Why Does Your Company Deserve More Money? by Michael Seibel

Why does your company deserve more money? Sometimes the hardest conversation I have to have with the founder is when they've spent their 1 to 2 million dollar angel round but haven't found product-market fit. Unfortunately, I have to ask them a very unforgiving question: why does your company deserve more money?

Yeah, this is so hard. This is really hard for YC companies. Like, in one way, we try to make YC companies feel very special, and the investing community often makes YC companies feel really special. But man, isn't it weird that someone is given two million dollars to do something and doesn't succeed? Thinks, you know, what I need another 2 million dollars? You know, it's like part of me just wants to bring people back to the real world. Like, you know, maybe you do, right? Maybe the next two million dollars is gonna make it work, right? Maybe I'm not willing to say it won't. But I think we should just, like, no, it's certainly a lot easier to raise that money if you've done something for the first two million dollars.

You know, and then sometimes founders, once again, sometimes founders kind of cargo cult like me. They think, oh, well, we have this team; we built a team, right? We have this product, right? Got a cool office. Yeah, we have a cool office. Like, look at what we've done, right? And it's okay. Nobody's grading you on these things. Look, those are means to an end, not an end. But you can't be like, oh, I'm an NFL coach and look, we have a team. We have this amazing stadium, right? You should renew me, right? It's like, well, the record of the team is like zero wins. Like, you can't get another contract if you have no wins.

Moreover, if you do, I mean, you might have all the MVPs, but if they can't play together, you know, then no, it's right. And so I think that like people like to confuse means friends because like their means are a lot easier to get. I can go out and get an office. I can go hire, right? Solving people's problems, that's hard.

Yeah, so a lot of the time I have to have these conversations with founders where I'm just like, look, like what is an alternative path? Like if you don't really deserve money right now, what is an alternative path? And like the sad but true fact is cutting burn and trying to get to break-even is more often the right thing to do if you have a hit product-market fit for that first one to two million dollars. More often, that's what's going to create that leverage. You get to break even, and that gives you time to figure things out.

You're, you're - like we said before - like not even product-market fit doesn't mean you're not growing. It does mean you're not generating revenue, right? It just means that you're not taking off. Yeah, and oftentimes that just means you need more time. But like asking investors for that time is oftentimes way less fruitful than just cutting burn and giving yourself that time with the revenue that you're generating.

Exactly, and like manner in the story of Justin.tv, like I sometimes I just think of Justin.tv, I just had myself completely fooled. Like literally, I just can't. Like I was out there pitching a site that like half of the usage was spreading copper and content whose good public site. Like any investor could just before the meeting go to our website and like in three clicks see content we did the rights to. And then I would go in and try to pitch them what I was gonna be in our business, right? Like, I don't even know how I did it looking back, right?

Let you know you seem to have made every mistake, so many mistakes. Yeah, I like to write about things that are a personal mistake experience. But like, I will tell you that when we broke even at Justin.tv, that was the moment of like infinite clarity. And what was weird is that like looking back one of the things I seen other founders and I recognize in myself is that when you're operating on the investors' dime, oftentimes you're trying to optimize what the investor wants to hear.

And oftentimes you're trying to structure your pitch and your strategy to what's going to get us more money because it turns out the investor's really your customer because they're the only one giving you the money you need to survive, and your users become secondary. When you hit break-even, there's this magical moment where you realize, wait a second, like I can just generate money for my users. I don't need these investors anymore.

And like, strangely, like weirdly, the only group of users, or group of people, who are harder to understand than users are investors. For many people, some people can just spin investors, you know, some people have a way with investors. But many people, investors are this like really confusing group. And it's like, well, I'd rather fight it the user fight than the investor fight. And like that was the case for us.

Like, and it was so interesting, man, we never had a better strategy. We never had a better plan. We never had better execution than two moments: one when we were running out of money and - when we were at break-even. It was just wow, like it was the clarity was amazing and just like, man, the fear went away.

Yeah, it's like this isn't gonna die tomorrow. Like, well, you have confidence. And then all of a sudden when you look at the other side of the table, now you have a product that the investor wants. Funny, isn't that funny? When you don't need investment, yeah, guess who comes around? Oh, you need some more money, cover your guys. Classic, yeah.

And, and I think like basically the way you wrap up is like this is about leverage. So what you say is don't limp into a Series A fundraise. You need to be able to show that you have taken the early investment money and used it sensibly to create a product that people love. You need to have sustained growth to raise a Series A. Understand that and you'll be better off than most startups. It's kind of simple, right?

Yeah, it's interesting, like we have a Series A program at YC and we help YC companies, tends to be like 12 to 24 months after YC, prep for and raise Thursday. And at the kickoff meeting, it's very similar to the kickoff meeting at YC. Everyone goes in a circle, says what they do, but the difference is, is that everyone says their revenue. Mmm.

And it was so much fun to be at the kickoff meeting for this Series A because, you know, you'd hear some idea, it's like, oh, I'm doing Yeti Arrieta. And like, you know, YC week, your ideas all the time. You know, and so kids cool, yeah. And then the Thunder is like, and we're doing five million dollars revenue. Oh, that's different! And in the next person, again, we're doing three and half million hours revenue. Next was a go do it for me, not.

And it's like so funny how an idea sounds better when like there's a revenue number after. And, and, and so what's so funny is that like I think what YC's good at is that like if you can create the business leverage, right? If you can make your business work, we can help you present that in the met leverage maximizing way. And we can help you do a process that maximizes the leverage that you've created.

But you have to create the core leverage. Like you've got to do the work, right? But you gotta do the work, like you got to figure out the part that gets that usage and then we can help you package it and sell it most effectively. And so it's fun to see that works. You can't predict it.

Yeah, like if you asked me years before I was gonna get that Series A program, I would not have known. But man, those founders are far more formidable. Like when they have something they're like they're killers, quite strength. When you got yeah, you don't need to fund it. No, you know, you don't need it. It's funny because I sometimes I see people with like snazzy pitches and like snazzy like things that like remind me of stuff you would hear on like a TV and promotional. It's like you don't need that much work when you have a good company.

But usually like you can just like graphs look, you should grab some numbers. Yeah, and it's like, oh wow, that's really working. Yeah, awesome.

All right, thanks man. All right, thank you.