- Adeo Ressi has founded nine companies in sectors like media and technology over his 25-year career.
- In 2009, Ressi launched The Founder Institute, a business incubator and training program that has helped hundreds of startups raise angel and seed funds.
- Ressi told Business Insider that founders need to reevaluate how much time they expect the fundraising process to take, saying entrepreneurs meet with 200 investors on average.
- He also suggested that founders think about these three pillars of their business when distributing funds: hiring, product, and traction.
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Adeo Ressi has been starting and leading companies since the dotcom craze began. His first venture, Total New York, was bought for an undisclosed amount by AOL in 1997 while his second company, methodfive, a web development firm, was purchased by Xceed in 2000 for $85 million.
Since then, he has been advising entrepreneurs on how to succeed as a business owner. He sat down with Business Insider to talk fundraising, and his advice for startup founders figuring out their next moves after raising a round of funding.
Ressi explained that a lot of founders underestimate just how long the fundraising process can be. From preparing materials to actually securing and setting up the meetings, the process can take anywhere from 50% to even 100% of an entrepreneur’s time.
But he warned leaders not to get too swept away in the process.
“The worst thing that can possibly happen, and I’ve seen it happen a lot, is your fundraising starts going really well — so you’re spending more and more time fundraising — but because you’re spending more time fundraising you spend less and less time on the business, so the business starts suffering. And if your business is suffering in the middle of fundraisers, the investors can lose interest,” he explained.
When it comes to actually going to investor meetings, Ressi cautioned that “you’re going to kiss a lot of frogs to get to the prince.” While some business teams meet with as few as 100 or as many as 300 investors to get a deal, he said the average falls around 200.
“Do the process right, it pays dividends,” Ressi insisted. “When you try to shorten the process, it’s almost guaranteed to fail.”
To be as effective as possible, Ressi said entrepreneurs have to look at the whole experience, from setting up a board of governance to establishing a use of proceeds, as one prolonged action.
“Don’t compromise, don’t take the first offer you get,” he said. “Go through a thorough process all the way to conclusion and you’ll get the results you want.”
In his opinion, there are three primary spending areas that people should think about after fundraising: team, product, and traction. He broke these three categories down for Business Insider.
On the team side, it’s important to think ahead (in other words, before fundraising) about who you want to hire and what area of the business they should be involved in. If a company is still relatively small, with some employees working part time, Ressi advised that founders keep certain people in mind that they already know they want to give additional responsibility to after raising funds. Not only does this reward hard-working individuals, it reduces uncertainty around new employees and the potential stress and cost involved in acquiring new people.
“I’m a remote partner right now in a company builder that’s getting started and we’re doing exactly this,” Ressi said. “We’re raising a seed round, and as soon as that seed round is pulled together some of those members are going to join full time.”
In the same way that promoting part-time workers diminishes potential surprises, Ressi advised against utilizing funds on untested vendors when thinking about product innovation or increased order sizes. Rather than reaching out to new, outsourced developers, stick to vendors you already have valuable relationships with. Different vendors can have varying manufacturing schedules, shipping policies, and labor requirements — key variables that can impact your own business’ timeline in major ways.
Ultimately, he said, instead of worrying about how untested queries will turn out, focus on making the things that are already working “go better, smoother, [and] faster,” because that’s what investors are supporting in the first place.
Ressi also said that he looks at generating traction in the same way. In other words, keep financing what you’re already doing well.
For example, social media ads are a powerful tool to bring more eyes to a company, but they can also be an expensive distraction. It’s not that Ressi expects companies he’s investing in to have everything completely figured out, but he wants people to already be aware of how tools work to their advantage before investing significant funds in them.
“If someone says ‘Hey, I don’t really know what’s going to happen with Facebook ads, but I’m going to do some experimenting,’ I certainly wouldn’t want to see a use of proceeds from my money that has 50% allocated to speculative investments like that.”
More than anything else, he strongly suggested entrepreneurs avoid expenses that feel like a shortcut.
“As a general rule of thumb, something that I always regret is if I spend money to accelerate growth using classic shortcut techniques,” Ressi explained. “I’m not saying that recruiters are bad, and I’m not saying consultants are bad, but if you’re doing things for shortcuts right after fundraising, that can be pretty bad.”
Reflecting on his own experiences, he counseled people to “take things a little slower when scaling right after you do a capital raise.” It’s okay to go out and hire new employees or immediately pour funds into a new feature, he explained, but it should be part of a larger, pre-existing plan that reflects the company’s central vision. No matter how important the areas of team, product, and traction are, they’re only worth spending on insofar as they help a business achieve a goal.
“Of course you’re going to hire people, of course you’re going to work on product and work on traction, that’s obvious, but you’re doing all of that in service of a business objective,” he said.
No matter how convoluted or complex a business may seem, Ressi believes most enterprises — whether they produce hardware, software, or services — can be boiled down to unit economics.
Using the unit economic model, business leaders can break down their company and all of its processes into a series of simple assumptions and comprehensible units. Doing this enables entrepreneurs to have a better understanding of complex information like per-customer costs and the break-even point. While companies in different sectors have various factors to consider while assessing their business, the goal is to understand exactly what area of a business needs improvement.
With simple questions in mind like, “How much does it cost to acquire a customer, and what is their lifetime value?” entrepreneurs can determine what processes are working and which need fine tuning. Comparing it to pouring gasoline into a thriving engine, Ressi said the best thing entrepreneurs can do is “take money to fund a well-known unit economic model.”
“Demystifying that unit economic model is the difference between a smart use of proceeds and a bad use of proceeds,” Ressi told Business Insider. “The job of a founder is to remove as much uncertainty from that unit economic model for whatever the business is.”
Nick Kazden is a freelance reporter who covers everything from pop culture to politics. A graduate from UC Santa Cruz, he studied politics and history with a focus on American political institutions and 20th century authoritarianism. His writing can be seen in High Times, MTV, Wired, Vibe, and more.