When a great product hits the funding crunch
By Andrew Chen
a lot of startups have built great initial products, and even shown some strong engagement, but ultimately not enough traction to gain a Series A.
In 2013, these days,
- you are expected to have a product coded up and
- ready before you raise your first substantial angel round.
- Maybe the product won’t be launched, but people will want to play with a demo at least.
- Then you raise $1-2M to get traction on your product.
- Then if you have millions of signups, then you get to raise your Series A of $5-10M.
- sheer proliferation of seed-funded startups, combined with investors who want to invest post-traction, post-product/market fit
- mismatch in the supply and demand for funding
- Series A venture capitalists are often acting like growth investors now, where they want the entire equation de-risked before they put in much capital
- Monetization won’t save you if it’s not combined with growth
- Having a business model isn’t enough; you need enough growth and scale to be profitable without outside funding
- A modern startup’s costs are all people costs; 80% of the costs went towards the employees and contractor/ consultants/legal while only ~15% of the capital went towards actually running the service
- Products that hit immense traction are the exception, not the norm, for a reason
- every founder needs a strong sense of “milestone awareness” and the ability to:
- problem with hyper product-oriented entrepreneurs is that they often have one tool in their pocket: Making a great product.
- Once the initial product is working, the team has to quickly transition into marketing and user growth, which requires a different set of skills
- an entrepreneur that’s too product oriented will just continue polishing features or possibly introducing “big new ideas” that ultimately screw the product up
- can you imagine building your company culture around your marketing strategy?
- when you dig into why Apple is so secretive, it’s because the company is really focused on advertising and product launches