What’s the best way to sell the right amount of equity in your fundraising round?

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

My rule of thumb is 20% for a seed round. Anything more than that and people are going to be worried [about if] you are going to be incented after 2 or three more rounds of financing.

What’s the best way to know if you have product market fit?

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

How much traction is enough? How much growth in enough? It depends a lot on the startup, but generally an investor will not be impressed if you say we’re growing at 10% a month. That means you’ll double in a year and believe it or not in the startup game that’s not enough for an early stage company.

What’s the best way to sell the right amount of equity in your fundraising round?

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

Our rule of thumb is not to sell more than 25% in phase 2, on top of whatever you sold in phase 1, which should be less than 15%.

Sam Altman (President at Y Combinator)
Fundraising Advice for YC Companies – Y Combinator Posthaven

You should aim to sell only about 20% of the company in your seed round (though 25% is ok if you’re raising a ‘large’–say more than $2. 5 million–seed round). You should raise enough money to get to your next significant milestone.

Slava Akhmechet (Founder at RethinkDB)
57 startup lessons

If you have to give away more than 15% of the company at any given fundraising round, your company didn’t germinate correctly. It’s salvageable but not ideal.

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

My rule of thumb is 20% for a seed round. Anything more than that and people are going to be worried [about if] you are going to be incented after 2 or three more rounds of financing.

Mark Suster (Managing Partner at Upfront Ventures)
Founder Showcase – Mark Suster Keynote on Vimeo

VCs want meaningful ownership. The fairway for a round of venture capital is 25-33% of your company. If you’re a better negotiator, if you’re hotter, if you have more people interested you can get it down to 18%-22%.

Paul Graham (Co-Founder & Partner at Y Combinator)
The Equity Equation

Greg Mcadoo from Sequoia recently said at a YC dinner that when Sequoia invests alone they like to take about 30% of a company

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
The Option Pool Shuffle – Venture Hacks

If you don’t keep your eyes on the option pool while you’re negotiating valuation, your investors will have you playing (and losing) a game that we like to call: Option Pool Shuffle

Jason Lemkin (Managing Director at Storm Ventures, SaaStr.com)
Jason M. Lemkin’s answer to For a new startup, what would be the ‘acceptable’ equity percentage given to VC (Series A financing)? – Quora

Typically, Seed Stage VCs will want to write smaller checks to achieve at least a 10% target ownership. Sometimes more. If you need more money, they’ll often want to bring in a second Seed Fund to buy a second 10%.
Typically, Larger Funds will want to own as much as 25%. Themselves. And they’ll write a larger check to get it, and sometimes, pay a higher per share price.

Dharmesh Shah (Co-founder and CTO of HubSpot)
Happy Birthday HubSpot! 9 Lessons From Our First 9 Years

Don’t minimize dilution, maximize impact. If you go out and raise outside funding, resist the temptation to worry too much about valuation (and minimizing dilution). In the grand scheme of things, as long as you’re getting a fair deal, marginal differences in dilution won’t matter. What will matter more is the degree to which you can have an impact (however you measure that). You’re probably going to be happier owning 5% of something great tha… (read more)

What’s the best way to navigate competitive forces?

Eric Ries (Author, The Lean Startup)
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

Sooner or later, a successful startup will face competition from fast followers. If a competitor can out execute a startup once the idea is known, the startup is doomed anyway. The reason to build a new team to pursue an idea is that you believe you can accelerate through the Build-Measure-Learn feedback loop faster than anyone else can. A head start is rarely large enough to matter, and time spent in stealth mode—away from customers—is unlikely… (read more)

Sam Altman (President at Y Combinator)
Startup Playbook

99% of the time, you should ignore competitors. Do not worry about a competitor until they are beating you with a real, shipped product. In the words of Henry Ford: “The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time. “

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

Deliberately choose a different set of activities to deliver a unique set of value or choose to perform activities differently than your rivals.

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

To limit the threat of substitutes, offer better value through wider product accessibility. Soft-drink producers did this by introducing vending machines and convenience store channels, which dramatically improved the availability of soft drinks relative to other beverages.

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

To neutralize supplier power, standardize specifications for parts so your company can switch more easily among vendors.

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

To counter customer power, expand your services so it’s harder for customers to leave you for a rival.

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

To temper price wars initiated by established rivals, invest more heavily in products that differ significantly from competitors’ offerings.

Michael Porter (Professor, Harvard Business School)
The Five Competitive Forces That Shape Strategy

To scare off new entrants, elevate the fixed costs of competing; for instance, by escalating your R&D expenditures.

Peter Thiel (Co-Founder & Partner at Founders Fund)
Peter Thiel’s CS183: Startup – Class 3 Notes Essay

In perfect competition, no firms in an industry make economic profit. If there are profits to be made, firms enter the market and the profits go away. If firms are suffering economic losses, some fold and exit. So you don’t make any money. And it’s not just you; no one makes any money. In perfect competition, the scale on which you’re operating is negligible compared to the scale of the market as a whole.

Mark Zuckerberg (Founder & Chairman & CEO at Facebook)
How To Get Ahead: Entrepreneurial Lessons From Mark Zuckerberg

We had this concept that we actually still have in the company today, called lockdown. Which is — whenever any other company got ahead of us on something that we thought was strategic to us, we literally did not leave the house until we had addressed the problem. Now it’s a little looser of an interpretation. We don’t literally lock everyone inside the office, but about as close to that as we can legally get.

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

[It’s] very rarely a case for a startup where a [competitor’s] patent becomes an issue unless you’re already successful.

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: What are you competing on?

What are you competing on? It’s pretty easy to figure out what you’re competing for—attention, a new gig, a promotion, a sale… But what is your edge? In a hypercompetitive world, whatever you’re competing on is going to become your focus.In any competitive market, be prepared to invest your heart and soul and focus on the thing you compete on. Might as well choose something you can live with, a practice that allows you to thrive.

Paul Graham (Co-Founder & Partner at Y Combinator)
Startup Investing Trends

We currently advise startups mostly to ignore competitors. We tell them startups are competitive like running, not like soccer; you don’t have to go and steal the ball away from the other team. But if idea clashes became common enough, maybe you’d start to have to. That would be unfortunate.

Dharmesh Shah (Co-founder and CTO of HubSpot)
Happy Birthday HubSpot! 9 Lessons From Our First 9 Years

Don’t obsess over competitors. Obsess over customers. I’ll confess. I’m likely more guilty of watching our competitors too closely than anyone at HubSpot. But, the good news is that though I watch them closely, I try not to follow them. Knowing what your competitors are up to is good. Doing what your competitors are up to is bad.

Clayton Christensen (Author, The Innovator’s Dilemma)
a16z Podcast: Disruption in Business… and Life by a16z | Free Listening on SoundCloud

We look at how many products are being sold [and by competitors]. What’s really interesting is the amount of non-consumption that’s going on. Because it hasn’t become more affordable or accessible for them yet. It’s too narrow to focus on consumption as opposed to non-consumption.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Some Lessons From Vine – AVC

Once again, it appears that the category creating innovator isn’t hurt too badly when the bigger and more popular social platform copies their signature feature in their product. We have seen this before with Twitter and Facebook and Foursquare and Facebook and many other similar situations.

Clayton Christensen (Author, The Innovator’s Dilemma)
a16z Podcast: Disruption in Business… and Life by a16z | Free Listening on SoundCloud

Management goes on to believe that their product is about features. When you start up, you have an insight about a job that needs to get done. You respond to that passive data to develop a product. But then as a company goes on to be successful the nature of the data is very active. Management loses their insight about the job [that they help a customer accomplish] and now they believe their business is about products and features. Put out all of… (read more)

What’s the best way to know if you have product market fit?

Sam Altman (President at Y Combinator)
Before Growth – Sam Altman

A startup that prematurely targets a growth goal often ends up making a nebulous product that some users sort of like and papering over this with growth hacking. That sort of works at least, it will fool investors for awhile until they start digging into retention numbers but eventually the music stops.

Sam Altman (President at Y Combinator)
Before Growth – Sam Altman

I think the right initial metric is do any users love our product so much they spontaneously tell other people to use it? Until that’s a yes, founders are generally better off focusing on this instead of a growth target.

David Jackson (Founder, Seeking Alpha)
Why startups shouldn’t scale prematurely | A Founder’s Notebook

Don’t scale before you have product-market fit. You’ll burn money, delay true success, and be miserable. What’s so bad about scaling prematurely? Low ROI, high burn rate: Sales and marketing for a product without product-market fit will suffer from low conversions and low renewals. Frustration: When you don’t have product-market fit, everything seems too hard, and everyone is frustrated. Not building permanent value: When you eventually fix your … (read more)

Charlie O’Donnell (Partner Brooklyn Bridge Ventures)
Growth is a Commodity — This is going to be BIG…

If there’s one thing we’ve basically figured out in the digital world, it’s marketing. It’s table stakes. You spend some dollars to get more dollars out. It’s not complicated. That’s why I care much more about engagement–do people like what you built, versus whether or not more people used it today than they did yesterday. Plus, the startup world is littered with companies that grew exponentially without becoming successful–Fab, Turntable, Dailyb… (read more)

Sean Ellis (CEO at GrowthHackers)
Using Survey.io

Here’s an objective metric that removes emotion from the scaling decision while also giving you other important qualitative information. The key question on the survey is: How would you feel if you could no longer use [product]? Very disappointed, Somewhat disappointed, Not disappointed (it isn’t really that useful), N/A – I no longer use [product]. If you find that over 40% of your users are saying that they would be “very disappointed” without … (read more)

Albert Wenger (Partner at Union Square Ventures, Former President of del.icio.us)
Startup Management » Product/Market Fit is a Continuum

You know you’ve achieved product-market fit when the customers intuitively understand what need the product fills for them, and they have no trouble using it, in fact they enjoy using it… in fact they start telling their friends about it, maybe even telling the world about it on Twitter or other places. That’s how you know if you’ve got product-market fit.

Andy Johns (Current VP of Growth at Wealthfront. Formerly growth at Facebook, Twitter, Quora. Ex-EIR Greylock)
Real Engines Of Growth Have Nothing To Do With Growth Hacking | TechCrunch

When you’ve nailed your product, you’ll know it. Your retention will be great and people will happily engage with your emails or push notifications.

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
The Revenge of the Fat Guy | Marc Andreessen

Myth #1: Product market fit is always a discrete, big bang event. Myth #2: It’s patently obvious when you have product market fit. Myth #3: Once you achieve product market fit, you can’t lose it. Myth #4: Once you have product-market fit, you don’t have to sweat the competition

David Jackson (Founder, Seeking Alpha)
Product-market fit can be hard to spot | A Founder’s Notebook

Product-market fit is a continuum, not a single point. But if you’re not in “the zone”, you know it. Everything feels too hard.

David Jackson (Founder, Seeking Alpha)
Four myths about product-market fit | A Founder’s Notebook

My personal view is that product-market fit is a continuum; there are degrees of product-market fit. You should only scale when it’s clear that you’re fairly far along the continuum of product-market fit.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Burn Rate – AVC

It is dangerous to ramp up headcount and burn until you are certain that you have the right product and the right people and processes in the organization to support the product. And early revenue traction, often driven by a passionate founder, can be a nasty head fake.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Product > Strategy > Business Model – AVC

Getting product right means finding product market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it.

Jerry Neuman (Venture Capitalist at Neu Venture Capital)
How to kiss your elbow | Reaction Wheel

Marc Andreessen says “you can always feel product/market fit when it’s happening. ” Unfortunately, this is simply not true. In B-to-B startups you can have a lot of buzz and a few amazing clients banging your door down and still have a product that doesn’t really do much. Or you can have a product that is absolutely amazing that great clients are beta-testing but that no one is paying for.

William Mougayar (Chief Evangelist, Advocate Marketing at Influitive, formerly CEO/founder of Engagio)
Startup Management » Product/Market Fit is a Continuum

If there is no market, even a great product and a great team will not get you there. if you can’t realize the business model, there is no Product/Market Fit. If there is no retention and referrals, there is no Product/Market Fit. Instead of building new features, or rebuilding from scratch, try pointing your product at a new market.

Marc Andreesen (Co-Founder & General Partner at Andreessen Horowitz)
How you know when you’ve hit product-market fit | A Founder’s Notebook

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close. And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast a… (read more)

Paul Buchheit (Partner at Y Combinator)
Default Alive or Default Dead?

A related problem that I see a lot is premature scaling—founders take a small business that isn’t really working (bad unit economics, typically) and then scale it up because they want impressive growth numbers. This is similar to over-hiring in that it makes the business much harder to fix once it’s big, plus they are bleeding cash really fast.

Raju Rishi (General Partner @ RRE Ventures)
When Revenue Isn’t The Answer

Closed deals and sales velocity are not exclusive measures of product/ market fit. Maybe, among your first customers, there are wide variations in the core use cases for the product. Maybe your team is struggling with lengthy sales cycles. Maybe you find yourself significantly altering your pitch for different target customers and creating multiple marketing messages along the way

Eric Ries (Author, The Lean Startup)
The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

Startups occasionally ask me to help them evaluate whether they have achieved product/market fit. It’s easy to answer: if you are asking, you’re not there yet. (p.219)

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

How much traction is enough? How much growth in enough? It depends a lot on the startup, but generally an investor will not be impressed if you say we’re growing at 10% a month. That means you’ll double in a year and believe it or not in the startup game that’s not enough for an early stage company.

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

Whatever your core metric is you want to grow that by 20% per month.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Growth – AVC

Things like gaming Facebook’s open graph can temporarily stimulate growth that is not sustainable long term. Investors can be faked out by things like that. Gaming Google’s search algorithms is another way that has been done in the past. When we look at growth, we look for authentic, organic, and sustainable growth that is not overly dependent on a single source, particularly a source the startup doesn’t control. That takes some experience to det… (read more)

Raju Rishi (General Partner @ RRE Ventures)
When Revenue Isn’t The Answer

Achieving product/ market fit is the transformative moment in the life of a startup. It is the moment of metamorphosis, where a company aligns messaging, marketing, target customers, sales methodology, product roadmap, and operating metrics. This moment cannot be bypassed, faked, overlooked, or ignored. So be disciplined. Don’t get caught up in the expectations of customers, investors, or yourselves. For in the absence of product market fit, more… (read more)

David Jackson (Founder, Seeking Alpha)
Startup strategy: Why you have to demand commitment | A Founder’s Notebook

In Seeking Alpha, we wanted to keep our content free, but wanted to ensure our users valued it. So we forced our users to register. Our thinking was “We’re not interested in a relationship where you don’t value our product enough to register for free”.

Mariya Yao (Founder at Xanadu)
Lessons Learned: Rapid Iteration for Mobile App Design

the question Sean Ellis popularized, where you ask your users, “How disappointed would you be if you could no longer use our product?” and have them answer with either, “Very Disappointed,” “Somewhat Disappointed,” “Not Disappointed,” or “I no longer use the product. ” Sean did research across hundreds of startups and discovered that companies that had fewer than 40% of their users answer “Very Disappointed” tended to struggle with building a suc… (read more)

Mariya Yao (Founder at Xanadu)
Lessons Learned: Rapid Iteration for Mobile App Design

On a scale from 0-10, how likely are you to recommend us to your friends?” You mark those who answer 0-6 as Detractors, 9-10 as Promoters, and 7-8 as Neutral. Your Net Promoter score is the percent of Promoters minus your percentage of Detractors, which should be a number between -100 and +100. The world’s most successful companies typically score around +50, and top performing tech companies like Apple, Google, and Amazon regularly score over +7… (read more)

Slava Akhmechet (Founder at RethinkDB)
57 startup lessons

Product comes first. If people love your product, the tiniest announcements will get attention. If people don’t love your product, no amount of marketing effort will help.

Kissmetrics (Built to optimize marketing. Track, analyze and optimize your digital marketing.)
13 Critically Important Lessons from Over 50 Growth Hackers

Leaky buckets don’t need more water, they need their holes fixed.

What’s the best way to create your financial strategy?

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Always think about the next round. The usual tempo for raising money from venture capital is at a minimum of a year between financings. Every time you raise a round, you should be thinking about the next round. Who will be the next investors you pitch? What will their concerns be? What will you need to solve next? How will you raise money later?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Maximizing Runway Can Minimize Success – AVC

To my mind, maximizing runway is not the game startups should be playing. Getting somewhere fast is the game they should be playing. You can always raise more money if you are doing well on the metrics that matter in your business. So focus on that and runway will take care of itself. If you can get the plane to take off, the length of the runway matters less. If you can’t, there is no runway long enough for you.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Bootstrapping – AVC

None of this is to suggest that going the accelerator, seed, angel, or some other more fashionable route is a bad idea. They all work just fine. And we are investing in plenty of companies that choose that route. But for some reason our firm is drawn to the bootstrapped model, and increasingly so.

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: What investors want

Assets (buildings, machines, powerful brands, new technologies) are less essential than ever before. For many organizations, a laptop is worth more than a building or a punch press. That’s great if you’re getting started, because the connection economy has made the cost of entry lower than ever before. It also means, though, that the easy-entry business you’re in might not respond well to the investor’s money. If there isn’t an asset you can buy… (read more)

Paul Graham (Co-Founder & Partner at Y Combinator)
Startups in 13 Sentences

Spend little. I can’t emphasize enough how important it is for a startup to be cheap. Most startups fail before they make something people want, and the most common form of failure is running out of money.

Paul Graham (Co-Founder & Partner at Y Combinator)
Startups in 13 Sentences

Get ramen profitable. “Ramen profitable” means a startup makes just enough to pay the founders’ living expenses. Once you cross over into ramen profitable, it completely changes your relationship with investors. It’s also great for morale

Mike Maples Jr (Managing Partner @ FLOODGATE)
Ron Conway, Mike Maples Jr. – Angel Investing Revealed by Stanford eCorner | Free Listening on SoundCloud

Prove something dramatic while you have six months of cash [in the bank]

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
Anatomy of an (un)fundable startup – Venture Hacks

“If you can’t generate traction, do you really want to raise money?” “If you need money to recruit the best, you’re not ready. ”

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

People frequently think the most fundamental strategy of a startup is its product strategy. In fact, the most fundamental strategy is the financing strategy. If your company runs out of gas (finance), your company will die no matter how good your product strategy is.

Paul Graham (Co-Founder & Partner at Y Combinator)
Default Alive or Default Dead?

No matter how good your growth is, you can never safely treat fundraising as more than a plan A. You should always have a plan B as well: you should know (as in write down) precisely what you’ll need to do to survive if you can’t raise more money, and precisely when you’ll have to switch to plan B if plan A isn’t working.

Mark Suster (Managing Partner at Upfront Ventures)
Founder Showcase – Mark Suster Keynote on Vimeo

If you want to raise capital from professional money 9 months from now, six months from now, four months from now — get going now. You’ve gotta build relationships with these people.

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

And the right strategy, in fundraising, is to have multiple plans depending on how much you can raise. Ideally you should be able to tell investors something like: we can make it to profitability without raising any more money, but if we raise a few hundred thousand we can hire one or two smart friends, and if we raise a couple million, we can hire a whole engineering team, etc. Different plans match different investors. If you’re talking to a VC… (read more)

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

Be profitable if you can. You will be in a much stronger position if your collection of plans includes one for raising zero dollars—i. e. if you can make it to profitability without raising any additional money. Ideally you want to be able to say to investors “We’ll succeed no matter what, but raising money will help us do it faster. “

Sam Altman (President at Y Combinator)
Fundraising Advice for YC Companies – Y Combinator Posthaven

I’d close the first, say, $200k from the first reasonably good investors that offer it on reasonable terms–say a $5 million pre-money valuation or higher. This removes some uncertainty and pressure, gives you capital to execute with while raising the rest of your round, puts you in a stronger position, etc. It’s worth a discount for all of this. Beyond that, I’d then collect interest from investors. Then, after a set number of weeks you decide… (read more)

Mark Suster (Managing Partner at Upfront Ventures)
So What is The Right Level of Burn Rate for a Startup These Days? | Bothsides of the Table

Talking about existing investors is one way of talking about “access to capital” because if you already have VCs then you have “access.” And then you’re just assessing whether you can get access to new VCs or whether your existing VCs can help you in tough times.

Mark Suster (Managing Partner at Upfront Ventures)
So What is The Right Level of Burn Rate for a Startup These Days? | Bothsides of the Table

Are Your Existing Investors Over Their Skis? We invest about half of our fund in our initial investments and we “reserve” about 50% of our investments to follow on in our best deals. If we have [already] committed $10 million and if you don’t have 3 other investors around the table and if you’re burning $800k / month (implying you need $10 million more to fund one-year’s operations or nearly $15 million to fund 18 months) – we’re simply “over our… (read more)

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: Why scale?

Investment costs money and it wants a return. But your customers don’t care about that.

Use capital wisely, because sooner or later, you work for it, not the people you set out to serve or the market you sought to change.