Hacker News Reader

Comment by danial | Hacker News Reader

Always say that you’re raising less than you actually want. If you want to raise $1 million, tell investors you’re raising $750,000. This tactic will come in handy when they ask you how much has already been committed. Always answer in percentages, not actual numbers.

Is this sound advice? Could someone explain the reasoning behind it?

View on HN

I'm an investor. I've talked to a number of companies that have done this, and it seems to work. However, I think the amount you're raising matters.

If you're raising 500k or 700k, then cutting that in half will make investors wonder why you're raising so little. There's not much runway that you can buy for $250k.

On the other hand, let's say you're raising $1.5m at a $6m valuation. You can start by telling people you're raising 750k or 900k. Once you get to, say, 500k, investors will feel pressured to invest if you only have 250k left to go; they won't feel pressured if you have 1m left. Furthermore, if you're struggling to get to 750k, you can stop when you're there/almost there, and not look bad for hoping to raise 1.5m and then quitting. On the other hand, if you get to 750k quickly, you can use that momentum to get to 1.5m and look great doing it ("Wow, she only wanted to raise 750k, but she had so much interest that she ended up taking 1.5m!").

It's kind of silly that this works, but it does seem to work.

I get this to an extent, but it also borders on being dishonest when you're cutting the amount in half and honestly if you're setting out to raise 1.5 but you have a hard time getting to half of that chances are you're raising too early.

I don't mean "too early" in the sense of the VC who met with you for five minutes said it was "too early" since that is a whole different story.

I mean too early in the sense that you probably don't have enough actual traction yet, which can mean users, technology, or any subset of other things that matter to show your company has significant growth potential.

We thought we would start raising a few months ago and we were definitely too early, we thought we could raise based on being smart and a track record, took a couple of meetings and realized that we needed to put our heads down and get back to work for a bit.

Fast forward a few months later and we have lots of inbound, some great outbound leads (I agree with this article in the was that you probably HAVE to ask for some inbound leads unless you're the hottest deal in the valley, all the best fit investors probably won't come knocking for you) and it looks like our round will be able to oversubscribe rather quickly.

That's a product of traction(hello revenue!) and picking the right time to raise.

While I appreciate Leo's sentiment here, personally I think if you're looking to raise 1.5 and you struggle to get to 750, put your head down and get back to work or else you're going to make the next few years of your life really hard.

Presumably you wanted to raise 1.5 because you have a budget, or a runway goal(at least I hope you do) so raising half of that will likely end up with investors wishing they would have passed on the deal, and that's not a win for anyone!

Just my $.02

That's a great point. I agree that it's dishonest if you're just changing the price to put pressure on investors. I do think that if you have an aggressive growth plan that requires 1.5m, but you can come up with a less aggressive plan where 750k is enough, then that lets you ask for 750k while hoping for 1.5m and keeping your integrity.

I also agree fully that more traction/progress/revenue is very helpful to raising more money and raising it more quickly.

Aggressive vs non-aggressive growth plan definitely makes sense there, definitely a better way to define that.

If there is a way you feel you can still significantly grow your business with a less aggressive plan then that's great, I think what happens too often is Entrepreneurs settle for what they "can get" and end up tanking a company that never had a chance from day one because there was not enough money in the bank to allow time for significant traction outside of a fluke event.

We want to encourage a group of Entrepreneurs who are honest and upfront. In turn we'll hopefully get VC's that are that way as well ;)

Another way of putting this is that investors value optionality and will maintain it if you give them the option to. If you tell someone you're raising $1,000,000, and they'd be the first $25K in, many will tell you to come back when you have more committed. Exceptions exist, but these will require strong opinions and commitment, something not every angel has (especially in the context here of intro'd people, ie people you don't already have relationships with).

It's also demand-generating if you have the forcing function of closing. If you target $300K and you've got $250 closed and are actively fundraising, it sends a signal of urgency and also creates a sense of momentum that even investors conscious of this effect can't help being influenced by.

You shouldn't randomly take an investment amount that is less than meaningful though; I would re-state this axiom as figure out the minimum amount of funding you'd be prepared to close on, and start out seeking that rather than more; adjust as necessary and as opportunity presents itself.

I think it's part of the TechStars tactic to ask for the bare minimum, and hope for more. It makes your company look leaner, which signals to investors that their money is working hard.

For instance this video has been cited as a "perfect pitch" http://www.youtube.com/watch?v=RAKJcWYAvW4

Percentages always sound more impressive than numbers. For instance if you ask for 300,000 and get 500,000; you can say we were 167% over our goal amount or whatever. I've seen it done on kickstarter funding, and I've done it myself.

I think the logic is, if you want $1M and you've only been able to raise $500k, it's better to say your 66% committed vs. 50% committed. You can always over subscribe, which is what you would want to do. Oversubscribing is also a positive signal.

We used this strategy and it seemed to work fine.

Reply on news.ycombinator.com