Ron Conway at Startup School 2013

Good morning. Good morning. Mic mic works. Okay, well, thanks for coming, Ron. We're delighted to have you here, and we're going to jump right into things.

Um, I wanted to talk about Twitter first because Jack Dorsey is coming here later, and they're going public. They're doing so well. I want you to take me back to when you first invested and what you saw on them and how you first invested.

Uh, sure. Uh, I got to know Evan Williams because, uh, back in 1998, uh, we invested in Google, and so we knew Google from the early days. Google acquired Blogger from Evan; that's the company that Evan founded. So I got to know Evan through that.

Over time, Evan left Google and went to start an incubator called Obvious Corp, and Odeo was one of the companies that was incubated at Obvious Corp. Odeo was in the podcasting space, which was very interesting to people at the time, and, uh, I invested in Odeo. Odeo ended up not doing well; the podcasting space did not blossom.

And, um, EV, to his credit, felt so bad about Odeo going out of business. It was EV's second startup. He gave all the investors their money back, um, which was pretty amazing. I said, "EV, you don't need to do this. You know, investors should are big people who know that you can lose money.

Uh, 40% of all of our startups go out of business completely. We don't get a nickel out of them." I said, "EV, you're just in that bucket. Don't worry about it." And he said, "No, I feel so bad. I want to pay the investors back." I said, "Fine, but whatever you do next, I'm investing 75k in that."

Uh, and the next startup was Twitter. And so you luck out there. What was it about EV, though, that made you say, "You know, I'm in the next one; just count me in"?

Well, it was that he had such amazing human feelings about feeling bad about going out of business. Um, and I had tried to help sell Odeo. We tried to get Odeo to a soft landing, and I can't even remember; maybe we did.

Um, but he felt bad about it, and I said, "Wow, what a great person." You know, at SV Angel, we invest in the people first. And when you have somebody do something as impressive as that, you want to invest in the next one. And when they said Twitter, I said, "Hey, I don't care what it does. Here's the money."

So when he said, "Okay, Ron, here's what we're doing. Here's what you're investing in," what did you think?

Well, he was nice enough to say, "You should go talk to Jack Dorsey," 'cause Jack and many of these others started taking off right away. And the big problem Twitter had was keeping up with the growth. The fail whale became more prominent than the bird.

Let's, um, speaking of Snapchat and Pinterest, um, and I'll throw in Facebook. You invested in all of these very early before they were big. I'd love for you to just remember back to what the founders were like or what you thought about the product way back when they started.

I guess Snapchat's newer, but the other two are older. So, Facebook, Twitter, Pinterest. Pinterest—so, uh, well, I feel like we've talked about Twitter.

Um, uh, Facebook. Uh, so Facebook, I started with Shawn Parker, 'cause we invested in Napster. Then we were the first investors in Plaxo; that was Shawn Parker's second company. And so when Shawn became the president of Facebook, he came to me and said, "Hey, you know, come and mentor me and Mark."

Um, and I said, "Great." Um, and so the first time I met Mark and Shawn, funny enough, it was just a few weeks after they had moved to California, and the pro-Facebook metrics were already like this, going straight up, just like Twitter a few years later.

You never argue with the metrics. So, the amazing thing about Zuck is the vision and confidence that he had—not arrogance, but confidence that this thing is going to keep growing.

And at the end of the first meeting, I said, "Hey, how many users is this thing going to have in a couple of years?" And he looked me in the eye and said, "300 million."

Uh, and it ends up he was off by 700 million because Facebook has over a billion users today. Um, but he was thinking big then. Um, I feel like you with Facebook—I know you've told me that you're a little bit skeptical about the social networking thing at first—um, but you must have seen something special in Mark.

When, well, what got me excited at Facebook was the growth, you know, the user adoption and engagement, the amount of time that people were spending on the site.

So, even though I'm not a big Facebook user myself, even today, uh, you never argue with the users. And Facebook was picking up users, you know, very, very quickly.

So if you look at, you know, we invest in people first. So Facebook, I was investing in Shawn Parker's reputation and then learning about Mark. With Twitter, it was I was investing in EV and learning about Jack.

Um, and then fast forward to, you know, a year ago, we see Snapchat. Now with Snapchat Chat, I could see the pattern recognition, you know. So Facebook, Twitter, you have Instagram in there, even though we didn't invest, and then you have Snapchat.

So Snapchat's one that we said, "Wow, this is probably going to be a big app," because there is this phenomenon happening right now where human applications and social apps, in particular, are changing the way people behave and how they communicate with each other.

And Facebook, Twitter, and Snapchat and Instagram prove that, and so there's a huge opportunity for more companies in this space.

Any idea what those will be?

Uh, I don't, 'cause I'm not a founder, but I'm sure people out there have ideas on what is the next social app 'cause social apps are changing the way people communicate.

Um, you know, Facebook adding photos was huge; people started communicating with photos. And now you have Snapchat, which is really just photo messaging. I mean, who would have predicted that even three years ago?

Um, do you think the founders knew they were going to just explode like they did? Because all of these stories have that in common: can't argue with the user growth.

Well, there are a lot of companies, though, that didn't explode that are in these spaces, but I think every founder thinks their company is going to explode.

The founders whose company don't explode and they keep iterating until it does are really unsung heroes.

That's a good segue, actually. Ben Silbermann of Pinterest was here last year, and I love his story because it was a really long road for them, both with users and with getting investments.

Do you remember when you first met Ben and what made you think they were good?

Yes, uh, Ben and Pinterest is a great example of a founder where it didn't explode right away like Twitter, Facebook, or Instagram.

Ben Silbermann had to keep iterating for a year and a half, which we heard about, uh, when he spoke last year. But here's a guy who is very persistent and stayed close to his users.

He had focus groups, mainly with groups of women that he would bring together in a coffee shop, and then he would call them the next day to make sure they were still using the product and keep getting feedback and iterating until the product took off.

Uh, in the case of Pinterest, you know, I didn't discover the product. Um, at SV Angel, we meet once a week for four hours; I chair that meeting.

Um, see, lots of people think I'm not involved in SV Angel or something 'cause I'm involved in philanthropy and civic engagement, but no, 80% of my time is still spent on investing and helping companies.

But I'm not the picker; the rest of our team are pickers. A couple of years ago, David Lee and Kevin Carter said, "Hey, Ron, listen up. This is an app that we think is going places—Pinterest."

And Pinterest was in its infancy, and we co-invest with Shanana Fischer on the East Coast, and there's nothing like a woman's intuition, and Shanana Fischer was barking in our ear as well saying, "Hey, this app is really, really cool. It's where people pin their aspirations."

And so, so I didn't discover Pinterest; the SV Angel team and Shanana Fischer discovered it. But I went to meet Ben, and what I saw was a very unusual entrepreneur, um, 'cause a lot of you entrepreneurs are outspoken and aggressive.

So entrepreneurs are, you know, type A or you're in the Ben Silbermann category—very shy, soft-spoken, um, but very cerebral and thoughtful.

So the first time I met Ben was in Mountain View, um, and I think we were chasing an allocation for the next round. So I was saying, "Hey, Ben, what can I do to help you?"

Uh, which is how SV Angel operates. We just go to the entrepreneur and say, "Give us a hard project, and we'll fix it." Um, and all startups have hard projects.

So Ben gave me a few projects, and off we went. But what I noticed about him is he's a founder that actually has a calming effect.

So there's a lot of founders who, at the Friday team meetings, wind up their team. In the case of Ben Silbermann, he winds up the team in a cerebral way by actually making everybody calm.

Yeah, I noticed that as well—he's very calm. It's amazing, and he's rifle-focused on the product.

Entrepreneurs like Zuck and Jack Dorsey and Ben Silbermann are successful because they didn't care about the outside world.

All they cared about in the early days—and today as well—is, is the product the best it can be, and are users loving it? And, you know, I don't want to do a press interview; I don't want to be distracted.

I just want to keep building a great product, and those end up becoming great big companies.

Are you able to tell us any of the hard projects that he asked you to do?

Uh, let's—I'm trying to think. Were they all related to funding?

Here, you know, with Pinterest, lots of introductions. Hey, let me introduce you around at Apple.

Uh, let me introduce you around, uh, at various companies where they didn't have relationships. Um, and that can bootstrap growth.

You know, if the iPhone is your first platform and we can help get you in front of people at Apple because Apple respects your judgment, uh, that will help a company grow.

I asked because I actually have sort of inside knowledge on all of the hard problems or most of the hard problems that Ron has helped the Y Combinator startups fix, and most of them can't even be told in public.

Most do to solve our problem.

Yeah, most of them have to do with funding. So most of the—A lot of the hard projects are funding or, in a lot of cases, M&A transactions, uh, where we don't publicize the activity.

But, but with Pinterest, we've—With all of our companies in general, we always help with the Series A round, and then if the company wants it, with the ongoing rounds of financing as well.

So we probably can't get into that one even though there's a great one from a hotel room.

Yes, with Airbnb—that one's been discussed quite a bit.

Okay, I won't. Well, let's talk about fundraising because I did have, um, a question for you on that. I'm going to jump to that quickly.

What do you see with the founders? What are the biggest mistakes that you see founders make in fundraising, and what are some of the best qualities that people show when they're fundraising?

Um, I guess the biggest mistake I see with founders in fundraising is founders are not focusing enough on finding the investor who can add the most value.

A lot of founders are worried and concerned about valuation and dilution, and I think valuation and dilution is secondary to if you can bring in a top-tier investor who adds value to the space that you're in.

That's worth millions and millions to your valuation. You know, in the case of Airbnb, they had a host of investors trying to invest.

This is heresy because we had the negotiation in a hotel room when we should have had it where Brian Chesky was staying, which is at an Airbnb host location.

But, um, uh, but what Brian Chesky got that night was, "Oh no, we should go with the investor who adds the most value."

So Andreessen Horowitz invested, uh, at a multi-billion dollar valuation, but there were other investors who even wanted to pay more.

And I said to Brian that night, "Hey, I think Jeff Jordan at Andreessen Horowitz could do a lot for this company."

And Brian Chesky, for the next year, every conversation we had, which is often, um, he started with, "Thank you." And I go, "What are you thanking me for?"

"Oh, thank you for Andreessen Horowitz and Jeff Jordan because Jeff did this, this, and this today."

Um, so pick the right investor and not optim, pick a value-added investor.

Um, uh, the other thing is keep the process moving quickly for sure; get one term sheet ASAP so you have a forcing function.

'Cause investors really don't like making decisions as quickly as an entrepreneur needs them to make a decision.

So if you can get a forcing function, which is basically a term sheet out of anyone, then you can truthfully call the other investors, and I can call them on your behalf and say, "We have a term sheet. We're going to accept it in 24 hours. Do you have a term sheet? You better hurry up and submit it."

Um, and we did this during the Airbnb financing. There was all kinds of disarray, and we just said, "Hey, today's the day; everyone submit your term sheet by 5:00 or you're not in the running."

But if you get one term sheet, you can do that.

Um, so keep the pace up; don't lose momentum. And then once you get any inkling of an agreement, send an email that commits the investor to that agreement.

Um, very, very important so that you're not being annoying. Just follow up.

Yeah, it's just a short, short email just confirming, dot dot dot, you know, and it's just confirming that—that, well, in the case of some commitment, I am delighted that you committed to invest at 100 million valuation.

My lawyer is going to call you tomorrow. Then it's in writing that that investor has committed because, have you seen over the years, fuzzy memories?

Many, many transactions that fail because somebody doesn't remember what they said.

Um, it happens even more on M&A transactions. You know, if we're trying to get a company to a soft landing and we get the soft landing committed, um, those are the ones that people will try and wiggle out of.

And a soft landing is when someone gets acquired sort of early on.

Yeah, basically where, hey, this is not going to be the next Facebook, let's—but we have a great product.

Let's take that product and make it part of Facebook, and when you put Facebook's user base with it, you know, we can fulfill the dream of the product.

And that's where you see people not confirming and getting into trouble.

Yeah, correct because there's optionality on transactions like that, and in the case of the company, the startup needs that transaction to happen so they don't end up with the pressure of filling.

Yeah, they don't have a whole lot of leverage, but I imagine you help—'cause you guys help out in that area a little bit.

Yes, we help out a lot.

Um, so digging down a little bit into founders again, um, like what are sort of promising signs that you see when you meet all these people?

Um, well, I think product focus is really, really important. Um, and I didn't realize this probably until the last— I've been angel investing since 1994, only in Internet software companies.

And we invest in people; we invest by intuition, but it's in the last five years that I've really looked for founder qualities that say that they're rifle-focused on the product, the quality of the product.

You know, Ben Silbermann, Jack Dorsey, um, it's just crucial.

So when we see that they don't want to be distracted because they just want to focus on the product, and we have lots of bloggers and press people who call us and say, "Hey, get Ben Silbermann to talk to me."

And Ben Silbermann, "No, no, no." Eventually, you say, "Hey, why won't we talk to this guy from Fortune?"

Because I'd rather work on the product. I'd rather get a million more happy users than talk to somebody at Fortune Magazine.

That's a great entrepreneur—it's on the way to building a big company.

The other factor that we look for is decisiveness. Um, it is so important to make decisions and keep momentum in growing your company.

And, you know, founders make lots of decisions about the product. You know, let's change this on the product, and we'll get better metrics.

You need to use the same skill set for building your team and deleting from your team. You need to hire fast, and you need to fire fast.

Um, 'cause if there's Deadwood in your company, everyone in the company already knows it.

Uh, if you know it, everybody else knows it, and you can actually make morale go up if you make a decision that, hey, that person's not working out, even if they're a co-founder.

You've got to make those decisions.

And I imagine you see people struggle with that a lot because it's hard to, yes, fire a co-founder.

And that’s why I'm talking about it. You got to be decisive. You have to have a clear vision.

Uh, when I'm talking to an entrepreneur, I'm saying are other people going to work for him when he or she tries to hire somebody? Are you a team builder? Are you a leader?

So even though these companies are young and only have five people, when I'm talking to an entrepreneur, I'm saying, "Wow, can this person manage a thousand people?"

And there are types of people where I nod to myself and say, "Yeah, that person can manage a thousand people."

What if someone, when they're first starting, really can't manage a thousand people? Are you able to say this person can grow, or have you seen examples of people who have grown into that role?

Well, yeah, I think— I think in the early, early days of Twitter, um, I think Jack Dorsey had trouble managing, and Jack Dorsey thought about his shortcomings and went and made Twitter better.

Then left Twitter, invented Square. You know, how obvious, plugging a credit card reader into, you know, the earplug of an iPhone.

Uh, I got the very first demo of Square from Jack and watched him build Square flawlessly, hiring a management team that—if he has a deficiency, he makes sure to hire somebody really powerful in that area.

So recognizing the deficiency and then building your team around that with everyone recognizing what everyone's deficiencies are, that's growing and maturing, you know, while you're building these great companies.

So I think we have time for like two more questions. I know it went so quickly. I think you can tell me if these are good because we got to end on a high note.

You've been doing this for like 20 years. Um, what has changed and what has been the same since when you first started and now?

Well, uh, a lot of things have changed. Um, if you think back to when I started my first company, Altos Computer, in 1979, in order to—I know this is unbelievable, but it's important for this group to know it— in 1979, to get your company funded, you had to be growing, you had to be D every year and you had to be at least 20% pre-ex profitable.

So investors basically would only invest if you were already successful. So it wasn't really venture capital.

If you go today, just the cost of starting a company is tiny, and there's lots of people willing to take risk and invest. So the climate for starting a company is significantly better today.

Um, uh, the other thing is mobile. Um, watching the internet convert from the web to mobile, you know, this thing is not a phone that's in your pocket; it's a computer.

And what, you know, some of these social apps that are running on the phone first, I—it’s so, so, so different from everyone writing, you know, for the web.

Now everyone's working on mobile apps. Uh, companies are moving to cities. I think that's really interesting too.

There's this migration, especially of the social companies, to cities. Uh, another phenomenon is, you know, you know, back, you know, when Google started in 1998, the algorithm was the intellectual property.

Today, it's the user design and the user interface that leverages an application. So the world has shifted from algorithm IP to design and user interface IP being the most important.

So there have been lots and lots of big, big changes.

What about—last question? In all these years, what have you been surprised by?

Um, the biggest surprise and satisfaction for me is watching entrepreneurs mature at the speed of light when they have to.

So if you pick, uh, uh, Larry Page at Google, um, uh, Jack Dorsey, Zuckerberg, uh, Ben Silbermann, these companies take off, those founders have got to mature, manage thousands of people, and keep their product focus.

And all four of those examples met the expectation, but think about what happens when they go home at night. You know, their companies are hiring 10 people a day, and they're forced to mature and adapt to that growth.

And these entrepreneurs are doing it, and watching that happen and helping them do it is the most satisfying thing you'll ever do, which is why I'm not retired.

Well, awesome! Thank you so much, Ron. That was great.