Dan Siroker: Second-Time Founders Are More Investable & Why Not To Hire People Out of College |E1153

Intro (00:00:00)

• Always be in fundraising mode.
• When an investor asks how much you're raising, they're actually asking how much you think you're worth.
• Start the negotiation on valuation right away.
• Investors want 20% of your company.

Background (00:00:47)

• Dan Siroker's interest in computers was shaped by his early years.
• His mother's boss, Professor Hector Garcia Molina, had a great generosity and would always buy the same computer for Dan and his twin brother whenever he bought a new one for himself.
• This allowed Dan to always have the latest and greatest technology at home, which propelled him into his current career in computers.

Yeses & Nos as Turning Points (00:01:35)

• Dan Siroker, an investor, believes that second-time founders are more likely to succeed due to their past experiences.
• When deciding whether to pivot or persevere, founders should look for glimmers of hope and consider whether they are getting closer to the core of the problem and its solution.
• A good indicator of when to pivot is when founders have run out of exciting experiments to test.
• The most promising hypotheses should be tested first, and if they fail, founders should assess the value of continuing to experiment.

First-Time Founders vs. Serial Entrepreneurs (00:06:45)

• Serial entrepreneurs are more investable due to their experience in starting companies, finding product-market fit, and learning from past mistakes.
• Successful founders tend to be non-conformist and autonomous, but this can lead to disregarding traditional wisdom and wasting time on unimportant matters.
• A key difference between first-time and serial entrepreneurs is the ability to focus on the main priorities rather than getting caught up in unimportant details.
• Second-time founders are more investable because they have demonstrated perseverance and learned from their previous experiences.
• Serial entrepreneurs have a better network and can assemble a stronger team, which is crucial for rapid growth.
• Hiring experienced professionals with a proven track record is more effective than hiring friends or inexperienced individuals.
• A founder's unwavering mission and commitment to their company can be a positive indicator of their potential for success.
• A first-time founder's company has a higher chance of failure compared to a second-time founder's company, but it's important to consider the reasons behind the failure before deciding not to invest in a second-time founder.

Biggest Mistakes in Leadership (00:14:53)

• Biggest failures: Going with other people's decisions despite his gut feeling.
• Mistakes that haunt him: Ignoring his intuition and not being decisive as a CEO.
• Second-time founders are more investable because they have:
  • A higher success rate.
  • A network of investors and advisors.
  • A track record of building successful companies.
• Second-time founders are more likely to:
  • Be realistic about the challenges of starting a business.
  • Have a clear vision for their company.
  • Be able to execute their plan.

Navigating Enterprise: Advice for Founders (00:16:36)

• Understand what's working and what's not in your business.
• Identify a core magical part of your product that leads to growth.
• Recognize when large enterprises adopt your product without human interaction.
• Look at the numbers and identify which businesses are retained the best.
• Be cautious about hiring a big enterprise sales team too early.
• Consider the best way to get Fortune 100 companies using your product.
• Move into enterprise when you feel market pull.
• Look for signals that indicate a person at a company feels the pain your product solves.
• A salesperson can augment and maximize the potential of a relationship with a large enterprise.
• Avoid cold calling into Fortune 100 companies without a strong value proposition.

Title Inflation: A Common Founder Mistake (00:19:25)

• Titles should be given carefully to avoid creating a sense of entitlement and to ensure clarity in the company's hierarchy.
• The term "founding" should be reserved for the core team that starts the company to avoid confusion and maintain its significance.
• Candidates who prioritize titles during interviews may not be the best fit for a startup, as they may value status over the company's mission.
• Startups should offer competitive compensation to attract top talent, ensuring fairness and acknowledging the sacrifices employees make by joining a startup.
• Paying employees a competitive salary (75th percentile) is crucial, even if it means making lifestyle adjustments.
• A combination of equity and cash compensation can be an effective strategy to attract great talent.
• Internal compensation should be fair, transparent, and regularly adjusted to ensure everyone is compensated appropriately based on market rates.

Lessons on Secondaries & Motivation (00:24:20)

• Dan Siroker, an investor, believes that second-time founders are more investable due to their proven track record and reduced likelihood of repeating past mistakes.
• Siroker suggests offering liquidity to early employees every six months to help them achieve personal goals and increase retention, rather than forcing them to hold onto their vested stock.
• He prefers hiring experienced individuals over recent college graduates, as experienced hires can make a greater impact and accelerate project delivery.
• Small, highly efficient teams, as mentioned by Arthur at mral, are effective in achieving high operational velocity.
• There is a disagreement on Twitter regarding funding availability and investor engagement, with some believing that exceptional companies can attract investments below the supposed minimums set by great investors.
• Founders should not assume that standard investor-favored terms apply to them without considering exceptions.

Negotiation Tactics (00:30:46)

• Second-time founders have a proven track record of success, making them more investable.
• Founders should empathize with investors' motivations and consider what they can gain from the deal to negotiate fundraising terms successfully.
• It's reasonable to compromise on valuation during negotiations, as investors take a reputational risk by investing in a startup.
• While boards can be helpful for first-time founders, not all venture capitalists add value to startups.
• The best advisors and venture capitalists don't necessarily need to be on the board to provide assistance.
• Boards are crucial for governance and accountability as a company grows but may not be necessary for early-stage startups.
• First-time founders should seek investors aligned with their values and long-term goals, but assuming a board is always needed may not be necessary.

Steps for Structuring Pronoun Fundraisers (00:35:06)

• Dan Siroker, a successful entrepreneur, shares his unique approach to fundraising by publicly sharing his pitch deck, resulting in millions of views and thousands of investment offers.
• Siroker emphasizes choosing the right investor, not just the one offering the highest valuation, and highlights the benefits of accepting a lower valuation in exchange for a long-term oriented partner like NEA.
• He invites investors who offered more than the accepted valuation to participate in a rollup vehicle, creating a wide network of supporters and evangelists for the company.
• Siroker challenges the notion that signaling is dangerous with large firms, arguing that the benefits of having a long-term partner outweigh the risks.
• Founders should empathize with investors and understand their perspective when seeking investment and should not directly answer the question of how much they are raising but instead state that they want to sell no more than a certain percentage of the company and let the market decide the valuation.
• Founders should avoid giving a simple yes or no answer when asked if they are raising money, as this can create a perceived clock and pressure from investors.

Engaging with Associates & Practicing the Pitch (00:41:46)

• Founders should proactively structure and schedule fundraising meetings in advance to avoid pressure from investors.
• Transparency in the fundraising process ensures that investors are aware of the founder's schedule and encourages prompt participation.
• Founders can assess potential lead investors by requesting references from previously funded founders.
• Founders should consider the time and focus required for fundraising and may choose to dedicate a specific "investor week" for pitching and meetings.
• Engaging with associate-level investors can help founders refine their pitch and identify potential objections.
• Preparing a well-articulated appendix with additional slides can impress investors and demonstrate preparedness.
• Recognizing genuine interest from investors and using their questions to anticipate and address concerns from senior partners is important.
• Second-time founders are more investable due to their experience and rising career trajectory.
• Investors are more likely to be helpful to founders who are just starting out and need support to reach their full potential.
• Founders should prioritize maintaining control of their company by negotiating for multiple board seats, super voting stock, and board observers.
• Founders should advocate for the interests of their employees and common stockholders.
• A good investor will support the founder's business, provide access to their network, and have additional funds to bridge any gaps.
• Founders should be responsive to their investors and keep them updated on the company's progress.

The Best Venture Meeting (00:58:07)

• Dan Siroker considers his first meeting with Peter Fenton in 2013 as the best venture meeting he's had.
• It was memorable because Fenton came to the meeting with a knee injury from helicopter skiing and asked Siroker what would keep him excited about the business in five years.
• In hindsight, Siroker realizes that Fenton was trying to understand what motivates and drives him, which is crucial for founders who want to stay passionate about their business for the long term.
• Siroker emphasizes that he is committed to Limitless and would be proud of the problems they are trying to solve even if they fail.
• Siroker believes that second-time founders are more investable because they have learned from their mistakes and successes in their first venture.
• They have a better understanding of the market, the competition, and the challenges involved in building a successful business.
• Second-time founders are also more likely to have a proven track record and a network of contacts that can help them succeed.
• Siroker advises against hiring people straight out of college because they lack real-world experience and may not be a good fit for the company culture.
• He suggests looking for candidates with at least two to three years of work experience who have demonstrated their ability to learn and grow.
• Siroker also emphasizes the importance of hiring people who are passionate about the company's mission and values.

Navigating the AI Investment Landscape (00:59:58)

• Invest in founders who are passionate about solving real problems, rather than those who are merely enamored with technology.
• Prioritize founders with firsthand experience of the problem they're trying to solve, as this provides valuable insights and a deeper understanding of the issue.
• Don't be discouraged by competition; the founder's passion and problem-solving skills can make all the difference in their success.
• Focus on simplicity in product design, avoiding feature creep and ensuring that each feature contributes directly to solving the problem.
• Founders should have a good understanding of technology to assess the effort required to build and maintain features, and be decisive in choosing the most important ones.
• Missed opportunities to acquire successful companies like Amplitude and Segment highlight the importance of overcoming ego and self-doubt in making decisions.
• Launches should be well-executed, with a clear focus on solving the problem and providing value to the customer, rather than simply having a big fancy event.

Quick-Fire Round (01:07:42)

• Second-time founders with experience and a track record of success are more investable.
• YC offers valuable resources and support for startups, including those led by second-time founders.
• Sam Altman or Aadil Gill would be great board members due to their helpfulness, honesty, and deep market intuition.
• Fatherhood is incredibly demanding, both physically and emotionally, especially in the early stages, and balancing a startup with fatherhood requires extreme focus and cutting out many other aspects of life.
• The most valuable thing to children is spending time with their parents, making it a special and fulfilling experience.
• Dan Siroker expresses concern about growing skepticism and resistance to technology and innovation, which could lead to a "Dark Ages" scenario where AI advancements are stalled.
• Siroker emphasizes the importance of continued investment and support for AI innovation, as it requires significant capital and a favorable regulatory environment to thrive.
• Siroker draws a parallel between the current state of AI and the space industry before SpaceX, suggesting that transformative progress may require new technologies and entrepreneurial drive to overcome challenges.
• Limitless aims to have millions of active users daily by 2034 and wants to make its product so widely accepted that it becomes taken for granted, like airplane Wi-Fi.
• Limitless wants to augment human intelligence with artificial intelligence, not replace it, and believes that capturing and using what we say, hear, and see can greatly benefit humanity.