Product Market Fit

There is little else that matters to a start-up than product market fit.

Actually… If you are a seed stage company, nothing else matters.

It is so important, that I want to write a blog post dedicated entirely to Product Market Fit.

For those who have never heard of this term, it refers to determining whether there is actually a market for whatever it is a start-up is building — i.e. Is there a market for your product?

I have made the mistake before of building a product with little product market fit (ShopReply). I have also built a start-up that had instant product market fit (Lind Golf). I have also pivoted from a start-up without much product market fit, to a concept that has a lot more* product market fit (CalReply).

Notice I said “a lot more”. I did not imply that CalReply has product market fit. That is because I don’t believe product market fit is not something you either have, or you don’t have. Product market fit is a relative and elastic concept since the extent to which you might have product market fit will vary in accordance to the size of the market you are addressing, and the pain factor of the solution you are solving.

My “back of the napkin” definition of product market fit is:

A product with 10 or more non-related customers that generates $1.5m in annual recurring revenue with 10% annual churn or less, where there is a foreseeable path to $10m in revenue in the next 24 months by scaling andrepeating what got to you to the first $1.5m in revenue.

This will vary depending on your business model, but I’m talking about a B2B SaaS product here. Having a great product and lots of users is not enough. Revenue, or a clear path to revenue is what matters.

Another important factor of product market fit comes down to your expectations as a founder, the expectations of your investors and the type of company you want to build.

You might create a product that solves a problem for a relative niche, however investors are not interested in niches. They want $100m plus valuations post Series A, and the potential for $1bn valuations later.

That said you, as a founder, might be happy serving this niche and building a lifestyle business that generates $1–2m a year in ARR. So in your mind you might have product market fit. If you ask for investment with this mindset, investors will push you to think bigger… 50 x bigger.

So while you might think you have product market fit, investors look at companies like Airbnb, Uber, Google, Amazon and benchmark product market fit based on their products, and the size of the market that these companies address. They want to invest in the next unicorn.

Lets take Twitter as an example. If you started Twitter you’d be pretty sure you had product market fit after the first few million users started using the service on a monthly basis. That is a great achievement… A few million monthly active users. A fraction of start-ups ever achieve this level of traction. Twitter definitely had product market fit at this stage. Fast forward 6 or 7 years, and Twitter is a publicly listed company being compared to Facebook. They have ~300 million active users, however they also have 800 million inactive users. These are people who signed up to Twitter, tried the service, never to return. Twitter is also a public company under a lot of scrutiny

So, does Twitter have product market fit? Of course they do, however what I’m trying to demonstrate here is that product market fit is in the eye of the beholder. The average person doesn’t identify with Twitter like they do with Facebook. Furthermore, Wall St expects the company to live up to its valuation so in Wall St’s mind, perhaps the product is broken if they are meant to be a mass market consumer social network, but there are so many inactive users. This is why I believe there is no “one size fits all” for product market fit.

The more cash you raise, the higher your valuation, the more will be expected of you to deliver deeper, wider and more sustainable levels of product market fit, and ultimately revenue growth.

How do you know if you have product market fit?

The thing with product market fit, is that it can be elusive. You might think you have product market fit but you might be solving a really painful problem in a market that is not sufficiently large enough to ever become huge. This is the elusive part… As a start-up you think you are doing great when you hit $1m in year one, however you now need to get to $10m in the next 24–36 months. There need to be a lot more customers left in the market that got you to the first $1m in ARR. Then you need to get to $20m, $50m etc.

How to get to product market fit

Here are four rules you can follow to help get to product market fit:

1. Money cannot not buy product market fit

One of the biggest misconceptions of start-ups, is the correlation between money raised and future success. Raising a lot of money very early on has almost no correlation to future success. At the seed stage it simply means you are a good sales person, have convinced investors to write a cheque, and have something sufficiently interesting. It does not mean that anyone in the big wide world actually cares about what it is you intend to bring to market.

Many companies have failed raising too much, too soon. Two examples that come to mind are Color and Clinkle. seems like they could be on a similar path, however I don’t know any details and am just speculating since they have raised A LOT of money, are far from lean.

I would argue that companies who raise smaller amounts of seed capital actually have a better chance of success because it forces discipline. If forces you to build essential features, get out of the office and make your time count. You don’t have time to get comfortable. You need to figure out if your hypothesis is right and start bringing dollars in. An endless cheque book will only prolong the inevitable if you are on the wrong track.

Remember, Google was profitable on $8m in funding.

What will get you to product market fit is having a visionary open-mindedness around your offering, as well as a product that can be tweaked slightly to open itself up to new markets and verticals if your original ideas don’t stick.

So what does money do for seed stage companies?

Money buys time. In addition to a visionary open-mindedness, time is what you need to get to product market fit. You need time to meet with potential customers and validate your idea. You need time to iterate and change your product and business model based on feedback from customers.

When we raised our $1m seed round for ShopReply we had a couple of customers who used our product but it become obvious very quickly that generating revenue would depend on the platform processing very large amounts of gross merchandise volume. At the time it was tough to admit, however I was realistic with myself and knew that this would be incredibly difficult given the transaction volumes we were seeing from early customers. At that point in time we were still very lean with only three people. To cut a long story short (I’ll save it for another post) we decided to pivot to CalReply.

Because we ran lean, we had sufficient funding left over to have a real crack at an entirely new product. Where we were fortunate, is that it only took three weeks to add support for calendars to our platform so we did not have to start from zero on the product side. We did have to start from zero on the customer/sales side. I decided to go all-in on CalReply and within a few months got very lucky (I’ll leave that story for another post).

The lesson here, is that you need to be very conservative during your seed round because it takes time to prove product market fit. Chances are it will take a lot longer than you think so if you don’t listen carefully to market feedback and iterate on your product quickly (or pivot entirely), you will run out of money and die in the trough of sorrow.

In addition to all of this, you need an insanely committed team, a visionary founder, excellent engineers, a heap of luck and excellent timing. So there are about 5 or 6 key variables that are working against you at all times when you are at the seed stage. It’s not easy. Most start-ups fail.

2. Stay Lean

The most important thing you can do in the search for product market fit, is stay lean. When you raise $1m or $2m in your seed round, it is too easy to think you need to create a culture defined by ping pong tables, nice offices, stand-up desks and a large team.

The truth is that you need to keep the team tight, save every penny and be as scrappy as hell.

Here is why…

Lets say you raise $1m in seed funding and you have a team of 4 people (1 founder, 3 product/engineering people) on average salaries of $120k each, fully loaded at $150k each. You will be burning around $650k/yr when you add a few travel expenses, hosting and other costs to the mix. With this money, you need to build the first version of the product, find product market fit AND get to initial traction.

Lets say it takes 9 months to get version 1 out the door (9 months is relatively quick by the way — only a team that has experience in start-ups, is sufficiently product minded, and has strong engineers and designers can do it this quickly). This means you get to the starting line after about 9 months. Once you are at the starting line, your product is ready for paying customers. Over the next 3 months you might be lucky if you meet with 10 customers where your business has a high probability of product market fit. By now it is a year in and you’ve spent $650k. You now have $350k left in the bank.

With the remaining $350k you need to:

  • Continue to improve your product
  • Get initial traction so you can raise more money!

Now lets assume 3 of the 10 customers love your product, and want to buy it. They ask for pricing and an insertion order. By the time these customers sign off on the terms, you’re probably looking at another 2 months of money burnt. You now have $120k left in the bank. Now lets assume each deal is worth $25k/year and you sign three of these, you’re back to $195k.

You now have three customers who you have convinced to give you some money, however you are still far from initial traction which is around $1.5m ARR run-rate.

The lesson here is that even with a sizeable seed round, start-up economics are stacked against you. You need to be lean, while ensuring you have enough money to find product market fit, and get to initial traction.

3. Don’t get emotionally attached to your product or offering

If your customers are not emotionally attached to your product, you should not be either.

Think long and hard about what you are trying to achieve:

  • Do you want the freedom of running your own company?
  • Do you enjoy the creative process of going from Zero to One?
  • Do you love hustling or coding or selling?
  • Do you want to make a lot of money?
  • Do you want to build a great culture and team?

All of these desires can be fulfilled with any product even if its totally different to your original vision. If you start selling eCommerce software but end up building a SaaS calendar platform, so be it. What is important is that you end up with something people want and are willing to pay for, while having fun and enjoying the journey.

Not being emotionally attached can be tough. You need to dig deep and be very real with yourself if its not working out.

4. Keep your product simple

I am extremely proud of the ShopReply product, and while nobody uses it today for commerce, it is an insanely awesome platform that became the foundation of CalReply. We built a ton of great features that we thoughtwould get us customers. In hindsight we made it too complex and spent a lot of time on features that were never used. Luckily there were only two salaries being funded at that stage, which goes back to being lean.

The reality is that many of the best platforms such as YouTube, Soundcloud, Airbnb, Instagram, and Twitter are fundamentally simple products. Complexity does not make your product better. It probably makes it worse. So figure out what your core value proposition is and deliver a great experience around that but don’t try and be all things to all people. You shouldn’t have to. Your core offering should offer enough functionality to provide significant value.

How do you know if you have product market fit?

Here are some signs that you might have product market fit:

  • You can explain what you do in 30 seconds and pitch your entire product from 1 slide. I can pitch CalReply to any customer from a single slide if I have to (I don’t do this, but I could). It’s a simple product that solves a real problem that is easy to understand.
  • Customers that you are pitching for the first time tend to ask for pricing on the first meeting or call. This is a great sign.
  • You have 10 or more unrelated customers buy your product for meaningful sums of money — e.g. $15k/yr+
  • You’ve closed 10 or more sales where all customers are using the exact same feature set and you did not have to add new features or customize the platform for each new customer
  • You can pitch your product via a web-ex demo and sign up a customer who can start using your product almost instantly (I plan to talk about the importance of “instant utility” in a future post)
  • You know who your ideal buyer is, whether it’s the CMO, CEO, CFO, social media lead etc
  • You confidently believe there are thousands of other companies or customers that would also pay similar amounts of money to use your product
  • Customers are responsive to your follow-up emails and don’t disappear after the first meeting

This blog was cross posted to

Back to blogging

It has been over 2 years since I’ve written a blog post. So I thought I’d get back into blogging by writing about getting back into blogging…

A prologue of sorts.

In the last couple of years I’ve made lists of many topics and experiences that I was hoping to share with friends and fellow entrepreneurs, however I got lazy and busy and they never ended up seeing the light of day. I plan to change that soon.

Blogging is like exercise. The more you do, the better you feel. The more you write, the easier it becomes to write, and so on.

So what should you expect from my posts?

  1. Firstly, I don’t know how often I’m going to blog however I am going to aim for 1 per week.
  2. I spend most of my time working on my start-up so it makes sense that most of the content I write will be focused around start-ups and my thoughts, lessons learnt and experiences.
  3. I want people to learn from the mistakes and successes of my journey (many mistakes, trust me!)
  4. Some of my content might be a bit technical. If its too technical tell me in the comments. I love comments, both good and bad, so comment a lot.
  5. If you are reading this on my Lind Ventures, you can access my medium post here.

A quick update on a few big changes since I last wrote:

  • I got Married to Lori!
  • The start-up that I founded in 2012 (ShopReply) shifted direction in 2014 in a big way. ShopReply pivoted to CalReply. What is CalReply? In short it is a Software as a Service (SaaS) platform that utilizes the mobile calendar to remind audiences to do stuff by dynamically adding events into their mobile calendars. Marketers are always trying to get consumers to remember “day, date and times” and take action at that time — think events like TV shows, sports, webinars etc. Marketers do stupid things like buy outdoor ads that say “Watch The Voice at 9pm on Sunday” and expect you to remember an ad you saw on a bus on a Monday, and watch the show on Sunday. Nobody remembers that. CalReply marketers publish events directly into the mobile calendars of their audience. It’s 100x better than the status quo. CalReply is used by some of the largest brands in the world including ESPN, FOX, FOX Sports, World Rugby, UFC, NASCAR, MLB, ITV, A+E Networks and many others. I look forward to writing more about this journey.
  • Our team, has grown from two people to nine with offices in Sydney and New York.
  • I now live in New York City

I can’t complain. It’s been an amazing journey.

During this time a lot has changed in how people create, distribute and host content like this.

  • Medium was not around (maybe it was just getting started, but now its a force. Ev Williams is a genius. He has founded three hugely successful products being Blogger, Twitter and now Medium. First time might be lucky, but not three times.)
  • In order to get a blog up and running you had to set up a WordPress account, register a domain name and all of that cost money. Then you had to build an audience. Medium is free and social.
  • LinkedIn Pulse was only available to influencers by invitation. Only people like Richard Branson could publish articles on LinkedIn, whereas now anyone can reach an audience.
  • My WordPress blog was hosted on Godaddy, and there were always vulnerabilities that I had to look out for. Medium solves these issues.

So moving forward I am going to blog on Medium and cross post to Lind Ventures blog or vice versa. I might move entirely to Medium over time. Lets see.

P.S. If there is something you want me to write about or talk about, leave it in the comments!

Conversation with Steve Ballmer at Saïd Business School (Oxford)

An hour of gold.  We are lucky to be able to watch this kind of stuff for free.

Books I’m planning to read over summer

In the last few months I haven’t had much time to read however now that it’s the end of the year, I’ll have some time to catch up on some books I’ve had on my Kindle, Nexus and iPad.

A few  books from some of my favourite authors (Gladwell, Lewis, Fried) have been published recently so I plan to try and get through as many of them as possible over the holiday break. Here’s what’s waiting to be read on my Kindle app:

What books are on your reading list?

Learning the difference between graphite and steel

Having started two businesses in the last 6 years, I’ve noticed a pattern that has taken place in the formative year or two of both companies. In both cases the businesses I went into were in industries relatively foreign to me. My first company, Lind Golf, was a golf equipment manufacturing business while my second company, ShopReply, is an eCommerce platform targeted at media and retail.

When I started Lind Golf I had never played golf before (I still don’t play golf). I found replica putters on Alibaba which cost $250 in store and bought 50 of them for $11 each then listed them on eBay. I saw a gap in the market and went for it. I bought rolls of cardboard from a packaging company, cornered off a section of my parents garage, and started listing the putters for sale on eBay. I ended up selling 50 putters in two weeks, reinvested the profits and ordered 100 more shortly after. That is how I got going. For two years I repeated this process. Every night I’d stay up until midnight packaging clubs and the next day I’d deliver them to the post office in my car. My father would help package clubs at night and would eventually  become our club builder until the business could afford to employ someone full time.

The putters were selling well so I decided to expand our range as I figured golfers need more than just a putter to get around the course. I liked the idea of selling drivers – the large 460cc clubs that made that ‘ping’ sound when hit in the sweet spot, so I ordered some titanium drivers from China and put them onto eBay and they started to move. Soon enough it was time to expand the range again. The next logical step was to order Iron sets. I only began to sell iron sets about 8 months into the business as putters and drivers were doing well. I requested pricing from my agent in Taiwan and she emailed me some images and costs. There were two options:

  1. Iron sets with graphite shafts
  2. Irons sets with steel shafts

The sets in graphite were 2-3x more expensive than the iron sets in steel. Since I was not a golfer, my immediate reaction was that since graphite sets are more expensive than steel, they must perform better. Furthemore everyone uses graphite shafts in their woods these days, so I immediately thought graphite was better than steel. Makes sense right? So I ordered 50 sets and put them online… and then I waited… and waited. Two months later we still had 41 graphite iron sets in stock so I thought something was not right. I decided to go to a golf store and look around. For every set of graphite clubs there were about 30 sets of iron clubs on display. I asked the shop attendant why there were so few sets fitted with graphite shafts available and he responded by advising me that the only golfers who use graphite shafts in their irons are ladies and senior golfers!

I took this advice on board and ordered 50 sets of irons in steel. I put them up online and ended up selling 20 sets in the first week. In start-up lingo this is called ‘product-market fit’ however in plain english it means learning what your customers want and giving it to them so they give you money in return.

When I started ShopReply I knew I was entering an industry I did not know that much about – media. Media is a compliated beast. It looks simple enough when you watch TV or read the paper however behind the scenes there are layers of decisions makers, egos, relationships and processes to understand and contend with. When I started I thought it was simple enough to partner with a TV network and they would broadcast something on TV. I thought that the outdoor media companies that sold ad space, had relationships with brands who bought their space. It turns out I had a lot to learn, like the difference between graphite and steel, media is not that simple. There are brands, marketing agencies, media planners, media buyers, TV producers, executive producers, editorial teams, advertising teams, production companies, digital strategists, eCommerce directors, social media managers, stylists and many more roles and responsibilities that come together make up the media landscape that we sell our product into.

It helps to have the right advisors around you who can try to teach you these differences and nuances however the reality is that for the first year (or more) it can be a painful and unproductive process as you begin the journey of understanding what your value proposition is, who your customer is and how to position your products so that customers pay for your product or services. What I’ve come to realise is that this learning curve is part of the process and part of the fun of starting companies. It’s often the naivety of not knowing all this which causes you to take the leap in the first place!

BuyReply Tech23 Pitch

Last month I presented BuyReply (now ShopReply) at Tech23. Tech23 is a prestigious Australian startup event that is attended by the Australian startup community, investors and entrepreneurs. There are 23 startups selected from 150 applicants contesting for three awards and a number of other prizes.

This was the first pitch event I’d ever done so it was quite a challenge to sum up what ShopReply does in 5 minutes and present it in a simple and understandable manor. We ended up doing quite well and won four prizes including:

  • The “Peoples Choice” award – A nice shiny trophy and a Google Nexus 7
  • The Google encouragement prize – Lunch and mentoring session at Google Sydney
  • The PayPal creating opportunity together award – $5,000 cash
  • MYOB Online Innovation for Small Business Award - Two years free MYOB Premium Developer Partnership and marketing campaign (up to $5k in value) to MYOB’s 1 million+ SME customer base
Below is a video of my Tech 23 pitch:

The incredible versatility of quadcopters

Like 3D printing, I believe that these machines provide a glimpse into the future. I’m not sure what their exact practical applications will be, however in 20 years I am certain that they will be everywhere:


Lately I’ve been reading up about Tesla Motors, the automotive company founded by PayPal Co-Founder, Elon Musk.

I’ve been thinking about the automotive industry over the last 12 months and I’m convinced it’s an antiquated industry. Being in the tech business I am fortunate enough to make it my job to learn as much as I can about the future of software, technology and the connected world. Every day I see software entrepreneurs and inventors progress in leaps and bounds however when I get into my car I feel like I’ve gone back in time. My car is not an old car. I bought it in 2008 and I have all the gizmo’s such as bluetooth, reverse sensors, GPS, hands free, voice activated dialing and so forth, however I still feel that my car is antiquated compared to my computer or iPad.

Given the advancements in the world of software and “the internet of things” I am blown away that only one car manufacturer has been able to use software to make the automotive experience significantly better. That company, of course is Tesla Motors.

What Tesla has done is nothing short of astonishing.

  1. They have built a car that is 100% electric (no fuel at all)
  2. They have build an ‘operating system’ that is used to control every facet of their vehicles from a touch screen
  3. They are rolling out charging stations across the US and Canada creating a huge barrier to entry

Every few years an incredible company is born that ends up changing our world. Microsoft and Netscape did this in the mid 90′s. Google did it in early 2000. Amazon did it to books and retail, and later AWS. RIM followed shortly after, then Apple came along and blew RIM out of the water.

Tesla is one of these transformative companies.

Not only are their cars electric, they are also controlled entirely by an API. The 17″ touch screen in the dashboard sends API commands to a computer within the vehicle that triggers events to ‘do stuff’. Unlike my car where I flick a mechanical switch and push a button to turn on the airconditioner, the Tesla has a touch screen. For example if you want to open the sunroof, you ‘drag’ the sunroof open on the touch screen and the roof begins to open above your head. The electric engine is cool, but so is the thinking that has gone into reinventing the car.

If I was the CEO of Mercedes-Benz (or Ford, or any other automotive company) I’d spend $50m on an ‘acqui-hire’ tomorrow to snap up a hot shot software team in Silicon Valley capable of creating an operating system which could be used to control their vehicles.

Within the next 5 years, every car should have a ‘Tesla” style 17 inch internet connected touch screen embedded in their dashboards. We should be able to download apps to install them in our cars, and all components should be controlled via an API. This will sell more cars than larger engines.

Click to enlarge this image of the Tesla dash:

Network effects

Tesla also has network effects. Tesla is currently installing charging stations across America and Canada to enable customers to ‘Super Charge’ or ‘quick charge’ their cars on busy routes across these countries. Tesla charging stations could well become the new ‘petrol station’ and once enough of these exist, it becomes very difficult for other car manufacturers to roll out their own versions of these proprietary charging systems. As Tesla’s technology improves and prices drop (which they will), consumers that want to save on gasoline (who doesn’t?) may be forced to buy Tesla cars as Tesla would have the most mature charging network of any car manufacturer. I can envisage a world where we are all eventually driving Tesla’s because its the only electric car manufacturer that has a pervasive network recharge stations. The result is a Tesla ‘eco-system’ which I’m confident has the potential to do what Apple did to mobile phones, to cars.

Silicon Valley

The innovation that has come out of Tesla could only have been executed by a Silicon Valley entreprenuer.

An Israel company named Better Place tried to invent the electric car. They did this in conjunction with Nissan however after billions of dollars of investment the venture has yet to amount to anything of significance. I’m not 100% sure why it has not worked out, however I suspect that one of their problems would have to do with their decision to partner with an existing automotive manufacturer. In order to innovate on the combustion engine you need original thinking. The engine was invented over 100 years ago and radical change requires someone who is able to challenge the status quo.

Unfortunately, Nissan was an incumbent trying to be something they are not. We’ve all seen this one before in that Sony did not have the foresight to create the iPod, and if they did, their brand did not have the cult status of Apple.

It took someone from the outside world of music, movies and cellular phones, to change the industry and Elon Musk is the guy that is doing this in automotive.


What Elon Musk is doing to the car is what Steve Jobs did to the phone. Jobs used ‘software’ to reinvent the phone. He built an operating system for the device (iOS), added some sensors, then opened up its capabilities via a set of APIs.

Here are two examples that show you how a Tesla vehicle can be controlled via the command line of a MacBook:

Tesla is an amazing company which is just getting started and I can’t wait to see where they are in 20 or 30 years time!

The One-Person Product

Today I read a great article written by Marco Arment who was the second employee at Tumblr then left to found Instapaper. Read the article here, it is brilliant.

What I love about David’s story is his stubbornness to focus on product over profits, for a long time. This is a common trait of the best entreprnuers. Founders like Steve Jobs, David Karp and Jeff Bezos think long term and strive for product perfection before profits.  It takes balls and belief to keep your investors, employees and financial stakeholders at bay, even if you have 100m users on your platform.

What is great about the acquisition is that David can now keep doing what he loves. This is the dream of any product focussed entrepreneur  Let someone else worry about the business so you can focus on product. He can keep making great product. He can leave the boring stuff to the leadership team at Yahoo. He can forget about making money as he’s made enough for himself and the original investors. He can leave that stuff up to Yahoo to figure out, if he lets them.

Well played David.

Raising money

I have to admit that I’ve been a bit behind on my blogging lately. Since November I’ve been pretty flat our closing an investment round for BuyReply.

Last week we announced that BuyReply had closed a $1m seed round from a consortium of Australian and US investors led by Adrian MacKenzie and Square Peg Ventures with participation from Valar Ventures in San Francisio which is Peter Thiel’s international fund. Additionally we bought in 6 local angels to make up the rest of the round.

BuyReply was covered by the Wall Street Journal, Tech Crunch, AFR and a bunch of other outlets around the world.

It was my first time raising funds having bootstrapped my first company, Lind Golf so it’s fair to say it was a new experience.

I though I’d to share a few of the lessons that I learn’t along the way. To seasoned entrepreneurs they might see naive however if you’ve never raised money before, you might find these points helpful.

1. Back yourself before you ask others to back you

I invested a considerable amount of my own money and time in BuyReply before I looked for outside funding. Doing this will give you a better chance of receiving a healthy valuation and it will also align you with your investors as they can see you have skin in the game and are committed to the business.

Depending how far you get with your own money, you’ll be able to demonstrate your resourcefulness. How far can you get with very little resource? We were able to build a fully working product and run three meaningful proof of concepts before we asked for money.

A note on founder vesting: My view is that this should be inversely proportionate to the amount of cash the founder(s) personally invests. Some investors will want all your shares to vest over 4 years however if you’ve already taken a huge risk financially, why should you have to earn your company twice? Negotiate hard here if you can!

2. Your pitch deck should be a product not a PowerPoint

When we originally met with Valar we had a pitch deck and an idea. We were told to come back with a product and a customer. When I met with Adrian I had a working product and a proof of concept business deal in the pipeline so the conversation was very different.

You are doing yourself a disservice by trying to raise funds from a PowerPoint presentation. In the lucky chance that you do get funded, you’ll get a terrible valuation.

Investors want to see a working version of your idea. This demonstrates that you can transform ideas into products. It shows that you can manager a team and attract the right resources. It shows that you truly believe in what you are doing because you’ve jumped off the cliff before you’ve found funding so to speak.

Most importantly it gives your investors something to see, touch, feel and play with. At the seed stage they are investing in people and ideas and they need to be convinced of both.

Anyone can build an impressive PowerPoint presentation. It takes more than that to execute.

3. You can’t fake an orgasm

Passion sells. When an investor backs an entrepreneur they need to be convinced that the founder is 100% committed and passionate about their business and vision. You need to sell the dream and take your investors on a journey which they want to be a part of. You need to convince them without an inch of doubt that you are whole heartedly committed, and that is something that cannot be faked.

4. Tell a compelling story

Raising money is not just about having an impressive product. It’s about having a story as to why your idea is novel, unique and worth backing. It’s about knowing where you want to be in 1, 3 and 5 years time and taking your investors to that place in the future. You need to sell your vision and your ability to execute to get to that position.

5. The entrepreneur runs the process

I thought that investors run the investment process and entrepreneurs build the business. I was wrong. In our case myself and one other ran the entire process. Once we had a term sheet, I engaged the lawyers, negotiated the deal, bought in other investors and drove the deal over the line. In some cases the investors might run the process however in this case, it was run by myself and our team.

6. Don’t use corporate lawyers or private equity lawyers. Use startup lawyers.

Startup financing is a very specific skillet and it needs to be done at a low cost. While it sounds good to use the biggest most well known firm in town, chances are they don’t have the specific skills needed to close a venture round in a reasonable time frame at a reasonable cost. We had to incorporate in Delaware, flip our AU entity into a US entity, establish a share plan for employees, set up license agreements and do it as cost effectively as possible.

If you want to keep costs low and do it the right way, make sure you engage a firm who specialises in this. The documents and work required is very specific and can be turned around quickly and affordably if you use the right people. We used Richard Horton and his team who are probably the best guys in the business for Australian –> US venture financings. They did an incredible job and moved fast.

7. Momentum matters

Raising money has a domino effect. If you can convince one or two influential investors to back you, the rest of the process becomes significantly easier. Some investors like to be the first money in and some prefer to be the last. Once we had the first two investors committed, the rest of the round filled up pretty quickly on the back of that momentum. You need to capitalise on early momentum and move quickly. Try to get the big names in first for as much as they are willing to commit then leverage that to bring in others who were already interested.

The trick here is to approach investors very early on. You don’t want to be selling the story at the 11th hour. Have conversations 6 months out and inform potential investors about your startup. Tell them you are raising money but don’t come across as desperate. Once these people hear you have interest from a couple of lead investors, it takes just one call to ask if they are in or out. Do the story telling before the momentum builds so that you don’t need to sell the story at the 11th hour.

Additionally, investors like to see good management capabilities. If you can convince a credible executive to join your board during the investment process it will show investors that you can attract the right people and increase their confidence in your abilities.

8. For founders, venture money is better than strategic money.

We had three interested parties who were strategic investors. As an entrepreneur it might make sense in your mind to bring in a customer as an investor however customers are only interested in using your product for their own benefit whereas investors need to make a return on their equity. So if investors make a return on their equity, then as a founder, so do you!

Furthermore, if a customer is interested enough to invest, chances are they will become a user of your product in any case. Try get venture money not strategic money if you can.

9. Don’t accept unfair terms

When you need money it can be tempting to accept any term sheet you receive however if you truly believe you have a great product, team and vision, then you deserve to receive a fair deal. Seasoned investors understand they are taking a 1 in 10 chance and should give the entrepreneur a fair deal. That means a priced round at a healthy valuation without any tricky terms.

If your investors are trying to shaft you from day-1, find someone else who really believes in you. You’re in it for the long run.

Don’t be afraid to walk. I walked away from two term sheets before I got what I wanted.

10. Investors need you more than you need them, but remain humble

There is no chicken or egg scenario when it comes to raising capital. Investors need something to invest in, I.e. businesses and founders, and while this might seem arrogant or naive, you need to maintain a demeanour that reflects a sense of confidence and belief that the “train has left the station”. Investors will flock to a founder that has confidence and conviction, and a great idea, however confidence and conviction are vastly difference characteristics to arrogance and ignorance.

Finally, be patient and DFTBA . It took almost 10 months from our first investor meeting to close the round.