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16 December 2015
Investors Are Too Scared
We’re starting a new thing, a seed fund. Its name is SeedRamp. The formula is simple: You schedule an interview, we have a one-hour conversation, you present me your startup idea, and we either give you cash right away or explain why we don’t feel like it. We don’t do any due diligence or background checks. The decision is made right there. It’s something similar to angel investment, but the amount is smaller—less than $20K, and decisions are faster.
There are basically three problems we’re trying to solve with this new idea: 1) Investors are cowards, 2) investors are cowards, and 3) investors are cowards. Here is why.
They Are Afraid of Strangers
It’s no secret that Silicon Valley is very “corrupted” territory, where in order to get access to money people, you must know some other money people or someone who knows someone, etc. You must be well-connected in order to be successful. You simply can’t raise money just by having an awesome idea or even a great implementation. You need connections.
I think that’s disgusting.
I am, in general, a big fan of meritocracy, where those who are smarter or stronger win the most. This is the principle we, at Zerocracy, apply to software developers who come to us. I explained it last year in this rather popular and provocative post: How Much Do You Cost?. We simply don’t care how many years of experience you have, how much time you’ve spent with your previous employer, or how many programming languages you know. We only care about your objective achievements, which are validated by the market. And, of course, we don’t pay attention to any references or any previous relationships.
I strongly believe this is how it should be.
Unfortunately, this is not how it is in Silicon Valley when a young startup is looking for $100K to $150K of seed money. Angel investors are difficult to reach. They are afraid of you, if you come out of nowhere. They only want to talk to someone they can complain about to their friends. This basically encourages startup founders to spend their time on friend-making activities instead of business-making ones. Very often, good teams simply miss their chance.
They Are Afraid of Telling the Truth
Have you ever talked to a venture capital firm? To angel investors? To any investors, basically? If you have, you’d know they all are very polite, nodding their heads and smiling while listening to your pitch. They usually are “very excited” to meet you and “learn more” about your business.
In the end, they don’t give you the money.
Why? Who knows. They won’t tell you. They are cowards, and they are afraid of telling you that your idea sucks and your business plan is totally wrong. They are afraid of being honest.
There is an almost identical situation with recruitment. You send your resume to Facebook, they interview you, and you spend a few hours with them, answering their questions. In the end, they email you, saying “We decided not to proceed any further; good luck in your job search.” They are afraid of telling you the truth.
And it’s disgusting.
In our recruitment process at Zerocracy, we do exactly the opposite. You apply to us, we ask one of our programmers to interview you, and then, when finished, we make a decision about whether you’re a good candidate or not. We discuss your profile right in front of you. We don’t have any discussions without you. We make our decision fully disclosing our reasoning to you. This is how it should be everywhere, I believe. Especially with regard to investments.
They are Afraid of Losses
It’s a very infamous problem, mentioned everywhere there’s a list of “top 10 reasons for startup failures.” Investors simply turn you into an employee. Before you get their money, you’re on your own. You make your own decisions, you manage your business, you’re in charge.
Then, you get the money. It doesn’t mean you’re rich. Not at all. It means that, from now on, you’re their employee. They decide what your salary is. They decide whether you can rent this office or not. They decide what car you can afford.
Keep in mind that your salary is lower than your friends are getting, working somewhere on Facebook. Your salary is low, and you can’t change it. All your expenses have to be approved. You’re simply under the full control of your board.
Why is that? Because they are afraid of you being free. They are afraid of losing their money. That’s why they are doing everything they can to keep a close eye on you.
It’s disgusting and very counter-productive.
It’s similar to trying to win in poker by always making small bets. In most cases, they lose their money, you lose your time, and the market loses the opportunity to get a new product.
We Are Not Cowards
SeedRamp is going to solve all of these three problems.
First of all, we completely remove the necessity to have any connections in order to reach us. You need money? Just schedule an appointment online. We don’t care who you are, where you’re coming from, or who you know. We give you one hour of our time, and if we reject your idea, you can apply again in a month. Thus, any young startup without any friends or connections is welcome. Just bring your strategy, your existing results, and your passion, and we’ll talk.
Second, we don’t say, “We will call you back.” We give you our reasons right away, and we always tell the truth. Moreover, we record our interview and publish it on YouTube. Yes, that’s not a joke; we will publish all interviews online, and you can see how we talk about other startups. We are not afraid of telling the truth; it’s part of our marketing strategy.
Third, we don’t sit on your board after the investment is made. We simply give you a check, and you can fly to Vegas the next day and spend all of that money there. We don’t care. When our decision is made, we don’t tell you what to do with the money. If we gave you the money, we believed in you and your judgment. If you think that the best use of this money would be a new Kawasaki, do it.
Instant Micro Investments
To make it all happen, we have a few principles and limitations.
First, we expect you to ask for enough cash for one calendar month. You simply have to explain to us how much you need for one month and how you’re planning to spend this money, approximately. One calendar month. We expect you to come back to us in a month, demonstrate your progress, and ask for one more month. Of course, we may say no.
Second, the maximum we can give you is $20,000. Maybe, in the future, we will raise this limit. For now, it is $20K.
And one last thing. We will ask you to give us some future equity in your startup. You decide how much, but it has to be enough to make us interested. It all depends on your situation. A few percent, I’d guess.
We’re planning to host our first interviews in the middle of January 2016. You can schedule them right here.