0:00
Just yesterday, the main topic as you could tell was really focused on the hardest thing about investing, I think, which is how do you decide to invest?
Search this video
0:13
How do you go about making decisions?
0:15
So, we heard from Dalton who talked about founder meetings, uh talked about process, how you should get organized, and have a consistent process that makes sense to you and and helps you uh uh organize the deal flow, uh the set of founders you meet, and and um helps you think clearly about the set of decisions you're going to make.
0:38
Um And then you just merely have to meet the founders and decide if you love them, their business, their product, and believe that it has the potential to grow and scale and thrive.
0:55
Uh then PB came and gave his always PB-like perspective on on things.
0:59
Um There are a few things to note, right?
1:05
PB said it as he pointed out, I There is not a great investor in the world who has not made great mistakes.
1:14
And he's had some epic ones, and I It's kind of cool that he's comfortable enough to share those.
1:19
Part of the reason, you know, between us and the world, that he's comfortable in sharing those is he's had plenty of of great successes as well as I pointed out, he's a he's a fantastic investor, but but uh you know, it's hard.
1:37
And it's hard, and you don't know cuz some guy named Brian Chesky sends you an email, you don't know if that's the one you should have responded to.
1:44
You only know that in retrospect years later.
1:47
Um But I thought there was some incredible Every time PB speaks, I I I I derive a little bit of wisdom from that.
1:56
One thing he said that that I loved was that you should look for ideas that would seem stupid inside a big company.
2:06
I've actually been in a big company and had stupid ideas.
2:09
Mostly they were just stupid.
2:09
I don't think they were And of course that's the hard part is that some of the ideas really are stupid.
2:15
Um but some of the great ideas almost have to be stupid.
2:19
That was his point, right?
2:21
Cuz if not, they do have resources and skills and talent.
2:27
So, you need the ideas that are stupid, look bad, but are good, and that big companies won't naturally do.
2:33
Um don't restrict yourself to to what you know. Probably a bad idea.
2:41
You might miss, you know, the next big crypto company if you're not a big crypto person and you have the opportunity to invest in them.
2:49
Uh he was very Yoda-like in saying, "Do or do not." Do or not do? I don't know. Um make your decisions.
2:56
Um And he pointed out a whole bunch of founders' traits in a slightly different way that I thought were pretty cool from moving fast to accomplishing a lot with just a little to uh to finding someone who's a talent magnet.
3:12
Uh by the way, that's as an aside, if you're not evaluating that when you talk to founders, you're making a mistake because if think about it, every giant company is built with an incredible team.
3:27
And if you don't believe that the founder you're talking to can recruit and build this team of people who could have thousands of people underneath them, then the chance of them building a big company is that much smaller.
3:41
And lastly, we heard from Michael and his his sort of personal advice on investing and and how to deal with YC Demo Day.
3:48
Can I have a show of hands?
3:50
How many of you plan to to attend the virtual demo day and and check it out? Good.
3:56
His advice is very good for demo day.
3:56
Um and feel free to approach us at the breaks and ask for more advice on demo day.
4:05
Reminder, tomorrow we are we we we heard you asking for more networking.
4:11
Some of you asked for beer and wine apparently because we're having beer and wine and a net networking after the session tomorrow should end around 12:30 and will go to around 2:00 p. m.
4:23
So uh there'll be beer, wine, and pizza.
4:25
I don't know if people asked for pizza, but we're giving you pizza.
4:28
And um and I hope that should be a lot of fun.
4:32
Today's a little different, a little change of pace.
4:34
We're going to have investors who are not YC folks who who have invested often in YC companies, but who who are who are um investors on their own on their own right.
4:49
Uh all of them have done angel investing.
4:51
Some of them have have done professional uh VC investing as well.
4:56
The um the way this is going to work uh is that we have two sets of two investors.
5:01
Um so the two folks are going to speak and then we're going to do a Q&A.
5:06
So if you would hold your questions until the very end when the three of us will get up on stage and we'll take questions until the end of the session and then we'll do the same uh after 11:00.
5:19
The first person I'm going to introduce is is an amazing investor. His name's Elad Gil.
5:24
He's he's also a an amazing entrepreneur.
5:27
He's he's founded um uh Color Genomics and Mixture Labs and has uh an incredibly broad set of knowledge in in software and in in in biotechnology and um and and probably everything.
5:45
So he's an extremely smart person and a great investor and he has said uh something that I agree with completely is that startups are not about working on a great idea.
5:59
They are the relentless pursuit of doing stuff for customers.
6:01
So, please welcome Elad Gil.
6:10
Uh so, thanks to Jeff and uh Y Combinator for inviting me and thanks to all for attending.
6:13
Um so, uh Jeff asked me to talk about finding billion-dollar companies and I also wanted to talk a little bit about helping companies as well because I think ultimately your primary role as an angel is to help the companies you're involved with versus just giving them money.
6:26
So, I think that's very important.
6:29
Um uh Jeff mentioned my background uh as an investor, uh here are 10 uh billion-dollar companies that I've invested in, um Airbnb, Stripe, Square, etc.
6:38
Um at at different stages.
6:41
Uh many people and I'm sure during the last few days uh people have been talking about what's the most important determinant for startup success at the angel level.
6:49
And, you know, ultimately people tend to say it's the team or it's the market or it's luck or maybe it's the number of hipsters that you have working for you.
6:57
Um you know, in my case, I'm a very strong believer in markets first and then teams and I think that differs from a lot of angels as well as how a lot of other uh investors think about the world.
7:07
So, I'm a very market-driven investor.
7:09
And indeed my ranking would be markets number one, markets number two, team excellence is number three, and the number four is uh related to team.
7:15
If somebody gave you a call um you know, at midnight on a Friday, would you actually want to pick up the phone and talk to them?
7:22
It's a sort of a no jerks kind of policy and this has actually happened to me.
7:26
The founders of Stripe, for example, called me at 10:00 at night on a Saturday asking if I could meet them uh for a glass of wine to talk about the first acquisition that they were thinking about doing.
7:34
And so, I, you know, uh jumped in a in a Uber and and headed over.
7:38
So, I think you really want to uh view this both as a service model in terms of you're helping the founders that you're involved with, but also people that you'd want to work with for a long time because when you invest in something if it actually does well, you may be involved with that company for 7, 8, 9, 10 years.
7:51
So, it is a very long-term relationship that you're forming and and at least personally I only want to work with good people.
7:59
Um Andy Rachleff, one of the founders of Benchmark, I think phrased what I believe is a very good uh view of startups uh as follows.
8:04
Um great team, terrible market, market wins.
8:07
Um so, it doesn't matter how good the team is, the market really dominates.
8:11
Uh great market, terrible team, the market wins.
8:14
There's examples of terrible teams that do amazingly well uh because the market really pulls the pulls the product.
8:19
The market is driving sales even if the team is semi-incompetent.
8:23
And then uh great market, great team, something magical happens.
8:27
And that's when you get a Google or a Facebook or one of these outside successes.
8:29
And so, I really follow this as an investor.
8:31
And I I wanted to walk through five signs of a great market early on when you're investing in a company because this is really about how can you tell what's going to be a billion-dollar company?
8:42
Um the first one is early compounding even off of a small base.
8:44
And so, often if you meet a company and they're doing $10,000 a year in ARR or $100,000 a year in ARR, you think, um my gosh, you know, how will this ever be big? It's so little revenue.
8:55
But if they're growing 15% a month, 20% a month, if you compound that out even just for 4 years in this case, a 100K ARR turns into $630 million in annual recurring revenue.
9:09
Um and the growth rate really matters.
9:10
Once you're down to 13%, it's 35 million.
9:12
And so, that's the difference between a you know, company that's on track to be a $10 billion company and a company that's probably somewhere in the low hundreds of millions in terms of valuation at that stage.
9:20
So, um it makes a huge difference in terms of that compounding rate.
9:24
And sometimes you actually get very strong early signals of this.
9:28
Um you know, Airbnb at the Series A was sort of growing rapidly.
9:31
Um uh Checker would be another example of a company that's a more recent one that you know always had a nice compounding growth rate.
9:40
Uh the second uh sign of a great market is people actually paying you for your product and potentially paying you more than other companies in the market.
9:46
So the uh typical thing that a founder will do um especially if they're a more technical founder is they'll say the way I'm going to win is by making this cheaper than anybody else, which actually tends to be a really bad strategy unless you're truly just going for scale.
10:00
And sometimes those scale businesses work.
10:02
Amazon is the canonical example of that.
10:04
Um but in general uh if you can command a premium and you have large customers paying you early, it's a great sign that you have product market fit and that people really want your product.
10:14
Because when you talk to customers, they'll always say, "Oh yeah, that sounds really interesting."
10:18
Uh oh yeah, that sounds super fascinating. Tell me more.
10:21
But then they never buy anything.
10:23
And so in the case of PagerDuty when I invested um at the seed, they had Google.
10:27
I think they actually had Apple as a customer. This was 7-8 years ago. They had Heroku.
10:30
They had a lot of larger companies as paying customers.
10:33
And it was an interesting dynamic because that was a company that uh for the first month or two of fundraising, nobody was funding it.
10:39
And I committed quite early and then maybe 3 months in, suddenly became a really hot company and everybody wanted to invest.
10:47
Um and at least to me, this was a very clear signal.
10:48
They were compounding like the the prior point and they had some really marquee brand name customers.
10:55
Um and for some reason, people just missed that.
10:56
Um so I think sometimes there is a sort of herd instinct that that gets lost.
11:01
Um uh next is something that your company would actually use or that you would actually use.
11:05
And so all these companies here that I invested in um in many cases were on the left-hand side at least companies that uh my first startup Mixture Labs would have used.
11:14
So we would have used Stripe for payments because the payment solutions were crappy.
11:18
We we do we would have used Gusto for payroll because we were using ADP and Paychex and we kept switching because it was a bad experience.
11:25
We would have used Zenefits for health uh insurance, Optimizely for AB testing, PagerDuty for PagerDuty.
11:29
And so it was really by starting a company that it was clear that these were needed products and these were things that it made sense to get involved with.
11:39
And the fourth reason is really around why now statement as well as what's the real basis for competition in a market.
11:45
And so I think people often misunderstand markets and they either think that they're overly crowded.
11:48
So for example, when Dropbox and Box got going, there were a dozen different cloud storage providers and it looked like potentially a crowded market.
11:56
Same with Google with search.
11:59
And same actually with social networking.
12:00
I remember around 2010 everybody saying that the era of social was over and all the companies that will ever exist will exist and you know, it's sort of game over.
12:09
But I think what they failed to see was the rise of mobile which really led to Instagram and Snap as well as sort of the Chinese equivalents of many of these companies getting up and running.
12:18
And so there was a whole wave of really interesting investable companies that a lot of people missed because they just weren't looking at social products anymore.
12:25
And so the real question is when is a market truly over or really crowded and when is there still big gaps?
12:31
And you know, that's a key piece of analysis I think that's worth doing.
12:37
The last thing is really around moats and if you want to have a long sustained company then you need to have it be defensible.
12:43
And I think there's real moats and fake moats.
12:48
You know, network effects are real moats in most cases.
12:49
Every once in a while they're a fake moat because I mean MySpace doesn't exist anymore.
12:52
So in hindsight their poor execution meant that the network effect unraveled just as quick as it sort of spiraled up.
13:02
People often talk about data moats.
13:05
There are very very few companies that actually have data moats and so I think that's often a red herring.
13:08
I think maybe in genomics right now there may be interesting data moats to be formed but in most industries data moats don't really exist.
13:17
And so I think some of the signs of a company having a moat is number one, what's its long-term margin?
13:24
And so really thinking about the underlying fundamentals of the business, like how much money are they making per customer, per dollar from a customer.
13:31
And again, there's Amazon or scale-centric models where that doesn't matter as much, but then that has to be an explicit part of their model.
13:37
Um the compounding scale we talked about, revenue renewal or recurrence is really important.
13:41
Having a customer paying you over and over on a long-term contract is much more valuable than a churn and burn customer.
13:46
So internet of things for example, uh traditionally have been bad investments for startups, great investments for big companies because you know, if you have a smart light bulb company, uh you buy a light bulb once, and if especially if it lasts 20 years as an LED light bulb, you're never going to go back to that customer again unless you try to cross-sell something.
14:03
So you really have to be thoughtful about that recurrence.
14:06
And again, there's business models where potentially you're generating data or other things so the recurrence matters less.
14:09
And then customer mix, how dependent are you on one or two customers?
14:13
If you have very high customer dependence, they have enormous bargaining power, which means that you're kind of screwed from a negotiation perspective.
14:18
And so a lot of people who sell into pharma for example may only have 10 real customers.
14:22
That makes it much harder than if you have a longer tail, but those types of business businesses can work very well.
14:27
If you actually look at this, long-term margin, compounding scale, and customer mix, I mean that's basically Google for example.
14:34
Um they don't have the revenue recurrence in terms of locked-in contracts, but they do have revenue recurrence from the perspective of the advertisers keep wanting to reach this unique user base.
14:46
Uh so that was sort of the main market signals um that at least for me have sort of uh helped me in terms of choosing some of these companies.
14:51
On the team side, uh which I view as sort of the next most important thing, uh there's really four things that at least stand out in my mind.
14:59
One is do they actually have a product at the time that they're pitching?
15:03
Um and product may mean a really crappy alpha that kind of breaks, but at least they built something when they're talking to you.
15:10
Uh some of the worst investments I've made were two really smart people with a PowerPoint deck.
15:13
And I was like, "Oh my gosh, their vision vision and they're so articulate and they're so smart."
15:18
And it never tends to work.
15:20
Unless there's a reason that um they couldn't have built something, and that could be maybe there's a regulatory constraint.
15:26
Maybe they need a partnership with a bank or other things like that.
15:29
And so it takes a year or two to actually build something.
15:31
But even then, most smart people I think have at least some sort of demo.
15:36
Uh or I should say not smart people who get done, which is different from being smart.
15:39
Um second is fast learning.
15:41
So, how quickly do they ramp?
15:41
Um Ben the CEO of Pinterest is a great example of this where every time you talk to him, uh 6 months uh uh later he'll have uh internalized everything and have learned way more than you ever knew about a topic.
15:54
And so that's an example of somebody who's constantly scaling.
15:58
Or Brian Chesky is sort of notorious for having very rapidly ramped in the in the role of CEO.
16:04
Um third is good at selling, which Jeff mentioned, because ultimately founders are going to need to sell their team to join them.
16:10
They're going to need to sell investors to give them money.
16:11
And they're going to need to sell um customers to pay them.
16:15
And so you actually have to be very good at convincing.
16:17
Now, there's different forms of convincing.
16:18
Uh you know, Vitalik at uh uh who runs Ethereum, uh you know, he has uh the ability to create a little bit of a cult around himself in terms of the people who work with him and sort of the broader crypto community.
16:31
And that's a different form of selling than somebody who is, you know, the slick BD person.
16:34
But each form of selling can actually work as long as there's good product uh founder market fit.
16:41
If the founder's working in the right market or on the right product, then their form of selling is what's important.
16:46
So, you can't do a one-size-fits-all model for this.
16:49
Uh and then lastly, of course, uh people who's determined.
16:52
And Doug Leone, uh one of the sort of old-school major partners at Sequoia, puts this extremely succinctly, "Whose voice is driving you?"
17:01
You know, that was a question that he used to ask uh in some contexts.
17:02
When you're sitting there and you're working at 2:00 in the morning, whose voice are you hearing in your head? Is it your mother? Is it your uncle?
17:09
Is it your brother or sister?
17:11
Who's the person who's driving you to go forward?
17:16
And I think that's a really important um question or a really important part of founder psychology to understand.
17:23
Uh there's a lot of false signals and mistakes.
17:24
Um so I think one of the number one false signals is other investors.
17:28
So just because a lot of people are holding a purple mustache doesn't mean that you should too.
17:32
So um I think a lot of people sort of follow investors in a crowd or they say, "Oh, Benchmark isn't investing, therefore I'm I must uh but the greatest investors make all sorts of mistakes.
17:43
So I think doing your own diligence and actually being thoughtful um is a worthwhile endeavor.
17:49
Um some of the mistakes I made made, so Jeff asked me to sort of touch on these.
17:53
Um one of the biggest uh mistakes I made from a passing perspective uh is I passed on Lyft for their Series C, which was a $90 million valuation.
18:01
And I think they're now in the like $9 billion race uh range.
18:05
So I missed a 100X or maybe post-dilution a 50X.
18:09
Um which every night when I go to sleep I'm like crying.
18:12
I'm like, "How could I do this?"
18:14
Um and I think in that case I worried uh both about valuation at the time.
18:17
They were still doing a ride-sharing service.
18:21
Uh excuse me, they were still doing a corporate uh ride-sharing service versus what they're doing now is more the transition from Zimride over.
18:28
Um but second, I also thought it was going to be a winner-take-all market and I thought Uber was just going to win everything.
18:31
And in hindsight, not every market is a winner-take-all market.
18:35
There's actually oligopoly markets in all sorts of industries.
18:36
And so I think that was an a misunderstanding of market structure by me.
18:40
Um I think most angels actually care too little about valuation.
18:42
And so often um if you actually look at the returns, say you do 10 investments um and I'm making up a number just to make it a round number, 100,000 each.
18:52
And nine of them go under and one works.
18:54
Um and that one ends up at a $200 million exit valuation.
18:57
If you invested at five versus 20 million, it's the difference between breaking even and making 3X on your money.
19:03
And so it's a really big difference just for that one investment.
19:07
So valuation does matter.
19:07
It isn't the single most It's determinant, it, I think you should actually keep it in mind.
19:12
And I would I would um be thoughtful about advice that says, "Oh, don't worry about valuation.
19:15
It's just about the founders." That's actually false.
19:19
Second is um imagining myself or yourself as the founder.
19:21
So, Joe Kraus, who started Excite, uh which is one of the sort of monster companies of the '90s, and who eventually moved on to Google Ventures, um said that his his uh biggest um mistake as an angel was putting himself in the shoes of the founder and imagining what he would have done with the business instead of what the founders are actually going to do.
19:40
So, I think projecting yourself into that situation is the wrong thing to do.
19:44
You should be asking, "What is this founding team actually going to go and do?"
19:47
Uh because often they're going to do something radically different from what you're going to do uh if you were in their shoes.
19:52
Uh I think this is an issue more for operators than for anybody else.
19:53
And then finally, I used to think that having a bad team uh is a bad signal.
20:00
And by bad team, I mean you you worked with a person before and in the context of their role, they were bad.
20:05
Uh there's an example of a company that I actually didn't invest in cuz I worked with the founders at Twitter.
20:11
And the person was always in the hallway.
20:12
They were kind of schmoozing.
20:14
They were never really getting anything done.
20:15
I was like, "Oh my gosh, terrible founder."
20:17
And then they've uh started one of the most successful post-Twitter companies.
20:21
And I had dinner with them, and I asked them in a polite way, "What happened?
20:23
Like, how did you go and do this amazing thing?"
20:26
And his response was, um "I finally feel like my ass is on the line."
20:30
Uh so, I think context matters, but I never would have guessed that that transformation would have happened.
20:34
So, uh you know, I think ultimately um and I know other people, too.
20:38
I know somebody who passed on what's now a multi-billion-dollar company at the seed stage because one of the three founders worked for him, and he felt that founder was bad.
20:46
Not too smart, not very hard-working, etc.
20:48
It turned out that their co-founder, though, was exceptional.
20:52
Uh and that person was the CEO.
20:53
And so, it's really interesting to ask uh what team signals really exist.
20:57
I think a great team is a very positive signal.
20:59
I think a bad team, depending on context, may actually be a neutral signal.
21:07
Um so, I was quickly going to run through how to help since again I think your number one job as an investor is actually to help the companies that you're involved with and I think there's big differences between helping early versus late.
21:16
So the left hand side the egg to me represents an early stage startup.
21:20
When all is said and done early stage startups aren't that complicated and they have a very simple surface area.
21:26
Uh you know, they have to raise money, they have to hire people and they have to get product market fit and they have to not run out of money or blow up.
21:33
That's basically all that early stage startup has to do and product market fit is the only thing that matters really.
21:38
The right hand side is what a light a late stage company is like.
21:39
There's tons of people running around.
21:41
Uh there's a lot of chaos.
21:43
There's a lot of surface area.
21:44
There's a lot of things you need to do and so the way that you help those sorts of companies is radically different.
21:48
And most angels I don't think can do both.
21:51
In terms of helping early I mentioned the two biggest reasons that companies tend to fail is they run out of money which is really a proxy for no product market fit or bad execution or the team blows up.
21:59
Every once in a while you have a competitive situation where an incumbent crushes the company.
22:03
That's pretty rare uh but it does happen.
22:08
Uh the ways to help early then map against those areas of either blowups or running out of money and that really comes down to hiring, firing, helping with culture, um helping with fundraises, helping with customers, distribution uh and then if things don't work out or alternatively if they're working really well but a company's willing to pay up then the actual exit for the company.
22:26
Uh I think one under discussed part of helping out founders is actually the psychology of founding.
22:32
Like being a founder is actually a pretty lonely role and it's long hours and it's stressful for yourself and for your family life and everything else and so I think a lot of time uh as an investor may actually end up going to support some of the founders that you work with.
22:48
On the late side it's the same types of issues but at a very different scale and with very different insights.
22:52
So for example on the people side it's much more around exec hiring and management.
22:57
How do you hire a CFO for the first time? How do you hire a GC?
22:59
How should you run your executive team meeting? How do you do a re-org?
23:02
How do you think about board meetings?
23:03
Um you start getting into late-stage financings and tender offers and secondaries.
23:10
Uh you start thinking about buying others.
23:11
How do you actually make an acquisition for the first time?
23:13
Um so there's all sorts of very operationally intensive issues that if you have that background is extraordinarily valuable for a founder.
23:20
For So for those of you in the audience who've been hardcore operators, founders really value that advice especially as I start scaling because uh very few companies have gone through hypergrowth and have had to deal with all these things.
23:31
And then lastly again there's different types of uh founder psychology that tend to kick in.
23:37
Uh everything from my CEO is dramatically more experienced than me.
23:40
How do I actually manage them?
23:40
I think they're smarter than me.
23:41
To um you know, I'm I'm having issues with uh my board or I'm feeling like I'm not doing enough or I'm feeling like I've been working non-stop for 7 years. How do I take a break?
23:53
All these things that you know, are ultimately issues of more psychology than anything else.
23:58
Um I think the the the sort of practical tips to helping is number one um uh uh startup best practices to send out updates.
24:04
And uh so hopefully many if not all the companies you're involved with are sending out some sort of semi-regular updates.
24:09
Sometimes they get too busy to do that and and that's totally understandable.
24:12
But first is reply to them.
24:14
Even if it's just like a congratulations, nice job.
24:16
Um I think it's good to sort of keep in touch and keep top of mind.
24:20
Um second, reach out to help.
24:22
Like the it's surprising how few angels once they write a check don't actually ever follow up and ask can they help with anything or don't follow up on any of the ask in the in the investor update.
24:32
Uh third is follow up quickly.
24:32
Um so if you can uh get a reply, just get a reply out fast.
24:37
And then uh finally just keeping founder and company interests above your own.
24:41
And one of the topics that Jeff asked me to quickly touch on is um how do you see investors acting badly and then how do you see founders acting badly?
24:50
And so uh on the angel acting badly side, I think the the worst thing I've seen is more more people putting their own interests over the companies.
24:57
So that an example of that would be horse trading with a venture capitalist.
25:01
So say that you know the perfect VC to invest in a company, but instead you send the company to somebody else or a different partner at that firm so that that person will then owe you a favor or you're paying them back for a favor.
25:10
So there's some horse trading that for example investors do that is not actually good for the company, but it's good for them individually.
25:19
When my first company Mixer Labs exited at Twitter, so Twitter bought it back in 2009, we actually had an investor who tried to block the exit as a way to negotiate more of the outcome for themselves. That was awful.
25:31
I would never work with that again. Excuse the language.
25:35
So I think that you know as a founder you really want to work with good people, but as a angel you should really be asking yourself when is somebody doing the right thing and how should I support them versus when should I grab for myself?
25:48
And I think in general you shouldn't grab for yourself.
25:53
Lastly just giving bad advice.
25:53
Like I've seen brand name angels on email threads give advice that was just they had no idea what they were talking about and it was obvious, but the entrepreneur didn't know any better.
26:04
And so the entrepreneur was like oh okay of course like I should go do this stupid thing.
26:07
So I think ultimately if you don't know just you don't have to say anything.
26:11
You can say hey let me find this person who's really good at exits or really good at late stage financings or really good at whatever.
26:17
And that's that's enormously helpful.
26:20
The flip of it is founders will sometimes behave badly as well.
26:24
Founders may over optimize round structures where they have three notes open concurrently and they throw investors into a different bucket based on their perceived value and you know I think that's kind of over optimizing round structure or maybe they'll keep bouncing the note valuation up.
26:38
They may not reward help.
26:38
So say that you help a founder for a year and a half and then you don't talk to them for a month and you call them up and they say oh sorry I just raised a round and they didn't tell you.
26:47
I've seen that happen in a number of instances and I think ultimately on the founder side you should be thinking about who actually helped me and I should reward them, not who's the brand name investor that I should pull in.
26:59
Um, some founders will view the company's money as their own.
27:01
You'll see these peoples who are traveling the world supposedly to talk to customers. Uh, so that's bad.
27:07
So there should be real governance around that.
27:08
And then lastly, um, there are some founders who exit in ways that will really screw over investors.
27:14
So one company that I invested in that exited a Jawbone which then of course went bankrupt.
27:18
Uh, so it should have been a sign.
27:20
Um, they had a uh, $5 million that was invested in the company collectively.
27:25
They received I think 15 million or so back as part of the acquisition and the way they structured the acquisition was 10 million would go to one of the founders.
27:35
Two to three million went to the remaining founders plus some employees and then the investors end up end up getting like say 20, 30 cents on the dollar.
27:44
Um, that was an example of the founder acting badly relative to the people who backed them, spent years with them.
27:48
And you know, that was that was an example of a really bad exit in terms of the founder acting badly.
27:55
Like I would never back that person again.
28:00
So that's it on my side and I guess we have a great next speaker in Pejman.
28:10
So just a brief introduction to Pejman.
28:12
But before that, I do want to remind everyone, I see lots of you taking notes and there were there was so much in that presentation to take notes on and I don't blame you.
28:24
Uh, or maybe you were writing emails, I don't know.
28:26
But it looked like you were writing notes.
28:28
Uh, all of the slides, the transcripts, and of course the videos of these will be online at startup investor. startup. school. org.
28:38
Of course, it'll take about 24 hours for each day's to be posted, but they'll be there and they will stay there.
28:43
Um, so uh, you'll be able to get everything that Alod said that every speaker says, um, uh, in detail at your leisure.
28:52
Um, we often tell founders not to try to pull the wool over investors' eyes.
29:03
We've talked a lot about trust.
29:05
Um, and, uh, we tell them if you do something that's untrustworthy, investors will not write a check.
29:14
Because you guys know what happens if you write a check and the founder decides to go on a jaunt around the world, like Alod mentioned, tough, right?
29:22
There's not much you can do about that.
29:24
Um, most great investors develop a sort of intuition, a way to judge people and founders.
29:32
And so we tell founders they're better at this than you are. Usually, don't do that. Be honest and direct.
29:42
Pejman is one of those people who has I think the most natural intuition about people.
29:51
It's one of the things that's made him such an amazing investor and a way to connect with people and and gain their trust of any investor, of any person I've met.
30:01
And I do think that explains a lot of the extraordinary success he's had.
30:05
Um, so he's a well-known angel investor as well as the founder of Pear VC and a good friend.
30:11
So please welcome Pejman. Good morning, everyone.
30:21
Um, I think let's give a big round of applause for Y Combinator for doing such AN AMAZING THING.
30:32
AND I want to especially thank my dear friend and my mentor, Geoff Ralston. So thank you, Geoff. I'm truly honored.
30:36
Um, I actually shouldn't be here today.
30:42
Um by no standard or definition I'll be qualified as a venture capitalist.
30:48
I don't have a computer science degree from Stanford, nor am I a graduate from Harvard Business School.
30:55
In fact, I'm a college dropout.
30:58
And I never worked for a tech company, not even single day. Yet, I'm here.
31:00
I have seeded over 200 startups in last 18 years.
31:06
Um seven of them worth over a billion dollar each.
31:09
And I raised over 100 million dollars from top-tier university endowments, corporations, and institutions in America for my fund pair.
31:18
So, um rather than talking about investment philosophy, trends, what is the next big thing, which I think nobody knows, I decided to share my life story.
31:28
And um if there's only one thing I want um to leave with you today is that um impossible is nothing.
31:39
I actually want to start to show you um a picture of a very proud moment in my life.
31:43
In 2014, I was among the 100 immigrants who received Ellis Island Medal of Honor uh for my contribution to America as an immigrant.
31:52
Um it's it's such an honor for me because I I think United States opened its doors to me as an immigrant and and gave me an opportunity to build my life.
32:01
But, as much as um this moment means to me, it it's not what defines who I am today.
32:10
Um this one is in 1992, I was homeless here in Silicon Valley.
32:16
Um this is me sleeping in an attic above a yogurt shop in Redwood City, just 5 miles from here.
32:26
I It was few months after I arrived in US um from Iran.
32:31
Um you see I I came here in 1992 with only $700 in my pocket.
32:35
I didn't speak in English.
32:38
And actually I was in love with the girl in Iran and I thought I'm going to lose her.
32:42
So, I used that $700 to call her every day.
32:44
And in at that time, I think it was like four or five dollars per minute.
32:50
So, I I lost all the $700 in in few weeks.
32:56
Um and I ran out of money.
32:56
Um so, I had to found a job and my first job was working in a car wash here in San Jose. I bought a car for $750.
33:04
It was five payments of 150 bucks.
33:08
And I was driving every day to this car wash.
33:11
But I tell you, I was the best car washer the world has ever seen.
33:15
I took so much pride in that job.
33:17
Um little by little I um my English improved.
33:20
I went to college and um I landed a job here in this yogurt shop and somehow I convinced um the owner to let me sleep in an attic over there because I wanted to save save money.
33:33
Um So, but but I think it was kind of the transformative experience for me rather than being cornered.
33:38
I thought if I can survive this, I can survive anything.
33:42
So, and it was it was a tough um days of my life.
33:45
It was the there was no air circulation, nothing.
33:48
It was actually very low.
33:48
It was actually an attic over there and they used it for um for storage.
33:52
Um But but I think I I gained a lot in those days because I knew this is not going to stay the way the car wash didn't stay there.
34:02
Um And one night I actually was um studying, watching TV and I saw this ad.
34:09
It says, "Medallion Rug Gallery in downtown Palo Alto is hiring sales people."
34:13
And as an Iranian, I mean, you think you know something about Persian carpets, which I didn't know anything. So, I called.
34:21
I called and the gentleman interviewed me on the phone and he asked me, um "Have you sold carpets?" I said, "No."
34:27
He said "Ask, have you sold furniture?" I said, "No." "Have you sold cars?" I said, "No."
34:31
I said, "So, you're not qualified. Why did you call?"
34:33
And before he hang up, I pleaded with him sir and I asked him, "How can you deny someone you haven't met?"
34:40
And it was a pause on the other side and um he asked me to meet him the next day.
34:44
And and the next day he um he actually hired me on the spot.
34:48
So, um this is part of the gallery.
34:52
I arrive over there and the first thing I learned that Persian carpets are very expensive and most of the customers don't have any idea where these carpets are made, what is the material and I um they couldn't figure out what the price should be.
35:06
So, uh selling carpets um requires um a lot of building relationship with the customer and especially for Persian carpets, they come to your store and they said, "We bought a home here." And we go to their home.
35:21
So, um I started to actually um um building this relationship with my customers in order to sell them carpets and you know, at one point um I think I I sold over 8 million dollars in the in one year and this is this is perhaps a record.
35:39
So, I can claim I'm the best rug salesperson the world has ever seen.
35:41
Um but after few years, I figured out all of my customers are people in tech business.
35:49
They are CEOs, venture capitalists, they are people like Elad and Jeff and other people.
35:52
And and I thought I was just really amazed by them not only because they were wealthy people, they had beautiful homes, but I just learned about what they do and I thought, "Well, I'm witnessing a community that really destined to change the world and I want to be part of it."
36:08
I wasn't afraid to be part of that and I decided to do everything I can that become part of that community.
36:13
So, I kind of changed my mindset when I was meeting this you know, entrepreneurs or CEOs at their home and I started to ask questions.
36:22
I asked a lot of questions and little by little I started to understand what's going on in the ecosystem, who is who, what is a startup, what is a venture capital mean.
36:33
But remember, this is late '90s, um early 2000, so it was was no Y Combinator, it was no TechCrunch, no AngelList, um no blog.
36:42
So, in order for me to learn, I had to meet a lot of people.
36:45
And and gradually after a few years, I built an amazing network of incredible people that typically it takes people to get an appointment with them in a year.
36:56
I could have called them go to their home because I had dinner with them 2 months ago with their family selling carpets.
37:03
So, this relationship was just really really important.
37:05
Um and one day I walked to the to my boss's office who actually was a great entrepreneur.
37:11
He left Iran in 1978 after revolution.
37:14
He actually was a great entrepreneur.
37:17
He started his business in Iran when he was 15 and he built an empire in Iran.
37:20
And I explained that, you know, we are in the rug business, we are in the real estate, but I think we should be in tech.
37:25
This is perhaps the most important street in the world next to the most important university in the world.
37:31
I and I'm friends with the most important people in tech.
37:33
Actually, he believed in me and he said, "Okay, what if you start to do that?
37:36
Explain to me how you want to do it."
37:38
And I said, "Oh, I know all the people, so I can invite them to the gallery.
37:41
I put a lot of events and I can build an advisory team from these people."
37:45
He believed in me and said, "Okay, we start, but you have to put 10% of the whole thing I'm putting."
37:51
And it was around 200,000 for me.
37:52
And I said, "I don't have even $20,000 to do it. How do I do it?"
37:54
And he said, "We subtract from your commission every month."
37:58
So, I started to work hard and sell carpets to pay for the fund.
38:01
Um So, we started to do it.
38:03
I think we made so much mistakes.
38:05
The first I think challenge we had was telling people we are serious.
38:10
So, you know, entrepreneurs, VCs, you know, used to go to elegant polished offices at Sand Hill Road.
38:15
They were coming to to the rug gallery.
38:17
So, and and it was just a little bit odd and and they were kind people not telling me this is odd, but I think they were coming to our office and I'll show you um part of it here.
38:31
This is This is actually a pretty amazing.
38:33
These are all museum quality carpets.
38:35
This is the gallery actually I built after 5 years being there and I actually closed the door so you couldn't get in unless you talked to me and have an appointment to come.
38:45
I made it very exclusive, but I think in back of that in that boardroom over there we were serving Persian tea and I think that that actually was our magic. People really liked it.
38:55
Um it was a way for me to get to know them, for them to get to know me.
38:57
I think it was It was actually we talked about families, friends, and so on before anything else.
39:04
And you know, we started to make investment.
39:06
I think the first 9 months perhaps I have the worst track record in the history in investments if you can look at the companies I invested.
39:15
I invested in the companies after 3 months they were shutting doors and so on, but I didn't give up.
39:20
So and I thought the value I can bring at that time was really connecting people and I put a lot of events in the gallery.
39:27
I I remember once I invited a entire senior partners of a top tier firms.
39:35
I can't name them and I invited over 100 people from Iranian community in tech and you know, Iranian community in tech are very very influential here and I didn't know what the theme should be and I had no clue.
39:48
So I thought maybe maybe we should have a lot of fun.
39:50
So I invited belly dancers and I invited Persian food over there.
39:54
So I at the end of the night people had so much fun over there.
39:56
I'm pretty sure there some connection were made.
39:59
Um So little by little I my network grew and I started to make some good investments, but what was important was you know, people didn't judge me.
40:11
I think that's one of the amazing things about Silicon Valley that they actually opened their arms.
40:17
They knew I'm outsider but they let me learn and be part of it.
40:22
And and here was the gallery actually we made most of our investments.
40:28
I actually was the first investor in danger in that room and Andrew been started danger and as you know he went on and created Android.
40:37
That room is the exact room that I met actually I made a deal with founders of Dropbox Drew and Arash in that room over tea and the first time I met Drew and Arash was at Y Combinator demo day exactly where Jeff is sitting now.
40:54
Y Combinator was there there was a wall here. So this was the room.
40:56
The audience were smaller than this side and I walked to Drew and Arash exactly over there and I really like their presentation and I invite him to the office here.
41:08
So and and when Arash and Drew came we didn't talk about cloud storage and Microsoft can kill you and so on.
41:16
I was just really amazed by two incredibly young talented founders who built a product that I thought I can use it.
41:26
So we agreed on being a good partner with them over there and the other things I think selling rugs um you know taught me was just do whatever it takes to win.
41:38
No task is too small for me. No task is too big.
41:40
I said general partner of a VC firm in Silicon Valley I still make tea and serve tea if you come to my office but I think the best part of it maybe the example is um that I do whatever it takes for my founders is actually this.
42:00
This is Drew this co-founder CEO of Dropbox.
42:03
He went on the cover of Forbes in 2012 after raising a massive round at around $4 billion valuation and he shared the story of Sequoia Capital doing the seed round and I I played a role in that connection over there and he called me a pimp.
42:19
He said, "Peyman was Dropbox pimp." You can see down there.
42:21
And and and I and I and I'm I'm taking a lot of pride in it.
42:26
Today Dropbox is going public with $1.
42:27
2 billion revenue and I and I think no no pimp has ever made more money that I did on this.
42:41
The other one actually just is just off the press.
42:43
You know, DoorDash, another amazing Y Combinator company which actually I met the founder at Y Combinator Demo Day.
42:52
Just raised $500 million and I made that intro to SoftBank.
42:57
The point I want to make is this. Be truthful to yourself.
42:59
Really understand your strength and leverage that in what you do.
43:06
So, for me it was like wanting to play in the NBA, but I knew I cannot be Kobe Bryant.
43:11
So, I decided to do the best the best agent possibly I can. Um I also make mistakes.
43:22
I actually make some really big mistakes.
43:24
This is an email in July 2005 from lawyer of Facebook letting me know that I can invest $50,000 in series B of of Facebook which was under $100 million.
43:38
I think it was around $80 million valuation.
43:39
I think the market cap of Facebook is over $500 billion.
43:44
So, you can do your calculation.
43:46
This is is more than perhaps 10,000 X in that time.
43:51
Um On on the left side if you look at the the Mark Zuckerberg's and and Sean Parker's email it still was thefacebook.
43:58
They hadn't changed the name of the company.
43:59
On the right side on top you can see the 50,000 was exact to the cents to the wire, 49,998 dollars and 4 cents.
44:11
But if you pay attention down there on the right side, it says 165 University Avenue.
44:16
So, part of the investment was they wanted to lease one of our offices on University Avenue for 5 years.
44:23
So, we went back and forth and we didn't agree on the lease terms and we didn't invest in Facebook.
44:29
So, I learned a big lessons and I want to share it with you.
44:33
So, one when you see an exceptional founder, those outliers who are actually from Mars, do not overanalyze the situation.
44:44
Just get on the rocket ship and go.
44:47
And and two, never let those extra 4 cents distract you.
44:51
You have to see the forest through the trees.
44:54
So, I made more mistakes, but this was the biggest.
44:58
So, I thought maybe to share it with you.
45:00
Um you know, fast forward, I I started a fund in 2013.
45:05
Pear VC with my partner Mar Hershenson.
45:08
Actually, Mar is an incredible woman from Barcelona.
45:10
She has a PhD from Stanford in electronic engineering.
45:16
She was a consulting professor and started three companies from scratch.
45:20
I was very fortunate to be an investor in her second company in 2003.
45:25
So, we have been very fortunate to invest in really category defining companies that, you know, collectively now they're worth over 25 billion dollars.
45:34
Actually, the very first line, if you see all those companies are YC companies.
45:40
You know, Dropbox, Gusto, DoorDash, Airbnb and many others.
45:41
And and the idea is just investing very early and and we're actually very much founders and market driven.
45:49
And we can talk about it more after this.
45:53
But um uh Throughout the years, people ask me, Pejman, how do you work with founders?
46:01
How do you find these founders, what do you look for into these founders, and you know, although a lot of founders founders are have different background, different families, histories, different religion, and so on.
46:14
I think there are some traits that are common among them, and I thought maybe I should share um these things with you.
46:21
So, um I am actually worried about founders who come with 20 ideas and narrow it down to one because it's more feasible.
46:31
I actually like founders who have history with the problem they're solving.
46:35
Um the best founders not necessarily are chasing the next big thing ideas, rather they're solving a real problem that they had themselves, and these problems tend to be very specific, like connecting people with cars to people who need rides, or um storing your data remotely, or creating a chat room that employee can communicate to each other.
46:59
So, these are These are the ideas and problems that become the Ubers and Dropboxes or Slacks of our world.
47:06
And you know, I think if somebody truly understands the problem they're solving in depth, um these are the people who won't give up when things become tough.
47:16
So, um I don't think there is anything wrong with big ideas, but I think companies are set out to solve problems that founders have experienced, and it's that kind of genuine connection between founders and the problem that drives them to to solve and even beat the odds.
47:35
Um obviously, I'm um um looking for founders who are taking big risks on behalf of their ideas.
47:41
I like founders who are uh self-aware, very confident, but they're taking this risk typically if they're waiting to the seed round to be raised before they they drop their job.
47:53
I think it's it's not a good sign for me, and that I think this is very obvious among the best founders.
48:00
Um you know, building companies it's very very hard.
48:04
Um it's kind of an emotional roller coaster.
48:05
So, I'm looking for um founders who are not easily rattled.
48:09
And I'll share a story with you.
48:11
A few years ago, I had a conversation with the first-time founder who said, "Oh, Pejman, you know, he had a tough time raising money."
48:18
And he said, "You know, Silicon Valley is like war zone."
48:21
And you know, I I told him that I was in the war zone is nothing like it.
48:25
And I shared a story with him that you know, I started my very first business when I was a teenager during Iran and Iraq war.
48:32
Um at that time um Iraqi jets were coming over Tehran almost every night.
48:38
And some of the nights because of Iran's anti-aircraft, these jets couldn't get low to drop the bomb.
48:44
So, at the end of their mission, they were breaking the sound barrier.
48:46
As a result, these windows were were shattered and and pieces were coming to your eyes.
48:52
And I had this idea that I should go sell duct tapes to shops.
48:55
So, I bought a lot of duct tapes.
48:58
I walked the the longest street in Tehran, went door by door, and explained that these Iraqi jets coming tonight.
49:05
And I think you should put these duct tapes on your windows.
49:09
At the end of the night, nobody bought anything from me.
49:11
And and I just I just gave up.
49:13
And and and I think that which reminds me that um you know, the best founders I know are extremely focused and persistent and they never give up.
49:21
I mean, the best founders maybe they've gone to the different street tomorrow.
49:25
Maybe try a different sales pitch.
49:27
Maybe selling a different color.
49:30
So, what I want to bring it up here, the best founders really don't give up that easy.
49:37
Um I actually love the founders who are paranoid in a in a healthy way.
49:40
Um Um I I respond to founders who are confident and um they have a very clear idea of what kind of future they're building, but they're double and triple-checking every decision they make.
49:57
Being paranoid doesn't mean that you have to be harsh or unkind.
50:01
I actually look for founders who put the company and their teams above themselves and they can attract talents.
50:09
I actually think the good CEO is like a captain of the ship.
50:12
A good captain knows um directionally where the ship is going and will do anything to get there.
50:18
Um a good captain is incredibly loyal to his or her shipmates.
50:26
And great captain is willing to go down with the ship.
50:29
Um and lastly, I think vision.
50:29
I think I look for founders who have a long-term vision instead of just a short-term goal.
50:36
Um You know, I always ask, are they focusing on getting rich pretty quickly or they're, you know, insanely focused to make customers happy or creating jobs or build a company that change an industry.
50:50
These are the question I ask.
50:52
I think founders should be very well aware of what kind of future they're building.
50:57
And I And I I'll share another story.
50:58
Last year, I think it was last year, was Dropbox's 10th year anniversary and I was talking to Drew and I asked Drew, you know, fast forward in 10 years, where do you think Dropbox is?
51:09
And And Drew, instead of telling me what product he's building and so on, he said, "Pejman, in in 10 years means at the 20th year anniversary of Dropbox, Dropbox has will reduce the work days from five to four."
51:25
That's kind of the mission-driven founders you want to work with.
51:27
He didn't say what what I'm building.
51:28
He was just a result of Dropbox will we make we make so many tools that people are going to be more productive, so you only need four days a week to work.
51:38
So, that those are the type of a founders, those are the type of a mission I'm talking about here.
51:43
Um Anyway, I think there is there's not a perfect formula by any means.
51:48
I made many bad investments and I've seen many um gifted people fail.
51:55
Um I think the reason I connect well with founders is this thing inside us that nothing is impossible and there's nothing we can do.
52:03
Um that's why I always look at this this photo uh and it was a start for me.
52:07
I didn't have money but I had hope that I can make changes and I had hope that if it enough sacrifice enough work, I can make something out of myself.
52:16
And by the way, um the girl who I uh called uh we're celebrating our 25th anniversary this year with two beautiful children.
52:26
So, for sure the best investment I've ever made. Thank you very much. Thanks, guys.
52:40
Uh okay, we're going to take questions from out in cyberspace.
52:45
If you send it to #ycsas or in the Slack channel and um I will call on folks back here.
53:02
What's the idea of So, you were allowed you were talking about team and the voice that drives the founder.
53:10
What is that voice that drives the founder and the team?
53:15
I I don't think there needs to be uh a set one that's the same for every founder.
53:18
I think it has to do more with the fact that they're driven to keep going to Pejman's point.
53:22
Like they they have to be relentless and I mean, starting a company is incredibly hard in all sorts of ways uh that people who haven't started one just can't really empathize with.
53:34
And you need somebody who's sort of egging you on internally to to have you keep going.
53:38
And the question is, who is that?
53:40
It could be the founder themselves, it could be a relative, it could be the passion for the idea even, but there needs to be something that really is that driving force. Often, it's a person.
53:53
So, with that being said, what drives you? So, what drives you? Uh, it's a long answer.
54:03
How much time do we have? Yeah, exactly.
54:04
We're all start going into therapy or something.
54:06
Everybody will start crying.
54:07
It's going to be too much. So. Yeah, back there.
54:12
So, you talked about uh founders first and the idea of consistent commitment.
54:16
We have a situation um which is the founders are great, we believe in them.
54:23
We invested in them about 6 months back.
54:25
Certain things were promised that certain revenues would come, they would deliver on certain technologies. Money's running out.
54:32
We have to go another month with them.
54:34
We've communicated with them, but we don't see the We see founders that are committed, but the outcomes are not coming.
54:42
How would you evaluate this kind of situation where we believe the business is right, we believe the founders uh have the right ingredient, but the it's not matching to the extent that the other wise not coming out or it's not progressing in time.
54:55
So, so, uh long question about uh an investment that had been made in the past and everything seems to be coming together except the business doesn't seem to be working quite right.
55:07
How do you evaluate situations like that?
55:10
Um Who who Yeah, I can speak about that.
55:12
I I don't know if you invested 6 months ago, was it kind of the ground zero or was it mature company?
55:17
Typically, the first year nothing works.
55:20
Um so, the fact that it doesn't work, it shouldn't scare you as an investor.
55:24
If you really believe these are exceptional founders, there's a big market, you know, our philosophy here as a fund is just backing them up.
55:32
But, I don't know if this like 3 years in a business still going slow or it's just the beginning of the life cycle?
55:40
Um so, it's it's going to be like that uh the business has been there for about a year and a half now.
55:46
Uh so, we they they they raised the first round.
55:47
We backed it up in the second round.
55:50
Uh I fear that um it's it's a fantastic question, but there's not going to be a quick answer here.
55:56
This is uh figuring out whether you should put more money into a company is extraordinarily complex.
56:01
And I think if you can I I don't know if these guys are going to be able to hang out at all the end, but if you can grab them, you can actually have a conversation, but I fear that one requires a conversation, not a quick answer, and a lot of back and forth, and there's so many different questions you'd have to ask to figure out whether this is a company that is, you know, most most planes that go into um a dive hit the ground. Right? Mostly. But, some don't. And some pull back up.
56:35
You Making a decision as to which one you're on is hard. Questions. Um right here.
56:43
Um how do you divide the time between sourcing good investments versus helping founders?
56:48
Because, you know, you put down a checklist of like, you know, what you can do to help early stage founders.
56:52
You know, that's basically like consulting management consulting, right?
56:56
You know, you're trying to open up a door for them and trying to hire someone.
56:58
Hiring one person is excruciatingly hard.
57:00
So, how do you divide your divide your time? So, great question.
57:05
Um perhaps both of you can take a shot at it.
57:08
Um how do you divide your time between sourcing and actually helping your helping the founders in whom you have invested?
57:17
Um you know, I think doing an investment is three buckets, as you mentioned, is important.
57:21
Making sure you have an extremely good quality deal flow, and then the ability to pick winners, and then how do you help them?
57:28
Um you You when I was an angel investor, so I spent a lot of time to making sure I have a, you know, very quality deal flow.
57:36
Um, you know, after doing this 18 years, I spent a lot of time but not as much as before.
57:40
And as a team now, we divide that um different responsibilities.
57:44
So, I think it's a you have to see what situation you are in.
57:48
If you have a really good deal flow and you have few founders that you really need their help.
57:51
You can juggle between these things.
57:53
I don't think it's just one rule that you have to just divide it by three.
57:57
It all depends on the life cycle of the company and where you stand as an investor.
58:05
I think I have two answers to that just to add really quickly.
58:06
One is more around the team or the company itself and one is around how you help.
58:09
I think in general when you help companies it comes and goes in spikes versus a sustained throughout.
58:15
If you're sustainably having to interfere or help with a company every day, then there's either something wrong with that company or with the founders.
58:23
And so, I think the best founders need help in these spikes where they're like, "Now we're figuring out X, help us with that."
58:27
Or now we need to hire this person, help us find that.
58:30
But they're not depending on you for everything. Um, yeah, right here.
58:37
Hello, you mentioned you described yourself as a market driven investor and you showed this graph on exponential growth.
58:42
And a few percentage points can dramatically by 10x move the uh the outcome.
58:48
But you are making the decisions early before the data.
58:49
So, how do you think about predicting this?
58:54
So, for a lot uh if you're a market driven investor and you're investing really early before you see what the business growth curve looks like, how do you make those decisions? Uh I look at two things.
59:09
One is the total addressable market or the TAM.
59:10
So, how big can this market often be?
59:13
And people tend to dilute themselves in both directions.
59:17
So, Chris Dixon has this great uh line that uh the most interesting companies start off looking like a toy.
59:22
So, many things look small or niche and you really have to extrapolate and say, "Okay, if this thing actually works, how big will it be?"
59:29
Uh and that ends up giving you some sense of market size and outcome, and often you're off by an order of magnitude, uh but that could be a good thing.
59:36
Maybe you think it's a billion-dollar company, and it's a 10 or a 30-billion-dollar company.
59:41
Um so, I think I think it's really that's one.
59:43
Two is really the competitive dynamic, and three is are people paying them?
59:46
And if people are paying them early, it's actually a very good sign because startup products tend to be awful, early founders tend to be terrible sales people, you know, there's all these things that suggest that if you can actually get somebody to give you money despite all the flaws, you're doing something amazing.
1:00:03
Sort of a similar question, um from online, uh is how really for both of you, it's directed a lot, but it's really for both of you.
1:00:12
A lot of the best companies, um the total addressable market is just not obvious.
1:00:18
Uber's sort of the classic example, where you look at that and say, "A taxi market, that's boring. It's small."
1:00:25
But it turned out there was a much larger market um for uh there was a much larger larger market that would be created once you created a service as as convenient as as that sort of ride sharing.
1:00:37
How do you guys think about what might be instead of what is?
1:00:44
Um Actually, if you look at our portfolio companies, it seems all over the place.
1:00:49
It seems we don't know what we're doing because it's from consumer space all the way to biotech and to drones and so on.
1:00:56
And the this really belief that we have that entrepreneurs see future before us.
1:01:01
Um so, it's part of it is just let them educate us about it.
1:01:04
Obviously, we do our um analysis of the market and so on, but then, you know, many often times that we really can assess that, and it's just, you know, trusting entrepreneurs that they have these beliefs that once we partner with them, I think it's obviously we we we follow their lead over that.
1:01:21
But as you mentioned, it's just very very hard at some of some of the companies.
1:01:27
So, I I I do want to point out that we're running way late.
1:01:30
I kind of expected that would happen today.
1:01:32
Um luckily, this is our room, so we're not going to get kicked out or anything, but I do want to be respectful of your all time and the time of our folks here.
1:01:39
So, I'm only going to take a a few more questions. Yes, back there.
1:01:44
So, as a starting investor, who's also an entrepreneur, and you are an angel investor, you know, how do you What are your tips to actually getting started on deal flow?
1:01:53
Because the quality of your investments are only as good as the deal flow that you have.
1:01:57
But you have a full-time job as an entrepreneur.
1:01:59
How do you balance Okay, so the so the the fundamental question, you're a you're a busy person, you want to do angel investing, how do you go about getting started, getting deal flow?
1:02:11
I think there's three things.
1:02:11
Number one, uh you can start writing blog posts or other things about your industry if you think your industry is an interesting place to invest, and people will come to you.
1:02:20
So, it's almost like content marketing for startups or for investment.
1:02:22
Uh number two is if there are things adjacent to your company that are non-competitive that you think are very good, those are very natural things.
1:02:28
And three, I'm assuming that um you know, at least when I was starting my first company, for example, I had a peer group of first-time founders that I was working with or getting advice from, and over time that led to some cross investments.
1:02:41
And so, I think those are three great initial sources.
1:02:45
You know, I suggest go to your immediate network I'm and and you know, build around that a a better network.
1:02:50
I remember in when I started in late '90s and I didn't know how to find founders, um I was going on Stanford computer science um actually school looking at every name that look Iranian or Persian and sending an email and inviting them for tea.
1:03:07
And I ended up investing in two, which he sold the company to Google and is now professor at MIT, and I keep getting a lot of great entrepreneurs from him.
1:03:15
So, there are ways to do it, and sometimes cold calls go a long way. Okay.
1:03:19
I think one related thing that I think about is your own company versus the time you spend investing.
1:03:23
So, I'd also be a little bit cautious. One more great question.
1:03:34
So, when there are um co-founder conflicts, what roles do you guys or what role do you guys play when you run into those uh uncomfortable situations? No comment.
1:03:50
Well, there there's two types of uh co-founder conflicts, resolvable and unresolvable.
1:03:55
Uh I'd say that if it starts very early, usually it's unresolvable and somebody's going to have to leave.
1:04:01
If it starts late, usually there's a reason and you can fix it.
1:04:07
You know, I I I think for early-stage startups, um you as an investor, you have to play a role as a mom and dad, brother, sisters, and sometimes it's about, you know, founders conflict.
1:04:15
So, many often times is not a providing advice about product market fit or raising money, it's just you're all human and, you know, they question themselves every day.
1:04:25
It's a lonely job, so just be there for them.
1:04:29
Uh uh and I'll add one more thing.
1:04:29
I think that the base of of most relationship conflict of any kind in your in your personal relationships or in your founder relationships is is some kind of communications breakdown.
1:04:44
So, my advice is usually, yeah, you you you two, you three, you five, whatever, you need to talk.
1:04:49
Um and if there's going to be a solution, it's going to be in that communications.
1:04:53
Um sometimes it makes things better.
1:04:56
Sometimes it makes things worse, but I would argue it would have gotten worse anyway.
1:04:59
Um I I really apologize for cutting uh what I'm sure you have a lot more questions, but let's give these guys a round of applause.
1:05:07
And thank you so much for coming. Woo!