The first hit is always free. Then you go back for more and more and more, sacrificing blood and tears and sleep until you’re left with scraps.
That reads like a tragedy, but it’s actually the story of startup founders who go to investors too early. The storyteller? Investor TK Kuegler.
Kuegler, a former startup founder himself who went on to cofound bi-coastal early-stage investment firm Wasabi Ventures, likened the investment stage to a heroin den during his appearance Tuesday at Startup Grind Baltimore.
“Raising money is like heroin,” he said to the several dozen assembled at the Living Classrooms Foundation. “The moment you start raising money, you’ll be raising money forever.”
Many startups, he said, don’t actually need the money. They go for it too early, without a plan for monetization, then come back for more and more, sacrificing more and more equity until they’re left with a six-percent share and nothing to show for it.
“Go when you don’t need it,” Kuegler said. “Only go to raise money when you understand, when you bet your life that you know how you will raise revenue.”
But on the other side of the table, Kuegler said, he’s more interested in people than their ideas. He wants to see that prospective founders are likable, hungry and “absolutely know what they’re talking about,” he said.
Failure “is sexy,” he said. “That is downright sexy to most early-stage investors.”
Why? Because acknowledging failure gives founders a chance to figure out mistakes and pivot to find what the market needs, he said.
Sometimes he doesn’t even recognize potential successes himself. Once, he went into a meeting with Boston-based entrepreneur Polina Raygorodskaya expecting to hate her idea. Hate, hate, hate.
Raygorodskaya was pitching Wanderu, a marketplace for cheap bus fares across different services.
“No matter how hard I beat her up, she had a great answer,” said Kuegler. “She knew what the problem was, she knew what she was doing… I take buses everywhere now.”