How do founders know how much seed to raise?
Adam Rifkin stashed this in Founders
"I think at a seed stage it's completely arbitrary. What you're supposed to do is predict what you're going to need in the next 18 months, which we did -- but there's no way to predict that, I don't think. We have three cofounders, and we can build the product alone. And if it doesn't take off, well then we don't need anyone. But if it does take off we're going to need three engineers, four engineers. I found the process to be pretty arbitrary, shockingly so." - Josh Miller, cofounder of Branch - raised a $2 million seed round.
"It's completely arbitrary. $1 million sounds cool, it's a round number! Some startups are raising $500K and some are raising $1.5, so I figured I'd just raise 1. It's nice and simple. My answer if someone asks how I'm going to spend it is, 'Ok, we're 3-6 engineers times 1.5 just buffer and we'll last a year and a half,' and that's the math I do afterwards to make it make sense, but it's just bullshit." - Sahil Lavingia, founder of Gumroad - raised $1.1 million seed round and $7 million Series A.
I'm starting to believe that a lot of what happens in early startups is arbitrary.
Why did Ark, Socialcam, and Pair raise so much money?
Would like to hear more from you, Adam, on this and would love to hear others chime in as well. Whole thing seems UTTERLY arbitrary to me and I don't understand what goes into arriving at a number, however specious the reasoning may end up being...
It's an increasingly complicated marketplace.
A few entrepreneurs can raise however much they want, and they're the ones who get all of the press.
Most entrepreneurs struggle to raise every dime.
Branch and Gumroad are in the exceptional few.
i think it really comes down to your network. i like reid hoffman's view: money flows through people. if you are seeing this kind of money, you have well placed brokers in your network. i don't think that's arbitrary. makes me think of sinan aral's TED talk on social contagion: . causality or homophily? i bet it's homophily. i would wager a good belgian beer that those brokers and these co-founders resonate at the same frequency and know that without having to explicitly say it or call it out.
I know people with huge networks who struggle to raise money.
The founders of the Startups above have small networks.
Network alone doesn't do it.
You need some combination of right market, right product, right timing, and the attention of the right lead investor.
It's not replicable. What works for a few doesn't work for most.
I think it's replicable but it may not be scalable across the playing field. I think huge networks could work against startups in the beginning because to do effective business you have to spend meaningful time with the people in your network. This whole thread makes me think of Moneyball...you may not have the stars but you have to have enough guys(or gals) who can get on 1st.
Christine, I think that's a very good way of looking at it.
One right person can make a huge difference.
I'm genuinely curious to know where Ark, Socialcam, Pair, Branch, and Gumroad will be five years from now.
Best case: They're the new Google, YouTube, Facebook, Twitter, and Paypal, respectively.
Worst case: None of them amount to anything.
How do you go from zero users to 8 million users in 2 weeks?
Ask Socialcam, which just vanquished its competitor Viddy: http://www.businessinsider.com/two-startups-are-duking-it-out-to-be-the-instagram-of-video-and-one-just-came-out-on-top-2012-5
apparently by re-purposing existing content on other video channels. this seems to be a perfect example of not understanding vanity metrics IMO. thoughts?
You are correct. Sneaky way to pump up daily actives, but unclear it has longevity. Easy come, easy go.
i'm curious to know what investors think of that approach. i suspect that SocialCam will get some conversions out of that but i don't expect there to be viral conversions that are long term and i see it more as a tactic and less as a strategy. certainly not sustainable.
Socialcam's investors are all angels who are busy with other things, so they probably don't think about it.
If Socialcam were to take venture capital, it would depend on the VC. Some VC's care, and some do not.
It's just supply and demand. I always laugh when VCs ask entrepreneurs "how much do you need and why?" that's left over from the days of building routers for $30M
Naval, VCs still regularly ask me "How much do you need and why?"
It's a hard habit for them to break.
i like to stay true to my irish girl roots and respond with "how much do you have?" ;O)
There are two competing factors:
1) The Cookie Jar theory
Since you don't know how long the jar will be open, take as many cookies as possible!
2) Exit Flexibility
Take a small enough amount of money that a $10 million exit is still a good outcome for everyone involved. This generally means raising less than $2 million.
Chris, when a company (like Ark, Socialcam, and Pair) raises over $4 million in notes they still have that exit flexibility, right?
Sort of. In those circumstances, it's hard for the investors to view it as a good outcome.
Agreed, those startups have basically signalled to investors that they have to go big if the investor is to see a return.
I've made money on sub-$10 million exits, but only because the amount raised was extremely small.
My thinking is that one big win makes up for several lose-it-alls.
Is that a gambling mentality or is that normal?