Lots of savvy insights, but I'd question Rachleff's position that the angel community took on a "sucker's bet" when it became the main source of early funding for software startups that hadn't yet established product-market fit.
I think what Rachleff deep down knows -- but didn't want to say -- is that putting money into a very early-stage software startup is a time-intensive proposition. The founders are groping their way, and their odds of getting it right depend, to a large extent, on the quality of never-ending advice and contacts that they get.
The best angels have the patience and the hands-on knowledge to provide this guidance. They also make a ton of money selling their expertise in the form of repeated consults-over-coffee.
For every venture capitalist that's willing to put in the work at the beginning, there are dozens who would much rather live large, work short hours, bicker with their partners and concentrate hard on raising the next fund.
For that group, everything else that Rachleff says is quite true. Mainstream VCs are very comfortable providing capital (and public promotion!) for 10x companies going to 500x, or for 100x companies going to 5,000x. It takes a rare blend of nerve and cheery enthusiasm to pull it off, but it also is much easier work.
I have worked with someone who used to work at Wealthfront, and said that he had said to them “do not speak to me unless I speak to you.” They left within months of starting.
I normally wouldn’t raise it if I couldn’t independently verify it happened myself, but this person is one of the nicest people I’ve ever met, so I totally believe it. They left a very cushy job to take a job at Wealthfront, so leaving after a few months had to take something pretty substantive.
Wealthfront isn't a very large company so if you are telling the truth you have potentially given enough information about your friend for people there to identify him/her.
“Because people, human beings, by their nature, are risk-averse. If I hear that you didn't build the product for me and that you did it accidentally, I'm going to have less confidence that buying your product is the right thing to do. Look how Apple revised history of the iPod and the iPhone. They said they were Steve Jobs's inventions. They weren't. He had nothing to do with them. The Apple marketing machine made you believe it, because it made you feel better about buying them. The true creator of the iPod was a guy named Tony Fadell, who went on to start Nest as well. He recognized the value of iTunes. There were a lot of MP3 players back then, but he realized that iTunes on the Mac, where you could rip your songs, was the ideal tool to deliver a better digital music experience, and that syncing to iTunes was the key. That's what he pitched Jobs on, and Jobs funded him to do it, like a venture capitalist. That's not the story that was told.”
I’m curious if that’s the complete story. Is there more to this?
Whatever I have read is that Jobs invented not much but he was good at looking at other people’s work and see if there is potential or not. I just read a book about iPhone development and there it’s the same. The devs are demoing different stuff to Jobs and he is good at picking the right one. But he doesn’t create anything.
After two weeks, Andy Rachleff’s class in business school was the only one I considered dropping in my entire academic history. What made it even worse was that I had burned one of my two “silver bullets” selecting it.
But I decided to stick it out for one more class...and then one more.
By the end of the course I came to the realization it was one of the most profound quarters I experienced. He was brash, strict, and a bit arrogant. But he knew his stuff. He pushed me to think about the world in an entirely different way.
I still disagree with him on a number of startup related issues (talk about arrogance on my part!), but he did what the best teachers do - forced me to take a hard look at preconceived notions and challenged my view of reality.
2+ years later, I still reflect on his lessons and the insights from the founders he introduced us to. A truly remarkable guy.
If you use a "silver bullet", you are almost guaranteed to get into the class, as it puts you at the top of the line. This is a way to ration the highly desirable classes.
Hey Quinn, I’m glad to have a chance to help you in a small way after you and Beyang did me a _huge_ favor from back in your SOMA apartment days.
I think Andy’s teaching style, when distilled, tends to come across as quite trite and simplistic. In class and the following lunches, that manifests as more nuanced as students challenge his theses for appearing that way. To give you a sense, try reading this Medium summary of the class: https://medium.com/parsa-vc/7-lessons-from-andy-rachleff-on-...
It doesn’t come across as particularly profound.
The best notes from the class that I’ve found are actually from Andy himself. He’s posted what I can only imagine are proto-class notes on the Wealthfront blog which over the years have come to encompass many of the main points from his coursework. Here are some selections that I recall echoing points he made in class:
I think what is enlightening for the class is Andy’s framework for evaluating and structuring a startup. If I had to distill it from memory, it is something like:
Technology companies are special. Unlike market driven companies, technologists can often invent something new and be confident that a market exists that can take advantage of this innovation. After hearing constant denigration of the “build it and they will come approach”, one may find this unintuitive. However, finding a customer who can’t live without your technology is possible and can be done in a structured manner. Once you do find such a customer, it is also possible to grow use cases until you have not just an essential business but also a large one. Success to Andy is $100m in ARR.
The first step in this process is identifying a compelling technological opportunity. How does one go about doing this? In particular, do you find good ideas or do good ideas come t...
Andy goes into this in some detail in the class. He was an investor in the Facebook game. The Wealthfront pivot - which was indeed the case, since both depended on APIing the feed and broker layer – was partly inspired by many of his ex-students becoming rich in Facebook stock and coming to him with investing advice. He realized there was a generation of wealthy young people who didn’t want the hassle of an investment manager and couldn’t afford high-end management advice.
Part of it also came from his exposure to the Ivy investing method through his role on the endowment investment committee at UPenn.
The kinds of active managers you want to give your money to request you have a lot more than just single digit millions of dollars. And as I outline in the other post, a business fires its initial customers many times over over a decade-long run.
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[ 3.4 ms ] story [ 71.4 ms ] threadI think what Rachleff deep down knows -- but didn't want to say -- is that putting money into a very early-stage software startup is a time-intensive proposition. The founders are groping their way, and their odds of getting it right depend, to a large extent, on the quality of never-ending advice and contacts that they get.
The best angels have the patience and the hands-on knowledge to provide this guidance. They also make a ton of money selling their expertise in the form of repeated consults-over-coffee.
For every venture capitalist that's willing to put in the work at the beginning, there are dozens who would much rather live large, work short hours, bicker with their partners and concentrate hard on raising the next fund.
For that group, everything else that Rachleff says is quite true. Mainstream VCs are very comfortable providing capital (and public promotion!) for 10x companies going to 500x, or for 100x companies going to 5,000x. It takes a rare blend of nerve and cheery enthusiasm to pull it off, but it also is much easier work.
“Because people, human beings, by their nature, are risk-averse. If I hear that you didn't build the product for me and that you did it accidentally, I'm going to have less confidence that buying your product is the right thing to do. Look how Apple revised history of the iPod and the iPhone. They said they were Steve Jobs's inventions. They weren't. He had nothing to do with them. The Apple marketing machine made you believe it, because it made you feel better about buying them. The true creator of the iPod was a guy named Tony Fadell, who went on to start Nest as well. He recognized the value of iTunes. There were a lot of MP3 players back then, but he realized that iTunes on the Mac, where you could rip your songs, was the ideal tool to deliver a better digital music experience, and that syncing to iTunes was the key. That's what he pitched Jobs on, and Jobs funded him to do it, like a venture capitalist. That's not the story that was told.”
I’m curious if that’s the complete story. Is there more to this?
But I decided to stick it out for one more class...and then one more.
By the end of the course I came to the realization it was one of the most profound quarters I experienced. He was brash, strict, and a bit arrogant. But he knew his stuff. He pushed me to think about the world in an entirely different way.
I still disagree with him on a number of startup related issues (talk about arrogance on my part!), but he did what the best teachers do - forced me to take a hard look at preconceived notions and challenged my view of reality.
2+ years later, I still reflect on his lessons and the insights from the founders he introduced us to. A truly remarkable guy.
(And hi, Ben!! Your awesome holiday card is still up on our fridge. :)
I think Andy’s teaching style, when distilled, tends to come across as quite trite and simplistic. In class and the following lunches, that manifests as more nuanced as students challenge his theses for appearing that way. To give you a sense, try reading this Medium summary of the class: https://medium.com/parsa-vc/7-lessons-from-andy-rachleff-on-...
It doesn’t come across as particularly profound.
The best notes from the class that I’ve found are actually from Andy himself. He’s posted what I can only imagine are proto-class notes on the Wealthfront blog which over the years have come to encompass many of the main points from his coursework. Here are some selections that I recall echoing points he made in class:
On recovering a career from failure: https://blog.wealthfront.com/silicon-valley-career-path-succ...
VC businesses needing to not just be right, but also non-consensus: https://blog.wealthfront.com/venture-capital-economics/
Value and growth hypotheses, why software is a good fit for VC: https://blog.wealthfront.com/venture-capital-economics-part-...
Product market fit: https://blog.wealthfront.com/demystifying-venture-capital-ec...
Quickly testing value hypotheses (class syllabus is Lean Startup, Crossing the Chasm, Innovator’s Dilemma and Solution): https://blog.wealthfront.com/software-based-companies-judged...
Evaluating product market fit, and the right type of salespeople to hire for different phases in the business lifecycle: https://blog.wealthfront.com/recognize-when-your-company-is-...
Growing from small markets to large ones: https://blog.wealthfront.com/venture-capital-economics-part-...
On strategic investments: https://blog.wealthfront.com/venture-capital-economics-part-...
Etc etc.
I think what is enlightening for the class is Andy’s framework for evaluating and structuring a startup. If I had to distill it from memory, it is something like:
Technology companies are special. Unlike market driven companies, technologists can often invent something new and be confident that a market exists that can take advantage of this innovation. After hearing constant denigration of the “build it and they will come approach”, one may find this unintuitive. However, finding a customer who can’t live without your technology is possible and can be done in a structured manner. Once you do find such a customer, it is also possible to grow use cases until you have not just an essential business but also a large one. Success to Andy is $100m in ARR.
The first step in this process is identifying a compelling technological opportunity. How does one go about doing this? In particular, do you find good ideas or do good ideas come t...
I wonder if Andy came in when they pivoted.
Part of it also came from his exposure to the Ivy investing method through his role on the endowment investment committee at UPenn.