12 Things You Didn't Know About Venture Capital

by Guy Kawasaki

I recently interviewed Mike Moritz of Sequoia Capital and Paul Graham of YCombinator. Mike Moritz is probably the most successful venture capitalist of the last twenty years since he invested in Google, Zappos, Yahoo, and PayPal. Paul Graham's YCombinator is at the leading edge of tech startup creation. Contrary to the typical bull shiitake that most venture capitalists spin ("we want a proven team in a proven market with a proven technology"), these guys are really making things happen. I picked up these twelve lessons from the interview:

1. Entrepreneurs don't have to be "proven" to impress venture capitalists, but they do have to get things done and be creative, enterprising, determined, and smart.

2. Entrepreneurs do not have to present proven things. When things are already proven, they tend to be uninteresting.

3. Entrepreneurs should not only be good at building things—they should also enjoy doing it. The question is: "What have you built outside of school or work?"

4. Entrepreneurs must prove to their investors that the company is the most important thing in their lives.

5. Sequoia loves the underdog. That is why the firm is funding so many companies in China, India, and Israel. And, it turns out, these foreign companies are kicking butt in revenue and innovation.

6. It's okay if entrepreneurs do not know how to make money yet. The most important thing is that they have a great product.

7. The best financial forecast is developing something that people really care about. If that is the case, the money will follow.

8. Venture capitalists have super fine-tuned BS detectors. Entrepreneurs can't fake sincerity or the pursuit of excellence.

9. Generic language, like "passion," is a turn-off for investors. Entrepreneurs should not say that they have passion—they should show it.

10. The smarter the investor, the more entrepreneurs should be candid.

11. Entrepreneurs should not surprise investors, so be forthright.

12. Today's startup environment is a world in which entrepreneurs must be self-sufficient. Entrepreneurs cannot rely on getting outside money.

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