
How to Convince Investors - johns
http://paulgraham.com/convince.html
======
michael_nielsen
"Inexperienced founders... try to convince with their pitch. Most would be
better off if they let their startup do the work—if they started by
understanding why their startup is worth investing in, then simply explained
this well to investors."

This advice applies to many things in life -- getting a job, proposing
marriage, networking in general.

For instance, I've occasionally met people who obsess about crafting the
perfect CV. For many of those people (not all) if they'd brought the same
level of intensity to doing good work in the past, they'd be fighting off
would-be employers, without any need to sprinkle pixie dust on their CV. Ditto
people who try to find some magical method for networking. Do awesome work,
and networking becomes mostly a matter of showing up and saying plainly and
understandably what you've done.

~~~
keiferski
I feel like this may be a tech-centric phenomenon, unfortunately. In a lot of
industries, omitting the right keyword from your CV will exclude you from
interviews.

~~~
theorique
_I feel like this may be a tech-centric phenomenon, unfortunately. In a lot of
industries, omitting the right keyword from your CV will exclude you from
interviews._

Thing is, past the first N years of your career, your CV / resume doesn't (or
shouldn't) matter much. Ideally, you are connected to important people in your
industry, who know what your work (or portfolio) is, and what you are best
suited to do.

In such a situation, a person who wants to hire you would make the decision in
advance, coach you to put in the right keywords so that your resume passes all
the necessary and appropriate HR tests, and make the hire happen.

It's all about networking, who you know. What you know is obviously important,
but if nobody knows in advance that you can do it, it's harder to prove such a
thing in an interview? (Of course, this is less true for new grads or newer
professionals, who haven't had time to build up a professional track record.)

~~~
GFischer
"Ideally, you are connected to important people in your industry"

That's why being suckered into backend positions with little or no contact
with customers or other parts of a company is often not a good idea, even if
the pay is good and the tech interesting.

Doing postgraduate studies, participating in events, speaking, all of those
are very important, yet, at least in my case, I only learned about those
relatively recently.

I know some good people that don't do this, and they get outsmarted in the
career ladder by the more gregarious types (which, in some cases, did worse
work, or even worse, some sociopathic/liar types). That's also a reason not to
work in big companies :) unless you're a good hand at self promotion and
office politics yourself (and there are some toxic companies where not even
that can save you. Usually monopolies or oligopolies).

~~~
hef19898
Completely second this.And office politics are a nasty thing. One day you are
the king pin at it, the next day some restructuring a new boss or a only a
little slip in a project and you can be dead in the water. And yes, big
companies tend to be more prone to be like that.

EDIT: And after that happened you may just realize that all you can show is
some experience in office politics. By trying to sell that in the next
interview you just turn into the next CV optimizer. Kind of a vicious cycle.

------
ericabiz
I wrote something similar today, only I called it "When the Sh-t Hits the Fan
with Your Startup":
[http://www.erica.biz/2013/startup/](http://www.erica.biz/2013/startup/)

In the post, I wrote: I firmly believe no outside problem (running out of
money; struggling to pay bills) can’t be fixed by looking inside yourself and
becoming a better, stronger person.

That may sound sort of cheesy and "self-help-y", but for me it was
transformative. I had to have internal confidence before I could project
confidence externally. In order to have that internal confidence, for me, it
involved rethinking absolutely everything about our startup, from our name to
our customer demographic to our value proposition. (I go into detail on what
happened and how we re-thought our startup in my blog post.)

Once I rethought everything, I found a deep well of internal confidence, and
we went from "teetering on the brink" to raising another $175,000 from outside
seed investors quickly (some of whom had been sitting on the fence for
_months_ ), and then applying to and getting into Techstars' first Austin
class as well.

External problems like lack of money or investors saying "no" are often
reflections of your own internal doubts or lack of confidence. As PG said,
it's not fixed by bravado, but by going deep inside yourself and rethinking
your assumptions. Why are you doing this? Of all the things you could be
doing, is this the #1 thing that drives you every single day of your life?

Once you fix your internal issues, the external issues resolve themselves.
However, this lesson may be something you have to experience to believe (as I
did.)

~~~
vacri
Say 'shit' or don't say 'shit'. Don't mask it - it's the worst of both worlds.

------
salimmadjd
_That 's the secret. Convince yourself that your startup is worth investing
in, and then when you explain this to investors they'll believe you. _

This is one of the best advice for both fund-raising or anything else in life
and it's basically the same strategy Arnold Schwarzenegger used to become the
"number one star" in hollywood [1] as explained by Steve Chandler:

* ...Then I asked just how he planned to become Hollywood's top star. Mind you, this was not the slim, aerobic Arnold we know today. This man was pumped up and huge. And so for my own physical sense of well-being, I tried to appear to find his goal reasonable.

"Easy, It's the same process I used in bodybuilding," he explained. "What you
do is create a vision of who you want to be, and then live into that picture
as if it were already true." *

edit: attribution added - 1: [http://biznik.com/articles/being-like-arnold-
schwarzenegger](http://biznik.com/articles/being-like-arnold-schwarzenegger)

~~~
RogerL
I don't quite buy it. We may just be seeing selection bias How many thousands
do that and fail miserably? We never hear about it. How many luck into things?
We hear about them, but don't then discount Arnold's story by some Bayesian
amount of doubt. And how many get completely burned by trying to live as if
they are something they are not, and get ostracized as a result?

Hollywood is _filled_ with people trying to act like they are a great star.
Almost none of them are, nor will they ever be one.

~~~
rustynails
The way I'd look at it is that focus and confidence is a pre-requisite, not a
guarantee. Arnie was right.

~~~
RogerL
I would like evidence for that statement. Because I have heard many Hollywood
stars just exude insecurities. Heck, we talk about it all the time, and it
even has a name "imposters syndrome". If you can achieve great things while
feeling like an imposter, I would say that is an unanswerable rebuttal to the
claim that confidence is a a pre-requisite.

------
jasonkolb
"Founders think of startups as ideas, but investors think of them as markets.
If there are x number of customers who'd pay an average of $y per year for
what you're making, then the total addressable market, or TAM, of your company
is $xy. Investors don't expect you to collect all that money, but it's an
upper bound on how big you can get."

I would really love some more color on this. What about a product that
addresses a genuinely new market? For example our market is a subset of the
analytics market targeted at a new set of data, similar to Mixpanel or
KissMetrics. I honestly have no idea how to talk about the market because
there is no analogue at this point. How can I apply this advice?

"But every company that gets really big is "lucky" in the sense that their
growth is due mostly to some external wave they're riding, so to make a
convincing case for becoming huge, you have to identify some specific trend
you'll benefit from."

Is this the answer to my question? It doesn't give me an $xy, but it does give
me the "wave" I'm riding. Is that a solid foundation for talking to investors?

"It's slightly dickish of investors to care more about who else is investing
than any other aspect of your startup"

You have a silver tongue, PG :)

~~~
pmarca
Genuinely new markets are really rare. They do happen -- VMWare was a great
example. But they are few and far between.

This is why lack of competition is often scary to potential investors --
paradoxically -- they ask themselves, how attractive can this supposed new
market be if there are no other companies going after it?

The advanced way to do market analysis -- which only the most experienced
entrepreneurs ever actually do, but which works really well, at least with us
-- is to spend very little time on market theory or top-down market estimates
(handwaving), and instead put a lot of effort into building a solid, well-
though-through BOTTOM-UP market analysis.

What I mean by bottom-up is, literally, start at the bottom -- with an
individual customer -- what is their problem, and how much are they plausibly
going to pay for the solution, and then how much is it going to cost to
acquire that customer. Then sum up how many customers like that exist at
various sizes and in various market segments.

E.g. "I estimate that in the US alone there are 50,000 small companies that
need this solution and will pay $10,000 each, and I think I can acquire them
for $3,000 of sales and market expense each. And then there are another 5,000
midsize companies that will pay $50,000 each..." and so on and so forth. You
can slice and dice it however makes sense for the specifics of what you are
doing.

This kind of analysis answers several questions at once for the investor:

(a) Is there a big market? (b) Does the entrepreneur actually understand the
dynamics of the market she's going after? (c) Does the entrepreneur understand
the sales and marketing requirements and costs of her business? (d) Is this an
entrepreneur who takes every aspect of her business seriously and rigorously?

~~~
mindcrime
_What I mean by bottom-up is, literally, start at the bottom -- with an
individual customer -- what is their problem, and how much are they plausibly
going to pay for the solution, and then how much is it going to cost to
acquire that customer. Then sum up how many customers like that exist at
various sizes and in various market segments._

Interestingly enough, that totally jibes with the Customer Development
methodology from @sgblank, where he talks about developing and validating your
"Problem Hypothesis", "Market Hypothesis", "Channel Hypothesis", etc.

 _E.g. "I estimate that in the US alone there are 50,000 small companies that
need this solution and will pay $10,000 each, and I think I can acquire them
for $3,000 of sales and market expense each. And then there are another 5,000
midsize companies that will pay $50,000 each..." and so on and so forth. You
can slice and dice it however makes sense for the specifics of what you are
doing._

This is the approach we're taking at Fogbeam. We've identified a beachhead
market we're going to pursue to try and get initial traction, done some
simulations based on the number of such customers, potential price points,
etc., and come up with some potential revenue numbers and what-not. NOW, the
next step is to get out and prove that our numbers actually make sense and
hold up in the real world. Of course, they won't _really_ , at least not
according to our most optimistic projections. But the hope is that they _do_
hold up well enough to get this thing off the ground...

------
wellboy
The only thing you need is traction. Anything else doesn't matter.

It seems insane, but investors are blinded by traction.

If you are a startup that has low scalability, but you have traction, you will
get funding

If you are insanely scalable, a great idea, but you don't have traction, you
just won't get funding. It doesn't matter how awesome your team is. Investors
just can't see good ideas through the traction curtains anymore.

Why is this? Because investors have no clue, but you can't blame them, they
are mostly 40-50 year olds whose minds are just not built anymore to foresee
the future and most of them haven't even build a startup from ground to IPO.
How are they supposed to even remotely know what will be the next startup that
turns the whole silicon valley upside down.

This applies to 99% of investors, but there is a tiny folk of 1% who are so in
the mindset, almost all of them previous founders. They can foresee the future
and they are only waiting for the startups to have built the product they have
been thinking of for years, but haven't built it due to simply not having the
time.

Source: Pitched my no-traction/very scalable startup to hundreds of investors
over 4 months until I stopped 2 months ago to get traction, never got a second
meeting except for one time. Always thought, do the investors not see how
super scalable this all is? Said no-traction startup now has strong traction.

~~~
kyro
Is the traction you're referring to here the type limited to web startups or
(if anyone else knows) does this hold true for virtually any startup in any
industry? I imagine there are a handful of industries where achieving
'traction' may take several years, eg biomed.

~~~
spartango
On one hand I'm inclined to come out and say, "No, in some industries you
simply cannot get traction before going to investors (repeatedly)", given my
experience in the biotech industry. Most biotech companies don't get
"traction" until even after IPO, because the capital needs associated with
making scientific and medical progress are large.

Yet, the reality is that even in these companies there's a notion of traction,
and it's absolutely critical. It's not measured in terms of users, but instead
manifest in scientific milestones. Every time you demonstrate the scientific
validity of a piece of your tech, you are de-risked in the eyes of investors.
That mirrors traction, even if it's less direct.

Another way that biotech companies can achieve notions of traction comparable
to tech companies is through intermediate business models, such as operating
as a contract research organization or reference laboratory.

Despite those parallels, I'd say that biotech traction is still difficult to
achieve because most science lacks determinism in the rate of progress.

------
billclerico
One of the biggest changes in my style as an entrepreneur from when I started
WePay (4 years ago) to now is that I used to focus so much on "the sell" \-
but now I focus on the substance. It makes the selling far easier, and it
makes it easier for your team to sell it as well.

------
michael_nielsen
"But while Microsoft did really well and there is thus a temptation to think
they would have seemed a great bet a few months in, they probably didn't.
Good, but not great. No company, however successful, ever looks more than a
pretty good bet a few months in."

As an example, Bessemer Venture Partners passed on investing in Apple, Google,
Intel, eBay, FedEx, and many other big companies. Their "anti-portfolio" makes
amazing reading, and vividly demonstrates how hard it is to pick winners:

[http://www.bvp.com/portfolio/antiportfolio](http://www.bvp.com/portfolio/antiportfolio)

~~~
emhart
What a phenomenal bit of copy from a VC company as well. This paragraph in
particular:

Our reasons for passing on these investments varied. In some cases, we were
making a conscious act of generosity to another, younger venture firm, down on
their luck, who we felt could really use a billion dollars in gains. In other
cases, our partners had already run out of spaces on the year's Schedule D and
feared that another entry would require them to attach a separate sheet.

had me laughing aloud as it completely took me by surprise. Thanks for the
link!

------
vog
As a side note, I think the website "paulgraham.com" demonstrates an anti-
pattern: It is available with and without "www." prefix, thus splitting the HN
comments into two parts:

[https://news.ycombinator.com/item?id=6175417](https://news.ycombinator.com/item?id=6175417)
(paulgraham.com, i.e. this one)

[https://news.ycombinator.com/item?id=6178042](https://news.ycombinator.com/item?id=6178042)
(www.paulgraham.com)

The solution is simple: Establish an HTTP redirect from "www.paulgraham.com"
to "paulgraham.com" or vice versa.

------
mhartl
PG's advice reminds me of a story from _Surely You 're Joking, Mr. Feynman!_.
Feynman relates how his first (!) scientific talk (as a graduate student at
Princeton) was attended by such luminaries as Eugene Wigner, Wolfgang Pauli,
Albert Einstein, and John von Neumann. We was terrifically nervous, but
discovered that as soon as he started giving the talk his nervousness melted
away—he was too focused on the physics to worry about who was in the audience.

~~~
mhartl
I meant "He was", not "We was". Argh. I must have read and missed that ten
times, and of course now it's too late to edit it.

------
lpolovets
As someone who is starting a seed fund with a few friends, I want to address
one of the footnotes:

"The best investors rarely care who else is investing, but mediocre investors
almost all do. So you can use this question as a test of investor quality."

I think the part about mediocre investors is true, but I'm not sure if I agree
with the part about the best investors. There is actual value in knowing who
else is investing. First, knowing the caliber of other investors is a signal.
It's not the only signal, and it's not the best signal, but it is a signal.
Second, my partners and I have a network of trusted coinvestors. If we hear
that one of them is investing in a company, we can share due diligence, which
is great for founders because it avoids duplicated meetings, and great for us
because it saves us some time/helps us focus on questions that haven't already
been asked and answered. We have never made a decision to invest in something
"because X is investing", but we've certainly used our relationships with
various X's to inform our due diligence process.

------
kerryfalk
I found this to be especially refreshing. I may just be placing my own spin on
it but it seems to me like Paul was saying: _have integrity and know what you
're talking about._ I'll have to give it another read to ensure I'm not just
placing my own biases on the words.

I have about a decade worth of sales experience. Sometimes not very
successful, some very successful. I've also succeeded with convincing
investors. The two were very similar for me. I've also worked with many other
people in sales roles; of the ones that were successful only a small handful
sold in the way Paul writes about.

Moving forward I won't be working with, or hiring anyone who doesn't. It's
better for everyone.

Thanks for the essay, Paul.

------
davemel37
The underlying concept I took from this post was a fundamental rule of
marketing and sales...

Every decision made starts with an emotional trigger, and ends with a
defensible position.

~~~
pmarca
Yes -- this is what engineers who refuse about sales never come to understand.
The decision is typically emotional; the facts are assembled and interpreted
to justify the decision.

The reason it isn't insane for VCs to invest money into ambiguous situations
even knowing that we are doing this is because the enterpreneur who can't get
the a VC to be emotionally positive isn't going to be able to get anyone to be
emotionally positive about what they are doing (recruits, customers, press,
etc.). Conversely, the best entrepreneurs often marry great product skills
with great sales skills.

~~~
hammerzeit
Jonathan Haidt said it well -- we think our brain works like a scientist when
it actually works more like a lawyer.

Incidentally, your second point echoes one of the more persuasive arguments
I've heard for cofounding teams -- if you can't convince a co-founder to join,
will you really be able to build a team and acquire customers?

------
jusben1369
"The people who are really good at acting formidable often solve this problem
by giving investors the impression that while no investors have committed yet,
several are about to. This is arguably a permissible tactic. It's slightly
dickish of investors to care more about who else is investing than any other
aspect of your startup, and misleading them about how far along you are with
other investors seems the complementary countermove. It's arguably an instance
of scamming a scammer. But I don't recommend this approach to most founders,
because most founders wouldn't be able to carry it off."

\- Trying to reconcile this with the earlier citation that truth telling is
critical. This flies in the face of it and rationalizes this behavior by
claiming it's dickish to ask? I don't think that's true and when did two dicks
make a right? By the way the much better tactic to solve this problem is pick
one or two investors and work with them to get them to commit and then have an
honest answer for the others who'll fill out your round.

I enjoy these essays overall but don't enjoy this common thread I see that
confuses hustle and sleight of hand as being interchangeable.

~~~
larrys
PG seems to be saying that the other side "drew first blood".

Of course that is an assumption that because they ask a question they care.
While I'm sure they probably do care (because it's a well known fact and human
nature) asking doesn't prove that the answer matters to them.

That said in business bluffing and telling lies in certain circumstances about
certain things (especially negotiation with an adversary) is a given. There is
a line that is walked and it is walked differently by different people
according to what they feel comfortable with.

After all if you were at a car dealer and asked them "are you selling me this
car cheaper than to any other customer" how do you think they would answer?
And if they asked you "tell me the price the other dealer quoted you" how
would you answer?

One thing I do know is that if you don't know how to be devious in business
you will have problems. This is not to say you should be a thief lying all the
time and ripping people off. But you need to have some common sense about what
is done in a business transactions and what is generally considered
acceptable. And how in some cases you could even be viewed negatively for
being "to honest".

------
gruseom
_Make the truth good, then just tell it._

That closing line is the equivalent of a gymnast sticking a landing.

------
lifeisstillgood
I loved the wings metaphor but i found it still frustrating - pg is clearly an
intelligent, observant person, at the heart of some of the best and brightest
entrpreneurs _globally_. And yet we still cannot tell what makes a child grow
into a twenty something whose wings can unfurl and a twenty something with
raggedy stumps.

I hope that no one comes out of the "tube" of school and college without wings
- but if that's true why do so few seem to fly?

What is it about those who fly that they learnt that others did not?
Formidable-ness seems to simply be a tell for a good investor - not an
explanation.

Please keep pushing them off cliffs - maybe we can work it out soon.

------
soneca
A pitch is required to present your startup's idea to some people. Like
friends - if they understand, they will engage and support you, give advices;
if not, they will change the subject, think you're a little lost and tell you
to "get a job". Or to your parents - if they understand, they will be happy
and optimistic about your future; if not, they will worry and tell you to,
guess, "get a job". To other entrepreneurs and developers - if they
understand, they will try to give advices, make contacts, keep you in their
mental list of people they would like to work; if not, they will you consider
one wantrepreneur. This pitch is very important, it needs to come out without
any thinking, on automatic. You need only one answer on this pitch, two or
three sentences and a complement if the interlocutor is interested and give
you space to talk about your startup. More than that is a conversation, and
for conversations you do not need pitches.

Do you know for whom you do not need a pitch? Investors. I am not talking
about potential investors, who may one day remember you and consider the
investment as the entrepreneurs I said earlier. I am speaking of that meeting
with the investor, face to face, where you're to present your startup and they
will decide whether to invest in you or not. A meeting is a conversation, not
a pitch. It is the time that you will present what you know, not what you
memorized. We must listen to the investor, to understand his doubts, it takes
a lot of empathy. When going to a meeting for such a conversation you should
prepare your knowledge, not your speech. You must have a deep understanding of
the strengths and weaknesses of your startup, you have to create a
presentation only to show some specific numbers that you have no reason to
decorate. Those data that are calculated in a serious, rigorous method and not
"estimated" or "expected".

In summary, I think two things are essential: i) to have a carefully prepared
pitch, ready to go out without thinking, the standard answer about your
startup - something that is clear and visionary at the same time, to show the
idea and attract person's interest and ii) not to have anything memorized if
this short answer turn into a conversation, but you have to be completely
updated to all relevante knowledge about your business - and this will tell
not only the investors, but yourself, if you are prepared to run this
business.

------
flipside
"The time to raise money is not when you need it, or when you reach some
artificial deadline like a Demo Day. It's when you can convince investors, and
not before."

Been waiting for someone to articulate this for a while now. Pitch people an
idea a few thousand times and you get pretty good at reading if people buy it.
Getting close to the "convince" threshold for investors and when we do reach
it, watch out!

------
acgourley
PG led the charge on the idea you should start a company instead of going to
grad school or taking a safe job. It's very important that he's now also
saying, "your startup, despite needing money, might not be ready to raise
money yet" because it adds an important constraint on your decision to take
the plunge - either be sure you can reach the goal in a few months or have
more personal runway.

------
EGreg
I have found the binary thing to be true with west coast investors (especially
in San Fran). Here in NYC, many angel investors think in terms of "when will I
start getting returns on my money", and not "will this be the next big hit"?
Catering to both types is often impossible, you have to pick one to go after.

------
hclose
Neophyte question: Why do investors have to ask founders who else is
investing? Is it not possible for them to check this themselves, via public
records? [There are some sites that even pre-package the SEC filings for
consumption by journalists, etc.]

It makes perfect sense to me why investors would want to know who else is
investing, for a number of reasons. For one, standing on the sidelines knowing
that most startups will fail is not a reasonable strategy. This is because
some startups, no matter how unlikely, will succeed, and some VC will, despite
our better judgment, have invested in them. If other VC deliver higher value
for their clients than we do for ours because we cautiously and prudently
stand on the sidelines, then we stand to lose the confidence of our clients.

But I do not understand why anyone would rely on the statements of founders to
determine who else may or may not be on board as investors.

~~~
wtvanhest
The way VC and angel rounds work, is in rounds...

Each round has investors commit and before they close, some investors may ask
who else is investing. Most closed rounds on really early stage companies are
hard/impossible to find, but all pre-closed rounds are impossible to find
since there is no record of something that hasn't happened yet.

~~~
hclose
Here's one website I was thinking of: [http://formds.com](http://formds.com)

Is the information disclosed in Form D's severely limited or useless for
determining who is being funded and who is funding them? If yes, then what is
the purpose of this website?

------
McKittrick
No one likes risk. Even early stage investors. A good investor deck should
convince the investor that whatever risks are associated with particular
investment opportunity are seemingly mitigated.

Team - not your first rodeo, know how to win, subject matter experts. Focus -
clearly stated value proposition. Dream - big market, big value. Plan of
Attack - clear path to capture market share. Validation/ Traction - customers!
Tech - solid, non-obvious, not easily replicable. (i.e. if your successful,
someone else can't just hop into the market and eat your lunch). Use of
proceeds - not just pay my salary, but grow this business. Next big milestone:
profitability? another fund raise?

If you hit on these, then investors will want to put money in their favorite
types of companies: the one's that don't look like they need it. ;)

------
gesman
"You need three things: formidable founders, a promising market, and (usually)
some evidence of success so far."

Evidence of success often makes the first two way less relevant. Up to the
point where tables are turned and investors will be trying to convince
founders to take their money.

~~~
mindcrime
Where this whole thing breaks down, though, is where you need more money than
you can self-fund, to get to that point of having _some evidence of success so
far_. In theory, the whole point of "seed stage" capital is to take a company
who aren't at that point yet, and get them there, where they can leverage that
success to either grow organically, get acquired, or attract additional
investment.

But these days, would-be "seed stage" investors are acting more like VCs
looking at an A round. Everybody seems to have become incredibly risk averse,
and acts like they've forgotten the "high risk" part of the expression "high
risk, high reward".

Now to be fair, I'm speaking from an East Coast perspective, and I understand
the investors here tend to be more risk averse than their West Coast
counterparts. But from the sounds of this, this mindset may be spreading.

Oh well, at least, in our case, we aren't trying to raise money (yet) anyway.
Our goal is to self-fund as far as possible and only raise outside money if we
absolutely have to.

------
arnoldwh
It's a bit like a game. It's the investors job to eliminate false positives
and vs. a first time founder, investors will typically have an advantage in
that they've been through this many times before.

Trying to "beat the system" is like trying to beat investors at what they
would on average be the best at doing and potentially sending inadvertent
false positive signals caused by the nervousness of being new to fundraising.

If you focus on what PG recommends, you eliminate a lot of that friction since
you eliminate the nervousness.

My tl;dr: In the fundraising lottery, it's easier to sell investors a ticket
than trying to convince them you have the winning combination.

------
larrys
What's also interesting about all of this (when looking at qualitative
factors) is that while we have plenty of data on certain people's success
after the "nth" investor took a gamble (and it is a gamble since many had
passed on the same person/opportunity [1]) on their idea and we have
statistics on people that they gambled on and failed, what we don't have is
any statistics on someone that _everyone passed on_ and what would have
happened if one person took a chance on them and gave them an opportunity.

[1] (as with Drew Houston and the east coast))

------
6thSigma
> There are a handful of angels who'd be interested in a company with a high
> probability of being moderately successful.

Is YC in this camp or do you guys and gals try to stay in the huge success
side of speculation?

~~~
SurfScore
From the "Philosophy" section of ycombinator.com/about (the whole section is
relevant really):

 _One concrete consequence is that Y Combinator funding lets you sell early,
if you want to. It can sometimes make sense to sell yourself when you 're
small for a few million, rather than take more funding and roll the dice
again. Google likes to do early-stage acquisitions, and we expect them to
become increasingly common as other companies learn what Google has.

If you take a large amount of money from an investor, you usually give up this
option. But we realize (having been there) that an early offer from an
acquirer can be very tempting for a group of young hackers. So if you want to
sell early, that's ok. We'd make more if you went for an IPO, but we're not
going to force anyone to do anything they don't want to._

I think YC prefers big successes but doesn't try to pressure everyone to be
the next Dropbox or AirBnB

------
dhruvtv
"Why do founders persist in trying to convince investors of things they're not
convinced of themselves?"

This line hit home with me. Applies perfectly to job interviews.

~~~
jacques_chester
It also applies to dating; indeed, any human activity where you are selling
your own self.

------
beat
So a question... how do you balance confidence from a well-understood solution
to a well-understood problem in a well-understood market, with the kind of
blue-sky dreaming that seems to excite investors? Crossing into that blue-sky
world starts smelling like BS to me, but when I say "We could realistically
get a $100M chunk of an existing multi-billion market", it doesn't seem
ambitious enough?

~~~
emmett
It smells like BS to you because you don't really, honestly believe that
you're addressing a multi-billion dollar market.

That's not necessarily bad, but the whole point of the essay is that you
should first come up with a strategy for a market that you really think has a
shot of being that big.

------
Sealy
Thanks for the advice Paul. It's very well timed as I have an investor meeting
later today!

My biggest takeaway from your essay: the truth prevails. As cliche as it
sounds, its apt advice for those aspiring to be the biggest startups of our
generation. Its easy to get carried away with our dreams and visions.

------
jacques_chester
> _When people hurt themselves lifting heavy things, it 's usually because
> they try to lift with their back._

It's got more to do with a weak back, actually. Folk with strong backs can
lift very heavy weights safely.

In terms of the analogy, I dunno what I'm saying. Just fulfilling my HN
nitpick quota.

~~~
dredmorbius
That and rounding the spine rather than maintaining an arch.

Though the back musculature is sufficiently complex that a mis-firing can make
for a bad week even if you're just picking up a bar of soap.

Yeah, I cringe when I see obvious-but-sadly-erronious out-of-scope analogies
being made. Particularly if I happen to have some idea of the subject area in
which the analogy is being drawn. Sort of detracts from the whole message.

~~~
jacques_chester
These days I just let it slide. It's like being annoyed by inaccuracies in
movies. Everyone's annoyed by something.

~~~
dredmorbius
It's a sign of sloppiness, lack of attention to detail, and a fundamental lack
of interest in facts.

If the issue is sufficiently allegorical, I'm reasonably OK with letting it
slide, but increasingly this is a sign that there are much deeper flaws in a
piece, and it's time to shift my limited attention elsewhere.

E.g., "weight loss" stories in the popular press (in my case most often on NPR
or The New York Times) which fail to distinguish adipose tissue from skeletal
muscle, or address the role of strength training in both body recomposition
and fitness. Both Gina Kolada and Gretchen Reynolds have particularly caught
my attention in this regard.

Or this stunning display of cavalier disregard for facts from The Economist:
[http://www.economist.com/news/leaders/21582516-worlds-
thirst...](http://www.economist.com/news/leaders/21582516-worlds-thirst-oil-
could-be-nearing-peak-bad-news-producers-excellent)

Notice in particular: dismissal of the opposing argument is limited to unnamed
"several theorists, who have since gone strangely quiet". ORLY?

Not that The Economist hasn't (editorially at least) been notoriously and
conspicuously cornucopian.

------
nostromo
I <3 this essay. "Fake it 'til you make it" seems to be the m.o. in a lot of
entrepreneurial circles. I've honestly never known if this is actually a good
strategy or not. It seems the answer is no.

~~~
billclerico
IMHO "fake it til you make it" is sometimes necessary and sometimes it
produces quick wins - but if you let it distract you from building authentic
value then it is a net negative in the long term.

~~~
relaxatorium
"Fake it 'till you make it" embeds the assumption that you are going to make
it, which is a thing you need to constantly and actively work on doing.

Otherwise, it's just faking it.

------
gpsarakis
Maybe a little out of context, but how easy is it to start talking about an
idea without a working prototype? Of course it would make things easier, but
maybe not always possible without a minimum funding.

------
sinzone
Sometimes is the other way too. They have to convince you, that they are the
best fit for the company.

------
nakedrobot2
Hi pg,

I admire the clarity of your thoughts.

This is a really fine and insightful article. Thank you for sharing this.

------
rmason
There's one error: Microsoft did raise venture capital. They did it a matter
of months before they went public.

[https://news.ycombinator.com/item?id=2339287](https://news.ycombinator.com/item?id=2339287)

~~~
pg
Yeah, I know. But that was not fundraising in the sense I'm talking about.
That was just to support the IPO price.

------
theoh
Whatever. When you consider the whole concept of the "pivot" it's clear that
this is a business of betting on people rather than business plans, which
makes this essay a bit redundant.

------
ecuzzillo
s/both your time/both your time and theirs/

------
kategleason
Shakespeare. amazing clarity of thought put to words.

------
wissler
This is a really fantastic essay, but I was disappointed by this:

 _The people who are really good at acting formidable often solve this problem
by giving investors the impression that while no investors have committed yet,
several are about to. This is arguably a permissible tactic._

By engaging in this tactic, you are working to make foolish behavior on the
part of the investor successful, which then leads to the very climate that
makes the dishonesty so tempting in the first place. It's a vicious cycle.

Why not stick to the "always be 100% honest" approach? This will reform the
investor climate over the long-term if the best startups consistently use it,
and after all, these best startups are the target of your essay.

I recognize you didn't recommend this approach. But I think you should go one
step further and not claim it is arguably acceptable.

~~~
larrys
"This will reform the investor climate over the long-term if the best startups
consistently use it, and after all, these best startups are the target of your
essay."

Seems that the target of PG's advice is a particular individual and what
benefits them. Not what benefits all startups. If he were writing to investors
he might write differently.

