At some point the internet tricked us into thinking we could get something for nothing.

More than any other company, Google is responsible for fooling us. It was the first free and legal service to gain ubiquity.[1] Google told us that we didn't have to pay anything for amazing services. It seemed to good to be true. It was and is, in fact, too good to be true.

What Google doesn't come out and say is that you're paying, a lot, just not with cash. Your data is valuable. Apparently, it's more valuable than charging you for services because you cannot choose to pay for personal Google services and avoid the sale of your data.

This means data, at least what we contribute when properly sifted, aggregated, and analyzed, is more valuable than the cash we'd be willing to pay for access to the same services. When the world is based on networks, as ours increasingly is, then the greatest network is the most valuable asset there is. By making network access look free, Google managed to capture a huge user base. Once it had the network, it started to charge. It cleverly adapted an existing model - advertising - but did it by selling data + access, rather than just access (which is the best radio and tv and newspaper essentially could really do).

If that's true, we need to ask if we're getting a fair deal. But most of us won't ask that question[2], and if we do, we have no alternatives of the same quality. The deal also keeps getting re-traded, without our truly informed consent.[3] Every time Google offers a new service, it collects more data about it's users. That data is valuable on it's own, and makes existing data more profitable. Users could get some sense of the data collected and how it will be used by scrutinizing ever longer legal documents - but that's hugely unlikely. And, again, even if users did just that and found the trade wanting, there's not much recourse.

And if we did want to pay? Mary Meeker's 2014 Internet Trends Report tells us how much our favorite services should cost. Google revenues wouldn't change if we each paid $45 for all of our free services.[4] To grow revenue, Google would have to release new services and charge for them.

That probably sounds crazy, but it isn't - it's roughly how Apple works.[5]

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[1] Napster is another important player in this story. It largely convinced a huge portion of internet users that piracy was ok because it was so easy.

[2] There are a lot of causes: laziness, ignorance, fear of complexity or awareness.

[3] Clicking "yes" on new terms and conditions hardly seems to suffice.

[4] This number is broadly indicative though likely skewed by the differences in data value between spenders with different geographies, socio-economic brackets, and histories.

[5] I've been thinking a lot about the way these two businesses work at the opposite ends of this spectrum. It's a fascinating dichotomy.

All investors have pet theories. They may call these theories "theses" or "themes," but they boil down to the same thing - closely grouped sets of ideas which the investors want to be true. Investors will usually fund companies that seem to stand a chance of making these ideas real. At YC, we have quite a lot of pet theories, which end up getting expressed through our RFS.

Knowing the pet theories of the investors with whom you're talking is helpful. They may be more likely to fund startups that fit into pet theories and are likely to know a lot more about those theories than they do about other fields. That's great if you know what you're doing, but dangerous if you're half-assedly working on something. Let's assume you're in the first camp, because the second group shouldn't be talking to investors anyway.

You can learn a lot about the pet theories of investors by reading what they've written or spoken about in the past. Some investors - Fred Wilson, Andy Weissman, Chris Dixon - make this easy by writing blog posts that frequently reference what they think about and why they make the investments that they do. Other investors work at firms dedicated exclusively to particular pet theories. You can learn still more looking at an investor's career and past investments.[1] These are all pieces of information that can teach you about how an investor thinks, which will allow you to prepare better for actually meeting them.

Knowing an investors' pet theories can also help you get a meeting. An email directly referencing something near and dear to an investor's heart will get a response much more easily than something generic.[2] At the same time, the hurdle for getting a meeting on a pet theory is going to be high because the investor has likely seen many teams and ideas in the space.[3]

The really cool thing about meeting with someone who has a pet theory about what you're working on is that you won't really pitch them, you'll have a real conversation focused on the heart of what you're doing. These investors will be unlikely to ask simple, surface level questions. You'll be engaged and thinking the whole time, which should lead to better answers, and the best demonstration of how good you are.

Things will start to get really interesting when you begin to challenge the preconceived notions that an investor has as a result of how much he's thought about a given problem. Chances are that if you're doing something new, this is going to happen. It's where you'll be able to evaluate the quality of the investor. The best of them are flexible. They'll adapt their frameworks in response to new information and knowledge. The worst will be dismissive of ideas they hadn't considered before.[4]

There are also plenty of situations in which someone hasn't thought that deeply about a theory they discuss at length. Maybe they want to sound smart or look cool. Regardless, you should be able to figure that out pretty quickly and move on.

You should learn about an investor's pet theories when deciding if you should talk to them, and when preparing to actually meet. In the end, this is just one of the pieces of information you should have. It isn't as important as building a great business, but understanding the picture will help you pitch better, so spend some time on it.

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[1] Keep in mind, though, that investors generally don't only invest in their pet theories.

[2] This seems so basic, yet I get enough generic emails that I'm convinced it has yet to sink in.

[3] As always, warm intros are an even better bet.

[4] True in all situations, not just those related to pet theories.

I ask for a lot of advice. Maybe too much. Sometimes the advice is great, sometimes it ends up seeming worthless and wrong. Invariably, I attributed the outcome of following advice to the giver - following advice from good people led to good outcomes, and vice versa. In the last few years, I've found myself giving a lot of advice and have realized how wrong I was in attributing cause and effect.

There are two axes that determine the goodness of advice. The first is the obvious one: the quality of the person giving advice. This it the part which most often get discussed. We're told to seek out high quality mentors and advisors. These should be people who think clearly, have experience, have the time to think through problems and help.

While these things might be hard to find in a single person, they're not typically that hard to evaluate. What's much harder, and probably more important, is the other axis: how good you are at describing reality to someone with much less context than you have. It turns out, this is really hard to do for a number of reasons.

1. Honesty is difficult, especially about issues we're facing. When you ask for advice, you are implicitly saying you don't know how to do something. That's hard, but seems to be accepted. What's much tougher is making sure you know the reasons you're having the issues you're having. Often, figuring this out is the point of advice (even if you started asking for something much more surface level).
2. Context is hard because it is vast. Think about how much you know about your company. Think about how little anyone else knows, no matter how involved they've been. At best, they see a series of snapshots and can construct a reasonable amount of context themselves. This is nowhere near what you have rattling around in your head. Being able to rapidly construct necessary context is important for an advisor, but they rely on you to give them relevant details.

If you can't pull off these two inputs when asking for advice, you'll get bad advice no matter how good the person on the side is.[1]

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[1] Yes, this does constitute advice, but I'm pretty sure this is of the type that's good in all situations.

I've recently heard about a number of fundraises in which the company raising has refused to honor pro-rata agreements with early, small investors.[1] The most frequent reason seems to be that newer, larger investors demand a certain percentage in a funding round, and tell founders that it can either come from the founder stake, or by locking out earlier investors. Sometimes they just say "lock out the early investors."

This is bad behavior on a number of levels.

It's bad for the founders to do this because they're violating an existing legal agreement. As a founder, your word is your bond, and going back on a deal is a great way to destroy trust. Unfortunately, there's rarely an immediate/obvious impact because the small investors are unlikely to sue or cause a big stink. They don't want to piss off the big investors or get a reputation for being "troublesome," so they're stuck.

For the early investors, this is really bad. When an early investor negotiates for pro-rata, the money they invest buys equity now, and the opportunity to maintain that equity later. This is critical for early stage investors, especially those investing out of a fund. The cumulative impact of dilution is material and their models and expectations are built with that in mind. Investors would not/should not make certain deals if they knew they were going to get screwed out of their rights. Take a look at this model for a sense of just how important pro-rata rights are to early stage investors.

For the later investors, the behavior is actually pretty smart on several levels. By getting the stake they want from early investors and not the founders they can insure that the founders retain skin in the game (or are given opportunities to sell secondary). They can also weaken the ability of early investors to have a say in the company's future by reducing their combined voting power. Finally, this type of behavior may hasten the end of "super-angel" funds by handicapping their returns. Less competition is a good thing for those left standing.

Given how much competition there is around fundraising at the moment, it's unlikely that this behavior will stop any time soon. At the end of the day, the founders have to make the decision. If you find yourself in this situation, stand up for the agreements you made. If you'd like to discuss how, please reach out.

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[1] Dave McClure recently tweeted that he's seeing the same.

We're currently getting ready for demo day at YC, which means quite a lot of pitch practice. Here are the main points of feedback we tend to give to teams. This advice works for almost any kind of presentation you might give.

Speaking