Startups are Risk Bundles

Startup founders are sometimes surprised when they spend a year or two executing against their roadmap, make a lot of progress, and still have to struggle to raise more capital. Why wouldn't investors be interested in a company if it's much further along than it was last year? Why are the few investors who are interested only willing to invest at a lower valuation?

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Avoid Piecemeal Seed Rounds

Most founders try to raise their seed rounds in one shot, but some do their fundraising over long stretches of time and across a series of (rising) valuations. For most founders in the latter group, piecemeal fundraising is out of necessity: if they can't raise $1.5m but can raise $400k, then $400k is almost certainly better than nothing. Some founders, however, do fundraising in small increments in an effort to fight dilution, on the assumption that more capital will be available later. Unfortunately, incremental fundraising does little to combat dilution while posing significant existential risk. If you have the opportunity to raise your target seed amount in one shot at reasonable terms, then you should take it.

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Investor Relations for Post-Seed Startups

When founders are raising their seed rounds, they try to meet with as many investors as possible -- a sound strategy for raising money. However, after those seed rounds close, most founders are unsure about how to allocate time to new investor relationships. Should they start reaching out to Series A investors even though a Series A is over a year away? Should they accept meeting requests from VCs they've never talked to before? If they do meet with new investors, what should such meetings be about? This post will address some of the most common questions about meeting with investors when you're not fundraising.

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The Fight Against Overconfidence

A few weeks ago, I wrote about the 100-hour rule:

For most disciplines, it only takes one hundred hours of active learning to become much more competent than an absolute beginner.

The downside of achieving basic competence is that it often leads to overconfidence. This is called the Dunning-Kruger effect. In a study published in 1999, David Dunning and Justin Kruger found that unskilled individuals greatly overestimated their abilities, while highly skilled individuals underestimated their abilities. Here's an illustrative figure from the study:

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The 100-Hour Rule

A recently popularized meme is the 10,000-Hour Rule, which describes the amount of time required to achieve mastery of a field. This rule has several implications:

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