A few days ago I shared my big takeaway from an article about Andrew Bialecki, founder of Klaviyo: he bootstrapped his company at first and advises founders to raise the least amount of capital needed to get traction in the early days.

Andrew owned 38% of his company when it went public, which is a bigger share than you normally see. I usually consider 10% to 15% a big win for the founder.

Digging into Klaviyo’s early fundraising, I learned that the company was founded in 2012 and didn’t raise capital until 2015. In that three-year period, it surpassed $1 million in revenue and became profitable, per Forbes. The company then received a $1.5 million investment from Accomplice and a few angel investors, according to a press release.

Andrew’s advice about raising minimal capital early on sprang from his own experience in doing so, which likely was a material factor in his ability to maintain a large ownership stake. Andrew’s advice and his outcome are useful things for early-stage founders to consider when they’re thinking about their fundraising.

I read an article about Andrew Bialecki, founder of Klaviyo. He started the company in 2012, and it went public this week. As of the writing of this post, the company has a market capitalization of $8.5 billion. Bialecki owns approximately 38% of the company— shares worth over $3 billion.

In the article, Bialecki gives a simple, but important, piece of advice: “My advice to founders: Raise as little as you need and prove some traction with customers. Once you do that, fundraising for the rest of your life gets a lot easier.”

Bialecki and his cofounder didn’t have venture backing when they started the company; they bootstrapped it. They focused on getting to profitability and then went out to raise capital after they had 1,000 customers and $1 million in revenue.

That approach put Bialecki and his cofounder in the driver’s seat with investors and ultimately led to their owning an outsize percentage of the company when it went public.

I like this advice and their approach. It drives founders to focus on building something customers will find value in and pay for—versus building something investors are interested in. If you create value for enough customers and they pay for it, investors will always get on board. But if you’ve had your eye on investors instead of customers, you may be disappointed.

When early-stage founders pitch investors, the process can be long and exhausting. They end up pitching countless investors in hopes of one or two saying yes. By employing a bit of scheduling strategy, they can improve their chances of getting a yes.

Great pitches are the result of practice. The more you pitch, the better you get. The more you pitch, the more you realize what isn’t resonating and adjust. The more unanticipated questions you get, the more you incorporate the answers into your deck (or an appendix). After countless reps, the pitch flows smoothly and you’re more confident. The chances of getting a yes are better.

Most founders aspire to have a particular investor on their cap table. Maybe it’s an angel investor or venture capital firm with industry expertise and relationships. When you pitch your first-choice investor, you want to put your best foot forward. You want them to be blown away by your pitch (or at least interested enough for another meeting).

Because practice leads to a great pitch, it may not make sense to schedule your preferred investor early in the fundraise process. If you do, they’ll get a pitch that still needs work. Instead, pitching the investor you really want to land after you’ve done more reps pitching other investors and fine-tuning the pitch can be a good idea.

Scheduling meetings with several investors is great, but you want to be thoughtful about when you reach out and schedule time with your first choice.

I came across a press release announcing Instacart’s Series A funding round. The 2013 post noted that Paul Buchheit participated in the round and that he was the creator of Gmail. I wasn’t familiar with Buchheit and did some research. He not only created Gmail but also cofounded FriendFeed, which Facebook acquired, and is a Partner at Y Combinator. I also found a chat he gave to Y Combinator founders several years back.

Buchheit gave background info about himself and how he went from midwestern college student to Y Combinator. And he shared what he learned as one of the first twenty or so Google employees and from building a social start-up that competed with Facebook.

One of the insights he shared during his chat has stuck with me. The thing that helps companies become $100 billion giants: sitting on top of an exponential change in the world. A massive shift in society has happened or will happen. These companies recognize this and build a solution that capitalizes on the change. In this portion of his chat, Buchheit went on to give examples of companies and the exponential change they benefited from. 

Buchheit’s insight is spot on. To take it a little further, the companies recognize an exponential change that will create a new market that will expand rapidly. They build a solution for this new market and ride the wave. As the market leaders and hopefully first movers, the companies get pulled along as the market grows because of this exponential change in the world.

A great insight from someone who’s been inside multiple billion-dollar companies as an early employee (Google/Alphabet) and investor/advisor (Instacart, Doordash, Coinbase) and been acquired by one (Facebook/Meta).

I had a great conversation with a seasoned entrepreneur this week. Part of our chat revolved around rational decision-making. We’ve both observed exceptional entrepreneurs and investors in our social circles. Many of them have a particular trait that has contributed to their success: they can make rational decisions consistently. This doesn’t mean they lack empathy or emotion. To the contrary. But they don’t let those feelings affect their decision-making. Their decisions are based purely on reason or logic.

In a bit of experience sharing to drive the point home, this entrepreneur described how he’d made an irrational decision that cost him a few million dollars. He went on to say that had he been using sound reasoning, he likely would have made a different decision and pocketed those millions.

At the end of our chat, we agreed that consistently making rational decisions is the exception, not the norm. Those who naturally possess this trait have a superpower that helps them in making business and investing decisions.

I received an email about a small SaaS business that’s for sale. It has a few hundred thousand dollars in revenue and is profitable. I was curious how the market is valuing small companies like this, so I read through the email. Here’s what I found:

• $594k revenue (I assume trailing twelve months)
• $39k monthly recurring revenue
• Revenue has declined since purchase by new owners in 2020
• 1500+ customers
• ~$600 customer lifetime value
• 4.8% revenue churn (I’m assuming annual)
• $240k seller’s discretionary earnings (SDE)
• $750k asking price (i.e., 3.1x multiple on SDE)

If I were in the market for something like this, I’d have lots of questions for the seller, especially about the quality of the revenue and profits.

One thing that got me thinking was that this business was purchased in the last three years or so and has seen the revenue decline. I wonder about the cause—is this a case of customers seeing less value in its solution, or is it less-than-stellar management by the current owners? Not an easy question to answer until you dig into the business, but depending on the answer, the business could be a great investment opportunity or a less than ideal one.

I wonder how many small businesses have been purchased in the last three years and have been declining since then? How many have turnaround potential and will be put up for sale in the short or medium term? 

In many VC firms, someone leads each potential investment. This deal lead develops conviction about the company by learning as much as they can about it. Once they’re convinced the firm should invest, they turn their energy toward convincing others in the firm of the merits of investing.

This effort usually involves preparing an internal deal memo that details what the deal lead has learned about the company and lays out the case for an investment. To those who see them, these memos provide a rare glimpse of how VC firms evaluate a company for investment.

These deal memos are often protected work product that VC firms don’t publicize. Bessemer Venture Partners, though, has made deal memos about some of their successful investments—Yelp, LinkedIn, Pinterest, Shopify, and others—available for public viewing. These memos aren’t recent and likely have been scrubbed, but they still provide a great perspective on how Bessemer’s deal lead evaluated each company for investment.

If you’re interested in reading Bessemer’s deal memos, you can do so here.

I found a report from Carta, the equity management platform, that’s full of data and very helpful. It’s called State of Pre-Seed: Q2 2023. Carta defines “pre-seed” as “any company that has yet to raise a priced equity round.” Lots of companies begin by raising capital on convertible instruments and do priced equity rounds as they mature. Carta doesn’t explicitly say this, but I assume it also caps valuation of companies included in this report.

The report is full of useful data. In addition to high-level data, it provides granular data broken down by the two most common convertible instruments used by early-stage companies to raise: simple agreements for future equity (SAFEs) and convertible notes.

One point that stood out to me was that 52% of pre-seed companies that raised in the first half of 2023 were in California and New York. These companies were also more likely to raise more than $2.5 million in their pre-seed rounds.

The report is a great resource for anyone curious about the state of fundraising for early-stage venture capital companies in the first half of 2023. The report can be downloaded for free here.

I recently reviewed an early-stage founder’s fundraise deck. He’s raising capital for his start-up. His first start-up was shuttered when he couldn’t attract paying customers. He mentioned the first start-up to me but positioned the idea behind that business as a success because another company executed on it and is worth $10+ billion. Even though his business failed.

Most start-ups fail. Failed start-up attempts, while painful, can pique an investor’s interest. The failure itself isn’t what they focus on. What they want to know is what you learned from it and how you’ll apply that knowledge to the next attempt. If you learned valuable lessons that will increase your chances of success and speed of execution, that’s a positive founder trait to many investors.

Founders shouldn’t shy away from their failures. Instead, they should own them, share what lessons they learned from them, and articulate how those lessons increase their chances of success as a repeat founder.

I caught up with an entrepreneur who’s frustrated with a service provider. The firm handling his bookkeeping hasn’t provided him with financial statements for his multiple businesses in a few months.

I was curious how he makes decisions, knows the companies aren’t in financial trouble, and knows whether they’re making or losing money. He told me that he’s been keeping close tabs on each business’s bank accounts to get some level of comfort.

Financial statements, such as profit-and-loss statements and balance sheets, are important tools for entrepreneurs. They help you understand the financial health of your company and alert you to situations that could harm the company (e.g., a cash shortfall). Running a company without financial statements is like driving with your eyes closed. It’s dangerous. Bad things can happen if it goes on too long.

If you’re an entrepreneur, you should make sure you have relevant financial statements prepared monthly, and you should review them every month. If something doesn’t make sense, ask questions until it makes sense or is corrected. If a firm can’t consistently meet that expectation, it may be time to find one that can. Otherwise, you’re driving blind and could end up driving your company into a brick wall.