SPEAKER_03: Raising money is a game that you sort of have to figure out.
SPEAKER_11: Oftentimes these meetings can go terribly awry. The worst sort of investor meeting is one
SPEAKER_08: that makes you question why you're even doing a company anymore.
SPEAKER_01: Today, we're talking about our worst investor meetings. When you need money to start your business, there are some pretty epic ways for it to go wrong. If you're prepared for the worst though, you'll be better off when it's your turn in the hot seat.
SPEAKER_02: I have a handful. I mean, I did a lot of investor meetings. Oh my God. The worst easy was one in London, I won't name, but a big international fund, who had this reputation of keeping founders waiting. That was the first thing. It was like commonly known. Another competitor of ours flew to London and was made to wait for like six or seven hours to meet this person. What? I was only made to wait one hour and I felt like I got off lightly. So that was the first sort of annoying thing. And then he sort of summoned his court, five or six of his minions. And he was in the middle of eating his lunch during the meeting, fine, whatever, busy person. And he had his shoes and his socks off. I don't really understand why. And was simultaneously like picking his feet with his hands and then eating his food with his hands. And then at some point in a closed office, decided to light a cigarette and smoke a cigarette in his closed office. Just like kind of looking at everyone, like challenging anyone to say anything. Did he offer you a cigarette? He did not.
SPEAKER_09: I mean, cause that would have been polite.
SPEAKER_02: That would have been the first polite thing maybe. And then like, it was just like this test that he was just smoking it and then didn't finish it, took his cigarette, put it out in his lunch, took his coffee and poured his coffee over his cigarette and his lunch. I was just like, what is this weird power play? I mean, and obviously he did not end up investing and it was just a bizarre, bizarre experience. So that was probably the worst. Do you think he remembers that? I think that is not the only time he has done it. And so- Okay, so for him, this is a Tuesday.
SPEAKER_09: Yeah, I think it is a Tuesday. So when he watches this, he'll be like, God knows. It could be anyone.
SPEAKER_01: The world is full of status games. And unfortunately, a lot of the financial world still operates not by the truth of product problems and the ability to create, but instead this kind of thing. Don't be shaken. We're at the beginning of a shift in the way business is done. You should know the best founders in the future will have their pick of the best builder focused VCs and the status ego game that VCs play, it's just not going to work for them. We're at Justin TV and we had just had a banner year.
SPEAKER_09: So we get this meeting with the famous VC. We're in San Francisco. We drive down to St. Hill Road. It's like this famous journey that everyone does at some point. All founders have been there, right? Yes. The shuffle. The shuffle. We go into this very famous office and on the wall, there are these stock certificates of these amazing companies that went public. And we're like, that's fucking intimidating. And then we get into the VCs. And then we get into this investor's office. And we do our kind of quick introductions. We're nervous. We want to start pitching. And before we start, this investor says to Justin, Justin's Chinese, says to Justin, do you speak Chinese?
SPEAKER_09: And Justin's like, oh, my parents do or maybe my mom does. Like, I understand a little bit, but I never learned how to speak. And this investor is like, oh, I'm studying Chinese. Do you understand this? And says a little phrase and Justin's like, oh, yeah, that kind of, yeah. And then it felt...
SPEAKER_02: Inappropriate?
SPEAKER_09: No, no, no, no. At the time, no, at that point, it was just kind of like building rapport, right? It was just like friendly, you know? But then that continued. So it was like, oh, well, how about this phrase? And like, oh, well, how would you say this? And I can't tell how long it lasted, right? As a founder in the room, it felt like 20 minutes of torture. I bet it was like five minutes, but like five minutes in a room with a super high powered VC. And literally we have this business that we're here to pitch that we think is good. And you start realizing, if this is the thing we're spending time on.
SPEAKER_02: This is the highest value way they can spend this one hour. Like maybe he's not that interesting.
SPEAKER_09: You know? And so, and it turns out that was correct. No. They did not invest. Okay, so the investor starts giving you language lessons
SPEAKER_02: at the start of your pitch. Probably not a good sign.
SPEAKER_09: One of the things I took away from that experience is that sometimes investors don't understand that their process is their product. And in many ways, how founders experience interacting with them in the process of getting money is going to be the memory that they have of them. There are a couple pieces of advice that we give to YC founders when talking to investors. I think the first is believe the no, but don't believe the why. You're gonna get a lot of no's when pitching. And more often than not, the investor will not be transparent as to why they're saying no. I think the second is, that we say often is, an A grade investor is respectful with your time, responds to your questions, makes a decision quickly and leaves you alone. And there are very, very, very many people who aren't that good, and there are very few people who really add value. And so, if I were to kind of summarize our advice, it is really hard to tell whether you're interacting with a great investor or not. And oftentimes, as an early stage YC founder or startup founder in general, you don't get to choose. Right? Like, you don't have this like wealth of choice. I might say the first optimization is try to go for people who regularly invest in startups and who are respectful with your time and respectful with you and move quickly. And then I would say, the second thing to do is prepare your mind for the idea that it's gonna take longer than you want. You're gonna have more meetings than you want. And a lot of people are gonna promise you value add that won't come to fruition. It's less about how do I find the perfect investor? And it's more about how to come in with the right expectations.
SPEAKER_01: The big inversion that YC helps companies with is that before YC, it was the investors who had the leverage. You couldn't get in front of that many investors. And when they did want to invest, they could treat you however they wanted because it was money that was scarce. These days, the lucky thing for you and me is that things have gotten a lot better for founders, but it's still a crapshoot. Remember why you're raising money. You have a dream to manifest. We tell these stories to you not to bum you out, but to set expectations so you can build that dream. Brad Flora is gonna sit with Aaron Epstein next, talking about going back to his seed investors for more funding and what went wrong when he did.
SPEAKER_11: We wanna talk about our worst investor stories because I think every founder has had some experience talking to someone about what they're working on that they hope will give them some money to fund the company. And oftentimes these meetings can go terribly awry or just leave you feeling like dirt. And we've been there too here at Y Combinator. Like everybody can relate to this. For me, my worst investor story, I was running my company, Perfect Audience, my last startup. We'd launched six months ago and we'd grown the business to like $150,000 a month in sales. We were keeping 30 grand a month. Things were growing. We only had a couple of people on the team, but we only had like $200,000 in the bank. And this was really stressing me out. We were turning over all of our cash basically every month. And so I thought, you know what I'm gonna do? I'm gonna go to my seed investors and things are going so well, they'll just give me some more money. Like it seems so obvious to me. Yeah, hey guys, give me some more money. So I wrote this email and the title of the email was Cash Crunch, right? And I send this out to my investors and I just went and looked at the email. It was so cringy. Hey, the business is blowing up. We're really tight on cash. We'd love to get your advice, right? Cause someone had told me, when you ask for advice, you get money. So I thought this is my clever thing. And one of the investors wrote back this VC fund that was based in Chicago. I was in San Francisco at the time and said, hey, next time you're in town, we'd be happy to talk to you about this. And so I, in my like founder crazed optimism, like thinking thought, oh wow, he's definitely gonna give me some money. So I said, great, I'll be in town this week. And I got on a plane, flew to Chicago and I got there and none of the partners were in the meeting. It was just a bunch of the associates. So nobody with any check writing power. I gave them a pitch that was terrible because I just kind of cooked it up on the fly that week. And, you know, predictably, they had some polite questions after the meeting, but there was zero interest in investing. And so here I am, I've like flown across the country, given a terrible pitch to people who couldn't possibly invest in my company. Just a total L. You gotta have a game plan. And there was no game plan. And we see this a lot as partners at YC where someone comes to us and says, oh, because of this thing that happened, people should just give me more money. And we have to kind of help them get organized and figure out like, well, like investors wanna hear where this fits into the broader scope and strategy of what you're building. And they're not just gonna dole out money because something, some weird thing happened with the market. And I was just so unorganized and deluded about what would like motivate people to want to invest in the company at that point.
SPEAKER_05: It's interesting because investors have so few data points, oftentimes like very few touch points with you, probably at that point. And so for one of their main touch points to be cash crunch and like you scrambling and disorganized. Yeah, they're like, like, this seems real bad.
SPEAKER_11: He's got a cash crunch and he's getting on a plane to Chicago to come talk to us. Must be desperate. Yeah, this guy's in big trouble. But of course, from my point of view, I'm like, this is great. They wanna solve my problem for me. And it just not how people think about this. So, and again, like when you're running your company, you get this tunnel vision where you're just trying to make your number go up, which is great, but you really need to have someone around, whether it's a friend, an investor, other founders, a peer, they can kind of help you get some perspective on things. And so that you understand how you're coming across in something like fundraising or even sales for that matter. Just reminds me of how one of the best parts of this job that we get to do is helping founders not do that stuff. Please don't make those things. Right, like, you know, sometimes it's easy to think about the founders in the batch, like walking around with guns pointed at their feet and just being like, yeah, yeah, should I shoot my foot? Should I shoot my foot? And we can just be like, no, no, no, no, don't do that. And it's so rewarding when we help people avoid that. And I can only make that joke because like, we've shot ourselves in the foot so many times doing this ourselves. Cause it's just really hard to see what's going on
SPEAKER_05: when you're in the middle of this stuff. The way I like to think of what a good investor is, an investor that makes a decision quickly, signs the docs quickly and wires you the money quickly, and you never hear from them again, that's an A- investor. If all you had was A- investors, you would be fine. Cause at the end of the day, it's not your investors that are gonna make your company successful. It's gonna be you, the founders. An A- investor does anything to help the business. And then an A- plus investor does something to materially change the direction of your company. If all you had is A- and above, you're good. You want to avoid all the C's, D's, E's, F's that are just distracting, that create a bunch of busy work for you, that want to argue with you all the time. There's a lot of people out there that can be a net negative to your business. And those are the ones that you want to avoid. That's bad money. We actually have a lot of really great tools within the YC community. We have an investor database where other founders within the community actually give feedback on investors that they've worked with. This encourages good investor behavior. And it also is an incredible source of information when you have investor meetings scheduled and you're trying to figure out who should I prioritize? Who would I like to take money from based on the feedback from other founders that have taken money from them?
SPEAKER_11: Yeah, and then the thing that enables all that is the fact that because we have demo day at the end of the batch, founders for the first time for many of them have investors coming to them, either ahead of demo day, hoping to like get in early or at demo day or after demo day. And so for maybe one of the only times in your career as a founder, you have a list of people that want to talk to you and learn about your company. And so you can use things like the investor database to pick and choose who you want to talk to and in what order and kind of have some control and agency in the fundraising that you're doing.
SPEAKER_05: It's actually pretty common for founders to hate fundraising. And if you fall in love with fundraising, that's probably not a good sign too because you should be focused on talking to your users and building your product and actually getting your company to work and spend as little time as possible trying to get the money that you need to be able to grow and execute on your business. The money's just a tool. It's not the means to the end. I know a lot of times people like to celebrate the fundraising wins and things like that, but it's just one milestone on the journey that you're trying to build a really big company.
SPEAKER_01: VC and investing is a service business, but just as founders need to think through the experience and empathize with their users, they can apply that same understanding of people in business situations to their own relationships with their investors. This is why investor updates can be so helpful. Great investors not merely stay out of your way, but they also give you more capital and connect you to the next round. But that only happens if A, they actually are A-plus investors, and B, you do a good job of keeping them in the loop. Next up is Surbhi Sarna sitting with Jared Friedman on some of the funny mind games investors play just to see how you might react.
SPEAKER_10: Want to tell us about the worst investor meeting that you pitched in?
SPEAKER_00: Look, so there's this big name, VC in the Valley, who- We won't say who it is. Yeah, leave them unnamed. But I was so nervous to meet them, and I really wanted to make a good impression. And, you know, first time founder, I'm 24 years old at the time, so I'm super nervous going in. I prep as much as I can. And he's sort of known for testing founders in various ways. For me, I remember presenting to him, and right in front of him, he had a bowl of candy. And in the middle of me pitching, he reaches over. First of all, he slowly reaches for it.
SPEAKER_00: And then he grabs a piece of candy and slowly comes back. And then he just proceeds to open this candy with this loud wrapper as slowly as he possibly can. Like the whole, it's like wrinkle, wrinkle, wrinkle. And then I noticed whenever I stopped talking, he stopped trying to open it. And then when I started talking again, he would like open it and then stop.
SPEAKER_10: So he really was testing you with the candy wrapper. Yes, it wasn't that he was just going for the candy.
SPEAKER_00: The opening of the candy lasted like 10 minutes.
SPEAKER_10: In venture, they called us the candy wrapper test? I don't know.
SPEAKER_00: I would say that every investor has their own unique style. So if one investor had a style that tripped you up a little bit, try not to carry it into the next meeting. It just means that you and that particular investor are not a good fit for one another and there's plenty of fish in the sea.
SPEAKER_01: Remember, every investor meeting you might take is as much about them interviewing you as you interviewing them. It's a two-way street. Next up, I'm sitting down with Gustav to talk about one of my mega bad investor meetings. This time with the heads of Andris and Horowitz.
SPEAKER_04: There's a scale of investors. There's a great ones and they're not so great ones. It's much worse to have a bad one than it is great to have a great one. If you end up getting an investor who's gonna hurt the company, and there are many, many ways an investor can hurt the company. And if you end up one of those, that is infinitely worse than having a difference between having a good or a great investor. Gary, what was your worst investor meeting you ever had as a founder? So I have a story for you,
SPEAKER_01: which is actually not one where the investor did anything wrong. And it was very depressing for us at the time because we were so excited to meet these investors. We had all the metrics for Postures, which was a blog platform at the time. We had been growing 10 to 20 X year on year. Servers were on fire. We're sort of being buzzed about. People were buzzing about Postures and the right parties. We're on Sand Hill Road, sitting down with Ben Horowitz. Final partner meeting. Everyone's excited. This is the last thing we need to do. And seemingly we will be getting a Series A from one of the hottest Series A firms. It goes well. We think we have it in the bag. And then at the end, and this is something that we should have known, we should have done our research and we should have just had the answer for, but we had not figured it out yet. And this is a big question. Who is the CEO? And we said, both of us. And that ended the meeting on the spot. It was obvious that we had said the wrong thing. So we had spent years working on this thing. We had the metrics, but we had still not had that awkward conversation, which is who's the CEO? Definitely by Series A, the board member who makes the decision to pull the trigger, they're gonna wanna know who am I actually working with? In that case, the VC I was meeting with was Ben Horowitz. He had written blog posts and even a whole chapter in a book about how important it was to have a single CEO. You should know who you're meeting with. At least take a look at what they've written and what they believe. We had walked right into that investor's worst pet peeve. We're trying to prepare you for the worst so you can do your best. That's one of the best things about YC, that it gives you choices about who you work with. Most people are truly not so lucky, especially for their first time starting.
SPEAKER_06: So Dana, can you give me an example of your worst investor meeting?
SPEAKER_07: So when we were fundraising was in 2017, investors were at their most best behavior because this was right after- Oh, that was the Me Too movement.
SPEAKER_07: So I think that we were in the best behavior so we didn't have any of the weird women founder kind of thing. But I did get this awkward question. I don't think the investor thought it was awkward. He just asked it and blurted out. But I thought it crossed a personal line. What did he ask? So my co-founder is a guy. So he just made the assumption. He's like, oh, are you guys dating? I was like, what, did you just ask that? That's not professional, asking personal questions the first time we meet. And that's one of the first questions you ask and not about the business. That was just awkward. And I think that's one of those things with personal questions that shouldn't really be asked. And I think investors not knowing that it might make founders uncomfortable. Is this really what you're asking as evaluation for a business to get the meeting started?
SPEAKER_06: Did you take their money?
SPEAKER_07: No. I think the mistake that founders do is really looking up to investors and putting them in a pedestal, right?
SPEAKER_06: Yeah, I think the investors know better because they have met so many companies. But actually the investors are not experts in your business. You are. Good investors is going to challenge you, but always be respectful about who you are and let you make the calls. A good investor is never going to force you to do something against your will, but is still going to tell you what they think so that you can make the best decision.
SPEAKER_01: Investor meetings are a two-way street. They're like auditions. You come correct and if they come correct, then maybe, just maybe, you can make beautiful music together. Also remember, this is not purely and entirely about raising money. Though mechanically, that is what you were trying to do in that moment. Your whole endeavor, the bigger one, is to create an incredible business, not to ace the test and raise money on its own.
SPEAKER_08: The worst sort of investor meeting is one that makes you question why you're even doing a company anymore. It actually is like tremendously demotivating. Where you're like, why am I doing this with my life? It's like, you know what I'm saying? It transcends the level of even talking about your company. It's more...
SPEAKER_03: It's okay. I feel like if you're on the other side of like someone asking you hard questions or engaging and pushing back on stuff, but there's someone who just clearly doesn't want to be there at all.
SPEAKER_08: Yeah, like someone put it on their calendar. Their sister put it on their calendar and they're like, I don't know, who are you? Why are we meeting? Yeah. And I went to a few of those. I can remember one in particular was exactly like that. I have one, but it was like me being on...
SPEAKER_03: It was me on the investor. It was very young. It was my first startup. We basically, our office was our apartment. There was like five of us in a two bedroom apartment just like living and working all the time. And we set up a meeting with a VC who really wanted to meet us at our office. So we were like, oh yeah, of course, just come by. It was a morning meeting. So that was the number one mistake. We just worked all night. We were always up late and we fell asleep and we didn't have any furniture. So we would sleep in like the hallway on these airbags. We slept through the meeting and we woke up to an email saying, hey, I came by this morning at 10 a.m., but you guys were busy. Let's reschedule. Obviously what happened is they had come in, opened the door and just seen us sleeping on airbeds in the hallway and left again.
SPEAKER_08: Both parties should bring an air of professionalism. This is ultimately a professional type conversation and you want investors to be professional. Again, don't show up late, don't make people wait, don't cancel, don't no-show. And then the founders on the other side need to be the same way. And so to the extent both parties are on board to be professional, everyone's gonna be much happier whether the investment happens or not. Investor traction is not how you should be keeping score and you should not be getting your validation if your startup is good, if you are good, if your idea is good based on the reception of investors. Too many founders, their barometer for how excited they are about their startup is 100% based on investor feedback. And nothing good comes of this. It's like completely the wrong barometer. You have to realize what we tell people to prepare is when you're going in, expect all nos, expect all bad feedback, expect people not to get it. If you're surprised on the upside, great. But prepare your mind for a lot of rough times so that you don't fall into this trap of actually getting discouraged and giving up on your really promising startup just because you've got a bunch of investors that were not enthusiastic.
SPEAKER_03: That's what I experienced. There's a really bad outcome here, which is I think there's a very fine line between being smart and adjusting your pitch based on investor feedback and going too far and adjusting your product based on investor feedback. I think we've probably both seen examples of companies that had a promising enough idea. They went out to pitch it, didn't get the initial reaction from investors that they wanted, but they did keep taking on board all the investor feedback. Oh, have you considered this or this? And then you end up with this sort of Frankenstein idea that no one actually wants but investors are really excited about. You can actually raise money for that. We see that happen, right? But now you're stuck with a whole bunch of money and invest their intention without any actual traction or a product that people want.
SPEAKER_08: This happens a lot during hype cycles, as you and I both know where people will sort of triangulate what investors want to hear. They'll be excited if they can con people into investing in their thing, but then they wake up and they have to actually make the business work.
SPEAKER_03: The sophisticated founders recognize that to some extent in raising money is a game that you sort of have to figure out and it is smart to play up parts of your startup that are in vogue right now. It's smart to do that, but you have to keep attention to what you're actually building and that's where you see it fail, right? Less sophisticated founders will play up the stuff that's hot in the moment, but then actually change their strategy around it as well. Whereas the small ones separate the two things out.
SPEAKER_08: Yeah, it's almost like you can talk a big game as long as you can back it up.
SPEAKER_01: The point of your startup is not to raise money or gain status. The point is to create something that actually solves a real problem. If you choose to raise money, you too will pile stories up just like what the YC partners have detailed here, but don't take your eye off the ball. We are here to make something people want. If you like this video, don't forget to click subscribe and the bell icon so you can see every single YC video we make for you. We're here to help you build the future. I'll see you next time.
