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. Yeah, 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 two million dollars. Like, you know, it's like part of me just wants to like 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, um, 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 than 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. In 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, like any investor could just before the meeting go to our website and like in three clicks see content mean 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. Look at it back, right? Like, you know, you seem to have made every mistake—so many, 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 investor's 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 investors really...