How to think about passes

Jason Yeh
April 29, 2021

First, some thoughts on PASSES

I originally wrote something else for this week’s newsletter but was inspired to switch it up at the last minute.  Day 1 of the NFL Draft yesterday reminded me of one of the most epic passes in the history of sports, and what founders can draw from it as they receive their own inevitable passes.  

The quote above was what was written about Tom Brady. It’s the perspective of a scout trained to identify talent and likely reflected similar logic others used to pass on Brady 198 times in a row before he was selected #199 overall.  Most of you know the rest of the story. Tom Brady went on to become a hall of fame quarterback and something even more impressive than a unicorn, a GOAT.

I am constantly coaching founders through passes. They come to me with exasperated comments like “They didn’t like my strategy, should I change to get them to invest?” or “I don’t understand this reason for passing at all!” or “Maybe I can convince them to change their mind…”

The fact is investors in most cases have very little data and time to make decisions. While they are smart, they are not experts in your business.  Passes can have intelligent reasoning behind them, but the same way a decision to invest is not scientific, the reasons to pass are not gospel. Founders should learn what they can from the investor but stay committed to their vision and continue to pitch what they believe in regardless of reasons behind a pass. They should also realize the main reason investors pass usually is very amorphous and unspecific. The simplest way to describe it is because they couldn’t get excited enough. In addition, my belief is that because being honest and saying “we’re passing because we couldn’t get excited about it” doesn’t sound intelligent in a pass note, many investors will pad their pass with details that are both inaccurate and potentially misleading.  Just another reason founders should pay very little mind to these passes.

With Tom Brady, so-called experts analyzed his potential and missed it by a mile. I’m sure that assessment didn’t feel great, but it didn’t change what Tom Brady believed he was capable of.

Startup founders should draw inspiration from TB12 in maintaining their confidence from pass to pass while executing a fundraise. They need to have the mindset of "screw 'em, they don't know what they're missing."

Consider whatever merits the pass might have for just a second and then move on to finding the investor who sees the world like you...someone who will invest in your hall of fame startup career.

On to the Fieldnotes...

Do I need a technical co-founder to raise money?

This is an interesting question. The VC perception around this has shifted over the last five years, especially with the rise of no-code platforms. While the amount of value that can be created without engineering novel technology may be up for debate (I personally believe the answer is ‘a ton’), there is no debating how much traction and validation can be generated on no-code and low-code solutions.

When talking to a founder about this topic, I outlined a general concept for her. There are a lot of factors that change a narrative and make a startup more appealing to investors. Some examples include: product versus no product, customers versus no customers, or revenue versus no revenue… and if you're building a technology-enabled company, raising with a technical co-founder versus without one. Each of these variations impact the attractiveness of a pitch.

Can you raise money without customers? Can you raise money without having built a product? Can you raise money without having generated revenue? Yes. They’re all just different stories, some better than others. I would say the same thing goes for not having a technical co-founder. Having one may be better, but you can still tell a compelling story without one.

This particular founder’s challenge will be showing how much she is doing to move the company forward without technical leadership, how much more she can do without it, and the steps she’s taking to plug that hole. I think she can do it💪

Should I consider crowdfunding?

There have been a lot of high-profile crowdfunding campaigns recently which has prompted more founders to ask whether they should be considering crowdfunding. This is another situation that I think has evolved significantly over the last five years.

Five years ago, anything that looked non-standard like AngelList syndicates or crowdfunding had a negative perception to them. The thought was the company raising from those sources must not be quality if it had to take capital from them. Today, access to fast capital no matter the source is not only an advantage in some cases, but also somewhat celebrated. Moreover, platforms like AngelList and Republic have solved some of the signaling issues via some combination of branding and curation of quality deals.

Should you consider crowdfunding? Sure but know that solving for the signaling issue has been done partially by setting up a more stringent filter. These deals usually don’t do well unless led by a high-quality syndicate of existing investors, which means the money is not the easy money some founders hope it could be. Consider crowdfunding for its merits (exposure to consumers, platform connections, speed) like you would any other source of capital and integrate them into your process.

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