- [Neil] Hey, everyone, it's Neil Patel
and welcome to another day of growth hacking unlocked.
If you missed the previous lesson,
you can check it out at Neilpatel.com/training
and click on growth hacking unlocked.
When most people think about growth hacking,
they think about marketing.
And when I was doing research to make this course,
I already knew about all the tactics in growth hacking
or a lot of them out there and strategies,
but I just wanted to do research
just to make sure I wasn't missing
anything that was important.
And one common trend that I saw was,
most companies that were leveraging growth hacking
and were succeeding at a very rapid rate,
had venture capital to help put more fuel on the fire.
So I thought I couldn't truly create a growth hacking course
without including raising capital,
just in case you want to raise capital.
So in this lesson, I'm going to talk about
how to raise capital,
and I'll also be diving a little bit more
into that in the next lesson as well.
I like to play a little game called facts or fiction
before we get started, to just keep these in mind.
My industry is too hard to raise money in.
Big companies needed capital funding.
You need a marketing budget.
You need funding for infrastructure.
We'll answer them as we go through the lesson.
So when you look at a lot of the tech stocks out there,
Microsoft, Apple, Amazon, Google,
also known as the Alphabet, Facebook,
they've climbed at a very rapid pace.
But all these companies started with capital.
They raised money, even Microsoft.
They didn't raise a ton of money,
but they did end up raising money.
When you think about funding,
there's a lot of different stages from self-funding to seed.
Then you get into venture,
things like series ABC, or even venture debt.
And then there is your IPO.
And when companies go public,
they're typically raising money as well.
Then you also can get into later stage deals.
You can get into M and A, leveraged buyouts.
You can get into secondary offering.
These are all different ways
that you can end up raising money.
So now let's take a look at some examples.
One of my companies that no longer exists
was called Kissmetrics.
I ended up raising $16.4 million
over seven rounds, a little bit too many rounds.
And Kissmetrics was originally a spinoff
from my older company, Crazy Egg,
which I'm no longer involved in,
my brother-in-law and my sister own it and now they run it.
And one of our competitors, Mixpanel,
they raised 77 million over five rounds.
One of their lead investor is Andreessen Horowitz,
people know of Mark Andreessen or Ben Horowitz.
And when you think about Mixpanel,
they ended up getting to over 100 million
in revenue over time.
At least from some of the articles I read,
I don't know how accurate they are,
and they've done it in a lot less rounds.
When you think about series A, B and C's,
typically a series A round, it can range a lot.
When I started off,
typically series A rounds were one to $4 million.
Now I'm seeing them sometimes 10, 15, 20 million,
even sometimes even higher.
In series A funding rounds,
investors are not just looking for great ideas,
they're looking for traction,
they're looking for money-making businesses.
The average estimated capital raised in a series B round
is roughly $32 million.
Series C rounds are typically for scaling,
growing even faster.
When you think about D, E and F,
it all just starts blending in.
This is when companies just take a lot of money
and they don't want to go public right away
and they want to stay private longer.
When you think about venture capital,
over the past few years, I don't have data
on the recent years,
there are more recent years or even crazier than this.
People kept having higher and higher valuations,
they kept raising more and more money.
And it's funny, these days, I see people in some cases,
raising rounds of just 500 million, a billion dollars,
sometimes even $2 billion.
It's kind of crazy to think about them.
Sequoia Capital has invested in over 1,000 companies
since 1972, including Apple, Google, Oracle,
Nvidia, GitHub, PayPal, LinkedIn, Stripe, YouTube,
Yahoo, Instagram, WhatsApp.
And it's backed companies now that control
well over a trillion dollars of combined stock market value.
Technically it's trillions and trillions of dollars.
Because of them, 22% of the Nasdaq
is made up of Sequoia Capital companies.
There's a lot of institutional investors out there.
There's private equity companies, firms.
There's also venture capital companies like Sequoia Capital,
there's investment funds.
Some of them are like hedge funds.
There's pension funds, there's custodian banks,
sovereign wealth funds like Saudi Arabia
invest quite a bit into startups.
I believe they bought quite a bit of Twitter
and Uber back in the day.
I'm pretty sure on Twitter, I could be wrong on Uber.
There's insurance companies and family offices.
A lot of people are getting into startup investing.
And you'll want to create a potential investor sheet.
You want to think about who your competitors are,
who could be potential investors for you,
and that'll give you ideas.
And where I get a lot of my data from
is a site called Crunchbase.
It's a platform for finding information on businesses
as well as investors and what they're investing in.
And current place investment information
includes things like funding rounds,
members who led the round, how much did they raise?
They're in essence of data as a service,
you don't really need to pay for them.
You can get a lot of the information from Crunchbase
for free, and it pretty much just looks something like that.
You can search around and you can just keep going.
You can see who are the biggest players.
And from there you can do initial outreach.
And what I found is technically
getting warm introductions works better,
and then you'll have to do a pitch deck.
And then with your pitch deck, you'll have to present it.
And if they like it, often you're going to get
more meetings with them and then potentially money.
If they don't like it,
you probably won't hear back from them
and get another meeting.
And I have some resources to create pitch decks for you.
And going over and creating a list of all the venture firms
that you can potentially raise money from.
But you can find that at Neilpatel.com/training,
click on growth hacking unlocked,
then go to week one, lesson one
and you'll see the worksheets I have for you
that'll help you with your pitch deck.
Some key questions to answer in your pitch deck is,
what does your company do?
How's it different?
How big is a market?
Do you have any traction?
What is it?
What are the unit economics?
If you have churn, what's your churn?
And during your meetings, you want to make sure
that you introduce your investor to yourself,
your product services.
You want to make sure you have things buttoned up
like your market size,
and ideally recommend you going bottom up versus top down,
top down in many cases is much harder to do.
And you want to share any insights
that they may not know about your market.
Don't assume anything about them, but a lot of them
do come really well and doing their research.
With your raise, the one thing I would do is,
it's not just about who's giving you money,
it's about who's a good fit for you,
understand what they're doing.
It's not just about optimizing for the least dilution,
you want to optimize for who's the right fit.
And you want to have clear next steps at the end of a meeting
such as they'll think about it,
they'll follow up with questions,
maybe schedule another meeting.
And after the meeting, make sure you follow up.
And keep in mind that you may get no's.
I've got a lot of no's.
A no doesn't mean no,
a no just means not right now.
One of the original companies I pitched was True Ventures.
They said no to my first company,
and eventually they end up investing in Kissmetrics.
Didn't work out but the no just meant not right now.
And you want to work on creating pressure
by having a competitive process
talking to multiple investors.
They're going to do the diligence on you and your company.
And fundraising is not just about the goal,
it's about optimizing for the longterm goal of your company,
not just the goal of "raising money."
If you look at companies like Facebook,
back then companies didn't raise as much as they do now.
But even when they raised money,
people thought it was crazy to raise hundreds
of millions of dollars instead of just going public.
And their angel round was $500,000.
And back then that was normal angel rounds.
Now people raise angel rounds
in the millions and millions of dollars.
Next week, I'm going to be covering later stage,
funding rounds, leveraged buyouts, IPO's and even M and A.
And now you should have the answer to all of these and look,
no matter what people are telling you, you can raise money
even if you're in a hard industry.
And all companies of all sizes need capital,
and there's scrappy ways of doing it.
You can get loans, SBA is out there
if you're based in the United States.
You can figure out how to do marketing for cheap,
or you can it with a lot of money,
and I'll go over really cool marketing tactics
that are capital efficient next week.
So the next lesson is going to continue on fundraising.
But after that, I'll go over more specific marketing tactics
and strategies that you can leverage.
And funding does help with infrastructure.
But again, there's scrappy ways to do it
if you don't and aren't able
to raise as much money as you want.
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Thank you very much.