How Startup Fundraising Works with Brad Flora | Startup School

**Brad Flora** (0:09)
Hello, everyone, I'm Brad Flora. I'm a group partner here at YC, and I'm gonna be talking about how startup fundraising works today. Like I said, I'm a group partner at YC. And what that means is that I read applications, I interview the startups that apply, and then I work with them to try to make something people want. And one of the topics that people ask about all the time at YC is fundraising. In fact, it's probably the thing that we get asked about more often than anything else. And the reason for that is because as Paul Graham wrote years ago, raising money is the second hardest part of starting a startup after making something people want. So let's take a quick tour of all the awesome stuff that YC's put out about fundraising over the years. First, there's the Paul Graham essays. He wrote the Fundraising Survival Guide, how to fund a startup, how to convince investors to invest in your company, and even wrote a great essay about understanding investor herd dynamics. All of this stuff's online. You can see the links below. You should check it out. Years later, just a little bit ago, YC President Geoff Ralston posted a terrific guide to raising a seed round, where he covers everything from start to finish that you need to know the nitty gritty on how to raise a seed round. And he gave a great video presentation at startup school a few years ago, where he presented that material. It's on YouTube. You should check it out. It'll tell you how to raise a seed round. Finally, we've posted a lot of tactical guides about specific aspects of fundraising, how to build a seed deck, how to pitch your startup, how to get meetings with investors, and how to raise money online for startups using platforms like AngelList. We've even got something about the different types of investors and their incentives. So if you really want to get specific and drill into stuff, there's content for you that you can find. What I didn't want to do today is just rehash all of that stuff because it's already out there.
What I wanted to do instead is talk about some of the misconceptions and myths that we see as YC partners when we work with founders. Founders out there are consuming all sorts of information in the media, and a lot of it is about startup fundraising. And there's some things in there that just are not true that we're gonna talk about. The goal of this talk is to catch you up on how fundraising actually works today. And we're gonna do that by exploring seven fundraising myths. And for each one of them, we're gonna talk about the myth, the reality behind the myth, and then look at some great YC companies that bust that myth. Before we get started, just a little bit more about me. I'm a YC partner, but I've also been on both sides of the table as a founder and an investor. From 2008 to 2014, I was building startups.
And the company that I got the most success was Perfect Audience, which was an ad retargeting startup for small businesses. I took Perfect Audience through the YC Summer 11 batch, 11 years ago, and we raised a million dollar seed round after demo day.
I hired a bunch of great people. We grew to $3 million in revenue and we were acquired in 2014 After that acquisition, I got really into investing in startups.
It started with angel investing, where I was writing just a few checks, $5,000, $10,000 into YC companies that I thought sounded really cool at demo day. But I got hooked. The thrill of going and meeting founders, finding out what their deal is, trying to figure out, are they making something people want? Should I invest? Was too much for me. And suddenly I was raising a fund with some friends to scale up and invest in even more YC companies. And so through that fund, I invested in 150 YC companies. And the good news for my backers is that we got into some great companies. You may have heard of a few of them. Deal, OpenSea, Retool, Razorpay. It was really awesome to help those companies raise their first round of funding.
And it's been a lot of fun being involved since. Eventually though, I joined YC as a group partner and I get to do both sides. I act as a founder, as a fellow peer to the YC founders and help them figure out how to make something people want. And then use my investor experience to help them figure out how to raise money. So I've got a good view of this. I've been involved in a lot of seed fundraising. So let's get started with these myths. And for the first one I wanna talk about is this idea that raising money is glamorous. What's the image in your head that you think of when you think of startup fundraising? For a lot of you, it might be something like this. This is an image of Shark Tank and it's a television show where entrepreneurs, they dress up, they make a sign, they get a bunch of materials and they pitch a bunch of investors at once called sharks. And these are a bunch of people of varying levels of investor expertise who hear the pitch, ask a bunch of nosy, kind of pushy questions and then fire offers at the founder Rapidfire. And so if you watch this, you may be thinking, gosh, I've gotta put a whole presentation together like this and I'm gonna pitch a bunch of people and they're gonna ask me all these tough questions and it's gonna be this high pressure situation that I've gotta figure out. The reality is that fundraising actually looks like this. This is a picture taken in the Creamery, which is a now departed cafe in San Francisco. Notice what's happening here? It's just a bunch of people sitting in chairs, talking quietly amongst themselves, right? It's just a bunch of coffee chats. That's how fundraising actually looks. That's what it actually feels like, is just sitting in a cafe talking to someone. Shark Tank, the pitch competitions, the business plan competitions, they're just for show. They're marketing events for the organizations that put them on. And in fact, a lot of the investors at these things, they don't invest. They're just there to meet other investors and hang out.