Fundraising’s Cold Start Problem + Fundraising Fieldnotes - 3.4.22
Hey - it’s Jason Yeh 🕺🏻
This is my Friday recap of thoughts I’ve had while helping founders solve their fundraising challenges this past week (3.4.22)
If you have any questions, please reply! I try to get to every comment/question I get :)
On to the Fieldnotes for 3.4.22…
Over the last decade, the number of tech startups has skyrocketed. Access to technology like mobile computing devices and platforms that allow products to be built with less or “no” code and for cheaper has been a major driver of this trend. One fantastic result is seeing people from different backgrounds venture into the space, both in the United States and around the world. It's an amazing thing, and I'm excited about the evolution of entrepreneurship globally.
One frustration that many newcomers to the startup world have is around the difficulty in attracting investment capital. While the media reports on large amounts of capital invested at record levels, many new founders don’t understand why fundraising isn’t as easy for them.
What may seem on the surface to be quick and careless actually requires significant consideration. It’s true that there are huge amounts of capital in today's market and the processes are quicker than ever, but that doesn’t mean investors are recklessly allocating capital.
The twitterverse loves throwing around the exaggeration of”$100MM checks in 48 hours with no diligence by Tiger Global.” In reality, Tiger spends millions conducting significant amounts of analysis before they ever make an offer.
It’s all about conviction
Even though competition is pushing investors to be more aggressive than ever, they still do everything they can to gain conviction in the investments that they make.
Another way of describing “conviction” is comfort. Are they comfortable making the investment? Comfortable with the founder? When an investment is made quickly, that usually means a significant amount of work has gone in well before the fundraise to make investors comfortable. On the other hand, many founders who fail to fundraise are frustrated newcomers who expected to attract funding quickly even as unknown quantities.
I call the experience of those failed founders the cold start problem.
Warming up to avoid cold starts
Andrew Chen, the general partner at Andreessen Horowitz, recently released a book titled The Cold Start Problem. His book very specifically addressed this issue at startups trying to build network effects, in which the value of a product or service grows as more users participate. This idea is that on day one, without any network to start, it is very difficult to build a network that enables new products & services to scale. This dynamic also exists in fundraising. In fundraising, the cold start problem is the opposite of momentum. Thus, fighting the cold start problem within fundraising is all about, as you might have guessed, warming up the process.
Smart Twitter Takes
Friendly ears from fellow founders FTW
What I said:
Till next week. Stay adamant and be chased.
p.s. When internet meme content and my fundraising content intersect…
In case you missed it…
Last week, we shared 9 ways founders can use their recent round of funding to set them up for a successful future raise:
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Listen with a friend to Funded, my podcast that tells the rollercoaster stories of how founders raised millions (and subscribe🙏)
Ask me your fundraising questions so I can help you and cover them in a future issue