Daniel Fetner’s Post

Frequently asked questions in the Herd: how do you underwrite early stage companies. Here's how our team's Daniel Fetner is thinking about the classic experience vs. traction debate right now ⤵ #venturecapital #startupfounder

A recent review of our portfolio pointed to a strong indicator of performance: quality of investor updates   The companies with better the investor updates (insight, regularity and analytics) on average performed better after we invested   So what is driving the quality of these investor updates and why is it correlated with business performance?   1 - Founders think like investors when they're not fundraising   It’s easy to get stuck in the weeds as the CEO of a startup — fundraising is often a chance to be pulled up to 30k feet and view your business from an outsider’s perspective   A founder who is able to carve out time beyond growing and firefighting to consider this perspective will fare better in the next fundraise and eventually at the time of exit   Investor updates and board meetings are a great chance to revisit that lens   2 - Founders understand the quantitative drivers of their business   Many founders pull up in fundraising and present a set of metrics to prove their traction The best performing founders manage their business to these metrics every day   My fav example: many CEOs only look at cohort analysis when they are presenting to investors in fundraising, and look at Shopify’s simple repeat purchase metrics the rest of the time   They don’t internalize why cohorts are so important, they just pull together the analysis that investors ask for   To do this analysis quarterly (or more) for investor updates requires a level of conviction and understanding that these metrics ultimately drive value   That conviction and understanding typically leads to better performance   3 - Founders want to be held accountable to performance   It’s fun to share wins and get responses back that say “LFG, crushing it!” But without context and KPIs these updates are generally hype and fluff   Our best performing companies have a culture of accountability to their budget and benchmarks   They want the scoreboard on display at all times, even on the bad days, because that is motivation and context for the pursuit to the top of the mountain   The best performing CEOs are not afraid of showing weakness and sharing setbacks, and as a result the investors have much greater trust in their updates on how the business is performing   4 - Founders care about their investors   Creating great investor updates and board materials is a TON of work (I know this from our own quarterly updates and LPAC decks)   Committing the time to do this consistently requires a real care for your investor base I’ve found the most successful founders go the extra mile for their investors because they recognize the importance of relationships are great at building them   These are the kind of people that other people root for, bet on and want on their team The same kind of people who thrive come fundraising, hiring, business development and acquisition time

Quarterly investor notes are underrated. Ive invested in or advised a couple dozen startups. And majority don’t send. Or they send a very short one with minimal context. When I ask why, I hear: “I’m too busy. Don’t you want me building the business?” Or worse. I’ve literally heard founders say investors should be treated like mushrooms: “kept in the dark and…” you know the saying. I fundamentally disagree. Sending my investor note each quarter is one of the single most valuable things I do as a startup CEO. Valuable for the investor, sure. But the main value is actually for me and the team. Reason 1: Focus First off, it helps me clarify the company’s goals and priorities for the upcoming quarter. Writing an investor note is a lot of pressure. You really have to align with the team on what to promise. And then you have sit and ensure you’re suscint and clear on how you’ll make progress in the four key areas: defining our strategy, bringing your product to market, growing the team, and making sure the financials are on track. This effort from the CEO aligns the team around the most important things. It reminds them publicly of the mission and tells them where to put the lion’s share of their time and effort. Reason 2: Confidence The investor note is also a powerful way to build confidence across your team. You can celebrate their ability to set goals and achieve them. Or to dissect a miss and correct course. Nothing builds executives better than the pressure to do this exercise each quarter for your investors. Of course, this translates into confidence with your investors too. And that will be invaluable when it comes time to raise our next round. Reason 3: Support Finally, the investor note is a great way to ask all investors for help in one shot. When we proactively and transparently communicate about the challenges we’re facing, they can offer advice. Or if you’re clear on the priorities, they can lean in to make an introduction to a potential hire, customer or expert. Your investors want to help you win, but they don’t know how unless you tell them what you’re currently tackling. You need to proactively create opportunities for them to add value. I always include asks of our investors in my notes and I can’t tell you how many times they’ve led to introductions to new team members and new investors, new advisors and new customers. Conclusion: I use our quarterly investment notes to tell our story. It’s how I focus myself and the team. And perhaps most of all, it’s how I build the muscle of setting and meeting expectations. A muscle every CEO desperately needs to develop. Don’t be shy. Always include a summary of the note for the busy investors. But feel free to go as deep as necessary after the summary to remind them of your objectives, share results, risks, asks and financials. Many more than you expect will read the whole thing and provide invaluable feedback to help drive your startup forward.

The Men's Book Breakfast ~ The MBB Group: #T335 Book: ZERO TO ONE by Peter Thiel. Analysis of Chapter 7, 8 & 9. Chapter 7 - Follow the Money The 80/20 rule is applicable for startup success as well. Never underestimate exponential growth. The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. The total VC investment accounts for less than 0.2% of GDP. But the results of those investments disproportionately propel the entire economy. Venture-backed companies create 11% of all private sector jobs. They generate annual revenues equivalent to an astounding 21% of GDP. Chapter 8 - Secrets. These are the hidden discoveries. There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. When thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you? The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. Great companies can be built on open but unsuspected secrets about how the world works. Chapter 9 - Foundations “Thiel’s law”: a startup messed up at its foundation cannot be fixed. Thiel stresses the importance of the co-founder’s compatibility and often overlooks companies with co-founders who do not have prior history beforehand. Choosing a Co-founder is like getting married, and founders conflict is just as ugly as divorce. Most conflicts in a startup erupt between ownership and control— that is, between founders and investors on the board. In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, to reach consensus, and to exercise effective oversight. A board of three is ideal. Your board should never exceed five people, unless your company is publicly held. Thanks Joshua Gitoho, MCIPS, Michael Ngubiru, Njenga Wainaina, Simon Wanyutu, Gerald Owino, David Kamura

Dear #Founders, here's how you make investors' lives easier.💸 Picture this: You've got an investor's attention, but now you have their curiosity too! What if you could effortlessly convey them precisely what they're seeking? Imagine handing over a comprehensive roadmap tailor-made to resonate with their evaluation criteria. This is the game-changing strategy that can smoothen your fundraising journey. Investors typically have a set of criteria that they would use to evaluate your business. It means there are certain things you need to do well if you want them to invest in your company. The more prepared you are for those conversations, the more likely it is that this will happen smoothly. Here's what I mean: many pitches present the material in a typical old structured manner. It's like having a map of hidden treasure💰, yet walking away empty-handed. Instead of waiting for investors to come back with questions, can founders be prepared to address them well beforehand, so that the fundraising process goes smoothly? My answer is YES. While founders can't control the investor's portfolio strategy or how your company fits into it, you can reverse-engineer a lot of the aspects that investors normally look out for. Add a slide in your pitch deck that highlights an investment thesis that is geared toward the investor mindset. Here's what you include in the thesis: 💡Team: Can the team do what it takes to reach their goals and grow their company? 💡 Sales: This is important for grasping how the startup's sales efforts contribute to generating revenue. It's about getting the most sales for every rupee spent on sales and marketing. 💡 Industry Insights: Provide a comprehensive overview of the competitive landscape to help investors make decisions more effectively. 💡 Financial Growth: Even though creating detailed long-term financial predictions is not practical for a young startup, investors still examine initial sales numbers and seek signs of potential growth. This reassures them about the prospect of promising expansion. (Pro tip: don't exaggerate numbers, investors see 100s of financial models in same industry every month) This level of preparation, whether added within your pitch deck or presented as key points, will result in saving time for founders during interactions with potential investors. At Convanto, we're dedicated to making things easier. That's why we've created customized FAQs for our founders, addressing queries commonly raised by investors during meetings. If you're planning to #raisefunds for your startup, this could be really useful. Happy to know your thoughts on this! #founderstories #G20 #startup

Thank you for this Kathryn O'Day !!! Everything she’s saying is so true. Investors want to invest.. its their job to give you money. You need to tell the best story, your why needs to be clear, the what’s in it for me needs to be well defined. Follow us as we are about to share a great blog post on investor questions and what you need to be prepared to answer when pitching.

Over the past two weeks, many founders have reached out to me to thank me for the insights shared in my May column for Built In, titled "Founders, Here’s What to Look for in an Investor." One crucial takeaway: Sometimes, it's better to turn down money than partner with the wrong investor. Here are some red flags to watch for: 🔵Reliability and Good Faith Issues: Investors who fail to negotiate fairly and transparently can jeopardize your business. 🔵 Time-Consuming Tire Kickers: Avoid those who drain your time without offering substantial capital or guidance. 🔵Lack of Decision-Making Power: Ensure you’re dealing with decision-makers to avoid unnecessary delays. 🔵Excessive Concern with Current Valuation: Investors overly focused on valuation might not align with your long-term goals. 🔵Over-Negotiation and Micromanagement: Beware of investors who demand overly specific terms or exhibit control tendencies. 🔵Conflicts of Interest: Investors with competing interests can lead to strategic disadvantages. 🔵Lack of Industry Insight: Investors who lack understanding of your business fundamentals are a risk. 🔵Unreliable Financial Commitments: Financial instability in investors can risk the continuity of support. 🔵Disproportionate Attention Needs: Smaller investors demanding disproportionate time and resources can drain your focus. Choosing the right investor is crucial for your startup’s success. It's essential to vet potential investors thoroughly and prioritize those who are FAT - Fair, Aligned, Transparent - a term I coined that sums up the three most critical factors for a successful partnership. Read the full article (in comments) for a deeper dive into selecting the right partners for your startup journey. 👍 Like | 🎤 Share | ♻️ Repost | 🔔 Follow Zack Ellison, CFA, CAIA #StartupTips #InvestorRelations #VentureCapital #Founders #StartupSuccess #BusinessGrowth #Entrepreneurship #BuiltIn

Set expectations up front to avoid founder-investor conflict (part 1 of 2) Startups are high-stakes, fast-paced endeavors that have a ton of moving parts — conflict between founders and investors is very likely. In addition to making sure you should be VC-backed in the first place, there are some things you can do proactively to manage these relationships. Here are a couple ways to set expectations from the start to avoid conflict down the road. • Under-promise and over-deliver. There may be some situations that require more hype than others, but you have to be balanced about it — especially internally with your existing investors and board members. Under-promising and over-delivering helps you build credibility. You never want to say you’ll do something and not make it happen. On the other hand, if you keep handing out positive surprises to folks, you’ll build the reputation of someone who continuously delivers above and beyond what is expected. • Leverage your board. A lot of founders feel that their board is there solely to manage or oversee them. This is true to some extent, but really smart entrepreneurs also make their board work for them. CEOs of late-stage growth or pre-IPO companies typically spend 20% of their time working directly with board members. Every investor update or board meeting should be accompanied by a few asks from you. What do you need from them? How can they help you move the business forward? There are allies on your board who can help you communicate challenges to other shareholders or approach investors and other board members — leverage their wisdom so they can help you succeed.

Thought for Today I’m often asked to advise/review a company’s pitch for founders seeking investment. Whilst I’m always happy to review their pitch and give my feedback, bear in mind that each investor is likely to have a different ��check list’ So, I can only give personal feedback. What do i look for? Culture fit - do we share the same values? For those of you who know me I’m fairly forthright and honest. I’ll call out if I see poor strategic choices. That’s not everyone’s cup of tea! Synergy - do I get the problem you’re trying to solve and can I add value to the segment your targeting? I’ve got to be passionate about your business. Return on my investment - do I trust that you will spend my hard earned money wisely? Have you bootstrapped thus far? Have you made personal sacrifices or have you just squandered other people’s money without any traction. You need to have proven there’s a need for your product/service. It doesn’t have to be unique, like Dyson or Uber, often the best ideas are doing something better, at less cost or differently. If you are seeking investment for ‘marketing’ (the most frequent) you must know exactly how much it costs you to acquire customers, what they are paying and how long you can retain them for. I need to know you’ve already established the customer journey and it’s working. If not I may as well just buy shares in google and Facebook as this is where my money will be wasted. I’ve invested £850,000 of my own money in 7 early stage founders. I’ve seen hundreds and hundreds of pitches. Personally I decide within a few minutes if they are a good fit for me. That’s unusual. I don’t mind backing start ups, I have 2 who are pre revenue. But they’ve got a prototype developed and commitment from users who will pay for it. I trust the founder to try their best to deliver a return for me. Will they all succeed? Probably not. I understand the risk. But I hope that with my support, and supporting each other, we can mitigate some of the inevitable pitfalls along the way. My advice to founders seeking investment. Be yourself. Tell your story. Be brief and to the point. How much are you looking for? What are you going to spend the money on. When will investors see a return? and choose which type of Angel investor you would like to partner with.