If you want to know what investors are thinking/looking at these days, a must-read is Elizabeth Yin’s (@dunkhippo33 @HustleFundVC – VC investing in hilariously-early founders) recent series of tweets:

“1) At the early stages (call it pre-A or the whole “seed range”), I’m seeing lots of bifurcation. On one hand, in the Silicon Valley, for some founders, it’s never been an easier time to raise. 2) These founders, largely serial entrepreneurs/pedigreed founders (based on schools & work), are highly sought after even at the pre-seed stage. 3) So with these founders (mostly in SF), I’m seeing massive party rounds — like $3m-$5m seed rounds. Sometimes higher! No product / no traction. My friend – fantastic founder – raised $8m recently. $30m+ post-money, no product. If you have this background, raising is EASY. 4) For non-pedigreed founders, if you are running a SaaS company & have some rev traction, also pretty easy to raise. VCs have gone gaga over SaaS in the last 2 months. They think predictable cap efficient companies are the way to go in light of issues at unnamed marketplace cos 5) And then, there’s everyone else. Still HARD to raise money. Even in the Bay Area, if you don’t check said boxes above. Outside the SF Area, even harder. 6) So we have a weird Goldilocks & the 3 bears situation. Some companies are really HOT. Others are really cold. The range of valuations are insane. Everything from < $1m post valuations to $30m+ for PRE-SEED! 7) The press mostly writes about the hot deals. After all, no one wants to read about someone’s poor fundraising situation. So, now everyone thinks Silicon Valley is littered with gold. The reality is that SF mostly has poop on the ground. 8) Then there’s the downstream. The later stages. In 2020, I think raising a series A or a series B will become incredibly challenging. (fundraising always is, but even more so than last yr). 9) Why? VCs all of a sudden care about profitability. Your co still needs to be growing at 30% MoM AND also profitable!  (unclear why you need VC in this case but that’s beside the pt 🙂 )”

Actually, that is the point.

We know that raising funding is considered by many an entrepreneur to be a trophy of sorts, or a even proof of concept. Great! If you need the confirmation, go talk to investors – but bootstrap as long as you can. As an investor pointed out at one of our breakfasts, once you’re on the VC treadmill, there’s no getting off. And it’s not free money: You’ll be under more pressure and scrutiny that comes with it, especially in this funding climate.

We all know what investors look for in a deck, and it’s a great exercise to go through, whether you’re seeking funding immediately or not: think of it as a basic starting point/framework for your business and keep in mind that everyone pivots.

Ev’-ry-one.

From Blu Venture Investors, who spell it out clearly and simply:

1. Identify the problem
2. Explain your solution—product—technology
3. Business model—how will you make money?
4. Go-to-market strategy—how will you acquire customers?
5. Competition—a realistic assessment of your competitor’s strengths and weaknesses.
6. How will you overcome them?
7. Experience of management team and advisors
8. Realistic financial projections and technical milestones
9. Use of funds
10. Exit strategy
11. Deal terms
12. Conclusion—why invest?

The final two points are for investors. If you’re bootstrapping, consider: why us, why now?

Remember: as Yin said,  even founders who have managed to get large early rounds may find it much more difficult to get follow-on funding, sans a revenue-generating business model:

“10) This is because 1 large unnamed fund invested TONS of money into a lot of seemingly hot but unprofitable companies and then lost a lot of money. Now a lot of VCs are scared. As it would turn out, you cannot “will” a business to work with large amounts of capital. (ED: Who’d have thought???) 11) This change in mental models now affects all founders coming up beyond seed. A new focus on profitability is going to separate the winners from the losers in this next few years. Thriftier founders will win. 12) However, from past exp w/ past portfolio cos, this is incredibly hard for founders who have had an easy time raising large amnts of seed money, because they end up with high burn and don’t realize just how hard fundraising will become. 13) So here’s the irony – it’s actually these pedigreed founders in our portfolio that I worry about the most. Yet, they were the ones who were supposed to have the easiest time building big businesses. That’s why VCs threw money at them in the first place. 14) In fact, it’s usually our thriftiest founders – usually by necessity because fundraising was always hard for them – that I think do the best in these conditions. They crank out good biz practices & watch cash like a hawk and know precisely how much money is coming in and out.

“15) So to recap: A) Good founders come from everywhere even if $ isn’t thrown at all of them. B) A mark of a good founder (beyond being highly skillful & good hiring) is being deeply analytical – understanding unit econ & cash flow C) Being thrifty (usually has grit & speed)

“16) Lastly, my hope for the @HustleFundVC portfolio – regardless of which bucket our founders fit – is to watch burn rate this year & focus on getting to profitability so you can control your own destiny. At the end of the day, isn’t that what building a business is all about?”

In the days of Web 1.0, not having a business model or path to profitability was wholly acceptable (as was kicking the can down the road during the most recent tech iteration). This was the New Economy, a thinking that may well have led in no small part to that bubble burst that you hear so much about – and which is mentioned every now and again at this juncture. No one wants another bubble and contrary to popular misconception, there is no real tech economy that functions outside the laws of man and nature and business and basic economics, and never was. In no other industrial age that established itself prior to tech did founders refer to their efforts as startups: they were building businesses.

And a head’s up to investors and entrepreneurs:

According to Quartz, “Firms with fewer than 20 employees are growing faster than any other category of small business, which together employ nearly 50% of the private workforce, and the ranks of the gainfully self-employed are swelling. Collectively, they are a force to be reckoned with.” We know that investors are fond of big exits. As we’ve seen with WeWork et al, well, that just doesn’t always work out…

Also important to keep in mind: funds and microfunds, angels and angel groups are still plentiful. They’re still willing to put up the dollars. But now, more than ever before, you’d better make sure that your business – and your path to big returns – makes sense. Onward and forward.