I think that the role of the warm referral is misinterpreted. Marc : Usually the process is a first meeting with one of the junior people which might then lead to a second meeting with a broader group of those folks, maybe with one or two general partners. Then the big event is when you progress through one or two or three meetings and you get invited to present to the full partnership.
And this gets into another debate, which is, okay you guys go on and on about creativity and all this stuff, why do you want the founder to stand up there like an idiot for 50 minutes reading off powerpoint slides? VC firms exist to give out money. We love when somebody walks in and has a compelling pitch and we can give them a check. Why is your pitch going to be so much better than the other 20 startups?
We prefer comfort and convenience. In one sense, Andreessen is wrong — Americans have built plenty of new businesses in recent decades. Think about all the selections of craft beer we now have at the grocery store compared with the s, when our choices were basically Bud and Miller. Or the thousands of TV channels and near infinite smorgasbord of streaming content compared with the six TV channels I had as a kid.
Or the venture-funded money-losing start-ups coming out of Silicon Valley in the last 10 years, which have focused on personal comforts for people with money, like "drive me around" and "bring me a meal so I don't have to cook" and "find me a cool apartment in Barcelona for a week so I don't have to pay for a hotel.
Long-term solutions to complicated problems that require heavy up-front investment and risk and may not work? Not so much. Regulations and regulatory capture get in the way. Regulation is often held up as a bogeyman in Silicon Valley, and Andreessen follows suit in his essay. He's right, and the evidence is hard to ignore.
As Andreessen's fellow venture capitalist Keith Rabois has pointed out, most industries with relaxed regulations have seen a constant march toward more choice and lower price — you can certainly see it in computer hardware, for instance. But the industries where governments are most involved — health care, education and real estate — have seen dramatic price increases and constrained supply. Businesses that benefit most from these regulations naturally use every tool at their disposal to keep them in place, from lobbying to public opinion campaigns.
Nowhere is this clearer than in San Francisco, where a thicket of regulations makes it time-consuming and costly to build new housing, even as the city struggles from a highly visible and seemingly unsolvable homeless problem. Any attempt at reform is blocked by a coalition of long-time residents and homeowners who want to preserve their property values and the character of the community, and a so-called progressive wing that won't tolerate any solution that does not include government-mandated price controls on some arbitrary percentage of housing.
Multiply this situation by a thousandfold at every level of government, in countless industries across the country. Public service is optional. At the seed stage, when a startup is brand new, the decision is driven almost entirely by the people. Who are they, and what is their pedigree and track record to cause one to expect that they can build something special? At the growth stage, when a startup is fully in market and building out sales and marketing efforts to expand, the decision becomes far more about the financial characteristics of the business—particularly unit economics: can the startup profitably sell its product to each customer?
We receive about 2, inbound qualified pitches per year. We think this is 2, out of a pool of approximately 4, startups that hit the bar where they might plausibly be able to raise venture capital in the year. These numbers are US-only to simplify the topic. Out of the 2, we see, we will make somewhere between 20 and 40 investments per year. The very best VCs in the US collectively make perhaps investments per year.
So our job as investors is to try to nail as many of those 15 per year out of the investments per year we make. The very best VCs in the industry seem to be able to invest in maybe 2 or 3 of the 15 each.
So by definition even the best VC in the business will miss most of the big winners. Did you ever invest in an unknown startup which contacted you via email the first time? The reason is subtle but important. Getting a warm introduction to a VC is a basic test of networking skills. VCs are dying for interesting qualified referrals from people in their network—angel investors, other VCs, advisors, coaches and mentors, lawyers, and customers.
All of those people love giving qualified referrals to their favorite VCs. VCs are some of the easiest people in the world to reach via their networks. It turns out that the skill required to network into a VC is the same as the skill required to network into a customer, into a supplier, into a distribution partner, into the press, into an executive search firm.
The skills you develop learning how to navigate to VCs will pay off 1,x in building your startup more generally. How do investors evaluate startups which have done well in their home country and are looking to expand in the US market? Do they look at the past performance and decide, or is traction in the US market a must before the startups start reaching out to investors?
VCs vary on this question. As suggested by the name, some of the best Israeli startups have been executing this model for the last years; more recently, we are seeing founders from many other countries Canada, China, Brazil, Argentina, Pakistan, and more pursue the same model. The common narrative now is that the startup valuation peak was and since then fundraising has gotten tougher and the most profligate startups are going out of business.
His firm receives about 2, inbound pitches per year. It invests in 20 to 40 companies, which is a 1 to 2 percent hit rate. Expect an investment to take three to four months "from introductions and first meetings through to closed contracts and money in the bank. For early stage investments, the numbers don't really matter.
The team is more important: "We're almost always betting on a particularly special team doing something new and interesting — it's a qualitative evaluation, not quantitative.
Make sure you check an investor's references before taking their money. If a VC won't do that, beware beware beware.
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