i've helped over 100 founders raise their first round from vcs

their most common question?

how to find the right valuation for their startup

here's the 5 step framework i share with them:

most founders focus on maximizing their valuation

instead, they should think about:
- how much capital they need
- how much of the company they're willing to sell
- the current state of the markets

and work backwards from their next round

1. map out milestones

hitting milestones is how you show investors that your startup can be really big

ask investors what milestones would be interesting for your NEXT round

now you know what you need to accomplish with the money you raise in this round

2. understand your expected burn

how much will you need to lose to hit those milestones?

assume it's 1.5x what you think

use a spreadsheet to determine two numbers:
- total burn needed to hit your milestones
- monthly burn rate by the time you hit them

3. calculate your round size

before you determine a valuation, calculate how much capital you need to raise

investors will want you to have 12 months of runway when you go to raise again

here's a simple formula:

round size = total burn + (burn rate * 12) - current cash

4. clarify how much you're selling

aim to sell 10-20% of your startup in the first round

where they fall in that range is based on:
- macro market conditions
- how much traction you have
- how on-trend your startup is

get investor opinions on these before you raise

5. arrive at your valuation

with this framework, calculating your valuation is the easy part

valuation = round size / % of company you're selling

start conservatively

you can always raise your valuation if the round heats up, but overshooting will make it tough to fill

i went deeper on this framework and how to apply it in my newsletter:

https://www.houck.news/p/valuations

if you enjoyed this thread:

1. follow me @callmehouck for weekly threads about startups

2. come join over 4,000 founders getting tactical advice from my free weekly newsletter

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how to determine the valuation of your startup:

1. map out milestones for your next round
2. understand your expected burn
3. calculate how much you need to raise
4. clarify how much you're selling
5. arrive at your valuation

my 5 step framework for early stage startup valuations

elon musk has built companies worth over $800 billion

and he credits his success to first principles thinking

here's his framework for coming up with new ideas:

first — what is first principles thinking?

it's a way of approaching problem solving used at many of the most successful tech companies

it says to base your ideas on undeniable truths you've identified

a first principle is the answer to the question "what do we know for sure?"

why it matters:

first principles thinking keeps you focused on what you know

and lets you make quick decisions

without it:
1. you can only accidentally stumble onto good ideas
2. you end up making small tweaks to existing ideas

it's the most efficient path to an original idea

in a 2012 interview, elon shared his 3 step framework:

1. identify assumptions
2. break the problem down into fundamental components
3. iterate towards original ideas

let's break it down

identify assumptions:

elon says that "most people accept that something is not going to be much better in the future"

these assumptions tend to be the biggest opportunities to innovate

identify the underlying problem that causes people to believe the assumption

break the problem down to fundamental components:

you'll need to ask the right questions, which means you need deep knowledge of the problem

keep asking "why?" until you hear "because" as the only answer

elon says this stage can even take years for some problems

iterate towards original ideas:

once you hear "because" you can start thinking of new solutions

you'll be wrong (a lot) but:
1. keep track of your learnings
2. build on your first principles
3. iterate quickly

elon says that "good ideas are always crazy until they're not"

first principles thinking is the fastest way to generate unique ideas

i go deeper on this in my newsletter this week

https://www.houck.news/p/first-principles

and if you enjoyed this thread:

1. follow me @callmehouck for weekly threads about startups

2. come join over 4,000 founders getting tactical advice from my free weekly newsletter

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elon's 3 step framework for using first principles thinking:

1. identify existing assumptions
2. break the problem down into fundamental components
3. iterate towards an original solution

elon musk's 3 step framework for first principles thinking

i've helped hundreds of founders raise their first round of capital

their most common question? what their startup's valuation should be

here's my 5 step framework for how to value early stage startups:

1. map out milestones

you'll likely need to raise more than one round

the capital you raise now needs to get you to the next one

identify the milestones you'll need to hit between now and then

2. understand your expected burn

how much will you need to burn to hit those milestones?

assume it's 1.5x what you think

create optimistic, realistic, and pessimistic scenarios

you'll need both your monthly burn and the total amount you plan to burn before your next round

3. calculate your round size

you should raise enough so that you'll have 12 months of runway when you raise again

having a cushion will make raising your next round much easier and less stressful

round size = expected total burn + (expected monthly burn * 12) - current cash

4. back into your valuation

common mistake: trying to maximize your valuation

instead, think about how much of the company you're willing to sell

aim to sell 10-20% for a pre-seed

valuation = round size * 100 / the % you're selling

5. check the markets

macro factors can impact your chance of success

look at:
- recent deals in your space
- public market revenue multiples
- recent capital raised by vcs / vc sentiment on twitter

adjust either the % you plan to sell or how much you want to raise as needed

if you're a founder then apply to @launchhouse

we're a membership community of founders with:
- cohort-based courses
- IRL retreats and events
- executive coach support
- fundraising help
- and more

apply 👇
launchhouse.com

if you enjoyed this thread:

1. follow @callmehouck for weekly threads on building startups
2. try my new free newsletter to level up as a founder

https://www.getrevue.co/profile/houck

how to value early stage startups:
1. map out milestones
2. understand expected burn
3. calculate round size
4. back into a valuation
5. double check the markets

my 5 step framework for startup valuations

these 15 YouTube channels will teach you more about startups than any university:

garry tan (@garrytan)

ceo of y combinator, exited founder, cofounder of initialized... and youtuber

garry's built his channel to 200K subscribers by making great videos over 2 years

recommended video: level up your friends like billionaires do

https://www.youtube.com/watch?v=Q0hV48aeFzk

john coogan (@johncoogan)

cofounder of soylent, now making entertaining videos about the metaverse and startups

his thumbnail game is top notch

recommended: the entire history of silicon valley

https://www.youtube.com/watch?v=hpLUFQfwYVY

y combinator

the legendary accelerator has posted hundreds of talks and, more recently, content made specifically for youtube

recommended: competition is for losers (with peter thiel)

https://www.youtube.com/watch?v=3Fx5Q8xGU8k

this week in startups

active since 2009, this now-daily show highlights trending news in the startup world with hot takes from @Jason, @mollywood, and their guests

recommended: how to raise money from angel investors

https://www.youtube.com/watch?v=aqRBN7qvyxs

justin kan (@justinkan)

he sold twitch to amazon and now he's back to making his own content

he does longform vids and also a lot of shorts

recommended: why i was successful but unhappy

https://www.youtube.com/watch?v=7rIL5vHoF34

tkkader (@Tawheed)

high production quality and tactical advice make this a great channel, especially for saas founders

recommended: 6 steps to create a go to market plan

https://www.youtube.com/watch?v=n8GfATsQd2Y

where it happens (@SahilBloom @gregisenberg)

in just over a year, sahil and greg have built a strong community around this video podcast (not to mention hosting a ton of insightful guests)

recommended: building a mini berkshire hathaway

https://www.youtube.com/watch?v=nkPAnye_FZ0

slidebean

a startup themselves, slidebean creates content and resources for other startups. with over 400k subscribers, there's a ton of interesting videos here

recommended: how to create a pitch deck in 2022

https://www.youtube.com/watch?v=SB16xgtFmco

noah kagan (@noahkagan)

founder and ceo of appsumo, and employee #30 at facebook. noah knows a thing or two about growth, but his videos go beyond just that

recommended: how i grew mint to 1 million users in 6 months

https://www.youtube.com/watch?v=5L9cilUWOrE

simon hoiberg (@SimonHoiberg)

engineer turned founder, simon shares everything he knows from choosing the right tech stack to validating a startup idea

recommended: how i created a profitable SaaS product in 63 days

https://www.youtube.com/watch?v=FW-xZmC_h6w

my first million (@thesamparr, @ShaanVP)

if i were looking for a new startup idea, this would be the 1 channel i'd subscribe to

listening to shaan and sam jam makes you you wish you'd been in the room for it

recommended: how to go viral on any platform

https://www.youtube.com/watch?v=BIqSQIMflTY

the good time show (@sriramk, @aarthir)

what started as a weekly talkshow on clubhouse during the pandemic has turned into an insightful interview show on YT

recommended: interview with @balajis

https://www.youtube.com/watch?v=0LOr2qBcpns

a16z

the leading venture firm has shared tons of interesting talks, interviews, and original content over the years

recommended: the end of the beginning

https://www.youtube.com/watch?v=RF5VIwDYIJk

the all in pod

weekly, off the cuff takes from chamath, jason calacanis, david sacks, and david freiberg. super entertaining

recommended: E69 — elon musk

https://www.youtube.com/watch?v=CnxzrX9tNoc

gary vee (@garyvee)

youtube is only a small part of gary's empire, but there is a treasure trove of optimistic takes on hustling, growth, and more

he also recently raised $50M from a16z

recommended: how to get your business the most attention possible

https://www.youtube.com/watch?v=-bG82D4bPWc

what great channels did i miss? let me know 👇

15 youtube channels about startups

i've reviewed hundreds of startup pitch decks this year

but i've only invested in 14

here are the 9 most common pitch deck red flags:

🚩 early stage financial projections

here's a secret — vcs know you made them up and that they won't be accurate

what they don't know is if YOU know that

they'll be concerned if they think you believe everything will go as planned

instead, share some revenue napkin math

🚩 no competitors listed

recently funded competitors = validation

vcs love seeing that other vcs are interested in a space

highlight your differentiation to stand out

🚩 an overly designed deck

some of the best decks have a plain white background and black text

unless your brand — be honest — is your primary moat, you don't need a professionally designed deck

spend time making your message coherent and concise instead

🚩 too much info on each slide

investors spend under 3 minutes on most decks

each slide should make 1 point that should be immediately apparent

the rest of the slide should be supporting evidence

if you can't get your point across quickly, you won't

🚩 the deck is more than ~15 slides

your deck is a sales document

its only goal is to get investors interested in meeting

it doesn't need to answer every possible objection

keep it to 1 slide per section and use sequoia capital's deck template

https://www.slideshare.net/PitchDeckCoach/sequoia-capital-pitchdecktemplate


🚩 no listed credentials

Y Combinator's admissions team told me this:

"the best indicator of someone doing exceptional things in the future is whether they've done exceptional things in the past"

everyone has unique experiences — highlight them

🚩 walking through the deck in a pitch

investors want to leave a meeting with all their questions answered

if they have the deck beforehand, they'll know what to ask and you'll have a more productive call

don't use the deck as a crutch — open yourself up to their questions

🚩 no narrative structure

storytelling isn't just for your pitch — slide order matters

there's no silver bullet and some investors have unique, silent preferences

my best advice: prioritize clarity. share your deck with friends and see what questions they ask. make adjustments

🚩 focusing on the solution

don't fall in love with your solution

great decks have 3 things:
- a painful, urgent problem
- a big, growing market
- a proven team with relevant experience

the best decks also talk about distribution strategy

pitch deck red flags 🚩

1. financial projections
2. no mention of competition
3. over-designed
4. too many points on each slide
5. more than ~15 slides
6. no mention of founder credentials
7. it's used in a pitch
8. poorly structured / incoherent
9. focused on the solution

9 pitch deck red flags 🚩

big news 🔥

i've launched a newsletter!

it's full of quick, actionable advice for founders

i'm sharing what i've learned co-founding @launchhouse and raising from @a16z

here's the first weekly post 👇

my goal?

help founders make better decisions and grow their startups faster

over 3,000 are already signed up

try it here 👇

https://www.houck.news

PS: i'm new to this newsletter thing, so cut me some slack as i learn the ropes. and please share feedback!

i'm launching a newsletter!

at 21 i didn't know what a startup was

at 31 now i've raised $15M for my startup

here are 10 lessons i learned over the last 10 years: 

money is a tool:

many people are taught that money is the root of all evil

but it's simply a tool that reveals who you are as a person

used well, it unlocks faster progress and greater success

find champions to lift you up:

i got my first role at uber through a cold application

but i got promoted because i found strong mentors once i started

when you have no connections, seek out champions who believe in you

remove negativity fast:

life's short, full stop

the most emotionally taxing thing i did in my 20s was cut out people who were negative presences in my life

once i did, i gained clarity on my path forward and had the state of mind to achieve it

soft skills drive success:

raw intelligence and emotional intelligence both matter

being focused on building genuine relationships will accelerate your life in unexpected ways

relationships are often the key to making big jumps forward in life

embrace risk:

the downside of taking risks is often lower than we think

i've moved to new cities where i knew very few people 3 times

and abandoned cushy big tech jobs to build a startup

being risk averse ends up just stunting our progress

value time over money:

most people are taught as kids to protect and save money

but time is your most valuable asset

within reason, use money to protect your time and focus on your goals

success is a grind:

@paulg says that determination is a better predictor of success than talent

and he's right — achieving ambitious goals requires sustained conviction

i took $0 salary for a year in order to help start @launchhouse and made sacrifices

build around milestones:

your story changes every time you achieve a new milestone

once i had experience building products, i thought about how to get a job doing that anywhere

take a moment to reflect on your goals whenever you achieve one

life isn't zero-sum:

a rising tide lifts all ships

you will achieve more by not being protective of your own success

an abundance mindset will attract others who have one as well

just start things:

don't wait around for your plan to be perfect

i can promise you it's never going to go exactly as you planned

and experience is the best teacher anyway

bonus — admit you're wrong quickly:

it's ok to be wrong

ironically people will only think less of you if you won't accept it

instead lead with your curiosity and focus on learning

i spent most formative part of these 10 years in san francisco

i met so many optimistic people there building big new ideas

but now people are saying it's dead — what do you think?

issfdead.com

and if you enjoyed this thread:

1. follow @callmehouck for weekly threads on startups and life

2. try my new free newsletter to become a more effective founder
https://www.getrevue.co/profile/houck

11 lessons from my 20s:
- money is a tool
- seek out mentors
- remove negativity fast
- soft skills drive success
- embrace risk
- value time over money
- success is a grind
- build around milestones
- life isn't zero-sum
- just start things
- admit you're wrong quickly

10 lessons from my 20s

it's taken san francisco 20 years to build a single bus lane

but many incredible things get built surprisingly quickly

stripe's founder patrick collison wrote an article highlighting 9:

ipod

went from hiring a product manager to launch in ~290 days for a product that reached 1 billion people

look at the timeline:

• jan: tony fadell hired to lead the project
• mar: steve jobs gives it the green light
• oct: product announced
• nov: delivered to users

apollo 8

nasa decided it wanted to go to the moon on august 9, 1968

134 days later, apollo 8 was launched

it landed on the moon on december 27, 1968

the new york city subway

the first version of the subway — with 28 stations — was built in 4.7 years ending in 1904

recently, it took NYC 17 years to open 3 stations…

javascript

yes, the coding language

brendan eich created and implemented the first prototype in 10 days back in 1995

today it’s the third most common programming language in the world

the eiffel tower

completed in 1889, the Eiffel Tower became the tallest building in the world

it took just 2 years and 2 months to build

p-80 shooting star

the first fighter jet used by the US air force was designed, built, and delivered in 143 days

disneyland

in 366 days disneyland was created to fill 160 acres

that's an incredible pace — just over 2 days per acre!

shenzhen

the chinese city grew from 4.4 million residents to 5.4 million in just one year (1998-1999)

how?

it was declared a special economic zone, opening the city to foreign investment and technology

tgv — france’s intercity, high-speed train system

the first line went live in 1981 after only 5 years

for context, california announced a similar system in 1996 and it is currently expecting its first line online in 2033

the entire article is here and has even more examples

it’s one of my favorites to read when i need a reminder of what’s possible:

https://patrickcollison.com/fast

if you're interested in growing your startup fast then apply to @launchhouse

we're a community of vc-backed builders with:
• cohort-based courses
• coliving retreats
• peer groups led by coaches
• fundraising support
• and more

apply 👇
https://www.launchhouse.com/

and if you enjoyed this thread:

1. follow @callmehouck for weekly threads on building startups
2. try my new free newsletter to become a more effective founder

https://www.getrevue.co/profile/houck

9 big things built fast

Airbnb is worth $70 billion

when i worked there i learned how it almost failed

here’s the story of how it was saved by cereal:

in 2008 a young Airbnb was in need of cash

on an NPR podcast, co-founder @jgebbia said:

“You know those binders where you keep baseball cards? I had one of those except there weren’t baseball cards in it, they were credit cards.”

as designers, gebbia and ceo @bchesky both understood the power of novelty

2008 was a presidential election year

they came up with a crazy idea:

they'd make money by selling themed cereal

Obama O’s and Cap’n McCains

they designed the boxes, ordered 500 of each design, and filled them with Cheerios and Cap'n Crunch

total cost per box: ~$5

they priced them at $40 each

even more genius?

they took the boxes to the democratic national convention in denver

they marketed them as exclusive, limited-edition products

people loved them

katy perry and other celebs bought boxes

the boxes got coverage on CNBC

and in a week they sold $30,000 worth of cereal.

the money was enough to pay off the credit card debt and keep Airbnb alive

when they got a YC interview soon after, YC was on the fence

but paul graham loved their ingenuity and hustle. he said:

“we want cockroaches, and you are cockroaches, you will not die. you’re selling cereal boxes for god’s sake.”

airbnb joined YC's next batch

i was a product manager at Airbnb before founding @launchhouse

the company highly values creativity and thinking outside of the box

case in point?

one of our cultural values was to "be a cereal entrepreneur.”

if you're interested in growing your startup then apply to @launchhouse

we're a community of vc-backed builders with:
- cohort-based courses
- coliving retreats
- peer groups led by coaches
- fundraising support
- and more

apply 👇
launchhouse.com

if you enjoyed this thread:

1. follow @callmehouck for weekly threads on building startups
2. try my new free newsletter to level up as a founder
https://www.getrevue.co/profile/houck

tldr:

in 2008, airbnb had no cash

the founders sold custom cereal boxes called Obama O’s and Cap’n McCains to keep the company alive

this got them into Y Combinator

they keep this spirit alive with the cultural value "be a cereal entrepreneur"

how airbnb was saved by cereal

hot take — San Francisco is still the center of the startup world

since the pandemic started people have been saying SF is dead

but rent is lower and a whole new wave of young, ambitious builders are moving there

here are 7 reasons i'm bullish on SF:

proximity to top universities:

stanford and berkeley have attracted students who've gone on to create over 70 unicorn startups

SF is the most popular destination for new grads from the schools

they've had 4 years to build local bonds by the time they've graduated

capital and talent network effects:

SF has the highest concentration of anywhere in the world of:

- vcs
- angel investors
- people who've built unicorns

great builders are attracted to areas where they can learn fast and build faster

less downside risk for startups:

SF has the highest density of risk takers

ironically this creates an environment where there's less downside risk to making big bets

if your startup fails in SF the people around you still want to learn from you

the lindy effect:

silicon valley started in the 1970's... 50 years ago

it's hard to overstate how hard it is to overcome massive cultural inertia like that

even though some people have packed up and left, many others have deeply rooted lives and families in SF

it's a "boring" city:

candidly there's not a lot of great nightlife and entertainment in SF

especially relative to other startup hubs like NYC, miami, and LA

fewer distractions means more building

willingness to be weird:

SF may be the quirkiest major city in the US (apologies portland)

the patagonia-wearing 2010's were an anomaly in SF's history

seeing others get outside their comfort zones creates psychological safety to do the same

frontier mindset:

SF has been the frontier for generations

from the gold rush to the hippie movement and then to silicon valley

this has created a culture of experimentation and boundary-pushing that is ideal for taking big risks

launch house started as a way to bring the silicon valley mindset everywhere

- ship fast
- work hard
- reward disruptors

and we've been told many times "@launchhouse feels like SF in LA/NYC"

@thatguybg and i spent formative years in SF and we're not buying that "SF is dead"

but what do you think? is SF dead?

issfdead.com

if you enjoyed this thread:

1. follow @callmehouck for weekly threads on startups and venture capital
2. join thousands of builders who've signed up for my new free newsletter on how to level up as a founder

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