Max here. Astute readers will notice that these newsletters often include advice that isn’t explicitly about fundraising (see, for example, Oversubscribed Weekly #17 and #8). There’s a simple reason why we do this, and it all goes back to the #1 piece of fundraising advice in our book: the best thing you can do to increase the odds of fundraising successfully is to build a company worth funding.
No, this doesn’t mean fundraising is a perfect meritocracy: there are plenty of great companies that don’t get funded, and plenty of bad ones that do. Non-meritocratic factors like existing connections, bullshitting skills, and being a white man still often play a big role in whether or not a company gets funded.
What it does mean is that fundraising tactics are secondary to building a great company. Having a basic understanding of the fundamental tactics is important to get off the ground, but once you’re there, the marginal return of continuing to focus on tactics is rarely as good as that of just building a better company.
That leads us to today’s tweet from YC Partner and Head of Admissions (and my former investor) Dalton Caldwell:
A dangerous (and common) scenario is a startup with a little bit of traction… just enough traction that they aren't willing to change ideas/markets and not enough traction for them to actually know they have product market fit.— Dalton Caldwell (@daltonc) June 19, 2019
It's the uncanny valley of product-market fit.
Dalton’s tweet is especially relevant for early-stage companies, since it’s basically impossible to get past Series A without real traction. But before then, this is an incredibly easy trap to fall into.
In fact, I’d say this is what happened to both Mike’s and my companies, though it manifested in different ways. At my company, Castle, we were on the very right-hand edge of this uncanny valley, perpetually this close to breaking out of it. We had the right product, but middling execution, and the wrong market (Detroit). We should have jumped ship early on to a different geographic market, with higher margins and an easier client base, that would have been more forgiving of our early executional mistakes. (Mynd, where my former cofounder now works, is essentially building our same product, but in a different market and with better execution, and succeeding.)
Instead, we remained stubbornly locked in on our first market, thinking every month that better growth was just around the corner, until it was too late. In fact, I’m pretty sure Dalton told us some variant of this same thing, but we didn’t listen.
Which leads me to another piece of advice: if you’re in YC, listen to what the partners tell you! They’re not always right, but they’ve seen so many startups that their pattern matching is pretty good.
See you next week,
Max (& Mike)
P.S. If my tale of woe has left you bummed out, fear not: this VC bingo board from CB Insights is sure to cheer you up.
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