Mat Sherman 🧙

Mat Sherman 🧙



The no bullshit guide to raising angel funding/venture capital as an outsider.

First off, understand that the world of startups is not charity. People are trying to make real money in this industry. And there are many options for them to do so. So if you're an outsider building, you don't just get money because you want it. It needs to want you.

Also understand that if you're an outsider, you are likely going to be more work for an investor. You'll have more questions, you'll make more mistakes, and you will generally just take up more of an investors time than a standard YC or Stanford alum.

And as an outsider, life is going to be harder for you. You will be overlooked. You will need to work harder than insiders and get less recognition. It's going to be hard for all of you. All genders, races, and nationalities. It is going to be hard for every single one of you.

So the first step to raising capital is mentally accepting it and being okay with it. Understanding it. REALLY understanding. Too many people complain about how things works, & I used to as well. But the truth is, no one has time for that. Understand the game you're playing.

Understand before asking rich people for money: 1. You will be more work for investors 2. The data doesn't support investing in you 3. This game is not fair at all 4. It will be a struggle And by understanding this, you have passed the first test.....Test? Wtf? What test?

Well, I think the process of raising capital for a startup is really really hard. It's mentally draining and taxing. Investors know this. So in order to make sure they invest in founders that can do this for the next decade, they have little mental tests for founders.

The first test is: Is this founder buckled in? They may have no idea what they're doing. But they know the odds. They are ready for the journey. and they're going on it anyway. If you can read and agree to the first few tweets of this thread, then you've passed the first test.

If you're complaining about the game, bad talking VCs, blowing shit on on VC Twitter, VCs will ignore you. You will have not passed the first test. The only way to pass it though is within your own brain. Do you accept the industry for what it is? Ok, passed. Do you not? Failed.

It takes some outsiders years to figure this out (like me). For others, it's natural.what's the next test? The second test is the attention test. Really, it's answering the question "what does this founder do when i give them my attention?" There are a few ways this plays out.

This can range from a DM, to an email, to a phone call, to an IRL meeting. But when an investor reaches out to a founder, how are they composed? What do they say/do? How do they react? This is largely a function of how well the founder understands the VC game.

An immediate red flag here is a very long email/DM response. If a reach out to founder A, and they reply with a life story, I can infer they aren't ready for VC yet. Note, I could be wrong. But also note, the keyword is YET. These tests can be retaken at any point.

A less bad but still prevalent red flag is when a founder treats it like a "shot". They use verbiage like "give me a shot, please lets have a meeting" or "my round is almost closed but would love to fit you it". From a cold DM, sounds like a dismissal of the rules of venture.

Now there are rules of venture? Confusing, I know. But as an outsider, you need to learn it. So what are the rules of venture. Well, on a high level, it's that people invest in people they like, know and trust. (yes, i know the issues with this but remember the first test.)

This is why you hear of an investor investing a ton of money into their friend's new company pre-product. There's trust in that relationship, built up over years. And when people work together, they generally get to know eachother beforehand to build trust as well.

And this is applicable in venture too. You can still work with a investor without having known them for years, but when you meet one for the first time, your goal is to be someone they like, know, and trust...NOT someone they need to "give a shot" to.

Note, this isn't just how VC works. It's how the world works. People dont like doing business with strangers. They like working with people they already have context on. This is not a secret.

Anyone in a position to invest in your company likely knows these rules, and they can tell when people know them and when they don't. Going back to the test, this is it. Are you trying to build a relationship or are you trying to be transactional? They can tell.

Note if you're running out of money and need a $25k check or your company is going to die, I get why you need to be transactional. But that's not the investors fault. That's your fault for being in that position and giving up so much leverage.

If you fail this test with an investor, you'll likely be able to take it again another time. For example, i've had a few meetings with pre-seed investors when they were willing to hear updated iterations of my product. But really, they're just seeing if I can pass the test.

What i'm talking about here is relationship building. Do you know how to build relationships with rich people? If you can do it with one, you can probably do it with another. investors are not just evaluating your current actions but projecting your actions 10 years out.

With that said, there is a parallel test here you can take without needing to schmooze investors for 6 months before asking for money. It's the build in public test. You can short circuit conversations by doing "one to many" conversations. This is what i've done.

I personally think the process of raising capital that is agreed upon by the industry is a complete joke. So what I do is I just build and share what i've built, and I also post opinions on Twitter. What this does it allows 10.1k people build up context on me, all at once.

If we look at the goal of the other parallel test, it's mainly so people can get to know, like, and trust me so they feel ready to invest. But having these conversations 1-1 can take a lot of time and effort. Building in public accomplishes the same goal, with a % of the time.

My first investor emailed me out of the blue after seeing a Tweet that I needed $15k. His email was 3 words "i'll do it". Since then, I have raised $265k from strangers on the internet, but they can spend years observing me before even reaching out. And i would never know.

If you're a public person, flaunt it and tweet, writer, public. If not, that's okay. Just be prepared to have a lot of conversations. For what goal? to build context and trust! If you know this is the goal on first meeting, you pass. If you make it transactional, fail.

Ok. So you passed the first test and have accepted the industry for what it is. You passed the second test of building trust and not being a transactional person/looking to raise ASAP before you know eachother. What's the 3rd test? Simple, yet hard... Build something great.

Often times, outsiders already have done this. They try to raise money from VCs because they have something great but didnt know how to get access to the capital. If this is you, you have everything you need. Just share what you're working on with your new connections.

But for many others, you'll find you don't have something great. Maybe you have something fine or average. Maybe you don't have anything at all. And because of this, after 20 pitch meetings with VCs and getting rejected, you stop or give up. My friends, this is the 4th test.

The 4th test is the answer to a single question: Do you know you are playing an infinite game or do you not? So many people think what they're working on is their life's work. And if it doesn't work, they'll throw their career in tech away. Trust me, I get it.

I was working on my life's work in 2015, 2018, and I am right now. Truth is, life is long, things change, and founders adapt. If you current thing fails, the people you've built relationships with aren't useless. They could be friends or even help you find your next thing.

Some founders burn bridges on their first go around because they couldn't raise money. They go crazy on VCs, spread rumors, and kill their reputation. These founders have not passed the 4th rest. But like the others, this test can be taken at any point.

Tech is forgiving. Unless you do something quite horrible, we all will take back as a more humbled and experienced version of who you once were to try it all again. Understanding that tech is an infinite game is the last test to pass. Pass this test and you're invincible.

This sure isn't your standard "fundraising process" advice thread, but tbh, that's too complicated imo. Building amazing products. Talk about them with investors. Don't be too transactional. And if it doesn't work out, you can try again. Good luck :)

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