Gadgetory

thank you all for coming out it's totally great my name is Paul Sloane we're trying to start doing these events sorta regularly so it's really great to see a good turnout and thanks so much to George Zachary dave McClure newval raava cons um George's had a particularly good day his company he's involved in invested in millennial media what public today so we'll get to that um the Thea two billion dollar two billion dollars up George George is buying for all of us tonight nineteen ninety-nine ninety-nine percent what was the game anyway um so it's just a great time want to talk about startup funding in general it's just companies you know we hear this over and over really cheap to start a company these days lots of angel investors especially given all the newly rich from google soon-to-be Facebook and everywhere else and lots of accelerator funds like mr. McClory too many there's a bubble in accelerators you it's all over valuable oh I'm sorry this thing on so so it's a great time over all the same time companies going public Facebook about to go public which I assume you guys can all talk about but what that'll mean to startup world so let's just start off by asking a like you each to answer whether this is a good time to start a company oh yeah hell yeah it's a great time to be an entrepreneur it might be a good time to be an investor George I totally agree with Dave right now there's a plenty of capital available everything I see says that the odds are tilted in favor of the entrepreneur as a category but remember there's a ton of companies getting started very few of them produce the humongous hits but there will be a big chunk of them that produce pretty good hits so I think I think it's a fantastic time to be an entrepreneur if you have a really great idea and if you're relentless and won't give up that's the key part yeah I'm not I'm not as sure about it I mean I think it's an enormous amount of opportunity out there it says I think Marc Andreessen famous they said software is eating the world so all kinds of industries that before we're not addressable by software now under attack from web companies that was in valley a fantastic asset yeah so I think that part of it is absolutely true are you playing games over here Dave I'm actually trying to Like Tweet and promote your stuff oh good good kid give me live tweeting go father when I was talking to him out there play the hash do I do cnet startup we're broadcasting live plea to please tweet vociferously there you go sorry no problem and I think it's a lot cheaper to start a company these days which is also great but I and I think that's a permanent feature of landscape that's not going away it's going to continue to get cheaper the issues are that there are way too many companies attacking every space so it's highly competitive and that may not change either and it's impossible to recruit so basically if you are starting a company I would encourage people to be a lot more thoughtful about it make sure you're ready make sure you have an incredibly good team don't raise money unless you're going for the gold and you're in for ten years and you're building you're trying to build a gigantic company and realize the failure rate has gone from two and three to like nine and ten so you just have to be much more comfortable if this is we become more like a hollywood-type industry where a few bands and a few movies or winner take all so that's why I'm not I'm not unequivocally saying this is the best time ever to start a company so you just said one it's the best time ever to start don't most good companies come in bad times though in look at the talents crunch now and neers hard to get I do i do think that the best companies really grow consolidate share and take over their markets generally in bad time I think the best returns come from shitty times necessarily invest fair enough that may be a good as companies happen on a regular basis regardless of rest of market like the financing market is not correlated with entrepreneurial innovation you know it might be correlated with a lot more coming to the market so you know the people who really have passion and really have great ideas are probably somewhat constant and you might have a lot more crap in there with it during like big market times and less of that when there's low market times but you know there's entrepreneurs everywhere the one the one part about a bad economy and a tougher financing market is it's harder for your competitors to get funded a lot of times people think oh the goal is to try to get the money and no it's the goal is to try to beat your competitors not just to the money but to the people so you know that that makes a little bit easier in tough markets because the relentless founder who says I will not give up and I will win I've got a really good innovative idea they tend to stick out and shine through a little bit more easily in the bad times so what do you guys look for and if a welcome to answer that one first what do you guys what are you looking for since there's so many so many companies out there these days and you all are looking for slightly different things yeah personally I like to see technology businesses so the value is built in technology and a lot of the innovation layer that's going on today is at the design layer in the application stack which is perfectly valid it's fine but I got in this business I love technology so I love to see companies that are doing hard things and who have entrepreneurs and founders who are well suited matched doing those hard things and hopefully it is or can be a big market so it's kind of to permeate the intersection of those i would say we're probably pretty different than most other traditional VC focus so we're not necessarily looking at big market opportunities we don't necessarily choir IP we're mainly looking for smart people as evidenced by great products so usually our filter is what have you built and so by evaluating products I like to say product is a great mirror to the soul of the team and so looking at product will tell you kind of what can they build what do they envision even if it's shitty right now and give them some insight that's where there were in the future we like stuff that's got simple revenue models so we're not typically going for a growth we're going more for customer problem framework we still do some things that are growth and some things that are you know more fantastic and wild but you know right now kind of looking a lot at education related stuff apps for kids 0 to 10 and moms and families which we think is a big market and wildly underserved most everything we're doing is cap efficient on the building side and hopefully capital efficient on customer acquisition side strong emphasis on online platform so Google for search facebook and twitter for social Android and Apple for mobile early YouTube and video sorry I'm tweeting here so yeah I mean like there's been the sea change and kind of the ability to do customer acquisition online in the last five years that's really just monstrous and frankly I don't think most investors have really understood that or taking advantage of that uh you know my answer has changed over the last year and I think the most important reason why it's changes this might sound cliche are weird but I I remember the day that Steve Jobs died and I said what the am I doing with my life after I have to TM and a loyalty I said like when I was young I really wanted to change the world I want to do cool stuff and on that day I basically said I'm not doing anything unless I think the founders want to change the world and they're compelled psychologically to change the world and I also think it's a good investment strategy because it tends to produce either big or bust and that's the business than on it so it's pretty easy these days to raise small amounts of money right come on even easier next week we hope Jobs Act you're referring to and then we'll get to that in a switch by the way mr. Robert can I had a lot to do with getting that on the right track what about what about the series a crunch people talk about that's your ear field right you do a lot more series a investing you said last week I talked to Georgian that you said like in a 48 hour span you got 70 emails from pitch refer you and you have you had some off-site and there was a whole bunch of emails that had been sent from people you were doing generally then like people started panicking that they weren't you weren't referring you know replying to them in a nanosec yeah I was out last Monday and Tuesday I wouldn't off site and at 70 emails 40 of them were pretty serious summaries a lot of the more seed seeking venture and I just can't I'm not smart enough to consider 70 companies in one day or two days I can't think of that many so you know it took me throughout the rest of the week in the weekend to kind of sort it out but the interesting thing was like the tension in the air is definitely higher so I've gotten some emails on Monday on Wednesday morning I got emails hey i sent you an email Monday wondering if you got the email and there was a lot did you read my email that I sent you no I forgot yeah so that you know that in the reactions that people are giving to me passing have changed you to people say okay thanks for replying i had a couple people who just wrote back and said great you are wrong and I'm going to prove you wrong and like I'm not even saying I'm right I'm just saying I'm not ready to be an investor so there's like I can feel the tension like people are seeing that there's big money available and people are feeling the gravitational pull to the money so it's bringing out kind of the core behavioral characteristics of people and people want money there's nothing wrong with that and so yeah I think calling it a series a crunch tries to create this impression there's less series a capital or there's something nefarious underfoot really what's going on it's just there's seed glut it's not seriously crunch series a is relatively stable to where it has maybe slightly smaller slightly larger depending where you are but there's just a lot more seed and a lot of these seed companies frankly should either be merging joining other seed companies or not raising capital there should be small businesses that are sustainable and grown to their own capital but I think everyone is used the old model of well first you do a seed then you go raise a Series A and I'm not sure that really applies to every company but you know like an Angeles we get a hundred to 150 companies coming in every single day hmm so you know we've got multiples of his problem that we have to deal with and we have even less data to go on because these are much earlier companies and out of that you know we can really only pick and promote one or two like that's it so I think you know seriously crunch is a complete misnomer like you know yes there are a lot more companies getting funded its seed that are going to get funded at series a that's always been the case facto matter is there's probably a lot more series a going on now than there was three five ten years ago well maybe not ten years ago 35 years ago and that's okay I mean like there's a lot of that's going to be crap and shouldn't be funded there's some stuff which is okay and we'll find alternative sources of capital either bootstrap they'll have to charge and make some money or they might find you know seed or crowdfunding and then their stuff that'll be great and like you know goes to larger levels I think what a lot of larger bc's are experiencing is holy there's five times as much deal flow as I ever saw before and I can't keep up with it right and it is true that some of that is going to hit the wall but the entire industry is way way more efficient than it was ten years ago like we are not doing five million dollars into stupid companies that are all like you know shoved into the retail market anymore maybe there's a little of that but there's a lot more scientific process okay we'll give you 50 K to try out your idea prototype if you succeed we'll give you 500 k to go to see if you succeed without in getting distribution or monetization then we'll give you the five million dollar round so the entire industry is way more efficient there's lots more good deals to look at so for large bc's who are whining about series a crunch that's bull and they just need to like follow up and sort of like basically become more efficient and become more scalable because like it's great for them it's great for them to look at more opportunities and well I think the new seed is actually 50k that's the incubator yeah budget and then the new series a is what we call seed today and that should be around 300 to 500 k not even a million like people think it is and the new series they should be a million bucks not three or five million people like people used to so why why do you think those particular numbers I just feel like the costs have come down enough that you can hit the the milestones that used to be associated with seed in series eight in those time frames so you know I did a company in 1999 webspace opinions and it cost us three to five million dollars to really build our first products by Sun serve as an Oracle run our own data center and right around provision scripts and versioning control it was just insane right so today you can do that while you're sitting at fire and startups or YC or TechStars in 10 weeks 25 okay yeah and so it's the same milestone so that's what eight to me that you seen drowned really is and just you know people being what they are it's like sticky wages right we haven't quite adjusted to the idea yet that those are the new checkpoints and if you defined it that way if you said a series a is half a million or a million dollars then there is no series a scrunch there are lots of series days being done right so why is there mania in the air then I think you know the public market has been on fire since the fall people have forgotten about kind of a major kind of macro headwind issues which are getting worked out but slowly those are two of the reasons you know in the millennial IPO I asked the bankers on Tuesday what a level of oversubscription is the book and I thought they would tell me the book is the order book for shares and I thought they would tell me like 5x and they said it's 26 x and I never said they're lying to me there's no way it's 26 x but it was dead they sold 10 million shares there's 260 million on the book and I asked them why are why and they said it's a hot market now what they didn't tell me why shouldn't they price it up if it's over 20 years ago this is what I what I discovered through the whole process is the investment banks customers are not me the investor or the start up there the mutual funds right so they have the mutual funds will buy will have relationships with the banks and they'll buy the good and the bad not that bad but some of the bad so they're basically given their customers some advanced profit if you call it that and today there was a bunch of griping at the company at millenia like man we could raise 260 million said 130 million and get screwed or a stogie guys place it's still absolutely no if you want to look at it from macro down you would just say that the global markets are washed with liquidity because every central bank in the world is now printing huge amounts of money and that money has nowhere to go and Silicon Valley it seems like an efficient allocator but can only handle a very small amount market seeking growth right when I chocolate ibly store relatively speaking it looks a lot better than real estate or financial services I mean if you pump 5 billion dollars into seed investing just think about how many companies that fund oh wait that's probably what we have today right it just blows the whole market in two you know five exercise it was before it was interesting the questions the bankers ask because I was in some of the road shoes meetings they're like okay so what's Eggman you're in like I'm mobile mobile check it's like what do you do you breathe air yes I get it we're the second biggest global ad network to Google ok done we're buying ten percent person how old is that company five years six years well involve what do you say takes ten years I think it takes ten years to build a great company an average there's always exceptions and outliers I mean you can always find exception to anything but I think it takes roughly from what I've seen for your average good company not bubble environment not writing something ridiculous way if it takes five years to even get to the point where you're acquirable or you have a solid business and then you usually have to stick it out for another five years until you can go public but i think it's you than that but if you hit a good IPO window I don't I'm you know I've got another rule thats related which is from the moment like you as an entrepreneur decide you wanna start a company it always takes about a year even though you think like I want to start a company next month right usually doesn't happen to buy the right person there's false starts there's bad ideas there's just a certain natural latency to these things so give an example if the number drops if it takes five years to build a company so many people enter the market and get so competitive it takes ten years ago the company again so I just think there's a there's a natural pain threshold below which you know too many people will show up and it just gets arbitrage that's capitalism you know I mean I have a different opinion which i think you know building a decent product takes one to three years building a decent company takes three to five years and I think you know I'm not defining building a great company as something that has to be IP oval so yeah it's a different definition I mean I'm talking like the kinds that George did he wants to invest you're just looking at change companies that's the kind that our LP say either invest in this or I won't find you George would you like to be an investor in twilio and wildfire for sure and both of those companies are less than five years old yeah and I certainly think that both of them could be IPO candidates obviously I'm pitching but I think it'll be I think you got Dave how many do you invest in a hundred 250 a year okay and so how many will be I'm hoping about 125 a year will look like those that's why I invested 100 could be clear when I thought I'm not gambling i'm doing a quantitative model that looks pretty predictable from my perspective if i'm aiming for 50 to 250 million size exits and occasionally i'll see you know north of 250 million dollar stories and so do you look at companies and think and try to sync already where the eggs it might be no i mean i don't actually i would say i didn't think it's really thoughtful and smart about that he's like great about sort of like you know when he's thinking about the investment he's already kind of like try division like who needs this how does it go and i will probably try and learn more from him I think about who's the customer right will someone use this will someone pay for this and I almost like smaller markets because there's less competition like we can make money on 25 to 50 million dollar exits that's not where I really wanted to end up but you know I think it's actually much easier if let's say I've got two choices right I'm building a product for women right or I'm building a product for moms 25 to 35 in urban segments with one or two kids who own a car right do you think you can build a more targeted product for this market or this market how many women are 25 to 35 with two kids in urban markets with a car well still a right so like if I can have less competition and build a more targeted product in this market and make money at it well he'll like go build that product it's easier right I don't need to build a product for like 50 million women to like you know go IPO I can build it very reasonable you know I'm thinking as the entrepreneur right now but also as the investor and so actually I think what's happened is the Internet has made us be able to be more focused on varies niche markets specific customers and we can build better things because of that and you know yes there will be large companies and there are still like great opportunities to find the next let's not say Facebook but let's say I don't know next mint com or mix you know other you know niche product that is still a big win but you know I think as an entrepreneur like you I think we we suffer from this disease in silicon valley which is unless you're a billion-dollar exit you're not a good company right and there's plenty of great companies that are doing meaningful world changing things on a smaller scale that will be 25 to 250 million dollars yeah the reason that happens is this because the nature of the venture market which is the only liquidity really that makes a difference to a venture fund as an IPO or a large act that yeah the problem with as an angel is even if you want to invest in a smaller company you know that the most common problem with companies is no matter what they're going after the run out of cash and they need more cash and then they go to the VC the VC said no it's not going to be big enough right so you end up working backwards and even the Angels end up only funding companies at RVC scale and that is a fundamental issue with the market and the way the funding market is set up in the exit the markets are set up and I think some of those are starting be solved by kickstarter and crowdfunding might help with those and things of that nature but i think the exit side of the market is also an issue right so the problem what i would have with like the smaller exit is I need to find buyers right I can't take these companies public and so in order to get liquidity we have to find buyers and I think that market will change in the next two or five years as well as yeah as you can party under attack they're gonna be buying a lot more of these smaller companies one would hope yeah well I think like things like second market will also provide liquidity earlier for those countries what do you think of those platforms big fan so I'm an investor in cap leg I'm a big fan of angela's we're invested in a company called trusted insight which is basically doing angel list at one level up for institutional investors there's another reason why I think Barry is awesome but i think you know markets got to be more efficient and the only reason we can't be bringing IPO size things down is because right now there's too many regulatory environments around retail investors so i think the reason you're seeing second market and other things come about is if you exclude the retail market investor and drop a lot of the regulatory hassle that is in place as a result of protecting the retail investor there's a lot of other alternative you know sources of capital and buyers and so you know yeah second markets going to exist for things that are 50 200 million dollar market cap and up and that's a lot of companies a lot of companies are that size and not IPO sighs and that provides greater capital efficiency for the market so what about crowdfunding what's it going to mean the tough ones with to who yeah for people trying to raise money who should use it what kind of platforms might exist how useful was a lot more crap well a lot of a dependent how it's going to be structured the if you read the bill that actually passed was a Senate amended version of the crowd funding bill it leaves a lot to the rulemaking the SEC and the SC's got at least nine months possibly more to figure it out and so it's going to be a lot of periods of holding and comments and reviews and conferencing and so on back and forth and back and forth and it could work out to the point where every soakin value company may want to raise a couple 100 k additional crowdfunding or it may be poison pill and you can't touch it because the liability and fraud potential is too high and it degenerates into nothing so it's anybody who tells you exactly how it's going to work out know something about what the SC is going to do that I don't know tell me more about angel I'm sorry going David say isn't the current way that they were drafting law that you have they're going to say yes but it has requires regulatory approval for every Kickstarter or angel list or somebody else that wants to write so it's actually quite complex and probably over the it's a little too over here but its image NECC regulated platform you're going to be a fun the fundraising platforms are like lighter broker-dealers we can think about them they have to be registered the companies that go on there have to have audited financials there are specific liability provisions around omissions and fraud how do they try to enjoy before yes there are exactly there are quite severe liability provisions around the disclosure of information there are restrictions and the platform's a bit of curate and market there are huge caps and who can participate for how much and the investors who come on require training schedule oh wait for you to say the first a lot in there let's Clea I don't want to go into a regulatory I mean like I think only five people in the world I've actually read that bill everybody has an opinion on it I have there so few that's right well you know that's that's just the case is all lot of stuff is very complicated um tell us about angel list how with as Dave said more crap coming how with so many investors out there how do you keep it so that it's it's not overrun yeah you know we curate quite heavily everything gets a listing on angels but not everything gets noticed right because it just collapse into the into the noise so we do highlight you know sort of the best stuff and the community how that's the best stuff through what it likes and what its associated with we have definitely raised the curation bar the market itself moves very quickly so you know two years ago a group on clone was fundable then you know 22 months ago became unfun double and then 20 months ago a mobile app with no users was fundable and then 18 months ago it became unfun dab'll and so just the bar in the entire market keeps moving up and we raised the bar quite a bit to this point where I think right now will probably send out you know three to five companies a week whereas there's a time and we're sending out three a day and we just think that you know we realized the other day what investors look to us for is actually keeping a high bar kind of looking for more deals to George's point they're looking for signal not noise right they want another good deals yeah exactly right i mean i would say easily like I've said before Angeles is like the most significant thing that's happened in Silicon Valley in the last five to ten years for sure you know Paul Graham starting YC or building the modern incubator model I think was the first leg thing well Josh I think did a lot of stuff just got them did a lot of stuff refresh or capital George has done a lot of stuff with quick start right but likewise he really changed the model dramatically and I think Angeles is changing the model dramatic because incubators in the 90s we're like oh we give you space and we take it's our idea and we take forty percent I or 60 yeah yeah yeah unfortunately from a in entrepreneurs perspective what mistakes do you see most do they ask for too much money do they ask for not enough money do they raise money to early on do they go to the wrong incubator / accelerator do they yes yes yes yes yes okay if the list of mistakes is the list of mistakes as well whose turn that off thank you sorry go on the list makes is quite long um where to start is the yeah it's a long list so I actually know what they do right it's funny because when these guys were going through the criteria or especially Dave wasn't like what he wants to invest in I realized like you know I don't have a formula or model like that I probably looked at more deals now than anybody on the planet right we've got we've got 30,000 deals on easels I've put in screen by eight thousand of them the rest of skimmed and you know there's no pattern matching because there's just too much variance each one is unique and so what ends up happening is you you start looking for two things one is surprised me give me something exceptional excite me somehow cuz you get very jaded very fast all right exactly some truly something I haven't seen before that was different right and then the yeah that was a basically a bunch of hackers who used to be farmers in Croatia who had you know we're hacking software for farmers was incredible we saw it on Angeles Dave found if the range of lifestyle this as a seat here and now it's a hot deal that just got done by a bunch of big investors but anyway so so the first all of that path everybody house farmers in Croatia found on Angeles funded in America what a country but actually very but now there are multiple forming yes it's crowded I see that a farming community farmers at YC who knew farming's hot so first I would say the first thing is like surprised me and the second thing is bringing it back to what George was just saying is don't screw up and most companies screw something up and you can catch it in even an angel this profile oh okay all right that's what you screwed up okay you've brought us some examples or get used to screwing up fast and yeah I'll just might not I'll give you like I can go all day right okay I've got a better questions tech company too many business founders visionaries you know no product you know just a product that you could have built in the time it took you to build the PowerPoint instead right you know long a business yet too long a business plan a tiny tiny market niche market to be extra way bad location like you're in tulsa oklahoma and we're staying here right founders are clearly not ready to go right they have no real experience in space nor do they have anything that shows that they have the experience in the space a long cycle time on product long cycle town bad looking product bragging about minor accomplishments right burying major accomplishment can't invince anybody else to join them okay yeah rambling five-minute video it's this goes on and on and on you know or that yet and then they think they can fool us right so they'll do like cumulative traction graphs like come on you know we look at say do these a day downloads and users going up over time yeah linear rise that mean yeah actually your attraction is constant and not increasing alright but companies that have good ideas good team seemed promising how do they figure out how much money to ask for or to look for and when did it what kind of mistakes do they make on that front because I hear this all the time so I mean what you're actually talking about is the pitch and I think people yeah overemphasize the importance of the pitch they obsess over the picture that vision chart right yeah it's like what's the most important their attractions yeah so in my world like its traction team you know market products social proof that a down somewhere at the bottom is the pitch right and the if you have a great team and you're building a great product and you're going after something big you will get notice you will get found even some of the best profiles we pull out an angel list they like you have like one team members bio you have a slight description you have one graph and you have one link to the product and we're like oh that's good all right and we will email them to fill it out like come back and complete it you know we'll get you investors and all that stuff but you don't the pitch is highly highly overrated oh that I think we also see the opposite thing is now there actually is a lot of good resources and producing a great pitch one of which I've done and now we're seeing like wow a lot of pitches are starting to look pretty good but I'm not sure though they don't all sound the same you go to one of these demo days and they all get up and they all have their practice formula hello we are the that's not how you really talk it's voice hello we're about to conquer a huge market it's like I'm in dirt attraction is overwhelming Spacely sprockets yeah i think if YCS done one thing wrong is they've shellacked all the founders into being identical clones who all present the same way and I actually kind of want to hear the rawness of the person because the rawness of the person is the way that I actually connect to them and flex an insight versus you know someone who's clearly never presented before basically just like acting yeah and I can't connect to the founder I kind of want to hear it the good the bad there's the direction here yeah acting so yeah action um facebook when's it go in public and what does it mean for starters soon marks in China and Japan doing the IPO book so what do you guess my time I think well I don't think he's in Shanghai visiting his with his girlfriend's family about two weeks before they're gonna go IPO so that's probably not why he's in China kidding it's just a few weeks away I i'm guessing weeks to single month yeah i think it's a late April or May and when we were doing the millennial IPO the bankers are the same as Facebook and they said we got to get this done by the end of March I said why the end of March they said we got a lot of other stuff we gather you hear me like wonder what they're talking about very good well son second market it's it's not trading about a hundred million I think they stopped it right no no no still trades yeah then click cleared sixty thousand shares last week yeah okay no it's still trading and it's trading at about a hundred billion and I think at this point I heard it's loading the whole market up no no it is I got the reports today that's probably true it's still training we can ask Barry probably can't see anything but yeah I mean I think the rest of the Republic you wanted to do for everyone else does it increase the mania does it increase the panic of the email list evaluation probably cross the pond my card how so that's such a bigger fire but I just meant for other companies the rest of the market feels like Oh everything does it increase valuation for companies that you didn't uh no probably helps us with our company's getting valuation probably hurts us in terms of valuation for new investments that we're doing it's good for probably good for entrepreneurs I know I mean they're gonna have a huge currency to buy things with Randy's gonna motivate other buyers but they're not regular buyers there is a very anti acquisition and when they do do acquisitions or small acquisitions and attention and they tend to screw the investors in the acquisitions right they will move most of what do you mean the ball well they'll move most the smart acquires all do this now for the Aqua hires were you basically but i don't think that smart acquire screwing investors is actually smart okay like the clever right the clever acquire thing are moving most the acquisition price into the package for the team and the investors get their money back maybe with interest if they're lucky yeah so I've seen a lot of investors look at Google and other folks are watching that might work for individual angel investors for those of us who are basically producing hundreds of companies on nao basis note for the record that will not work thank you um I think the smart investors not starting to do multiples on the exits on the notes to cover for that do we have a microphone i want to get questions if people have questions and also i want to know if any other predictions I want to know what you guys think the world looks like a year from now or is very very interesting well I think International is way underrated that's where the opportunities are on his investor there are so many good companies internationally that are starving for good investors that that is little that is Pinterest and Facebook I don't know probably yeah yeah I heard anyway from 11 to 16 million weeks last month questions growing fast and just announce yourself cream a que tu mp3 in the next great crew in Silicon Valley the web be through what do you guys see is the next evolution of companies is it's more efficient seeing less cost in black swans do you see people being able to build cash cows that also scale like that inefficiently or is there something else that that the people are building or you think is the next model that I'll avoid actually I think a lot of the IPO constraints and twisting of this market because there's constraints on growth and scale and profitability that the needs of the big animal at the top which if we can get around it were crowdfunding we don't just need them anymore they need to go away so what's hot and what's the question okay okay we got it yeah yep so there's a lot of things which are trendy these days and I would stay say still that social games and photos and to some extent deal buying sites and by the time you get spotted trend is too late yeah right I think education and like families are highly underrated and very underserved I think that market is huge and very monetizable everyone's overeducated overeducated to recommended i mean the don't go to college camp oh yeah but that's why I think it's great to do education startups yeah I used to be in software and now i've i've been working on gene technology to treat aging and i'm hoping to try and get no no jeans you know your jeans that made you and i'm hoping to do something disruptive there but that funding system is very clubby very old world and it's it's really really difficult so one of the reasons I came here was to see if there could be some possibility of getting people interested in that kind of a thing so we'd only without talking about you at your companies but the question is other other kind of funding models for your kind of business yeah for for for things that are you could say leading-edge drugs or leading-edge therapies there's a large capex then it's probably still the same sources if the capital requirements for those businesses have changed or are changing then maybe there's there's tremendous technology and adoption and and called a regulatory risk in those businesses and so they still tend to work very much like they used to work before and so you have to get through the technology risk for an investor by surrounding yourself with incredible advisers University researchers validation and so it there's no shortcut in that industry for building up the credibility around you that will then get an investor to take the risk and unfortunately there's no shortcuts on that one I mean it's it's gotten a little better but now I can do that i mean i can write no I think that's great and but I don't like we've put a few biotech companies up on Angeles and some of them have done well but usually they come in with like you know 5 Stanford researchers attach the father of this is you know vouches for it whitepapers so they just need to have that technical validation because we can't do that and even most the investors won't even spend the time unless they feel like there's a lot of technical validation around it up here good Nick so this questions for a new vol not to like put you on the spot here but as one of the five people who's read this bill or at least attempted to I tried finding the latest version I couldn't find it but because there's so many versions of this but are you guys definitively positioning yourselves to try and actually get through this process because I know all the investors I speak with perceive so and so are you going to step through all of these you know bureaucratic steps in order to I mean I think it's an open question so we're definitely looking at it we're definitely engaged on it I don't know if we'll go there I think will only end up doing it if we feel we can do it for high quality companies and high quality companies will want to use it and if we can do it with a lot of fraud prevention and checks in place and sorry about Angeles actually becoming a crowdfunding site yeah and so and are you concerned in any way that there's like this you know race to capture the market but because I see there's literally like a hundred of these startups now that are trying to that have positioned themselves for this marketplace so do you think that the what are your thoughts on them every market is competitive all right back there the Vols extremely well-positioned I don't think there's a race there may be a race but it's a fool's race if that's what's happening I mean it so this goes back to I think at the end of day when you're building a company you're always going to have massive competition in anything worth doing in fact the people who say we have no competition those the people you don't have fun because they're in some niche market and so what's much more important is execution capability and understanding and so I think we have as good an hour standing of anyone and I think we have incredible execution capability anyone who hangs out an angel this knows how fast we execute so I'm not concerned about our ability to do it all these people who are clamoring about it you know sure back there you talked earlier about the pitch can you talk about the quality average quality of the pitch and if you can compare it if there is a comparison to the days just before the bubble burst back in two thousand when you know as we recall prices of everything we're going to the moon and people were crazy ideas definitely much better than then it was back then I was around that bubble and I was pitching during that fellow think it's definitely a lot better than it was back then you know there's a someone tweeted and I kind of maybe I misquoting him but I was great he said every bubble ends with someone trying to ship pet food across the country and we're starting to get small variations calm bought it wait wrote it all the way to you know it's funny commit there now all these X in a box companies that was your article in start-up stats right you guys wrote it and I thought it was a brilliant article and you didn't make the obvious reference to dick in a box to the YouTube the BSR night live skit but blank number right right is a sudden that life's get around it this gentleman over here right back to your comment on international what is your perspective on sort of VC and private equity in the ad Asian markets a lot of good ideas India Thailand these markets are clearly starved underdeveloped so what is your outlook and how do you do the due diligence process so we're actually modestly active in Asia right now I've done about 15 or 20 deals across China Japan Singapore India Australia I think India is a huge market I think Southeast Asia and particularly Indonesia is a pretty big market Indonesia is not terribly monetizable right now but that will change over time China's big market with a lot of complexity Japan's an underrated market extremely developed and great if you know what you're doing and not a lot of local encouragement of entrepreneurship strangely so we're actually extremely bullish on Japan okay my wife's Japanese what so I actually think the funding markets develop backwards you get your mezzanine investors first and you're seriously see then your B then you're a then your angel than your incubator and so that's the bad news internationally it means like someone angel invest in your company you're gonna get stranded around a cash because there's no series a investor to fund you so I think the logical model is for companies to get a little bit of traction internationally establish an officer office here and then make sure you have a foot hole here for your full funding cycle but continue to attack your remote market and I think that model work George are you involved overseas no I I won't find anything outside the US the reason there's only one reason it's not that I'm a u.s. centrist mr. in one company overseas yeah we are but I personally which might won't do it because of two main factors one is millennium haltom or Lenny was a Baltimore back that's almost I thought Alan who's the founders in Canada okay so like the main reason is if I take a day off of two days to travel somewhere I miss all those emails all these emails and all those people trying to get all the main meetings I don't want to do that the second reason which is actually the most important to me is I have young kids and I'm I try to be there every night to put them to sleep and tonight I'm not there watching them a live streaming and that's really important to me so that's why I don't do things you didn't do you guys he do to this is one of the challenges are instead not a challenge it's not easy to the problem is most do dogs as people diligence and especially in place like China where they're running one set of books for government one for the investors in one real set of books you have to be a local player otherwise you're not going to figure it out so it's probably gonna happen with people establishing cross-boundary trust right like I trust this angel in China because he used to work here and was a friend of mine he invest in a company then he vouches for them and I can do the age these trust gossip networks have to be extended out far enough we've hired a woman in Brazil who's actually spending half time here half time she's Brazilian where several slippers yeah we're having someone in India I mean I think you have to feed on the streets you have to have local cultural fluency language fluency you have to develop mentor networks you have to develop angel networks I mean I think the first fund that figures out how to do full cycle cross-border investing is going to make a killing but it's a really hard problem yeah but I be done one country at a time let's move opportunities definitely there is that you don't care about international very much this is a really interesting salary we should spend more time and I just want our quick thanks thanks guys appreciate it it went over here yeah I'm wondering if you guys have some perspective on the upcoming Facebook IPO and on the facebooks gonna go public they're gonna make a load of money we all use it okay like that's it we don't need to like talk multiple times though I'm asking hear me out my question is is if the pricing and aftermarket performance of the facebook IPO might set the tone for future funding valuations for companies down the road yeah maybe it's a factor next Facebook's a big-ass company they're doing really well they're going to make a lot of money I think Dave should have invested that didn't go okay um I used to work for the guys who was one of the biggest investors but what Alaric over a long time line the venture business on average barely makes money or loses money depending on whose statue listen to this because that means for every 10 or 20 or 30 billion made in the facebook IPO it gets reinvested in a frenzy and to start off lost different I keep that in mind right well yeah that's the effect I mean I think Facebook is distorting what's going on like Facebook is this once in a decade really big business that makes a small number of people a large amount of money and the actual trend is venture is getting a little bit more scientific we're getting smart about this business and it's easier to create 25 to 50 million dollar businesses with regularity like that's what's really interesting and what's going on and why it's changing the dynamics because it's actually harder for large funds to make money now because it's easier for entrepreneurs to exit early they own more of their companies they're more efficient about it like that's what's cool and like crowdfunding is challenging seed investors seed investors are challenging around investors around investors are challenging fear on investors like there's efficiency throughout the whole system that's going on facebook this big anomaly that is more the old world not the new world yeah so that's the most interesting yeah people keep talking about the facebook but like okay how many people here are really still obsessive users of facebook or have moved on to something else see how it yeah from from over facebook you heard of here it's not it's not over but it's gone so morning face blah it's got facebook has gone so mainstream that I think most people here have moved on to a Twitter or Pinterest or whatever but we're thorough edge yeah I get it but that's what saying I don't think Facebook is that interesting to talk about here you know like it's not on the edge anymore okay next okay um my name is Elias I'm owner of a newly started app company called absinthe media based out of Oakland and we created a generative music system and we were able to leverage interest from a lot of people that kind of we got us in a position now where we have a little bit of capital that we can either a invest into trying to lawyer up and do the patent thing or just actually develop it in pushing the product if forward develop know so I just kind of want to know what what the take is on that and I a to promote okay sue points I want to spend a little bit of money on provisional patents fine develop develop you cannot cost these guys afterwards about no develop gonna cost me I'm gonna say that one way if you fail to build an interesting company the patents might be worth something when you're trying to sell okay come on Tuesday another this that's just build run at a time startup checking out monetize patents do you have on over here mr. google actually have a question first yeah I'm sorry I norisse good evening gentlemen my name is William Clements I actually have a two-part question just looking at how most startups are focusing on sort of consumers are to be deceived model do you feel that there's still more opportunity for growth and for success in that particular party industry or should be turning more so to be to be tied businesses or enterprise sort of enterprise clients what problems do you have what customers do you know yeah I see I hate these questions because it implies that you're so flexible that you could do one or the other and like it just doesn't work that way either you really love something know your market or passionate about it have a product in mind or you're not ready you know you shouldn't be that flexible give a oh this is not about me being flexible this is more about evaluate opportunities for example when we look at most of the startups right now they're usually it's a consumer applications for a consumer consumption you can make putting in areas yeah you make so I called the public that you have in georges georges three claims to France recently our Twitter Yammer and millennial and one of those have in common nothing right ones an enterprise software one's a consumer and one's a mobile ad you know there's a completely different so I think you can make money anywhere have to do people using the Internet yeah good starting place right over here second question with our second but yes that with regards to looking at starts that you're looking to evaluate how sophisticated of a monetization strategy or product rudiment are you looking for them to have in order to take them seriously you want to business model I don't need on at the beginning but I would like to know like what's the product what does it do and who is it valuable to that's kind of what I need at the beginning we like to fund things that are simple in revenue model either transactional subscription or affiliate driven but more important is is their customers there a problem or is there a strong desire and like problem desire proxy for future monetization so if that's clear I don't need to know how you're making money for the find me and nany for my you know yeah mom like that's going to make money someone one thing I've learned is that if you have some nagging hunch that you haven't figured something out about your business model when you start a company you'll never figure it out like usually the good entrepreneurs already know where they can make money way down the road now it might require they have to hit media scale and hit 100 million users but they know that it will make money at that point at the end game so you guys touched a pound how education is a bubble kind of this theme that Peter Thiel I don't throw us out he said that yeah I so I understand how that kind of works but I think it's a bit myopic because I don't think everyone can be an entrepreneur how do you think this will work for the ninety percent or whatever percent who don't want to be entrepreneurs do you think higher education particularly or higher education um yeah what do you think he'll go do you think there's room in the government or do you think this will okay and i just think higher education has set up as a scam right it's a it's a brand based on network effect so everyone has to call it go to college because you won't hire anyone who didn't go to college so who has to go to college the college is figure that out to raise prices five seven percent every year with no end in sight and smell like a talk to your VC though no but looks like no I think I think it'll get replaced by be lower valuations five to seven percent of you know it'll get so so what's going to happen is obvious which is what is a college education they'll start getting be based because university of phoenix or whatever you go online you get accreditation you take self courses and eventually we will route around this brand based monopoly of the college system is set up that's a long thing i believe mark injuries and he thinks all these schools will be totally global and that you can you know people in cambodia will be getting there might I've even I'm MIT degrees on their smartphones I think it's going to happen I I funded a company called Udacity which is one of the faster-growing online universities and one of the co-founders was a professor at Stanford and he took threw me through a model which basically show that seventy-five percent of the cost of a Stanford degree has nothing to do with getting an education yeah it's real estate its facilities it's admin and it's about the admin hiring admin in fact I've seen the emails which is inside a Stanford they're hiring admin to sport more admin so they qualifies a non-profit it's it's huge profit for the people running it it's not a non-profit so you know I think one of the awesome things with Udacity the other competitors are we can educate the world's population if that's something I can do with my life and back those people that's that is great that is so inspiring to me to change people's eyes and we have emails from people all over the world saying thank you so much like I've never had a company where the the user reaction was that positive and like if I get to do this as a job fun people to do that that's my dream I hope in my lifetime will see people able to take a test and just get a college degree like you just take the test like yeah you're good enough you got it here you know higher education itself I mean I tend to agree with with Peter that it's mostly both like I really think you know well we funded the company called university now that I think can do some interesting things at a broad-based level and like trying to make that efficient and less costly and make that available online globally is important but I think the way more interesting part of the education market is kids 027 maybe up to 10 or 12 like that's where you actually do real learning meaningful e-learning and then like 12 or older it should probably be vocationally oriented we're like at least at least in most parts of the world it actually raises your living like I things that are important to do or try and figure out like prenatal health care and education at zero to three three to six and you've solved eighty percent of the problems if you do it before the age of six I I just really say thank you for Udacity I love the products Franklin listen I have a quick question that a couple people emailed me about which is that they're concerned about being over 45 or 50 I wanted to start something I better not start something keep your eye on and it started the fun when I was 44 no seriously will you fund guys who are or women who were older oh yeah we have yeah assuming that they can they're active and they have a lot of energy to put into a start-up that's part of it I'm 38 I'm gonna start up I hope I'm fundable I can use either big question of your right here can you talk about besides the obvious situated in terms of your actual capital investment for on entrepreneurs what else are you bringing or do you bring to the table for that entrepreneur it's a good question when I mean does for an entrepreneur what should they look at other than just the cash I bring nothing oh come on you bring a lot over time so I mean I think that's where again there's real opportunity for innovation so we're trying to bring design and usability services on staff we're trying to add distribution services on our stuff trying to have distribution internationally as part of that I think there's it's interesting how many large VCS are not reinvesting in infrastructure and resources i think andreessen horowitz is like to that reducing orbits does a really like interesting model where there times over surrounded that's it and first rounds done that I think you know there's some other smaller folks doing some interesting stuff but not too many so that's the interesting innovation the venture business which is that the incubators are building infrastructure to help their companies as opposed to this trying to help them with advice and I separated out smart money and dumb money not based on the value they add because if a board member can walk in one day a month and you know teach you stuff about your business then you're not good enough to back and you need to go back and learn more so with that was board seats are highly overrated no no that's not it at all so to me what board seats are about is about investor supporting the entrepreneur so really smart money which is dumb money is when you get in trouble will this investor back you you know bail you out believe in you take you the next round or they going to hassle you harass you make your life miserable and and if I'm selecting investor to sit on my board I care far more about supportiveness that about value then but you know intellectual value add I'm not looking for my board member to come and solve math problems for me which is I think sometimes how a lot of entrepreneurs tend to approach their investors to think is too silly ya can't chemistry with the investor is what the person on your board is critical if you don't have good chemistry do not take their capital completely just like anything else in life you know I'm good chemistry the person do not get involved in whatever way you do not have a smart jerk on your board you will regret it because they will screw you and they'll be really good at it cuz they're smart I think there's there's a ton of specialization and innovation to happen in venture and I think we're seeing that right now so I think you're seeing incubators sort of morph into like health care focus education-focused tech-focused platform focus I think you know that's a good thing that actually is the natural evolution and I think there are some large and innovative VCS which are experimenting with the model in interesting ways time for one more sure so in the whole online internet space the playing field is really level right now and SOPA and PIPA have kind of died down a little bit but the telecoms and media companies are going to keep trying to make it you know either pay to play or fighting against net neutrality do you guys feel any responsibility as kind of figure heads or should there be more cooperative lobbying effort to kind of stave off these kind of attacks on something that could really hurt this entire industry so you know I've spent some time in DC recently and evangelist we we definitely were vocal against SOPA and PIPA and we ran some campaigns and we were very active on the job Zack and I can tell you that DC now knows Silicon Valley exists and because we've got money and they want it well we've got money we've got a voice and I think they're definitely paying attention I don't think so advised that organized because by nature we're all sort of individuals and you know we all like to do our own thing and compete and all that so we're not going to we're not oligopoly like the NPA or the RA we're going to band together and have a carbon lobbying effort and I think it's silly to even try I see all these grassroots efforts they like combine Silicon Valley let's get together and this just doesn't work it's not in our nature but what I think we could do is we can build a few internet scale tools and scorecards and tracking systems that allow us to project the voice of millions very quickly and very easily and I think that's all we need and I think and actually think startups will do that I think there are smart startups that will figure out how to project the silicon value voice and they will figure out how to get paid for it beyond beyond Twitter beyond Twitter yeah cuz Twitter doesn't aggregate Twitter doesn't unify so here's an example I think it would be amazing if someone built an iphone app that if you are a representative and by the way all the reps are on Twitter or all the Senators on twitter and you can get up and you can say okay what am I constitu think of this bill in this issue and it tweets out and it goes to all your constituents and then they answer and then automatically adjust for their demographics like okay based on people here district they live here geo location map map here's the votes fifty-seven percent of people here district want you to vote on this bill I think the simple app alone would change the world I've talked to the House Majority Whip and he said eat it up tomorrow and you force all the Republicans to adopt it right so someone's it's just waiting to be built I think if your investment company called loaders and it's doing something like that but there's several companies doing basically campaign electoral sort of aggregation I think yet so I think soaked in valley yes we should be vigilant but we're better off now than we were before I think we're at a time thank you all so much you heard it here first Facebook is a fad and don't work with smart jerks do not quote me on that