How do you fund your startup?
“ All startups want money. But not all startups need as much money as they think they do, from the sources they think they need. In fact, most startups do not seek outside investors at all. An analysis of the Kauffman Firm Survey, a representative survey of US startups, shows that the biggest source of funds for high growth startups, on average, are the personal savings of the founders. The second largest is debt, either personal debt or loans taken out by the new company. Friends and family come a distant third, and most companies do not have serious investors beyond that. Rather counterintuitively, research shows that startups with less money are often more successful and creative than ones that are better funded, in part because of the lack of resources forces them to be more innovative.[i] But there are certain startups that need a lot of money to get off the ground, either because they require research and development before launching (like biomedical startups) or because they need to spend a large amount on marketing (like a new direct-to-consumer brand). Those startups will almost certainly need outside funds from investors.”
[i] Mehta, R., & Zhu, M. (2015). Creating when you have less: The impact of resource scarcity on product use creativity. Journal of Consumer Research, 42(5), 767-782.
— The Unicorn’s Shadow, Chapter 3
Resources on raising money
On raising Venture Capital
This is pretty useful guide to pitching VCs especially in terms of the kinds of numbers a VC wants to see, and how they should be presented. Relatedly, here are some benchmarks companies need to think about in order to raise VC.
Here are some good tips on structuring the fundraising process from First Round.
The best way to meet VCs is a warm introduction. Here are some thoughts on how to do that.
If you want to research a VC before a meeting, Crunchbase is also a good free resource.
If you want to see what a simple modern Series Seed term sheet looks like, this is a good, readable example . For a in-depth legal guide to terms, you can read this series . For a walkthrough of the way cap tables change with various rounds, here is an example . (But I will recommend Brad Feld’s Venture Deals book on this!)
Here is a good ranking of top VCs.
This is the best ranking of seed accelerators.
If you want to learn a lot more about crowdfunding, I have a free Coursera course that covers lots of research and tips.
A sample of the academic papers I referenced (many are pretty heavy reading):
Here is the survey of VCs I reference in the chapter
This paper demonstrates that status is self-sustaining in the VC world, and that much of the success of top VCs comes from preferential access to deal flow, and not better ability to pick winners.
Papers on how entrepreneurs find VCs and what happens: this one introduces the casual dating model and this one talks about how funders shape the direction of startups.
My paper on gender and fundraising , and another on gender and hubris . Here is the study that shows how VC children's' gender can serve as a basis for understanding biases. Here is the study on gender and pitching. For more studies on gender and fundraising, this is a good summary article .
One of the early studies on accelerators .
My summary paper on crowdfunding and my paper comparing experts with amateurs in crowdfunding