#48 - Raising Without Code: De-risking Non-Technical Founders
Here’s some stuff you might not know about me:
In university, I spent 3 years running a startup incubator, hosting countless pitch competitions and hack-a-thons.
After graduating, I spent 2 years doing due-diligence and strategy work for Private Equity firms and their portfolio companies.
After that, I spent a year building my own startup, after pitching for and securing seed funding via a SAFE.
So I know a thing or two about what investors are looking for. And if I had to some it up in a single sentence, it would be:
Investors are looking for businesses with minimal risk.
This is true no matter what stage they invest in. What varies at each stage are the types of risk they’re concerned with.
For example, growth/late-stage investors targeting mature companies might worry about:
Regulatory risk — Will changing regulations break this business’s moats? Will new compliance burdens lead to unexpected costs?
Macroeconomic risk — Will tariffs and geopolitical issues screw up this business’s supply chain? Will international customers churn?
Liquidity risk — Will IPO/M&A markets be open? Can investors get their money out?
Meanwhile, early-stage investors targeting startups worry about simpler (though more uncertain) types of risk. Like:
Market risk — Is there any real demand for this? Is the market big enough to support a 100x return?
Technical risk — Can this technology even be built as envisioned? Might it require far more time and resources than expected?
Financial risk — Could this team run out of capital or mismanage their cash flow before reaching sustainability or the next funding milestone?
In-between funding rounds, a founder’s job is to de-risk the business—to consider what risks investors will obsess over when you next fundraise, and do what they can in the interim to minimize those risks.
For early-stage startups raising seed funding, there’s one thing they can do that will de-risk their business more than anything else. If they can do it, funding of some kind is all but guaranteed.
Traction. Do you already have a product with paying users?
Traction isn’t a lofty hypothesis, it’s undeniable proof. Proof that there is a problem, there is a market, there are people willing to pay for a solution, and you are capable of building that solution.
Whatever other risks investors still see in the business, traction in a sizeable market can be enough for at least one of them to write you a cheque.
Unfortunately, non-technical startup founders find themselves in the difficult position of having to de-risk a business with nothing but a slide deck.
They can address Market Risk simply enough. Surveys can validate there’s a problem worth solving; back-of-the-envelope math can point to a sizeable market; letters of intent (LOIs) from prospective customers can indicate a willingness to pay.
But there’s little more de-risking one can do without a product.
As a result, I’ve seen the same movie play out countless times:
A non-technical founder pitches their idea and says, “this is a huge opportunity, we just need the capital to build it.”
To which the investor says some flavour of, “If you can’t build it or find someone who can, I’m not interested.”
And that chicken and egg problem stops many founders from participating in the startup world. You need money to pay engineers to build the thing, but no one’s going to give you money unless you have engineers to build the thing.
Of course, this is where I bring up AI.
But my advice isn’t so simple as “Step 1: vibe-code your product. Step 2: profit.”
Because one of the risks we haven’t discussed yet is competitive risk—most VCs don’t invest in direct competitors. So they want to pick the winner.
So even if you’ve vibe-coded an MVP and earned some traction with it, how do you make a strong case that you’re positioned better than another startup with a stronger team or an incumbent with existing distribution?
Sure, you might be first to market, but does that markedly improve your odds of success over the long-run?
That said, I believe non-technical founders, even in a post-AI world, need to be more strategic. In addition to a vibe-coded MVP, they need two additional ingredients:
A moat
Explosive growth
The Moat:
There are 7 moats (or what Hamilton Helmer calls 7 Powers). I’ve written about them before, and I’ll likely do so again soon. They are:
Scale economies
Network economies
Counter-positioning
Switching costs
Branding
Cornered Resource
Process Power
I’m sure you understand most (if not all) of these moats intuitively just by their names. The common theme of all moats is that they are both durable and differential. A business can’t just be a good product that a small number of users love. It must also build a defensible moat that compounds with growth.
The growth part is important.
If you only have 10 users, your switching costs aren’t defending a very large slice of the pie; your branding is weak; and your network and scale economies are easy to catch up with.
In contrast, a functional MVP with built-in moats whose adoption is growing rapidly is the foundation for a durable business. One that can defend itself from competitors until an engineering team is brought online to build the next evolution of the product.
Take the example of a non-technical founder aiming to build “Airbnb for household items”, allowing people to rent power tools, camping equipments, party decorations, and other useful possessions from other users on the platform.
This business will have benefit from network economies—the platform becomes more useful the bigger the user base grows.
If the founder vibe-codes a “good enough” website and/or mobile app and rapidly snatches up the early-adopter base, then they’ve got a significant edge on the competition. In a network-effects driven market, the winner is the business with biggest user base, not the one with the best-engineered platform.
So non-technical founders: your day is coming, if it’s not here already. Think hard about the moat(s) your business can have and your go-to-market strategy for viral growth.
Only with moats and growth can a “good enough” vibe-coded app be good enough.