As lines of code continue to proliferate through the world, as the rate of startup formation increases to seize those opportunities, and as the VC industry expands to support those new teams and opportunities, there is no shortage of people to visit for advice — not to mention all the resources online.
In my short time investing to date, I have experienced a phenomenon that, in my own opinion, hurts more than helps — getting advice from too many sources. This is made worse by our own human impulses to seek out sources who will say what we want to hear.
Ultimately, 99% of those sources are noise. And when it comes to fundraising advice, the investment market itself offers the best advice.
I’ve seen this pattern repeat so often now, I’m confident I can break down how it forms and why it does not work. Many founders will seek out other founders to get advice on their early rounds. One of those sources will tell the founder just starting out “Hey, I think you should just raise a huge round now, go for it!” Then the founder will bring that nugget back to me, and ask for my feedback, to which I’ll reply: “I wouldn’t personally advise that, but go test the market and see.” The more I start to dig into where this information comes from, the more it becomes apparent — as the startup and VC sector has grown — that nearly everyone is a founder and/or investor, and the advice (mostly bad, some good) is just flowing like boxed wine.
[A brief aside… This is, in part, why I’ve personally changed my investing style over the last year. I am only participating in structured rounds where I know the other 1-2 investors around the table. We have worked together before in some capacity and rarely overstep the other. We all work with the CEO, and that CEO has 2-3 folks she can call/text anytime to get advice. I can’t afford — workwise or simply emotionally — to have a CEO I work with getting advice from 25 people all the time, because I now know from investment experience what happens in those situations: The noise of the cap table drowns out the signal from reality.]
When I encounter founders in these early stages (both for companies and for funds), I try my best to first share what I would do if in their shoes, but then also try to coach them on how to seek out *credible* sources who are founders and investors and to take notes in those meetings and find truth in feedback from a smaller set of people. Ultimately, the founder has to decide. And for me, it’s a valuable “tell,” because another pattern I’ve picked up is that the quicker a founder can triangulate and decide, the more successful they’re likely to be.