Here are the first 2 chapters of my upcoming book.

THE FUNDABLE FOUNDER:

11 Competencies to Raise Early-Stage Funding for Your Startup

By Ed Kang

CHAPTER 1

Why This Book Is Your Guide

The journey of a startup founder is an exhilarating adventure—bringing new ideas to life, solving real-world challenges, and making a meaningful impact. Every entrepreneur should experience the excitement of launching a startup. However, raising capital can be particularly difficult for first-time founders pursuing early-stage funding.

While most founders focus on pitching their companies to secure funds, I recommend a different strategy: raise capital by showcasing your competence. Early-stage investors are betting on founders, not just companies, because they expect iterations and pivots. This makes your competence a critical factor.

Being competent makes you fundable, regardless of whether you currently need funding. Competence is what unlocks investment for founders at the early stages. Those further along in their journey have already proven this to some degree, but competence is the key to gaining investor trust for newcomers.

I want to empower you to take control of your fundraising. Don’t wait until you feel “ready” to approach investors—start the conversation as early as possible, just as you would with prospective customers. While this proactive approach may feel daunting, it carries distinct advantages. By engaging investors early, you can sharpen your pitch, build valuable relationships, and gather vital feedback to improve your chances of securing funding when needed.

Why Competence Matters Most

Competence isn’t just about having all the correct answers; it’s about proving your ability to develop them. It’s about showcasing your skills, mindset, and adaptability to navigate challenges and pivot when needed. Raising funds based on competence means showing investors that you—the founder—can be trusted with their capital, no matter how your company evolves.

In the early stages, investors are betting on you. They know your product will likely change, and your market assumptions may shift. They’re investing in your ability to navigate volatility, uncertainty, complexity, and ambiguity (VUCA) while working toward your vision. Your competence will stand out, providing investors the confidence to support you.

Stop Waiting and Start Engaging Investors

Don’t delay engaging with investors. Early conversations are essential for securing funding and refining your vision and strategy. Think of investors as part of your extended team. Engaging with them early offers valuable insights into their expectations and concerns, helping you adjust your approach. Approach this process iteratively, much like you would with customer feedback when improving your product.

Remember, a competent founder is a fundable founder. When you effectively demonstrate your competence, investors will come to you.

A New Approach to Fundraising

This book presents an approach to fundraising centered on competence. It covers 11 essential competencies that define what it means to be a successful founder. These skills will equip you to understand your market, build a compelling vision, demonstrate progress, and effectively manage investor relationships.

By mastering these competencies, you might achieve enough early success and revenue that immediate funding becomes unnecessary, putting you in a powerful position. The best time to raise capital is when you don’t need it.

Each chapter delves into one specific competency, outlining its importance, when it applies, how to develop it, and who can support you. By the end, you’ll clearly understand what it takes to be a fundable founder and how to position yourself for long-term success.

The competencies are:

1. Action Research (Lean Methodology): Continuously iterate on ideas and validate them through real-world experimentation to make data-driven decisions.

2. Contextual Execution: Adapt and execute effectively across different stages of your startup by understanding each stage’s unique demands.

3. Working for Change: Use change management principles to guide customers through periods of change and ensure your startup adapts and thrives.

4. Systems Hacking: Create shortcuts to performance by understanding and optimizing the interrelated components of complex systems.

5. Executive Presence: Inspire teams, attract investors, and build trust with stakeholders through self-awareness, authenticity, and projecting confidence.

6. Relationship Management: Build and nurture productive, mutually beneficial relationships with team members, customers, investors, partners, and other stakeholders

7. Culture Leadership: Proactively create and shape your startup’s culture, setting the tone, values, and behaviors that define your environment.

8. Diversity, Inclusion, Equality, and Equity (DIEE): Create an inclusive environment that values and respects diversity, leading to more innovative solutions and a stronger company.

9. Team Processes: Facilitate effective teamwork, communication, and collaboration to create high-performing teams that drive your startup’s success.

10. Rapid Theory and Application: Develop and test new theories quickly, learn from outcomes, and iterate to stay agile and innovative.

11. Lifelong Learning and Growing: Maintain a mindset of continuous improvement and personal development to evolve as a leader and innovator.

Leveraging My Experience for Your Success

As a seven-time funded founder with two successful exits, I’ve repeatedly navigated the complex startup landscape. Over the years, I’ve raised over $100 million for startups and a venture fund, and as Chief Strategy Officer at Startups.com, I’ve had the privilege of advising thousands of founders. Our team has collectively helped startups raise over $750 million in funding.

My experience extends globally, from working with clients and a startup portfolio in China to running a venture studio in North America. My YouTube channel (@edkang99), which focuses on startups, inspired me to write this book.

The core competencies in this book are deeply influenced by Dr. Mee-Yan Cheung-Judge’s work with her startup, The OD App. Before her passing, I had two transformative sessions with her, during which she mentored me and helped shape my career.

Dr. Cheung-Judge, a renowned “scholar-educator-practitioner” in Organization Development (OD), left a significant mark on various sectors, including the BBC, the UAE’s state multimedia organization, and the State of Singapore. Her profound impact on me as both an advisor and a person is part of the legacy this book aims to continue. 

CHAPTER 2

First Principles Thinking: The First Step to Competence

The most successful founders are those who think from first principles. I wish I had embraced this mindset sooner—it would have saved me from many avoidable mistakes and setbacks.

Back in 1997, during the height of the dot-com bubble, I launched my first startup while still in college. I met an angel investor in a class, brought on a cofounder, and eventually, a family office acquired us.

The startup landscape was uncharted territory at the time. It wasn’t until 14 years later that Eric Ries published The Lean Startup, the first startup book I read. Back then, no playbooks or resources were available to guide us.

As a startup founder today, you’re constantly bombarded with advice from all sides. The sheer volume of information—from books and blogs to podcasts and seminars—can be overwhelming. Startups have become glamorous, and being a founder, for better or worse, is now more accessible than ever. As a result, starting a startup has never been easier, though this accessibility comes with challenges.

Amid this flood of well-meaning advice, two distinct approaches to problem-solving stand out: first principles thinking and anecdotal thinking. Understanding the difference between the two is critical and can determine whether your startup journey is successful or frustrating. Adopting first-principles thinking has had the most profound impact on my journey as a founder.

First Principles Thinking Versus Anecdotal Thinking and Why it Matters

First principles thinking is a method of learning and problem-solving that involves breaking down complex problems into their most basic, fundamental elements. Aristotle famously advocated this approach, later popularized by innovators like Elon Musk in the business world. At its core, first-principles thinking is about distilling issues to their essence and building solutions from the ground up based on those fundamental truths.

Imagine you’re designing a new electric vehicle. Instead of relying on and improving existing car designs, you strip down the problem to its essential components. What is a car at its most fundamental level? It’s a means of transporting people from one place to another. By understanding this, you can explore the most efficient ways to achieve this, potentially leading to design, materials, and technology breakthroughs. That’s precisely what Musk did. He’s doing the same for rockets and living on Mars.

First principles thinking encourages creativity and innovation because it frees you from the constraints of traditional methods and assumptions. It lets you approach problems with a fresh perspective, often leading to novel and more effective solutions.

On the other hand, anecdotal thinking relies on personal experiences and stories—the ones we hear from others or tell ourselves—to draw conclusions and make decisions. This approach is deeply rooted in human nature. We find comfort in stories as we’re wired to learn from narratives and examples.

Therefore, anecdotal thinking can be compelling because it resonates emotionally, providing relatable and memorable lessons. But there’s a flaw.

Consider a founder who creates a business model because they heard a compelling success story of another startup that did the same and thrived. The founder may believe that if they follow a similar path, they, too, will find success. Stories like these are engaging and can be persuasive, providing a sense of direction and confidence.

However, anecdotal thinking has its pitfalls. Every story has unique context and nuances that might not apply to your situation. What worked for one startup may not work for another due to differences in market conditions, team dynamics, or many other factors. Relying solely on anecdotes can lead to misguided decisions and unrealistic expectations.

While first principles thinking and anecdotal thinking have merits, competent startup founders know how to balance the two.

Use first principles thinking to ground your strategies in fundamental truths, ensuring your solutions are robust and innovative. At the same time, you can draw inspiration and motivation from anecdotal stories, especially from users. Use them to illustrate possibilities, improve the products, and navigate the emotional challenges of your startup journey.

You might use first principles thinking to design a revolutionary product based on the fundamental needs of their target market. You might find surprising anecdotes of how customers use that product, giving you ideas and breakthroughs.

Lean Methodology

The book The Lean Startup presents a methodology that embodies a first principles approach by stripping down the product development process to its essential elements: building, measuring, and learning. Instead of relying on assumptions or mimicking the success stories of others, lean methodology encourages founders to test their hypotheses through rapid iterations and real-world feedback.

By continuously experimenting with minimum viable products (MVPs), gathering data, and learning from upfront and personal user interactions, startups can validate or refute their assumptions based on empirical evidence. This iterative cycle ensures that every step is grounded in fundamental truths about what works and what doesn’t. This leads to more informed decisions, reduced waste, and products that meet customer needs.

The Bullseye Method

Gabriel Weinberg and Justin Mares’ book Traction: How Any Startup Can Achieve Explosive Customer Growth takes a similar first principles approach, emphasizing the importance of systematically testing and validating customer acquisition strategies.

Rather than relying on anecdotes or generic advice, Traction introduces the Bullseye Framework, a systematic process for identifying a startup’s most compelling growth channels. Founders are encouraged to brainstorm various potential channels, run small-scale tests to gather data and focus their resources on the few that show the most promise. This disciplined, data-driven approach ensures that growth efforts are rooted in concrete evidence and tailored to the startup’s unique context, leading to more efficient and effective traction strategies.

By breaking down the complex task of gaining traction into fundamentals, Traction aligns with first principles thinking through systematic experimentation with components, guiding founders to make informed, strategic decisions based on real-world results.

The “Fits” Investors Look For

Investors are constantly looking for specific milestones that signify a startup’s potential for success. These milestones are not just checkpoints but crucial “fits” that demonstrate a founder’s deep understanding and strategic alignment with various aspects of their business. Achieving these “fits” requires first-principles thinking (more on “fits” in a moment).

It’s essential to avoid falling into the trap of anecdotal thinking, which often involves making decisions based on the success stories of other startups. Investors are not looking for copycats; they are looking for founders who can think independently and apply first principles thinking to their unique challenges. By focusing on foundational competencies and communicating your progress at each stage, you demonstrate rigor and originality that catches the attention of investors, especially during the early stages.

As you develop and demonstrate competence at each stage of your startup, effectively communicating with investors becomes crucial. Each competency milestone signifies your progress and is an inflection point investors eagerly seek. By keeping investors informed at every stage, you illustrate your mastery of first principles thinking, making your venture more attractive and de-risking their investment.

Stage 1: Founder-Problem Fit

Founder-problem fit is the alignment between a founder’s passion and expertise and the problem they choose to solve. This fit is vital because a founder deeply connected to the problem is more likely to persevere through the inevitable challenges of the startup journey. These founders are typically more knowledgeable and passionate about the issue than their peers, which leads to more innovative solutions and a deeper understanding of the problem space.

Achieving founder-problem fit showcases your deep connection and understanding of the problem you are addressing. Communicate to investors how your passion and expertise uniquely position you to tackle this issue.

Stage 2: Founder-Market Fit

Founder-market fit assesses whether the founder has a strong understanding and connection to the market in which the startup is being launched. This includes a network and knowledge of market dynamics, customer behaviors, and competitive landscape. Founders who fit well with their market can better navigate its complexities and tailor their strategies to meet market demands effectively.

As you transition from founder-problem fit to demonstrating founder-market fit, highlight your growing insights into market dynamics, customer behaviors, and competitive landscapes. This stage reassures investors that you can navigate the complexities of the market, aligning your strategies to meet its demands.

Stage 3: Problem-Solution Fit

Problem-solution fit is achieved when a startup’s proposed solution effectively solves the problem it is intended to address. This fit is validated through customer feedback and engagement metrics that indicate the solution meets the needs and preferences of its target audience. Ensuring a tight problem-solution fit is crucial for moving forward with confidence that the product will have its intended impact.

When you achieve problem-solution fit, provide clear, concrete evidence showing how your solution effectively solves the problem. Use customer feedback and engagement metrics to validate your claims. This data-driven approach, rooted in first principles thinking, reinforces confidence in your solution and demonstrates to investors that you’re making decisions based on solid evidence, not assumptions. This signals a robust and thoughtful approach to problem-solving and enhances investor trust in your ability to execute.

Stage 4: Product-Market Fit

Product-market fit occurs when a product meets a strong market demand, evidenced by growing sales figures, customer retention rates, and organic growth. Achieving product-market fit means the startup has successfully identified a target audience that finds the product valuable and is willing to pay for it. This stage is critical as it often represents a turning point toward scalability and further investment.

Product-market fit is a significant inflection point that can significantly influence investor interest. Demonstrate how your product meets a strong market demand through growing sales, customer retention, and organic growth. Investors want to see that you’ve identified a target audience that finds value in your product and is willing to pay for it. Achieving this fit marks a critical milestone that de-risks the investment and creates a sense of urgency and FOMO (fear of missing out) among investors.

Stage 5: Business-Model Fit

Business-model fit refers to the alignment between the startup’s core operations and the larger market environment in which it operates. This fit ensures that a business’s way of creating and capturing value—its business model—is sustainable and scalable within its market context. A suitable business model addresses the feasibility of the pricing strategy, cost structure, and revenue mechanisms to meet customer needs while maintaining profitability.

As you refine your business model, clearly articulate how it aligns with the larger market environment and ensures sustainability and scalability. Discuss how your pricing strategy, cost structure, and revenue mechanisms lead to profitability at scale. Showing that you’ve thought through these aspects and can adjust them as needed reassures investors of your startup’s long-term viability.

Don’t Be Tricked by Flawed Assumptions

Each stage of achieving fit—whether founder-problem, founder-market, problem-solution, product-market, or business-model fit—relies on first-principles thinking to ensure a precise, evidence-based understanding of the startup’s direction.

First principles thinking allows founders to break down complex challenges, test assumptions, and create innovative, data-driven solutions. In contrast, anecdotal thinking may trick founders into believing they’ve achieved fit based on surface-level success or advice without diving deep into the core realities of the problem, market, or solution. Founders who rely solely on anecdotal thinking risk making decisions based on flawed assumptions, which can lead to setbacks. By embracing first principles thinking, you can assess each stage clearly, empowering you to build a sustainable and fundable business.