Persistence Beats Resistance

I talk to a handful of early-stage founders every week.

They come to me from all over the world for advice on how to get started...

But most (3 out of 5) are really just worried about how to raise funding.

So in less than 5 minutes today you will get:

1. The 2 most important choices you need to make before raising venture capital

2. 3 reasons why angel investors are better for first-time founders

Let's go 🚀

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The 2 most important choices you need to make before raising venture capital

What type of market are you going after?

Are you planning to go after a really large market? If not... don't raise VC. Raise angel funding instead.

What's a large market? My rough assessment is that it generates $1B+ a year in revenue and grows at 5%+ CAGR annually.

Sometimes (not too often) founders do incorrect market analyses or lean on the wrong data.

This misleads the founders and eventually investors into thinking a small market is actually a large market.

(Does anyone remember Juicero? 🤣)

If you raise VC and then realize you're going after a small market, you're in trouble. But all is not lost.

Come clean to your investors ASAP and figure out a strategy pivot that best makes sense.

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What lifestyle and outcome are you looking for?

VCs are in the hits business.

That means... they are willing to lose money on 9 bets as long as the 10th one is a super-sized winner.

This is great for VCs and the 1 winning founder. It sucks for the other 9 founders.

VC-backed founder: You work your ass off for 10 years to maybe own < 10% equity and sell for $200M. You end up with $20M. Or, the board can force you to not sell for $200M in order to make a bigger bet. Fast forward 5 years and you might end up with 0 because the big bet led to bankruptcy. Feels like shit. But it happens.

In summary, VCs have a huge say in the outcome of a venture-backed business.

Here are my 3 favorite benefits of raising VC:

1. Access to capital on demand for investing in growth and customer acquisition.
2. Can invest heavily into R&D pre-revenue.
3. Automatic access to a large network of well-connected professionals (investors, future hires, bankers, etc.)

Bootstrapped founder: You stay frugal and build a business without venture capital. The business might sell after 10 years for $50M. The entire $50M is yours to keep. You are in total control of the outcome.

Here are my 3 favorite benefits of bootstrapping:

1. With no artificial pressure to grow fast, you can take longer to really refine your product-market fit.
2. No dealing with stressful board meetings. If you have a shitty VC on your board, the interpersonal relationship stress can become unbearable.
3. Stay in total control of your company including speed, direction, and strategy without the risk of getting fired by a VC who doesn't agree with you.

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3 reasons why angels investors are better for first-time founders

First, let's understand what separates angels from VCs.

Angel Investors

1. Invest their own personal money.
2. Invest super early and can invest in businesses going after small-mid-sized markets.
3. Write small checks $25K-$250K typically.
4. Love to invest close to where they live.
5. Do not usually take a board seat.

Venture Capitalists

1. Invest other people's (LPs) money.
2. Can write larger checks ($500K-$100M+).
3. Invest in almost any industry/geography but only if it's a multi-billion dollar market.
4. Are less personal and more numbers-focused (it’s their job).
5. Usually take a board or observer seat to maintain oversight.

I recommend most first-time founders raise from angels before going to VCs for 3 key reasons:

1. It's really good practice to prepare you for VC pitches.
2. Angels can invest super early, move really fast, and help you early when VCs don't want to.
3. Angels enable you to raise small chunks of money ($100K-$250K) and de-risk your business with less pressure to grow fast.

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Are you starting a new business or feeling challenged in your current business? Here's how I can help:

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That's it for today. I'll see you next Sunday at the same time.

Cheers

Sawruv

p.s. I'm on a mission to impact 100,000 founders positively. If you think this newsletter can help 1 other founder in your network, then forward this email to them or ​Share this link so they can subscribe to accelerate growth.

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