, investors who will both give you money if you decide to raise it, and help you navigate the landscape of institutional capital, and usually mentors both technical and business that will help you make key decisions. If that’s what you need, then getting into a top-tier incubator or accelerator can be a game changer, and even the second-tier options are usually worthwhile. Below that, the value very quickly diminishes—you’re basically giving up a relatively large chunk of equity for what usually amounts to coworking space. On the other hand, if you already have access to those kinds of networks, you’re not buying yourself much for that equity and you’re better off without it.

[All of the preceding is my opinion. Don’t base major life or business decisions off what some guy on the internet says.]