Secrets of Sand Hill Road summary

Founders of early-stage companies often don’t even have a product to present to potential investors. Instead, a founder usually comes to pitch an idea to VC firms with, well, precisely that – just an idea. This means that VC firms have little actual data to look at when assessing whether to invest in early-stage start-ups. Instead, they have to rely more on qualitative analyses. 

The first aspect of such an analysis is all about the people involved in the company. What are the backgrounds of the founders? What evidence does their pitch provide that they’ll be able to bring their idea to market effectively? And, in particular, what makes their story stand out from the potentially dozens of other founders who’ve had the same or a similar idea?

If you’ve ever had the chance to pitch a business idea to venture capitalists, then you know that it’s a pretty nerve-racking experience. Perhaps you’ve recently quit a steady job to pursue your entrepreneurial dreams, and your future livelihood might rely on whether the pitch goes well or not.

Luckily, the author has heard thousands of pitches over the last ten years of working at Andreessen Horowitz, and he knows how to distinguish the good ones from the bad. In his experience, a good pitch can most easily be understood by contrasting it with a bad pitch, so let’s begin with the latter. 

If you as a founder have been lucky enough to make a successful pitch to a VC firm, you’ll then begin the often arduous process of negotiating a term sheet. Essentially, a term sheet lays out all the rules, regulations and processes that both the VC firm and company have to abide by if the deal is to go through. 

These stipulations can be pretty complicated and confusing – especially to founders, who tend to be much less familiar with term sheets than the VC firm with which they’re partnering. But term sheets can be simplified into two main components, which can make them much more comprehensible and thus level the playing field of knowledge between VCs and founders.   

With a fair term sheet in hand, it’s time for the CEO to turn her attention to running her now-funded company. As well as leading her team through the day-to-day activities of the company, the CEO is of course responsible for keeping her eye on long-term vision, particularly if she is also the founder. However, a CEO’s relationship with her board of directors can sometimes complicate things – it’s thus important to make sure that both sides maintain a healthy relationship.

That’s especially true of the relationship between the CEO and the VC representatives on the company’s board. While most good boards give CEOs room to run their companies, this isn’t always the case. In many instances, VCs were themselves CEOs in the past, and can often face the temptation to involve themselves in the daily affairs of companies they’ve invested in. But at the end of the day, VCs are not meant to be aware of all the nitty-gritty day-to-day happenings of a company – that is the job of the CEO. So it’s of vital importance that VCs keep a safe distance, and give CEOs space to do their thing.

Let’s assume for a moment that your company isn’t bankrupt and being shut down after a few rounds of VC funding that eventually led nowhere. If this is the case, congratulations – your company is in the 10 percent of start-ups that don’t fail.

If you’re now the CEO of a profitable business that can survive independently without venture capital, it’s likely you’re being offered potential acquisition deals. In fact, 80 percent of successful VC-backed start-ups go on to be acquired by bigger companies.