WhoBuilt

YC Founders Made These Fundraising Mistakes

Nov 29, 2021· 8 min· 98K views·Watch on YouTube

Speakers

Y Combinator’s Michael Seibel and Dalton Caldwell discuss fundraising mistakes and founder decision-making on Rookie Mistakes.

Growing metrics make fundraising easier

A YC founder contrasts a startup that was not growing, where 140 investor conversations produced two angel checks, with a growing startup that raised its seed round in one week. Michael says having a demo, product, or MVP with customers usually gives founders more leverage. Dalton argues that fundraising before testing a product can come from fear that customers will reject it.

Put customers ahead of investors

Dalton says founders can mistakenly treat investors like teachers whose approval they need to earn. He suggests directing that energy toward customers and their problems instead. As a practical check, he recommends tracking time spent talking with customers and building product: 80 to 90 percent of waking work time suggests a healthy focus, while 20 percent suggests a problem.

Raise only what you need

A founder advises raising only the amount needed and staying lean. Dalton compares money to food rather than oxygen: companies need resources, but too much can cause problems. He says customer revenue and demand can sustain growth, while having fewer resources can push a company to innovate.

Build leverage before raising

Dalton points to Facebook’s early advertising revenue and Google’s popularity before its first funding as examples of companies that were not desperate for cash. He argues that strong traction can lead to better fundraising terms and greater founder ownership. He also encourages founders to learn from companies with substantial revenue, rather than comparing themselves only with startups that have high valuations.

Takeaways

  • Use customer growth and product evidence to build fundraising leverage.
  • Test whether fear of customer rejection is driving you to raise too early.
  • Track how much time goes to customers and product work.
  • Raise for a clear need; more cash can create pressure to spend.
  • Choose role models by durable business results, such as revenue, rather than valuation alone.

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