Startup Class Lecture 9 Notes – Fundraising

These are my notes from Lecture 9 of the Startup Class taught by Sam Altman. The lecture was a Q&A panel on fundraising with Ron Conway, Marc Andreessen and Parker Conrad.

My notes from the previous lectures are here.

What makes you decide to invest in a founder/company?

Ron Conway:

  • A whole host of things going on in my head.
  • Is this person a leader?
  • Is this person rifle focused?
  • First question I ask is what inspired you – hoping that its a personal problem.
  • Looking for good communication skills.

Marc Andreessen:

  • VC is 100% a game of outliers, and so for one thing we look for outliers.
  • We Invest in startups with extreme strengths and are even tolerant of weaknesses. Sounds silly, but default way is to check boxes (good team, good market etc). This default way doesn’t work too well when looking for outliers.

Advice to companies looking to raise

Parker Conrad:

  • Secret is to start a company that doesn’t need fundraising.
  • Then fundraising comes to you.

Ron Conway:

  • Bootstrap for as long as you can.

Marc Andreessen:

  • If you build a business that’s going to be a gigantic success investors will throw themselves at you.
  • You’re almost always better off making your business better than your pitch better.
  • Raising VC is the easiest thing a founder will do (recruiting, B2B sales, viral growth a lot harder).

“The key to success is to be so good they can’t ignore you”.1

What should founders do differently when raising money?

Marc Andreessen:

  • Know about the relationship between risk and cash.
  • The onion theory of risk:
    • On day 1, startup has all kinds of risk (founder, market, product, launch, technical).
    • Raising money helps peel away risks as you go by achieving milestones which also justifies the reason for raising the round..
    • Systematic way of thinking about how money is raised and deployed.

Ron Conway:

  • Don’t ask people to sign an NDA. Basically says you don’t trust the person in a relationship which involves a lot of trust
  • Fundraise as quickly and efficiently as you can.
  • Don’t get your ego involved.
  • Get things in writing.

Investing Process

Ron Conway:

  • Invest in seed stage so want to be the very first investor.
  • One for every 30 we look at and one a week.
  • Leads from our own network.
  • We evaluate the opportunity based on exec summary and vote on whether to make a phone call.
  • If that goes well, ask for meeting.
  • Assuming that do some background check and commit.

Marc Andreessen:

  • Two kind of companies: previously raised seed found or straight to A which is usually in founders who have founded a previous company.
  • 2000 referrals a year through referral network, a lot of those from angels, YC etc.

Parker Conrad:

  • Look for the best investors for your business.
  • Get an introduction.
  • Don’t raise more than you need.

Maximum amount of company founders should sell?

Parker Conrad:

  • 10-15% seems normal in seed.

Ron Conway:

  • The founder should keep at least as much as keeps them motivated.

Marc Andreessen:

  • Walked from interesting companies because their cap tables were destroyed because investors owned too much of the company to the point that the team would be demotivated.

Most successful investment you’ve made?

Ron Conway:

  • Investment in Google: had to earn the ability to invest in them.

Marc Andreessen:

  • Growth round in Airbnb: passed on them early on, so had to accept our initial analysis was wrong.

Thoughts on capital intensive ideas

Marc Andreessen:

  • Need to have a very good plan: onion theory of risk comes in here a well.
  • Team needs to have operational excellence.
  • This is true even if you raise debt, otherwise you could end up losing your company if you can’t pay back loan.

Signs you shouldn’t work with an investor

Ron Conway:

  • No domain expertise.
  • No rolodex.
  • Only in it for the money.

Marc Andreessen:

  • If your company is successful, this relationship will go on for 15-20 years, and so it is extremely important adequate time and effort is given to choosing an investor.

Parker Conrad:

  • I consider two questions to be important when meeting a VC
    • Do you feel like you respect this person?
    • Do you feel like you can learn from this person?

What is the constraint on the number of companies you invest in: time/money/number of companies

Marc Andreessen:

  • The main constraint isn’t money, but (1) rules on conflict and (2) opportunity cost.
  • a16z only invests in one company per category, so making an investment in one firm rules us out of other firms in that space. Would hate to invest in a company that doesn’t end up being the winner and get locked out of the space.
  • Opportunity cost of time and bandwidth of the general partners is the other. Since partners can sit on a limited number of boards given time constraints any investment not only locks the firm out of the space but also takes away from an investment in another company.

Raising money without a product?

Ron Conway:

  • Founder and team is what convinces us.
  • Invest in people first, not necessarily the product idea.

Marc Andreessen:

  • When we invest without a product its mostly in someone we’ve worked with before/someone who has been a founder before.
  • Its more common in Enterprise to raise an A round before building out the product because an MVP doesn’t make much sense.

Ideal Board Structure?

Parker Conrad:

  • Zenefits’ board has me, my co-founder and a partner from a16z.
  • Things almost never come to a board vote, and by the time they do something’s already broken at that point.
  • The power VC’s have is outside of the board structure – protective covenants built into fundraising such as you can’t take on debt and so on.
  • It’s not as important as people make it out to be.

Marc Andreessen:

  • Terms are all renegotiated when a company gets in dire straights so it doesn’t matter.
  • Discussions are important but the votes always tend to be unanimous.

“I have been on boards for twenty years, I have never been in an important board vote that mattered.”


  1. From Steve Martin’s book Born Standing Up