Even if investors didn't start out with this bias, they'd soon learn it from experience.
This applies to every situation.
For investors it's "if you are so good why couldn't you find a way to get someone I trust to vouch for you?"
For a cheap product, it's "if it's so good why is it so cheap?"
If you can't find a way answer the variation of this question in your situation, you will undoubtedly hit a brick wall in selling to that person.
For startup ideas its ," if its such a good idea why doesn't it exist." This is actually why questions like "why now" or "what makes you different" or "how do consumers solve this problem now, without your solution" are commonly asked...
If your so...why aren't you...
Is there a way to bridge that gap and make the process more equitable in different geographies and networks?
EDIT: Removed the first part of my original two-part question because it was less relevant to the OP.
Those of us out in flyover country have to deal with no local angels at all, or tire-kicking committees that want traditional 50 page five year business plans and take six months to make up their minds. And I'm sure the situation is far worse in places like India.
You wrote,"Even if investors didn't start out with this bias, they'd soon learn it from experience."
Considering the core value proposition, and biggest driver of YC's success is it's introductions it promises... I feel a need to question this second part of your statement purely from a potential bias perspective.
It may be true, but can just as likely be built on a false assumption from anecdotal evidence.
So you're admitting that they're social-proof whores who refuse to think for themselves, even about the subject matter of their own jobs?
VCs should be mortally humiliated by the fact that the game they're running is, after all is counted, a feudal reputation economy-- all flashes, no substance.
Yet people are surprised that VC, as an asset class, has been a stinker for the past 13 years.
Building a successful startup is 1,000 times harder than hustling your way into a VC meeting. If you can't do the latter, it's pretty likely you won't be able to do the former.
To some extent, being able to work a social network (or cold call a contacts friends, and get them to introduce you) is an advantage to a start-up. But it's not really sufficient, and may not even be necessary (since it's something founders will learn as they go).
If it's an enterprise sales company, it's certainly a requirement though.
Oh, and women too.
C'mon. Weak argument here man. Newsflash: We trust the people that... we trust.
You're explaing why people are basically racist and xenophobic. Congrats. Unfortunaely, this makes your posture politically untenable / incorrect and dangerous. It also paints VCs with guilt by association. Because, ya know what? they are certainly sexist and racist based upon the data. Unfortunately. Bad news for this argument is tha VC cash comes from Public Pension funds and other LPs which politically cannot support such institutionalized bias against protected classes. Of course, the loophole is that VCs are not employers. So they are legally entitled to be as rascist, mysoginistic, and otherwise discriminatory as they damn well please. But don't go around publicising it.
Suffice to say I find your comments so absurd that they don't even merit a rebuttal. Consider yours the last word, congrats.
That's more of an availability problem, though, not a trust problem.
Someone who is well-connected due to their previous successes and demonstrated hard work and talent is a much safer bet. And I'd argue you don't get well-connected just by showing up. That'll buy you a friend or two, but not a network.
One thing that I would add also is that investors don't seem to want to be introduced to you by their non-investor/non-business contacts, so their friends and acquaintances. I learned this one also because I figured that would be a good approach. What seems to happen in this case is the "stink" on you gets transferred to the intermediary and the investor picks up on it.
I would actually phrase this another way, "Be honest with me: If I asked you to refer me to one of your investors, would you recommend me to him/her or is my startup not there yet?"
1) Be specific. Which investor do you want an intro to, and why? I know my investors well. Some of them love meeting early-stage startups. With others, you are wasting your time unless you've already raised significant capital. Other times I can't help at all (recently got asked for an intro by a B2C company--I know my investors from a B2B perspective since that's where my company is, and I'm not sure who would be a best fit for a B2C company.)
2) Be real. If you don't have any customers/pipeline, traction, or even a working demo, you're not ready for investment. For some reason there tends to be a pervasive belief that a "napkin idea" can get funded. Maybe 1% of the time, that's true. But even with a previous exit under my belt, I still had to have some form of traction before I got investors onboard. If you have nothing except an idea, please feel free to ask for advice, but don't ask for advice on looking for investors, because I'm going to tell you to focus on traction first.
- First-time founder has to show traction.
- With a handful of successful startups under the belt, one can make do with a good powerpoint, a prototype and some customer interviews.
- With a long streak of victories, a napkin is just fine.
Ergo if you're not Steve Jobs, you can't get away with a napkin.
But a VC was quoted that they funded zero cold contacts. That doesn't sound like its hard; it sounds they're incapable of evaluating cold contacts at all. I'm guessing they use contacts for their expertise, because VCs lack any.
Risk can be mitigated by doing some diligence. It sounds to me like the only diligence VCs do (are capable of?) is "what does some other smart guy think?"
I'm not trying to paint VCs as incapable, but this story makes it so likely. Zero cold contacts invested in? Zero ability to evaluate leads on their own? That's pretty damning.
They can also call themselves a hedge fund or an investment bank and stop pretending if they are afraid of the risk, they can invest in oil extraction that is always in need for capital and is of absolutely no risk.
(I think this is far less of a problem than access to education, as someone in the position of founding a startup is already on a very high tier of agency and privilege compared to the vast swath of society. Also, you're "born with" connections to startup founders at a far lower rate than you are born with connections to universities, in general.)
Great link, though, thanks!
For example I would rank introducers as:
1) People who are superstars in your field (i.e Peter Thiel if you're a payments startup) or have great track-records in backing super-star companies across fields.
2) People who are experts in their field and the VC trusts. For example if you're in an adjacent space to a current portfolio company, getting an introduction from that portco (or even a reputable non-portco) carries a lot of weight. Or investors who have a track record in your field.
3) People who are customers of your product and the VC trusts. If your customers are gushing about you that makes for a great intro, if a portco emails their VC saying "there's this product that we use and love and the company is raising money" that'll get attention.
4) People who are well placed to evaluate your product/startup and have some relationship with the VC. Similar to (2)/(3) but they don't have to have a strong relationship with the VC. The VC trusts them because of their expertise not because of their relationship.
5) People who are well positioned to evaluate you and your team personally and the VC trusts. So for example people you've worked with in the past who will personally vouch for you.
Below that you basically have introductions from people who (a) Aren't in a position to evaluate your business and (b) Aren't in a position to evaluate your team. So it's basically a case of "we met these guys the other day and they seemed smart and had a nice demo" - i.e. the VC might spend a bit of extra time looking at it as a favour to the introducer but it's unlikely to be significantly better than meeting at an event, etc.
At that level a bunch of other factors come into play. If an investor is super-into your space or if you've got a strong resume/team they'll likely look at you regardless of how you came to their attention.
Yes, the investors do "assume", but, for information technology investing, their ROI for the past 10
years sucks (details in a Fred Wilson blog).
VCs don't know the right people to know
a significant fraction of people who are
really "good". A really "good" startup
likely won't know anyone a VC will "trust".
If a VC can't evaluate my work from what
I write, then they won't be able to be
effective on my Board; I won't be able to
hope to be successful with them on my Board;
and I won't be able to have them on my
Board or have them invest.
I want to be successful in business, but
on average VCs are not very successful.
Khosla had some recent, sharp remarks
Referring to Chris Sacca (http://lowercasecapital.com/prospecting/) perhaps?
I know plenty of people high up in
US business and academic research,
but those people and the VCs don't
know each other.
VCs and I don't know the same people.
Bluntly, the VCs are a bit below my
'circle' of business acquaintances.
In particular, the fraction of VCs
I would hire into my company is tiny,
so small to be nearly invisible. Why?
Because their technical qualifications
in information technology, etc. in a
I mean, would you hire a VC? For what,
BizDev? What if a VC gave you
advice on how to invest your IRA?
many VCs can code, productively with today's
technology? How about be a system administrator
for a high end server farm or network?
"The single most important decision you will
ever make is with whom to do business."
Extra credit for the source.
Everything worth having comes from others, and a confrontational attitude is the worst one, if you're trying to get through filters, that's how they perceive you. If at any time it feels like you're beating your head against a wall, that's because you are. Take a step back and figure out what you're doing wrong.
That can be great for building your network for the day when you might want funding, advice, or 3rd party intros.
It's starting to look like less freedom and more BS compared to working for BigCo.
What I learned, to my great surprise, is
that apparently the VCs are under some quite
severe constraints. So, they are forced,
from whatever, to ignore essentially everything
about a project I learned doing projects
in business, academic research, and for the
Instead, for an IT project they
want to see, as about the second thing,
some running software. That there might be
a lot of crucial work before such software,
work that makes the software itself trivial,
just is not in their experience and is nearly
always way beyond their nearly always
rather meager technical backgrounds.
So, for the
running software, they want to "play with it",
likely essentially to look at the user interface
(UI) and estimate how well many users will like it.
For more, they want to see some forms of
'traction' which apparently they use as a
surrogate for accounting data traditional in
commercial bank lending or private equity
For a deeper look, they like simplistic
'patterns' based on past history
of IT VC taken fairly narrowly.
they have a fundamental problem seeing
or evaluating something that is really
new, even if, say, the US DoD problem
sponsors could see the power and value.
So, I have a list of 40+ VCs eager to
"play with" my software when it goes live.
I got an introduction to none of them and
for each of them just sent e-mail. They
responded with e-mail and at least one
phone conversation. They are impressed
enough with the 'market', the 'technology'
to the (meager) extent they and
value it, and the goals. Then they just
want to see it working, hopefully also
with 'traction'. How much? One VC
firm said 100,000 unique users a month.
With my site that might be $12,800
a month in revenue at which time,
with my low 'burn rate' of
a sole proprietor solo founder,
I should be on a nice path of 'organic'
growth and still 100% owner.
Yes, my situation is not 'standard',
but neither are successes in the VC
The VCs need to learn how
to look at and reliably evaluate work
that is new, typically just on paper;
US research academics and high end
US DoD problem sponsors can;
VCs cannot. So far maybe that lapse
has not much hurt them. But, generally,
gotta tell you, the VCs are way, way
behind the leading edge of US
science, technology, and entrepreneurship.
Fuck all of those emasculated half-men who can't bite down on a decision themselves, but must slurp down the pre-chewed, half-digested chyme of social proof.
I could say a lot more but it's already obvious where the good people stand.