A Conversation with Elad Gil

39m read

·Nov 3, 2024

Okay, the ACS on we're good. Good morning everyone. I am very happy to have my friend, a lot, Gil, here. You saw some of you or all of you, if you looked online, a talk yesterday about how to get meetings with investors and raise money. If you would be so lucky as to get a meeting with this investor and even more lucky to raise money from him, that would be a really good thing for your company.

A lot's sort of an epic investor; he's had an epic career investing. But he's much more than that; he's not only a fantastic investor who's bested a lot of YC companies, like it seems like all the successful ones. Someday you have to figure out, you have to tell me how you figured out how to do that. Maybe we can talk about that today. But he's also a start-up founder; he's worked at Google and Twitter, and he is increasingly known as an author. Claims it's not his career, but he is the author of "High Growth Handbook," which is a very cool book. I recommend you all read it, but not maybe right while you're starting your shown up. Maybe as your startup gets going, because a lot of the topics in there will be relevant for you hopefully in the future.

So maybe you can start off the conversation by telling us a little bit about, you know, how you got from... so how you got to where you are today, what's your journey to epic investor and startup founder, and, and I guess company whisperer?

Sure, so first of all, thanks for having me here, and really excited to be here for Start-up School. So, you know, I moved out here right after graduate school. I didn’t know anybody. Many of my friends decided to stay on the East Coast, and so I was sort of starting fresh when I first came out here. I had terrible market timing in that I moved out here right as the entire internet bubble was collapsing.

So I went into an environment where, a year after I got here, most people were getting laid off and most people were sort of desperately looking for jobs. Somebody who was a vice president of management was suddenly trying to get any product manager job that could get at any level at any company. And so it was a very odd environment, and it was a very tough one to plug into. This is before things like YC existed; there was no online content on starting companies. There was no content about basically doing anything.

What you had to do is really sort of hand-to-hand combat in terms of networking, meeting people. I basically talked my way into a job by offering to work for free at a startup. That's that was my entree; it was basically unpaid labor on behalf of a company as a way to get my foot in the door and get my foot into technology. So that was basically my starting point. That's sort of a good lesson for how even in today's world where there are many more resources for how you have to, you have to really pound the pavement and you have to, you know, it’s elbow grease to get started lots of times.

Yeah, absolutely. I think what happened is after, so I got a PhD in biology, so it's completely irrelevant to software and technology. But I wanted to go into software technology. So completely irrelevant at the time to software and technology relevant. But it changed later, right? It changed. So basically my first software startup job allowed me then to be a software person, and that was the thing that allowed me to do a transition. I actually moved out here to join a telecom equipment startup as a product manager.

So I worked on hardware, and I had to leave that company, and then I made my way into working for free at a software company, and then I was selling a software person, and that's what sort of led to me then eventually ending up at Google and other places.

And so you ended up at Google, but let's talk a little bit about because you, you ended up working at Google and Twitter, but you started companies in between. In the end, you sort of transitioned into becoming an investor. How did that all happen?

Yeah, so I joined Google in 2004 and effectively started the mobile team there. So I helped buy Android and pulled together their early teams for Google mobile maps and mobile Gmail, each of which have hundreds of millions of users. But I had nothing to do with that since I left before that massive growth. I left Google to start a very early data infrastructure company that was called Mixer Labs. It was a company, GIP, I was a product name, and that was acquired by Twitter.

Twitter bought us when Twitter was about 90 people, and then my job quickly became one of hopping the company scale from 90 people to 1500 people over two and a half years. So the prior is heard of super growth journey I had before that was actually joining Google at around 1500, 2000 people, and it had 15,000 people over three and a half years. So very rapid growth when something's actually working. And then I left Twitter to start another company called Color Genomics, which is a big data means genomics company that's raised about 150 million dollars in venture capital and was up and running, still here and growing. And finally made use of your PhD in biology.

Yeah, thankfully. So you're an interesting mix of big company guy and small company guy. How do you think of yourself? That's sort of unusual, isn't it?

Yeah, I guess I think of myself as somebody who is good at operating teams or driving efforts, and it could be a five-person team or it could be a multi-hundred person team. So that’s it; that's my self-actualization of what I do. I actually think there's a lot of people who drop in and out of big companies and startups in terms that they start a company; maybe it gets acquired, they run a division, maybe go and start another company or they become an investor.

So if you look at Silicon Valley, it's sort of littered with people who've done this sort of back and forth. Ben Horowitz would be a good example of you know joined a company, which was Netscape; it went public. He then started a company, it got acquired by HP, ran a big division at HP, and then, you know, co-founded Andreessen Horowitz. But that was, you know, a related career path in terms of somebody who bounced between the two.

It kind of puts the lie to the trope that you have to, you have to fire the entrepreneurial; you're either an entrepreneur or you're a big company person; but it's not quite so simple, is it?

Yeah, I think it's a good point because I think there is a real shift when Mark Zuckerberg hired Sheryl Sandberg as CEO into people saying that founders can keep going. Because what happened in the 90s was founders were quickly replaced by professional CEOs if they raised any venture capital. Because often, the venture capitalists would take over the board pretty quickly, often at the Series A. And what that meant is that founders were often demoted, and they bring in sort of the old gray-haired person to run the thing.

I think that really shifted in the era of Zuckerberg where suddenly people said, "Wow, you can build massive companies with the founder CEO still driving it." And if you actually looked at the history of the biggest technology companies, it was always true. Intel was always driven by its founders; Microsoft was always driven by its founders. We surely on first 10, 20 years, you know, Dell was driven by its founder.

Anecdotally, actually founder CEOs worked really well. Especially if they're able to make control and not raise external capital or if they raise it on very good terms when they didn't give up control. But the second they give up control in the 90s they'd be out. Like Steve Jobs, you know the founders of Yahoo didn't run the company; the founders of eBay didn't run the company.

You can go through all the major companies that I need; the founders of Google had Eric Schmidt come in. So, you know, up until the Zaca moment, I think it wasn't a very common practice. So most of the folks here in Start-up School are in very, very early-stage companies. Let's talk about what it's like in the early stage. If you can think back to Mixer Labs and even Color, how did you think of, you were the CEO of both those companies. How did you think about what should have most of your attention during that time?

I think the singular thing that really matters is product-market fit. So building something the customers that want, and that's the, that's really honestly the only thing that truly, truly matters. Now to get there, it means you have to hire people unless you can build it all yourself and sell it all yourself. It means that you have to raise money if you can't fund it off of your customers or if you can't just bootstrap it.

But when all said and done, you need to build and sell a product. And in the very early days, that's really the core thing you may, yeah, we’ve talked a lot about product-market fit and finding product-market fit in Start-up School, and one of the most common questions that everyone asks is, how do you know when you have it? It's not so obvious, it seems.

Yeah, I think it's obvious if you think about it the right way, but I think it's very hard to otherwise. So I'll give you three examples of signs that you have product-market fit from three different companies. You know, if your product is broken and people are still using it very actively or you have high retention on a broken product, that's a clear sign of product-market fit.

When Twitter was constantly going down in the farewell days, and yet nobody moved off of Twitter, that was a sign of just raw market adoption. A second sign is if you're a SaaS company and you have major brands finding and using you organically and paying for your product, that's a sign of product-market fit. So examples of that would be PagerDuty, which had I think Apple as an early customer; there's Zeppelin, which had I think Facebook using them very early; Airtable has all sorts of brands that have just sort of adopted it.

So I think there's a number of sort of more recent breakout companies where big brands are just showing up and starting to pay, and I think that's a clear sign of product-market fit. The last one is just, you know, whether you have very strong customer feedback even from a small group of people. So at Color, for example, very early on we were getting effectively love letters from our customers. The company Color started off focused on providing people with information about their hereditary risk of certain genetically driven cancers.

We were getting emails from people where they were saying thank you so much for helping me, for making this affordable, for saving their lives and for saving their lives and say this is that, you know, they felt that the color would help with that.

So, you know, we got very strong customer feedback very early on.

Yeah, so it seems like it's some mix of, and again, I think some of this is intuition, but some mix of retention, customer feedback, and, you know, maybe you should break your product and see if people keep on using it.

I think there are other metrics too. So for example, people tend to discount growth off of small bases even though the growth is compounding. So if you’re growing organically twenty percent a month, even if you’re going from a hundred to 120 users, that is a real sign of product-market fit that a lot of people tend to ignore or not believe because they’re like, oh, the numbers are small, it doesn’t matter. But if you’re consistently adding 20 people and then 30 people and then 40 people a month after a month, that’s usually a sign that the thing is really going to work.

Yeah, what this is a while ago, but what went wrong or what goes wrong for companies during this phase when they're trying to find product-market fit?

Yeah, I think almost everything you can imagine can go wrong. And so if you don't have product-market fit, that may or may not derail the company. Fair product-market fit then, you know, it kind of matters less, although you still want to correct those things.

I think, for example, with Mixer Labs, the very first product was a wrong product. So we initially started off building almost like content aggregation sites or wikis for locations, and then we quickly morphed it into an infrastructure product. We were selling infrastructure to enable geolocation applications. So this was before there was a big wave of API companies, and so it was one of the first alongside things like Twilio or, you know, some of the really early developer tool companies.

But the starting point for the product was much more of a consumer site that allowed you to aggregate content, and we'd built out very deep infrastructure for that. And then we decided that really what we should be doing is selling the infrastructure. So that was a good example of us changing direction as a startup.

What else, what else have you seen go wrong at this early stage that might be instructive? Weather around product-market fit, the folks you hire, even the sort of business moves, the marketing moves you might make early on?

Yeah, I think, you know, on the hiring side, a lot of people will let not great people stick around for far too long. And so at my first startup, we actually let somebody go within the first month, one of our first six or seven employees. And you know, the person was great, and they did well in their career after, but it just wasn't a good fit relative to what we were looking for as a company at the time.

So I think there's an old adage that you should either hire extremely well or fire very well; optimally you do both. And I think a lot of people tolerate a bad hire for way too long. They wait six, seven, eight months and say, "Hey, we have to give them another chance, another chance." But really, you want to have an initial feedback conversation, see if they react. Maybe you have one more, and then you have to take action.

And I think the way you should think about your startup from a hiring perspective is it's almost like a life raft. You know, your boat is sinking, and you're on this little raft, and there are five spots. Who are in those five spots? And if the people on the raft aren't the five people that you should have on the raft, you should find the five people because you can only support so much from a burn perspective or a productivity perspective or coordination perspective. So I think that's a very important mindset to be in in terms of who's on your team.

So this might be a hard question to answer, but I was sort of thinking about, you know, a lot of times we focus on what goes wrong. A lot of things go wrong. You guys have seen out there things go wrong, you’ve invested in so many epic companies and your companies have done great. What goes right in those...? What stands out is the set of things that people are doing or steps they're taking that kind of gives you that clue that this might be one of those great companies?

Yeah, I think the focus on customers and what customers need very early is an important signal. And then I think building something immediately is really important too. Now that doesn't mean you shouldn't be doing analysis; you should absolutely be thinking about the market, you should be thinking about your market strategy, you should be asking if your customers are in defining out your segments. But you should also just build stuff and try it and start to see reactions rapidly.

I think where I've seen a lot of people fail is they wade and wade and wade in terms of actually building something, and sometimes they just wait too long. Or you see these companies that stay in stealth mode for three, four years, and you're like, that's a terrible sign because you're not actually getting real customer feedback.

Potentially the fuse... like there's also something about iterating fast in these great companies where there's always something new and better, and it’s always better.

Yeah, I think that's definitely true. The other thing I've seen some people do which I think actually helps a lot is from day one they focus on the velocity of the team. And so they maybe focus on the build environment early and making it so that anybody can run a full instance of the product with a single line of code just to set it up.

There are actually things that you can do to make your team dramatically more productive that a lot of people don't do. So anytime they onboard somebody, it takes them two weeks to get the damn thing running on their laptop instead of actually saying, "How do we make it so that any incremental person we hire or any time we push a change we can instantly see its effect?" So I think there are almost little things you can do along the way there too.

Yeah, since almost all the companies that we're talking to are driven by human capital, people don't pay enough attention to making that human capital as effective and efficient as possible.

So speaking of human capital, you were CEO in both your companies and in fact, you've given a lot of advice to CEOs both as an investor and in "High Growth Handbook." But later on you advising CEOs and other executives how to be most effective. How do you think about that for early-stage startups?

Yeah, I think for an early-stage startup, ultimately the focus should be on how do you make your team as effective as possible. If you have a team, effective means two things. One is people are all moving in the same direction and there's clear goals, and there's a clear sense of what you're actually building and why. But also, you know, it means you’re point iterating quickly, it means talking to customers early, it means again focusing on product-market fit.

Because I think the mistake that people make is you could have the happiest, most wonderful group of people in the world, but if you never find product-market fit, your company is going to die because you're just not going to have the revenue to support it or the cash to support it or you’ll be able to raise more money.

Whether you have kombucha or not is secondary to just like building something that people really want. I think people get distracted along the entrepreneurial journey either in terms of eventually if they get funded and they get invited to all these events, and all these other things start to distract them.

You know, there’s a lot of sort of entrepreneurial distractions that could get your attention when really the core thing is are people buying your product and at what scale, and are you growing that at a good rate?

Now that's if you're on the venture track, and you want truly a high-growth sort of breakout company, there's all sorts of other startups you could start. You could start a lifestyle business, and that could be great. There are a variety of different reasons to do a startup.

Part of it too is asking yourself, what do you actually care about as a founder and what's your objective? And then are your actions actually mapping against those objectives? I think too many people just go on a default path that isn't the right path for them.

What should a CEO be spending most of their time doing?

I think it differs early versus late. For an early company, it's going to be building. So are you actually helping to build the product? And you may not be the person that should be building the product, I’m saying one or two of you, you're probably building or selling.

Second is hiring. So, you know, and making sure that the team is productive and focused on the right direction. And then third, making sure that you don't run out of money. Lastly, I mean, it’s avoiding fights with your co-founders and things like that.

Like I often say that an early-stage startup largely fails for three reasons or only has to do three things. You know, one is you need to find product-market fit, which is incredibly hard. You need to make sure that you have the money to survive, and you need to not fight with your co-founder because that will slow everything down.

For an early-stage startup, that's ultimately everything you need to do. You need to hire, and you know there are different aspects of selling that you really need to focus on—selling investors, selling customers, selling hires—but as either build or sell.

For a late-stage company, it gets way more complicated. You're still selling for all sorts of reasons, but then you're also much more focused on, “How do I enable this thing to scale in terms of processes, in terms of people? How do I hire executives? How do I internationalize? How do I launch new products? How do I buy companies?"

Then you realize quickly that that has to be a team effort because no one person can do all those things. And so then you really start asking, "Okay, how do I build out and manage a really effective team?"

One of the hard rules that a CEO has, I suppose, is to figure out when you don't have product-market fit whether you need to tweak the product or you need to do more of a pivot. And you mentioned that it makes your labs; you guys had to do a pivot. A lot of people ask that question, like how do you know? Like what, when do you know that you've hit the wall with what you're doing, and you need to do a more significant shift?

Yeah, it's really hard because you do... most startups build something for six months to a year, they launch it, and then they hit a wall. And then the question is, is that a real wall or is that a fake wall? And I think it's incredibly hard to know.

I think if you're three, four years into something, and you're just not seeing any traction or momentum, you've clearly waited too long. There are counter examples of that, and they're always going to be kinder examples. So for example, TomTom, the European GPS company that ended up for a while being one of the most valuable companies in Europe, I think it was literally four people in a room for like six years iterating through different ideas until they came up with a concept of doing GPS, which of course now we're subsumed by phones.

But they took a really long time to get there. Most of the companies that I've seen work tend to work early, at least in terms of adoption, or at least in terms of some core metrics. And so I think it's possible that in today’s environment where capital is really loose, people actually wait too long to pivot or to shut down because they can keep raising more money.

I actually think that's a bad thing because it’s locking up great people at the height of their creative point in their lives and preventing them from going and doing something else. So I do think at some point you need to have that really frank assessment, and maybe you do it periodically. But should we really keep going?

And then if we’re going to keep going, I think the key question is when you pivot, the one thing I would advocate is being willing to restart completely. Because typically when people pivot, they pivot within the same market versus across markets. And if you're in a bad market, that means you're gonna die because you're just gonna go on to the next thing, you say, "Hey, we have all this sunk cost," and you start iterating on that new thing and it doesn't work.

You sort of have a decision between an evaluation of the market being bad versus is just you have the wrong product. It could be a great market and bad product. But yeah, you should assess it from first principles, and then if you decide that you're done with the business, you have three options: you shut it down, you sell, or you pivot. If you sell, my suggestion would be sell to somebody that's clearly breaking out.

I think I've heard you say before that speaking of being in a great market, that that’s sort of your fundamental test. If you believe that there's this incredible market opportunity, you want to be in there; you want to be fighting that fight. And you know, even if you don't know the right product at first, you can find it.

Yeah, I think the singular determinants of startup success is the market, and it's not the strength of the team. And so I think a lot of people talk about how great teams will always figure it out, and I've seen great team after great team and a terrible market just die because they're in a bad market.

So they never have the opportunity or the time to really figure it out or to iterate as much as they could if they were in a very good market where there's just, you know, cash inflows hitting you despite what you're doing. And so, you know, there's the anti-rattle off one of the founders of Benchmark has what some people now call Rock's Law, which is you know, great team, terrible market, market wins.

So it doesn't matter how good the team is if the market's awful. Terrible team, great market, market wins. You could actually be not very good at what you're doing and still do very well; your product could be broken, but it's still getting massive adoption because you're in a great market. And then there’s great team, great market; something magical happens, which is like a Google or Facebook, where you had people who then executed, they added new product lines and they were really great at what they were doing in terms of scaling it to the next level.

So I do think that's very true, and I've seen many, many great teams just die in a terrible market. And then I've seen a few bad teams like do very well, and that to me was very surprising. It feels very non-egalitarian or merit-based. You know, why do you think it is that so many teams choose such bad markets?

I think it's maybe three reasons. One is sometimes people just jump into things, and they just start building without actually thinking it through. And sometimes that works really well because it's a product you want or need, and so you're building it for everybody else.

But sometimes it's something that, you know, has been tried many, many times before, and that doesn't mean it won't work in the future, but maybe you should look at the history and ask why didn't it work and what should I be doing differently versus just doing the same thing again that's failed five times.

The second thing I've seen a lot of people fail at is what I'd call multi-miracle startups. I think every startup needs at least one miracle to succeed because if it was obvious that it was going to work, everybody would already be doing it and so you wouldn't have an opportunity. So, in some sense, startups only have opportunities in markets that are non-obvious, which means they have to overcome some obstacle.

The distribution needs to magically work or the product and the price point need to magically work or whatever it is. But there are some companies where they come up with two miracles for their startup. They say our stage one of the startup is we're gonna do X, and then stage Y is we're gonna do this other thing that’s completely unrelated. But because we did X, we can certainly do Y. And usually, those fail because you're saying, "Well, you have two miracles," and you're compounding very low probabilities.

So you're just bound to fail. An example would be there was an era where people said that the way to compete with Yelp was to start an events product, which is an open space winning events, and then it's adjacent enough to what Yelp does that you could add local listings, then you'd win in local listings. That's a terrible approach; you should say, "Either I want to go in events and just double down on that," or, "I want to go after listings, and then I'm just going to do that."

But this sort of multi-step thing tends to fail, which is, I think, a lesson in how not to approach your investor meetings. If you’re talking to an investor and you have a whole bunch of miracles that have to happen before your big company, then that investor is probably not going to be that interested.

Yeah, the most common miracle that's quoted today is data mode. People say, "Well, we'll generate tons of data, and then we'll be differentiated." And that, I think, in genomics, something like that could work. But outside of that, I actually think I've never seen a company pull that off in terms of a broader, you know, data as the only thing that's their asset and they're gonna somehow do something with that asset.

Yeah, or we're gonna get our AI is gonna have to get the smartest because we'll have the most data and then our AI will be the best, and therefore we'll win.

Yeah, just back to the CEO question: how should teams choose their CEO? Who should be the CEO?

It's a good question. I mean, there are different ways that you could describe or argue it. Ultimately in some cases it's clear, "Hey, this person is the person we're choosing." In some cases, it's a huge argument. I think the most important thing is to resolve it, even if you get it wrong, because you can always correct the wrong thing, but at least you have somebody in charge.

I think a lot of founding teams end up with a lot of fights that then slow down the company dramatically if they don't have somebody clearly in charge. You know, I think if it's a very technical product, it's often better to have the technologist in charge. So say that you had a business person, a technologist, because if it's two technologists, I don't know how to differentiate between, you know, who they may be.

Somebody who's a little bit better at selling or recruiting or, you know, that part of the job, maybe that's the right person for the CEO if it's two technologists. If it's a business person and a salesperson and a technologist, usually the business person is gonna be better at those things, but that doesn’t necessarily mean they should be the CEO because often the iteration of the product and the understanding of the product is driven by the technologist, and that really impacts how you sell it, how you iterate on it, and the decisions that you make along the way.

But honestly, I think any configuration can work, you know, and I think sometimes a founding pair will be very self-honest and just be like, "Oh, this person is better at the things that we need from the CEO today," which means better at recruiting, better fundraising, better at selling, and better sort of setting vision and direction. Then it's a clear shot in terms of, like, we should be... You might even say that you should put in the position of the CEO the person who's going to help you find product-market fit, who's gonna drive the product-market fit sooner and better.

That's a good point.

Yeah, I wonder, yeah, why were you the CEO? Because it was your idea?

Because, yeah, you know, it's interesting. I so, for example, with Color, I stepped down as CEO after four years, and the origin of the company was a bit of a mix, but ultimately it was driven by my co-founder's personal story where, you know, he himself is a BRCA2 carrier; his mother's had breast cancer twice; he's had members of his family die of the disease.

So the company was started, in some sense, as a form of patient advocacy where we said it's ridiculous that people can't afford and access these really important pieces of genetic information that can really drive what they should be doing from a health perspective in their lives. So, you know, I think that was his passion and his drive more than it was my passion and drive.

I mean, I had a lot of passion for it having worked in biology and things, but fundamentally I think one of the reasons the shift we made is so good is because, you know, this is something that he's truly lived and cares about deeply and I think that really comes through as well in the choices that are made in the product, and how do you think about patient data privacy? And how do you think about all these things?

And I think he had a very deep intuitive sense of what it would mean for him, which I think was very important in the context of what Color was doing.

It seems like a very modern way to look at the CEO as the ultimate product advocate, the Steve Jobs being the obvious example there. And I think in tech, we're very imprinted on that style, but there's also great examples of CEOs who are amazing salespeople.

You know, Benioff started off in sales, I think, at Oracle or something, right? And so there's all sorts of examples of non-technology CEOs who've done extremely well, or you have a situation where you do a mix like at Google. Eric Schmidt had a PhD in CS, but he’d also run an eval before, and, you know, he’d run a public company.

So it was somebody who'd done the business side of things as well as the technical side.

Yeah, I haven’t figured out whether it’s a trend or not, but it seems a little bit that way. I always find that I prefer if I'm looking at a company or looking at a company for YC that a product person, that the CEO really has a feel for the product anyway.

Yeah, I totally agree.

So um, let’s transition a little bit to fundraising. We've been talking a fair amount about that recently in Start-up School. Can you, I don't know, did you have interesting experiences fundraising that you can talk about in your in your two companies, Mixer Labs and Color?

Sure, you know, we took a very different fundraising strategy for the first startup that we did. We ended up raising from Seed from a branding venture fund, plus a bunch of angels, and then we did a second round from sort of a super angel or small fun group. And you know, the biggest issue we had there was we had a bad investor who, as we were exiting the company, basically tried to call more value for themselves as part of our exit.

And this is sort of a Midas list investor, very well-known now. And the second company...

My co-founder wants to...

This is a successful investor who tried to screw other people over while the...

Yeah, and there... I know I'm always tempted, yeah. I stopped myself. But I do think that there are some brand name investors who are dicks, right? And so you should be careful in terms of who you work with, and you should diligence them and ask the founders where either things didn't go well or where there was some issue over time or whatever it is.

And that's more likely to reveal the truth about an investor than asking in a situation where everything worked. So we like to say, "Oh, I see that being nice is a big advantage,” but it doesn’t always work, yeah.

Sometimes it’s not true, yeah. And I think I would differentiate between two things. I think you want investors who will push you or question what you're doing, maybe is a better way to phrase it because I do see some founders sometimes uncomfortable with being asked about some of their decisions. And you should be asked about your decisions; that's the way to get better.

And it may be a naive question that an investor asks, but that may be the thing that makes you think about something that you should be doing differently or maybe it just reaffirms what you're doing is right. Right? And so I would differentiate between that and somebody acting badly in terms of calling value for themselves or doing other things.

So, we did have, you know, we had a pool of investors whose only one who acted badly out of a dozen people. So it's not, you know, we're 15 people or something.

So how easy was it to raise money at Mixer Labs, your first company?

Yeah, it took us about two or three months. In general, I think you hear the news about these fundraisers that happen in a week, and you think every fundraiser is going to take a week. But if you're actually being thoughtful on your site, it should take a couple months. Because otherwise, you're not getting to know the people that you're fundraising from.

And usually what happens is you'll find that until somebody really tips, most people are scared to jump in, which is really weird, right? In general, you'll find that most investors are fear-driven versus ambition-driven; they're kind of scared of missing something versus really excited and believe vigorously in something. And so high conviction investors are actually very valuable in my opinion, right? They’re few and far between.

It's hard to be the first money in a company; you have to just really believe, especially with a new founder.

Yeah, and a lot of investors fall for the opposite of that, which is there's a brand-name investor in, and so they go in but it's actually a bad investment.

Yeah, because everybody makes mistakes; they're sheep.

Yeah, how about with Color? Was it a... you own a successful entrepreneur already; you're a well-known executive at that point, and so you were sort of in a different spot raising for Color.

Yeah, I think for many founders on their second company, it's much easier because they have relationships. And so my co-founder and I did most of our seed, and then we brought in people for the A, and as people that we’d known for a while and that we were really trusted and respected for.

And so we had Joe Lonsdale and Ben owed from Khosla Ventures come in for the C. For Mixer Labs, we really had to network to get intros, and so we met Michael Dearing as he was just starting to invest. So we were one of the first companies he invested in, and we met him through Kim Scott, who with the book "Radical Candor," I worked with her at Google.

And so I just asked people I know, "Who do you know that's investing right now?" And then we ended up having Sequoia in the round. Reid Hoffman when he was still an individual; evolved from angels; so we had a bunch of really great people line up.

But we had to network for the first view and, you know, I think it was Dearing maybe who tipped first or somebody else, and then everybody kind of catalyzed.

So how does someone get a meeting with a lot Gil?

I think you make it sound like that's a valuable thing, but I think, well it depends whether the companies that you invested in would have been successful without your investment. Maybe it's the most valuable thing you can get.

I think that the most successful companies in 95% of the cases are successful despite their investors. I shouldn't say despite; I should say irregardless. You know, the investors may help optimize certain things; they may bring in the key exec.

I'm not trying to minimize the impact of investors; I just think product-market fit is such a raw force that it's helpful to have people around you who can help with scaling and other things. And I've seen companies go the other way where they have a lot of bad capital all the way through all their rounds, and the founders are drowning for help, and so you really do see a difference.

I'm not saying that there isn't a difference; actually, I know one company in particular where they had a series of initial weak investors, and their board meetings are completely ineffectual.

They haven't gotten a lot of help, they haven’t both had an executive team; like it shows. And so I'm not saying that. I'm just saying to get from zero to one, it's not your investors who will do it most of the time.

There are some counter-examples, like I think Paul Graham helped actually with some of the very early ideas for Reddit, really, especially, but I'm pretty unusual for an investor to be transformative for a company.

So yeah, getting that meeting, I think the best way is to get an introduction through a founder that I already know or somebody else that I already know. So that it's in-network. I think if you can't find a way to do that, then you're probably not going to find a way to get customers. You're not going to find a way to get hires; you're not going to find a way to do all sorts of things.

So I think that's the best way.

Yeah, it seems like Paul Graham's original idea of doing things that don't scale works across different domains and not just building products but figuring out, I get to the right investor and get that first.

Yeah, it’s a different component of them. Everything you end up doing as a startup hiring is also not going to be scalable early, and you're just gonna have to grind through giant lists of people.

So for example, at Color, you know, because we were a CLIA Cap Lab, and we're focused on the regulatory compliance of what we do, we had to hire specialists called CLSs into the lab very early because they had licenses that allowed them to operate certain types of tests in the state of California.

We could only find two or three hundred CLSs total and we had to hire two or three of them. So we had to hire 1% of all of these people in the state of California, and we wanted to find people who were very good. If you have a license that's very rare, it means you can get hired really easily, which doesn't necessarily mean that you're great.

And so I literally ground through 200 people, you know? We put them all on a spreadsheet, and I and the recruiter I worked with contacted every one of those 200 people and had a conversation with all of them.

So you just have to grind through stuff. It's hard work doing a startup, huh? That's why I'm taking a break!

Yeah, so there’s so much I want to talk about! Well, do it. We'll have a few more things, and then we'll open it up for questions. You sort of already answered this a little bit, but maybe you can elaborate on your decision process when you're looking at an investment.

Yeah, I think I have three really simple criteria, and they're gonna sound very generic, but I think about them deeply, hopefully. The first one is market. So it our product-market is a better way to phrase it; is the team building something that the product will actually want or need?

And there's different ways to check that. It could be something that I would have used myself at my company. It could be you see clear growth retraction from something that's launched, or sometimes I'll literally call potential customers and ask them. So I actually do a lot of market that will judge for things I invest, and even though I'm just an angel.

The second thing is, you know, are they people who are very high caliber, they can learn quickly. You know, all the rest of it, so there is the founder component, which I think is really important. I just think the market dominates that.

And then lastly, you know, if they were to call me at 10 o'clock at night on a Friday or Saturday night, would I take the call and would I be excited to talk with them? Are they good people? Are they ethical? Would it be easy to work with? Because life is short and there's lots of companies that will work, and the last thing you want is a long conversation with somebody terrible. That’s true.

So um, what are the things you see companies doing wrong when they come and meet with you?

Ah, good question. I think it's a few things. One is not getting down to the details quickly enough. So sometimes people will have the preamble of their personal story—how when they were seven they lived in Canada and you know then they were nine and then they were eleven, and they started learning, you know, to write code, and then something else happened and then eventually they came up with the idea in college, but they didn't work on it for seven years.

Well, so I would just make it a very crisp, concise story. This is what we’re building, this is why we're building, this is who I am. But like, here are the three highlights, here’s who my co-founders are, you know, here's the market that we're in, here's a product we’re building, let's show you a demo.

Like that would be sort of the optimal early stage conversation because the demo means they actually built something instead of just talked about it. The quick analysis of the market, how does this fit in, or what's the use case is really important because I've thought through that dynamic.

And then the team, who are you, what do you care about, why are you building this is important versus I was 7 and I lived in the mountains. Get to the point.

In other words, I get to the point quickly and also make efficient use of time. So if the meeting should only take 20 minutes, that’s great. What I found is that very busy people will spend more time with you if you're very efficient with their time because they don't feel that you're just gonna sit there and take up the time because they can.

And I've had meetings where I'll tell you one example meeting which I thought was like amazing and I didn't think it would happen. So I was looking into funding things in sort of anti-aging or longevity related technologies. I think it's a big gap in biopharma, and I think it's important socially.

And there is this founder Ben Kamen who I met with, and we had like I think 45 minutes set up, and we talked for 10 minutes. And at the end of 10 minutes, he said, "Okay, I got everything I need out of you. I'm gonna go think about this stuff, and then I'll follow up in four days."

And I was like, "Okay, this guy’s just going to disappear," like nobody does a 10-minute meeting and actually comes back with anything useful. And then he came back in four days with this big analysis of everything that we discussed and what he was going to do next and I was gonna approach it.

And that was a 15-20 minute meeting, and I was like, "Oh my gosh, this person is amazing!" You know, they're extremely efficient, they have amazing follow-through, they say what they're gonna do, and they do it, and they realize that, you know, this is a multi-interaction thing.

And therefore, how do I build that confidence in that person that they actually want to keep talking to me?

That's a great lesson for future investors too, huh?

Yeah, I like that!

So I want to turn over for Q&A, but just before we do that, you just wrote a book, "High Growth Handbook," which I think is a fantastic book. Maybe not so relevant to running a startup, although it seems like there's a way to sort of track back from all the lessons in there and think and it helps you think about your startup, I think in an effective way.

Yeah, so the book is called the "High Growth Handbook," and it's basically almost like a section-by-section view of a lot of the common things that happen in startups and then tactically what to do about them. So it's a very tactical book that doesn't have a lot of platitudes. Like there's nothing about A-players hiring A-players, which doesn't really help anybody. It's not like somebody's gonna write "I'm an A-player" on their resume.

But it really helps you understand, okay, you want to build a recruiting process, what's the multi-step process you should build, and how should you go about doing it? And then it's interwoven with interviews with, you know, Sam from YC and Claire Hughes Johnson from Stripe and Marc Andreessen and Reid Hoffman and Ritchie Song B and a bunch of other people around their experiences operating or funding companies that are relevant to each section.

You know, so there'll be a section on board, and then there'll be an interview with Reid Hoffman around what he looks for in board members. You know, he just wrote "Bootstrapping," which is sort of a really interesting book around scaling companies that I definitely recommend as well.

So the interesting thing is that a number of the sections in the book actually started off as blog posts on my blog, and some of them were actually targeted to early stage founders. So some of the stuff around hiring maps into it, or some of the stuff around product management maps into it.

So I do think there are some things that are universal, and then hear points some things that are completely divorced, like, you know, buying a company or raising 100 million dollars or whatever it is that you’re obviously for much later stages we're doing a bigger reward, you know, things like that.

The way the book's structured, it turns out it's easy to skip around. So you should buy the book, thanked and find the parts you like.

So let's open to Q&A!

Questions for a lot would be the question?

The question is about investor updates: how frequent should they be and what should be in them?

Yeah, I have a blog post actually wrote on this, and I think that you should do it monthly. And my suggestion in terms of the sections would be the top section should be what are your needs from your investors or investors and advisors or whoever you're sending it to.

So it's very clear immediately how they can help. So if they don't read it anything else, if they just open the email, they'll see that, and you'll actually get a lot of responses to that.

I think the second section could be metrics; if you have metrics, it could be sales, and it could be that it's flat, and that's fine, right? I think burn is important to include, so how much money do you have left? Paul Graham often advocates for default dead or default alive: are you gonna run out of money at some point or not?

I often just phrase it similarly is like how many months of cash do you have left? And how much are you burning? And then you can have updates around team, around market, etc. A product: did you launch anything new, press that you get, any?

So I think you can follow that. The reason I think monthly is important is you want to create high enough frequency that your investors were thinking about you and that they feel that they're up to speed on things but not so much that it overwhelms you or them, and I think monthly is a nice cadence.

At Color, we started sending out investor updates really early, and I'd call up an investor, and they would, and I'd start to give them background in terms of what's been happening. They’d say, "No, no, no, I read your update. I know what's going on; let's jump straight to it."

And so by being very transparent, it actually helped immensely in terms of not spending the first 20 minutes getting people up to speed. But every investor call suddenly was very efficient, and they loved the transparency because they feel like they're part of the company and the team and that you're open with them.

Yeah, market first investment strategy. So how did you evaluate an obvious market like that IBM need back in 2010?

How did you, so the question is about market opportunities since a lot cares most about that. How do you evaluate opportunities that are non-obvious like you're being B?

Yeah, so I invested in their A versus their seed. I'm guessing the seed was harder. I think at their A, they had pretty clear traction. I mean, they were growing at a good clip. And then the other side of it was I had actually traveled on a service called service, which so after World War II, the Esperanto community thought that one way to encourage world peace was to let people stay with each other for free.

And you'd apply to be a traveler, and they literally give you, you do interviews, and then they give you these little booklets, if you're traveling to Italy. It lists everybody in Italy who would be willing to host you and their phone number and how to contact them, and you'd literally call random strangers up or email them and say, "Hey, can I stay with you, and how long can I stay with you?" And just stayed with them for free.

So I traveled on a very similar service throughout Europe, so for me, it was a no-brainer. I thought, "Wow, you can monetize this!" And the most expensive asset that a person has is their home.

And so if you can help people monetize their homes and make a lot of money off of it, it actually felt like a no-brainer. But part of that was driven experientially, and then part of it was it was working.

A Conversation with Elad Gil

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