Suhail Doshi is a software engineer and the cofounder of Mixpanel, a startup that tracks actions instead of pageviews within apps.
It’s early on in your startup’s life. You’re bootstrapping, you’re growing, and you’re working harder than you ever have in your life, every single day, when suddenly you’re facing a different look: uncertainty.
My cofounder, Tim Trefren, and I bet everything on our product when uncertainty hit us like a truck. The 2009 recession meant that suddenly there was a real chance all of our hard work wasn’t going to amount to anything. We had to figure out how we could build without a lot of cash and with almost no VC interest, all while keeping our vision and our control intact.
We had no idea how we were going to do it. We dropped out of college to create Mixpanel. Startups in our Y Combinator cohort were going under left and right. People around the country were losing their jobs and their homes; who was going to buy our analytics product?
Times will always get tough, and the truth is there's always going to be someone luckier than you or someone with a “hotter” product. Maybe investors are pulling back, or you have a product that's not “hot” like a chatbot or VR. You don't know how you’re going to be able to keep the lights on, much less get investors interested in your idea. But there are absolutely ways to keep going when it looks like nobody’s going to fund you.
This is not another Silicon Valley founder pep talk. It’s just what I learned about funding at the beginning of Mixpanel, when things were their bleakest and we were working sixteen-hour days, making crappy pitch decks and cold calls, and hearing “no” over and over again.
Here’s how I learned to be a workhorse, not a unicorn.
You only need one person to say “yes.”
When founders today tell me that they’re worried about funding, and that they need to “just go out and raise another $800k”—like it’s Monopoly money—it blows my mind a little bit. That kind of funding just wasn’t available for early stage startups like us in 2009.
This may seem shocking today, but we never had multiple check-writers. We never had the over-subscribed, highly competitive round at Mixpanel. For almost every funding run we had, there was only one person who was willing to write the check. It turns out funding is the same whether it comes from one source or many sources.
So don’t get down on yourself because VCs say no, even if a lot of them do, because they will and that’s normal. Fifteen investors told us no. We were a week away from startup death. Luckily we found one investor to say “yes” and that’s all we needed.
That’s all you need, too.
Take smart money, not dumb money.
Investor expectations are directly correlated with the amount of money they give you. That’s so simple, right? But it’s something that’s easy to forget when you get caught up in the fundraising hype cycle.
The more money you owe, the more people you owe will want to direct your growth. Raising money from Max Levchin really helped us because he was “smart money.” This was key to our success.
I talked about “smart money” versus “dumb money” on HubSpot’s The Growth Show earlier this week. What I mean by “smart money” is this: From Max I got product advice, I got someone who had a network, and I got a mentor. I got someone who had gone through the struggles of building something. Startup CEO experience is highly correlated with reasonable product advice. In Max, I got someone with startup CEO experience who could tell me not just what he thought, but also what he had actually gone through, in detail. Best of all, I got someone who had my back.
“Dumb money” is the absence of all that. All you get with dumb money is money.
Dumb money is raising straight-up cash from people who are not supportive and who don't have your back. Dumb money won't give you good, sound product advice. Dumb money will interfere with everything you’re trying to do and micromanage your business. Dumb money is in it for short-term gains, not for the long haul.
Here’s how smart money versus dumb money breaks out in one whiteboard:
Let’s say you’re being offered $500k right now. If you're going to give up 20% no matter what, and you have the option of smart money versus dumb money, I would give up 5% more just to get the benefits of smart money and save the headaches of dumb money.
So, there's smart money, there’s dumb money, and then there's the worst option: no money. If you really can't raise the minimum amount you need to stay afloat, it’s time to reevaluate your startup.
Why is this thing that you built not worth the risk to anyone? Do you have product-market fit?
Are you being outclassed? Are you being disciplined in your growth?
But most of the time in Silicon Valley, “no money” just means very little money. There’s no shame in taking the smallest amount of money you can to buy yourself time. As a bonus, you get the freedom to pivot or reinvent your startup. Your task then becomes lasting long enough to get smart money to say yes to you.
So what does “yes” look like? In my experience, it looks exactly like a term sheet.
Get it in writing or get nothing.
Going out and raising funds requires more than just having a great product and product-market fit. It’s an exercise in relationship building, communication, and networking with influential people.
From the founder point of view (especially technical founders), networking can be annoying or intimidating. And it can get disheartening quickly, once the first few interested people fade away. From the investor point of view, there's no downside to being friendly. It only creates more leverage for them and, importantly, not for you.
So when you hear things like, “I'm really excited about your idea! Let's meet next week and talk!”, understand that it could be a stalling tactic. Being nice can give an investor more time to figure out whether anyone else is interested in you. There’s a lot more downside for both parties when the investor says, "I think we're going to pass." instead.
Investors can and will bow out at any time. While it’s important to be polite—investors have networks and Silicon Valley is a small world—never hinge the future of your company on words, no matter how encouraging they are.
Paul Graham was right when he said (and I’m paraphrasing): Look down in your hands. Do you have a term sheet? If you don’t, then you’re not close to raising a round. If you’re confident you have a winning product, then keep going until you get that term sheet.
Securing funding is not just about your traction; it’s also about whether people are excited about your idea.
It turns out that when people put money into your company, one of the big reasons why has nothing to do with your traction or your data. Instead, it has to do with whether they like your idea—whether they think it's interesting. Because if they're on board, they're going to be spending time with you, and no investor wants to spend time with someone who isn’t confident about her idea.
It doesn't feel rational, which is why pitching to investors—even with the best deck and the best product—is so nerve wracking. Some investors just don't like investing in things they don't understand. They’ll give you all kinds of reasons why they pass. Some investors will think your traction is kind of interesting, but it's not something that's super exciting for them to think about everyday. It comes down to whether they can add value to your idea.
Bottom line, find someone who cares. It’s not about persuading people; it's about finding the right person. Be targeted about your approach about who you want to be in business with instead. Remember, you don't need fifteen investors to buy into your idea; you just need one. Which brings me to my final point:
Don’t give up.
Raising funding in a recession teaches you how to be persistent and how to be tough. Almost every successful funding round Mixpanel had has been a function of not giving up too quickly. Persistence with our product development, persistence with seeking backers… many times persistence was all we had. (That and ramen noodles.)
Knowing that we weren’t the only ones having a tough time in 2009 helped us realize that we didn't have to be so hard on ourselves. If you need to, go out and find other founders. Talk to them. You’ll see that there are tons of people in your shoes right now, and they’re all as simultaneously pissed off and frustrated and hopeful as you are.
Once we really understood that the startup struggle was universal, it freed our minds from cynicism and anxiety to focus instead on building our product, which is how we ultimately got the attention of investors and became Mixpanel.
One more thing...
This may be too much of a platitude, but I tell myself this even today: "You aren't doing this because it's easy, you're doing it because it's hard and it’s worth it." I think setting those expectations with yourself prior to fundraising is key to your success.
With all the uncertainty today, I know it can seem like your startup is doomed before it’s even out of the gate. But if Tim and I could pull through with no investor buzz and minimal investment amid a massive global recession, there is always hope. Good luck and enjoy the struggle. You wouldn’t be doing it if it were easy!
If you're interested in more stories about startups and founders, check out Mixpanel's blog The Signal.
