How to Start a Startup Lecture 5 – How to Raise Money

Speakers: Marc Andreessen, Conrad Parker, Ron Conway

  • Venture Capital is a huge feast or famine business. You are looking for the extreme outlier.
  • Invest in strength vs. lack of weakness
    • Don’t just check boxes – “solid leader, good product, etc.”
      • “if you don’t invest in the basis of huge flaws, you miss out on all of the outliers”
  • Be able to say in one compelling sentence WHAT YOUR PRODUCT DOES
    • The VC should be able to picture what you do in their minds
  • Do not procrastinate
    • you have to make decisions (hire, fire, change course, etc.
  • Build a great team
  • The kind of businesses that VC’s love are the ones that are moving in the right direction and could be self sustaining – just need a bit more growth
  • Bootstrap as long as you can
  • The key to success is “be so good they can’t ignore you.” investors will throw their money at you.
    • you are almost always better off making your business better than your making your pitch better
  • Raising money is not actually a success, it just enables you to get to the next step
  • The single biggest thing people are missing:
    • the relationship between risk and cash
      • the risk between both raising and spending cash
  • When you agree with an investor:
    • get everything in writing
    • send a follow up email discussing the specifics
      • following up on things they said they would do
      • valuation #’s
      • etc…
  • SV Angel invests in 1 in every 30 they look at
    • They do a lot of research before even calling the founders. If they request a meeting, they are far on their way to investing with you.
  • Top tier VC’s only invest if:
    • The company has seed investing (angel investors)
      • Except when they have worked with the founder in the past
      • A lot of their contacts come through their network
  • Terms and negotiation
    • The most important thing at the seed stage is picking the right seed investors
      • YC does a good job of telling you who good investors are
  • Selling equity in the seed round
    • for series A, you will probably sell between 20-30% of the company
    • Ask “at what point does my ownership start to demotivate me?”
      • if you give 40% in the angel round, you have doomed yourself. by the time you get to the next few rounds you are at 5%. doesn’t leave much for the founder and their team.
      • Don’t sell too much of the company in early rounds
  • Most successful rounds
    • Conrad – investment in Google
    • Marc – investment in AirBnB
  • When you start a company, you need to find someone as good or better than you to be your cofounder
  • How do you know when to avoid an investor
    • no domain expertise in your company
    • cannot help you w/ connections
    • if they are in it just to make money
  • Finding an investment partner is much more important than the check. Think of it more as a marriage – an investment for life (SV Angel)
  • Ask:
    • Do you respect this person?
    • Do you think you can learn a lot from them?
    • Would you want them involved with the company even if they didn’t have a checkbook attached to them?
  • Conflict policy
    • SV angel has a conflict policy – they do not invest in companies that have a direct conflict with others they are invested in.
    • There needs to be a high level of trust with investors
  • Marc Andreessen has been on boards for 20+ years and has never been in a vote that mattered. It is always a clear decision.



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