For many startups, funding is the gateway between growing and not.

That would make venture capitalists (VCs) the gatekeepers of growth.

But why are they the ones holding the keys?

What arcane knowledge do they possess that decides the fate of startups like yours?

What are they actually looking for?

Well, they’re looking for answers to a very specific set of questions.

The answers to these questions will guide them to their main question; can you and your startup turn their money into more money.

From the countless investor pitches that I’ve sat in and reviewing VC meetings from some of the most successful startups in the world, I believe that list contains 8 main questions.

The answers to these 8 questions reflect the health, potential, and resilience of your business.

In this post, I’m going to break down these eight fundamental questions and some of the underlying reasons these questions are relevant.

For each question I’ll dive a little deeper into specifics and give some examples of:

1. Answers that may send positive signals to an investor (🟢)

2. Answers that may raise eyebrows that you should be aware of (🟠)

3. Answers that you should be ready to address/improve (🔴)

Why?

Because the better you understand the answers to these questions for yourself, the better you will be able to fine-tune each area of your business to create an unstoppable enterprise.

Ok, let's go!

1. Who are you and who is your team?

You will often hear VCs say that they don’t invest in a company, they invest in the founder(s).

This is true, and the earlier the startup the more true it is.

They want to know if you are the right team for the job. The ‘job’ being to turn their money into more money.

In a pitch deck, these answers are often hinted at on the Team slide.

Example team slide from an investor deck. [source]

Diving further into this question, they want to understand the following:

What’s your attitude and are you passionate?

Startup life is HARD (yes, all-caps-difficult) and it’s important that the founders are dedicated to see the vision through when the road gets rocky.

Are you going to be able to lead a team and be the beacon of light they need to guide them?

🟢 - You and the founding team have genuine enthusiasm for the product and vision.

🟠 - You clearly have passion but perhaps lack of direction.

🔴 - You convey a lack of conviction or superficial interest in the product.

Do you have any relevant, transferable experience?

The line between making it and not in business is very fine, especially early on.

VCs want to know that there is someone at the helm of your startup that has done this before.

And if you haven’t done it before, that you at least understand the industry really well.

🟢 - You have previously succeeded and have deep industry knowledge.

🟠 - You have a mixed track record and fairly general, surface level industry experience.

🔴 - You have failed at multiple startups and no prior connection to the market.

Note: Failing at a previous venture is not a automatic disqualification. In fact, for many investors this is seen as a tick in the 'pros' column.  

What’s your education and qualification background?

An ivy league education is not a ‘must have’ for the founding team.

However, in most cases investors want to know that the team has the educational prowess that make them the best team to take on the challenges ahead.

🟢 - There are complimentary skills within the team.

🟠 - There are some gaps but these are mainly in easily learned areas.

🔴 - There are major skill gaps in the leading team that could hinder progress.

How many founders does your startup have?

How your answers here are perceived will very much depend on the rest of the answers for this section.

The investor wants to see that everyone that is here, needs to be here. As a general rule, 2 to 3 founding members is optimal.

Does everyone have a critical role to play or are the ‘too many cooks in the kitchen’?

When there are too many founders in a startup, conflicts can occur when it comes to things like equity sharing, decision making, value and vision alignment and clear role definitions.

On the flip side, if there are not enough founders there can be big gaps in the required skillset of the team.

🟢 - You are a balanced team with diverse, complimentary skill sets.

🟠 - There is potential for conflicts but nothing that can’t be worked through.

🔴 - You’re either a solo founder or too many founders causing potential conflicts.

Who is advising you and what do they bring to the table?

For everything the founding team is not, there’s advisors.

Ideally at least.

Advisors and NEDs (non-executive directors) are independent players who provide advise and guidance to you and your team.

In many cases, these are experts in the industry and may even be your ‘foot in the door’ as a network lever.

As with the team questions, investors will want to see that advisors bring specific benefit to the team and overall mission.

🟢 - You have a team of experienced advisors who provide guidance and mentorship.

🟠 - There are some advisors available to you but in a very limited arrangement.

🔴 - You lack certain expertise in your team and there is no mentorship or guidance available to you.

2. What investment deal are you offering?

While sitting in a pitch meeting, some investors may seem more engaged than other.

You can rest assured though, not a single investor will ever miss the answer to this question.

When it boils down to it, this is why investors do what they do.

The deal. Investment terms and valuations.

Example deal or ask slide from a investor deck. [source]

To understand the details of the deal, there are a few things they are going to want to know:

What equity are you offering and at what valuation?

The amount of money you are raising and the equity you are offering for that amount will give the investor an immediate answer as to what you think your business is worth.

For early stage startups, this is the realm of fairy dust and crystal balls.

What is your company worth and how do you know this to be true?

🟢 - You have set a realistic valuation on your business with great growth potential.

🟠 - You have set a slightly aggressive valuation but it’s better to be optimistic.

🔴 - You have overvalued your business with unjustifiable financial projections that seem highly unlikely to be reached.

What are the terms of your investment deal?

You could be offering 80% of your company for a fair price but if the deal is too complicated or favors one side too much, there might still not be any interest.

There are endless ways that a deal can be skewed.

The most common of these often involve restrictive covenants, unfavorable liquidation preferences, punitive anti-dilution provisions, excessive board control, and overly restrictive exclusivity clauses.

In the event that you are lucky enough to have an investment deal on the table, it is very much advised that you use lawyers.

In a perfect world, both parties should be eager to sign on the dotted line.

🟢 - You are negotiating fair terms that protect both parties.

🟠 - The terms of deal seem overly complex but are negotiable.

🔴 - The terms are very complex and have clearly been set to favor one side only.

How much money are you looking to raise?

It’s safe to assume that right after this question you will also hear ‘and what will you do with the money’

Investors are rarely too focused on the exact amount.

What they are looking for, however, is what you are going to spend that money on and what the return to the business growth will be.

As a general rule of thumb your funding should last you at least 18 months.

🟢 - You are looking to raise the right amount for sustainable growth.

🟠 - Slightly over/under the required amount.

🔴 - You are asking for too little or too much money without clear justification.

3. Who are your competitors and why can’t you be copied?

Any founder that says they don’t have any competition probably hasn’t done a Google search.

Investors know this.

What they care about is that you understand who you are competing against, what they are better at and what things you have that’s going to make it hard to eat your lunch.

Example high level competitive comparison slide from investor deck. [source]

Do you have patents or other protection?

Having patents and intellectual property protection is not going to stop anyone from copying you.

But it is going to make it really inconvenient and expensive for them.

It’s a nice brick wall in front of your palace.

🟢 - You have intellectual property protection

🟠 - You have pending patents or are in talks with patent lawyers.

🔴 - There are known companies working on competing products and there is nothing in their way.

What are your competitors’ strengths and weaknesses?

Not having any competitors is almost impossible.

Knowing exactly what your competitors do well and not, is a must.

This is not only good for those investor meetings but everyone in your team should understand what you’re up against.

🟢 - You have a comprehensive understanding of competitors.

🟠 - You have some understanding, but a quick search highlights some room for deeper analysis.

🔴 - You show to have ignored or dismissed any and all competition.

4. How big is your market and how much of it can you capture?

Investors want to know if you’re going to be the big fish in a small pond or a minnow in the ocean.

Neither is right or wrong.

But the answer will show your potential. And every investment is an investment into potential.

A reimagined design of the original Airbnb market size investor deck slide. [source]

What’s your TAM, SAM and SOM?

This is a slide on every investor deck and it’s used to answer the question about size and capture of the market that you’re in.

This post does a good job of explaining these 9 letters if you’re eager to learn more.

🟢 - You have a clear understanding of market size, opportunity it presents you and your piece of the pie.

🟠 - You have a general understanding but the numbers needs refinement or don’t quite make sense.

🔴 - Your numbers are unrealistic or vague and it doesn’t seem likely you will capture that much or little of the market.

5. What traction do you have and what’s your proof?

There is no better proof of a good product than the raving testimonials of happy customers.

There is also nothing that raises doubt faster than saying you have none.

For this reason, investors will put a lot of weight into these answers.

And if you don’t have customers, the next question will be how close are you to getting customers?

Example traction slide from an investor deck. [source]

How many paying customers do you have?

The only thing harder than getting customers is getting and keeping paying customers.

A customer parting ways with their hard earned dollars is the ultimate validation that you’ve built something good.

🟢 - You have a growing customer base with low churn.

🟠 - Your customer base is growing slowly but stable.

🔴 - You customer uptake seems to have plateaued or you are not able to retain customers (high churn).

How many beta users do you have and what was their feedback?

Beta users is a sure way to get feedback and make your product better.

Investors want to see that you have been working closely with your target market and that you have been implementing their feedback.

If you have done this well it’s a sign that you have found the ever wondrous product-market fit.

🟢 - You have validated product-market fit.

🟠 - You got some beta users but very few stuck around.

🔴 - You don’t have beta users or have unsuccessfully implemented their feedback.

Do you have a MVP?

If you’re too early for a beta roll-out or paying customers the next best thing is knowing what product will get you to that point.

Your minimum viable product (MVP) is the most barebones thing you can release that will provide value to early users.

Having this fleshed out means you understand user needs and understand the importance of getting to market quickly.

🟢 - You have a tangible product ready for the market.

🟠 - Your MVP is in progress but not quite there yet.

🔴 - You lack a clear product vision or MVP.

6. What makes your startup unique?

"You do not merely want to be considered just the best of the best. You want to be considered the only ones who do what you do." - Jerry Garcia

Understanding what makes you unique is going to play a huge make-or-break role in your startup’s success.

It’s going to be the reason you do or don’t scale. The reason you can or can’t take market share and the reason you do or don’t survive changing market conditions.

Investors will want to know how you’re unique as it relates to three primary sub-questions.

Example value proposition investor deck slide. [source]

How do you plan to scale?

How you plan to grow is as important to an investor as it should be to any founder.

In order to grow, you need to have a plan and the means to do so.

🟢 - You have demonstrated the ability to scale.

🟠 - Your business has the potential to scale but this is not yet proven.

🔴 - You have achieved limited scalability with an unclear plan.

What is your competitive advantage?

As we discussed earlier, a competitive advantage is going to speak to your customers (new and existing), through every channel you have.

For investors a good solid competitive advantage means you can convert customers and you can maintain a moat of defensibility around your business.

🟢 - Your business and product has a unique competitive advantage.

🟠 - You may have an advantage but it’s not fully proven.

🔴 - It won’t take much for a competitor to replicate your biggest features.

Can you earn revenue and keep earning revenue?

At some point, every business is going to hit a revenue and/or user uptake plateau.

To get out of the plateau you’re going to need to adapt and innovate.

Innovate what you sell (product), how you sell (business model) and to who you sell (target audience).

🟢 - You can show long-term profitability potential.

🟠 - Profitability is perhaps there but it’s uncertain.

🔴 - There is a lack of clear future revenue streams.

7. Where will your business be financially in 5 years?

As no one has a crystal ball that we know of (GPT-10 is that you?), it’s impossible to know how your startup financials are going to look in 5 years.

But it is possible to guess forward and plan.

Example financial projection slide in investor deck. [source]

Have you done 5 year financial projection forecasting?

If you haven’t done any formal projections I would highly encourage it. For nothing else than to visualize the potential you’re working with.

More than a actual roadmap, your projections will act as your north star and guide you to certain decisions.

For this reason, it’s a given that an investor is going to want to see them.

🟢 - You have made transparent and data-driven assumptions with clear paths to increased revenue.

🟠 - You have made some assumptions but they need to be validated.

🔴 - You have shown overly optimistic or unfounded assumptions with no real path to increased revenue.

What is your business’ unit economics?

It’s important to understand the direct revenues and costs associated with your business model.

For investors, this usually means the direct cost of acquiring a customer, what that customer adds to the business in terms of revenue and what the lifetime value of that customer is.

When you earn more than it costs you to acquire those earnings, it’s good news.

🟢 - You have strong margins and understand your costs well.

🟠 - You understand your economics well, but they need some work.

🔴 - Your business has negative unit economics with no path to improvement.

8. What is your exit plan?

It’s very rare that founders go into business without considering how the fairytale ends.

Even if you don’t plan to exit, it’s good to consider one. It’s a fixed beacon that you and your team can row towards together.

Example exit plan slide from investor deck. [source]

What is your exit strategy?

Make no mistakes. For an investor, there is no entry without the exit.

They got into investing because they are in the game of getting out. It’s how they make their money and something they will want to understand very early on.

🟢 - You have a clearly defined and achievable exit strategy.

🟠 - Your plans are unclear but there are possible exit paths visible.

🔴 - Your plans are either non-existent, vague or unrealistic.

What is the expected return on investment?

This is the main answer that every investor will want to know.

It’s also an important one for any founder to consider.

What is the pontential return on your years of sweat equity?

What is the investor’s return on providing you fuel for the fire?

🟢 - Your business shows a clear and attractive return on investment potential.

🟠 - The how much and when is uncertain and needs more analysis.

🔴 - It’s uncertain how your business can provide a ROI.

Recap

Much of the above might not seem relevant to your current business stage.

It might also seem like a ‘cross that bridge when we get to it’ situation.

However, understanding and forming answers to these questions will help align yourself with the thinking and perspectives of those in the business of evaluating good businesses.

Even if you never raise a dollar of venture capital, knowing that you were able to tick off mostly positive responses is going to give you confidence that you’re on the right track.

Conversely, if you found yourself with some orange or red answers, this is a great opportunity to evaluate those areas of your business.

Best case; keep going!

Worst case; keep going!

Leave a comment

That’s it for today! 🎉

If you got all the way to the end, I appreciate your time a great deal, and I hope I was able to provide some value.

If this was your first time reading Growth Receipts, please join for more startup growth strategies, frameworks, and systems. Or tell someone who can benefit.

The thing about traditional growth strategies is that they promise the moon and deliver a pebble.

Truth is, all startups are different, so applying the same sales formula, marketing plan, or other internet guru concoction to your customer acquisition strategy is not always going to work.

I’ve been there myself.

Slogging through traditional marketing strategies, spending money on ads that don’t work, chasing customers who aren't really interested.

😔…shall we bang our heads against the wall together on the count of 3?

Before we do that, I would like to paint a different picture.

Imagine for a second that your product is your best salesperson. It delivers a great pitch, has all the answers, and wows customers without a flashy billboard.

It's not magic, it's better.

It's a strategy that turns your users into your marketing department.

I'm not talking about some tech-giant wizardry.

This is Product-Led Growth (PLG), and it's been around for quite some time. In fact, your favorite software likely have PLG to thank for their success.

It’s a proven growth strategy that puts your product ahead of all your other marketing and sales efforts as the loudest voice in the room.

But it’s also as transformative as it is misused.

PLG is not a one-size-fits-all solution. For many startups it can be about as useful as a screen door on a submarine.

Neither is this a death note to traditional sales and market strategies.

PLG as a strategy does however rely on exceptional user experience and product execution.

This doesn’t mean your product needs to be bug free, or full featured. It means you need to do a few little things just right. More on that later.

If done well - and I’ve seen it done well - PLG is a method that works and that scales your business without scaling your headaches.

There are 4 parts to this post, each described below:

1. What exactly is PLG and why should you care?

2. Where is the evidence that PLG worked well?

3. How can YOU implement a PLG strategy in your business?

4. What to avoid and why PLG might not work for your business.

What exactly is PLG and why should you care?

PLG can seem like a trend or buzzword depending on where you first hear about it.

It certainly has been making its way around pitch decks for a while now.

But what is it, really?

Put simply, PLG emphasizes using your product itself as the main vehicle to drive growth.

Your product stands front and center in the lead role. This allows your customers to experience the core product before being asked to invest their money.

How does this compare to the usual way of acquiring customers?

So glad you asked! Let’s review a quick comparison.

Standard Customer Acquisition Funnel

Let’s use an example of 👨 John, a potential customer of software company ABC.

John goes through a standard customer acquisition funnel:

1. Awareness: John becomes aware of ABC’s product through marketing campaigns or channels like social media.

2. Interest: John likes what he sees and develops an interest in ABC’s product. The next time he sees the product is typically by way of marketing materials or sales efforts.

3. Consideration: John is a savvy buyer so he compares different products, seeking information and evaluating the pros and cons.

4. Intent: John has done his homework and now shows a clear intent to purchase ABC’s product.

5. Evaluation: John assess the final product sign up options and confirms his selection.

6. Purchase: John completes the purchase. He parts with his money in return for a product, and he feels good about it.

In this traditional model, marketing and sales play a crucial role in guiding John through the funnel.

It’s also expected that John goes through various fragmented steps; usually by fragmented departments in ABC (the company).

PLG Strategy

Now let’s use an example of 👩 Sarah, a potential customer of software company ABC.

Sarah goes through a PLG strategy funnel:

1. Product Experience: Sarah is directly exposed to the product itself after a easy sign up through a freemium or trial model.

2. Self-Serve Onboarding: Sarah logs in, explores and learns the product on her own or through automated onboarding processes.

3. Engagement: Product engagement is monitored, and Sarah is prompted with in-app messages, tutorials, etc., to encourage deeper usage.

4. Conversion: Sarah sees the value through using the product and decides to purchase a paid version or additional features.

5. Expansion: Ongoing product usage leads to opportunities for ABC to upsell or cross-sell Sarah.

As we can see in the PLG strategy the product is the core of the experience.

Sarah is encouraged to try and explore the product, and the decision-making process is guided by her direct experience with the product.

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Where Does PLG Shine?

There are 5 core areas where a PLG strategy can benefit your business.

1. Focus. Traditional funnels rely heavily on marketing and sales, while PLG emphasizes the product experience.

2. Speed. PLG can often lead to quicker conversions. As we saw above, Sarah is able to directly interact with the product.

3. Cost. This is a big one for smaller or bootstrapped startups. As you will be relying more on the product itself rather than expensive marketing and sales efforts, you reduce customer acquisition costs.

4. Personalization. PLG allows for more personalized experiences, guided by user behavior within the product. There is a lot less guess work involved when you have hard data that shows you exactly how users are interacting with your product.

5. Scalability. This is another big one for early stage startups and especially for SaaS. PLG is far more scalable as it can reach a wide audience without extensive sales efforts.

What I like about PLG as a strategy, is that it democratizes access to your product, breaking down the barriers and letting users see the value with their own eyes.

Way less take-our-word-for-it sales pitches.

This is more about trust, transparency, fostering customer loyalty, and letting your product speak for itself.

It's about growing at scale without multiplying your sales and marketing headaches.

This diagram does a great job showing where and how PLG fits into your acquisition strategy [source].

Where Is The Evidence That PLG Worked Well?

I have a rule for when I haven’t seen an example of a strategy, framework, or system working in the wild.

I don’t write about it.

And if I do, I save that for the Thoughts section of the Growth Receipts site.

With PLG it’s no different.

But, to be frank, it’s easy to find examples where this strategy has been a huge success. Let’s focus on 2.

Slack

Slack’s app interface, pre 2023 redesign. [Source]

If PLG ever needed an ambassador, Slack would be the poster child chosen for the role.

They released their first public product in February 2014 and by 2019 they had 12 million users on the platform.

They didn't just grow; they exploded. 🚀

For maybe the first time we saw how offering something for nothing could pay off big time.

And because we’re all above conversions; there are over 6 million users in paid Slack organizations.

Slack's approach to PLG offers an interesting study in how a software company can achieve remarkable scaling by focusing on the product as the main growth driver.

I want to highlight a few of the things they did right which made PLG such a huge success for them.

Keep in mind this is all possible because Slack ensured that the user experience of their product was as frictionless as possible. They launched with a solid product that achieved all of the things Sarah had access to in the previous chapter.

Freemium model: Users could sign up for the basic version of Slack for free. Nothing says ease of sign up like zero financial commitment. The seamless experience encouraged them to later switch to paid versions with more features.

Virality Through Collaboration: Slack's design encouraged collaboration and they built a Direct Network Effect. Inviting others is easy, creating a viral loop where new users would, in turn, invite others.

Integration with Other Tools: Slack built integrations with popular tools like Google Drive, Trello, GitHub, etc. A value added for the users and a widened of audience base for Slack.

Customer Feedback Loop: Slack was able to finely tune the product by being particularly attentive to initial user feedback to understand their needs. Data driven decision making also played a big role here.

Inbound Marketing and Education: By investing heavily in content marketing, tutorials, webinars, etc., to educate potential users, they saw increased user adoption and also retention.

To summarize, Slack's PLG strategy revolved around building a superior product that users loved and could easily share with others.

Dropbox

Dropbox’s referral page. [Source]

The ol’ referral wizard.

Dropbox used many of the same tactics as Slack to drive growth early on.

One thing they did do differently that is worth pointing out is they pretty much wrote the book on successful referrals.

The program rewarded both the referrer and the referred with additional storage space. In a platform where storage space is the currency, this spread the word and increased the viral growth of the product.

Extra free storage for referring a friend? Yes please.

Dropbox's referral program helped them grow by 3900% - in just 15 months!

If you’re not impressed by that PLG magic… 😕

Since then, Dropbox has converted 18 million users to paid accounts.

Implementing a PLG Strategy In Your Business

You know what PLG is.

You’ve seen how it’s worked for other behemoths.

There’s only one thing left to do - roll up those sleeves and get down to business.

As I said at the start of the post, the exact way in which you implement a PLG strategy will depend on a lot of things. But here are some ‘musts’ that should be considered:

Step 1: Identify Your Target Audience

Who needs your product? Who would tell their family about it at the dinner table?

That's your target audience, and it pays to know them inside and out.

The better you know your audience, the better you’ll be able to tailor experiences to them. Hobbies, needs, pain points, web behavior - understand them the best you possibly can.

Step 2: Offer a Freemium or Trial Version

As a founder, this may be the painful part. Your instinct will be to charge maximum the moment a customer steps in the door. But let them experience the magic.

A freemium model or a trial version is a great, frictionless way of getting traction.

Step 3: Focus on User Experience

This is the golden ticket. The real make or break. Your product needs to be more than good; it needs to be intuitive, engaging, a delight to use.

I’ve tried PLG without this step and trust me, it’s a waste of time. You don’t get a second chance at a first impression.

"Design is not just what it looks like and feels like. Design is how it works."
Steve Jobs

Step 4: Monitor Metrics

If you can measure it, you can manage it. So track it all.

Engagement, conversions, hours used, number of times logged in, clicks on that shiny button you over engineered.

This data is your roadmap and will show you where you're going and where you need to pivot.

There are great tools to track user interaction and some like Microsoft Clarity are completely free.

Step 5: Iterate and Improve

Unfortunately your product is never perfect.

Continuously update, improve, refine. Keep the feedback loop open. Listen to your users, treat their insights like gold.

If something’s not working, fix it.

And if you do fix something, let the customer know. This is important for building loyalty and also doubles as a great service engagement strategy.

Onward to growth!

Why PLG Might Not Work

Up until now, I’ve spent the entire time telling you why PLG is great.

Now, I’m going to tell you to hold the phone.

Before you start reorganizing tasks list and buying extra servers for the users you’re about to onboard, there are some things I need to mention.

As with all good strategies there are some gotchas, pitfalls, potholes, hurdles, walls…

Anyway…😑

Let’s unpack a few now.

Product Suitability

The square peg doesn't always fit into the round hole.

As we know, PLG relies on product usage to serve as the primary driver of user acquisition, retention, and expansion.

If any one of those 3 outcomes are hindered, the chinks in the armor will show.

Here are some cases where a PLG strategy might not work well:

Complexity. If a product requires extensive training, customization, or deep technical knowledge to be properly utilized.

Regulation. Industries that have strict regulations, such as healthcare, finance, or government.

High Niche. Products that serve a very specific and limited market. If the target audience is small, the viral effects upside is limited.

Upfront Investment. If your product requires significant upfront capital to provide (e.g., costly hardware components), this approach might not be feasible.

Privacy / Security Concerns. If a product requires access to sensitive or personal information, users might feel better with a human in the loop.

Enterprise. Some large enterprises require a level of customization, integration, and alignment with existing systems.

Physical Products: These generally tend to lack the ability to be easily distributed, updated, and adopted.

Know your product; know your audience.

As a general rule of thumb, PLG shines in the tech world, where products can be shared and tested at scale. SaaS companies, mobile apps, online platforms – these are the realms where PLG thrives.

Poor Implementation

Story time…

A few years ago we built a software solution in a fairly niche market.

We launched, got some users. And lost some users.

The problem was in our implementation. There was effectively no onboarding, no tutorials and no engagement with new users.

Luckily we were able to get the train back on the tracks but the lesson was a hard one to learn.

You can’t win a PLG strategy with poor execution.

PLG isn't something you slap together over a weekend.

It requires attention to detail, a focus on user experience, and continuous improvement.

The alternative will leave you with unhappy users and a tarnished reputation.

The Brian Test

When my team and I design software or plan out strategies we apply something called the Brian test.

Brian is a friend who is completely tech adverse and goes about his day with a very ‘old school’ mentality. You couldn’t pay Brian to use your software.

Before we test concepts or ideas on real users, we ask ‘If we put this in front of Brian, would he be able to use it? Would he get it? Would he know where to click? Would he come back tomorrow if he found value?’

Find your Brian, and impress the hell out of him.

Too Much Freemium

Free can be too free.

Yes, this is for the CTOs and Founders.

Offering too much for free can limit revenue potential. It's a balancing act between enticing and giving away the store.

If you give away all your cool stuff, what does it leave your users needing to buy?

You also get to the stage where you will be known as the ‘free product’ and there comes a point where putting a price on a product that’s synonymous with free, becomes difficult.

In various interviews (like this one), both founders of Trello have said that they made the mistake of not monetizing soon enough.

To grow, you need capital. The more users you have, the more strain on infrastructure, staff and other resources.

Be generous, but don’t risk the house.

Wrapping Up

It's a big world out there, and PLG is just one path through the wilderness.

But, it’s a path that's been very good to some of the most successful companies on the planet. And for good reason.

It's not for everyone, but for those it suits, it can be transformative.

Will this work for your product? Only you can answer that. Make the choice that fits your product, your market, your vision.

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The journey into the world of startup finance can seem daunting. It’s a critical decision and with its convoluted jargon and myriad options, it can become frankly overwhelming.

With that said, understanding these complexities can be a make or break for entrepreneurs ready to take their startup to the next level.

Understanding the Basics

Before diving in head first, it’s helpful to grasp the basic terminology as it relates to startup financing.

Funding for early-stage startups can come in two primary forms: equity and debt.

Equity funding implies offering a stake of your company’s ownership in exchange for investment. Conversely, debt funding involves borrowing money to be paid back later, often with interest.

‘Valuation’ is another term that startup founders should be well-acquainted with. This word defines the financial worth of your business and plays a significant role when raising capital. The higher your valuation, the more your business is perceived to have a high growth potential. Consequently, investors will anticipate a higher return on their investment.

There’s more to funding than just securing ‘the bag’ - as the kids say. It’s important to understand any legal requirements, a realm governed by ‘Security Law’, before signing an agreement.

Engaging a lawyer during this process is highly recommended. In fact, I would put it in the ‘must have’ rather than ‘nice to have’ basket. The most important thing you can do is make sure that any agreement signed is one that will benefit your business the most – no matter the outcome.

‘Investor’s Expectations’, ‘Due Diligence’, and your ‘Exit Strategy’ are additional terms that bear weight during and after you have closed a funding round. An investor will have expectations and goals when investing in your business, so it’s crucial to ensure that these align with your vision. Remember, an investor’s primary objective is to get a return on their money.

‘Due Diligence’ refers to the research an investor conducts on your business before committing any funds. As for your ‘Exit Strategy’, it outlines how an investor can expect to see a return on their investment.

The path to securing funding is a process with an extensive ‘Fundraising Timeline’. This timeline can be anything from weeks to months and can depend greatly on the market conditions, size of the round (investment) and the investor themselves.  

And finally, we have ‘Negotiating Terms’—this is when you outline the conditions of the investment, such as the equity offered, valuation, and the investor’s rights and responsibilities.

Evaluating Your Funding Needs

Before you even begin the process of raising capital for your business, consider the bigger (and most important) question:

Does your startup really need funding?

While the prospect of securing investment might seem alluring, not every startup needs to tread this path. Some entrepreneurs might opt to bootstrap their business, relying on personal savings and organic revenue.

On the flip side, securing investment can be a significant boost for startups looking to scale rapidly. An influx of capital can help cover operational costs, amplify marketing efforts, and accelerate product development.

Remember that taking on investment often means relinquishing some control of your company and having someone else to potentially answer to for various decisions you want to make. All of which are factors to consider seriously.

A Closer Look at Different Types of Funding

Once you’ve decided funding is the right choice for you and your business, it’s time to familiarize yourself with the various types available. From SBA Loans and Angel Investors to Crowdfunding and Venture Capital, each funding type offers unique advantages and comes with its own set of challenges.

Small Business Administration (SBA) Loans are government-backed and designed to help small businesses access funding. These come with low-interest rates and flexible terms but also require a long application process and strict eligibility requirements. The low-interest rate point is also not always a given.

Angel Investors are individuals who invest their personal funds into startups. Their investment often comes with valuable mentorship and industry connections but can be smaller in size. Be sure to set firm expectations on how involved the investor wants to be.

Crowdfunding involves raising money from a large number of people through online platforms. This offers access to a broad pool of potential investors and serves as a way to test market demand. However, crowdfunding platforms often charge high fees and don’t guarantee funding success.

Venture Capital involves firms or individuals who invest in high-growth potential companies. This option provides access to large sums of money and industry expertise but usually requires giving up a significant percentage of equity and a potential loss of control.

Business Grants are non-repayable funds provided by government agencies or other organizations. They come without the need to give up equity or repay the funds but are bound by strict eligibility requirements and a competitive application process.

Personal savings or loans is an approach that doesn’t involve giving up equity or paying interest, but keep in mind it may strain personal relationships and may not provide as much funding as other options. Before taking money from friends or relatives, it’s important to consider that everyone involved may end up with nothing if things go south.

And now for the cliché disclaimer…the best choice for your startup will depend on your specific goals, the funding available to you, and your comfort level with the terms of the investment. Raising funds is not a one-size-fits all game.

Finding the Right Funding Source

Knowing which funding type suits your business is only part of the work. The next step involves finding the right source of that funding. Fortunately, the modern business landscape offers a myriad of ways to connect with potential investors.

Networking Events are an excellent way to meet potential investors and business partners. Similarly, Online Platforms such as AngelList, Seedrs, and Kickstarter can connect you with a diverse range of investors. Incubators and Accelerators provide access to resources and potential investors and mentors. Referrals from friends, family, and business contacts can also lead to potential investors or venture capital firms.

Professional Associations in your industry can provide networking opportunities, and Social Media platforms like LinkedIn, Twitter, and Instagram offer a way to showcase your business to potential investors. Additionally, Startup Competitions and direct outreach to Angel Investors are more avenues to secure investment.

Choosing the Right Investment Partner

When you raise capital, unless explicitly stated, assume that the transaction isn’t just about getting the capital; and it shouldn’t be. An investor should bring more than just money to the table. The right investor should offer mentorship, industry connections, and valuable advice that can help your startup grow and flourish.

When you have a meeting with an investor, you should be interviewing them as much as they are interviewing you.

When it comes to partnering with the right investors, consider what they bring beyond finance.

1. Do they have experience in your industry?

2. Do they share your vision for the future of your business?

3. What type of experience will be needed in your business shortly after you raise funds?

4. Do you want someone on your board with say-so over large business decisions?

Again - the fundraising process is as much about you interviewing the investor as it is about them interviewing you.

Avoiding the Pitfalls of Easy Money

While outside investment can offer a quick influx of capital, it pays to remember that it comes with strings attached. Equity investors gain a stake in your company, and with it, a possible say in how you run your business. Likewise, debt funding must be paid back, with interest, placing a financial obligation on your business.

Therefore, the best investment could well be the investment you don’t need. Nurturing resourcefulness, creativity, and strategic thinking can help your startup achieve its goals without diluting control or accruing debt.

Be sure to balance the desire for quick growth with maintaining the autonomy and direction of your startup.

As a general rule it’s good to revert back to your founding vision and find partners who believe in you and your startup’s potential.

Preparing for Investment

Before you step into the world of fundraising, ensure your startup is investment-ready. This process begins with a clear, compelling pitch deck that clearly articulates your business model, market analysis, marketing strategies, financial projections, and team structure. It provides investors with a snapshot of your startup, helping them understand your vision and potential growth trajectory.

If you made the right impressions, investors will want to understand your product or service intimately. Be ready to share a fully developed product or a prototype that can be used to tangibly demonstrate your startup’s potential. Similarly, early customer feedback, market traction, or a unique technological advantage can be used for added shine when having investor conversations.

If you’re seeking investment be prepared to go deep with a detailed financial model outlining your current financial situation and future projections. This includes revenue, expenses, cash flow, and profitability forecasts. Showing how you spend money, make money and plan to make money is where most of the focus will be during follow on meetings and investor research.

Ensure that your startup is legally compliant and has a clean legal record. This includes verifying business registration, patents and trademarks, contracts, and employee agreements. No startup is perfect, but nothing gets a meeting off to a awkward start like not being in good legal standing.

Crafting a Winning Pitch

Before anyone even gets anywhere near a deep dive analysis of your business, they will want to hear you ‘pitch’. Before going any further, know that you will likely pitch 100 investors for every follow on meeting you get. Don’t take rejection to heart - it’s just part of it.

Your pitch should be a clear, concise, engaging, and most importantly, memorable presentation.

Perhaps the most crucial part of your pitch is the ‘ask.’ This is where you clearly ask for money, and clearly state what those dollars will be spent on. How much capital do you need, what is your plan to use it for, and what’s the equity you’re willing to offer in return.

Navigating Investor Meetings and Due Diligence

Once you’ve piqued an investor’s interest, you’ll need to navigate investor meetings and due diligence. As we’ve briefly covered, these meetings provide an opportunity for investors to delve deeper into your startup’s operations, financials, market, and team.

It’s a good idea to familiarize yourself with common investor questions. A quick Google search, or ChatGPT prompt, will give you plenty to start with. These questions may revolve around your business model, competitive landscape, customer acquisition strategy, financial projections, or exit strategy.

Be ready to answer these questions clearly and honestly.

Remember investors are not looking for the perfect company, they are looking for the perfect opportunity. Sell your vision as much as anything. 

Investor due diligence can be extensive, covering legal, financial, operational, and market aspects. Make sure all your documents are in order and be prepared to provide additional information upon request.

Understanding and Negotiating Term Sheets

Once an investor decides to proceed with the investment, they will present a term sheet. This document outlines the key terms and conditions of the investment, including the amount, valuation, investor rights, and exit strategy.

It’s important to thoroughly understand the terms and conditions outlined in this document. Again I would recommend engaging a lawyer to review the term sheet and ensure there are no unfavorable terms. Negotiation is often part of this process—don’t be afraid to push back on terms that don’t align with your startup’s interests. Rather do it now when there is little on the line.

I’ve created a term sheet template for you to use during this stage of funding:

Access Term Sheet Template

Closing the Deal and Beyond

Securing investment is just the beginning of a long-term relationship with your investors. Regular communication is key—provide updates on your progress, challenges, and any significant changes or decisions.

Your investor(s) should be partners in your startup’s journey and should be there to provide valuable advice, connections, and support.

Refer a friend

With that in mind, I am exicted today to introduce Growth Receipts - a weekly newsletter where I will do my best to simplify and share the most effective growth strategies, frameworks, and systems to drive your startup's success.

Why call it Growth Receipts?

The name 'Growth Receipts' encapsulates the core essence of what the newsletter is about. Just as a receipt is a proof of transaction, providing solid evidence that something has occurred, 'Growth Receipts' will share validated, tried and tested strategies for business growth.

It represents the concreteness that I want to bring to the often murky waters of startups. Every week, it provides a record of insights, a testament to growth, that I hope you can trust and build upon. It says, "Here's what's effective. Here's what works."

Here is an example of a visual design that you might be seeing as a way of conveying this idea.

What you can expect

Each week, I aim to give you a comprehensive look at some of the most impactful ideas and insights with the goal of directly applying them to your business.

Although the format might change week to week, you can expect to see the following:

Case Studies

Gain a deep understanding of successful growth strategies as we unpack the hows and whys of real-world startup success stories.

Proven Lessons

We take a look at some of the proven lessons as they relate to that week’s growth strategy.

Hands-On Activity

We never want to be the newsletter that just bombards you with a bunch of text for the sake of it. With that in mind, we provide activities, along with templates and tools that allow you to implement what you learn, in real time.

Resources

I will be recommending books, online courses, and many other relevant and useful recourses to guide you and your business.

Tech Spotlight

I’m a software founder, so it wouldn’t be right if I didn’t highlight a tool or technology that can aid in your startup’s growth. This could be a automation tool, an AI platform, or any tool that might help in scaling your business.

Quick Tips & Actionable Insights

I know you’re busy so expect a lot of quick, no bs, easily actionable tips and insights for your startup.

Inspiration for the week

Who doesn’t like a feel good motivational video every now or then?

What about Venture Library?

From the start, my goal with Venture Library has been to create a central hub and thriving community for all your startup knowledge and networking needs.

This goal is unchanged.

Over the next 6 weeks I will be launching 18 new short courses, doing a complete website overhaul and making the site more accessible to anyone.

Talk soon!
Christo