How You May be Signaling Price without Knowing It

Posted on Jan 20, 2011 | 55 comments

How You May be Signaling Price without Knowing It

I was having a chat with an entrepreneur who I really like and who I try to mentor from time-to-time.  He has an interesting business and one that has a viable shot at being an innovative & profitable business.

One problem.  He’s struggling to raise money.  This is extra frustrating in an era in which all you read about is how frothy the VC / funding market is these days.  People are raising in record times and with wacky valuations.  It is not an uncommon story that this is happening but others are struggling.

Obviously the diagnosis can have many route causes:

  • Sometimes it’s a question of a market that is less sexy than the current VC fad.  That’s OK if it’s your problem as long as your business really is differentiated and compelling.  You’ll find the right investor eventually through persistence.
  • It might also be that your product isn’t complete enough, you don’t have enough evidence of success (by what ever measure is appropriate)
  • You might not have gotten access to the right pool of investors and/or need to work harder to get appropriate introductions.
  • You might just suck.  That happens, too.  Joking aside, I wish more VCs would humbly, politely and respectfully tell people when this is the case.  I know it’s strange to say, but I almost always do.  I try to be constructive.  But I tell people up front when I think the idea won’t work, the team is wrong or the strategy is off base.  Sometimes I’ll say, “I highly doubt you will get funded with this concept – here’s why …” and I try to offer constructive points. But I’m also quick to point out the obvious – I’m a single data point and might be wrong.  Mix my views into the pot and make your own mind up.
  • You might be positioning your market or the opportunity wrong.  That happens A LOT.  An otherwise interesting company & space gets reduced to, “oh, but Yelp is already doing that” or “there’s no way you can compete with Mint – they have the market locked up” when you really didn’t see them as future competitor.

Experienced people who are advising you should spot most of this and after a few failed investor meetings if you have good intuition you can problem pick up the signals yourself about what is not resonating.

But this particular guy who called me for advice I suspect had a different problem.  It was the silent killer.  The one he probably had no chance of identifying.  He was price signaling without knowing it.  His company had raised seed money already.  They had good assets and initial market traction.  But it isn’t in a tradition VC market and certainly not one perceived as “hot.”  That, and they were in the second inning on a pivot of the business – albeit with early signs of success.

I asked him, “how much are you raising?”  He said around $7 million.  They have some revenue but not much.  I asked him what his valuation expectations were and he said he wasn’t fixated on that.  He wanted a good partner, a fair valuation, and quite honestly, just some effing money!

My view is that investors in this situation start to form ideas about what the valuation would be even though you aren’t naming a price.  I say this all the time: the “sweet spot” of dilution on a normal deal is 25-33%.  If you’re hot you might be able to push this down to 15-20% depending on the investor and the competition.  If you’re SUPER hot maybe lower.  Obviously this excludes late-stage deals.  If you’re struggling a bit on funding you might see 40% dilution.  Also, if you combine 2 VCs that want 20% each you might get to 40% de facto.

So two things are at work here:

  1. Most people are assuming the valuation expectation would be between $14m pre-money ($7 raised / $21m post = 33%) and $21m pre-money ($7m / $28m = 25% dilution).  If they thought it wasn’t competitive they might think they’d get to $10-12m pre but more likely they assume $14-21m.  By stating the amount of the fund raise, you set price expectations without knowing it.
  2. Investors will say to themselves, “irrespective of how much ownership I get and what the price is, am I prepared to risk $7 million dollars at this stage of the company with the proof points I see in front of me?”

So I asked him if he really needed $7m and whether he had those price expectations.  His answer was, “no, I think I could get by on $3m and am willing to have a lower price.  I just figured since we did a large seed round people would be expecting a much larger next round or it would look strange.”

I encouraged him to raise a smaller round, get more proof points and if the business were working better raise more money later.  You do always need to tell people how much you’re raising and how long the cash will last.  So it’s not about “not naming an amount” it’s about signaling a lower price IF the situation is appropriate.

Obviously people might have passed for other reasons and I asked him to be reflective about that.  Specifically I told him if he could bridge himself to get further down the track on his pivot it will feel less like a ‘Tweener company (between one stage and the next).

I’ve seen this guy present.  He does a good job.  I know his market – while not “hot” it’s real.  I know that it will resonate with some investors.  I know the guys he’s talking to and they’re some of the right people.  But they’re telling him, “not now, we want to see more progress.”  I’m sure that’s accurate.  But I also know that the amount of traction you expect as an investor is tied to both the amount of money being raised and the price you’re paying.  That’s risk vs. reward.

So just be aware that while there are many factors that go into price expectations (serial vs. first time entrepreneur, perceived competitiveness of deal, data showing traction, etc.) many investors will make their assumptions about your price even when you haven’t told them.  Ask for the appropriate amount of capital relative to your progress.  If the first few meetings aren’t going to plan, consider “A/B testing” a different raise amount (with a changed financial model) at a couple of VCs to see if that changes reactions.

When you’re raising money and it isn’t coming together it totally bites.  I’ve been there.  You feel like you’re groveling – never fun.  But please be very self reflective on all reasons why the funding isn’t coming together.  Seek feedback from many sources.  Think critically about how you might be perceived.  Ask for feedback even when you don’t get it.  Be open to it and not argumentative or debate the points that “they didn’t understand.”

And be careful about inadvertently signaling your price too high.

  • Danny Strelitz

    I find myself with the same struggle. In my case it is usually the market that is scarring the investors away – it is not perceived as a big enough market and most investors have no knowledge of it, so they relay on biases.
    I am referring to the musical instrument market which is estimated by NAMM at $18 billion on ofline sales of new merchandise alone.
    Or maybe I just suck… :)

  • Jon Katzur

    I really like your comment about telling people when you don't think their idea will get funded by anyone. It's similar to a business quote I heard once (but can't find now) that essentially said “A good manager let's someone go as early as they realize they need to.” That way instead of laying the person off later in a down market or something, they can give the lower contributing employees a strong chance of finding a job with a better fit. Similarly, if someone has a completely ineffective business plan/model, but they want to be an entrepreneur it might be worth it for them to revise the plan in this current frothy market and seek investment while they can. Obviously, you never know, and some people will want to continue their venture, some may even succeed! But, I think it's really constructive and ultimately can really save a person years of time and significant amounts of money.

  • Sirach Mendes

    Interesting article
    I have been in this situation too where we asked for certain amount of capital but the VC didnt fund us as our product was not ready enough or had been tested to see success.

    Currently we reduced the amount we needed to try to get an angel round – Be lean and spend more time creating a product to test and get feedback from the market.

    Even though our industry is HOT – investors were not responding to the high amount of series A we were looking at – guess we were giving away price way early. The reduced amount of risk capital is getting more interest now !

  • Hong Quan

    Thanks for another great post on VC signaling. I'm facing a unique problem where we're near launch and everyone I've talked to likes (loves?) the idea, but I'm holding off on funding until we have something worth showing. People ask me why I haven't gotten an angel round yet. Is it wise to hold out for a larger Series A if you can bootstrap or will the early investors help us close a bigger A on better terms down the line (12 months out)?

  • Harry DeMott

    The signaling you speak of here is an outgrowth of a more fundamental problem that your friend has – which I would refer to as unrealistic expectations. When someone asks for $7M – and then when pushed tells you that he is okay with $3M at a lower valuation – you can come to a few conclusions:
    1. He is asking for a lot thinking that the market is hot and thus why not.
    2. He may not really know what his business needs
    3. He thinks that by asking for a lot and then negotiating lower it is a better strategy than starting small and growing it.

    In general – I am a big believer of figuring out exactly what you need to get to whatever milestone you are shooting for – and going out with that ask. Why accept greater dilution unnecessarily? Why lock yourself out of some investors by asking for too much? Why set expectations on pricing (as this post is about)?

    My guess is not that your friend is having trouble getting funded because of the implicit valuation (heck if an investor really likes it they will dig in and come up with a valuation – maybe it will be $7M on a $7M valuation pre – and in that process both your friend and the investor will realize he only needs $3M). He's probably struggling because he is unrealistic in his expectation and by asking for more than 2X what he really needs he demonstrates his ignorance about his own business, the market, or the intelligence of investors. On top of this – he has eliminated a whole swath of investors who won't actually dig in based on your comments. None of this is good.

  • sbmiller5

    Mark, I'm glad you addressed this, as this is an issue I've seen a lot. Most funding presentation I saw over the past two years had a higher number listed for the amount they were raising then they had told me they needed. When pushed, it came down to: A) I expect VCs to reduce this number, so why not start higher, or B) Raising money is hard, I don't want to have to do it again so soon.

    While both are valid points, entrepreneurs need to be more conscious of investors fund size and appetite for larger rounds.

  • Mark Essel

    We've read before Mark's take on bridge rounds (they suck), but a well priced round maintains proper alignment between founders, investors and employees. Incremental investments that bring a startup to the next set of milestones is a healthy way to grow a company.

    “He may not really know what his business needs”
    That was the killer signal I read from this entrepreneur's asking price. While raising now make sense for businesses that are prepared to utilize that capital efficiently for growth, having a large stack of cash can serve to undermine the startup and fundamental financial discipline.

  • Rahul Chaudhary

    Mark, how does one decide about reasonable (not too low or not too high) pre-money valuation to ask for while raising angel round?

  • Torturedluddite

    Do you have any experience with the inverse – where the amount being asked for inadvertently signals too low a valuation/price? For example, the situation where the entrepreneur knows she needs $1M to get the next level, but believes the company should be priced at say $6M pre-money. Or is does it not quite work the same way?

  • Jerry Flanagan

    Very timely insight for our company and points out the importance of solid planning and an outstanding management team supported by competent and experienced advisers to help guide you.

  • msuster

    LOL. The music category in general seems to scare investors because so much money has been lost there! But if you're doing eCommerce sales there, maybe try to anchor to similar markets that took a while to go online but eventually did. And talk about what that market hasn't yet all gone online. Who has tried? Why did they fail? etc.

    good luck!

  • msuster

    For sure. You know, sometimes I even ask, “how much money / time have you personally put into this? how much have you raised” and if they haven't sunk a bunch in already I might be even more honest. A smart, young guy came in and presented his idea in the restaurant / food / ratings space. I thought it was an idea that would never work. When I learned he had no money in the company, I told him to use his time, energy & passion to find a better market opportunity.

  • msuster

    Good story & good luck, Sirach

  • msuster

    No. Many people try to do this. Many. I advise against it. There were many companies waiting for higher valuations is March 2000, September 12, 2001 or September 2008. Their hard work & dreams were wiped out. There were other companies that bootstrapped too long, which meant slower development for too long only to find out somebody else raised money in the space and: got to market faster or made it harder to raise capital for you.

    Hold off long enough, but not too long. I know, vague. But only you'll know the balance. I err on the side of take the effing money. Good luck.

  • msuster

    Listen, what I've come to realize is that all of this stuff you & I take for granted is stuff that doesn't always come naturally to first timers. He raised a few million in a seed round. So he *thought* he had to ask for more the next time or it would look strange. He also didn't price that round so he was worried that a low valuation would pile on. Now he had to let go staff and hasn't been paid in months. He is super lean. In the end, he really just wanted the money to get to his next milestone. He thought if VCs thought he needed less or they wanted to invest less they'd say so.

    re: ” he has eliminated a whole swath of investors who won't actually dig in based on your comments.” I don't understand what you mean?

  • msuster

    thanks. I should have mentioned that in the post – fund size of VC has a tremendous impact on check size they're likely to write in a first investment in you. and, yes, I find most people ask for slightly more than they need. Obv I encourage people to raise “a range” like $3-4 or $6-8. If the range is narrow enough it can be the same plan with a different view on how long the cash lasts and a message that, “we only need $3m to prove our next milestones but we set a range to let investors who might like a slightly higher investments size that we're open provided it's the right partner.”

  • msuster

    It all depends on current market standards (e.g. right now prices seem 2x 2009 at least), and how much demand you have for the deal. Less demand, lower price = just get the money and build your business.

  • TJGodel8

    Great advice! When I was reading reviews on the website I saw of pattern of non-reflectiveness from people who didn't get funding. Of course I'm only reading one side with not much information, but when I read “they didn't understand.” it strikes me as a lack of critical thinking and more of an emotional response. I haven't done a pitch yet and I'm happy that I read this blog post before I pitched to an angel for seed funding.

  • msuster

    Not really a problem I see. $6m pre with $1m raised – depending on progress of the company – is certainly not too low.

  • Danny Strelitz

    @msuster, thanks for pointing this out, I do compare it to the fashion business and how it had a great rise in e-commerce sites that revolve around fashion and niche fashion market places in the last couple of years…. but everyone wants some reassurance and to minimize the risk. Uncharted waters are the riskiest ones, but may lead to great finds.
    I have to mention that we are based in israel, and early stage, and I think it's hard for investors here to see the value of anything that is new if it is not technical, because most of the Israeli tech scene is based on technical innovation and not social or e-commerce models for web.

  • Harry DeMott

    Thanks for the more detailed explanation – makes sense. Of course – if you see this digging in as a potential investor you really get worried – because you know without question that while he may be a great engineer – he needs a lot of help from a planning and control standpoint; i.e. he probably doesn't have as much business sense as you would like to see (hey, not everybody does – particularly when they are young)

    Sorry I wasn't clear with the last comment.

    I think as VC's get bigger and put more and more layers of analysts and associates between a founder and the decisionmaker – there are more and more reasons for people to say no..

    So when you come in having signaled that you need $7M on a $14 pre to $21 pre money – you have already eliminated a lot of investors who won't write that size check.

    In the middle of a pivot after you have downsized – you are going to get even more pushback.

    Once you dig in and find out that what he really needs is $3M – you are going to get even more no's based solely on the lack of business understanding.

    In a few paragraphs, you've given investors a wide variety of saying no and not a lot of reasons to say yes.

  • Jim

    Really useful piece. I hadn't thought of it in those terms. Of course, some people will say “not now, we want to see more progress” just to string you along in case you catch lightning in a bottle or some really smart money comes along and recognizes it's a brilliant deal. What they really mean is “no.”

  • Harry DeMott

    Interesting space. If I remember correctly, a lot of those sales are through some large wholesalers into schools for band instruments or to rental places that turn around and rent violins and such to beginning orchestral students etc… there have been a few of these that have gotten pretty leveraged and ended up in the recycle bin (companies survived – their cap structures didn't). I guess the question is which segment of that market you are going after – and what is your differentiation. If it is selling higher value instruments like trombones or violins online – it might be difficult – as those sorts of instruments require a more high touch sale – and as a piano player – I can tell you that I would never buy a piano (net even a Steinway) without sitting down and playing the one I was going to buy to understand the feel and the voice of the instrument. If you are trying to disrupt a more commodity like segment of the market (guitar strings) then there are a different set of questions. Would love to hear what you are doing.

  • Harry DeMott

    Agree. 100% of 0 is still 0

    Dilution is a high class problem – it only matters if you are successful.

    If you assume that raising a round will take 6 months (I know this caries dramatically) and further assume that this is not the best use of your time (this never varies – it had better be true) then you need to have probably no less than 1 years worth of capital at any given time as you work toward the next m,ilestones that will allow you tto get financed more quickly.

  • Danny Strelitz

    @Harry, you are very in tune with the field. my partner has gas – gear acquisition syndrome, and we were amazed you can't buy a musical instrument on the internet without listening to it first.
    We are focused for a start on guitars – acoustic, electric, and bass and the revolving accessories. We are creating a social market place for people to buy, share, and display their instruments. The point you raised, that you will not buy a piano without hearing it first is exactly what led us to build tonepedia, we enable people to share sound samples (and soon videos) of their gear with the complete information of what instruments are recorded – so if you are listening to an electric guitar, you know with what amplifier it is recorded with.
    I would be happy to elaborate more and display our product if you like.

  • Michael Yap

    Oh wow, as I read this I had a sinking sensation in my gut that you might have been writing about me (or it could possibly have been the old ramen last night). Everything pretty much went down pretty much exactly the way you described. Not in a sexy space, raised seed money, encouraging early growth, traction on an upwards curve, fairly consistent message across most VCs that seemed interested (i.e. not now but keep us in the loop and come back when you have more traction).

    Sometimes it gets very hard telling the difference between them just being nice or them being serious about seeing more proof. I'd love for someone to tell me I suck if they think I do :)

  • Danny Strelitz

    To follow @msuster guide, you may not be willing to buy a piano on the web right now, but people said the same thing about cloths or food a couple of years ago, and now those spaces are blooming. Right this moment there are 6,186 pianos and piano related ads on ebay. When we are talking about guitars there are 228,983 results found for guitar :)
    I do think like you that buying a musical instrument over the web with the solutions today is a very bad experience.

  • Harry DeMott

    Thanks for the replies. So the question becomes – do you attempt to become a network of used guitar sales or a community based around this? Or do you actually take physical inventory of the guitars and then deal with warehousing and shipping? You can't really do that with pianos – guitars are easier. If the latter – do you do it just in the U.S.? Just in Israel (I doubt this – too small to make it work) or a spot in every country? Just used – or new as well? How do you get word out that your service is better than the others out there? I'm naturally skeptical, so I hope you don't take the comments or questions the wrong way. The tonepedia thins is a good start – but I'm still convinced that without actually touching the instrument – it is hard to get any but the casual user interested. When I bought a piano – I went and looked and played over 100 in the tri-state area before settling on 1. I wanted a vintage piano (pre WW II) due to the age of the soundboard – and the fact that the boards were thicker before mass production and I wanted the original soundboard – which you don't always get. I also wanted a warm sound to the instrument with a very deep bass (I like Rachmaninoff) and a clear high register – and I wanted the action of the keys to be fairly light to the touch. And I wanted it in black. It took 100 tries before the perfect one for me came along. And I'm just a guy who likes to play – not a pro. My wife plays the violin and she feels similarly about the tonal qualities and feel of the instrument – heck even the weight makes a difference. The strap will make a difference. I wonder if the market has to be broken down regionally in order to really make it work. For sure it is fragmented – with fewer and fewer dealers – and less and less competition outside major cities (even here in NYC some of the big boys have gone out of business)

  • philsugar

    That must be the second hardest part of your job. (hardest must be when you've invested money and find out it didn't work) I've sat on business plan competitions…its really hard to tell somebody look that's not a good idea I must not be as good at it as you because they've either been crushed or pissed, either way its not pleasant.

    I mean I saw a plan that was reservations for restaurants on the iPhone….”Ever heard of Open Table???” They thought I was an A-hole

  • Russell Killgo

    Mark, this may be well known to everyone on here, but I'm new to this. I have a great idea for a website and my team in place to make it happen. We have had debates over which we should do first, the website or the mobile app. In the end we will have both, but we are totally sure if it's better to have the website to generate interest and then do the app or to get the app out first and then build from the momentum and introduce the website once the name has gotten out there. Thanks.

  • Josh Webb

    You are putting thought into the timing of the product/company.
    Mark suggests putting thought into the timing of the market (mostly just to not take anything for granted)
    I think (and you didn't give much info on this so maybe you are already on it) you might put some thought into the timing of the VC relationship. If you show them something now, and come back when you have something better, that will be good for all involved. Remember, they invest in lines, not dots (http://www.bothsidesofthetable…/). If you put some time into building those relationships now, you will be a known quantity when you want to raise.

  • Danny Strelitz

    We aim to become a marketplace for used musical instruments, mainly focused on the US, but not limited to. An outcome from our product focus on providing sound and video demonstrations of musical gear is that we also become a social media provider.
    You raise a lot of good questions, but I would like to reply to just one: the need, because I believe that this is where your skepticism lies.
    Both you and your wife are dealing with very expensive niche within the musical instruments realm. On a GALLOP survey from 2009 23% of US potential musical gear buyers preferred to buy online, so there is demand for a good musical instruments shopping experience that is not there.
    BTW, that sounds like an amazing piano, and that you really knew what you were looking for. By your description of your shopping experience it sounds like the journey was almost as important as the goal at the end of the road, wouldn't you prefer to listen to sound samples of those 100 pianos before you went to see them? I am sure that a solution like tonepedia would have saved you a lot of time and some gas money (gas as in car, not gear acquisition syndrome).

  • msuster

    maybe you need to relo?

  • msuster

    I tell people 18 months. 15 months minimum.

  • Harry DeMott

    I'm a terrible example of a consumer. I am essentially in the research business – and have been for 20+ years – so I just won't make an investment, in a stock, in a company, in a piano – without doing a ton of research on it. An unfortunate outgrowth of the profession.

    So tonepedia wouldn't help me in the least – as I wouldn't trust it to be an accurate representation of the instrument – unless what you did was to make sure that the instrument were professionally tuned – and then the exact same pieces were played on each of the instruments listened to – and even then it might be tough because of the feel factor (BTW: I would suggest all of these things to make tonepedia more believable) I would also make sure that the files I transmitted were lossless files – for maximum clarity.

    All that said, I can see the need for the market – which is not small (I've looked at Guitar warehouse in the past and a lot of their business is guitars and accessories). The question is whether you become the EBAY of guitars – with everyone holding their own inventory and doing thier own shipping (kind of like in the high end audio equipment market) or whether you have people send in their instruments on consignment. The latter might be a better model – as you could professionally clean and tune the instruments – photograph them – add their sound to tonepedia and then place them on the site. Prospective buyers could then demo them (send them out via mail for a fee with insurance and a deposit against wear and tear) That way you control more of the process.

    BTW: For me, my piano is amazing – not sure it would be for everyone. 1924 Steinway – I'm only the 2nd owner of the instrument which is amazing. Original soundboard – original ivory keys (I feel a little bad about that one) rebuilt pinblock, felt, strings and action – original bench – all work done by a master rebuilder named Kalman Deitrich. in NYC. Even better – it cost 1/3 of what a new Steinway cost at the time – for a lower quality instrument to my ear and in the eyes of many people who are into pianos (after WWII Steinway stopped sourcing any of the sound boards from Germany – obvious reasons there – and have gone to thinner and thinner soundboards. They are like Ferraris – sounds great now – but lots of maintenance and more cracking).

  • msuster

    I like the funded for some situations. but it has selective bias. I think people mostly go there to complain rather than thinking, “wow, that was a great meeting. I think I need to go to The Funded and write a good review!”

  • Harry DeMott

    you would know better – thanks for the info.

  • msuster

    exactly. exactly. exactly. And it's why I hate that this industry does that. Zero value add. Very self centered.

  • msuster

    It's a VERY common story. I think it's totally fair to politely but assertively ask for honest / real feedback.

  • msuster

    russell, there is no right answer. read my post yesterday about Pose. We built mobile first because it is a “mobile first” company. I linked to an article by Fred Wilson. Read that article. I invested in another company that's in the video space. We're a web first company that will need mobile distribution. You need to find out where you're core is and focus on that. Good luck.

  • Danny Strelitz

    relo = relocate? the company or the discussion I am having with Harry, or both?
    For TonePedia, we plan to establish a presence within the US, probably LA, in order to be close to potential customers. Our current status as funding goes is there is none, so it is bootstrapped and we are in the process of building the product. We do see the need and have the wish to relocate later on, once the product is good enough (not aiming for perfect, we will always improve, but a working beta) and create revenue, or if we will get funded before hand.
    As for my discussion with Harry DeMott, we did drift very far away from the post topic, sorry for that, I hope its ok.

  • Russell Killgo

    Mark, thanks for such a quick reply. The app is going to be limited in what it does just to keep it simple and streamlined. The app itself will perform about 1/3 of the capabilities of the website. It's just that the site will perform so much more stuff, but the app will be very cool. I know you love the idea of photo and video being the big new media going forward. I have been working on this idea for about 3 months now. With the overwhelming success of Instagram and other photo sharing apps, I believe I have something that can change the whole game. I would love to talk to you about it as a potential angel investor or just to pick your brain about a few things. If you are able to email me at, I'd very much appreciate it. Thanks.

  • Danny Strelitz

    I do agree with you, that every little thing effects sound, and on top of that your impression of a sound an instrument makes is a subjective thing, so just the way you woke up in the morning will effect your opinion on it.
    We like to compare it to a dating site, most chances are you will only respond to a profile with a picture. You know the picture is not accurate, and probably better than what you will see in real life, but your first impression will be by that picture. If it wont have a picture most chances are you will not make contact at all.
    We think it is the same with sound. You know the sound sample you hear is not a complete display of the gear, but it will give you an impression. Add this to a good description and social integrity of the seller and you just might be more interested in purchasing trough the internet.
    As for us doing the process of packaging, recording, and managing the sale, it is a very interesting idea we will have to think about. It sure have a lot of pros as a service for our users, but for the a start, we are just the platform for the sale, as you stated going to be the ebay for musical gear.
    As for the research you did, where did you conduct it?

  • blindfocus

    Well said. there is gap between what would make the entrepreneurs life easier, and what they really need to get to the next step. Its hard to really boil down the business to a simple “I need 250k to hire a few people, and go prove my point in the marketplace” takes some soul searching, and not lumping yourself into a “well, qwiki just raised 5zillion dollars this morning, and my gizmo is SOOO much better”.. keep the great advice coming.

  • Mike Hogan

    We are a tweener company. Raised $3M angel, put in a chunk of my own from last company (acquired by MSFT). But we are building hard tech and we're a couple of months from beta, after 5 years of development. We could get to GA/revenue/customers with about $1M – $1.5M, but that doesn't move the needle or give the VC's sufficient ownership. They want 25% – 30% but that means putting in about $6M and they want to see GA/revenue/customers first. Catch-22. I've tried A/B testing depending on their investment sweet spot, but it doesn't seem to fly in either case. Once we get to revenue, we are very lean, so maybe we get to cash flow + and then it is catch-22 for the VCs…annoying. Funding in a way that fits the model of the funding source (VC, angel, etc.) is the secret to success.

  • Harry DeMott

    I was an equity research analyst in media at First Boston (now Credit Suisse) for most of the 90's. Since then I have been on the investing side of the fence – but largely as a research analyst in media – as well as gaming lodging leisure and restaurants.

    In terms of the idea – what gives me pause is the competition with Ebay and Craigslist. I question whether a specific niche site wil be able to aggregate as well as they do. They have a mass of users, payment systems, a built in feedback loop for buyers and sellers etc… A start up does not – and has only the one niche.

    Now perhaps this niche is badly served and the database will help – but I fear that left to their own devices – recording quality will be inconsistent and thus not as powerful as if you were able to authenticate and check everything out for yourself.

    I'd love Mark's take on our extended comment conversation.

  • Danny Strelitz

    Harry, in terms of competition we are like any niche e-commerce site out there, playing in the sandbox while the big boys play outside. However, we can aggregate with the tools we have – users are a battle for every startup and the days of “build it and they will come” are over. Our power over here is that we are becoming as well as a market place a media provider, offering the same capabilities of youtube to socially demonstrate your instruments (embedded players – use our platform on your site) with a better experience when it comes to musical gear interest, seller and buyer social credibility by using social sites integration, better search capabilities, etc… that makes our experience better, makes us social active and distributed, and more appealing.
    For payment system and feedback loops, there are lots of tools out there. We are based on open source and can customize the tools for our needs.
    I asked about where you did your research for that piano, because today, most people, even if not buying online, conduct their research pre-buying on the internet. So, we will give you the best platform we can to create that search for the holy grail of tone you are looking for. If you choose to buy trough us, we will try to make damn sure that your buying experience is the best we can provide.

  • Russell Killgo

    How can someone that doesn't live in a “tech city” find the right programmer to make his idea happen. As I said before, I completely new to this. I am the CEO, I have my CFO/co-founder, and I have a good friend of mine who has been a corporate business law attorney for about 20 years taking care of all the legal stuff; what I don't have is a programmer. The programmer, who would have been listed as co-founder also, is not working out. I feel my biggest disadvantage is that we all live in Las Vegas. This city has plenty of people who will deal blackjack to you, what it is short on is good tech people and angel investors. Aside from driving to LA and start knocking on doors, do you have any suggestions as to how to get my idea in front of the right people to at least be given a chance to show we have what it takes to make this site the next big thing?

  • petegrif

    “Obviously the diagnosis can have many route causes:”

    'root' causes, not 'route' causes

  • Blake Southwood

    Initially when I was talking to VCs they didn't get what we were doing and would ask me what our
    business model was. All the time the VCs seem to be comparing everything with facebook and twitter.
    So we changed our business model at the urging of our Chicago MBA and our prototype finally worked
    after a year of effort, blood, sweat, and tears. We are talking to an investor now. The big change was
    changing law firms since the first law firm didn't get it. It's simple: We're taking on IBM and Accenture.
    It was only after we listened to the responses from the VCs met at VC Breakfast meetings through SDForum
    and SVASE in Silicon Valley did it become clear that VCs weren't aware that writing software is difficult and expensive. We're developing technology to build software 100X faster and cut costs 50% but raising Series A is taking forever. I'd like to chat with you Mark and have coffee in LA about our next steps.

    Blake Southwood
    Lightning Storm Software