Fundraising Is the Second Hardest Thing in a Startup: Don't Let It Kill Your Company | 9 Survival Rules

十字路口Crossing·September 12, 2026·0·0

Paul Graham's 9 Survival Rules for Founders

Editor's Note from Crossing (Koji)

This essay, A Fundraising Survival Guide, is a classic piece Paul Graham wrote in August 2008.

Honestly, when I first read it years ago, I mostly treated it as a "startup playbook." Re-reading it after becoming a venture partner at ZhenFund, the experience is completely different — sitting on the other side of the table, you realize that nearly every point PG makes maps to real cases in the field: the "randomness" of investors, "deals fall through," founders getting their full attention sucked dry by fundraising... You also better understand his line that most investors have no idea how "dangerous" they are to startups.

Another thing I want to specifically highlight is PG's almost magical assessment of Sam Altman in the essay:

Sam Altman has a quality that's very rare in an entrepreneur. You could drop him on an island full of cannibals and come back in five years and he'd be the king.

He wrote this in 2008. Looking at Sam and the OpenAI story today, this "prophecy" gives you chills. What PG is really saying: investors ultimately bet not on intelligence, not on the idea, but on resilience, adaptability, and determination — the "I'll make it happen whether you invest or not" quality.

Original: A Fundraising Survival Guide - Paul Graham[1] 🚥

Raising money is the second hardest part of starting a startup.

The hardest is making something people want: most startups that die, die because they didn't do that.

The second biggest cause of death is probably how hard it is to raise money.

Fundraising is brutal.

One reason it's brutal is that the market is brutal. People who've spent most of their lives in schools or big companies may never have experienced this.

Professors and bosses generally feel some sense of responsibility toward you; if you try hard and fail, they'll cut you some slack.

The market is less forgiving. Customers don't care how hard you tried, only whether you solved their problem.

Investors evaluate startups more like customers evaluate products than bosses evaluate employees.

If you're trying valiantly and failing, maybe they'll invest in your next startup, but not this one.

But raising money from investors is harder than selling to customers, because there are so few of them.

There's no real market here. There are probably at most ten investors who'd be interested in you, and you can't approach more than that.

So the randomness of any one investor's behavior has real consequences for you.

Problem number three: investors are very random. All investors — including us (editor's note: Y Combinator) — are incompetent by ordinary standards.

We have to make decisions constantly about things we don't understand, and we often get them wrong.

And yet the stakes are large.

Different types of investors invest amounts ranging from five thousand to fifty million dollars, but in each case it's usually a large sum relative to that type of investor.

Investment decisions are big decisions.

"Making big decisions about things you don't understand" — this combination makes investors very timid. VCs are notorious for stringing founders along.

Some of the less scrupulous do it deliberately.

But even the most well-meaning investors behave in ways that would seem insane in everyday life.

One day they're full of enthusiasm, seemingly about to write you a check on the spot; the next they won't return your calls.

They're not playing games with you; they just can't make up their minds.[1]

As if that weren't bad enough: these dramatic swings are all connected.

Startup investors all know each other, and (though they don't like to admit it) the biggest factor in their opinion of you is the opinion of other investors.[2]

This is the perfect recipe for an unstable system. You get the opposite of the damping effect that normally stabilizes the fear/greed balance in markets.

No one becomes interested in a startup because it's "cheap" (i.e. because everyone else has rejected it).

So the inefficient market created by too few players is further degraded by the fact that they don't act independently.

The result is a system like some primitive multicellular sea creature: you poke one end and the whole organism flinches violently.

Y Combinator (editor's note: YC for short, a startup accelerator founded by Paul Graham and others in 2005, known for small early-stage investments, intensive coaching, and Demo Day) is trying to fix this. As we increase the number of startups, we're also trying to increase the number of investors.

We hope that as both numbers grow, the market will become more like an efficient market. As t approaches infinity, Demo Day approaches an auction.

Unfortunately, t is still a long way from infinity. In our imperfect present world, what should startups do? The most important thing:

Don't let fundraising crush you. The life of a startup depends on morale.

If you let the difficulty of fundraising destroy your morale, it will become a self-fulfilling prophecy.

Bootstrapping

(Editor's note: Bootstrapping, in plain terms, means not taking outside investment and mainly relying on the founders' savings and what the company earns itself to gradually grow the business.)

Some prospective founders reading this may be thinking: why deal with investors at all?

If fundraising is so painful, why bother?

The obvious answer is: because you need money to survive.

Living off your company's own revenue is in principle a good idea, but you can't conjure customers out of thin air.

Whatever you make, you have to sell a certain amount to break even.

Getting sales to that level takes time, and it's hard to predict how long before you actually try.

For example, Viaweb (editor's note: the e-commerce site-building software company Paul Graham founded in 1995, letting merchants build their own stores online; acquired by Yahoo in 1998, later becoming Yahoo Store) couldn't have survived by bootstrapping.

Our software wasn't cheap — about $140 per user per month — but it would have taken at least a year for our revenue to cover our meager costs.

And our savings wouldn't have lasted a year.

If you eliminate "bootstrapped" companies that are actually being supported by the founders' savings or full-time jobs, the remainder are either:

(a) unusually lucky — which is hard to replicate on demand;

or (b) companies that started as consultancies and gradually transformed into product companies.

Consulting is the only option you can count on. But consulting is far from free money.

It may not be as painful as raising money from investors, but the pain is spread over a longer period — probably years.

And for many types of startups, this delay could be fatal.

If you're making something sufficiently unique that others are unlikely to think of, you can take your time.

Joshua Schachter built Delicious (editor's note: a social bookmarking site born in 2003, letting users save, tag, and share web links; later acquired by Yahoo) bit by bit while working on Wall Street.

He got away with it because no one else realized it was a good idea.

But if you were doing something obviously necessary like store software around the same time as Viaweb, and spending most of your time on client projects while only working on your product in your spare time, you'd be in trouble.

Bootstrapping sounds beautiful, but few startups make it out alive from this seemingly fertile land.

The very fact that "bootstrapped companies that succeeded tend to become famous" should set off alarm bells.

If it really worked so well, it would already be the norm.[3]

Bootstrapping may become easier as the cost of starting a startup falls.

But I don't think we'll ever reach a day when most startups don't need outside money.

Technology tends to get dramatically cheaper, but the cost of living doesn't.

The conclusion: you can choose your pain — either the short, sharp pain of fundraising, or the chronic, low-grade pain of consulting.

Given equal total pain, fundraising is the better choice, because new technology is usually worth more "now" than "later."

Still, though fundraising is the lesser evil for most startups, it's still a considerable evil — considerable enough to easily kill you.

Not just in the obvious sense that you might have to shut down if you can't raise money;

but the process of fundraising itself can kill you.

To survive it, you need skills that are largely orthogonal to "convincing investors" — just as mountaineers need survival skills largely orthogonal to the actual climbing up and down.

1. Lower your expectations.

Fundraising crushes the morale of so many startups not just because it's hard, but because it's much harder than they expected.

What really kills you is disappointment. And the lower your expectations, the harder it is to be disappointed.

Founders tend to be optimistic.

This sometimes works in technology, but it's wrong to apply it to fundraising.

It's better to assume investors will always let you down. Acquirers too, by the way.

At YC, one of our secondary mottos is "Deals fall through."

Whatever deal you have in progress, assume it will fall through.

This simple rule has surprising predictive power.

As a deal progresses, you'll tend to start believing it will happen, and then start depending on it happening.

You must resist this. Tie yourself to the mast. That's what kills you.

Deals don't progress like most other human interactions, where mutual plans solidify linearly over time.

Deals often fall through at the last minute.

The other side often doesn't really figure out what they want until the last minute.

So don't treat an investor's expressed interest as the kind of commitment that naturally gets fulfilled in everyday life; before the money is actually in the bank, any "agreed" deal can be canceled at any time.

When negotiating, you have to consciously turn off these intuitions and become pathologically cynical.

This is easier said than done.

When a well-known VC seems interested, it feels very validating.

It's easy to start believing fundraising will be quick and smooth.

But it almost never is.

2. Keep working on your company.

"Keep working on your company during fundraising" sounds like a tautology.

In practice it's very hard.

Most startups don't manage it.

Fundraising has a mysterious ability to drain all your attention.

Even if you have only one investor meeting a day, that one meeting will burn your whole day.

It consumes not just the meeting time itself, but travel time, pre-meeting preparation, and post-meeting rumination.

The best way to survive investor meeting interference may be to "compartmentalize" the company:

Pick one founder to handle investors, while the others keep the company running.

This works better with 3 founders than 2; it also works better when the company's leader isn't also the lead developer.

At best, the company can still move forward at about half speed.

But that's the best case.

More commonly, the company grinds to a complete halt during fundraising. This is dangerous on too many levels.

Fundraising always takes longer than you expect. What seems like a 2-week interruption becomes a 4-month interruption.

This is very demoralizing.

Worse, it makes you less attractive to investors.

They want to invest in companies with "momentum."

A company with no new developments for 4 months looks like it has no momentum, so they start losing interest.

Investors rarely realize this: when they lose interest in a startup, much of what they're sensing is damage caused by their own indecision.

The solution: put the company first.

Squeeze investor meetings into the gaps in your development schedule, not development into the gaps between investor meetings.

If you can keep the company moving forward — shipping new features, growing traffic, closing partnerships, getting press coverage — those investor meetings are more likely to be productive.

Not just because your company looks more alive, but because it's better for your own morale, and morale is one of the main dimensions investors judge you on.

3. Be conservative.

The worse things are, the more conservative your optimal strategy. When the wind is at your back, you can take risks; when it's in your face, you want to play it safe.

I recommend treating fundraising as if it "always goes badly."

The reason: given your ability to deceive yourself, plus the extreme instability of the system you're facing, things are probably already, or could easily become, much worse than they appear.

What I tell most of the startups we fund:

If someone reputable offers you money on reasonable terms, take it.

Some startups ignore this advice and get away with it — they pass up a decent offer to get a better one, and actually get it.

But I'd give the same advice again if I were in their position.

Who knows how many bullets were in that game of Russian roulette they were playing?

Corollary: if an investor shows interest, don't leave them hanging.

You can't assume someone with investment intent will remain interested.

In fact, until you try to convert that interest into actual money, you can't tell (and they can't tell) whether they're really interested.

So if you have a hot prospect, either close now, or cross them off.

And as long as you haven't raised enough money, this simplifies to one rule: close now.

Startups don't win with beautiful funding rounds; they win by making great products.

So get the money raised and get back to work.

Stay flexible.

VCs ask two questions you shouldn't answer:

"Who else are you talking to?"

And "How much are you trying to raise?"

For the first, VCs don't expect you to answer; they ask just in case.[4]

For the second, they seem to expect an answer.

But I don't think you should name a fixed amount.

Not to play games with them, but because you shouldn't have a fixed amount in the first place.

"The startup needs a fixed amount of money" is an obsolete custom, left over from when startups were more expensive.

A company that needs to build a factory or hire 50 people obviously needs to raise some minimum amount.

But few tech startups are in that position today.

We advise startups to tell investors that depending on how much they raise, they have several different paths.

$50,000 is enough for the founders' food and lodging for a year.

Two or three hundred thousand lets them rent an office and hire a few smart people they know from school.

Two or three million lets them really go for it.

The message (and not just the message, but the fact) should be:

We'll succeed no matter what; more money just makes us succeed faster. If you're raising an angel round, the round size can even change on the fly.

In fact, it's better to start with a small round and expand it as needed, rather than trying to raise one big round and losing existing investors because you couldn't fill it.

You can even do a "rolling close": the round has no predetermined size, and as investors commit, you sell them equity.

This helps break deadlocks, because as soon as the first person is ready to put in money, you can start.[5]

Stay independent.

A startup with two twenty-something founders can be profitable on as little as $2,000 per month in expenses.

By company revenue standards this is trivial, but its effect on your morale and negotiating position is far from trivial.

At YC, we use "ramen profitable" to describe the state of just barely making enough to live on. (Editor's note: Here "ramen" isn't a business model, but a minimum survival line — the company's revenue just covers the founders' rent, ramen, and other basic living expenses, so they don't have to fundraind immediately just to survive next month.)

Once you cross the ramen profitable line, everything changes.

You may still need investment to grow big, but you don't need it this month.

At the start of a startup, you can't plan how long it will take to become profitable.

But if you find yourself in a position where a little more effort on sales would get you across the ramen profitability threshold — do it.

Investors love ramen profitability.

It shows you've thought seriously about making money, not just playing with interesting technical problems;

it shows you have the discipline to control expenses;

but most importantly, it means you don't need them.

Nothing makes investors love a startup more than one that looks like it will succeed without them.

Investors like companies they can help, but not companies that will die without that help.

At YC, we spend a lot of time trying to predict what will happen to the companies we fund, because we want to learn to pick winners.

Having seen so many startup trajectories, our predictions are getting more accurate.

When we talk about companies we think might succeed, we find ourselves saying "oh, those people can take care of themselves, they'll be fine," not "those people are really smart" or "those people have a great idea."[6]

When we predict a company will do well, the qualities that keep coming up in our reasoning are: resilience, adaptability, determination.

So if our predictions are right, these are the qualities you need to win.

Investors know this, at least subconsciously.

They like "you don't need them" not just because people always want what they can't have, but because this quality is precisely what makes founders succeed.

Sam Altman[2]** has this quality.**

You could drop him on an island full of cannibals and come back in five years and he'd be the king.

If you're Sam Altman, you don't need to be profitable to convince investors you'll succeed with or without them.

(Editor's note: This essay was written in 2008, when Sam Altman was still CEO of the startup Loopt. Loopt was a YC 2005 inaugural project, a location-based social mobile app. When PG says "he did it," he means Sam had already convinced investors that whether or not he got this particular check, he would keep building the company.)

Not everyone has Sam's deal-making ability. I certainly don't.

But if you don't, you can let the numbers speak for you.

Don't take rejection personally.

Being rejected by investors makes you start doubting yourself.

After all, they have more experience than you.

If they think your company won't work, they're probably right, aren't they?

Maybe yes, maybe no.

The right way to handle rejection is to be "precise."

You shouldn't simply ignore rejection — it may indicate something.

But you shouldn't automatically be crushed either.

To understand what rejection means, you first have to understand how common it is. Statistically, an ordinary VC is a rejection machine. David Hornik, a partner at August Capital (editor's note: a US tech venture capital firm founded in 1995, focusing on early-stage startups), told me:

For me, the numbers are roughly: I receive and read 500 to 800 business plans a year, have 50 to 100 one-hour initial meetings, develop interest in about 20 companies, do serious due diligence on about 5, and ultimately do 1 to 2 deals a year. So the odds are against you. You may be a great entrepreneur doing interesting things, etc., but the probability of you getting investment is still shockingly low.

Angel investors are better on this front, but VCs reject almost everyone.

Their business structure dictates that a partner can make at most 2 new investments per year, no matter how many good companies come their way.

Beyond the bad odds, as I said, ordinary investors are pretty bad "judges of startups."

Judging startups is harder than judging most other things because:

Great startup ideas usually look wrong.

A good startup idea must be both good and new.

And to be both good and new, it probably has to seem like a bad idea to most people — otherwise someone would already be doing it, and it wouldn't be new.

This makes judging startups harder than most things people normally judge.

You have to be an intellectual contrarian to be a good startup investor.

This is a problem for VCs: most of them aren't particularly imaginative.

Most VCs are money people, not makers.[7]

Angel investors are better at appreciating novel ideas because most of them have been founders themselves.

So when you get a rejection, use whatever real data is in it, and don't imagine data that isn't there.

If an investor gives a specific reason for not investing, look back at your company and ask if they're right.

If it's a real problem, fix it.

But don't accept everything wholesale.

You should be the expert in this domain; the decision is yours.

While a single rejection may not indicate anything about your company, it does suggest your pitch has room for improvement.

Figure out what went wrong and fix it.

Don't just think "investors are stupid."

They often are, but you need to pinpoint: where exactly did you lose them?

Don't let rejections pile up into a demoralizing, chaotic garbage heap.

Categorize them, analyze them.

Then instead of thinking "no one likes us," you'll know precisely how big your problem is and what to do about it.

(If appropriate) Be able to downshift to consulting.

As mentioned, using consulting to fund a startup is dangerous.

But it's better than dying.

It's somewhat like anaerobic respiration: not optimal long-term, but it can save you in a pinch.

If you absolutely can't raise money, being able to pivot to consulting might save you.

This works better for some startups than others.

It wouldn't have been very natural for Google, for example;

but if your company makes site-building software, you can fairly respectably downshift to consulting — building sites for clients using your own software.

As long as you're careful not to get permanently sucked into the consulting business, this can even be beneficial.

Using your software on behalf of users, you learn about users very deeply.

And as a consultancy, you might land some big-name users you couldn't get as a product company.

At Viaweb, we were forced to operate somewhat like consultants at first because we were so desperate for users:

we actively offered to build stores for any merchant who would sign up.

But we never charged for this work, because we didn't want them to think of us as real consultants who they could call every time they wanted to change something.

We knew we had to remain a product company, because only products scale.

Avoid inexperienced investors.

Though novice investors seem harmless, they can be the most dangerous kind, because they're so nervous — especially relative to the amount they're investing.

Raising $20,000 from a first-time angel can be as much work as raising $2 million from a VC fund.

Their lawyers are usually inexperienced too.

But while an investor can admit they don't know what they're doing, a lawyer can't.

One YC company had agreed on terms for a small round with an angel, then received a 70-page agreement from the angel's lawyer.

Since this lawyer couldn't admit to his client that he'd screwed up, he had to insist on keeping all the onerous terms, and the deal fell through.

Of course, someone has to take money from new investors, or there would never be "experienced investors."

But if you do, either:

(a) you drive the whole process, including providing the documents[3];

or (b) you only use them to fill out a larger round led by someone else.

Know where you stand.

The most dangerous thing about investors is their indecision.

The worst case is the "long no" — the no that comes after months of meetings.

Investor rejections are like design flaws: inevitable, but the earlier you find them, the cheaper they are.

So throughout your conversations with investors, constantly look for signals about where you stand.

How likely are they to give you a term sheet?

What do they still need to be convinced of?

You don't always have to ask these questions directly — that gets annoying — but you should always be collecting data about them.

Investors tend to resist committing unless you push them.

It's in their interest to collect the most information while making the fewest decisions.

The best way to force their hand is, of course, competing investors.

But you can also apply some pressure by focusing the discussion: ask what specific questions they need answered to make up their minds, then answer them one by one.

If you clear several hurdles and they keep setting new ones, assume they're eventually going to flake on you.

You must be disciplined in collecting investor intent data.

Otherwise, their desire to "keep you warm" and your willingness to be kept warm will collude to produce a completely distorted picture.

Weight your strategy with this data.

You're probably talking to several investors at once.

Focus your energy on those most likely to say yes.

The value of a prospective investor is a combination of "how good it would be if they said yes" and "how likely they are to say yes," and you should weight the second factor more heavily.

Partly because the most important quality in an investor is "actually investing";

partly because, as I said, the biggest factor in investors' opinion of you is other investors' opinion of you.

If you're talking to several investors and manage to get one across the yes threshold, the others will immediately become much more interested.

So focusing on enthusiastic investors isn't sacrificing the lukewarm ones — convincing the enthusiastic ones is the best way to convince the lukewarm ones.

The Future

I hope things won't always be this awkward.

I hope that as starting a startup becomes cheaper and the number of investors increases, fundraising will become if not easier, at least more straightforward.

In the meantime, the brokenness of the fundraising process presents a huge opportunity.

Most investors don't know how dangerous they are.

They'd be surprised to hear that raising money from them is something that has to be treated as a survival threat to the company.

They just feel like they need a little more information to make up their minds.

They don't realize that there are 10 other investors who also want "a little more information," and that the process of talking to all of them can shut a startup down for months.

Because investors don't understand the cost of dealing with them, they don't realize what an opportunity there is for new investors or new funds that decide faster to steal the best deals from them.

I know from my own experience how fast investor decisions can be, because we've compressed our own decision time to 20 minutes (5 minutes reading the application + 10 minutes interview + 5 minutes discussion).

If you're investing more money, of course you'd want to take longer.

But if we can decide in 20 minutes, do others really need more than a few days?

This opportunity won't sit unused forever, even in as conservative an industry as venture capital.

So either existing investors start deciding faster, or new investors who decide faster will emerge.

In the meantime, founders have to treat fundraising as a dangerous process.

Fortunately, the biggest danger I can fix right here.

The biggest danger is "surprise" — startups underestimate how hard fundraising will be:

They sail through all the previous challenges, but when they turn to fundraising, they find it unexpectedly hard, then their morale collapses and they give up. So I'm telling you in advance: fundraising is hard.

Notes

[1] When investors can't make up their minds, they sometimes frame this as an attribute of the startup. "You're too early for us," they sometimes say. But if they could travel back in time to the hour Google was founded, which of them wouldn't have invested at any valuation the founders named? The right company is never too early, even an hour after it's founded. "You're too early" really means "we can't yet tell if you'll succeed."

[2] The influence among investors is both direct and indirect. Direct influence comes from the "buzz" around hot companies. But they also influence each other through the founder: when many investors are interested in you, your confidence rises, and this makes you more attractive to investors. No VC will admit to being influenced by buzz. Some genuinely aren't. But few would dare claim they're not influenced by "confidence."

[3] A VC who read this essay wrote: "We try to avoid companies that bootstrapped themselves through consulting. It creates very bad habits/instincts that are hard to erase from company culture."

[4] The optimal way to answer the first question is: indicate that naming names would be improper, while simultaneously implying you're talking to a bunch of VCs who are about to give you term sheets. If you're the kind of person who knows how to do this, go ahead. If not, don't try. Nothing annoys VCs more than clumsy attempts at manipulation.

[5] The downside of expanding the round on the fly is that the valuation is set from the start, so if interest suddenly floods in, you may have to choose between turning away some investors and selling more of the company than you intended. Though this is a good problem to have.

[6] I'm not saying intelligence doesn't matter in startups. We're only comparing companies we've funded at YC, who've all passed some threshold.

[7] But not entirely. While most VCs are suits at heart, the most successful often aren't. Oddly, the best VCs tend to look least like VCs.