Buzzwords That Backfire

Startup pitches are often brimming with buzzwords:

  • "We're revolutionizing HCM with Big Data and Machine Learning!"
  • "We have a team of NLP ninjas and Ruby rockstars!"
  • "We're already at $1mm ARR!"

Trying to get people excited about your startup is good, but hype and buzzwords can backfire if they're misleading. As an engineer turned VC, I see a lot of pitches whose audience is typically business folks, and where technical buzzword usage is liberal and sometimes manipulative.**

Here's a typical conversation:

Founder: "Our elite engineers are building cutting edge machine learning algorithms to predict stock market prices."

Me: "Can you elaborate on machine learning a little bit?"

Founder (who is used to talking with investors coming from a business/finance background): "I mean, you know... Machine Learning, man. It's like all the rage these days."

Me: "Yes, I know. I'm an engineer. Please tell me about one or two of the heuristics that you use."

Founder: "Oh. Well, actually, we use some 3rd party software that does the machine learning stuff for us, so I'm not sure what that's doing under the hood."

So much for building cutting edge algorithms. At this point in the conversation, I make a mental note to pass on the investment. There's nothing wrong with using 3rd party software to do some of the heavy lifting, but there's a big problem with trying to mislead investors. As a VC, I immediately assume I'm looking at an iceberg. That is, if I've uncovered a few false statements, then there are likely many more beneath the surface. Even if the rest of the pitch is good, it's too hard to build a strong founder-investor relationship when there's no trust. 

If you're pitching investors, please remember that while it's fine to reference hot trends and buzzwords in your pitch, make sure you do so honestly. Don't claim to do things that you don't do. Hiding behind trendy terms is risky because: 1) eventually you encounter someone who can see that you're misrepresenting yourself and 2) that person, when asked, will share their findings with other investors.

** To be clear, this is not a knock against non-technical VCs. Someone like me is as prone to being misled by business or financial claims as they are to being misled by technical claims.

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Benefit Providers for Startups

My fund, Susa Ventures, recently conducted its first annual founder survey. We asked each of the founders we work with about a dozen questions about everything ranging from recruiting to benefit providers to company culture. The results were fascinating, and I'd like to share some of the data about benefit providers. If you're starting a company and are not sure where to turn for services like payroll or health insurance, then I hope this blog post will provide some good starting points.

Reporting methodology

Satisfaction scores are on a 1 to 5 scale, with 1 being "very dissatisfied", 3 being "neutral", and 5 being "very satisfied."

All costs are reported as per employee per month (/e/m).


The sample size is not huge (17 founders replied, and some founders skipped a few questions). The following recommendations are often based on 3-5 founders all recommending the same service. Given the sample size, please take all recommendations with a large grain of salt.


Typical cost: $5-$10/e/m.

Best provider: ZenPayroll. About half of the respondents used ZenPayroll, and their average satisfaction score was 4.7. Everyone who used ZenPayroll was very happy with it.

Health Insurance

Typical cost: $200-$600/e/m.

Best provider: No clear winner given fragmentation and variance between health plans. One interesting observation was that the more companies paid, the happier they were. Companies paying $200-$300/e/m typically had satisfaction scores of 3 or lower, while companies paying $400+/e/m had satisfaction scores of 4 or higher.

The two most popular providers were Zenefits (5 votes) and Anthem (3 votes). Both were in the $350-$425/e/m range and both had average satisfaction scores of 3.7.

Dental Insurance

Typical cost: $17-$60/e/m.

Best providers: 3 founders were satisfied with Delta Dental (prices were $20-$60/e/m). 2 founders were very satisfied with Zenefits ($17/employee/month).


Typical cost: highly variable.

Best providers: Gunderson Dettmer was unanimously liked by the 3 founders who used it (4.7 satisfaction score). Cooley and Wilson Sonsini each had 2-3 votes and satisfaction scores of 4.0.


Typical cost: $500 per company per month.

Best provider: inDinero had 4 votes and an average satisfaction score of 4.0.

Worst provider: Doing accounting by yourself had an average satisfaction score of 2.0.

How Much Runway Should You Raise?

In the physical world, a runway is a takeoff strip for airplanes. If you were in charge of designing an airport, you'd have to figure out the ideal runway length that would allow all planes to take off and land safely. How long should your runway be? It turns out 1.25 - 2.5 miles is a typical length. You could save money by building a 1-mile version, but that's too short to be useful. On the other hand, you could build a 4-mile behemoth, but that would cost a lot more without providing additional benefits.

In the startup world, runway is how long your company can survive if your income and expenses stay constant. When companies raise money, they are literally trying to increase their runway ("We spend $100k/month and have $400k in the bank. If we raise an additional $1m, we'll have fourteen months of runway in the bank instead of four.")

The same calculus that applies to airport runways applies to startup runways. If you raise too little money, you won't have enough runway to do anything meaningful. If you raise too much, you're wasting resources (equity).

How much runway do you need? Eighteen months is a good default for most seed stage startups. That gives you 12-15 months to hit strong milestones (e.g. a product launch, a certain number of engaged users, a target for monthly revenues, etc.) and 3-6 months to raise your Series A. If you raise enough for more than ~18 months, it's likely that you either gave up too much equity or are not aggressive enough with your plans. If you don't raise enough for ~18 months, there's a large risk that you'll run out of money before your make enough progress to raise your next round.

Common Mistakes

Raising too much

It's tempting to think that having 2 or even 3 years of projected expenses in the bank is an asset, but in my experience it can actually be a liability. The more time you have, the less pressure there is to perform. You can spend months or even years being a perfectionist instead of releasing what you have and seeing if people want to use it. I've seen several companies spend years working on beautifully constructed software architectures only to find out that there were no customers for the products they were building.

Raising too little

Raising less than 18 months of runway starts to put too much pressure on you and leaves little room for iteration. Let's say your product roadmap has you launching in 8 months. Given that it usually takes at least a few months to raise a Series A round, if you have 12 months of cash in the bank, you're only leaving yourself one month post-launch to turn your product into a hit. If growth is slower than expected or the initial release has bugs that you need to fix or it turns out the product doesn't adequately address its users' needs, your company is likely finished. If you had an extra 6 months of cash, you would have a time cushion that lets you iterate and experiment.

Raising way too little

I occasionally see founders raising very small amounts, like $300k at an $5m valuation. They are trying to get enough cash for 3-6 months so that they can hit a few small milestones and then raise more money at a higher valuation (e.g. an additional $1.7m at an $8m valuation). I think this is penny wise and pound foolish. The more frequently you need to raise money, the more time you waste fundraising instead of building, and the more likely you are to run out of money at some point. If you need to raise one small round every 6 months, that's 3 potential failure points over an 18-month period. If you have the opportunity to do a single larger round up front, even though you give up a little more equity, you only have one potential failure point and you have a lot more time to work on your product instead of wondering if you'll be able to make payroll next month. Tomasz Tunguz recently posted a good analysis of startups' seed rounds. Tomasz found found that companies which raised $300k were about 65% less likely to raise a Series A than companies which raised $900k or more.

Not allocating time for fundraising

Founders sometimes explain their plan as follows: "I'm raising $1.5m for 18 months of runway. In 18 months, I plan to hit milestones X, Y, and Z, which will leave me well-positioned for a Series A." The flaw with that kind of plan is that you can't start raising your next round the day before your money runs out. If you need to have more money in the bank in 18 months, then you should be hitting milestones X, Y, and Z in 12-15 months, not 18 months.

The lesson is simple: when you're building a runway, make sure it's long enough for your startup to take off. For most startups, 18 months is the magic number.

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Pitches by Analogy (Tips and Gotchas)

Uber for housecleaning. Airbnb for cars. Twitter for the enterprise. LinkedIn for musicians.

Elevator pitches often include analogies to large, successful companies. These analogies can be a great way to communicate ideas quickly and accurately -- just compare "Airbnb for cars" to "We're building a website where people who have cars but don't always use them can rent their cars out by the hour or day. People who need short-term access to cars can browse local listings and bid on vehicles that fit their needs." The longer version is fine, but the 3-word version is punchy and memorable -- and equally informative!.

Analogies are not a panacea, however, and I often see them misused. The most common mistakes include:

  • Misleading analogies. "We're like Airbnb for cars. We let people sell their used cars online with minimal effort." Huh? That's very different from how Airbnb operates.
  • Confusing analogies. "We're like Pinterest meets LinkedIn meets Reddit." What does that even mean??
  • Obscure analogies. "We're like, but for home decoration." What the heck is SomeObscureWebsite?
  • Boring analogies. "We're like, but for Thailand." That doesn't sound very novel or exciting. In this case, it might be better to skip the analogy and do a more traditional elevator pitch. For example, "Thailand has a culture of shopping and bargain hunting, and their mobile penetration is over 95%. We're the first and only mobile coupon app designed for their $12b shopping sector."
  • Analogies that invite tough questions. "We're Amazon for sporting goods." Okay, but isn't Amazon the "Amazon for sporting goods"? A different pitch could have invited questions about your business, but instead I'm going to be thinking about Amazon and whether you can out-Amazon them. That's a hard sell.

In response to these common mistakes, here are some tips for pitching by analogy:

  • Make sure your analogy is clear. If you're comparing yourself to a company, that company should be well-known and should evoke a clear idea in people's minds. For example, Uber is a great company to use in analogies because everyone has heard of it and it is synonymous with great service available at the push of a button. On the other hand, saying "we are the Nissan of ___" is a bad idea because Nissan, while well-known, doesn't represent a specific quality to most people.
  • A good analogy serves two purposes: it's memorable and it's descriptive. Keep both goals in mind as you design your pitch.
  • Test your pitch on 5-10 people. If everyone loves it and gets it, that's a great sign. If people respond with "huh?" or "what do you mean?", then keep iterating.
  • To ensure that your pitch is accurate, ask people to guess what your company does after you tell them your analogy. For a good analogy, like "Airbnb for cars," almost everyone will make the same (correct) guess. For a bad analogy, guesses will either be all over the map, or consistent but wrong.

An elevator pitch is a large part of startup's identity. It's how investors will introduce you to other investors, how the press will introduce you to readers, and how users will introduce you to other users. Test your pitch with many people and use their feedback to make it as memorable, concise, and informative as possible.

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3 Reliable Techniques for Generating Ideas

Many people want to be more creative, especially in the context of generating business ideas. It's popular to believe that creativity is an innate skill, but after reading books like Thinkertoys and Cracking Creativity, I'm convinced that's not true. Here are three simple techniques that make it surprisingly easy to come up with new ideas.

Technique #1 - Mashups

Some of the most notable startups of the last few years, like Pinterest, Snapchat, Uber, and Airbnb, are each built around a core theme, like visual inspiration, ephemerality, on-demand availability, or peer-to-peer sharing of physical goods. What if you mashed these themes up with other verticals? For example, Airbnb for cars, parking, lawn mowers, trucks and vans, gym memberships, or steam vacuums. Or Uber for babysitters, home contractors, pets, food delivery (see: SpoonRocket), legal advice, or jackets.

Some of the mashups may not make sense at first, and that's okay. Many ideas become interesting if you give them time. What would "Uber for jackets" be? Maybe it's for cold evenings where people who are underdressed would pay $10 for a jacket they can use for the rest of the night. Or maybe it's for men who show up in shirts to formal restaurants -- a different kind of underdressed -- and would pay to rent a formal jacket so that they are allowed in. (Figuring out logistics for these businesses is left as an exercise for the reader.)

Technique #2 - Change One Thing (and repeat)

Speaking of restaurants, have you noticed just how many types there are? Ethiopian restaurants, sushi buffets, espresso stands, noodle shops, you name it. If you look closely you might find that restaurants which seem wildly different are no so different after all. An Indian buffet is like Sizzler, except with Indian food. Sizzler is like Denny's, except it's all you can eat. Denny's is like McDonald's, except you have a waiter. McDonald's is like Taco Bell, except with burgers instead of Mexican food. Taco Bell is like being punched in the stomach, except... actually, it's just like being punched in the stomach. (Just kidding, Taco Bell is awesome.)

Note how easy it was to go from Indian buffets to Taco Bell by repeatedly changing a single core attribute of each restaurant. Had we continued the process, we might have arrived at the French Laundry (fancy food with once-in-a-lifetime service) or Mongolian BBQ (customers choose dish ingredients) or Dim Sum (food carts visit each table of diners). Changing a single attribute of an existing idea is a great way to generate a new idea, and the more times you repeat the process, the more original your final idea becomes.

Here are a few practical examples:

Example #1

Let's start with "Uber for pets." Rent a pet instantly with a slick mobile app! Hm, that sounds dumb. What if instead of instant, the rentals were by appointment or on a regular schedule? The target market could be parents could occasionally rent pets for their kids to play with, without committing to owning a pet for years. Okay, that's a little better. What if instead of marketing this to the buyer, we marketed it to the seller? Perhaps pet owners want a break once in a while, and they'd pay to have a few hours of personal time. Now we have a potential product with a two-sided market where both sides are willing to pay. Time to start calling VCs!

Example #2

Let's start with Blockbuster Video, which offered DVD rentals from its brick and mortar locations (here's the Wikipedia link for anyone under the age of 25). What if there were no brick and mortar locations? You'd have the first version of Netflix (DVDs delivered by mail). What if you switched from DVDs to digital downloads? You'd have Netflix Streaming. What if instead of movie rentals you offered video game rentals? GameFly. What if you switched from digital goods to physical goods, like gadgets? Lumoid.

Example #3

Let's start with traditional cooking classes where people show up for a few hours and learn how to cook several different dishes. What if you let people learn to cook from the comfort of their home? You'd have SkillShare. What if you took care of grocery shopping along with the recipes that you taught? You'd have BlueApron. What if you removed cooking and just delivered hot meals? You'd have DoorDash. What if you focused on companies instead of individuals? You'd have ZeroCater or Chewse.

Technique #3 - The 5 Whys

It's easy to get so caught up trying to solve a problem that you forget about the bigger picture. The 5 Whys technique involves asking "why?" five times in order to better understand the real issue at hand. Once you've gone through the exercise, you'll have more options for addressing your original problem. Here's an example:

Premise: "I need to get a credit card with a better rewards program."
Why? "Because my credit card bill is very high."
Why? "Because I've been buying too many gadgets."
Why? "Because I need to stay up to date with technology to be good at my job as an investor."
Why? "Because I want to be an amazing investor."
Why? "Because I want to have the resources, connections, and experience to help startups succeed."

The original problem was how to get a credit card with better rewards. Now, the problem can be reframed in many ways:
  • How can I lower my credit card bill? (set a budget, shop at Walmart instead of Macy's, buy weights instead of a monthly gym membership, ...)
  • How can I save money on gadgets? (rent or borrow when possible, look for online coupons, make use of price comparison websites, ...)
  • How can I stay up to date with technology? (find good tech news sites, connect to more engineers and scientists, ...)
  • How can I be become an amazing investor? (read books, talk to other investors, go to networking events, ...)
  • How can I help startups succeed? (read books, hold office hours, share advice freely, start a blog, ...)

This technique works well for business questions, too. Why do you want to add social sharing buttons to your product? Because you want to find more potential users. Why do you want new users? Because existing users aren't converting to paid very well. Why don't they convert to paid? Because they're not engaged with the product. Why aren't they engaged? Because onboarding is poor and many users abandon your app forever after trying it out for a few minutes. Why is onboarding poor? Because you've been too busy fighting deployment issues and haven't had time to improve the app. Now, while you can still add social sharing features, you might realize that your time is better spent improving onboarding or figuring out ways to make deployment less buggy.

These three techniques are very useful for coming up with product and feature ideas. For more creativity techniques, check out this site, or read a few books like Thinkertoys, Cracking Creativity, inGenius, or A Whack on the Side of the Head.

Analyzing Product Hunt Data

During the last few months, I've become a big fan of Product Hunt, a site that showcases newly released products. Now that Product Hunt's been around for a little while and is getting decent traffic, I thought it might be fun to look at recent submissions to see which products and product descriptions get the most attention. I downloaded the last ~6 months of submissions and spent several hours exploring the data. This post summarizes some of my findings. If you don't want to read the whole thing, the most interesting section is probably "Miscellaneous Observations."

Basic Stats

Here's a plot of of the vote distribution (each bar represents a single product):

Common Words in Product Names

When looking at words in product names, I noticed 3 main themes.

Theme #1: Trendy naming conventions
  • IO (PredictionIO,,,, ...)
  • iOS (Mention for iOS, iOS 8, Medium for iOS, ...)
  • Me (Unwind Me, Vinyl Me, Please,, ...)
  • 2.0 (Jekyll 2.0, Clarity 2.0, Quip 2.0, Crunchbase 2.0, ...)
  • One (OneTab, One Month HTML, OneTask, One Month Rails, ...)
  • Up (ThinkUp, CentUp, LendUp, UpCounsel, ...)
  • Box (BatteryBox, Space Box, RocksBox, ...)
  • Hub (UsabilityHub, HubYard, ZenHub, ...)
  • Hello (HelloCar, HelloSign, Hello Ruby, ...)
Theme #2: Software for startups and for product development
  • Growth (GrowthHackers, Learn to Growth Hack, Scraping for Growth, ...)
  • Startup (, Startups Anonymous, Startup Legitimizer, ...)
  • Design (Hack Design, Design Triggers, Designer Chat, ...)
  • User (User Onboarding, Peek by UserTesting, Random User Gen, UserApp, ...)
  • Hack (Hack Hands, HackDesign, Sell Hack, ...)
  • Code (, Design+code, CodeCombat, ...)

Theme #3: Common actions and broad product categories

  • Mail (MailCharts, Fake Mail Generator, Proton Mail, Mailbox 2.0, ...)
  • Read (Beacon Reader, BeeLine Reader, ReadingPack, ...)
  • Share (Routeshare, Share As Image,, SupperShare, ...)
  • Work (Workfrom, Workflowy, WorkingOn, ...)
  • Sketch (Sketch Deck, Sketch, Sketch Mirror, ...)
  • Video (Interactive Video, WeVideo, Video Quality Report, ...)
  • Sound (SoundBetter, SoundCloud Wall, SoundFlake, ...
  • News (Hacker Newsletter,, newsle, Vice News, ...) 

Most Upvoted Words in Product Names

The following are a few of the words most correlated with high vote counts:

  • Anything related to Product Hunt:  Product Hunt Jobs,  Product Hunt Radio, Product Hunt Search, etc. (avg. votes=93, n=7)
  • Sending things: Sendwithus, DocSend, SendinBlue, Sendy, etc. (avg. votes=46, n=9)
  • Growth hacking: Growth Hacker TV, Scraping for Growth, Learn to Growth Hack, GrowthHackers (avg. votes=40, n=4)
  • Reading: Slicereader, BeeLine Reader, Beacon Reader, FullContact Card Reader (avg. votes=37, n=4)

Common Words in Product Descriptions

Theme #1: Common English words
  • For ("Google Docs for Video Projects", "A/B Testing for Transactional Email", ...). N=709. The two most common usages were analogies like "Uber for XYZ", and target market/platform specifications like "XYZ for kids" or "XYZ for iOS"
  • Your ("Finally an app to put your Facebook events on steroids", "A new way to interact with your phone", ...). N=661. Usually used to explain who/what the product is for.
  • Way ("The easiest way to buy and sell used furniture", "The Easiest Way To Organize An Event", ...). N=107. Typically phrased like "The smartest/simplest/fastest/best/etc. way to XYZ"
  • Other common words like and, the, to, a, and with.

Theme #2: Adjectives

  • New ("Notify tech blogs about your new app", "A whole new swipe to unlock", ...). N=100
  • Simple ("Shipping made simple", "A simple app to say yo to friends", ...). N=100
  • Free ("Free tool and method for testing startup ideas", "Free video calling without the hassle", ...). N=73
  • Best ("The best toy ever for kids!", "A new version of the best weather app!", ...). N=69
  • Beautiful ("A beautiful new puzzle game for iOS from the makers of Dots", "Typeform makes asking questions easy, human and beautiful", ...) N=51
  • Better ("Better communication, one page at a time", "Create better content", ...). N=51
  • Easy ("An Easy Marketplace for Legal Services", "Free and easy online stores", ...). N=45

These are exactly the adjectives I would have expected at the top of the list. :)

Most Upvoted Words and Phrases in Product Descriptions

  • Product Hunt (avg. votes = 47.5, n=11)
  • For Developers (avg. votes = 40.8, n=9)
  • Screenshots (avg. votes = 39.1, n=8) [This was a surprise to me.]
  • Entrepreneur (avg. votes = 35.6, n=9)
  • For Startup(s) (avg. votes = 35.2, n=8)
  • Tinder (avg. votes = 32.8, n=9). [Tinder for jobs, content, travel, etc.]
  • Documents (avg. votes = 31.7, n=11)
  • Your App (avg. votes = 31.7, n=16)
  • With Your Friend(s) (avg. votes = 31.2, n=8)
  • The Easiest (avg. votes = 31.2, n=21)
  • In Seconds (avg. votes = 30.5, n=12)
  • Automate (avg. votes = 28.4, n=20)

The two big themes here seem to be simplicity ("in seconds", "the easiest", "Tinder") and products for developers and startups ("for developers", "for startups", "entrepreneur", "your app"). The latter is not surprising since there is a lot of overlap between the startup community and the Product Hunt community.

Miscellaneous Observations

Some conclusions based on frequently occurring terms in product descriptions:

  • "best" is in fact better than "better" (avg. of 19.4 votes vs. 16.3 votes)
  • "easiest" is in fact easier than "easy" (25.9 vs 18.0 votes)
  • "apps" are nice, but "iOS" apps are awesome (17.8 vs 23.7 votes)
  • Users love seeing a better "way" of doing something they already do (avg. of 20.7 votes)
  • People like products that are "new" and "free", and they like "more" of them (19.4, 22.2, and 20.4 votes, respectively)
  • "Share" and "create"? Meh. (14.2 and 15.7 votes, respectively)
  • People value their "friends" and other "people" that they can "chat" with, not just products that proclaim to be "social" (21.8, 18.3, 19.5, and 13.3, respectively)
  • Products for your "phone" are much better than "mobile" versions of products (15.7 vs. 10.4 votes)
  • "Email"? 23.4 votes. "Video"? 19.4. "Photos"? 13.3.
  • A useful "tool" is better than a generic "platform". (21.0 vs. 13.2 votes)
  • A "marketplace" is better liked than a "service" (17.8 vs 10.9 votes)
  • Users like the "personal" touch (23.7 votes)

(Most of these conclusions have at least several dozen samples for each term.)


This analysis is meant to be more fun than rigorous. The sample size is not huge and I'm not a statistician. I checked my code for obvious bugs, but it might not be perfect. YMMV. IANAL.

So What?

This was fun to do with a dataset of 3000 products, but what really excites me is the dataset that Product Hunt will have in a year or two. So many things could be done with a database of tens of thousands of products tied to popularity data and user comments. Are some people great at finding popular products before everyone else? They might make for great VCs. Is "Uber for X" a gimmick, or a product category that everyone values? What are the most compelling adjectives for describing a product? A lot of these questions could be answered with enough data, and I'm looking forward to seeing what the data shows.

An Algorithm for Seed Round Valuations

Your nascent startup is progressing well, and you've decided you want to raise $X at a pre-money valuation of $Y. How do you figure out what X and Y should be? 

In this post, I'm going to outline a potential algorithm for calculating X and Y. Note that valuations are part science, part art, so this algorithm is meant to serve as a good starting point, not as a set of unbreakable rules.

Step 1: How much do you need?

Come up with a list of all expenses you expect to have over the next 18 months: salaries for existing employees as well as new ones, office space, infrastructure, light marketing/PR, legal/accounting costs, etc. Assume that in the worst case, your monthly revenue, if you already have some, will be stagnant. Add a 10%-20% cushion to provide breathing room. The total of all of these costs is $X -- the number you should be raising.

Why is 18 months the magic duration? It takes up to 6 months to raise a Series A, so raising 18 months of runway right now will give you about a year to put yourself into a good position for raising your next round. 15 months of runway is okay -- that gives you 9 months to make substantial progress. Anything less than 15 months is risky because you might not have enough time to find product-market fit. (Redpoint's Tomasz Tunguz has an informative post about how much you need to raise to maximize your changes of getting to a Series A.)

Step 2: What is your target valuation?

Guess the maximum (pre-money) valuation, $Y, that you think you could raise at within ~2 months.

Based on what I've seen in the last few months in Silicon Valley, here are some pre-money valuation benchmarks for companies:

  • Pre-product or alpha version of product: $3m-$6.5m. (Occasionally, exceptionally strong teams might raise at $8m-$10m with just an idea.)
  • Beta version, a few pilot customers, $1k-$20k in monthly revenue: $6m-$9m.
  • Fairly mature product, sales is still high-touch and case-by-case, $25k-$100k in monthly revenue: $7m-$14m.
  • Fairly mature product, starting to have repeatable sales process, $100k+ in monthly revenues $15m+. (This is Series A territory.)

(It should be noted that most founders that I talk to are building B2B SaaS products.)

What puts someone at the higher end of each range? Great revenue/growth numbers, strong founding teams, or some sort of unfair advantage (key industry connections, an important patent, etc.)

You might be wondering about the two month time limit. Obviously you want to get a good valuation, so why limit yourself to the valuation you could raise at within 2 months? Because time is precious. At the seed stage, a company typically has 2-5 people. Fundraising will take up close to 100% of the CEO's time, and burning 4 or 6 man-months is too high a cost when your company is tiny. Startup outcomes are fairly binary (you have a big success or you fail), and whether you own 35% of the company or 33% of the company when it exits won't make a huge difference. Better to own 33% of something successful than to spend a few extra months negotiating for an extra few percent but dooming your company to failure because the product isn't getting any attention. Actually, this is also good advice for investors: if you think a valuation is 50% too high, it's worth negotiating; if you think it's 8% or 12% too high, it's better to just invest than to go into prolonged negotiations that hurt both parties.

Step 3: Perform a sanity check

Now that you've calculated X, the amount you need to raise, and Y, the valuation you can raise at, how do you tell if X and Y are sensible? Here are a few rules of thumb:

  1. If Y is much more than 4X, try to come up with a more aggressive roadmap, since you could probably raise more money with an acceptable amount of dilution. (Y Combinator companies are the exception here -- they often set Y to 7X-8X, perhaps because Y Combinator is already taking a 7% stake.)
  2. If Y is between 4X and 6X, start fundraising!
  3. If Y is less than 4X, that's too much dilution. It rarely makes sense to give up more than 20% of your company during your seed round -- unless X is very high and will buy you a lot of time.

What do you do if you're facing too much dilution? First, you can try to reduce $X by coming up with a more conservative growth plan (e.g. one that requires fewer hires -- and results in slower growth). Second, you might be able to get away with raising a very small amount now, and then trying to get to a place where you can raise the rest of $X in 6-9 months. For example, if your valuation is too low to raise $1m, you could raise $250k now to hire 1-2 extra people, then try to build enough value to raise $750k at a higher valuation in 6 months. If you don't like either of these options, you can take the dilution penalty as a last resort.


  • Just like a very low valuation is bad for your company, a very high one can also hurt your future prospects. The higher your seed valuation, the higher expectations will be for your Series A. If your seed round is at $5m, you might raise your Series A at $16m. If your seed round is at $14m, you might need to be at $30m for your Series A. It's a lot harder to justify a $30m valuation after a year of work.
  • Don't raise at multiple valuations in rapid succession in order to pressure investors to decide quickly. Some founders set up complex schemes like "if you invest now, the valuation is $4m; in two weeks, it goes up to $5m; in four weeks, it goes up to $7m." Funds don't like this because it's hard for the them to justify higher valuations to their LPs (i.e. their own investors). As a fund partner, it's unpleasant to go to an LPs and explain that you paid a higher price than another fund just because you found out about a startup a few days after someone else. Most funds will choose to avoid this issue altogether by not investing in your company. Only increase your valuation if you've made meaningful progress.
  • Carefully weigh your dilution vs. your time. A startup's two most limited resources are time and money. If you spend a month or two on fundraising, your picked a good valuation. If you needed 6 months, you set your price too high. If you need 1 week, you set your price too low. Don't try to keep an extra 2% of your company if it destroys four months of founder time -- that's not worth it in the first year or two of your startup.
  • Frequently, the lead investor in your round will negotiate terms with you. The lead investor frequently helps set the valuation, but it's good to have a number in mind so that you're prepared for the negotiation.

Common terms investors ask for

Pro rata -- this is the right to invest in your future rounds to maintain a fixed equity stake. A good explanation can be found here. Major investors, seed funds, and VCs will always want this right. Angel investors will sometimes want this right.

MFN -- this is the right to get the same terms as the most favored investor in the round. Without an MFN clause, a company can sell equity to one investor at a $6m valuation and to another investor at an $8m valuation. With an MFN clause, every investor would automatically be upgraded to the best terms ($6m, in this case). In my opinion, this is a reasonable request. Investors want to make sure they get the same deal as everyone else, and this term guarantees that. You might still have some flexibility with advisory shares, common stock, or warrants if you really want to give someone a better deal, but everyone will at least be at the same valuation on paper. 

Board Seats -- larger investors often want a seat on your board. Some people think it's wise to add board members during a seed round, others disagree.

Additional resources

Thank you to Chad Byers, Dheeraj Sanka, and Sean Byrnes for giving me feedback on this post.

Demo Day Pitching, Part 2: Telling a Story

Inside an Investor's Mind

Last week, I wrote a post about common problems I frequently see in demo day startup pitches. One thing that was intentionally missing from that post was the most common problem that I see, which I'd like to illustrate with a fictitious presentation:

"Hi, I'm Joe and I'm the founder and CEO of Foobar. Foobar is killing it! We already have 8 pilot customers, and thirty more -- including Yahoo and Dropbox -- are in the pipeline. Our team is amazing. We've worked at huge tech companies like Facebook and Google, and two of us have built and sold HR startups in the past. My cofounders and I are building software that streamlines the performance review process. Our tool is extremely easy to use and cuts review times by 80%. It also allows employees to submit feedback whenever they want instead of during a magical once-a-year period. Research indicates that employees spend 3% of their year on performance reviews, which results in $15B of wasted productivity every year. Everyone hates performance reviews because they take up so much time and because it's hard to remember what each of your dozen coworkers accomplished last year. If you're interested, please talk to me, Joe, after the demo."

What's the problem with this [artificially constructed in order to be illustrative] pitch? It doesn't tell a story. The individual sentences make good points, but there's no cohesion. Let's proceed line-by-line and imagine what an investor might think as they listen to the this presentation.

Presenter: "Hi, I'm Joe and I'm the founder and CEO of Foobar."

Investor: "Foobar? Pretty good name -- although it sounds kind of generic."

Presenter: "Foobar is killing it!"

Investor: "Killing what?"

Presenter: "We already have 8 pilot customers, and thirty more -- including Yahoo and Dropbox -- are in the pipeline."

Investor: "8 customers? What do you do? What are you selling? That number could be impressive if your software costs $1m/year or unimpressive if it costs $100/year."

Presenter: "Our team is amazing. We've worked at huge tech companies like Facebook and Google, and two of us have built and sold HR startups in the past."

Investor: "Good for you. Is it supposed to be important that you mentioned you founded HR startups and not 3D printing startups or social networking startups? Also, I still have no idea what you do."

Presenter: "My cofounders and I are building software that streamlines the performance review process."

Investor: "Ok, finally I know what you do. I wonder: is this actually a meaningful problem?"

Presenter: "Our tool is extremely easy to use and cuts review times by 80%."

Investor: "Okay, cuts times by 80%. Great. But does that matter? Do companies actually spend that much time on performance reviews?"

Presenter: "It also allows employees to submit feedback whenever they want instead of during a magical once-a-year period."

Investor: "That's nice, I guess."

Presenter: "Research indicates that employees spend 3% of their year on performance reviews, which results in $15B of wasted productivity every year."

Investor: "Ooh, that's pretty big problem!"

Presenter: "Everyone hates performance reviews because they take up so much time and because it's hard to remember what each of your dozen coworkers accomplished last year."

Investor: "That's very true. I remember hating the review process when I worked at XYZ Corp -- that was painful."

Presenter: "If you're interested, please talk to me, Joe, after the demo."

Investor: "Meh. Hmm, I wonder who the next presenter will be..."

Now, imagine if Joe reorganized the exact same content to tell a story:

"Hi, I'm Joe and I'm the founder and CEO of Foobar. Everyone hates performance reviews because they take up so much time and because it's hard to remember what each of your dozen coworkers accomplished last year. Research indicates that employees spend 3% of their year on performance reviews, which results in $15B of wasted productivity every year. My cofounders and I are building software that streamlines the performance review process. Our tool is extremely easy to use and cuts review times by 80%. It also allows employees to submit feedback whenever they want instead of during a magical once-a-year period. Our team is amazing. We've worked at huge tech companies like Facebook and Google, and two of us have built and sold HR startups in the past. Foobar is killing it! We already have 8 pilot customers, and thirty more -- including Yahoo and Dropbox -- are in the pipeline. If you're interested, please talk to me, Joe, after the demo."

Much better. What would our hypothetical investor think while listening to this pitch?

Presenter: "Hi, I'm Joe and I'm the founder and CEO of Foobar."

Investor: "Foobar? Pretty good name -- although it sounds kind of generic."

Presenter: "Everyone hates performance reviews because they take up so much time and because it's hard to remember what each of your dozen coworkers accomplished last year."

Investor: "That's very true. I remember hating the review process when I worked at XYZ Corp -- that was painful."

Presenter: "Research indicates that employees spend 3% of their year on performance reviews, which results in $15B of wasted productivity every year."

Investor: "Wow! I suspected the problem was big, but I didn't realize it was that big!"

Presenter: "My cofounders and I are building software that streamlines the performance review process. Our tool is extremely easy to use and cuts review times by 80%. It also allows employees to submit feedback whenever they want instead of during a magical once-a-year period."

Investor: "Streamlining reviews and making it possible to submit feedback frequently sound like great ideas. If Foobar can reduce review times by 80%, and reviews are a $15B inefficiency, then this can be a huge business."

Presenter: "Our team is amazing. We've worked at huge tech companies like Facebook and Google, and two of us have built and sold HR startups in the past."

Investor: "Wow, these guys have built and sold HR companies in the past and they worked at Facebook and Google? This team is amazing!"

Presenter: "Foobar is killing it! We already have 8 pilot customers, and thirty more -- including Yahoo and Dropbox -- are in the pipeline."

Investor: "Now I'm really impressed. If this company charges something like $100 per employee per year, then a customer like Yahoo would be huge. Let me email Joe to make sure he doesn't leave demo day before talking to me."

Presenter: "If you're interested, please talk to me, Joe, after the demo."

Investor: "Ah, there's Joe's email address..."

The content of the pitches is exactly the same, but having a narrative makes a huge difference.

Pitch Recipes

The reorganized pitch follows a standard pitch recipe:

  1. Talk about the problem.
  2. Talk about the size of the problem (in $$$).
  3. Describe your solution.
  4. Explain why you're the right team.
  5. Highlight your progress so far.
  6. Wrap up.

Of course, that is not the only possible storytelling arc. Here's a different recipe: 

  1. Talk about a problem you and your cofounders encountered and solved at a previous job.
  2. Talk about the size of the problem (in $$$).
  3. Describe your solution.
  4. Briefly recap why you're the right team.
  5. Highlight your progress so far.
  6. Wrap up.

In this version, your introduction explains both the problem and your team. For example: "Jane and I spent 9 years writing cloud software at Google. Deploying to the cloud was a pain: we had to maintain hundreds of configuration files, interact with dozens of sysadmins, and it was hard to avoid allocating too few or too many machines. We wrote software to address these challenges, and that software was quickly adopted by Google's entire engineering organization. Last year, after Jane and I left Google, we realized that software like this should be available to all companies. That's how we came up with Foobar..." This intro simultaneously sets up the problem and establishes the team's experience and pedigree.

Just for fun, here's one final recipe:

  1. Talk about how much money and time are spent on a problem.
  2. Explain why that is absurdly wasteful.
  3. Describe your solution.
  4. Explain why you're the right team.
  5. Highlight your progress so far.
  6. Wrap up.

Tell a Story

When you design your presentation, make sure you're telling a story. A story is much more compelling than a collection of facts, and that's true regardless of whether you're doing a demo day pitch, an one-on-one investor pitch, or a sales pitch.

If you're not sure whether or not you're telling a good story, boil down each slide to its essence ("This is the problem. This is the solution. This is my team..."). When you're done, check if reordering the slides would create a more compelling narrative.

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Demo Day Pitching, Part 1: Common Problems

Last week, I went to a pitch feedback session where I met with about 15 companies that are presenting at upcoming demo days. I usually listen to demo day pitches from the investing angle ("Is this company a good fit for my fund?") rather than the feedback angle ("How could this pitch be better?"), so this was a great opportunity to think about how these pitches can be more compelling.

After listening to over a dozen presentations, I noticed that the same issues kept coming up. This post will cover some of the most common problems in demo day pitches. Next week, I'm going to post a recipe for a great pitch.

What problem are you solving?

Mistake: The presenter doesn't explain why his product is needed.

Example: "Hi, I'm Joe. Scheduling is broken, and I'm here to tell you how to fix it with ScheduleBuddy. ScheduleBuddy makes it super simple to schedule events with your friends. We have a strong team with decades of experience.."

What does it mean that scheduling is broken? Is the problem with event creation? Sharing events with others? Finding a time that works for everyone? Having something that syncs well between all of your devices? If your audience doesn't understand what problem you are solving then they won't care about the quality of your solution. Spell the problem out clearly and succinctly. For instance, "have you ever tried to schedule a meeting with four or five other people? It sucks. Dozens of emails get sent around with proposals, counterproposals, and apologies. You spend more time on scheduling the meeting than on the meeting itself. ScheduleBuddy makes scheduling a breeze..."

Who is your main customer?

Mistake: The presenter doesn't explain who is her product's customer.

Example: "We've created the ultimate app for tracking doctor visits. Patients have better access to doctors' notes and doctors have an easy way to see a patients' medical histories. We have a strong team with decades of experience.."

Who are you selling this to? Is this something you sell to patients? To doctors? To hospitals, who then force doctors to ask their patients to install it? All of those are very different businesses and will interest different groups of investors. Make sure your audience knows who your customer will be. For example, "we make money by charging hospitals, who are willing to pay because our app improves patient happiness by 23% and doctor efficiency by 8%."

TMI (Too much information)

Mistake: The presenter spends too much time on low-level details.

Example: "Our first cofounder, Amy, graduated from Caltech in 2002. After that, she worked at Foo Systems, where she did W, X, and Y. Actually, she also did Z. After Foo, she took a few months off, then worked at YouPipe on the video uploader team. Amy left YouPipe because she got tired of product management and wanted to move into operations, and now she is our COO. Bob, the second of our five cofounders, graduated from Yale in 2004..."

Presenters often treat a demo day pitch like a more traditional one-on-one pitch, but that's a mistake. A demo day pitch is typically 3-5 minutes, which is not enough time to dive into many low-level details. Your sole goal should be to pique each investor's interest so that they meet you at the end of demo day and schedule a one-on-one meeting to discuss your company in depth. For example, you might say, "Our five founders come from schools like Caltech and Harvard and companies like Foo Systems and Google. Our team consists of 3 engineers, one designer, and one PM, and two of us have started and sold companies in the past."

NEI (Not enough information)

Mistake: The presenter doesn't provide enough useful information.

Example: "We already have pilot customers and are adding additional users every month."

This example doesn't sound so bad on the surface, until you consider that the presenter could've said, "We already have 43 pilot customers who are each paying us an average of $450/month. Our customer base has been growing by 40% every month for the last 4 months."

While you don't want to provide too much information, omitting material facts is equally bad. For instance, while you shouldn't rattle off five facts about each of your cofounders, it's definitely worth mentioning if some of them worked at Facebook, or built startups that were acquired for $100m, or placed highly in international programming competitions.

Don't Ramble

Mistake: The presenter rambles and sounds unpolished.

Example: "Scheduling is broken. I mean, think about the last time you created a calendar invite and tried to share it with your best friend. Umm.. you know, like if you have Google Calendar and they use something else. Maybe iCal. So, like, you send this invite, and your friend can't, you know, view it. I hate it when that happens. It, uh, really sucks."

If a startup is truly amazing, then rambling won't matter. When the person rambling about scheduling is Jack Dorsey, or their scheduling app generated $250k in revenue last month, investors will line up to invest. For everyone else, not having a polished pitch is a bad signal. At best, your message gets diluted; at worst, investors will assume that your presentation skills are a reflection of your CEO skills. Create a tight, polished script for your pitch, then practice it until you can deliver it in your sleep.

A Survey of Survey Design

There are many use cases for surveys in the startup world:

  • Founders want to survey early customers to understand their wants and needs.
  • Investors want to survey portfolio companies to learn how to be more helpful.
  • HR wants to survey employees to find out what's going well and what's not.
  • Engineers and PMs want to survey users to get product feedback.

Given the important role of surveys, it's critical to design them as well as possible to increase response rates and maximize learning. 

A few weeks ago, I decided it might be a good idea to survey my fund's portfolio companies to understand where they excel, where they struggle, where they wish they had more help. Since founders are incredibly busy, I wanted to make sure the survey was designed well enough that it would be useful on first try. I read dozens blog posts, articles, and research papers on survey design, and this post is a summary of what I learned.

Before you start

  • Understand your goals for doing the survey and make sure the questions you ask will provide you with the data you need to accomplish your goals.
  • Realize that bad survey design can yield very misleading data. For example, when asked what they considered to be the most important thing for children to prepare them for life, over 60% of respondents chose the option "to think for themselves" when it was presented. However, when no options were presented, less than 5% of responders wrote an answer that fell into this category.

Question ordering

  • Ask simple questions first to build trust and rapport with the responder. If you start with tough questions, people will get frustrated and will be more likely to abandon the survey.
  • Group questions by topic, and organize the questions from more general to more specific within each topic.
  • Use filter questions to allow respondents to skip sections that do not apply to them.

Question phrasing

  • Options should be exhaustive and mutually exclusive.
    Bad: "Do you think XYZ is good, quite good, or very good?"
    Better: "Do you think XYZ is bad, neutral, or good?"

  • Use simple, unambiguous words and avoid jargon.
    Bad: "How many occupants inhabit your household?"
    Better: "How many people do you live with?"

  • Questions should be neutral, not leading.
    Bad: "Agree/Disagree: XYZ is an incredibly bad product."
    Better: "How would you rate XYZ?"

  • Ask one thing at a time and avoid single or double negations.
    Bad: "Does product XYZ have enough features to replace your existing payroll provider, or do you not have an existing payroll provider?"
    Better: "Question 1 -- Do you have an existing payroll provider? If the answer is 'no', skip the next question. Question 2 -- Does product XYZ have enough features to replace your payroll provider?"

Categorical multiple choice questions

  • When asking people which of several categories they prefer, the order of options matters. People are biased toward the first satisfactory option when the options are presented visually (satisficing). On the other hand, they are biased toward the most recent option when options are presented orally (poor short-term memory). To compensate for these biases, it's best to randomize the option order for different responders. For example, ask 1/6th of your responders if they prefer X, Y, or Z; ask another 1/6th if they prefer Y, X, or Z; and so on.
  • It's tempting to include an "I don't know" option, but while that encourages people who can't pick a good answer to be honest, it also encourages people to be lazy. Adding "I don't know" as an option generally doesn't improve survey data quality.

Rating and ranking questions

  • Use 5-point scales for unipolar questions ("On a scale of 1 (not very happy) to 5 (very happy), how happy are you?")
  • Use 7-point scales for bipolar questions ("On a scale of 1 (very unhappy) to 7 (very happy), how happy are you?")
  • Common scales for different qualities can be found here
  • People avoid extremes and stick to middle-ground values. Scales with 3 values are problematic because people will tend to pick the middle value.
  • Ask people to rate their attitudes on 5- (or 7-) point scales instead of asking them agree/disagree questions. People tend to acquiesce and will be biased toward agreement in questions where the options are binary (agree/disagree, true/false, yes/no, et cetera). For example, in one set of studies, people agreed with assertions 52% of the time and disagreed with the opposite assertions 42% of the time.
  • Rating questions can result in all answers being the same. For example, you might ask someone to rate ten movies and find that almost every movie receives 4 out of 5 points. Asking responders to rank options is more time-consuming but can provide more meaningful data when you want relative rankings.

Open-ended questions

  • Open-ended questions are great at collecting feedback, but they are hard to analyze automatically. Participants sometimes skip open-ended questions because they are more challenging and time-consuming to answer.
  • Open questions are effective for eliciting numerical responses, whereas categorical options might introduce biases. For instance, in one study, only 16% of individuals reported watching >2.5 hours of TV when that was the highest possible answer, but 40% of individuals reported watching >2.5 hours of TV when that option was broken into 5 sub-ranges. Asking an open-ended question like "How many hours of TV do you watch daily?" can remove this issue.

Miscellaneous tips

  • People are biased toward answers that make them look good, especially if surveys are administered by someone else. Self-administered surveys and anonymous surveys partially compensate for this bias. 
  • Keep surveys to a reasonable length. As responders tire of answering questions, their tendencies to agree, to satisfice, and to skip questions all increase.

Further resources