Elizabeth Yin is a founder and basic partner of Hustle Fund, a pre-seed venture capital fund that purchases hilariously early software application startups across the U.S., Canada and Southeast Asia.
When I was a founder several years back, I seemed like I heard constantly conflicting advice and opinions on raising money for my startup.
It’s simple to raise. It’s tough to raise. If it’s easy to raise, you must raise a LOT of cash. You need to raise a little money. You should try to opt for a high evaluation. You need to raise at a “typical appraisal” so it does not bite you later on.
It was hard to comprehend what was going on and what I should in fact do.
Several years later, now as a VC, it ended up that the majority of the important things you hear people state about fundraising are typically true and generally excellent pieces of advice. All at the exact same time. Even when these concepts conflict. How is that possible?
Because, like anything else, various pieces of guidance are apt for different kinds of companies and founders. Today’s fundraising landscape is particularly an interesting time of bifurcation that’s worth setting out in information.
For some founders, it’s never been a much easier time to raise
In the San Francisco Bay Area, if you’re a founder who has a “well-branded” resume, it’s a fantastic time to raise money at the earliest phases. It almost doesn’t even matter what business you’re constructing. You will get financing. You might be leaving Pinterest to begin a company. Perhaps you went to MIT and then did a 10- year stint at Google. Or maybe you were a former YC creator who is taking a second crack at a business. Or maybe you offered your last business for $10 million. If you did any of these things, it’s a great time.
For these creators, I’m seeing massive party rounds here in San Francisco– $3 million– $5 million seed rounds.
SaaS is hot
And then, even if you don’t fit this profile, you can still create a lot of heat on your fundraise.
And VCs have gotten rather terrified. Nearly to a fault.
So, I’m seeing companies at the Series A and Series B phases with 30%MOTHER growth that were popular before now struggle to raise their next rounds because they are not successful.
On the flip side, SaaS companies have actually become the brand-new beloveds VCs have actually gone gaga for.
For many creators, it’s still challenging (as constantly) to raise money
For everybody else, after checking out news stories about such large fundraises, it can be puzzling to understand why their own fundraise is so tough. Why is it so hard for me to raise cash?
It turns out that fundraising is still tough for everybody else. Outside the SF Bay Location, it’s even harder to raise.
The press mostly writes about the hot deals, like business that raise $5 million seed rounds and went through YC.
Valuations are all over the board
I’m seeing valuations well above $10 million post– even $20 million post for hot seed-stage companies.
So when people ask me what a fair evaluation is, it’s a really hard question. Many people believe valuations are based on a company’s progress.
Everybody’s mental model will be shifting
Pals beyond Silicon Valley often ask me if I believe this time VCs will favor successful companies over fast development.
I think the answer is VCs would like to back lucrative business with fast development.
( That, of course, asks the concern in this day and age with other financial obligation or revenue-based funding choices why such a business would raise a lot of VC money, however that’s besides the point.)
That said, I do think that in this brand-new age we are entering in 2020, companies that concentrate on profitability will separate the winners from the losers in the next couple of years. Thriftier founders will win.
Now, here’s the paradox. As we go into this new age where thriftiness is a strength, I think that the start-up journey will really be harder for the creators who are able to raise their big seed rounds so quickly at high assessments. From previous experience, I’ve found that founders who can raise quickly in a very first raise really struggle in the future subsequent raises since they don’t know simply how hard a fundraise can be. Moreover, founders who can raise large amounts in the beginning tend to be less prudent and typically burn through excessive cash prior to their development really kicks in. On the other hand, ignored creators who have typically found it difficult to raise understand that they need to be economical by default, due to the fact that it’s uncertain how hard the next fundraise will be. These founders know they need to make business work with or without investors.
The ironic twist is that investors throw cash at founders with specific resumes because they believe those founders will be the most likely to prosper with big exits. A strength can quickly develop into a weak point in this market.
My expect all creators in 2020
My hope for all founders is that they focus on staying thrifty, view cashflow and chip away at getting to profitability so they can own their own destiny.
And that’s what I wish all startups find in 2020, so they don’t need to appreciate the whims and fancies of investors as they alter with the times.
Read our extended interview with Elizabeth Yin(Additional Crunch membership required).