You only need two investors

Jumping to the punchline, you need one seed investor who helps you find product market fit (PMF), the stuff I talk about here. You need one venture investor who helps you turn your PMF project into a company by hiring the right people, paying attention to the right metrics, building the right culture, and making good decisions as you scale. A lot of founders get confused about investors. They assume that all investors are created equal, and after the first few show up with cash and no value add, they assume no one adds value and just optimize for cash, valuation and social proof.

But these two investors are more like team members, one for PMF and one for scaling. The reason investors are so helpful at these two things is that these are repeated games. The more they have helped companies do it, the better they can help, and the fewer mistakes you will make. It also means that their reputations are critical to their playing of the game. The better their reputation, the better the companies they work with in the future, and the better their reputation gets.

In seed, the reality is that although 20% of seed companies get Series A funding, its probably closer to 2% that find true product market fit, which I measure as 20% MoM growth for 12+ months and 80% organic leads. You can still create a good company without PMF, but for an epic company, decacorn+, you want true PMF. Finding PMF is fundamentally about user empathy, creativity and experimentation.

It is very unlikely your seed investor is also amazing at scaling your company or your venture investor is good at finding PMF because they are both skills investors develop with many many repetitions, so you need two investors and not one. It’s also why you shouldn’t worry about anything scale-related at seed stage. Finding PMF is the one and only goal, usually achieved with a two pizza team at most.

I will put a plug in for former founders here. Any former founder who is either a seed or venture investor will have a lot more empathy for your challenges and that helps a ton in stressful situations. Also, having lots of personal reps at things like firing people or cutting out whole products makes that investora lot more useful in the toughest times. That said, there are plenty of investors who have been doing this long enough that they have developed that empathy by working with many, many companies and they can be amazing too.

The most important thing when going into Series A is to be intentional about finding that partner who can help you. Founders often get distracted by firm logos, but the partner who leads your deal is 90% of the value you will get from the firm, so pick a partner not a firm. Ideally, by doing your research, you will find 10–20 investors with relevant experience, good reputations, and some big outcomes who you can target. The best thing as you are developing your list is to talk to other founders who have worked with them. I’ve found out some incredibly positive and negative things through these backdoor references over the years, that never show up on the press releases.

To get them interested, target venture investors on twitter and clubhouse, follow them on medium and just generally show up a lot. You would be shocked at how effective this seemingly cold outreach can be. Of course, having a warm intro from one of your existing investors is even better. Do this intentional search for a partner rather than running the auction process that so many first time founders run.

My advice is to be very clear about these two investors when you raise. If at all possible, find that seed investor as early as possible and have them lead every seed round if you can, so they are focused on you. If you find them later, figure out how to make the economics work to get them involved. Generally, seed investors need to own between 10 and 20% of a company to devote the time you need. Venture investors say 20% is their minimum, but I have seen plenty of Series A deals for PMF companies where investors will take 10 to 15% and plan to build their ownership in future rounds. These core investors are not worth the same as your current investors, they are worth 10–100x more, so make sure the cap table reflects that.

Beyond those two investors, raise money at high valuations from people that won’t ask many questions and provide you social proof. Increasingly, my companies are issuing SAFE notes converting into the next equity round from a large variety of investors. If you have gotten your seed and venture core investors right, you are unlocked to do this all day long.

Co-founder and CEO NetGravity, Rocketship Education, Zeal Learning, Dunce Capital.