Lecture 9 - How to Raise Money (Marc Andreessen, Ron Conway, Parker Conrad)

Summary

In this insightful discussion, venture capitalists Mark and Ron share their perspectives on what drives them to invest in startups. They emphasize the importance of strong founders with clear visions and the ability to communicate effectively. The conversation delves into the venture capital business, highlighting the significance of investing in outliers and the balance between recognizing a startup's strengths and tolerating weaknesses. The speakers also provide practical advice for entrepreneurs on fundraising, the importance of operational excellence, and the critical nature of selecting the right investors who can add value beyond just capital.

Takeaways

• 🔍 The decision to invest in a company is based on multiple factors including the founder's leadership, communication skills, and the product's relevance to solving a personal problem.
• 🧠 Venture capital is a game of outliers, focusing on the extreme exceptions that generate the majority of returns.
• 📈 Investors look for startups with significant strengths, even if they have notable weaknesses, rather than those that merely check all the boxes.
• 💬 It's crucial for founders to communicate their product clearly and compellingly within the first minute of meeting an investor.
• 🚀 Founders should bootstrap as long as possible before seeking investment to maintain control and equity.
• 🛠️ The relationship between risk and cash is critical; founders must carefully manage their milestones and funding to peel away layers of risk.
• 🗣️ Trust and clear communication are fundamental in investor-founder relationships; founders should avoid asking for NDAs and ensure all commitments are documented in writing.
• 🤝 Choosing the right investors is akin to choosing a spouse; it's a long-term partnership that requires mutual respect and shared goals.
• 📊 Successful fundraising often hinges on the founder's ability to present a clear plan for mitigating risks and achieving milestones.
• 👥 Having co-founders who are as good or better than you can significantly increase the chances of success, as seen with companies like Airbnb and Google.

Q & A

What is the number one question asked to Mark and Ron?

The number one question is: What makes you decide to invest in a founder or a company?

What are the key characteristics Ron Conway looks for in a founder?

Ron looks for leadership qualities, communication skills, decisiveness, and a personal connection to the problem the product solves.

What is the concept of 'invest in strength versus lack of weakness' that Marc Andreessen mentions?

It means focusing on a company's extreme strengths rather than merely avoiding weaknesses. Companies with remarkable strengths often have serious flaws, but these strengths are crucial for success.

Why does Parker Conrad emphasize building a business that doesn't rely on raising money?

Parker found that businesses with enough cash flow and compelling value propositions are more attractive to investors, making fundraising easier.

What is Ron Conway's advice on bootstrapping?

Ron advises founders to bootstrap as long as possible because it ensures more control and equity for the founders.

How does Marc Andreessen compare raising venture capital to other startup challenges?

Marc states that raising venture capital is easier than many other challenges such as recruiting engineers, selling to enterprise customers, and achieving viral growth.

What should founders avoid during the fundraising process according to Ron Conway?

Founders should avoid asking investors to sign NDAs and should always get commitments in writing to avoid misunderstandings.

How does the investment process work at SV Angel?

SV Angel invests at the seed stage, evaluating opportunities through a network of referrals. They make a decision after reviewing an executive summary, conducting a phone call, and having a meeting if the initial steps go well.

What are some critical terms that founders should focus on when negotiating with investors?

Founders should focus on valuation, ownership percentage, and ensuring they have the right investors who can provide valuable introductions and support.

What is the significance of having a strong founding team according to Ron Conway?

A strong founding team significantly increases the chances of success, as seen in companies like Airbnb where all three founders are equally competent.

Outlines

00:00

🤔 Investing in Founders: Key Criteria

Mark and Ron discuss the top question about investing in a founder or company. Ron emphasizes the importance of leadership, communication skills, and personal connection to the product. Mark adds that the venture capital business focuses on extreme outliers and highlights the importance of investing in companies with strong strengths, even if they have serious flaws.

05:02

📢 Importance of Clear Communication

Ron stresses the necessity for entrepreneurs to clearly articulate their product in a single compelling sentence. He mentions the importance of decisiveness and the ability to make quick decisions to keep the company moving forward. Parker shares his experience with fundraising, emphasizing the need to be the 'Twitter guys' and bootstrap as long as possible.

10:02

💡 Building a Business vs. Fundraising

The speakers highlight that building a successful business is more critical than just raising funds. They discuss the challenges of recruiting, selling, and achieving viral growth. Founders are advised to focus on improving their business rather than obsessing over fundraising.

15:04

📝 Tactics and Process of Fundraising

The panel explains the tactical aspects of fundraising, including the importance of written commitments, quick and efficient processes, and how to handle meetings and introductions. They emphasize the value of having a good executive summary and the importance of a strong network for successful fundraising.

20:06

💼 Negotiating and Choosing Investors

The discussion focuses on how founders should choose and negotiate with investors. They advise on picking the right seed investors, understanding valuation thresholds, and the importance of finding investors who add value beyond money. The significance of not giving away too much equity early on is also discussed.

25:09

🔍 Success Stories and Key Learnings

Ron and Mark share their most successful investments in companies like Google and Airbnb. They discuss the importance of having strong co-founders and the rare cases where solo founders succeed. The key takeaway is the value of having great partners and a shared vision for success.

30:11

🔗 Raising Money and Planning for Risks

The panel discusses the importance of understanding the relationship between risk and cash when raising money. They highlight the need for a precise plan to eliminate risks and achieve milestones with each funding round. The value of operational excellence is emphasized, especially for capital-intensive businesses.

35:12

📊 Importance of Written Agreements

The discussion emphasizes the importance of written agreements and follow-ups in fundraising. Founders are advised to document commitments to avoid future misunderstandings. The speakers also touch on the process of raising money, including how to approach investors and the importance of trust in investor relationships.

40:15

🤝 Partnering with the Right Investors

The panel discusses the critical importance of selecting the right investors, comparing the investor relationship to a marriage. They highlight the need for mutual trust, shared goals, and the ability to weather challenges together. Founders should seek investors who provide valuable insights and support beyond just funding.

45:19

🔍 Evaluating and Managing Investments

The panelists discuss the constraints on how many companies investors can handle and the importance of avoiding conflicts of interest. They explain the concept of opportunity cost and the need for strategic decision-making in choosing investments. The discussion also covers the importance of founder trust and the challenges of managing multiple investments.

Keywords

💡Investment

Investment refers to the act of committing money, time, or other resources with the expectation of achieving a profit or benefit in the future. In the context of the video, investment is the core activity of venture capitalists who decide to allocate funds to startups or companies they believe have potential for high returns. The video discusses various factors that influence investment decisions, such as the founder's characteristics, the company's potential for growth, and the stage of the company.

💡Founder

A founder is an individual who establishes a company or organization. The script emphasizes the importance of the founder's qualities and vision in attracting investment. Characteristics such as leadership, focus, and the ability to communicate effectively are highlighted as crucial for a founder to inspire confidence in potential investors.

💡Venture Capital

Venture capital is a type of financing provided to early-stage, high-potential, growth companies in exchange for equity. The video underscores the venture capital business as a game of outliers, where investors look for companies that can significantly outperform the market, generating the majority of returns for the entire category of venture capital.

💡Leadership

Leadership is the ability to guide, influence, and inspire a team towards achieving goals. In the script, leadership is identified as a key attribute that investors look for in founders. A leader is expected to take charge, motivate others, and drive the company towards success.

💡Communication Skills

Communication skills refer to the ability to effectively convey information, ideas, and thoughts through various mediums. The video mentions that strong communication skills are essential for founders, as they need to articulate their vision, inspire their team, and persuade investors.

💡Outliers

In the context of the video, outliers are exceptional cases that stand out from the rest due to their extreme performance or potential. The venture capital business is described as focusing on identifying these outliers, as they are the companies that are expected to generate the highest returns.

💡Bootstrapping

Bootstrapping is the process of starting and growing a business using limited resources, often relying on the founder's own efforts and personal funds rather than external financing. The video suggests that bootstrapping can be a valuable approach, as it forces founders to be resourceful and can make investors more attracted to the business due to its demonstrated potential for self-sufficiency.

💡Seed Round

A seed round is the initial round of fundraising for a startup, typically used to validate the business idea, develop a prototype, and gain early traction. The script discusses the importance of selecting the right seed investors who can provide not only capital but also valuable introductions and support for future fundraising rounds.

💡Series A

Series A refers to the first significant round of equity fundraising that comes after the seed round. It is used to further develop the business and scale operations. The video explains that top-tier venture capitalists often invest in companies that have already raised a seed round and have demonstrated some level of product-market fit and traction.

💡Cap Table

A cap table, or capitalization table, is a document that outlines the ownership structure of a company, including the shares owned by founders, employees, and investors. The script warns against selling too much of the company early on, as it can lead to a dilution of ownership that can be demotivating for the team and can complicate future fundraising efforts.

💡Milestones

Milestones represent significant achievements or stages in the development of a business. In the context of fundraising, milestones are used to demonstrate progress and reduce risk. The video emphasizes the importance of aligning fundraising with the achievement of key milestones to justify the investment and the amount of capital raised.

💡Risk

Risk in a business context refers to the possibility of loss or failure. The video discusses the concept of managing and reducing risk through various stages of funding, with each round aimed at addressing specific risks such as product development, market acceptance, and team building.

💡Domain Expertise

Domain expertise is the specialized knowledge and understanding of a particular industry or field. Investors with domain expertise can provide valuable insights and guidance to startups operating in that domain. The video suggests that founders should seek investors with relevant domain expertise to benefit from their experience and connections.

💡Operational Excellence

Operational excellence refers to the high level of efficiency and effectiveness in a company's operations and management. The script mentions that investors look for operational excellence as an indicator of a strong team and a well-run business, which is especially important in capital-intensive businesses where precise execution is crucial.

💡Board Structure

Board structure pertains to the composition and organization of a company's board of directors. The video discusses the dynamics of board power and control, noting that in successful companies, founders often have significant influence, while in struggling companies, investors may exert more control, potentially leading to renegotiation of terms.

Highlights

Investment decisions are based on a variety of characteristics assessed during initial interactions with founders.

Ron Conway shares his experience of investing in over 700 companies, emphasizing the importance of leadership and communication skills in entrepreneurs.

Mark Andreessen discusses the venture capital business as a game of outliers, focusing on the extreme success of a few companies.

The concept of investing in strength versus lack of weakness is highlighted, advocating for backing startups with significant strengths despite potential flaws.

Ron Conway advises on the importance of being able to clearly communicate what your product does in one compelling sentence.

Decisiveness and the avoidance of procrastination are stressed as crucial for startup progress.

Building a great team is identified as a key factor for success once the product is established.

Parker Conrad shares his experience with fundraising and the importance of having a solid business foundation before seeking investment.

Bootstrapping is encouraged as a method to build a business and increase its attractiveness to investors.

The importance of having a clear and concise pitch to avoid confusion and demonstrate product value is underlined.

The relationship between risk and cash is discussed, with advice on raising and spending money in stages to mitigate risks.

Raising venture capital is considered the easiest part of running a startup, with other aspects such as recruiting and sales being more challenging.

The significance of getting commitments in writing to avoid misunderstandings and ensure clear communication is emphasized.

Tactics for the fundraising process, including the importance of introductions and avoiding NDAs, are shared.

The process of how top-tier venture capitalists decide on investments, from referrals to due diligence, is outlined.

The significance of choosing the right seed investors for future fundraising success is highlighted.

The ideal amount of company to sell during seed and series A rounds is discussed, with a focus on not diluting ownership too much.

Transcripts

I want to start with a question for, for Mark and

Ron which is by far the number 1 question What made

you guys decide to invest in a founder or a company.

Either of you.

>> Start. >> No, no, no, no.

>> You first.

>> Well we have a slide on that.

We have, we have an app for that.

>> Mark can start while we try to get your slide up.

>> Okay.

>> We're running out of AV guys, so.

>> So say the question again.

>> What makes you decide to invest in

a founder or a company?

>> So what makes us invest in a company is

based on a whole bunch of characteristics.

I've been doing this since 1994,

right before Mark got out of the University of Illinois.

So, SV Angel and

it's entities have invested in over 700 companies.

So, to invest in 700 companies that means we've

physically talked to thousands of entrepreneurs.

And there's a whole bunch of things that

just go through my head when I meet an entrepreneur.

And I'm just going to talk about what some of

those are.

And literally while you're talking to me in

the first minute I'm saying, is this person a leader?

You know, is this person rifled, focused and

obsessed by the product.

I'm hoping cuz usually the first question I ask is what

inspired you to invent this product.

I'm hoping that it's based on a personal problem that,

that founder had and

this product is the solution to that personal problem.

Then I'm looking for communication skills.

Because if you're gonna be a leader and hire a team,.

Assuming your product is successful you've gotta be

a really good communicator and you,

you have to be a born leader.

Now some of that you might have to learn those

traits of leadership but you better take charge and

be able to be a leader.

I'll switch back to slide but let's let Mark.

>> Yeah, I, I agree with all that,

I guess, and there's a lot of detail to

this question that we could talk about.

And we maybe even a little bit different than Ron,

and, well we are different than Ron,

that we actually invested across stages.

So we invested the seed stage, the interest stage,

the growth stage.

And then we invest in a variety of

different business models, consumer enterprise, and

a bunch of variations.

So, there are kind of fine grained answers, you know,

that we could get into,

if there are specific questions.

Two general concepts that I would share.

So one is the venture capital business is

a 100% a game of outliers.

It's extreme exceptions.

Right? So the conventional

statistics are,

you know, on the order,of 4,000 venture fundable.

Companies a year that wanna raise venture capital about,

you know, about 200 of those will get funded by

what's considered a top tier VC.

About 15 of those will someday get to $100 million

in revenue and those 15 from that year will generate

something on the order of 97% of all the returns.

For the entire category of

venture capital in that year.

And so venture capital is such an extreme feat for

family business.

You're either in one of the fifteen or your not.

Or you're in one of the two hundred or your not.

And so the big thing that your looking for

no matter you know which sort of

particular kind of criteria we talk about.

They all have the characteristic of

you're looking for the extreme outlier.

The other thing I'd highlight that we

think about a lot internally is we have this

concept invest in strength versus lack of weakness.

And at first that sounds obvious but

it's actually fairly subtle which is sort of the default

way to do venture capital is to kinda check boxes, right?

So you know, really good founder, really good idea,

you know really good, you know, products, really good

initial customers, check check check check.

Okay, if this is reasonable, I'll put money in it.

What you find with those, those sorta checkbox deals.

So they get, they get done all the time.

What you find is they don't have something that

really makes them really remarkable and special.

Right? They don't have

an extreme strength that makes them an outlier.

On the other side of that the companies that have

the really extreme strengths often have serious flaws.

And so one of the cautionary lessons of venture capital

is, if you don't invest on the basis of serious flaws.

You don't invest in most of the big winners, and

we can go through example after

example after example of that.

But that would have ruled out almost all

the big winners over time.

And so, at least what we aspire to do is to invest in

the one, the startups that have a really, really

extreme strength, along an important dimension.

And they'd be willing to

tolerate some other,you know, set of weaknesses.

>> Ron, we got your slide up.

>> Okay, I don't want to over dwell on the slide.

But when you first meet an investor,

you've got to be able to say in one

compelling sentence that you should practice like crazy.

What your product does,

so that the investor that your talking to,

immediately can picture the product in their own mind.

Probably 25% of the entrepreneurs I

talk to today still after the first sentence,

I don't know what they do.

And as I get older and less patient, I say.

Back up, I don't even know what you do yet.

But, so try and get that perfect.

And then I wanna skip to the second column.

You have to be decisive.

The only way to make progress is make decisions.

Procrastination is the devil in startups.

So no matter what you do,

you gotta keep that ship moving.

If it's decisions to hire, decisions to fire.

You've gotta make those quickly.

All about building a great team.

Once you have a great product, then it's all about

execution and building a great team.

>> Parker, could you talk about your seed ground and

how that went, and

what you wish you had done differently as a foundry,

raising money?

>> Sure, so actually I think

that my seed ground most of the stuff with my current

company felt like, from a fundraising perspective felt

like it came together relatively quickly.

But actually one of the experiences I had,

I started a company before this, that I was at for

about six years and my cofounder and

I pitched almost every VC firm in Silicon Valley,

we literally went to like 60 different firms and

they all told us no.

And we were constantly trying to figure out.

You know, how do we, how should we adjust our pitch?

And how should we do our slides differently.

And how do we Tweet the story, and

that sort of thing.

And at one point there was this sort of

key insight that someone gave me when I was pitching.

Actually someone at Coastal Ventures.

And this VC said guys.

You know, he was looking for

some very particular kind of analysis that we

didn't have on hand.

And he was like, guys, you don't get it.

He was like, you know,

if you guys were the Twitter guys,

you guys could come in and you could just be,

like, and, like, put whatever up here.

And, like, we would invest in you.

But, like you guys aren't the Twitter guys so

you need to make this really easy and

have like all this stuff ready for us and

all this kind of stuff.

And I took like the exactly opposite lesson of what,

he, I think, wanted me to take away from that, with.

Which was like, jeez, like I should really just

figure out a way to be the Twitter guys.

>> I'm, like, that's, that's the way to do this.

And so, actually like one of

the reasons I started my current company.

Or one of the things I found very attractive about

Zenefits, is as I was thinking about it.

It seemed like a business.

I was so frustrated from this experience of

having tried, you know, for

like two years to raise money from VC's.

And then sort of decided like to hell with it.

You can't count on there being

capital available to you.

And so this,

the business that I started seemed like one that like,

like actually just maybe I could do it without raising

money at all.

Like there might be a path to kind of, you know,

there was enough cash flow,

it seemed compelling enough that I could like, do that.

And it turns out that those are exactly the kinds of

businesses that investors love to invest in.

And it made it incredibly easy.

So I actually think like, I mean, Sam's very kind and

said I was an expert fundraiser.

The reality is I don't actually even think I'm

very good at fundraising.

It's probably something, I'm like less good at then,

you know, sort of other parts of my jobs.

But I think if you can build a business that's, you know,

where everything's like moving in

the right direction.

If you can be like the Twitter guys,

like nothing else matters and if you can't like,

you know, be the Twitter guys it's very hard for

anything else to make a difference.

For things to kind of come together for you.

>> Why did that VC say be like the Twitter guys when

the fail wail dominated the site for two years.

>> Cause it worked.

>> Yeah. >> The other point I want to

make is, bootstrap as long as you possibly can.

I met with one of the best founders in tech.

Who's starting a new company and

I said to her when when are you going to raise money?

I might not.

And I go that is awesome.

You know never forget the bootstrap.

>> So I was actually going to close on this but

i'm just going to accelerate it cause Parker I think just

gave you the most important thing you'll ever hear.

Which is also what I was going to say.

Which is, so, the number one piece of advice that

I've ever read and

that I tell people on these kinds of topics is always.

It's from the comedian Steve Martin, who I think is

an absolute genius, wrote a great book on his startup

career which obviously was very successful.

The book is called, Born Standing Up, and he,

literally, it's a short little book and

it describes how he became Steve Martin.

And the part of the book is, he says, you know,

what is the key to success,

he says the key to success is be so

good they can't ignore you.

Right, and so in a sense, like all this,

we're gonna have this entire conversation though, which

I'm sure we'll keep having about how to raise money,

but in a sense it's all kind of beside the point.

Because if you do what Parker's done and

you build a business that is going to be a gigantic

success then investors are throwing money at you.

And if you come in, you know, with a theory and

a plan and no data and you're just one of,

you know, the next thousand.

It's gonna be far, far harder to raise money.

The other, so that's the positive way to put it,

is kind of be so good they can't ignore you.

In other words, you're almost always better off

making your business better than you

are making your pitch better.

The other thing,

that's the positive way of looking at it.

The negative way of looking at it,

or the cautionary lesson, is that this gets me in

trouble every single time I say it but

I'm on a ton of flu medications so

I'm going to go ahead,.

And just let it rip.

Raising venture capital is

the easiest thing a startup founder is ever going to do.

As compared to recruiting, right?

As compared to recruiting engineers.

In particular as compared to

recruiting engineer number 20.

It's far harder than raising venture capital.

Selling to enterprise customers is harder.

Getting viral growth going on a consumer business is

harder, getting advertising revenue is harder,

almost everything you'll ever do is

harder than raising venture capital.

And so, I think Parker is exactly right.

If you get in a situation in which raising the money is

hard, it's probably not hard compared to

all the other stuff that's about to follow.

And it's very important to bear that in mind.

You know, it's often said that raising money is not

actually a success, it's not actually a milestone.

For a company and I think that's true and

I think that's the underlying reason.

It just, it puts you in a position to be able to do

all the other, harder things.

>> Related to that, what do you guys wish foundry's did

differently, when raising the money and.

You know, you mentioned this relationship between money

and and how that applies here so

maybe we could start with that.

>> Yeah, so the single biggest thing that people

are just missingand I think it's all of our faults.

We're all not talking about it enough but I think

the single biggest thing entrepreneurs are missing

both on fundraising and how they run their companies is

the relationship between risk and cash.

So the relationship between risk and raising cash and

then the relationship with risk and spending cash.

So I've always been a fan of something that Andy

Radcliffe taught me years ago which he called the,

it's called the Onion Theory of Risk which basically is

you can think about a startup like on day one

as having every conceivable kind of risk right?

And you can basically just make a list of the risks.

So you've got, you know,

founding team risk, you know, do the founders,

are the founders gonna be able to work together?

Do you have the right founders?

You're gonna have product risk, you know,

can you build a product?

You'll have technical risk, right?

Which is maybe you need a machine

learning breakthrough or something to make it work.

How are you going to be able to do that?

You'll have you know, launch risk.

Will the launch go well?

You'll have, you know, market acceptance risk.

You'll have revenue risk.

A big risk you get into in a lot of businesses that have

a sales force is can you actually sell the product

for enough money to actually pay for the cost of sale.

So you have cost of sale risk.

If your consumer product you'll have

viral growth risk.

Well you get the thinner viral growth.

And so, I'll start up at the very beginning.

Is basically just this long, this long list of risks.

Right, and then, the way I always think about running

a start up is also the way I think about raising money,

which is a process of

peeling away layers of risk as you go, right.

And so you raise seed money,

in order to peel away the first two or

three risks, right.

The founding team risk, the product risk.

Maybe the initial watch risk.

You raise the a round to peel away the next level of

product risk.

Maybe you appeal away some recruiting risk,

'cuz you get your full engineering team built.

And maybe you peel away some customer risk,

cuz you get your first phi beta customers, right?

And so, basically, the way to think about it,

is, you're peeling away risk, as you go.

You're peeling away risk by achieving milestones.

And then, as you achieve milestones,

you're both making progress in your business.

And you're justifying raising more capital, right?

And so you come in and you pitch somebody like us.

And you say you're raising your B round.

You know, the best way to do that with us is you

say okay, I raised the seed round.

I achieved these milestones, I eliminated these risks.

I raised the A round,

I achieved these milestones, I eliminated these risks.

Now I'm gonna raise a B round.

Here are milestones.

Here are my risks.

And then by the time a go to raise the seed round,

here's the, here's the state that I'll be in.

And then you calibrate the amount of

money that you've raised to spend to

the risks that you're pulling out of the business.

And I go through all this,

in a sense this sounds kind of obvious, but

I go through all this cuz it's a systematic way to

think about how the money gets raised and deployed.

As compared to so

much of what's happening especially these days.

Which is just oh my god let me go raise as

much money as I can, let me go build the fancy offices,

let me go hire as many people as I can and

just kind of hope for the best.

>> I'm gonna be tactical.

For sure don't ask people to sign an NDA.

We rarely get asked anymore because most founders have

figured out.

That if you ask somebody for

an NDA at the front end of the relationship,

your basically saying, I don't trust you.

So the relationship between investors and

founders involves lots of trust.

The biggest mistake that I see by far.

Is not getting things in writing.

You know the, my advice on the fund raising process is

do it as quickly and

as efficiently as you possibly can,

don't obsess over it.

For some reason, founders get their ego involved in

fundraising, where it's a personal victory.

It is the tiniest step on the way, as Mark said.

And it's, it's the most fundamental.

Hurry up and get it over with.

But in the process when

somebody makes a commitment to you.

You get in your car and you type an email to

them that confirms what they just said to you.

Because investors have, a lot of investors have

very short memories and they forget that they committed

to you that they were going to finance.

Or they forget what the valuation was, or

that they were going to find a co-investor.

You can get rid of all that controversy just by putting

it in writing, and when they try and

get out of it you just resend the email and

say, excuse me and

hopefully they've replied to that email anyway.

So get it in writing.

In meetings take notes and, and

follow up on what's important.

>> I want to talk a little bit more about tactics here.

Just how does the process go?

Can people email you guys directly?

Do they need to get an introduction?

How many meetings does it take for

you to make a decision?

How do you figure out what the right terms are?

When can a founder ask you for a check?

>> Do you wanna?

That was about it.

That was like six questions.

>> That's a lot of things.

>> Yeah, okay, good.

>> It's the process.

>> Why don't you describe, why don't you describe,

cuz you'll describe seed then I'll describe.

>> Yeah, yeah. So yeah.

So, SV Angel, you know,

invests in seed stages start-ups.

So we like to be the very first investor.

We normally invest today at around that's a million to

two million.

It used to only be a million.

So if we invest 250k that means there's five or

six other investors in that syndicate.

SV Angel has now a staff of 13 people.

I do no due diligence anymore.

I am not a picker anymore.

I just help on major projects for

the portfolio companies that are starting to mature.

But we have a whole team that processes.

We at SV Angel end up investing in one company for

every 30 that we look at, and

we end up investing in about one a week.

I think what's interesting is we don't really take

anything over the transom.

Our network is so huge now that we basically just take

leads from our own network.

We evaluate the opportunity which means you have to

send in a really great short executive summary.

And if we like that we actually vote,

although I'm not in this meeting anymore, but

the group actually votes on do we make a phone call.

That's how important time is in this process.

And if enough of the team at SV thinks it's

interesting, then they appoint a person to

make a phone call to that founder,

usually somebody on our team who has domain experience.

If the phone call goes well, bingo, we want to meet you.

If SV Angel asks you for

a meeting we are well on our way to investing.

If that meeting goes well,

we'll do some background checks.

Backdoor background checks.

Get a good feeling about the company.

The market that they're going after.

And then, and then make the commitment to invest.

And then start, start helping get other value add

investors to be part of the syndicate.

Because if we're gonna have

an equal workload we want the other investors in

this company to be great angel investors as well.

>> So I'll talk a little bit about the venture stage and

the series A stage, you know, the problems.

So to start with, I think it's fair to say at

the point that all that top tier venture capitalist

pretty much only invest in two kinds of companies.

At the series A stage.

One is if

they have previously raised a seed round.

And so, it's, it's almost always case when were doing

a series A investment and the company has a million or

$2 million in seed financing.

You know from, from Ron and, and

folks that he likes to work with.

Almost always by the way Ron just to be clear.

And folks he likes to work with.

So first either they have a seed round.

So if you're going to raise serious aid

the first thing to do is raise seed.

Cuz that's generally the way the progression works at

this, at this point.

Every once in a while we'll go straight to a on

a on a company that hasn't raised the seed rounds.

Really the only times though that,

that happens are when it's a founder who has

been a successful founder in the past, and is almost

certainly somebody we've worked with in the past.

So actually we have an announcement we just,

we just one of these we'll announce in a few weeks.

Where it's founder who I was an angel investor,

actually I think Ryan was also in the team's

company in 2006.

And then the company did its thing and

ultimately was acquired another big company.

And then that team now is, is starting their new thing.

So, in that case, we're just gonna jump straight to

an A cuz they're so, they're so well-known and

they have have a plan all lined up for it.

But, you know, that, that's the exception.

It's almost always proceeded,

proceeded by a seed round.

The other thing is yeah I

guess I mentioned this already, but we, we,

get, similar to what Ron said, we get 2000 referrals

a year through our referral network.

A very large percentage of

those are referrals through the seed investors.

And so, by far, the best way to get to, the, the,

by far the best way to get investor introductions to

the A stage investor firms is to be able,

is to work through the seed investors.

Or to work through something like

>> Speaking about terms.

what, what terms should founders care most about?

And how should founders negotiate?

Maybe Parker, we'll start with you on this one.

>> Sure. Well I think

probably precisely because of what Mark said.

The most important thing at the seed stage is picking

the right seed investors, because they're gonna sort

of lay the foundation for future fundraising events.

You know, they're gonna make the right introductions.

And I think there's a,

an enormous difference in the quality of,

of an introduction.

So if you can get a really good introduction from

someone who a venture capitalist really trusts and

respects, you know, the likelihood that, that's

gonna go well is so much higher than sort of like a,

you know, a much, kind of a much, a much more lukewarm

introduction from someone they don't know as well.

So the seed stage, probably the best thing you can

do is find the right investors.

And then >> How,

how does the founder know who the right investors are?

Well I think it's really hard.

I mean so one of the best ways, I mean, you know,

not to give a plug for YC but you know,

YC does a really good job telling you exactly who they

think those people are.

And and can really direct you towards a,

and I've actually have found it

to be like pretty accurate in terms of like who you

guys said were going to be the best people like.

They ended up being the most helpful as we were

raising subsequent rounds.

Sort of, you know,

really providing the best introductions.

And the people who maybe I thought were, you know,

seemed okay, but were not, you know, like,

we're not as, sort of, highly rated by YC.

Like, they, that ended up being the case that they

were, kind of, like, real duds, in the seed round.

>> Someday we're gonna publish our

list of these people.

>> Oh my god there are going to

be a lot of upset people when you do.

>> So, how, how do you think about negotiation?

How do you figure out what the right evaluation for

a company is and what are the terms?

>> Well so I started out.

I mean like when I was raising my seed around I

really didn't know.

And, and I mean we had conversations about this.

I probably started a little too high on

the valuation side.

And the, so as you guys know, like Y company sort of

culminates in this thing called demo day,

where you can get sort of all of these investors at

once, who are looking at the company.

And I started out trying to raise money at like a $12 or

a $15 million dollar.

Which is like not quite the same thing as a valuation,

but sort of rough, rough, roughly equivalent.

And everyone was like, that's crazy.

You know, that's, that's completely nuts.

They're, like, you're, like, too big for

your britches, like,

that, that's completely, just wouldn't work.

And so I ended up sort of walking it down a little bit

and, and within, sort of the space of a couple

days said okay, well I'm gonna raise at nine.

And then suddenly, for whatever reason that had

sort of hit some magical threshold on the seed,

seed stage, that it was below 10.

It seemed like there was like,

almost infinite demand, for the round at a,

at a like, at a 9 million cap.

So no-one would pay 12 but at a $9 million cap it felt

like I probably could have raised like,

ten million dollars.

And the, the round came together you know,

in, in, in roughly about a week.

At that point once I kind a hit that threshold.

And so there seemed to be,

and they probably fluctuate over time, but

there seem to be these sort of, like, thresholds,

particularly for seed-stage companies, that, that,

that investors will think of as, like, this is what,

you know, like, above this level is like, crazy.

That, like, doesn't matter.

And there's sort of like a rough kinda range that

that people are willing to pay.

And so, you just kinda like, you, you,

you just have to kinda figure out what that is.

Get the money that you need.

Don't, don't raise any more than you need and,

and, and just kinda get it done.

And you know, at the end of the day like, whether,

whether you raise a 12 or nine or like six, it's not,

it's not a huge deal for the rest of the company.

>> Is there a maximum amount of the company you think

the founders should sell in their seed round era?

Beyond which, problems for any of you.

>> I feel like that's a better question for you.

>> Well, gosh, I don't know.

I mean, you know?

I think, On, on, I mean, I don't,

I don't know the rules on this stuff.

I think the, the tricky thing, is, is, I mean,

it seems like they were kind of rough.

Particularly for, like, a series A you're probably

gonna sell somewhere between, you know, 20 and

30% of the company because you know,

below, venture capitalists tend to be a lot more

ownership-focused than price-focused.

So you might find that it's actually,

sometimes when companies raise really big rounds.

It's because, you know, the investor basically said

listen I'm not gonna go below 20% ownership but

I'll pay more for it.

And so, and, and above 30% probably sort of

weird things happen to the cap table.

Like it gets hard, you know, down the line to sort of,

you know, for

there to be enough room on the cap table for everyone.

And so everything seems to come in at that range.

So that probably just is what it is, in most cases.

So, at, you know, at the seed stage.

I mean, what I've heard.

There doesn't seem to me any magic to it.

But it seems like ten to 15%,

is what, what people say.

But what, that's mostly just what I've heard.

I'm curious at your guy's thoughts.

>> Yeah, I, I agree with all that.

I think it's important to get the process over with.

But I think it's important for the founder to say to

themselves in the beginning, at, at what point does

my ownership start to de-motivate me?

Because it there's like a 40% dilution

in an angel round.

I've actually said to the founder,

do you realize you've already doomed yourself.

You know, you, you're gonna own less than 5%

of this company if you're a normal company.

And so, these guidelines are important.

The, the, you know, the, the 10 to 15%,

because if you keep giving away more than that,

there's not enough left for you and

the team, and you're the ones doing all the work.

>> Thank you.

>> Well actually, we'll walk, we've, we've seen a,

we've seen a series of interesting companies in

the last five years that, where they just, you,

we just walk, oh, simply, we won't, we won't bid.

Sometimes the basis of

the cap table's already destroyed.

Outside investors already own too much.

There's a company we really wanted to invest in but

the outside investors already owned 80% of

it when we, when we talked to them.

And it was still a relatively young company.

They had just done two early rounds that had

just sold too much of the company.

And literally we were worried, and

I think accurately so,

that it was gonna be demotivating for

that team to have that structure.

>> One more question for

you before we open up to the audience.

for, for Ron and Clark.

Could you guys both tell the story of the most successful

investment you ever made and how that came to happen?

>> Other than Zenefits of course.

>> Yeah, other than Zenefits.

>> Yeah other than Zenefits.

That's gonna be hard.

For me clearly it

was the investment in Google in 1999.

>> And we got we got Google return out of it.

But funny enough I met

Google through a Standford professor David Cheriton.

Who was in the school of engineering.

He's still here.

He was actually an angel investor in Google.

And an investor in our fund, and

kind of the quid pro quo we have with our investors in

the fund is you have to tell us

about any interesting companies that you see.

And we loved it the day that Jared was an investor in

our fund because he had access to

the computer science department's deal flow.

And we were at this party at the of DFA's house in

full tuxedo.

I hate tuxedos.

And day, have you, anyone here know David Sheraton?

Cuz you know for sure he does not like tuxedos, and

he was in a tuxedo.

But I went up to him and

we complained about our attire and then I said, hey,

what's happening in, at Stanford?

And he says, well there's this project called Backrub.

And it's search, and

it's search by page rank and relevancy.

And back in, today page rank and relevancy,

everyone says, oh, you know, that's so obvious.

In 1998, that was not obvious that engineers were

designing a product based on this thing called page rank.

And all it was was a simple algorithm that said,

if a lot of people go to that website and

other websites direct them there,

there must be something good happening on that website.

That was the original algorithm.

And the, the motivation was relevance.

So I said to David, I have to meet these people.

And he said, you can't meet them till they're ready.

Which was the following May funny enough.

>> I waited. I called them

every month for five months.

And finally got my audition with Larry and Sergei.

And right away they were very strategic.

They said, we'll let you invest if you can

get sequoia.

We don't know sequoia but they're investors in Yahoo!

and because we're late to market we want to

know we have a deal with Yahoo!

And, and so

I earned my way into the investment in Google.

How about you? >> So,

I was talking about on the other side which is,

which is Airbnb.

Which we actually were not early investors in.

We were, we did an, Airbnb as growth round.

We did the first big growth round at Airbnb.

yeah. At about a billion dollar

valuation in to 2011.

And I think that will turn out to be,

I believe that will turn out to be one of the spectacular

growth investments of all time, we'll see.

But I think it's gonna be one of the big companies.

So I tell that story because it's,

it's not a story of pure genius.

It's a we, we passed, we didn't even met with them,

I don't think we met with them the first time around,

or maybe one of our junior people did.

But it was one of these, it's you know,

I said earlier that venture capital is

entirely a game of outliers, right?

One of the key things with outliers is

the ideas often seem completely nuts up front.

And so, of course, the idea of a website where you can

have other people stay in your house, if you just like

made a list of the ideas that are like, most nuts,

that would be like, right there at the top.

And then.

>> I have a very nice e-mail from you

>> Good, good.

I was hoping I was very courteous in my stupidity.

Well the second most stupid idea you

could possibly think of is

a website where you can stay in other people's houses.

And so that the

>> Uniquely combines both of those bad ideas.

>> So, of course, it turns out they've unlocked

an entirely new way to basically, sell real estate.

They've unlocked this just gigantic number of

gigantic global phenomenon.

It's gonna be an enormously successful company.

So part was just coming to grips with the fact that we

had whiffed on our initial analysis of the idea.

And that the numbers were

clearly proving that we were wrong.

And the customer behavior was clearly

proving that we were wrong.

So one of our philosophies at our firm is

that we're multistage.

A big reason for that is so

we can fix our mistakes and we can pay up to get in

later when we screw up early on.

The other thing i'll highlight though

is the other reason why we pull the trigger at

a high evaluation, when we did was because of our,

we had spent time at the point with the founders.

With Brian and with Joe and Nate and there's a friend of

mine in private equity has this great line,

Egon Durban has this great line.

He says when people progress through their careers,

they get bigger and bigger jobs, and

at some point they get the really big job.

And it's,

some people, half people grow into the big job, and

about the other half of people swell into it.

Right? And you can

kinda tell the difference.

There's a point where people just lose their minds.

And one of the issues with these companies that

are sort of super successful hyper growth companies is

you know, this would be the sorta the classic case.

These super young founders who

haven't run anything before, so how are they gonna be at

running this sorta giant global operation, and

we just were tremendously impressed and our, today,

every time we deal with all three of those guys.

How mature they are, how much they are progressing.

You know, it, it's like they get more and

more mature, they get better and better adjustment and

they get more and more humble as they grow.

And so that made us feel really good.

That not just was this business gonna grow, but

that these were guys who were gonna be

able to build something.

And be able to run it in a really good way.

>> You know, people always ask me.

Why do you think Airbnb is such a great company.

It's funny we're obsessing over Airbnb but and

I say to people it's because all three founders are as

good as the other founder.

That is very rare.

In the case of Google.

Two founders,

one of them is a little better than the other one.

>> [LAUGHTER}

>> Hey, he is the CEO every company has a CEO.

>> I think we just got the tech crunch headline.

>> Every company, every company has a CEO.

Why am I saying this?

>> When you start a company,

you have to go find somebody as good or better than you.

To be the cofounder.

If you do that,

your chances of success grow astronomically.

And that's why Airbnb became so successful, so quickly.

The anomaly is Mark Zuckerberg at Facebook.

Yes, he has an awesome team.

But the Mark Zuckerberg phenomenon where it's

mainly one person, that is the outlier.

>> Hm-mm.

>> So when you start a company you have got to find

phenomenal co-founders.

>> All right. Audience questions.

Yes.

>> So obviously the conventional wisdom about

why you raise money is because you need it.

But the more I get off conventional wisdom the more

I'm starting to hear another story about why you

raise money and I"m actually hearing founders say it's

more to facilitate the big exit, or in the worst case

to facilitate the acqui hire that are just fizzling out.

What extent is that accurate thinking or

>> Does raising money help

you with an exit, or an acqui hire?

>> Well if you,

if you pick good investors who have good Rolodexes and

domain expertise in what your company does.

They're gonna add a lot more value than the money.

And those are the types of investors you should be

looking for.

>> Yeah. >> So the answer to

the question is clearly yes.

But also in a sense it doesn't matter.

Cuz you can't plan these things according to

the downside.

And so.

I mean, that's the scenario you are not

are obviously not hoping for.

And so while the answer is yes.

Probably that shouldn't enter into

the decision making process.

Too much, but it might enter into which investor to

raise money from,

it probably doesn't enter into the whether to

raise money question that much I don't think.

>> I intend to start a business,

just grow the capital investment,

I do want to end up with some equity.

Do you guys have any advice about how to

deal with extra amounts, people are taking so

long, not everything is like software.

It's viral.

What should congress do for

capital investment companies >> So this is,

I would double down on my previous comments on

the onion theory of risk and the staging of risk in cash

which is the more capital has in the business the more

intense and serious you have to be about exactly what's

going to be required to make the business work and

what the staging of milestones and risks are.

Cuz in that case, you wanna line up,

you wanna be very precise of lining up.

Because the risk is so

high that it'll all go sideways right?

So, like, you wanna be very precise what you're

gonna accomplish with your A round.

And what's going to be

a successful execution of the A round.

Because if you raise too much money in the A round,

that'll seriously screw you up, right,

later on down the road.

In the, cuz you know you're gonna raise the C,

D, E rounds.

You know, and then the cumulative,

dilution will get to be, will get to be too much.

And so you have to be precise on

every single round.

You have to raise as close to the exact right amount of

money as possible and then you have to be as pure and

clean and, and precise with the investors as you

can possibly be about the risks and the milestones.

But, this by the way is a big thing.

This is actually, I'm really glad you asked the question.

It kind of goes back to what Parker said.

Like, look if you walk into our firm and

you've got Twitter, or you've got Pinterest,

you've got something and it's just viral growth and

it's just on fire and it's just gonna go.

Like, those are the easy ones.

Like it's just, like, let's put money in it.

And let's just feed the beast and off it goes.

But if you walk in and

you're like, I got this really great idea.

But it's gonna take $300 million,

staged out over the next five years.

Probably across five rounds.

You know, It has

a potentially very big outcome.

But boy, like this is not Twitter.

Like, this is gonna be serious heavy lifting.

To be able to get there.

We will still do those but the operational excellence

of the part of the team matters a lot more.

And one of the ways that you can convey the operational

excellence is in the quality of the plant.

And back to the Steve Martin thing be so

good they can't ignore you.

The plans should be very precise.

>> And there are ways if your capital equipment.

Intensive.

There are ways of borrowing money in addition to

venture capital.

>> Yeah. >> Sorry.

>> You, you can kick in.

You can kick on a venture data and

then later on lease financing.

But again that underlines the need for operational

excellence because if you're gonna raise debt, then you

really need to be precise in how you're running the

company because it's very easy to trip the convenance

on a loan and it's very easy to lose the company.

And so it's a thread the needle progress that

demands a just sort of a more advanced level of

management then sort of, you know, the next SnapChat.

>> What are some bad sides for

investors that you shouldn't work with their company?

>> Yeah that's a good question.

How do you know with an, what's a sign that you

should avoid a particular investor?

>> Well, it's the inverse of what I

said about a good investor.

If it's an investor who has no domain expertise in your

company, does not have a Rolodex where they can

help you with introductions.

Both for business development and

in helping you do the intro's for series a.

And you should not take that person's money,

especially if they're in it just to make money and you

can suss those people out, you know, pretty quickly.

>> Yeah I would, glad you asked that question.

Bring up sort of a broader point which is

If your company is successful.

You know, we're talking about our,

you know, I think,

generally, or at least as a company, is we want,

our investors are the ones that wanna build big,

independent franchise companies.

So we're talking about a 10 or 15 or 20 year journey.

You know, 10 or 15 or 20 years you may

notice is longer than the average American marriage.

>> This is significant.

The choice of key investors, of particular investors who

are gonna be on the board for a company, I think,

is just as important as who you get married to,

which is extremely important.

These are people you're gonna be living with, and

partnering with and

relying on, and dealing with in position, you know,

in conditions of great stress and

anxiety for a long period of time.

And the big argument I always make is, and

ours like make this all the time,

sometimes people believe it and sometimes they don't.

Which is like if everything just goes great,

it kind of doesn't matter who investors are,.

But almost never does everything just go great.

Right? Even the big successful

companies even the big you know, Facebook and all these

big companies that are now considered very successful.

You know, along the way all kinds of shit went,

you know, shit hit the fan over and over and

over and over again.

And there are any number of stressful board meetings and

discussions and

late night meetings with the future of the company at

stake where everybody really has to be on the same team.

And have the same goals and

be pulling in the same direction and

have a shared understanding.

That have the right kind of ethics and the right kind of

staying power, you know, to be able to actually weather

the storms that come up.

And one of the things that you'll find that is a big

difference between first time founders versus second

time founders is almost always second time

founders take that point much more seriously.

After they've been through it once, and so

it really, really, really matters.

I always thought, and I believe that it does.

It really matters who your partner is, it really is

like getting married, and it is worth putting the same

amount of time, maybe not quite as much time and

effort into picking your spouse, but

it is worth spending significant time really

understanding who you're about to be partnered with.

>> Yeah, >> Because that's way

more important than.

You know, did I get another $5 million in

the valuation or did, you know,

did I get another $2 million in the check?

>> The marriage analogy is great.

I know at SV Angel, our attitude is when we

invest in an entrepreneur, we are investing for life.

Because we wanna invest in, if we made the right

decision, we're gonna invest in every company they start.

And, once an entrepreneur, always an entrepreneur.

So we actually do consider it a marriage.

We're, investing for life.

>> One thing that I,

that, which is another of saying what Mark just said,

is I always look for.

In that first meeting,

do you feel like you respect this person?

And do you feel like

you have a lot to learn from them?

Cuz sometimes you walk in and they have this like just

such an incredible amount of insight in your business.

That you walk out of there being like, man, I don't,

even if these guys didn't invest, that sort of hour

that I spent with them was such a great use of my time.

I felt like I came out with a much clearer picture of

what I need to do and where I need to go.

And that's such a great microcosm of what

the next couple of years are gonna be like.

You know like, don't if you feel like you would want

this person really involved in the company even if they

didn't have like a checkbook that they brought with them.

And if not that's probably a very bad sign.

>> What's the constraint on the V

making accurate use of angels and VCs?

Time, money, or the lack of company?

>> Well what's the constraint on

how many companies you guys invest in?

>> SV Angels has kinda gotten comfortable with one

a week.

You certainly can't do more than that, and

that's a staff of 13.

So it's, it's really the number of companies.

>> Ron, if you had,

if you all worked twice the number of hours,

would you invest in twice the number of companies?

>> I would advise against that,

I would rather just add value,

more value to the existing companies.

>> Maybe you could,

I'll take the role of questioner for a second.

>> [LAUGHTER] Maybe you could,

could you talk a little bit about conflict policy?

>> Or not, or not conflict policy.

>> Well SV Angel actually does

have a written conflict policy.

But most, when we end up with a conflict it's usually

because one company has morphed into another space.

We don't normally,

invest in companies that have a direct conflict.

If we do we will disclose it to the other company,

to both companies.

And keep in mind at our stage,

we don't know the company's project strategy anyway.

We probably don't know enough to disclose.

But our conflict policy also talks about

this really important word, which is trust.

In other words,

we're off to a bad start if we don't trust each other.

And, and with SV Angel, the relationship between

the founder and us, is based on trust.

And if somebody doesn't trust us

then they shouldn't, they shouldn't work with us.

>> Mark, would you invest in companies?

>> yeah. So this is actually-

So, let me go back to the original question.

I'll come back to that.

So the original question is this is the thing we

talk about most often in our firm.

So this is kind of the,

the question is at the heart of I think how all venture

capital operates which is a question of constraints.

So the big constraint on

a top tier venture capital firm the big

constraint is the concept of opportunity cost.

So, it's the concept that basically everything you

do means that there are a whole bunch of

other things that you can't do.

And so, it's not so much the cost.

And, and we think about this all the time.

It's not so much the cost of,

we invest five million dollars in a company, and

the company goes wrong and we lose the money.

That's not really the loss that we're worried about.

Because the theory is will have

the winners that'll make up for that in theory.

The cost that we're worried about,

is, every investment we make has,

has two implications for how we run the firm.

Every investment we make,

number one rules out conflicts, and so, for

sure our policy for sure on venture and growth rounds,

is that we don't invest in conflicting companies.

And so we only invest in one company in a category.

And, so, if we invest in MySpace, and

then Facebook comes along a year later.

Like, we're out.

We can't do it, right?

And so we basically lock,

every investment we make locks us out of a category.

Right? And, the nature, that's

a very complicated topic when you're discussing these

things internally in these firms at first because.

You only know the companies that already exist right?

You don't know the companies that haven't even

been founded yet right?

And God help you had you invested in you know,

an early company that was not gonna be the winner and

you were locked out by the time you know,

the winner emerged three years later and

you just couldn't make the investment.

So that's one issue, is conflict policy.

The other issue is opportunity cost.

The time and bandwidth of the general partners and so

going back to the concept of adding value,

you know we're a firm typical, typical firm we're

fairly typical firm we've eight general partners,

each general partner can maybe be on 10, 10 to 12

boards in total if they're completely fully loaded.

So it's basically Warren Buffet talks a lot

about investing as you basically want to think of

it as a ticket that you have a limited amount of

holes you can punch and every time you

make an investment you punch the hole.

And when you're out of,

when you're out of holes to punch like you're done,

you can't make any new investments.

And that's very much how venture capital operates and

so the way to think about is every open board

slot that one of our GPs has at any given point in

time is an asset of the firm that can be

deployed against an opportunity.

But every time we make an investment it takes

the number of slots that we can punch down by one.

So, it reduces the ability for

the firm to do new deals.

And so every investment we

make forecloses not just the competitive set, but

other deals where we will simply run out of time.

And so, and this is sort of a big thing of like well.

This goes back to what I said earlier.

Like this company's pretty good.

It seems fairly obvious that it's going to

raise extra funding.

Why didn't you fund it?

Well, on its own if we

had unlimited capacity we probably would have.

Like it'll probably make money.

But relative to getting blocked out of

the competitive set and

relative not having that open seat for a, for

an even better opportunity we pass on that basis a lot.

>> It's pretty widely agreed that, that that's it's

easier than ever to build an MVP launched get traction.

Same time we know that there are CPOs that have been

pre-MVP or even pre-launch and pre-traction.

So in those instances where you do a seed round with

a company either doesn't have a or

doesn't have a launch impressive traction.

What do those deals look like and

what do you make that judgment based on?

What convinces you to invest with product with and

no traction?

>> What would convince us,

which is what usually convinces us,

is the founder and their team themselves.

So we invest in people first.

Not necessarily the product idea.

The product ideas tend to morph a lot.

So we will invest in, in the team first.

If it's, if it's pre-users, the valuation is gonna tend

to be corresponding lower unless one of the founders,

you know, has a, a success track record.

>> Yeah, for us it's almost always, if there's nothing

at the time of investment, then it's almost, other than

a plan it's almost always the founder who we've worked

with before or a founder who's very well known.

By the way the other thing worth highlighting is,

you kind of, in these conversations,

in all these conversations, you kinda, the default

assumptions is that we're all starter web companies or

consumer mobile companies.

There are, you know other categories or companies,

capital intensive is one that's been brought up,

but it's I'll just say for

example, enterprise software companies.

Or enterprise these days Saas, you know,

application companies or cloud companies.

It's much more common that there's no MVP right.

It's much more common that they're a cold start.

And it's much more common that they

build a product in the A round.

Then there's no point to have an MVP cuz

the customer's not gonna buy an MVP the customer actually

needs the full product when they first start using it.

And so the company actually needs to raise 5 or

10 million dollars to get the first product built.

But in almost all those cases that's gonna be

a founder who's done it before.

I think we have time for one more question.

Yeah. >> Could you talk

about the ideal Boris structure and

when do you think expect to publish that?

>> Yes, talk about the ideal Boris structure.

>> Gosh, I think So, so in our board we're fortunate

that we have, there's myself and my cofounder, and a.

Partner from Adruse and Horowitz.

Which I think probably removes the fear.

It probably creates a little more trust cuz it sort of

removes the fear that like, you know, someone's going to

come in and just like, fire you arbitrarily because it's

like, time for a big company CEO.

Kind of thing. But I,

in most cases I think if you, if you trust,

if you trust the people that you're working with it,

it shouldn't really be an issue.

Cuz there are so, there are so few.

I mean things almost never come to like a board vote.

And by the time that they do it's like somethings deeply

broken at that point anyway.

and, and most of.

And most of the power that VCs have comes outside of

the board structure, it's protective covenants that

are build into the financing round so it's like you can't

you know, take on debt, you can't sell the company.

There are certain things that you

can't do without them agreeing to it anyway.

So it's probably like less of a big deal than people

make it out to be.

What I found, sort of,

is, is that it seems to me that, as a founder.

If things are going well at the company,

you have sort of unlimited power, vis a vis,

your investors.

Like, almost unlimited.

Like, no matter what the board structure is, and

no matter what the covenants are in the round.

Like, if you say, listen, I wanna do this, and

I think this is what we need to do.

And even if it's, like, a good investor or

a bad investor.

Even the bad investors will be, like, you know?

Like, let's, let's, let's make it happen.

Cuz they wanna like ride this rocket ship with you.

And when things are going badly it does not

matter what protections you've built into

the system for yourself.

Like, you know, at the end of the day, like,

you need to go back to the trough to get more money.

And you know, if, if, like, things aren't going well,

like they're gonna have all,

all of the cards in their hand.

>> And they're gonna get to renegotiate all the terms.

>> And, exactly they'll change all the terms.

>> This is what happens actually when

a company gets in dire straights.

Their it actually doesn't matter what the terms, but

at fire rounds they all get renegotiated.

>> This is I think

the fundamental rule of raising money.

Other than never having down turns is that if

things are going well the founder is in control and

this company needs more money and

things going badly, if investors are in control.

>> I've been on boards for 20 years public and

private, I have never been a board vote that mattered.

It's always been never, never a vote.

Many discussions, many controversies, many issues.

Never a vote.

It's the decision has always been clear by the end.

And it's either by unanimous or very close to unanimous.

And so I think it is almost all around the intangibles

and almost not at all around the details.

>> Okay. Thank you

guys very much for coming in today.

>> Pleasure.