Moneyball and Startups: It’s not spray and pray. It’s a process.
Paul started the fund a few years ago, and has invested in 330 companies across 18 companies. A lot of failure, many big wins.
Changes for early stage fundraising:
- Smaller checks are being written. Funding is now driven by the fact that it’s cheaper than ever to start a business.
- It’s not uncommon to see a start up launch and get to a paid customer in one weekend.
- Years ago, you needed more money to purchase infrastructure. You don’t need that anymore.
- Investors have to buy wins - they can’t just fund everything.
- Tactics have changed over time. Channels have not changed. All you can look for is smart founders who have proven they can execute, give them money, and get out of the way.
- Everything is increasingly going to referrals. Investors are looking for verticals that the referrals are in. Make sure the referrals are coming from the same verticals.
- BRAND MATTERS. BRAND IS EVERYTHING. Functional expertise matters.
- Costs are decreasing, launching happens faster. Diligence happens after the first check. VC makes money on the second check. You still need big money to scale.
- Loans and funding may be based on your social media presence.
- They do sentiment analysis on your company - what does the market think about what you are doing?
- VCs are looking for signals online that funding might occur, that a company might die, based on what is being said online.
- The initial check is designed to give the VC greater access to more data about what the company is (or could) be doing.
- Founders need to understand that investing doesn’t work unless the investors make money. The bar in early stage VC is very low.
- People are becoming less sensitive to pricing.
- The average initial investment is anywhere between $10,000-$100,000. This is typically paid by the VC to get to the next stage with the company. You don’t want to put too much money to work at first.
- They love web infrastructure, companies that make it easier for other star tups to grow. They also love family tech, food, games, and child-focused verticals.
- Make sure you check out Angel List (angel.co); it’s helping to level the playing field.
- Try and raise money outside of your region.
- VC is interested in multiples when looking for funding opportunities.
- VCs are looking for the regional funders to provide the initial support. They are looking for this first before writing larger checks. They need to know that the region supports the start ups.