I was straight out of college. I quit my part-time job. Then I started hacking together some prototypes with Juan, my co-founder. After that, we decided to enter into the daunting task of raising money.
I want to tell you upfront that a little bit more than a year later, our startup went broke. We spent so much time searching for funding that got the fundamentals of the business wrong. That’s why we weren’t able to raise a seed round. And paramount to the exercise of building a company, not make any significant revenue.
That said, we want to share this story.
We’re betting in favor of a remote-first future of work. That includes fundraising. Not all fundraising will happen via Zoom meetings. It’s true that there’s nothing like meeting in person. There’s a lot of non-verbal reading in the room. Tones and body language can be better perceived. Forget eye-contact… But, we want to share our story to promote this practice. At least for small rounds.
Take into account that I come from a third-world country. This happened in some random bedroom in Colombia.
A brief context
We were building a cybersecurity startup. We iterated through many products. We were talking to users. But not that much. Plus we didn’t have good judgment. Our mistakes (and a few assertions we had) are a post for another day.
Heck! We’ve changed so much. Today we’re adamant about the fact that raising an angel round shouldn’t be your first or second step. But still, we can promote an idea or two.
We started by wanting to solve cryptojacking. An anti-cryptojacking API for cloud providers was our first product.
What is an angel round?
For the sake of this blog post: An angel round is outside money given to the company ranging between $25k and $50k. As of 2019 (in the US) it’s common knowledge that that is the size of angel round. And to be clear: A pre-seed round ranges from $100k to $750k. A seed round ranges from $1M to (crazy) amounts such as $5M. Ten years ago that would’ve been a Series B… but I’m not going to digress from the main topic.
As of the day we’re writing this blog post: We still have to see how COVID-19 changes these definitions.
Getting the first things right
If you are a first-time founder, most likely your first idea will be a bad idea. That’s why pivots are so natural in a startup’s lifecycle. Good founders pursue bad ideas all the time. That’s why the team is the variable that will best predict the outcome of the startup.
What makes a good team? There's a lot of content about that topic. Y Combinator has awesome posts.
For the context of this blog post: Not having at least one technical co-founder will make no sense at all to an angel investor. Someone that builds the product. Get that person first. Offer her an equal partnership.
Generally speaking: It must be something that has a plausible path of becoming something of a venture-scale. Despite starting out small. The best heuristic is: How can this turn into a $100M annual revenue company in 7-10 years?
Some angel investors are OK with small exits. But, angel investing is so risky that more than 90% of an angel’s bets will yield a 0x return. There must be one bet that yields an outsized return. That’s why it only makes sense to think about venture-scale outcomes.
Investors at this stage will give money to a team and an idea that they believe in. They see early-stage startups all the time, so you have to stand out. The exception to this? Traction.
Traction is the real-life output of having a good team and a good idea. Build traction first! Don’t commit our mistake of raising money before building traction.
The definition of traction is revenue. The only exception is if you are building a consumer startup and have over a million active users. That’s what Facebook did.
At this stage, it doesn’t make a difference if you’re incorporated or not. But if you get to a verbal deal, you need to incorporate your company as a Delaware corporation to proceed. Being correctly incorporated won’t make you win a deal. But being incorrectly incorporated will delay a deal.
Don’t innovate with this. Follow standard practices. Use Stripe Atlas. Use SAFEs if possible.
How to meet angel investors
The first thing to understand is that an angel investor is not a venture capitalist. VCs raise money from banks, endowment funds, and bigger VC firms. An awesome book to understand the dynamics is Secrets of Sandhill Road by Scott Kupor. An angel investor is a high-net-worth individual who invests from his own savings. But, that makes the definition broad.
The key point is that they’re people that you meet throughout life. Serendipitously.
But, how? Let’s take a deep dive at our angel round.
The first 6k, unexpected
At the time I was writing some blog posts as a content marketing strategy. None of them got us a single customer or lead. But, one of them performed well on Hacker News.
Jeff Meyerson, host of the Software Engineering Daily Podcast saw it. He liked it so much that he asked me for an interview for his podcast.
We talked for an hour about cryptojacking. It was an amazing conversation. After we finished, he asked if he could invest.
The lesson here is succinct: Have a decent web presence.
Then, a friend gave us 1k
We told a friend of ours from college about this. He was astonished. Then he asked for permission to invest.
We knew each other 4 years before this happened. There was a lot of trust. What I never thought is that this guy would start angel investing right out of college.
Be friends with crazy and smart people.
As a side-note: This guy, Esteban Dalel, joined us and he’s now part of Fust’s founding team.
Raising 35k thanks to AngelList
We had a basic but well setup profile on AngelList.
Different startup accelerators in the US started contacting us via AngelList. We had conversations with a few of them. In the end, we liked the Colorado-based Exponential Impact. It was an amazing experience. We learned everything about starting a company.
The lesson: Have your AngelList and Crunchbase profiles set up.
And finally, a 7k equity-free grant
This was an equity-free grant, but definitely worth mentioning.
We won a Pioneer tournament. Pioneer is a remote accelerator focused on the very, early-stage. They give you a small amount of money, mentorship from the brightest minds in Silicon Valley, a flight to such a place, and most important: brand. It’s like Stanford but backward: They give you money if you’re good.
How do you win a tournament? Show impressive progress throughout the weeks. Go up in the leaderboard by getting crowdsourced votes. If you make it to the top 50, they will take a deeper look at your profile, and choose you if there’s a fit.
The lesson: Play Pioneer!
A few tips on video-calls
The main idea of this blog post is to convince founders that they can raise an angel round from their bedroom. Despite the barrier that exists between one person and another in a video call. The rapport that you can generate speaking in person is way above. It’s not the same thing.
Yet, there are a few tips to go around this.
Turn on your camera
You might think it's a good idea to turn off your camera. It might be because it saves bandwidth. It might be because you look trashy and haven’t showered. Don’t do it. Turn it on. Always. With no exception.
This implies looking good. You don’t have to overdress. But don’t look trashy either. Be practical.
Feeling like you’re speaking to a void is awkward. It’s sad. But, mapping a voice to a face is pleasing. It generates rapport. It builds trust.
Make virtual eye-contact
It’s not the same thing to speak to a person that’s not looking at you.
Than speaking to a person that is looking at you.
Don’t be like me in the first photo. The ideal solution is to always look at your webcam. But I know that this is hard. It’s inevitable to not end up staring at the other person. This is what makes your eyes deviate.
There’s a hack around this. Minimize your video conferencing software window. Drag it to the top. That way, if you do end up looking at the other person, your eyes won’t deviate so much.
Never, ever, go to a video call again without your headphones plugged to your computer. Speaking without them will make the other person hear themselves. With an echo-like effect. It’s annoying. Avoid that by using headphones.
Pro-tip: Use high-quality, noise-canceling headphones.
What about cold-emailing investors?
I did this once with a VC firm. I got a meeting pretty fast. VCs are happy to have people come to sell to them. They’re open to listening.
That said, I would use this as a last resort. It’s time-consuming to do this for (say) hundreds of investors. Use that same effort to find customers instead.
There is a better way to go around this. My 2 cents: read Tech Twitter. Know if an investor that matches your stage and market tweets something relevant. Let them know about it. Tell them why your startup is relevant in that context. That will definitely get you a conversation at least.
Also, shoutout to Twitter. What an amazing tool to use as a CRM. You can reply with a smart comment to Paul Graham or Naval Ravikant and catch everybody’s attention. You can be whoever you want on Twitter.
A round of applause to remote fundraising innitiatives
YC is running the whole process for its summer 2020 batch remotely. That means that you could get a $150k check without flying long hours to San Francisco. Techstars has been running remote programs for years now. Pioneer is running open, live-streamed demo days. Small check writers are the ones pioneering remote fundraising practices.
But, bigger players are starting to do the same thing. Fundraise From Home hosts virtual demo days for founders located anywhere to pitch early-stage investors. They can raise a pre-seed or even a seed round.
NFX now offers seed funding in 9 days. Apply online by filling a form. Get a response 3 business days later. Talk to them, and get a final decision made within 9 days. Get the money wired within 3 weeks. Transparent deals: Get 1M, 1.5M, or 2M SAFEs in exchange for 15% of the company.
I dream of a future where you don’t have to take long flights to fundraise. Or relocate the company to an expensive place such as San Francisco to do such a thing. Use that money and time to get customers instead. To grow the business. These initiatives reduce the time required to fundraise. They help startups focus on what they should.
Perhaps that Softbank mega-rounds will never be raised online. Maybe Series B or even A will not either. But, being able to raise checks all the way up to $2M in size remotely, is fantastic.