Hi! Worried about financing your startup.. emm.. you have read my previous post, tried the casino, lottery and invited your grandfather to have lunch just to ask him about his health and nothing worked? I do know that first 10 Graham’s suggestions included in the same post were read quickly, but why not coming back to them? In addition, I give you 3 more…

In my previous post, “Not To Make Fundraising Too Complicated (I)” I suggested ten points to be followed when looking for startup funding. My advice: read them again, and as I said, make no exceptions. In my opinion, this should be a “binding recommendation”.

25 GRAHAM’S POINTS (11-13)

  • 11. Underestimate how much you want. This is weird, unexpected, isn’t it? But… Let’s suppose you would like to raise $500 k: it’s better to say initially that you are trying to raise €250 k or €300 k. Investors are cowards (they are human beings), and what matters is the emotional side. If the percentage of required investment reached does not grow over time, if fundraising stalled for an appreciable time, they will start to read you as a failure. If you get $125 k in a week and ask for €250k you have reached 50% in a week. If you ask €500 k only 25%… Rationally does not make sense, yes, but so what?. Saying initially that you are raising €250k doesn’t limit you to raising that much. Just remember (point 10 “Not To Make Fundraising Too Complicated (I)
  • 10. Have múltiple plans, and I know this sounds weird, but wouldn’t it be weird to ask a buyer how much is he going to buy in a store? It depends on what he finds, right?. Therefore why do not design different scenarios of funding instead of one? It is quite reasonable, isn’t it? So…

  • 12. Be profitable if you can. You will be in a much stronger position if your collection of plans includes one for raising zero euros. It is like saying:

    “We will succeed no matter what, but raising money will help us do it faster”

    Once again back to the emotional side: No one wants you if you seem desperate (I do not wonder why, but that is the way it is). So better do not show up as if you were.

  • 13. Do not Optimize for Valuation When you raise money, a usual question is what should our valuation be? This is a breath-taking and distracting question, but the most important thing to understand about valuation is that it is not that important Are you astonished? Think twice, sometimes it is astonishing because it faces your vanity, because valuation is the only visible number attached to a startup, but once again, it is just vanity because the only figure showing startup’s value is its revenues. Quoting Paul Graham:

    “Being proud of how well you did at fundraising is like being proud of your college grades”

    The only important thing is to get the money you need from good investors. The initial valuation will be set by the deal you make with the first investor who commits. Company valuation is time consuming and will distract you from your only mission: selling! If you have eager first investors, you do not want to loose your time in theoretical valuations, but you are afraid of loosing them because they fear that because of uncertainty or lack or valuation, if company is a hot deal they will suffer from equity dilution, raise money from them on an uncapped convertible note with an “MFN clause”. This is essentially a way of saying that the valuation cap of the note will be determined by the next investors you raise money from, while meanwhile they will receive interest for a loan, having a price discount for assuming early risk and guaranteeing a stock share in certain conditions.

AND SOME QUESTIONS..
Provocative, isn’t it? Underestimate how much you want, consider not borrowing money (if lean startup is trendy, what could be leaner than trying to bootstrap your company considering a zero euros borrowing scenario?) and do not optimize for valuation, do not waste your time making calculations that, sorry for for saying that, are somehow an invention.

Against common sense? What do you think about?