*Note: I’ve only barely scratched the surface with this post. There is A TON of other things to keep in mind when fundraising, but I’ll cover that in more detail in a second post – part 2. Until then, enjoy part 1 and stay tuned!
There is a famous African proverb that says, “If you want to go fast, go alone. If you want to go far, go together.” For a person who sometimes despises relying on other people, this quote often provides great perspective on what can be accomplished with a little patience and a little teamwork. I recently started wondering how I could apply this to the context of Jopwell. Unfortunately, the dichotomous nature of the proverb posed a huge problem. As a newly minted startup team racing to build a billion dollar business, the proverb offered no advice for going fast AND far at the same time.
“If you want to go fast, go alone. If you want to go far, go together.” – Unknown
Luckily, experience is a great teacher when African proverbs fail. In Jopwell’s short life, we have discovered that going fast and far requires two things: mentors and venture capital. This post will focus on the venture capital part of the equation.
Have you ever wondered why very successful companies like Uber still raise billions of dollars in funds? It’s because one of the most critical aspects of a startup’s growth process, or ANY business’s growth process, is raising money. Access to extra capital allows companies to keep growing, or to go farther in their quest to dominate the market, at a faster rate than would normally be possible through organic means, relying solely on their own profits.
When I first joined Jopwell, I was extremely fascinated by the process of getting people to invest hundreds of thousands to millions of dollars in early stage companies. I remember my uncle telling me when I was little, “There’s so much money out there, you don’t even need your own to start a business anymore.” My teenage self merely thought, “Really? Where??” I had no idea at the time that what he was teaching me about was venture capital. Come to think of it, I don’t think he knew what he was teaching me about either. These things just didn’t happen in our Jamaica Queens community or in the black community in general, as far as we knew. I had only read about companies raising venture capital in this mythical place called Silicon Valley via newspapers or saw fictitious deals go down on television. The only way I saw people in my community start businesses was by going to a bank and applying to take out a loan.
Today’s booming tech world however, has created a very real and very large marketplace for wealthy people (angel investors) and companies (venture capital firms) to invest in early stage companies through venture capital (VC) funding. Michael Seibel, who co-founded Justin.tv and Socialcam which each sold to Autodesk Inc. for $60m and Amazon for $970m respectively, made headlines last year when he was appointed as the first Black partner at Y Combinator. He has been an amazing resource to Jopwell as we work to get this thing right. The Jopwell team recently attended a Black entrepreneur showcase event in San Francisco where Michael provided some excellent insight into what exactly it is that Y Combinator and VC investors look for when investing in early stage companies. Having been at Jopwell through it’s initial $1,000,000 raise and through the Y Combinator application process, Michael’s points couldn’t have rung more true. For budding entrepreneurs, those who have applied to YC or the fellowship program or those who are going through their very first round of funding, from a very high level, VCs typically look for a few basic things:
- A fully committed, well-connected team with technical talent. – You have to be working on your business full-time. Let’s be clear. No one wants to commit boatloads of their money to you to build the next great company, if you can’t commit all your time to building it. Investors don’t want to hear that you are working on your idea “on the side.” Booming businesses aren’t built on the side. They are built from hours of hard work and complete dedication. Your commitment level is a signal to investors; one you can control. I know, it sounds like a catch 22. You can’t quit your day job and focus on your company full-time without funding, but you can’t get funding without quitting your day job to work on your company full-time. We’re all adults with bills and responsibilities that make working without income difficult, if not impossible. Porter and Ryan were extremely fortunate to have worked in finance prior to taking the big leap. But even without a finance salary anyone can start small, save and budget. It’s definitely not that simple, but it’s a start. Entrepreneurship is a test of earnestness. I also hinted at this a bit in my first post about what swayed me to join the company. But the composition of the team is extremely important. Not only does the team have to have had experience with the problem the business is tackling in some capacity, but the team members also have to have a certain level of trust and rapport with each other that comes from years of friendship or a meaningful shared experience. When building anything from scratch, things change, people disagree and things get messy. However strong existing relationships means the group likely already knows how to work with each other and play off of each other’s strengths and weaknesses or they can bounce back when things do get messy. Last but not least, investors place a huge emphasis on the presence of developers. If you’re building a tech platform/solution you can’t outsource the development of your platform forever. It’s expensive and you eventually won’t be able to guarantee consistency. Find a technical co-founder.
- A business that targets a HUGE market – think billion$. Different investors are looking for different sized businesses. But all investors are in it to make money. They want to see that you are solving a huge problem so that they stand to get a piece of a huge check. It’s that simple. Everyone in the tech world is looking for a billion dollar market opportunity, the Airbnbs, Snapchats and Ubers of the world, but multi-million dollar markets mean profits too. Not all successful businesses play in billion dollar markets.VC is a high risk, high reward game. 90% of startups fail, so it makes sense to attempt to maximize returns by backing companies solving problems that serve a really large market. This way, there is at least a chance to eat a small piece of a huge pie.
- A company that doesn’t need money. – Raise money before you need it. But if you are raising money when you need it, act like you don’t. When it comes to investing money, there’s just something more comforting about being wanted rather than being needed. No investor wants to hypothesize about why you need money so badly. You know how they say start looking for a job when you don’t need a job? This is the same principle. Not needing money or at the very least, acting like you don’t need money gives you leverage to set or negotiate terms. You always want to be negotiating from a position of power. Investors often have way more than money to offer, like connections to people or companies that will help you grow your business. If you don’t need money, then investors will likely bring all those additional things to the table as well. From there, you can create a marketplace for yourself. After all, economics shows us what happens to prices when heavy demand meets limited supply.
Anastacia Gordon is a writer, backpacker, and investor interested in music x media x culture x tech. She is currently an MBA student at Columbia Business School and spent summer 2017 as a summer associate at Kapor Capital. Prior to that, she was a founding team member at Jopwell (YC S’15).
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