What's Below in Issue #80:
📰 - Get your ideal seed round in 12 months
📊 - The decline in dilution
🎙️ - Podcast #48: How Alex Pattis deployed $75M via syndicate
💵 - Premium startup resources
🆓 - Free startup resources
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-------------------------------------------------------------------------------------------------------------------------------------------------------------Data Corner
Dilution is on the decline
As you can see, over the past five years, dilution levels have declined at every stage of startup life. How can this impact your cap table? When you retain a bigger slice of equity, you have a better negotiating position down the line or can even give yourself and your team more shares.
Dilution amounts can vary significantly across sectors, stages, and startups. But clearly, over the past few years, companies have been selling smaller percentages of their shares in every round. This is great news for founders as the less dilution there is at earlier stages, the more flexibility and influence you have at later stages. So while decline can be a bad thing, in this case, things are trending up for founders.
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Are VCs going to board your funding train or has it left the station?
Last week, I commented on a post discussing what the perfect seed round looks like and I landed on an analogy that I thought works pretty well. Adam Shuaib, a Partner at Episode 1 Ventures, found that a $2M seed raise was most likely to result in conversion to the Series A and Series B stages, from a sample of 15,000 startups.
But this is not the only determinant in getting follow-on funding; it is crucial that you also have momentum. We have all heard or experienced the "gotta move fast" ideology when it comes to startups, but it's not just about getting teams to work under pressure. It is also about getting your product from launch to raising seed funding as fast as possible.
Sure, you have this great idea, you are passionate about it, and it is going to change the world. That is no guarantee investors will be interested in it. So what is it they are looking for? Momentum.
What does that mean? Say you have bootstrapped to date, your MoM numbers are on the rise and you are certainly solving a problem, but your runway is running out. So you slow down to fundraise or pivot, and your growth lulls. This shows investors that you may have a good and viable venture, but your planning capacity or ability to track burn rate is lacking- not the most appealing investment is it?
As shown in the LinkedIn post I mentioned, the goal is to get incorporated, get those numbers up from rookie numbers, and work on getting some seed funding in (ideally that $2m) ASAP.
Just like most people, investors do have FOMO. You may note that they get more excited about rounds other investors are joining and they don't want to have opportunities bypass them. And they do not want to wait, so how do you make sure they are on board?
Are you investment-ready?
For one, have you reviewed all the necessary materials you need to get the investors on board? How's your deck? Do you have your data room ready? Are you having conversations with the right people?
How quickly can you find PMF?
Can you quickly figure out your growth (low-hanging fruit, ideal targeting) and your product-market fit? If you are still experimenting and tweaking six months after launch and haven't quite got consistency, then by the 1-year mark, odds are you can't bag that $2m seed yet. Before incorporation, I would recommend a lot of research on your target customers, the market, and competitors; anything that can give you the edge fast.
Have you got the right people?
Your team is also key- you may have the idea but you need to surround yourself with the right people to execute it well and quickly. Someone who has complementary skills and can iterate fast, or someone with a great network- spot the gap, fill it well.
Can you pre-sell?
In terms of customers, can you get them on board at the MVP stage? Can you build hype before you launch to validate your PMF (more on how to do this in an upcoming edition)? If yes, then the 12 months from launch should go easier than someone who made untested assumptions about their venture.
Make the VCs chase you. Make yourself as sexy as possible and get them on board. Choo choo!
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-----------------------------------------------------------------------------------------------------------------------------------------------------------How Alex Pattis Raised $75M in 300 Deals by Launching a Syndicate Now in Episode 48
In case you missed it, last week I spoke with Alex Pattis, general partner at Riverside Ventures and author of the newsletter "Last Money In". Alex shares his journey from sales director to launching a syndicate that has completed over 300 deals and deployed $75 million in capital.
Tune in for valuable insights into how syndicates operate, their advantages for both founders and investors, and the common pitfalls to avoid. He also discusses the current trends in the syndicate market and offers advice for founders considering working with syndicates.
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- Written by Jason Kirby - https://www.linkedin.com/in/jasonrkirby
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