❌ Founders, Don’t do this!🙈
My learnings from working with very early stage startups, first time founders and the buckets of death valleys they fall into.
In this post, I will address those mistakes and how to avoid them.
Update 1 in Jan 2022
- Deck and Deck only
Some founders or first-time founders make this mistake. The founder here believes a deck and a great problem are good enough to get funded.
What they do:
They have a great idea. They hire people to build a great deck. They keep reiterating on the deck through different cross-sections of the same story, adding different market data, different “$” asks, describing the problem etc.
They don’t have a solution or only have a hypothetical one. Given that they haven’t played around with the solution/product, they barely mention it in their deck.
Every meeting they have with an investor, an advisor, or a friend leaves the participants more confused than they entered the meeting.
2. String theory like Excel Model
Same story as above, but now an elaborate excel model gives them a sense of progress that no one can question their intention or the seriousness because they have thought it all out in an excel sheet and 72 months ahead.
While, it is important to forecast your business ahead, at the ideation stage it barely makes sense. A great saying in investment banking or PE world regarding the excel model is “Garbage in, garbage out”. Any model, that forecasts costs, revenue, headcount, cashflows at this stage is garbage. The model can only be used as a template you check your expectation when you actually build the startup.
Thus, at the pre-product, pre-revenue stage, making a big model as a part of your pitch adds no value other than signalling that you and your team know how to play around in excel.
3. Amazing Idea with no Validation and 4. Assumptions about customer traction and 🚫 proof
Preparing pitch materials is time-consuming. You can spend as many hours on it to perfect it, being busy, and not have moved an inch towards building the company or validating the idea.
This is tantamount to doing marketing, organising an event, booking the venue, selling tickets, without having a show. When people show up, if they do, they are going to be disappointed.
The founder has put all their life’s experience into the idea, they have a gut feeling that their idea will work. The idea/startup could have emerged from a gap they identified in their professional life or personal life. While it is a valid starting point, it is not enough to raise funding or even spend your own time.
For starters divide time equally between building marketing materials and validating assumptions.
For example:
Assumption 1:your idea/ product/ service is monetisable is an assumption. Can you prove that?
Assumption 2: People need the product and the gap is not solved by existing off the shelf products — Can you validate it by building a workaround solution with multiple existing platforms before spending money on building your own? because you are not spending your money but the VC’s.
John Doerr’s book, Measure what matters, tells the story of a startup that was able to survive only after talking to its users. VERY IMPORTANT TO TALK to your users to find if they actually are your users.
Here is a great article from First Round on MVT — Minimum viable testing.
5. Money 🤑 💸- Team paradox 😕🤷♂️
I have seen most founders crib about how they do not have a team because they haven’t raised funds. They think it is a paradox, a chicken-egg situation. But it is not.
Finding the right team is hard. Sure good CTOs are scarce. Finding the right Co-founder who will ride along is rare. So is getting someone to trust you with their money (VC MONEY). Now think of it like this, if you can’t get someone to get onboard for 20–30% of the equity in the company, how will you convince the VC to give them your money for a much smaller stake? 7% for a $500k?
6. Many meetings 🤝🧑🤝🧑 = Progress trap 🪤
Some founders have a very good social and network capital that they bring from their industry. They use that to get connected to the right investor or investors. Now, given the number of meetings they are in and out of regularly they get to name drop to get more meetings.
I agree that it is good to be on the investor’s radar before the actual fundraise starts. But, I would also be wary of making the wrong impression which will serve as a hindrance later when actually fundraising.
A meeting with VC is only successful if you get a referral, a signed check, or a term sheet. Until then there is no progress. Because you haven’t moved the needle for your startup.
7. Costly Tech 💻 Development pitfall
Product led growth, launch the service and the demand will come. Sure! Dont ask your customers what they want, give them what they need.. ( the famous Henry Ford story). Might work wonders in some cases, but do you want to play the odds? So don’t burn all your life’s savings in building something that doesn’t work.
99% of all startups fail. Don’t be the one that failed and also burned the last penny of your savings or even your VC money.
Embrace Design thinking. Prototype quick and reiterate soon.
It is only logical to do it this way, if you ask me. You don’t need to go to a startup school or a fancy MBA (ask me about it) to be logical.
Update 2: May ‘22
If you outsource your tech, you are doomed. Inevitably all VC-Investible businesses are tech businesses. If you are building a tech company and outsourcing tech, ( can you see the irony), this is a huge RED FLAG 🚩.
You will get a reply similar to the image above. Because, at the very early stage, they are not investing in your technology, your beautifully done forecasts and decks, but in you and your team.
Now, I am not saying, you need to hire an entire army of engineers, developers, designers, NO. I am saying you need a person who can architect a solution, manage an outsourced team/ contract/ freelancers and knows how to fix them if something is broken in the middle of the night.
8. Mom Test 🙅🏻♀️🤦🏻♀️
Don’t ask your mom about how good your value proposition is. This blog sums it all up.
Here are some resources that every founder must treasure and exhaust using.
- NFX Founders resources — this is 💰💰💰
- Seedcamp’s resources
- David Skok blog and resources for SAAS businesses
- First round review has a very good starter pack
- Here is a list of all the books you could read on the subject by Visible
- Founder starter pack, First Round
Here is a great article by Techcrunch on the same topic.
