Behind the scenes of a seed round | Hacker News Reader

Behind the scenes of a seed round

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> He said, “I don’t want to say the wrong thing and call you a “meek Asian woman”, but I wonder how you’ll lead a company of 100 people.”

So much about investing, VC's claim, is investing "in the team", and trying to figure out "what kind of people" the founders are.

After all, you're not being hired for a well-defined position -- your success may depend on your very character as a human being. Your drive, your persistence, and your ability to inspire others.

But since these things can't ever be objectively measured, there's tons of opportunity for stereotypes (conscious and unconscious) to affect the process.

There's a positive side to going with your "gut instinct", and a negative side as well.

As sickening as comments like his are, there's some comfort that it identifies the people you shouldn't waste time with. The only thing worse than a loud bigot is a silent bigot.

I only wish that I could get this information as well so that I could avoid investors with such poor decision making skills. But naming and shaming isn't in your or your company's best interest, so I can't argue with your decision to keep the person's name to yourself.

Perhaps an anonymous post to TheFunded?

Agree!

I doubt you'll run into this person. He isn't well known and hasn't even made his first angel investment yet. (that in itself should probably have been a clue for me to not waste my time with him...)

This part was really surprising to me - definitely one of those things you don't learn until you try it yourself:

>I soon learned that lots of investors liked to reschedule meetings at the last minute to meet with other seemingly “hotter” entrepreneurs. Having a full pipeline gave me leverage to say, “Well, we can move our meeting, but my schedule is so booked — I don’t know if our round will still be open by the rescheduled date.” This ultimately caused some investors to un-cancel our meetings.

There's also some high-school-with-more-money-attached gamesmanship with that sort of thing.

Generic business lesson, not specific to raising funding: you may be occasionally asked to reschedule a meeting on very short notice, sometimes to a time which could not possibly be convenient. This is occasional used as a test: if you say yes, you're communicating that you really want this deal to go through, which means your other options are likely poor. That can then get used against you in negotiations. If, on the other hand, you say "We can't reschedule", you may find that scheduling conflicts resolve themselves as if by magic.

Having a full pipeline gave me leverage to say

n.b. Truthfully conveying to investors/clients/etc that the market circumstances concerning one's availability can quickly change in a fashion against their interests and that as a consequence they should decide quickly does not require any particular state of one's pipeline.

Interesting that so much of negotation comes down to brinkmanship and confidence.

Saying 'We might not be available next week' as you do above is not as convincing as saying 'We have 10 meetings this week with potential investors, and we have a closing date of next Tuesday when we'll decide who to go with' or something similar, if that is a truth which they can then confirm with other contacts. I imagine the more truthful and specific you can be about having interest the more convincing it is going to be as a reason for them to be interested.

Interesting that so much of negotation comes down to brinkmanship and confidence.

This is pretty much true for every social interaction.

That may be true, but there is the psychology of people wanting what other people have. By having a full pipeline, you are also conveying that you're "popular" with other investors.

Let me try again since apparently I was a little oblique: Consider the set of statements you could make to announce that you have a full pipeline. Subtract all statements which can only be made if you have a full pipeline. Deliver one of the remaining statements in a confident and optimistic tone of voice. There, you're now conveying that you're popular with other investors.

I would only disagree to the extent that if you have no other options, you shouldn't necessarily act like you have tons of options. If you have alternatives, you don't care that much if Investor #21 falls through due to a scheduling conflict. If you do not have alternatives but act like you do, you may very well find that the scheduling conflict does not resolve itself and now you are SOL with one of your only options.

Learning when to bluff and when not to is an important part of negotiating. Some people thing it's a good idea to bluff all the time -- it's not and can easily backfire.

perhaps true, but the ability to deliver that statement forcefully & confidently is much easier for most people if it's actually TRUE. while some can pull it off whether or not the reality matches the statement, most of us are more likely to display confidence knowing the facts match the body language.

plus, you'll get reamed if you later get caught telling a lie, and ethics matter (at least for some of us).

I think we're on substantially the same page regarding ethics. I'm all for avoiding lying, but I have come to appreciate that one can sell/market without lying. Given that the true state of reality is that one has 50% of a full pipeline, I would characterize that as "Investing in us is a limited opportunity. Other people are interested in it. If you want to invest in us, you should make that decision soon, because circumstances beyond our control may take away that option in the unspecified future." rather than "My gCal is half-empty so I should be able to slot you in whenever."

Any suggestions? After a while, we could say that we had 2nd round mtgs with VCs and that we had so and so committed, but in the beginning, there wasn't too much else to say.

With regards to the etiquette of when you can drop people's names into the conversation, I would ask somebody over there in the Valley as my understanding is there are thorny social norms there and I'm only barely conversant on them.

With regards to expressing urgency, maybe something like: "I appreciate that you've got a busy schedule. Boy, can I empathize, it seems like I have to slide the actual running of the company in between the fundraising. But, you know, the market's the market right now. I'll tell you the same thing I'd tell everyone else: we'd be happy to pencil you in for X but our situation is evolving and there may not be an open window for this by X."

(I've never raised money, but when I sell consulting gigs, I typically throw in a true observation like "I have N weeks of availability. My experience is that I usually book up." Ask the 500 crew, but it seems to me like "We're a 500/YC/etc startup. Historically, the rounds sometimes close out quickly." is absolutely true, conveys urgency, leverages social proof, and doesn't say anything you wouldn't want retweeted.)

I think we are generally in agreement -- I just used the pipeline line to convey this urgency. I'm not a big fan of name-dropping in this case, because from what I see, lots of founders do this all the time, and it's not worth anything IMHO. I can pull out lots of cards: 500/Google/Stanford/MIT/Harvard, but one of the things that I'm trying to convey in this post is that even in the Valley with all of those cards -- and I talk with friends from all these networks all the time, there is still a lot of hustle that goes unreported. The streets aren't lined with gold just because you are a 500company (or YC/TechStars/AngelPad). For most companies, people are not just throwing money at you because of your networks or who you know/talk with. It is true that some rounds close quickly, but the majority don't. Also, most of this post refers to the beginning of the process. Once you start bringing investors in, it closes more quickly from that social proof, and that's how rounds accelerate faster in the end. But, that's in Part II. :)

When I go to raise money, I really want you there as my negotiator. :)

Great article and sounds very similar to my experiences. Raising capital is hard work with very long hours and no guarantee of success. It's also requires a tremendous amount of strategy and gamesmanship (such as the "Well our round might not be open by then").

Overall, I hate the experience. Will always try to avoid it at all costs.

I'm genuinely interested in this whole process of creating a company and getting funds and stuff. Where could I find some resources on equity/angel investor/VC/seeding and all those buzz words I see here. I'd really like to understand this process better.

Oh and, nice blog post! I'm looking forward to read the next part!

http://www.venturehacks.com is a good resource. There are a number of good books on the topic as well. And there's a lot of good info on Quora. And, of course, search the historical posts here at HN, there's a TON of good stuff here.

BUT... be aware, fundraising is only one aspect of creating a company, and not all companies even want/need to raise outside funding, and of those that do, not all need institutional funding. If you decide to launch something, make sure your focus is on creating something that creates value and has a valid business model... don't just focus on "how do we raise VC money"?

The Meek Asian Woman comment is outrageous.

perhaps, but also useful information... much better that the person said it, rather than think it and not let her know.

at least now she has information to process about that pattern of interaction behavior.

I agree. Maybe not the best choice of words, but it's useful information.

I'm actually impressed by her response. It wasn't to go out and complain about his comment, it was to analyze it and see if it was something useful she could use.

If not, discard. If useful, act on it.

She's not letting a crappy comment slow her down.

Dave is spot on. Nothing is more frustrating than a mediocre meeting with no feedback, or polite feedback. When you're funding you need to learn quickly about what's resonating, and where your falling flat.

Tis far kinder to be cruel at this point.

Obviously it was an asshat thing to say, but I've heard lots of stories of VC's pushing sensitive buttons to see how founders will react.

Yes, much better he vocalize it rather than some vague platitude about timing or market sector not being good.

I'm curious to know how do investors judge whether given founder has strong or weak personality? Especially in 30-60 minutes meeting? I'm sure it must be gut feeling but good salesman can easily fake it, unlike most of the founders who are geeks.

I'm not an investor but I would imagine the answer is in pattern matching. Investors who meet a ton of people inevitably will have longer relationships with some of them and find out in the end whether a founder has a "strong" or "weak" personality.

I think it's reasonable to call this pattern matching a "gut feeling." Eventually, with more data points, I would assume the pattern matching becomes more nuanced and would be able to better distinguish who is faking and who isn't.

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