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The Secrets of Sand Hill Road - How to Get Venture Capital - Book Review - YouTube
Channel: Silicon Alley Podcast
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Welcome back to another financial glass video I'm William Glass. I
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recently read the secrets of Sand Hill
Road by Scott Kupor which is on venture
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capital and how to get it. Hey Siri
define venture capital venture capital.
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SIRI: Venture Capital means capital invested in a project in
which there is a substantial element of
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risk typically a newer expanding
business.WILLIAM: Scott does a really really
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good job explaining venture capital in
and out very easily did that easy to
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digest and also provides a lot of really
great insight into this kind of
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seemingly black box for folks on the
outside looking in so Scott works
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over at Andreessen Horowitz and was one
of the first employees that they
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had Andreessen Horowitz for those that
aren't familiar is a really famous
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venture capital firm. They have invested
in Instagram, Airbnb, and Facebook, Box
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Zynga just to name a few. So they're very
successful have a really big name, big
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reputation and the Secrets of Sand Hill
Road- Sand Hill Road for those that don't
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know is a famous road out in Silicon
Valley where all the venture capitalists
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big-name venture capitalists have
offices. So I highly highly highly
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recommend this book if you are a founder or
interested in venture capital. It really
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goes into great detail and it's very
easy to digest about things within VC
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that you wouldn't normally think about
so for example I think one of the key
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things that I took away was really
thinking about the incentives and
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promises that the venture capitalists
have made to their investors. Right the
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venture capitalists are using other
people's money to fund you. Yes they
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probably have some of their own money in
the funds but at the end of the day the
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majority of that money is actually from
other large investors so such as College
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endowment funds, pension funds, you know
those types of large institutions even
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hedge funds that are looking for an
outsized return on their
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but all so with that there are certain
terms that come with giving them (VCs) the
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money. it's not just hey here's whatever
amount of money like have fun there's
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different funds that are raised that
have certain time horizons and certain
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barriers in terms of what the venture
capitalists are allowed to invest in. Hey
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Siri define FUND. SIRI: as a noun it means a
sum of money saved or made available for
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a particular purpose. William: All of that is
really really important when you think
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about who you're gonna reach out to if
you are an entrepreneur in terms of you
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know who should you target so-and-so
just raised a fund or this is at the end
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of life fund those things really matter
right so if you are one of the first
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companies that receives investment you
likely have a larger longer time horizon
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with a little less pressure from the
venture capitalists to return the
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money that they've received from their
investors back to them which affects
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their relationship with you as a as a
founder so all that's really important
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if you wait till the end of life there
might be more expectations to quickly
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return capital and quickly grow
that may or may not be suited for where
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your company is at the time. So these are
all things that you wouldn't necessarily
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think about I know I didn't personally
when I was first starting have
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conversations with venture capitalists.
You know I was aware that there were
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these funds and there are certain things
I should be aware but I didn't really
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know. Right? I just knew hey certain come
certain VC's invest in certain things
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but that was kind of it. Scott does a
really good job going in-depth into the
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incentives and time horizons that VCs
are looking into I think the other piece
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that I found really helpful is that
oftentimes we get stuck on the
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valuations how much equity am i giving
away what's the dollar value without
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really thinking about the terms of the
investment. Hey Siri define TERM. Siri: as a
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noun it means conditions under which an
action may be undertaken or agreement
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reached stipulated or agreed-upon
requirements. And so Scott goes into
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great detail about the term sheet which
highlights exactly what those other
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riders and things are how does
will be held how the board will be
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controlled how capitals returned on the
next round (of investment). All that stuff that is
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actually really really important but
usually, you don't think about or discuss
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until you're presented with a term sheet
from a venture capitalist so those are
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really I think valuable pieces.
And then the last thing that I
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found really interesting is that
companies are staying private a lot
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longer so it used to be that companies
would IPO meaning they would do an
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initial public offering to become
publicly traded on a stock exchange and
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about five years or so during the
dot-com bubble that was even less but on
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average somewhere around you know four
or five six years now it's upwards of
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ten. And, why that matters, is that those
large institutional investors hedge
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funds college endowments retirement
funds used to just buy companies when
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they IPO'd when they were smaller and
they would have those same kind of
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returns but now because companies are
staying private longer there's so much
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more money in the private markets
companies that would have to go public
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to raise these large sums to continue to
grow don't have to but that also means
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that these other institutions are now
chasing those returns so they're getting
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into venture capital so it's kind of
this feedback loop that's occurring
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where if you're a retail investor like
you're you know Facebook senses IPO it I
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think has at least 4X which is
great but it's not what used to happen
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but if Facebook would have IPO you know
when companies normally would have five
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or six years into (vs 10+) it so these are just
really interesting just nuances of how
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venture capital and the investment
markets, capital markets have changed so
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Scott Kupor's book is a really really
good read and I recommend anyone that's
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an entrepreneur read it. Tt's just great
in terms of understanding capital
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investors regardless of whether you're
in technology or not.
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Venture capitalists aren't exclusively
in technology software and hardware. They
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do a lot of other things too so anyway I
highly recommend it it's an easy read
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there's a little bit of math in there at
certain points but overall it's a very
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very simple easy to digest book that
will give you really great perspective
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on venture capital and the incentives
behind it which will help you as a
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founder so hope you've enjoyed
today's conversation around Scott
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Kupor's book please subscribe on either
YouTube or Facebook Instagram follow the
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site whatever whatever you please
whatever is easier for you and let me
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know your thoughts thanks for watching
and have a good one!
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