That list of rejections was very, very unlike my experience trying to raise VC, which was more like 7-10 VC firms giving meaningless "yes, soon!" responses until we gave up.
This is probably the safest way to reject someone seeing that 4 of them used the exact same response as well as your music business investors. I hear this line all the time.
To be fair, I guess making huge returns is not their prime policy or maybe their investors have a policy against certain investments due to moral or some esoteric reasons.
A common-enough rhetoric in discussion with folks from VCs does definitely seem to involve the 'areas they are currently interested in'. A sibling comment to mine bears this out slightly with the 'security is not our sweet spot' response.
You cite esoterica, but perhaps investors just feel more comfortable with certain areas - or ones they have the in-house experience to evaluate properly - or that are easier for junior partners to sell to the folks higher-up?
I don't know much about VC but I thought taking risks was the name of the game? Isn't that what "venture" in VC mean?
I'd understand if this was Ontario Teachers Pension Fund or something like that where a large amount of capital had to move around to generate some sizable returns. Even these money managers are scrutinized for bad decisions.
The whole 'not our area of focus' seems to be the same line mutual fund managers use during report card season by writing off bad picks and claiming they beat the market.
I'm passing on rather than defending their behaviour.
Having said that, there's perhaps something to be said for picking one's battles?
Indiscriminately attempting to capitalise on any lucrative opportunity seems like a common road to ruin (feature creep, startups that put everything in scope, https://xkcd.com/793/).
While that makes sense for established markets like the stock market, I don't think the same can be applied to the early stage tech market or reading into fundamentals. Certainly trying to capture all opportunity in the stock market can lead to mediocrity (over diversification) but when one bet can produce returns that more than makes up for all the other tiny bets, hard to fathom why that isn't a much more attractive strategy.
For example, make 1% stake bets stretched across 100 startups vs 20% stake bets stretched across only 5 startups I "understand" or feel comfortable with. Isn't the risk inherently bigger if you chose the latter? If one of those 100 startups end up producing low to mid 5 digit ROI, shouldn't that cover for the 99 other bad bets? The probability increases since you are not introducing any personal biases and exposed to more upside potentials.
Last time I checked the name of the game was making more than 100 times the amount invested in less than 5 years - taking risks is a unavoidable side effect.
The VCs we talked to weren't not rejecting us so they could save our feelings. They were doing it because we were offering them a free option on our business.
You're kind of famous and people aren't going to want to say no to you but at the same time probably fail to execute. There's zero hesitation when it comes to shooting down small fries from my experience (I'm an employee at my 3rd ycombinator startup now). I remember Airbnb when it was tiny, back in 2009/2010, they were small like the rest of us once.
You might be surprised on that. I got many of the same style of rejections you did. I got very few clear-cut "No"s and lots of "We like what you're doing and it makes sense, but we need a bit more time." Which is the most frustrating form of "No", as I suspect you know.
My guess as to what made us different than Airbnb circa 2008--maybe some of these apply to you, too:
1) Founder with previous exit/acquisition in the tech space
2) Product had some traction (paying customers, including a F500 company)
3) Product was in a domain that most VC's/angels didn't have experience with (in my case, software designed for marketing teams) -- some were nice enough to outright reject us based on the fact that they had never been in marketing; the people who had previously been in marketing almost immediately saw the need and said "YES" right away; many of them saw that we had traction but felt like they needed to understand the market better to see what we were seeing, so to speak.
One of the frustrating things about early-stage in my experience is that there is little correlation between VC and market interest; our experience (also cybersecurity) has been that we're generating a significant amount of interest from (now) customers and prospects, but VCs tend to say either "we just can't get to conviction, not sure why" or "you're amazing, everything makes sense, but security isn't our sweet spot".
So far, angel investors have been much easier to work with, although admittedly we chose to focus on customer growth once we had that first round of disappointing VC results.
I think, per the other comments, your background makes a difference (assuming you're talking post-Matasano) in how the message was delivered.
I think a lot of VCs explicitly (or at least implicitly) prescribe to Warren Buffet's advice of only investing in things they understand. So if you talk to a VC focused on security, they're much more likely to invest than a VC who is kind of interested in security but has never invested in it. That VC, in turn, is more likely to invest than someone who is not particularly interested in security. If an investor really likes marketplaces or security companies or B2B SaaS or whatever, there are enough great companies in each of those segments to make it okay to ignore the other segments.
It's also valuable to remember that partners at larger VC firms often lead 1-2 investments per year. Their performance is determined by the 3-5 decisions they make during a VC fund's life. It's hard to stake 20% of your performance on something you feel like you don't fully understand.
Angels and smaller seed funds are sometimes easier to work with because the former are motivated by more than financial returns and don't have their salaries/jobs at stake with each decision, while the latter make a lot more investments per partner.
Just from an investor/trader point of view, it's shocking that they would even subscribe to Buffet's style of investing which is suitable for non-tech stocks. There is a great deal of false confidence in an unusually high risk high rewards investment. Rather, wouldn't it make more sense to make optimize tiny bets on as much startups regardless of the industry? At the end of the day, it's not much different than investing in penny stocks or early stage mining companies, I'd find it hard to justify investing so few.
I'd subscribe to Taleb's black swan model, except the complete opposite of what he did which was making small bets that market would crash.
Capture unexpected, phenomenal returns without introducing any personal beliefs or bias and making equally sized small bets across as many startups as possible. If you can get like 60,000% ROI then the model becomes sustainable, unlimited upward potential with a limited and tiny risk.
if you make too many bets you'll dilute your edge. if you make too few bets then you are exposed to too much idiosyncratic risk. so people have to find the right balance
In a market where you just need one winner, being overdiversified argument is invalid be cause you are not optimizing for total portfolio return, you want to maximize opportunity and upwards exposure while keeping each downside risk limited. If you make too few bets the numbers are against you. Now this is nothing like spray and pray, you are still dealing with people, at the minimum you need to deal with founders who can be trusted.
It couldn't be worse than allocating a quarter into one company that goes under at such an early stage. the tremendous return comes when others begin buying into it, at worst case, the founder doesn't generate more money than you put in which in this case is very tiny but the equity is still sizable that the next guy paying 10x what you paid and even ipo would have exponential yield. You don't even need to focus on the startup doing well if enough series of investors are willing to buy your shares out. I reminds me of pump and dump which is why I think the latter is unethical but it's unregulated and private market, not exactly the type of people that would go homeless if the start up did go under like when Enron wiped a lot of working ordinary people's pensions.
Agreed on all points, and thanks for weighing in from the VC side of the table.
For clarity's sake, I've sat on tremendously effective boards at the companies I have either run or had a senior role at, and I think there's incredible value to be had from a good VC relationship. The economic realities of raising can be frustrating, but it's a reflection on the industry rather than the individuals, I believe.
Early stage investment is just plain hard, and I think your point about the quantity of deals led is key.
> I think a lot of VCs explicitly (or at least implicitly) prescribe
> to Warren Buffet's advice of only investing in things they
> understand.
This is very very true.
And entrepreneurs MUST not take money from VCs who do not understand the market. Sadly sometimes VCs think they do know but they actually don't know what they don't know.
The worst marriage is when both entrepreneur and investor don't know what they don't know.
Just a question: How do you expect to create new markets or any kind of real innovation if you only invest in companies whose products are similar to something you already worked with?
Maybe it's a goof thing angels are doing bigger rounds taking your place.
I'm an early stage VC, so I often invest at the same time as angel investors. I think there are shortcuts to getting an investment even if you are approaching a new market. Sometimes that means showing enough promise with an MVP (which often doesn't require much capital). Sometimes it's having an amazing team -- for example, a lot of early PayPal folks could probably raise money with just about any reasonable-sounding idea.
Also, investors typically invest in areas that they're familiar with, but that can be a pretty inclusive criterion. For example, I've personally worked on payment fraud detection before (as an engineer), so that makes me feel comfortable investing in fraud detection, but also credit assessment (similar algorithms), a large number of startups that involve lending or payments, and so on. For another example, my fund invested in Flexport (a recent YC company that handles shipping logistics for companies). My partners and I didn't have any personal logistics experience, BUT one of my partners worked at a company that struggled with imports and shipping, so he appreciated the pain point. Also, Flexport's CEO, Ryan, is a force of nature and had been working in the import/export space for 15 years, so he was very credible. That was enough for us to invest despite not having logistics experiences ourselves.
In the Airbnb example -- and I wasn't an investor 6 years ago so I don't know what their pitch was like -- I'm guessing if the founders had a bunch of lodging-related experience, or if they had previously built great companies, or if they had a few more data points that showed the viability of their model, that could've helped.
Finally, here's the challenge from an investor's point of view: you see 1500 pitches per year. The majority of the pitches mention something like "we're going to be a billion dollar company" or "we're going to create an entire new market." One or two of those 1500 companies will do just that, ten or twenty companies will get kind of close, and the other 99% won't be close at all. In hindsight, it's easy to look at Airbnb or Uber and think that investors were short-sighted. Maybe they were. But a lot of early stage companies look simultaneously promising and risky in their early days, and most of them fail, so investors understandable err on the side of pessimism.
Thanks for your point of view - that actually makes a lot of sense.
I really dislike the escalation of pitches. As you said, almost everyone says that 'we will become a billion dollar company' or similar claptrap - but that just means that people have to make more and more extraordinary claims to pierce the cynicism (fully justified!) of investors.
My post turned up to be too confrontational, sorry for that.
I'm not opposed to VCs on abstract, and I'm happy to see people trying to do good work on the area. Your area is hard, and if you can improve it, everybody wins.
I also got widely off-topic, because I was complaining that todays VC wouldn't have created the Silicon Valley, not that they couldn't see Air B&B. That said, I'm still not convinced you are liberal enough to do this. (Not that you should.)
Maybe because the investors were 100% sure they wouldn't invest. In other words they find it easier to send out a response when a dossier is the "definite pass" pile ?
"which was more like 7-10 VC firms giving meaningless "yes, soon!""
In theory by doing that they were raising the potential price for those that would end up investing. Their competitors. If you felt you had "plan b's" you'd be less likely to lower your expectations on value than you would be if you had 7 firm rejections. 7 firm rejection might mean "take what we can get".
Here is an example using car buying.
If a car is sitting on the lot and has nobody expressing any interest the dealer may possibly want to unload the car and take whatever he can get. Otoh if the dealer feels that he has 2 or 3 people interested in the same car he will then be less likely to take a "short" deal from the 4th person who walks into the dealership. He will feel there is potential and it is worth the gamble to wait feeling he has a few plan b's.
(Forget for a second whether this actually happens with car dealers I am only trying to illustrate the theory of what I call "feeling fat" which I have seen many times in business).
Of course as a group it's hard to explain why all participants would act this way or that this even happens. However I don't feel individually they are disadvantaged by this behavior at all. While there might be a reputation disadvantage to stringing someone along unless they are absolutely sure they will not invest why not string someone along?
It's likely that Paul Graham directly and enthusiastically introduced them to the VCs, which obliged them to respond with a semi-coherent rejection. That's what the Fred Wilson rejection was like anyway: http://www.paulgraham.com/airbnb.html
You're right. That makes a lot more sense, especially the $1.5M valuation. I missed the first line about Michael Siebel introducing them. Given his YC affiliation, it probably had a similar effect.
I think that's also wrong. Michael wasn't a YC partner at the time; he joined Justin.tv as CEO after Justin and Emmett got into YC again after selling their calendar app to Tucows or similar on eBay.
They said "no" because they didn't want to waste time meeting with such an obviously unpromising startup :)
I was one of the angels who simply didn't respond, in part because I was busy with my own startup, but also because the idea of a marketplace for renting out air mattresses just didn't sound very appealing...
"How would I go about presenting my company in such a way that it'd seem so unpromising that only smart investors would give me the time of day?"
It feels like maybe there's an "uncanny valley" between "no plausible way this team is getting funded speculatively" and "no-brainer straight- to- partner- meeting".
Simple answer: Only take meetings with VC firms and angels who have direct experience in the area where your product helps the most.
I mentioned to you in a reply, below, that my marketing software company got immediate YESes from angels who had been leaders of marketing teams and intuitively understood the need for our software. I think my record time to close an angel was under 2 minutes. For those who had never led or been part of a marketing team, it was an uphill battle the entire way.
Once I learned that filter, I was able to raise money more quickly, with much higher close ratio.
I've pitched to 30+ investors and got rejected....a lot. Here's my generalized conclusion: VC funding is like dating. Easy money goes for the hot sexy blonde at the corner of the bar in the west village, but it doesn't mean the slightly less attractive brunette sitting in the corner isn't the best catch. No one would dare miss out hitting on the blonde, and no one is going to fault anyone for not hitting on the brunette "she's uninteresting". My only advice is to understand first what the investors' thesis is and play your pitch to those strengths. For example - what markets, what they look for in teams, and what their fund's goal is. I've had a fair share of VC's be brutally honest with me on the last point with an answer of "we need just one billion dollar business in order to return our fund, so we take as many bets as we can to ensure we get one".
Complaints of color over content, sometimes color is part of the content. Sometimes civility of the response downplays the visceral nature of the reaction. I revile at it, the revulsion needs to be expressed. My four words expressed my sentiments in the most correct and compact manner.
There was no generalization made at all. He never made reference to gender of the person walking into the bar. It could have been a woman walking into a gay bar.
If you wanted to tie yourself in knots, you are succeeding.
The degradation that I saw was that, in the analogy, women are sexually objectified. Women appear in the story exclusively in a sexual context, where there is no good reason for that. The context makes it clear that this is normal and expected within the (male) OP's world.
"No one would dare miss out hitting on the blonde". There is a clear generalization here, that everyone should find blonde women most attractive, or at least be socially required to act as though they do. Perhaps women are also expected to find the blonde woman most attractive, or perhaps women's opinions aren't really worth considering.
You might re-examine your own gender and sexuality biases in this context.
>If you wanted to tie yourself in knots, you are succeeding.
I'm actually being sardonic. The political correctness police are a bit tiresome. My point is that, if one wishes, they can analyze any statement to be as sexist, racist, homophobic, etc... Including yours.
>The degradation that I saw was that, in the analogy, women are sexually objectified
If women are 'sexually objectified' by other women is it a problem?
Why did you overlook the completely racist message in his analogy? Assuming most men prefer blonds assumes white culture, which is racist since I doubt black and asian men feel the same. I don't know, maybe I'm racist for doubting that assumption?
Also if a character's gender isn't identified in a story, is it sexist to assume that character's gender is the same as the storyteller? I was guilty of that one too.
This where the P.C. police trip over their own logic and fall into the pile of B.S. they've created.
I doubt it's possible. Keep in mind that nobody invested in AirBnb until YC, and as I understand it, they were mainly accepted based on the strength of the team.
It's interesting to me that VC's would look at this and not immediately think of an easier to monetize version of couchsurfing, which was already very popular at the time.
These rejections are a testament to why you shouldn't give up just because smart people give you a hard "no", but also why storytelling is so important. These investors clearly did not understand Airbnb, and I think the Airbnb guys would admit that's in large part because they did a bad job explaining it.
Explaining why something that is small today could some day be huge is so hard.
The conclusion from putting the two together is "when you get hard nos from smart people, if you're still compelled by your mission, keep going and work on either changing your story or telling it better".
If that's the case, the backstory to Airbnb indicates to me that around this time they had still not adequately figured out how to tell their story in such a way where it seemed like a big deal. At the time I believe, it was about:
- People having strangers stay on air beds in your homes, while you were there, and then serving them breakfast in the morning
- It was ONLY targeted at conferences where people would become so desperate for space that they'd stay anywhere (that's how the company got started - big design conference in SF. Here you can see they were focusing on the DNC and RNC).
This is a really implausible idea for one, a really small market (constrained by hosts but also conferences that fit the criteria) for two, etc.
What the story became when they broke through was about turning the excess living inventory hundreds of millions of people have into a place for people to stay. This has benefits for both sides it turns out and is widely applicable and massively scalable.
Those are really, really different stories. Like, startling different. But if you can't not only tell the second one but also show some evidence that it could be so, your stuck with the shitty first story. When they started seeing the behavior during YC that pointed them to the second story, they focused the company on it which caused it to grow, investors better understood the potential, and slowly over time it became trivially easy for them to raise money.
To be fair, their original idea was to rent out a couch for people to crash on, much like couchsurfing. I don't know if even Chesky imagined it would grow to it's current state. Uber was similarly silly when it started: expensive limos on-demand for rich guys in SF. Investing at this stage is just like signing a new band, it's just a lottery ticket.
> Explaining why something that is small today could some day be huge is so hard.
Actually, seems to be very easy to some people. And quite funny, often those people are not very good at executing business so it will never be actually huge. But they are good at explaining.
I think it's quite possible that AirBnB themselves didn't get the "AriBnB story." I don't know though.
To really compress (and make assumptions) I think they went from a sort of "coach surfing for fun and profit" to "holiday rentals" as their central point. They still do the full spectrum, but I think the Air mattress end is pretty small now.
I think the take aways for trying to pick winners are:
(1) Execution and steering the ship are everything. They were not the first startup to try this sort of thing. The idea itself was a dime a dozen, like many others. App for calling taxis. Classifieds. Restaurant reviews. Online profile. Video sharing site. These are all pretty banal ideas. Lots of attempts were made at all of them. Picking winners is about picking a winner, not picking the race.
(2) Try to see "markets" as their full spectrum. High end, low end. Business, consumer. Freaks, mainstream. Coach surfing is a different place on the same spectrum as Hilton. Startups often move up and down spectrums much more easily than mature companies. Tesla could make a budget car next. Jaguar can't. AirBnB can handle mansion rentals for billionaires. Grindr could probably pivot to over 50s Catholic matchmaking easier than one might think.
They definitely didn't see their own story at the time, see my comment at the deepest nesting of the thread. Totally agree. Also agree that execution and actually building a great business is the most important thing and if you survive long enough to be able to do that and you're good at it, you'll win.
The problem is, and the reason VC's need to consider the quality of storyteller you are, is for a business that plans to be capitalized over several rounds, it's a fundamental risk not to have somebody on your team that can tell that story. Secondly, you're going to have to tell stories to your TEAM (internally) and the world (externally/marketing) that will have a huge impact on the future of your company as well. So it matters.
It turns out, Brian especially at Airbnb is a natural story teller, he basically can not stop telling stories when he speaks publicly and they're all good. They just didn't know what story to tell yet :)
Much like tech hiring, investors prefer to optimize for false negative over false positives. Especially because the power dynamic is still skewed in their way, which allows them to say things like "call us back when you get to a series A" - none of the risk, all of the upside. Kind of like that girl who rejected me in high school but said "if in 10 years we both haven't found someone, maybe we can get together".
Yeah that one really irked me. Hey, call us when you are a billionaire and we'll talk about investing. Yeah I'll marry you when it's in the prenup.
I'd immediately pull out my funds as an investor out if I found out the names of the people writing these rejection letters. It would also be bad for street cred. "hey these guys missed out on the deal of the century, who else did they reject?"
150k is like peanuts to these firms with millions of dollars to throw. Hell, I'd bought out of the money put options near expiry if it meant there was a slight chance it would have potentially unlimited returns.
Sure, except there are thousands of companies out there asking for that firm's 150k, each year. They can't spray and pray, they have to at least find a reason to believe their decision is based on sound logic, otherwise they might as well make themselves self-service.
If there's an airbnb in there then I think it's worth betting more. 15 million spread across 100 startups, is that too much? I expect most to fail but the point is I have limited downside risk for unlimited return. the overdiversification argument is moot here because you are not optimizing for total portfolio return but maximizing your exposure to upside. Who says you have to do it all in one go? Keep moving and make bite sized bets but not being married to your ideas. Also how can you be sure that your sound logic isn't going to hurt you in the end like those guys writing rejection letters? I'm sure they have done,some introspection.
And like that guy who said he's going to see nd me a business plan in an hour, I've yet to hear from. One clear distinction is that I am also investing in the person, and if they can't hold up their end or if they think it's an easy way to swindle a years salary they are fucked in the head. I'm here to make bets not run a fucking charity, excuse ma francais.
I think you are reading too much into it. Different investment funds, angels, syndicates have vastly differing strategies, goals, and funds available.
A smaller fund might invest across a series of funds, but not have deep enough pockets to follow the money even if they have pro rata rights. In comes the larger investment firm with lower risk tolerance (potentially) for the series A. Win win win.
No you are right about that. I was a bit overdramatic but I'm skeptical when a vc can say oh we don't do travels or hey just not really our specialty be cause there's no way that all 7 of them would have the exact same policy. Some hedge funds,or pension fund has one clear strategy they are legally bound to but all 7 vc in this case displayed the same response or none at all. Clearly there was someone that did end up investing in them and to be fair if they didn't respond it doesn't mean anything. They could've been just very busy or slow at typing emails, just follow up until they reply with a yes or no.
> hey these guys missed out on the deal of the century
When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you.
> who else did they reject?
They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
>When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you.
My email is in my profile (if anyone wants to hire me). I've described a strategy that involves making small bets across large number of startups and not focusing on making judgements or even attempting to figure out how much this startup is going to be worth (as you say VC are human, why introduce that inherent bias to a numbers game?) because like we witnessed with the guys who rejected Airbnb, their own bias towards safety incurred a huge opportunity cost.
> They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
Exactly, which is why I feel like they should ignore their own instincts and thought processes. Even if they were able to land a few successful ones, how can we be certain that it was not the work of dice rolling? Studies show that most money managers perform no better than buying the index or throwing darts, what makes you think VC's suddenly have improved odds?
If that's what you got then no, I think you should check with your local donation institutions because I'm not running a charity. Another red flag actually, because I checked my email and I didn't find a business plan in my inbox and 2 hours has passed. If you were serious I would've read it and rejected you because the first thing I would do is not read the business plan but talk about your experience and see if you have a history of being non punctual or any thing that would suggest dishonesty.
How does "call us back when you get to series A" entail "none of the risk, all of the upside"? The risk is that the fund has to pay a higher valuation for the same company, they might not callback, etc. and the upside is that you're...not taking on the risk right now?
Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.
Extremely inefficient markets. Traditionally, VCs have been able to collude together to prevent startups from increasing in valuation "too fast". Unlike more efficient and less manipulated markets, which tend move in fast discontinuous jumps, VCs have been able to slow the top-performing companies to a slower exponential curve.
Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient.
With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change.
Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.
Damn...wish I were there. Would have pitched $20k of my own money and maybe had my parents pitch another $10k, with a lawyer to sign-off on it. Nowadays, it's just crappy companies that are easy to invest in - garbage on kick starter, and pump and pumps on Wall St. for example - the good stuff requires connections.
> We were attempting to raise $150,000 at a $1.5M valuation. That means for $150,000 you could have bought 10% of Airbnb.
This is completely off-topic but since the $150,000 is going back to the business, wouldn't that mean that the valuation becomes $1.65M? The word "bought" makes it sound like someone is taking the money and selling their share.
You're missing the nuance of the question. If Airbnb is worth 1.5 million before selling 10% for 150k then after the sale they are still worth 1.5M they were valued at before the sale, but also have an additional 150k in the bank which should add another 150k to their valuation.
(ergo the pre/post money valuation thing linked above)
But wait - You're leaving out the company's loss of 10% of its equity as part of the investment transaction.
The company's equity was worth $1500K before the investment.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
However, it had $150K of cash that its equity investor paid for 10% of the company's equity. So $1350K of remaining equity + $150K cash = $1500K company value. Same as pre-investment valuation.
It looks like the company's total value didn't change, it just traded 10% of its value for cash. Which is the point of selling equity - cash allows a company to pay for people and things. Equity doesn't.
But wait - You're leaving out the company's loss of 10% of its equity as part of the investment transaction.
A "company" can't lose equity it never owned any to begin with. The equity was transferred from one party (usually the founders) to another entity in exchange for cash.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
You know, I originally had a hard answer and edited it away because I think OP is ambiguous.
>for $150,000 you could have bought 10% of Airbnb.
Does that mean for $150K I can buy as many shares as constitute 10% of the current outstanding number? Or that after I pay $150K, I will own 10%?
Since new shares are issued, in the former case I end up with 9.0909...% (1/11th) of the company. That gives us a post-money valuation of... $1.65M! (and $1.5M pre-money) But in the more probable reading of the phrase, I own 10% of the post-money $1.5M company, giving us $1.35M pre-money.
So, your choice. Someone more in the VC loop might be able to say that the phrasing definitely means one or the other; I've just got the math.
That's ultimately the lesson IMHO. You gotta keep hustling and doing what you think is right but not get hung up about any particular connection or rung of the ladder.
His point is entirely consistent with Brian's point. Brian's saying "consistent rejection doesn't mean you should give up" and the VC is saying "even consistent VC rejections can be wrong because VC is hard".
The "traditional" answer is to identify the VCs you're interested in, and network your way into an introduction if you don't know them yourself. Accelerator programs can also be a way to become involved.
Have a clear, clean pitch deck. Know your unique value proposition, understand your competition, be able to demonstrate that there's a market and that it's significant. Show traction, team, and ability to execute.
I'm not sure turning down ABB is a sign of incompetence. It is with hindsight, but there was very little that showed there was a huge market waiting to be exploited prior to ABB. They were genuinely pioneering; they essentially invented the market.
Also, there are thousands of deal turned down annually which end up being the right decision (for the VC at least) when the startup fails - all those would point to VCs actually making the right call most of the time.
Someone getting it wrong, even if it means missing a unicorn of a deal, isn't necessarily incompetent.
I remember watching an investigative journalism piece that showed that professional traders on Wall Street can barely outperform a monkey.
I think given these kinds of statistics I can't understand why there's not some public fund where average citizens can invest toward. That fund would run a lottery every year and accept 'x' # of companies depending on how much was invested the previous year. Each of those companies would (depending on current cash flow) provide a % of ownership to the fund.
Noone tells them how to use the money. No investor has authority to interfere whatsoever.
Of course I imagine there would be reporting requirements, and require certain levels of transparency into their books and such in order to create at least some hurdles to prevent people who are just out to scam the system from applying.
Maintaining the status quo just perpetuates the "rich get richer" paradigm.
This, in itself, means nothing. If you need to read things like this in order to understand that not everybody is going to love you or your idea and to help deal with rejection, most likely you are not be cut out to be an entrepreneur. Every investor has stories of ideas that they passed on that they shouldn't have (in retrospect of course) and every entrepreneur (or guy dating in high school) also knows of investors or dates that they felt made the wrong decision.
Pushes all the right buttons, but keep in mind that those investors also rejected vastly more ideas that most likely never went anywhere. That was their take on airbnb at the time.
With respects to Airbnb, Fred Wilson of USV passed on the opportunity as well and posted emails showing where Paul Graham personally spent quite a bit of time trying to convince him otherwise.
Ha. You know the same concept applies to talking to girls?
I'll never forget the day I went out exclusively to meet a girl. I was rejected by maybe a hundred girls I approached. The worst one's were the ones that just stared at their phone, like I wasn't even human.
I was tired. It was 8PM... around that. I go up and approach girl inside of a clothing store. Please God speak english. She opens up with perfect english, smiling. We went on a date right there. Huge confidence booster.
Frankly, people are a complicated bunch. You don't understand their learned behaviors, position and internal politics. There's no way you could understand the whether a girl is grumpy, just broke up, open to meeting someone new until you come up to her.
We need more posts like this. Not just for VC's, I'd like to see comeback stories for freelancers scoring gigs / job interviews.
On Dec 13th, 2012, I wrote the following email to you, after having applied for a “Head of Community” position at AirBnB. I didn’t get any reply either.
Note that I cannot claim I became the big success that AirBnB has after these “rejections”, but it still surprises me that you or your org didn’t even wanted to talk to a Technology Evangelist from AWS.
I guess you did a similar type of mistake with me.
"Hi Brian,
I know you’re busy, therefore I’ll keep it short.
My name is Simone, I work in San Francisco for Amazon Web Services, and I’m interested in becoming the Global Head of Community at Airbnb.
I think I have what it takes to be successful in that role, and I’m a big fan of Airbnb.
Let me know if we can discuss, or if you want more details.
You were sorta putting your situation on a par with investors missing out on investing in the early stages of a company now worth $24bn. That is to say, them not paying attention to you is equivalent to missing out on an absolutely mind boggling amazing opportunity (in hindsight).
Now, you might truly be as awesome as that but people tend to vote down comments where people are blowing their own trumpets, for better or worse.
The problem is you've addressed your post to Brian, complaining about the fact that you cold-emailed him in 2012 about a job opportunity and never heard back. First, the advice from the article would be to keep trying and not get discouraged, so his non-response is not in any way hypocritical. Second, if you really wanted the job, what were you doing sending an email anyway? Go and talk to the man and take it as far as sleeping outside his door so you can pounce on him if he absolutely won't respond to you. I believe that some persistent phone calls would have at least gotten you coffee.
So, you've got some hurt feelings (this is understandable, nobody likes being ignored), your post sounds a bit like sour grapes, it's only tangentially related to the article, and that's probably why people downvoted you. What's the point of trying to embarrass the guy here? It just looks bad for you, I would just delete everything honestly.
You got a point.
I actually tried with him, with Joe, and with the recruiter - multiple times. I didn't insist as much as you suggest, perhaps due to the fact that my Visa back then (L1) didn't allow me to work for them in the US, and my green card was still several months away.
It sounds like a frustrating situation. If you still want a position, keep on trying to get through to them. Worst case you get to a definitive no and then you can drop it.
Seems like an ugly, passive aggressive trash talk of Simone. The whole point is that they don't know what value he can bring. I hope he does something totally awesome just to show this comment up. :P
Your inference is incorrect. I don't know them and have no reason to judge them.
They said "I'm honestly curious on why [the comment was downvoted]". I conjectured the original heavily downvoted comment may have been interpreted as boastful through comparison of a personal situation to AirBnB's and that's why people may have voted it down. I received 17 upvotes for this speculation which may (or may not) support my hunch.
May Simone, and everyone, do "something awesome." But not merely, as you, passive aggressively (and quite needlessly) conclude, to "show" anything up.
I was not passive aggressive. I call that actively aggressive. Because you were using vague indirect statements to say that this guy is worthless. I openly described it as such.
I don't know Simone either, but I'd say there's a fair chance he can contribute more than some illegal hotel scheme. I was pretty disgusted that you value this hype above a human being, and I don't care what 17 other similarly amoral individuals may have said.
1) It's not related to the topic.
2) You're using a forum for discussing the topic to force a response from Airbnb regarding an interaction that should only be taking place between you and Airbnb
There are many potential reasons you didn't get a response, but I want to highlight one in particular:
There was no value proposition in this email. For an email like this to be worth responding to, you have to provide a brief, no BS, explanation as to what compelling value you're bringing to the table. The only exception to this rule is if you're famous for your accomplishments in that specific role (in which case, they're probably pitching you already anyway).
Finally, nobody owes anyone a response to a cold-call email. Especially not people that get hundreds if not thousands of emails a day. Don't take it personally.
The only thing to be warned about here is the blowback effect. This is a form of confirmation bias, whereby the victim uses rejection as a means of confirmation.
I was curious to what he meant by the blowback effect, and so my googling eventually led me to The Backfire Effect[1] which is when "in the face of contradictory evidence, established beliefs do not change but actually get stronger".
I don't really see that applying in the sense of obtaining venture capital, as it is well known that you aren't going to immediately walk in to an office and hand them a check for the valuation you asked for. It's going to take a bunch of both hard and soft rejections, but a person isn't usually going to be in that room pitching to these VCs if they don't already strongly believe that their startup is fundable.
This pertains to the conclusion (and thus the premise) of the blog post:
"Next time you have an idea and it gets rejected, I want you to think of these emails."
The message in my comment is, don't allow yourself to fall pray to the backfire effect when people reject your ideas (whether VC, colleagues, etc.). If people reject your idea, it might mean it's not a very valuable idea, as opposed to being an indication that you're on to something that's so radically new and different, etc.
199 comments
[ 2.6 ms ] story [ 228 ms ] threadThat list of rejections was very, very unlike my experience trying to raise VC, which was more like 7-10 VC firms giving meaningless "yes, soon!" responses until we gave up.
I've heard the same happen to friends attempting to seek investment in 'music' and 'gaming' businesses - clear rejections based upon their 'category'.
To be fair, I guess making huge returns is not their prime policy or maybe their investors have a policy against certain investments due to moral or some esoteric reasons.
You cite esoterica, but perhaps investors just feel more comfortable with certain areas - or ones they have the in-house experience to evaluate properly - or that are easier for junior partners to sell to the folks higher-up?
I'd understand if this was Ontario Teachers Pension Fund or something like that where a large amount of capital had to move around to generate some sizable returns. Even these money managers are scrutinized for bad decisions.
The whole 'not our area of focus' seems to be the same line mutual fund managers use during report card season by writing off bad picks and claiming they beat the market.
Having said that, there's perhaps something to be said for picking one's battles?
Indiscriminately attempting to capitalise on any lucrative opportunity seems like a common road to ruin (feature creep, startups that put everything in scope, https://xkcd.com/793/).
For example, make 1% stake bets stretched across 100 startups vs 20% stake bets stretched across only 5 startups I "understand" or feel comfortable with. Isn't the risk inherently bigger if you chose the latter? If one of those 100 startups end up producing low to mid 5 digit ROI, shouldn't that cover for the 99 other bad bets? The probability increases since you are not introducing any personal biases and exposed to more upside potentials.
This advice comes straight from the oracle of Omaha himself, "Never invest in a business you can't understand."
My guess as to what made us different than Airbnb circa 2008--maybe some of these apply to you, too:
1) Founder with previous exit/acquisition in the tech space
2) Product had some traction (paying customers, including a F500 company)
3) Product was in a domain that most VC's/angels didn't have experience with (in my case, software designed for marketing teams) -- some were nice enough to outright reject us based on the fact that they had never been in marketing; the people who had previously been in marketing almost immediately saw the need and said "YES" right away; many of them saw that we had traction but felt like they needed to understand the market better to see what we were seeing, so to speak.
So far, angel investors have been much easier to work with, although admittedly we chose to focus on customer growth once we had that first round of disappointing VC results.
I think, per the other comments, your background makes a difference (assuming you're talking post-Matasano) in how the message was delivered.
I think a lot of VCs explicitly (or at least implicitly) prescribe to Warren Buffet's advice of only investing in things they understand. So if you talk to a VC focused on security, they're much more likely to invest than a VC who is kind of interested in security but has never invested in it. That VC, in turn, is more likely to invest than someone who is not particularly interested in security. If an investor really likes marketplaces or security companies or B2B SaaS or whatever, there are enough great companies in each of those segments to make it okay to ignore the other segments.
It's also valuable to remember that partners at larger VC firms often lead 1-2 investments per year. Their performance is determined by the 3-5 decisions they make during a VC fund's life. It's hard to stake 20% of your performance on something you feel like you don't fully understand.
Angels and smaller seed funds are sometimes easier to work with because the former are motivated by more than financial returns and don't have their salaries/jobs at stake with each decision, while the latter make a lot more investments per partner.
I'd subscribe to Taleb's black swan model, except the complete opposite of what he did which was making small bets that market would crash.
Capture unexpected, phenomenal returns without introducing any personal beliefs or bias and making equally sized small bets across as many startups as possible. If you can get like 60,000% ROI then the model becomes sustainable, unlimited upward potential with a limited and tiny risk.
I think I've heard of a VC firm that does that. Trying to remember the name... wait... Y-Calculator, something like that, maybe?
For clarity's sake, I've sat on tremendously effective boards at the companies I have either run or had a senior role at, and I think there's incredible value to be had from a good VC relationship. The economic realities of raising can be frustrating, but it's a reflection on the industry rather than the individuals, I believe.
Early stage investment is just plain hard, and I think your point about the quantity of deals led is key.
> to Warren Buffet's advice of only investing in things they
> understand.
This is very very true.
And entrepreneurs MUST not take money from VCs who do not understand the market. Sadly sometimes VCs think they do know but they actually don't know what they don't know.
The worst marriage is when both entrepreneur and investor don't know what they don't know.
Maybe it's a goof thing angels are doing bigger rounds taking your place.
Also, investors typically invest in areas that they're familiar with, but that can be a pretty inclusive criterion. For example, I've personally worked on payment fraud detection before (as an engineer), so that makes me feel comfortable investing in fraud detection, but also credit assessment (similar algorithms), a large number of startups that involve lending or payments, and so on. For another example, my fund invested in Flexport (a recent YC company that handles shipping logistics for companies). My partners and I didn't have any personal logistics experience, BUT one of my partners worked at a company that struggled with imports and shipping, so he appreciated the pain point. Also, Flexport's CEO, Ryan, is a force of nature and had been working in the import/export space for 15 years, so he was very credible. That was enough for us to invest despite not having logistics experiences ourselves.
In the Airbnb example -- and I wasn't an investor 6 years ago so I don't know what their pitch was like -- I'm guessing if the founders had a bunch of lodging-related experience, or if they had previously built great companies, or if they had a few more data points that showed the viability of their model, that could've helped.
Finally, here's the challenge from an investor's point of view: you see 1500 pitches per year. The majority of the pitches mention something like "we're going to be a billion dollar company" or "we're going to create an entire new market." One or two of those 1500 companies will do just that, ten or twenty companies will get kind of close, and the other 99% won't be close at all. In hindsight, it's easy to look at Airbnb or Uber and think that investors were short-sighted. Maybe they were. But a lot of early stage companies look simultaneously promising and risky in their early days, and most of them fail, so investors understandable err on the side of pessimism.
I really dislike the escalation of pitches. As you said, almost everyone says that 'we will become a billion dollar company' or similar claptrap - but that just means that people have to make more and more extraordinary claims to pierce the cynicism (fully justified!) of investors.
I'm not opposed to VCs on abstract, and I'm happy to see people trying to do good work on the area. Your area is hard, and if you can improve it, everybody wins.
I also got widely off-topic, because I was complaining that todays VC wouldn't have created the Silicon Valley, not that they couldn't see Air B&B. That said, I'm still not convinced you are liberal enough to do this. (Not that you should.)
In theory by doing that they were raising the potential price for those that would end up investing. Their competitors. If you felt you had "plan b's" you'd be less likely to lower your expectations on value than you would be if you had 7 firm rejections. 7 firm rejection might mean "take what we can get".
Here is an example using car buying.
If a car is sitting on the lot and has nobody expressing any interest the dealer may possibly want to unload the car and take whatever he can get. Otoh if the dealer feels that he has 2 or 3 people interested in the same car he will then be less likely to take a "short" deal from the 4th person who walks into the dealership. He will feel there is potential and it is worth the gamble to wait feeling he has a few plan b's.
(Forget for a second whether this actually happens with car dealers I am only trying to illustrate the theory of what I call "feeling fat" which I have seen many times in business).
Of course as a group it's hard to explain why all participants would act this way or that this even happens. However I don't feel individually they are disadvantaged by this behavior at all. While there might be a reputation disadvantage to stringing someone along unless they are absolutely sure they will not invest why not string someone along?
I was one of the angels who simply didn't respond, in part because I was busy with my own startup, but also because the idea of a marketplace for renting out air mattresses just didn't sound very appealing...
"How would I go about presenting my company in such a way that it'd seem so unpromising that only smart investors would give me the time of day?"
It feels like maybe there's an "uncanny valley" between "no plausible way this team is getting funded speculatively" and "no-brainer straight- to- partner- meeting".
I mentioned to you in a reply, below, that my marketing software company got immediate YESes from angels who had been leaders of marketing teams and intuitively understood the need for our software. I think my record time to close an angel was under 2 minutes. For those who had never led or been part of a marketing team, it was an uphill battle the entire way.
Once I learned that filter, I was able to raise money more quickly, with much higher close ratio.
"Yeah, sexy blonde, totally makes it clear for me. Thanks for putting it into terms I can understand."
"You could easily have made this point without degrading men."
In his story he generalizes men as playing the fool and makes no generalization about women.
There was no generalization made at all. He never made reference to gender of the person walking into the bar. It could have been a woman walking into a gay bar.
My apologies.
The degradation that I saw was that, in the analogy, women are sexually objectified. Women appear in the story exclusively in a sexual context, where there is no good reason for that. The context makes it clear that this is normal and expected within the (male) OP's world.
"No one would dare miss out hitting on the blonde". There is a clear generalization here, that everyone should find blonde women most attractive, or at least be socially required to act as though they do. Perhaps women are also expected to find the blonde woman most attractive, or perhaps women's opinions aren't really worth considering.
You might re-examine your own gender and sexuality biases in this context.
I'm actually being sardonic. The political correctness police are a bit tiresome. My point is that, if one wishes, they can analyze any statement to be as sexist, racist, homophobic, etc... Including yours.
>The degradation that I saw was that, in the analogy, women are sexually objectified
If women are 'sexually objectified' by other women is it a problem?
Why did you overlook the completely racist message in his analogy? Assuming most men prefer blonds assumes white culture, which is racist since I doubt black and asian men feel the same. I don't know, maybe I'm racist for doubting that assumption?
Also if a character's gender isn't identified in a story, is it sexist to assume that character's gender is the same as the storyteller? I was guilty of that one too.
This where the P.C. police trip over their own logic and fall into the pile of B.S. they've created.
Explaining why something that is small today could some day be huge is so hard.
- People having strangers stay on air beds in your homes, while you were there, and then serving them breakfast in the morning - It was ONLY targeted at conferences where people would become so desperate for space that they'd stay anywhere (that's how the company got started - big design conference in SF. Here you can see they were focusing on the DNC and RNC).
This is a really implausible idea for one, a really small market (constrained by hosts but also conferences that fit the criteria) for two, etc.
What the story became when they broke through was about turning the excess living inventory hundreds of millions of people have into a place for people to stay. This has benefits for both sides it turns out and is widely applicable and massively scalable.
Those are really, really different stories. Like, startling different. But if you can't not only tell the second one but also show some evidence that it could be so, your stuck with the shitty first story. When they started seeing the behavior during YC that pointed them to the second story, they focused the company on it which caused it to grow, investors better understood the potential, and slowly over time it became trivially easy for them to raise money.
Actually, seems to be very easy to some people. And quite funny, often those people are not very good at executing business so it will never be actually huge. But they are good at explaining.
To really compress (and make assumptions) I think they went from a sort of "coach surfing for fun and profit" to "holiday rentals" as their central point. They still do the full spectrum, but I think the Air mattress end is pretty small now.
I think the take aways for trying to pick winners are:
(1) Execution and steering the ship are everything. They were not the first startup to try this sort of thing. The idea itself was a dime a dozen, like many others. App for calling taxis. Classifieds. Restaurant reviews. Online profile. Video sharing site. These are all pretty banal ideas. Lots of attempts were made at all of them. Picking winners is about picking a winner, not picking the race.
(2) Try to see "markets" as their full spectrum. High end, low end. Business, consumer. Freaks, mainstream. Coach surfing is a different place on the same spectrum as Hilton. Startups often move up and down spectrums much more easily than mature companies. Tesla could make a budget car next. Jaguar can't. AirBnB can handle mansion rentals for billionaires. Grindr could probably pivot to over 50s Catholic matchmaking easier than one might think.
The problem is, and the reason VC's need to consider the quality of storyteller you are, is for a business that plans to be capitalized over several rounds, it's a fundamental risk not to have somebody on your team that can tell that story. Secondly, you're going to have to tell stories to your TEAM (internally) and the world (externally/marketing) that will have a huge impact on the future of your company as well. So it matters.
It turns out, Brian especially at Airbnb is a natural story teller, he basically can not stop telling stories when he speaks publicly and they're all good. They just didn't know what story to tell yet :)
I'd immediately pull out my funds as an investor out if I found out the names of the people writing these rejection letters. It would also be bad for street cred. "hey these guys missed out on the deal of the century, who else did they reject?"
150k is like peanuts to these firms with millions of dollars to throw. Hell, I'd bought out of the money put options near expiry if it meant there was a slight chance it would have potentially unlimited returns.
And like that guy who said he's going to see nd me a business plan in an hour, I've yet to hear from. One clear distinction is that I am also investing in the person, and if they can't hold up their end or if they think it's an easy way to swindle a years salary they are fucked in the head. I'm here to make bets not run a fucking charity, excuse ma francais.
A smaller fund might invest across a series of funds, but not have deep enough pockets to follow the money even if they have pro rata rights. In comes the larger investment firm with lower risk tolerance (potentially) for the series A. Win win win.
When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you.
> who else did they reject?
They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
My email is in my profile (if anyone wants to hire me). I've described a strategy that involves making small bets across large number of startups and not focusing on making judgements or even attempting to figure out how much this startup is going to be worth (as you say VC are human, why introduce that inherent bias to a numbers game?) because like we witnessed with the guys who rejected Airbnb, their own bias towards safety incurred a huge opportunity cost.
> They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
Exactly, which is why I feel like they should ignore their own instincts and thought processes. Even if they were able to land a few successful ones, how can we be certain that it was not the work of dice rolling? Studies show that most money managers perform no better than buying the index or throwing darts, what makes you think VC's suddenly have improved odds?
Give me an hour to come up with a business plan, and I'll shoot you an e-mail :P
Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.
Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient.
With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change.
Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.
Ouch. Ego can get very expensive. Consider this, had they invested, Airbnb might not be where it is today.
This is completely off-topic but since the $150,000 is going back to the business, wouldn't that mean that the valuation becomes $1.65M? The word "bought" makes it sound like someone is taking the money and selling their share.
(ergo the pre/post money valuation thing linked above)
The company's equity was worth $1500K before the investment.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
However, it had $150K of cash that its equity investor paid for 10% of the company's equity. So $1350K of remaining equity + $150K cash = $1500K company value. Same as pre-investment valuation.
It looks like the company's total value didn't change, it just traded 10% of its value for cash. Which is the point of selling equity - cash allows a company to pay for people and things. Equity doesn't.
A "company" can't lose equity it never owned any to begin with. The equity was transferred from one party (usually the founders) to another entity in exchange for cash.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
This is completely wrong.
https://en.wikipedia.org/wiki/Pre-money_valuation
>for $150,000 you could have bought 10% of Airbnb.
Does that mean for $150K I can buy as many shares as constitute 10% of the current outstanding number? Or that after I pay $150K, I will own 10%?
Since new shares are issued, in the former case I end up with 9.0909...% (1/11th) of the company. That gives us a post-money valuation of... $1.65M! (and $1.5M pre-money) But in the more probable reading of the phrase, I own 10% of the post-money $1.5M company, giving us $1.35M pre-money.
So, your choice. Someone more in the VC loop might be able to say that the phrasing definitely means one or the other; I've just got the math.
OT, but I applied to be a contract photographer for AirBnB a month ago and did not get a response either -- not "no", not "maybe later", not anything.
I did get an automated email thanking me "for pressing send"; after that, zilch.
So I guess it goes both ways.
http://avc.com/2011/03/airbnb/
I have no idea how to start the process of asking VCs for a small sum in return for a share of the company.
I would really appreciate and answer.
Thank you.
Have a clear, clean pitch deck. Know your unique value proposition, understand your competition, be able to demonstrate that there's a market and that it's significant. Show traction, team, and ability to execute.
Also, there are thousands of deal turned down annually which end up being the right decision (for the VC at least) when the startup fails - all those would point to VCs actually making the right call most of the time.
Someone getting it wrong, even if it means missing a unicorn of a deal, isn't necessarily incompetent.
I think given these kinds of statistics I can't understand why there's not some public fund where average citizens can invest toward. That fund would run a lottery every year and accept 'x' # of companies depending on how much was invested the previous year. Each of those companies would (depending on current cash flow) provide a % of ownership to the fund.
Noone tells them how to use the money. No investor has authority to interfere whatsoever.
Of course I imagine there would be reporting requirements, and require certain levels of transparency into their books and such in order to create at least some hurdles to prevent people who are just out to scam the system from applying.
Maintaining the status quo just perpetuates the "rich get richer" paradigm.
Pushes all the right buttons, but keep in mind that those investors also rejected vastly more ideas that most likely never went anywhere. That was their take on airbnb at the time.
With respects to Airbnb, Fred Wilson of USV passed on the opportunity as well and posted emails showing where Paul Graham personally spent quite a bit of time trying to convince him otherwise.
[1] http://www.paulgraham.com/airbnb.html
I'll never forget the day I went out exclusively to meet a girl. I was rejected by maybe a hundred girls I approached. The worst one's were the ones that just stared at their phone, like I wasn't even human.
I was tired. It was 8PM... around that. I go up and approach girl inside of a clothing store. Please God speak english. She opens up with perfect english, smiling. We went on a date right there. Huge confidence booster.
Frankly, people are a complicated bunch. You don't understand their learned behaviors, position and internal politics. There's no way you could understand the whether a girl is grumpy, just broke up, open to meeting someone new until you come up to her.
We need more posts like this. Not just for VC's, I'd like to see comeback stories for freelancers scoring gigs / job interviews.
Good job OP
On Dec 13th, 2012, I wrote the following email to you, after having applied for a “Head of Community” position at AirBnB. I didn’t get any reply either. Note that I cannot claim I became the big success that AirBnB has after these “rejections”, but it still surprises me that you or your org didn’t even wanted to talk to a Technology Evangelist from AWS. I guess you did a similar type of mistake with me.
"Hi Brian, I know you’re busy, therefore I’ll keep it short.
My name is Simone, I work in San Francisco for Amazon Web Services, and I’m interested in becoming the Global Head of Community at Airbnb.
I think I have what it takes to be successful in that role, and I’m a big fan of Airbnb.
Let me know if we can discuss, or if you want more details.
Have a great day,"
You were sorta putting your situation on a par with investors missing out on investing in the early stages of a company now worth $24bn. That is to say, them not paying attention to you is equivalent to missing out on an absolutely mind boggling amazing opportunity (in hindsight).
Now, you might truly be as awesome as that but people tend to vote down comments where people are blowing their own trumpets, for better or worse.
So, you've got some hurt feelings (this is understandable, nobody likes being ignored), your post sounds a bit like sour grapes, it's only tangentially related to the article, and that's probably why people downvoted you. What's the point of trying to embarrass the guy here? It just looks bad for you, I would just delete everything honestly.
They said "I'm honestly curious on why [the comment was downvoted]". I conjectured the original heavily downvoted comment may have been interpreted as boastful through comparison of a personal situation to AirBnB's and that's why people may have voted it down. I received 17 upvotes for this speculation which may (or may not) support my hunch.
May Simone, and everyone, do "something awesome." But not merely, as you, passive aggressively (and quite needlessly) conclude, to "show" anything up.
I don't know Simone either, but I'd say there's a fair chance he can contribute more than some illegal hotel scheme. I was pretty disgusted that you value this hype above a human being, and I don't care what 17 other similarly amoral individuals may have said.
No, I didn't.
The nature of being "vague" or "indirect" means it's impossible to accurately determine an objective meaning. Thus, any conclusion is conjecture.
There was no value proposition in this email. For an email like this to be worth responding to, you have to provide a brief, no BS, explanation as to what compelling value you're bringing to the table. The only exception to this rule is if you're famous for your accomplishments in that specific role (in which case, they're probably pitching you already anyway).
Finally, nobody owes anyone a response to a cold-call email. Especially not people that get hundreds if not thousands of emails a day. Don't take it personally.
I don't really see that applying in the sense of obtaining venture capital, as it is well known that you aren't going to immediately walk in to an office and hand them a check for the valuation you asked for. It's going to take a bunch of both hard and soft rejections, but a person isn't usually going to be in that room pitching to these VCs if they don't already strongly believe that their startup is fundable.
[1] http://rationalwiki.org/wiki/Backfire_effect
This pertains to the conclusion (and thus the premise) of the blog post:
"Next time you have an idea and it gets rejected, I want you to think of these emails."
The message in my comment is, don't allow yourself to fall pray to the backfire effect when people reject your ideas (whether VC, colleagues, etc.). If people reject your idea, it might mean it's not a very valuable idea, as opposed to being an indication that you're on to something that's so radically new and different, etc.