The Ledger
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Mutual fund private startup valuation marks are based purely on sentiment
“We're more or less at the worst possible scenario right now. We have no information rights, no liquidity. Valuation committees at Fidelity and BlackRock basically get to mark things up and down with no information, so it's basically all sentiment.”
Tan: Founders who ask investors if they are failing succeed more often
“That was actually one of the big secrets of Y Combinator that if a founder frequently comes to their investors and asks, am I failing? That's almost always correlated and found in the founders who succeed because, you know, at that point you're actually asking…”
Tan: Operational VC coaching adds more value at pre-seed than post-Series A
“Post series A, series B, and later in particular, it really is about care and feeding the organization. So as a company, you've already chosen your direction. In fact, often you've chosen your go-to-market. And so now it's about taking that go-to-market and sc…”
Tan: Founders with prior Initialized relationships perform three times better
“We actually ran the numbers recently and people who we worked very closely with previously, their startups outcomes are actually looking about three times better. Then the folks that we didn't have sort of that multi-year background and sort of process with.”
Tan: Google and Facebook alumni lack experience fighting for early users
“A lot of people, especially coming from very hollered halls like Google and Facebook, they've actually never been punched in the face because the overwhelming fire hose of users means that they've never had to fight and scrap for a user.”
Tan: Highly controversial startup deals generate the best venture returns
“Our experience with the power law is pretty similar to a lot of other people's in that the things that are the most controversial, the things that have either strong yeses Or knows. Those are the ones that seem to perform the best”
Initialized Capital requires two strong yeses or a GP silver bullet
“At initialized, all the GPs get silver bullets, you know, not unlimited ones, but you know, that's sort of the release valve. And then up the middle, we basically require two strong yes in that process.”
Tan: The narrative of too much capital chasing few deals is false
“I think a lot of people still believe this sort of financial trope that there's too much money chasing too few good deals and too few good ideas, and my living reality every single day is actually the exact opposite.”
Tech networking events deliver no value due to founder posturing
“You go to your average meetup, or hangout, or dinner, or networking event, and it's basically people running around always with a happy face on, saying, how are you doing? We're doing great. We're killing it. How are you doing? And we're also killing it, and s…”
The 'spray and pray' seed investing model does not work
“If you're spraying and praying, it's not going to work. You can't help the founders, and you can't keep in touch to actually increase their chance of success.”
Tan turned down being Palantir's first engineer due to media sentiment
“Why did I turn down being first engineer at Palantir? I spent a lot of time trying to figure that out, and it actually came out of this thinking, because this is why I'm very, very careful about it, that when I was 23 and I got an offer from one of the best in…”
Initialized Capital will remain strictly focused on the 0-20 employee stage
“Yeah, I think we should be disciplined around, well, We really should focus on the zero to 20 employee sort of stage. I think there are tons and tons of people out there who are fantastically great scaling operator, like series A and later investors. But for u…”
Tan: More product builders and engineers will enter early-stage VC
“Over time, I think it'll change radically, because I think we'll have quite a lot more people helping people at that very earliest stage, that kind of background.”
Garry Tan: Founders should build Series A investor relationships over six-plus months
“You really can't expect to build a partnership with your Series A board member more or less in an abbreviated process of a week or two. Almost always what you need to do is sort of build relationships over the course of maybe six months or longer.”
Garry Tan: SaaS startups must move upmarket to achieve enterprise scale revenue
“One of the most common things we see in SaaS these days is that sometimes a company that gets started selling to SMB realizes they need to go up market to mid-market and enterprise, because that's where you can actually get to multi-hundreds of millions of dol…”
Tan: 24 months of runway is optimal for seed-stage startups
“We don't need 48 months of runway here. We don't really even sometimes need 36 months. 24 feels really good to us. It gives the company the right kind of cushion to be able to take risks and achieve the next round”
Tan: Facebook was the only company beating Palantir for engineering talent
“If we had head-to-head offers out to software engineers, the only one we would lose to was Facebook.”
In 2008, VCs questioned why Stanford grads joined Y Combinator
“I remember in oh eight going out and pitching VCs saying, yeah, we're recent graduates of YC. And they would say, why the heck did you do that? You're a Stanford grad. You have startup experience. You didn't have to.”
Sequoia's early investment in Unity was the best AR/VR play
“On the flip side, the funny thing about AR, VR is probably the most valuable thing to invest in as Sequoia already did, which was Unity.”
Initialized is waiting for the next computing platform before big bets
“And so, you know, we are frankly are waiting for that platform and it's anyone's guess when that will be.”
Abundant late-stage capital creates a golden age for micro VCs
“I think that that's great because it's the golden age for the micro VC, the golden age for accelerators and for YC because there's more money at the later stage.”
Early-stage founders often take 2-3 years to reach product-market fit
“There are companies that they take two or three years even to get to product market fit. And so that's something that you just have to be prepared for at the earliest stage.”
Initialized Capital targets 20 investments per year to maintain founder support
“For us, the right trade-off is we think that we can work with about 20 companies per year and really spend quite a lot of time with them bi-weekly to monthly meetings all the way through until they're Series A.”
Initialized targets 5% to 10% seed ownership to accommodate co-investors
“Between five, if we can target five to 10% ownership initially, that's still enough to bring in the SV Angels or the Fuel Capitals or other great investors that we especially like to work with.”
Tech common knowledge is a delayed retelling of early founder work
“At the end of the day, what is sort of common knowledge is basically the second or third hand retelling of something that super smart people were working on in a basement six months or nine months before.”
Posterous could have survived long-term if it charged for usage
“I wish Posterous actually charged money. That was my blog platform software that I worked on. We probably should have turned it into Something that charged for usage and maybe Posturus instead of getting sold could be around today, perhaps a lot like our frien…”
Tan: Yuri Milner offered $150K to all YC W11 companies
“That was the batch that Yuri Milner and SV Angel came along and said, we're going to give everyone 150,000 dollars to every single company in that batch. It was about 40 companies”
Peter Thiel wrote his $500K Facebook check while starting Palantir
“I got the call from Peter saying, hey, come on down, and we're starting a company. We'd like you to be one of the first engineers and flew down to have dinner with him about the same time that he wrote the 500,000 dollar check to Facebook.”