- The podcast features Aaron Harris discussing fundraising advice for seed rounds in the context of accelerators like YC.
- Demo Day provides a focused timeframe for fundraising, allowing founders to prioritize building their product first.
- Founders should not constantly be fundraising while also building their product, as it requires dedicated time and effort.
- Cold emailing investors should include short and informative emails that demonstrate progress and interesting insights.
- Clear and direct asks should be made when emailing investors, avoiding vague requests for catch-up meetings.
- Big attachments, like decks, should not be attached upfront unless specifically requested by the investor.
- Leverage plays a role in the fundraising process and founders should be aware of where they stand in terms of leverage.
- A parallelized process is recommended, where founders engage with multiple investors simultaneously to prevent information from spreading faster than their progress.

- When pitching to investors, it's important to schedule meetings close together to create a wider wavefront of information and increase chances of success.
- The story you tell to investors should focus on how your company will rewrite the future and capture a major market, rather than just solving a problem for customers.
- Overcapitalization can lead to making the wrong decisions and not moving quickly enough, so it's important to prioritize time over money.
- Investors expect more progress from companies that have raised more money, so it's important to spend the money to grow faster.
- When evaluating seed investors and angel investors, focus on getting the money needed to build the business without losing control, and consider their incentives and decision-making processes.

- The rise of angel investors who are not disclosing the source of their money is a concerning trend.
- Founders should be cautious of these investors and question their motives.
- The process of fundraising for a Series A company is similar to seed funding, but with different investors and a longer timeframe.
- Series A investors typically want to buy around 20% of the company and take a seat on the board.
- Founders should build relationships with potential Series A investors after closing the seed round, but not spend all their time meeting with investors.
- Founders should focus on building rapport and sharing limited metrics with potential investors.
- Cold emailing and regular updates on progress can help get the attention of investors.
- Post-demo day, founders should remember that the majority of their company's life is still ahead and not get complacent or discouraged.

- The success of a startup is not determined by the first few months or a successful demo day, but by long-term growth and profitability.
- Building a successful startup often requires sacrificing other aspects of life and finding a balance that works for each individual.
- It is important to not compare oneself to others on social media and instead focus on finding personal fulfillment and happiness.
- Money is not the ultimate measure of success, but rather the impact and change a startup can bring to the world.
- Startups have the potential to fundamentally shift the course of human history.

- Aaron Harris discusses fundraising advice for seed rounds in the context of accelerators like YC.
- Founders should prioritize building their product first and not constantly be fundraising.
- Cold emailing investors should be short and informative, with clear and direct asks.
- Leverage plays a role in fundraising, and founders should engage with multiple investors simultaneously.
- When pitching to investors, focus on rewriting the future and capturing a major market.
- Overcapitalization can lead to wrong decisions, prioritize time over money.
- Evaluate seed and angel investors based on the money needed and their incentives.
- Be cautious of angel investors who don't disclose the source of their money.
- Series A fundraising is similar to seed funding, with different investors and a longer timeframe.
- Build relationships with potential Series A investors after closing the seed round.
- Focus on building rapport and sharing limited metrics with potential investors.
- Post-demo day, don't get complacent or discouraged, long-term growth and profitability matter.
- Find a balance in life, don't compare to others on social media, focus on personal fulfillment.
- Money is not the ultimate measure of success, impact and change are more important.
- Startups have the potential to shift the course of human history.

Aaron Harris is a Partner at YC and before that he cofounded Tutorspree.

https://twitter.com/harris

The YC podcast is hosted by Craig Cannon.

https://twitter.com/craigcannon

Y Combinator invests a small amount of money ($150k) in a large number of startups (recently 200), twice a year.

Learn more about YC and apply for funding here: https://www.ycombinator.com/apply/

***

Topics
00:00 - Intro
00:25 - Seed fundraising process
3:15 - Emailing investors
9:15 - Parallelized fundraising process
12:00 - Meeting with investors
14:00 - Overcapitalization
16:50 - Communicating your plan to investors
18:45 - Evaluating investors
22:40 - Fundraising process for a Series A company
26:45 - Meeting Series A investors
28:40 - Post-Demo Day psychology

So we are a couple days away from demo day, and I figure there's no 1 better than you to talk about fundraising advice with.

So I want to start with some seed fundraising advice in the context of, we can just say broadly, like YC or another accelerator, like a company in that situation.

How do you think about it, and how would you advise a founder to figure out a process to do a seed round.

Paul Auditore So I actually think this is broadly applicable to anyone thinking about raising.

The core idea behind demo data, the reason it's so helpful for founders is 2 things.

1, it gives them essentially an artificial forcing function.

It's just saying, hey, there's this day and time when I'm going to go raise money.

And it makes you focus everything on that.

The mistake that a lot of founders make is that they are constantly fundraising while building product and trying to do both things at the same time.

And what we did with Demo Day was say, no, no, no, no.

You basically take your product work and you make that X number of months until it's good enough, until you have customers.

And then at some point when it's good enough, you switch over to fundraising.

Because fundraising takes all of your time and energy and effort.

And to do it well, you really need to work on it.

And you can't work on your company and your product and your customers at the same time.

So Demo Day forces companies, the knowledge that's there, it forces companies to say, or founders to say, hey, I'm doing this now, and then I'm going to fundraise.

Now, the reason a lot of people feel sick to their stomachs to do that, is because they think, oh well, I'm never going to meet the investors, so I have to spend all my time hustling to meet investors.

And this is actually another misconception.

When you go out and you try to meet investors and you got nothing, they don't want to talk to you.

Even though it's their job to meet with companies, it's not an angel's job to meet with companies.

So when you go and say, hey, I have this idea, well, there's a lot of ideas.

What they want to see is some evidence that you're going to do the things you say you're going to do.

And so when we have demo day, we have this thing where it says, oh, we're going to have 3,000 investors listening to your pitch at the same time.

And so, oh, of course I don't have to talk to investors before that, I'm going to talk to all the investors.

But any founder working on a company can kind of do the same thing, because if you spend, let's say you're not doing YC, and you say, well, I want to replicate that experience.

I'm going to spend 3 months and all I'm going to do is work on product, talk to customers, make things people want, then write more product, talk to more customers, write more product, iterate on that.

At the end of that 3 months, I'm going to go to investors and say, hey, look, I have a fully built product, I have a bunch of customers, it's growing, the investors will be very excited to meet with you, even if you're cold emailing them.

When I get cold emails from people who are clearly doing both things at the same time, my advice is almost universally, hey, you need to focus more on your actual customers.

To step aside for a second, let's actually talk about that email.

You actually spent 3 months building something.

How do you think about emailing a seed stage investor?

So There's a trick in this, in that your email needs to be both short and informative.

And a lot of the way that people write emails, they'll write long emails that are informative or short emails that are totally irrelevant.

And so the trick is you you need to do some research on the person you're emailing and figure out are they interested in this space at all.

I get blind emails where I'm clearly just cc'd or bcc'd with a hundred other people saying dear Mr.

Harris you might be surprised to learn about our incredible opportunity to make lots of money.

That's clearly not something I'm going to respond to.

But when I get an email that says, Aaron, I know that you're, as a partner at YC, you've worked with a bunch of companies that do X.

We've built a product, and we launched it a month and a half ago.

And if you can say something interesting about what you've learned, in addition to the progress you've made, And by the way, the progress for me isn't necessarily about traction.

There's this misconception that angel investors or investors in general only invest in traction.

And it's true that that's nice, but what we're more interested in seeing, or at least what I'm more interested in seeing, is how much progress have you made relative to the time you've been working on something?

And that progress could be actual traction with customers, or it could be doing something that's hard technically in a short period of time, or building something interesting in a short period of time.

The thing that no 1 wants to see is I've been working on this for 4 years and I just finished the alpha of what I'm working on.

Sort of say, okay, I understand you're working nights and weekends, but it's unclear that a little bit of money will accelerate that.

And how important do you think it is in terms of communicating your unique insight to the investor?

I think it's useful, but to me it's less about It's less about fully communicating a unique insight as showing me something interesting that I didn't know.

And so there might be a bunch of people who have realized this thing you're talking about, but if I don't know it, that's kind of cool.

If I can't think of it in thinking about a problem for a few minutes, then I start to get interested and I want to have a conversation.

The next thing that's important with investors is, you know, when you're kind of blind emailing them, don't immediately ask for a half an hour of time with no clear ask.

A lot of people will ask, say, how do you have a half an hour of time?

And they'll say, Oh, well, we want to know if you invest, you want to invest and say, I don't actually tend to do that outside of YC.

So I'm like, Hey, Aaron, this is Craig, I'm working on this.

What what's a question that you like to see?

So you need to know, okay, you can't really know ahead of time what their investment process is or what they like to invest in.

So I think you want to say, here's what we're doing.

And people try to do this weird coy thing.

They say, oh well, I'd like to just meet and catch up.

They've never met before who are looking for something.

So just just be direct because people are busy.

Last question on this big attachments decks stuff like that.

I would not attach a big deck to something unless someone asks for it.

If someone asks you for a deck, this is a little bit tricky.

A lot of them, a lot of people will say, Hey, can you just send me a deck as a way to just shoot things down?

I think a really well crafted deck actually tells your story well and can convince people.

But 1 of the things you can say is, you know, Hey, I'd love to send you the deck, but I'd really prefer to pitch you on it first in person.

But if someone's insistent about seeing the deck, send the deck.

1 of the most annoying things I've seen is, you know, and I've seen this email from other people saying, hey, can I see a deck?

And then the founder just keeps saying no and inventing reasons not to.

And you got to respect that investor's process at some point, unless you have significant leverage.

And so 1 of the things here is that the amount of leverage you have changes the kinds of emails you can send and changes the interaction.

And you just have to be conscious of where you are.

I wrote an essay about this, about how to manage process and leverage when you're in fundraising.

And there's a continuum about what you have to do to get money relative to how much interest there is in your company.

Yeah, and usually if you don't think you have much leverage, you probably don't have much leverage.

Scott Walter And look, sometimes investors, well, it's rare that founders, yeah, it's rare that founders underestimate the amount of leverage they have.

They usually overestimate, which leads to some funny situations.

Yeah, okay, so let's get back to process.

So you have spent 3 months working on this.

You have said, okay, let's say usually a CEO is going to go out and fundraise.

What would a good process look like for you?

I think the main trick to a good process is a parallelized process.

The mistake that a lot of founders make when they go to fundraise is they go and they talk to 1 investor.

And then a week later they try to talk to 1 more investor.

And the reason that's a problem is because you can think of the investor community as a set of interconnected nodes, right?

And information is a wave front that moves through those nodes.

And if you just talk to 1 investor, information moves faster than you.

It's kind of like the wave propagates faster than the actual thing.

Or it's like when there's a nuclear blast or whatever.

You see the lightning before you hear the thunder.

So when you talk to 1 investor at a time, basically information about your company starts spreading.

But it's even worse than just a one-to-one spread, because each investor knows multiple people.

And so the wavefront gets wider and wider and wider.

And so if you talk to 1 investor and they pass on you, they tell 3 of their friends, they talk to the schmuck that has a stupid company, then those talk to 3, those talk to 3.

And pretty quickly, you kill a whole section of potential investors if you pitch 1 investor badly.

In contrast, if you set all of your meetings up quickly in sort of a tight time band, you can talk to everyone at the same time.

And then they don't tell each other what's going on because they're all actively evaluating the deal.

Investors don't share information about a deal until they've kind of made a decision because they want to look smart.

Which I understand, they want to look smart or they want unique access and don't want to have to compete.

And so if you immediately create a situation in which multiple people are seeing it, you raise your chances of getting something through.

And then if you manage to create buzz around your deal, where a bunch of people are actively talking about and liking it, Again, that information, that wavefront travels in a really positive way and more and more investors hear about you and want to get in.

So practically speaking, stack as many as possible in a week?

You shouldn't schedule 35 meetings in a day.

But within the limits, yeah, you want to stack the meetings together.

So then when it comes to the actual meeting itself, I know you're a proponent of figuring out the company's story.

So when it comes to storytelling, this is slightly different than, for instance, a customer interview, where you're doing a lot of listening.

So how would you think about an investor meeting?

Okay, well, It's actually completely different from a customer conversation, not so much in how much you listen versus talk, more about the kind of story you tell.

So what's interesting is that some of the investor meetings that go best are the ones where the investors end up doing a lot of talking, and they get themselves really excited about what you're doing and talk themselves into a deal.

If an investor is riffing on wild ideas about how gigantic, you could be kind of smile and nod and give them a right on and yeah, totally get a check at the end of it.

But the story you tell to an investor versus a customer is different, because to the investor, you're telling the story about how you are going to rewrite the future in a way that makes your company gigantic.

But what investors want to hear is that you're an integral part of it.

Your company is an integral part of that.

And that by doing that, you capture some major market.

Customers care about you solving their problem.

And this is a weird thing because you'll see people who are so caught up because again, you've spent these 3 months talking to customers.

And so you want to go to the investor and tell them, oh, here's this problem I solved.

Let me tell you all about how I solved this problem so well.

And you want to do that, but that's the smaller part of the conversation.

It's more what does solving that problem allow your company to do at a grand scale?

The other mistake that founders make in that conversation is they jump immediately from where they are today to this grand vision of when they're a $300 billion company with offices all over the world.

That's a huge mistake because the investor doesn't have reason to believe you can make that transition.

Really start with what you're doing now and how that market is really interesting.

And then if the investor's nodding along and getting into it, you start building, building, building, and then you can build all

And so that build, so average seed, maybe 18 months of runway, maybe 24 months.

I mean, things are getting a little crazy in the seed market in some places.

You see companies raising 3 and 4 and 5 years of runway.

When companies are overcapitalized, they tend to make the wrong decisions.

They think to themselves, oh, we have all this time.

So we have lots of time, let's be super incremental about what we do, or let's just hire a lot of people because people look good and therefore will be good.

But in reality, the most precious resource to a startup is time.

It's not actually money, And that's a hard thing to understand, but it is time because startups have to move quickly.

We talked a few weeks ago just about how, you know, if your startup's not growing really fast, that's a good sign that you're not doing the right thing.

If you want to get gigantic, you actually have to move quickly.

And a lot of time people will use money as a way not to move quickly.

They'll say, oh, we need a really nice office, we have all this money, let's get the nice office.

Or we need really nice swag, we need really nice jackets, because that's what makes employees happy.

But if you live in a place where there are a lot of other startups with nice swag, you walk around in San Francisco and, well, first it was just hoodies and then it was Patagonias and now some people have Arcteryx and fancy backpacks and all this stuff and it's just, man, that's not the thing.

But to push back at you for a second, what if you raise 3 years, 4 years of money, sock it away, don't hire a ton of people,

Okay, so that's okay, But what ends up happening when you go out for your next round of financing when you go for your a investor say, Well, how much did you raise at your seed?

And yet you're only at, let's pretend $1 million in ARR, shouldn't you have gotten further on that money?

So investors expect more from companies that have raised more money.

And this is something that people just completely don't understand.

And the investors don't really tell you when they're telling you to take their money, like, oh, take our money.

It's a good, but they're expecting way more progress on the money.

So investors don't want to give you money to sit that sits in the bank account.

They want you to spend the money so that you can grow faster so that they can give you more money to own more of your companies that you can grow faster.

So okay, so just to jump back then, when you are talking to these investors about longer term, are we talking like if you give me 24 months of money, this is what we can expect in 24 months or do you still push further in those conversations?

People want to see that you have a credible plan over the next, you know, 1824 months, they want to know what milestones you're going to hit, but they they also want to know that you're thinking big, but it it has to be attached, right?

There has to be a continuous line from 1 thing to another right right people make this this mistake where they have I don't know a discontinuous story I don't quite know what the right term would

be I'm just imagining it's like and then we're on Mars

you know the the underpants gnome no but I like to talk about this 1 the the underpants gnome from from South Park where it's you know it's there's these the gnomes and the the the boys follow them through the the lawn, the dryer, and they find out where all the underpants are going.

Underpants that go missing and underpants.

That's step 1, then step 2, step 3 profit and they keep adding what step 2 and there's no step 2, right?

Like who knows what that thing is and people notice that right?

You notice the gap in the story, and so you got to have a real rational reason of why things work.

And by the way, this can be something incredibly ambitious.

And sometimes people don't want to say it because it sounds too big.

Well, investors invest in people who are very ambitious.

They want really big, so you just have to make it really big but believable.

And progress is the best way to argue that what you're saying is believable.

Right, well, especially looking backwards, like, we had nothing 6 months ago.

Now, when it comes to people who are in the fortunate opportunity of having multiple offers from different investors, How should we think about evaluating seed investors, angel investors, especially in the context of your recent blog post?

At a high level, if you're lucky enough to have multiple offers, that's wonderful.

Then you can start making decisions about whose money you can take.

Most founders who are raising money for their company don't have the luxury of choosing between different investors.

Maybe they get to negotiate on terms, but they don't have the luxury of choosing between different investors, in which case, get the money you need to build the business.

That is the most important thing, without losing control of your company.

That's the thing, and people forget this because they hear these stories about, oh, this valuation, that valuation, that valuation.

The only thing that matters is the money you need to build the business.

Building the business and succeeding at the business is what counts as winning, right?

If you're in a position where you get to choose your investors, you should think carefully about who those investors actually are and what their incentives are.

You know, everyone talks about, oh, venture capitalists, they fire you, they do this, they do that.

But it is true that venture capitalists, because they are institutional funds, they have LPs who they represent, they have to make certain decisions that aren't necessarily in your best interest as a person, they're in the best interests of the success of your business, and of their return.

Angels were always seen as the other the opposite side of that equation was basically a bunch of eccentric people who had lots of money who liked to throw money at businesses to help them.

In the last few years, there's been an acceleration of people who call themselves angels but aren't.

They're, you know, this 1 person who's maybe a little well-known who's actually raising money in some way on the back end from outside limited partners of 1 kind or another.

And there's a bunch of different versions of this.

There's these things called special purpose vehicles, a bunch of others.

Read the essay I wrote to learn a little bit more about this.

And the point here is that none of these things are in and of themselves bad.

It's good that there are more people with money to put into startups.

What's bad is that a lot of these angels are not disclosing where their money comes from, and that is pretty shitty.

You shouldn't be lying to a founder with whom you are starting a relationship about what you actually are and where your money comes from.

And founders sometimes only see this if they notice that the name on the docs, the legal entity that is investing is something weird.

And like to put a fine point on it, the issue is you don't know

You just don't know what their incentives are.

And if you don't know their incentives, you don't really know what you're getting yourself into.

And there's a more recent version of this that I'm seeing more and more of is just people who are representing themselves as a single name, but our full VC firms underneath institutional LPs, 50, 75 million dollars.

And you know, listen, there's a lot of venture capital firms that have people's names on them.

Andreessen Horowitz, Kleiner Perkins, those have people's names on them, whether or not those original partners are still there.

But if you give yourself a name, if I went out there as Aaron Harris, independent angel investor, and I really had $150 million behind me, that's weird.

And if people are hiding that, you also have to ask, why are you hiding it?

What's going on that you are being dishonest about who you are and whose money you're investing?

That indicates something is off in that situation, and I think founders should be really suspicious of when that happens.

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Aaron Harris on Fundraising and Meeting with Investors