How to Raise Money Essay

In: English and Literature

Submitted By pravanr
Words 10709
Pages 43
How to Raise Money

Want to start a startup? Get funded by Y Combinator.

September 2013

Most startups that raise money do it more than once. A typical trajectory might be (1) to get started with a few tens of thousands from something like Y Combinator or individual angels, then (2) raise a few hundred thousand to a few million to build the company, and then (3) once the company is clearly succeeding, raise one or more later rounds to accelerate growth.

Reality can be messier. Some companies raise money twice in phase 2. Others skip phase 1 and go straight to phase 2. And at Y Combinator we get an increasing number of companies that have already raised amounts in the hundreds of thousands. But the three phase path is at least the one about which individual startups' paths oscillate.

This essay focuses on phase 2 fundraising. That's the type the startups we fund are doing on Demo Day, and this essay is the advice we give them.

Forces

Fundraising is hard in both senses: hard like lifting a heavy weight, and hard like solving a puzzle. It's hard like lifting a weight because it's intrinsically hard to convince people to part with large sums of money. That problem is irreducible; it should be hard. But much of the other kind of difficulty can be eliminated. Fundraising only seems a puzzle because it's an alien world to most founders, and I hope to fix that by supplying a map through it.

To founders, the behavior of investors is often opaque—partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of investors combine horribly with the wishful thinking of inexperienced founders. At YC we're always warning founders about this danger, and investors are probably more circumspect with YC startups than with other companies they talk to, and even so we witness a constant series of…...

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