We weren't clear about the definition of a "seller" in the Venture Hacks post. I'll revise to say something like,
"The seller doesn't have to be a "salesman" or "business guy". He can be technical, but he must be able to wield the tools of influence. Bill Gates and Steve Jobs aren't salesmen, but they are sellers."
When your existing investors don't maintain their pro rata in a new financing, prospective investors will wonder why. This assumes that the existing investors: (1) Have already invested in your company (duh), (2) Have some knowledge of the company (e.g. served on the board), (3) Make it a habit to invest in follow-on financings like yours.
You can still get around this if you have a good excuse, e.g. "Our existing investors are out of money". And your existing investors confirm your excuse when prospective investors inevitably call them.
So if USV didn't participate in the latest Twitter round, the company and USV probably had a good excuse, e.g. "Our fund isn't structured to make acceptable returns at $1B valuations". When a random angel who isn't on your board doesn't invest your Series A, most prospective investors won't wonder why.
Regarding YC-Sequoia:
The firms who are likely to invest in post-YC companies are likely to be mavericks who can think for themselves. That's the kind of investor you want anyway. You don't want to tell prospective investors that Sequoia spent three weeks intensely studying your company and decided to pass. But the fact that Sequoia could have looked closely at your company, but didn't, will probably be irrelevant.
On the other hand, if Sequoia and other YC insiders are cherry-picking the best YC investments before they hit the mass market, good investors are going to get less interested in demo days. That will hurt YC companies.
I don't know how these forces and other forces will play out in the marketplace. And since we're talking about game theory, the existence of this thread will influence the outcomes.
I don't see the direct harm to YC here. If Sequoia and other YC insiders are cherry-picking the best YC investments before they hit the mass market, incoming entrepreneurs will correctly see YC as an awesome automatic networking opportunity. Sure, the opportunity doesn't always work. But the chance is valuable.
If there is any possibility of damage it would be because YC could come under pressure to recommend companies to go the VC route when that is not in the company's best interest. Why would that not be advisable? Well VCs interests are not always your own (see http://www.paulgraham.com/venturecapital.html) and particularly not if there is an opportunity for a direct acquisition (see http://www.paulgraham.com/vcsqueeze.html).
The issue is around how many deals Sequoia funds. If other investors think that Sequoia already has the best 3 companies in any class sewed up before demo-day, why come to pick up the less interesting companies.
There is a lot to be learned from a lot of "MBA" professors including Drucker, Christensen, Pfeffer, Ackoff, and more. And there are a lot of great graduates of MBA programs.
But the MBA programs have already de-valued themselves into the garbage can. The burden is on MBA programs to prove that they are valuable as these blogs, not the other way around.
I like venturehacks (actually a lot) but blogs in general have just as much "de-valued themselves into the garbage can." At least when you are in an MBA program you receive information from different disciplines (HR, Strategy, Operations, etc, etc.) With blogs you first have to get past the fact that the top 20 are just one big echo-chamber.
Some people (like me) have a problem asking for things. "Hesitation" is why Steve Blank suggests considering hiring a "sales closer" when you get to the customer validation stage (the stage where you are asking for the customer's money).
Regarding negotiation, low-balling and high-balling don't make sense in all situations. Especially if you are in a situation where the relationship between the negotiating opponents after the transaction is important.
You know, this is fascinating. I don't have a trouble closing - I have trouble cold calling and prospecting. In a negotiation, all you have to do is figure out the cost savings/additional revenue for your customer and find the highest acceptable price that's NPV positive for them. That's why healthcare sales people have all these fancy ROI models (built by third parties, wink wink) that they truck into sales meetings.
It's much easier mechanically and emotionally to deal with a negotiation; it's much harder to randomly call people and be cursed at/hung up on.
Regarding negotiation, low-balling and high-balling don't make sense in all situations. Especially if you are in a situation where the relationship between the negotiating opponents after the transaction is important.
I agree that there are circumstances where high/lowballing isn't appropriate: You don't go to a long-time customer and start negotiating for 10x the cost for the same service. But in the case of a new contract, that highballing will set the course for the following deals. You get more at the start, and the following deals will all follow a similar price-point.
Furthermore, by demanding high at the beginning, and then coming down, the person with whom you're negotiating will feel as though he/she "won" the negotiation, due to the huge concessions you made "He was asking a million dollars for a plan and we got him for $250k."
My point is you can highball and still have a solid post-negotiation business relationship.
I will definitely be checking out your book recommendations though.
