Hi Justin,

Thanks for the article, and putting on a workshop on fundraising. Regarding the workshop -- it seems like the application's only substantial question is "what business metrics do you have to support your beliefs?"

Do you believe there are quality businesses out there who can, should, and will be able to raise an A that don't have obvious metrics? It seems like that sort of question only applies to website- or app-centric companies that have obvious and easily-anagrammable metrics (ARPUs, CAC, churn, etc).

It's my feeling that some of the best, most disruptive companies won't have those metrics if they're operating in another space. (Though I have my bias; my company is one of those, at the moment.)

I fear that spreadsheet-driven investing tends to overfund incremental companies, but won't make the foundational investments required to build new platforms. But again, that's my bias.

Curious for your thoughts -- thanks!

Great article. Is similar to what we witnessed during our fundraising process.

I want to apply for Atrium Academy - but our company is based out of India - are we eligible for the academy?

What is your opinion on having a business plan in order to raise money? Is it still a hard requirement, or are there new ways?

Good stuff - would be cool to hear what a good narrative sounds like. Post the Atrium or Twitch one on snap?

Personally, I doubt it barring exceptional circumstance: previous achievement in another field, metrics that can't be ignored (tough to get via bootstrapping, though)...

I have heard from some seed stage investors that they will do priced seed rounds -- even some that claim to prefer it -- so there may be technical exceptions that really reinforce your point.

To be fair, the workshop's website also asks about previous fundraising. I've found this always comes up during fundraising discussions, too. Partially because the company's finances matter, but also because investors want social proof. I don't think this is as negative as it seems: early stage startups are black boxes, and any signal is helpful, I suppose -- and there's some sense that previous ability to 'sell' is indicative of future success. (I try to empathize with the investors on this one; they see a lot of pitches.)

My apologies if I misunderstood why were you asking that question. I'm not done the entire article but I didn't get the impression this was assuming that companies were going directly to a series A like Justin did with this company:

> The more nuanced answer is when you have achieved compelling enough intermediate milestones that convince VCs that cash is your constraint to scaling your business. In other words, you have something that works, and all it takes is pouring money on it to grow it much, much bigger.

If you have a term sheet from a great/good investor, you don't say who it is because all good investors talk and the investor you're trying to get a term sheet from will just call the investor who gave you a term sheet. Worse case, they talk each other out of the deal. Best case, investor B comes in ever-so-slightly above investor A's offer (vs. potentially coming in way above, in absence of knowing the price).

If you have a term sheet from a bad or unknown investor, you don't say who it is because all investors (great, good, bad, or ugly) will discount their offer significantly. There is a huge difference (even if it's bullshit) in getting a $10m A from Sequoia vs. a $10m A from a Dutch strategic investor who's making their second investment in three years.

The first investor won’t appreciate being shopped.

I mean... sure. And the even better way to raise a series A is to not even need it at all because your company is a rocketship that's not only growing at 500% per year, it's ALSO cash flow positive and completely capable of just paying for itself.

But these things are impossible to arrange for many businesses.

I've posted a lot of long, detailed posts at HN. Here I was trying to be brief.

Yes, I remember the Paul Graham definition about a "startup" being designed to grow fast. He is welcome to his opinion, but, sorry, I don't accept his definition and believe that relatively few people do.

> Obviously this is only true if the company makes money from ad revenue.

Well, you quoted what I said in rebuttal: "for a Web site with a lot of traffic, revenue from ad networks is so easy to get." So, I was talking about a Web site.

And for more in rebuttal, my sentence before had:

"A big problem for the VCs is that for a lot of the good information technology startups, by the time the startups have the revenue the VCs want, the startups will also have plenty of cash to grow."

So, I qualified with "good" and "information technology".

Uh, a "good" one is not to start from nothing to compete with iPhone!

Now, mostly the juicy "good information technology" startups are ad supported Web sites, e.g., be another Google or Facebook.

> Even with an ad revenue model, there's always an opportunity cost to not having more capital.

Equity capital brings overhead "costs" beyond belief: You and your team own 100% of your company and, with the first equity check, become a Delaware C-corp with a BoD that now controls the company. With common term sheets, you and your team suddenly go from owning 100% to owning 0% with a vesting schedule to get back to, maybe, 35%. But due to the loss of control, the BoD can fire you and your team at any time for any reason or no reason and before much of your stock is vested. And, for the vested stock, it is likely illiquid but has tax due you can't afford. You just had your company taken from you for next to nothing. And, for the BoD meetings, accounting reports, auditing, legal charges, etc., guess who pays for those, including the first class airline seats, limo service, 4 star hotel nights, high end meals, etc. for the BoD members for the meeting?

> Just because you may bring in revenue which you reinvest back into the business, doesn't mean you couldn't grow faster by having more to spend on hiring, marketing, sales, etc.

A company that has the traction VCs really like will likely be generating enough cash that cash is not a major constraint on growth. Below let's see some relevant arithmetic:

An example is Plenty of Fish, long just one guy, owned 100% of the company, had two old Dell servers, ran ads just from Google, and had $10 million a year in revenue, nearly all pre-tax earnings. Eventually he deliberately hired some people and sold out for $500+ million. IIRC, he never took an equity check.

That's the startup case more like I had in mind, but I was being brief.

But we can have some more arithmetic:

IMHO, for the "good information tecnology" startups now, your model of the need for cash is outdated and past. Even if some cash could be helpful, the C-corp and BoD overhead, time, effort, cost in cash, loss of control, etc. are really not worth it, that is, are way too much to pay for the cash.

My central point was that for "good information technology" startups, the VCs are out of date, behind the times, and essentially out of business or at least well on the way.

So, for some arithmetic, to add detail, can get a motherboard for $100, an 8 core processor with 64 bit addressing and a 4.0 GHz clock for $125, max it out with 32 GB of DDR3 ECC main memory for about $320, get 2 TB hard disks for about $70 each, a high end power supply for about $100, a case for about $50, high end case fans for about $100, and lots of high end software for free.

I'll do the arithmetic for you -- $825. With cables, keyboard, screen, Windows 7 Professional 64 bit, more hard disks, etc., call it $1500 total.

But that's 8 cores at 4.0 GHz and processor caches big enough that mostly don't need to worry much about DDR3 main memory cycle time. Besides the DDR4 memory has, yes, faster clocks but more clock ticks per access.

That puppy should be able to send 10 relatively simple (that's the only good kind) Web pages a second, supported by quite a lot of SQL Server back end work. Call it 4 ads per page sent at $1 per 1000 ads sent.

For the arithmetic, I'll multiply that out for you: That's revenue of $103,680 a month, from one $1500 server. The ISP? Say the simple Web pages send for 500,000 bits per page for 5 Mbps upload data rate. Gee, my ISP is giving me 25 Mbps upload data rate by default.

Okay, that's $103,680 a month in revenue. For a solo founder company -- hopefully. Now just why in heck does that founder need equity cash? They own 100% of the business, say, as a Subchapter S or LLC; why the heck do they want a Delaware C-corp and BoD? They don't!

If the Web site can't get users enough to permit sending 10 pages a second, then likely the traction is not enough for VCs to want to invest. But if the site is sending 10 pages a second with $100+K a month in revenue, then no way will the founder want, need, or take the equity cash. No way.

Sure, in the old days, with a team of five cofounders, with credit cards maxed out, all five spouses pregnant, paying Silicon Valley housing costs, and using Sun servers, equity cash would be very welcome.

Now it can be a solo founder, no credit card debt, no pregnant spouse, cheap housing costs far from Silicon Valley, and the main server parts for the $865, and that's a very different world.

I was being brief, but that's the world I was describing.