The best thing about being part of WeWork Labs is being surrounded by super smart people with great ideas. You also get a chance to see way more presentations than you’d ever wish for. Some presentations are better than others but it’s sometimes hard to put your finger on why. A great idea and ‘entertainment value’ are certainly factors that might get you hearty applause but these alone doesn’t guarantee you’ll get an investor. You know you’ve got a great idea but how do you convince someone else that it’s worthy of their cash?
An idea is not enough (no matter how good you think it is)
A great idea is not enough, you have to have a plan.
“My idea is so awesome! I’m going to focus on my product right now and when it’s good enough to get out there, then I’ll work on my plan*.”
*plan = how the idea will actually make money
If that sounded familiar, read on.
Don’t forget that you’re trying to start a business
By the time you build whatever you’re building, you’ve already put yourself in a very risky position. It’s possibly you do end up having a viable business on your first try but it’s very likely that you won’t.
Bright lights startup city is blinding. Knowing what I know now and having spoken to so many people in similar positions, we all had wished we’d had that simple checklist of things to cross off so we knew we were on the right track and what to do but alas, the hard things are supposed to be hard right?
But it turns out someone must of hear our calling and we came across exactly what we needed, a checklist of all the ducks you need to have in a row before going to pitch for that check. This is courtesy of Khosla Ventures, a VC firm that’s invested of several startups you’ve might have heard of such as Instacart, Scribd, DoorDash, Everlane and Wattpad to name just a few. (check out their full portfolio here).
Good read –> Why startups fail, according to their founders
There is no magic, you have to do the work
Yes I’ve seen all those articles, the ones that go like ‘The only thing you need to say in your pitch’, ‘The 4 steps to getting funded’, ‘Pimp power poses VC’s love’ etc. If it seems a bit far fetched, it probably is.
There is work to do and you have to do it. Rather than spending time looking for shortcuts or tricks, spending time doing the work and putting in the time (no 4-hours work week here) is the magic.
The questions you need to be able to answer, in no particular order
So thanks to Vinod Khosla we have a ‘Checklist’ of the questions you should be able to answer when going to ask for funding. Note that there is no reference to ‘crushing it’, ‘tres commas’, or ‘cashing out’.
Before reading the list just pretend for a moment that you are the one with the money and you’ve never met you (the person with the great idea) before. What is the info you would want to know that would give you the green light to say “I am guaranteed to get my money back with this person”. Guarantee? whoa that’s a lot of expectation you say? Well why would anyone give anyone money expecting to lose it, I don’t think any investor invests knowing they might lose it, they only pick what they believe will be winners.
Now if i haven’t discouraged you too much, here’s the checklist!
- What’s the big vision?
- What does your product do today?
- What is your value proposition?
- What is your unfair advantage?
Market opportunity / size
- What’s the opportunity?
- What’s the market size?
- Tell us about the executive team
- Why are you uniquely qualified to solve this problem?
Proof of product / market fit
- Growth to date: sign-ups, weekly or monthly active users, paying customers (if relevant)
- To the extent it’s relevant, do you have quantitative evidence that you’re better than competition/incumbents?
User engagement + retention
- Engagement metrics for core product features
- Monthly or weekly cohort retention (depending on the kind of product/company); churn (for subscription products)
- What are your customer acquisition channels?
- How much does customer acquisition cost (per channel)?
- How will you make this money back and how long will it take?
- How scalable are these? How big can you get with your existing product + customer acquisition channels? At what point do they get saturated or become too expensive, and what do you do if/when that happens?
Business model / monetization
- Do you make money today?
- How will you make money?
- Do you have competitors? Who are they?
- If no one else is doing this, why not?
- What are others doing in adjacent spaces?
What’s next / fundraising ask
- How much money are you raising?
- Use of Proceeds: What will you do with the money you raise?
- What are the milestones you will accomplish to get to the next phase of your business?
- How does this tie into achieving your big vision?
- Are there any gaps in your team you need to fill?
- What are you looking for from an investor?
In case you’re a more ‘visual learner’ here’s an illustrated version,
If you find that you can’t answer most of these questions THAT’S A GOOD THING. Now won’t waste your time, or a potential VC’s by looking like an idiot when you go to ask for money and have no answers to their questions.
If this list has got you feeling a bit humbled or discouraged just ask yourself this question, “Would I give myself the money to do this?”. So many people who want to have a startup think it should be easy to get money and there’s so much of it to go around. But would you give someone who doesn’t have a plan or doesn’t care to come up with a plan any money? Yeah ok. no.
It seems that saying ‘If you fail to plan, you’re planning to fail’ can be applied in this case as well.
If you want a PDF of the list you can download it on Khosla Ventures’ website here