BC STARTUP
Saved by @SteveeRogerr

Last week, I wrote a thread about generating momentum for startups.

Today's thread is on how emerging fund managers can generate momentum for their fund.

Whatever you do, momentum is so impt to get ppl onboard -- for hiring, for sales, for fundraising.

Read on >>

 1) First, why does momentum matter?

Think about it from the "buyer's perspective" -- it is almost ALWAYS better to wait and get more information if you can get the same deal. Right?

More info on a potential investment. More info on a new product. Etc.
2) There are few situations where it's impt to be a first mover.

If you're a product buyer, it could be you have a dire situation at your company that alternatives can't handle.

But if you have a decent alternative (alternative product or alt investment), it's better to wait.
3) That means it's YOUR JOB to create momentum. Whether for fundraising, sales, or hiring.

So with that in mind, how do you generate momentum for fund fundraising?
4) In a prior tweet about generating momentum for startup fundraising, essentially I said to limit your supply (the amnt you are raising) in tranches AND to increase demand by packing in mtgs.

Unfort this doesn't quite work well for funds.
5) This is because when you are you trying to raise a $10m fund and have $0 committed, how do you get ppl to invest $100k or $1m checks?

Larger raises have this problem.
6) There is a technique that some ppl use that I don't think works well for EMs. And that is to charge fees to later investors -- essentially the equiv of raising the valuation on a later tranche.

However, most LPs would just walk away from a first time fund.
7) One of the things we did for @HustleFundVC was to increase the min commit which is the fund equiv of scarcity.

We will only take a limited # of small checks. Starting at $25k. Then $50k. Then $100k. Then $250k. Later $1m event.
8) I had a few ppl say they wanted to know how long we were raising for (and since the answer was months), they wanted to know if they could wait until a later close. And telling them yes, but the min check size was going to increase worked!
9) This is how we were able to get a number of smaller checks signed within a week.

We got small checks in. Then used that to build momentum for larger checks.
10) In addition, small check writers were incredibly helpful in doing intros which is the #1 thing that is impt for EMs. 🙏

@chudson gave me great advice for my fund 1 - "Don't run out of leads". One of the best ways to get leads is from ppl who are already invested.
11) Everyone, of course, would prefer bigger checks, but I'm so thankful to our small check writers for helping us get that momentum -- such an impt component to fundraising that most ppl overlook (whether for startups OR for funds).
12) As you can see here - this is what our @HustleFundVC Fund 1 fundraise looked like (see red line) -- most of the money was signed in the last few weeks of a 9 month raise!

Momentum is everything.
13) Aside for limiting the number of checks at smaller sizes, other ways to build momentum incl relentless updates on a scheduled cadence. Get ppl excited about the deals you are seeing / funding.

@ericbahn sends ours on the 1st of every month on the dot.
14) @MacConwell does a deal-breakdown w his LPs. Background of the founders. Why they will win? Why the biz is interesting?

Investors want to be part of something that is moving fwd, & updates that show you're doing this with or without them is a great way to show momentum.
15) Lastly, show momentum on OTHER THINGS that are impt to LPs. Angel LPs invest for all kinds of reasons - def ROI AND also to network w/ others, to learn new things, to get deal flow, to support founders, etc.

You won't have returns to show but you can move other things fwd.
16) Things we did on Fund 1 to move other things fwd incl doing social events (open to our LPs). We shared deal flow (still do). Etc.

So the sooner an LP commits, the sooner someone will be able to access all those other things which is a forcing fx for signing earlier.
17) One of my biggest learnings over the yrs - since this doesn't come naturally - to me is to now think in terms of forcing functions. How do you create urgency to overcome natural, logical reasons to wait for more information?

That's how to build momentum.

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A thread on employee equity in early stage startups -- what are the compensation norms? What every early employee should ask? Some thoughts on whether the structure is fair.

Read on >>

1) First, there are NO NORMS! Hah. I have literally seen everything from giving early employees no equity to giving employee #1s near co-founder level of shares.

But what is more common than not?

2) In the Silicon Valley, if you're hiring your 1st employee, & you've raised NO $$ & are paying very little (e.g $0-$10k / yr or thereabouts), your first employee is basically a co-founder.

And the equity tranche for employee 1 should be closer to a co-founder level.

3) For ex, a friend of mine gave his employee #1 10% (vesting over 4 yrs of course) of the business. This employee was only getting his housing paid for. And this was 10 yrs ago, so it was during the bust.

4) On the flip side, if you have raised some $$ & are paying employee #1 near mkt rate, typically I see around here ppl get 1-5% (w/ vesting).

Caveat - near mkt rate doesn't mean compared to Google or FB salary rates. I mean compared to "normal big cos"
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Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Today's thread is a continuation on *how* you generate momentum in fundraising.

Here's a rough conversation I had with a founder (called 'C') over the course of days a few months back.

Read on >>

1) C: I'm having trouble raising. VC A and VC B are taking so long to get back to me.

Me: Oh, when did you meet w/ them?

C: 3 weeks ago.

2) Me: Oh, are you mtg w/ anyone else?

C: No, I got busy working. I had all these sales calls to make.

Me: That's the problem - there isn't a reason for them to move quickly. There's no investor at the table.

3) C: But I have all these sales calls to make!

Me: I really don't have a great answer for you here. This is probably the hardest part about fundraising - juggling your actual job w/ your fundraising job, which is full-time too.

4) Me: You need to hand off your sales calls to your co-founder. And then you can do mtgs back to back.

C: Ok...

[some time passes]

C: Ok - I'm ready.

Me: How much do you want to raise and what are you using the money for?
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@dunkhippo33
Saturday thoughts on market pull. What is it? How is it different from Total Addressable Market (TAM)? And what ideas tend to have strong market pull?

A thread >>

1) First: "Market pull" != market size.

IMO (and most VCs will disagree!!), market size (TAM) doesn't *really* matter. But market pull DEFINITELY does. For that reason, I've almost never asked a startup about TAM.

Why?

2) First, what is TAM?

TAM is a sizing of how big your market is. A good way to estimate this is - if you can get to all potential buyers and based on how much $$ they are worth to you, how much money can your company make if you took the whole mkt?

3) An example: Say we run an e-commerce site that sells hippo food. TAM in the world:

-1000 zoos have on average 3 hippos = 3000 hippos.
-Each hippo eats $100 worth of food each day
-365 days * $100 * 3000 hippos = $110m per year globally

4) But, we'll come back to this.

Why I don't like TAM - it doesn't take into acct a few things:

A) how hard it is to get customers
B) how much more you can upsell once you have customers
C) how fast the mkt is moving up or down
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Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Today's thread is on the affiliate business model. Many years ago, I used to be an affiliate marketer. If there is any way to get schooled in marketing, becoming an affiliate marketer is probably the best way.

What is affiliate marketing and why should you care?

Read on >>

1) Affiliate marketing is selling products or generating leads on behalf of other companies and getting paid a commission for those products.

2) Some notable examples you've seen before:

NerdWallet - you read their articles on best credit cards. You click on a link to one of those cards. You fill out an application. They get paid for delivering that lead to the cc company.

3) In https://t.co/kSfWS69ybp - same thing. Any of their financial products -- you fill out an application, and https://t.co/mCrBT43mOj gets paid for that.

But the affiliate revenue model applies beyond financial services products.

4) Wirecutter -- you see a neat product they review or talk about. You click through and buy.

Wirecutter gets a cut of that transaction.
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Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Some wed night thoughts on investor “value add”:

1) At the end of the day, money is a commodity. That mere fact should make every vc shudder.

It is amazing how many ppl (incl myself) clamor to get into a commodity business!

2) As such, to differentiate, different investors provide other things beyond money. Sometimes it’s community. Sometimes hiring help. Sometimes expertise or sector-focused networks. Etc

3) And some VCs are truly value add! For example, if I had an edtech co, I would hands down raise from @jwdanner - he has been there as an entrepreneur, built schools, and invested in so many hit edtech companies.

4) But at the end of the day, regardless of who invested in you, it’s the founders + team who are doing all the work.

5) when I think about what I’ve done for my own founders, it’s ranged from doing intros (mostly to other investors) to cust acq advice to feedback etc

But the reality is - all of my founders would’ve figured out how to get that intro or that piece of advice w out me
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