Fundraising Fundamentals By Geoff Ralston

we're gonna have two lectures on fundraising the this one which is going to be a high-level overview which I'll do and then next week my partner Kirsty will do a deep dive into the mechanics of fundraising which are really fun so you wouldn't want to miss that before I start I will say we have an amazing set of resources in our library on fundraising you should look at them you should read Paul Graham's essays on fundraising they they have aged really well and they will help you a lot I wrote a guide to seed fundraising

as well that I think is pretty useful but there are lots of other resources videos from last year's startup school from 2014 how to start a startup one of our time I'll reference later which will be massively helpful when you go out and raise money in it in early rounds and in later rounds so startups are hard and fundraising can be one of the hardest parts even though fun is bright in the word it's really not that fun it's a weird marketplace when you get out there it seems like kind of an open market but

it's not rational it seldom fair and yeah you will hear of founders who tell you I have fundraising was easy I walked out you know I started walking down sand hill road and people showered me with cash that's the exception rather than the rule so while your fundraising you're going to hear know a lot most of you you will hear reasons why your startup will not succeed while your product is not a good one why the opportunity you're talking about is not real sometimes they'll be right - but you should never believe that because you

will survive the way you were survived the multiple times you're going to go fundraise is by being tough and resilient and above all by believing no matter what you hear no matter how many times you hear no or reasons why your startup won't succeed you need to believe now I promise I'd go fast but I'm gonna go so fast I'm gonna give you a complete overview of everything you need to know about fundraising in about a minute or less and then I'll go deeper after that and anyone who wants to leave after this minute because

you got everything that you needed I won't feel bad just walk out okay so in less than a minute figure out the story of your startup this means figure out why you're going to matter in the future what is it about your product your opportunity that's gonna tell a story about the future that a venture capitalist will care about it so this this might mean getting product market fit it might mean growth could mean a lot of things then find the right investors do research talk to other founders this is where organizations like YC can

be a ton of help get organized you do your homework you create your spreadsheet and you get a list of everyone you're going to talk to and you're going to reach out to or you're going to get introductions to and then you begin you will pitch again and again and again you will find your story again and again and you will get better at it as you iterate and eventually you'll meet the right investors sometimes the right investors will be the investor with whom you resonate the best and who you think is going to be

the best added value sometimes the right investor be the person who is willing to write you a check first so then you agree on a price we'll talk about negotiations more later and then you get the money in the bank and lastly you get back to work that's it simple right I think that was less than a minute now you can leave okay so let's get a little perspective first why does VC even exist well there's a market for it right you guys need the money most of you most of you want the money but

there's sort of another reason to which is the returns can be really big it wasn't always that way many people tracked the beginning of Silicon Valley to Bill and Dave start and kill it packard in on 1957 and they started with 583 dollars of their own money and never raised venture it's possible to do that but it turns out to do a high-growth startup you usually do need money in about the same time this French guy named George Daurio kind of kicked off the whole thing by investing $70,000 in this what was to become epic

company Digital Equipment Corporation and he turned that seventy thousand dollars into thirty five million dollars which is you might imagine got some people interested and that kicked off an entire industry but why raise money what do you need it for well you need it to pay for stuff to hire people to rent offices you need it to grow right startup equals growth this Paul Graham wrote a long time ago and to grow you almost always need startup capital so it's possible to bootstrap and some companies do but it is really hard and you should keep

in mind it's also true that having money can be a competitive advantage so most startups most of the time will raise money when should you raise money now the obvious answer right is when you need it right that's when you're going to raise money when you need the money unfortunately it's actually the opposite that's true the best time to raise money is when you don't need it this isn't always possible but when you don't need money investors see the big opportunity so throughout the lifetime of your startup if you can't arrange to be in a

position where you have lots of money and lots of prospects the money will come flowing in if you're profitable it helps a lot if you're desperate well VC's can smell that a mile away how much should you raise well one rule of thumb and I'll give you another one in a second one thought process to go through is assume when you raise money that this is the last time you'll ever be able to raise so raised enough so you won't need more so you can get to profitability no obviously this is not always possible it

depends on the kind of startup you have so you should at least know what you're going to spend the money on so do some math figure out what your average employee is going to cost an engineer for example might be $15,000 we usually use a rule of thumb at a seed round of about 18 months whatever time frame that you need to where you can raise more money so you have to hit milestones that will be persuasive than or you have to get to profitability and then the number of folks you're going to hire so

how to waste well there could be a whole lecture on this so rather than doing a whole lecture I'm just gonna make a couple of points on this first what you know investors invest in you so ask yourself if you are an investor would you invest in you are you formidable enough are you the kind of person who can take an idea and turn it into a reality that matters into a big company right yeah I know I'm repeating myself but I got to go into a little more detail and I'm going to repeat a

little bit of what I said in that very first lecture but the other thing that investors are going to invest in is the story of your startup what product are you building for what opportunity for what customers and is this story interesting believable does it resonate does it tell a future that they can believe in think about that it has to tell a future about a a company that you guys are building that has hundreds of thousands of employees like those CEOs you saw sitting up here at one point they were exactly where you are

with nothing and now they have tens of millions or more in revenue hundreds of employees can the investor you're talking to believe that about what you're going to build so what components of the story are there so it has to represent a large opportunity and by the way if that's confusing why do you need a large opportunity Google venture math and understand what the venture capitalist cares about what sort of returns they need to make things worthwhile is there a compelling product and traction and is the storyteller impressive so what if you don't have these

things well you tell a story a story is more persuasive if you actually have that product in traction but it doesn't mean you can't raise money just with a good story look at magic leap if you've heard of magic leap they raise billions on just a story it's a story that matters everything else is just how persuasive you are sure if you have millions of users and growing like crazy that's pretty persuasive that's the easy case interestingly the very best investors want to get you before you have all that stuff because you're expensive by then

the greatest best investors are Airbnb before they're ever B & B before they have traction so remember to build your story I went through this earlier spend time on this build the vertebra to find the vertebrae of your story the key points that are the most memorable most important and build a story a pitch a sales pitch around that remember everything you're doing as a founder is being a salesperson you're selling to investors here or to yourself to get used to get to get up in the morning after you've heard no 25 times in a

row to your partners to your customers what valuation should you choose so this again you could do a whole lecture on it's complicated what valuation should choose it's somewhat of a market but it's a very strange market I would really recommend you look at the video of Sam Altman talking to Ron Conway Marc Andreessen and Parker Conrad from zenefits at the time rippling now when they talk about what valuation you should choose around the 22nd or 23rd minute Parker starts talking about his experience raising money it is really dangerous to choose too high evaluation and

in fact it can kill your fundraising because it's quite difficult to go to an investor who might kind of be interested and you say I'm gonna raise it a 12 million-dollar cap on my safe and they were like oh I was going to invest but that's really expensive and then to go back to them and say oh actually we're a lot cheaper you're cheaper you mean you're not as good now I'm not interested in investing I have seen companies actually fail fundraising because they chose too high a valuation but you don't want to choose too

low evaluation either because you can overdo dilution we'll talk about dilution in a second but the most important thing is to get the money in the bank and get back to work and that's why we talk a lot and you'll see it again and again about not over optimizing fundraising as I mentioned kursi is going to go over the mechanics of raising money in detail later so I'm going to go very quickly here about the the mechanics of raising convertibles or equity very briefly oh and yes I'll mention icos there are other ways of raising

money nowadays that have little to do with with equity and there's also debt of various kinds but we're gonna talk more about this and a convertible note is a kind of debt as well although we don't recommend you use convertible notes anymore convertibles are strange it is strange you go to an investor and say do you believe in the future of my company would you like to buy a piece of it and they say yes I want to buy a piece of your company and you say ok not really I'm gonna sell you a promise

of a piece of my company which is what a convertible is it's not actually equity in your company it represents equity and it represents dilution it's just not actually dilution right at the time the great thing so like why does this even exist why do investors agree to this well because partly because YC demanded that they agree to it partly because it's really good for companies it's fast and simple the average document here is 3 to 5 pages when you do equity it will be three or four documents representing hundreds of pages lots of legalese

you don't need a lawyer for this it's super cheap it can cost hundreds of dollars or less you can do it almost automatically using tools like Clerke but still read the fine print you should read every fundraising document you ever have to deal with every last word you really need to uh there are many many stories of nightmares with people agreeing to things they didn't know they were agreeing to equity when you actually issue new shares to a shareholder is slow almost always expensive you almost always need lawyers you're going to be giving those investors

rights that you don't have to give when you do a convertible and those rights are important and important to understand so usually called preferred provisions so again read everything okay so this I'm sure you guys all understand dilution dilution is dead simple right you're a shareholder in your company if you sell 20% of your company you now own 20% less so if you raise a million dollars on a four million dollar post valuation post-money valuation you've just sold 20% of your company 1 million over five 20 percent if you owned 50% of your company everyone

with me you've just sold 10% of that 50 percent 20% times 50% and now you own 40% that's dilution simple right well convertibles actually made that complicated to figure out because you actually haven't sold yet so there's a there's a representative dilution but not an actual dilution as it turns out when you do a pre-money convertible the actual dilution that you're selling is difficult to know because it depends on how much extra money how much other money you raise besides on that convertible if you raise lots of money and lots of different convertible notes understanding

the actual dilution it's complicated I actually wrote a tool called angel calc that helps you figure it out it's it's more complicated than I'm actually letting on because how you calculate the price that you actually get when you convert includes things you might not expect like future option pools for pre money safes we've changed that and now the standard YC document that Christie will go into more detail is a post money safe a post money safe is dead simple mostly and it's dead simple in that if you invest a million dollars on that four million

dollar post money safe you own 25% and you can be pretty sure that at that moment in time you're really buying about 25% so it's good for investors because they understand and it's equally good for founder's because you guys understand you guys have a good feeling for what your cap table looks like alright I'm going to go through this pretty quickly you guys probably know all this there's angels and VCs angels are usually wealthy people that invest their own money they usually invest for similar reasons to VC's but they also invest because they're passionate about

things it's a different sort of conversation when you're talking to someone who's going to invest their own money and how they close and and what their decision process is then a VC sorry then a VC who is a professional investing someone else's money limited partners so they have a very different approach different process for closing there's also other ways of raising I'm not going to spend a lot of time there's Kickstarter there's angel list there's we funder there's all sorts of crowd funding mechanisms out there now that usually don't play the major role in your

in your fundraising but often will play an ancillary role that they might help you fill out around or fill out the amount of money that you're trying to raise all right everyone's heard of an ICO write an initial coin offering I had a conversation earlier in the class with Andy Bromberg the president of coin list which helps companies do I cos the vast majority of you probably want to do an IC o---- but shouldn't I seals are complicated you need a certain need to be building usually a certain kind of network for which having a

cryptocurrency is a smart thing to do you have to know SEC regulations backwards and forwards it's a moving target and even though there's big dollars associated with it you should approach this whole topic with a lot of caution and educate yourself a ton so just again part of the ecosystem usually we talk in terms of rounds there's a lot of fuzziness in this now but usually you might start your company by putting money on a credit card and then you might get some friends and family money usually this is sort of debt you don't usually

give out equity here but sometimes you then you raise a seed frown to get seed round we don't recommend you do equity in a seed round usually it'll be on some sort of convertible and then you get into your equity rounds bigger rounds usually this is smaller amounts of money to greater amounts of money and you can do a Series A ABCD I've seen Series F and then eventually if things go well and you don't get acquired which could be things going well you can do an IPO all right let's talk a little bit about

meeting investors I know I'm repeating myself here but it bears repeating if you want to meet investors do your homework know what they've invested in know what the particular person you're talking about cares about if you don't you're at a disadvantage immediately or you're certainly not putting yourself in the advantageous position that you can simplify your pitch work on this all the time you want to capture their attention in the first minute or two you're talking to them and I know this is a hard thing to say but don't be boring I say it's a

hard thing to say because you guys all probably think you're what you're working on is the most fascinating anything in the world but it might not be fascinating the way you tell it you might tell it backwards you might come at it from the wrong way which like every detail is fascinating to you but you need to capture someone's attention you need to build a story that's compelling from the beginning and the simplest way to tell your story is usually the best way to tell it if you can bring a demo if you can't fake

it bring a prototype it's so fast especially if you have a software product it's so fast to build things and even if you're building hardware bring a prototype of your hardware Steve Jobs used to demand prototypes in wood the first tablet the first iPad was was in wood anything to get a feel for what it's going to be also remember you're trying to convince the investor that you can actually build what you're talking about so coming completely empty-handed well you better be a really good storyteller if you come empty-handed often forgotten is that you should

listen you're not there to monologue you're there to have a conversation to listen to what they have to say in terms of feedback it can be incredibly useful even if they say no also a good sign that investor meeting is going well as when they talk at least as much or more than you do when you're pitching investors you will suck in the beginning one of the marks of a successful fundraiser is they get better and better every meeting they have so yes you should practice probably the first investor meetings you have it's not necessarily

your highest target investors unless you're positive you have it nailed but if any of you are golfers you know that you can hit a lot of golf swings and never improve unless you get feedback and take in that feedback it's the same thing with pitching pay attention to what happens pay attention to how interested they are pay attention to how the meeting went and what the feedback was and improve every time and do not leave an investor meeting without some sort of conclusion now the best conclusion is a check or an agreement for a check

we have something called a handshake protocol that you can you can look up as well getting a handshake for a deal getting someone to agree to give you money that's awesome but if you don't get that try to understand whether it's a firm no or whether there's next steps so that you can work towards getting that for most species including angels there's a process most people won't give you money on the first meeting some will but most were all right for raising seed I think decks are not that useful as an angel investor myself I

almost never even look at the deck I just want to look at the founder and hear their story and see how they tell it many of you won't be comfortable telling it without a deck and some investors actually want a deck they're more comfortable too so you should probably have some short pitch deck in a guy to see fund-raising I outlined the 12 items that are important to have in such a deck but don't lose sight that don't create a story around the deck create a story around your story and your product in your future

and figure out how to tell it without a deck because if you can't well well you can right so you're going to be able to so we're done negotiations very brief word first I hope you don't have to hopefully you'll meet an investor and say you know you'll tell your story this is we're building this awesome product we have this attraction it's great and we're raising a million and a half dollars on an 8 million dollar cap and they say I'm in for $100,000 no negotiation no problem now usually the most likely thing you might

negotiate around is that cap and sometimes it's okay to state firmly what it is and sometimes if it's too high they might negotiate down but if you're not sure really what you're raising on you haven't raised any money on your just talking to investors it's okay to start talking to them about what they think is reasonable and try to try to zero in on what the right number is but if you do enter negotiations just a few things to keep in mind what do I mean by empathy well understand what they care about investors are

different each one if you're talking to an angel they don't want to seem like an idiot if you're talking to a venture capitalist they want to own a certain percentage of your company so there's this trade-off between how much money they put in and how high the valuation is understand the person you're negotiating with and if you don't your probability of getting it right and optimizing your negotiation is pretty low try to have options if I'm negotiating with you and I'm an investor and I'm the only person they're putting in money I'm in a pretty

strong position Visa vu sometimes you'll be in that position and that's okay as long as you get the money this is what they do they're almost certainly better at you in negotiation so if you do get into a negotiation adhi negotiation the one thing you have in your side is you can delay you can say I don't know I need to talk to my co-founder or my mother or someone don't try to match don't go toe-to-toe with the pros in negotiating especially with the VCS because that's what they do and I've said this a few

times read everything okay coming to the end here what's gonna go wrong well I've mentioned over optimizing this merely means that the most important thing that you guys can do is build great products that customers love and that has little to do with fundraising except as an enabler of that so trying to get the last dime out of fundraising is taking away from that and it's usually counterproductive now there are fundraising ninjas people who can do anything and you look at them and say they may raise at forty million dollar valuation it was incredible and

you know again it was like people were showering them with money you should not use them most of you as your model right figure out who the right investors are meet lots of them and then get a deal done please don't be a bad actor don't break deals be responsive don't be a jerk it is a really small community and that stuff gets around and this might not be the last startup you do even if you've raised 90% of what you want to raise us not likely to be the last time you're gonna raise oh

and when you get your money and this happened don't go to Vegas and Gamble it right think about this is a weird thing for a second think about what you're asking investors to do especially when you're raising a seed round your ask them to write a check a lot of money to you that you're gonna have control of that money based on a promise of something in the future that's it there's a lot of trust built in there which is why by the way you shouldn't exaggerate or pretend to know things you don't know cuz

who's gonna trust someone who's not being quite frank I don't get that feeling for with that kind of you know here's the money see in a couple of years this is what they do by the way if you think you can get away with something here you usually won't if there's one thing V sees aren't all brilliant they're not actually all that good at being a VC but what they are good at is sniffing this stuff out so don't try it's actually not a good way to go through life anyway but tell it straight tell

your story straight don't this is a very little win now there are people we know of them we can name names who are masters of right and it seems to work don't try to be those people and when you get a no which you will get almost all of you don't take it personally they're probably right and anyway all you're saying is that their vision of the future is different than your vision of the future it's really hard to have an accurate crystal ball I think you'll all agree with that so don't think it personally

except maybe internalize that you didn't do a good enough job and telling your story of the future take this one in fundraising is not the goal you go when you raise two million dollars in your seed round you'll high-five everyone it's great and you have gotten to the starting line all right you're building a business you're building a product that people want you're trying to build something that's sustainable over the long term fundraising is just one small step on the way to that by the way that's another reason not to be competitive about it Dropbox

raised their first round at like a 2 or 3 million dollar valuation and it worked out okay for drew in team right they went IPO this year fundraising is not winning the company that win that raises the most at the highest valuation well not necessarily or even usually be the biggest most successful company at the end of the day investors actually do matter now at some point especially its seed you need the money but the better you can do it choosing your investors wisely investors who will make great connections for you who will help you

build your product and who won't be a pain later the happier you'll be you hear this again and again you'll hear Ron say it several times if you look at that video I mentioned the important thing the most important thing about fundraising is to get it done let me get back to work get back to the real work on the real goal which is building your great company good luck I'm done and I'll take some questions so the question is about if you're an international entities in London what advice would I give to fundraise so

that's always a tough one because it kind of depends and built into that question where well should I become a u.s. entity etc most US based exclusively us-based venture capitalists will not invest in an overseas entity or or they'll do it with a lot of hesitation so it's certainly we require that everyone become a Delaware corporation at YC it's pretty cheap and easy to do so if you do intend to raise in Silicon Valley or elsewhere in the States I strongly recommend you do create a u.s. entity if you're building your business in London or

in the UK or overseas there is a venture community there and a lot of times they'll understand your business better than a US market so you have to make that trade-off as you as you you know figure out what the right target investors are it's a complex equation and a little hard to answer in too much detail and in this in this context sure yeah the question is look for investment and then incorporate or incorporate incorporation like you can do an incorporation using Atlas if you're international from stripe it's sort of instantly so like but

the I think that's the wrong way to think about it if you're going to fundraise you should incorporate because a lot of you will be LLC's or you are not even LLC yet people won't invest in that stuff so incorporate so that's not a barrier so you don't have to say oh yeah we're doing this more LLC it just doesn't seem right a corporation is dead simple now so I would incorporate yes in the back there so the question is when is equity preferable to convertible you know the there are companies that raise up to

thirty million dollars on convertibles convertibles are fast and simple so when fast and simple is your priority convertibles are great from an investor perspective equity is often preferable because like I said you're just buying this promise and you have no rights and usually when you raise larger amounts of money equity works better all around because there's a little more fiduciary management you if you raise five to ten million dollars you tend to form a board and you have people who have to talk to about how you're spending that money and hopefully they're experienced and can

help you through a lot of the issues that you'll run into because they've seen it a lot of times so so generally when you're raising seed you want to go fast and you're just building and trying to get product market fit and you don't have time and you don't want to spend twenty five thousand dollars with lawyers convertibles but when you're raising a huge amount and the company is getting serious usually equity is preferable all around yeah so I'm undecided to talk about exaggeration do not exaggerate right so I was trying to understand how do

we draw a line to be not exaggerating but still shading our vision so it's actually a good question one of my sites that don't exaggerate and and the question is but what about your vision well a vision my definition is an exaggeration I wouldn't even look at it that way don't exaggerate the facts on the ground don't try to hide something that's a problem by either lying about or or obscuring the data however when you're telling your story about how you're gonna take over the world tell your story take over the world the caveat there

is don't tell something stupid don't you know though don't tell a story that's that beggars belief because remember in the end it has to be believable so tell a story that is credible yet impressive yeah so the question is if you're putting your own money into a company what's the right way to do that so I'm not a lawyer or an accountant so you might want to if you're here save that question for Kirstie but generally I will say that you should just buy equity in your company and there's a lot of ways to do

that you can you can use it you can do a convertible you can just buy the equity you can you probably in the beginning especially because you don't need a lawyer to negotiate with yourself and if you do that's a separate issue you can probably just buy the stock in the company at the right price and just you might want to get a little legal advice to get that right or at least do your research I've seen people do that it works oh how you do it is you just rate the safe and give yourself

the money right like that's the thing about this you guys are managing the money you literally when you do a safe you rate this thing you sign it and you give them your bank account and they way are you the money right and then you spend it but you spend it keeping in mind that you are now a fiduciary for that money you have responsibilities you're not that's just not your money it's the company's money yeah so you said YC invests on a safe that's true but what's your question actually in the future our investments

going to be entirely on a post money safe we just announced our new deal and that's what we announced $150,000 for 7% on a post money safe yeah the question is what's the definition of traction it indeed for a pre-sales startup well if no one's using your product you have no traction the definition of traction is usage of some kind and it can be any kind of usage it can be free usage or it can be paid customers now you might ask a better question which is what's the definition of good traction and the answer

is unfortunately is it depends right usually the one thing to look at with traction is gross how fast are you growing because like you know you can go to a VC and say I have a million dollars in sales and that might sound really good a million dollars in annual recurring revenue if five years ago you had a million dollars in annual revenue and now you still have a million dollars in revenue they would much rather see someone with a hundred thousand dollars in revenue they grew that over the past month so growth yeah one

question at a time please so ask the most important one the question is what are the best practices for connecting with investors I think you said other a lot of the things I'm going to say but I'll say them anyway so clearly the best way to connect with an investor is via someone who knows that investor the absolute ultimate best way to connect with an investor is via an investor who invested in your company who will connect you to another investor that is the best possible introduction in fact it's a pretty bad introduction to have

an investor and introduce you to someone if they passed on your company think about it it doesn't really scan very well the other way I'd say is find other founders who have investors and get them to introduce you and other than that yeah you have to cold email but that's what they do they look for cold emails and you know that you have to you have to pound the pavement there's no way of escaping that yeah [Music] so I think the question is how do you explain the use of funds when you raise your seed

I don't think there's any formula for that I wouldn't get into the weeds too much if you're going to raise a million dollars you say look with a million dollars we get here we achieve this milestone we get to this level of revenue and the way we're going to do that is by hiring three engineers two sales persons and you know three support people that staff is going to cost us this much money and that's why we're raising this much money yeah so yeah so the question is is there an unintended consequence of the post

money safe that it will force founders to do an equity round sooner because the definition of a post money safe is that future equity feature convertibles also get diluted by that post money safe because it's post money and it is what it is so the answer is no we haven't seen that because we just launched it so I don't think that's that likely and here's the reason the nice thing about a post money safe is it's clear it's not ambiguous you know what percentage that was sold so if they have a percent of the company

they have a percent by the way if you do a post money safe and after all if I invest $50,000 at a five million dollar valuation I have a percent if later you invest a hundred thousand and a ten million dollar safe after me and it's a post money safe you own one percent clear so I suspect that your concern will not become reality yes what sort of financial projections should you have if you run into an investor who is asking for five-year projections at seed you've run into what we cloaca Lee call a noob

they don't know whether till who who has five your production is at this point in fact if you can tell what you're gonna do about four twelve or eighteen months that's great when you raise future rounds series A's and B's you're going to start to say like okay so you have 12 months of revenue or two years of revenue experience what are the next two or three years look like you'll be wrong but at least you can do that now you're just so guaranteed to have error bars that are 50 or 100 percent why bother

so I would actually deprioritize any investor who asked for that sort of revenue projection so the question is how effective are customer testimonials well I would generally say not very one of the most common slides we get rid of in demo day is our customers love us you know that's great but do they pay you if they love you enough to pay you that's interesting if they just love you well you know of course you're gonna find the customers that say they love you now it is true that sometimes what you're doing is so radical

or changes their life so much that that having customers who are willing to talk to venture capitalists who serve as references and venture capitalists less it's seed more at later ons we'll check customer references those matter a lot yes what does that mean dynamic or static Lee I've never seen this dynamic thing people should know what they have like you mean dynamic based on performance or something oh so you're sort of vesting into your it's not if you have vesting schedule that's fine and you can show them that I don't think it matters the math

is the same in the end right yes so the question is what sort of dilution so do you expect at each stage in the company and there's just very general rules of thumb for that we usually say 10% to maybe 20% at seed if you sell as much as 30% we start to get a little squirrelly it happens sometimes 20 25 percent sometimes 30 percent at series a and after that it's too variable to talk about it depends on how well the company's going series bees are usually 20 percent or less but again it really

depends so the question is what's the best way to research angels and VCs of course the best ways to get into YC so you should try because we have a database there is lots of information online that you can you can look up but I would also I think the very best thing to do is to talk to as many founders as you can who are familiar like you can look up what their portfolio company is and see if you know anyone in that portfolio company and try to get connected to someone who has some

knowledge of how that investor was yeah I don't chain company and how do I address traditional PCs that are a bit cautious with the donkey and on the other hand how do I address dog chain disease or investors that the currency and this is a very this is a this is a an individual question for his company which is it seems like it's a blockchain company without crypto and I'm not really sure I know what that means but so the question was how do I address conventional VCS that are afraid of blockchain and non-conventional blotching

investors who expect him to be more crypto EE or something and I don't know you um you have to tell a really good story to each a lot of conventional investors just won't go there for good reason it's there's so much fraud and so much uncertainty outside of the fraud in that in the in in that space and the ICO space especially that a lot of people run away so I would tend to just stay with the investors who are familiar with it and then explain why whatever strange configuration of your company makes sense for

you the New Deal so the question is does ycs $150,000 investment handicap the companies that do YC because the imputed value of the company is too low it's not a problem look the we don't even actually have a cap on our investment because we we don't think it's appropriate to think of it that way we've been investing at this level for many years now and the vast majority of companies that go through YC is seed and the average cap tends to be over 8 million now so it's clearly not a handicap the reason you do

YC is because it increases your value and increases your probability of success and investors get that so they don't look at that they look at that as the sort of the cost of doing business with YC correct yes this is gonna be the last question so hopefully it's a good one I'm not sure I understand the question is something to do with how can you square the fact that we're supposed to be a billion dollar company yet we don't make financial projections do I have that right you shouldn't make long-term financial projections that are complete

and utter and the vast majority of you who try to make a long-term financial projection pre-product or when you have one or two customers it's a joke you can't do that and if an investor asks you to do that they're not very smart or they're not very good investors however that doesn't mean you can't talk about your opportunity you can't talk about the fact that look this business opportunity is enormous we have these customers who have started using our product in a very fundamental very deep way and they're gonna be our customers forever it shows

the customer need and there's many many many thousands of those customers if I just get five percent of that customer base I'll have a hundred million dollars in revenue and then I'm a billion dollar company but that's different than making a financial projection you're not actually projecting the framed to get to 5% you're just saying imagine if we got those customers okay thanks very much guys we'll see you next week [Applause] you