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Comment by bedros | Hacker News Reader

"And so if a founder can’t navigate a network into a VC firm, it is unlikely that founder has the skills to navigate the other networks required to succeed in building a company"

So, as someone who's working on a startup at seed stage, outside silicon valley (Socal), what Marc is saying does not make any sense; networking requires time, and time is very valuable especially at seed stage; I would rather work on developing the product and refine it for market fit, rather trying to spend precious time on meeting with people to expand my network.

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I've heard many VCs say this. It's one of the few examples of Marc demonstrating complacence, wrongheadedness and herdlike thinking in this interview.

But it does point to an underlying truth: the VC market has not found a good filter for startup quality beyond human curation. Irony, anyone? They haven't managed to gather the data and apply the algorithms yet, so they let themselves rely on a primarily inbound model that depends on the VCs building a reputation and network, promoting themselves in the media, and then waiting for founders to come to them through the filter of the Silicon Valley milieu.

While there ought to be a better way, there are also obstacles to collecting perfect data in a fast-changing private market. Ideas gestate quietly, startups are founded in stealth, most of the data is self-reported, and therefore spotty and unreliable.

That said, I do think there's a lot of potential to gather data and analyze it to make predictions about startup quality. Some investors have already done that, based on their many interactions over decades. And those solutions, of course, will remain private for some time. The smartest actors in the market have little interest in improving how the rest of the market makes decisions.

Quantitative traders have trouble teasing signals out of data. And there is so much data in the public markets: stock prices, volume, interest (and the rest of Bloomberg data), Twitter sentiment, satellite data. The private markets have so much less data, so the best indicators are who the founding team is, how big the market it, and other obvious stuff like that. There are some quantitative VCs in Menlo, SF, and NY, but I wouldn't hold my breath.

VC is probably speculation, but let's wait for VCs to show consistent back to back returns on funds and we'll find out. For hedge funds, it hasn't panned out so well - not sure it'll be different for Anyone Else.

Actually, it's worked out quite well for some hedge funds. Renaissance Technologies is a quant-driven HF, and it's one of the largest and most successful in the world.

The only quantitative VCs worth anything will be the ones who have been operation for many years and who apply the algorithms to the data they have collected during that time, on all the startups they interacted with and invested in. They hold enormous private data stores about those private companies.

I think the real problem is that the best and most famous VCs, like Marc, don't need the algorithms to get access to many of the best deals. They're already overwhelmed with companies good enough to merit a meeting. And maybe they feel as though their funds are doing good enough. But for funds willing to leverage their private data, there's an edge to be had.

Renaissance is always cited in these conversations, but as you noted, isn't representative of the thousands of quant shops out there. That, and I hear their quant edge is disappearing with competition and they are relying more on HFT over the last decade.

Quant VCs just started appearing in the last few years, and it's not clear there is an edge there. As I said, my opinion is it's not likely.

Unlike the stock market, experienced VCs should be applying quantitative techniques to private data they've collected. That's one way to keep their edge. You don't seem to appreciate the distinction. Of course most public-market quants will see their edge fade if their competition has access to the same data. That doesn't refute the initial success of those techniques.

Both public and private have access to prop data. Public has more data, since the companies they're covering are bigger and so produce more data.

Yes, I think the real reason why VCs don't like meeting people outside of their networks is that it makes them uncomfortable.

Meeting new people all the time is exhausting and destabilizing.

People like consistency and a feeling that the world is a small place full of familiar faces.

I think that the herd mentality makes sense for small VCs who don't really know what they're doing and don't have any vision but it's disappointing to see it in these big guys too. They are the trendsetters after all.

That mentality is exactly why the rich get richer and the poor get poorer.

Also it is sacrificing technology/innovation for sales/marketing/networking.

I think you misunderstand what is meant by networks.

VCs constantly meet new people but generally it's people recommended by their current network or sourced by outbound research rather than people who cold email.

Also "For us, at the seed stage, 90%+ of the decision is based on the pedigree and track record of the core team."

I have that network and pedigree, and I still think this (common) approach is disgusting.

Not because it reduces diversity (it does), but because it needlessly excludes those who could transform our biggest consumer and business populations.

If you went to a non-pedigreed school (say Howard, Morehouse, etc), if your first job & location wasn't in the valley or NYC (perhaps Dallas, Schenectady, anywhere in the rust belt), if you're in a group which makes networking for the sake of networking with tech bros particularly uncomfortable (women), you won't have access to that network. You may, however, have unique access to America's biggest industries and consumer segments.

It's a terrible waste. And all because VCs can't be bothered to open their email.

As a total aside, I'm rather surprised that nobody in the valley has yet thought to create an "anti-valley" fund. Intentionally seek out founders in underserved and isolated groups, and give them all an equal shot. I _don't_ mean a diversity fund; I'd be going after companies like Pigeonly, Darkvision, Veerum, etc.

I imagine the problem with the anti-valley fund is similar to the prisoners dillema- it takes more than one firm to see a startup through all of its funding, and if no one else bites you'll be left with an underfunded startup. It's probably why the pedigree rule is still in place- it's not rational in a vacuum, but it's a known bias of other firms, and so it makes sense for you to act in that bias as well.

Pedigree/track Record doesn't have to mean tech startups, deep experience in the industry vertical also counts.

If you look at say startups serving the oil/gas industry they're mostly founded by founders with industry backgrounds from outside of tech hubs.

If you're in that kind of scenario I'd recommend finding people who cross both the industry in question & the tech industry (i.e. angels with a background in the industry, other tech founders in your industry, etc.)

Although if you're based outside the major tech hubs it's probably easier to focus on local investors for early rounds.

I used to work in a startup where the all the CEO wanted to do was "network" and networking with VCs and people in the industry usually means go out drinking. It ended up that the team and I (I was the CTO) ended up building the product that made revenue that supported the business while the CEO's networking only meant he didn't show up a lot of times. It lead to absolutely nothing mostly just a waste of time.

Focus on building the product and focus on selling and serving your customers. I have since left that company due to issues with the CEO and started my own. I am now doing 0 networking and focusing 100% on building the product and servicing my customers.

People in the startup scene here say "you never go networking how's your startup doing, what's your valuation now" to which I reply proudly "we are growing quietly, my company has real revenue not valuations."

I think most investor intros that go anywhere are made by people who built their network in a much more solid way. Every time I've been introduced to an investor it was by someone I've worked with. So it's really this superficial networking that's completely dumb.

I'm of the school of thought that 'let investors come to you'. Focus on building your product to attract customers and the customers will attract investors. If you do it like that, you will always be the one deciding how much money to take for how much of your company you will give away.

Theoretically, once you have customers you could take loans instead of giving your company away...

Typically the trade-off is how much money you want.

Once you're an established company you can probably borrow around ~20% of your revenue while an equity investor will typically be putting in 3x-5x your revenue.

You sound like my kind of guy..

Just build the product! A company does not need someone full time yakking it up.

If you don't know how to program it's pretty hard to do a job that requires programming. Likewise if your job requires networking skills and and appropriate existing network, it's pretty hard to do your job if you don't have those things.

This reminds me of a story I tell about fundraising. It goes toward this question of time.

The way I raised my first money was I invited Evan Williams (Twitter) to coffee. He said yes. I told him my concept but didn't show a demo because I didn't really have one.

He liked the idea and offered to put in some money. Magic, right? Money just grows on trees and anyone can get funded here in Silicon Valley.

But the better questions is: how did I get that coffee with Evan Williams.

To me, it started in 1996 when I decided to get a computer science degree. That took four years. Then I took a sort of crummy job but impressed someone there who helped me get a job at O'Reilly where I impressed someone who introduced me to Evan Williams as someone he might want to hire. That took five years.

Then Ev did hire me and I did good work. Then Ev went off to Twitter and I cut my teeth doing a terrible job as a founder of something I bootstrapped. That took five years.

So really, it was 15 years to develop a network and trust where I could invite someone to coffee and get funded.

Yes, some people do this faster than I did. But I often see this real resistance to the idea of taking the time to improve your qualifications as a founder. Networking is obviously one of those.

If you're filtering 2,000 qualified pitches per year down to 20-40 investments in the hope that 2-3 of those investments put you in the black - then your filtering-signal-from-noise strategy clearly isn't working. You're throwing darts at a dartboard and assuming that your dartboard is better than everyone else's just because it's got more Stanford grads on it.

But why, particularly, is it arrogant? Because the logic that startup founders need to demonstrate the ability to network with customers by first networking with VCs is horribly flawed. Perhaps that skillset of networking and selling to customers is exactly what's missing from a startup which otherwise has built a highly valuable product at low-cost - and isn't this precisely what you would expect from the stereotypical basement-dwelling übernerd, a product with high potential trapped by the poor social skills of its creator? Perhaps that ability to network is precisely how a VC can help a startup turn into a unicorn?

No wonder nobody's managed to fix the interviewing process for software engineers. If you only interview engineers who you're personally introduced to, and then filter out anybody who isn't an alpha MIT grad, I mean, does it really surprise anybody anymore that this is a failed strategy? But if VCs filter out companies in this manner then why is it any wonder that companies filter out engineers in this manner?

So basically "I always throw away half of the resumes I get at random. I don't want to hire anyone who is unlucky" except for startups.

I hate the point but for better or worse it's a standard. I view it sort of like tipping in the restaurant biz, "fuck it, let's let someone else pick up the slack".

Stepping outside of how to change that (and there are ways) if you want to be in a position to have Mark or another top VC fund you, then you can:

- apply to YC or 500. They do the legwork and look into all the opportunity that comes there way. Accelerators get you there.

- Raise an Angel round from someone "in" the circle. If you want to raise, you'll have to network and hustle. It sucks, but you can go for money AND/OR smart money. Hopefully you can get both.

- Mentors and customers. If you get a customer that is "well known" or have a fan that is a founder, it's a great way in. This community, your community or similar places can get you a mentor or advocate.

It sucks. I get where you are coming from. It's like an Ivy league or a great job. They are willing to write off people who would be top shelf because 80% will find a way to reach them. It's not even that absurd, if you're dream is to get funded by A16Z then you'll show up at the office, get into YC, find some one they funded or get so big they can't ignore you.

If you don't like it help change it.

> rather trying to spend precious time on meeting with people to expand my network.

He's not saying that. He's saying if you can't network in your domain or find people that do, it will be extremely difficult to scale a business. Or in more "hacker terms", get close to your customer and hustle.

I know more than a handful of very successful software founders who have made a ton of money scaling software businesses with dogshit technology, simply because they had a strong network in their domain. I think this one of the few instance Marc actually concedes that it's not simply about "software eating the world". Professional networks matter.

Joining an accelerator is a way to break into that network while focusing on your business. Depending on the accelerator this provides a pre-vetting too (your startup was picked as one out of thousands or more for a reason).

Yeah, I hate the insular attitude as much as anyone, but it doesn't really make sense to look at VCs as gatekeepers to the Silicon Valley world. They are mostly investing in companies that have already established some traction and gotten early stage investment.

If accelerators and angel investors all thought this way, it would be much more of a problem, but thanks in large part to YC blazing the trail, there are a lot of possible ways in for unknown founders--you just have to settle for climbing the ladder and proving yourself instead of having millions thrown at you because you're in the club.

Marc isn't saying you should focus on networking at the seed stage. You should focus on building + customers and just not try to raise your seed from a16z.

a16z isn't a seed focused fund. They prefer waiting for more proof points, and they're willing to pay a premium for that (Series B).

Outside of a major startup hub you're probably better off finding local investors or relocating.

The single biggest bottleneck at any VC firm is the partner's time. If the partner has to fly out to meet you (multiple times during the investment process + for every board meeting) it means you require significantly more time than a local investment. It's also a lot harder for a remote VC to provide support in areas like hiring (i.e they're unlikely to have many good candidates in their network who are located near you).

All of this means that the threshold for a VC to want to invest in a startup outside of their key hubs is higher than for local startups.

It's a lazy filter - and I don't mean "lazy" in the entirely negative sense.

If you get 4000 pitch decks per year and ultimately make 15-20 investments, you need to whittle that down fast. Having half that volume be "cold" and just tossing it gets you down to a more manageable number quickly. Might you miss some gems in there? Sure, but you don't need 'em all, you just need 15-20 solid ones.

Another VC might think differently. This just says don't go to this particular VC to raise your seed.

I'm not a VC but I think the quote makes sense.

Either you have a track record or a product with some customers. Cannot get funding without one of those.

I think it's the fuzzy definition of "track record" that people take issue with. This appears to mean anything from "has been a key member of a successful business in the past" (reasonable) to "went to an Ivy and has lots of friends" (kind of silly).

So... "It's not what you know, it's who you know"

That's what I wanted to get away from.

Surprise!

Not only time but network requires empathy too. And VCs/Silicon Valley has a huge problem with empathy toward some large groups, so his reasoning is wrong OR prejudice.

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