Tom Blomfield: Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | E 1152
13 May 2024 (4 months ago)
Intro
- Founders are not necessarily the most likable people.
- A key skill of a Founder is holding two realities in their head simultaneously: the big vision of the 1% best outcome and the top priority for today, this week, and this month.
- Founders must execute on the top priority while keeping the big vision in mind.
- Tom Blomfield, the co-founder of Monzo, shares his fundraising advice for startups.
- He emphasizes the importance of doing the best all raise pre-demo day.
- This includes getting the pitch deck right, practicing the pitch, and building relationships with investors.
- YC's fundraising advice to startups includes:
- Focus on the product and the team.
- Be realistic about the valuation.
- Be prepared to answer tough questions.
- Don't be afraid to walk away from a bad deal.
- Advice for founders who are struggling to raise money:
- Keep going.
- Don't give up.
- There are always investors out there who are looking for good startups.
- Advice for founders who are feeling overwhelmed:
- Take a step back.
- Focus on the things that you can control.
- Don't be afraid to ask for help.
Background
- Tom Blomfield, the founder of Monzo, believes that exceptionalism manifests early in life and that individuals are shaped by their early experiences.
- He began building websites in his teenage years and convinced a local estate agent to pay him for his services.
- A pivotal moment in his career was gaining acceptance into Y Combinator in 2011, which exposed him to the world of high-achieving technical founders and significantly influenced his trajectory.
- Despite facing 96 consecutive rejections while seeking funding in 2020, he eventually secured a $100 million flat round at a $2 billion valuation.
- Monzo encountered a funding crisis during the COVID-19 pandemic when a pension fund withdrew a $100 million investment at the last minute, resulting in a 50% revenue drop and a funding gap.
- The company managed to secure a down round of $100 million from existing investors, albeit at a 40% lower valuation of $1.3 billion.
- Blomfield emphasizes the emotional challenges of fundraising and the constant rejections entrepreneurs face.
- Monzo defied skepticism by successfully acquiring customers, expanding its user base, and generating revenue, despite initial doubts about its business model.
- The founder recognizes the unwavering hard work and dedication of the Monzo team in achieving the company's current success.
Switch from Founder to Investor with YC
- Tom Blomfield transitioned from being a founder to an investor with YC.
- After leaving Monzo, he took a year or two to recover and then started Angel Investing in 2021.
- He made 76 investments in nine months, mostly in the UK tech ecosystem.
- He learned that picking the highest quality founders trumps everything else, even if the idea is not great.
- He doesn't do outcome scenario planning, but considers if there's a world where the company could be a multi-billion dollar company.
- Tom's biggest mistake was over-indexing on the idea and not on the quality of the founder.
- He realized that working with the best founders makes everything else easier to fix down the line.
- He found Angel Investing to be a lonely process, with a lot of administrative work involved.
European Work Ethic Critique
- Tom Blomfield addresses the critique that the European work ethic is lackluster compared to the American work ethic.
- He believes that the difference lies in positivity, optimism, and ambition rather than work ethic.
- In the US, there is a strong belief in the American dream, where anyone can achieve anything if they try hard enough, which is not as prevalent in the UK.
- The UK has a culture of "know your place" and a more conservative approach to career choices, with many aspiring to become doctors, bankers, or lawyers.
- Blomfield notes that while mindsets have changed in recent years, there is still a significant difference in the startup culture between the US and the UK.
- Monzo's expansion into the US has not been successful so far.
- Only 2-3% of Monzo's total spending has been allocated to the US, and it has not received much management attention.
- Blomfield believes that directly replicating the UK product in the US is not the right approach.
- N26, Revolut, and Monzo's first attempt at a US launch have all failed, while Chime has found success by targeting gig economy workers.
- Chase Sapphire and American Express dominate the market for more affluent customers.
Transition from Angel to Investor in Partnership
- YC has a unique model where potential partners are visiting partners for 18 months before becoming full partners.
- Being a visiting partner is like being a teaching assistant, while being a partner is like being a professor.
- As a visiting partner, Tom learned from different partners, including Dalton's ability to help founders find new ideas and Michael's skill in giving brutally honest feedback with empathy.
- The hardest part of being a partner is accepting that you are not in the driving seat and that founders may choose to ignore your advice.
Signals of The Highest Quality Founders
- YC Partners worry that founders might blindly accept their advice without thinking, which is not ideal.
- YC Partners also worry that founders might come to them with every small decision, which indicates a lack of independence.
- The best founders are those who listen to advice but also think critically and make their own decisions.
- Founders don't need to be likable to be successful.
- Successful founders tend to be contrarian and willing to challenge the status quo.
- Founders may not be the most likable people because they are often impatient and irritable due to their desire to fix things.
Questions to Ask in YC Interviews with Founders
- Tom Blomfield, a partner at Y Combinator (YC), describes the process of selecting startups for investment.
- Each YC partner reviews applications and interviews potential startups. If a partner is the sole "yes" vote, they become responsible for working with the startup throughout the batch and beyond.
- YC aims to invest in approximately 25 startups per batch, with each partner having the autonomy to choose more or less.
- During interviews, YC looks for founders who demonstrate deep expertise and passion for their domain, often evident within the first few minutes of the conversation.
- YC values founders who have shown exceptionalism in some area of their lives, even if they lack a traditional background or formal education.
- After selection, all chosen startups are required to relocate to San Francisco for three to four months to foster collaboration and mentorship.
- YC has found that in-person interactions have led to increased happiness among both partners and startups compared to fully remote operations.
- YC has adopted a hybrid approach, retaining some remote elements such as virtual demo day presentations, while emphasizing the benefits of in-person interactions.
- In-person interactions, such as office hours and cooking for founders, create a stronger emotional connection and trust between investors and founders compared to virtual interactions.
The YC Batch: How it Works
- YC's batch process includes weekly group events, one-on-one office hours, and group office hours for knowledge sharing and goal setting.
- Common founder mistakes include launching too late and attempting to build a product with excessive features.
- Founders should focus on creating a limited set of high-quality features rather than replicating competitors' features.
- YC advises founders to maintain a balance between the long-term vision and short-term priorities.
- Founders should commit to an idea and avoid constant pivoting.
- The most successful YC companies secure funding before demo day.
- YC sets a deadline two weeks before demo day for founders to begin fundraising.
- YC discourages premature fundraising to prevent accepting low-valuation preemptive offers.
- Founders are advised to keep dilution low in their seed round to avoid hindering progress toward a Series A.
- Raising less capital before product-market fit is preferable to prevent excessive hiring and slowed progress.
- YC provides an investor database with founder reviews to help companies assess potential investors' behavior.
- YC is considering publishing internal data on investors' meeting frequency, investment rates, and check sizes to aid founders' decision-making.
- Founders Fund has a 3% conversion rate and invests an average of $2.7 million per startup.
- YC publishes fundraising data to help founders understand the fundraising landscape.
- YC companies have an 80-85% success rate in raising their target funding.
- YC partners collaborate and share carry equally without stack ranking.
- YC is exploring ways to curate more community-building experiences for founders, such as organizing dinners and meetups.
- AI companies now comprise 70% of YC companies.
The Hype Surrounding AI
- AI will revolutionize various aspects of our lives, acting as both a sustaining and disruptive innovation.
- The AI landscape may be dominated by a few prominent foundation model companies offering similar functionalities at commodity pricing, benefiting startups and the broader ecosystem.
- Successful AI startups require vertical focus, domain expertise, and tailoring software to specific industries.
- Distribution channels play a crucial role in the AI world, giving an advantage to companies with existing networks.
- Big companies are investing in AI solutions, presenting opportunities for B2B SAS companies targeting the mid-market.
- Tom Blomfield, co-founder of Monzo, shares insights on entrepreneurship, emphasizing the challenges of scaling a company and dealing with regulations.
- Blomfield discusses the importance of work-life balance and maintaining a company's culture while satisfying regulators.
- After leaving Monzo, Blomfield joined Y Combinator as an intern, experiencing a humbling shift in his self-perception and gaining a more balanced perspective.
Quick-Fire Round
- PG's optimism inspires founders and boosts their self-confidence, leading to increased openness to investors.
- When selecting board members, prioritize those who offer valuable personal connections and insightful thinking.
- Avoid arrogant and unprofessional investors, especially those who attempt to squeeze a significant percentage out of the round at the last minute.
- Guy Pani from Snickers stands out as an exceptional angel investor.
- Eileen, who worked tirelessly with Monzo for four days a week for six months, is highly regarded by Tom Blomfield.
- Gary Tan's experience within YC makes him an excellent CEO, as he can now fully focus on the core YC batch.
- Complacency poses the biggest threat to the YC model, potentially leading to a decline in the quality of partners and companies funded.
- Tom Blomfield expresses his admiration for the Ciscos and Brian Chesky, considering them ideal candidates for YC partners.
- Tom Blomfield's priorities have shifted from money to building things he loves and enjoying his personal life.
- He discusses achieving a balance between intellectual stimulation, hobbies, and friendships, explaining his decision to leave London due to changing friendship dynamics.
- Tom highlights the ease of making friends in the US, especially with the help of his well-connected friend Spencer.
- Tom has no desire to run a fund or another company in the future.
- He envisions a future where he can divide his time between San Francisco, New York, and the Caribbean, prioritizing personal relationships and potentially starting a family.