Category Archives: Seed Funding

The real value of AngelList

Too many entrepreneurs are using AngelList in the exact wrong way. They decide that they’re going to raise “$1 million” at a “$6 million valuation” on a “Convertible Note”, and then press “Publish” on their account. Then they sit and wait for their first investors to start throwing money at them.

AngelList is not yet a great tool for finding a lead investor (though this may change with their new Syndicates feature). I’ve found that at the beginning, startups have a much greater hit rate with investors in their existing network. This could be friends and family, investors in your startup accelerator, or even early customers. It’s rarely a stranger you met on the internet.

The biggest value of AngelList (besides their awesome talent tool) is the social proof that it can provide your startup once you close key advisors and investors. That green progress bar in the Fundraising section of each startup’s profile page is magical – the more it fills up, the more inbound demand you’ll see. But it can also work against you when it’s empty.

Fundraising feeds off momentum. In chemistry terms, you must overcome the activation energy in order to see the funding reaction occur. Momentum is the catalyst in this reaction. Never start from zero. Skip all the folks who are ‘waiting on a lead investor’ and go find the person willing to go out on a limb to support you. It may require giving the first folks into the round a “valuation discount.” But do whatever it takes to get your fundraising started before approaching the AngelList crowd.

Once you’re in the ‘Second Half’ of your fundraising game, that’s when AngelList really shines. Here are a few quick tips:

  1. Confirm investors and advisors as they commit:
    • If you have a strong verbal commitment, or better yet, signed paperwork, make sure they make it ‘AngelList Official’.
  2. Utilize ‘one-point’ connections to value-add investors
    • Find investors that commonly participate in funding rounds in your industry, or who often co-invest with your existing investors, and use the ‘Message’ tool on their profile to get in touch and introduce your startup. Make sure you have a shared connection that is willing to route your message through them.
  3. Heavily consider the ‘Invest Online’ feature.
    • This is another place where I strongly encourage you to seek legal counsel before proceeding. But I believe that there are few negatives to this feature. The system allows you to cash in on existing momentum, close smaller investors without dealing with paperwork or negotiation over terms, and most importantly, put money in the bank.

“I’m raising ‘X’ at a ‘Y’ valuation”

X: How much should I raise?

How expensive are your experiments?

In any startup, there are huge risks in your future. Your job as a seed-stage company is to identify the biggest risks and tackle them first. Money doesn’t buy you a ticket around these risks. Instead, fundraising allows your team to build experiments that attempt to solve these challenges.

At LabDoor, the most expensive part of our early operations were literally experiments – analytical chemistry assays that we used to reverse-engineer dietary supplements and energy drinks. In our pre-seed stage, we raised $250,000 from local angels, friends & family, and me. That had allowed us to build out our proof of concept – 100 simple LabDoor reports viewable on a web application.

At this point, we had seen 20K+ people use our product, were preparing to launch our first mobile application out of beta, and had clear customer metrics to guide our short-term product roadmap. We just didn’t have the cash or manpower to analyze new products or build applications faster, let alone spare a dollar for a marketing campaign.

The biggest risk for startups like ours is proving that consumers would actually use our products to successfully manage their health and safety. Our hypothesis was that if our applications could cover over 80% of product sales in the supplement market and actively engage users at scale to add their products to a ‘LabDoor Cabinet’, then we could quantitatively prove consumer demand for LabDoor.

We worked backwards from there. I calculated the expected cost of the analytical testing, weighed the value of potential hires, and worked with my team to estimate our annual marketing spend. Then I added the cost of one additional startup experiment in each category (never go all-in on the first shot), and settled at a $750K seed round.

Y: How much is my company worth?

Wrong question. Seed-stage valuation has very little to do with the actual liquid value of your company.

It has everything to do with the market value of the convertible note or equity document that you’re selling. Can you demonstrate scarcity in the market, led by respected investors? Who is begging for participation in the round, you or your investors? And what are market conditions in your startup community?

I would suggest finding a valuation that efficiently clears the market for your target raise. If you’re raising $1,000,000, review recent successful fundraises on sites like AngelList, and honestly assess your startup relative to these companies. Startups with built-in networks, like recent YCombinator graduates, will likely raise at a higher valuation. If you have no clear path to a lead investor, consider dropping valuation below the expected average. Remember, your number one objective here is simply to put money in the bank, so don’t stress too much over 0.5%.

If forced to pin down absolute values for 2013 Silicon Valley pre-money prices, I’d label $2-3MM valuations for weak seed rounds, $4-5MM for average seed rounds, $6-7MM for ‘hot’ seed rounds, $8-10MM+ for all-star seed rounds, $20MM for Jack Dorsey (Twitter edition), and $40MM for Jack Dorsey (Square edition). And expect 50%-100% discounts for any round raised outside the SF Bay Area.

Note: One of the biggest mistakes entrepreneurs ever make is to raise a round of funding at a valuation where they would be comfortable selling the company. At this point, your incentives will be horribly mis-aligned with your early investors, who are counting on you to bring them a 10x-20x return on their investment. If you’re trying to make a $5-10MM company, don’t choose investors who are looking for $100MM+ companies. In many cases, you’ll be better off bootstrapping to profitability with a simple product or service, and building out the company on revenues. (There is absolutely no shame in this – an exit at this range will instantly put you in the top 10% of entrepreneurs.)

Take as many entrepreneur meetings as possible

If there’s one idea from this blog series that I hope sticks with the most startup folks, it’s that entrepreneurs should go out of their way during the fundraising process to meet as many fellow entrepreneurs as possible.

This may seem counter-intuitive. Fundraising is supposed to be a ‘full-time job’. No time for ‘having coffee’ with a ‘random entrepreneur’; just “put money in the bank”. That’s the advice I always got.

However, fundraising is a very exhausting process. We pour endless energy into an investor and hope that something sparks in their minds.

Conversely, in meetings with entrepreneurs, energy flows back and forth, as each party fills with excitement while discussing their vision and goals. Worst-case, a meeting with a fellow entrepreneur turns into an impromptu counseling/commiseration session, with both sides bitching about a disrespectful investor or sharing the constant fear of missing payroll.

I’ve found that these meetings are a great way to recharge along the fundraising path. They are also often great sources for investor introductions and references, which can actually make the journey significantly shorter.

For me, this was one of the most important features of joining a startup accelerator. Having thirteen other CEOs available for support and feedback was incredible.

Remember: Never startup alone!

Playing poker with investors

Poker Short Stack

“This round is closing in two weeks. Are you in or out?” vs. “This term sheet self-destructs in two weeks.”

Take it or leave it. Investors are particularly good at this. Here’s why:

  1. They are way more experienced than you. Let’s say you’re pitching First Round Capital. They have invested in 185 companies and participated in 297 rounds (at time of publication). I consider myself a somewhat experienced entrepreneur, and this is my second company and third round.
  2. They have a way bigger stack of chips.

You’re never going to win a staring contest with a VC. In six months, they’re still going to be collecting their management fees while you start making plans to move back into your parents’ basement.

But entrepreneurs have three great things going for them:

  1. Carried interest. VCs often make 2% management fees on the fund and 20% carried interest on the fund’s profits. Nothing kills an investor more than that fund-maker that slipped through their fingers (See Bessemer’s Anti-Portfolio).
  2. The rest of the table. VCs try to get you to focus on a one-on-one battle. But you can engage with hundreds of investors at once. Don’t let a few rejections get you down.
  3. Your cards. Your startup is your gamble. But you get to pick the team, build the product, and target the market. Do it right, and your odds skyrocket.

I walked into every negotiation with a great hand and a tiny stack of chips. Be supremely confident that you’re holding a future billion-dollar company, and then go all-in.

Investor: “I’m interested but I don’t want to lead”

Whenever a potential investor tells me that they are ‘waiting on a lead’, this indicates that they are not capable/confident enough to make an investment right now.

Here’s the dilemma – once you have a lead investor, it will be way way easier to get investors to follow. So these ‘follow-only’ investors who hang around you early in the process are actually not that valuable.

Even though it’s tempting to keep around people that seem like they may want to give you money, I would be extremely wary of these folks. At best, they’re time-wasters. And at worst, they’re trying to earn an ‘option’ to buy your stock at a future date when someone else has taken the first (and biggest) risk on you.

Split them into two groups:

  1. Investors that are money-only: I would play hard-ball with these folks. Their value is limited anyways, so try to pressure them to commit money early, with the implicit (or explicit) understanding that it’s now or never for them to get into this round. Worst-case, you lose a weak investor. Best-case, you close easy money.
  2. Investors that are money + value: If they are truly interested and valuable, keep them on your list at an early part of your investor ‘funnel’. These are people that should get update emails when you convert investor commitments, sign pilots, or get positive press, but not people who you need to spend time meeting and pitching. Prepare to close them quickly once your lead investor signs.


“You’re too early for me.”

This classic investor line is a staple on the fundraising trail for early-stage startups. It deserves a place alongside “it’s not you, it’s me” on the pantheon of rejection lines. However, it seems like no investor ever has a straight answer for how much traction they really want to see. Instead, you’ll usually get a long, rambling response including the phrases ‘it’s not an exact science’, ‘we know it when we see it’, and ‘product-market fit’.

Who has the real data? According to AngelList, these are the traction numbers you need to hit to raise a $1MM seed round on their platform (Source):

  1. Enterprise: 1000 seats @ $10/seat/month
  2. Big Enterprise: 2 pilot contracts, some revenue
  3. Social: 100,000+ downloads/signups
  4. Marketplace: $50K revenue/month
  5. E-Commerce: $50K revenue/month

Nowhere close to these metrics? There are two directions to go:

  1. Investors will forgive certain entrepreneurs for lack of early traction. These include founders that previously executed successful exits (especially for the investor herself), founders with unique industry-specific experience, and founders they like.
  2. If you don’t fit into one of the categories above, it’s time to seriously consider downgrading to a smaller round led by friends & family or bootstrap the company until its next big milestone.

Many investors wrote off LabDoor immediately. Real science is super expensive, and there’s no obvious business model. We weren’t the hottest company on TechCrunch, and we didn’t have millions of users. But we stayed extremely focused on our strengths – team, product, and story. The best investors pick for extreme positives, not the lack of negatives. Find those people, and do whatever it takes to add them to your round.

And those investors who labeled you “too early”? Remember their names, and don’t be afraid to tell them that they’re too late when they show up at your Series A.

How to dominate Demo Day

Part 3 of my mini-series on startup accelerators. (See: Part One, Part Two)

So, you’ve picked the best startup accelerator for you and survived the first months of the program. Now you feel your eyes wandering towards the finish line, and that big Demo Day presentation looming large.

If you’re like me, public speaking is an unnatural experience. Add the fact that you need to summarize your entire startup and vision into 2-5 minutes, and the stress quickly builds up.

How do you calm your nerves, hone that story, and shine in front of a packed audience of investors and press? Here are seven factors that helped our team win over the audience at the Rock Health Demo Day and propel LabDoor to a successful seed round:

Own your call-to-action

If you’re lucky (and good), the audience will remember only one thing about your pitch. Are you looking for a key investor, customer, or hire? When you’re writing your pitch, sculpt the entire story around a targeted call-to-action to this person.

Don’t be the company that ends their pitch by saying “please come talk to us after the event.” Challenge the audience to do something. Bribe them with a free coupon to try your product. Give investors a one-week window to get into your seed round. Be memorable and actionable.

Focus on design

The majority of the audience will have never heard of you or your product. For better or worse, they will use your presentation design as a heuristic to judge your product quality.

This makes sense. Great design is now essential to product development. The new generation of billion-dollar startups, like Tumblr and Fab, has simple, beautiful, intuitive design at their core. Make sure you leave a good impression with your slides.

I can’t take any credit for LabDoor’s success in this area, which should be attributed to my co-founder Rafael Ferreira. If you don’t have an all-star designer on your team, keep your slides simple and intuitive. Think Steve Jobs introducing the iPhone. Minimize text, use a simple background, and limit yourself to one message per slide.

And don’t use video clips. They are distracting, and they break.

Work a real crowd

A wise mentor once told me “the first five times you give any speech, you’ll be terrible.” That’s because there’s so much more to public speaking than the words and slides. If you don’t interact with the crowd and feed off its energy, your message will fall flat.

Find a group of strangers willing to listen to your early pitches. Sign up for Startup Digest, and be on the lookout for public entrepreneur meetups and pitch events. Volunteer to speak at a local high school or college. Work on your new material in low-pressure situations, and you’ll feel much more comfortable when D-Day comes around.

Drop the mic (literally)

You have your speech memorized. Now it’s time to practice making a mistake. It sounds crazy, but something always goes wrong in the real pitch. The slides get out of order. The clicker runs out of batteries. You trip and fall on your way to the stage. Even seemingly good things can throw you off your game. I’ve seen speakers get completely flustered when the audience laughs at one of their jokes. They practiced the speech a hundred times without the laugh, and the three-second pause throws them off their rhythm.

So I practiced dropping my mic or clicker, picking it up, composing myself, and getting back on track with the pitch. I also had a teammate start me on a random slide, and then let me try to finish the presentation from there. I practiced with and without slides. I practiced facing a brick wall. Anything to throw me off my game. Most people in the audience won’t even notice if you get stuck for a second. Learn to relax and get back on track smoothly, and you’ll be fine.

Get in the zone

On the morning of the big day, try to get to the event location as early as possible. Keep the whole day free of work and distractions – it will be hard to concentrate on anything else anyways. Walk on stage and get comfortable with the environment. Run through your pitch once or twice, but don’t obsess over it. You’ve practiced hundreds of times for this moment. You are ready.

Drop the mic (figuratively)

I’ve seen this happen over and over again. Entrepreneurs stress about Demo Day for weeks or months. They make mistakes at every pitch practice. And then, magically, they have the best pitch of their lives on the big stage. There’s something special about walking onto the stage with the bright lights on you and darkness over the audience that brings the best out of people. It’s your big moment – go out there and crush it.

Follow up immediately

The best Demo Day pitch in the world means nothing if you don’t close the deal. Identify your top targets, and track them down. Use your team to your advantage here – divide and conquer, starting in the lobby of the event. Timing is essential. Excitement will be high on Demo Day, but it’s up to you to keep up the momentum in the following days and weeks. Close your seed round. Win over that big customer. Keep building.

Note: This post initially appeared at

Choosing the right startup accelerator

Part 2 of my mini-series on startup accelerators. (See Part One)

This is a seemingly complex problem, but it all comes down to one simple question:

What is your startup’s biggest challenge?


  • Don’t have the resources to build the product of your dreams? Incubators run by notable operators can help you with user testing, prototyping, manufacturing, pilot programs, etc.
  • Consider Industry-Specific Programs: Rock Health, Lemnos Labs, Code for America


  • Need help finding a co-founder? Missing a key hire? Many incubators can serve as a temporary solution to personnel gaps through design, development, or marketing support, or be a great way to connect with smart entrepreneurs that could become future business partners.
  • Consider Mentor-Driven Programs: TechStars, AngelPad, Rock Health


  • Most startups would greatly benefit from a bigger focus on Steve Blank-style customer development early in their life. I have a great deal of respect for Dave McClure’s methodology here – why not learn from the man himself?
  • Consider Growth-Focused Programs: 500 Startups, Science, TechStars


  • First of all, this is probably not true. Almost all fundraising challenges can be traced back to the team and/or product. But accelerators and incubators are excellent fundraising resources, providing startups with built-in social proof, seed funding, and networks.
  • Consider Big-Name Programs: Y Combinator, 500 Startups, TechStars


  • Whether you need help meeting a key sales contact, a valuable new technical hire, or a top angel investor, chances are that you can find the one-point connection from an advisor or classmate in your accelerator.
  • Consider Programs With The Biggest Classes: Founder Institute, Y Combinator, 500 Startups

Should I join a startup accelerator?

Whenever I recommend a startup accelerator to a skeptical entrepreneur, I usually hear one of these three common objections:

  1. “I’m too advanced for an incubator.”
  2. “I don’t want to give up a huge chunk of my company so early.”
  3. “I don’t want to move to Silicon Valley/New York/Boulder.”

Let’s answer these one at a time:

1. Are you the perfect entrepreneur?

Does Jack Dorsey routinely call you for startup advice? If not, I would highly recommend optimizing your startup through an incubator or accelerator.

There was a startup in our accelerator class that had multiple founders with 9- or 10-figure exits under their belts, and had already raised millions of dollars for their current venture. If they can find value from a startup accelerator, I’m sure you can too.

2. Should I give up equity this early?

The average startup rarely goes through more than one accelerator/incubator, so it’s often hard to price out exactly how valuable the program is in equity terms. One great point of reference is Paul Graham’s “Equity Equation,” which boils down to the following statement: “You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 – n)% you have left is worth more than the whole company was before.”

It is very hard to argue that the best programs aren’t worth the 5-10% equity for most early-stage startups. The key advice and mentorship provided in the formative months of a company can be worth years worth of failed product development and provide a support system that keeps an early team on track.

Better yet, find an accelerator that decouples advice and funding. Rock Health is a well-known example of this. Their team, mentors, and advisors all work for the non-profit Rock Health, while investments come from Rock Health Fund, with LPs Kleiner Perkins Caufield Byers, Mayo Clinic, Mohr Davidow Ventures, and Aberdare Ventures.

Y Combinator is a program that does both: it takes equity for a small stipend and also facilitates external funding options on an uncapped convertible note. But when you’ve got the name recognition, fundraising skill, and exit history of Paul Graham & Co., it doesn’t seem like that bad of a deal.

3. Moving to join a startup accelerator/incubator

In the first six months of LabDoor’s existence, I moved twice. The first time, I said goodbye to my favorite city in the world, Ann Arbor, temporarily leaving behind my girlfriend and two dogs, to join a great product team in Indianapolis. The second time, this team, now four-deep, packed up our whole lives and drove a moving truck 2,000 miles to San Francisco to join Rock Health. Without these two decisions, it’s extremely unlikely that LabDoor would be as successful as it is today.

Good entrepreneurs do whatever it takes to maximize the success of their venture. While I’m confident that startups can be successful anywhere, a great startup accelerator can take years off a company’s path to success. Don’t let your comfort zone keep you away from a great opportunity.

Note: If this all still seems too complicated of a decision, feel free to email me at neil(at)labdoor(dot)com, and I’ll do my best to help!