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

startup#class#sam altman#CS183B#Y Combinator#Startup Company (Website Category)#ron conway#marc andreessen#parker conrad#fundraising#venture capital
231K views|9 years ago
💫 Short Summary

The video segments discuss the criteria and strategies for successful fundraising and investment in startup companies. Key points include the importance of clear communication, strategic decision-making, risk management, building strong teams, and finding the right investors. Examples from successful companies like Google and Airbnb highlight the value of taking risks, having skilled co-founders, and selecting investors with domain expertise. Emphasis is placed on maintaining control as a founder, building trust with investors, and understanding the dynamics of funding rounds to ensure long-term success in the venture capital business.

✨ Highlights
📊 Transcript
SV Angel looks for founders and companies with specific characteristics and communication skills for investment.
01:00
They have invested in over 700 companies and prioritize leaders who are focused, product-obsessed, and good communicators.
Mark and Ron invest across various stages and business models, highlighting the significance of outliers in venture capital.
Only a small percentage of companies seeking venture capital funding actually receive it.
Venture capital firms prioritize investing in companies with unique strengths over those that simply check boxes.
03:15
Investing in companies with serious flaws can lead to missing out on big winners.
Entrepreneurs should clearly articulate their product in one compelling sentence to investors.
Making quick and decisive decisions is crucial for startup success, with procrastination seen as detrimental.
Building a great team is essential once a great product is established.
Lessons learned from fundraising experiences.
06:47
VC advised making pitching easier and having necessary analysis ready.
Importance of being like the 'Twitter guys' to attract investors.
Frustration with traditional fundraising methods led to starting a company without relying on VC funding.
Appeal of businesses with strong cash flow for investors.
Key points for building a successful business.
08:50
Importance of starting lean and bootstrapping as long as possible.
Emphasizing the value of being so good that investors can't ignore you.
Focus on improving the business itself rather than just the pitch.
Cautionary lesson on the challenges of raising venture capital.
The Onion Theory of Risk in entrepreneurship emphasizes the interconnectedness of risk and cash flow.
11:33
The theory highlights the different risks faced by startups, such as team dynamics, product development, and market acceptance.
Running a startup involves systematically addressing and mitigating these risks, gradually reducing uncertainty.
Entrepreneurs need to understand how managing risk and cash flow is essential for long-term success in business.
Key Highlights on Raising Capital
13:08
Risks should be eliminated systematically by reaching milestones and justifying additional funding.
Trust with investors is crucial, avoid asking for NDAs upfront as it can signal mistrust.
Getting agreements in writing is essential for clarity and accountability.
Fundraising process should be done quickly and efficiently without ego involvement.
Importance of Written Agreements in Investment Deals.
15:42
Investors tend to forget financing commitments and co-investor arrangements, so putting agreements in writing is essential.
SV Angel focuses on seed-stage startups, investing $1-2 million as the first investor.
The firm evaluates around 30 companies per week, investing in one, prioritizing leads from their network.
The investment process includes team voting and phone calls to founders with domain experience.
Importance of Seed Rounds in Attracting Top Tier Venture Capitalists.
18:22
Criteria for Series A Investments include previous seed funding and founder success.
Emphasis on the significance of seed investors in gaining introductions to A stage investors.
Discussion on negotiation tactics and key terms for founders to consider.
Collaboration with seed investors and referral networks recommended for successful investor connections at the A stage.
Importance of choosing the right seed investors for future fundraising success.
21:55
Quality introductions from trusted venture capitalists increase chances of success.
YC offers guidance on identifying the right investors, leading to accurate subsequent funding rounds.
Starting with a high valuation can deter investors, adjusting to a more realistic evaluation is beneficial.
Walking down the valuation from $12-15 million to $9 million based on investor feedback resulted in a more favorable response during fundraising efforts.
Key Highlights of Seed-Stage Funding Rounds
23:05
Investors are interested in funding rounds below a $10 million cap, with perceived thresholds for excessive funding levels.
Founders typically sell between 20-30% of the company in series A rounds, as venture capitalists prioritize ownership over price.
Selling above 30% can lead to complications in the cap table, so it is advised to raise only the necessary funds.
The general consensus for seed-stage funding is around 10-15% equity, emphasizing the importance of understanding funding dynamics and making informed decisions.
Importance of ownership dilution in early rounds for investors.
25:39
Ownership dilution can demotivate founders and leave little equity for the team.
Large ownership by outside investors can deter potential investors and impact team morale.
Successful investment in Google in 1999 was attributed to connections and access to promising companies.
Networking with angel investors and professors is crucial for identifying investment opportunities.
Success stories of Google and Airbnb highlight the importance of taking risks and thinking outside the box in technology and startups.
28:15
Larry Page and Sergey Brin developed the PageRank algorithm in 1998, focusing on website relevancy based on user traffic.
Despite initial skepticism, they secured investment from Sequoia Capital and Yahoo! to launch Google.
Similarly, Airbnb's concept of people staying in strangers' homes seemed outlandish at first but proved to be a disruptive innovation in the real estate market.
Importance of skilled founders in successful companies like Airbnb.
32:03
Founders should partner with individuals who are equally or more competent to increase success.
Airbnb's rapid growth attributed to partnering with skilled individuals.
Companies with founders of varying skill levels may struggle to achieve success.
Selecting capable co-founders is crucial for the success of startups.
Importance of finding strong co-founders, role of raising money, and value of investors with expertise and connections.
33:01
Co-founders play a crucial role in the success of a startup.
Raising money can facilitate exits or acquisitions in the future.
Investors with domain expertise and connections can provide added value beyond just financial support.
Precise planning and staging of risks in cash investment is necessary to ensure successful execution of funding rounds.
Importance of precision and clarity in fundraising.
35:21
Stress on being exact with money amounts and transparent with investors.
Differences between easy investments like Twitter and more challenging ones requiring heavy lifting.
Operational excellence and quality emphasized as key factors for success.
Significance of having domain expertise and a supportive network when choosing investors.
Importance of Choosing Key Investors for a Company.
38:01
Key investors are crucial to a company's success and must be selected carefully.
Challenges will arise, and a united front from all stakeholders is necessary.
Second-time founders stress the importance of selecting the right partners.
Investing time in choosing the right partners is essential for long-term success, similar to selecting a spouse.
Importance of Long-Term Commitment in Investor-Entrepreneur Relationship.
39:44
Investors view their relationship with entrepreneurs as a long-term commitment, akin to a marriage.
Key factor in investment decisions is level of respect and learning potential towards the entrepreneur.
SV Angels invests in one company per week, prioritizing adding value to existing investments over increasing quantity.
Company has a conflict policy based on trust and discloses conflicts when necessary, emphasizing trust as foundational in relationships with founders.
Constraints faced by top tier venture capital firms.
42:41
Each investment made by the firm rules out conflicts and impacts how the firm is managed.
Opportunity cost is emphasized, stressing the significance of general partners' time and bandwidth.
Investing is compared to punching holes, illustrating the finite number of investments a firm can make before exhausting opportunities.
Factors influencing investment decisions in startups include founder/team potential over product idea.
45:01
Valuation may be lower for pre-user startups unless founders have a successful track record.
Investors prefer working with familiar founders or well-known figures.
Startups can vary from typical web/mobile companies to enterprise software or SaaS companies.
Some startups may not have a Minimum Viable Product (MVP) initially and build products in later funding rounds.
Key highlights on startup funding and decision-making.
47:00
Startups usually require 5-10 million dollars in funding to develop their initial product.
Having experienced founders is vital for the success of a startup.
Board structure and trust among team members play a crucial role in effective decision-making.
Founders hold significant power and influence, particularly in successful times, while investors may have more leverage during challenging periods.
The importance of maintaining control as a founder in raising money.
49:25
Board votes are not crucial in decision-making processes.
Decisions are typically unanimous or nearly unanimous due to intangible factors.
Board discussions and controversies focus more on intangibles than details.