After months of hard work you’ve managed to raise a comfortable amount of new of capital for your #startup. Now what?

A simple thread for Founders and VCs about shifting from a “need to raise” to a “need to prove” mindset.
2/21: Preamble: Not all businesses are venture backable. If the size/outcome potential is too small then raising VC money and running a VC backed startup playbook might not make sense. This thread is meant as good, generic advice for early/mid stage VC backed businesses.
3/21: Venture investing is very simple at its core. VCs invest in Founders who are building businesses that solve big problems.

Every Founder’s pitch describes a large profound problem, their solution to the problem, and the financials the business will generate over time.
4/21: Getting the problem and solutions statements right is important. They’re what customers ultimately care about and define a startup’s reason d’etre.

But unless the solution can be delivered profitably at scale the business won’t survive. This is “sine qua non” for success.
5/21: But success isn’t a 0/1 switch. VCs understand that startups are built in stages and that great companies are built on top of good companies. They can fall in love with a startup’s vision, but eventually the numbers need to fall in place for a startup to be “great”.
6/21: So while a well-crafted narrative can convince a VC to write a super early-stage check, disciplined early/mid stage VCs strive to make decisions based on answering the question: “How quickly and how much can a startup learn for how much money?”
7/21: When a startup puts money to work it gains insight into the business’s underlying assumptions.

Positive results: Progress has been made towards de-risking the outcome.

Negative results: At best the business is no closer to de-risking the outcome.
8/21: Building a startup is about turning over cards and hoping for positive proof that the business is on track.

But while VC investing is about analyzing cards as they’re turned over, being a Founder is about lining up the cards and determining the order they’re turned over.
9/21: The beauty of completing a fundraise is that a startup’s runway has been extended which allows a Founder to turn his/her attention to de-risking the business by turning over more cards.
10/21: A startup’s learning agenda should turn over enough cards that the startup is “materially different” when the next fundraise begins. Proving out critical assumptions and scaling is important. Filling in competency/people gaps is essential.
11/21: @SahilBloom talks about inversion focused problem-solving skills in an amazingly constructed thread. Startups should focus on what they want to look like before their next raise and work backwards from this goal.
12/21: So while there’s no perfect playbook for constructing a learning agenda, what follows are a few questions that a Founder should be asking about their business before locking one in. The list is illustrative but by no means complete:
13/21: Proof that customers want your product
Is it easy to find and close new customers?

💥Are your customers engaging with your product the way you want them to?

💥Is attrition low/retention high?

💥Is organic traffic/referrals a major contributor to growth?
14/21: Proof that you can scale

💥Is CAC staying steady as you increase your origination volume?

💥Are you able to originate new customers in multiple, deep channels?

💥Have you built a proprietary originations channel and if so, how deep is it?
15/21: Proof that customers are profitable

💥Are contribution margins positive?

💥Are payback periods within an acceptable range?

💥Are the unit economics of each vintage improving over time?
16/21: Proof that business level profitability is possible

💥Is overhead as % of revenue declining?

💥Is the burn rate monotonically decreasing as the business scales?

💥Is there line of sight to in-period profitability if “new investments” were shut off?
17/21: Proof of additional contribution margin

💥Are existing customers willing to buy additional products?

💥Can price be increased in a profitable fashion?

💥Can 3rd party contracts be renegotiated to improve margins?

💥Can automation drive efficiency and reduce cost?
18/21: Proof that you can attract talent

💥Is the team happy and does talent stick around?

💥How quickly can you fill open positions with top-tier hires?

💥Are there employee complaints/lawsuits?

💥Have heavy hitters been recruited to expand the Executive ranks/capabilities?
19/21: Proof of operational discipline

💥Is the team able to hit their OKRs?

💥Has the team been able to obtain necessary licenses and negotiate good 3rd party contracts?

💥Are operational mistakes and complaints/lawsuits handled quickly and with minimal collateral damage?
20/21: The above is a merely a sampling of the questions that a Founder could ask when setting a learning agenda. But unfortunately learning takes time and effort and spreading resources too thin is the best plan for showing up to your next fundraise with half-finished homework.
21/21: So, if you’re building a startup, the best time to take stock of what you’ve learned and what you still have to prove is immediately after raising capital. It’s important to shift from “need to raise” into “need to prove” mode so do it the day after a raise is completed!

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More from @fintechjunkie

21 Jul
Yesterday I tweeted an unpopular opinion that deserves unpacking.

Valuations are up. Unicorns are getting birthed faster than ever before. Multiples have hit all-time peaks. New investors are aggressively entering the VC ecosystem.

Who’s to blame? What does it mean? Unpacked: Image
2/30: VC is an asset class. Many people don’t think of it that way but it is. And it isn’t a big asset class. It’s small relative to other major asset classes like publicly traded stocks, bonds, currency or real estate. But the VC asset class is growing quickly and accelerating. Image
3/30: One driving factor is that alpha has mostly disappeared from the stock market. The vast majority of return can be attributed to a few stocks each year and only 1 in 25 stocks are investments worthy holding over the long-term (relative to Treasuries).
Read 30 tweets
16 Jul
If you want to constantly produce top quartile returns, you have to find at least one “return the fund” (RTF) investment every fund.

Here’s a simple exercise that’s helped me spot 1-2 RTFs every fund:
2/20: Step 1: Run the Math

It always starts with sizing what a company’s enterprise valuation has to look like upon exit for it to become a RTF investment. Fund strategy and size dictate what type of game you need to hunt.
3/20: Having an investment RTF within a portfolio that has a small number of logos w/follow-on capital concentrated in the better companies is a different challenge than having an angel investment RTF in a “One check and done” portfolio.
Read 20 tweets
14 Jul
"There are only two ways to make money in business. One is to bundle and the other is to unbundle."

A thread on this powerful but very mis-understood concept:
2/22: The practice of bundling is pretty intuitive: It focuses on combining multiple value propositions into a single, integrated offering.

Unbundling is the opposite: It focuses on untethering a single value proposition from a combined offering.
3/22: When constructed properly, the benefits of bundling are intuitive:

Customers can buy a suite of contextually relevant products/services through a single provider/buying process.

Providers can improve the LTV/customer by selling a bundle vs. a single product.
Read 22 tweets
10 Jul
There’s no denying that right now a lot of money is flooding into #startups. A lot!

But the money won’t always be there. What will happen once the cash stops flowing? Will there be a wave of startups forced to close shop or are there other possible outcomes? A few thoughts 👇
2/13: Answering this question isn’t easy because every startup’s situation is unique. But I can share a framework that can be used to help think through the possible outcomes.

I call the framework “Climbing the Relevance Curve” and it has three simple questions at its core.
3/13: Question 1: Will anyone notice?

At the foundation of the concept of “relevance” is the notion that a startup is either relevant or irrelevant through the lens of a counterparty. You don’t get to decide this. The market does.
Read 13 tweets
9 Jul
Poker, Peloton and Pulp Fiction. A game, a company and a movie. I’ve learned major life lessons from all 3.

Here’s the single biggest takeaway from each that helps me in my professional life.
2/14: Poker – Focus on the process, not the outcome

We all make decisions every day. Its not atypical for an average person to make thousands of small decisions in a 24-hour period and people in positions of authority make big decisions all the time.
3/14: Poker teaches that outcomes are a function of decisions and luck. Poor decisions that result in positive outcomes should be treated as a bad decisions and should be avoided. Good decisions that result in negative outcomes should be repeated.
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2 Jul
1/17: In honor of the @RobinhoodApp S-1 I thought I’d share a conversation I had a few weeks ago with a friend who used Robinhood as his on-ramp into the trading world.

Brace yourselves. It was a fun conversation but pretty eye opening in lots of ways.
2/17: It started with two texts:

“I bought 2 $9 CLOV call options on 6/7 for a total of $170. Expiration 6/18. The value is now at $2450. The share price is up again this morning almost $5. I want to lock in profits but don't want to miss out on future profit by selling now.”
3/17: “Any suggestions on doing this. I was thinking of selling 1 contract to get back my initial investment plus 1400% profit and let the other ride until the day before expiration. Is there any other strategy you may know?”
Read 17 tweets

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