by Y Combinator8/21/2019
Aaron Harris is a Partner at YC and before that he cofounded Tutorspree.
He’s on Twitter @harris.
00:00 – Intro
00:25 – Seed fundraising process
3:15 – Emailing investors
9:15 – Parallelized fundraising process
12:00 – Meeting with investors
14:00 – Overcapitalization
16:50 – Communicating your plan to investors
18:45 – Evaluating investors
22:40 – Fundraising process for a Series A company
26:45 – Meeting Series A investors
28:40 – Post-Demo Day psychology
Craig Cannon [00:00] – Hey, how’s it going? This is Craig Cannon and you’re listening to Y Combinator’s podcast. Today’s episode is about fundraising and it’s with Aaron Harris. Aaron is a partner at YC and before that he co-founded Tutorspree. He’s on Twitter @harris. All right, here we go. Aaron Harris, welcome to the podcast.
Aaron Harris [00:19] – Thanks, Craig. Good to be here.
Craig Cannon [00:20] – We are a couple days away from Demo Day and I figure there’s no one better than you to talk about fundraising advice with. I want to start with some seed fundraising advice in the context of, we can just say broadly like YC or another accelerator, a company in that situation. How do you think about it and how would you advise a founder to figure out a process to do a seed round?
Aaron Harris [00:51] – I actually think this is broadly applicable to anyone thinking about raising. The core idea behind Demo Day or the reason it’s so helpful for our founders is two things. One, it gives them essentially an artificial forcing function. It’s just saying, “Hey, there’s this day and time when I’m going to go raise money.” It makes you focus everything on that. The mistake that a lot of founders make is that they are constantly fundraising while building product and trying to do both things at the same time. What we did with Demo Day was say, “No, no, no. You do one thing at a time.” You basically take your product work and you make that X number of months until it’s good enough, until you have customers. Then, at some point, when it’s good enough you switch over to fundraising because fundraising takes all of your time and energy and effort. To do it well you really need to work on it and you can’t work on your company and your product and your customers at the same time. Demo Day forces companies, the knowledge that’s there, it forces companies to say, or founders to say, “Hey, I’m doing this now, and then I’m going to fundraise.” Now, the reason a lot of people feel sick to their stomachs to do that is because they think, “Oh, well, I’m never going to meet the investors so I have to spend all of my time hustling to meet investors.” This is actually another misconception. When you go out and you try to meet investors and you got nothing, they don’t want to talk to ya.
Craig Cannon [02:17] – Nope.
Aaron Harris [02:17] – Which is obvious. They have other things to do and even though it’s their job to meet with companies it’s not an angel’s job to meet with companies. They do it on the side. When you go and say, “Hey, I have this idea.” Well, there’s a lot of ideas. What they want to see is some evidence that you’re going to do the things you say you’re going to do. And so, when we have Demo Day we have this thing where it says, “Oh, well, we’re going to have 3,000 investors listening to your pitch at the same time.” And so, they’re, “Oh, of course I don’t have to talk to investors before that. I’m going to talk to all the investors.” But any founder working on a company can kind of do the same thing because if you spend, okay, let’s say you’re not doing YC and you say, “Well, I want to replicate that experience.” I’m going to spend three months and all I’m going to do is work on product, talk to customers. Make things people want. Then write more product. Talk to more customers. Write more product. Da-da-da-da-da. Iterate on that.
Craig Cannon [03:05] – At the end of that three months?
Aaron Harris [03:06] – At the end of that three months I’m going to go to investors and say, “Hey, look, I have a fully built product, I have a bunch of customers, it’s growing.” The investors will be very excited to meet with you even if you’re cold emailing them. When I get cold emails from people who are clearly doing both things at the same time my advice is almost universally, “Hey, you need to focus more on your actual customers because you don’t have anything yet.
Craig Cannon [03:28] – To step aside for a second, let’s actually talk about that email, emailing an investor. Let’s say you did it by the books. You’re not a bullshit artist. You actually spent three months building something. You have some customers. How do you think about emailing a seed stage investor?
Aaron Harris [03:46] – There’s a trick in this, in that you need, your email needs to be both short and informative. A lot of the way that people write emails, they’ll write long emails that are informative or short emails that are totally irrelevant. The trick is you need to do some research on the person you’re emailing and figure out are they interested in this space at all. I get blind emails where I’m clearly just CCed or BCCed with a hundred other people saying, “Dear Mr. Harris, you might be surprised to learn about our incredible opportunity to make lots of money.” That’s clearly not something I’m going to respond to. But when I get an email that says, “Aaron, I know that as a partner at YC you’ve worked with a bunch of companies that do X, we’re working on that, we’ve built a product and we launched it a month and a half ago, here’s what we’ve learned.” If you can say something interesting about what you’ve learned in addition to the progress made, and by the way, the progress for me, isn’t necessary about traction. There’s this misconception that angel investors or investors in general only invest in traction. It’s true that that’s nice but what we’re more interested in seeing, or at least what I am more interested in seeing, is how much progress have you made relative to the time you’ve been working on something? That progress could be actual traction with customers or it could be doing something that’s hard technically in a short period of time or building something interesting in a short period of time.
Aaron Harris [05:21] – The thing that no one wants to see is, I’ve been working on this for four years and I just finished the alpha of what I’m working on.
Craig Cannon [05:29] – Right.
Aaron Harris [05:30] – I understand you’re working nights and weekends but it’s unclear that a little bit of money will accelerate that.
Craig Cannon [05:36] – Right. How important do you think it is in terms of communicating your unique insight to the investor?
Aaron Harris [05:45] – I think it’s useful but to me it’s less about, it’s less about fully communicating a unique insight as showing me something interesting that I didn’t know. There might be a bunch of people who have realized this thing you’re talking about but if I don’t know it, that’s kind of cool. If I can’t think of it in thinking about a problem for a few minutes then I start to get interested and I want to have a conversation. The next thing that’s important with investors is when you’re kind of blind emailing them don’t immediately ask for half an hour of time with no clear ask. Because time is hard to come by. You already have my attention in email. Make a really clear concrete ask. Where a lot of people will ask, say, “Do you have a half an hour of time?” And I’ll say, “Well, how can I help?” And they’ll say, “Oh, well, we want to know if you invest. Do you want to invest?” And I say, “I don’t actually tend to do that
Aaron Harris [06:41] – outside of YC so why don’t you apply to YC and then it starts this conversation.”
Craig Cannon [06:45] – You’re potentially a bad example here.
Aaron Harris [06:47] – I guess so. I guess that’s right. But most investors,
Craig Cannon [06:49] – But let’s say it’s someone, it’s someone who’s going to cut a check. So, I’m like, “Hey, Aaron, this is Craig, I’m working on this, we’ve been spending three months on it, we’ve had this really big learning, it’s impressive.” What’s a question that you like to see?
Aaron Harris [07:03] – You need to know, okay, you can’t really know ahead of time what their investment process is or what they like to invest in. I think you want to say, “Here’s what we’re doing, here’s how much we’re looking to raise, I would love for you to be an investor, what else can I tell you, what else would be interesting, or can we meet to discuss an investment?” And people try to do this weird coy thing. They say, “Oh, well, I’d like to just meet and catch up.” Whatever. People tend to catch up with friends, not with brand new people they’ve never met before who are looking for something
Craig Cannon [07:43] – Right.
Aaron Harris [07:43] – in terms of money. Just be direct because people are busy and I think they appreciate directness.
Craig Cannon [07:49] – Yeah, you can get to the point. Now, last questions on this. Big attachments, decks, stuff like that?
Aaron Harris [07:56] – Not up front.
Craig Cannon [07:56] – Not up front.
Aaron Harris [07:59] – I would not attach a big deck to something unless someone asks for it. If someone asks you for a deck, this is a little bit tricky. A lot of people will say, “Hey, can you just send me a deck?” As a way to just shoot things down. I think a really well crafted deck actually tells your story well and can convince people, but one of the things you can say is, “Hey, I’d love to send you the deck but I’d really prefer to pitch you on it first in person.”
Craig Cannon [08:23] – Yep.
Aaron Harris [08:23] – But if someone’s insistent about seeing the deck, send the deck. One of the most annoying things I’ve seen is, and I’ve seen this email from other people saying, “Hey, can I see a deck?” And the founder just keeps saying no and inventing reasons not to and you got to respect that investor’s process at some point unless you have significant leverage. One of the things here is that the amount of leverage you have changes the kinds of emails you can send and changes the interaction and you just have to be conscious of where you are. I wrote and essay about this, about how to manage process and leverage when you’re in fundraising and there’s a continuum about what you have to do to get money relative to how much interest there is in your company. You just need to know where you are.
Craig Cannon [09:03] – Yeah and usually if you don’t think you have much leverage you probably don’t have much leverage.
Aaron Harris [09:09] – And look, sometimes investors, well, it’s rare that founders, yeah, it’s rare that founders underestimate the amount of leverage they have. They usually overestimate which leads to some funny situations.
Craig Cannon [09:20] – Let’s get back to process. You have spent three months working on this. You have said, okay, let’s say usually a CEO, is going to go out and fundraise. What would a good process look like for you?
Aaron Harris [09:34] – I think the main trick to a good process is a parallelized process. The mistake that a lot of founders make when they go to fundraise is they go and talk to one investor and then a week later they try to talk to one more investor and then a week later they try to talk to one more investor. The reason that’s a problem is because you can think of the investor community as a set of interconnected nodes. Information is a wavefront that moves through those nodes. And if you just talk to one investor, information moves faster than you. It’s kind of like the wave propagates faster than the actual thing. Or it’s like when there’s a nuclear blast or whatever. The shockwave,
Craig Cannon [10:24] – Or it’s like lightning.
Aaron Harris [10:25] – Or lightning. You see the lightning before you hear the thunder. So, it’s like that. Information moves at light speed. You can only move at the speed of sound.
Craig Cannon [10:33] – Right, right.
Aaron Harris [10:34] – When you talk to one investor at a time basically information about your company starts spreading but it’s even worse than just a one to one spread because each investor knows multiple people. And so, the wavefront gets wider and wider and wider. And so, if you tell one investor and they pass one you. They tell three of their friends. They talk to the schmuck that has a stupid company then those talk to three, those talk to three. And pretty quickly you kill a whole section of potential investors if you pitch one investor badly. In contrast, if you set all of your meetings up quickly in sort of a tight time bad, you can talk to everyone at the same time and then they don’t tell each other what’s going on because they’re all actively evaluating the deal. Investors don’t share information about a deal until they’ve kind of made a decision because they want to look smart, which I understand. They want to look smart or they want unique access and don’t want to have to compete. And so, if you immediately create a situation in which multiple people are seeing it, you raised your chances of getting something through. And then if you manage to create buzz around your deal where a bunch of people are actively talking about it and liking it, again, that information, that wavefront travels in a really positive way and more and more investors hear about you and want to get in.
Craig Cannon [11:41] – So, practically speaking, stack as many as possible in a week?
Aaron Harris [11:45] – Yeah. Now, within limits. You shouldn’t schedule 35 meetings in day.
Craig Cannon [11:50] – So, you’re exhausted.
Aaron Harris [11:50] – So, you’re exhausted. Most people can’t actually handle that.
Craig Cannon [11:53] – No.
Aaron Harris [11:54] – But within the limits, yeah. You want to kind of stack the meetings together.
Craig Cannon [11:57] – Okay and so then when it comes to the actual meeting itself, I know you’re a proponent of figuring out the company’s story. When it comes to storytelling, this is slightly different than for instance, like a customer interview
Aaron Harris [12:11] – Yes.
Craig Cannon [12:11] – where you’re doing a lot of listening.
Aaron Harris [12:13] – Completely different.
Craig Cannon [12:13] – Right. So, how would you think about an investor meeting?
Aaron Harris [12:16] – Okay well, it’s actually completely different from a customer conversation, not so much in how much you listen verses talk, more about the kind of story you tell. Shat’s interesting is that some of the investor meetings that go best are the ones where the investors end up doing a lot of talking and they get themselves really excited about what you’re doing and talk themselves into a deal. If that happens, don’t stop them. If an investor is riffing on wild ideas about how gigantic you could be kind of smile and nod and give them a right on and
Craig Cannon [12:45] – Yeah, totally.
Aaron Harris [12:46] – get the check at the end of it. But the story you tell to an investor verses a customer is different because to the investor you’re telling the story about how you are going to rewrite the future in a way that creates, in a way that makes your company gigantic. Future’s going to happen. And one way or another there’s a future but what investor want to hear is that you’re an integral part of it, you’re company is an integral part of that and that by doing that, you capture some major market. Customers don’t care about that. Customers care about you solving their problem. This is a weird thing because you’ll see people who are so caught up, because again you’ve spent these three months talking to customers. And so, you want to go to the investor and tell them, “Oh, here’s this problem I solved, let me tell ya all about how I solved this problem so well.” And you want to do that but that’s the smaller part of the conversation. It’s more, what does solving that problem allow your company to do at a grand scale? The other mistake that founders make in that conversation is they jump immediately from where they are today to this grand vision of when they’re a $300 billion company with offices all over the world. That’s a huge mistake because the investor doesn’t have reason to believe you can make that transition. What you want to do is start small. Really start with what you’re doing now and how that market is really interesting. And then if the investor’s nodding along and getting into it you start building, building, building
Aaron Harris [14:11] – and then you get, you can build all the way,
Craig Cannon [14:14] – And so, that build, so average seed, maybe 18 months of runway,
Aaron Harris [14:20] – Something like that.
Craig Cannon [14:20] – maybe 24 months.
Aaron Harris [14:21] – Yeah, should be. Things are getting a little crazy in the seed market in some places. You see companies raising three and four and five years of runway. I actually think that’s a huge mistake. When companies are over-capitalized they tend to make the wrong decisions. They do things that seem safe. They do things, they think to themselves, “Oh, we have all this time.” And so, we have lots of time, let’s be super incremental about what we do or let’s just hire a lot of people because people look good and therefore we’ll be good. But in reality, the most precious resource to a startup is time. It’s not actually money and that’s a hard thing to understand but it is time because startups have to move quickly. We talked a few weeks ago just about how if you’re startup’s not growing really fast that’s a good sign that you’re not doing the right thing. It’s not necessary a startup. If you want to get gigantic you actually have to move quickly and a lot of time people will use money as a way not to move quickly. They’ll say, “Oh, well, we need a really nice office, we have all his money, let’s get the nice office,” or, “We need really nice swag, we need really nice jackets because that’s what makes employees happy.”
Craig Cannon [15:35] – Yeah, it’s just all signaling bullshit.
Aaron Harris [15:36] – It’s just crap. But if you live in a place where there are a lot of other startups with nice swag. You walk around in San Francisco and well first it was just hoodies and then it was Padagonias and now some people have Arc’teryx and fancy backpacks and all the stuff and it’s just, man, that’s not the thing.
Craig Cannon [15:56] – But to push back at you for a second, what if you raise three years, four years of money, sock it away, don’t hire a ton of people and just have the cash.
Aaron Harris [16:07] – That’s okay, but what ends up happening when you go for your next round of financing, when you go for your A, investors say, well, “How much did you raise at your seed?” “Oh, We raised $4 million.” “Huh, you raised $4 million and yet you’re only at…” Let’s pretend, $1 million in ARR, “Shouldn’t you have gotten further on that money?” And your valuation is higher.
Craig Cannon [16:29] – Right, but of course.
Aaron Harris [16:29] – but see, that hurdle is hard to cross. Investors expect more from companies that have raised more money. And this is something that people just completely don’t understand and the investors don’t really tell you when they’re telling you to take their money. They’re, “Oh, take our money, it’s all good, blah, blah, blah.” But they’re expecting way more progress on the money. So, investors don’t want to give you money that sits in the bank account. They want you to spend the money so that you can grow faster so that they can give you more money to own more of your company so that you can grow faster and it’s,
Craig Cannon [17:00] – It’s that loose.
Aaron Harris [17:00] – It’s a cycle.
Craig Cannon [17:02] – So, just to jump back then. When you are talking to these investors about longer term are we talking like, if you give me 24 months of money this is what we can expect in 24 months or do you still push further in those conversations?
Aaron Harris [17:15] – It’s both. It kind of had to be both. People want to see that you have a credible plan over the next 18, 24 months. They want to know what milestones you’re going to hit but they, also want to know that you’re thinking big. But it has to be attached. There has to be a continuous line from one thing to another.
Craig Cannon [17:39] – Right.
Aaron Harris [17:39] – People make this mistake where they have I don’t know a discontinuous story. I don’t quite know what the right term would be.
Craig Cannon [17:46] – Well, I’m just imagining this like, and then we’re on Mars. And you’re like, wait, what?
Aaron Harris [17:49] – Yeah, it’s, you know the underpants gnome?
Craig Cannon [17:53] – No.
Aaron Harris [17:54] – I like to talk about this one. The underpants gnome from South Park where it’s, there’s these gnomes and the boys follow them through the dryer. And they find out where all the underpants are going, the underpants that go missing. And the underpants gnome said, “Well, first you get the underpants, that’s step one, then step two, step three profit.” They keep asking, what’s step two? And there’s not step two. Who knows what that thing is? And people notice that. You notice the gap in the story. And so, you got to have a real rational reason why things work. And by the way, this can be something incredibly ambitious. And sometimes people don’t want to say it because it sounds too big. Well, investors invest in people who are very ambitious. They want really big. So, you just have to make it really big but believable. And progress is the best way to argue that what you’re saying is believable.
Craig Cannon [18:52] – Right, especially looking backwards like, we had nothing six months ago. Now, when it comes to people who are in the fortunate opportunity of having multiple offers from different investors, how should we think about evaluating seed investors, angel investors, especially in the context of your recent blog post?
Aaron Harris [19:11] – At a high level, if you’re lucky enough to have multiple offers, that wonderful. Then you can start making decisions about whose money you can take. Most founders are not in that situation. Most founders who are raising money for their company don’t have the luxury of choosing between different investors. Maybe they get to negotiate on terms but they don’t have the luxury of choosing between different investors, in which case, get the money you need to build the business. That is the most important thing without losing control of your company. That’s the thing and people forget this because they hear these stories about oh, this valuation, that valuation.
Craig Cannon [19:44] – Right, right, right.
Aaron Harris [19:45] – It’s all window dressing. The only thing that matters is the money you need to build the business. Building the business and succeeding at the business is what counts as winning. Raising money is not. If you’re in a position where you get to choose your investors, you should think carefully about who those investors actually are and what their incentives are. Everyone talks about, “Oh, venture capitalists, they fire you, they do this, they do that.” It’s not actually true. Yes, it happens but it is true that venture capitalists, because they’re institutional funds they have LPs who they represent, they have to make certain decisions that aren’t necessarily maybe your best interest as a person. They’re in the best interest of the success of your business and of their return. Angels were always seen as the opposite side of that equation was basically, a bunch of eccentric people who had lots of money who liked to throw money at businesses to help them and maybe they got rich. In the last few years there’s been an acceleration of people who call themselves angels but aren’t. They’re this one person who’s maybe a little well know who’s actually raising money in some way on the back end from outside limited partners of one kind or another. And there’s a bunch of different versions of this. There’s AngelList Syndicates. There’s these things called special purpose vehicles. A bunch of other, read the essay I wrote to learn a little bit more about this. And the point here is that none of these things are in and of themselves bad.
Aaron Harris [21:09] – It’s good that there are more people with money to put into startups. What’s bad is that a lot of these angels are not disclosing where their money comes from and that is pretty shitty. That’s not something that you should do. You shouldn’t be lying to a founder with whom you are starting a relationship about what you actually are and where your money comes from. And founders sometimes only see this if they notice that the name on the docks, the legal entity that is investing is something weird.
Craig Cannon [21:41] – And to put a find point on it, the issue is you don’t know what their incentives are.
Aaron Harris [21:45] – Exactly. You just don’t know what their incentives are and if you don’t know their incentives you don’t really know what you’re getting yourself into. And there’s a more recent version of this that I’m seeing more and more of is just people who are representing themselves as a single name but are full VC firms underneath, institutional LPs, 50, $75 million. And listen, there’s a lot of venture capital firms that have people’s names on them.
Craig Cannon [22:11] – Sure, tons.
Aaron Harris [22:12] – Andreessen Horowitz, Kleiner Perkins. Those have people’s names on them whether or not those original partners are still there but they were honest from the beginning, we are a venture capital firm and I think that’s honest but if you give yourself a name, if I went out there as Aaron Harris independent angel investor and I really had $150 million behind me, that’s weird and if people are hiding that you also have to ask, why are you hiding it? What’s going on that you are being dishonest about who you are and whose money you’re investing. That indicates something is off in that situation and I think founders should be really suspicious of when that happens.
Craig Cannon [22:51] – To transition a little bit, to Series A. How do you think about process, obviously, Aaron, working on the Series A program at YC, what does process look like for a Series A company?
Aaron Harris [23:04] – The process of fundraising for a Series A company is not actually that different from a seed. It’s just a different cast of characters and kind of a different amount of time between before you raise. It usually takes six, 12, 18, 24 months to build you company up to the point where you raise an A. When you do that process it’s the same logic that applies at seed. You want to run a parallel process with a bunch of investors at the same time and move through it quickly. There are some differences though. A Series A investor, a lead, a traditional Series A lead will want to buy, let’s say 20% of your company. It’s actually a little higher than that when we look at our numbers. It’s something like 21, 22% is what they end up getting. And they’re going to take a seat on your board, which means you have a deep relationship with them for the rest of the life of your company. Angel investors flood in, they flood out. You never hear from some of them again. You don’t really have to listen to them. Series A board member, yeah, that’s a pretty big deal. And so, you want to try to get to know them a little bit ahead of time, at least. And so, what I advise companies to do, is once you’ve closed your seed, get back to work for a month or two, whatever. And then start building relationships with Series A investors. Now, this is tricky because you can’t, as a CEO, spend all of your time meeting with investors and you shouldn’t because what you should actually be doing is searching for product market fit
Aaron Harris [24:29] – and making sure you’re building a good company. But you need to pick a set of three, of five, whatever, Series A investors who you see every other month, once a quarter, something like that and you meet them for coffee, casually. Coffee, lunch, whatever. You have to focus on building a rapport verses giving them a full breakdown of everything going on with your business. This isn’t a pitch meeting and investors need every meeting to be a decision point. They would like to be able to decide after any meeting with a founder as to whether to not they’re going to invest in the company or throw the company away because that’s just time. And if you can filter through companies you open up more time to filter through new companies. What you need to do as a founder is create a situation in which you remain kind of the Schrodinger’s cat, where they think it might be really good but they’re not sure and so they need to try to open the box and they keep trying to open the box and you keep closing the box. And so, they don’t know whether or not they can throw you out but they think they need to keep going. And the way you do that is you share a limited set of metrics but not everything. So, you don’t share full customer break, full customer breakdown, all of your churn numbers, all that stuff. You give high level revenue, growth. And when they ask for data room access or all the stuff you say, “Hey, I’m not fundraising right now. I just want to build this relationship because when we do go out and fundraise I want to know if you’re the investor I want to work…”
Craig Cannon [26:04] – You’re the right person for me.
Aaron Harris [26:05] – And if you do that right you just sort of build this relationship and if you’re doing really, really well that will trigger someone to say, “Hey, can I bring you in front of my partners?” If you do this right and your business is growing, by the way. Everything, everything is predicated on having a good underlying business or on just being, look, there are just some people who are just unbelievable at pitching and they can pull money out of nowhere but you shouldn’t try to be that,
Craig Cannon [26:28] – Well, I just love the Shopify story in that context. He just showed up and didn’t even know what the metrics were.
Aaron Harris [26:34] – That they were going to ask for?
Craig Cannon [26:35] – Yeah, he was on a How I Built This and he talked about it. And he was like, “Let me go home and look that up,” and he was saying it at hostel in SF and had to go back and queru the database to find CAC or whatever, yeah.
Aaron Harris [26:47] – Oh, that’s amazing. That’s pretty rare.
Craig Cannon [26:48] – That’s pretty rare.
Aaron Harris [26:50] – Yeah, don’t model on that one.
Craig Cannon [26:53] – Okay, just to step back. You kind of casually say, “Hey, you want to start setting up these loose relationships with investors who might want to invest in your Series A in 18 months.” How do you even do that?
Aaron Harris [27:10] – It’s tough.
Craig Cannon [27:11] – Because you’re now back at the point of maybe even cold emailing people.
Aaron Harris [27:15] – Right. It’s tricky. If you’re lucky enough to have a bunch of angel investors use them to introduce you to the Series A investors that they know. A lot of them are pretty well networked. Some of them aren’t. If you’re not in that situation, don’t worry. Again, investors are excited about founders they think are building big things who will make them lots of money. And so, you can kind of employ the same strategy that I talked about for seed but do a little, but there’s more information to research about the investors. Investors tend to write blog posts and essays. They list the companies they’ve invested in on their venture capital websites. And so, you email them and just make the pitch relevant. Make it interesting. Teach them something. One trick I’ve seen some founders use is they’re cold emailing an investor and the first couple times they don’t get a response. But they just keep emailing on a really regular basis progress. And they say, “Oh, hey, would still love to meet, so you know, you were 10% last week. Hey, would love to meet, just so you know this month we crossed $3 million in annual revenue.” You do that enough people
Craig Cannon [28:24] – They’re going to reply.
Aaron Harris [28:24] – are going to pay attention. Yeah. If they’re good at their jobs.
Craig Cannon [28:28] – The “be so good they can’t ignore you” line,
Aaron Harris [28:30] – Exactly.
Craig Cannon [28:30] – is very important.
Aaron Harris [28:32] – It’s true.
Craig Cannon [28:32] – Yeah, of course.
Aaron Harris [28:32] – People talk themselves out of doing this because they think, oh, I don’t know anyone therefore I can’t know anyone or I’m in some out of the way place or whatever. Good investors, and not all investors will do this, not all investors will put in the work, but good investors will be open to opportunities wherever they come from.
Craig Cannon [28:48] – Yeah, they’ll find you. The last thing I want to talk about is post Demo Day psychology. Obviously you went through YC. You’ve now advised many, many companies in pre, during, post YC. I think it can be quite hard for a company to go through this really intense experience, which is often incredibly helpful and kind of fun for them, even if it’s painful. Afterwards your community’s kind of maybe gone. Maybe you go back to wherever you base your company. What are your pro tips on figuring out that year after Demo Day?
Aaron Harris [29:31] – There’s a few different ways to look at this. I think the most important thing is to remember that no matter what happens with fundraising and no matter what happened with YC, the vast majority of the life of your company is ahead of you. And people will trick themselves into believing, that, oh, YC’s over I can relax or I raised some money, I can relax or I didn’t get to raise as much money as I wanted, I’m screwed. None of these things are true. That first three months or whatever it is is just a tiny blip and you can take a super successful Demo Day and ruin it by spending the next year hiring a 100 people and burning all your money. Or you can turn a really crappy Demo Day, a really crappy fundraise into something amazing by figuring out how to build without money and getting profitable and then growing, growing, growing, growing, growing and being really successful. And so, I think that contextualizing whatever you did during YC, in the long run of your life, is really important. I think that is even more true when you think about the startup in the context of the rest of your life. And I think that this is tough because we tell companies during YC, this is your excuse to push off all social obligations, all this other stuff for three months. You can’t do it much longer than three months and remain kind of a happy productive person. But different people have different balances there. And I will say that really succeeding with a startup at the highest level, requires a lot of sacrifice in other parts of your life.
Aaron Harris [31:10] – And you have to be okay with that or not. And you have to strike the balance that makes sense for you. If you have a young family it’s really hard to do a startup because a startup, a successful startup, a growing startup is all consuming in your life and you might have to shut out everything other than your startup for periods of time. And that can reek hell on your personal life. No one else can force you into that decision or not. That’s your decision to make as a founder, whether or not you want to accept that. I think that there’s a myth out there that you can have it all. That you can have all of your friends and the perfect personal life and the super fast growing startup and all that. And it’s a lie that no one should tell you and you shouldn’t believe. Anyone who does anything truly great, sacrifices something else in their life. And that balance is different for different people. I think for some people it comes down to choosing two out of three. You have your nuclear family or whatever, you focus on that and work. And friends or outside activities, fit them in when you can. And that’s, look, that’s a hard truth I think for some people to accept because people want to believe, “Oh, I saw this person on Instagram, they’re really successful and they’re flying to all these vacations and this and that.” And it’s just this lesson that you have to learn again and again that you have no idea what’s actually going on inside someone’s head and in someone’s life and in someone’s startup. You can’t model yourself on something you see externally, at all.
Aaron Harris [32:54] – You have to find the balance that’s right for you. And if you want, you should talk to other people who have gone through similar things. If you’re young and you don’t have a family, you don’t have a partner and all you want to do is work, talk to other people who were in a similar situation about how they made that work without burning out. Because it’s still possible to burn out. If you’re in a place in life where you’re partnered, maybe have one kid, a baby, an older kid, whatever, talk to someone else who’s in that position and who has seemingly accomplished the things that you want to accomplish and see how they did it and if they were happy with the trade and what they would have traded. Then talk to people who were in that position but are now in a different position. Talk to a bunch of different people about how they made it work and then make your own decision. But I will say that if you are making a choice to take venture capital, take outside funding, if you’ve pitched people on this gigantic thing you’re going to build quickly, you kind of have to do that and you have to figure out a way to make it work or a lot of people are going to be disappointed. You’re going to be disappointed at the end of the day.
Craig Cannon [34:04] – Right.
Aaron Harris [34:06] – And so, everyone needs to find kind of the right balance there, which is good, just don’t lie to yourself and think you can have all the things.
Craig Cannon [34:16] – Well, I think that’s just going into it with clear eyes and saying, “Hey, let’s be realistic about what I can actually achieve here.” In wanting everything, just sets you up for disappointment.
Aaron Harris [34:28] – And it’s also, I think it goes a little deeper than that. It’s not just what can I achieve. It’s what do I want to achieve.
Craig Cannon [34:33] – Sure.
Aaron Harris [34:34] – People, people, I, everyone, you have these ideas of what you want. And sometimes they’re right but sometimes that evolves over time and you change the things that you want. And you can’t assume that what makes other people happy or seems to make other people happy, will make you happy. It’s helpful to read research on what makes people feel fulfilled and happy around a lot of these things as you think about it. And look, there are people who are only happy because they have become President or have led one of the biggest companies in the world or created one of the biggest companies in the world. And some people have that and some people just want to be home building a wonderful family and being a valued member of their community. And those people are not necessarily different in their happiness. It’s if they actually genuinely achieve what they wanted to do. Though the research would suggest that no matter what you do having a healthy family life and friends is the thing that builds the most happiness over the long run.
Craig Cannon [35:43] – Winning the money scorecard is not usually a great example,
Aaron Harris [35:46] – No, no. I know lots of very,
Craig Cannon [35:47] – unfortunately.
Aaron Harris [35:48] – very unhappy wealthy people.
Craig Cannon [35:52] – But on the flip side being poor can make you sad.
Aaron Harris [35:54] – No, sure. And I’m not saying that, and it makes a lot of things a lot harder. But the point is that money isn’t the thing. And when you talk to people who have built gigantic companies, the thing they’re most proud of is not how much money they’ve made. The thing that they’re most proud of is the impact that they’ve had on the world and the change that they’ve raught in the way humans live. That’s what’s so insane about startups.
Craig Cannon [36:19] – They’re pretty cool.
Aaron Harris [36:19] – That’s what gets me so excited. Think about how quickly Google impacted the number of people they’ve impacted. Nothing else in history moved that fast on that scale up until Google. No non-profit, nothing. That’s what gets me really excited and interested. That’s the story when we started off talking about story. That’s the thing. How do you rewrite the future? And I think that a lot of people say, “Oh, well, I’m just a startup, we’re not really going to change the way the world works.” Really? Apple sure did. Microsoft did. Cisco did. Boeing did. Standard Oil did. All these things were nothing when they started and they changed the, they fundamentally shifted the course of human history. That is, I know it’s big but that’s what we’re playing for.
Craig Cannon [37:19] – I think that’s great. I think, obviously, everyone else could go start a startup now if they want to.
Aaron Harris [37:24] – Well, if they want to. If they want to make that trade. It costs a lot to do that.
Craig Cannon [37:29] – Awesome. All right, thanks, Aaron.
Aaron Harris [37:30] – Thanks, Craig.
Craig Cannon [37:32] – All right, thanks for listening. As always you can find the transcript and video at blog.Ycombinator.com. If you have a second it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon