Pre Money Versus Post Money

When an investor proposes to back your company, they may make a statement such as “I’ll invest $100,000 at a valuation of $1 million”. The thing here to remember is that the price of equity is linked to the valuation of the company. The higher the valuation, the more expensive the shares in that company.

There is a trick though. The question is, does the investor mean your company is valued at $1 million, before or after, they have given you the cash. Or in other words, pre-money or post-money.

Allow me to explain. If the investor says that your company is worth $1 million today, before they give you the investment, then there portion is added to the total value of the company. The math then would be $1 million plus $100,000 for a new valuation of $1.1 million. In other words, the $1 million was the valuation before the investment. That’s pre-money.

Alternatively, the investor could have meant that your company would only be worth $1 million once they have invested in you. So a post-money valuation of $1 million, but actually a pre-money valuation of $900,000.

If the investor states that their valuation is post-money, they then get a bigger chunk of the pie


The main difference here is in the amount of equity the VC gets. As you can see in the chart, if they mean post-money valuation, then their chunk of equity is 10% instead of 9%, which is 1% percent bigger than if they mean pre-money.


This is not a huge issue and is easily clarified by responding to their initial proposal with a statement such as “I assume you mean $1 million pre-money”. The bonus effect is that you come off as more professional and will garner more respect in your negotiations.

To note, this post was inspired by the section on the subject in Venture Deals by Brad Feld and Jason Mendelson.

How Giving Away Equity Makes You Rich

As a founder, the idea that to get investment you have to first give equity may freak you out. You have put a lot of effort into your company, and will continue to do the bulk of the work until the company is a success. All of the blood, sweat and tears will come from you. If the company fails, you are the one that loses the most. By a long shot. So it may appear idiotic to give away so much, so quickly.

This thinking is wrong. Owning equity in a company is only valuable if the company itself is valuable. Let me say that again, because it is important to understand. Your ownership of a company only makes you rich if the company itself is worth a lot. For example, owning 50% of a company worth $100,000 will make your portion worth $50,000. Owning 20% of a company worth $10 Million makes your portion worth $2 Million. But owning 100% of a company worth nothing makes your portion worth… nothing.

No problem, you are thinking. My idea, skills and talent are so great that I can create a valuable company without any outside investment. That way, when my company lists on the New York stock exchange I will keep all the profit. When that glorious day arrives, I will be as rich as humanly possible.

Great plan. Except one thing to remember is that startups take at minimum 7 years before you will be able to list on the public markets. That’s a long time to try to grow a company without the fuel of additional funding. Of course, there could be a scenario where you bootstrap your business, take on no investment, and grow its revenues year on year, making your profits through ingenuity and hard work. But in reality it doesn’t really work this way, especially in the world of tech where scaling as fast as possible, to beat out the competition, is a priority. The war going on between Uber, Lyft and other international competitors is an example of this.

Now that you recognise taking on investment is a requirement for success, allow me to explain how, paradoxically, the more equity you give away, the richer your get. Let’s say you start out by owning 100% of your company. As you haven’t sold any shares, the value of that company is zero, even if you are profitable. It may seem weird that a company that is profitable is worth nothing, but a company is a bit like owning a home. You can speculate that the value of your home is 500k, but you don’t know for sure until someone buys it and gives you the cash. That’s when you know it’s true value. As startups are more volatile than property, the speculation on its price is even more theoretical. So until you get your first investment, your company has zero value.

Then let’s say an accelerator then gives you something like 15k in cash and another 50k in services i.e. mentorship, deskspace, etc. for a total of 65k. In exchange they ask for 10% of your company. If they paid 65k for 10% of your company, that means that the other 90% needs to be worth an equal amount per percentage point. In other words, each portion of 10% has to equate to 65k. As there is 100% of a company, the total valuation of your company is 650k of which you own 90%. You therefore went from having 100% equity that was worth zero to 90% equity that is worth 585k, an increase of over half a million bucks. Pretty good, no?

A visualization of the equity division of your company. If you give an investor 10% of your company in exchange for 65k that means your remaining 90% is worth 585k.

Let’s take this a step further. One reason people join accelerators is access to the program’s investor network. The idea is, if you hustle hard and grow your company during the 3 to 5 months you are with the accelerator, you will be introduced to people who will give you additional cash. This investment is called follow-on funding. In fact, when talking with accelerators, you will hear statements such as ‘75% of our startups get follow-on funding’ or ‘on average our startups receive $500,000 in follow-on funding.’

If you joined the accelerator than after the program finishes you could expect to get around 500k in exchange for 20%. This number may freak you out again as you now have given away 30% of your company. But going back to the original idea of investment and valuation, let us do the math of how much your startup is worth after this second round of financing. If you give 500k for 20% of your company, that means that 100% of your company is now worth $2.5 million. You still retain 70% which is now worth $1.75 million. Happy?

To be sure you understand let’s summarize. At first you owned 100% of a company worth nothing and therefore your equity was worth 0. Then you owned 90% of a company worth 650k so your portion was worth 585k. Then a few months later, at the end of the accelerator, you now own 70% of a company worth 2.5 million and so your portion is worth 1.75 million.

I hope this illustrates the advantage of getting investment. The alternative would be for you grow your company on your own without the help of outside funding, but the chances of you achieving the same results are highly unlikely. Much better to take the investment, create a successful company and reap the rewards.

Getting Traction Through Customer Interviews

The number 1 reason startups fail is because there is no market need for what they are offering. Founders make a product and no one engages, no one buys and no one cares.

The number 2 reason startups fail is because they run out of cash. Oddly enough, this is a side-effect of reason number 1. If you spend all your time building something people don’t want, you will be forced to close as you have no foundation with which to generate revenues or to get funding.

Inversely, if you create something that people are excited about, something that people are clamouring at your door for, money will not be an issue. If there is a large demand for your product, figuring out monetization is relatively easy.

Which brings you to an important question: how do you create a product that people want? This is where lean startup methodologies come in. The commanding goal of the lean approach is to find demand for your product before you run out of money. Because of this need to do things cost effectively, lean prioritizes talking to customers (cheap) over building products (expensive).

One of the greatest books an entrepreneur can read if she wants to learn these methodologies is Running Lean by Ash Maurya. In it, he describes in depth the process of talking to customers and how to understand their needs. One of the objectives of speaking with them, he clarifies, is to get concrete answers to three questions:

  1. Can you solve a significant problem people have?
  2. If your product solves the problem, do people want it?
  3. If they want your product, will they pay for it? If not, who will?

Luckily, the first question you can often answer yourself. For example, we all want a cure for cancer. Unfortunately, the years of research this takes is beyond the capability of a typical startup founder team. On the other hand, building an app that connects sellers and buyers of vintage porcelain Elvis Presley dolls is. And if you have an idea that is somewhere in between, you do research. When Elon Musk decided he was going to create a space agency to bring people to Mars, he probably spoke with a few rocket scientists first.

But for most startups, questions 2 and 3 are more challenging to answer, as it involves speaking with customers and speaking with customers is hard. Exposing your way of thinking to a potential client may result in the realisation that your vision was wrong. You risk seeming foolish or crazy. In the deepest recess of your mind you may even feel like you will be laughed at, humiliated in front of your peers, for your idea that you initially thought was game-changing, but turns out to be ludicrous.

To some degree, this is the just the plight of the entrepreneur. Your ego has to be strong and you have to take the emotional beatings. But Maurya has created a scientific process to conducting customer interviews which allows you to take a more clinical view. He also advises ways to get maximum learning from the experience, ensuring that you are getting real, actionable, information you can translate into a successful product. For example, he states you should never do surveys or focus groups:

When asked to do the smallest thing to learn from customers, many founders’ first instinct is to conduct a bunch of surveys or focus groups. While running surveys and focus groups may seem more efficient than interviewing customers, starting there is usually a bad idea. Here’s why: surveys assume you know the right questions to ask. It is hard, if not impossible, to script a survey that hits all the right questions to ask, because you don’t yet know what those questions are. During a customer interview, you can ask for clarification and explore areas outside your initial understanding. Customer interviews are about exploring what you don’t know you don’t know. Worse, surveys assume you know the right answers, too. In a survey, not only do you have to ask the right questions, but you also have to provide the customer with the right choice of answers. When taking a survey, how many times has your best answer been “Other”? The best initial learning comes from “open-ended” questions. You can’t see the customer during a survey. Body language cues are as much an indicator of Problem/Solution Fit as the answers themselves.

Incidentally, reading body language is a huge element to running an interview. Later on, Maurya emphasizes why:

It’s fairly common to find customers lying in interviews — sometimes out of politeness and sometimes because they really don’t know or don’t care enough. Your job shouldn’t be to call out their lies, but rather to find ways to validate what they say with what they do, preferably during the interview. For example, if a customer declares a problem as a must-have, probe deeper. Ask him how he solves the problem today. If he is doing nothing and still getting by, the problem may not be as acute. If, however, he is using a homegrown or competitor’s solution and he is not happy, that may be a problem worth solving. Another tactic is to use strong calls to action. If a customer says he would pay for your product, instead of getting just a verbal commitment, ask for an advance payment or partial payment and provide him with a money-back guarantee.

The idea of conducting one-to-one interviews may at first seem counter-intuitive. As a founder, your vision involves servicing thousands, if not millions of people. But if you don’t know your customers intimately, you are bound to create something that just does not suit their needs. By understanding how to leverage Maurya’s techniques, you not only save yourself time and money, but you are closer to getting real traction, the core of any successful company. You can find more details on his methods in his book Running Lean on Amazon.

The Secret On How To Qualify Investors

If you’ve been following my blog with discipline, you’ve already read about how to create a sales funnel and how powerful a sales funnel can be. Today I’m going to give you insights that will make your sales funnel all that more effective. By using this technique, you will spend more time on deals that will close and less times on deals that go nowhere. I call this technique qualifying your sales lead.

To best explain how to leverage it, let’s use an example. Say you are fundraising 100k for your blockchain startup. Let’s also say you know that the average amount an angel would invest in a startup of your stage is 20k. Doing some quick math demonstrates you need 5 investors at this ticket size to hit your goal of 100k. (FYI, the word ‘ticket’ here is used as a metaphor. When an angel or VC is partaking in a group investment, the amount each one puts in is referred to as a ticket).

As stated in previous posts, we know that not every investor we approach is going to say yes. So to get 5, we need to start off with a much larger number, maybe as many as 50, depending on the strength of our startup and the risk appetite and wealth of investors in our ecosystem.

50 is a large number of investors and trying to close all of them will take an enormous amount of time. If each investor takes an average of 5 one-hour meetings (a light estimate), plus a minimum of 10 hours per investor of preparation, such as responding to emails or reviewing term sheets, that’s 15 hours per investor multiplied by 50 for a total of 750 hours! Knowing some of these investors will balk, the question then is: how can you reach your goals while reducing the amount of time you need to spend per investor?

This is where qualifying your leads comes in. Paul Graham, the founder of Y-Combinator, gives some excellent advice on this in his post How To Raise Money, an excerpt of which you can read here:

When you talk to investors your m.o. should be breadth-first search, weighted by expected value. You should always talk to investors in parallel rather than serially. You can’t afford the time it takes to talk to investors serially, plus if you only talk to one investor at a time, they don’t have the pressure of other investors to make them act. But you shouldn’t pay the same attention to every investor, because some are more promising prospects than others. The optimal solution is to talk to all potential investors in parallel, but give higher priority to the more promising ones.

Expected value = how likely an investor is to say yes, multiplied by how good it would be if they did. So for example, an eminent investor who would invest a lot, but will be hard to convince, might have the same expected value as an obscure angel who won’t invest much, but will be easy to convince. Whereas an obscure angel who will only invest a small amount, and yet needs to meet multiple times before making up his mind, has very low expected value. Meet such investors last, if at all.

As a coder, Graham loves to use metaphors from the world of software development. I won’t explain the definition of a breadth-width search, but basically it’s another way of saying ‘you don’t need to check every single desk drawer to find your keys. There are smarter ways of looking’. In this case, as Graham states, the smarter way is to use information you already have to calculate which investors you should prioritise. He calls the output of this calculation Expected Value.

Returning to our example of your hunt for a 100k investment, recall that you are looking for 5 tickets of 20k to make 100k. These numbers are not exact. You may get 4 tickets of 25k, or 6 tickets of 15k and end up 10k short. But you need to start with a guideline, so you aim for 5 investors of 20k each. Recall also that to close these 5k, you need to start with a much larger number, around 50. Here are 3 theoretical profiles of these investors that we will use to demonstrate how to qualify a lead:

  1. Amy – is extremely wealthy and loves startup culture and so is easy to get investment from. Tickets of 50k are her speciality. Unfortunately she knows nothing about blockchain and has few useful contacts that would be relevant for you.
  2. Betty – is a hard sell and is a veteran of the FinTech world whose personal connections could catapult your business to success. Her normal ticket size is 20k.
  3. Cathy – is like Betty. She is a hard sell, and usually invests around 20k. She also has connections in the financial world, but is the first to admit blockchain is somewhat outside her comfort zone.

Using this information, you can then qualify each. You do this by taking their average ticket size, and multiplying that by their probability of closing and their value to you in helping your startup succeed, as seen below.


This table is quite simple, but there is actually lots to be said about it. Let’s start with the column entitled ‘probability of closing’. You’ll notice that Amy almost always invests, but I still gave here a probability of closing at only 50%. That’s because no deal is certain, especially if you haven’t even approached the investor yet. Likewise with both Betty and Cathy I’ve assigned 20% probability of closing as both have a reputation of being a hard sell.

Now let’s examine ‘investor value’. If you have a blockchain startup and are worried about issues such as regulation or how to make your product accepted by the mainstream banks, then someone like Betty is your top pick, followed by Cathy who also may be helpful. Last is Amy, who has little value in terms of connections and insights. You therefore assign Betty 100% value, Cathy 80% value and Amy 10%. You could give Amy zero, but some money is better than no money, so you give her a token representation to keep her in the game.

After having assigned probability of closing and investor value, and then multiplying the original values by those percentages, we can then see our current ‘expected value’ for each deal. Interestingly enough, Amy, who we started with a 50k ticket, is now valued only at 2.5k, Betty has gone from 20k to 4k and Cathy from 20k to 3.2k.

But the numbers are not what’s most important. It’s the order of the value of the deals. Here Cathy takes priority over Amy as she is more valuable as an investor. Betty takes priority over them both for the same reason. You now can use this as a guideline for deciding which investors to spend the most time courting.

Another thing to keep in mind is that these numbers are fluid. As you move deals down your funnel, you can increase or decrease their probability of closing. An investor who has verbally said yes and has a good reputation will have a much greater chance of closing than an investor with whom you’ve only had one meeting with.

Doing these calculations can also help you reverse engineer how many cold leads you need to close. If you add the Expected Values of Amy, Betty and Cathy you get 2,500 + 4,000 + 3,200 for a total of 9,700. Therefore if you can get 10 of each type of investor, you would have a total of 97,000, essentially your goal of 100k.

As you know, fundraising is a stressful and arduous process. By qualifying your leads in this manner, you are also likely to close your first investor faster. This in turn will inspire others to sign on, quicker. This can make the difference between your startup living or dying.

If you found value in this post, I also recommend reading the rest of Graham’s post How To Raise Money.

A Very Big List Of 500+ European Investors

Previously I have discussed how to use a sales funnel to get customers or to get funded. As you learned from that post, one key element to success in these endeavours is having a large amount of qualified leads. But this can be difficult. Finding new customers or potential investors is sometimes akin to looking for a needle in a haystack.

In the true spirit of pay-it-forward, a few years back someone started a google sheet of investors in Europe. They then shared that list openly. Slowly, yet surely, others contributed. Finally, the team over at TechStars took it over and made it even more visible.

The database contains quality details, such as each investors’…

  1. basic details such as name and website url.
  2. typical stage that they invest in (pre-seed, seed, series A, series B)
  3. geographic focus (to note, some invest outside of Europe)
  4. sector focus (eg. IoT, Fintech, etc)
  5. type (VC, angel club, etc)
  6. fund close dates i.e. when they raised their own cash

You can view the sheet here.

Needless to say this is a goldmine of information. But with over half a thousand investors, figuring out where to start can be overwhelming. To be effective in your efforts, I recommend these pro tips from Jens Lapinski, Managing Director of the Techstars Metro Accelerator for Hospitality. In this blog he recommends that you take the following steps:

  1. Make a copy of the list
  2. Remove all investors who are not investing at your stage (e.g. you are raising a seed round and they only do Series A and Series B rounds)
  3. Remove all investors who are only investing in specific geographies you are not in (e.g. they invest in Scandinavian companies and you are a US founder living in Germany)
  4. Remove all investors who are only investing in specific industries you are not in (e.g. you are an e-commerce company and they only invest in cleantech)

Lapinski continues by suggesting that you should end up with between 50 and 100 potentials. From there the key is to get introductions. Do the research to see who works at these firms and to see if you have any 1st or 2nd degree connections with them. Once you find your mutual connections, reach out and ask if they will put you in touch with them. Investors are more receptive to people they have been introduced to through mutual friends.

If you’ve gone through a startup accelerator, you will have already been given access to a large group of VCs and angels. This happens either through the MD of your program, or through Demo Day. The Techstars google sheet of investors allows you to expand your leads beyond the one you gained through your program network, something much needed for founders fundraising.

Deep Dive 1: Getting Investment For Your Startup

As the old African proverb goes, ‘if you want to go fast, go alone, if you want to go far, go together’. This aphorism especially resonates when it comes to startups and investment. Virtually all founders at some point need the support of startup capital. This is true, regardless of the phase your startup is in, so keep in mind, it is never too early to learn.

For example, if you have built a prototype, or have engaged your first customers, then it may be time to start seeking investment. Likewise, if you are at the idea stage, and may not yet be ready for investment, learning how to fundraise will add clarity to how you will achieve your goals.

To this end, on Saturday April 7, 2018 I will be running a 2 hour exclusive mentoring session entitled Deep Dive 1: Getting Investment For Your Startup. After this course, you will know how to:

  1. Calculate how much you need
  2. Decided if the time is right to get outside funding
  3. Differentiate investment from accelerators, angels and VCs
  4. Interpret the standard items of a term sheet
  5. Determine your startup’s valuation
  6. Maximise your price
  7. Qualify investors
  8. Approach and communicate with investors
  9. Assemble a killer presentation deck
  10. Deliver a confident pitch to investors

The webinar will take place in a Slack channel where you can ask questions during the video broadcast. After the webinar, you will schedule 2 separate 30 minute private mentoring sessions with myself Eric Brotto.

In the first mentoring session we will review the above topics as they relate to your company. I will answer any questions you have plus analyse your deck and your pitch and give you feedback on both. The second session will be to further refine these, giving your delivery a polished effect. After this final meeting, you will have completed the course and you will be confident you can achieve your fundraising goals. Awesome!

As the mentoring is time intensive, I have only 10 spots available. Don’t miss out on this valuable opportunity to up your founder game. Apply here now. The quicker you do, the faster I can get you a response. Forms close 11:59 PM EST Wednesday, February 28th, 2018.

How To Create A Sales Funnel In A Google Sheet

In a previous post I discussed the definition of a sales funnel and why it is a powerful tool in achieving your goals. Here is where I show you how to put theory into practice. We take the principles learned in that post and implement them using a google sheet. In this way, you learn quickly how to organise your sales process, but it costs you no money and little time.

The main reason a sheet is useful is that it allows you to place your information in columns. Once done, you can sort your columns to get a clear picture of areas you want to focus on. More on that later. First let’s look at the 5 basic columns you’ll begin with:

  1. Name And Contact Channels
  2. Sales Stage
  3. Date Last Contacted
  4. Next Action And Its Due Date
  5. Notes From Every Exchange
Here is a break down of how to use each:

1. Name And Contact Channels

It should be clear that you will need to store a lead’s name and contact details. What is not obvious is how thorough you need to be here. Most people settle with a name and an email address, but there are a myriad of channels within which you can engage someone. Here is a complete list and notes on each. Keep in mind, not every channel is appropriate for every lead, but every channel is an option to consider:

  1. Email. Most of the time their work email is sufficient and appropriate, but as your relationship deepens and it’s obvious the person is someone you could collaborate with long term, you may want to connect with them on their personal email.
  2. Phone Number. The only thing more valuable than a face-to-face meeting is a phone call, yet many people underestimate its power and don’t pick up the phone. A phone number also allows you to text which is personable and engaging as well.
  3. LinkedIn. Connecting with your lead on here is a great touch point, but also allows you to peruse their work history and education which gives you a better idea of who you are dealing with
  4. Twitter. Twitter is the watercooler of many industries. If they are tweeting, you should engage with them in a meaningful way, by adding positive feedback to their tweets.
  5. Instagram. This is super powerful if it relevant to your industry and useless if it is not. I’m not sure how many startups in the accounting space would find new corporate clients on this platform. On the other hand, if you are launching a company in the lifestyle space, this is a great way to connect with potential users and professionals.
  6. Facebook. Sometimes you meet someone professionally and you become friends. If that is the case, add them on Facebook, but of course only if you believe it is appropriate.

2. Sales Stage

Sales stages are the lifeblood of your pipeline. These are the major milestones your lead will pass through until they finally sign. I discussed this in the previous post where I defined the sales funnel, but let’s look at some examples again:

  1. Qualified Deals. This is the start of the sales cycle. Nothing happened here except you discovered an appropriate person you could potentially sell to. The key word here is qualified. That means you did not try to sell dog food to a person who only owns cats.
  2. Meeting Held. You contacted the qualified lead, they agreed to the meeting and you had that meeting.
  3. Proposal Sent. After the meeting you sent them a proposal with details on what you will sell them and for how much.
  4. Terms Accepted. They agreed to the terms of the deal.
  5. Deal Won. They signed the deal and sent you the money.

Once you have created stages appropriate to your funnel, assign one to each lead. In this way you can sort your list depending on what you want to focus on. For example, if the Proposal Sent stage is looking thin, then it’s time to crank up the cold emails and calls to set up meetings. Inversely, if you have so many meetings that you are struggling to keep up, it may be time to slow down the cold calls until you have more openings.

3. Date Last Contacted

You should always mark down the last time you spoke with a lead in a clear, sortable manner. That way when your team gets distracted by product development or a big marketing campaign, you can easily go back and see who has gone the longest without hearing from you and prioritize them. It is easy it is to forget a potential deal once you get busy with other aspects of your business. Keeping notes also adds a certain rigour to the process. Often a founder will ignore a lead because they ‘weren’t feeling like the prospect was hot’, but by making sure you follow up with everyone in a regular way you can get surprising results. Sometimes a win comes from where you least expect it.

4. Next Action And Its Due Date

After every event in your sales process, whether it be a call or a meeting or an email, you should know what the next step is. Never leave it open-ended. For example, if you had a meeting, tell them when you will send them a proposal. Even better, ask them how much time they will need to review it. If they say a week, than you follow up in 2 weeks. If they say a month, follow up in a month and a half. By marking this in your spreadsheet, you can sort by which action has the closest due date and therefore ensure you are on top of all conversations. Sales is very much about driving your prospect to a close and always having the next action in sight is crucial to this.

5. Notes From Every Exchange

This can get messy in a spreadsheet, so you may want to find an alternative system for storing notes, like a Google Doc, or using Evernote. But however you do it, make sure you do it. You’re going to be spending a lot of time in meetings and you will forget important details. And it’s not only about next actions. It’s about recording the insights of a story you bonded over, the names and ages of their kids, and what their favourite hobbies are. Remembering these details and bringing them up in conversation is a great way to make your client feel special. These notes serves as your virtual personal assistant. Much like the character Gary Walsh does for American Vice President Selina Myers in the show Veep.

Customer Relationship Management System

Once you have used a google sheet for awhile you will adjust it so that it works best for you. For example, if your way of acquiring customers is only through phone calls, you’re not going to have a ‘Held Meeting’ stage.

As your company grows, you will quickly find that a Google Sheet is too messy. That is when you will need a Customer Relationship Management System or CRM. These are products that allow you to replicate this process of tracking deals, but in a much cleaner, more efficient and impactful way.

Alternately, if you have a bit of cash, you may want to start immediately with a CRM. My favourite is Pipedrive, but here are a few others:

With every CRM the fundamental principles involved are identical. Each one focuses on tracking your relationship with customers in a meaningful way. How they differ is in features and user interface. For example. has tools that are powerful for teams that do a lot of phone calling, while Salesforce is a behemoth that integrates well with large corporate software infrastructure. It also costs an arm and a leg.

Lastly, keep in mind that a sales funnel is not just useful for selling, but also for fundraising, getting accepted into an accelerator and for getting a job. The goals are different, but the approach is the same. Talk to a bunch of investors until you get a check. Talk to a bunch of companies until you get a job. By looking at this as a ‘numbers game’, you remove the emotional element and encourage cool-headed thinking, a recipe for success.

The Power Of The Sales Funnel

Sales. For some of you, the word conjures up dreaded images of sleazy mustachioed men in leisure suits knocking at your door with a case full of snake oil. Or maybe it brings to mind Willy Loman, the unstable, insecure, and self-deluded professional from Arthur Miller’s Death Of A Salesman. Or maybe your reaction is completely the opposite. Maybe the idea of overcoming rejection after rejection, to eventually reach your targets, actually excites you.

Sam Altman is the President of Y-Combinator, the original modern startup accelerator.

Hopefully the scenario is the latter as running a company is largely about sales. The exception being in the early days when you are doing customer validation. At this stage you are listening to people rather than selling them something. That feedback then leads into a better product which will engage them more. But this exception aside, almost all of your responsibilities as a founder will involve selling, some examples being:

  1. Selling your startup idea to a potential cofounder.
  2. Selling your idea or product to investors to raise funds.
  3. Selling your company to your first hires.
  4. Selling your product to your first users (once you have established product-market fit)
  5. Selling your product to other companies and corporates (if your product is in the B2B space).

As you can see, you will be spending a lot of time selling. So the question is, how can you get good at it. One answer to this is the use of the Sales Funnel.

What Is A Sales Funnel

Given all the reasons sales is important, you need to do it well. This is where the funnel comes in. A sales funnel is a powerful tool with a simple purpose: to track and analyse your activities so you can improve your techniques and increase revenue.
Let’s say your startup produces specialised software and your goal is to sell 10 subscriptions in 12 months to 10 individual companies with an average deal value being $10,000. In other words, you are looking to make $100,000 by the end of the year.
Now if life was easy, you would call up 10 companies, they would all say yes, and your job would be done. But life is not easy. In the real world, you will have to talk to many, many leads to get that 10. And throughout that process, you will get refused at different stages. Some will not respond to any calls or emails. These are dead in the water. Some will take 1 meeting, but then politely decline. Some will take 2 or many more meetings and then decline. Some will take a meeting and then ask a gazillion questions over email. And then decline. Some will sign your contract and then balk, reneging on the original agreement (rare, but possible). Finally some will trudge through all of this and finish by sending you a cheque or making a deposit in your account. That’s a win.
Understanding there are only a handful of possible outcomes allows you to divide the process into stages, as seen in the example below.
This example was produced by Pipedrive.

In the image you see 4 examples of stages that can occur before a deal gets closed:

  1. Qualified Deals. This is the start of the sales cycle. Nothing happened here except you discovered an appropriate person you could potentially sell to. The key word here is qualified. That means you did not try to sell dog food to a person who only owns cats.
  2. Meeting Held. You contacted the qualified lead, they agreed to the meeting and you had that meeting.
  3. Proposal Sent. After the meeting you sent them a proposal with details on what you will sell them and for how much.
  4. Terms Accepted. They agreed to the terms of the deal.
  5. Deal Won. They signed the deal and sent you the money.
Not all deals progress from one stage to the next. Therefore there are more deals at the top than there are at the bottom. It is from this shape that we get the term funnel to begin with.
You will notice that the chart indicates the conversion rate between each stage. 80% of all Qualified leads took a meeting, 50% of all Meetings Held lead to the prospect requesting a proposal, etc. Also indicated is the average value of the deal in each stage and the number of days spent in each stage. This information is immensely helpful, the reasons of which I will write about in a bit.
The above stages are only examples and can be different depending on the company. For example, some startups get great results just through a phone call and so would not include the stage Meeting Held. As long as the stages signal significant events in your cycle, you can use whichever milestones you like. The important thing is to have the milestones and to use them religiously.

The Power Of The Sales Funnel

Now that you understand how a sales funnel works, let’s look at the benefits. Used correctly, and on a daily basis, a healthy funnel will empower you to:

  1. Eliminate Blocks to Yes. By using stages you can see where failure happens most. For example, if most of your stages see an 80% conversion rate, but your Meeting Held to Proposal Sent conversion rate is at 30%, then something is going wrong during those meetings. Your challenge then would be to test strategies around that. For example, you could see if changing your pitch or your pitch materials increase requests for proposals. Or maybe you could ask your prospect at the end of a meeting what is holding them back. Questions like this may make you seem less than competent, but sometimes it is better to take off your sales hat to get valuable insights. It’s worth it to completely lose face on one or two deals if it means improving your effectiveness in your next meetings.
  2. Follow Up On Leads. Tracking your leads ensures none of them fall through the cracks. A pipeline (aka a funnel) could involve hundreds, if not thousands of deals. But even if yours consists of just a few dozen prospects, you’d be surprised at how quickly you can get caught up in your day to day hustle and forget ignore deals that seem unimportant, but could surprisingly lead to a win.
  3. Make Following Up More Effective. If you are implementing an effective funnel, that means you are taking thorough notes. These notes make following up more productive. For example, maybe your prospect said that they needed one more meeting with the VP of Marketing before they would look into requesting a proposal. Maybe they also said that they wanted to hear how you deal with a specific problem that wasn’t addressed in the first chat. If your follow up is a month after that first conversation, you may forget those details. Inversely, a funnel that is done correctly will make sure you action these points in a thorough way, leaving your client impressed.
  4. Predict Results. Once you have been through a few iterations of your sales cycle, the data you collect will help you predict future revenues. This may not seem important at the beginning because you are so focused on getting your first deal, but once you have been in business for a few months, you will be thankful you put in the effort. The ability to predict how much revenue you will have each month is critical on many levels, whether it be to communicate progress to investors, or to understand how many new hires you can afford.
  5. Collect Data For Investors. As mentioned, data is important for investors. An angel or VC does not care if you made $10,000 this month. They want to know the average of your earnings over the past 6 months minimum, if not longer. In addition to wanting to know your revenue, they want to know the underlying process bringing this money in. It helps them to understand how you are succeeding and that your methods are repeatable. That it’s not just luck.
  6. Track Team Performance. If you have a sales team, the funnel allows you to see who is doing what, where. It also allows you to build efficiencies by learning from the strengths and insight of each team member. Let’s say you’re examining the conversion rates from First Meeting to Sent Proposal. If the whole team is at 40%, but Sally is consistently hitting 90% every cycle, well then there is something to be learned from her and to be spread to the rest of the company.
  7. Go From Push To Pull. Struggling to hit your sales targets creates a vicious cycle. If your team seems desperate and is practically begging for deals to close, that desperate look will turn clients off. Also, customers want to know that they are buying something that everyone wants, something that is in demand. Having a healthy sales funnel means you are having as many quality conversations as possible which also means you are finding as many hot leads as possible. This turns the energy from push to pull. When you start out in sales, you are pushing your product on people. By pushing, I mean you are taking the initiative to contact people, to follow up, and to make things happen. Once you have shown that your product is great and that it is in demand, people will start contacting you. That’s pull. Needless to say this is the ideal scenario to be in. And the best way to do this, aside from having an amazing product, is to have a full and healthy sales top of the sales funnel.
  8. Manage And Reduce Your Stress. Being more in control of your sales process will reduce the unknowns that can lead to pessimism and doubt. If things are not going well, you will see clearly why and you can take action on that. If things are going well, you can make sure they stay that way. Either way, you derisk your sales process which in turn lowers your stress level.
The 8 points above clearly demonstrate the power of tracking your sales activities in an organized manner. But keep in mind that a sales funnel is not just useful for selling, but also for fundraising, getting accepted into an accelerator and for getting a job. The goals are different, but the approach is the same. Talk to a bunch of investors until you get a check. Talk to a bunch of companies until you get a job. By looking at this as a ‘numbers game’, you remove the emotional element and encourage cool-headed thinking, a recipe for success. Every. Single. Time.

What To Do Once You Find An Accelerator You Love

Once you’ve found an accelerator (or accelerators) that is relevant for you, your first step is to visit the website to see if they are accepting applications. But what if they are mid-program or their applications are not open yet?

This is the perfect time to start building a relationship with the Managing Director (MD) or other staff of the accelerator. It will not only greatly increase your chances of eventually getting accepted, but has other benefits as well. A really good MD is always on the hunt for great startups and when she finds one, she will want to engage with them as much as possible. She will do this by immediately providing benefits to you the founder, such as insights on how to grow your company or introductions to mentors or investors. In this way, your company is already being ‘accelerated’.

To connect with the MD, look for their name on the website, then search for them on LinkedIn. See if you have connections in common, or 2nd degree connections, that can make an introduction. If not, send them a succinct yet relevant LinkedIn message, pitching them your business.

If the MD is not responding, try with staff lower down the food chain and then move your way up. Most MDs have someone that reports directly to them, often called a Program Associate or Program Manager. They are usually more accessible and willing to connect. Also, they are often charged with sourcing startups, so feel pressure to meet as many viable companies as possible. In fact, if you don’t feel like your ‘pitch’ is super strong, you may want to start with them before you try to connect with the MD.

Regardless of who you are speaking with, you should approach this with a long term view. That means your communication should be slow and steady rather than quick and spammy. You should also treat this like a sales process. You will start with a large funnel of accelerator MDs and their associates. Some will respond. Others won’t. But you need to be persistent and methodical. For great tips on this, read The Dirty Details From A Grueling Fundraising Story (originally posted in Funding Alert 22).

Pro Tip: Relationship Building And Pitch Days

Many of the better accelerators go on tour to scout new startups. The MD will visit various cities to listen to pitches and will give immediate feedback. This is a great opportunity for you to connect with the MD. Email the accelerator team to see if they run these and to learn their dates and locations. Hopefully they are coming to a town close to you.

Your First 10 Customers

Does anyone else follow Gary Vaynerchuk?

In case you never heard of him, Gary Vaynerchuk, or ‘GaryVee’ is a social-media-guru, par excellence. He established himself in the late 90’s after creating one of the first ecommerce wine sites, WineLibrary, helping his father grow the family business from $4 Million to $60 Million in annual sales. But these days he is more well known for publishing videos on how to become a successful entrepreneur.

Some of you may have seen his ‘inspirational’ posts on Instagram or Snapchat. Those are really good for getting motivated, but even better is the practical advice he gives on his YouTube Channel #AskGaryVee. In the show, he interviews accomplished guests such as Tim Ferris, CHARLAMAGNE THA GOD, Jewel and one of my favourites, Tony Robbins. My favourite part is when he accepts calls from viewers who often ask great, practical questions that Gary Vee almost always answers with substance.

A few months back Vaynerchuk published a book entitled #AskGaryVee: One Entrepreneur’s Take on Leadership, Social Media, and Self-Awareness which is a collection of insights from the 200+ episodes he’s posted so far. I started reading it yesterday and already have found a few gems. Here is Gary’s answer to the question ‘What was the hardest thing about starting up VaynerMedia [Vaynerchuk’s relatively new media company]?‘:

It wasn’t leaving Wine Library. It wasn’t launching a new business with another family member. It wasn’t jumping into the agency world with zero experience. It was all the options I had at my disposal. During the first nine months we were launching the agency I was troubled by the fact that there were about eight hundred other things my brother, AJ, and I could have done together, and it was hard not to look back at all those opportunities and wonder, did we do the right thing? In addition, that same year my daughter Misha was born and I published my first business book, Crush It. There was so much going on—was this venture the best use of my time? The second-guessing was brutal. You’ve surely experienced this kind of buyer’s remorse after making a big decision. Almost everyone has. Kids when they finally pick a college. Managers when they make a hire. Entrepreneurs when they invest. Because you know that there’s always that chance you messed up and missed the next big thing. The perfect school. The perfect hire. The monster dividends. We all have our #onealmond moment. (Not familiar with it? I talk about it in Chapter 16, on investing.) At some point, however, you’ve got to hike up your big-boy pants, accept the decision you’ve made, and move on. After all, you made your decision for a reason, so trust your judgment. There’s no point in looking back. Even if you discover you made a mistake, you’ll be okay, because every option will get you something. It might be a return on an investment, or it might be a lesson learned. Sometimes it’s hard to tell right away which is going to be the more valuable. Either way, so long as you don’t shy away from making decisions, so long as you aren’t content to sit and dither, you will never be left with zero. Suck it up. Make the call. And remember: Be grateful if you’re lucky enough to have too many options. It’s a blessing and a half.

Other times his comments are more about the nitty-gritty. Like when a caller asks him ‘How do I get the first ten customers for a creative service startup?’:

 I once made a video where I showed the visitors to how to cold-call potential customers on the air and get people to consider doing business with me. I had no script, other than to articulate exactly what kind of value I thought my blog could bring to anyone who might advertise on my site. It was a short, pleasant conversation that ended with the potential customer agreeing to review some ideas if I ever put them to paper and sent them to him. I’d call that a productive phone call. If I had been a new entrepreneur trying to find those first customers, I would have immediately picked up the phone again and dialed a new potential customer. And then I’d have done it again, and again, and again, for as long as I could that day, and the next, and the next. To get those first ten customers, you have to grind. You can’t be shy, my friends. Just roll up to every single person in the world who might possibly buy your stuff (meaning who already buys into at least the concept of your idea or product; see two questions up) and ask them to buy your stuff.

Practical and at the same time inspiring. I highly recommend checking him out.