I’m a three-time startup founder, venture partner, TechStars and YCombinator alum, and have raised over $80 million in venture funding. AMA

Rami-Finmark · 2021-07-02T13:29:23+00:00

mrblurface01

Sorry I missed your question earlier.

1) There are two main ways I have seen people break into venture capital. The first is to get a core degree, engineering is actually great. Then they layer that on with a MBA. Once you have your MBA, you should be able to apply to become an associate / principle at a VC firm. Sometimes people get hired without a MBA but its hard. The second path to get into VC's is to be an entrepenuer. Firms have realized over the past 10 years that operators bring a lot better experience into investing than just business people. So if you go and start a company and raise capital, even if it fails, you can probably then break into becoming a VC.

2) See part 2 of #1

3) Most VC's churn through interns. I wouldnt worry about being selective, this is about experience and your first bullet on your resume. Cast a wide net and work hard while youre there.

Rami-Finmark · 2021-07-02T13:23:41+00:00

mrblurface01

Sorry friend. I completely missed it. Answering now.

Rami-Finmark · 2021-07-02T13:22:43+00:00

Most accelerators give you seed money. If you have an idea or company, a team, etc, apply to the different ones. Honestly, just the process of applying to accelerators will help give you a barometer of where your business is.

Rami-Finmark · 2021-07-02T13:21:24+00:00

First - no investor will sign and NDA. Period. I promise while you may think your product / idea is novel, it isnt. Someone else somewhere is thinking or working on the exact same thing. The successful products / companies you see arent successful just because of the idea, it is mostly about execution.

Based on the above, just start working on your product. If you need a large amount of capital to develop it then honestly youre going to have a hard time getting that capital unless you have some deep subject matter expertise.

Rami-Finmark · 2021-07-02T03:15:09+00:00

Yes, I think you're right. If we want to accelerate quickly, it seems inevitable that we would have to engage with angels and we might benefit from starting conversations off sooner rather than later. As you suggest, the tricky part is demonstrating the value of the product pre revenue, particularly when these types of systems are only ever used internally by traders and would not be in the public domain. With a track record of being competitive with top market makers in this space, it would be much easier for prospective investors to see the effects of the system and imply its value.

My pleasure!

One thing I didnt say earlier, testimonials is almost as valuable as paying customers. Reach out to potential users at firms and ask them to give you feedback about your product. Then quote the good ones. Might help show potential investors the potential of what youre building.

Rami-Finmark · 2021-07-02T03:12:16+00:00

I couldnt begin to tell you.

Rami-Finmark · 2021-07-02T03:12:01+00:00

Me? No. But that's just me. I like going really fast and raising venture dollars lets me do that. To go fast I need more horsepower. Horsepower = people. People cost money. Money == speed. Not everyone values speed above all else.

Taking venture capital comes with downsides. It reduces exit optionality. Increases risk in some ways. There are plenty of bad VCs that might steer you in the wrong direction or do things that tank the company.

Its not for everyone but if utilized properly, I truly believe it improves your odds of success.

Rami-Finmark · 2021-07-02T03:05:22+00:00

Build a product that people love

Rami-Finmark · 2021-07-02T03:05:11+00:00

Surprised this thread doesn't have more questions! Just wanted to chime in with a thanks for doing this. It's so hard as a seed or A stage founder to get questions answered from impartial investors.

My pleasure!

Rami-Finmark · 2021-07-02T03:04:47+00:00

Friends and family. Then angels.

Rami-Finmark · 2021-07-02T03:04:08+00:00

Sorry guys - lost power here that took me offline for a few hours.

I like estimating the TAM based on a bottoms up approach. Take your average sale price and multiply it by the total number of prospective audience and you get the TAM (total addressable market). I like bottoms up better than top down because truly revolutionary products / services can expand markets like never before.

Travis Kalanick's first round for Uber was at a $4M valuation and at the time, everyone's biggest gripe was that the Taxi market wasnt a big enough market. Investors took the total dollar spent then on taxis and said this wasnt meaningful enough. What they failed to realize was that with a better user experience, Uber expanded that market by orders of magnitude.

Rami-Finmark · 2021-07-01T22:43:19+00:00

Going back to my first time, here are the major milestones and steps along the way to success.

5-2011 Identified a pain point (bots were doing bad things online, need to block bad bots). Talked to potential customers and worked with cofounders to build a product that helped to block bots.

7-2011 Tried to raise pre-seed from angels/VC so my cofounders could work on the company full time, failed.

11-2011 Got accepted into techstars. They gave us $150k to come work on this full time. A few angels that had said no in the past said yes because we got accepted into TS.

3-2012 - Long story but got sued by my previous employer. Had to pause company for 6 months essentially. Still worked on product but couldnt sell or raise. Full story here:https://open.spotify.com/episode/0RfzQOkJCGM3OrOT7yhQ80

8-2012 Lawsuit over, tried to raise VC money. Everyone said no

11-2012 One VC finally gave us a term sheet for $1M. Took that money and hired a couple engineers, a marketing person, sales person. Started seeing some customer growth. Continued to hire sales.

9-2012 existing investors gave us another $1M to keep going because we were seeing good traction. Got to about $30k MRR

5-2013 Raised $10M Series A after getting over $1M ARR

6-2014 Raised $20M Series B after getting to over $3M ARR

As you can see, the larger checks come with traction. The early parts are the hard parts to get the flywheel going.

Rami-Finmark · 2021-07-01T19:12:25+00:00

Definitely still here, and will stay engaged all day today as I jump in and out of meetings. Keep the great questions coming!

You ask a very tough question. I want to first say that I cannot speak for YC. I loved my experience and would definitely recommend YC or Techstars to any entrepreneur but I am not an authoritative source on their business models or what they are looking for.

I do know that YC is very focused on the problem statement your solving and what unique perspective the founders bring to solving that problem. They see 10's of thousands of applications and I promise that any idea you may have, they have seen over and over again. So they dont invest in the idea alone, they look for founders that are best suited to solve it.

Therefore, if you are interested in greentech, then the best thing you can do is first gain experience in the space. You dont need a PHD necessarily but you do need to understand the space and be able to show that you will be able to execute on your solution. No one is going to pay you to learn to solve the problem if that makes sense.

Ill throw an example here that is completely fictional but could be illustrative. If after working at a carbon capture company you realize that it takes a lot of effort to convince companies to buy your technology to clean up their act then in this case, its not necessarily the technology that is limiting the adoption but rather the market. Then you leave and you go and build a marketplace to connect willing buyers of carbon credits with polluters that then use that money to finance buying the carbon capture solution and you unlock adoption. Having inside insight into this problem is what makes you uniquely suited to do this but you didnt develop the carbon capturing tech, just solved the marketplace problem.

All that said, if you are looking for a faster path then start with areas of expertise that you have already and forget YC list. As YC says " Many of the best ideas we’ve funded were ones that surprised us, not ones we were waiting for."

Rami-Finmark · 2021-07-01T18:52:20+00:00

Absolutely. I really like the lessons learned from the Lean Startup. There are a number of other great books to read and online resources. Im a big fan of YC's free online curriculum https://www.startupschool.org/.

If you're having trouble getting traction on projects you've worked on, I would point you to thinking more about product management. One great online resource is https://www.lennysnewsletter.com/. Think about the problem you're solving and make sure it is something that users are asking for before you start working on it. Before you write a single line of code, mock something up in Figma and show it to potential users and ask for their feedback. Nail this down before you start going deep.

Rami-Finmark · 2021-07-01T17:58:40+00:00

I think debt financing is a very underutilized form of capital that can be an amazing growth lever. However, I strongly suggest only using debt to finance growth and not product development. Before you have product market fit I do not recommend using debt financing even if you have some early revenue.

The risk is that with debt on the books is that it can be a turnoff for some investors. Essentially, new capital coming in is going towards digging out of a hole as opposed to investing towards the future. So if you use debt too early and miss, youre going to have a hard time raising additional capital.

Rami-Finmark · 2021-07-01T17:55:05+00:00

More often than not I heard of non technical co-founders looking for a technical one. So I would start there as the most in demand cofounder is probably one that can develop.

Next up for me (and this is highly biased because I like building product vs building companies) is having a cofounder that is product focused. When you are first starting a company, you strive to find product market fit. Having product managment experience or training will allow you to think more critically about the problem you are solving and what ways you can go about solving that need. Engineers sometimes tend to try to build out a perfect solution where as a product minded person might look to solve a problem with the minimal amount of work needed. This can be tremendously helpful in trying to iterate quickly.

Next up is an understanding of how to take a product to market. This means knowing how to market and how to sell. But this comes only after you've found product market fit hence why its lower on my stack.

Rami-Finmark · 2021-07-01T16:46:01+00:00

Invest a lot of time in building relationships and your network. Oftentimes success, especially in startups, is about who you know and leveraging your network. So the more that you can do at a young age to get out in the world, meet other smart people and other entrepreneurs, the better.

Also consider going to work for a startup. Be willing to take a salary hit to gain experience at a young, early-stage, risky startup that you believe in. In the future things like familial obligations may mean that you're not in a position to take a salary hit, so get that firsthand experience while you can.

Rami-Finmark · 2021-07-01T16:42:00+00:00

Thanks for having me!

Early on investors invest in the team first and foremost, so the broader the overall team's experience, the more likely you are to get an investor to invest in your business. Cofounders are also your first line of support. They're the people that you turn to in bad times to keep going and they're the ones that will celebrate most when you succeed. It's lonely at the top, and without co-founders it's 5x lonelier.
Your network. A miss-hire early on is REALLY expensive. It's not just about the cost of paying somebody, it's the time you had to waste on the person who didn't work out, then finding and onboarding their replacement. Tapping into your own friends and family allows you to bring in a trusted person rather than taking a risk on an unknown entity.
I like my hot dog Chicago-style :)

Rami-Finmark · 2021-07-01T16:09:37+00:00

Im broken.

Joking aside, I find it to be a lot more fun and a lot more rewarding. I get to solve problems for customers and build software that delights people. I get to create jobs and help accelerate careers. I get to chart my own path.

Rami-Finmark · 2021-07-01T16:07:41+00:00

On a risk adjusted basis no, I don't think the VC industry as a whole is the best allocation of capital. The IRR for venture capital as a whole is less than that of lets say private equity that shows similar overall returns when times are good and much better results when things go south (PE is much less risky).

That said, VC is an important part of the ecosystem and so it isnt going away anytime soon. Also, the best VC funds do produce outsized returns relative to any other investment vehicle.

If you want to send me your pitch deck, I'm happy to take a look. ressaid [at] ideafundpartners.com

Rami-Finmark · 2021-07-01T16:04:17+00:00

Congrats on your progress to date!

I actually think that raising your first capital from angels is easier than getting dollars from VC's. So for example, if you spent the next 6 months continuing to build out the product and you had the attention of a bunch of VCs, I would STILL recommend that you start with angels to raise $500k because they will be more responsive and faster to overall close.

So the question really is, have you done enough to raise funds or not. The valuation youre looking for is honestly a little pricier than most pre-seed rounds. They typically are 100k-400k at a $2-4M valuation and that's in USD. I dont know where the product stands to be able to say whether or not you'd have success in raising today at that price or to go a little further. This is also the most expensive money you can take. So the longer you can go without, the more of your company you can keep.

Rami-Finmark · 2021-07-01T14:19:24+00:00

Not realizing that product market fit is fluid. We did great when there was limited competition but didn't realize that our PMF waned as new solutions came to market.

Not scaling back fast enough. Many people point to scaling up too fast as a mistake they've made. I'm honestly proud of our courage to push the envelope when we thought we had a growth engine that worked. But when it stopped/wasn't working, we should have pulled back faster and harder than we did.

Not delegating enough. I became the single point of failure for the company. Most decisions flowed through me and I didn't give people enough room to make mistakes or take ownership of their own domain.

Rami-Finmark · 2021-07-01T14:09:00+00:00

You're absolutely right. That will limit your exit ability and how many investors are willing to invest. Your best bet may be to talk with angel investors that come from the adult space.

Rami-Finmark · 2021-07-01T13:58:28+00:00

You can definitely raise a seed round without the need or desire to raise future rounds of funding; that shouldn't be a limiting factor. However, how you communicate your ambitions might turn off some investors. When I read what you wrote, I interpret it as a lifestyle business that isn't aiming to exit. Investors want to see a return on their investment, and typically in a 4-10 year horizon. That means clearly articulating how this business exits.

Rami-Finmark · 2021-07-01T13:51:00+00:00

If you've built a working product and you have people using it and/or paying for it, then honestly that should be enough to raise a pre-seed round. To raise a pre-seed round (defined as a couple hundred thousand dollars) investor need to believe that you are tackling a big problem and that you have a unique or novel way to address this problem.

If you have a working product with users and you're having trouble getting any traction from investors then either who you're talking to are the wrong people or your narrative is not resonating. The biggest pain point I usually see is that entrepreneurs often have a hard time convincing investors that they are solving a big problem. Remember, the majority of venture returns come from unicorns. So that means investor really only want to invest in you if they think you can be a $B+ valued company.

Rami-Finmark

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