Sequoia hosted a non-public, sponsored AMA for founders in Startup Battlefield and Startup Alley on the digital Disrupt SF final month. Stephanie Zhang, Konstantine Buhler, George Robson and Josephine Chen shared some key insights and greatest practices. It was good things, so we wished to share. We took some highlights from the session and chatted with a pair extra companions to dive deeper into what founders have to know — ask for assist, fundraising ideas, construct firm tradition and extra.
Fundraising requires the celebs to align
You’ve sat on each the founder aspect and investor aspect, what’s one factor you would like you could possibly have advised your founder self?
Shaun Maguire: I believe most founders don’t admire how random fundraising is. Having sat within the room for 5 years now, it actually requires the celebs to align for an funding to occur. It requires discovering a champion — with a view to discover a champion you need to discover them on the proper time. Possibly they’ve finished two different investments this yr. They really feel too busy. They tackle board seats and don’t have the bandwidth if you meet with them. Otherwise you’re catching them on a foul day. Or it’s an business they’d invested in beforehand with an organization that didn’t work. There may be plenty of randomness.
The agency can really feel like their funding tempo is just too excessive as a result of they invested in three corporations the week prior. So now the week you’re pitching them, they really feel just like the tempo is just too excessive, so the bar is now larger than it was every week in the past. Ninety p.c of the time it’s randomness and it’s not you.
What are issues a founder can do to organize for when the celebs align?
Shaun Maguire: If somebody goes to affix the board of your organization, it’s a long-term partnership. It’s a ten+ yr dedication. A variety of founders assume they need to solely meet VCs within the fundraising course of. They need to maintain the conferences once they have the deck prepared. Of the 15 boards I’ve been on, I’ve solely invested in a single founder, the place I met them throughout the month of the funding course of. All the others, I met them three months earlier than they got here to lift. Personally, if I’m coming into right into a long-term relationship, I need to know them as an individual and get longitudinal information. I need to see how they’ve been performing over time.
What would you say to founders who should not “typical founders”? How do you break via the pattern-matching framework some VCs have of their head?
Shaun Maguire: Establish your high-level ambition to start out an organization, after which work backwards. If that’s my objective, what are the stepping stones I have to get there? I personally had a 1.0 GPA in highschool and needed to get well from that. I believed rather a lot about stepping stone paths. I wished to go to a very good school…so I went to neighborhood school first. I considered: How am I going to face out? I have to go do one thing loopy and stand out. I have to do one thing totally different.
Reverse engineer it. Are there any instant issues I, as a founder, can do which are stepping stones to the larger targets. Second piece, be actually persistent. And it’s not what individuals need to hear. With Escape Dynamics [Shaun Maguire’s first company], we needed to pitch 100 traders and ultimately discovered one that will work with us.
Techniques to organize for fundraising
It’s a problem to lift. What do you do if you don’t have a lead and also you want a lead? How do you cross that bridge?
Stephanie Zhang: Deal with fundraising as you’d recruiting important group members. It’s invaluable to seek out the fitting associate, particularly on the very starting of the corporate. I like to think about it as a compass: A small diploma change within the route of your organization in month one has an outsized affect on the place you may be 10 years out. If it’s a problem to lift and also you don’t have a lead investor, I’d consider whether or not further capital is completely mandatory, and in that case, how a lot the corporate actually wants. The earliest rounds are the costliest dilution for a founder — and can solely compound through the years — so it’s vital to lift as a lot as the corporate requires to develop and attempt for a lead investor that may have a transformative affect over the long run.
When ought to a founder flip down an funding even when they’re operating out of runway?
Stephanie Zhang: The worth of getting the fitting companions — a robust model and community, a group who rolls up their sleeves alongside you, and somebody who cares about you as an individual and founder — compounds over time and gives unbelievable signaling on your firm. The reverse can be true. There are many choices for capital lately; it’s as much as founders to acknowledge those who provide actual worth, not valuation. At all times ask your self: Can this associate actually add worth and assist me bend the arc of my firm? Lower via the advertising noise by speaking to founders who’ve labored with that associate over years. Ask in regards to the good and dangerous instances, in addition to the profitable and fewer profitable outcomes — this may show you how to actually discern the variations amongst traders. Take into consideration which associate you need by your aspect for the following 10-20 years and who you need to flip to throughout the highs and lows of your company-building journey.
What suggestions do you’ve for founders who’re on the reducing fringe of issues that traders might not know put money into or might not perceive the area of?
Shaun Maguire: It’s actually vital to know the [min rule decision making] psychology and that’s what you’re coping with as a founder as a result of it could possibly change the techniques that you simply use. It’s laborious when you’re doing one thing innovative as a result of there’s much less sample matching for everybody within the partnership. First it’s essential to discover a champion after which it’s essential to discover essentially the most damaging particular person within the agency and attempt to win them over.
How does a earlier startup failure issue into your determination to put money into a brand new firm?
Shaun Maguire: A startup can fail for a wide range of causes, so we verify any bias on the door by decoupling the success or failure of a enterprise from the standard of the group. After we associate with a second-time founder, we speak rather a lot about their former expertise to gauge their skill to replicate and carry these learnings into a brand new chapter.
What are different success markers exterior income that you simply search for in early-stage startups?
Stephanie Zhang: We search for founders who’re constructing corporations that may grow to be generational and form historical past. An important factor we search for is a particular group: one which deeply understands the issue they’re fixing, has a novel and compelling perception that’s formed their approach of going about the issue, has grit and ambition to take them via the lengthy haul, and has business instincts to know how a compelling product might be over time to grow to be an everlasting, impartial enterprise.
Working a profitable startup
What’s one of many hardest components for founders constructing corporations within the early stage?
George Robson: Early-stage startups have an abundance of alternative, but additionally they have finite assets. It’s vital for founders to prioritize in a considerate approach. For instance, when seeking to broaden internationally, give attention to the important thing questions that matter, comparable to: ‘who’re your clients?’ and ‘the place are you able to construct a repeatable GTM operate?
When ought to a founder speak to an investor about points/pink flags/issues?
George Robson: Just like different relationships in life, the connection between an investor and founder is constructed on belief. Founders ought to be clear with their traders and really feel secure flagging points early to allow them to assist troubleshoot. If we’ve finished our job effectively, nothing we talk about at a board assembly ought to ever be a shock, as we’re supporting our founders to construct their companies on a regular basis.
At what level does somebody deserve a co-founder title?
Jess Lee: There’s no ‘one path’ to discovering or turning into a co-founder. I used to be retroactively made a co-founder of Polyvore because the founders felt I deserved it based mostly on my contributions — and that’s all the time meant rather a lot to me. I used to be technically the primary rent and never there from day one, however I acted like an proprietor, poured my coronary heart and soul into the work and helped form the tradition. Ultimately, I used to be additionally simply fortunate that Pasha, Guangwei and Jianing have been beneficiant individuals who went out of their approach to give me the title and even a few of their very own shares. I’ll all the time be pleased about that.
Tradition comes up rather a lot. Ideas? What are the 2 fundamental tactical steps corporations can take to construct a robust tradition to start with?
George Robson: Don’t compromise on individuals. Put tradition first at your organization and codify your tradition early.
Jess Lee: It’s by no means too early to outline your tradition. In reality, in our Firm Design Program — which provides early-stage founders the learnings and neighborhood to construct an everlasting firm — we offer founders with a framework for tradition: values → behaviors → tales. Values are the elemental beliefs and guiding ideas of the corporate, ideally said in a pithy, memorable approach. Behaviors are the way you need to see individuals act, based mostly on these values. Tales are the real-life anecdotes of when your organization lived these values. The tales are particularly vital, since that’s what individuals keep in mind. They assist make the corporate tradition tangible and simpler to operationalize. For example, individuals know the story of the Airbnb founders promoting cereal to make ends meet or of Jeff Bezos utilizing doorways for desks, which embody their values of entrepreneurship and frugality, respectively.