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Dramatically improve the odds of your venture’s success by rooting out and mitigating knowable risks with a premortem.In startup culture, optimism tends to flourish at the expense of honest pessimism. At Foundational, we embrace this by starting our strategy engagements collaborating with our clients to agree on how the world must be changing, what their teams are doing to bring about that change, and how we will measure the achievement of their inevitable success… we also use a novel process that quickly identifies the likely causes of failure well before they occur. It’s a simple and impactful technique that any team can do for themselves in under an hour.
…and how to get VCs to give them to you. These common traits define every startup successfully raising venture capital in today’s traction-centric market.What it Takes to Raise a First RoundVCs are ultimately judged by their own investors on their Internal Rate of Return (IRR). In order to optimize that metric they need to time their investments so they’re getting in at exactly the right point in history… or at least they need to feel that way. It’s up to startup founders to create the sense that this time is NOW.
An early-stage investor will back a company once they believe they will see a substantial return on their capital in a reasonably short time horizon. For a seed-stage fund that’s about 20x in a 5-7 year time-frame (or about 1x the entire fund’s size). In today’s market of rising seed valuations, GPs at funds are looking for real product traction and simply won’t be interested if they think a startup still has major go-to-market assumptions to figure out. If you are successful at defining metrics that tell a narrative of traction, measure progress towards increasing them, and regularly update your most interested potential investors on that progress, then the barriers to raising capital will begin to crumble quickly. The precondition for this is that founders need to have effective conversations with actual VCs in order to understand what investors perceive as the venture’s core assumptions. Here’s the trick for how to get started… |
AboutOur perspectives, learnings, and insights on Traction Science, venture capital, product-market fit and startup best practices. Archives
November 2018
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