As a founder, it’s your job to know all the ways your startup could potentially fail. And if you believe you have all your bases covered, founder-turned-investor Victor Echevarria encourages you to think again.
“I wish I’d done a lot more homework on the potential failure modes that my last startup could stumble into,” he said, speaking about his startup Remedy Labs. “I thought I’d done a pretty thorough diligence job with Remedy, but it was an industry I wasn’t that familiar with, and I found there was a lot I didn’t know.”
Victor is no stranger to growing a startup. He was an early team member at TaskRabbit, where he ran marketing and business development and launched the company’s B2B offering.
So when Victor and his co-founders began to work on their new startup, they did their homework: they determined various pitfalls and engineered ways around them. They simply missed a big one: “We were in the business of analyzing healthcare data. But if you’re going to analyze data, you need the data to analyze. We just assumed there would be APIs and electronic access to health data, which was an incorrect assumption at the time.”
As a result, Remedy Labs never reached escape velocity and, looking back, Victor now realizes he just hadn’t done the amount of research — talking to industry experts about pitfalls, testing out available data streams — that he needed to.“As a rule of thumb investing your life is a far bigger commitment than writing a check.” - @etxeba Click To Tweet
“As a rule of thumb investing your life is a far bigger commitment than writing a check,” he explained. “If you wouldn’t find yourself willing to invest your own money, ask yourself why you’re considering investing a percentage of your lifespan on your idea.”
In 2018, he took this lesson and others with him when he signed on as a partner at Jackson Square Ventures, an early stage venture capital firm focused on software businesses that has invested in DocuSign, Upwork, Strava, Seismic, and OfferUp.
- Pairing storytelling and data
- Discerning which metrics you should be tracking
- Preparing for the investor engagement process
- Other direct feedback about your funding pitch
Now, as an investor, Victor considers himself a generalist. He has recently made investments in B2B health IT and consumer fintech companies, including 1upHealth, WELL Health, and Trust & Will. He is currently looking into agtech and development tool investments.
Here are four more pieces of advice he offers founders about how to more successfully fundraise.“Revenue is an output of your business, not a driver of your business.” - @etxeba Click To Tweet
1. Show metrics that measure the health of the startup
Victor explained that, especially at the earliest stages, founders tend to focus too heavily on revenue as a success metric.
“Revenue is an output of your business, not a driver of your business. You have to understand and quantify what value you’re actually offering your customers. What are the metrics that suggest you’ve found product market fit?”
2. Treat Fundraising Like Storytelling
“You need to be very good at telling stories,” Victor explained. “Lead your audience through an emotional journey of why you’re doing what you’re doing, what problems you’re solving, and what the world will look like when you’re successful. Founders who just spew facts are far less likely to raise money. If you can’t demonstrate your own conviction, then how will customers feel about your product. And importantly, how will future investors view it? A question we all ask is: How good are you at fundraising because this won’t be the last time you do it?”
In this strategy, a deck should be concise and used to support the story, not lead the presentation.
3. Don’t Go In Asking For Too Much
“It’s easier to increase the round than decrease the round,” Victor explained. “If you go in asking for a big number and you get no takers, you’re forced back to the table to say, ‘Well, now I’m raising less.’ It’s not a good look. It’s a signal that you’ve misjudged the market, and you’ll be negotiating from a position of weakness.”
Alternatively, when you start your ask small, you’ll be in a better place to create more interest.
“If you go in and say, ‘I’m going to a small number’ and you’ve got tons of people that are interested, then you can say, ‘Thanks for all of your interest. We made the decision to take in more money to reach larger milestones.’ Then you’re negotiating from a position of strength.”“Every time you get a ‘no,’ it's an opportunity to learn because you’ll receive feedback.” - @etxeba Click To Tweet
4. Get Ahead of the No’s
“Despite what you see in the press right now about huge rounds getting done at massive valuations in practically no time, most entrepreneurs still have to run a long, structured process to get their round closed on more traditional terms,” Victor said.
The majority of startups are going to face a lot of no’s and Victor’s advice is to not be discouraged by it.
“Every time you get a ‘no,’ it’s an opportunity to learn because you’ll receive feedback. A lot of it won’t be helpful, but after hearing enough of it, you’ll start to see signals rise up from the noise. Those are the points you need to address proactively.”
From here, you’ll know what to do to get ahead of the critiques.
“VCs frequently fall victim to confirmation bias. If you can get ahead of a concern before they use it as a reason to pass, you’ll increase your chances of receiving an offer.”