2011-12 Angel & Venture Capital Financing Overview sponsored by Fenwick & West LLP

2011-12 Angel & Venture Capital Financing Overview sponsored by Fenwick & West LLP



so welcome to the Berkeley entrepreneurs forum this is something we do every month and we have everything from vc's angels and lawyers to tell you about how to raise capital for your company to entrepreneurs we do a wide range of different subjects from web and mobile to energy clean technology and it's great every month you can visit us at entrepreneurship at berkeley.edu and sign up for our mailing list which I encourage you if you have in before you can also check us out on Twitter we are UCB entrepreneur and if you want to tweet about tonight the hashtag is bef for Berkeley entrepreneurs forum I couldn't be more excited to introduce tonight's program fennekin West has been a longtime supporter of the forum Sam Angus always puts together a fantastic fantastic event and it's no surprise if you look at his bio he's a lawyer with fennec and west and he's helped jungly with her 300 million dollar acquisition by amazon the acquisition of jammed at mobile and he's been doing it for a long time I noticed you've got air B&B on their very hot company right now is one of his clients he also does mentoring hours at the leicester center i might add that so they're all kinds of reasons to seek out Sam if you have an active startup and the whole firm of fenwick and Wes and without further ado I will bring up Sam to introduce the program tonight Thank You Andre and Kirsten this I'm blown away by the response here this is absolutely amazing it's a great topic and one that I think is extremely timely we're going to review sort of the venture capital the state of affairs for venture capital and angel investing we've got a great panel which I think represents a range of investors and will provide some hopefully interesting provocative and insightful comments but before that I want to introduce the the one and only Steve Bengston of PricewaterhouseCoopers to give his money tree presentation which is always very interesting and provides a nice backdrop to what the panel is going to talk about I've known Steve for years and consider him a friend and without further ado let me bring up Steve thanks Sam well we'll get into the real numbers now but first I want a brief interlude to talk about Apple you know i'm sure most you know about Steve Jobs announcement yesterday and apart from the personal tragedy for Steve I'm Apple is a great metaphor for what we're talking about here because it's one of the great venture companies of all time and I've got a couple personal connections that most of us probably of an apple story but by sheer coincidence I live two blocks from steve jobs i go by his house all the time so it's a very heartfelt but also a guy from my school class of many years ago guy named trip hawkins who went on to fame at Electronic Arts in a few other places but he happened to be the first non engineer at apple and a couple reasons as interesting one when he when he told us how all he's going to go to apple we'd never heard of it it was an unknown company and yet in the span of our lifetime it went from being a complete unknown brand new company to momentarily having the highest market cap of the company in the world and so I think that's part of what you know brings us all here is an investor's and service providers to this area of Technology because you can you see massive change in much shorter time periods then really any other industry in the world now we're going to talk about venture capital trends in the US this is something we've been doing for 15 years or so and if you want more information there's a couple free websites there that will have a thousand times what we're going to talk about here today this chart tracks venture capital investment in the US by quarter over the last handful years and you can see it's been kind of you know up in the right then collapsed in 08 no 9 and then went back up and it's a little surprising because we're probably going to talk about a lot of the issues that are in venture capital means it's it's an industry that's in disequilibrium because for the past couple years it's invested much more than its raised the exits don't support the current level of investment so something has to change and you know despite that you can see investments actually up so far in 2011 back of you gave a historical perspective you know we're on track to do something like 25 billion of investment in the US and even though that's down from certainly the peak years and down from just a couple years ago you know it's way above anything before roughly 1999 so so you know there's certain vicissitudes right now you know we're on a very high base compared to his historic norms this chart gives us idea why we're having this meeting in Silicon Valley and why it's packed because this is the mecca for entrepreneurship and venture capital around the world now you can see that roughly forty percent of the venture deals happen right in Silicon Valley and another ten percent happened in Southern California so half the venture capital America goes into California and that's been true for quite some time this is the exact same data but just ranks order so you can see the dominance of Silicon Valley versus New England which is where the industry started I mean 50 years ago New England completely dominated venture capital and about 20 or 30 years ago Silicon Valley took over number one and now it's quite dominant and I think there's actually a good chance that in the next 10 or 20 years Southern California is going to take over from boston for the number-2 area in the country this is a this gives you a sense of Silicon Valley's not only the dominance but how it's changed one of the things that's interesting is you think of all the cities in America for all the regions that are trying to be the silicon fill in the blank Silicon Forest silicon say in Silicon Alley etc and you would think over time that they would slowly chip away at Silicon Valley's market share but in but in fact you can see the exact reverse has happened when we started these slides 95 Silicon Valley had about 20-some percent of venture cap on the US and now it's consistently in the high 30s even forty percent it's actually gone up so there's really been a very distinct flight to quality and which is you know was not obvious when this all started this chart has lots of numbers on it but it tracks venture capital investment just in Silicon Valley this is dollars going into Silicon Valley you can see over the last 15 or so years by quarter and this is all deals so Series A through series ii and if you can read these numbers from way back in the beginning and see it not again 2011's gone up in Silicon Valley about 2 to 3 billion dollars is getting invested each quarter and I think about a third of its from our panel so they're very they're very active and they all have big wallets and they love to talk to people after the panel the the next slide gives the exact same data but just a number of deals that are happening in a similar trend in Silicon Valley again 200 to 300 deals are happening each quarter so a lot of volume I mean you remember this 12-week quarters so a lot of deals are happening just in Silicon Valley but you might ask what about series a hasn't that kind of collapsed as VCS have gone later stage and you can see there there certainly was a a depression so to speak of silicon of series-a deals recently but it's gone back up so if in 2011 you can see it's heading back up into the right two to three hundred million dollars of series eight deals just in Silicon Valley each quarter and if you look at the number of deals again it's fifty to a hundred series eight deals in fact 110 in q2 you can see it was one of the highest quarterly numbers for Silicon Valley in the history of the reporting this sorry charts investments by round and I it's not clear what the message if it just shows you how much money is at different stages you know not surprising there's a lot of money for series a B and C but even later on de etc there's still a lot of money going to deals and in fact there was even ten million that went into a series s deal and that's not for Steve but and I don't know how many of you have ever been in a series s deal see no one ever admits it you know it's like happy you can never find who does them look at a couple charts just by industry and this is not much changed much in the last couple years software is always almost always the number one category has been for most the entire period of the money tree biotech and medical devices have been two and three for quite some time so the main changes here is you're seeing some other categories run its kind of there's more depth to the the large categories and industrial and energy which is really a surrogate for cleantech has fallen a bit it's been you know two three four for the last few quarters and you can see it fell to whatever that is six or seven so clean text in a little bit of disarray as the industry transitions from a lot of these bigger capital intensive deals to more capital efficient models this just shows you how to exchange you can see software has basically been the number one almost every quarter for the last few but otherwise you know you can see the various market shares or the other categories this tracks investments by stage no big surprise here most of the money's is anshan and later stage and that has changed over the last 10 or so years and if you look at the same data by round of funding you can see it the biggest chunk of money is going in the fifth round and Beyond and ten years ago that would have been a very small number and that's one of the reasons that returns have been modest by historical comparisons over the last ten years because there's so much money that has to be it has to go into these companies for such a long period of time you look at the the good news is if you're lucky enough to raise money is a quick pop quiz so what what percentage of people wandering around Silicon Valley ever get any money the answer is 0.5 percent roughly so for those of you they're out fundraising or you know want to be entrepreneurs just know this is a hard game and it's something that people don't talk about very much and certainly coming from schools like Berkeley you always assume you're going to raise money but the statistics are not quite as optimistic so you know just keep in mind this is a tough slog and you got to work hard and get lucky but if the good news is if you get money you're likely to get quite a bit at least by historical standards we can see a median it's been about three or four million over the last few years in fact the 3 million you get now you'll probably has a lot more purchasing power than the four or five million you got several years ago just because most of the things people spend money on especially in software companies cost a lot less now than they did a handful of years ago these are the top 10 deals in the US and a couple of things of note 1 Silicon Valley is just three of the top ten deal so it's a little lower than normal but also remember this isn't an era where the median exit is something like 80 90 100 million dollars and yet you can see all of these deals except one are at or above the median so this is a little bit like Garrison Keillor's joke about you know parents think all their kids are above average in the same thing they these everyone thinks you know these are going to be the big winners but ever this is true every quarter there's always quite a few deals that are getting a lot of money even in an era where bc's talked a lot about capital efficiency these are the most active investors defined by just number of deals this could be see is a through series ii i doesn't matter and it could be anywhere in the US you can see where they're headquartered but most of these people do deals all over anyone from Kansas in the audience okay well if you want to go home there's hope now and then the next one what do we look at in the exits there's a lot of numbers here but the main news is in the IPO market has had a brief resurgence in last year I think the jury is out whether that the resurgence has come to a grinding halt now with the chaos in the markets but there's been you can see there's been a few more IPO is the last few quarters the last couple years we had 75 venture-backed IPOs you know in 2010 and we were on track through the first half to do about another 70 or 75 right now that number looks pretty unlikely so we're probably going to have a dip this year and certainly either of those numbers is a are cry from the numbers we saw in the mid to late 90s ma is a little healthier there's a lot of transactions that's the good news the bad news is a lot of compression on prices unless you're in a particularly hot sector fundraising I looted to earlier VCS have invested 20 to 30 billion a year over the last couple years and you can see in 2010 they raised 10 billion 2009 they raised I'm sorry 13 and 16 and throw out there on a path they were on a path to do pretty well but q1 was a little misleading because there were a few mega funds that raise money and q 2 kind of went back to the new norm so if fundraising is still very difficult there's a lot of VCS that are very concerned with raising their next fun so there's a lot of summary there's a lot of good news and not so good news we've talked about most of this but I will allude to the advertising a bullet point which is we're still in the early stages of a migration from of media from traditional platforms of movies TV and where the big money goes to the internet and mobile and a couple couple facts about seven percent of media dollars right now going to the internet mobile and yet we spend about twenty percent of our media time on the internet and one truism of media advertising as those numbers tend to converge over time so I think you know over the next ten or twenty years you're going to see a big onslaught of media dollars that go from traditional media into internet and mobile and that's going to fund a lot of the investments that you're seeing now but things aren't all so good we've alluded to most of these things returns have been very modest by historic standards the last ten years in the venture industry the government is coming in with more regulation the VC market itself is in disequilibrium a couple things that are going on a lot of ecs are not doing new deals are concerned about raising the next fund a lot of job creation historically in history has come through IPOs and if I POS go down again that that will reduce the number of jobs get created through venture we talked about fundraising I'll just touch on a few of these a prominent VC recently did a all caught an informal study that claims that ninety-seven percent of the profits in the industry come from 15 companies every year let's say there's a little hyperbole on both ends but even if you think ninety percent come from 30 companies it still begs the question of how many vc's do you need to find the best 30 companies every year right now the answer is about three or four thousand now they occasionally and but yeah so but one of the things you hear a lot these days is you know the industry is bad but my portfolio is great so you know there's a lot of concern about you know portfolios throughout the industry and a lot of a lot of funds oops a lot of funds that have not raised money in the last three or four years are probably in deep trouble globalization of theme so you've heard a lot about China and India I get most of the press but we're seeing a lot of activity in South America and Russia and other countries I won't touch on each of those points but just focus on a couple David Rubin seen the head of Carlisle having to mention that China has been the number one economy 15 the last 18th centuries so just because they've had a couple bad centuries I wouldn't rule them out you know they're used to being on top and but despite that India the current population changes is actually going to be in number one in population in about ten years or so and that could change the conversation about where the largest domestic markets which translate into more venture funding etc and with that I'll turn it over back to Sam thank you Steve as always very entertaining I'd like to invite the panel up now why introduce them briefly and I'll ask that once I do you give a short synopsis of your focus and who you are as Steve said this is a very interesting time a lot of contradictions in the numbers a lot of deals getting done very early stage but exits are depressed and there's a lot of price compression you don't see a lot of more difficult to raise money for venture capitalists so this this will be a very interesting panel so to my to my right here is Aiden son kit he's the founder and president of police ventures Aiden focuses on seed financings has been doing it for years formerly was at Google next to him is Howard heart and bomb a partner at August capital Howard was one of the founding investors of skype and before that rather after that was at Draper Richards before August and last but not least is Joe Kraus a partner at Google Ventures Joe is a two-time entrepreneur founder co-founder of excited home and jot spot as well and and so gentlemen let's get started given the time we don't we have about 40 minutes I'm told so the focus of today's panel is on the state of early-stage investor investing 2008-2009 saw a collapse in the market mainly due to the financial crisis and the mortgage mortgage crisis since that time the markets come back with a vengeance and in fact there's talk today of there being a bubble notwithstanding the comments that Steve made and you see in the press and you here investors complaining that valuations are out of whack and and that it that entrepreneurs have unrealistic expectations I'd like to get your perspective on at a high level in the general state of the market for early stage at this point so certainly there's an upward price movement in the market but I also think that the market has gotten a lot more sophisticated as for myself I've been an angel for five years and a small seed fund for the last year two of the biggest deals we've done were outside of the US that doesn't mean we're still doing ninety percent of our deals in the US but it just means that all of us venture capitalists have to work that much harder to find those great founders and great companies and that's one of the things I think makes it really interesting 15 companies generate ninety-seven percent of the profits but you got to find out where they are but I also think that the market fluctuations continue but as long as you find great companies those will also make up for the great exits the best companies don't always come very cheap anything to add I don't know I guess what I would say is it's always dangerous to opine on this particular topic because how do you know when you're actually in the bubble the last time we had a bubble I think there were what a few hundred million people online today there's estimates of like two to two-and-a-half billion people online so yes prices certainly feel inflated at the at the low end but at the same time the market is probably ten times bigger than it was the last time we experienced a bubble and prices aren't ten times higher than they were even kind of pre bubble so I don't know I would argue that yes certainly prices feel high at the seed investment stage but the other piece is that the market is so much bigger than its historically been so all of us invest our funds over a multi-year cycle so just because prices rise and fall during that time period if we perceive the prices are a little bit higher maybe we do a few less deals during that time period but on average as long as you don't pile all your money in when you when the market is at a very high price on average portfolio mechanism works for an investor yeah the other piece i would say here is that you know it's fo mo or fear of missing out drives a huge amount of investor behavior it's really actually troubling and so you in these cycles where memories are short prices go up quickly and that prices tend to go up quickly not because the deals are necessarily better but because fo mo has a way of being very contagious and so I think that maybe we're in a slightly heightened sense of foam o going on in the investing world right now and to add one more thing from your guys perspective if you you know you're hearing about these really high prices for deals and investors are making quick decisions and they're investing money at high prices or convertible notes with no prices on them and that seems all great until you realize that because it's easier to raise money you have four competitors that were funded that are exactly the same as you who got funded very easily and the end result might mean the initial result is well look at the great price we got look at all the money we raised but the end result might be all five companies fail because they all fight against each other with too much money so what may you may think is a blessing may actually be actually quite bad for everybody in the mix yes venture fratricide is the term of art well couldn't another dynamic be in play here besides would you call it fo mo fo mo mo you've got a change in how expensive it is to start a company it's now extremely easy cost-effective things that used to cost a lot now cost very little you've got what you described Joe as a huge class of people who are now online and we also have a couple cycles of new successful entrepreneurs who have a lot of money to invest and who may be interested in not in making money in returning investment to limited partners but actually to getting involved in helping entrepreneurs not to say that any of you aren't interested in that as well so I'd be curious to get your perspectives on the rise of this class of angels and super angels and what type of distortion or effect that has on venture generally on the bigger funds and the who traditionally would invest in series a rounds but now are competing in some cases with forums and angels well again I would say it's it's kind of a mixed blessing if you know angels are investing a lot and the prices are higher than a professional venture investor might do it may seem great and you decide to take the money from angels at a great price but then two years from now when the economy is in a crappy situation and prices are very low and you need money you don't have a partner who can give you money and you have a bunch of angels who get scared because their stock portfolios are down and you say I need five hundred thousand dollars to make payroll and they're like sorry but if you had worked with a professional investor like any of us you know when times are tough we have reserves and money set aside for our companies to keep them help out so it's sort of it's a like I said mixed blessing or it's a trade-off and you have to make the decision do you want you know the most money at the highest price and the quickest amount of time with the least due diligence or do you want somebody who may be a longer term partner you may have to sell at a slightly lower price or even a significantly lower price but it's somebody who will stick around when the times are tough who can help you out and it's just a trade-off that entrepreneurs have to make there certainly is the trade-off I guess it is happening though that that this this sort of competitive landscape for early stage investment is happening I I actually think it can be great and the reason is that it's you know for so there's some interesting data here first half of all the deals that made for fun makers essentially the biggest deals turned out to be under subscribed in there a and B rounds what does that mean what it really means is that professional pickers like us are really actually not that good at picking we think we are we tell ourselves we are we want to believe we are we're all trying to do well but the reality is the data would say we're not as good at picking as we think we are or perhaps the people that give us money think we should be as a result more things funded at the bottom probably yield more opportunities for those in in later stages of investing to actually pick among winners without having to fund them so I actually think it can be good overall as long as people stay somewhat disciplined and discipline is not an easy thing as an investor again with foam oh being a driving force the second piece that that's in there is that I think traditional angels are taking a huge amount of risk that they don't necessarily understand you actually look at the numbers the mean return in seed investing is quite Heights depending on which studies you're looking at in which data sets you're looking at between 23 and 27 percent irr but what's poorly understood is how many how much diversity you need in order to achieve that mean with any reliable likelihood and it turns out the number of deals you need to achieve the mean returns in the seed space is between 80 and 100 per fund most angels can't do 80 to 100 deals they just don't have the capital to do that and the reason that is is that angel investing just fundamentally as much as we think we're good pickers is buying lottery tickets and and the reason is that you know having started a couple of companies and I'm also a very competitive poker player in any time that they're related now in right yeah anytime i'm playing a single hand i could be playing against the world's best player and i have a legitimate shot at beating them in that hand because luck plays a huge role over time skill emerges and i would lose a lot of money to that world you know the best players by far in any given seed company luck plays a huge role as to whether that company succeeds or fails which is why portfolio is really necessary to actually achieve and find one of those lottery tickets that explodes and makes all your returns and so it's true in any stage of investing but it's particularly true at seed investing and so I just think there's some interesting cognitive dissonance between a professional investors thinking they're better pickers than they are be angel investors who have limited portfolios or taking far greater risk than they think they are and see the real amount of diversity you need to actually achieve and pursue a seed based strategy is bigger than people think well I think from just to add to that from your perspective I think it's a good thing when i started angel investing five years ago I think the active angels I would say maybe we're in the two digits at least in my network now there is probably i can say hundreds if not thousands of angels and i think that's a really good thing it gives you so many more opportunities to get funding I think the scene has gotten also a lot more sophisticated I don't think it's just about angels and VCs now you have some new sites like Angel list and Kickstarter that kind of gives you other options I think that's a good thing but that still doesn't get you to a successful company and I think you know one of the other side of what Joe's saying is that not every investor is created equal obviously first you need to get funding and make sure you have enough cash to your ear on your company but I think more and more we're seeing that the the investors that are rising to the top have operational experience and they're making a big difference for their companies in terms of critical moments in their company's life and sometimes that's as important as the cash if not more important and if you can strike a good balance between those two you're likely to do very well yeah and I don't mean to suggest that angels and VCs their strategies are in conflict in fact I think there's a lot of cage match a lot of harmony they're actually because the most interesting dynamic that I've observed as a service provider is who controls a lot of the decisions get that to get made around funding who controls the deal flow and ten years ago used to be VCS marching up to Sand Hill Road making pitches directly to VCS but what's happened now is you've got this class of influencers and it idn't touched on them who get to these deals very early and now have become almost gatekeepers of some sort but that can be I think a very cooperative relationship because a lot of these gatekeepers and angels don't have the wherewithal is Howard pointed out to fund companies that need expansion capital or just to be able to continually fund companies round after round what are your thoughts on that well let me let me add a point to that I mean I think Joe had some really great numbers and I certainly agree with some of the things he mentioned that the one thing I disagree with a little bit is that investors can't be Pickers one of the interesting realities that I found in experiences you know when I look back our fun had a dozen and a half exits and I think that's enough data points and I look back and say okay you know what were some of the common stats and I think when I look now what are the companies that are doing well in our portfolio half of those did not come through our door and ask us for money those companies were actually doing extremely well in some cases never raise money and we realize because of our focus we need to go find these companies and get involved with them so it's an interesting dynamic right i mean i participate a lot in these panels and i really want to work with a lot of great entrepreneurs but also the reality is if you know in our in our space if you want to be successful sometimes means actually getting a hold of those entrepreneurs that are doing really well that are bootstrapping that might need not need financing and become their partners so it's not about capital which I believe is a commodity and it's not it you know for the right people with the right plan the marketplace works itself and the capital finds its rightful place so I would just add that perspective so I don't want to argue with Joe on data we sit on a board together and he's a lot smarter than me so I i won't i won't go with disagreement there i will say that you know Aiden has proven himself to be a good picker and the numbers bear that out and one thing to think of you know you know and Joe comments that you can't really you know show to be a good picker but one thing that's not obvious in the venture industry is while there may be hundreds of venture capital firms there's probably you know 20 or 30 that actually make money consistently over time and frankly I think aiden has come in he looks like he's coming into that group and good for him so so the point being that you know picking or not picking the trick is to be at the high end of the food chain and see the best deals and have a chance to look at them because you're aggressive and you go out and find them or because your your firm like sequoia capital for example everybody you know beats on their door to get in there but by the time the top 20 you know 15 or 20 venture firms have said no to accompany the odds are it's probably not one of the big hits and then it moves down to the you know other venture firms who didn't have first crack in it so it's not like every firm has the same chance to pick at every company that comes out there it's actually the top firms have the opportunity to pick first and then once it's picked through then it moves down so it causes a slightly different dynamic I think than just it's a it's a mutual fun type of situation and there's no doubt sorry being the Google guy have to be data oriented I guess there's no doubt there's strong performance persistence in the in the venture capital industry meaning those firms that have been on top tend to persist and stay on top and there's a lot of interesting questions as to why and I don't think it's a well answered question one of the things that is true and this from an entrepreneurs point of view should think about one of the key determiners of success from a data point of view is how well networked are you and how well networked is your VC or your angel investor meaning there's a very strong positive correlation between high Network centrality of investor and high Network centrality of the entrepreneur me give you some examples if you're an entrepreneur and you're based in New York and that's where your network is if you move to San Francisco you act and let's say sorry you're in New York you've started a company before it had a successful exit if you start another company in New York you're over fifty percent more likely to have another success than a first-time entrepreneur that data is pretty well studied and understood the if you move back to San Francisco outside of your network you revert to having the same chance of success as a first-time entrepreneur and the primary reason is you lose your network what is losing your network actually practically mean it means that it makes it harder for you to hire because you don't know people to hire right away you have fewer people that you can vet and it means you operate more slowly because you can't ramp up as quickly second is you actually have a harder time putting your company I have a belief that most companies are sold not bought you've got people interested in juiced up about your vision a lower network means that you basically have fewer opportunities to get into people easily that you're that are trusted and actually put your company to them if the time is is if the time if you've reached the time or you need to do that on the VC front there's an odd phenomenon which is that as a VC you actually have an incentive to do deals with highly networked investors as a syndicate partner because it turns out if I do a deal with a highly networked syndicate partner all of my deals benefit not just the deal we work on together so Howard's firm August is a high Network son highly networked central investor the fact that we're co invested in a deal together means to all of my other deals benefit probably because since Howard and I have a relationship he'll give me advice on some deal that we're not together in and help me make a connection so the advice back to you guys is as you think about who you're taking your money from network Centrella t of your investors matters quite a bit and making sure you're staying in your area of where your network is is really important excellent excellent point what about relationships between entrepreneurs and investors it seems to me that the odds changed dramatically if you've had a success if you've had a success versus the first time that that is a huge risk mitigation from an investor's standpoint especially if you've had success with that investor let me take a different point on that i wish i had more organized and structured data like joe i'm really enjoying actually listening to him but one thing that i found is that especially we just had a meeting on it today interestingly enough most of the companies that we're invested that it's doing well our first-time entrepreneurs and some of the celebrity deals where you have entrepreneurs that are well what kind of a well known quantity or quality is not necessarily doing better now of course I'm talking from a very limited set but one thing that I wanted to bring up that I'm really happy to Joe Joe mention about the network one thing that's different about being on the panel this year for me versus last year up until last year I was investing my own money and I felt you know I'm sitting across the table from entrepreneurs and I work for Google early on but I never raise money for google and it was the first time I actually went out and went to LPS and had to raise money for my phone I was an entrepreneur like yourself I probably had tens of meetings and one thing that I learned is not only is it your job number one to network but it was amazing how much I learned not having anybody who's helping me being a first-time partner and having been told repeatedly that a first-time fun with a single partner basically doesn't stand a chance to raise money I was able to raise money from really reputable investors and it was amazing that i probably had hundred fifty versions of my deck and when i compare what I first started with it how ridiculous it looks to what it looks like 150 presentations later I was a maid I'm like the dis guy to some fundraising school or hired consultants and it was pure shear resilience and experience and just like going one after another and it was amazing how much I learned some of my best investors were third contact like some investor who just like blew me off that that I found some other investors who blew me off who then like got me to the right investor but the only way I could find that out was to actually go through those meetings and I guess what I wanted to know is I know it's really frustrating to show up to these things you talk to investors you don't get a response in you're like man this sucks is terrible I had like ten of these things it might have to be that you have to take 150 of those things but that's I think the five or ten percent different between equally smart number of you we're like five percent is that Brazilian says you know what I'm not going to give up just continue doing that that doesn't mean they're much smarter of you or better than you but they might just have a slightly better plan and stick to it and just stick through until there is a yes at the end whatever that comes from yeah can I I want to double down on persistence here for a second that was blackjack term not a poker term um so uh I do love gambling I have to say um and now he does it with Google's money yeah exactly true I'll tell a story from my entrepreneurial days so I was 23 years old when we were starting excite which was an early search engine back in there in the early 90s we had raised money from kleiner perkins we'd raised three million dollars but it was in two tranches we had a million and a half in our first tranche we had a million dollars left at this time and we had launched the service and back in those days nuts Cape was by far the dominant browser I mean they had 95 eight percent hundred percent market share and there were two buttons on the browser one called net search and one called net directory and they they were the beachfront real estate in the internet at the time where if you clicked on search net search that went to one company and directory went to yahoo and so they were putting they'd never put these buttons up for bid they were just free traffic and Mike Homer the former VP of Marketing at Netscape got smart was like well crap this is worth a lot of money so they put him up for bid and there were three bidders us info seek and MCI three companies that don't exist anymore actually and we had a million dollars in the bank and we were trying to figure out what do we bid and I I remember this very clearly we had gone around and around we were sitting in my grungy office and Vinod Khosla who is our backer was was sitting on the floor and we were debating a debating and finally goes we're gonna bid three million dollars and I'm like if I know we don't have three million dollars what do we like what are you talking about and he gave me that look which he gave me for eight years straight which is like you're an idiot and he said look bottom line is if we win it we're gonna be able to raise the money easily and if we don't we're out of business so we're gonna bid three million dollars went all right we're bending three million dollars so we did three million dollars and we lose and Vinod was really the one who taught me this lesson the strongest time then and it was just it never ended he said we're going to act like it's not over we're going to sit in their lobby every day unannounced we're going to demand meetings with the vp of marketing we're going to call the CEO every day we are going to act like complete asses until we get this thing back it is not over and we did it we literally did that for 17 days straight I felt like an a-hole and 17 days later when MC I couldn't deliver we want it back and i will tell you today that we would not have sold that company for six billion dollars had we not persisted persistence as iden says it's the number one key success factor in entrepreneurship in my opinion the negotiation begins at no it doesn't begin when they smile and say okay so a little personal story there a great story well why don't we when we build on that and I'd like to know from each of you what is the most profound experience you've had as an investor and from that profound I mean the most important lesson you've take taken away from from an experience and I know I put you on the spot here because I didn't give you any advance warning but so I'll start in and talk about entrepreneurs and boards supporting them in the case of skype and the lesson being on the other side saying no when people offer to buy you and when skype launched and had very early growth a few weeks later at the next board meeting one of the board members said oh by the way the CEO of AOL called me and he offered 400 million dollars in cash for your business and I said no all right what's next and the entrepreneurs like stop demand what do you mean and you know four hundred million dollars in cash is a lot of money and I said well yeah adds a lot of money but if somebody's willing to offer you 400 without having any data somebody else will be willing to offer 800 if if you if they see the data and the entrepreneurs they you know they wrung their hands a little bit we went to dinner and they drank a little bit too much and they said god I hope we're not making a mistake but we believe this is a great company and about two months later a friend of mine from MIT Nicholas Negroponte it was running the media lab who is good personal friends with Rupert Murdoch calls me up and says he Howard you know would 850 million from from News Corp do it to buy skype so I said well I I don't think so because I think they're thinking a billion and a half I just figured it would just double it and so I called the founders and I said you know didn't the board tell you it's going to double again and they said yeah now the price is a billion and a half and so time went on a little bit further and the next call was from yahoo and the number they said well maybe maybe we could do a billion and a half and instantly the founders price became three billion yeah and that is that what they ended up selling it for the first time around right and we all read that they sold it recently for eight and a half billion dollars so the truth being if you have a company that's interesting and it's making progress and everything is going in in the right direction the fact that somebody wants to buy it from you and is coming at you and trying to pay for it just always you know double the price in your mind and luckily you'll be ahead of what the market is a little bit for that time being but pretty soon you'll get that offer and you'll realize the longer you wait the more it's working no that's assuming everything is going in the right direction so let me take the other side of it and at first let me start by saying I hope every one of you that are aspiring entrepreneurs end up in that situation and you can say no to 400 million and hopefully you get a better outcome so the interesting part of it is I think before I start from my own experience I want to relate to two anecdotes that I had in my career one was we recently had a founder event and really really well-known investor came and he was talking to about 80 of our founders and they asked him you know what do you look for in a companies and what do you think is a great asset in a founder he said something very interesting he said two things number one he said when we were raising our company we had such a big vision that investors were willing to invest hundreds of millions of dollars with us the second thing he said is that you know when the entrepreneur comes and talks to me what I'm really looking for is an idea that is so compelling that when that entrepreneur CEO goes out and is hiring their 17th employee the 17th or 27 or 37 it's still as excited as the first one despite having much less equity in the company that they so get excited about the vision that they still want to join the company and work for the CEO and I think the moral of the story relating also my experience of having had the chance to work early for Larry Page it was one of the most intimidating things I ever done because everything that I thought I'm like oh my god I've worked 24 hours a day worked my butt off he's gonna like this he would just looked at it and like nahas crap you know can do a hundred times better than that and what he really taught me is that as human beings were incremental thinkers and we always kind of shoot low and he's like time is limited you know you have life and you feel like you have a lot of time but you don't so if you're going to do something everything is going to take the same amount of time so do something that is really meaningful and it's really going to move the needle and when I think back and think like oh I wish I could say I have a crystal ball somewhere that comes in and you know I can tell but there's been some instances like mint which was a really great outcome for me where the entrepreneur came and he had a half baked product and he didn't come and say I'm building some you know financial software he said you know what there was a problem in the US you know people have a lot of them I want to create a product that's going to like affect everybody in the US and make them smarter about their finances and make them safe and you know he captured I mean maybe it sounds really cheesy maybe or like oh yeah of course you know after the exit you can say that but he definitely came and he was so convinced and he was like a prophet I'm like this is my thing I'm gonna make this happen and he sold me on it right and somebody else could have been maybe even smarter and could have had a better product but if they don't have that kind of a belief of this is what I'm going to do this is how I'm going to change the world and somebody else comes in to me and says you know what I have this product it's like one percent better than this and you know I don't have any employees if I raise money I'm going to build the product that doesn't really capture my imagination so I think it's definitely a food for thought in terms of you know when you're when you're doing something I think it is really truly important that you have gone through all the different things and skepticism in your head and when you're talking about it you've done your homework and you really believe in it and you're ready to sell it no matter what happens even if it takes hundred fifty or 200 meetings to get to the point where you need to get to excellent excellent well let's talk about compelling ideas and and what you're seeing more specifically what you're really excited about in the industry what your fund is focused on what are the big big ideas that you think are out there that you're that you're going to invest in everybody's looking at me scary your turn it's my turn back for you so you know I'm relatively new as a professional investor I angel invested for about 10 years and then move from kind of a dabbler to add a timer about a year and a half ago almost two years ago so I don't have the same level of experience certainly as Howard does as a professional investor my own sense is that there's things you say you're interested in on your website and then there's the deals that you do and so where are those deals okay so well the point I want to make here is that serendipity plays a big role because the market is far more imaginative in aggregate than I am and so seeing and hearing lots of interesting things you end up kind of getting some sense of it's like hiring engineers you know you you founders and somebody who's hired 10 engineers really has a hard time knowing good from great but if you've seen a thousand engineering done a thousand engineering interviews you kind of know good from great and I think the same is true in anything as you see more and more deals you have a better sense of what is an absolute maximum and minimum versus a local maximum and minimum in terms of something interesting so for me at least the the last the last deal i did was actually on the board and I was kind of scared to see it on the board which is Kabam they're a social gaming company focused on hardcore gamer so most of like most of Zynga's audience is actually seventy percent female cabana audience is seventy percent male and i happen to love personally the gaming space mainly because i think virtual goods is such a pricing price efficient way of making one night again so what I mean specifically I make it of what yeah so the specifically what's interesting I think most people in virtual goods are more amazed that like how and why on earth does somebody spend all that money on nothing and but the the more interesting kind of higher level point from a business point of view is that today in the gaming world packaged goods gaming everybody pays the same price ever paid sixty bucks for a cartridge and a guy like me who has no time I might play a game three times and somebody who's hardcore might play it for 50 60 hours but we both pay the same price it doesn't actually make any sense virtual goods allow for a a far greater fit to the demand curve of what people pay because I don't pay anything if I'm just a casual player and there are some people that literally will dump that I'm not kidding you like thirty thousand dollars into a game and they obviously play it a lot but that's really interesting to me that you take an industry where everybody was paying the same price too much more of an AdWords auction-based kind of model where you have a much more efficient fitting to that demand curve so that's why I happen to like gaming so I don't know the end Sam asked you know what we're interested in what we're looking for I think there's you know generally two types of investors out there there's those who like to kind of analyze the whole market and decide what they're going to invest in before they see it you know we are not we but another fun might see we are a clean tech fund focused on the efficiency of solar technology or there might be a fun that says we focus on software as a service for enterprise supply chain solutions whatever and there's that type of investor we're where the opposite we can and we have a problem with this with our LPS our investors is they come in and we say we're raising a new fund and we would like their money and they say well what are you going to do with it and our answer is we'll know it when we see it and you know we describe ourselves as being completely opportunistic and you know if somebody sends us a presentation and it looks like other stuff that we've seen before and there's five of them or they're a couple are funded already we usually just ignore it and say it's just not a fit it's the things that we haven't really thought about that much before but our new and creating a new market space that didn't exist before that catches our attention and the belief being the the most interesting companies are usually interesting meaning the largest are usually companies like that and to give you a few examples in the in the past and then kind of maybe to that I'm working on now in the past of my partners backed companies like seagate I Pharos you know what if we could send you know data through the air wow what a wonderful idea Wi-Fi chips into it shopping Postini xilinx Microsoft I mean Microsoft had a VC I don't know how many of you guys know that he's guy named Dave Marquardt he's very low-key he's been on the board for 30 years and he bought in at a 19 million dollar valuation I mean that was a good deal back at that time you know Microsoft that's a crazy company you know they really you know IBM said that's not possible it's not going to work I'm two of the opportunistic investments that we did recently one of them happens to be one that Joe and I were equal co-investors on the deal is a company called RelayRides which is a person-to-person car sharing company it's basically thing zipcar but our customers on the cars so you know we all own cars and they sit on the street Sun use much of the time and relayrides job is to make it available for our neighbors to use them use the cars when we're not using them and the goal of the company is to get the average monthly check size up to 250 300 bucks a month so that the people who own the cars effectively have their cars for free and their neighbors who just borrow the car is whenever they need them and pay like Zipcar seven eight nine bucks an hour to go to the market to go to the doctor or take their dog to be washed so everybody's a winner in that model and if there's a company in the middle that's taking a buck every time somebody rented that could be a really interesting business and when Joe and I were looking at it and thinking about the scale we're like wow you know we never really thought about this before how big can it be and we kind of came down to the solution that if there's 245 million passenger cars in the US and we can get one quarter of one percent renting a few hundred bucks a month it's a couple billion dollars a year in revenue so yeah that's big enough so we made the bet and it's still an early company but it's very interesting just to give you an example a very opportunistic investment we didn't sit around and say oh we should go find a person-to-person car sharing company you know the entrepreneur came in and said listen to my idea I'm another one I'm an investor in which is in alpha testing that's not available yet but I'll talk I'm sure they won't mind as a company called bubbly and what they have developed is the possibility to make a spherical photograph so rather than looking at a photograph as something that's flat that has been specified by the person taking the picture instead you stand in the center of the picture and you look in a complete sphere through a device that has a gyro and you can look up or you can look down and you can look behind you and if you when it's launched and use and you see you'll say wow teleportation exists because you can literally feel like with a piece of glass the size of this iPad you can feel like you're standing in another part of the world and you're looking at what you want to look at and it's actually just a spherical photograph now we would never have come up with that but some really smart entrepreneurs came and said look what look what we're doing and we made a bet on them so if you're that kind of guy or girl you come to us well I think we have a completely different approach than Howard are and i'm really glad these work and and i'm really glad that he's finding these great companies you know when i mentioned to you that i was fundraising i think what i realize is that you need to be that more and more that much more discipline about how to stand out in a sea of investors and what I'm seeing is that the time for a deal to close as you know come down from three months to like a week in some instances so I thought okay there are like 10 to 100 times more investors the time is like getting short and I want to reach the world's best investors a best founder just like every every other investor how do I do that I thought the best way to do that is actually to earn it and to actually call your luck and our strategy is really simple I think there are only two things that matter in successful companies number one they're growing really fast so 18 months ago when I looked at the industry i said look there are three obvious things that are growing really fast one is mobile the second one is ecommerce trade is trade it doesn't get censored it's growing all around the world especially faster outside of the US and then the third thing was the change in enterprise we don't really use install software anymore ten years ago everything I did was install software today I'm running everything in the cloud and I run my business from my phone so it's a completely different universe and then the second part was as an investor one of the things we didn't get control is you know of course we can go after entrepreneurs but we don't necessarily see the entrepreneurs that we would like like again the things that move the needle for people like Howard I just am NOT the kind of person who likes to wait I like to change my chances by being active about this I thought what are the big markets that are so big that not only is there space for great companies to be built but we are not seeing enough entrepreneurs health care right I mean I must have seen 37 different mobile photo companies but I probably seen only five entrepreneurs that want to build a software company in the healthcare space because it's tough it's difficult but it's also a trillion dollar market so I met an entrepreneur named Ryan Howard who's building a company called practice Fusion where people thought I was crazy to invest where the guy mortgaged his house to start the company and sold this car and used the money to start the company and started with 5,000 practitioners now he has over 100,000 practitioners um and I also think about areas like education you know we complained about unemployment in the u.s. because education is broken and it has to be reinvented and so I I found this great guy from Apple that before iPad came out he said I want to build a company that's going to reinvent book for the area of mobile devices before even the ipad came out and I'm like that's exactly the kind of entrepreneur that I wanted to find in education and that company turned out to be inkling and now is churning out some amazing products you can check it out on the iPad it's available and so and then there are two other areas energy conservation and personalized medicine again each one of these are trillion-dollar areas and we're not trying to do everything in these markets we're just trying to find software companies and great entrepreneurs that want to carve some new rich Nicias coming back to the comment also in terms of you know how like you don't know what you don't know until it comes to the door i also had this argument with again a reputable investor who told me you know i'm not really sure your strategy is going to work I think the I think the exact example that was used the zinger of mobile is Inga and I said you know the zing go mobile could be a different company in this case could be like Rovio which by the way we're one of the investors and took me 10 months to get into that deal and I had to fly to three different countries in two different continents to be able to close that in to kind of make another point in resilience so and it turns out in that company is now being used by 120 million daily active when I first started talking to the company that 12 million downloads now they have 300 million downloads I think they have become a pop icon I know people that made fun of it just stupid mobile game with a funny name it turns out that there is more to it so um you know again I think I'm trying to put myself in your shoes and almost every entrepreneur that comes through my door has tried to look me up on LinkedIn read my blog read anything about me in the news to know what I know so I think as investors we cannot be passive anymore we cannot just wait in an office and wait for people to filter through and say yeah I kind of like your pitch i'm going to put money into your company that's a big idea i think we really need to do homework and the only way to kind of keep up in this fast-moving world where the deals are getting really close and some of the great entrepreneurs we might not even hear of is to actually put ourselves out there and makes ourselves vulnerable and also kind of like put it out in terms of what we believe in is going to work to kind of put ourselves an equal footing with the entrepreneurs that are looking for funding fantastic i want to ask a last question before we move to questions from the audience Steve in his presentation sort of pointed out how difficult in the numbers point to how difficult it is to raise money point oh five percent I think you said actually are successful raising money but the the ethos the sense I get in the valley is that it feels much more active and easier to raise money I've heard that failure is a very important thing a bit very important part of being an entrepreneur and I'd like to hear from each of the panelists either what you've gone through in terms of failure and what you've learned from it either personally or from your portfolio company and and the lessons taken away from that um i have i have a few thoughts here one is that i think one of the lessons that i also took away besides persistence was opportunity leads to opportunity in ways you really can't predict my wife's grandmother has this had this saying take a cookie when their past and the funding story of my first company was an example of how one thing leads to another in ways that you can't predict which I'll talk about here I think it relates to the difficulty of getting funding it relates a little bit to persistence I got a book when I was a senior in college called accidental empires was given to me by my college girlfriend it was a gossip history of Silicon Valley in it the author says tips for entrepreneurs call me I'm a cheap date and my nickname at the company was phone boy still is actually my name I was my job is just to call people who I thought might be interested in the technology we were building so I call the author he we go out to lunch he gets excited about what we're doing says he wants to join the company we thought we'd made it because this author of a book wanted to join our company he ultimately didn't join but he introduced us to the company he worked for which was infoworld which is a magazine at the time this is back in 1994 and infoworld wanted us to take our search technology apply it to their archives and put their archives online and make them searchable and they would give us a hundred thousand dollars to do so that sounded great to us we're working in our garage and eating rice and beans so we took the hundred thousand dollars and they said if you do a good job will introduce you to our parent company idg and we did a good job they introduced us to IDG we went to a board meeting where we talked about what we had done and in that meeting one of the board members of IDG was a venture capitalist named Steve Coit he worked for charles river ventures out on the east coast he liked what he saw he said hey you know I'm interested in in potentially investing but I don't have I need a west coast partner so he introduced us to Jeff yang who is now at redpoint then at ivp Jeff didn't know what to do with us but he introduced us to Vinod Khosla who in that in like literally the first meeting where everybody else was asking us how are you going to make money in the first 10 minutes yes does the technology scale we said we don't know he bought us a ten-thousand-dollar hard drive which at the time was ten gigabytes and we thought we really liked this guy just bought us ten grand of stuff and he ultimately funded us to the tune of about three million dollars without a business plan and I could never have predicted that the book that I got would yield a funding without a three-million-dollar financing but the point is that every step of the way we were saying yes to those opportunities and figuring out a way to do them and I think that relates to the stat of like half a percent getting funding you just don't know how it's going to come together and how it's going to come through and you can't predict and so I've never found it I mean I love planning but I've never found myself there's the way you draw it up and there's the way it actually runs and those are often very very different second piece failure I actually think failure is radically over rated we all say we all say this thing we always say that it's site we say it and it's so subconsciously wrong i think we say I've learned more from my failures than my successes actually the statement is more valid as follows I've built more character from my failures than my successes but I have not learned more from my failures in my successes and the reason is as follows if you're in a company you're running a company let's say make like 15 decisions a day most or minor you got to get several of them right you got to get maybe like 10 of them right maybe you gotta fix the other ones you do that day over a day over a day the comment that the combinations of all those decision paths over multiple years is enormous if you fail all you know is that one of the trillion trillion paths that you went down island didn't work but if you succeed now you have an instinct about what to do as opposed to what to avoid you have something to go towards as opposed to something to stay away from and that's why I tell entrepreneurial I tell audiences like this all the time it is so much better to go find a culture of a company that you join that is about winning that is winning go join a competent go join the first company you join if you're going to do one shouldn't be like a three-person start-up it really shouldn't because the chances that you learn a gut pattern of what's working and what's not is very low go join a company that is in the knee of the curve even if it's bigger even if it's like 60 70 people because what you're going to pick up there is a pattern of success and that's what you want that's how you're going to do your neck your first company well it's get that pattern of success I really think we tell ourselves the wrong thing when we say I've learned more from my failures than my successes we build character from our failures but we learn from our successes um so you know I'll end up with I'll try and be a little more brief just the ouch so the the guy that I work I've been in the venture business for 11 years in the first six and a half years I was working with a guy named Bill Draper many people heard of dfj that's Tim Draper his father is Bill Draper Bill's father was also Bill Draper was the first vc in Silicon Valley so the Bill Draper I worked with the william h Draper the third he has a book out called the startup game if you want to read it it's an interesting kind of self biography with some lessons in there he's in his early 80s he's done the venture business off and on for 40 ish years he founded sutter hill ventures which none of you have heard of very few of you have probably heard of it's probably the most successful but successful venture firm you saw their their name up on the list they had done 13 deals I haven't read any press on any deal that sutter hill has done but they're irr for over 35 years is 34.1 percent per year now do the compounded math on that so bill started that firm and he's been doing this for 40 ish years and what he taught me was the venture business is a business of pattern matching and the longer you do it the more you you know go towards some things and stay away from other things and I got you know a hundred one point lessons from him which were really valuable to me and if I had to pick you know one of the top 10 and all of them are equally valid but the one all just pass on to you from bill is you you never lose money taking a profit now that's my favorite one the one that I think is most instructive is that capital intensive businesses are an anathema to venture capital and in my experience of investing in 40 50 company 45 companies in the past 11 years the pattern that I've recognized that support what Bill has to say is anytime there is a company that's raising more and more money when it hasn't solved the most fundamental issues of his business is going to be a huge ugly crater in the ground and everybody's going to lose their money founders are going to waste it eight years of their life there's going to be depression divorces and all sorts of terrible things so if you look around at some of the companies out there we do have companies big name brands successful companies you know Twitter's and and Facebook's in Groupons and Zynga's and and some of these companies have all of them have raised a gazillion dollars and some of them raise the money after they had proven their business and some of them are still raising money even though they haven't really proven their business and I think that bodes poorly for some of those companies though the last time we had it you know maybe many of you are too young for this there was a company at the peak of the last bubble that collapsed called Webvan which which exploded 1.2 billion dollars of investor money they had never figured out the fundamental issues of their business but they raised more and more and more money and when I say capital intensive is an enactment of venture capital which is what my dear friend Bill Draper told me I don't mean it has to be hundreds of millions it can be tens of millions of dollars and if you guys are going to start a company if you're getting into the 10 15 20 million range and you don't have a solid grasp on the reality of your business and how it all works get out because you'll just waste your time and a lot more money trying to figure out what to do there and so you know keep you keep yourselves lean and raise less money early on and make sure you figured out what really makes your business work as a business and you're not a couple of years into it burning I mean a million dollars a day like some of these companies that are out there right now should we hear from the audience I think we should all thank you i want to thank the panelists first before we turn to questions I've been told that if you have a question to go to a microphone so I don't know where the microphones are but okay right there why don't we start with you sir okay so my question has one or two paths there's what I see is incremental improves your business and there's next waivers the next way would be like the iPad even though the iPad tablets have been out for a while wasn't the till the ipad that the wave hit we just saw HP cell or PC business and that was only two years ago that the wave hit and that's gone it's like a tsunami and then there's like the next level of search which hasn't hit yet but pretty soon we're going to be out of the boolean world in search we have to go to Smart Search we don't know what that looks like so for the guys who are trying to do like next wave work what would be the key thing besides persistence that you would want to see them focus on and for the guys or girls and want to do incremental improvement in existing industries what would be some advice you give to them oh I think one of the biggest things we can learn from this device since you use the example is that this device is not about just looking great and having functionality which it does but i think what make this device a big kid is what it doesn't have and i think you know one of the beautiful tenets of good design is perfection is achieved not when you're adding things but when you run out of things to take out so I think as great technical thinkers sometimes the fallacy that we fall into is like in order to build the next way product we need to just fill it with a lot of features but I think for it to be really really successful it has to be really simple and it really has to provide that one value and sometimes the hardest thing for us to do is just keep taking things out until that great functionality is achieved okay hi everyone my name is NaN Lou and I'm a student here at Berkeley and a metric international student from china so I'm not sure if you are familiar with the conditions in China oh right now China is really excited and I you have when it's really it's not that it's not that hard and sure for fundraising when your company is matured enough but still the investing conditions in China is really unregulated because like based on the different different ideologies of china and us so I like let me give a little brief introduction so like when dorant likes you really during the first run by fundraising like no one really care and and the investors and the angels we sometimes invest their money really based on how much they like they like the entrepreneurs and and from for my friends many of my friends they really they had the enough money as a start-up but they really need help from the angels in terms of how they could network with other people as you as as joe says how they could get help out employment and other stuff and like during stage fundraising during stage stacy and there there might be competition between different these days at angels and sometimes there will be some immoral commutation so as weight as and some other issues so as the panelists talked about the relationships between the entrepreneurs and investors I wanna ask from the China Chinese perspective or like how you feel about China like other other places what you say about the morality and responsibilities of a investor and how based on your experiences thank you very much I think Aidan you're the only guy who is invested in China here done deals in China and deals and I have greater china LPS but I have not done a deal in China but I think two things I can say one first of all I think Steve Bankston did a gang-up job and even though i don't remember every single statistic I know China was up there and certainly doing really well one thing that I can tell you also from experience very limited experience of only doing this for five years but having that invested alongside of investors like Ron Conway who's done it for 25 30 35 years is that I think just like Joe said a few good hits you know lock can help you but the only way to consistently do well in this business to have a really strong brand right i mean investors come and go money comes and goes and if you really want to work with great people you need to have a great reputation that is built one reputation at a time and it takes years and years of hard work to build it and one single bad move to destroy it completely right one pissed-off entrepreneur so I think this is not something that only applies to China but applies to here too i think as investors we have to build our reputation one investor at a time and really earn it and i think it's the same same is true for entrepreneurs you also have to have a reputation that you know people hopefully will want to reach out and work with you and you know give money to your consult whatever so and i think the same has to hold true in china and you know when the market is so that there are like two investors in thousand founders is easy to get away with a lot of bad stuff but as we have all seen markets turn around so i think you have to have a long-term perspective Joe and Howard do you do your funds invest in China no not right now okay you're up yeah my name is Laura Laura I do a PhD in entrepreneurship I have a question about startup accelerators there's you have a for instance y combinator and textures and that put you through a program you get a lot of mentoring and you can get help with the setting up the company legalize all that and at the end you typically have a demo day wondering how valuable you you think there is you're in terms of do you see any good deals coming out of and is it more for angels or is it also interesting for venture capitalists so actually I think those kinds of programs are valuable I mean at Google Ventures were setting up something called startup University which is basically for the 80-plus seed companies will do every year we basically run a ton of classes like how to do quick and dirty user testing how to run a great engineering organization what are best practices how do you successfully source and select engineers or product managers or designers there's a lot that can be taught through real hands-on workshops that I think are valuable coming from people who have done it before so i think the mentorship the teaching is really valuable but probably the most valuable thing is actually the intercompany networking that builds up so you know Y Combinator's class this year's what's 63 excite right it's big class but a lot of the value actually comes I mean I think much in the way I didn't go to business school but I hear a lot that a lot of business school is about that kind of building the network so i happen to be fans of those programs i think they they benefit the entrepreneur also because they create kind of feeding frenzy mentality through kind of presentation demo day creation of scarcity fear of missing out in terms of generating higher prices I don't know whether they generate better outcomes but they certainly I think they cert haven't looked at the data but I would presume that they get funded at a better rate than the average entrepreneur well it certainly is a big trend in in Northern California Silicon Valley there's been a plethora of new accelerators and incubators and with why common error as I think you know there's if you get in you're essentially guaranteed seed funding and so it kind of speaks to the world we live in today I mean I'm just going to tell you I've invested probably in a dozen YC companies I'm an investor on both of the YC funds I'm an investor at least one text our company one Seedcamp company that doesn't mean that I do hundreds of deals by the way but and I can think of at least one company for each one of those that has done well I can also think of companies that I've been involved that have not any that haven't done any incubators at all and i think i would say Joe I think hit the nail on the head the camaraderie in the network is probably one of the biggest assets and also selectively like if you get into a school that is really hard to get into of course the great feeling of achievement but also the other peers that are there like I think you'll learn a lot to them as well and I think the important point is there is no single path to success for some people that's a great way to get to where they want to go and I think another great point that Joe made and also Howard I think made is that you know the dots kind of connect and you just have to have faith so sometimes that goes through incubators sometimes it doesn't but as long as you do something that fits what you're doing and if that's something that can really really help you then I think so much better and I think a really interesting part of accelerators and incubators is you just look at the statistics you know the failure rate is extremely high for those companies but all of the founders who do do it they learn something and they meet people and they network and if they fail they're all going to start maybe eighty percent are going to start something new and they now have the learnings from what they learn the first time around you don't need to go to the go to Y Combinator twice to get the lesson so if you don't make it the first time around you've learned enough from that you know to help you the next time around so I think they're too early to see this yet but probably in a few years you'll will be meeting entrepreneurs who say yeah I you know here's my history and I and I went and YC and I'm not company and make it but now here's what I'm doing and I think that would be a very common thing that we'll see in a few years from now thank you so my question at the high level is how should we as entrepreneurs split our time between marketing and networking and building so let me just explain a little more I'm a computer science student which means I love building things and most people I know in computer science also love doing this we're not as good at networking or talking to people in general so I know that other people in this room are probably much better at figuring out what would sell or how to organize a structure business or who to sell to or how to recruit I want to have huge impact in the world personally and I think that's what defines me as an entrepreneur and probably everybody else here I have something I'm really good at which is writing software but how do I decide how much time to invest in introducing myself to you folks after this meeting or psyche just go back to my you know dark office and and continue continue hacking and doing what I love and like what are the strategies for different personality types that you can recommend to for really successful entrepreneurs so I think the answer here is just team structure and I signed a term sheet with a seed investment for a couple million bucks this morning and it's three students fresh out of school and it's two engineers and one business person and the you know the business person came and and I met her at a at Stanford and she was telling me what she what they were doing and and doing all this research and talking about all sorts of companies and networking and learning everything about the market and I said well next time let's bring the team and she's like well they won't say anything and she brought her two engineers to the next meeting and you know I had to you know I finally got them to give me a demo and then they lightened up a little bit because they were showing me what they had been building so I think the simple answer is you know it's okay if it's just a bunch of developers and you'll then you have to spend some percentage of your time doing the other stuff at the easiest thing to do is get another team member and build the company out to have somebody who can happily fill that role instead of you having to fill that role if it's not something that you like to do and I think the only thing I would add to that is as an entrepreneur you have to wear many hats some of them are comfortable some of them not and if you just want to do and stay in your comfort zone I think the easiest thing to do is just take a job but if you're going to get into our nerve entrepreneurship the thing you realize very fast is you need to do things that you're really good at that hopefully carries you but you also have to learn a lot of stuff on the way and you just have to do it and I think you're already half the way there because it sounds like you have co-founders or at least co-conspirators so at least you guys are sharing and you know you you can at least as a group help each other and maybe decide like okay we're all programmers but like this person is a little bit more outgoing so that person could do the networking and so on and so forth so I think that's a good starting point thanks you more question and then you can come up and talk to these guys briefly hi my name is Kevin Thomas soon here thanks to everyone for being here I was wondering if you could tell us about some of the investment opportunities that you most regret passing up are there lessons about things that issues that you thought were unsolvable at the time that they it turns out that they could turn around and overcome those obstacles thanks i would just briefly say the the few that I've regretted missing so far my past on Twitter at the series a and I passed on square at the series a and in both of those cases the prices just seemed ridiculous to me and live and learn hopefully I won't do that again in the future but you know we're trained that you know you buy low and you sell high you don't buy high and pray but in some cases you know the pitch that square had was pretty awesome but the price just made I've never paid that much for a Series A and I just couldn't get over it nice I'm friends with Jack Dorsey and I said you know I'm just not going to do it and he found Gideon you to do it and Gideon paid 30 ish million and now it's at a billion or whatever it is yeah I ever and it's and he's the wonderful guys and it's a wonderful company so my biggest lesson there has been if the market is saying this is what it is if you really love something sometimes you got to pay a stupid price for something and then when it fails you kind of go well nobody will know what I paid and what it and when and when it succeeds then you just don't make nearly as much money as you would have if you had paid the price you wanted to pay excellent last but not least thanks hi my name's Michael I'm a first year MBA here so I really appreciated Andy's question I'm exactly on the opposite end of his question in the sense that i'm a business student and i have a lot of great ideas and i'm really looking for people to build we should talk after this and i'm curious to hear is you know so if you i have these great big ideas and i'm looking for people to implement them at what stage would i approached you guys for seed or what what do you need me to do so i can get the money to bring on Andy to code for me I mean generally speaking we at least tend to fund you know at least a if it's either just a pure engineering team or a product and product person and an engineer like I don't think we've funded teams that don't have engineers behind them because sure I guess what I'm saying is do you need a prototype like what how much do you need to accomplish um you know it's interesting i would say we do fund some just pure ideas but for the most part prototypes so there's a few things sorry one is should definitely get co-founders because it makes a big difference preferable if you've worked together in the past these are all things that lead to better success because you've solved problems together in the past in terms of what you need I feel like you know prototypes are are definitely what I'd like to personally see mainly because it gives you an indication of what the turnover you know that kind of the turnover rate or the throughput or the tempo or the you know the tempo of the company is going to be and something that's just paper when you have engineers on board just doesn't feel quite right to me I feel like I should see something I want to see low fidelity prototypes I want to see kind of a high velocity in terms of the turnover the company I know it's a generalization but what you guys think i mean i wish i had a standard answer to that but i was just thinking of two anecdotes one was i just recently was having this conversation with an entrepreneur within and upper seeding but she literally had this idea that was i'm not going to say obscure but it was like a very like marginal thing but what was amazing is she not only took the idea but found three amazing programmers to build one of the most beautiful sights I've seen to actually implement it I was just blown away I think I almost like said I'm gonna invest in this company because I can't believe you took that idea you sold it you got these people to develop the product and I'm like using this and I'm thinking how did you get these guys to build it for you just on like your vision alone the second thing is I was just again talking to an entrepreneur today it's a team of two engineers in one business guy and we were talking to the business guy and I'm a sales guy product but I wasn't an engineer i programmed a little bit but you know we kind of like asking well how did you like happen on this company and what were you doing and the guy said look you know he told about three big distribution do you see close and the company is like two months old I'm like what did you do is like well you know I started like there was this company like huge like hundreds of millions of customers I started at the customer service number called them 10 times until they gave me the number of the company then called a number spoke to the receptionist I spoke to the receptionist said this is exactly what my product does and receptionist loved it so much that connected me to the vp of the company so I mean if that guy is willing to do anything he's like you know we're stay in this apartment I like put the headset so people don't hear the crazy noise in the background so that like they think we're in an office but I'm in this like place where we also live and there's crazy noise so you know we're all starting from beginnings and it's kind of like lemon into lemonade like some people can say oh you know I have all these things I don't know how to get out of it and some people are like you know what I'm just going to use the imagination good humor and good attitude and figure out a way until I get to the point that I need to get to and I'm so sorry to repeat this tutor time but um you know you do whatever it takes if you can sell people on your vision alone without know engineers then that's the answer if you're not getting the answer and everybody's like you know kind of starting to move way in the 30th second that's also your answer so I don't think there is a standard answer um it's just whatever you can get away with come full circle well that was a absolutely fantastic event I want to thanks Sam and Fenwick unless thanking you putting a panel together thank our panelists as well and our next event is on sep tember 22nd and its food entrepreneurship and we're going to have great food as well as great entrepreneurship we'll see you then you

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