the earnest ambitious kid's guide to investors
Q1.24 field notes
PG had a great post back in the day called the Hacker’s Guide to Investors that detailed how to understand, relate to, and work with early-stage venture capitalists. I’ve been thinking about this a lot lately and wanted to tack on a few things, particularly for young people interacting with this corner of finance for the first time.
I’ve noticed that the founders who find raising venture capital awful are often the ones who have trouble separating their personhood from the persona and mentality they need to adopt to successfully fundraise. If this sounds like you, I recommend reading about Kegan’s stages of adult development (specifically stage five, the interconnected mind). More tactically though, here are some fundraising things to know:
1. Fundraising is brain damage, so spend as little time doing it as possible
2. Create an alter ego who you don for fundraising purposes
3. Don’t spend a lot of time with VCs if you don’t need VC $
4. Only talk to investors with decision-making power, preferably angels
5. You know more about your business & domain than 90% of investors
6. Momentum matters and sequencing is smart
7. People don’t belong on pedestals
8. Beware of intellectual dementors and clout demons
9. People will help you if you ask for what you want clearly and concisely
1. Fundraising is brain damage, so spend as little time doing it as possible
Raising money requires you to perform for the money-wielders, distracting you from the real work of building. However, nailing the performance provides a vital ingredient to enable the real work! Minimize time spent performing as an act of self-preservation for your psyche and rootedness in reality (i.e. keep your ego in check).
2. Create an alter ego who you don for fundraising purposes
VCs need to believe that your company could be a billion-dollar business and generally lack imagination — you need to paint a vivid picture of this path for them, starting with the striking protagonist character you play in your company’s story.
Your alter ego should never lie, but it should be completely comfortable showing the fullest expression of your ambition to people who probably intimidate you. Fundraising is a snap judgment game — most VCs are trying to pattern-match you to a founder archetype who already won. They index primarily on IQ, self-belief, experience, and personability (in that order). A general rule of thumb is that to be taken seriously in SV, male founders would benefit from acting warmer, while female founders are taken more seriously when they act colder. Both benefit from acting a little entitled.
3. Don’t spend a lot of time with VCs if you don’t need VC $
Investors at big firms are (probably) not your friends. They will try to make you feel like they are, but at the end of the day they’re unlikely to be loyal to you unless they’re invested. Remember that a VC’s job is to make a diversified portfolio of bets — you are only one. Most founders find being around VCs distracting and draining because they feel pressure to perform the role of ‘impressive person.’ If you can’t immediately capture value from your performance… why waste your energy?
Angels generally don’t expect as much of a performance — especially ones who care about you as a person. They are more personally invested (literally) and are likely to be well-versed in the reality of building companies themselves. Which leads me to…
4. Only talk to investors with decision-making power, preferably angels
Don’t talk to associates or analysts, it will most likely lead nowhere and you’ll be stuck with that person as your designated contact in the firm’s CRM forever.
Do talk to angels, solo GPs who operate like angels, and partners at firms you admire (once it comes time). When talking to investors who make decisions, expect the call to be more conversational in nature (not necessarily a pitch, read the room) and know that if they’re a partner at a firm, the whole point is to get to the next meeting.
How to meet angels/GPs: you probably already know one or two of them (if you don’t, ask the best-connected person you know who they know). Tell the angel/GP about what you’re working on, solicit advice/feedback, and crucially, ask for intros to other investors they like. Repeat this again and again until you’ve built an investor network.
5. You know more about your business & domain than 90% of investors
Which is fine! Just don’t expect the average investor to provide much value beyond money and connections. This makes the 10% of investors who can be legitimately useful to your business worth their weight in gold. Develop litmus tests to identify the valuable ones quickly and avoid wasting your time trying to convince nonbelievers.
6. Momentum matters and sequencing is smart
Remember that our goal here is to spend as little time fundraising as possible — which requires being strategic about the order in which you talk to investors and how you talk about where things stand as you progress through the raise. The combined force of controlling those two variables are what “generates momentum” during your fundraise process. Sequencing investor meetings as follows can help do this:
Make a list of all the investors you know and can get introduced to, ordering them by the ones you most want on board to the ones you couldn’t care less about
Talk first to a few low-stakes investors at the bottom of your list to practice your pitch and identify common investor questions and critiques you’re going to get
If available to you, next get a few investors who already wanted to give you money on board so you have a dollar amount you can say you’ve raised
Work your way up your investor list, talking to the investors you most-want-on-board-but-still-need-to-convince last (this optimizes your odds they say yes)
This all goes by much faster if you court investors similarly to how hot girls treat their many potential suitors. If your raise is already a little taken and you exude an air that you don’t need them, mimetically-minded investors become much more interested.
7. People don’t belong on pedestals
You will most likely meet your founder/investor/operator idols at some point in the fundraising process. If you’re anything like me, you will worry intensely about not making a fool of yourself. It will probably go ok, but not as amazing or illuminating as you’d hoped. You might leave and feel a deep sense of lostness set in. This is all very normal. In time you will see them in increasing clarity, often noticing the differences between your and their values and why you would not enjoy living their life at all.
Also: the people on pedestals probably hate being there. It’s lonely, hard to trust that the intentions of the new people around you are pure, and you often feel like you’re constantly letting people down. In the end, idolization hurts everyone involved.
8. Beware of intellectual dementors and clout demons
Intellectual dementors will try to eat your ideas and interestingness — not necessarily to copy you, but to wring your brain dry to amass knowledge themselves. They often play mini IQ games/tests of will in conversation and masquerade as investors while never actually investing. Clout demons are similar, but view people less as brains and more as stepping stones towards supreme social status. The power move to protect yourself from both is to simply abstain from playing their games — give as little info on yourself and your ideas as possible and reflect their questions directly back at them.
9. People will help you if you ask for what you want clearly and concisely
The beautiful thing about this industry is that demonstrated self-belief (“ambition”) will take you far. You just have to know 1) what you want and 2) how to ask.
Knowing what you want requires a lot of upfront soul-searching, followed by strategic and long-term thinking once you’ve committed to a thing (I can’t really demystify this more). Once you’re all in, I highly recommend diligently keeping a list somewhere of the top three things you currently need help with so when people ask, you’re ready.
Knowing how to ask is partly timing and partly tone. You don’t want to make people feel like you’re using them but you do want to use your social capital for things you care about. General rule of thumb: ask for things either 1) after a positive interaction or 2) completely out of the blue with a concisely written and compelling email/text. Tone matters because you don’t want to sound desperate and you do want to show you know how to play the game (write like the founder you most admire talks).
Here’s one last secret: once people start helping you and you start helping people, you all start strongly wanting each other to win. Human brains are funny like that — once we’ve taken action on behalf of something, our brain assigns more value to said thing. Tim Keller: “The feeling of love follows the action of love.” Love is a strong word here, but the point stands — help people help you. Startups are long-term games, so it only makes sense to do them with people you truly want to be around for a very long time.
💚 intellectual dementors is such a good phrase!!!
🙌 ❤️