Jews do mourning well. That’s what I’ve always thought from watching family and friends go through it. It’s what I’ve learned as fact since my father died eleven months ago. There’s a central tension to it. A constant fault line that our customs straddle. It’s the constant struggle of an individual and a member of community. To be sure that’s one of the central themes of Judaism itself. We take…
There are all kinds of strategies for evaluating startup ideas - investors talk about having a “prepared mind,” others build market maps, I like to think about toys , and we could go on. What everyone wants to do is predict the future. That’s honestly impossible. But we can pretend a bit and use hindsight as a framework to find the kinds of opportunities that are worth working on. We’re living…
I’ll be addressing the topic below along with Alfred Lin from Sequoia and Ilya Sukhar from Matrix on 3/24: https://us06web.zoom.us/webinar/register/WN_qgghYDq4QxCiW9REOOrbmw It would be challenging to name all the fundraising mistakes that founders make during the many demo days that occur each year. There are certainly broad categories, but rather than focus on all of them, I think it’s…
Let’s accept, for the purposes of this essay, that founders and venture capitalists are engaged in a simple trade. Founders sell business risk for the cash they need to take bigger risks; venture capitalists buy that risk hoping it will one day transmute into reward. Each side does this because they believe that, ultimately, the size of the risk is directly correlated to the scale of the potential…
Originally published in The Information on November 2. For the past nine months, nearly every investor with a Twitter account, blog or board seat has been beating a unified and constant refrain: The go-go days are done. Founders were being pushed to build 36 months of runway, whether or not it was actually feasible to cut costs that much. Time and again, investors told me due diligence was back. I…
I originally wrote this essay four years ago and published it over at YC's blog at the time. A number of recent conversations I've had with founders made me realize that the framework below remains useful. As the market continues through its downswing, more founders will face difficult decisions about how long and how far to push their startups. This is as emotionally fraught as ever, so I hope…
I originally wrote this essay for The Information, where it was published on July 6, 2022. I've read a lot of the advice that venture capitalists have given founders on the current state of the markets. Most of that advice focuses on how founders need to adjust to survive the deteriorating conditions—cutting cash burn by firing underperforming employees, slowing hiring, shrinking marketing budgets…
There’s a lot of content out there arguing that exploding term sheets—ones that expire after a set amount of time, whether or not they’re accepted—are bad. Some of this comes from founders who do not appreciate the pressure; some if it comes from VCs who want to emphasize their own founder-friendliness. The reality, though, is that all term sheets explode. The only variable is when. I’ll even go…
I originally wrote this essay for The Information, where it was published on Feb 16. Here's a fun little paradox in fundraising: Founders and the media love to talk about how quickly funding rounds happen these days—think about the big, rapid-fire raises from OpenSea , DataBricks and others—but when you watch a fundraising process from start to finish, it’s never as fast as it seems. Even the…
A year ago, I left YC and felt a bit lost about what to do next.[1] A lot of people were pretty sure they knew what I should do. But...I didn't and most of their suggestions didn’t excite me. As I thought through my possible paths, I realized that I didn't have a useful framework for making a decision. My gut wasn't helpful since too many things seemed interesting. I started asking friends for…
Here’s a painful contradiction at the heart of spending time on startups: all the good stuff you can create is in the future, but all the patterns you look at to learn what to do are in the past. This makes your brain do funny things. On the one hand, you see how huge things can get, on the other hand, it’s easy to think “well, crap, all the huge things already happened and I wasn’t a part of…
For a long time, I was a strong believer in investor pro ratas. As a founder, I understood the trade and was comfortable with it. As a partner at YC, I thought it made enough sense that I helped design an entire programmatic pro rata system that covered every investment YC made. I reasoned that the usual mechanic of a pro rata let an investor continue to buy ownership as a reward for an early bet…
Twenty years later, I can’t remember what I saw and what I think I saw. I remember listening to the news with my mom, Judah, and Mimi as the anchors casually mentioned that a small plane seemed to have hit a tower. We were on I-95 - or maybe the Garden State - headed south to visit Penn ahead of applications. I looked out the window and could see some smoke. A tree broke my sightline. And then a…
I first wrote this essay a few years ago. A founder mentioned it to me over the weekend, and so I decided to re-publish it here. One thing that's bothered me in the time since I wrote it is the way in which toys, which are meant to be harmless and fun can become companies capable of wreaking havoc on the world. I mention Facebook below, which was quite fun when it first showed up on campus. I…
Too often, founders approach fundraising as if they are supplicants to the investors. They understand that fundraising features many asymmetries, but the founders mostly see the asymmetries that are tilted towards the investors. Here’s the thing - in today’s market, the asymmetries largely favor the prepared founder. This is a rough catalogue of the major asymmetries:[1] Experience - The more…
The way we talk about fundraising is wrong. Specifically, I don’t think that founders sell equity when they raise money. It’s the other way around - founders use their equity to buy capital from investors.[1] Investors know this, which is why they spend so much time and money on marketing. That marketing makes it clear that money isn’t enough to win deals, at least not the competitive ones.…
I’ve spent a long time wrestling with how to advise founders about investors and the conflicts of interest generated by opposing incentives.[1] These considerations are especially important when a founder thinks about fundraising. The founder needs to figure out how to treat internals, how to balance the incentives of those internals with new investors, how to assess the various conflicts that…
In theory, the hard part about finding capital for unproven founders with unproven technologies in unproven markets should be that no one wants the risk. There was a time when that was true, but it isn’t anymore.[1] For a founder, the issue is different: venture capital is abundant, but it’s not very evenly distributed.[2] There are groups of founders to whom this uneven distribution is an…
The venture capital industry was built on the premise that both capital and high quality companies are scarce. For most of the history of the industry, this has been true. I remember sitting at demo day in 2011 and marveling at the fact that the combined capital of all the VCs in the room was less than that controlled by the hedge fund at which I had worked. But the model is wrong. Venture capital…
I sent this email to the whole team at YC yesterday: When I joined YC 7.5 years ago, there weren’t many people around. PG and Jessica were still running things. We had offices in Mountain View, Palo Alto, and on Kearny street, but they were nearly always empty. The only meeting on any calendar was the lunch on Thursdays where we’d talk about companies over takeout or at a table in a crowded…
Over the last few years, I’ve noticed that good companies are increasingly over-diluting themselves in their seed and A rounds. Counterintuitively, dilution seems to rise along with price. One would expect the opposite correlation. Strong founders who command high prices should be using that higher price to sell less of their companies in exchange for money to grow. As I’ve tried to understand…
Small children are great at asking questions. Their questions are simple, direct, and utterly without ego. If you spend time with 2-5 year olds, you’ll find yourself answering a near infinite series of progressively more challenging questions. This is one of the main paths by which children learn about the world. ex. Child question: “Why is the sky blue?” Adults are generally bad at asking…
Experts are generally right until they're wrong. Unfortunately, it's very easy to get fooled into thinking that experts are always right. This is because they are...experts. They are authoritative and knowledgeable. This is especially true when it comes to trying new things in existing fields. We are biased into believing that knowing a lot about something confers an ability to predict the future.…
Originally posted on the YC blog, here: https://blog.ycombinator.com/why-vcs-sometimes-push-companies-to-burn-too-fast/ In Investors and their incentives , I tried to give a broad breakdown of the incentives that drive the major types of startup investors. I want to dig deeper into a behavior that VCs sometimes exhibit which seems strange from the point of view of founders. Despite praising…
I recently had a conversation with a founder who'd just finished a number of unsatisfying conversations with investors. The founder's company was growing well, had crossed $1mm ARR, but still couldn't raise money. According to conventional wisdom, that should have been enough to open some checkbooks. Unfortunately, that's not how fundraising works. This is strange because of the way we generally…
It is incredibly important to understand the incentives of investors when you are raising money. This used to be fairly easy - you raised money from Venture Capitalists who wanted to see a big return on their investment. The best of these investors were incredibly focused on doing the one thing they did well: investing in technology companies. The world looks different now. There are a lot of…
Investing in emerging markets such as India, Kenya, and Nigeria isn’t quite what I naively thought it would be. Before I started, I thought that finding a good company in an emerging market would just mean copying models that worked in developed markets. All I’d have to do is figure out how the business would need to be tweaked for a lower price point, identify the best founders working on the…
Every startup fundraising process is influenced by the balance of power between the founder and the investor. When the founder has a company that is doing incredibly well, and is being chased by lots of investors, the founder has more leverage. When the founder is inexperienced, or has a company that hasn't yet gotten a lot of traction, the investor has more leverage. Often, the output of this…
I think that it is nearly impossible to figure out the exact changes that new technologies will create in the world. That's problematic because investing in startups is largely about figuring out whether or not a team with a new technology - or application of existing technology - will create a change large enough to support a big new company. Not only is it hard to figure out what changes will…
While thinking about wiggles ( Ignoring the Wiggles ), I looked at when the biggest tech cos in the world started relative to NASDAQ. At first, I thought I'd find no correlation between how well the index was doing and when successful companies were founded. I love looking at this in chart form, which shows just how many market moves these companies have weathered as they've grown. [1] I was…