- The speaker, Brad Flora, is a group partner at YC and is discussing startup fundraising.
- YC has provided various resources on fundraising, including essays by Paul Graham, a guide by Jeff Ralston, and tactical guides on specific aspects of fundraising.
- The talk will focus on debunking misconceptions and myths about fundraising.
- The first myth is that fundraising is glamorous, but in reality, it involves one-on-one meetings and is a grind.
- The second myth is that founders need to raise money before starting their startup, but the best founders build a prototype and get users first.
- Examples of YC companies, such as Fresh Paint and Solugen, are provided to support these points.

- Startups don't need to impress investors, they need to convince them.
- Most successful startups seem terrible at first.
- Raising money is not as complicated, slow, or expensive as it seems.
- YC's SAFE document has made fundraising easier and cheaper for startups.
- Founders have more control over their companies when raising seed rounds with SAFEs.
- Zapier is an example of a startup that raised money on SAFEs and was able to run their company the way they wanted.

- The video discusses the misconceptions and myths surrounding fundraising for startups.
- It highlights the success story of Zapier, a company that only raised money once and now has a $100 million revenue business.
- The video argues against bootstrapping forever, stating that it is scary, distracting, and has lower odds of success.
- It emphasizes that investors care more about making money than a founder's background or network.
- The rejection from investors does not necessarily mean a startup is bad, as even successful companies like InVision and WhatNot faced multiple rejections.
- The video encourages founders to believe in themselves and their product, as there are more investors than ever looking to invest in startups.
- Fundraising is portrayed as a series of conversations and does not require a special pitch or intricate connections.
- Overall, the video encourages founders to start building their startups and assures them that they can succeed in fundraising.

- Brad Flora, a group partner at YC, discusses startup fundraising and debunks misconceptions and myths about it.
- Fundraising involves one-on-one meetings and is a grind, not glamorous.
- Founders should focus on building a prototype and getting users before raising money.
- YC's resources, such as essays by Paul Graham and a guide by Jeff Ralston, provide guidance on fundraising.
- Startups don't need to impress investors, but rather convince them.
- Raising money is not as complicated, slow, or expensive as it seems.
- YC's SAFE document has made fundraising easier and cheaper for startups.
- Founders have more control over their companies when raising seed rounds with SAFEs.
- Zapier is an example of a successful startup that raised money on SAFEs and ran their company the way they wanted.
- Investors care more about making money than a founder's background or network.
- Rejection from investors does not mean a startup is bad, as even successful companies faced multiple rejections.
- Founders should believe in themselves and their product, as there are more investors than ever looking to invest in startups.
- Fundraising is a series of conversations and does not require a special pitch or intricate connections.
- The video encourages founders to start building their startups and assures them that they can succeed in fundraising.

YC Group Partner Brad Flora has seen startup fundraising from every angle: as a founder, as one of the most prolific angel investors in Silicon Valley, and now as a YC Group Partner. Brad has coached hundreds of companies on fundraising. In this talk, he shares stories and advice on how modern startup fundraising works.

Paul Graham Fundraising Essays: 
http://www.paulgraham.com/fundraising.html
http://www.paulgraham.com/startupfunding.html
http://www.paulgraham.com/convince.html
http://www.paulgraham.com/herd.html

Geoff Ralston's Fundraising Guides: 
https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising
https://www.youtube.com/watch?v=gcevHkNGrWQ&ab_channel=YCombinator

YC Fundraising Resources:
https://www.ycombinator.com/library/2u-how-to-build-your-seed-round-pitch-deck
https://www.ycombinator.com/library/6q-how-to-pitch-your-startup
https://www.ycombinator.com/library/71-how-to-get-meetings-with-investors-and-raise-money
https://www.ycombinator.com/library/4O-raising-money-online-advice-for-startups
https://www.ycombinator.com/library/3u-different-types-of-investors-and-their-incentives

Apply to Y Combinator: https://yc.link/SUS-apply
Work at a startup: https://yc.link/SUS-jobs

Chapters (Powered by https://bit.ly/chapterme-yc) - 
00:00 - Intro
00:27 - Fundraising resources
02:13 - 7 fundraising myths
04:06 - Raising money is glamorous
06:51 - The need to raise money before starting a startup
10:10 - My startup need to be impressive to raise money
13:56 - Raising money is complicated, slow, and expensive.
18:04 - I am going to lose control of my company
21:58 - I need a fancy network to raise money
23:43 - If investors reject my startup its a bad startup
26:35 - Wrap up - This isn't for you

YC, and I'm going to be talking about how startup fundraising works today.

And what that means is that I read applications, I interview the startups that apply, and then I work with them to try to make something people want.

And 1 of the topics that people ask about all the time at YC is fundraising.

In fact, it's probably the thing that we get asked about more often than anything else.

And the reason for that is because, as Paul Graham wrote years ago, raising money is the second hardest part of starting a startup, after making something people want.

So let's take a quick tour of all the awesome stuff that YC's put out about fundraising over the years.

He wrote the fundraising survival guide, how to fund a startup, how to convince investors to invest in your company, and even wrote a great essay about understanding investor herd dynamics.

Years later, just a little bit ago, YC president Jeff Ralston posted a terrific guide to raising a seed round, where he covers everything from start to finish that you need to know the nitty gritty on how to raise a seed round.

And he gave a great video presentation at startup school a few years ago, where he presented that material.

It'll tell you how to raise a seed round.

Finally, we've posted a lot of tactical guides about specific aspects of fundraising.

How to build a seed deck, how to pitch your startup, how to get meetings with investors, and how to raise money online for startups using platforms like AngelList.

We've even got something about the different types of investors and their incentives.

So if you really want to get specific and drill into stuff, there's content for you that you can find.

What I didn't want to do today is just rehash all of that stuff because it's already out there.

What I wanted to do instead is talk about some of the misconceptions and myths that we see as YC partners when we work with founders.

Founders out there are consuming all sorts of information in the media, and a lot of it is about startup fundraising.

And there's some things in there that just are not true that we're gonna talk about.

The goal of this talk is to catch you up on how fundraising actually works today.

And we're gonna do that by exploring 7 fundraising myths.

And for each 1 of them, we're gonna talk about the myth, the reality behind the myth, and then look at some great YC companies that bust that myth.

Before we get started, just a little bit more about me.

I'm a YC partner, but I've also been on both sides of the table as a founder and an investor.

From 2008 to 2014, I was building startups.

And the company that I got the most success was Perfect Audience, which was an ad retargeting startup for small businesses.

I took Perfect Audience through the YC Summer 11 batch, 11 years ago, and we raised a million dollars seed round after Demo Day.

We grew to $3 million in revenue, and we were acquired in 2014.

After that acquisition, I got really into investing in startups It started with angel investing where I was writing just a few checks $5,000 $10,000 into YC companies that I thought sounded really cool at demo day But I got hooked The thrill of going and meeting founders, finding out what their deal is, trying to figure out, are they making something people want?

And suddenly I was raising a fund with some friends to scale up and invest in even more YC companies.

And so through that fund, I invested in 150 YC companies.

And the good news for my backers is that we got into some great companies.

You may have heard of a few of them, Deal, OpenSea, Retool, Razorpay.

It was really awesome to help those companies raise their first round of funding.

And it's been a lot of fun being involved since.

Eventually though, I joined YC as a group partner and I get to do both sides.

I get to act as a founder, as a fellow peer to the YC founders and help them figure out how to make something people want and then use my investor experience to help them figure out how to raise money.

I've been involved in a lot of seed fundraising.

And for the first 1 I want to talk about is this idea that raising money is glamorous.

What's the image in your head that you think of when you think of startup fundraising?

For a lot of you it might be something like this.

This is an image of Shark Tank, and it's a television show where entrepreneurs, they dress up, they make a sign, they get a bunch of materials, and they pitch a bunch of investors at once called Sharks.

And these are a bunch of people of varying levels of investor expertise who hear the pitch, ask a bunch of nosy kind of pushy questions, and then fire offers at the founder, rapid fire.

And so if you watch this, you may be thinking, gosh, I've got to put a whole presentation together like this, and I'm going to pitch a bunch of people, and they're going to ask me all these tough questions, and it's going to be this high-pressure situation that I've got to figure out.

The reality is that fundraising actually looks like this.

This is a picture taken in the Creamery, which is a now departed cafe in San Francisco.

It's just a bunch of people sitting in chairs, talking quietly amongst themselves, right?

That's what it actually feels like is just sitting in a cafe talking to someone.

Shark Tank, the pitch competitions, the business plan competitions, they're just for show.

They're marketing events for the organizations that put them on.

And in fact, a lot of the investors at these things, they don't invest.

They're just there to meet other investors and hang out.

And even on Shark Tank, I think Mark Cuban recently said that even though he's put $20 million into these companies, he hasn't made a dime yet.

Actual fundraising is just a bunch of one-on-one meetings on Zoom over and over again, while you try to collect checks and convince investors.

What you see here is a diagram that was made by an actual YC company called Fresh Paint that shows what an actual round of fundraising looked like for their startup.

You see at the top, the company in each 1 of these circles and squares represents a different investor that they met with.

And when the boxes are connected, it's because that investor made an introduction for them.

They met with 160 investors And 39 of them said yes, which is a very high conversion rate.

But the check range was all over the place.

They had people write 5K checks and people write 200K checks.

Not everybody was some fancy VC that could write a giant check.

And it took them 4 months and 18 days to get through all these meetings and close all these deals.

Fundraising was painful and it was a grind, but it was pretty straightforward.

That's where this image comes from that you can check out, should definitely read it.

It's a great example of what it's actually like to raise money.

Okay, the next myth I wanna talk about is this idea that I need to raise money before I can start working on my startup.

All right, we see this a lot with founders.

We meet people that have a big idea, which is great.

And the next thought they have is, well, gosh, I guess I need to raise money so I can build my big idea.

But that's not how the best founders actually think about fundraising.

The best founders, they build the first version of the product first, even if it's a simple, almost toy-like version of it.

And then, only then, when they see that people are starting to use it and maybe there's some value being created, do they start thinking about raising money.

And the reason for this is that it's cheaper than ever to build a prototype of a product, to build a first version, okay?

It's cheaper than ever to host a website and build software.

It gets easier and easier and easier every year.

And also, it's easier than ever to find potential users.

You can get users on platforms like Product Hunt, on Hacker News, you can find users on social media, Twitter, LinkedIn, everybody's on the internet today.

And you can use that to find early people to try out your product.

And when you do this, when you've got a little bit of product, just a little bit, and a few users for it, it immediately gives you a great deal of leverage.

All right, you've gone from that person waving the pitch deck around, trying to figure out how to find $20 million to someone whose startup is in motion.

And investors want to jump on trains that are in motion.

Solugen is a YC company from the winter 17 batch, and they are a chemical manufacturing startup.

They literally make chemicals and sell them.

As you can imagine, that is a capital intensive business.

It requires a lot of money to build a facility that can make chemicals and sell them at scale.

And a certain type of founder that had this idea would then make a pitch deck and go around telling investors, I need $10 million, I need $20 million to build the manufacturing plant to make these chemicals.

The Solugen folks chose a different path, which is first they built a tiny version of their reactor that fit on a desk, but it worked.

Next, they built a slightly larger version of that that could actually make enough hydrogen peroxide to sell.

And they took that to YC when they applied for the winter 17 batch.

And during the batch, they started making enough hydrogen peroxide using this slightly larger version of the machine that they could go and sell it to first customers.

Turned out that hot tub supply stores needed hydrogen peroxide to sell to people that had hot tubs.

And so they were making $10,000 a month selling hydrogen peroxide to hot tub supply stores.

If you were an investor and you were trying to invest in a chemical manufacturing company, who would you back?

The person with the pitch deck asking for $20 million or the people that have built a first version of this, even if it's small and making small amounts of the product and selling it to hot tub supply stores, which is hardly a huge business, but it's something.

Solly Jim was able to raise $4 million to get started on their company because they'd already made some progress.

And today they've since raised $400 million and they've scaled this up to having a full manufacturing plant.

It's this idea that my startup needs to be impressive to raise money.

I've got to impress people with my startup, but my startup's not very impressive.

Well, the reality is you don't need to impress investors.

See, most startups seem terrible at first.

And in fact, the best startups seem the most terrible at first.

It was a marketplace for renting an air mattress on someone's floor.

Food delivery for the suburbs, where it takes longer to get everywhere and no one's ever started a delivery company before.

OpenSea, a marketplace for selling collectibles that only exist on your computer and can only be paid for with magical internet money.

They know that your startup is gonna sound unimpressive early on.

And in fact, they get bored when founders try to impress them.

Okay, really try to win them over and sell to them.

About 11 years ago when I did YC, I had a chance to have a five-minute meeting with Michael Moritz, who at the time was a partner at Sequoia Capital, a legendary VC.

I practiced all these lines I was gonna use on him to impress him and get him to invest in my startup.

And I sat down with him and I opened my laptop to get the slides out and he stopped me and just said, I prefer to just talk about the business you're building.

And I was completely disarmed because I wasn't ready for that.

I was ready to impress him, not to try to just talk about the business that I was building.

And we see this similar thinking with a lot of founders at YC where they come to us, they don't explicitly ask us this, but they more or less say, Brad, what are the magic words I need to say to make investors want to invest in my startup?

And the reality is that it's not about magic words.

It's about making something people want, right?

It's about making a product, getting it into users hands, and creating some value for them, and then just explaining how there's a 1% chance, even just a 1% chance, that it can get huge, and using plain, simple language to do it.

If investors aren't investing, it's not because you didn't say the magic words It's because your startup isn't good enough and you need to make your startup better and so have these conversate you make your startup better and you just explain it to people and talk about it like a human and do it over and Over and over again because again startup fundraising is a grind.

Here's an example of a company that did a great job convincing investors when they met with them.

And Retool makes software for building internal tools.

You see the founder, David, 1 of the CEO and co-founder, by just meeting a bunch of investors in coffee shops in San Francisco.

I was lucky enough to meet with David and he had no deck.

Instead, he just opened his laptop and showed me the software on his computer.

And he used that early kind of crude version of retool to make a crude but simple internal tool, a little web app in minutes.

And then he talked about why his early customers really liked it and were getting some value from it.

And just seeing this, seeing him show me the product and talk about what his customers were making of it, put in my head this idea that a lot of companies probably are gonna need this.

He didn't impress me, he didn't try to wow me.

He just showed me and talked in a reasonable way about what he was doing, and that convinced me.

I wrote a check, and today that company is at a $4 billion valuation.

It was just about making something and then talking about it with me.

The next myth I want to talk about is that raising money is complicated, slow, and expensive.

If you read a lot about fundraising in the press, you might think that it involves raising giant rounds from big name VCs.

Well, let's take a look at yesterday's TechCrunch headlines about fundraising.

We've got a story about Shopify, Markvision, Lockit, Sprig.

And so you're reading this at home and you're just trying to think, how can I raise $25,000 to quit my job or spend more time on this or Get a hosting account for the website that I want to build you're not thinking about a hundred million dollars Gosh, maybe this isn't for you Well, the reality is is that all the rounds you read about in the news are series A's and growth rounds You don't read much about the actual, you don't read anything about the actual first rounds of funding that companies raise?

There's no glamor in the actual early fundraising that startups do.

These typical A and B rounds are huge, right?

You raise 10 to $50 million, they take months to close, and you pay hundreds of thousands of dollars to lawyers and legal fees to get these rounds done.

The good news is, like I said, that's not what a lot of these rounds look like.

Your typical seed round is actually much smaller, 500,000, maybe a couple million dollars.

You can close it in weeks, if not days, and there's no legal fees.

And this is the same for if you're trying to raise a pre-seed or just trying to raise $50,000 from friends and family.

You can do that quickly, and there's no need to get lawyers involved.

Well, in 2013, YC created a new standard fundraising document called the SAFE, Simple Agreement for Equity.

So Initially, this was made by YC to be the new standard document that all YC companies would use.

And it turned out to be so great that now every startup uses this to raise their money.

It's really fast to close an investment using a safe.

The amount of the investment, the valuation cap of the investment, and then the discount.

So there's only 2 terms that you really need to discuss when closing a safe.

Also, the safe is just on the YC website.

If you Google Y Combinator safe, you can find the document, download it to your computer, and use it this afternoon to close an investment in your startup.

SAFEs are so simple that there's even a website called Clerky, it's a YC company from my batch, Summer 11, that lets you send and sign them in just a few clicks.

SAFEs give founders fundraising superpowers and you don't have to wait months for investors to get organized and for lawyers to review stuff.

Founders today just take all the meetings, they sign a bunch of safe, and they raise millions for their startup in just a few clicks.

And this quick and cheap fundraising gives them more leverage than ever when they're talking to investors.

You could build your company like Asher Bio.

So this is a biotech startup from the summer 19 match that's developing cancer therapies.

And the typical first rounds of funding are tens of millions of dollars for companies like this.

And so founders go, they make a pitch deck, and they've got to go get this money before they can start working on the startup.

The founders of Azure came into YC with just the idea, and they were able to raise the first round of funding using SAFEs quickly from angels.

This is pretty novel for a biotech company.

And using that first million or so that they raised, they could accelerate their progress, they could make more progress in the lab.

And when they were ready to start talking to larger investors in the pharma space about a proper round, they'd made a lot more progress, and they had more leverage in talking to those investors.

They've since raised over $150 million, but that first million that they raised in SAFEs totally changed the power dynamics for them when talking to investors.

Related myth is this idea, and I hear this a lot, hey, if I raise money, I'm going to lose control of my company.

Well, the reality is that seed rounds today give founders more control than ever.

Okay, founders have more control over their companies today than ever in the history of startups.

It's because when you raise with SAFEs, you don't give up any board seats.

All right, there's no board seat nonsense in SAFEs.

After you close the investment, it's still just you and your co-founders calling the shots.

There's no shareholders after you close money with SAFEs.

The investors on SAFEs get shares in the next round.

Okay, so no shares are actually changing hands.

And there's no information rights granted in SAFEs.

So there's nobody like requesting to look into your books, looking over your shoulder.

You get to choose how and when to update your investors when you raise money with SAFEs.

So again, founders raising millions of dollars, They're only selling 10 to 20% of their company and they're keeping total control of the companies.

And when you do that, you can build the company the way you want and answer to no 1 except your customers.

Well, pretty important, but instead of answering to investors, you answer to your customers when you raise seed rounds today.

You could build your startup like Zapier.

They described themselves as 3 dudes from Missouri and Zapier is software that help you set up integrations.

If you've got 1 app that you use in another app and you want them to talk to each other, you can use Zapier to set that up.

They did the YC Summer 12 batch, and they applied with an early version of their software.

They had a few customers, and they raised over a million dollars from angels and small funds at Demo Day.

And because they did that, because they raised on safes, and they just raised a bunch of checks.

They were able to run their company the way they wanted.

And for them 10 years ago, that meant going fully remote.

10 years ago, a decade before it was cool for startups to do that.

And they ran their company the way they wanted to.

They spent the next decade just delighting thousands and thousands of customers.

And they also made the decision to never raise money again.

So folks thinking, gosh, if I raise money, I'm always going to be indebted to investors, yada, yada, yada.

No, maybe later if you raise these crazy price rounds, but for the early money that you raise on safes, you have total control.

And you can be like the Zapier founders and never raise money again.

And today that's a hundred million dollar revenue business.

You might be thinking, I should bootstrap my company.

Well, everybody bootstraps at first, that's true.

But I wanna tell you that bootstrapping your company forever sucks.

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How Startup Fundraising Works | Startup School