Raising Early Stage Capital In Web3

HandyCon 2024 | Day 2 - Raising Early Stage Capital In Web3 - YouTube

(00:03) [Music] [Music] hello hello we are back we are back all right all right everybody um so we are joined here by Alon I am very excited I you know in another life when I'm not handshaking I I'm working on my second startup capital is a big thing early stage capital is a super big thing we're going to cover that hopefully we all get something something out of it and uh this is when I I shut up all right take it away all right awesome awesome firstly um can I share all right I will share bear with and let's
(01:04) go all right awesome um so my name is elani and um I have been I've been doing this for quite a while I've been in the tech space for over 22 years now um and I've played various roles started as an engineer moved more into executive roles managed teams across the world um got into investment private Equity really early adopter um you know in the within the web 3 space consulted with quite a few teams built ecosystems built accelerator programs invested in startups both from an accelerator program perspective from
(01:41) a private investment perspective co-investing perspective and today um I Mentor a lot of startups and I get them from zero to their first 100K in revenue and put a lot of risk capital on the early stage side sometimes I do that solo sometimes I do that um in conjunction with others and we all know very well you know um being a startup founder is like jumping off a cliff while trying to assemble the parachute so to all of you out there doing this work salute so a little bit about me um very briefly I see someone's laughing you
(02:20) know um spent a lot of time in web one web two and now web three industrial gases you can go down that list ba systems in the Netherlands where I ran the Enterprise Services Group and went into pdsi you know co-founded that startup um we were actually the first to build shipping container mobile data centers and we did that very rapidly and we sold that company myself and three co-founders we sold it to Hitachi Data Systems this was back in 2011 that was my first exit and the first thing you learned quickly um as a Founder in those
(02:52) stages is you know know how to read contracts understand who your partners are um and raising a lot of money money um is not success it's debt you know you can do a $10 million exit and end up with a million dollars you know so often times we hear this large exit and we wonder why the founders you know uh uh made out on the other side just barely what they put in went to Astro zenica and pharmaceu calls and Switz L Switzerland and also in the US manag a lot of Enterprise servic Services teams there as well left that co-founded flatbed we
(03:25) built that from zero to 32,000 gig workers and drivers in the United States alone in less than 6 months through that exit through private Equity exit I advis harvest some of you might know harvest the OG of defi yield farming um I was an early adviser of theirs and they scaled out very rapidly took that experience went to aash network did the same there built their ecosystem built the accelerator program once that was done at aosh I went to Stellar development foundation did some work there as well I do a lot of Consulting I with realest
(03:59) and I help startup basically scale up and please if you have any questions drop them in chat I'll be reading through them as I'm doing this com this uh this this presentation one of the lessons I learned through this journey is I met a lot of friends throughout this journey both web one Web Two web 3 and those relationships um played a very vital role in understanding how to connect people how to connect resources and identify what people really need cuz often times we confuse money with success and you know often times it's
(04:35) easier to get philosophical after you've become successful that's an ongoing thing but prior to getting there you have to learn to enjoy the pain enjoy the journey you know embrace you know you attract the things you fear right whatever you're afraid of it will come to you fear can smell the juices we put out so learn to embrace the pain the day you do that it loses its power to that degree what's early stage funding that is the riskiest riskiest Capital deployment your first 100 200k the person putting up that
(05:17) money that's where the biggest risk is you can call it seed funding preed funding post-seed funding prea funding we can dice it a million different ways that is the riskiest part and in my experience for every 250k check we write I expect 80% of them to fail because think about an entrepreneur's Journey some you get out of bed every sometimes you don't even want to get out of bed because you have to put on a brave face and pretend the world is G and everything's fine yet inside you are crying not knowing how
(05:50) you're going to pay your Cloud bills tomorrow right and through this you have to go present to a bunch of arrogant investors you have to go present to new customers you just have to work through all of that right while pretending the world is great but the day you embrace the pain and you learn to enjoy it that's the day the pain loses its power and you retake control that's the power of decentralization because think about Cloud compute think about storage think about handshake think about the decentralized nature of the web3 sphere
(06:28) as we put it right now you have access you have options and the pressure is further reduced a little bit at the moment the cognitive load is relatively high but we're getting there now I'm going to visit a few things here and that is for early stage stage teams you know focusing on validating core ideas and establishing product Market fit you know while laying the foundation for scaling you know generally has three characteristics right product development customer requisition team building metrics and validation Focus
(07:10) right the challenges is you don't have any money and this I mean the future is just uncertain no one has a crystal bow you don't know through that you have to build a brand awareness right that's what I said earlier where some days you struggle to get out of bed because maybe the day before you had you know some server failed you know you got to pay two devs who are now rebelling because they have bills to pay and you know you haven't paid them yet you know your Cloud bill came due from AWS and it's
(07:41) $10,000 right and you have to pitch to an investor today right have to pretend everything's great the best pitch that I have seen in my entire career when we got to the projections it was a three three slight deck actually and the founder said we anticipate at best 500 users over the next 12 months and when it got to the revenue it had a big question mark we don't know from an investor perspective that raw honesty I had a thumbs up that's the guy that I want to invest in because they have because every business plan and
(08:21) every pitch makes money okay and there many public Pro and I and I'll name names you know F Sumi right it's all on chain you can validate it look at Cosmos many projects there and I I looked at one of the and it's out this is public information you can go look it up on on on a where someone pitched you know a blockchain lottery you know projection set we're going to have 50,000 users and they barely have 200 users like what's the so my point is investors have their own thesis and there's certain things you look for okay
(08:58) and often times team teams that are honest enough and have the intellectual honesty right to be very candidate and upfront then from an investor perspective you understand where they are and you know that this is a team that okay I really want to get involved and ideologically I don't touch teams that I can't you know get involved with on a day-to-day basis we do Financial projections operations metrics go to market strategy making phone calls doing introductions I mean I operate as a member of the team for zero pay and I'm
(09:30) going to talk about that very briefly and please any questions throw them in chat so from a product Market fit perspective you know the foundation of any no one cares about the features okay think you know put yourself in the shoes of the person who has to write a check you could reverse gravity but at the end of the day an investor looks at it as okay how many people can use this product in the mo in the most exist is this thing ready to scale okay you could build a rocket ship it's not going to leave the TAC if no one can
(10:07) fly so in in in that sense decentralization makes this critical because now you have access that you never had before and as a and as a smaller team take advantage of it because investors I mean a good investor is a partner you know we know you have bills to pay and I'll give you an example A Team comes in and say okay we want 250 K to get us going going as an investor I know very well that between lawyers accountants Deal review and all of that is going to cost at least $35,000 in just fees to craft shareholder agreements operating
(10:44) agreements clawback Clauses all of that so your 250k just got kneecapped by 35k easy let's say 40 because lawyers tend to you know they take a to take their time they want to Bill hours and all that so the 250k ask you have is now 210 and I also know as a startup you probably have at least another $30,000 in bills you have to pay right that so the first 70k of your invest your 250k just got kneecapped by $70,000 so net you might end up 150k when it's all said and done so if your projections and all that is based on your 250k I know
(11:23) right out the gate your hands are tied behind your back and that's why honesty and transparency are very very important important and when we look at users and customers or investors alike you know solutions that address genuine user needs and demonstrate traction okay in that target market and an investor overlooks all that all of those issues to say okay let's take it you want 250 we know you're going to end up with 150 let's put a plan together this is where web 3 has a lot of friction because you
(11:57) have a lot of very technical folks and me you said oh who have no idea how to run a business okay I don't want to hear about the product it's fit for service it fit it's fit for purpose we can always get there right but Financial modeling operations modeling okay you know basic money management you know how do we optimize for that you know one of the teams I advis you know I basically you know they were paying money to go to these pitches to go to like pitch events I'm like stop pitching events are a
(12:32) racket half the people there are accountants and Consultants trying to sell you their service okay ditch the pitch Just Launch okay save your money stop pitching a real investor will find you trust me and I say that from experience because I back in the late 2000s I went to a pitching event and the guy who wrote the first check on assistant and we've done a lot of deals after that he said just I I I'll see you in the lobby just give me the highlights okay barely barely five minute conversation and today we're
(13:07) still very close and we've done a lot of deals together so my point is focusing solely on Innovative technology without clear key Valley prop it can hinder fundraising efforts so ditch the pitch focus on your key Valley Pro build and just launch because you get early feedback access to infrastructure decentralized infrastructure you you can readily go to market you don't need vanity metrics and the thesis and the mindset is how do you align those expectations with potential investors think about the earliest investor assumes the
(13:42) most risk because that's the riskiest part of a project right the later investors they come in IE VCS when everything has been drisk so teams have to also understand that the earlier investor is looking at this as I don't care if you've built the next best thing in web 3 I'm the guy giving you a half a million dollars of my money okay because the real exchange of funds is what counts the same way I talked you know a few days ago about you know guys you know people who have millions of dollars in crypto but
(14:23) they're still paying rent right you know look take profits pay your tax is you know do what you have to do but your level you know so there's a psychological Dimension to this and those things come out when you present to customers potential investors your investors are also your customers if I can't use a product I'm not touching I'm not I'm not touching it per if I can't use it why would I want to you know invest in it so investors also have their pain points you know so the the
(14:56) DAT um you know the fields of the right are some of the questionnaires that I use um within our Investment Group and I work with Frontiers Acquisitions Connecticut Innovation grey wolf and a few others you up from Connecticut to Texas and Utah and London and those are the basic questions that go in you know are you trying to get out of this thing in 3 to five years are you trying to hold are you buying this for transformation reasons those three points there are very very loaded earlier in investors I want to
(15:30) get out in 3 to 5 years so there's got to be a beginning and an end okay so you put in 250 you know early as side you want to exit the next so you want to rapidly help the project build and the founders have to be mature enough and be intellectually flexible because Founders tend to deal with a lot everybody thinks they know your company better than you do but it's also important to listen to feedback when someone's telling you hey I get what you're doing however have you concern consider these other options
(16:00) from a scaling perspective and earlier investors bring that expertise because I am trying to help you grow so that I can exit it's not a charity okay that's just I mean that's just that's the and I'm not looking for a billion dollars okay if I put in 500 if I can 10x I'm good you know leave that for the next person who wants to go make a billion dollars you know Heaven help you so and I know this isn't music to people's ears but it's important to understand what an inv invest thesis is
(16:30) and how they operate and what value they bring Beyond writing a check one of my worst experiences was an investor who wrote a check and felt they could inject themselves into everything so it's a it's a constant um Balancing Act is my point and I'm not going to bore you with this slide it just shows you basically you know how innovation has risen in the shorter time capsule over the last two to three centuries when we went from mechanical you know mechanical Computing to vacuum tubes and in the transistor
(17:01) era where the value right was in proprietary hardware and then it morphed into the value you know value morph into you know windows and Intel Monopoly leverag and an eyes the ecosystem which you're talking about you know value added resellers systems integrators you know you think of ingar micro and the big Web Two shops you know Dell EMC you know and you know oracle and the rest of you then then involved into cloud computing which is the web era Web Two basically and now we're in the decentralization era where value were
(17:31) Cruis across the network and hns you know the hs's of the world play a vital role in that think about financial access you know one of the crazy stories that I experienced very recently actually was a you know a chain trying to solve for financial inclusion and it's Visa actually and this public info so you can look it up they spent $6 million trying to bring Financial inclusion to Afghanistan you know and a few other you know some other stands out there but they only had 23 transactions and it failed because they were charging
(18:03) interest on each transaction and in Islamic law interest is Haram in According to Islamic law if I lend you $10 you pay me back $10 not $10.20 and you would think the Geniuses over there would have figured that out before spending all that money so my point is understand your you know one how the market is evolving you know based on your trajectory and where you are along that value chain all right I'm almost done here I know um I'm almost hitting time now what's the biggest challenge in web 3 as I said
(18:37) earlier lower the cognitive load because you can't scale what you can't simplify it's simple Google and Yahoo people forget Google was offered to Yahoo for pennies on the dollar they said no if you go to Yahoo own page right now at this very moment and I challenge anyone to go there within five seconds you have anxiety there's so much going on and it's all bad news and it puts you in a bad mood why would I want to put my users in a bad mood right whereas you go to Google love or hate the company it's one bar and you
(19:13) start your own journey and whatever it takes you Haven help you and it applies to anything consider toilet wreath right a shampoo bottle people don't know this but the push to serve was invented by Johnson and Johnson and they collected royalty on every push to serve bottle you know bottle manufacturer around the world it's easy to use prior to that you had a screw top right you're in the shower you want to put your shampoo on and you're trying to close the screw top while you're trying to serve it and all that
(19:44) but push to serve just pushing same thing with a car Teslas no buttons you just get in and drive every other car has a th000 buttons that you really ever use so my point is simple scales period you can't scale what you can't simplify period humans Love Low cognitive load okay if I have 50 browser tabs open guess what the one that's most active is the one that's easiest to use simple fact so I always say stop with the design of us your experience and back into the tech because from an investor perspective I want to see something I
(20:27) can use and show off that encourages investment and when startups want to raise funds it doesn't matter how good your software is I don't care 8020 80% of the benefits is in 20% of the features okay an investor want to see that 20% what actually matters I don't care if you build the next generation of defi wallet can I swap easy can I convert my tokens into you know you know Fiat to book an Airbnb things like that you know I want my privacy I'm a mask Maxi CU I'm I'm just I'm a dieh hard Max I just love mask
(21:06) period And I use it privacy because I believe privacy is a fundamental human right period and anyone who gives me that simple cla's day guess what we're making that investment so if you lower the think of your investors as your customers the easier you make it the faster you get to the money period I always say and and again this is from failures and successes every meeting after the third meeting you're not getting if an in if you've met with an investor more than three times they're not writing a
(21:40) check okay period a legit investor by the third meeting should have a memo or at least a draft term sheet for you especially in the earlier stages and for God's sake keep your cap table simple okay the more complicated the cap table is friends family rounds this are the friends swap your equity for tokens and all that guess what no one no early investor is going to touch that because we're going to burn money on lawyers and accountants trying to figure it all out by the time you get your money you burn
(22:10) through 25% of it and I say that from experience and finally please vanity projects suck okay 10,000 likes and 10 users is an uninvestable story period it's that simple no one cares about likes care about users daily active users monthly active users gorilla karate off your way to investment leverage adjacent ecosystems okay build Bridges not walls so if we were talking to other ecosystems and investor sees that and go oh okay they understand organic growth don't open up a slide with we have 50,000 followers and ,000 likes per post
(23:00) my first question is okay you have 50,000 followers do you have 50,000 users 10 times out of 10 the answer is no and it's a shame because unfortunately a lot of marketers have tricked a lot of Founders into falling into this vanity metrics trap and so we have you know 10 million followers yeah big deal if you have 10 million followers you don't need me right so some of the real world problems I talk about financial inclusion this centralized storage and access decentralized networks social media data ownership and monetization
(23:34) and decentralized trade things like that real world problems that are scalable because an early stage investor sees a lot of risk and if you fought through those things then an other investor helps you get to your so my job is not just to put money in my job is to help you get to the next investment so that 25 500k I put up you know is 10x and I can roll roll it into the next in because future investors want to see that your prior investors are fully supportive so that's that on RP and we did it with cloudm we
(24:09) did it with pror we did it with a bunch of teams now that are you know these companies they're worth millions and they own I think PR was last appraise for 15 million from a valuation perspective and that was from 150k investment so these things you know Stevie you know Steve uh said earlier in early presentation that there's still maturity you know you need adults in the room having these conversations and unfortunately a lot of devs don't want to have those uncomfortable conversations you know financial planning Financial modeling
(24:39) Revenue modeling those things that are not sexy you know my job is to be that guy who helps you embrace the pain because it's not comfortable but my look I'm 43 years old I'm in a place where I could do whatever hell I want to do now okay and haven't done this a long time I can tell you there is no substitute for hard work the things you don't like doing are the things that will make you successful period and finally um it's important to align expectations you know the the focusing solely on crypto native audiences limits
(25:17) potential reach you know and what also happens is you know it creates a bubble right and we see that a lot and I always pick on Cosmos because I mean I mean nowhere else nowhere else is this more prevalent you know you see this grant programs keep funding the same teams getting the same results and what happens is where do the key Val the problem it becomes a bubble right it's are we going broad or are we going deep and what ends up happening with that is you build an echo chamber right you go to the same conference you see
(25:53) the same people doing the same stuff the same validator sets the same people getting the same grants it becomes almost nepotistic in a sense and I'm not throwing daggers I kind of am actually but the reality is you can't keep pouring water in a basket hoping to fill it up okay you know to scale lower the cognitive load get out of your comfort zone talk to the PE Web Two users will give you the best feedback because that's who we're trying that's where the scale is web 3 users already have
(26:20) context but it's still very small okay so there you go so an investor looks at at that as is this thing scalable or not okay my 2500k am I better of putting it some can just go ape into some token and get better returns but do I really want to support this have they thought it through because remember an investment I mean you can only go that far you know as far as you know working on your taxes when you when Investments go south so there's a lot more to fundraising than simply building something cool solve real
(26:51) business problems identify a core Market focus on one do it exceptionally well it will grow in the right company and embrace the pain okay that's just there is no substitute for hard work it's going to be uncomfortable but once you understand it it gets better that being said Thank you guys happy to answer any questions I think I'm the only one in the presentation any questions right thank you thank you so much it was getting a lot of good feedback in the uh sorry I covered my camera getting lot of
(27:28) feedback in the chats but is there a question people are I don't see many questions I see a lot of people you know enjoying it which I did myself um I guess I could ask one you know you say let them find find you is that towards the beginning um but I feel like there's a lot of these developers that are not maybe good at marketing or promoting or they're shy or they're Anonymous or you know I I feel like is that still the same for them I mean they're kind of building in their like basement or their you know
(28:02) grinding hard building which we love those people but don't they need some more help or what would they what would you say for them yeah so that's the that's the pain you have to embrace right because if you think about it if we if we all Shide away from the things we don't like doing we'll all never leave the house right I mean would you rather drive somewhere or teleport there right you see what I mean like you rather teleport you can't teleport so get in your car and drive so you know so it's not fun
(28:36) you know from a from just from a former prior founder perspective and an investor there's a lot of people I'd rather not spend time with but I have to deal with them right there's a lot of things that that I'm uncomfortable with that I have to do I've had people say all sorts of things that I won't even get into it on this you know conf but that's the If You Ever Seen The Godfather there was a scene where my Kone was complaining about the guy who blew himself up in Cuba and Hyman rth said this is the
(29:06) business we chose okay period so put on your big boy a big girl pants suck it up and get to work it's that simp I mean I'm gonna babysit a don't so the whole point here is I'm that pardon my French okay as a Dev I will tell you the things you need to here cuz I'm not here to be your friend I'm here to help you be successful when soldiers March they might march to their death but guess what they March okay great so we do see a question came in couple questions are coming in so we see here the best way to start networking
(29:51) directly with Angel Investors web 3 well first things first build good relationships because one relationship gets all most early stage investors it's got to be a warm lead okay I if I make an introduction and I or I tell someone in my within my network some a project to look at they'll pick up the phone they'll they will spend the time because time is money okay some Rand sending them something and I get all kinds of things out I don't even look at them but if it's someone I know who makes that
(30:20) phone call I will take a look even if I pass on it I'll give feedback so time is money like people I mean the only way to meet like legit investors because the people who walk around have an investor badge especially at pitching events they have no business being there it's just a networking thing it's good for their ego and all that but leverage relationships that's what works I have never raised money just from a random interaction it's always been someone who knows someone who helped me out and that's how
(30:49) I work as well it's just trust that's half to doal diligence great last last one I think we got the next session coming up but uh you know The Importance of devs Being recepted to Concepts that are relevant beyond the bubble yeah just keep an open mind that's all talk to people outside your ecosystem the best feedback you are going to get your best users will be people who who know nothing who have no context about what's going on reach out you know you can't shake hands with clenched fists this is one ecosystem
(31:21) this is another one you can't do that you got to open it up and you got to talk to people it's awkward but do just do it okay great sorry we really out of time everybody Alani thank you again for coming back was a pleasure I really enjoyed it many of us are enjoying it um you're very approachable I think some people here are I think people are trying to get make connections right I see some basically how you be a through relationships with some of other ones but I guess out out just Reach Out Reach
(31:51) Out Twitter just link reach out and I always try to respond great all right thank you we're going to next session namely which is a startup on in handshake so thank you all right thank you [Music] guys