- David Lee, a founding partner of SV Angel, shares insights on startups
- He highlights the diverse areas to explore as a startup founder, such as mobile computing, drones, virtual reality, Bitcoin, and bioinformatics
- Lee mentions that not all startups will be as successful as Pinterest, Dropbox, Airbnb, and Stripe
- He discusses what SV Angel looks for when evaluating a startup, emphasizing the importance of the team and founder
- Lee also mentions the importance of having a good elevator pitch for a startup.

- The most important skill for a founder is to be able to express their vision to others.
- This skill is crucial in a competitive environment where there are many options for employees, investors, and customers.
- Being a great public speaker is not necessary, but the ability to communicate the vision authentically is important.
- Good founders are also good listeners who can synthesize multiple inputs and make decisions based on them.
- Strong-willed but inflexible founders who ignore input are not desirable.
- An example is given of a founder who listened to feedback and made changes to his product, eventually gaining investment from a top firm.
- When looking for investors, it is important to find ones who can add value to the company.

- Every investor needs to add value, but what that means varies for different founders and industries.
- Founders need to be self-critical and think about the challenges they may face and who can help them.
- Focusing on value add versus ownership leads to better valuation discussions.
- An example is given of a founder who chose to work with an investor who offered significant mentorship and support, even if the terms were more favorable to the investor.
- There are now more sources of financing available, so founders should be discerning about the value an investor can add.
- Building a good reputation is the best investment a founder can make in their career.
- Leading by example and paying attention to the little things can make a big difference.
- The journey of entrepreneurship is simple but not easy, and hard work is required.

- David Lee, a founding partner of SV Angel, provides insights on startups and the areas to explore as a founder
- SV Angel looks for startups with strong teams and founders, and emphasizes the importance of communication skills and a good elevator pitch
- Good founders are able to listen, synthesize input, and make decisions based on feedback
- When seeking investors, founders should prioritize those who can add value to the company
- Building a good reputation and paying attention to details are important investments for a founder's career
- Entrepreneurship requires hard work and is simple in concept but not easy in execution.

David Lee speaks at Startup School NY 2014

Right now, we have a pretty special investor here.

All right, now, David Lee has done a thing or 2 with investing over the years.

He's 1 of the founding members, 1 of the founding partners, rather, of SV Angel, a little investment outfit you may have heard of, invested in a few things, Airbnb, Dropbox, Twitter, Snapchat, et cetera, et cetera, et cetera.

So let's hear a little bit of his insights gained over the years about all things startups.

There has never been a more exciting or better time to start a company.

From what's happening in mobile computing and different areas like drones, virtual reality, Bitcoin, bioinformatics, There are so many different areas to explore as a startup founder.

So I'm really honored to be here and really excited for you as you think about starting a company.

So as Alexis mentioned, I've been angel investing since 2007.

Really, I've been doing that with Ron Conway and SV Angel.

So it's been about 7 years, but it feels like dog years.

Through that time, I've worked with probably over 500 founders, and the team and I at SV Angel have reviewed over 6,000 business plans.

So as Alexis mentioned, some of those companies, and I don't know where the clicker is, Some of those companies include Pinterest, Dropbox, Square, Stripe, GitHub.

Many of these companies and many of these founders have spoken here at Startup School.

So I really encourage you to go back, go to YouTube, listen to their stories because some of their stories are really telling.

Because particularly when they started their company, they're not the people that you see today.

So, given all of this data that we have, and I, obviously, given the number of companies that we've reviewed and the companies that we've worked with, not all, if not most of the companies are not the Pinterest, Dropbox, Airbnb, and Stripe.

I thought what I would do today is, for you, is really 3 things.

The first thing I would do is tell you a little bit about what we look for at SV Angel when evaluating a startup.

The second thing I want to do is I want to talk a little bit about what you should be looking for when picking investors.

There's never been a better time as a startup founder to seek financing, reasons which I'll get into a little bit later.

And so it's important to be discerning and think about what you should be looking for.

And the final thing that I'm going to share is the biggest lesson that I've learned from Ron Conway in my 7 years of working with him.

So as Alexis mentioned, Ron is a prolific angel investor.

He's been investing for about 20 years and really invented this class of angel and seed investing.

And this 1 thing he taught me, I bring it up over and over again.

And I think it has particular relevance for you as a startup founder or if you decide to work for a company or you decide to be an investor.

And frankly, it's the 1 lesson that I always think about when we decide whether or not to invest in a founder again.

So before I get sort of more specific, I want to tell you a story about the first founder or entrepreneur that I've ever known.

So my dad graduated with his PhD in mechanical engineering from UCLA in 1962.

He was the first Asian to graduate in that graduate program.

And then in the mid-70s, he worked at a company called alpha industries.

And so for those of you, I mean, this probably, I'm dating myself, but in the mid 80s, mid 70s, Route 128 in Boston, that was Silicon Valley.

That was Silicon Valley, Soma, as hot as you can get.

And he was a senior engineer at 1 of these high-flying companies.

And 1 day, and this is about the early 80s, he decided to quit.

And he realized that even though he was very happy doing what he was doing and he had 2 kids to provide for and a family, he wasn't following his passion.

And his passion really was building things for other people and for other companies.

And he thought if others could do it, why couldn't he?

So he just quit, didn't know what the product was, and decided to go out on his own, a very risky venture.

So the first product that he built was the first fully automated fortune cookie machine.

So before my dad's machine, you made fortune cookies by hand.

And he built the machine that automated the whole process.

So it was sort of a robotic startup before its time.

And I don't know if any of you remember, there used to be those fortunes with the smiley faces on them.

And, But this was the first product that he was gonna use to catapult his whole company, because he wanted to build other things.

But it turns out there was actually a decent market for fortune cookie machines and fortune cookies.

And 30 years later, at 79 years old, he is still building these machines.

And he's doing it, I mean, it's a great story and it sounds good, and he's doing it in 1 part because he loves it.

He would rather do nothing else than build.

But there's another part where he does it because he has to.

He does it because he has to do it to keep the lights on.

Because this 30-year journey, which I witnessed and lived through, it's something, the ups and the downs, it's something that, it's borderline, I mean, it's gut-wrenching.

And I'm sure a lot of founders have talked about this.

But there is, the 1 thing that I've learned in that sort of being his son is the price you have to pay in order to do what you love for a living.

And that's why we try to really stand behind all of the founders who do it, because we know it's not easy.

So with that in mind, I want to jump into what we look for at SV Angel.

So I'm going to give access to all of you to this 1 document, and many here at Y Combinator have seen it.

And it's the document that we have used since I started working at SV Angel, it's a document that Ron wrote 20 years ago and a document that we refined over time.

And it's the 1 document that's really, it's our Magna Carta, it's our Bill of Rights.

And it's called, appropriately, What Ron and SV Angel Look For in a Company.

And it is simply just a laundry list of items that we look for over the years, things that just remind us.

And so, given that it's a laundry list, and I will share this with you afterwards, what I wanted to do is just point out 1 or 2 laundry list items and tell you, you know, what we look for and why these things are important to us.

So the first point that I want to highlight is that in the very first line in this document, and this is the, this is a sentence that Ron wrote 20 years ago.

So, you have this title and then you have this line.

And so, for those, this is a little inside baseball.

You can see this is sort of a weird, lots of weird typos, all caps.

This is just how, there are a lot of grammatical nits in this document.

We at SV Angel, we look at founders first, ideas second.

We believe that ideas morph, but people don't.

If we like the founder and we believe in the founder, more than likely we will invest if it's a sector that we like.

We may like, we've always preferred founders who build things for themselves, or founders whose company is an extension of their life story, in that the founding of a company has been built, it's been built up over years.

And 1 thing that I do want to emphasize is that what we look for may be very different from what other investors look for.

And so hopefully though, that This is just 1 proxy and some insight into how we make decisions.

So 1 of the qualities that I want to talk about, and 1 of the items in our laundry list, is this.

Now, again, this probably, you know, if I was looking at this for the first time, my eyes would glaze over, I'd say, of course you have to have a good elevator pitch.

You know, this is, it's written in every single MBA textbook but this is, there's a nuance to this.

So in this environment where startups are more popular than ever and more smart people are going to startups than ever, I believe that The single most important skill for a founder, as the leader of his or her company, is to be able to express their vision to other people.

And your ability to communicate that to prospective employees, investors, and customers, is critical in this environment where there's so much noise and people have so many different options.

You know, when you start your company and you're trying to hire somebody, you will see how many options this candidate has.

And I want to be clear about something as well.

This is not about being a great public speaker.

This is not about being Ronald Reagan or Bill Clinton and having this magnetic charisma.

Some of the best startup pitchers and the best startup founders that I've known are some of the most classically inarticulate people that you would meet.

And, you know, experts say that 80% of communication is nonverbal.

And your ability to express that vision is critical in this environment.

So I want to give 1 example or 1 story of this.

So I met Rick Morrison at Y Combinator demo day, I think it was in the winter of 2011.

Rick's company Comprehend Clinical, what they do is they take disparate data sources in a Palantir-like way and they bring them together and they make the data actionable and usable to shorten and make clinical trials more efficient for pharmaceutical companies and researchers.

At the time, and that is, this is not photo sharing.

It's not something that you look at and go, wow, this is awesome.

This is something that, you know, healthcare IT was not something that made me lean forward.

And so, at demo day, Rick said, hey, can we grab some coffee?

And to be courteous, I said, yeah, let's grab some coffee.

And I knew what the pitch was and he told me about it and he seemed like a very nice guy and his background was in this area.

So we ended up meeting about a week or 2 later and we met at this cafe on University Avenue in Palo Alto.

And for those of you who don't know, University Avenue is like the Times Square of startups in Silicon Valley.

It's just, you see everybody, it's very loud, it's very crowded, and so we sat down in a coffee shop.

And again, this was more of a courtesy, see if I could help him as an entrepreneur after demo day.

And he was able to, in that short period of time, in that environment, he talked to me about what he was trying to do and why this whole process was fundamentally broken and why this was such a big opportunity and why he was the person.

And he talked about how this could impact people's lives and the timing was right because what was happening with Obamacare and what was happening with the digitization of genomic data and his background and his co-founder with expertise in machine learning.

And by 45 minutes I was hooked, and we invested right there.

And his ability to articulate that vision, and this picture is a picture of him with his co-founder signing our term sheet.

I felt like if he could pitch, if he could make me interested in this topic in healthcare IT in 45 minutes, what could he do with a perspective employee or a perspective investor or a perspective customer?

And I just said that is the type of person that I want to back.

And for me, as somebody who's 44 years old, that is something I think about.

I think about Does this person have the potential to be somebody that I would want to work for and that I would want to get behind?

And so, again, he was not the most, you know, I hope he's not listening, most charismatic person, But he was able to express his vision in a very authentic way, and that in a very authentic, infectious way.

So the second item that I want to sort of highlight from this laundry list, and that's Rick's company.

And again, this is straight from the document.

So The flip side of being a good communicator, in my opinion, is what I've learned in my time investing is that the very best founders are great listeners.

And by that I mean they're not, I don't mean listeners in the empathetic sense.

I mean listeners in the sense of taking multiple inputs, processing and synthesizing all of them, and being able to come to a decision or a point of view based on all of those inputs, and sticking to that vision.

Ron has always told me that Mark Zuckerberg, this is his greatest strength.

His ability to listen and think about all the different opinions, all the data points and come up with a vision based on that is the best that he's ever seen.

And so that ability to me, again, you will have many investors, you'll have many advisors, you'll have many mentors, and they'll all be telling you different things.

Or they may be telling you the same thing.

And your ability to process that and synthesize that and make your decision based on that is something that it's really, it's a skill that's invaluable.

Because we have seen many, many founders who are strong-willed but inflexible.

These are founders that we probably wouldn't back again.

These are founders who have a point of view, and it's inspirational, and it's strategic, and it's smart, but it's wrong.

And it's wrong in hindsight, of course, but at the time, the way, they just don't listen.

They ignore the inputs because they have 1 point of view.

So I'm gonna use Rick again as an example.

Then 6 months later, as often happens, he hit a rough patch, And he realized that not everybody bought into his vision from a fundraising standpoint, and not all the customers were biting either.

And so like all startups, there was just this point of doing okay, but not doing great.

And the thing that Rick did over, and I've seen it, the thing that he did over this 6 month period is that he really listened.

He really understood and asked great questions.

With 1 particular investor, he invested, he pitched them 3 times.

And some of the things that they told him, he ignored.

But some of the things that they told him, he said, you know what, they might be right.

And when those opinions resonated with the opinions of his customers, he took his product and he moved it from a hosted solution to a SaaS solution.

And by this third pitch with this 1 investor, the partner said to him, you're the most persistent SOB I've ever met.

And, But he couldn't ignore the progress.

And by the fourth time he pitched this firm, Sequoia Capital, the chairman of the firm, Doug Leone, stood up and clapped.

And they eventually invested in his company.

And that is, I think this is the best example, 1 of the best examples that I've seen of a founder getting to the root cause.

I can't tell you the number of times I've seen I've seen companies pitch either an investor or a customer and they say no, and then they give them the same pitch with maybe some progressive data.

And they're not getting to the root cause as to why somebody is saying no.

It's okay to be persistent so long as you're going with a different angle and a different vector, a more informed angle or a more informed vector.

And again, what we look for in a company is really just a laundry list of what we look for in people.

I can't tell you the number of times, you know, I've been working with Ron and we talk about a founder and he'll say to me, he or she is a good founder, or he or she is a bad founder.

And they're not, he's not talking about Mark Zuckerberg or Ben Silberman or the people who have flamed out.

These are just the people who are going through their startup right now.

And it's because they do some of these things.

They do some of the things that are simple but not easy.

So those are just a couple of items and again I'll share this list with you.

Now I want to take sort of a flip side and talk about what you should look for when looking, when speaking to investors and looking for money.

So, you're going to hear a lot of different, you know, viewpoints and a lot of different advice.

In my opinion, it's just 1 thing, and 1 thing only.

The only thing you should think about is that every investor needs to add value.

And this statement is kind of like a Rorschach test.

It's like value add is different things to different people and different founders.

It means something completely different for a first-time founder doing an enterprise company to a second-time founder doing something in consumer.

It depends on the founder, the market, and the industry.

And you as the founder, you should really think about, be self-critical of you and your company to think about what are some of the known unknowns, as Don Rumsfeld said.

Like, what are some of the challenges that I can anticipate?

Even though most of the challenges are going to be unknown, you at least want to think about, hey, who do I think can help me and what do I need to do to get him or her on my side?

And so a lot of founders focus on valuation and dilution.

And we've always said, if you just focus on this and you focus on value add versus ownership in the company, then the valuation discussion just flows from that.

So we invested in a guy named Jason Tan, and his company is SIFScience.

So Jason, He was doing a company and is doing a company that currently is in preventing fraud for e-commerce.

As some of you know, e-commerce is changing the way people buy, the way people sell, and so the fraud problems are different.

Now, an opportunity came up for an individual named Max Levchin.

He was 1 of the founders of PayPal, probably 1 of the best people in the world when it comes to this area.

And Max said to him, hey, I want to get involved in this company and I want to help you.

But here's the thing, I want you to stay with me.

I want to really dig deep and help you here." And I spoke to Jason about it, and The terms were different, probably more favorable to Max than other investors.

I mean, this is, you can't work, you know, and not that he was, but don't worry about the dilution or what your cap table looks like.

Worry about getting the best people who will add the most amount of value to your side.

If Max wanted to invest and said, hey, I'll give you 100K and maybe I'll have breakfast with you once or twice a month, that's a different proposition than what Max was offering.

And so Jason, without much thought, decided to work with Max.

And today he is a company that, his is a company that's doing well and Max was instrumental in that.

And now that's an extreme case and hey for some of you and for many of you, it'll be the case that the biggest value add for the investor is that the money is green and that they want to invest.

But for those of you who have choices, and the reason why I say that this is the best time to raise money is that you will have more, you have more choices than ever.

You know, with what's happening here at Y Combinator, AngelList, the JOBS Act, crowd funding, Kickstarter, these companies are changing the way, it's expanding the number of sources for financing both debt and or equity that you can raise.

There are many many companies now, many may be overstating it, but it's not uncommon right now And I wouldn't be surprised if in the next year, there are many companies who get financed on Kickstarter, some of the other crowdfunding platforms, and then go straight to the larger VCs.

And so, with all of these different choices, you really wanna be discerning and thinking about what value is an investor going to add.

So the final thing that I want to talk about, and I'm bumping up against my time, this is the 1 lesson that I've learned from Ron.

It's the biggest lesson that I always think about, and this is, it's simply this never forget your reputation is your biggest asset now you as the founder and this this is also some laundry list items from from this part you as the founder what I can say is building your reputation is the best investment you can make in your career in technology.

And it's the best way that you can sort of build your career.

What do I mean by that is leading by example.

You want to be completely focused on your on your startup.

Everybody is going to be looking at you and you want to control what you can control.

I don't know how many startups or how many founders who ignore this and who ignore the little things.

So, for example, when Ron did, Ron, you know, invested in 1998, he would talk about how they would have seminars for best practices.

Sergey Brin and Larry Page were the only ones who showed up to every single 1.

Now I'm not saying that's because that's why they're Google, but it's just an example of controlling what you can control.

Another example, Joseph Walla, HelloSign.

We at SV Angel, we have cocktail parties for our CEO summits where we bring our investors, partners, and CEOs.

He came and he tapped me on the shoulder and he had a Yellow Post-it of all the people he wanted to meet who could be helpful for his company.

So in summary, I've given you a lot of sort of platitudes, a lot of things that could be written on tweets or fortune cookies.

Be a good leader, lead by example, look for value add investors, be a good listener.

But I can't emphasize enough that that's just a starting point for this journey that you're going on.

We really know that this is simple but not easy.

It's a lot of hard work to really follow and do what you love.

And we at SV Angel can't be more excited about the environment and can't be more excited about meeting you and possibly investing in you.

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David Lee at Startup School NY 2014