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Hello, my name is Llya Strebulaer,
and I'm a professor at
the Graduate School of
Business Stanford University,
specializing in venture capital and
private equity.
One of the classes I co-teach is
Angel and Venture Capital Financing
for Entrepreneurs and Investors.
Today are five takeaways from this
class,
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Success in startup investing is not
just due to luck as many believe,
but also skills,
sweet, perseverance.
If you see me spend over a hundred
hours on due diligence or
just one making dozen reference
calls to check on the idea,
founders, product, market, they
debate startups opportunities and
risks with their partners.
The skills of how to conduct due
diligence are critical as is
the appreciation that it is hot and
often unglamorous work.
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If investors conduct such extensive
due diligence, founders need to get
fully prepared for it.
As I summarize to my students to be
founders, ask yourself all the
questions if you're an investor,
then your aim is to have a great
answers to all these questions.
Depth is absolutely critical.
Also, identify your weak spots.
Investors avoid shallow
founders who don't know the ins and
outs of their startup.
As my former student who now is
successful investor told me, if I
come away from meeting the founder
without learning anything new,
it's a bad sign.
[MUSIC] Founders should remember,
success is all about execution.
Most investors would rather invest
in A+ teams, pursuing B+ ideas,
rather than B+ teams pursuing A+
ideas.
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The third takeaway is that you
need to know the ins and
outs of contracts in the VC space.
These contracts determine how any
proceeds from startups outcome
are determined.
That is, who is paid what, when,
how, and how the decisions in
startups life are made.
We actually spent most of our
course, discussing all
these contracts in great detail.
Financial security and startups
are very unusual if you compare
them to traditional debt and
equity securities.
They need to take into account that
many startups fail that startups
raise many rounds of funding from
many investors and
those investors need patience.
The takeaway is to understand this
contract and contractual terms
really, really well.
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Another takeaway is the utmost
importance of corporate governance
that is how decisions are made in
startups.
For example, lead early stage VCs
typically become board members,
get shareholder voting right.
Often they get special veto rights
to prevent the startup taking
certain actions without
the approval.
This rights help protect investors
who are often minority shareholders
in the startup and are afraid they
could be expropriated
by others such as the founders.
Founders may also be concerned that
VCs may kick them out once they
control the startups board.
Understanding corporate galas,
it's implications, and negotiations
around it is really a critical
skill in the world of startups.
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A surprising result is that
valuation serves many
purposes apart from just finding
out what the security or
company farewell is, especially for
early stage startups.
Then, in startups is often
about how to divide the future pie,
the world of startups even uses
its own jargon.
Instead of valuation used
elsewhere, the post money valuation
or the pre-money valuation
is used for startups.
In class, we'll discuss at length
these and other valuation terms.
Remember one thing that the post
money valuation is not the same as
the fair or the market value.
In fact, my research shows that
post money valuation is typically
higher than the fair value,
a result with far reaching
practical implications.
So if you take all these five
takeaways to heart and
utilize them either as a founder,
or as an investor, then you're much
more likely to succeed in the world
of angel venture capital investment
in the world of startups.
Good luck.
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If anybody would have told me even
20 years ago that I would ever
teach wench capital, I would love.
But now that I teach wench capital
and private equity, I think that is
really the most amazing thing to do
to meet founders,
investors who are really passionate
about what they do and trying
to help them both at Stanford and
outside is truly amazing.
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