I’ll be doing a live webinar on Tuesday, June 9th at 12 p.m. CST to share insider tactics that you can leverage for your next fundraise. I’m going to be combining tactics that I used as a founder to fundraise as well as and insider insights from my investor experience of Tundra Angels investing in 24 startups.

Don’t miss it. It’ll be a great time!

Once upon a time, I met a startup team. 

There were co-founders, Carlos and Dante. They were building a B2C startup.

To give context, Carlos was a celebrity in a prior life. He had done pretty magnificent things on the world stage. But at the moment we were interacting, he was not as readily in the spotlight and this venture appeared to be something in the category of what he was doing next.

Carlos spoke to me with a clear polish about him, as someone who was very accustomed to doing press interviews. There another person on the call, Dante. 

When Carlos motioned to introduce Dante, he said something that hit me weirdly.

Carlos introduced Dante like this, “He’s a Stanford grad and played on the hockey team.”

But then he followed up with, “So I knew he was smart, and I knew he could fight.” 

“Fight?” I thought. 

When I heard this, I assumed the phrase was intended to make the team seem formidable. 

But the line fell flat. 

It was the first time, and only time, that I have heard a co-founder be introduced not for their skills, ethics, or trustworthiness, but for their ability to “fight.” 

“Am I supposed to be impressed that Dante can fight… or concerned?” 

Furthermore, it didn’t help that Dante’s countenance and broad shoulders, combined with aire of elitism, was someone that I knew I wouldn’t want to cross. 

In that moment, my mind transported myself to a vision of Dante on the hockey rink at Stanford, taking his gloves off and throwing them down on the ice, then throwing punches at someone from the opposite team that crossed him the wrong way. 

Then I envisioned him in a business meeting with other investors... I didn’t think the word “fight” is one that readily came to mind for top quality of a founder

But not only did Carlos’ compliment not land, the comment also revealed to me something else - it gave the impression that Carlos had selected Dante as his co-founder based on shallow reasons. 

I was equally as intrigued by what he didn’t say. “Dante is one of the most trustworthy people that I know.” Or, “Dante is a superstar in this industry and has hundreds of connections to end customer.” 

No, I rather I sized up in the first few minutes that Carlos and Dante had come together because they both resembled each other - good looking, competitive, and elite.

They went into their pitch. It was a software play that had both a gamification part to it, as well as social media angle as well. 

The revenue model was a freemium play - advertising heavy, and then monthly subscriptions for the paid tier of benefits and content. 

Under the current model, my mind went to the fact that they needed to be a highly capitalized venture business to make that business model and the unit economics work. I wasn’t convinced that was the best approach and that perhaps there was a shorter term monetization path, but I didn’t push it yet. 

I found one of their points to be highly credible - they accurately framed the problem in the category that they were within. It was a bit like, “all of these platforms have [X emotional consequence}, and we are going to help the market resolve this and deliver a [higher level experience].” Importantly, it was a non-debatable point. One could not argue with their framing of the problem. 

There was no doubt about the truth of the consequences of the different platforms, but the problems they framed were 10 to 15-year macro problems that were not readily solved by a single startup in a short period of time. For reference, I call problems like this a Google Earth problem. 

The market problem as presented didn't really have enough conviction around the niche-ness of the problem, the use case level, what I call the Google Street View problem, which is where I believe that startups should begin. For more on this framework, see my article titled 5 Fatal Mistakes I Made in My Startup)

As the conversation went on, it became clear that Carlos possessed more star power than business prowess. 

The company direction seemed like it was wrapped up around Carlos’ lived experience in his celebrity career. 

Carlos was the visionary. And that Dante was the executor, the technologist that would execute the vision. 

As I listened to the pitch, I wondered to the degree that Carlos was taking his experience and then sort of making a market problem out of it, and extrapolating it across the entire market.

As the conversation went on, Dante started taking control of more of the conversation and the answers to my questions. Carlos, the celebrity founder, started to lose relevance to the conversation with the more questions that I asked. 

I then asked about the fundraise details. The team mentioned that they had been self-funded up to this point, but then also got a $300,000 investment from a major media company that I instantaneously recognized. That was the only external investment in the company to date - a curious twist in the story that was not only impressive, but left me confused as to why this single major logo was the only external investor to date. Furthering my curiosity, the investment from that company came a year or two ago.

Outside of that investment, Carlos and Dante said that they were self-funding the company and were now looking to raise $1.5M at the same terms of the round that the major media company entered at.

Interestingly, the team didn’t have their product in market yet. They actually gave me a brief demo of their MVP, which clearly they were very proud of. But, the team had been running for four years by this point. 

Four years ago? And only an MVP and not even live with customers? 

I asked about the use of funds for their fundraise - mostly to finish product development and then get to market. Product development? I dug in more and asked about the technology. 

I learned that Carlos and Dante were engaged with a software development firm. A firm that they were ready to tout also does work for the hyperscalers, and named a few of the logos. 

Carlos noted that this software development shop had been lining up corporate customers for them to advertise on WXY’s platform. He even said, “They are pitching their clients about advertising on our platform, and their clients are very interested!” 

That sounded good at first blush…. but so naive. 

There is no way in heck that the development firm would be pitching their clients to advertise on an unproven platform that had literally 0 users on it right now. Why jeopardize any well-paying client relationship for something so insignificant? 

Instead, rang up the situation thus far - four years since company founding. Carlos and Dante were self-funding the company that I didn’t know the amount of. But I did know that they blew through a $300,000 investment to build a workable MVP that isn’t even live with customers yet market yet. Now, the founders needed to raise even more money to pay for the development to get the product out the door, and a software development firm was trying to differentiate themselves by promising the customer relationships that they could open up for the founders. 

Every month of the product not being ready yet is another month of value accruing to the software development firm, not to Carlos and Dante. 

I concluded that this software development firm was holding these founders hostage. 

After all, it is a good look for the software development firm to be working on the venture-backed startup of a celebrity. But in the meantime, why not keep ringing up the billable hours? 

But this was the moment that honed into. True, I didn't like how Carlos said that Dante knew how to fight. Yes, they were off with the framing of the problem.  had been super inefficient with time in spending four years on this. But, these two bros were just throwing money away to a firm that was happy to take it to build tech and promise customer activation. 

I myself had spent 50 weeks of 2017 and $242,000 of founder and family adn friends money building a software product that hardly anyone used. And I can’t bear the fact that others would go through the same thing I did.

I mentioned that I would follow up with the team the next week. 

Before I communicated back to the team on Tundra Angels’ decision, Dante emailed me. 

His email gave me an update on their status, saying, “While our initial goal was to secure private funding, I’m pleased to report that we have received an offer for a “go public” investment opportunity.”

He detailed that they were looking to take the company public and raise much more than the $1.5M that they initially sought. They were offering private investors a convertible note structure while the public opportunity was being realized. 

This gave me another signal, which made me even more concerned for the team - they had not been successful in not raising the capital they wanted. 

Uh oh. That didn’t bode well for the company’s future. 

In my email back to them, I noted that we were going to pass and laid out some of my concerns. 

I wrote, “At this time, for you guys, most of the risk is in the market risk bucket. It concerns me that you've spent quite a bit of money with this software development firm already and the product is not launched yet. I spent 50 weeks building and then launching, only to realize that we built the wrong product for the last year. I feel like you guys are on a collision course for that same end game.“

I was laying it on a bit. I really cared for these guys, and wanted to make sure they didn’t make the same mistake I did.

I also laid it on a bit more, writing, “The fact that it's been a super long time with the [software] agency and they say, ‘It's not ready yet,’ is super concerning to me. It's so concerning that it makes me feel that they are taking advantage of you guys at this point.”

I indicated that “The change in financing plan isn't going to change the fundamental premise that your highest risk, market risk, is not yet addressed.”

Dante’s email back was illuminating to the road that they had clearly chosen. He said, “In an attempt to avoid some of those pitfalls, we’ve had the good fortune of lining up a set of companies that have agreed to pay for the product as we bring it to market.  

He also agreed with me that the traditional relationship with a development shop that is on a pay-to-play basis doesn’t bode well for an alignment of values / motivations. But, he said, “We’ve been able to setup a symbiotic relationship with the firm where they are currently working on spec. This is mostly as they have lined up some of their clients to become customers for us also.

“While I’ll be the first to recognize that none of this guarantees success, we are working to try and avoid many of the challenges you laid out.”

Dante didn’t get it yet.

I felt like I had to respond to this. So I replied, “The real test is if you go to your software development firm and ask ‘When can you get a signed contract’ with [Company A] or [Company B] Fortune 100 companies. Being lined up by a third party is a universe apart from a signed customer contract.”

I never got a response after this.

But, I do hope my email delivered one last punch, not on the hockey ice rink with gloves off, but rather with enough force and candor to give this elite team a fresh dose of everyday market reality. 

I’ll be doing a live webinar on Tuesday, June 9th at 12 p.m. CST to share insider tactics that you can leverage for your next fundraise. I’m going to be combining tactics that I used as a founder to fundraise as well as and insider insights from my investor experience of Tundra Angels investing in 24 startups.

Don’t miss it. I’ll be dropping lots of stories, anecdotes, and tactics. It’ll be a fun time!

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