
Lecture 9: How to Raise Money - WestCoastJustin
http://startupclass.samaltman.com/courses/lec09
======
malanj
All the top tier VCs (including YC) repeat the mantra "don't sweat the terms".
It also appears on Ron Conway's slide in this lecture.

There seems to be a dangerous line between taking a good deal as offered and
getting nailed by a bad deal. It's easy for the VC to say "don't sweat the
terms", they are setting the terms after all. The advice makes sense if you're
working with a top tier firm that has a reputation to protect, but it seems
like it could be quite dangerous when applied to lower tier VCs?

~~~
idlewords
This is one of several significant conflicts of interest in this lecture
series. I'm surprised it doesn't seem to bother people to see VC trying to
play both sides of the table. The optimal world for investors (a tiny
proportion of huge successes) looks very different than the optimal world for
startups (many moderate successes). And the idea of investors trying to coach
founders on how best to enrich investors is just nuts.

~~~
AndrewKemendo
This isn't for charity. In my opinion this startup school is intended to pump
college students into the VC environment so that they (Private funds) can
capture as many young, smart talents as possible to add to their portfolios.

At the end of the day the "Startup" world is the world of finance, and I think
the explosive crop of high risk private equity (Angel, VC, hedge) investors
are trying to get as many "makers" into it as possible.

Whether this is good for the new entrants or not is too early to tell. I think
it probably is when compared to the alternatives, but my guess is that I am
missing something.

~~~
ISL
Is it an advertisement for YC? Absolutely. So is HN.

It's also interesting. I don't think I'd have gotten much out of the class as
an undergrad, but a decade later, I'm learning a lot from this lecture series.
Among the things I've learned: I probably don't want to start a startup; I'd
rather focus on great products and execution in my field.

I view it as more in line with the Graham/Buffett school of giving back as you
go. PG (not BG) has an academic bent, and academics like share what they've
learned.

Thank you, YC. It's a worthwhile course.

~~~
HeyLaughingBoy
Heh! Thanks for the clarification. I read Graham/Buffet to mean Ben Graham
([http://en.wikipedia.org/wiki/Benjamin_Graham](http://en.wikipedia.org/wiki/Benjamin_Graham)),
not PG so I was a bit confused.

------
adwf
One thing that struck me was that both Ron and Marc said they mostly invest on
referrals. Ron said that almost no-one came in unannounced anymore - every
seed investment was a referral from someone he knew. Marc said that almost
every A round was a referral from Ron or someone else he knew.

My question is: If you can't get seed funding without already knowing someone
in SV, who _are_ you supposed to know and how do you get to know them? Is
there no way but to work at another startup first and then branch out once
you've made connections with the management/board? Or go to Stanford and hope
your professor has connections like Google?

Edit: Obviously YC is an option too ;)

~~~
ericb
YC is a hack around the old-boy you-have-to-know-someone network. It's
ingenious. YC implements a better filtering algorithm than the dumb who-you-
know filter and sells the companies to VC's at a premium.

It's amazing most of the VC's have not worked out a better filtering algorithm
themselves.

~~~
rdlecler1
I'm hazard a guess that YC uses back-channels as well. Firms like SVAngels and
a16z get 10-30 deals per day with referrals so they can focus all their
attention on making type II errors.

~~~
adwf
Yeah I've been reading a lot of the "How we applied to YC" articles recently
and it does seem that even YC use a lot of referrals. Quite a few were along
the lines of: Apply to YC, email a friend who knows a partner and see if you
can get a referral.

It may only get you to the interview stage, but when you have the mass of
1000's of applicants, it's more than most people get.

------
dkarapetyan
How to succeed in life: 1) Be attractive, 2) Don't be unattractive.

How to raise money: 1) Bootstrap, 2) Don't have a need for VC money.

They might as well have said that in the first 20 minutes instead of beating
around the bush. All 3 of them say the best way to get money is to not need it
to begin with, i.e. be the twitter guys.

------
jonalmeida
Notes: [http://jonalmeida.com/posts/2014/10/21/htsas-
lec09/](http://jonalmeida.com/posts/2014/10/21/htsas-lec09/)

------
rdlecler1
Sam: I'd live to see a discussion on putting together a party round at the
seed stage. I'm not sure how common this is, but we have over $1M of interest
in our seed round (angels/micro VCs), but we're operating in a space where
very few investors have any domain expertise, and so everyone is waiting for a
lead. Is this common? Any ideas how to push this through? In the mean time
we're taking the Steve Martin approach.

------
johan_larson
Did I miss something? They were talking about seed rounds raising on the order
of a couple of million dollars.

I thought seed rounds raised a couple of hundred thousand (at valuations of a
couple of million), with series A rounds at about ten times those numbers.

Have things changed, or were they talking about valuations rather than the
amounts raised?

~~~
ryanSrich
I don't think there's too much consistency when it comes to dollar amounts and
rounds. From what I've seen a seed round is typically 500k - 3m. With series A
being 3m - 25m. There's a ton of variability.

------
pombrand
Wrote a quick summary of key points in the talk - it really shows what the
"top VCs" are looking for, go big or go home:
[https://www.facebook.com/johan.aardal/posts/1015274252107585...](https://www.facebook.com/johan.aardal/posts/10152742521075851)

------
rajens
17 Quotes from Marc Andreessen & Ron Conway each from the lecture:
[https://medium.com/how-to-start-a-startup/17-quotes-from-
mar...](https://medium.com/how-to-start-a-startup/17-quotes-from-marc-
andreessen-ron-conway-on-how-to-raise-money-d0b710f115f1)

------
morenoh149
We'll be watching this lecture and lecture 10 next tuesday in San Francisco
[http://www.meetup.com/Ycombinators-Stanford-
lectures/events/...](http://www.meetup.com/Ycombinators-Stanford-
lectures/events/212289722/)

------
graycat
There was a lot of good in Lecture 9; although I watched the whole lecture, I
eagerly got, saved, and read the transcript.

The part I liked best was Ron Conway's suggestion,

Ron Conway: But in the process, when somebody makes the commitment to you, you
get in your car, and you type an email to them that confirms what they just
said to you. Because a lot of investors have very short memories and they
forget that they were going to finance you, that they were going to finance or
they forget what the valuation was, 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 have replied to that email anyways so get it in
writing.

This advice sounds a lot like the old technique of writing a _self-serving
letter_.

Maybe I'm the only one, but there in Lecture 9, from both Andreessen and
Conway, I saw some surprises.

Broadly it seemed to me that some of the messages didn't fit well with some of
the other messages. And for some of the messages and examples on some of the
questions, maybe there are some better messages and examples.

For one surprise there appeared to be a _theme_ ; maybe we should notice the
theme:

Andreessen and Conway get new investments mostly only from people they already
know and respect.

Then, with this theme, it would appear that in some ways and to a significant
extent Andreessen and Conway are living in a Silicon Valley version of an
_echo chamber_.

Then what would be surprising about such an _echo chamber_ is that necessarily
what Andreessen and Conway are looking for are strongly _exceptional_ cases:

E.g., Andreessen mentioned

"companies that have the really extreme strengths"

and

"... the venture capital business is one hundred percent a game of outliers,
it is extreme outliers".

and

"And so the big thing that we're looking for, no matter which sort of
particular criteria we talked about, they all have the characteristics that
you are looking for the extreme outlier.

Maybe I'm the only one, but it strikes me that an echo chamber is a poor place
to look for strongly _exceptional_ cases. That is, the cases Andreessen and
Conway are looking for happen only a few times each decade, Facebook, Twitter,
PInterest, and a few more.

Or, for evidence of an _echo chamber_ , there was,

Ron Conway: I think what’s interesting is, we don't really take anything over
the transome. Our network is so huge now that we basically just take leads
from our own network.

So, either (A) Conway's "network" is really small with, say, just Mark
Zuckerberg, Dick Costolo, Ben Silbermann, and a few more or (B) so big that
most of the _sound_ in the echo chamber is not much like what Conway is
looking for.

and for more on an echo chamber there was,

Marc Andreessen: The other thing is, I mentioned this already, but we get
similar to what Ron said, about two thousand referrals a year through our
referral network. A very large percentage of those are referrals through the
seed investors. So by far the best way to get the introductions to the A stage
venture firms is to work through the seed investors. Or work through something
like Y Combinator.

Then what holds for Conway and other seed investors means that Andreessen is
drawing from what came from the echo chamber of the seed investors.

Maybe I'm the only one who noticed this; seems surprising to me.

The people I know and respect in information technology and especially
promising for very valuable start-ups likely know no one in either the Conway
or Andreessen networks and, really, are not known by those networks. Conway
and Andreessen are working hard to separate themselves from the people I
respect.

Maybe Andreessen and Conway would respond with the remark in the lecture,

"The key to success is be so good they can't ignore you."

So, then, it would seem that somehow all concerned should try to avoid or
circumvent the echo chamber. E.g., get a lot of _traction_ , publicity, etc.
and then the investors will call the entrepreneur. Maybe.

But on

"The key to success is be so good they can't ignore you.",

this characterization of success is not very clear if only because, for the
big winners Andreessen wants, he also expects "serious flaws" as in,

Marc Andreessen: On the other side of that, the companies that have the really
extreme strengths often have serious flaws. So one of the cautionary lessons
of venture capital is, if you don’t invest in the bases with 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. So what we aspire to do is to invest in the
startups that have a really extreme strength. Along an important dimension,
that we would be willing to tolerate certain weaknesses.

So, for success, have to put up with "serious flaws".

Also there is

Marc Andreessen: Even the big successful companies, even Facebook, all these
big companies that are now considered to be very successful, all along the way
all kinds of shit hit the fan over, and over, and over, and over again.

So, for success, can expect "serious flaws" and also "all kinds of shit hit
the fan over, and over, and over, and over again".

So, here Andreessen admits, say, that the road to success has a lot of bumps.
Okay, maybe so.

So, what's the truth,

"The key to success is be so good they can't ignore you."

or

"serious flaws" and the shit keeps hitting the fan?

To add to the confusion, there is

Marc Andreessen: You want to be very precise on what you can accomplish with
your A round and what is going to be a successful execution of your A round.

Would be nice! But we already know that, instead, we can expect "all kinds of
shit hit the fan over, and over, and over, and over again".

Andreessen seems vacillate between (A) shit hitting "the fan over and over"
and (B) being "very precise".

I see some confusion.

There also appears to be some confusion on planning:

So there is,

Ron Conway: What would convince us, 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 idea tends to morph a lot. So we
will invest in the team first.

which sounds like the planning is useless. For more, commonly there are claims
that in projects, planning is important but that

"No plan survives contact with the enemy".

To me, this sounds too negative, that is, there have been a lot of
complicated, ambitious projects that were executed as planned, on time, within
budget. And for military projects, this can also be the case as in the _Mother
of All Briefings_ by General Schwartzkopf as at

[https://www.youtube.com/watch?v=wKi3NwLFkX4](https://www.youtube.com/watch?v=wKi3NwLFkX4)

And, on the air campaign

[https://www.youtube.com/watch?v=i6YP5OalP18](https://www.youtube.com/watch?v=i6YP5OalP18)

E.g., there we hear that the plan was that the air war would take 4-6 weeks,
and it did. Early on several days were lost to some unusually bad weather, but
later the got caught up and back on schedule.

The ground war? That was 100.000 hours. Period. The plan was a lot of
diversionary efforts and a big left hook "Hail Mary" play -- worked just as
planned.

The tank battles? The US Abrams tanks could fire accurately through fog and
dust for two miles while moving; the Iraqi tanks could fire accurately only
with clear sight, for only one mile, and only while standing still; and the US
tank crews were well trained; any doubt about how that _planning_ would come
out? The F-117 stealth? Did all the bombing of Baghdad, through all the air
defenses, and never got so much as a single scratch -- just the way Lockheed
planned it. Similarly for the US F-15c against the Iraqi fighters -- the score
was some dozens for the US and 0 for the Iraqis. Net, the planning worked.

Lesson: Planning and then executing the plan as planned really are possible,
maybe not usual or common but, still, possible.

I see Conway and Andreessen as asking too little from planning. I can believe
that in their echo chamber, they have learned not to think much of plans, but
elsewhere in our economy and technology are many cases where ambitious
projects were planned and then executed successfully essentially according to
plan.

Well, I can believe that Conway and Andreessen were describing their
experiences in Silicon Valley looking for the next big thing or at least the
next big app to get middle school girls all excited and sell out to Google,
Facebook, Yahoo, etc.

And Conway has been at this game for a long time at the earliest stages where
the worst of the unpredictability is.

For Andreessen, apparently he likes to argue; or as at

[http://avc.com/2014/10/getting-feedback-and-listening-to-
it/](http://avc.com/2014/10/getting-feedback-and-listening-to-it/)

there is

"They definitely keep me on my toes, and we’ll see if they’re able to convince
me. I mean, part of it is, I love arguing.

"The big thing about Twitter for me is it’s just more people to argue with."

So, maybe Andreessen is mostly just arguing.

Maybe the bottom line is, often Silicon Valley is not very clear on just what
they are doing. That, too, can be a valuable lesson for an entrepreneur and
worth watching the lecture.

I'm surprised: If with so little clarity I did my applied math and wrote my
software, I'm sure the math would be awash in terrible errors and my software
would likely never run.

That's how I see it. YMMV.

