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Tuesday, November 11, 2014

Raising Money for a Startup? Don't Make This Mistake

Tuesday, November 11, 2014 Posted by Unknown , , 1 comment

Anyone that's worked at a startup knows that getting the right funding is a vital part of the startup life. When a company announces they closed a huge round from top investors like Andreessen Horowitz, Lightspeed Venture Partners, or Google Ventures, it gives that company a stamp of approval, and they enter an elite group that could potentially change the world. The importance of getting the funding from the right person and the stress of the entire process is beautifully illustrated in a podcast I recently discovered called StartUp.

StartUp stars and is narrated by Alex Blumberg, a former producer for This American Life, and provides a first hand account of what it takes to go from idea-creator to founder, and in his first episode, Blumberg tells us what happened when he tried to pitch Chris Sacca, a notable Angel Investor who invested in Twitter very early and someone I wrote about in a previous piece called F*** Luck.

In short, Blumberg blows it. He stumbles almost immediately and can't share the idea in any meaningful way, but rather than shut the door on Blumberg and his dreams, Sacca questions Blumberg about his idea, how much money he'll need, and attempts to get at the heart of what Blumberg ultimately wants to do. And then after thinking for a few moments, Sacca does something amazing. Chris pitches the idea back to Blumberg:

Chris Sacca: Hey, look, can I get two minutes from you? So here's the thing. You probably know me, producer of This American Life, been doing it for 15 years. You know it's the most successful radio show, top of the podcasts in iTunes, et cetera.

So here's the thing. I realize there's a hunger for this kind of content out there and there's none of this [BLEEP]. Nothing's out there.

Advertisers are dying for it. Users are dying for it. And if you look at the macro environment, we're seeing more and more podcast integrations into cars. People want this content. It's a whole new button in the latest version of iOS.

So here's the thing. Nobody else can make this [BLEEP]. I know how to make it better than anybody else in the world. And so I've already identified a few key areas where I know there's hunger for the podcast. We've got the subject matter...I know there's advertisers who want to get involved with it.
So here's what we're doing. We're putting together a million and a half dollars. That's going to buy us three, four guys who are going to launch these three podcasts in the next 12 months. We think very easily we could get to 300,000, 400,000 net subscribers across the whole thing.

With CPMs where they are in this market right now, I know on advertising alone, we could get to break even. But as we do more of this integration, we get people texting in to donate to this stuff, buying some of this product, doing some of these integrated episodes, I know that we're going to have on our hands here something that will ultimately scale to be a network of 12, 15 podcasts. The audience is there. They want it. Nobody else can do it like we can. Are you in?

Then, just as Blumberg starts to believe that he's going to close the investment, Sacca pulls the rug out from under Blumberg and gives the anti-pitch:

Chris Sacca: I could come at it from the other side...Media's very, very hard, as you know. This content's really hard to consume. It's longer form. You're counting on people spending that kind of dedicated time. I mean, you're fighting an overall trend of attention, and every other format is going to shorter and shorter content pieces. And so you're actually swimming upstream with that stuff.

You have a lot of platform risk, because you're depending upon Apple and Google to distribute your content. The kind of stuff you're doing with Planet Money is exciting, but it's all under the veil of being a nonprofit. People feel a moral obligation to contribute to those kinds of things. You come outside from under the public radio veil, and you have to worry about whether people are going to be a little bit jaded and feel like they don't necessarily need to donate to a for-profit company to make for-profit content for guys who are doing this for equity and hoping to get rich.

You know, frankly, you think you might actually be uniquely qualified to do this, but we've started to see more and more news podcasts make their way out there. Some stuff from Khan Academy is moving up the ladder right now. So ultimately, you're not going to be the only guys in here, and it's going to be pretty competitive. Audio is kind of a niche market, and so I don't know. I don't-- I don't know if this is a fit for us.

Through Blumberg's experience, you can see how hard it is to share your idea with someone who actually has the money to make your dreams a reality. More importantly, the first episode provides listeners with insights on what investors like Sacca think about when they're looking to invest without having to go through the embarrassing ordeal that Blumberg had to go through. The podcast is absolutely brilliant, and anyone that's tangentially interested in startups should give it a listen.


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