Hackernoon logoWhat Does “There Is No Magic Number” Mean? by@Outset_Data

What Does “There Is No Magic Number” Mean?

Founders, if you’ve ever tried to raise any amount of capital you’ve asked the question, “What are you looking for in terms of traction?”. You’ve probably received this answer. It’s possibly the most frustrating response during the funding process. It’s identical to hearing, “Let’s just be friends,” from that person you’re interested in.

So let’s dissect the TINMN response, understand what it means in its most basic forms and understand why founders should run from any “investor” that says TINMN.

Is That My Shadow Investor: I don’t like making decisions and I really don’t want to put my money at risk. I don’t like the return on bonds and my house is about all the real estate I care to own so I call myself an angel investor, but the truth is I’m too afraid to pull the trigger. If you actually saw my entire financial picture you’d know that most of my money is cash in the bank earning .15% annually, but angel investor sounds way cooler. Why don’t you call me when you’re at $25K MRR and I know there is a 95% chance of a good business here. My actual portfolio returns from the 5 companies I’ll eventually decide to invest in will be similar to what I would have received in the stock market over a 10 year period, but again angel investor sounds WAY cooler. You understand, I’m sure.

The Brovestor: I only invest in people that I like or dudes I can go clubbing with, really. I’m actually very lonely and really want friends. Giving money seems to be the only way I can accomplish that so if you were in my fraternity in college drop me a note and I’ll take a look at your oppty. Wooo-YEAH! This is going to be a home run. Hit me up top, BRO!

The Smart GP: I can’t look stupid to my limited partners so I keep as many plates spinning as possible. Really the only way your plate ever falls off is if you go out of business. I will talk to you as early as $10K MRR, but won’t actually invest until you’re closer to $150K. You won’t really need me at $150K MRR, but hopefully you’ll feel obligated to me since I’ve been courting you for so long. If we miss each other at $150K and you turn into a unicorn I will either pretend we never spoke or write a Medium article about why I passed on your round, how stupid I was and how I will never do that again. Unfortunately, because I have so many plates spinning in an attempt to not look stupid I can’t spend the requisite time on future opportunities and will eventually miss many other great businesses. But my “Ignore or Medium” strategy will suffice when that inevitable outcome transpires.

The Waffling Investor: I have no repeatable investment process. I have no real thesis or reason I want to invest. I am either too new to this angel investing thing or I’m simply all over the place because I have no idea what works. My hit rate has been roughly 5% which means I’m net negative, a lot. In either case all I can offer is money so don’t expect any other help from me. But I might ask for a board seat so that I can pretend to add value above my funding because I won’t commit too much capital. I will annoy and distract you from your building of the company as I flail around trying to find my own way. This is going to be a great relationship.

Of course the above mentioned investor types are a caricature, but in reality an investor that doesn’t play games will tell you some variation of the following when asked the Magic Number question, “I like to be first money in after founders as long as you have $5-$15K MRR. It’s okay if your LTV:CAC is out of whack right now, we can work on that. As long as you can convince me how you’re unit economics will eventually work out, we’re cool. I want you to just now be starting to figure out your initial repeatable sales process. You’ll use my money to really hammer that initial process and work on building others.”

The fact of the matter is if you hear TINMN it’s not a good. It means you have a high likelihood of getting strung along for some undisclosed period of time. It means the investor is looking for an out if they don’t like you or for an in if they want to get a free look at your growth. Your job as a founder is to create a sense of urgency in order to close your round and that sense of urgency can’t exist when the investor has an unlimited free pass.

Next time you hear “There is no magic number,” you say “NEXT,” because there is always a magic number, it’s why deals get done. Anyone who tells you otherwise is either not intuitive enough to understand this or dishonest. Truthfully, you don’t want either of those kinds of personalities involved in your company.

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