00:00raising money is a game that you sort of
00:02have to figure out oftentimes these
00:05meetings can go terribly awry the worst
00:07sort of investor meeting is one that
00:09makes you question why you're even doing
00:11a company anymore today we're talking
00:13about our worst investor meetings when
00:16you need money to start your business
00:18there's some pretty epic ways for it to
00:21go wrong if you're prepared for the
00:23worst though you'll be better off when
00:25it's your turn in the hot seat
00:37I mean I did a lot of investor meetings
00:42easy was one in London I won't name but
00:45um a big International fund
00:49who had this reputation of keeping
00:52Founders waiting that was the first it
00:54was like commonly known another
00:55competitor hours flew to London and was
00:57made to wait for like six or seven hours
01:00to meet this person what I was only made
01:02to wait one hour and I felt like I got
01:03off lightly so that was the first sort
01:04of annoying thing and then he sort of
01:07summoned his court you know five or six
01:09of his minions and he was um in the
01:12middle of eating his lunch
01:14during the meeting fine whatever busy
01:16busy person and he had his shoes and his
01:19socks off I don't really understand why
01:22um and was simultaneously like picking
01:24his feet with his hands and then eating
01:27his food with his hands and then at some
01:29point in a closed office decided to
01:32light a cigarette and smoke a cigarette
01:35in his closed office
01:37I just like it's kind of looking at
01:39everyone like challenging anyone to say
01:41anything did he offer you a cigarette he
01:43did not I mean because I would have been
01:44polite I'm in the first polite thing
01:46maybe and then fight like it was just
01:48like this test it was just smoking it
01:50and then didn't finish it took a
01:52cigarette put it out in his lunch took
01:55his coffee and poured his coffee over
01:57his cigarette and his lunch
02:00I was just like what is this weird power
02:02play I mean and obviously he did not end
02:03up investing and it was just a bizarre
02:08so that was probably the worst do you
02:09think he remembers that
02:12I think that is not the only time he has
02:14done it and so so for him this is a
02:16Tuesday yeah so when he watches this
02:19he'll be like God knows
02:22the world is full of status games and
02:25unfortunately a lot of the financial
02:27world still operates not by the truth of
02:30product problems and the ability to
02:32create but instead this kind of thing
02:34don't be shaken we're at the beginning
02:36of a shift in the way business is done
02:38you should know the best Founders in the
02:41future will have their pick of the best
02:44builder focused VCS and the status ego
02:48game that VCS play it's just not going
02:50to work for them we're at Justin TV and
02:52we had just had a banner year so we get
02:54this meeting with the famous VC we're in
02:58San Francisco we drive down to Sand Hill
02:59Road it's like this famous Journey that
03:07we go into this very famous office and
03:10on the wall there are these like stock
03:12certificates of these amazing companies
03:14that went public and we're like that's
03:18and then we get into this Investor's
03:21and we do our kind of quick
03:22introductions you know we're nervous we
03:26um pitching and before we start this
03:28investor says uh to Justin
03:31um uh Justin's Chinese says to Justin
03:34do you speak Chinese
03:36and Justin's like oh you know my parents
03:38do or maybe my mom does like I
03:40understand a little bit but I never
03:41learned how to speak and this investor
03:43is like oh you know I'm studying
03:46Chinese like you know do you understand
03:51and says a little phrase and Dustin's
03:52like oh yeah that kind of yeah
03:54and then you know it felt
03:56inappropriate no no no no at the time no
03:59at that point it was just kind of like
04:00building Rapport right it was just like
04:05but then that continued
04:08so it was like oh well how about this
04:10phrase I'm like oh well how how would
04:12you say this and and
04:15I can't tell how long it lasted right as
04:18a Founder in the room it felt like 20
04:20minutes of torture I bet it was like
04:23five minutes but like five minutes in a
04:26room with the super high powered VC and
04:28literally we have this business that
04:30we're here to pitch that we think is
04:32good and you start realizing if this is
04:35the thing we're spending time this is
04:37the highest value way they can spend
04:38this one hour like maybe
04:41he he's not that interesting
04:47and so uh and it turns out that was
04:50great no they did not invest that was
04:52okay so the investor starts giving you
04:53language lessons at the start of your
04:55your pitch probably not a good sign one
04:58of the things I took away from that
04:59experience is that sometimes investors
05:01don't understand that their process is
05:06and in many ways how Founders experience
05:09interacting with them in the process of
05:11getting money is going to be the memory
05:13that they have of them there are a
05:16couple pieces of advice that we give to
05:17YC Founders from talking to investors I
05:19think the first is believe the no but
05:21don't believe the why
05:23you're going to get a lot of no's when
05:25pitching and more often than not the
05:28investor will not be transparent as to
05:29why they're saying now
05:30I think the second is that we say often
05:33is you know an a grade investor
05:35is respectful Through Time response your
05:38questions makes a decision quickly and
05:42and there are very very very many people
05:44who aren't that good and there are very
05:46few people who really add value
05:48and so if I were to kind of summarize
05:51Our advice it is really hard to tell
05:53whether you're interacting with a great
05:54investor or not and oftentimes as an
05:57early stage YC founder or startup
05:59founder in general you don't get to
06:00choose right like you don't have this
06:03like wealth of of choice I might say the
06:06first optimization is try to go for
06:08people who regularly invest in startups
06:13and who are respectful with your time
06:15and respect with you and move quickly
06:17and then I would say the second thing to
06:20do is prepare your mind for the idea
06:22that it's going to take longer than you
06:24you're going to have more meetings than
06:25you want and a lot of people are going
06:28value-add that won't come to fruition
06:31it's less about how do I find the
06:34perfect investor and it's more about how
06:35to come in with the right expectations
06:36the big inversion that YC helps
06:39companies with is that before YC it was
06:42the investors who had the leverage you
06:44couldn't get in front of that many
06:46investors and when they did want to
06:48invest they could treat you however they
06:51want it because it was money that was
06:53scarce these days the lucky thing for
06:56you and me is that things have gotten a
06:59lot better for Founders but it's still a
07:01crapshoot remember why you're raising
07:04money you have a dream to manifest we
07:06tell these stories to you not to bum you
07:08out but to set expectations so you can
07:11build that dream Brad Flora is gonna sit
07:13with Aaron Epstein next talking about
07:16going back to his seed investors for
07:18more funding and what went wrong when he
07:21did we want to talk about our worst
07:23investor stories because I think every
07:25founder has had some experience
07:28talking to someone about what they're
07:30working on that they hope will give them
07:31some money to fund the company and
07:34oftentimes these meetings can go
07:36terribly awry or just leave you feeling
07:39like dirt and we've been there too uh
07:43here at White combinator like everybody
07:45can relate to this for me my worst
07:47investor story uh I was running my
07:50company uh perfect audience my last
07:52startup we launched six months ago and
07:55we'd grown the business to like a
07:57hundred and fifty thousand dollars a
07:59month in sales we're keeping 30 grand a
08:01month things were growing we only had a
08:03couple people on the team but we only
08:04had like two hundred thousand dollars in
08:06the bank and this was really stressing
08:08me out we were turning over all of our
08:09cash basically every month and so I
08:11thought you know what I'm going to do
08:12I'm going to go to my seed investors and
08:14things are going so well they'll just
08:15give me some more money like it seems so
08:18obvious right yeah hey guys give me some
08:20more money so I wrote this email and the
08:24was Cash crunch right and I send this
08:28out to my investors and I just went and
08:31looked at the email it was so cringy hey
08:33the business is blowing up we're really
08:34tight on cash we'd love to get your
08:36advice right because someone had told me
08:37when you ask for advice you get money so
08:39I thought this is my clever thing and
08:41one of the investors wrote back
08:43um this VC fund that was based in
08:45Chicago I was in San Francisco at the
08:46time and said hey next time you're in
08:48town we'd be happy to talk to you about
08:49this and so I in my like founder crazed
08:53optimism like uh thinking thought oh wow
08:57he's definitely going to give me some
08:59money so I said great I'll be in town
09:01this week and I got on a plane flew to
09:03Chicago and I got there and none of the
09:06partners were in the meeting it was just
09:08a bunch of of the associates so nobody
09:10with any check writing power I gave them
09:12a pitch that was terrible because I just
09:14kind of cooked it up on the Fly that
09:15week and you know predictably they had
09:18some polite questions after the meeting
09:20but there was a zero interest in
09:22investing and so here I am I've like
09:23flown across the country given a
09:25terrible pitch to people who couldn't
09:27possibly invest in my company just a
09:29total L you got to have a game plan and
09:33there was no game plan and we we see
09:36this a lot as partners at YC where
09:37someone comes to us and says oh because
09:39of this thing that happened people
09:41should just give me more money and we
09:43have to kind of help them get organized
09:45and figure out like well like investors
09:48want to hear where this fits into the
09:50broader scope and strategy of what
09:52you're building and they're not just
09:53going to Dole out money because
09:55something some weird thing happened with
09:56the market and I was just so unorganized
10:00and deluded about what would like
10:03motivate people to want to invest in the
10:04company at that point it's interesting
10:06because investors have so few data
10:07points oftentimes like very few touch
10:10points with you probably at that point
10:12and so for one of their main touch
10:14points to be cash Crunch and like you
10:16scrambling and disorganized yeah they're
10:18like like this seems real bad he's got a
10:21cash Crunch and he's getting on a plane
10:23to Chicago to come talk let's be
10:25desperate yeah this guy is in big
10:26trouble yeah but of course from my point
10:28of view I'm like this is great they want
10:30to solve my problem for me and it's just
10:32not how people think about this so and
10:34again like when you're running your
10:36company you get this tunnel vision where
10:39you're just trying to make your number
10:40go up which is great but you really need
10:43to have someone around whether it's a
10:46friend an investor other Founders appear
10:48they can kind of help you get some
10:49perspective on things and so that you
10:51understand how you're coming across in
10:54something like fundraising or even sales
10:56for that matter just reminds me of how
10:59one of the best parts of this job that
11:01we get to do is helping Founders not do
11:03that stuff please don't make those
11:04things right like uh you know sometimes
11:07it's easy to think about the founders in
11:09the batch like walking around with guns
11:11pointed at their feet and just being
11:12like yeah yeah shoot my foot shoot my
11:15foot and we can just be like no no no no
11:19um and it's so rewarding when we help
11:20people avoid that and I I can only make
11:23that joke because like we've shot
11:25ourselves in the foot so many times
11:26doing this ourselves because it's just
11:28really hard to see what's going on when
11:30you're in the middle of this stuff the
11:31way I like to think of what a good
11:32investor is an investor that makes a
11:37signs the docs quickly and wires you the
11:40money quickly and you never hear from
11:42them again that's an A minus investor if
11:45all you had was a minus investors you
11:47would be fine because at the end of the
11:49day it's not your investors that are
11:50going to make your company successful
11:51it's going to be you the founders an a
11:54investor is does anything to help the
11:57business and then an A plus investor is
11:59does something to materially change the
12:02direction of your company if all you had
12:04is a minus and above you're good you
12:06want to avoid all the C's D's E's F's
12:09that are just distracting that create a
12:12bunch of busy work for you that want to
12:14argue with you all the time there's a
12:17lot of people out there that can be a
12:18net negative to your business and those
12:20are the ones that you want to avoid
12:21that's bad money and we actually have a
12:24lot of really great tools within the YC
12:25Community we have an investor database
12:28where other Founders within the
12:31community actually give feedback on
12:34investors that they've worked with so
12:35this encourages good investor Behavior
12:37and it also is an incredible source of
12:40information when you have investor
12:42meeting schedule and you're trying to
12:43figure out who should I prioritize who
12:45would I like to take money from based on
12:47the feedback from other Founders that
12:49have taken money from them yeah and then
12:50the thing that enables all that is the
12:52fact that because we have demo day at
12:54the end of the batch Founders for the
12:56first time for many of them have
12:58investors coming to them either ahead of
13:01demo day hoping to like get in early or
13:03at demo day or after demo day and so for
13:06maybe one of the only times in your
13:07career as a Founder you have a list of
13:10people that want to talk to you and
13:11learn about your company and so you can
13:13use things like the investor database to
13:15pick and choose who you want to talk to
13:16and in what order and kind of have some
13:19control and agency in the fundraising
13:21that you're doing it's actually pretty
13:22common for Founders to hate fundraising
13:24and if you fall in love with fundraising
13:26like that's probably not a good sign too
13:28because you should be focused on talking
13:31to your users and building your product
13:32and actually getting your company to
13:34work and spend as little time as
13:36possible trying to get the money that
13:37you you need to be able to grow and
13:40execute on your business the money's
13:41just a tool it's not the means to the
13:43end I know a lot of times people like to
13:45celebrate the fundraising wins and
13:46things like that but it's just one
13:48Milestone on the journey that you're
13:50trying to to build a really big company
13:52VC and investing is a service business
13:55but just as Founders need to think
13:58through the experience and empathize
13:59with their users they can apply that
14:02same understanding of people and
14:04business situations to their own
14:06relationships with their investors this
14:09is why investor updates can be so
14:10helpful great investors not merely stay
14:13out of your way but they also give you
14:15more capital and connect you to the next
14:17round but that only happens if a they
14:20actually are a plus investors and B you
14:23do a good job of keeping them in the
14:25loop next up is serbi sarna sitting with
14:27Jared Friedman on some of the funny Mind
14:30Games investors play just to see how you
14:32might react you want to tell us about
14:34the worst investor meeting that you
14:36pitched in looks there's this uh uh big
14:39name VC in the valley who we won't say
14:43leave them unnamed but it I was I was so
14:46nervous to meet them and I really wanted
14:48to make a good impression and you know
14:50first time founder 24 years old at the
14:54time so I'm super nervous going in I
14:57prep as much as I can and he's sort of
15:00known for testing Founders in various
15:05well I remember presenting to him and
15:07right in front of him he had a bowl of
15:11in the middle of me pitching he reaches
15:14over and first of all he like slowly
15:18and then he grabs some piece of candy
15:21and slowly comes back
15:24and then he just proceeds to open this
15:26candy with this loud rapper as slowly as
15:30he possibly can like the whole it's like
15:32wrinkle wrinkle wrinkle and then I
15:34noticed whenever I stopped talking he
15:37stopped trying to open it and then when
15:39I started talking again he would like
15:40open it so he really was testing you
15:43with a candy wrapper yes it wasn't that
15:44he was just going going for the candy
15:46and the opening of the candy last in
15:48like 10 minutes Adventure they called us
15:50the candy wrapper I don't know I would
15:52say that every investor has their own
15:54unique Styles so if one investor had a
15:57style that tripped you up a little bit
15:59try not to carry it into the next
16:01meeting it just means that you and that
16:04particular investor are not a good fit
16:06for one another and there's plenty of
16:09remember every investor meeting you
16:11might take is as much about them
16:13interviewing you as you interviewing
16:16them it's a two-way street next up I'm
16:19sitting down with Gustav to talk about
16:20one of my mega bad investor meetings
16:23this time with the heads of Andreessen
16:25Horowitz there's a scale of investors
16:27there's a great ones and they're not so
16:28great ones it's much worse to have a bad
16:31one then it is great to have a great one
16:33if you end up getting an investor who's
16:35going to hurt the company and there are
16:37many many ways an investor can hurt the
16:38company and if you end up one of those
16:40that is infinitely worse than having a
16:42difference between having a good or a
16:43great investor Gary what was your worst
16:45investor meeting you ever had as a
16:47Founder so I have a story for you which
16:51uh actually not one where the investor
16:54did anything wrong and it was very
16:56depressing for us at the time because we
16:59were so excited to meet these investors
17:01we had all the metrics Preposterous
17:03which was a Blog platform at the time we
17:06had been growing you know 10 to 20x year
17:08on year where servers were on fire we're
17:11sort of you know being buzzed about and
17:14you know people were buzzing about
17:15posterous and the right parties we're on
17:17Sandhill Road sitting down with uh Ben
17:20Horowitz final partner meeting like
17:22everyone's excited like this is the last
17:25thing we need to do and seemingly we
17:27will be getting a series a from one of
17:30the hottest series a firms it goes well
17:33we think we have it in the bag and then
17:35at the end uh you know and this is
17:37something that we should have known we
17:39should have done our research and we
17:40should have just had the answer for but
17:43we had not figured it out yet and this
17:47who is the CEO and we said both of us
17:52and that ended the meeting on the spot
17:54it was obvious that we had said the
17:56wrong thing so we had spent years
17:58working on this thing we had the metrics
18:01but we had still not had that awkward
18:03conversation which is who's the CEO
18:06definitely by series a the board member
18:09who makes the decision to pull the
18:11trigger they're going to want to know
18:13who am I actually working with in that
18:15case the VCI I was meeting with was Ben
18:17Horowitz he had written blog posts and
18:20even a whole chapter in a book about how
18:23important it was to have a single CEO
18:26you should know who you're meeting with
18:28at least take a look at what they've
18:30written and what they believe we had
18:33walked right into that Investor's worst
18:35pet peeve we're trying to prepare you
18:37for the worst so you can do your best
18:40that's one of the best things about YC
18:42that it gives you choices about who you
18:45work with most people are truly not so
18:47lucky especially for their first time
18:49starting today now can you give me an
18:52example of your worst investor meeting
18:54so when we're fundraising was in 2017
19:01at their most best behavior because this
19:03was right after uh that was the metoo
19:06movement right after metoo movement so I
19:08think that we're kind of in the best
19:09behaviors didn't have any of the weird
19:11woman founder kind of thing and but I
19:15did get this awkward question I don't
19:17think the investor thought it was like
19:19awkward he just kind of asked it and
19:21blurred it out but I thought it crossed
19:23like a personal line what did you ask so
19:25my co-founder uh is a guy
19:28so you just made the Assumption it's
19:30like oh are you guys dating I was like
19:33what did you just ask that that's like
19:35not professional asking personal
19:39questions the first time we meet and
19:41like that's one of the first questions
19:43you asked and not about the business
19:45that was just awkward and I think that's
19:47one of those things with personal
19:49questions that shouldn't really be asked
19:52and I think investors not knowing that
19:54it might make Founders uncomfortable
19:58like is this really what you're asking
20:00is evaluation for a business to get the
20:02meeting started do you take that money
20:04no I think the mistake the founders do
20:08is really looking up to investors and
20:11putting them in a pedestal right yeah I
20:13think the investors know better because
20:14they have met so many companies but
20:15actually the investors are not experts
20:17in your business you are good investor
20:20is going to challenge you but always be
20:22respectful about who you are and that
20:25you make the calls a good investor is
20:27never going to force you to do something
20:30but it's still going to tell you what
20:32they think so that you can make the best
20:33decision investor meetings are a two-way
20:36street they're like auditions you come
20:38correct and if they come correct then
20:40maybe just maybe you can make beautiful
20:42music together also remember this is not
20:45purely and entirely about raising money
20:47though mechanically that is what you
20:49were trying to do in that moment your
20:51whole Endeavor the bigger one is to
20:54create an incredible business not to Ace
20:56the test and raise money on its own the
20:58worst sort of investor meeting is one
21:01that makes you question why you're even
21:03doing a company anymore it actually is
21:06like tremendously demotivating
21:10where you're like why am I doing this
21:13um it's like you know what I'm saying it
21:14transcends the level of even talking
21:15about your company it's more it's okay I
21:18feel like if you if you're on the other
21:20side of like someone asking you hard
21:22questions or engaging and pushing back
21:24on stuff but there's someone who just
21:26clearly doesn't want to be there at all
21:28yeah like someone put it on their their
21:29sister put on their calendar and they're
21:31like I don't know what who are you like
21:33what why are we meeting
21:37and I went to a few of those where I can
21:38remember one in particular was exactly
21:39like that I have one but it was like me
21:44that's that it was very I was we were
21:46very young so I first start up um and we
21:49were like you know we basically our
21:52office was our apartment there was like
21:53five of us in a two-bedroom apartment
21:55just like living and working all the
21:56time and we set up a meeting with a VC
21:59uh who really wanted to meet us at our
22:01office so we're like oh yeah of course
22:02like yeah um just come by uh we it was a
22:06morning meeting so that was the number
22:07one mistake uh we just worked all night
22:10we were always up late and we fell
22:11asleep and we didn't have any furniture
22:13so we would sleep in like the hallway on
22:17um we slept through the meeting and we
22:19woke up to an email saying hey
22:22um I came by this morning at 10 A.M but
22:25you guys were busy so you know let's
22:28um obviously what happened is they had
22:29come in opened the door and just seen us
22:32sleeping on air beds in the hallway and
22:35both parties should bring an air of
22:38professionalism like this is ultimately
22:40a professional type conversation and you
22:42want investors to have to be
22:44professional again don't show up late
22:46don't make people wait don't cancel
22:48don't no show and then the founders on
22:51the other side need to be the same way
22:52and so the extent both parties are on
22:54board to be professional everyone's
22:57gonna be much happier whether whether
22:58the investment happens or not investor
23:00tractions is not how you should be
23:02keeping score and you should not be
23:04getting your validation if your startup
23:06is good if you are good if you're
23:09idea is good based on the reception of
23:11investors too many Founders the
23:14barometer for how excited they are about
23:16their startup is 100 based on investor
23:19feedback and nothing good comes of this
23:21it's like completely the wrong barometer
23:24you have to realize what we tell people
23:26to prepare is when when you're going in
23:29expect all no's expect all bad feedback
23:33expect people not to get it if you're
23:36surprised on the upside great but
23:38prepare your mind for a lot of like
23:42so that you don't fall into this trap of
23:44actually getting discouraged and giving
23:46up on your really promising startup just
23:48because you got a bunch of investors
23:50that were not enthusiastic right that's
23:52what I experienced there's also another
23:53really bad outcome here which is I think
23:55it's a very fine line between being
23:57smart and adjusting your pitch based on
24:01um and going too far and adjusting your
24:03product based on investor feedback I
24:05think we've probably both seen examples
24:06of companies that had a promising enough
24:08idea they went out to pitch it didn't
24:10get the initial reaction from investors
24:12that they wanted but they did keep
24:14taking on board all the investor
24:15feedback oh have you like considered
24:17this or this and then you end up with
24:18this sort of Frankenstein idea that no
24:21one actually wants but investors are
24:22really excited about you can actually
24:24raise money for that we see that happen
24:25right but like now you're stuck with a
24:27whole bunch of money and like invest
24:29their intention without any actual like
24:31traction or a product that people want
24:33this happens a lot during hype Cycles as
24:35you and I both know where people will
24:37sort of triangulate what investors want
24:39to hear yeah they'll be excited if they
24:42can like con people into investing in
24:44their thing but then they wake up and
24:46they have to actually like make the
24:48business work the sophisticated Founders
24:51recognize that to some extent in raising
24:55money is a game that you sort of have to
24:57figure out and it is smart to play up
25:00parts of your startup that are in Vogue
25:04um it's smart to do that but you have to
25:07keep attention to what you're actually
25:10um and that's where you see it fail
25:11right less sophisticated Founders will
25:13play up the stuff that's hot in the
25:15moment but then actually change their
25:17strategy around it as well whereas the
25:20separate the two things out yeah it's
25:23you can talk a big game as long as you
25:26can back it up the point of your startup
25:28is not to raise money or gain status the
25:31point is to create something that
25:32actually solves a real problem if you
25:35choose to raise money you too will pile
25:38stories up just like what the YC
25:40Partners have detailed here but Don't
25:43Take Your Eye Off the Ball we are here
25:45to make something people want if you
25:47like this video don't forget to click
25:49subscribe and the bell icon so you can
25:51see every single YC video we make for
25:53you we're here to help you build the
25:56future I'll see you next time
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