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You can be a VC (I鈥檓 hiring): How venture works & what it takes to fund billion dollar startups - YouTube
Channel: Garry Tan
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i paid 15 cents to buy shares of
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coinbase
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nine years ago here's wall street
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journal reporter rolf winkler's tweet on
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the day of the ipo
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we were the earliest venture capitalists
[12]
in that company with shares that topped
[14]
out
[15]
on ipo day at 420 bucks
[18]
each vc on this list earned huge returns
[22]
that most regular investors can never
[24]
get
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but you'll notice we were first way
[27]
before it was obvious
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have you ever wanted to know exactly how
[31]
a venture capital fund
[32]
actually works you're in the right place
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because today you're gonna learn
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plus i have a huge announcement to make
[39]
initialized
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my vc firm that i created is hiring what
[44]
better way to learn
[45]
than by jumping all the way in you don't
[47]
have to have experience investing
[48]
but it can help and you don't need money
[51]
already
[51]
either what makes a good vc and are you
[54]
a good fit
[55]
to be an investor working with us at
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initialized
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watch this video and you'll find out and
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for some of you watching
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you might just get to join us let's get
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started
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first let's talk about the number one
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reason
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why a vc firm exists to generate returns
[84]
for our investors when we invest it's
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not my money
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it's the money of who we call our
[90]
limited partners
[91]
their endowments nonprofits retirement
[93]
plans and sovereign wealth funds that
[94]
professionally manage money
[96]
most of the world's money is actually
[98]
controlled by these organizations
[100]
and when we invest we do it because we
[102]
intend on returning
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a lot more money to those investors far
[106]
more than what they gave us
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and i have good news we've been doing it
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we get paid to invest
[112]
in the best possible founders this
[115]
started
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really in the 60s and 70s here's don
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valentine founder of sequoia capital who
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started with an
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8 million dollar fund in 1972.
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i'm not interested in entrepreneurs who
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will do it
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our way i'm not interested in
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entrepreneurs who think as a dress code
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i'm interested in entrepreneurs who have
[137]
a vision
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of doing something consequential
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preferably that becomes big
[144]
don is one of the absolute legends of
[146]
venture capital
[147]
sequoia the venture firm he created has
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now funded companies that represent more
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than
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3.3 trillion dollars that's trillion
[156]
with a t to put it in perspective all of
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the nasdaq has a market cap
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of about 10 trillion y combinator where
[164]
i worked at
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has created about 400 billion dollars
[167]
worth of wealth
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founded by paul graham and jessica
[170]
livingston in 2005
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15 years ago they gave me my start
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i started initialized in 2012
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with a first fund of just seven million
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today we're involved in over a hundred
[183]
billion dollars worth of market cap in
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less than nine years
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like i said at the top of this video we
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just had our first
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mega win we just returned hundreds of
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millions of dollars
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to our initial investors on the ipo day
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of coinbase
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i made a youtube video about that linked
[200]
below if you want to learn more
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if you missed that now's a good time to
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check that out and come back
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not only that we're the very first
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investors and almost a dozen startups
[210]
now worth over a billion dollars
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instacart in grocery delivery flexport
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and logistics
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patreon and creator payments row and
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true pill and pharma
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standard cognition and autonomous
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checkout cruise automation
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and autonomous cars open door and real
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estate
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blend and mortgages and many more we
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have dozens more in the wings growing
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quickly with
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real product market fit and we're just
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getting started
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when you're thinking about a career in
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venture capital or even deciding which
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vc fund to take money from
[240]
whether or not that vc fund is a winner
[243]
matters a lot
[244]
look i'm not saying this is a good thing
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it's just how it works just as
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getting a degree from harvard stanford
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or oxford will help you in your career
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a startup funded by a top vc firm will
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do better
[255]
it'll be able to hire smarter and better
[257]
people raise more money from better next
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stage investors and with those things
[261]
build a better product that wins in the
[264]
marketplace
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so what does that mean it means vc
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itself is winner take all
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and you'd better pick wisely getting the
[272]
right investor early
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can be a pivotal moment in a startup's
[276]
history
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and you can be part of it always
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remember though
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being the best most well-known brand in
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vc might be the sizzle
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but the stake is in the returns
[289]
if you want to build the future you've
[291]
got to believe that you can do it
[294]
we live in a crazy cynical world these
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days and being a cynic just doesn't work
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for venture capital
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we fund ideas when they're still not
[301]
obvious and they often seem crazy to the
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public
[304]
mark andreessen talks about this moment
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in the 1990s when vc and tech startups
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were sort of at the height of
[310]
a form of cynical madness when any
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buzzword-filled startup with the right
[315]
mbas was going to ipo
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at the height of the bubble in 98.99 the
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products that were getting built for the
[320]
most part weren't very good
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and these companies were kind of on this
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bomb run to get public as fast as
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possible and you had all these catch
[325]
phrases uh like go big or go home
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uh or my other favorite one at the time
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which was forget details just do deals
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and so you had this really kind of
[334]
mercenary hit and run approach to
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building companies
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and then all those companies vaporized
[338]
after the crash because it turned out
[339]
they didn't have
[340]
valuable products they didn't have deep
[341]
engineering capability and then
[343]
all the engineers who worked for those
[344]
companies hated working for those
[345]
companies because they were completely
[347]
sales driven sales led
[348]
these kind of mercenary kind of
[349]
exercises at the height of
[352]
of how bad it got now things have
[354]
clearly swung
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way over to the other end and i actually
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think that's a fantastic thing these
[360]
days it's less about money or bluster
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or getting rich quick now you have to
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come through with the realness
[366]
at initialized we have a strong
[368]
preference for technical product and
[370]
design-oriented founders because those
[372]
are the builders who have actually
[373]
changed the world
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the ones who can build it usually do
[377]
here's a porva meta from
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instacart talking about his earliest
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days trying to get
[382]
funding from y combinator while i was
[385]
there
[386]
so i decided that i wanted to go to y
[387]
combinator but there was one slight
[389]
problem
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the application deadline had passed two
[392]
months ago
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but somehow i knew that if the if the yc
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partners experienced instacart they
[398]
would have to let me in
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so i contacted all the the yc alumni
[402]
that i had in my network
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for introductions to the partners and in
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the next 24 hours i started to get those
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introductions now all i had to do was
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wait
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one by one all the responses started to
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come in and there
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and the answers were always the same no
[416]
way it's too late
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and then finally i got gary tan's
[420]
response
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and this gave me some hope he said you
[423]
could fill out a late application
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but it's nearly impossible now so that
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meant it was possible
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i realized that at this point none of
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the yc partners that actually
[435]
experienced the product
[436]
did they even know what it was did they
[437]
even know how it was different
[439]
so i i knew i had to make one last
[441]
attempt i opened my app
[443]
placed an order for a six pack of beer
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and addressed it to gary tan at the yc
[447]
headquarters
[448]
one of my drivers john made the delivery
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and texted me to let me know it was done
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and uh half an hour later i got a call
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from gary tan
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i'm not sure if it was the beer talking
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but he asked me
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to come to the yc headquarters the next
[461]
day to meet the partners
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instacart is now a company worth tens of
[465]
billions of dollars
[466]
when that six pack of beer hit my desk
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and i downloaded the instacart app
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i knew we had to fund it and that's a
[473]
really fun part of this job
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it didn't matter in that moment that
[476]
there were dozens of other startups that
[478]
had tried to do this and failed like
[480]
webvan
[480]
it only mattered that this founder had
[483]
created something truly great
[484]
and because i was an engineer and
[486]
designer i could tell
[488]
that's something we've learned from yc
[490]
yc has always prided itself on bringing
[493]
on investing partners who have deep
[494]
product or technical backgrounds
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and it's something that we look for in
[499]
our future investors who could work
[501]
at initialized and as you can tell from
[503]
this video apoorva wouldn't take no for
[505]
an answer
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that drive and never give up attitude is
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really powerful
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because if you've got it you can
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recognize it
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in other founders it all boils down to
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belief
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if you have a builder who can make you
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believe
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then they can make everyone believe and
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that's how you can build something
[523]
truly great that's something we use
[526]
absolutely all the time
[527]
are you a builder and do you have those
[529]
skills and do you have the belief that
[532]
tech can change the world fundamentally
[535]
for the good then you're on the right
[537]
track to being a great vc
[539]
and maybe working at initialized
[543]
many of the truly giant outcomes in
[545]
startups are both contrarian
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and right in the last act we talked
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about
[550]
at least one form of contrarianism in a
[553]
world full of cynics with the wrong
[554]
belief
[555]
it is the person with deeper real belief
[558]
who we're looking for
[560]
here's legendary investor peter thiel
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talking about belief
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as a basis for contrarianism there are
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almost no bubbles left
[568]
because people don't believe in anything
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anymore and so
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um and so to be contrarian in a world
[574]
where people don't believe in anything
[576]
is to actually think about things to
[579]
have well-defined beliefs
[581]
and to anchor that so um so i think the
[583]
way to be contrarian is to think for
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yourself
[585]
this kind of thinking is particularly
[587]
important because investors and founders
[589]
need to pick
[590]
good ideas not all ideas are good
[593]
and in fact most of them are paint by
[596]
numbers
[597]
kind of like how bad hollywood movies
[599]
get greenlit
[600]
there's sort of a hollywood version of
[602]
this where uh the way movies always get
[605]
pitched is
[606]
you know okay it's like a college
[608]
football star
[609]
you know uh joins an elite group of
[612]
hackers
[613]
to um to catch the shark that killed his
[616]
friend
[616]
now that is a movie that has not yet
[618]
been made
[620]
but the question is is is that the right
[622]
category or is the correct category
[624]
it's just another movie in which case
[626]
you know there are lots of those
[628]
it's super competitive incredibly hard
[630]
to make money no one ever makes money in
[632]
hollywood uh doing movies
[633]
it's really really hard and so you
[635]
always have this question about
[637]
does the intersection does is it real
[639]
does it make sense
[640]
does it have value that one should ask
[642]
and of course there are startup versions
[644]
of this where you
[645]
and the the sort of the really bad
[647]
versions you just take a whole series
[649]
of buzzwords sharing mobile social apps
[651]
you combine them
[652]
and you have some kind of uh narrative
[654]
and whether or not that's a real
[656]
business or not
[656]
it's generally a bad sign so it's almost
[658]
this pattern recognition
[660]
when you have this rhetoric of this sort
[662]
of intersections
[664]
it generally does not work the something
[666]
of somewhere
[667]
is really mostly just the nothing of
[669]
nowhere it's like the stanford of north
[671]
dakota
[673]
one of a kind but it's not stanford
[675]
we're looking for people who are
[676]
independent thinkers who think from
[678]
first principles and if you're that kind
[680]
of person
[681]
you're gonna see paint by numbers right
[684]
away
[685]
that hollywood style startup idea does
[687]
sometimes work
[688]
but founders pursue it at a far larger
[691]
rate
[692]
and it produces way more failure thiel's
[694]
philosophical basis for
[696]
this phenomenon is actually from rene
[698]
gerard and his idea of mimesis
[700]
that our desires the things that we want
[702]
as people
[704]
come from other people the result well
[707]
peter says thinking about how
[709]
disturbingly hurt like people become
[711]
in so many different contexts memetic
[714]
theory
[715]
forces you to think about that which is
[717]
knowledge that's generally suppressed
[719]
and hidden
[720]
as an investor entrepreneur i've always
[722]
tried to be contrarian to go against the
[725]
crowd
[726]
to identify opportunities in places
[728]
where people are not looking
[731]
that's why being a contrarian going
[733]
against the herd
[734]
and then being right is one of the major
[737]
key and frankly fun ways to do this
[739]
business
[739]
every so often someone comes in and
[741]
teaches you some kind of secret
[743]
knowledge and the best way to figure out
[745]
if someone sitting across from you has
[747]
secret knowledge at all is to ask them
[749]
what do you believe that nobody else
[752]
believes
[753]
that's how you see value where the vast
[755]
majority of others you know the paint by
[757]
numbers people
[758]
the get rich quick people the scammers
[759]
the do nothings
[761]
those people don't this is how we win
[768]
finally and what's most important for us
[770]
can you be a benevolent
[772]
investor this means three things being
[774]
fair
[775]
direct and honest while these things
[777]
shouldn't be unusual traits for venture
[779]
capitalists
[779]
an outsider would probably be surprised
[782]
by the kind of behavior you run across
[784]
in the realms of high finance but if
[787]
you're an insider
[788]
you know exactly what i mean i know this
[790]
part of the video might get me in
[791]
trouble
[792]
someday because we're not perfect people
[794]
by any means
[796]
but i want you to know it's my direct
[798]
intention to build a venture firm that
[800]
wins without playing the games that are
[802]
commonplace in venture capital and
[804]
business
[805]
culture broadly like this the point is
[808]
ladies and gentlemen
[810]
that gree for lack of a better word
[814]
is good i'm glad to say that you don't
[817]
have to be that way
[818]
to get ahead in fact what we've learned
[821]
is kind of the opposite
[822]
the best founders can choose anyone and
[824]
they will choose those who are most
[825]
trustworthy first
[827]
being a bad actor is adverse selection
[830]
in an iterative
[831]
infinite game like venture capital you
[833]
might win
[834]
in this deal but you're gonna lose in
[836]
the long run and this is the longest run
[839]
game there is venture capital structures
[841]
last for 10 to 14 years and
[843]
these days longer and longer because
[845]
that's how long it takes to go from an
[847]
idea
[848]
all the way to an ipo how we do the work
[851]
matters i think of bill walsh in his
[854]
book the score takes care of itself
[856]
he says i directed our focus less to the
[858]
prize of victory
[860]
than to the process of improving
[863]
obsessing perhaps about the quality of
[865]
our execution
[866]
and the content of our thinking that is
[869]
our actions
[870]
and our attitude i knew that if i did
[873]
that
[874]
winning would take care of itself
[877]
that's what i believe too do right and
[879]
you'll win
[880]
initialized has the luxury of doing this
[882]
because we've consistently had great
[884]
funds my friend jason lemkin tweeted
[887]
this and it really reminded me of that
[889]
luxury
[889]
with a 1x net gp a write-off is high
[892]
drama
[893]
in a 2x net fund every write-off hurts
[896]
but in a forex plus net fund
[898]
write-offs don't matter we are that
[900]
third kind of fund
[901]
five core funds 770 million dollars in
[904]
committed assets later
[905]
we're doing great and that's why we can
[908]
be better
[908]
partners to founders consistently i see
[911]
this over and over again with other
[912]
co-investors
[914]
i won't name names because bad days
[916]
happen to everyone
[917]
the ones that cause the biggest problems
[919]
are the ones that are actually doing
[921]
the most poorly just as squeezing harder
[924]
on a handful of sand will force
[926]
more grains out squeezing founders when
[928]
their problems
[930]
will ensure startup failure and here's
[933]
how it happens
[934]
first the team misses revenue targets
[936]
for a quarter
[937]
second the investor starts micromanaging
[939]
the founder but then third
[941]
the founder spends more time giving
[943]
reports to the board than actually
[944]
fixing the problem
[946]
the result the startup never recovers
[948]
and dies
[949]
greed and insecurity actually begets
[952]
failure at that step three
[953]
instead of making founders feel like
[955]
employees the right thing to do is
[957]
help identify the root cause sometimes
[959]
the roles and responsibilities of their
[961]
executives sometimes it's the business
[963]
model
[964]
the go to market sometimes it's the
[966]
product whatever it is
[967]
you can only help if you first do no
[970]
harm
[971]
being benevolent and helpful can drive
[973]
better decisions and better results
[975]
if you solve the root cause with high
[977]
integrity you can get the company to a
[979]
better state
[980]
i find this absolutely all the time and
[982]
if i had to point to why i think
[984]
initialize will win it's this being fair
[987]
direct and honest above all we don't
[990]
compromise when it comes to how to treat
[992]
people
[993]
each other and the founders we work with
[996]
this is how we really win
[999]
so that brings me to the big announce
[1002]
initialized
[1002]
we're hiring most vc firms won't do an
[1005]
open search like this but i'm pretty
[1006]
sure we're going to get to know some
[1007]
amazing people this way
[1010]
we believe deeply in the value of
[1012]
diversity both in terms of experiences
[1014]
and background and that's important
[1017]
because
[1018]
the more diverse our team is the better
[1020]
our decisions will be
[1021]
and the more we can bring about the
[1023]
world we all want to live in
[1025]
there's two roles we're hiring for one
[1027]
is
[1028]
a principal which means you don't have
[1030]
to have investing experience
[1032]
you might be a founder or an executive
[1035]
we want someone who can really help
[1036]
startups go from zero
[1038]
to one we think of this principle role
[1041]
as the place where
[1042]
you'll mainly help founders but this is
[1044]
also a place where we're gonna teach you
[1046]
how to make investments it's okay if you
[1048]
haven't done it yet
[1050]
we're also hiring a partner this is more
[1052]
ideal for people who actually have some
[1054]
investing experience and a successful
[1056]
track record
[1057]
you might be an angel investor or you
[1059]
might be a partner or principal at
[1061]
another venture firm
[1062]
across all of these roles you don't need
[1065]
to be
[1065]
from a particular school you don't have
[1067]
to have worked at google or facebook
[1070]
we don't care about that kind of
[1071]
background as much we care about your
[1074]
experiences
[1075]
what can you do and keep in mind these
[1077]
are pretty senior positions
[1079]
whether it's the head of a startup
[1081]
that's working
[1082]
as an early employee or an executive
[1084]
coming up or as an investor working
[1086]
at a great venture firm already even an
[1089]
angel investor working on your own
[1091]
why do we need so much experience
[1094]
because that's what founders really need
[1096]
jay-z once rapped everybody want to tell
[1098]
you how to do it but they never did it
[1100]
the link is in the description and if
[1102]
you have friends you think would be
[1104]
great for initialized
[1105]
please pass this video on the world's so
[1108]
full of capital and most finance people
[1110]
say
[1110]
there's too much money chasing too few
[1112]
good ideas and too few good teams
[1114]
that's just wrong to me you know i agree
[1117]
there's infinite money
[1118]
but there's an infinite number of
[1120]
problems to solve and if my youtube
[1122]
channel has taught me one thing
[1124]
it's there an infinite number of really
[1126]
smart good people out there
[1128]
to solve those problems that's what
[1130]
initialized is built to do
[1132]
so that's it i hope you learned a thing
[1134]
or two about what makes a good vc
[1136]
what we're looking for and i hope i get
[1139]
a chance to work with
[1140]
you at initialized if you made it this
[1143]
far
[1143]
don't forget to click subscribe and hit
[1145]
the bell icon so you'll
[1147]
see every single video we post here
[1150]
you can count on something every week
[1153]
that i think
[1154]
will help you build a business be a
[1156]
better leader be a better manager and
[1158]
yes
[1159]
maybe build a billion dollar startup
[1163]
i'll see you next week
[1177]
[Music]
[1184]
you
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