Superhuman CEO Rahul Vohra shares a masterclass on startup fundraising, challenging traditional wisdom. Topics include building fundraising momentum, preempted vs marketed fundraises, value of 'brand name' investors, raising initial capital from founders, efficient use of high-resolution financings, and interstitial financings.
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Quick takeaways
Fundraising is crucial for high growth companies to fuel their expansion and achieve their ambitious goals.
Entrepreneurs should evaluate their specific needs and goals when considering whether to raise capital.
Founders should lay the groundwork for a successful fundraise by constantly creating momentum and progress.
Deep dives
Importance of Fundraising for High Growth Companies
Fundraising is crucial for high growth companies to fuel their expansion and achieve their ambitious goals. The traditional belief that fundraising is only for billion-dollar companies is no longer accurate. Instead, companies should aim to grow their valuation by 10 times for each fundraising round. Even software businesses can easily reach $10 million in annual recurring revenue (ARR) and position themselves for a strategic exit. Having a board and external accountability also plays a vital role in the success of a company, especially as the team expands. Fundraising not only provides financial support but also signals to potential employees, customers, and investors that the company is legitimate and has potential for significant growth.
Deciding Whether to Raise Capital
When considering whether to raise capital, entrepreneurs must evaluate their specific needs and goals. While funding can provide valuable resources and support, it's not always necessary or suitable for every business. Some founders may choose not to raise capital if they have the financial means or prefer to maintain full control over their company. However, there can be advantages to having external investors, such as the expertise and guidance they offer through board membership. Additionally, having professional investors on board can serve as a validation of the business and signal to potential employees and partners that the company is credible and has potential for success.
Laying the Groundwork for a Successful Fundraise
Founders should lay the groundwork for a successful fundraise by constantly creating momentum and progress. This can be done by raising one round ahead of traction, meaning raising the next round while the current one is ongoing. This strategy provides the company with runway, room for mistakes, and flexibility to walk away from any deal. By continuously demonstrating progress and attracting early investors, founders can build a strong network and increase their chances of being pre-empted in fundraising. Engaging with potential investors, leveraging existing investor networks, and showcasing tangible achievements, such as product prototypes or successful marketing campaigns, can all contribute to a successful funding round.
Securing Funding: The Importance of Strategic Investor Alignment
The podcast discusses the importance of aligning with the right investors during the fundraising process. The host shares an example from their own experience where they approached a strategic investor who seemed interested initially but later pulled out of the deal due to concerns about delayed commitment. They highlight the importance of finding investors who understand the company's long-term vision and are willing to support it at the right time. The host also emphasizes the need for founders to be proactive in finding investors who have expertise in their specific stage and type of company, and suggests that founders should furnish their own term sheets when dealing with non-traditional investors.
Managing Time and Responsibilities as a Founder and Investor
The podcast explores how the host manages their time and responsibilities as both a founder and an investor. They explain that they have split responsibilities with their co-founder in order to balance their roles effectively. While the co-founder handles the majority of investor relations and actively works with portfolio companies, the host dedicates one to two hours per week to the fund. They discuss how they prioritize crisis situations and utilize their network to provide support and guidance to portfolio companies when needed. The host also advises founders to consider the level of time commitment they can offer when choosing to engage with investor-fund founder relationships.
Superhuman CEO Rahul Vohra joins us for an absolute masterclass on startup fundraising that shatters much outdated traditional wisdom in the space. We cover why it's possible to build momentum and raise even as a solo founder, how you should think about syndicates vs. "brand name" VCs, and why you always want to be preempted and how to make that happen. This episode is a 100% must-listen for anyone raising money now, or planning to in the future.
Why founders should think about raising money as "creating a market" for their company's equity
How to build fundraising momentum, and why you shouldn't be afraid of using outsourced design and development agencies
Preempted fundraises vs marketed fundraises: why you always want to be preempted, and how to orchestrate that happening
Non-obvious ways that founders should think about runway, amount to raise and raise-timing in order to always have leverage in fundraising conversations
Round construction
The value of "brand name" investors vs. non-traditional capital, and why you actually want both at different times
Why founders might want to raise their first capital from other founders and operators (versus from funds)
Why founders should put some of their own capital into early rounds
How to use high-resolution financings (SAFEs and convertible debt) efficiently
The concept of "interstitial financings", where you raise convertible debt in-between rounds, and when & how to use them
Investing while also being a founder/operator
Time/attention allocation and why it's now possible to do both effectively
Flexibility to build positions over time vs. traditional fund structures
Rahul's own angel fund with Todd Goldberg
Bonus! The origin story behind the Superhuman name