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The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are compri

• smabie 2y ago
  If you're brilliant and idiosyncratic and delivering something truly compelling, then vcs are more than happy to look past these things. God knows how many very eccentric founders have received funding
  • max_ 2y ago
    It is impossible for something in very early stages, that needs money to be "truly compelling". For VCs a compelling product means great traction but to get great traction you need initial funding so it's always a catch 22.
    • MichaelZuo 2y ago
      Not if they are a bonafide super genius, then it's entirely possible. That's the minimum bar without traction however. A regular genius isn't that impressive.
      • kabouseng 2y ago
        VC's don't have the ability to distinguish between genius and super genius...
        • MichaelZuo 2y ago
          The competent ones can.
          • llamaimperative 2y ago
            That is a ridiculous claim belied by the distribution of positive outcomes in VC. Any VC making this claim with any confidence is immediately dismissible IMO. I would literally never speak to that person again. Like in all fields, true competence comes with a deep skepticism of one’s own capabilities. Especially in a field absolutely chock full of luck, uncontrollable variables, motivated reasoning, and outright deception.
            • fuzzfactor 2y ago
              I would say that if an investor was intending to partner with someone who was uniquely advanced intellectually, it would be from spending enough time directly with the potential partner to be able to well recognize the upper echelon like it could not be accomplished any other way. The most competent at this would sensibly not be relying very much on slides at all, and capable of clearly seeing beyond the factors like luck and uncontrollable elements. It couldn't happen overnight, and especially not in a single slideshow, much less an email. What happens when a founder is open to investment and only a super-genius capitalist would be appropriate? The relevance of a slideshow might still mainly be in the "signaling" more than anything else.
            • MichaelZuo 2y ago
              There aren't foolproof methods, but effective enough methods.
      • data_maan 2y ago
        How about a stable genius?
        • fuzzfactor 2y ago
          As we have seen, you can be very stable at ones utmost intellectual level year after year, and sometimes it can amazingly be someone who is naturally the complete opposite of advanced anyway.
          • data_maan 2y ago
            Not quite sure if you got the joke or not. In case you didn't: I was referring to how Trump referred to him once: as a very stable genius haha :D :D
        • MichaelZuo 2y ago
          A stable super genius is quite literally even better.
    • threeseed 2y ago
      Traction doesn't always mean paying users. Even just having people on a waitlist can be all you need.
      • ganeshkrishnan 2y ago
        I have 70 trillion people on the waiting list. It doesn't mean anything. Only people that pay for your product matter
  • p_l 2y ago
    That usually happens once you already gain traction. Getting the critical capital to get there is big problem, and I recall some places explicitly snubbing VCs after having to get to "impressive" without them.
• max_ 2y ago
  VCs like Don Valentine & The founder of Atari actually passed on Steve Jobs because "they were not impressive". It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment.
  • dpflan 2y ago
    Would you mind expanding upon this, detailing the exploitation: "It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment."
    • max_ 2y ago
      There is a very good documentary called Something Ventured[1]. It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable. So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time. They passed on the investment saying that they were "not impressive". One of the VCs (that refused to invest) was begged to show up at some computer conference to see how people were interacting with the Apple Computer. The VC saw a very huge crowd of people around the Apple booth waiting for a turn to use the Apple computer. The VC then completely changed his mind & decided to invest in Apple. When he did so, even the likes of Don Valentine now begged to enter the round. My suspicion is that the crowd was artificial, Steve Jobs knew that if he could prove (or construct) some kind of hype around his Apple computer at the conference. It would conjure fear of missing out in the VCs or something akin to traction. Note that everything else remained the same the product, the founders etc. He just added an ounce of hype. [1]: https://youtu.be/7eV2L7CHCSQ?feature=shared https://youtu.be/7eV2L7CHCSQ?feature=shared
      • nextworddev 2y ago
        The longer you work in tech industry, you will viscerally "feel" just how rare Steve Jobs was as a talent.
• dmurray 2y ago
  I'd say Jobs would have blown them away. He was a businessman and an obsessive who knew when to focus on the design versus the product versus the money. If investors in his era wanted a perfect pitch deck, his pitch deck would have been perfect. Tesla might have been more likely to focus on having the tech working at the expense of everything else.
  • keiferski 2y ago
    Jobs definitely didn't present himself that way, at the beginning at least: To build the company, Jobs adroitly tapped the network of support services that has made Silicon Valley such a fertile place for fledgling businesses. Says he: “We didn’t know what the hell we were doing, but we were very careful observers and learned quickly.” Jobs pestered Regis McKenna, the area’s premier public relations specialist, to take on Apple as a client. After refusing twice, McKenna finally agreed. For advice on how to raise money, Jobs consulted both McKenna and Nolan Bushnell, his former boss at Atari. They suggested that he call Don Valentine, an investor who frequently puts money into new firms. When Valentine came around to inspect the new computer, he found Jobs wearing cutoff jeans and sandals while sporting shoulder-length hair and a Ho Chi Minh beard. Valentine later asked McKenna: “Why did you send me this renegade from the human race?” https://time.com/3462424/the-seeds-of-success/ https://time.com/3462424/the-seeds-of-success/
    • agumonkey 2y ago
      I'd be curious what woz saw between garage days and apple incorporation in terms of Jobs' views about marketing/behavior/appearances.
  • spullara 2y ago
    Nah. I know a VC that passed on Apple because Steve was 20 min late to their meeting.
    • swores 2y ago
      That's not necessarily evidence of how he treated all VCs rather than one VC one time. (Though I'm inclined to guess it's more accurate than the idea you replied to.)
• YetAnotherNick 2y ago
  Nikola Tesla received funds, in fact quite a bit of it. JP Morgan invested $150,000(~$5M in today terms) for just one project[1]. He died penniless because of his too much confidence in his ideas and he overused the money he got. Even with hindsight, funding Tesla was a bad decision for investors return wise. [1]: https://en.wikipedia.org/wiki/Wardenclyffe_Tower https://en.wikipedia.org/wiki/Wardenclyffe_Tower
  • keiferski 2y ago
    It sounds like he had to talk to a number of people first: Tesla made the rounds in New York trying to find investors for his system of wireless transmission, wining and dining them at the Waldorf-Astoria's Palm Garden (the hotel where he was living at the time), The Players Club and Delmonico's. Tesla first went to his old friend George Westinghouse for help. Westinghouse seemed like a natural fit for the project given the large-scale AC equipment Westinghouse manufactured and Tesla's need for similar equipment. Tesla asked Westinghouse to "…meet me on some fair terms in furnishing me the machinery, retaining the ownership of the same and interesting yourself to a certain extent". While Westinghouse declined to buy into the project, he did agree to lend Tesla $6,000. Westinghouse suggested Tesla pursue some of the rich venture capitalists. Tesla talked to John Jacob Astor, Thomas Fortune Ryan, and even sent a cabochon sapphire ring as a gift to Henry O. Havemeyer. No investment was forthcoming from Havemeyer and Ryan but Astor did buy 500 shares in Tesla's company. Tesla gained the attention of financier J. P. Morgan in November 1900. Morgan, who was impressed by Guglielmo Marconi's feat of sending reports from the America's Cup yacht races off Long Island back to New York City via radio-based wireless the previous year, was dubious about the feasibility and patent priority of Tesla's system. In several discussions Tesla assured Morgan his system was superior to, and based on patents that superseded, that of Marconi and of other wireless inventors, and that it would far outpace the performance of its main competitor, the transatlantic telegraph cable. Morgan signed a contract with Tesla in March 1901, agreeing to give the inventor $150,000 to develop and build a wireless station on Long Island, New York, capable of sending wireless messages to London as well as ships at sea. The deal also included Morgan having a 51% interest in the company as well as a 51% share in present and future wireless patents developed from the project.
• raverbashing 2y ago
  Yeah pretty much So much that playing videogames during a VC meeting can swing them the "right way" if you fit the structure enough
  • keiferski 2y ago
    In case anyone doesn't know this reference: https://www.businessinsider.com/ftx-sam-bankman-fried-league-of-legends-investor-pitch-meeting-2022-11?IR=T https://www.businessinsider.com/ftx-sam-bankman-fried-league...
    • blitzar 2y ago
      “I LOVE THIS FOUNDER,” “I am a 10 out of 10,”
      • ganeshkrishnan 2y ago
        He was even featured on the Forbes under 30!
  • yard2010 2y ago
    You can say a lot of shit about this person. But this is so inspiring. Like, this is a good example for young people out there. You don't have to change your ways for boomers even though they have a lot of money you need. The lesson I got here is just be you. Let others change for you. And do not fuck with the IRS in any circumstances.
    • jordanb 2y ago
      SBF was able to fit the image of the boy genius that the partners at the VCs (who mostly were probably not boomers) were looking for, while still coming off as "one of them." They thought that the crazy hair and the video game stuff was an act meant to project an image to the world, and the real SBF was Stanford and Jane Street.
      • 2y ago
• fsloth 2y ago
  In the tweet the wrong date was not a red flag due to lack of detail as such, but because it signaled: a) they had been raising for a while now b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit) So ”the market” did not consider the startup investable, and they did not think about their sales pitch strategically enough … this VC would have liked to be sold to, not just a source of funds. The implied peer signaling is the key thing here IMO.
  • michaelt 2y ago
    > the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit) It baffles me that a person successful enough to get put in charge of an investment fund can have such incredibly thin skin. How would you even function in the real world if you were so easily offended?
    • mef 2y ago
      consider that this is sending a negative signal to the VC that other VCs have already passed, rather than that it hurts their feelings
      • zarathustreal 2y ago
        Why not both? VCs are human, hurt feelings are probably a negative signal
      • knifie_spoonie 2y ago
        > other VCs have already passed Is this really a sensible factor to consider? Canva's was founder was rejected 100 times before someone took a chance. Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?
        • rrr_oh_man 2y ago
          "Nobody ever got fired for hiring IBM" --> GP's point was: You need to look good while losing all your LP's money.
• wslh 2y ago
  In my little experience, most of the deals I see closing with VCs are because they/we were already linked to VCs through strong trust networks or directly. I see more deals that are close just by phoning/messaging someone that following the typical startup funding round that is read on Internet. Not saying that most of the cases are not hard work from the startup team but saying that if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network. I will repeat this a little bit differently: I see many yes that are related to the team links, not their product or market. Finally, when I talk about the team, I don't talk about their real capacity to execute but to sell to a VC like selling to an important customer.
  • alephnerd 2y ago
    > if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network This is the most common piece of advice all VCs and Founders give. Even YC has called it out on multiple occasions
    • wslh 2y ago
      I don't think the message is clear in the startup industry (yes, industry). The startup industry gives a lot of noise to inexperienced founders (obviously the great majority) making them think the game is more even. The corollary are the following questions: - What a founder without VC connections should do? - How long will it take? Even if they have a super product in mind (not a time machine) they will have an annoying experience pitching VCs who doesn't have any idea of what you are talking about.
      • alephnerd 2y ago
        Fair point. I have noticed a drastic lack of good startup advice outside of the Bay Area and Seattle scene. Both those two have very entrenched entrepreneurship networks so information percolates > what a founder without VC connections should do Network, network, network. Finding a VC is the same process as finding your first customer. Sales is a grind, as is running a company. It acts as a filtering function to find seriousish players. > How long will it take? If you raise funding, at least 10-15 years to even get the chance to potentially list or get a high 9 figure low 10 figure acquisition.
• jorvi 2y ago
  > can't imagine someone like Steve Jobs or Nikola Tesla passing these VC/Ivy League kinds of tests. My "favorite" "test" is the one more for soft studies (think law or public policy) rather than STEM: for example UN internships typically have no compensation and they often require you to relocate to extremely expensive CoL areas, meaning there is an automatic filter built in where only children of very well-off parents can do these kinds of internships and segue into the jobs connected to them.
  • keiferski 2y ago
    This is a big thing in journalism and fashion, too. Doing an unpaid internship in NYC isn’t exactly cheap
  • RobotToaster 2y ago
    Unpaid internships in general are the same "people with rich parents only" filter, to a lesser extent.
    • throwaway11460 2y ago
      On the other hand, it's a way to get inside without being evaluated too harshly because they might lose money on you. I know people who started from nothing, couldn't pay the scholarships and were self taught, and the unpaid internship was what propelled them into a serious well paid career.
      • cruffle_duffle 2y ago
        That doesn’t invalidate what the parent said though. Unpaid internships do filter out people who need a paycheck to survive.
        • throwaway11460 2y ago
          Sure they do, but those can apply to a paid position. I don't see why someone who knows enough to get paid would even consider an unpaid internship.
• TrackerFF 2y ago
  I wrote it in another post here, but a bunch of these VCs are cut from the same cloth. They went to some Ivy League school, worked as investment bankers / management consultants / etc. and spent their first year(s) aligning images/tables/etc. and checking power point decks for typos. If you do stuff like that 100 hours a week, it kind of becomes ingrained.
• jollofricepeas 2y ago
  Also… “Smart” and “brilliant” are all highly subjective. Pride and ego lead to an amazing amount of bias when you start to think you know “smart” when you see it. There are no “tests” for legacy admissions and for students whose parents have donated millions.
• mepiethree 2y ago
  There are SO MANY VCs and every VC is different. if your idea is truly great there is probably one whose investment thesis is aligned with your idea
• benreesman 2y ago
  I think “nepotism” might be more succinct?
  • keiferski 2y ago
    Nepotism to me implies a kind of incompetence, in that people are selected purely for their relationship to the decision maker. I don’t think these people are generally incompetent at all, although certainly some exceptions exist. It’s more that the filtering mechanism eliminates anyone that doesn’t color in the lines exactly.
    • benreesman 2y ago
      With the exception of Jack Dorsey and Mike Krieger, every tech zillionaire I’ve spent time with is distressingly incompetent.
    • NickC25 2y ago
      I don't think it implies incompetence, but rather, an ability to not know the world outside of the one that was made for the recipient of the nepotism. I grew up in a fabulously wealthy suburb of NYC, a town often dubbed the "hedge fund capital of the world". I went to school with the kids of people who managed or worked at some of these funds, or worked on Wall Street. These kids were not and are not dumb, let alone incompetant by any stretch. I'm talking top scores on SAT & AP exams, Ivy League acceptance, Consulting/Banking internships, and top tier jobs out of college. Some extremely book smart people, and some with a degree of street smarts too. They all ended up working for the same types of businesses their peers and parents worked at. People would hire their golfing buddy's kids without blinking. However, there's something these kids all lacked: practical real world knowledge and a complete inability to see outside their biases and inability to perceive outside of their bubble. It's not on them though, not at all - it's just how their experiences shaped them. It takes an outsider to see the value in another outsider. Insiders are clouded by their own experiences that they can't understand disruption or change in an unknown way. That same disruption or change is what oftentimes makes for startups whose early investors see insane returns.
• athenot 2y ago
  It still comes down to risk management. VCs manage risk differently than bankers, but they still need some form of assurance that their investment will bear fruit. They are not as rigid as bankers but they are still in the same position of having to rely on proxy signals to predict the future. They can catch more non-conformist value builders† but not every single one. †For a VC, innovation is a means to building value, not an end to itself. Often the 2 are used interchangeably but only the finances matter in the end.
• conductr 2y ago
  When you become a part of their portfolio, you are becoming part of the institution. They need to trust that you’re not going to rock their boat. Taking investment means taking on a grown up attitude towards the operations of your company In many ways. So I think this is kind of intended.
• vidarh 2y ago
  It might seem weird, but most VCs are fairly low-margin businesses day to day, then they either get a big payday or not (mostly not), once the fund starts to wind down. The odds of making it big as a general partner in a VC fund are not great. A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all management of the portfolio, and it's not a lot. You can't afford to spend a lot of time scrutinizing every pitch deck, because you'll be inundated by them, so you look for quick filters. Many of which will be bad, because they're wild guesses. Yes, that means they'll miss amazing opportunities. But they're gambling what will be left will at least not be worse. Upside is, VC's wildly disagree on which things make decent quick filters, so what will get you binned one place will often interest another, or at least not annoy them.
  • giansegato 2y ago
    VC management fees are typically 2%/y. if a VC fund has $100 million in committed capital, the annual management fees would generally be between $2 million and $2.5 million. it's a lot of money.
    • throwaway11460 2y ago
      So around 5-10 software engineers (compensation in finance seems mostly similar to SW), not including any other costs like office, etc? That's not a lot of money.
      • vidarh 2y ago
        There's a reason most small VC funds have mostly useless infrastructure.
    • vessenes 2y ago
      There's a lot of nuance here. A $100mm fund could be a single guy/gal working from her office, running money in an industry she knows with a little bit of admin support. In that world, $2mm a year in fees is plenty to keep the lights on. Some fund managers I know in this situation don't call all the fee; there may be social considerations / signaling the manager prefers to make. Some spend it all and then some of their own. Absolutely none of them think that the fee is 'retirement money'; they all have eyes on the prize of a 3-5x and carried interest getting them to $100m or so, when they can do whatever thing it is they want to do that got them into running the fund. On the other hand, a $100mm fund could be a 'contender' fund that wants to raise a large fund, and is in a competitive industry -- it's trying to get on the cap tables that, say, Mayfair gets on to, and so it needs to staff recruiting support, tech help, marketing people. Perhaps it's multi-jurisdiction. In that world, $2mm is way, way too little, and the GPs may well be financing the fund personally through fund 1 and into fund 2, depending on the follow-on raise. They are aiming at running, eventually, $1bn+ per fund in three to four stacked funds, and taking home $1bn after 20 years (or less?) of good effort for each of the original GPs. These are caricatures, and there's much more than this to the lifecycle of venture funds, but since we're at HN and VC is a big part of the conversation, I think it's good for hackers and founders to understand the counterparties they do business with, and particularly to be able to read the signals of the VCs they talk to, while the VCs are reading the signals of a desperate, out of date deck.
• jmyeet 2y ago
  That's not really how the Ivy League works. Ivy League admissions balances a number of conflicting goals: 1. Legacies: this is the single biggest group of admitted students (eg ~36% of Harvard's undergraduate class). This by itself destroys any merit argument; 2. Athletes: people forget or don't know that the Ivy League is an athletics conference, despite the academic prestige and social proof. Ivy League schools don't offer true atheltics scholarships like you might get for D1 football recruits at, say, UAlabama or USC, but it is an important part of the admissions process; 3. The nebulous idea of "diversity". I don't mean in the DEI sense because it's much broader than that, like you can have better odds of getting an acceptance from an Ivy League school by simply coming from a low-population (and thus low applicant) state like Wyoming or Montana rather than Texas, California or New York; 4. Extra-curriculars, many of which are a proxy for wealth and privilege. For example, not everyone can do an unpaid internship living in NYC or LA or take unpaid opportunities requiring international travel; 5. Other random factors like filling out an orchestra. There's an old cliche that you should study the viola instead of the violin if you want to get into Harvard because there are fewer viola players. 6. Whether admissions believe you will enhance the reputation they've so carefully cultivated. An Ivy League degree is a powerful form of social proof. Being a Harvard grad will help you get into any graduate program. The prestige of your medical school greatly affects your ability to get a residency in a competitive specialty. The point is that social proof diminishes if the perception of your graduates turns sour so admissions will absolutely look at how may reflect on them in future. The only commonality with VC funding seems to be the power of social proof. That is, MIT and Stanford grads will have an easier time. VC firms will go and do presentations and recruiting at those schools. That doesn't mean you can't get funded if you went to an unremarkable state school. It just means it's a more difficult road. Stanford or MIT will make it easier to get an internship and thus a returning offer at a prestigious Big Tech company. You'll potentially know more of the people in the VC and startup spaces because you went to school with them or someone they know. There's a real network effect here. But the point is the similarity to Ivy League recruiting seems to be fairly superficial.
• zrn900 2y ago
  > The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are comprised of the same people.) It is not really about technical brilliance, or innovation, or anything that is written on their website as a core value. It's more about whether you're smart enough and can follow instructions and fit into the overarching institutional structure of school and work. Its the same for the entire education system as Chomsky explains: It seeks to educate people smart enough to do what they are told, but dumb enough to not question it.
• JohnCClarke 2y ago
  > I can't imagine Try imagining harder. (Or just google :-) Sequoia was their first VC. Got the Apple II off the ground.
  • keiferski 2y ago
    First off, there is another comment in this thread talking about how that almost didn’t happen. Secondly, I’m talking about VCs today. Do you think VCs today act the exact same way they did 50 years ago? The industry has grown dramatically since then.
• kevinventullo 2y ago
  You don’t think Jobs would have noticed the wrong date on the pitch deck? I was under the impression he was fairly obsessive with attention to detail.