BC STARTUPS
Saved by @Jacobtldr

Saturday thoughts on funding: Where it helps. Where it doesn't. And how it affects team, success, and PM fit.

This is just my $0.02 after looking reviewing 30k+ early stage startups personally and having led 350+ investments across 2 VC firms & as an angel.

Let's begin! >>

 1) Money is great to have in building a startup (for the least dilution and pain possible) That's true and always will be true. 😆

But just like how money can't buy you happiness, it also can't buy you PM fit.
2) PM fit is the holy grail for software startups. (we're not talking biotech - if you have a cure to cancer, I guarantee you everyone wants it).

But for software startups, it's unclear if ppl want your product at your price pt.
3) If you don't find PM fit, in this day and age, you will be able to get some sales. Maybe even say $1m in sales (or more!) per year, and you can still make a living.

But having sales does not mean that you have a repeatable customer acquisition process that can be sustainable
4) As an aside, that is why we invest at pre-seed & don't care about startup traction, because I don't believe traction at the earliest stages suggest PM fit. Traction only shows that a founder can execute (& that's impt too) but there are other ways to assess execution earlier.
5) So going back to the crux of software startups.

Frankly speaking, finding PM fit is a LOT of luck. This explains why a lot of serial entrepreneurs who were successful on 1 venture have a hard time repeating that.

It's not a lack of capabilities.
6) That being said, experience from seeing a lot and doing a lot in startups helps you take a better guess at where there may be opportunities to find PM fit. And, serial founders can often execute more quickly on certain things they've done before.
7) But at the end of the day, there's still a lot of LUCK.

This is why SV VCs will often back "failed founders" again, because that failure isn't (always) an indicator of the founder -- there's also that big LUCK component of finding (or not finding) PM fit.
8) So then the q is how do you increase your luck?

I mentioned 1 way -- experience in seeing and doing a lot. (and learning)

Another way: focusing on only things that matter (mostly derisking sales) & ignoring all else to utilize time and resources efficiently and quickly
9) This speed and focus should not be taken likely. Every time you say no to something, you get time back A) by not spending time + mental capacity time on what you said no to and B) by also using that time to pour more focus into advancing PM fit experiments.
10) E.g. If I say "no" to doing a talk. 1 hr of talk time + 30 min of prep call / slides time + mental capacity time = ~10 cust calls to gather insights into their day-in-a-life to work towards PM fit.

But doing just 1 talk feels like nothing but it adds up.
11) So relentless focus and time is impt that most entrepreneurs disregard. Focus and limited are also things that ALL entrepreneurs have limited supply of. We all get 24 hours in a day. So making the most of this is impt.

Now where does money come into this?
12) The obvious one - everyone has a livelihood that requires money. Everyone has a diff cost on this.

And that affects runway. Runway affects # of PM fit experiments.
13) I have seen well-networked teams (both in my own portfolio & friends' cos) clearly not have PM fit after burning through lots of $$ and still be able to raise a LOT more $$ to keep trying.

Then, by extension of their runway, they find strong PM fit and the rest is history.
14) I would argue in both (near) unicorn cases that I'm thinking about, both teams are exceptionally strong. And these particular cos are not examples of VCs throwing $$ down the toilet.

However, I'm very aware that MOST founders don't get 2nd or 3rd chances like this.
15) This also happens in cases where the founders are well-networked AND also not strong and they are able to raise large amounts of money and end up fizzling out because they never get to PM fit and it's a disaster.
16) Money doesn't guarantee PM fit by any means. It does give ppl more shots on goal.

Should ppl get more shots on goal? That's a philosophical q above my paygrade. But the way we operate @HustleFundVC is that we just assume that each of our cos will only get 1 shot on goal.
17) As another aside, what ppl also don't talk about is how much you get diluted down as an early inv even if a co finds PM fit after raising so much more $$.

3 addl rounds -> your ROI is cut in half & that may not even return the fund even if the co "wins".
18) Raising $$ can help in other ways -- recruiting. Many would-be employees like to see some semblance of security & the big rounds help w/ that.

The flip side is if you don't have PM fit, having more ppl on the team makes getting to PM fit HARDER not easier in many cases.
19) So the tl;dr is

a) Money is great to extend your PM fit experiment runway. But only if you use it efficiently and stay lean until you find it.

b) Often ppl who raise big $$ w/ out PM fit end up blowing it / spending it unwisely & hiring too many ppl and never find it.
20) (cont)

c) PM fit is hard to find w/ or without money. This is why the IDEA matters so much. and market pull >> founders.

Good founders + great idea >> Great founders + good idea

Combined with money goes far.

More from Elizabeth Yin

Elizabeth Yin
Elizabeth Yin
@dunkhippo33
Today I want to talk about the legal aspects of startups. How to set up? How to think about legal costs?

Fun!

Read on >>

1) Lawyers are expensive -- oof! A startup lawyer can cost you $300-$1k per HOUR! An associate paralegal may be slightly cheaper. But still pricey.

What do you need from a lawyer?

-company setup costs
-doc creation and review for financing rounds
-exit negotiation

2) For the purpose of this thread, we're just going to focus on setup costs, because this is where I see the most mistakes.

Once you get going, you may quickly realize you need a better lawyer - hah - and that generally helps w/ solving for financing rounds and exits

3) If you want to potentially raise money from VCs, you'll want to set up as a Delaware C Corp. If you don't ever want to raise from VCs, an LLC is fine.

Lots of ppl start out as an LLC because you can get tax benefits if you are not profitable.

4) But to me, if you know you want to raise VC money, it feels a bit penny wise / pound foolish, because you will need to spend $$ to convert your LLC to a Delaware C corp.
STARTUPS
Elizabeth Yin
Elizabeth Yin
@dunkhippo33
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
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
INVESTING , ALL
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
STARTUPS , INVESTORS
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.
STARTUP

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Justin Kan
Justin Kan
@justinkan
1/ Throughout my startup career, I’ve seen many founders have an aversion to sales. This is a mistake that can kill your startup.

2/ Sales is often viewed as either a saving grace or proof that the product isn’t good enough (because it should sell itself). Neither are ever true. Some common mistakes that result in...

3/ Mistake 1: Hire a sales rep before reaching product/market fit to get your initial batch of customers. This is a mistake because founders need to work through their MVP with early adopters to truly understand what it is they’re selling.

4/ Mistake 2: Reach product/market fit, need to scale, and rely entirely on self-serve. For enterprise products that require big commitments and internal shifts, almost no product is self-explanatory enough to sell itself.

5/ Mistake 3: Make a first sales hire who isn’t scrappy enough to help mold the sales process from scratch. Some salespeople are amazing at their jobs, but not cut out to establish the processes that others end up following. This skillset is what @rdedatta calls a “sales ninja”.
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Below are the top 10 RT'd tweets from the latest 1000 tweets made by @Hustle_Smarterr.

THREAD:

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Ryan Caldbeck
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1/ Tuesday was my last day as CEO of @CircleUp. I’ve been CEO since starting the co. in 2011 with my co-founder @roryeakin.

This is a thread about what happened, why and my emotions about it. For more detail:

https://t.co/vYImcm1bTM

Much of this I have never talked about.

2/ My goals: I hope it helps founders feel less lonely than I did. Little public content about the challenges of transitioning exists, but I longed for it. I’m not here to provide a playbook- just to share my experience. Hope it might build greater empathy.

Here goes….

3/ Why: When I tell people that I’m transitioning to an Exec Chairman role their first question is always: “why?” Short answer: co. pivot + fertility issues + health issues + a false sense that grit was always the answer = burnout. Long answer: is longer so hang in there with me

4/ Over a 12-18 month period that ended in late 2017 I ran my tank far beyond empty for far too long. You know that sound your car makes when it’s sputtering for more gas? It was like that. Worst year of my life. Since then it has felt like bone on bone.

5/ Here is what happened:

Professionally: pivoting a Series C company was a living hell in and of itself, as I’ve talked about before.
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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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Traf
Traf
@traf
A few things I've learned this year from building a small, profitable internet business from zero to $100k ARR in 8 months.

Ride the wave:

People often ask what we do for marketing, and I don't really have a good answer. You don't have to push your product as hard if you're building for a vocal community of passionate people within a growing market. They'll do most of your marketing for you.

Scratch your own itch:

If you don't experience the problem you've set out to solve, you’ll have a slight disconnect between what your problem actually is, who’s experiencing it, and how to reach them. I’ll probably never do another user test in my life.

Get specific:

The web hosting space may be crowded, but the web hosting space for Notion is not. I used to think a niche would limit the total size of my business, but If we capture 1% of all Notion users, we'd be making at least $720k/month—far beyond what's enough for me.

Use side projects as marketing:

Some of our record signup days came from one of my side projects. The only mention of it was a link to it in the footer of the page. Your side projects don't have to be clearly correlated in order to still correlate.
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