Jim* had an interesting product, but I was having trouble following his pitch. He skipped from idea to idea and feature to feature, leaving me confused.
Jim: “SaaSy is a sales tool for teams. Here’s the messages screen. This is where you go to book a meeting. We’re planning on adding a Slack integration once we get enough resources from this fundraise.”
I sat there, quietly stumped.
“What’s the real value proposition here?” I thought to myself. “And if I can’t understand it, how will a customer?”
Sell a Vision, Not Just a Product
Some founders have a solid product with decent traction. But they just can’t tell the story.
I pay close attention to a startup’s metrics. But if the founder can’t sell the vision, I’m out.
Scott Kupor, Managing Partner of Andreessen Horowitz, emphasizes how important a great pitch is in his excellent book, The Secrets of Sand Hill Road.
“….VCs are trying to determine whether this founder will be able to create a compelling story around the company mission in order to attract great engineers, executives, sales and marketing people, etc. In the same vein, the founder has to be able to attract customers to buy the product, partners to help distribute the product, and, eventually, other VCs to fund the business beyond the initial round of financing. Will the founder be able to explain her mission in a way that causes others to want to join her on this mission?”
So much of being a founder is selling — to customers, employees or investors. If you can’t do it, you’ve got big problems.
How to Get It Right
How could Jim do better? Here’s what I’d like to see…
Jim: Our product, SaaSy, will change the way sales is done forever. Salespeople can close deals 10x faster.
Me: Can we run through a demo?
Jim: Sure! The customer comes to the dashboard, where he sees a list of top prospects from LinkedIn. These are the people most similar to those who have bought in the past.
Me: Cool!
Jim: Then, he can send automated messages to each of them to book a meeting. Each message is personalized.
And it all happens with one click.
Now, he can spend less time sending cold messages and more time meeting with great leads.
Jim has clearly shown not just what his product does, but why it matters.
No one is going to be impressed with a tour of features. But show them you’re solving a real problem they have, and they’ll be reaching for their wallet.
Keep Your Presentation Tight
In early stage startups, the founder does most of the selling. If he rambles and can’t quickly show his product’s value, he won’t make many sales.
Keep your pitch tight and focused. Clearly tell me what the company does and why it matters.
You should be able to demo a product in about 3 minutes. Save lots of time for questions.
When you answer a question, don’t go into a long story. Your answer should take about as much time as it took to ask the question.
Wrap-Up
When a founder presents a compelling vision and shows me how he’ll get there, I get excited. So do customers and employees.
Get lost in details, and you’ll lose your audience as well.
What do you think makes a great pitch? Leave a comment and let us know!
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In 2009, a small startup called Square was raising its Series A. Andreessen Horowitz saw the deal and passed. That mistake cost them $4.8 billion.
The Pitch
Square (now Block) had a big idea: make it easy for small merchants to take credit cards. It had an awesome product: a little dongle you could plug into your phone and accept credit card payments anywhere, any time.
But there was one problem.
Although Jack Dorsey of Twitter fame was a co-founder, he wasn’t the CEO. That spot was held by Jim McKelvey, a childhood friend.
“…we didn’t know Jim nor did we have a good way to evaluate his skills as a CEO for the company, and we wondered whether Jack might prove to be a better long-term CEO for this business.”
Scott Kupor, The Secrets of Sand Hill Road
Andreessen liked the concept, but wasn’t sure if Jim was CEO material. So they passed on the deal.
A $4.8 Billion Mistake
The Series A instead went to Khosla Ventures. They invested $10 million at a $40 million post-money valuation in November of 2009.
Today, that stake would be worth approximately $4.8 billion, assuming 50% dilution.
For any investor, our biggest mistakes aren’t the deals we did. It’s the ones we didn’t.
$10 million is a lot of money to you and I, but to Andreessen Horowitz, it’s nothing. But holding on to that money because the deal wasn’t perfect cost them one of the great investments of all time.
Scott Kupor, Managing Partner of Andreessen Horowitz, recounts this fascinating story in his book The Secrets of Sand Hill Road.
What Went Wrong?
Where did Scott and a16z mess up here?
They should’ve taken one look at this deal and dropped a massive pile of cash on Jack’s head.
His other company, Twitter, was already a unicorn by September of 2009. He was clearly one of the great entrepreneurs of his generation.
Maybe a16z would’ve preferred Jack in the CEO slot. But no deal is perfect!
If these startups had every single thing figured out, they’d be in the Fortune 500 and they wouldn’t need us. Every deal will have its imperfections.
But when one of the greatest entrepreneurs of his day gives you the opportunity to be in business with him, you take it. End of story.
When Opportunity Knocks…
I put this theory into practice in the summer of 2021.
The deal memo for Callin was at the top of my inbox. I worked late into the night researching the company, a social app for audio.
Callin hadn’t hit all the benchmarks I usually look for. But in the end, only one detail really mattered.
David Sacks, the co-founder of PayPal, started it. I was in.
Ultimately, I didn’t get an allocation. The deal was massively oversubscribed. And in the end, Callin was acquired for a modest sum, never having quite found an audience.
Nonetheless, I would make that bet again any day.
Wrap-up
The opportunity to invest in Jack Dorsey seems like the perfect deal to me. But we can pick holes in even the best pitch.
We have to remember to not just think about what could go wrong for a startup. We have to think about what could go right!
Would you have invested in Square? Why or why not?
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Venture-backed startups have created virtually all of the net new jobs since 1977. Of the top 5 US companies by market cap, every single one raised venture capital.
Venture capital has a huge impact on the US economy, but few people understand how it works. In The Secrets of Sand Hill Road, Scott Kupor, Managing Partner of Andreessen Horowitz gives us his investing playbook.
Focus on the Market
“…the cardinal rule of VC investing: everything starts and ends with market size.”
A tiny fraction of companies give VC’s basically all their returns. To create a massive company that will make VC’s money, a startup has to be in a huge market.
After a little over two years investing in startups, my biggest lesson has been to focus on the market. A company building in a huge market at least has the chance to become something big.
Reputation Matters
“….the startup community is a small one, and many people are repeat players in the ecosystem…”
Scott finds most of his deals through his network. He has a great reputation as an investor, so good deals come to him.
But if an investor has a reputation for being dishonest or meddlesome, those good deals never reach his desk.
I try to be as helpful as I can to the companies I invest in. And when it doesn’t work out, I do my best to be supportive, rather than pointing fingers.
That’s partly just because I don’t want to be a jerk. But I’m also well aware that in every interaction, I am either building my reputation or ruining it.
Finding Deals
One area where I disagree with Scott is in his emphasis on warm intros.
I too make a lot of investments that way. But I don’t think we can count on the best founders to seek us out.
A great founder might not pitch Scott because he’s already met with Benchmark! And if that’s true for someone with Scott’s high profile, it’s doubly true for me.
That’s why I think contacting startups proactively is important, and do it regularly. The best startups won’t always find you.
How Angels and VC’s Work Together
VC’s like Scott and angels like me form a powerful symbiosis.
“Angel or seed investors are often an important source of referrals for VCs. It helps that they are upstream from the VC’s in that they are typically investing at an earlier stage than might a traditional VC. As a result, many VCs develop relationships with angel and seed investors, with whom they live in a symbiotic relationship in the venture world. Angel and seed investors have a direct interest in seeing the companies in which they have invested raise additional (and usually bigger) capital downstream from VCs, and the VCs are interested in a curated pipeline of interesting opportunities in which to invest.”
That’s why I love meeting VC’s, especially if they invest in the same areas as me. My companies need to raise more money in the future, and they can make it happen.
This is also great for VC’s like Scott. I meet tons of companies and show them the best ones, making their job a lot easier!
Wrap-Up
This book contains a wealth of information on the nitty gritty of venture capital. Scott explains all the ins and outs of term sheets, board formation, and a lot more.
That’s more detail than I can cover here. But if you want to know everything there is to know about raising money, this is the book for you.
My top takeaway as an investor is to shoot for the biggest outcomes. We can’t take down big game by aiming at pigeons.
A huge thanks to the wonderful Mash Kabir for sending me this excellent book! Check out his company, Sparrow, to take your startup’s marketing to the next level!
Have you read The Secrets of Sand Hill road? Do you plan to?
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Billionaire investor Carl Icahn took a massive loss Friday as his company, Icahn Enterprises (IEP), slashed its dividend by half. From a new report in Forbes:
Shares of Icahn Enterprises plunged 25% Friday morning after Carl Icahn’s firm cut its quarterly distribution in half, leading to a $1.7 billion drop in the 87-year-old billionaire’s net worth—months after infamous short-seller Hindenburg accused the company of “ponzi-like” behavior.
The Hindenburg Report
In total, Icahn has lost over $6 billion since May, when short seller Hindenburg Research released its report. The report claimed that IEP uses new share sales to fund unsustainable dividends.
But it’s not just Hindenburg that’s nosing around. The US Attorney and the SEC are probing IEP, per a Bloomberg report.
There is no proof that Icahn or IEP has acted improperly and no charges have been filed. But some of IEP’s financial practices seem questionable.
A History of Poor Performance
IEP has made operating losses for years. But continued share sales provide the cash to pay a huge dividend, which props up the stock’s price.
In fact, nearly all recent dividends came from just giving shareholders back their own money. From a report in The Wall Street Journal:
Hindenburg also pointed out that the company has been paying dividends of late through cash on hand rather than investment profits, largely through returning capital to shareholders. Tax documents for Icahn investors after the most recent dividend payment showed that of the $2 payment investors were receiving, $1.80 was a “return of capital.” That bolstered Hindenburg’s argument that the dividend was unsustainable.
Icahn Enterprises Reaches the End of Its Rope
Now that IEP’s stock is falling hard, it may be difficult for them to sell more shares. Without those share sales, they can only keep paying dividends for so long.
I agree with Hindenburg that IEP is likely to cut the dividend further, perhaps to zero. If it does, the stock is likely to crater once again.
IEP in its current form is not a sustainable business. Its operations make losses every year which are papered over with new stock certificates.
IEP must either find a profitable business model or shut down.
What’s Next for Carl Icahn?
Carl Icahn has bought himself some breathing room by working out new terms for his massive personal loans. But much of his net worth remains tied up in the failing IEP.
Add investigations by the US Attorney and SEC, and Icahn could be facing disaster.
What do you think the endgame is for Carl and Icahn Enterprises? Leave a comment and let us know!
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From AI chatbots to venture funding to rockets, the US isn’t just ahead of competitors. Increasingly, it has no competition at all.
I met with a great entrepreneur from Japan this week who recently moved to New York. I told him how much I loved Japan when I visited.
His response:
“It’s a great place to visit. But it’s not a good place to do business.”
The US Dominates Venture Capital
This founder was trying to raise capital for his startup. Given US domination of VC funding, it seems he’s come to the right place.
US companies raised four times as much venture capital as startups from our nearest competitor, China. We exceed the UK and France combined by a factor of 5.
And Japan, this founder’s home, saw just $5 billion in venture funding last year. OpenAI alone has raised more than that.
The picture is even more lopsided when it comes to AI. The US blows away all competitors in funding, investing 5 times as much as China or all of Europe.
US dominance goes beyond venture capital. Increasingly, even space belongs to America:
Beginning about 5 years ago, the number of US space launches…well…skyrocketed. Much of this is due to SpaceX.
In 2022, 83% of all objects launched into space were launched by the United States. As space becomes increasingly important for communications and more, the US has the industry almost to itself.
R&D Is Our Bread and Butter
The US even accounts for almost half of all global R&D spending. At $710 billion, our investment in R&D is nearly double that of the entire European Union.
Money abets innovation. But what’s really setting the US apart from its competitors is a unique culture.
Why American Culture Wins
I know a great young founder from France. I invested in his company last year, an exciting dev tools startup.
Sure enough, he built that company in San Francisco, not Paris. We caught up at a cafe in New York this summer.
“My friend told me that in Europe, if you fail at something, you’ll never have a chance to do that thing again,” I said.
“He’s absolutely right.”
That mentality will never produce innovation. Innovation requires constant, brutal failure…until you figure it out.
From Fierce Competitor to the Only Game in Town
What you’re seeing is US advantages in both culture and money compound. The 21st century may be the time when the US finally pulls away from the rest.
US GDP per capita is already double that of the EU. I can imagine a future where it’s 5 or 10x.
Unless…
What could derail America? I think the biggest threat is anti-immigrant sentiment.
Immigrants are scrappy. Immigrants take risk.
They’re far more likely to be entrepreneurs. Google, SpaceX, and NVIDIA were all founded by immigrants.
We’ve succeeded because we’ve taken the most talented people in the world and put them in the world’s best environment for innovation. Lose that, and we lose it all.
Let’s double down on our strengths and make America the best it’s ever been.
Do you think the US will dominate the 21st century? Why or why not?
Leave a comment and let us know!
Have a great weekend everyone!
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Imagine the perfect teacher. She’s an expert on every subject, but can explain it like your five. She’s patient, answering as many questions as you want.
And forget $50,000 a year tuition. What would you say to…$0?
Well, we’re here! ChatGPT just might be the best teacher in the world.
Reading up on defense tech recently, I encountered a term that broke my English major brain: “synthetic aperture radar.” What the heck is that? So I asked one of my favorite teachers: ChatGPT.
I started by asking for a basic overview of what synthetic aperture radar (SAR) is.
GPT explained that SAR makes the radar antenna move. It also uses microwave radiation.
This makes it easy to see through clouds and capture very fine detail.
But I wasn’t really clear on how that antenna motion works. So I asked a follow-up question.
GPT explained that the antenna moves in order to capture the target from different angles. That gives you a higher resolution picture.
I was also curious whether this was a new technology or not. Turns out this amazing tech has existed since the 1950’s! Drones and other aircraft use it today.
What I have here is a world expert on any topic I want.
It can tell me about synthetic aperture radar and answer very specific questions. Then it can move on to the Napoleonic Wars in seconds.
Let’s imagine Version 2.0 of this technology…
I boot up ProfessorGPT, and her smiling face greets me on the screen. “Hi Professor, can you tell me about the big five personality traits?”
“Sure Francis! Let’s start with Openness…”
I could ask follow-up questions and get answers entirely by voice. And when I’m stuck, ProfessorGPT could keep explaining topics to me for hours, unconstrained by the bell.
For students in good schools, ProfessorGPT could supplement human teachers. It’s nice to have an expert by your side when you’re struggling with that tough math problem at home!
For those in rotten schools, ProfessorGPT could be a way out. If their regular teacher is unqualified or indifferent, they can turn to a wealth of knowledge from AI at little or no cost.
But most of us aren’t in school at all. We don’t have anyone to teach us something new. And all too often, we stop learning.
ProfessorGPT could teach us Portuguese before we head off on a trip. Folks in nursing homes could stay sharp learning new skills like how to play chess.
There’s no limit to what this technology can do. And we’re very close to building a true Professor GPT that feels almost as natural as the real thing.
AI chatbots using voice already exist. CarynAI, a chatbot girlfriend from Forever Voices, is but one example. Synthesia makes AI avatars that seems so human it’s uncanny.
It should be no problem to marry those technologies to GPT and create the greatest teachers we’ve ever had.
Are you working on education tools using AI? Have you used any great tools?
Leave a comment and let us know!
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In TV and film production, extras may be at the greatest risk of AI replacement. I’ve been an extra for almost 4 years, and I think AI replacement could be a good thing.
How AI Is Changing Acting
AI is a huge sticking point in the current SAG-AFTRA and writers strike.
For several years, movies and TV shows have scanned extras, also known as background actors. Those images can be used to make AI avatars.
One of most controversial uses of AI in Hollywood is digital cloning. Voices, faces and entire bodies can now be digitally re-created in ways that appear stunningly realistic.
Background actors in Hollywood say they worry they will be first in the industry made obsolete by AI.
What Being an Extra Is Really Like
I started doing extra work as a hobby back in 2019. It’s a great way to get out of the house, have fun, and be a part of your favorite shows!
We extras do basically what you think we do. We walk back and forth in a scene, sit there, move here.
If you can show up on time and do what you’re told, you can be an extra. Though the days can be long, God knows it’s not hard work.
The simple movements we make, like walking through a scene, should be easy for AI to replicate. Convincingly replicating facial expressions will be harder, but there is not much emphasis on our facial expressions anyhow.
I expect that within the next 5 to 10 years, most extra work will be automated.
One Door Closes, Another Opens
While it’s unfortunate to lose a fun hobby, let’s look at the bright side. AI avatars create incredible new possibilities for all of us.
Say you have an awesome idea for a movie. Can you afford to make it?
With all the costs of cameras, lighting, cast and crew, the answer is probably not. But if you could generate it with AI prompts, anyone could make the movie they imagine.
I’ve always wanted to make a movie called Elba.
It would begin with Napoleon on the beach of the eponymous island, in exile. We’d watch him form an army, return to France, and conquer it once again, the most unlikely of victors.
Elba would end with Napoleon back on a deserted beach, this time in St. Helena. His revolution has failed and he will never leave this desolate place.
I’d love to make that movie. But with the costs and time involved, I’m not going to.
Unless…
What if I could spin up a script and then an entire movie with a series of prompts? If it turns out well, I could put it on YouTube.
Elba could go viral. I would have an even more fulfilling creative outlet than background acting — and might make a whole lot more money too!
AI closes some doors, but it opens so many more.
But SAG Has a Point…
For some extras, the work is their entire living. In the near future, that may not be viable.
Not to worry — US unemployment is near record lows, and most other jobs pay better with fewer hours!
And who knows, maybe they’ll make an awesome AI movie too.
While I’m thrilled by AI, I also think studios need to be reasonable here.
You can’t ask people to give up their likeness forever in exchange for peanuts. Actors should have control over how and if their image is used.
Until the studios agree to that, SAG is right to continue its strike.
Wrap-Up
Let’s look at AI as an opportunity, not a threat. With massive compute power on our side, we can accomplish stuff we never thought was possible.
What do you think AI will mean for jobs? Leave a comment and let us know!
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The plump, juicy burrito hit my table, sauced to look like the Mexican flag. My heart beat faster with excitement.
This is Jajaja Mexicana, a fantastic vegan Mexican restaurant in NYC. Jajaja has adapted Mexican classics like burritos and enchiladas so everyone can enjoy them, regardless of diet.
I made the first incision. Creamy refried beans and fluffy rice spilled out.
Each bite of chorizo was juicy and deeply flavorful. Amazingly, this “chorizo” isn’t actually meat — it’s seitan.
If they hadn’t told me, I honestly would not have known. But there are no tricks at Jajaja, only memorable food.
“This is so good.”
I glanced across the table, remembering my dinner companion for the first time since the burrito dropped. Good, she was still there.
My friend has a lot of dietary restrictions. If she eats gluten or dairy, she gets quite sick.
Meanwhile, I’m trying to eat less meat for health reasons. So between the two of us, it’s almost impossible to find a place to eat!
But Jajaja has something for everyone. Many dishes are gluten free, including her piquant verde enchiladas.
Just because the food is vegan doesn’t mean it’s not exciting! Presentation is never an afterthought at Jajaja — sour cream and two salsas created a beautiful Mexican flag on my burrito!
When food not only tastes great but looks great, I begin to drool. Now, where’s that napkin?
Jajaja also features an incredible dessert menu!
Churros are fried fresh for every order, just like in Spain. Each is dredged in cinnamon sugar.
Dip that in the dulce de leche alongside and you’ll have a religious experience!
Jajaja started in the West Village. But now it’s so successful, they’re up to four locations across the city!
I’ve been to the original restaurant and the new Hudson Yards spot. Both are superb.
Stop in for some Mexican you’ll never forget!
What are your favorite Mexican restaurants? Leave a comment and let us know!
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“What if you could make a drone botnet? You just give it a task and it operates autonomously and does it.”
“That would be so cool!”
Last month, I was having lunch with an awesome founder I invested in. His company had recently been acquired, and we were kicking around ideas for his next startup.
Today, most drones are glorified versions of the radio controlled airplanes of yore. A pilot tells each one where to go and what to do.
Here’s how it could work instead…
Monday, 1500 hours:
General issues a command to the Botnet: “Destroy the air defenses of Russia’s 1st Guards Tank Army.”
Botnet searches the internet for information about the unit: last known location, coat of arms, typical vehicles, etc.
1557:
Thousands of surveillance drones disperse across the territory, looking for the unit.
2340:
Unit located. Most drones return to base, a few stay to monitor the unit’s location.
2357:
Botnet creates a battleplan.
2358:
Attack drones launched. These are larger and contain Hellfire missiles.
Tuesday, 0200 hours:
A Russian sentry is jolted awake. Everything around him is exploding at once.
0215:
The Russian unit’s radar systems and antiaircraft weapons are completely destroyed.
0225:
Surveillance drones verify mission success, report back to Botnet HQ.
0230:
Botnet notifies Command: “The air defenses of Russia’s 1st Guards Tank Army have been neutralized. Ready for full air assault.”
0245:
F-22’s leave airbase, crewed by human pilots and bound for the Russians. Time to finish the job.
This future is nowhere near as far-out as it sounds.
AI systems that can take a high-level prompt and iterate on it to reach a solution already exist. AgentGPT is but one example.
Drones are already common and widely used in combat.
All we need to do is marry the two.
I’m excited to invest in companies pursuing this vision. One thing I can’t stand is rich people in tech benefiting from America and refusing to have anything to do with defending it.
What do you think the future holds for defense tech? Leave a comment and let us know!
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Tremendous 