I decided to gather my thoughts in one article about today's startup market and VC fundraising: everything you need to know to understand and start acting. First, the big picture, then specific advice for founders with examples from my experience: what to expect, how to pitch, what valuations to aim for, where to find investors, common pitfalls and mistakes, and whether you even need investment.
I’m interested in investments from two perspectives. First, as a founder who raised $3.9M for two startups (Getintent and Hints) from 2013-2023 and will continue to raise more. Second, as a former (and hopefully future) investor. After selling Getintent, I invested in 7 startups with checks ranging from $20K to $50K during 2020-2021.
Fundraising through different periods:
As a founder, I raised funds in three completely different periods:
2013-2015: Fewer funds, fewer startups. The entry barrier for startups was significantly higher. Valuations were low, rounds were small, investors were demanding, and closing rounds was a long and painful process: with lawyers, term sheets, due diligence, and a 50-page SHA (shareholder agreement).
2021: The best year for fundraising — ten times more money was raised globally than in 2013. Quick money for ideas through party rounds with checks of $10K-$50K. Investment arrangements via SAFE within a few days without lawyers. Large rounds, inflated valuations, and spoiled founders. More details about SAFE and party rounds below.
2022-2023: Everything went downhill. The competition is off the charts, the entry barrier for startups after the Gen AI revolution has plummeted. It’s becoming increasingly difficult for ordinary people to reach investors. Investors are more demanding. Valuations are falling. I’ll explain why this happened and what founders should do next.
I don’t want to dwell on the past, so I’ll move on to the present — what’s good and bad in today’s fundraising. And most importantly — how to raise money today.
Let’s start with the good news. SAFE and Party rounds are the best things to happen to startups in recent years. SAFE (Simple Agreement for Future Equity) is a standard investor agreement for early-stage startups. You can download it from the Y Combinator website, send it to an investor, and get money within a few days. That’s it! No lawyers, no edits, no complex terms. "...for future equity" in SAFE means that the startup doesn’t give the investor equity at the moment of signing and receiving money. It promises to give it later, once it’s clear the startup hasn’t failed. If it does fail, no one owes anything to anyone. The logic here is simple: why waste time, money, and energy negotiating terms and issuing shares when only ~10% of startups survive to Series A? It’s better for the startup to focus on its business. If things go according to plan, SAFE converts into shares in Series A. Investing under SAFE is a big risk for the investor, and it should be compensated. SAFE agreements include Valuation Cap, Discount, or both.
How it works in practice:
In one of my investments, I entered a startup through a SAFE with a cap of $8M. I signed the agreement half an hour after the call and sent my $50K the next day. A little over a year later, the startup raised a Series A round at a valuation of $70M+ from a major fund (just to clarify — this is unusually fast and impressive). On the day the Series A round closed, I received my share package, calculated at the $8M valuation, which amounted to roughly 0.5% after dilution post-round. In total, I spent 45 minutes on calls, discussions, and bureaucracy. For those curious about the outcome: a few years later, the startup shut down, so I didn’t make any money. That happens too.
There’s also SAFE with a Discount. The principle is the same, but instead of a Valuation Cap, the startup gives the investor a discount relative to the valuation in the Series A round. If the discount is 50%, the early investor gets their share at a valuation half that of the Series A investors.
The third and rarest option is the MFN SAFE (Most Favored Nation) or no cap, no discount SAFE. It’s not very advantageous for the investor because the share will be calculated at the same valuation as the Series A investors. In other words, there’s no bonus for the risk taken. MFN SAFE is the prerogative of very successful startups. For example, in YC, startups sometimes raise money before Demo Day and then offer investors MFN SAFE at Demo Day. For investors, it’s a chance to hop on the train that’s already left the station... although at the valuation of the next round.
As you’ve probably realized, the main advantage of SAFE is that it simplifies closing a round. In 2013, we spent six months and $30K just to sign all the documents for our pre-seed in Getintent. We spent a long time discussing terms: how we would manage the company, what would require investor approval, what they had veto rights on, and how voting would work on different types of decisions. In 2021, I was receiving money on average a week after the call, and investors had no control.
Now about party rounds:
SAFE not only simplified the logistics but also made it possible for anyone with a few thousand dollars to invest: startups are often willing to take checks for $1-5K.
Since investing is now easy and accessible, party rounds are becoming popular. Instead of $1M from one VC fund, a founder raises the same million with small checks from friends, acquaintances, and other founders. Often, this turns out to be faster. Small investors, like me, won’t send their analysts and conduct due diligence. We have a call, like what we hear, sign, and transfer the funds.
For example, in Hints, I received the first $500K from ten people in my network with checks ranging from $10K to $70K. It took three months. Then, a few larger checks from funds came in. I’ll discuss what to do if you don’t have your network later.
Another advantage of SAFE is flexibility. You don’t have to stick to formal rounds. You can raise $30K from friends to get things moving, raise $100K for an MVP three months later, take a pause, and then raise another $500K six months later with a higher cap once you have something to show.
In Hints, I raised $2.5M over 12 months, increasing the valuation cap three times along the way. I started at $6M, then $10M, $12M, and finally $15M. I later announced all the raised funds on Crunchbase as one Seed Round. I had a friend who announced a $5M seed, and I was a bit envious. It turned out that he had raised that money over two years through SAFEs.
You can continue raising with SAFEs as long as investors are willing to accept them. But eventually, a successful startup starts looking for a serious round for scaling. Writing a $10-15M check under a SAFE becomes uncomfortable. The risk is too high, so the fund wants more control. An SHA is signed, the investor immediately receives their shares, and a board of directors is formed. This is called a priced round. At this point, all previous SAFEs convert into shares.
There is criticism of prolonged party rounds. It’s believed that it’s better to allocate 3-4 months for intense fundraising to close the matter at once and not be distracted. I completely agree with this, but I don’t know how to implement it in practice. I couldn’t avoid focusing on product, marketing, and the team. So I would raise part of the money, work for 2-3 months, then return to fundraising and raise more. Even now, when we’re not actively raising, I continue to communicate with investors and occasionally raise small checks.
To summarize, SAFE + party rounds have simplified the closing process. But before closing, you still need to find investors and sell yourself well. This has become more challenging.
The recent AI revolution + a massive number of cool no-code platforms have lowered the entry barrier for startups. Technical solutions that previously required an experienced team and a year to build are now assembled on n8n, LangChain, and GPT in a month without any programming skills. Technical expertise is no longer a competitive advantage.
Reality experienced firsthand:
We spent six months developing the first version of Hints (an AI assistant for managing Notion, ClickUp, Trello, etc. via text and voice) with an experienced team before GPT came along. Today, an indie hacker could build the same product in a couple of months.
As a result, the number of startups has increased significantly, and competition has skyrocketed. If three years ago there were 10-20 startups working on a similar idea alongside you, today there will be 100-200.
Investors can’t tell what differentiates these startups. They’re more interested in your unique insights about the market and customers rather than the technology and engineering team.
There’s a great question in the Y Combinator application: “What do you understand about your business that your competitors don't?” If the startup isn’t a continuation of your career, where you’ve deeply understood the market’s problems, it will be challenging.
You can always jump into a new market (as I did), but be prepared for it to take a couple of years just to figure out what’s what. A favorite startup metaphor is that to catch a wave, you need to already be in the ocean. If you see the wave from the shore and start swimming, someone else will catch it.
The role of distribution has become even more crucial. VCs need more evidence that you can sell and know how to scale sales. The days of pitching like, “We have a great product, here’s the market, here’s the segment, here’s the problem, give us money, we’ll hire salespeople, and start selling,” are over. Today, a typical pitch is 30% about the market, problem, and product, and 70% about distribution: how you will sell, what you’ve tried, what’s already working, and how you will scale it.
At the same time, it’s not necessary to show significant revenue. I pitched Hints to Insight Partners. It was premature — they only invest in later rounds. At that time, we had $6K MRR. We agreed to have another call “when we are ready to scale.” For them, this meant: a clearly calculated market size (not random 5% of a round number found on Google) + several honest tests (no friends or fabrications), showing the speed at which we can close deals and the average check. Plus, another six months to a year to measure and analyze churn. With this data, the potential becomes clear.
By the way, George Levin has his own newsletter about startups called Founder’s Dance