Investment Criteria:
Strong Leadership: Investors look for leaders who are focused, obsessed with the product, and have strong communication and leadership skills.

Key Concepts:
Outliers: Venture capital seeks extreme outliers, as most returns come from a small number of highly successful companies. Strength vs. Lack of Weakness: Instead of focusing on checking boxes of qualities, investors look for startups with exceptional strengths that make them stand out. Decisiveness: Entrepreneurs must be decisive and make quick decisions to drive progress in their startups.

Building a Great Team:
Execution: Once a great product is in place, the focus shifts to execution and building a strong team.

The Struggles of Fundraising:
Parker Conrad and his co-founder pitched to numerous VC firms in Silicon Valley, facing constant rejections. They tried to adjust their pitch, slides, and story to appeal to investors, but it was not enough.

A Key Insight:
A VC at Coastal Ventures advised Conrad that they needed to be like the Twitter guys, who could easily secure investments due to their reputation and potential. Conrad misinterpreted this advice and focused on becoming like Twitter instead of improving their business.

The Frustration of Fundraising:
Conrad’s previous experiences with fundraising left him frustrated and skeptical about relying on VC capital. He decided to start a business that could potentially operate without external funding.

The Ideal Business for Investors:
Investors prefer businesses with positive cash flow and a clear path to profitability. Zenefits, Conrad’s current company, fit this criteria, making it attractive to investors.

The Importance of Being “The Twitter Guys”:
Conrad believes that building a successful business with positive momentum is the key to attracting investors. If a company cannot demonstrate this momentum, other factors like fundraising skills may not make a significant difference.

Bootstrap as Long as Possible:
Parker Conrad, a successful founder, emphasizes the importance of bootstrapping a startup for as long as possible. Steve Martin’s advice, “Be so good they can’t ignore you,” highlights the value of focusing on building a strong business rather than solely relying on fundraising.

Raising Venture Capital:
Marc Andreessen asserts that raising venture capital is often easier compared to other challenges startups face, such as recruiting and achieving viral growth. However, he cautions that fundraising should not be seen as a milestone or a measure of success.

Relationship Between Risk and Cash:
Andreessen introduces the “onion theory of risk,” which conceptualizes a startup as having multiple layers of risk. He emphasizes the importance of peeling away these layers of risk through achieving milestones and raising capital accordingly.

Systematic Approach to Fundraising and Deployment:
Andreessen advocates for a systematic approach to fundraising and capital deployment, aligned with the risks being eliminated from the business. He criticizes the prevalent mindset of raising excessive funds and focusing on superficial aspects like fancy offices and hiring sprees.

Getting Things in Writing:
Avoid asking for NDAs, as it indicates distrust and can harm the relationship. Get commitments in writing promptly after they are made. Send an email confirming what was discussed, as investors may forget their commitments. Take notes in meetings and follow up on essential matters.

Fundraising Process:
Aim to complete the fundraising process quickly and efficiently. Don’t obsess over it or view it as a personal victory. Treat it as a fundamental step and focus on getting it done.

SV Angel’s Investment Approach:
SV Angel invests in seed-stage startups. They prefer to be the first investor in a company. Their typical investment amount is $250,000. They syndicate investments with five or six other investors, resulting in a round size of $1 million to $2 million.

SV Angel Investment Process:
SV Angel receives 30 opportunities for every investment made, with a focus on leads from their extensive network. A short executive summary is required for evaluation. If the summary is promising, a vote is held within the team to decide on a phone call with the founder. A successful phone call leads to a meeting, followed by background checks and due diligence. SV Angel then decides on the investment and seeks additional value-add investors to join the syndicate.

Series A Stage Funding:
Top-tier venture capitalists typically invest in companies with a prior seed round of $1-2 million. Companies without a seed round may be considered if the founder has a successful track record and is known to the investors. Referrals from seed investors and organizations like Y Combinator are valuable for securing introductions to Series A venture firms.

Choosing the Right Seed Investors:
Seed investors play a crucial role in laying the foundation for future fundraising events. A good introduction from a trusted and respected seed investor can significantly increase the likelihood of a successful Series A funding round. Y Combinator provides valuable guidance on identifying high-quality seed investors.

Determining Seed Stage Valuations:
Valuations can be challenging to determine, especially for first-time founders. There are often thresholds, particularly at the seed stage, where investor interest increases or decreases. It’s important to find the right balance between raising enough capital and maintaining a reasonable ownership stake.

Series A Funding Guidelines:
Founders should expect to sell between 20% and 30% of the company in a Series A round. Ownership focus is more critical than price for venture capitalists at this stage. Exceeding 30% dilution can complicate the cap table and limit future fundraising options.

Founder Motivation and Ownership Dilution:
Founders should consider the impact of dilution on their motivation and ownership stake early on. Excessive dilution in the early stages can lead to a demotivated founder and a diminished sense of ownership.

Investment Principles:
Investors should focus on companies where outside investors do not own a majority stake to ensure that the team remains motivated. A good rule of thumb is to keep the stake of outside investors below 10-15% to maintain a balance between external funding and the team’s ownership.

Successful Investments:
Google: An early investment in Google was driven by Stanford professor David Cheriton, who introduced the founders to the investor. Google’s innovative search algorithm, PageRank, which ranked websites based on their relevance and popularity, caught the investor’s attention. The founders’ strategic approach, including seeking an OEM deal with Yahoo, secured the investment. Airbnb: Airbnb, initially considered a niche idea, turned out to be a spectacular growth investment. The company’s unique concept of a website for peer-to-peer lodging unlocked a vast network effect. The investors recognized the founders’ maturity, judgment, and humility, which gave them confidence in the company’s long-term success.

Founders and Co-founders:
When starting a company, it is crucial to find phenomenal co-founders who are as good as or better than the founder. This significantly increases the chances of success. Airbnb’s success is attributed to the exceptional abilities of all three founders. Mark Zuckerberg’s case at Facebook is an outlier, where one person’s exceptional talent drives the company’s success.

Role of Investors:
Good investors with strong networks and domain expertise can add value beyond just providing capital. Investors can assist in finding potential acquirers or strategic partners. The downside scenario of an acquisition or exit should not be the primary consideration when raising money.

Capital-Intensive Companies:
For capital-intensive companies, founders should carefully assess the milestones and risks involved in making the business successful. The staging of risk and cash is crucial to ensure the company’s viability.

Planning and Precision in Fundraising:
Raising the right amount of money in each funding round is crucial to avoid excessive dilution. Precise planning and execution of milestones are essential for successful fundraising.

Operational Excellence for Non-Viral Growth Companies:
Companies requiring significant staged funding over several years need to demonstrate operational excellence. A well-crafted plan highlighting operational excellence can convey confidence to potential investors.

Alternative Financing Options:
Venture debt and lease financing can complement venture capital for capital-intensive companies. Operational excellence is critical for debt financing due to strict covenant requirements.

Avoiding Unsuitable Investors:
Investors lacking domain expertise and relevant connections should be avoided. Investors solely motivated by financial gain are less likely to provide meaningful support.

Long-Term Vision for Company Success:
Successful companies often require a long-term journey of 10 to 20 years. This timeline exceeds the average American marriage duration.

Why Choosing the Right Investors Matters:
The choice of key investors, particularly those who will join the board, is crucial. Investors are long-term partners who will be relied on during stressful situations. Second-time founders often take the selection of investors more seriously due to prior experience.

Investors as Marriage Partners:
The marriage analogy highlights the significance of choosing investors carefully. Investors are partners who will be involved in the company’s journey for an extended period. Like marriage, selecting investors requires dedication and understanding.

Evaluating Investors:
Founders should assess if they respect potential investors and if they have knowledge to offer. A positive initial meeting can indicate a valuable partnership, even if no investment is made. Investors who bring insights and value beyond financial support are ideal partners.

Constraints on Deal-Making Activities:
Angels and VCs face constraints in their deal-making activities. Time is a significant constraint, as investors have limited hours to evaluate and support companies. Financial resources are also a constraint, as investors have limited funds to invest. The availability of suitable companies is a constraint, as investors seek startups with strong potential.

Opportunity Cost and Constraints:
Venture capital firms face constraints, particularly opportunity cost, which arises from the limited resources they have to invest. Investing in one company means sacrificing the opportunity to invest in others. Firms must carefully consider the potential returns and risks of each investment.

Conflict Policy:
SV Angel has a written conflict policy to address potential conflicts of interest. They typically avoid investing in companies with direct conflicts and disclose any conflicts to the involved companies. Trust is a crucial factor in their investment decisions.

Competitive Companies:
Marc Andreessen emphasizes the importance of considering opportunity cost when making investment decisions. Investing in competitive companies can lead to conflicts and limit the firm’s ability to invest in other promising opportunities.

Time and Bandwidth of General Partners:
The number of general partners and their available time and bandwidth limit the number of companies a venture capital firm can actively support. Each general partner can typically serve on a limited number of boards simultaneously.

Resource Allocation and Strategic Decisions:
Investment decisions involve strategic considerations, such as allocating resources efficiently and balancing risk and reward. Firms must carefully evaluate the potential impact of an investment on their overall portfolio and the opportunities it may preclude. Venture capitalists must prioritize investments based on their assessment of the company’s potential, the competitive landscape, and their own resource constraints.

Founder Control and Investor Control:
Founders have unlimited power when things are going well for the company. Investors have all the cards when things are going badly for the company.

Board Votes and Decision-Making:
Board votes are rare. Decisions are usually clear and unanimous or near-unanimous. Intangibles matter more than details in decision-making.

Negotiating Terms:
When things are going well, the founder is in control and can negotiate favorable terms. When things are going badly, the investors are in control and can renegotiate terms.

Capital-Intensive Companies:
Enterprise software and SaaS companies often don’t have an MVP at the time of investment. They need to raise more money ($5-10 million) to build the first product. Founders who have done it before are more likely to get funding in these cases.

Protective Covenants in Financing Rounds:
VCs have power outside of the board structure through protective covenants. These covenants restrict the company’s actions, such as taking on debt or selling the company.

MVPs and Traction:
It’s easier than ever to build an MVP and get traction. Investors tend to invest in people first, not necessarily the product idea. Pre-users valuations are lower unless the founder has a successful track record.