We've raised some seed money,used amazing presentation skills to raise money.Okay, you raised it from angel investorsor seed investors,those are just terms for peoplethat fund early stage companies by giving them a couple hundred grand to start a firm. Alright, so, your company is now a bit bigger, right?
You started generating revenue. And now you need a lot of money to get to the next level, and so, I don't want to use a bank, ever, okay? Because remember, early on, with banks, if you miss one payment, they will seize everything in your company, they will terminate your company, they don't care, they're ruthless, they're blood suckers.
Okay?we've raised some seed money, used amazing presentation skills to raise money. Okay, you raised it from angel investors or seed investors, those are just terms for people that fund early stage companies by giving them a couple hundred grand to start a firm.
Alright, so, your company is now a bit bigger, right?
You started generating revenue. And now you need a lot of money to get to the next level, and so, I don't want to use a bank, ever, okay? Because remember, early on, with banks, if you miss one payment, they will seize everything in your company, they will terminate your company, they don't care, they're ruthless, they're blood suckers.
Okay?
Assume that you are here now year 2-3
So, how to get it? It's not always about the business model rather the guy who asks for it.
Remember, The jockey's more important than the horse.
The business model is irrelevant, unless you have a great management team.
So, your chances to get investment depends:
- If you had a company before which you build and sold. This shows your experience. They will ask why you sold it and how was the income when it was running.
Yes, it's tough. So, what you can do is:
Go to LinkedIn and search for Googlers or talented minds who are your Alumni and well as they are currently working at good places.
You can ask help from them. Surely, you would love to have them as the board of advisors.
May be the message might look like this:
John, hope all is well,
and I'm also from Canada, and I live in the Bay Area, or I also went to San Francisco State, I live in the Bay Area, or I also went to,I don't know, NYU and I live in the Bay Area. Or I also went to IIT and live in the Bay Area. Please let me know if you have time for a coffee in the next few weeks.
Thanks, Chris.
How VC earns?
Well venture capital or VC firms make money
in two ways,
- one way is a charge of 2% annual fee on the money that you invest in them, right? And that just pays for salaries, rent, expenses.
And here's the kicker.
- They make most of their money on what's called the carry, which is a 20% incentive that they get. So what does that mean? Well let's say you invest $100 in a venture capital firm. And you make 10 times your money,
so you make $1000. About 20% of that will go to the venture capital firm. They'll make $200 off you, and you'll make $800.
2 and 20, those are the terms.
And hedge fund actually works the same way as well. An annual 2% manage fee. And a 20% incentive.
So the seed stage is the first stage. When you kind of have a product, approved concept, sort of, developing it, and then,
the last stage is called the initial public offering, IPO. And that's when revenue growth starts to slow a bit, but still positive, and later on.
So, everything lying between Seed stage and IPO are Venture Capital (VC)
Alright so, the A round is when Sequoia (A company) gives us a lot of money for our company.
And a year and a half after our A round, or 2 years later, we're running out of money.
And so we're gonna wanna do a B round. Again, from Kleiner. And 2 years later, whatever, we're gonna need a little bit more money
before we go public from Meritech, a great venture capital firm,
and Silicon Valley Bank.
so, from birth to IPO,And so, from birth to IPO, is usually seven or eight years
So what returns do venture capital firms look for?
Well they typically look for what's called a five by five.And that means a 500% return within five years.
Why so big? Because most investments go belly up. In fact most companies that get started end up declaring bankruptcy within a couple of years.
Okay, what about valuation?
Well, in venture capital, you never look at valuation this year or next year, in fact, the best investments you'll make in your life in your life, whether they're private companies or public companies, ask yourself one question before analyzing that company.
Which is this.
In five years, in this company that I might invest in going to be more relevant or less relevant than it is today?
Let me say that again.
In five years, is this company going to be more relevant or less relevant than it is today? Okay, it teaches you to be a long term investor, like Warren Buffet, which works exceptionally well, instead of playing the month to month gyrations of the idiotic hedge fund market where I used to work.
There's a reason why I'm in venture capital now. And so, in five years, is this company going to be more relevant or less relevant
than it is today?
And so let's say we're looking at Amazon, or LinkedIn, two amazing companies. I think one day Amazon will have the largest market capital in the world, they're the biggest company in the world. But if you look at earnings this year and next year, it's over a hundred times earnings, and goodness, who would waste their money
investing in that company?
Well, a lot of people lost a lot of money shorting or betting against Amazon, because, they're just too short term focused, remember, you wanna be long term greedy, right? And so, longer term, Amazon will make a ton of money. And the same thing with LinkedIn.
Two big sales techniques:
that I've learned from dealing with some of the most successful CEOs in the world is they do this.
- They stopped talking once they sense the sale is done, OK, once once they sense that their customer actually wants the product or service they're trying to sell. They actually shut up.
Why?
Because what happens is if you keep selling past the close, then people are going to sense desperation and think that there's something wrong here and that you might be over selling your product or service
so you want to stop speaking Once you sense that the sale has been made, OK.
- And the second thing is.
Keep selling until You're convinced that they're not interested. OK, so if they're interested, stop talking. But if you're not sure if they're interested, you keep going, man, you've got to be a a pit bull on a pork chop, so to speak.
Venture capital firms focus primarily on having a superb management team unlike this dude presenting to venture capitalists and high net worth investors. Pay very close attention to what not to do in this video: https://youtu.be/48TR0vUPQCs?si=Hkq8LkUpl1qWmCyX
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