- I paid 15 cents to buy shares of Coinbase nine years ago.
Here's Wall Street Journal reporter Rolfe Winkler's tweet
on the day of the IPO.
We were the earliest venture capitalists in that company
with shares that topped out on IPO day at 420 bucks.
Each VC on this list earned huge returns
that most regular investors can never get.
But you'll notice we were first way before it was obvious.
Have you ever wanted to know
exactly how a venture capital fund actually works?
You're in the right place because today you're going to learn.
Plus, I have a huge announcement to make,
Initialized my VC firm that I created is hiring.
What better way to learn than by jumping all the way in.
You don't have to have experience investing
but it can help.
And you don't need money already, either.
What makes a good VC?
And are you a good fit to be an investor working with us
at Initialized?
Watch this video and you'll find out.
And for some of you watching, you might just get to join us.
Let's get started.
First, let's talk about the number one reason
why a VC firm exists: to generate returns for our investors.
When we invest, it's not my money
it's the money of who we call our limited partners,
they're endowments, non-profits, retirement plans,
and sovereign wealth funds that professionally manage money.
Most of the world's money is actually controlled
by these organizations.
And when we invest, we do it because we intend on returning
a lot more money to those investors
far more than what they gave us.
And I have good news we've been doing it.
We get paid to invest in the best possible founders.
This started really in the sixties and seventies.
Here's Don Valentine, founder of Sequoia Capital
who started with an $8 million fund in 1972.
- I'm not interested in entrepreneurs who will do it
our way.
I'm not interested in entrepreneurs
who think there's a dress code.
I'm interested in entrepreneurs who have a vision
of doing something consequential
preferably that becomes big.
- Don is one of the absolute legends of venture capital.
Sequoia, the venture firm he created
has now funded companies that represent
more than $3.3 trillion.
That's trillion with a T.
To put it in perspective all of the NASDAQ has a market cap
of about 10 trillion.
Y Combinator, where I worked at has created about
$400 billion worth of wealth.
Founded by Paul Graham and Jessica Livingston in 2005,
15 years ago, they gave me my start.
I started Initialized in 2012
with a first fund of just 7 million.
Today we're involved in over a hundred billion dollars
worth of market cap in less than nine years.
Like I said, at the top of this video
we just had our first mega win.
We just returned hundreds of millions of dollars
to our initial investors on the IPO day of Coinbase.
I made a YouTube video about that,
link below if you want to learn more.
If you miss that, now's a good time to check that out
and come back.
Not only that, we're the very first investors
in almost a dozen startups now worth
over a billion dollars.
Instacart in grocery delivery, Flexport in logistics,
Patreon in creator payments, Ro and Truepill in pharma,
Standard Cognition in autonomous checkout,
Cruise Automation in autonomous cars,
Opendoor in real estate, Blend in mortgages, and many more.
We have dozens more in the wings growing quickly
with real product market fit.
And we're just getting started.
When you're thinking about a career in venture capital
or even deciding which VC fund to take money from
whether or not that VC fund is a winner matters a lot.
Look, I'm not saying this is a good thing.
It's just how it works.
Just as getting a degree from Harvard, Stanford, or Oxford,
will help you in your career.
A startup funded by a top VC firm will do better.
It'll be able to hire smarter and better people,
raise more money from better next stage investors.
And with those things build a better product that wins
in the marketplace.
So what does that mean?
It means the VC itself is winner take all
and you'd better pick wisely.
Getting the right investor early can be a pivotal moment
in a startup's history.
And you can be part of it.
Always remember though, being the best most well-known brand
in VC might be the sizzle.
But, the stake is in the returns.
If you want to build the future, you've got to believe
that you can do it.
We live in a crazy cynical world these days
and being a cynic just doesn't work for venture capital.
We fund ideas when they're still not obvious.
And they often seem crazy to the public.
Marc Andreessen talks about this moment in the 1990s when VC
and tech startups were sort of at the height of a form
of cynical madness.
When any buzzword filled startup
with the right MBAs was going to IPO.
- At the height of the bubble in 98, 99 the products
that were getting built for the most part,
weren't very good.
And these companies were kind of on this bomb run
to get public as fast as possible.
And you had all these catch phrases like go big or go home
or my other favorite one at the time
which was forget details, just do deals.
And so, you have this really kind of mercenary
hit and run approach to building companies.
And then all those companies vaporized after the crash
'cause it turned out they didn't have valuable products.
They didn't have deep engineering capability.
And then all the engineers who worked for those companies
hated working for those companies
'cause they were completely sales driven, sales led,
these kind of mercenary kind of exercises
at the height of how bad it got.
- Now things have clearly swung way over to the other end.
And I actually think that's a fantastic thing.
These days, it's less about money, or bluster,
or getting rich quick.
Now you have to come through with the realness.
At Initialized we have a strong preference
for technical product and design oriented founders,
because those are the builders who have actually
changed the world.
The ones who can build it, usually do.
Here's Apoorva Mehta from Instacart talking about
his earliest days trying to get funding from Y Combinator
while I was there.
- So I decided that I wanted to go to Y Combinator
but there was one slight problem.
The application deadline had passed two months ago,
but somehow I knew that if the YC partners
experienced Instacart they would have to let me in.
So I contacted all the YC alumni that I had in my network
for introductions to the partners.
And in the next 24 hours
I started to get those introductions.
Now, all I had to do was wait.
One by one all the responses started to come in
and the answers were always the same,
"No way it's too late."
And then finally, I got Garry Tan's response
and this gave me some hope.
He said, "You could fill out a late application
but it's nearly impossible now."
So that meant it was possible.
I realized that at this point, none of the YC partners
that actually experienced the product.
Did they even know what it was?
Did they even know how it was different?
So I knew I had to make one last attempt.
I opened my app, placed an order for a six pack of beer
and address it to Garry Tan at the YC headquarters.
One of my drivers, John made the delivery and texted me
to let me know it was done.
And a half an hour later, I got a call from Garry Tan.
I'm not sure if it was the beer talking, but he asked me,
to come to the YC headquarters the next day
to meet the partner.
- Instacart is now a company worth
tens of billions of dollars.
When that six pack of beer hit my desk
and I downloaded the Instacart app
I knew we had to fund it.
And that's a really fun part of this job.
It didn't matter in that moment that there were dozens
of other startups that had tried to do this and failed
like Webvan.
It only mattered that this founder
had created something truly great.
And because I was an engineer and designer, I could tell.
That's something we've learned from YC.
YC has always prided itself on bringing on
investing partners who have deep product
or technical backgrounds.
And it's something that we look for
in our future investors who could work at Initialized.
And as you can tell from this video,
Apoorva wouldn't take no for an answer.
That drive and never give up attitude is really powerful
because if you've got it you can recognize it
in other founders, it all boils down to belief.
If you have a builder who can make you believe
then they can make everyone believe.
And that's how you can build something truly great.
That's something we use absolutely all the time.
Are you a builder?
And do you have those skills?
And do you have the belief that tech can change the world
fundamentally for the good?
Then you're on the right track to being a great VC
and maybe working at Initialized.
Many of the truly giant outcomes and startups
are both contrarian and right.
And the last act we talked about, at least one form
of contrarianism in a world full of cynics
with the wrong belief.
It is the person with deeper, real belief
who we're looking for.
Here's legendary investor, Peter Thiel, talking about belief
as a basis for contrarianism.
- There almost no bubbles left
because people don't believe in anything anymore.
And so to be contrarian in a world where people
don't believe in anything is to actually think about things
to have well-defined beliefs and to anchor that.
So I think the way to be contrarian
is to think for yourself.
- This kind of thinking is particularly important
because investors and founders need to pick good ideas.
Not all ideas are good.
And in fact, most of them are Paint by Numbers
kind of like how bad Hollywood movies get greenlit.
- There's sort of a Hollywood version of this where
the way movies always get pitched is, you know, okay,
it's like a college football star, you know,
joins an elite group of hackers to catch the shark
that killed his friend.
Now that is a movie that has not yet been made.
But the question is, is that the right category
or is the correct category?
It's just another movie.
In which case, you know, there are lots of those
it's super competitive, incredibly hard to make money.
No one ever makes money in Hollywood doing movies,
it's really, really hard.
And so, you always have this question about
does the intersection, is it real does it make sense?
Does it have value that wants you to ask?
And of course there are startup versions of this where you
and the sort of the really bad versions
you just take a whole series of a buzzword sharing
mobile social apps, you combine them
and you have some kind of narrative and whether or not
that's a real business or not it's generally a bad sign.
So it's almost this pattern recognition.
When you have this rhetoric of this sort of intersections
it generally does not work.
The something of somewhere is really mostly
just the nothing of nowhere.
And it's like the Stanford of North Dakota
One of a kind, but it's not Stanford.
- We're looking for people who are independent thinkers
who think from first principles.
And if you're that kind of person,
you're going to see Paint by Numbers right away.
That Hollywood style startup idea does sometimes work,
but founders pursue it at a far larger rate.
And it produces way more failure.
Thiles philosophical basis for this phenomenon
is actually from Rene Girard and his idea of the memises
that our desires, the things that we want as people
come from other people, the result.
Well, Peter says, "Thinking about how disturbingly
heard like people become in so many different contexts -
mimetic theory forces you to think about that,
which is knowledge that's generally suppressed and hidden.
As an investor entrepreneur I've always tried to be
contrarian to go against the crowd to identify opportunities
in places where people are not looking."
That's why being a contrarian going against the heard
and then being right, is one of the major key
and frankly fun ways to do this business.
Every so often someone comes in and teaches you some kind of
secret knowledge.
And the best way to figure out if someone's sitting
across from you has secret knowledge at all is to ask them,
"What do you believe that nobody else believes?"
That's how you see value, where the vast majority of others
you know, the Paint by Numbers people,
the get rich quick people, the scammers, the do nothings,
those people don't.
This is how we win.
Finally, and what's most important for us.
Can you be a benevolent investor?
This means three things being fair, direct, and honest.
Well, these things shouldn't be unusual traits
for venture capitalists,
an outsider would probably be surprised
by the kind of behavior you run across in the realms
of high finance.
But if you're an insider, you know exactly what I mean.
I know this part of the video
might get me in trouble someday
because we're not perfect people by any means,
but I want you to know it's my direct intention
to build a venture firm that wins without playing the games
that are commonplace in venture capital and business
culture broadly like this.
- The point is ladies and gentlemen, that greed
for lack of a better word is good.
- I'm glad to say that you don't have to be that way
to get ahead.
In fact, what we've learned is kind of the opposite.
The best founders can choose anyone
and they will choose those who are most trustworthy first.
Being a bad actor is adverse selection
in an iterative infinite game like venture capital.
You might win in this deal but you're going to lose
in the long run.
And this is the longest run game there is.
Venture capital structures last for 10 to 14 years
and these days longer and longer
because that's how long it takes to go from an idea
all the way to an IPO.
How we do the work matters.
I think of Bill Walsh in his book
"The Score Takes Care Of Itself."
He says, "I directed our focus less to the prize of victory
than to the process of improving -
obsessing, perhaps, about the quality of our execution
and the content of our thinking;
That is our actions and our attitude.
I knew that if I did that, winning
would take care of itself."
That's what I believe too.
Do right and you'll win.
Initialized has the luxury of doing this
because we've consistently had great funds.
My friend Jason Lemkin tweeted this
and it really reminded me of that luxury.
"With a 1X net GP, a write-off is high drama.
In a 2X net fund, every write-off hurts,
but in a 4X+ net fund, write-offs don't matter."
We are that third kind of fund, five core funds,
$770 million in committed assets later.
We're doing great.
And that's why we can be better partners
to founders consistently.
I see this over and over again with other co-investors.
I won't name names because bad days happen to everyone.
The ones that cause the biggest problems
are the ones that are actually doing the most poorly
just as squeezing harder on a handful of sand
will force more grains out,
squeezing founders when there are problems
will ensure startup failure.
And here's how it happens.
First, the team misses revenue targets for a quarter.
Second, the investor starts micromanaging the founder.
But then third, the founder spends more time giving reports
to the board than actually fixing the problem.
The result, the startup never recovers and dies.
Greed and insecurity actually begets failure
at that step three.
Instead of making founders feel like employees
the right thing to do is help identify the root cause.
Sometimes the roles and responsibilities
of their executives.
Sometimes it's the business model, the go to market.
Sometimes it's the product, whatever it is you can only help
if you first do no harm.
Being benevolent and helpful can drive better decisions
and better results.
If you solve the root cause with high integrity
you can get the company to a better state.
I find this absolutely all the time.
And if I had to point to why I think Initialize will win
it's this, being fair, direct, and honest above all.
We don't compromise when it comes to how to treat people
each other, and the founders we work with.
This is how we really win.
So that brings me into the big announce.
Initialized - we're hiring.
Most VC firms won't do an open search like this
but I'm pretty sure we're going to get to know
some amazing people this way.
We believe deeply in the value of diversity
both in terms of experiences and background.
And that's important because the more diverse our team is
the better our decisions will be.
And the more we can bring about the world
we all want to live in.
There's two roles we're hiring for.
One is a principal, which means you don't have to have
investing experience.
You might be a founder or an executive.
We want someone who can really help startups go
from zero to one.
We think of this principle role as the place where
you'll mainly help founders but,
this is also a place where we're going to teach you
how to make investments.
It's okay if you haven't done it yet
We're also hiring a partner.
This is more ideal for people who actually have
some investing experience and a successful track record.
You might be an angel investor, or you might be a partner,
or principal at another venture firm.
Across all of these roles, you don't need to be
from a particular school, you don't have to have worked at
Google or Facebook.
We don't care about that kind of background as much.
We care about your experiences.
What can you do?
And keep in mind, these are pretty senior positions
whether it's the head of a startup that's working
as an early employee or an executive coming up
or as an investor working at a great venture firm already.
Even an investor working on your own.
Why do we need so much experience?
Because that's what founders really need.
Jay Z once rapped, "Everybody want to tell you how to do it
but they'd never did it."
The link is in the description.
And if you have friends you think would be great
for Initialize, please pass this video on.
The world's so full of capital and most finance people say,
"There's too much money chasing too few good ideas
and too few good teams."
That's just wrong to me.
You know, I agree there's infinite money,
but there's an infinite number of problems to solve.
And if my YouTube channel has taught me one thing
it's that there are an infinite number of really smart
good people out there to solve those problems.
That's what Initialized is built to do.
So that's it, I hope you learned a thing or two
about what makes a good VC, what we're looking for.
And, I hope I get a chance to work with you at Initialized.
If you made it this far, don't forget to click subscribe
and hit the bell icon.
So you'll see every single video we post here.
You can count on something every week that I think
will help you build a business, be a better leader,
be a better manager, and yes maybe
build a billion dollar startup.
I'll see you next week.