This past week I was invited to spend my Spring Break in Silicon Valley meeting with startups founded or connected with NC State alumni. Here's a short description of each visit and my takeaways.
One of my favorite things about the Valley was a culture of people that were not afraid to take risks. Whether it's starting or investing in a company, most people have experienced the benefits of taking a big risk before and having it pay off, so they're willing to do it again. This leads to a virtuous cycle of companies that succeed and grow, creating vast amounts of wealth which are then reinvested in new companies. As such, there doesn't seem to be a better place to fund your startup than Silicon Valley.
Another trait I found among the people I spoke with was even though some people were quite wealthy, they were more focused on starting new ventures than extravagant displays of wealth. Money out in the Valley seems to be viewed primarily as a vehicle to fund your next venture, with little intrinsic value in and of itself.
At Google, we met with Thushan, an NC State graduate who started Launchpad Toys. This company created Toontastic and Telestory, products aimed at teaching kids the fundamentals of storytelling using technology. The company was acquired by Google in 2015, which was a bit of an adjustment for Thushan and his team. Going from a small team of less than 20 to an organization of close to 50,000 people is a bit of a shock. On one hand, Google has provided Thushan and his team with great resources to continue advancing his goal of empowering kids through storytelling. On the other hand, you lose some degree of autonomy.
Thushan advocated for mission-driven teams, explaining that it becomes easier to settle internal arguments if you all share a common mission. In fact, he believes friction is a good thing; provided the friction doesn't excessively curtail the speed of development, the product generally comes out smoother as a result of the friction along the way.
One big lesson that Thushan shared with us was the importance of good user interface and experience design. Specifically, he was designing an app for kids and had to do a lot of user testing in order to guide kids to use the app as it was intended. The biggest thing he learned is that if you are trying to guide a user through a process, the next action should be the only action on the screen. His example was showing us the many iterations in which it took to find the optimal place for the "Start" button.
Thushan's advice: When you start to notice yourself getting comfortable with something, find a way to push yourself back out of your comfort zone - whether by a new position or a challenging goal at your current position.
Unfortunately, our visit to Facebook wasn't much more than a tour of the campus. I have to say the campus was quite impressive, however. It felt like a small town, equipped with all sorts of perks for the employees (like free ice-cream!).
We met with Blue Jeans, a company founded by an NC State graduate, who provides video conferencing solutions for businesses. They're a later stage startup, having raised a $76.5M Series E round in September 2015. Ted Tracy, their VP of Engineering, spoke about his experience living in Silicon Valley and some of the cultural trends which have challenged their company. Namely, he spoke about millennials' tendency to jump from company to company every two years in order to elevate their personal career. This leads to a challenge in being able to hire and retain top talent, although it seems like most of the Valley is generally accepting of this behavior.
An NC State alumnus, Saket, was on the founding team at Pearl and he met with us to share the story for how Pearl was started. If you're not familiar with Pearl, they're a consumer electronics company who designs aftermarket tech products for the automobile industry.
They basically noticed that the auto industry does not follow Moore's law; the pace of change and innovation for automobiles is much slower. This is a combination of the fact that purchase cycles for a car are very long compared to other tech industries, and even new cars rolling off the production lines are equipped with three-year-old technology due to a lengthy production time. This results in simple technology features, such as backup cameras and adaptive cruise control, to be found lacking in many cars. Pearl aims to provide these new features as an aftermarket add-on to your existing car.
I have to say, visiting Pearl felt very Apple-esque. The company has a strong design core and continues Apple's tradition of attention to detail in developing high-quality products. Where the company differs is its open culture, which is a stark contrast to Apple's need-to-know culture. There's a good write-up on the cultural differences between the companies in the NY Times.
Pearl has been able to raise a considerable amount of money for a seemingly simple product; needless to say, they're skilled at VC funding. Saket shared with us a few tips for when it comes to raising money from VCs. His biggest piece of advice? Do your research. Figure out who your investor is, grab coffee and have a casual conversation about your idea first, get intelligence from peers on the investor, and when you do pitch - tailor each pitch deck to the individual. He also mentioned that it's important to consider whether the investor you're pitching to will be able to afford to continue investing in future rounds, something known as "dry powder", so their equity isn't diluted.
Saket's advice: There's many different paths to a startup. Many people start a company right out of school. Pearl's founders worked first, at Apple, and got the opportunity to learn a lot about product development and scale-up, develop vendor relationships, and network with Apple's talented workforce before leaving to start their own company. Each path has its benefits.
Credence was one of the smaller startups we visited, having just closed their Series A funding round in September 2016. Their product is a preloaded syringe in which the needle retracts after use to prevent needle sticks and improper reuse. Apparently, nurses can accidentally prick themselves with a used needle when moving around in a frantic hospital environment. This is very dangerous because the nurse is not sure whether or not they might have contracted a disease from the needle stick, and so they must be taken out of circulation and spend 6 months testing for all of the potential diseases they might have possibly acquired from the needle stick; it goes without saying this is an expensive outcome for hospitals. By retracting the needle inside the syringe after use, they're also able to prevent improper reuse of needles - for example, by drug addicts who found a way into the hospital's trash and took used syringes.
We met with Jeff Tillack at Credence, an alumnus from NC State and founder of Credence and a long list of other healthcare companies. He shared stories about launching healthcare products with us and the unique hurdles a healthcare company must go through in order to seek FDA approval.
Jeff's advice: Keep your cash burn low and understand that perfection can be the enemy of progress. He also suggested to build companies for the long term, don't focus so much on your exit strategy in the early stages of the company.
We were fortunate to get an hour and a half with Apple's Chief Operating Officer, Jeff Williams - a proud NC State alumni. Jeff started his career at IBM, and only joined Apple after taking an interview with Tim Cook out of courtesy. At the time, Apple had just lost a billion dollars and Jeff did not think the company would succeed. But he knew Tim from business school (at Duke) and decided to entertain the possibility of working at Apple. After interviewing with Steve Jobs, he felt so moved by the energy and passion Jobs exuded that he decided to take the job at Apple on a whim. He said it was one of the few right-brain decisions he's made in his life and he's incredibly glad he did. Since then, Apple has grown to one of the widest-known consumer brands and one of the largest companies in the world.
When asked about what is missing in today's corporate leadership, Jeff cited a trend of acceptance of mediocrity. At Apple, they are hyper-focused on developing the highest-possible quality products with great attention to detail. He explained that he could easily add $1.25 billion to their bottom line by using cheaper packaging, but they refuse to sacrifice a product's integrity in the name of profits. This said, he admitted that they are only a few products away from irrelevancy unless they continue to innovate. It is for this reason that he believes it is important, as a leader, to wake up each morning not assuming that Apple is a great company, but challenging himself and his team to continue progressing and maintain the startup culture as much as possible.
As I listened to Jeff speak, I found him to be quite charismatic and down to earth. When asked about what was lacking in today's leadership he first addressed the question in a positive light and first established the qualities of a good leader (specifically, speaking of the importance of situational leadership) before addressing his concern for the acceptance of mediocracy. He concluded his response on a second positive note explaining why Apple believes so passionately in their commitment to excellence. Needless to say, I was impressed by the control he maintained in the direction of the conversation.
Jeff's advice: Be comfortable hiring people who are better than you, as it will help you build the best possible team.
Started by Paul Graham in 2005, Y Combinator is one of the nation's most prestigious startup accelerator programs. They have funded startups such as AirBnB, Dropbox, Stripe, Docker, and many more uber-successful companies. The accelerator is a combination of an investment ($120K for 7%) and a 3-month intensive program where companies are told to focus on only three things: talk to customers, write code (build your product), and exercise. It's nice to see the program helping young entrepreneurs prioritize their health alongside their career.
Y Combinator has two funding cycles a year, and in each cycle they recieve roughly 7,000+ applicants. Of these applicants, they invite the top 500 for interviews, and accepts around 100 companies to the program. At the end of the three month program, all of the companies pitch at Y Combinator's Demo Day (400-500 investors come to watch this); the average company will raise another $700K as a result of Demo Day.
We mainly spoke about how Y Combinator evaluates applicants for the program. Here's what we learned.
- Most companies have 2 to 3 founders. Starting a company is hard, really hard. Y Combinator has found that it can be very valuable to launch a venture with at least one co-founder, so that you can carry each other through the valley of death. Only ~10% of the companies they accept have only one founder.
- You have to be able to describe your idea in a simple sentence. You might be starting an incredibly complex technology company, but you still have to be able to communicate what value your company provides in simple terms.
- If you've applied before and didn't get in, be prepared to explain what's different and what you've learned. Roughly 40% of applicants end up reapplying to the program, and it's incredibly important to make clear how the company has improved and grown in order to be seriously considered a second time.
- Have a personal tie to the problem you're trying to solve. This helps give them confidence that you'll have the fire within you to push yourself and grow the company when things get tough.
- Build a team of people which you have already worked with previously. Incompatible founders is actually a major reason why many startups fail. Derisk the potential for this by having a previous working relationship with your founding team.
By the way, Y Combinator will be opening up a curriculum for startup founders called Startup School beginning on April 5th, 2017.
Citrine was another one of the smaller startups we visited, and they were especially interesting to me as their company sits at the intersection of materials science and data science. They maintain the world's largest database of materials properties and parameters and provide machine learning algorithms to guide researchers (both in industry and academia) in the materials selection process. For example, you might be a car manufacturer looking for the optimal metal alloy to use in your next car frame, one that is strong and lightweight, and resistant to corrosive environments. You can use Citrine's platform to search for the best possible candidate materials given the properties you are looking to optimize.
The founders of Citrine (two of which are NC State alumni) came from a technical background, and they learned pretty quickly that they needed to forgo their technical critique of the product in favor of extreme confidence of their product and team when pitching to investors. They explained that when pitching to investors, you have to be able to convince the investors that not only is the problem you are working on important, but there is no better team to solve this problem and dominate the market than your own team. This isn't to say that you should forgo technical rigor and critique when developing your product, but you should be prepared to pitch to investors with an intensity and confidence that investors feel as if they will miss out if they don't invest in you.
Greg's advice: When pitching to a VC, you need to be able to look them in the eye with such a firey passion that they instintively believe you when you say you're the only company in the world who can grow your startup to a successful business.
We met with Scott Kupor, managing partner at Andreessen Horowitz, to learn the essentials of venture capital investing from one of the most well-respected VC firms in the nation. Compared to Y Combinator, Andreessen Horowitz is a multi-stage venture capital firm and they invest in companies ranging from seed rounds to late series rounds at well-established startups.
He started with a brief primer on VC investing. For a given set of 10 companies which they invest in, they fully expect 5 or 6 to fail and do not expect to see a return on their investment. They may have 2 or 3 companies which see moderate success and provide a 2x or 3x return on their investment. But the companies which VCs are counting on are the 1 or 2 startups which see such a high success that they receive anywhere from 10x up to 50x return on their initial investment. It's these companies that cover the losses of all of their other investments and provide enough incentive to continue investing in startups. You can read more about the power law rule of investing here.
Because of the nature of VC investing, firms are looking for companies with large market opportunity. If they invested in great business concepts with limited market potential, they would never be able to see the explosive growth and success that provides the firm with meaningful returns. It is for this reason that market potential is the biggest factor when considering whether or not to invest in a company. Scott made sure to mention that for this reason, venture capital fundraising is not the right method of fundraising for all types of businesses.
Following market potential, Scott argues that the team is the second most important factor by which VCs evaluate a company. One thing they look for in the team is founder-market fit, similar to how Y Combinator mentioned that they look for founders with a personal tie to the problem they're solving. In theory, many different people could attempt to solve the problem your team is trying to address, so you need to convince VCs that your team is uniquely equipped to tackle the problem. He also mentioned that teams must present the right level of malleability - they don't want to work with a team that is so steadfast they refuse to change their business model if it's failing, but they also don't want to work with a team that lacks the confidence in their vision and is willing to change their business model on a whim after a VC partner poses a question about their strategy.
The team is often more important than the actual product, which is the third quality by which VCs evaluate a company. This is because the VCs know from experience that 99% of the time the final product bears little resemblance to the original product idea. While you should have a good product (or at least problem to solve), VCs would rather work with a stellar team and a bad idea than a poor team with a good idea; the former is much easier to advise than the latter.
He also explained that venture capital is in the referral business. Due to the sheer number of companies that wish to present to VC firms, they use referrals as a technique to filter down the number of meetings they'll take. As a result, it's near impossible to get a meeting with a VC firm unless you have a warm introduction from someone who they have a working relationship with and respect.
For those interested, Mark Suster gives a good insight into the world of VC fundraising in this video.
You probably haven't heard of this company if you're not in Silicon Valley; they provide freight forwarding services, currently disrupting the market by bringing technology to an industry which still operates over telephone calls and faxes. They've seen incredibly impressive growth over the past year and are currently trending as one of the "hot" startups in the Valley. Apparently, Silicon Valley is going through this odd trend where unsexy businesses are the "sexy" thing right now.
Jindra Zitek, SVP Operations and Customer Success at Flexport, explained the challenge of maintaining their company culture while experiencing such rapid growth and hiring so many new people into the company. He mentioned the need to overcommunicate their mission internally in order to align the company behind a common goal.
Due to a pretty comprehensive NDA I had to sign, I can't share too much- but this company is doing some super neat work to be able to provide cheap, healthy food.
Here's a video that explains the concept!
Although many probably wouldn't consider Autodesk to be a startup, they are an entrepreneurially-minded company which provides many resources for startups and entrepreneurs. We got to tour their impressive prototyping lab located on a pier in San Francisco; I must say, you can't beat the view. Notable, they have an artist and innovator residency program in which you can explore a new concept using Autodesk's solutions, fully funded on a stipend for a few months.
However, the most interesting thing I saw at was Autodesk's generative design solution. Check it out in the video below.
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