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  • I want to start with a question for, for Mark and

  • Ron which is by far the number 1 question What made

  • you guys decide to invest in a founder or a company.

  • Either of you.

  • >> Start. >> No, no, no, no.

  • >> You first.

  • >> Well we have a slide on that.

  • We have, we have an app for that.

  • >> Mark can start while we try to get your slide up.

  • >> Okay.

  • >> We're running out of AV guys, so.

  • >> So say the question again.

  • >> What makes you decide to invest in

  • a founder or a company?

  • >> So what makes us invest in a company is

  • based on a whole bunch of characteristics.

  • I've been doing this since 1994,

  • right before Mark got out of the University of Illinois.

  • So, SV Angel and

  • it's entities have invested in over 700 companies.

  • So, to invest in 700 companies that means we've

  • physically talked to thousands of entrepreneurs.

  • And there's a whole bunch of things that

  • just go through my head when I meet an entrepreneur.

  • And I'm just going to talk about what some of

  • those are.

  • And literally while you're talking to me in

  • the first minute I'm saying, is this person a leader?

  • You know, is this person rifled, focused and

  • obsessed by the product.

  • I'm hoping cuz usually the first question I ask is what

  • inspired you to invent this product.

  • I'm hoping that it's based on a personal problem that,

  • that founder had and

  • this product is the solution to that personal problem.

  • Then I'm looking for communication skills.

  • Because if you're gonna be a leader and hire a team,.

  • Assuming your product is successful you've gotta be

  • a really good communicator and you,

  • you have to be a born leader.

  • Now some of that you might have to learn those

  • traits of leadership but you better take charge and

  • be able to be a leader.

  • I'll switch back to slide but let's let Mark.

  • >> Yeah, I, I agree with all that,

  • I guess, and there's a lot of detail to

  • this question that we could talk about.

  • And we maybe even a little bit different than Ron,

  • and, well we are different than Ron,

  • that we actually invested across stages.

  • So we invested the seed stage, the interest stage,

  • the growth stage.

  • And then we invest in a variety of

  • different business models, consumer enterprise, and

  • a bunch of variations.

  • So, there are kind of fine grained answers, you know,

  • that we could get into,

  • if there are specific questions.

  • Two general concepts that I would share.

  • So one is the venture capital business is

  • a 100% a game of outliers.

  • It's extreme exceptions.

  • Right? So the conventional

  • statistics are,

  • you know, on the order,of 4,000 venture fundable.

  • Companies a year that wanna raise venture capital about,

  • you know, about 200 of those will get funded by

  • what's considered a top tier VC.

  • About 15 of those will someday get to $100 million

  • in revenue and those 15 from that year will generate

  • something on the order of 97% of all the returns.

  • For the entire category of

  • venture capital in that year.

  • And so venture capital is such an extreme feat for

  • family business.

  • You're either in one of the fifteen or your not.

  • Or you're in one of the two hundred or your not.

  • And so the big thing that your looking for

  • no matter you know which sort of

  • particular kind of criteria we talk about.

  • They all have the characteristic of

  • you're looking for the extreme outlier.

  • The other thing I'd highlight that we

  • think about a lot internally is we have this

  • concept invest in strength versus lack of weakness.

  • And at first that sounds obvious but

  • it's actually fairly subtle which is sort of the default

  • way to do venture capital is to kinda check boxes, right?

  • So you know, really good founder, really good idea,

  • you know really good, you know, products, really good

  • initial customers, check check check check.

  • Okay, if this is reasonable, I'll put money in it.

  • What you find with those, those sorta checkbox deals.

  • So they get, they get done all the time.

  • What you find is they don't have something that

  • really makes them really remarkable and special.

  • Right? They don't have

  • an extreme strength that makes them an outlier.

  • On the other side of that the companies that have

  • the really extreme strengths often have serious flaws.

  • And so one of the cautionary lessons of venture capital

  • is, if you don't invest on the basis of serious flaws.

  • You don't invest in most of the big winners, and

  • we can go through example after

  • example after example of that.

  • But that would have ruled out almost all

  • the big winners over time.

  • And so, at least what we aspire to do is to invest in

  • the one, the startups that have a really, really

  • extreme strength, along an important dimension.

  • And they'd be willing to

  • tolerate some other,you know, set of weaknesses.

  • >> Ron, we got your slide up.

  • >> Okay, I don't want to over dwell on the slide.

  • But when you first meet an investor,

  • you've got to be able to say in one

  • compelling sentence that you should practice like crazy.

  • What your product does,

  • so that the investor that your talking to,

  • immediately can picture the product in their own mind.

  • Probably 25% of the entrepreneurs I

  • talk to today still after the first sentence,

  • I don't know what they do.

  • And as I get older and less patient, I say.

  • Back up, I don't even know what you do yet.

  • But, so try and get that perfect.

  • And then I wanna skip to the second column.

  • You have to be decisive.

  • The only way to make progress is make decisions.

  • Procrastination is the devil in startups.

  • So no matter what you do,

  • you gotta keep that ship moving.

  • If it's decisions to hire, decisions to fire.

  • You've gotta make those quickly.

  • All about building a great team.

  • Once you have a great product, then it's all about

  • execution and building a great team.

  • >> Parker, could you talk about your seed ground and

  • how that went, and

  • what you wish you had done differently as a foundry,

  • raising money?

  • >> Sure, so actually I think

  • that my seed ground most of the stuff with my current

  • company felt like, from a fundraising perspective felt

  • like it came together relatively quickly.

  • But actually one of the experiences I had,

  • I started a company before this, that I was at for

  • about six years and my cofounder and

  • I pitched almost every VC firm in Silicon Valley,

  • we literally went to like 60 different firms and

  • they all told us no.

  • And we were constantly trying to figure out.

  • You know, how do we, how should we adjust our pitch?

  • And how should we do our slides differently.

  • And how do we Tweet the story, and

  • that sort of thing.

  • And at one point there was this sort of

  • key insight that someone gave me when I was pitching.

  • Actually someone at Coastal Ventures.

  • And this VC said guys.

  • You know, he was looking for

  • some very particular kind of analysis that we

  • didn't have on hand.

  • And he was like, guys, you don't get it.

  • He was like, you know,

  • if you guys were the Twitter guys,

  • you guys could come in and you could just be,

  • like, and, like, put whatever up here.

  • And, like, we would invest in you.

  • But, like you guys aren't the Twitter guys so

  • you need to make this really easy and

  • have like all this stuff ready for us and

  • all this kind of stuff.

  • And I took like the exactly opposite lesson of what,

  • he, I think, wanted me to take away from that, with.

  • Which was like, jeez, like I should really just

  • figure out a way to be the Twitter guys.

  • >> I'm, like, that's, that's the way to do this.

  • And so, actually like one of

  • the reasons I started my current company.

  • Or one of the things I found very attractive about

  • Zenefits, is as I was thinking about it.

  • It seemed like a business.

  • I was so frustrated from this experience of

  • having tried, you know, for

  • like two years to raise money from VC's.

  • And then sort of decided like to hell with it.

  • You can't count on there being

  • capital available to you.

  • And so this,

  • the business that I started seemed like one that like,

  • like actually just maybe I could do it without raising

  • money at all.

  • Like there might be a path to kind of, you know,

  • there was enough cash flow,

  • it seemed compelling enough that I could like, do that.

  • And it turns out that those are exactly the kinds of

  • businesses that investors love to invest in.

  • And it made it incredibly easy.

  • So I actually think like, I mean, Sam's very kind and

  • said I was an expert fundraiser.

  • The reality is I don't actually even think I'm

  • very good at fundraising.

  • It's probably something, I'm like less good at then,

  • you know, sort of other parts of my jobs.

  • But I think if you can build a business that's, you know,

  • where everything's like moving in

  • the right direction.

  • If you can be like the Twitter guys,

  • like nothing else matters and if you can't like,

  • you know, be the Twitter guys it's very hard for

  • anything else to make a difference.

  • For things to kind of come together for you.

  • >> Why did that VC say be like the Twitter guys when

  • the fail wail dominated the site for two years.

  • >> Cause it worked.

  • >> Yeah. >> The other point I want to

  • make is, bootstrap as long as you possibly can.

  • I met with one of the best founders in tech.

  • Who's starting a new company and

  • I said to her when when are you going to raise money?

  • I might not.

  • And I go that is awesome.

  • You know never forget the bootstrap.

  • >> So I was actually going to close on this but

  • i'm just going to accelerate it cause Parker I think just

  • gave you the most important thing you'll ever hear.

  • Which is also what I was going to say.

  • Which is, so, the number one piece of advice that

  • I've ever read and

  • that I tell people on these kinds of topics is always.

  • It's from the comedian Steve Martin, who I think is

  • an absolute genius, wrote a great book on his startup

  • career which obviously was very successful.

  • The book is called, Born Standing Up, and he,

  • literally, it's a short little book and

  • it describes how he became Steve Martin.

  • And the part of the book is, he says, you know,

  • what is the key to success,

  • he says the key to success is be so

  • good they can't ignore you.

  • Right, and so in a sense, like all this,

  • we're gonna have this entire conversation though, which

  • I'm sure we'll keep having about how to raise money,

  • but in a sense it's all kind of beside the point.

  • Because if you do what Parker's done and

  • you build a business that is going to be a gigantic

  • success then investors are throwing money at you.

  • And if you come in, you know, with a theory and

  • a plan and no data and you're just one of,

  • you know, the next thousand.

  • It's gonna be far, far harder to raise money.

  • The other, so that's the positive way to put it,

  • is kind of be so good they can't ignore you.