The legendary Andreessen Horowitz partner who worked on its Facebook and Airbnb deals shares his best advice for entrepreneurs trying to strike it big in Silicon Valley
- Scott Kupor, one of the earliest partners at Silicon Valley venture firm Andreessen Horowitz, wanted to address the questions he gets from entrepreneurs most often in a blog series that has turned into his latest book, “The Secrets of Sand Hill Road.”
- Kupor told Business Insider that he wanted to let entrepreneurs in on what makes venture investors tick, from how limited partners come into play to his theories on evaluating pitches or addressing the prospect of the dreaded down round.
- Although Kupor emphasized that his book isn’t the one-size-fits-all guideline to raising money in Silicon Valley, the book is a comprehensive introduction to the world of venture capital for any entrepreneur considering a funding round.
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Just over two years ago on Sand Hill Road, a quiet tree-lined street in Menlo Park, one of the most influential men in Silicon Valley sat down to write a how-to guide for the area’s aspiring startup founders.
Having made some of the biggest deals of the decade at legendary venture firm Andreessen Horowitz, Scott Kupor is something of a venture capital legend in California’s Silicon Valley. He works out of the firm’s office in Menlo Park — a suburb just 33 miles south of San Francisco that’s home to much of the tech VC industry — but spends a good chunk of time traveling to other rising tech hubs like Austin to scout the next Facebook or Airbnb.
But in December 2017, Kupor started to realize that he had acquired a wealth of knowledge about the venture industry and the many industries in which his portfolio companies operate. But that contributed to a perceived power imbalance between VCs like himself and the founders sitting across the boardroom table during pitch meetings. He decided to write a blog post laying out exactly how the VC industry operates.
Kupor told Business Insider earlier this year he realized he was in need of some heavy-handed editing if the blog post was going to work. So instead he committed to writing a full-length book, which manifested as “The Secrets of Sand Hill Road,” a full-length book released earlier this year.
“If we can figure out a way to have everyone speak the same vocabulary, and not feel like people are getting taken advantage of because we’ve done this a thousand times and they’ve done it a few times, that was really the goal,” Kupor told Business Insider of his decision to publish the book.
The book reads like a how-to manual for starting a venture-backed company in Silicon Valley’s difficult to navigate and highly competitive ecosystem. Kupor relied on few anecdotes throughout the book, and so it reads more like a textbook than the blog series he had originally planned.
“It’s certainly not the Bible because, obviously not every VC firm is the same and it’s obviously heavily influenced by our views here and what we’ve seen over the past 10 years,” Kupor said. “It’s generalizable, though, to a broader set of venture interactions that entrepreneurs will have.”
Here are some of the key secrets Kupor wanted to let entrepreneurs in on in “The Secrets of Sand Hill Road:”
You don’t have to be in New York, San Francisco, or Boston to get funding, but you will need a solid network to get your foot in the door.
Kupor, who also serves as the chair of the National Venture Capital Association, told Business Insider that the organization is actively working on getting a more diverse geographic distribution of both founders and investors.
That said, Kupor notes in the book that the entrepreneur’s network is key to getting a foot in the door at some of the most recognizable firms, and those connections are likely located in the so-called “power hubs” on the coasts.
“If you are not in the California, New York, or Boston areas, you don’t have all the resources that we do. It is harder,” Kupor said. “My hope was if we just got this out there, that hopefully means more entrepreneurship which means it’s a net positive for all of us.”
Venture capital isn’t the best source of funding for everyone.
Kupor spends an entire chapter explaining the different types of funding that are available to any entrepreneur, regardless of location. In fact, he said, most businesses aren’t venture-backed at all.
He told Business Insider that this was the question that he gets the most because it is one of the biggest sources of tension between entrepreneurs and investors. If an entrepreneur doesn’t understand the venture capital model, it can lead to miscommunication and to a failed relationship in the long run, he said.
“I’m just a big believer that, if you understand the motivations and incentives of different parties, you can learn the vocabulary, which, obviously I did want to make sure that was clear, but you need to understand the reason behind the vocabulary and why people do what they do,” Kupor said.
Every term in a term sheet has a purpose.
Kupor said it’s most helpful to not think of the term sheet — which lays out the terms of an investment —as a static piece of the venture capital equation.
Instead, each term serves its own, independent purpose, and could carry potential implications that only come into play down the line.
“It’s so hard from an anecdote perspective to think about a term sheet negotiation because each is unique,” Kupor said.
Instead, he gives readers an example term sheet and accompanying explanation to better illustrate what the process looks like from both the entrepreneur and investor side of things. This way, he said, readers better know what to look for to get the most out of their deal.
Down rounds might happen, and that’s much better than the alternative.
Kupor writes in his book that venture capital investors generally expect about half of their total investments to tank.
It’s baked into the venture capital model of general partners and limited partners, Kupor wrote: Exceptional events like a blockbuster IPO or big-money acquisition offset the losses from other companies that don’t do as well.
So what to do if an entrepreneur finds herself in the less fortunate half? Kupor says it’s best to be honest with current and potential investors about the growth and financial health of the company to avoid “getting out ahead of her skis.”
“Oftentimes we go into those conversations with the entrepreneur and I’m usually surprised by how many times the entrepreneur feels relieved having had this conversation where they’re like, ‘Hey, this just didn’t work despite our best efforts,'” Kupor said. “It’s just better for both of us to have that conversation.”
Venture investors don’t want to take advantage of entrepreneurs.
Kupor said his overarching goal of publishing “The Secrets of Sand Hill Road” was both to educate entrepreneurs, but also try to correct the perceived power imbalance he said many entrepreneurs felt when meeting with some of Silicon Valley’s biggest backers.
“It’s not rocket science, and obviously people can learn it, but it’s something that you as an entrepreneur maybe do one or two times in your career and we’ve done it thousands of times in the 10 years that we’ve been here and we’ll do it thousands more,” Kupor told Business Insider.
That inequality of experience leads many entrepreneurs to think that they aren’t getting a fair deal because they are at a disadvantage, Kupor said. He wanted to give entrepreneurs a look into his world, the vocabulary that is tossed around at Andreessen Horowitz’s Sand Hill Road office, and who he is accountable to in an effort to combat that perception and put some of the power back in the hands of the entrepreneurs.