Elad Gil and Pejman Nozad - Startup Investor School Day 3

Just yesterday, the main topic was really focused on the hardest thing about investing, I think, which is how do you decide to invest? How do you go about making decisions?

So we heard from Dalton, who talked about founder meetings, talked about the process, how you should get organized, and have a consistent process that makes sense to you and helps you organize the deal flow, the set of founders you meet, and helps you think clearly about the set of decisions you're going to make.

Then you just merely have to meet the founders and decide if you love them, their business, their product, and believe that it has the potential to grow, scale, and thrive. Then PB came and gave his always PB-like perspective on things.

There are a few things to note. Right, PB said it as he pointed out: there is not a great investor in the world who has not made great mistakes, and he's had some epic ones. It's kind of cool that he's comfortable enough to share those. Part of the reason, you know, between us and the world that he's comfortable sharing those is he's had plenty of great successes, as well.

As I pointed out, he's a fantastic investor, but you know, it's hard, and it's hard. You don't know because some guy named Brian Chesky sends you an email. You don't know if that's the one you should have responded to. You only know that in retrospect, years later.

But I thought that was incredible. Every time PB speaks, I derive a little bit of wisdom from that. One thing he said that I loved was that you should look for ideas that would seem stupid inside a big company.

I've actually been in a big company and had stupid ideas; most of them were just stupid. I don't think they were. And, of course, that's the hard part: some of the ideas really are stupid, but some of the great ideas almost have to be stupid.

That was his point, right? Because if not, they do have resources, skills, and talent. So you need the ideas that look bad but are good, and that big companies won't naturally pursue. Don't restrict yourself to what you know.

Probably a bad idea; you might miss the next big crypto company if you're not a big crypto person and you have the opportunity to invest in them. He was very Yoda-like in saying, "Do or do not; do or not do." I don't know, make your decisions.

He put it on a whole bunch of founder traits in a slightly different way that I thought were pretty cool—from moving fast to accomplishing a lot with just a little, to finding someone who's a talent magnet.

By the way, that's an aside: if you're not evaluating that when you talk to founders, you're making a mistake. Because if you think about it, every giant company is built with an incredible team. If you don't believe that the founder you're talking to can recruit and build this team of people who could have thousands of people underneath them, then the chance of them building a big company is that much smaller.

Lastly, we heard from Michael and his sort of personal advice on investing and how to deal with YC demo day. Can I have a show of hands? How many of you plan to attend the virtual demo day and check it out? Good. His advice is very good for demo day.

Feel free to approach us at the breaks and ask for more advice on demo day. Reminder, tomorrow we live. We heard you asking for more networking. Some of you asked for beer and wine apparently because we're having beer and wine and networking after the session.

Tomorrow should end around 12:30 and will go to around 2 p.m. So there'll be beer, wine, and pizza. I don't know if people asked for pizza, but we're having pizza. I hope that should be a lot of fun.

Today is a little different, a little change of pace. We're going to have investors who are not YC folks who have invested often in YC companies but who are investors on their own and their own right. All of them have been angel investing; some of them have done professional VC investing as well.

The way this is going to work is that we have two sets of two investors, so the two folks are going to speak, and then we're going to do a Q&A. So if you would hold your questions until the very end when the three of us will get up on stage and we'll take questions until the end of the session.

Then we'll do the same after 11 o'clock. The first person I'm going to introduce is an amazing investor. His name's Ladd Gill. He's also an amazing entrepreneur. He's founded Color Genomics and Mixer Labs and has an incredibly broad set of knowledge in software, biotechnology, and probably everything.

So he's an extremely smart person and a great investor, and he has said something that I agree with completely: startups are not about working on a great idea; they are the relentless pursuit of doing stuff for customers.

So please welcome Ladd Gill.

So thanks to Jeff and Y Combinator for inviting me, and thanks to you all for attending. Jeff asked me to talk about finding billion-dollar companies, and I also wanted to talk a little bit about helping companies as well because I think ultimately your primary role as an angel is to help the companies you're involved with versus just giving them money.

So I think that's very important. Jeff mentioned my background as an investor; here are 10 billion-dollar companies that I have invested in: Airbnb, Stripe, Square, etc., at different stages.

Many people, and I'm sure during the last few days people have been talking about what's the most important determinant for startup success at the angel level. You know, ultimately, people tend to say it's the team, or it's the market, or it's luck, or maybe it's the number of hipsters that you have working for you.

You know, in my case, I'm a very strong believer in markets first and then teams. I think that differs from a lot of angels, as well as how a lot of other investors think about the world.

So I'm a very market-driven investor, and indeed, my ranking would be markets number one, markets number two, team excellence is number three, and the number four is related to a team.

If somebody gave you a call, you know, at midnight on a Friday, would you actually want to pick up the phone and talk to them? It's a sort of a no jerks kind of policy. This has actually happened to me, that founders of Stripe, for example, called me at 10 o'clock at night on a Saturday, asking if I could meet them for a glass of wine to talk about the first acquisition that they were thinking about doing.

So I, you know, jumped in an Uber and headed over. So I think you really want to view this both as a service model, in terms of you're helping the founders that you're involved with, but also people that you'd want to work with for a long time.

Because when you invest in something, if it actually does well, you may be involved with that company for seven, eight, nine, ten years. So it is a very long-term relationship that you're forming, and at least personally, I only want to work with good people.

And Arackliffe, one of the founders of Benchmark, I think phrased what I believe is a very good view of startups as follows: great team, terrible market—market wins. So it doesn't matter how good the team is; the market really dominates.

Great market, terrible team—the market wins. There are examples of terrible teams that do amazingly well because the market really pulls the product. The market is driving sales. If the team is semi-incompetent, and then a great market—great team, something magical happens, and that's when you get Google or Facebook or one of these outstanding successes.

So I really follow this as an investor, and I wanted to walk through five signs of a great market early on when you're investing in a company because this is really about how you can tell what's going to be a billion-dollar company.

The first one is early compounding, even off of a small base. So often, if you meet a company and they're doing $10,000 a year in ARR or $100,000 a year in ARR, you think, my gosh, you know, how will this ever be big? It's so little revenue.

But if they're growing 15% a month, 20% a month, if you compound that out even just for four years—in this case, $100K in ARR turns into $630 million in annual recurring revenue. And the growth rate really matters.

Once we're down to 13%, it's $35 million, and so that's the difference between a company that's on track to be a $10 billion company and a company that's probably somewhere in the low hundreds of millions in terms of valuation at that stage. So it makes a huge difference in terms of that compounding rate, and sometimes you actually get very strong or early signals of this.

You know, Airbnb at the Series A was sort of growing rapidly. Checkr would be another example of a company that's a more recent one that always had a nice compounding growth rate.

The second sign of a great market is people actually paying you for your product and potentially paying you more than other companies in the market. So the typical thing that a founder will do, especially if they're a more technical founder, is they'll say, the way I'm going to win is by making this cheaper than anybody else—which actually tends to be a really bad strategy, unless you're truly just going for scale.

Sometimes those scale businesses work; Amazon is the canonical example of that. But in general, if you can command a premium, and you have large customers paying you early, it's a great sign that you have product-market fit and that people really want your product.

Because when you talk to customers, they'll always say, oh yeah, that sounds really interesting, oh yeah, that sounds super fascinating, tell me more! But then they never buy anything.

In the case of PagerDuty, when I invested at the seed, they had Google. I think that she had Apple as a customer this was seven, eight years ago. They had Heroku; they had a lot of larger companies as paying customers.

And it was an interesting guy because that was a company that, for the first month or two of fundraising, nobody was funding it. I committed quite early, and maybe three months in, somebody became a really hot company, and everybody wanted to invest.

At least to me, this was a very clear signal. They were compounding like the prior point, and they had some really marquee brand-name customers, and for some reason, people just missed that.

So I think sometimes there is sort of a herd instinct that gets lost. Next is something that your company would actually use, or that you would actually use. So all these companies here that I invested in, in many cases, were on the left-hand side—they would have been companies that my first startup, Mixer Labs, would have used.

So we would have used Stripe for payments, because the payment solutions were crappy. We would have used Gusto for payroll because we were using ADP and Paychex and we kept switching because it was a bad experience.

We would have used Nifti for health insurance, Optimizely for A/B testing, PagerDuty for pager duty. It was really by starting a company that it was clear that these were needed products, and these were things that it made sense to get involved with.

The fourth reason is really around a why-now statement, as well as what's the real basis for competition in a market. And so I think people often misunderstand markets, and they either think that they're overly crowded.

For example, when Dropbox and Box got going, there were a dozen different cloud storage providers, and it looked like potentially a crowded market—same with Google with search and same actually with social networking.

I remember around 2010, everybody's saying that the era of social was over and all the companies that will ever exist will exist, and you know, it's sort of game over. But I think what they failed to see was the rise of mobile, which really led to Instagram and Snap, as well as sort of the Chinese equivalents of many of these companies getting up and running.

And so there's a whole wave of really interesting, investable companies that a lot of people missed because they just weren't looking at social products anymore, and so the real question is, when is a market truly over or really crowded, and when are there still big gaps?

You know, that's a key piece of analysis I think that's worth doing. The last thing is really around moats. If you want to have a long-sustaining company, then you need to have it be defensible.

And I think there's real moats and fake moats. You know, network effects are real moats in most cases; everyone's from all their fake moats because I mean Myspace doesn't exist anymore.

So in hindsight, their poor execution meant that the network effect unraveled just as quickly as it sort of spiraled up. People often talk about data moats—there are very few companies that actually have data moats, and so I think that's often a red herring.

I think maybe in genomics right now, there may be interesting data moats to be formed, but in most industries, the data moats don't really exist. And so I think some of the signs of a company having a moat is number one: what's its long-term margin, and so really thinking about the underlying fundamentals of the business, like how much money they're making per customer, per dollar from a customer.

Again, there's Amazon or scale-centric models where that doesn't matter as much, but then that has to be an explicit part of their model. The compounding scale we talked about, revenue renewal or recurrence, is really important.

Having a customer paying you over and over on a long-term contract is much more valuable than a churn-and-burn customer. So Internet of Things, for example, traditionally have been bad investments for startups, great investments for big companies because, you know, if you have a smart lightbulb company, you buy a lightbulb once, and especially if it lasts twenty years, it's an LED lightbulb—you're never going to go back to that customer again unless you try to cross-sell something.

So you really have to be thoughtful about that recurrence. And again, there are business models where potentially you're generating data or other things where recurrence matters less.

Then customer mix—how dependent are you on one or two customers? If you have very high customer dependence, that have enormous bargaining power, that means you're kind of screwed from the negotiation perspective.

A lot of people who sell into pharma, for example, may only have ten real customers; that makes it much harder than if you have a longer tail. But those types of businesses can work very well if you actually look at this long-term margin, compounding scale, and customer mix.

I mean, that's basically Google, for example. They don't have the revenue recurrence in terms of locked-in contracts, but they do have revenue recurrence from the perspective of the advertisers who keep wanting to reach this unique user base.

So that was sort of the main market signals that at least for me have sort of helped me in terms of choosing some of these companies.

On the team side, which I view as sort of the next most important thing, there are really four things that at least stand out in my mind. One is, do they actually have a product at the time they're pitching? And product may mean a really crappy alpha that kind of breaks, but at least they've built something when they're talking to you.

Some of the worst investments I've made were with really smart people with a PowerPoint deck, and I was like, oh my gosh, their vision and they're so articulate and they're so smart, and it never tends to work unless there's a reason that they couldn't have built something, and that could be maybe there's a regulatory constraint or other things like that, and so it takes a year or two to actually build something.

But even then, most smart people, I think, have at least some sort of demo, or I should say not smart people who get things done, which is different from being smart.

Second is fast learning. So how quickly do they ramp? Ben, the CEO of Pinterest, is a great example of this where every time you talk to him, six months later, he'll have internalized everything and have learned way more than you ever knew about a topic. So that's an example of somebody who's constantly scaling.

Or Brian Chesky is sort of notorious for having rapidly ramped in the role of CEO. Third is good at selling, which Jeff mentioned, because ultimately founders are going to need to sell their team to join them, they're going to need to sell investors to give them money, and they're going to need to sell customers to pay them.

So you actually have to be very good at convincing. Now, there's different forms of convincing. Vitalik, who runs Ethereum, has the ability to create a little bit of a cult around himself in terms of the people who work with him and sort of the broader crypto community.

That's a different form of selling than somebody who is, you know, the slick BD person, but each form of selling can actually work as long as there's a good product, founder-market fit—if the founder is working in the right market around the right product, then their form of selling is what's important.

So you can't do a one-size-fits-all model for this. Lastly, of course, people who are determined. Doug Leone, one of the sort of old-school major partners at Sequoia, puts this extremely succinctly: "Whose voice is driving you?" You know, that was a question that he used to ask in some context when you're sitting there and you're working at 2:00 in the morning—whose voice are you hearing in your head? Is that your mother? Is that your uncle? Is that your brother or sister? Who's the person who's driving you to go forward?

I think that's a really important question or a really important part of founder psychology to understand. There's a lot of false signals and mistakes.

I think one of the number-one false signals is other investors. So just because a lot of people are holding a purple mustache doesn't mean that you should too. So I think a lot of people sort of follow investors in a crowd or they say, oh, Benchmark is investing; therefore, I must. But the greatest investors make all sorts of mistakes.

So I think doing your own diligence and actually being thoughtful is a worthwhile endeavor. Some of the mistakes I made—so Jeff asked me to sort of touch on these—one of the biggest mistakes I made from a passing perspective is I passed on Lyft for their Series C, which was a $90 million valuation, and I think they're now in the $9 billion range.

So I missed a hundred X, or maybe post-dilution, 250 X, which every night when I go to sleep, I'm like crying, like how could I do this? I think, in that case, I worried both about valuation at the time. They were still doing a ride-sharing service, excuse me, they were still doing a corporate ride-sharing service versus what they're doing now as more of a transition from Zimride.

But second, I also thought it was going to be a winner-take-all market, and I thought Uber was just going to win everything. In hindsight, not every market is a winner-take-all market. There are actually all-agape markets in all sorts of industries.

I think that was a misunderstanding of market structure by me. I think most angels actually care too little about valuation, and so often, if you actually look at the return—so you do ten investments, and I'm making up a number just to make it a round number—a hundred thousand each, and nine of them go under, and one works, and that one ends up at a $200 million exit valuation, if you invested at five versus twenty million, it's the difference between breaking even and making 3X on your money.

So it's a really big difference just for that one investment. Valuation does matter; it isn't the single most important determinant, but I think you should actually keep it in mind, and I would be thoughtful about advice that says, I don't worry about valuation; it's just about the founders—that's actually false.

Second is imagining myself or yourself as the founder. Joe Kraus, who started Excite, which is one of the sort of monster companies of the '90s and who eventually moved on to Google Ventures, said that his biggest mistake as an angel was putting himself in the shoes of the founder and imagining what he would have done with the business instead of what the founder is actually going to do.

So I think projecting yourself into that situation is the wrong thing to do. You should be asking, what is this founding team actually going to go and do? Because often they're going to do something radically different from what you're going to do if you were in their shoes.

I think this is an issue more for operators than for anybody else. And then finally, I used to think that having a bad team is a bad signal. By bad team, I mean you worked with a person before, and in the context of their role, they were bad.

There's an example of a company that I actually didn't invest in because I worked with the founders at Twitter and the person was always in the hallway. They were kind of schmoozing—they didn't really get anything done. I was like, oh my gosh, terrible founder, and then they've started one of the most successful post-Twitter companies.

I had dinner with them, and I asked them in a polite way what happened—how did you go and do this amazing thing? And his response was, I finally feel like my ass is on the line.

So I think context matters, but I never would have guessed that that transformation would have happened. I know other people too; I know somebody who passed on what's now a multi-billion dollar company at the seed stage because one of the three founders worked for him, and he felt that founder was bad—not too smart, not very hard-working, etc.

It turned out that their co-founder, though, was exceptional, and that person was a CEO. So it's really interesting to ask what team signals really exist. I think a great team is a very positive signal.

I think a bad team, depending on context, may actually be a neutral signal. So I was clinically going to run through how to help since, again, I think your number one job as an investor is actually to help the companies that you're involved with.

I think there's big differences between helping early versus late. So the left-hand side, the egg to me represents an early-stage startup. We know all said and done early-stage startups aren't that complicated, and they have a very simple surface area.

You know, they have to raise money; they have to hire people; and they have to get product-market fit, and they have to not run out of money or blow up—that's basically all an early-stage startup has to do. And product-market fit is the only thing that matters, really.

The right-hand side is what a late-stage company is like—there are tons of people running around, there's a lot of chaos, there's a lot of surface area. There are a lot of things you need to do, and so the way that you help those words accompany is radically different.

Most angels, I don't think, can do both. In terms of helping early, I mentioned the two biggest reasons that companies tend to fail is they run out of money, which is really a proxy for a new product-market fit or about execution, or the team blows up.

Every once in a while, you have a competitive situation where a competitor crushes the company—that's pretty rare, but it does happen.

The ways to help early then map against those areas of either blow-ups or running out of money, and that really comes down to hiring, firing, helping with culture, helping with fund raises, helping with customer distribution.

If things don't work out, or alternately, if they're working really well, but a company's willing to pay up and consider the actual exit for the company.

I think one under-discussed part of helping out founders is actually the psychology of founding. Like being a founder is actually a pretty lonely role, and it's long hours, and it's stressful for yourself and your family life and everything else.

A lot of time as an investor may actually end up going to support some of the founders that you work with on the late side. It's the same types of issues but at a very different scale and with very different insights.

So for example, on the people side, it's much more around exec hiring and management. How do you hire a CFO for the first time? How do you hire a UC? How should you run your executive team meeting? How do you do a rework? How do you think about board meetings?

You start getting into late-stage financings and tender offers and secondaries—you start thinking about buying others. How do you actually make an acquisition for the first time?

So there's all sorts of very operationally intensive issues that if you have that background, it's extraordinarily valuable for a founder. For those of you in the audience who've been hardcore operators, founders really value that advice, especially as they start scaling, because very few companies have gone through hyper-growth and have had to deal with all these things.

Lastly, again, there's different types of founder psychology that tend to kick in—everything from, my CEO is dramatically more experienced than me. How do I actually manage them? I think they're smarter than me too.

You know, I'm having issues with my board, or I'm feeling like I'm not doing enough, or I'm feeling like I've been working non-stop for seven years—how do I take a break?

All these things are ultimately issues of more psychology than anything else. I think that the sort of tactical tips to help being are, number one: startups best practices to send out updates. So hopefully, many, if not all the companies you're involved with are sending out some sort of semi-regular updates.

Sometimes they get too busy to do that, and that's totally understandable. But first, reply to them, even if it's just like a congratulations, nice job. I think it's good to sort of keep in touch and keep top of mind.

Second, reach out to help. Like, it's surprising how few angels, once they write a check, don't actually ever follow up and ask, can they help with anything? Or they don't follow up on any of the asks in the investor update.

Third is to follow up quickly, so if you can get a reply, just get a reply out fast. And then finally, just keep founder and company interests above your own.

One of the topics that Jeff asked me to quickly touch on is how do you see investors acting badly, and then how do you see founders acting badly?

On the angel acting badly side, I think the worst thing I've seen is more around people putting their own interests over the companies. An example of that would be horse trading with a venture capitalist.

Say that you know the perfect VC to invest in a company, but instead, you send the company to somebody else or a different partner at that firm so that that person will then owe you a favor, or you're paying them back for a favor.

There are some horse trading that, for example, investors do that is not actually good for the company, but it’s good for them individually. When my first company, Mixer Labs, exited to Twitter—so Twitter bought it back in 2009—we actually had an investor who tried to block the exit as a way to negotiate more of the outcome for themselves.

That was awful. I would never work with that again. Excuse the language. So I think that, you know, as a founder, you really want to work with good people. But as an angel, you should really be asking yourself when is somebody doing the right thing, and how should I support them? Versus when should I grab for myself, and I think, in general, you shouldn't grab for yourself.

Lastly, just giving bad advice. I've seen brand-name angels on email threads give advice that was just bad—no idea what they were talking about. It was obvious, but the entrepreneur didn't know any better, and so the entrepreneur was like, oh, okay, of course. Like, I should go do this stupid thing.

So I think ultimately if you don't know, you don't have to say anything. You could say, hey, let me find this person who's really good; exits are really good at late-stage financings or really good at whatever, and that's enormously helpful.

The flip of it is, founders will sometimes behave badly as well. Founders may over-optimize round structures where they have three notes up concurrently, and they throw investors into a different bucket based on their perceived value.

I think that's kind of over-optimizing round structure. Or maybe they'll keep bouncing the note valuation up. They may not reward help. So say that you help a founder for a year and a half, and then you didn't talk to them for a month, and you call them up, and they say, oh, sorry, I just raised a round and didn't tell you.

I've seen that happen in a number of instances, and I think ultimately, on the founders' side, you should be thinking about who actually helped me, and I should reward them—not who's the brand-name investor that I should pull in.

Some founders will view the company's money as their own. You'll see these people who are traveling the world, supposedly to talk to customers. So that's bad; there should be real governance around that.

Then lastly, there are some founders who exit in ways that will really screw over investors. One company that I invested in exited a Jawbone, which then, of course, went bankrupt. So it should have been a sign; they had $5 million that was invested in the company. Collectively, they received, I think, $15 million or so back as part of the acquisition, and the way they structured the acquisition was $10 million would go to one of the founders, $2 to $3 million went to the remaining founders plus some employees, and then the investors ended up getting, like, say, 20 or 30 cents on the dollar.

That was an example of the founder acting badly relative to the people who backed them, spent years with them, and you know, that was an example of a really bad exit in terms of the founder acting badly.

Like, I would never back that person again, so that's it on my side. And I guess we have a great next speaker in Paige Mun.

So just a brief introduction, Paige Mun. But before that, I do want to remind everyone, I see lots of you taking notes, and there was so much in that presentation to take notes on. I don't blame you, or maybe you were writing emails, I don't know. But it looked like you were writing notes.

All of the slides, the transcripts, and of course, the videos of these will be online at startupinvesors.com/startupschool.org. Of course, it'll take about 24 hours for each day's to be posted, but they'll be there, and they will stay there.

So you'll be able to get everything that Ladd said and every speaker says in detail at your leisure. We often tell founders not to try to pull the wool over investors' eyes. We've talked a lot about trust, and we tell them if you do something that's untrustworthy, investors will not write a check.

Because you guys know what happens if you write a check and the founder decides to go on a jaunt around the world, like Ladd mentioned. Tough, right? There's not much you can do about that.

Most great investors develop a sort of intuition—a way to judge people and founders—and so we tell founders they're better at this than you are. Usually, don't do that; be honest and direct.

Paige Mun is one of those people who has, I think, the most natural intuition about people. It's one of the things that's made him such an amazing investor and a way to connect with people and gain their trust of any investor of any person I've met, and I do think that explains a lot of the extraordinary success he's had.

So he's a well-known angel investor as well as the founder of Pair VC and a good friend. So please welcome Paige Mun.

[Applause]

Good morning everyone. I think let's give a big round of applause for Y Combinator for doing such an amazing job. I want to especially thank my dear friend and my mentor, Jeff Ralston. So thank you, Jeff. I'm truly honored.

I actually shouldn't be here today. By no standard definition, I'll be qualified as a venture capitalist. I don't have a computer science degree from Stanford, nor am I a graduate from Harvard Business School. In fact, I'm a college dropout, and I never wrote for a tech company, not even a single day. Yet, I'm here.

I have seeded over 200 startups in the last 18 years, seven of them worth over a billion dollars each, and I raised over $100 million from top-tier university endowments, corporations, and institutions in America for my fund, Pair.

So rather than talking about investment philosophy, trends, and what is the next big thing, which I think nobody knows, I decided to share my life story. If there is only one thing I want to leave with you today, it is that impossible is nothing.

I actually want to start to show you a picture of a very proud moment in my life. In 2014, I was among the hundred immigrants who received the Ellis Island Medal of Honor for my contribution to America as an immigrant.

It's such an honor for me because I think the United States opened its doors to me as an immigrant and gave me an opportunity to build my life. But as much as this moment means to me, it's not what defines Who I am today.

This one is from 1992. I was homeless here in Silicon Valley. This is me sleeping in an attic above the yogurt shop in Redwood City, just five miles from here. I—it was a few months after I arrived in the U.S. from Iran. You see, I came here in 1992 with only $700 in my pocket, I didn't speak English, and actually, I was in love with a girl in Iran, and I thought I was going to lose her.

So I used that $700 to call her every day. At that time, I think it was like four or five dollars per minute. So I lost all the $700 in a few weeks, and I ran out of money.

So I had to find a job, and my first job was working in a car wash here in San Jose. I bought a car for $750—it was five payments of $150—and I was driving every day to this car wash.

But I tell you, I was the best car washer the world has ever seen. I took so much pride in that job. Little by little, my English improved. I went to college, and I landed a job here in this yogurt shop, and somehow, I convinced the owner to let me sleep in an attic over there because I wanted to save money.

I think it was a transformative experience for me. Rather than being cornered, I thought, if I can survive this, I can survive anything. It was tough days of my life. There was no air circulation, nothing.

It was actually very low; it was an attic over there they used for storage. But I think I gained a lot in those days because I knew this is not going to stay the way the car wash didn't stay.

There was one night I was studying, watching TV, and I saw this ad. It said, "Medallion Rock Gallery in downtown Palo Alto is hiring salespeople." As an Iranian, I mean, you think you know something about Persian carpets, which I didn't know anything about.

So I called, I called, and the gentleman interviewed on the phone, and he asked me, have you sold carpets? I said no. He said, have you sold furniture? I said no. Have you sold cars? I said no. He said, so you're not qualified—why did you call? Before he hung up, I pleaded with him and asked him, how can you deny someone you haven't met?

There was a pause on the other side, and he asked me to meet him the next day. The next day, he actually hired me on the spot.

So this is part of the gallery. I arrived over there, and the first thing I learned is that Persian carpets are very expensive, and most of the customers, they don't have any idea where these carpets are made, what is the material, and they couldn't figure out what the price would be.

So selling carpets requires a lot of building relationships with the customer, especially for Persian carpets. They come to your store, and they said, we bought a home here, and we go to their home.

So I started to actually build these relationships with my customers in order to sell them carpets. At one point, I think I've sold over $8 million in one year. This is perhaps a record, so I can claim to be the best rug salesperson the world has ever seen.

But after a few years, I figured out all of my customers were people in the tech business: CEOs, venture capitalists, people like Ladd and Jeff and other people. I thought I was just really amazed by them, not only because there were wealthy people, they had beautiful homes, but I just learned about what they do.

I thought, well, I’m witnessing a community that is really destined to change the world, and I want to be part of it. I wasn't afraid to be part of that, and I decided to do everything I can to become part of that community.

So I kind of changed my mindset when I was meeting these entrepreneurs or CEOs at home, and I started to ask questions. I asked a lot of questions, and little by little, I started to understand what’s going on in the ecosystem—who is who, what is a startup, what does a venture capital mean?

But remember, this was the late 90s, early 2000s, so there was no Y Combinator, there was no TechCrunch, no AngelList, no blog. In order for me to learn, I had to meet a lot of people, and gradually, after a few years, I built an amazing network of incredible people.

Typically, it takes people a year to get to the point of meeting them, and I could have called them and gone to their homes because I had dinner with them two months ago with their family selling carpets. This relationship was just really, really important.

One day, I walked to my boss's office, who actually was a great entrepreneur. He left Iran in 1978 after the revolution. He actually was a great entrepreneur who started his business in Iran when he was 15 and built an empire in Iran.

I explained that, you know, we are in the rug business; we're in real estate, but I think we should be in tech. This is perhaps the most important street in the world, next to the most important university in the world, and I'm friends with the most important people in tech.

Actually, he believed in me. It's okay; what if we start to do that? I explained to him how I wanted to do it. I said, oh, I know all the people, so I can invite them to the gallery. I could put a lot of events, and I can build an advisory team from these people.

He believed in me. He said, okay, we start, but you have to put 10% of the whole thing, and it was around $20,000 for me. I said, I don't even have $20,000 to do it. How do I do it? He said, we subtract from your commission every month.

So I started to work harder, selling carpets to pay for the fund. So we started to do it. I think we made so many mistakes. The first, I think, challenge we had was telling people we were serious.

So, you know, entrepreneurs, VCs, you know, used to go to elegant polished offices in Sand Hill Road—ever coming to the rug gallery? It was just a little bit odd, and they were kind people—not telling me this is odd—but I think they were coming to our office, and I'll show you part of it here. This is actually pretty amazing.

These are all museum-quality carpets. This is the gallery I built after five years of being there, and I actually closed the door, so you couldn't get in unless you talked to me and had an appointment to come.

I made it very exclusive, but I think, in the back of that boardroom over there, we were serving Persian tea, and I think that actually was our magic. People really liked it; it was a way for me to get to know them, for them to get to know me.

I think it was actually, we talked about families, friends, and so on before anything else. And so, you know, we started to make investments. I think in the first nine months, perhaps, I had the worst track record in history in investments.

If you can look at the companies that I invested in, I invested in the companies after three months; they were shutting their doors and so on. But I didn't give up.

I thought the value I could bring at that time was really connecting people, and I put a lot of events in the gallery. I remember once I invited the entire senior partners of top-tier firms, I can name them, and I invited over a hundred people from the Iranian community in tech.

The Iranian community in turn is very influential here, and I didn't know what the theme should be, and I had no clue. So, I thought maybe we should have a lot of fun, so I invited belly dancers and I invited Persian food over there. At the end of the night, people had so much fun that I'm pretty sure some connections were made.

Little by little, my network grew, and I started to make some good investments. What was important was, you know, people didn't judge me. I think that's one of the amazing things about Silicon Valley: they actually opened their arms. They knew I was an outsider, but let me learn and be part of it.

Here was the gallery, actually, where we made most of our investments. I was actually the first investor in Danger in that room. Andy Rubin started Danger, and as you know, he went on and created Android.

That room is the exact room that I met him, and I actually made a deal with the founders of Dropbox to an Arash in that room over tea. The first time I met Drew and Arash was at Y Combinator demo day, exactly where Jeff is sitting now.

Y Combinator was there, was a wall here, so this was the room; the audience was smaller than this size. I walked through an Arash exactly over there.

I really liked their presentation, and I invited him to our office here. So when Arash and Drew came, we didn't talk about cloud storage and Microsoft can kill you and so on.

I was just really amazed by two incredibly young, talented founders who built a product that I thought I can use. So we agreed on being a good partner with them over there.

The other thing I think about selling rugs, you know, taught me was just do whatever it takes to win. No task is too small for me; no task is too big.

As a general partner of a VC firm in Silicon Valley, I still make tea and serve tea if you come to my office. But I think the best part of it may be the example is that I do whatever it takes for my founders.

Actually, this is Drew, the co-founder and CEO of Dropbox. He went on the cover of Forbes in 2012 after raising a massive round at around $4 billion valuation. He shared this story of Sequoia Capital doing the seed round, and I played a role in that connection over there.

He called me a pimp. He said Paige Mun was Dropbox's pimp. You can see down there, and I'm taking a lot of pride in it today. Dropbox is going public with $1.2 billion in revenue, and I think no pimp has ever made more money than I did on this.

The other one, actually, this is just off the press—DoorDash, another amazing Y Combinator company, which I actually met the founder at Y Combinator demo day. They just raised $500 million, and I made that intro to SoftBank.

The point I want to make is this: be truthful to yourself, really understand your strengths, and leverage that in what you do.

So for me, it was like wanting to play in the NBA, but I knew I could not be Kobe Bryant, so I decided to be the best agent I possibly can.

I also make mistakes. I actually made some really big mistakes. This is an email in July 2005 from a lawyer of Facebook, letting me know that I can invest $50,000 in the Series B of Facebook, which was under $100 million.

I think the market cap of Facebook is over $500 billion, so you can do your calculation. This is more than perhaps ten thousand eggs at that time. On the left side, if you look at that, the Mark Zuckerberg sends, and Sean Parker's email is still was the Facebook—they hadn't changed the name of the company.

On the right side, on top, you can see the $50,000 was exactly the cents to the wire: $49,998.04.

But if you pay attention down there on the right side, it says 165 University Avenue. So part of the investment was they wanted to lease one of our offices on University Avenue for five years.

We went back and forth, and we didn't agree on the lease terms, and we didn't invest in Facebook. I learned big lessons, and I want to share it with you.

One, when you see an exceptional founder—those outliers who are actually from Mars—do not overanalyze the situation. Just get on the rocket ship and go.

And two, never let those extra four cents distract you. You have to see the forest through the trees. So I made more mistakes, but this was the biggest.

So, I thought maybe to share with you, you know, fast forward, I started a fund in 2013, Pair VC, with my partner Mar Hutchinson. Actually, Mar is an incredible woman from Barcelona; she has a PhD from Stanford in electrical engineering.

She was a consulting professor and started three companies from scratch. I was very fortunate to be an investment in her second company in 2003.

So we have been very fortunate to invest in really category-defining companies that, you know, collectively now they're worth over $25 billion. Actually, the very first line, if you see, all those companies are YC companies.

You know, Dropbox, Custard, DoorDash, Box, and many others. Their idea is just investing very early, and we're actually very much funders and market-driven.

We can go on after this, but throughout the years, people have been asking me, Paige Mun, how do you work with founders? How do you find these founders? What do you look for in these founders?

You know, although a lot of founders have different backgrounds, different family histories, different religions, and so on, I think there are some traits that are common among them.

I thought maybe I should share these things with you. So I am actually worried about founders who come with 20 ideas that narrow it down to one because it's more feasible.

I actually like founders who have a history with the problem they're solving. The best founders are not necessarily chasing the next big ideas; rather, they are solving a real problem that they had themselves.

These problems tend to be very specific, like connecting people with cars to people who need rides, or like storing your data remotely, or creating a chatroom that employees can communicate with each other.

So these are the ideas and problems that become the Ubers and Dropbox or Slacks of our world. And, you know, I think if somebody truly understands the problem they are solving in depth, these are the people who won't give up when things become tough.

So I don't think there is anything wrong with big ideas, but I think companies are set out to solve problems that founders have experienced, and it's that kind of genuine connection between founders and the problem that drives them to solve and even beat the odds.

Obviously, I’m looking for founders who are taking big risks on behalf of their ideas. I like founders who are self-aware, very confident, but they're taking this risk. Typically, if they're waiting to the seed round to be raised before they drop their job, I think it's not a good sign for me.

I think this is very obvious among the best founders. You know, building companies is very, very hard; it's kind of an emotional rollercoaster. So I’m looking for founders who are not easily rattled.

I’ll share a story with you. A few years ago, I had a conversation with the first-time founder who said, oh, Paige Mun, you know, he had a tough time raising money, and he said they didn't throw as well as he expected. It was like a warzone. I said, you know, Silicon Valley is like a warzone, and I told him that.

I was in a warzone—it’s nothing like it. I shared this story with him that, you know, I started my very first business when I was a teenager during the Iran and Iraq war.

At that time, Iraqi jets were coming over there on almost every night, and some of the nights, because of Iran's anti-aircraft, these jets couldn't get low to drop the bomb. So at the end of their mission, they were breaking the sound barrier, and the results were windows being shattered and pieces coming to your eyes.

I had this idea that I should go sell duct tape to shops. So I bought a lot of duct tape. I walked the longest street in Tehran, went door-by-door, and explained that these Iraqi jets are coming tonight and I think you should put these duct tapes on your windows.

At the end of the night, nobody bought anything from me, and I just gave up. And I think that which reminds me, you know, the best founders I know are extremely focused and persistent, and they never give up.

I mean, the best founders, maybe they would have gone to a different street tomorrow, maybe try a different sales speech—maybe selling a different color. So what I want to bring up here: the best founders really don't give up that easily.

I actually love founders who are paranoid in a healthy way. I respond to founders who are confident and have a very clear idea of what kind of future they’re building, but they're double and triple-checking every decision they make.

Being paranoid doesn't mean that you have to be harsh or unkind. I actually look for founders who put the company and their teams above themselves, and they can attract talent.

I actually think a good CEO is like the captain of a ship. A good captain knows directionally where the ship is going and will do anything to get there. A good captain is incredibly loyal to his or her shipmates, and a great captain is willing to go down with the ship.

Lastly, I think vision—I think I look for founders who have a long-term vision instead of just a short-term goal. You know, I always ask, are they focusing on getting rich pretty quickly, or are they, you know, insanely focused on making customers happy or creating jobs or building the company that changes an industry?

These are the questions I ask. I think founders should be very well aware of what kind of future they're building.

I can share another story. Last year, I think it was last year, was Dropbox's tenth-year anniversary. I was talking to Drew, and I asked Drew, you know, fast forward in ten years, where do you think Dropbox is?

And Drew, instead of telling me what product he's building and so on, he said, Paige Mun, in ten years means at the 20-year anniversary of Dropbox, Dropbox will have reduced the workdays from five to four.

That's the kind of mission-driven founders you want to work with. He didn't say what he's building; he was just talking about the result of Dropbox. We make so many tools that people are going to be more productive, so you only need four days a week to work.

So those are the types of founders, those are the types of missions I'm talking about here. Anyway, I think there is, it's not a perfect formula by any means.

I made many bad investments, and I've seen many gifted people fail. I think the reason I connect well with founders is this thing inside us that nothing is impossible and there's nothing we can't do.

That's why I always look at this photo, and it was a start for me. I didn't have money, but I had hope that I could make changes, and I had hope that by making enough sacrifices and enough work, I can make something out of myself.

By the way, the girl I called—we were celebrating our 25th anniversary this year with two beautiful children. So for sure, the best investment I've ever made. Thank you.

[Applause]

Thanks, guys. Okay, we're going to take questions from out in cyberspace. If you send it to #YCSAS or in the Slack Channel, I will call on folks back here.

So you were allowed—you were talking about the team and the voice that drives the founder. What is that voice that drives the founder and the team?

I don't think there needs to be a set one that's the same for every founder. I think it has to do more with the fact that they're driven to keep going. Depeche Mode is playing like they have to be relentless.

Starting out companies is incredibly hard; ways that people who haven't started one just can't really empathize with. You need somebody who's sort of egging you on and turned elated to have you keep going, and the question is, who is that? It could be the founder themselves; it could be a relative; it could be the passion for the idea even.

But there needs to be something that really is that driving force. Often, it's a person. So what drives you?

That's a long answer. How much time do we have, exactly? We start going into therapy or something? We're just starting crying? It's going to be too much.

Get back there.

Situation, which is the promise that great believe in them. Money, indeed. So long question about an investment that had been made in the past, and everything seems to be coming together except the business doesn't seem to be working quite right.

How do you evaluate situations like that?

I can't speak about... I don't know if you invested six months ago. Was it kind of Ground Zero, or was it a mature company?

Typically, the first start—nothing works. So the fact that it doesn't work shouldn't scare you as an investor. If you really believe these are exceptional founders, there's a big market—you know, our philosophy as a fund is just backing them up.

But I don't know if it's like three years in, the business is still going slow, or is just the beginning of the lifecycle? I fear that... It's a fantastic question, but there's not going to be a quick answer here.

This is figuring out whether you should put more money into a company is extraordinarily complex. And I think if you can't—I don't know if these guys are going to be able to hang out at all at the end—but if you can grab them, you can actually have a conversation.

But I fear that one requires a conversation, not a quick answer, and a lot of back and forth. And there's so many different questions you'd have to ask to figure out whether this is a company that is—you know, most planes that go into a dive hit the ground, right? Mostly. But some don't, and some pull back up.

Making a decision as to which one you're on is hard.

[Another] question right here. So great question—perhaps both of you can take a shot at it. How do you divide your time between sourcing and actually helping? You're helping the founders in whom you have invested.

You know, I think doing an investment is three buckets, as you mentioned, is important, making sure you have an extremely good quality deal flow, and then the ability to pick winners, and then how do you help them?

You know, when I was an angel investor, I spent a lot of time to make—you should have a very quality deal flow. You know, after doing this for 18 years, I spent a lot of time, but not as much as before.

Now, as a team, we divide that among different responsibilities. I think you have to see what situation you're in. If you have a really good deal flow and you have a few founders that you really need their help, you can juggle between these things.

I don't think it's just one rule that you have to just divide it by three. It all depends on the lifecycle of the company.

A very good question. I think I have two answers without just adding really quickly. One is more around the team or the company itself, and one is around how you help.

I think in general, when you help companies, it comes in spikes versus it’s sustained throughout. If you're sustainably having to interfere or help with the company every day, then there's either something wrong with that company or with the founders.

And so I think the best founders need help—some of these spikes, or they're like, now we're figuring out X, help us with that, or now we need to hire this person, help us find that. But they're not depending on you for everything.

[Another] question right here.

So for Ladd, if you're a market-driven investor and you're investing really early before you see what the business growth curve looks like, how do you make those decisions?

I look at two things. One is the total addressable market, or the TAM—so how big can this market often be? And people tend to delude themselves in both directions.

So Chris Dixon has this great line that the most interesting companies start off looking like a toy. So many things look smaller, niche, and you really have to extrapolate and say, okay, if this thing actually works, how big will it be?

That ends up giving you some sense of market size. Now, coming, often we’re off by an order of magnitude, but that could be a good thing. Maybe you think it's a billion-dollar company, and it's a ten or 30 billion-dollar company.

So I think it's really—that's one. Two is really the competitive dynamic, and three is, are people paying them? People are paying them early; it’s actually a very good sign because startup products tend to be awful early, founders tend to be terrible salespeople.

There are all these things that suggest that if you can actually get somebody to give you money despite all the flaws, you're doing something amazing.

Sort of a similar question from online is how, really, for both—it's directed at Ladd, but it's really for both of you. A lot of the best companies, the total addressable market is just not obvious.

Uber’s sort of the classic example, where you look at that and say, a taxi market—that's boring; it's small. But it turned out there was a much-larger market that would be created once you created a service as convenient as that sort of ride-sharing.

How do you guys think about what might be instead of what is?

Actually, if you look at our portfolio companies, it seems all over the place. It seems we don't know what we're doing because it's from consumer space all of it to biotech and to drones and so on.

This really belief that we have that entrepreneurs see the future before us. So it's part of it just let them educate us about it; obviously, we do our analysis of the market and so on.

But you know, often times, we really can assess that, and it just trusting entrepreneurs that they have these beliefs, and we want to be partnered with them. I think, as you mentioned, it’s just very, very hard.

I kind of expected that what happened today, luckily this is our room, so we're not going to get kicked out or anything.

But I do want to be respectful of your time and the time of our folks here, so I'm only going to take a few more questions. Yes, back there.

Okay, so the fundamental question: you're a busy person; you want to do angel investing. How do you go about getting started? Getting deal flow?

I think there are three things: Number one, you can start writing blog posts or other things about your industry if you think your industry is an interesting place to invest, and people will come to you.

It's almost like content marketing for startups or for investment. Number two is if there are things adjacent to your company that are non-competitive that you think are very good, those are very natural things.

And three, I'm assuming that you know, at least when I was starting my first company, for example, I had a peer group of first-time founders that I was working with or getting advice from. Over time, that led to some cross-investments.

So I think those are three great initial sources. You know, I suggest go to your immediate network, and then you know, build around that a better network. I remember when I started in the late '90s, and I didn't know how to find founders, I was going on Stanford Computer Science actually looking at every name that looked Iranian or Persian and sending an email, inviting them for tea.

I ended up investing in two, which he sold the company to Google, and he's now a professor at MIT. I keep getting a lot of great entrepreneurs from him, so there are ways to do it, and sometimes cold calls go a long way.

I think one related thing that I think about is your own company versus the time you spend investing, so I'd also be a little bit cautious.

[Another] great question. So when there are co-founder conflicts, what rules do you guys or what role do you guys play when you run into those uncomfortable situations?

No comment.

Well, there are two types of co-founder conflicts—resolvable and unresolvable. I'd say more often, usually, it's unresolvable, and someone's going to have to leave. If it starts late, usually, there's a reason, and you can fix it.

You know, I think for early-stage startups, as an investor, you have to play a role. As I said, mom and dad, brothers, sisters, and sometimes it's about—you know, founders conflict. So many times, it's not providing advice about product-market failure, raising money; it's just you're all human.

You know, the questions themselves, it's a lonely job, so just be there for them.

And I'll add one more thing. I think that the base of most relationship conflict of any kind—in your personal relationships or in your founder relationships—is some kind of communication breakdown.

So my advice is usually, yeah, you, two, three, you five, whatever, you need to talk. And if there's going to be a solution, it's going to be in that communication.

Sometimes it makes things better; sometimes it makes things worse. But I would argue it would have gotten worse anyway. I really apologize for cutting what I'm sure you have a lot of more questions, but let’s give these guys a round of applause, and thank you so much for coming.