Generative AI Might Just Save Venture Capital

Originally published in The Information on November 2.

For the past nine months, nearly every investor with a Twitter account, blog or board seat has been beating a unified and constant refrain: The go-go days are done. Founders were being pushed to build 36 months of runway, whether or not it was actually feasible to cut costs that much. Time and again, investors told me due diligence was back. I watched as fundraising rounds that a year ago would have produced a term sheet in a few days stretched across a full month and dozens of pitches.

And then came Dall-E 2’s public release, quickly followed by a flood of wildly cool technology. (edit 12/8: And now ChatGPT!)

These events triggered a craze now ripping through venture capital land. We’re seeing billion-dollar valuations for companies peddling products based on generative artificial intelligence algorithms with less than a million dollars of revenue and no proven business model. Not long ago, the same behavior was held up as a cautionary tale about the excesses of VC over Web3 and instant delivery. Now we have a whole new era of exuberance on our hands.

The first thing to remember is that this ability to pivot from dark depression to fall-over-yourself excitement is at the core of the startup world’s future-building powers. Seen from another angle, the whiplash looks like optimism, and VC would have vanished decades ago without it. The entire venture model is about funding failure until you find success. There have been times where the entire industry seems to implode, only to come roaring back.

I won’t argue that every investor or founder is a walking example of this kind of stoic hopefulness. There are plenty of cynics puffing themselves up by tearing down other people’s ideas (something I—regrettably—did quite a bit of early in my career), and plenty of others who have no particular view on the future other than wanting to make money. The best investors and founders, though, are optimistic realists of the purest sort. This might come across as ignorant or naive, but sooner or later they usually end up being right.

Optimism is the key to understanding what’s happening on the frothy edge of the investing world. It would be easy to write off the generative AI craze—after all, there was an AI and machine-learning craze just a few years ago that didn’t lead to much of anything. Add to that the ongoing collapse of several waves of exuberance at once—crypto, fast delivery, public markets in general—and it’s difficult to believe that optimism will actually win out.

That said, I see four major reasons why generative AI has venture capitalists acting like it’s Q1 2021 all over again.

  1. It’s rooted in an archetypal category of futuristic technology, aka AI.
  2. There are any number of plausible paths that end in fat returns.
  3. The press has already thoroughly hyped the space as a whole and a handful of companies in particular.
  4. Most importantly, there are no public generative AI companies. As a result, there are no visibly crashing multiples or valuations to weigh down private valuations.

Coming out of the stock market crash at the beginning of the Covid-19 pandemic, the world did in fact change. Work shifted, shopping habits morphed and the value of venture bets hit astronomic highs. Companies that had been private for a decade decided the time was right for blockbuster initial public offerings, and Wall Street said, “Hell, yes.” That meant big payouts for all the venture investors who’d been patiently waiting for their exit opportunities. As returns surged, new fund sizes surged, and the FOMO cycle kicked in all along the chain.

Suddenly it was easy to be optimistic—too easy. Wherever there was software, or even just the idea of software, there was the promise of quick wealth. Then many of the equities that went public to great fanfare quickly fell off a cliff, taking a whole lot of optimists with them.

By spring this year, pessimism seemed to have set in. On its face, this was more than a bit baffling. It’s not as if much value has been destroyed—sure, the valuation of, say, Coinbase has dropped more than 80% since its public trading debut, but a market cap of $15 billion is still incredible. Plus, as I’ve already argued, investors are sitting on huge piles of money and they have an obligation to invest.

What’s become clear in the last month is that the ancient optimism wasn’t dead, it was merely hibernating. Maybe you could have seen this from the ongoing drumbeat of new fund closes. If you’d talked to the right investors, you’d have discovered that they were still doing deals, just quietly. The market was waiting for a catalyst, and now it has one.

It’s important when thinking about how VC works over time to remember that venture investing is driven by narrative more than it is by data. Early-stage companies are valued on their promise, not on what they’ve done. On top of that, an awful lot of venture capitalists devoured science fiction as kids and now, as adults, they fixate on how new technologies can shift humanity. Even if we haven’t yet figured out a positronic brain or proton micropile, AI always tickles that old childhood fascination.

Generative AI especially offers tantalizing possibilities. If this new stuff can write marketing copy, is it good enough to topple the world’s largest advertising agencies? It’s possible that image generators will soon remove the need for commercial photography. Maybe we will finally get a conversation engine that makes customer service less awful and renders the call center business obsolete. Each of these is a giant opportunity, and we’ve barely scratched the surface.

With the narrative pieces in hand, investors have another hurdle to overcome: peer pressure. Some investors seek out genuinely novel bets, but many want the safety of going with the crowd. Generative AI satisfies both desires, having both whiz-bang appeal and enough press attention to give timid investors cover.

It’s all good news for venture capitalists and founders in the generative AI world right now. That won’t last, but right now, it’s easy to argue that the future is bright and golden. Even more, it’s difficult to tie these new companies to the types of public assets that have been hammered of late. Generative AI isn’t software as a service, so SaaS multiples are irrelevant. It isn’t a token, so crypto winter doesn’t matter. For the moment, at least, nothing can spoil the party.

All of this is great for the tech ecosystem, including for founders not currently building generative AI companies. That’s not to say companies should start adding random image generators or copywriting features to, say, payment processors. That would be foolish, though I’ve seen worse (not every videogame needs non-fungible tokens!).

The lesson for founders is that investors are looking for reasons to be optimistic. Sometimes that means cutting back on hiring or reining in growth plans, but the really savvy founders will find ways to convince investors their companies are the ones that can swim against the current.

Let’s all hope generative AI fulfills at least a quarter of the promises people are making in its name. In the meantime, optimism is contagious, which is good for everyone.

When to Shut Down Your Company

I originally wrote this essay four years ago and published it over at YC's blog at the time. A number of recent conversations I've had with founders made me realize that the framework below remains useful. As the market continues through its downswing, more founders will face difficult decisions about how long and how far to push their startups. This is as emotionally fraught as ever, so I hope that resurfacing this essay will help a few people through the decision making process


It makes sense that founders and investors spend so much time talking about things that go well. If we spent all of our time dwelling on the companies that failed, we wouldn’t have time for much else.

When people do talk about company failure, they often do so in a way meant to make them seem wise by breaking down all the lessons they’d learned through failing. I did something like this when we shut Tutorspree down. I think that was a valuable exercise, and maybe it even helped some people. Mostly, though, it was cathartic.

Founders lack a coherent way to think about when to shut down.[1] Founders do not always get to choose to shut down.[2] However, most of the time, it is the founder’s choice. It’s a personal decision. It’s a hard and painful decision. It’s an emotional, fraught decision. However, shutting down doesn’t have to be a blind decision.

The unintuitive thing about figuring out if you should shut down your company is that it isn’t the path of least resistance. The “easiest” thing to do for a struggling company is to fall into zombie mode – neither growing nor truly dead. This is easy because it doesn’t require an active decision, it just involves continuing to do the bare minimum to keep the company alive. This involves a series of seemingly small compromises that lead to stasis or failure.

Shutting down is hard because it means publicly admitting that you were wrong, unlucky, or incompetent.[3] Because of this difficulty, we’ve evolved a set of terms that often mean “shut down” without saying “shut down.” In no particular order these are: pivot, hard pivot, rebrand, strategic shift, change customer focus, and platform switch.[4]

Stakeholders

Shutting down is hard because it generally means disappointing people who believed in you. Some of this disappointment is real, some of it is imagined. Founders who have raised money are usually most concerned about disappointing or upsetting their investors. Investors are often upset when a bet fails, generally in proportion to the amount of capital they’ve given you, and in the speed with which things went wrong since they invested. However, investors know that most bets are going to fail, and will usually get over their emotions. The thing that bothers investors more than shutting down is when founders either misrepresent the status of a business and suddenly shut down without warning, or slowly bleed out a business over years while taking up a lot of the investor’s time.

Founders often worry that shutting down will disappoint their customers. This is true, but companies that aren’t doing well generally see their products degrade, which also upsets customers. Unless your product provides a critical, lifesaving purpose, shutting down cleanly and with transparency is much preferred to a slow fade into obsolescence.[5]

Founders should worry about the impact that shutting down has on their employees. The biggest burden a founder has is to meet payroll. The biggest emotional investment that founders make – especially early on – is convincing great people to take a leap of faith and accept an offer to work their butts off on a long shot. This dynamic is why transparency around the decision to shutdown and the timeline of it is so important.

The worst thing a founder can do to an employee is to tell them that everything is amazing, and then to one day tell them that she a) no longer has a job and b) that the company cannot pay her what was promised and c) that you’ve known all this for a long time but didn’t want to tell her because you were worried about her feelings. It is much better to make a clean decision to shut down in full view of of your employees with enough time and money left to help employees find new jobs and move on.

A Framework for Shutting Down

The decision to actually shut down an idea can be made through answering the following questions:[6]

  1. Do you have any ideas left to grow your startup?
  2. Can you drive that growth profitably?
  3. Do you want to work on the startup that results from that growth?
  4. Do you want to work with your co-founders on the startup that results from that growth?

The first two questions here are quantitative and driven by the experiments that founders are constantly running on their products and users. Unfortunately, while they are quantitative, there’s no deterministic way to know if you’ve actually tried everything in the right way. At some point, you have to make a call based on accumulated evidence.[7]

The second two are qualitative and introduce the largest challenges around making a decision comes when the answers to these questions are mixed between yes and no. For instance – if you enjoy working with your co-founders on a business that produces positive cash flows but is not growing, you probably shouldn’t shut down. However, if you hate the people you’re working with on a business that is growing rapidly, you should either shut it down, or find a way to keep going without the team. These are personal decisions that no one else can make for you, but it is important to separate the different threads of the decision so that you can actually evaluate them as objectively as possible.

The Other Side

I was terrified to shut my company down, even though all the evidence said it was the right decision.[8] The thing that scared me most was the that I had no idea what would happen afterwards. However, I realized that I had exactly one life to live, and that staying in a bad situation of my own making out of fear was a dumb thing to do.

Having spoken with many founders who have gone through similar situations, I’ve found that most of them are incredibly depressed after shutting down their startups for a few months. Afterwards, things start to get better. This may be hard to believe but shutting down releases so much tension and clears away so many burdensome expectations that it allows for brand new creative ideas and approaches. It’s a necessary part of the startup cycle, and one that founders need to approach more openly and rigorously.

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Notes
[1] Throughout this essay, I use “shut down” interchangeably for ideas and companies. The two differ only slightly.

[2] Running out of money unexpectedly, often as a result of a failed fundraise, can force a founder to shut down.

[3] Incompetent seems harsh, but it would be strange to believe that you could be competent at all the new things required in building a company on the first or even tenth try.

[4] I am sure this is a non-exhaustive list.

[5] In this case, shutting down is still critical, but the decision should involve a long timeline, over communication, and a best effort to find alternatives.

[6] I could also state this as the inverse. Deciding to work on a startup should come down to these questions all being answered with “yes.”

[7] It’s important to make sure that you’ve actually tried a lot of things. Founders often quit far too early on an idea that needs more time.

[8] The answers to questions 2, 3, and 4, were all “no.” The good news is that Ryan, Josh, and I all like each other as humans.

Thanks to Sam Altman and Craig Cannon for reading drafts of this way back.

VCs are Scared When They Should be Greedy

I originally wrote this essay for The Information, where it was published on July 6, 2022.

I've read a lot of the advice that venture capitalists have given founders on the current state of the markets. Most of that advice focuses on how founders need to adjust to survive the deteriorating conditions—cutting cash burn by firing underperforming employees, slowing hiring, shrinking marketing budgets and so on. But this advice is only half the story.

Founders cannot afford to simply survive. They need to build companies that attract investment. That may seem impossible right now while the  markets are collapsing, but venture capitalists still have billions of dollars sitting in just-raised funds that they need to invest. With the exception of crossover funds that have lost massive amounts of money and are nervous about losing limited partners, smart investors are not winding down new funds or reducing fees—they’re taking meetings with founders. For VCs, now is a great time to find deals.

There’s never been more cash available for startups, but the people holding that cash (investors) are telling founders there’s no money available for investing. Founders need to understand the logic behind this contradiction and how to operate within it, because rapidly growing companies still (usually) need to raise capital to build their businesses.

The fact that the markets are bad doesn’t mean founders get to hide. The opposite is likely true—when markets are bad, the best founders will find ways to raise the capital they need to exit the turmoil in a dominant position. And if history is any guide, it is precisely during this downturn that we’ll see the emergence of a new class of tech powerhouses.

Let’s be clear: The current situation is entirely different from the market routs of 2000, 2008 or 2020.

In 2000, the Nasdaq superheated due to the large number of companies that skyrocketed into the public markets fueled by fanciful metrics disengaged from revenue. When that bubble burst, it did so because it became clear, almost all at once, that a lot of the emperors had no clothes…or business models. Critically, the venture market at the time was tiny relative to today’s ecosystem.

Then came 2008, when I got to watch the market collapse from the relatively safe vantage point of hedge fund Bridgewater Associates. When the mortgage-backed security market went bust, investors realized they had no idea what they were actually holding or what those holdings were worth, and didn’t know who they could trust to tell them. As the damage rippled outward, it triggered the implosion of multiple major financial institutions. The full impact of those collapses was difficult to understand because of the tangled web of leverage and counterparty agreements that made the financial system run…which is also what caused it to collapse.

Then came the coronavirus-related market shock of 2020. That was a strange one. It felt like the start of a war. For about a month, everyone assumed the absolute worst. And then the markets—public, private and everything in between—went nuts. New initial public offerings flooded the market and share prices jumped 100% in their first days of trading, while private companies raised ever larger private rounds from investors afraid to miss the next $100 billion company. This flywheel kept running until sometime around the beginning of this year, when it all ground down to a halt.

The basic logic of this slowdown is uncertainty. Growth is slowing, and we may be headed for a recession. At the same time, the Federal Reserve Board is hiking interest rates to try to control inflation. When interest rates go up, venture capitalists have to adjust the models they use to value portfolio companies. These models are designed to produce a current value for future cash flows. The interest rate is used to discount the value of those cash flows, so for tech companies—for whom most of the cash flow is far into the future—small interest rate changes produce huge changes in value. The faster this happens, or the more uncertainty there is, the more chaos there is around pricing.

Here’s what isn’t uncertain: whether investors are suddenly going to run out of money. In fact, the opposite is true. Venture capitalists are sitting on more cash than they’ve ever had. Sure, some of them are scared because they might not see much of a return on their most recent deals, and general partners are also feeling queasy about just how much their public stock portfolios have pulled back. But those are temporary conditions. In contrast with the scenario in 2000, most of today’s tech companies are real businesses. They’re simply carrying extremely rich valuations based on a worldview that suddenly looks outdated. It’s only a matter of time before investors shake off their fear and start doing deals again.

True, a few things need to happen before venture capitalists loosen their grip on their wallets again. First, some of their portfolio companies now either have new capital needs or are suddenly willing to take dilution to create a larger margin of safety going forward. That will take more of investors’ capital reserves than they may have initially planned, and it will for sure eat into the capital they have available for new deals, which will make them hesitate. This is, however, a finite exercise. Once venture capitalists have done the math on how much they need to hold back, they’ll know how much they can deploy. While there may be less money available than six months ago, the overall pie is so much bigger than it used to be that this shouldn’t actually matter.

The next thing investors have to worry about is how to price deals. This strikes me as a bit funny because there has never been a science to pricing a venture deal. That said, fear is contagious, and no matter how distant the connection is between public market pricing and private market investing, it works its way back, like so:

  1. The public market investor gets hammered.
  2. The crossover investor sees that, gets scared and becomes unsure how to price a deal.
  3. The late-stage investor sees fear in the crossover investor, the early-stage investor sees fear in the late-stage investor, and suddenly everyone is scared…
  4. …except seed investors, who have always been buying lottery tickets and are likely to keep on gambling.

For this backlog to clear, individual investors need to see someone go first. A venture capitalist won’t lose their job by sitting on the sidelines and tweeting about fiscal responsibility, but they certainly could by sending a term sheet for a company that quickly does a down round.

This is where founders need to get smart. Investors know that the general market paralysis gives them—for the time being, at least—more leverage and more time than they’ve enjoyed in quite a while. A founder willing to play into an investor’s need for certainty is a founder that’s going to come away with a deal.

That means, above all, planning for the worst—not simply figuring out a way for their business to limp along indefinitely, but rather understanding how much they can grow and how long they can last with the cash they have on hand.

Once founders have a sense of that, they need to invest more heavily in their relationships with investors. This has always been important, and now it is even more so. Early-stage investing is as much an emotional decision as it is a rational economic one. Investors are more likely to back founders they know and trust, people they’ve seen execute over time. Founders who work with this dynamic will be better positioned to raise capital when they need it.

That said, founders also need to lower their expectations—about the amount of money they can raise, the price at which they can do it and the amount of time they’ll need to complete a round. Rounds are going to occur further apart, and fundraising processes are going to take longer to complete until the market changes again. And make no mistake, the market will change again, because that’s how cycles work. They go down, they go up.

Despite the doom and gloom, there’s money available for good startups who tell good stories to good investors. That’s harder to do now than it was, but it may also lead to bigger and better things. Fundraising has never been a sure thing. It just felt that way based on the press coverage and the stories you probably heard from other founders. The current market is just reminding us of that.

In defense of exploding term sheets

There’s a lot of content out there arguing that exploding term sheets—ones that expire after a set amount of time, whether or not they’re accepted—are bad. Some of this comes from founders who do not appreciate the pressure; some if it comes from VCs who want to emphasize their own founder-friendliness. The reality, though, is that all term sheets explode. The only variable is when.
 
I’ll even go one step further: If term sheets didn’t explode, fundraising would be much harder for founders. During a well-run fundraising process, founders are largely in control. They can dictate when to pitch and when to release information. They’re the ones who choose if and when, ultimately, to sign an offer. At the extreme, this can produce comically narrow demands: Pitch Monday, offers Tuesday, decision on Friday. (To be fair, sometimes this works.) Venture capitalists are left in control of one thing: whether and when to say yes or no.
 
Now, in fully liquid or public markets, investors can take as long as they want to decide whether to buy or sell—and if the fundamentals change in the interim, well, they can go on their merry way. But in VC rounds, the default assumption is that, once a VC says yes to an investment, they can’t take it back.
 
This is kind of weird.
 
Term sheets aren’t actually contracts, and yet they’re considered to be (mostly) binding. That means once an investor makes an offer, they’re exposed to two types of risk: first, of course, that their investment turns out to be a bad one, but also the indefinite opportunity cost of spending a lot of time working on, thinking about, and allocating funds to a deal they might not win.
 
If we multiply that second issue by the number of deals an investor might want to do, you start to run into an even bigger problem. Investors can only evaluate or commit to a certain number of deals at a time. An investor who cannot control the lifespan of her offers would quickly run out of bandwidth to evaluate new deals. This would be bad for everyone. If an investor is willing to make a bet, she should be able to know when to expect an answer.
 
Process uncertainty also creates issues for founders, who have a right to know when to expect a yes or no. But once an offer is made, founders would prefer if it stayed open until they can make a decision, however long that takes. VCs prefer an offer that expires relatively quickly.
 
To me, it certainly seems as if both sides want something reasonable. What’s missing is a common set of rules to determine what’s fair. So, here’s what I propose: Founders should have at least as long to decide whether to accept the terms as the VC took to decide to make an offer. I'll explain.
 
If an investor makes a decision to invest within 24 hours of the start of a fundraising process, then a term sheet with a 24-hour clock seems reasonable. Think of it as a bonus for VCs who make decisions quickly. Their time in uncertainty is small, so they should be able to process more deals in less time than slower moving funds.
 
At the other end of the spectrum, investors who need more time to deliberate should extend founders the same courtesy. The VC could even cast this as an advantage—“Yes, we take time to get to know you and think deeply and stuff. But when we make a decision, we make it with conviction, and we will romance you and woo you and convince you, dear founder, to take our offer.”
 
VCs could also publicly commit to a certain timeline. “Once we meet you for a pitch meeting, we’ll make a decision within a week. Once we give you a term sheet, you’ll have a week to decide.” A day on each side could work. A month on each side could work. As long as both sides understand the terms ahead of time, the trade is even.
 
From a founder’s point of view, too, all of this should seem fair. And by that same token, if a founder needs an offer by a specific date or time, they should return a decision on that same time scale.
 
That said, negotiations are messy, and the reciprocity principle won’t work perfectly every time. Sometimes a founder will push the deadline too hard and scare everyone off. Sometimes a VC will do the same. But fun fact: exploding term sheets don’t literally explode. A VC can always decide to extend another offer if they’re still interested after their deadline has passed, or even ignore the deadline altogether. This is simply a negotiating tactic.

The hot round fallacy

I originally wrote this essay for The Information, where it was published on Feb 16.

Here's a fun little paradox in fundraising: Founders and the media love to talk about how quickly funding rounds happen these days—think about the big, rapid-fire raises from OpenSeaDataBricks and others—but when you watch a fundraising process from start to finish, it’s never as fast as it seems. Even the tidiest-looking processes, ones that seem to kick off on day X and sign term sheets on day Y, aren’t what they appear to be.

The best-run rounds are always running, just at different levels of intensity. This breaks some brains because founders want to believe you’re either fundraising or you’re not. In reality, great founders are always fundraising. It’s just that sometimes they call it “fundraising” and sometimes they call it “building relationships.”

This is an important point for founders to internalize because the illusion of fast, aka hot rounds hurts companies. Specifically, founders come to expect that they can emerge from a hole, say “We’re raising” and be done in a few days.[1] The early-stage market hasn’t taken quite the same beating as later-stage or public markets, but still, now is no time to be stupid. The truth is that nearly every fast round I've ever seen (and I’ve seen many) actually started months earlier with careful relationship- and narrative-building or extensive work by an investor—or in many cases both.

Let’s look at this from the investor’s perspective. Every venture capitalist has some quality bar a company needs to clear to trigger an investment. That usually consists of two key components: the overall market or opportunity, and the founder and company in the context of that opportunity. While different investors may consider these in different orders or with different weights, they all form views on each.

Developing a feel for a particular market requires research. That might involve commissioning a consulting firm[2] to perform due diligence on a particular region and its regulatory structure, or it may mean simply talking to potential users and building a view on what solutions may or may not work. This can take weeks or months, most of it before an investor ever talks to the founder of a prospective investment. Some investors run this process quickly, some run it slowly, and to be sure, some don’t run it at all.[3]

But just because a venture capitalist has all the information necessary to make a quick investment decision doesn’t mean they will—there’s still the company to consider. Here again, we run into different speeds and philosophies. When I worked at Y Combinator, we made most of our decisions in 10 minutes. Other investors need hours with founders, often distributed over months or years. Once a venture capitalist has these pieces, the question becomes whether the price of the deal makes sense.

When you understand this framework, the pace at which many follow-on rounds seem to occur doesn’t look quite so fast. These (mostly) aren’t discrete fundraising decisions. They’re continuations of situations where an investor did all or most of the work to get to a “yes” at a given round but lost, then reevaluated the price, made another decision to say “yes” and convinced the founder to take more money.

Founders can use this understanding to their advantage by realizing that they do not have to be passive bystanders in the investor knowledge-gathering process. Think about it this way: An investor evaluating a market needs information. That investor needs to talk to people. Founders are people who happen to know quite a lot about their markets and also generally like talking about them, and investors are usually happy to listen![4] As they listen, they can’t help but be influenced by a convincing story and growing metrics.

That said, founders have to be smart about what information they share and when they do it.

Those who spend too much time with investors and who share too much information too often inevitably hurt their companies. It can be hard for founders to see the balance here, so as someone who’s seen many rounds happen,[5] I’d offer these rules of thumb:

  1. Meet with investors who can actually make the decision to lead a round. This is not necessarily someone with the title of partner.
  2. Meet with those investors once per quarter—maybe once a month in extreme cases.
  3. Share high-level metrics, but not enough to let someone form a full picture.
  4. Prepare concrete asks that can’t be executed during the conversation, such as: “Here are three portfolio companies that would be good customers. Can you introduce me to the heads of analytics at each?”
  5. Track follow-ups.

Maybe someone wants to make the semantic argument that this isn’t fundraising. There’s no deck, there’s no ask, there’s no official invite to a fundraising kickoff party.[6] But it is a meeting between someone who wants to provide funding in exchange for equity and someone who is willing to sell equity for money. If that isn’t fundraising, I don’t know what is. When founders run this part of the process effectively, they’re able to target their later, formal fundraising efforts solely at investors they know are interested.

From there, things should move along at a nice clip, in no small part because the founder is now effectively running an auction. I’ve written extensively about this in the past, so I won’t rehash all of it here, but the main point is that competition forces investors to move quickly. This is in part because good investors generally know when other good investors are interested, but it’s also about the way founders act when they have options versus when they don’t. This is hard to fake, and it works.

I’ve seen founders attempt to force a quick process by setting arbitrarily short timelines, by refusing to produce reasonable data or answer questions, by generally being jerks—all things they believe are effective based on what they’ve read, not based on the work they’ve put in. Startup orthodoxy confirms what these founders want to believe: that they can keep their heads down pretty much forever and get chased by money whenever they need it. Maybe that was true at one time. But markets change, and founders who adapt reap the benefits.

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Thank you to Jillian Goodman for your help writing this.

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[1] We’re focused here on priced rounds: Series A, Series B and up. Seed rounds are different.

[2] This is a strategy for rapidly building knowledge on many opportunities that I first saw happening at Tiger Global Management and that other funds have adopted.

[3] There are plenty of investors who operate on gut, but this happens less and less as you move through Series A to B and up.

[4] Venture capitalists like to have meetings. This is a major part of their jobs. Go have a meeting! They’ll listen for longer than your parents and you will get free coffee out of it.

[5] When asked this question, I generally come back to Potter Stewart’s famous quote from a distinctly different context: “I know it when I see it."

[6] Not a thing. At least not yet.