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Speaker 1

00:00

Let's start with the first question is about doing YC, the program, the core program that people know. A common question is why is YC worth the 7%? What do you think?

Speaker 2

00:12

So when I think about YC, and I talk to founders about it, oftentimes I tell founders it's in their best interest to start building up unfair advantages in their startup. It used to be that an unfair advantage was capital, but more and more now you see capital being very widely available. And so I tell founders to start thinking about what other unfair advantages can they get?

Speaker 2

00:41

So with YC, I think a lot of founders always wanna know about fundraising. What's the unfair advantage you get around fundraising? First, YC companies get higher valuations. Typically 50% to 2x higher than companies who don't do YC.

Speaker 2

01:00

We see valuations on demo day ranging anywhere from $4 million on the low end to $25 million plus on the high end, with most valuations between 6 and 12 million. Put another way, when you raise money through YC, you get less dilution. Second, better investors. We've taken the time and energy over a decade to collect all of the best angels and VCs and put them in 1 room.

Speaker 2

01:27

The YC batch is 1 of the most heavily scouted group of startups in the world. And so we do the work for you to put the best people in the room. And then the final 1 is that fundraising happens faster. When you go through YC, some companies can completely finish their fundraise in under 2 weeks.

Speaker 2

01:46

And almost everyone is finished within 2 months, as opposed to other processes that you might run alone, which can drag out longer. So first, we give you a bunch of unfair fundraising advantages. I'd say the next thing, and I would argue even more importantly, is we give you an unfair advantage around a batch. You're batched with other companies that are in the similar state as you are.

Speaker 2

02:08

And even if you're an experienced founder, and I've done YC twice, the second time I was a very experienced founder, I don't have at any given time a whole bunch of friends and colleagues who are all starting companies right now. And so being able to literally be around a whole bunch of other people who are just getting started and who are grinding, you know, within the first year or 2 and still grinding, is extremely valuable from kind of a friendly competition perspective. But it's also extremely valued just from a support perspective, to be able to talk to people who are there with you and to have this whole variety of people so you can find the people that you're going to actually relate to the most. The next 1 is software.

Speaker 2

02:52

What kind of software does a typical investor give you access to? None. With YC, we give you access to a whole variety of software that gives you unfair advantages. There's a forum that allows you to ask questions and hear questions from other founders that came before you.

Speaker 2

03:08

There's Work at a Startup, which allows you to basically recruit off of YC's brand. There's posting job posts on Hacker News, which only YC companies can do. There's an investor database with over 5,000 entries, including reviews and data from every company that's ever done YC. There's deals, which are literally millions of dollars worth of discounts given by top companies.

Speaker 2

03:30

There's a YC company directory, which allows you, if you're a B2B company, to actually sell into other YC companies. It's 1 of the secret advantages of being in YC. There's an alumni directory, which also allows you to sell into companies, and also allows you to find specific people to give advice. And finally, there's a knowledge base that gives you actual, clear, tactical, written advice on PR, fundraising, growth, et cetera.

Speaker 2

03:51

And so, most of the time when you're raising from angels, typically, you get some phone calls. You get some email exchanges. With YC, I would argue that you get a platform and that's an unfair advantage. The last thing is additional programming.

Speaker 2

04:06

A lot of people think of YC as a 3 month program, 1 and done. In fact, YC is built to support you from the beginning of your company to the end of the company. And 2 of the newest programs that we've built are specifically relevant to a lot of founders. 1 is a series A program where we actually rebatch you with companies that are now in the anywhere between $150,000 to $300,000, $400,000 a month in revenue who are going out and raising a Series A.

Speaker 2

04:34

We teach you how to raise a Series A. We teach you how to build a professional process. We teach you how to do a great deck. And then we send you out at the same time and connect you with investors.

Speaker 2

04:45

Having an advantage in terms of raising a Series A, I would argue is 1 of the biggest competitive advantages you can have. Last, we have what's called the YC Growth Program. That's run by YC Continuity, which is our growth stage fund. If you're running a company from anywhere between 50 to 150 employees, suddenly as a CEO your job changes.

Speaker 2

05:05

It's not about product market fit anymore. It's about how do you manage an organization, how do you build an organization. And our growth program essentially is a series of dinners that teaches you all the tactics around how to actually be a CEO of this managing organization. As a YC founder, all of this is encompassed in the 7%.

Speaker 2

05:24

There's no additional equity that you have to give to get in any of these programs, get any of this software. And when You're a YC founder, you're a YC founder for life. So I'd argue, when you're thinking about fundraising in this environment where there's a lot of money, stop thinking about the money as an unfair advantage and start thinking about what other unfair advantages the people who are giving you money can give to your company. I think YC looks great on that perspective and it's pretty simple math why it's worth it.

Speaker 1

05:51

Yeah, and tagging onto that, I wanted to cover, we don't have it in the notes, but your most recent blog post about generating leverage in fundraising. I think this is something that we ought to write more about. And Aaron's trying to do it with the Series A program.

Speaker 1

06:06

But can you explain that problem and your proposed solution for the average company?

Speaker 2

06:12

I think the base of the problem that a lot of founders need to understand is that a lot of fundraising advice is written by VCs. And the unfortunate problem when you're reading a fundraising advice from a Series A VC's perspective is that they're not necessarily on your side. And so if you think about it, the narrative around fundraising is typically something like you raise money when you're running low on money, when you're at between 12 and 6 months of runway.

Speaker 2

06:46

When you raise money, you need to be most sensitive about valuation, which I think is completely not true. When you raise money, I think almost strangely people think about raising money when it's the first moment that they think they can. So I see a lot of companies who are like, we're an enterprise company, we're at a million dollars ARR, isn't it time to go raise series A? That's what all the VCs say, right?

Speaker 2

07:20

I'd argue that's like the earliest possible time to consider raising a series A. And so this whole kind of narrative around fundraising, especially Series A fundraising, I think is designed to bring you into the front door of the VC as soon as possible to allow them to get the best look possible as early as possible.

Speaker 1

07:40

Right, so we should clarify that in financial terms, right? So your valuation is probably a little lower at that point. They can probably get a higher percentage of your company at that point.

Speaker 1

07:50

And because you're scared that you won't be able to raise, you sell early.

Speaker 2

07:54

Peter. And even more so, there are probably 6 or 7 terms around a fundraiser, a Series A fundraiser, how big your option pool is, how many board members, what the rights of the preferred stockholders are. And if you're going into a fundraise without leverage, you have a hard time negotiating any of those terms. And so you might think valuation's the game, but actually there's 6 other terms that are really important.

Speaker 2

08:15

So I think that Series A is what confuses a lot of startups. And I really want to focus in on Series A. I think some of these things are different when it comes to raising the seed. But Series A is really confusing to a lot of startups and I think a lot of the advice out there is tricky.

Speaker 2

08:29

And a lot of the common wisdom is actually tricky. The way that I like to tell this story is I talk to a founder and I say every startup has a leverage graph. Basically it has a graph of how much leverage the startup has over time. And I'd argue that that leverage graph in a good company always goes up to the right, but it has peaks and it has valleys.

Speaker 2

08:51

The best founders I know will raise money when their leverage graph is at a local peak. And the founders that struggle will try to raise money when they're in valleys. And what's interesting is that when you're at a peak, you might not feel like it's time to raise money. You probably don't need money.

Speaker 2

09:08

You might even be close to break even. You've got a lot of customers. You're building products great. Things are going really, really well.

Speaker 2

09:15

And as a CEO, it's oftentimes hard to think, oh, let me take my mind off of my company to go raise money. But in many ways, that's the absolute best time to raise money. That's the time when you have the most leverage. That's the time when you can walk away.

Speaker 2

09:27

That's the time when investors are going to be more ready to chase you versus you should chase them. And so I really tell founders, hey, think about where they are on their leverage graph and think about this way before you hit that 12 months before you run out of money. Edith Warren

Speaker 1

09:42

Yeah, and how are you spotting those points? Obviously I know that we're in a better situation than we were 18 months ago. Who knows where we're going to be in 18 months.

Speaker 1

09:51

But those local peaks and troughs, how do you as a founder identify those?

Speaker 2

09:56

I think the first peak tends to happen when you hit product market fit. I think what happens when you hit product market fit is that you have a lot of growth, but you are relatively understaffed. And so your growth to expenses ratio looks very good.

Speaker 2

10:17

I also think at that point, if you're a revenue generating business, you have more money coming in the door than you've ever seen before. And so it's so funny, because every startup wants to hit product market fit. I think most startups don't realize how much a punch in the face product market fit is. But I think that's where the first kind of peak is.

Speaker 2

10:37

And I think that what happens when you hit product market fit is you start investing in scaling your operation. Improving your product oftentimes takes a second priority to just making sure your customers can consume your product. And that counterintuitively, I think that's the most strategic time to raise a Series A. I think that your graphs are going to look great.

Speaker 2

11:02

Hopefully you've got revenue coming, and hopefully your runway is going to look good. And so to me, that nails it. I think when companies try to raise their series A, and when I say series A, I mean $5 to $10 million round from Sandhole Road VC. I think a lot of times when founders try to raise series a pre product market fit they have to be over reliant on their story.

Speaker 2

11:24

And second time founders experienced founders founders with exits tend to do disproportionately well with pre series a product market pre product market fit series A's. But I think that if you are not 1 of those founders, if you're a first time founder, go in with the numbers. It's just always easy when you're going with the numbers.

Speaker 1

11:42

Paul Matzkoff Yeah. And so a related question from the internet. Yusuf asked, how did you validate your product market fit?

Speaker 1

11:49

So this is in the context of SocialCam, I assume that's what they mean.

Speaker 2

11:52

Yeah, I think that like, we've written about this. I think that the phrase product market fit was invented by Mark Andreesen and then somehow nobody bothered to look at his definition and now it's just been misappropriated in every way. And the now common use of the phrase is like, I've built the thing that my customers want.

Speaker 2

12:12

But it's even weirder than that because Oftentimes I'll ask companies, or companies ask me if I hit product market fit and I'm like, how would I know? It seems like if you hit product market fit, you'd be growing uncontrollably, everything in your company would be breaking, you'd be doing all you can just to keep up with the current customer demand. That's the definition of product market fit. It's unambiguous whether that's happening to you.

Speaker 2

12:35

I think a lot of founders think, oh, product market fit is I've built the right product. And it's like, no, product market fit is what happens after you build the right product and you distribute it well. And everything else is

Speaker 1

12:48

going right. Paul Wiltz Right, they think it's the culmination of some MVP kind of process. Steve

Speaker 2

12:51

Zubrin Exactly. Yes, no, an MVP in product market fit sometimes can be 5 years apart. And so yeah, no, I totally agree with you.

Speaker 2

13:00

Like, you know, in MVP, the whole goal is to get any customers coming in the door. Yeah. And then you kind of struggle, struggle, struggle. And some companies find a product where now customers are just beating the crap out of them to get in.

Speaker 1

13:11

Right. He says it, the market pulls it out of your hands. Exactly. Yeah.

Speaker 2

13:14

And So if you don't feel like growth is beating the crap out of you, you are not in product market fit. Like, unambiguously. Peter.

Speaker 1

13:23

Did you guys hit it at SocialCam?

Speaker 2

13:26

I would say yes and no. I would say that we definitely got hit in the face with growth. However, I would say that we were particularly good at distribution and not as good a product.

Speaker 2

13:39

And so I would say that our product didn't retain as well as we wanted to, but we certainly got a ton of growth. And I think that in social, you see that happen. And I'd argue that, did we hit product market fit? I would probably say no.

Speaker 2

13:53

I'd probably say that there's growth you can get that doesn't reflect product market fit. Because some part of product market fit is not only you have all these customers coming, but they're doing what you want them to do. The goal of your product is being served. And the goal of SocialCam was to get everyone to be video creators.

Speaker 2

14:11

When we were blowing up, we were blowing up on video consumption, but not on video creation. So I think that's probably an important part of people don't talk about product markets. Like everything is going well but it's like also your business part is working.

Speaker 1

14:23

Right you're not selling a dollar for 80 cents.

Speaker 2

14:25

Exactly. You're not you know negative margins. You're not like getting users to do something that's like not the thing you wanted them to do.

Speaker 1

14:33

Let's go into some questions, just general, like YC application related. So LC Carrier asks, how does YC feel about companies who don't want to raise VC money after the program? And maybe a canonical example is Zapier, who did a seed round and then went on to be profitable.

Speaker 1

14:50

Paul Stevenson

Speaker 2

14:50

So I think what's interesting about this is of course we don't care. These are your companies. 1 of the first things we say at the YC kickoff in the beginning of the batch is that you're the boss.

Speaker 2

15:01

You get to decide what you want to do with your company. We are not the boss. And I think even more so, what's interesting is that we have a large variety of companies, a large number of companies that never raised from VCs, are only raised from VCs way after product market fit, profitable, so on and so forth. No, we love those companies just the same.

Speaker 2

15:21

I think that it's interesting, in many ways I think that as YC has become more mainstream, we have to be louder about what we like because we're lumped in with VCs. And we're not VCs. That's not the purpose of this. We're not here with the kind of sole reason of how do we make sure we make as much money as possible out of every single company we invest in.

Speaker 2

15:51

That's not the way YC works.

Speaker 1

15:53

Yeah, and to be clear, if your company raises money through YC and then goes on to be wildly profitable, that's a great outcome for YC. No dilution, no pro rata money.

Speaker 2

16:05

No, no, and it's great for the founders. I think we provide an onboard into VCs if you want it, but by no means do you have to consume it.

Speaker 1

16:17

Right, yeah, I mean I think this is kind of related to, did you read Aaron's post this week about advice? Because we've entered in this position that's in between traditional VC and universities, we're just thought of as the advice giver, and you have to have permission to do this thing and we don't want certain people. It's not really the case.

Speaker 2

16:35

No, not at all.

Speaker 1

16:37

Related, another super common question. Emilson Rodriguez asks, do companies need to be incorporated already to participate in YC?

Speaker 2

16:46

So this is another thing that I think is extremely important to understand. A lot of people talk about the growth of YC, and YC certainly has grown pretty significantly. Batch sizes are a little bit more than double since I last did YC in 2012.

Speaker 2

17:02

I would say it's responsible growth. We've prepared ourselves, and I think we still give a really good and high quality of service. But what it's also done is it's allowed us to have such a variety of companies at a variety of stages. So YC has always been about the super early stage and will always be about the super early stage.

Speaker 2

17:23

We can help you incorporate and we help a lot of companies incorporate when they come in. There are a lot of companies that literally start writing code when they join YC. There are a lot of companies that are pre-launched when they join YC. I think YC's expansion has allowed us to also work with companies who are post-launch and might have incorporated or raised small amounts of money.

Speaker 2

17:42

But I think sometimes People want to interpret that as a change of strategy as opposed to just an expansion. This is not an either or, it's not an or, it's an and. Also, I think it's really motivational to be in a batch where you have some companies that are pre-launch and are still trying to get that MVP out the door, and you have other companies that are starting to take off. And I think that when you want that motivation, you come to a dinner, you see a company taking off and you think to yourself, we got to get back to work.

Speaker 2

18:13

I think that motivation is key.

Speaker 1

18:15

Peter. Yeah, that cohort pressure. You see people follow on after YC too, just having dinners with their friends every couple weeks. Yet another question about YC types of companies.

Speaker 1

18:26

So Alex Rodriguez asks, what do you look for in startups that haven't had good growth but continue to push through, for example, Airbnb, that makes you accept them into the batch.

Speaker 2

18:36

Peter Collins I think what's interesting is this concept of traction I think is very interesting. I think that there are complicated or not well-defined thoughts that people simplify. So if I tell a startup, oh, I'm looking for traction, I think what they think of is I'm looking for growth.

Speaker 2

18:55

And like, they think that, oh, if I have growth, why would I need YC? Right, It's kind of this catch-22. When I think about traction, I think about it a little differently. I kind of think, how much time have you been working and what have you done?

Speaker 2

19:11

And am I impressed with the amount of stuff you've done in the amount of time you've been working? And so to me, Airbnb, what they had done in that year before they applied to YC, and by the way, I think the story is like told in such a strange way. It was a year. It wasn't like 10 years that Airbnb was struggling before they got into YC.

Speaker 2

19:31

It was a year. But what they had done was impressive. They had launched multiple times. They had been the housing host for the DNC convention and the RNC convention.

Speaker 2

19:41

They'd been on CNN a bunch of times. Like they'd done a lot of impressive things. The product wasn't working, but you couldn't look at the last calendar year and say, oh, these guys aren't out there grinding it. And so to me, like, that's far more important than whether they've been successful.

Speaker 1

19:58

I

Speaker 2

19:59

think the second thing is that the Airbnb guys felt like they were onto something. Like a lot of investors talk about like, what's your secret sauce? What's your unique insight?

Speaker 2

20:14

What's the thing that you know that other people don't, right? And it's such an overused phrase, but it's it's kind of true. The Airbnb guys really thought that people would stay in strangers houses, and they thought that it could be a significantly better experience than a hotel. And they believe that through and through.

Speaker 2

20:32

And even if you don't agree, when you see 3 people who actually believe that, you think to yourself, why not? Give it a try, right? Why not run the experiment?

Speaker 1

20:43

Because you were the 1 that went to bat for them to get into YSC. So what was it about them or about the product? Had you used the product before you told PG about it?

Speaker 2

20:54

Before I told PG, I had not used the product, no. I'd been on the product, but I had not used it, no. Because back when I was working with them, they were really focused on events.

Speaker 2

21:06

And so- Paul

Speaker 1

21:06

Wiltz And not renting out whole houses either.

Speaker 2

21:08

Paul Wiltz Not renting out whole houses, renting out rooms, and still doing the Airbed thing, and I didn't go to the RNC or DNC convention. What I saw in them was exactly what I said about traction. They just kept on working.

Speaker 2

21:22

1 of the things that we say to YC founders is something that PG always used to say, which is that companies that do well in YC, you have office hours with them, they tell you their major problem, you brainstorm some potential solutions, and the next time you talk to them, they've moved on to some other problem. And with the Airbnb guys, it was exactly like that. The other thing is that they were happy and gracious. It's easy to help people who are like nice.

Speaker 1

21:49

They're nice. They're hardworking. Yeah.

Speaker 1

21:52

Committed. And

Speaker 2

21:52

I think that this part of the valley like doesn't get talked about a lot. Like if you're nice, concise, you know, and hardworking, like more often than not, people will try to help you. Like, they won't go out of their way.

Speaker 2

22:05

They won't, you know, like stop their business to help your business. But like, will they give you an hour? Like, yeah. I think that like, sometimes you have to warm up, right?

Speaker 2

22:13

Sometimes you have to, you know, show that you're being serious. But yeah, like, this is not a situation where people feel that your success somehow takes away from them or somehow reduces the size of the pie. No, totally.

Speaker 1

22:24

So. Yeah, and I think people are always looking to meet motivated, like it's not this weird, like close friend network situation where it's like, I don't know, I'm done with motivated, inspiring people.

Speaker 2

22:34

That's what I think is so weird about the Valley is that like on the East Coast, all of the networks in my experience tended to be around like what you've done in the past, like where you worked, where you went to school, what club you were in, right? And like, here, it's the, like, strangers email me every day. I reply to them every day.

Speaker 2

22:54

Like, this is like the way of the valley. Like, strangers, like literal strangers. And so, like, the only thing we all have in common is we're all crazy enough to try to do startups. And I feel like inside every founder, there's this feeling like, if you're stupid enough to do a startup, we should have each other's back, because I'm stupid enough to do it too, and there aren't a lot of people as stupid as us.

Speaker 1

23:14

Yeah, and you have enough goodwill to keep replying. Because in those emails you get a lot of crazy ones. And I would just say that knowing what to ask from the right people in a clear, concise, simple way, you can get through to most of them.

Speaker 2

23:29

Isn't it crazy?

Speaker 1

23:29

It happens. Isn't it crazy? Cold emailing is a skill that everyone should work on.

Speaker 1

23:35

So related to that, the Airbnb guys working on different types of things in the first year, I think it's worth explaining that that doesn't necessarily mean pivoting 5,000 times. Brian.

Speaker 2

23:47

So yeah, that's a good point. I've been trying to kind of nail down what's the difference between pivoting and iterating, because iterating is clearly good, and I think pivoting is oftentimes strictly inferior. So 1 of the things I think about is that when you're iterating, usually there's lots of things that you can learn about from the previous version of your product.

Speaker 2

24:12

Because oftentimes you are keeping the same customer or a very related customer and you're solving the same problem or a very related problem. And so for me, I get smarter every time I iterate. I feel like iterating is kind of running the scientific process. And I'm learning every step of the way.

Speaker 2

24:31

To me, pivoting is when you basically take things outside of your realm of the previous thing you worked on. So in effect, you're changing the customer drastically or you're changing the problem drastically. And Usually, even though you can kind of justify it to yourself, often because there's similar technology, you don't have to completely rewrite your code, I would argue that you are not learning very much from what you just did. You're just working on something else.

Speaker 2

24:58

And I think that Rapid iterating is amazing. I think rapid pivoting is really bad. And I think that Sam and I can give 2 different pieces of advice on this that I think reaches the same point. Someone asked Sam, when should you pivot?

Speaker 2

25:13

And he said, when you've exhausted every idea, every single idea on your current problem that you're solving. And I love that construction, but I feel like founders lie to themselves. I lie to myself as founder all the time. And so I like to tell people, like, time.

Speaker 2

25:31

I like to say, give something a year or 2. Like it's it really can take that long. Like it often does take that long. And like concerted hard work.

Speaker 1

25:45

Yeah. Just like I do it on nights and weekends sort of

Speaker 2

25:48

of constant iteration. I do think that like there are these there is this myth that if you build it they will come. And that's just like a myth like behind every 1 of those stories is a lot more hard work.

Speaker 1

26:03

I think another pivoting problem is that people pivot and apply the same solution to multiple problems and like the solution is just never that good. And so you just get locked into this thing that won't work. Another thing somewhat related to the Airbnb guys is just how compelling they are.

Speaker 1

26:20

Fedor Peretsky asked about basically pitching your company. So they say, what are your thoughts on the strategy of just like being very, very aggressive and like enthusiastic about pitching your company in terms of pitching to investors? And are there other techniques you encourage to make your pitches sound more compelling or exciting?

Speaker 2

26:41

What I didn't understand as a founder was that anytime I pitched an investor, it was the, you know, basically round to over a thousandth pitch that they ever got. So, think about it this way, any gimmick or trick that you think might be unique has in fact already been tried by 1 of those thousand people before you. And so I think that oftentimes people kind of resort to weird public speaking gimmicks or, oh, I gotta make a memory or I gotta like create an impact or like sales type things.

Speaker 2

27:19

And it's like, honestly, it's a lot harder to sell to a salesperson. And a VC is kind of a salesperson. It's kind of like It's a lot harder to do an email marketing campaign to a founder that does email marketing. Like I'm a little bit immune to drip campaigns.

Speaker 1

27:38

And you're smart. That's awesome that you're smart. But by the way, there are a thousand other people that are smarter than you.

Speaker 2

27:43

So when I think about doing the pitch, These are the things that actually stand out

Speaker 1

27:47

to me.

Speaker 2

27:50

The first thing is clarity and conciseness. I think that more words are actually bad. When you actually study really good salespeople on the phone, it turns out the customer talks way more than the salesperson.

Speaker 2

28:08

And so when you're in a really good investor meeting, the investor is fully engaging and is basically giving ideas and brainstorming. It doesn't feel like a pitch anymore right. When you feel like you are pitching for a long period of time that's a bad sign typically especially in early fundraising. Later fundraising is different but see it even series A.

Speaker 2

28:34

So 1, clarity and being concise. I really think most startups can be explained in 3 sentences. 2, don't start with your background. You're telling a story, and oftentimes people default to telling a story chronologically and argue that actually you should be thinking a little bit more like Pulp Fiction.

Speaker 2

28:57

Like tell the interesting parts of the story first. Get me hooked. And your background, if your background isn't 1 of the top 3 most interesting things happening in a startup, then probably you shouldn't start with it. Now for some startups it is, right?

Speaker 2

29:10

Like for some startups, the person's background is, but rare, very rare. I think the other thing that's important is that the investor has to clearly understand the problem you're trying to solve. Clearly understand it. I think so often founders want to get straight to the solution.

Speaker 2

29:29

And So what's weird is in that first couple sentences, like what I want to get out of it is I want to know what you do, right? I don't have to be sold on it. I just want to know what it is, right? Me knowing that Google's a search engine where you go to a website, you type in something you want to know, you click the search button, and then a bunch of web pages that are relevant to what you typed popped in.

Speaker 2

29:52

Great. I don't have to be convinced that I want that. I just have to be convinced that I know what that is. Then I want to know anything about traction.

Speaker 2

30:02

Anything, like have you launched? Is it growing? Anything like that. I want to know that you have tech on your founding team.

Speaker 2

30:10

And then I want to know what's the problem that you're trying to solve and why you want to start to solve it. For me, those are the things that, if you can get out in the first 30 seconds, I can engage in a conversation with you. And I think the other thing that I tell founders is that if you do a bad job, it's your fault. Unfortunately, if the person you're talking to doesn't get it after the first 60 seconds, it's not because they're an idiot.

Speaker 2

30:41

Like, it's because you didn't explain to them well. And that's really hard to hear. But I just tell founders that straight. And I'm like, look, I've been pitched to infinite times, so I think I'm not dumb.

Speaker 2

30:54

Well, I

Speaker 1

30:55

mean, it doesn't really matter if you're smart or dumb.

Speaker 2

30:57

That's true, that's true. Maybe I am dumb. Unfortunately, You're asking me for something.

Speaker 2

31:01

You got to dumb it down for me. Either way. So yeah, and I think that oftentimes what's weird is you have to throw away other instincts. First, you always have to throw away your customer pitch.

Speaker 2

31:13

The investor is almost never a customer, And so it works on the customer, it's almost the exact opposite of what it'll work on the investor. Second, you've got to throw away jargon. What makes you sound smart amongst your peers makes you un-understandable by someone who's not 1 of your industry peers. And so I think there are all these things that people try to use to make them seem impressive, which are driving people to do the exact wrong thing when they're pitching to a VC.

Speaker 2

31:40

I actually think you need somewhere between sixth and ninth grade language. That's it. Peter T.

Speaker 1

31:46

Leeson Yeah, that's fundamental for me, on the blog, all of this stuff. It's like, why are you complicating? No, no, no, no, no.

Speaker 2

31:52

And I think that's what's weird is that you're speaking, right? And so if you're not clear and concise, the more brainpower I have to use to figure out what you're saying, the less viable conversation is going to be.

Speaker 1

32:05

And I think related to this, people can conflate salesmanship with confidence. And so many of these founders are very confident. But Oftentimes, it's like that Steve Martin quote, they're so good, they can't be ignored.

Speaker 1

32:20

And for that reason, they don't really have to take the money from a certain investor so they can just confidently walk into any room, communicate it clearly.

Speaker 2

32:28

Well, you know what I think creates, I've only seen 2 things reliably create real confidence, not fake confidence. 1 is you've done something impressive in the past. That makes you confident.

Speaker 2

32:40

The second is you have the numbers. You got 1 of those 2 things, you deserve to be confident. So for first time founders, the numbers help.

Speaker 1

32:50

And I would underscore this for international founders. I think it's really, really hard to clearly communicate what living in another country and that specific problem in another country is like to an investor here.

Speaker 2

33:03

That's so important. That's so important. But what's fun is that when you get it, right?

Speaker 2

33:07

What's fun is like, I mean, we invested in a bunch of companies out of Nigeria and you know, when they explain to you that you can have 5 credit card processing machines at the hotel from 5 different companies and you can swipe your credit card in each 1 of them and it won't work. Yeah. So you now have to pay your hotel bill in cash. You're like, Oh, if that happened, I'd be super paid.

Speaker 2

33:31

Like, you know, right. As opposed to saying, oh, credit card processing doesn't work in Nigeria, right? Where it's like, I'm sure it kind of works. I'm like, come on, you know, right?

Speaker 2

33:39

Like, when you can tell a story and paint that picture, and like, it took me how long? It took me 10 seconds to paint that picture in a hotel. But you get it, right? As opposed to, let me tell you about the history of credit cards in Nigeria.

Speaker 1

33:54

And by the way, Nigeria's 200 plus million people. Another thing that I didn't know until I saw.

Speaker 2

33:59

Actually, That's a really important thing too. Facts are really important. 1 of the things I think is interesting about a lot of investors is that they know like 2 inches on a lot of different subjects.

Speaker 2

34:11

And if you know like 6 inches, they will think you're very smart. And if you know 1 inch, they'll think you're very stupid. And so just doing some friggin' research, and when you talk, I often tell founders, write down everything you just said and count the number of facts. And if you didn't say any facts, just say some facts.

Speaker 2

34:35

No, it's great advice, man.

Speaker 1

34:37

That's awesome advice. So do you, this is related, so David Chen asks, how do you find mentors and advisors? But when you're pitching your company, Are you pitching it to mentors and advisors to get warmed up?

Speaker 1

34:47

Or are you just pitching it to random people at Starbucks?

Speaker 2

34:50

I think that 1 piece of advice that Justin Kahn gives that I really like is aggressively practice pitching friends, colleagues, existing investors before you go out. And that there's something that you can learn from every run of it. And I think that 1 of the strange and unfortunate things is that fundraising is so hard and the process in general has been made so painful that founders tend to shy away from it, and they want to do it as fast as possible, with as least practice as possible.

Speaker 2

35:20

And unfortunately, I think that that doesn't serve them well. And so I think practice is really, really important. On to this thing about mentors. So I get asked 5 times a day, can I be a mentor to a company that I would consider, I've never met them before in my life?

Speaker 2

35:38

I don't like the mentor word. I feel like it's an old-fashioned word. It kind of reminds me of the day of like Master and Apprentice where you actually needed someone, you're not a blacksmith. Someone has to teach you that shit or else you will not be

Speaker 1

35:54

able to do it. You can't

Speaker 2

35:56

go on the internet and Google search blacksmith and just like, You know, it's like, and I feel as though for some reason, and by the way, I think in corporate America, mentors are probably extremely helpful. I don't know. I'm not really been a bunch of more corporate, but I think a lot of this advice comes out of corporate America and comes out of like career prep centers and all that stuff.

Speaker 2

36:21

I think for me personally, I give advice to a lot of startups. And I'm happy to, like this part of my job. And I wouldn't do this job if I didn't like it. To me, when someone asks me to be a mentor, it's asking way more of a commitment, right?

Speaker 2

36:40

It's like, what I'm saying is that without being your mentor, if you ask me a question in a clear and concise way, I will 99% of the time reply within a week with what I think is the best answer. You get that for free. And so what I think about is when someone's asking me to be a mentor, I'm like, oh God, well what else do they want?

Speaker 1

37:00

Well, it's like, hey, Michael, we've never met. Do you want to be in a single relationship together? It's like,

Speaker 2

37:04

you want to just date? Right. And I also, I always feel like when those people, if they just emailed me a question, I would just

Speaker 1

37:11

answer it.