Transcription
It's time for a new playbook on how to raise pre-seed and Seed funding. I'm going to show you exactly how to do it, and how I'm teaching all my Founders how to do it, and how I'm going to do it myself.
Why do we need a new playbook? Well, before I tell you, this is going to be a neoclassical playbook, meaning that we need a new way to raise funding, but I'm going to base it on classic principles and approaches that have always worked. It's just that we've gotten a little weird when it comes to raising capital as startup Founders. The reality is, it is not 2021 anymore. 2021 was the height of the frothy market of the last cycle. Then we had a mass extinction event in 2023, where so many startups went belly up, and all this capital just evaporated. And now, at this very moment, there is predicted to be 72% less capital in the market, meaning that if you've got General Partners or VCs that even want to invest and do deals, their investors, the LPs (limited partners), are not giving them money to reload their funds. I literally have Founders telling me right now, "We contacted a VC, they said, 'Yeah, we would be interested, but we have no more money.'"
So let's just accept that there's a new normal. And if you can figure out how to do this now, in this environment, you will be a master at raising capital. And I'm also going to show you, you may not even need to raise capital, and that's the best place to be as a Founder.
Before we continue, my name is Ed Kang, seven-time funded founder with two exits. That's just a fancy way of saying I failed a bunch of times to your benefit, because I use YouTube videos like this and this channel to help Founders, especially early-stage, raising pre-seed or seed funding, avoid some of the catastrophic mistakes that I have made. Not to say you're not going to make mistakes, but I'm going to try to make your life a little bit easier, reduce the damage, the heartache, the pain, the gnashing of teeth that comes with mistakes that all Founders make, because it's hard enough as it is. And I have a special announcement. Stick around to the end of this video, and I'm going to make you an offer that you cannot refuse.
If you like this type of content, you appreciate what I'm doing, I would appreciate some feedback. Give me a like, comment, and a subscribe if you're up for it. Thanks for joining me. If you already know who I am, welcome back to my YouTube channel. If you're new here, welcome to my YouTube channel. Let's jump into this video.
The first thing I want you to do is, I want you to stop trying to get investors for your startup. But Ed, you might be thinking, "I need funding to start my startup." And if you are in the mindset that you absolutely need funding and you're not open to what I have to say, you might want to skip this video and just move on. We don't want to waste anybody's time.
What I also want you to do is take all those terms that I've been teaching, even on this channel in my videos, things like problem-founder fit, problem-solution fit, founder-market fit, product-market fit, business-market fit. I want you to take all that and put that aside. Get those out of your mind right now, and we're going to go back to the basics. We're going to simplify things down. And I'm going to tell you right now, it doesn't matter what your product is, where you are as a Founder in your journey, what industry you're participating in, your vision, your mission, your entire purpose, the problem you're solving, the customers. It does not matter. You can do this before you raise investment. That's the mindset I want you to be in. I want you to be in a growth mindset, saying, "I can learn this. I can do this. I can change and adapt." Not a fixed mindset, saying, "I can't do this unless an investor comes and gives me money."
And there are five things that I want you to do. I'm just going to lay it out here. Step one: Get one customer to love your product. Step two: Get them to pay you at least $1. Do step three: Get them to tell one other customer. Step four: Automate and repeat the process at least one more time. And finally, step five: You're going to tell investors how you're doing and what you are learning through this entire process.
And if you can achieve these things and you can show minimum amounts of traction before you get investment, believe you me, you will have investors interested. At least early-stage angels, you'll have friends, family, and associates. But eventually, you will get the attention of institutional investors, if that's what you even want. Because if you do this, you're going to be generating your own revenue. You'll be your own investor. You're going to bootstrap your way to glory, and you're going to be in the best position of not needing capital. Maybe you'll take capital as my colleague at startups.com, Vadim, said, "pour gasoline on the fire." Maybe you're going to take capital for growth, but you won't need it, and you will be in that power position.
So let's break this down from the beginning. You need to get one customer to fall absolutely in love with your product. That means you are solving a problem for them. You are obsessed with solving the problem. And you may not solve the problem with your product. You may solve the problem in different ways, like providing a service or presenting, talking to them, and telling them about the prospect of your solution. That makes them go, "Ah, yes! You've solved the problem. Thank you, thank you, thank you so much for tackling this problem. That's exactly what I'm looking for. If you made this, I'd pay a million dollars." This means before you go YOLO in that $50,000, that $150,000 for the app, you are doing idea validation and customer discovery, and you are getting one customer to love your product. And you've got to get that one, and they must love your product. Not 10 customers saying, "Yeah, okay, I'll believe it when I see it. I'm kind of interested." No, one person has to fall in love with your product and tell you. And that's how you're going to learn everything from your ideal customer profile, how to present your unique value proposition. There's going to be so much data figuring out how to get one person to fall in love with your product.
Next, you are going to get them to pay you at least $1. This is metaphorical. But if you can get one customer to fall in love with your product, you can get a million customers to fall in love with your product. It's the same thing with money. If you can get one customer to pay you $1, you can get a million customers to pay you a million dollars. How do you get them to pay you $1 if you don't have the product? I've mentioned crowdfunding before, deposits. If you're doing something manual, get them to pay for your service. That's the best way to start. If you can get one customer to pay you to solve their problem, and they love it, well, you've taken care of steps one and two all at the same time.
And I keep going back here, you're going to have to get creative. I do not care what product you have. I don't care if it's your SaaS or your deep tech. You can always figure out how to do a service version or an MVP version that just uses off-the-shelf software that you don't have to get investment money to go and build something from scratch. Some people like to call this the Wizard of Oz MVP, where you are pulling the strings behind the curtain with different off-the-shelf software, and it absolutely looks like that. You've got to find a product when you're facing the customer, or you might be a concierge service where you say, "I will be the service component. I'll tie all these things together, and I will do it for you," maybe over an app where you're texting each other, or maybe over some type of project management software. There's so many ways to do this without getting a major investment. You're going to bootstrap your way, and you're going to get one customer to pay you at least $1. I say this again, it's metaphorical. If you get one customer to pay you $100 or $1,000, go for it, because you're on your way to millions.
Step three: You are going to get that one customer to tell one other customer after they paid you the dollar. This is very important. If you can get the feedback from the customer, "I love the product," and then get feedback after you tell them the price, which is one of the best times to get feedback, and they like it, and you've delivered on it, then you have to figure out how to get them to tell another person. Hopefully, it's so viral, they're so appreciative that they just tell other people, "Listen, you got to try this." I do this all the time. When I come across great products, I start telling all my friends because I want to give recommendations. But you might be in a situation where you have a SaaS company, and they're not naturally going to tell other people. You have to go ask them, "What would it take for you to tell one other customer?" or "Would you refer one other customer of your caliber? One other client that I should be working with?" Maybe you need to get a testimonial from them and use that as social proof. Get permission to use their logo and use it as social proof. Get creative. Figure out ways to get one customer who's paid you $1 and who's super happy to tell one other customer.
Now you see where I'm going. If you can get this online and you can get some momentum going, you can go to the next step, and that is to automate and repeat the process at least once. What do I mean by automation? Well, most likely, at the beginning, you are doing founder-led sales, which is often referred to as "do things that don't scale." You have the ability to go one-on-one and do things that other big companies are not going to do, such as talk to your customer face-to-face, give that great customer service, go get feedback face-to-face. Now, what you're going to do is figure out how do I reduce the friction of my effort going in there? Let's use an example of you are doing hand-to-hand combat sales. You picked up the phone, you've called someone, and you said, "Hey, who can you tell me that needs this service? I want a referral." Or, "What leads can you give me?" Next thing you're going to do is you're going to research where these people hang out, what magazines do they read, what emails do they subscribe to, what blogs do they follow, what YouTube channels do they follow, like this one. And you're going to say, "How do I automate my message in there so leads flow to you outside your personal effort, energy, and your time?" That's automation.
And if you can figure out how to automate bits and pieces of this, of the whole process, and it repeats itself, well, now you've got something that can be scalable. You're learning all the lessons by doing things manual upfront. Now you're starting to figure out how to scale, and you'll be able to calculate metrics like ROAS, return on ad spend, if you decided automation is by spending on advertising. Notice how I did not say go out and spend $10,000 on Google Ads right out of the gate. Don't do that. You need to do things that don't scale. Get in there, face-to-face, hand-to-hand combat, do founder-led sales, because that's where you're going to learn, and that's what investors want to see. And as you go through multiple cycles, there's going to be less and less friction. Your automation is going to continue, and then you'll be able to double down on that automation and start extending your results for that exponential growth graph that you're looking for. Because while things are being automated over here, you are doing things manual over there, and then you're going to keep learning. It's this continual learning cycle where this system is going to start to develop, and that is what investors look for.
Going to sound like a broken record the rest of the way. Finally, after you figure this out, you have tracked all your metrics, you have recorded logs, analytics, you have learned these lessons, you've uncovered things you didn't know you didn't know, you figured out how to make things predictable, then you're going to show investors. And here's what it looks like: "Hey, Mr. Investor, I want to tell you about what I've learned making revenue with this product already. Here's the problem I'm solving, here's the solution, here's how it works. But look at the revenue that we have already been able to generate." And it might not be using your product, and that is fine, because investors are going to love that story. You're going to say, "Well, I need $150,000 or $250,000 to build the product. But what I set out to do was validate that I can actually make money. So I turned this into a consulting service, or I built a product using Google Sheets and all these other cloud-based software that nobody knows is not the software that I'm building, because I'm doing everything manually, but they think it's the software." Maybe you're promising an AI automation, but it's really a manual person, someone that you've hired, but looks magical to the customer, and they're saying, "Wow, this is amazing! I love it." Then you can tell the investor, "All I need is money to continue this growth and to automate more." Because you're seeing this growth, it's probably going to go like this. It's not this even growth graph that goes exponentially up to the right like a hockey stick. It's like, "Here's what we're learning. Every time there's a dip, here's the adjustment that we made. And at this rate, you can predict how we are all going to make money. We're going to reach profitability, and we're going to scale into this." And by that time, you are going to be bulletproof. The investor can ask you any questions to put you through what's called the "idea maze," and they're going to see, "Have you looked at every nook and cranny, every dead end, every potential path, all the competitors?" And you say, "Yeah, we figured it out, because that's how we got customers to love our product, pay us, tell other customers, and we're repeating it over and over again."
Finally, you're going to put this story in your pitch deck. I can envision pitch decks basically having five slides: Here's how we got customers to love our product (problem/solution). Here's how we got them to pay (business model). Here's how we got them to tell one other customer (go-to-market strategy). Here's how we automated the process and here's our growth (that's traction). And then, here's how we want you as the investor to continue to participate with us (that's your ask slide). Obviously, you're going to have other slides in there, such as how it works and any special sauce. But I can just imagine investors in this climate, when you've got Founders coming at you as an investor saying, "Give me money so I can build the product. Give me money so I can figure out what my customers want. Give me money so I can do all these experiments." You will go to that investor, and they'll be thinking, "Wow, I can't believe how exceptional this Founder is, because what they've been able to accomplish with very little resources, that's impressive."
And that's where I'm going to leave you with this. You know on this channel that I'm an advisor, the Chief Strategy Officer at startups.com. If you can come to me and you can explain to me these five things, you can do these five things and demonstrate them to me in a pitch deck, I'm going to make you an offer that you cannot refuse. I'm going to invite you into my program, and I'm going to help you get that traction, and then also help you raise funding. That's a promise. But I'm telling you right now, you got to bring the goods. There's going to be a selection process, but I'm looking forward to seeing what all you Founders out there come up with.
And the reason I'm doing this is because I see so many Founders struggling to raise capital right now, and it's so difficult for me to help you because there just isn't that much capital in the market. If it was 2021, I'd be saying something completely different. But we're going to need a few more years for the market to get frothy again, and then my tune is probably going to change, and I'm going to show you how to be opportunistic and get that capital while it's out there. But right now, you need traction. You need to show these metrics to an investor to stand apart from all the other Founders that are trying to raise capital like it's 2021. You're going to do it the neoclassical way. You are going to take the classic principles and approaches of building a great company headed towards profitability, but you're going to do it in a new way. That's a refreshing and relevant perspective that investors are going to want to hear.
All right, let's bring it. Look forward to seeing what you come up with. In the meantime, watch the videos that I put on the screen to help you keep going and hang in there, and I'll see you in the next video.