How to Raise Money

Marc Andreessen, Founder, Andreessen Horowitz and Founder, Netscape; Ron Conway, Founder, SV Angel; and Parker Conrad, Founder, Zenefits discuss funding for startups. The additional readings for this lecture go into more thourough detail than the talk. However, the discussion does more vividly present the motivations of investors and their thought process when deciding to invest or not. Trust and personal relationships is a strong topic.

Notes

• 0m36s – What makes you decide to invest in a company?
• Ron Conway, is this person a leader, is this person rifle obsessed with product, what inspired you, communication skills
• 2m20s – Marc Andreesen – venture capital is a game of outliers, extreme exceptions
• 3m30s – invest in strength v. lack of weakness
• 4m40s – What Ron and SV Angel look for in a company
• 5m55s – Parker Conrad, experience doing seed round funding
• 8m42s – Ron, bootstrap as long as you can
• 9m15s – Marc, key to success: be so good they can’t ignore you
• cautionary lesson, raising vc capital is easest to do compared to other aspects of business
• raising money not a milestone, not a success,
• 11m20s – what do you wish founders did differently when raising funds
• Marc: relationship between raising cash and risk spending cash
• risks: founder risk, technical, launch, market, cost of sale, viral growth; like an onion
• for each round of finding present which risks have been answered
• 14m00s – Ron: don’t ask people to sign NDA; get things in writing; get things as done as quickly as possible, take notes and follow up.
• 15m40s – what are specific steps?
• Ron: SV Angel, seed investor $1 million, 1/30 invested, send short executive summary, team votes on phone call, if goes well invite to meeting, meeting a good sign
• 18m40s – Marc: series A, after seed round; rarely direct to A series
• 20m12s – What terms should founders negotiate and care about?
• Parker: pick right seed investors to get good future
• 12m03s – How does a founder know who the right investors are?
• YC does a good job telling you who good investors are
• 21m50s – How do you think about valuation?
• Parker: if too high, people will let you know; certain thresholds exist; raise only as much as you need
• 23m43s – is there a maximum that founders should sell in seed round, A round?
• Parker: A round typically 20-30%; at seed stage 10-15%
• Ron: guidelines important to avoid giving away too much
• Marc: sometimes won’t invest because cap table already distroyed (outside investors own too much)
• 26m28s – What was most successful investment you made?
• Ron: Google in 1999; met through Stanford professor and angel investor
• 29m12s – Marc: AirBNB 2011, $1B growth round; Ron: all 3 founders good, same with google
• 33m07s – Look for investors that will add value beyond just the money,
• 34m22s – Capital intensive businesses need more precise when and how much to raise each round, plan should be very precise
• 37m00s – Investors to avoid and partners: not domain expert, doesn’t have contacts to help business development and intros for following rounds, partner really matters, marriage analogy
• 40m50s – what is constraint to how many VC invest in: SV Angel invests 1 per week
• 41m35s – conflict policy, opportunity cost being locked out of a category, of partners bandwidth
• 45m45s – what convinces you to invest pre-launch, pre-traction: founder and team themselves, product ideas tend to merge, valuation pre-users tend to be lower; founder we’ve worked with or well known; enterprise software cold start, typically founder with experience
• 47m15s – ideal board structure: doesn’t matter too much, if business in trouble terms will get renegotiated, most conflicts solved without vote

Additional Reading

• Why Software is Eating the World by Marc Andreessen
• How to Convince Investors by Paul Graham
• How to Raise Money by Paul Graham
• Linkedin’s Series B Picture to Greylock by Reid Hoffman
• Ron Conway’s Recommended Reading List
• Transcript

Series

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• About Series: How to Start a Startup