Why Investors Hate When Founders Say Money Is the Biggest Blocker to Growth
Summer 2021 Demo Day, Apply to Winter 2022, Iterative on Twitter and What We're Reading at Iterative
Q: Why do investors not like it when I say money is the biggest blocker to my startup’s growth?
I hate that answer too so let me explain. In our experience, especially for very early-stage startups, it's just not true. An effective test is to immediately ask what they would do if we gave them $1M right now.
If their answer is they would "do marketing", "hire more engineers" or anything else equally vague, money isn't their problem. They don't know what they would do even if they had the money. It's more likely they've never thought deeply about what the limiting factors to their growth are and money is an obvious, easy response. That's a huge red flag. Doubly so if the startup isn't already growing very fast.
A founder's primary concern is the growth of their startup. You could argue that's the only thing they should be concerned with. Everything else (fundraising, hiring, validation, etc.) is in service of growth.
The only time money is a reasonable answer is if the startup is already growing fast and the founders have a clear idea of why it's working. Both are necessary.
If a startup is growing fast but the founders don't know why then money won't do them any good. In fact, it'll likely be detrimental. They'll feel pressured to spend it and since they don't know what's working, they'll probably spend it on the wrong things.
If a startup is growing slowly, it's hard to believe the founders know what works. If they did, the startup would be growing quickly. Sometimes founders make the argument they need money to validate what works but I've never encountered a scenario where you couldn't do some validation with no money and some hustle.
To summarize, you should only say money is your primary blocker to growth if (1) you're growing fast, (2) you're able to talk specifically about what's working and (3) what you're specifically you're going to do to capitalize on what's already working.
😍 Summer 2021 Demo Day
We hosted our 3rd Demo Day for our Summer 2021 batch on 15 October. 400+ investors attended either the live event or through the Demo Day website. Since then the website alone has generated 196 introductions and 160 loves from investors for the 9 companies. 2 of the companies finished fundraising before Demo Day, a first for our program.
None of this would have been possible without the hard work and audacity of the founders. To commemorate their graduation, I shared a memory of each company.
AcadArena – After meeting Justin, Kevin and Ariane for lunch, Brian messaged me and said "we need to fund more people like them."
Botsync – Trying to convince Rahul, Prashant, Nikhil, and Singaram, who are all engineers, that non-engineering things like sales is equally important. They now have a 9 month waiting list for their robots.
Friz (YC W21) – Thinking Nirali and Ash’s monthly spend chart was broken because they grew so fast.
Hawkr –Liyen was trying to convince a hawker to use her platform but they were skeptical. To prove it to them, she bought their entire inventory of kueh, listed it on her platform and sold it all in a day. That merchant now sells on Hawkr.
JiPay – My response after our final interview with Dayana was "I wouldn't want to compete with her on anything."
Rida – How tired Sam looked on every call. Typically startup founders chase growth. In Sam's case, growth is chasing him.
Shipmates – How badly Josh and David want it. No matter how fast they are growing, they know they can grow faster and it almost physically hurts them.
Supabaza – Every week feeling like a terrible influence for encouraging Eugene and Sim to spend more money, brag more about themselves and be more audacious with their vision.
Zi.Care – Asking Jodi, Jessy and Sanjaya "wait, how many hospitals use you?" like 10 times because I couldn't believe 81 hospitals in Indonesia use them. Yes, 81.
👋 Apply to Winter 2022
Although the next batch doesn't start until 7 Feb 2022, we've already started admitting and making investments in companies. If you're interested in applying, you should.
A few common questions about being admitted early.
What happens if I'm admitted early?
First, we make the investment immediately. Meaning we sign the investment agreement and transfer you our money. We do this because (1) we want to align incentives and (2) often our investment helps the startup be more aggressive.
Second, we help founders outline a plan from now until the program. By the time a startup has been admitted, we've researched the space and talked to the founders at length. Coupled with the fact we've worked with dozens of startups, we probably have a good sense of what your most important priorities are.
Should I apply now or wait until closer to the start of the batch? Our startup is really early so we could use the extra time to figure things out.
You should apply now. If you apply early (1) we have more time to learn about your startup, (2) there's less competition and (3) there's more spots open in the next batch. Furthermore, we often help startups figure out what they should work on then check back on them before the next batch. This gives us the opportunity to get to know founders over a longer period of time. It also gives founders an opportunity to see what it's like to work with us.
What's the admissions process?
Our process is short and can often be done in less than a week.
Apply Online – Fill out an application on our website here.
Partner Call – Someone will review your application in less than a week and reach out via email to ask follow up questions or setup a call. Calls are 30 minutes with an Iterative Partner (typically me) where we dig into your business.
Final Interview – After the Partner Call, we setup a 60 minute call with both Brian and I. In preparation for the interview, someone on our team will write an investment memo. The bulk of the call tends to be about the problem you're solving, competitors and what you're planning on doing next. You can find out more about the final interview format here.
🐥 Iterative on Twitter
Brian and I have been more active on Twitter and Linkedin recently. You should follow Brian (@zealoustiger) and I (@hsukenooi). Let us know if there's topics you want to hear about.
I wrote a thread on why I think about growth like an investment portfolio and why you should live by these rules.
Brian wrote a thread on what to do once you get your first term sheet. Should you tell other investors, what do you tell them and how do you do it without upsetting the first investor? Find out in the thread.
📖 What We’re Reading
An Interview with Mark Zuckerberg about the Metaverse by Stratechery
..the phrase “the real world” is interesting. I think that there’s a physical world and there’s a digital world, and increasingly those are sort of being overlaid and coming together, but I would argue that increasingly the real world is the combination of the digital world and the physical world and that the real world is not just the physical world. That, I think, is an interesting kind of frame to think about this stuff going forward.
Everyone is talking about the Metaverse. This interview, specifically this passage, was the most insightful thing I read. What is "the real world"? Most of "the real world" I exist in happens as a result of the digital world. I do things in the digital world and receive benefits in the physical world. The reverse is also true but increasingly less so.
Obviously "the real world" everyone exists in is different which reminds me of Marc Andreessen's famous quote about how "the future is here. it's just unequally distributed."
Chris Dixon and Naval Ravikant on Web3 and The Untapped Potential of NFTs by Tim Ferris
What the smartest people do on the weekends is what everyone else will do during the week in ten years.
Constantly through the podcast, I found myself initially disagreeing with one of their assertions about the future but agreeing with each of the steps in their argument and having to change my mind about the initial assertion. Chris and Naval are two of the smartest people thinking about Web3, it'll be interesting to see how much they get right. My hunch is, most of what they're saying, will look prescient and obvious a decade from now.