How did they get such clear "No" answers?
That list of rejections was very, very unlike my experience trying to raise VC, which was more like 7-10 VC firms giving meaningless "yes, soon!" responses until we gave up.
That list of rejections was very, very unlike my experience trying to raise VC, which was more like 7-10 VC firms giving meaningless "yes, soon!" responses until we gave up.
I was one of the angels who simply didn't respond, in part because I was busy with my own startup, but also because the idea of a marketplace for renting out air mattresses just didn't sound very appealing...
"How would I go about presenting my company in such a way that it'd seem so unpromising that only smart investors would give me the time of day?"
It feels like maybe there's an "uncanny valley" between "no plausible way this team is getting funded speculatively" and "no-brainer straight- to- partner- meeting".
I mentioned to you in a reply, below, that my marketing software company got immediate YESes from angels who had been leaders of marketing teams and intuitively understood the need for our software. I think my record time to close an angel was under 2 minutes. For those who had never led or been part of a marketing team, it was an uphill battle the entire way.
Once I learned that filter, I was able to raise money more quickly, with much higher close ratio.
"You could easily have made this point without degrading men."
In his story he generalizes men as playing the fool and makes no generalization about women.
There was no generalization made at all. He never made reference to gender of the person walking into the bar. It could have been a woman walking into a gay bar.
My apologies.
The degradation that I saw was that, in the analogy, women are sexually objectified. Women appear in the story exclusively in a sexual context, where there is no good reason for that. The context makes it clear that this is normal and expected within the (male) OP's world.
"No one would dare miss out hitting on the blonde". There is a clear generalization here, that everyone should find blonde women most attractive, or at least be socially required to act as though they do. Perhaps women are also expected to find the blonde woman most attractive, or perhaps women's opinions aren't really worth considering.
You might re-examine your own gender and sexuality biases in this context.
I'm actually being sardonic. The political correctness police are a bit tiresome. My point is that, if one wishes, they can analyze any statement to be as sexist, racist, homophobic, etc... Including yours.
>The degradation that I saw was that, in the analogy, women are sexually objectified
If women are 'sexually objectified' by other women is it a problem?
Why did you overlook the completely racist message in his analogy? Assuming most men prefer blonds assumes white culture, which is racist since I doubt black and asian men feel the same. I don't know, maybe I'm racist for doubting that assumption?
Also if a character's gender isn't identified in a story, is it sexist to assume that character's gender is the same as the storyteller? I was guilty of that one too.
This where the P.C. police trip over their own logic and fall into the pile of B.S. they've created.
I've heard the same happen to friends attempting to seek investment in 'music' and 'gaming' businesses - clear rejections based upon their 'category'.
To be fair, I guess making huge returns is not their prime policy or maybe their investors have a policy against certain investments due to moral or some esoteric reasons.
You cite esoterica, but perhaps investors just feel more comfortable with certain areas - or ones they have the in-house experience to evaluate properly - or that are easier for junior partners to sell to the folks higher-up?
I'd understand if this was Ontario Teachers Pension Fund or something like that where a large amount of capital had to move around to generate some sizable returns. Even these money managers are scrutinized for bad decisions.
The whole 'not our area of focus' seems to be the same line mutual fund managers use during report card season by writing off bad picks and claiming they beat the market.
Having said that, there's perhaps something to be said for picking one's battles?
Indiscriminately attempting to capitalise on any lucrative opportunity seems like a common road to ruin (feature creep, startups that put everything in scope, https://xkcd.com/793/).
For example, make 1% stake bets stretched across 100 startups vs 20% stake bets stretched across only 5 startups I "understand" or feel comfortable with. Isn't the risk inherently bigger if you chose the latter? If one of those 100 startups end up producing low to mid 5 digit ROI, shouldn't that cover for the 99 other bad bets? The probability increases since you are not introducing any personal biases and exposed to more upside potentials.
This advice comes straight from the oracle of Omaha himself, "Never invest in a business you can't understand."
So far, angel investors have been much easier to work with, although admittedly we chose to focus on customer growth once we had that first round of disappointing VC results.
I think, per the other comments, your background makes a difference (assuming you're talking post-Matasano) in how the message was delivered.
I think a lot of VCs explicitly (or at least implicitly) prescribe to Warren Buffet's advice of only investing in things they understand. So if you talk to a VC focused on security, they're much more likely to invest than a VC who is kind of interested in security but has never invested in it. That VC, in turn, is more likely to invest than someone who is not particularly interested in security. If an investor really likes marketplaces or security companies or B2B SaaS or whatever, there are enough great companies in each of those segments to make it okay to ignore the other segments.
It's also valuable to remember that partners at larger VC firms often lead 1-2 investments per year. Their performance is determined by the 3-5 decisions they make during a VC fund's life. It's hard to stake 20% of your performance on something you feel like you don't fully understand.
Angels and smaller seed funds are sometimes easier to work with because the former are motivated by more than financial returns and don't have their salaries/jobs at stake with each decision, while the latter make a lot more investments per partner.
I'd subscribe to Taleb's black swan model, except the complete opposite of what he did which was making small bets that market would crash.
Capture unexpected, phenomenal returns without introducing any personal beliefs or bias and making equally sized small bets across as many startups as possible. If you can get like 60,000% ROI then the model becomes sustainable, unlimited upward potential with a limited and tiny risk.
I think I've heard of a VC firm that does that. Trying to remember the name... wait... Y-Calculator, something like that, maybe?
For clarity's sake, I've sat on tremendously effective boards at the companies I have either run or had a senior role at, and I think there's incredible value to be had from a good VC relationship. The economic realities of raising can be frustrating, but it's a reflection on the industry rather than the individuals, I believe.
Early stage investment is just plain hard, and I think your point about the quantity of deals led is key.
> to Warren Buffet's advice of only investing in things they
> understand.
This is very very true.
And entrepreneurs MUST not take money from VCs who do not understand the market. Sadly sometimes VCs think they do know but they actually don't know what they don't know.
The worst marriage is when both entrepreneur and investor don't know what they don't know.
Maybe it's a goof thing angels are doing bigger rounds taking your place.
Also, investors typically invest in areas that they're familiar with, but that can be a pretty inclusive criterion. For example, I've personally worked on payment fraud detection before (as an engineer), so that makes me feel comfortable investing in fraud detection, but also credit assessment (similar algorithms), a large number of startups that involve lending or payments, and so on. For another example, my fund invested in Flexport (a recent YC company that handles shipping logistics for companies). My partners and I didn't have any personal logistics experience, BUT one of my partners worked at a company that struggled with imports and shipping, so he appreciated the pain point. Also, Flexport's CEO, Ryan, is a force of nature and had been working in the import/export space for 15 years, so he was very credible. That was enough for us to invest despite not having logistics experiences ourselves.
In the Airbnb example -- and I wasn't an investor 6 years ago so I don't know what their pitch was like -- I'm guessing if the founders had a bunch of lodging-related experience, or if they had previously built great companies, or if they had a few more data points that showed the viability of their model, that could've helped.
Finally, here's the challenge from an investor's point of view: you see 1500 pitches per year. The majority of the pitches mention something like "we're going to be a billion dollar company" or "we're going to create an entire new market." One or two of those 1500 companies will do just that, ten or twenty companies will get kind of close, and the other 99% won't be close at all. In hindsight, it's easy to look at Airbnb or Uber and think that investors were short-sighted. Maybe they were. But a lot of early stage companies look simultaneously promising and risky in their early days, and most of them fail, so investors understandable err on the side of pessimism.
I really dislike the escalation of pitches. As you said, almost everyone says that 'we will become a billion dollar company' or similar claptrap - but that just means that people have to make more and more extraordinary claims to pierce the cynicism (fully justified!) of investors.
I'm not opposed to VCs on abstract, and I'm happy to see people trying to do good work on the area. Your area is hard, and if you can improve it, everybody wins.
I also got widely off-topic, because I was complaining that todays VC wouldn't have created the Silicon Valley, not that they couldn't see Air B&B. That said, I'm still not convinced you are liberal enough to do this. (Not that you should.)
In theory by doing that they were raising the potential price for those that would end up investing. Their competitors. If you felt you had "plan b's" you'd be less likely to lower your expectations on value than you would be if you had 7 firm rejections. 7 firm rejection might mean "take what we can get".
Here is an example using car buying.
If a car is sitting on the lot and has nobody expressing any interest the dealer may possibly want to unload the car and take whatever he can get. Otoh if the dealer feels that he has 2 or 3 people interested in the same car he will then be less likely to take a "short" deal from the 4th person who walks into the dealership. He will feel there is potential and it is worth the gamble to wait feeling he has a few plan b's.
(Forget for a second whether this actually happens with car dealers I am only trying to illustrate the theory of what I call "feeling fat" which I have seen many times in business).
Of course as a group it's hard to explain why all participants would act this way or that this even happens. However I don't feel individually they are disadvantaged by this behavior at all. While there might be a reputation disadvantage to stringing someone along unless they are absolutely sure they will not invest why not string someone along?
My guess as to what made us different than Airbnb circa 2008--maybe some of these apply to you, too:
1) Founder with previous exit/acquisition in the tech space
2) Product had some traction (paying customers, including a F500 company)
3) Product was in a domain that most VC's/angels didn't have experience with (in my case, software designed for marketing teams) -- some were nice enough to outright reject us based on the fact that they had never been in marketing; the people who had previously been in marketing almost immediately saw the need and said "YES" right away; many of them saw that we had traction but felt like they needed to understand the market better to see what we were seeing, so to speak.