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CNET special event: Top Silicon Valley investors dish their secretsHolding court at a CNET event in San Francisco, Dave McClure, Naval Ravikant, and George Zachary talk startups in 2012.
Thank you all for coming out. It's totally great. My name is Paul Sloan. We're trying to start doing these events sort of regularly. So it's really great to see a good turn out and thanks so much to George Zachary, Dave McClure, Naval Ravikant. George just had a particularly good day. His company he's involved in invested Millennia Media went public today. So we'll get to that. The... 2 billion dollars up. George is buying for all of us tonight. 1999, 99%, what was the gain? Anyway, so it's just a great time. Want to talk about start up funding in general. It's this companies... you know, we hear this over and over. Really cheap to start a company these days. Lots of angel investors, specially given all the newly rich from Google, soon to be Facebook and everywhere else and lot's of accelerator funds like Mister... way too many. There's a bubble in accelerator. It's all over valued... I'm sorry. Is this thing on. It is. So it's a great time overall. The same time, the company is going public. Facebook is about to go public which I assume you guys can all talk about but what will mean, start up world. So let's just start off by asking... I like you each to answer whether this is a good time to start a company. Oh yeah, hell yeah. It's a great time to be an entrepreneur. I might be a good time to be an investor. That's right. That's totally right. George. I totally agree with Dave. Right now, there's a plenty of capital available. Evey thing I see says that the odds are tilted in favor of the entrepreneur as a category. But remember, there's a ton of companies getting started. Very few of them produce a humongous hits but there will be a big chunk of them that produce pretty good hits. So I think it's a fantastic time to be an entrepreneur if you have a really great idea and if you're relentless and won't give up, that's the key part. I'm not as sure about it. I mean I think there's an enormous amount of opportunity out there that says I think Mark had recent famously said software is eating the world. So all kinds of industries that before were not addressed by software now under attack from web companies in... that's a fantastic essay. Yeah. So I think that part of it is absolutely true. Are you playing games over here, Dave? I'm actually trying to like tweet and promote your stuff. Live tweeting. Don't bother him. When I was talking to him out there, he was doing... Cnet start up, we're broadcasting live. Please tweet seriously. Sorry Naval. No problem. And I think it's a lot of cheaper to start a company these days which is also great. But I... and I think that's a permanent feature of landscape that's not going away it's gonna continue to get cheaper. The issues are that there are way too many companies attacking every space. It's highly and that many not change either and it's impossible to recruit. So basically, if you are starting a company, I would encourage people to be a lot more thoughtful about it. Make sure you're ready, make sure you have an incredibly good team. Don't raise money unless you're going for the goal and for 10 years and you're trying to build a gigantic company and realize the failure rate is gone from 2 and 3 like 9 and 10. So you just have to be much more comfortable if this is... we've become like more like a Hollywood type industry where a few bands and a few movies are winner take all. So that's why I'm not... I'm not aquatically saying this is the best time to start ever a company. So you just said... oh, come on. It's the best time ever to start a company. Does good companies come in bad times thought? I mean look at the talents, it's crunched now. Engineers hard to get. I do think that the best companies really grow consolidate share and take over their markets generally in bad times. I think the best returns come from shitty times. That maybe good. Yeah. Fair enough. That maybe good. Best companies happen on a regular basis regardless of rest of market. Like the financing market is not coed with entrepreneur innovation, you know. It might be correlated with a lot more shit coming to the market. And so, you know, the people who really have passion and really have great ideas are probably somewhat constant and you might a lot more crap in there with it during like big market times and less than that when there's low market times. But you know, there's entrepreneurs everywhere, you know. The one part about a bad economy in a tougher financing market is it's hard for your competitors to get funded. A lot of times, people think oh, the goal is try to get the money. No, the goal is to try to beat your competitors. Not just to the money but to the people. So, you know, that makes a little bit easier in though markets because the relentless founder who says I will not give up and I will win, I've got a real innovative idea, they tend to stick out and shine through a little bit more easily in the bad times. So what do you guys look for and if... answer that one first. What do you guys... what are you looking for since there's so many companies out there these days and you all are looking for slightly different things. Yeah. Personally I like to see technology businesses. So the values is built in technology and a lot of the innovation there that's going on today is the design layer and the application type which is perfectly valid. It's fine. But I got this business related technology. So I love to see companies that are doing hard things and who have entrepreneurs and founders who are well suited matched to doing those hard things and hopefully it is or can be a big market. So it's... for me, it's the intersection of those. I would say we're probably pretty different than most other traditional business partners. So where not necessarily looking at big market opportunities. We don't necessarily require IP. We're mainly looking for smart people as evidenced by great products. So usually our filter is what have you built and so by evaluating products, I like to say product is a great mirror to the soul of the team. And so looking at product will tell you kind of what can they build, what do they envision. Even if it's shitty right now. It can give you some insight as where it could be going in the future. We like stuff that's got simple revenue models. So we're not typically going for growth. We're going more for costumer problems framework. We still do somethings that are growth and some things that are, you know, more fantastic and wild but, you know, right now, kind of looking a lot at education related stuff, apps for kids 0 to 10 and moms in families which we think is a big market and widely under served. Most of everything we're doing is capital efficient on the building side and hopefully capital efficient on the costumer acquisition side. Strong emphasis on online platforms. So Google for search, Facebook and Twitter for social entering, Apple for mobile, Youtube in video. Sorry, I'm tweeting here. So yeah, I mean like there has been a sea change in kind of the ability to do costumer acquisition online in the last 5 years. That's really just monstrous and frankly I don't think most investors have really understood that or taken advantage of that. You know, my answer has changed over the last year. And I think the most important reason why it changed is my town (cleshare?) weird but I remember the day that Steve Jobs died and I said what the... am I doing with my life. And so I have to... And I said like when I was young, I really wanted to change a little. I wanna do school stuff and on that day, I basically said I'm not doing anything unless the founders wanna change the world and they're compelled psychologically to change the world. And I also think it's a good investment strategy 'cause it tends to produce either big or bust. And that's the business that I'm on. So it's pretty easy these days to raise small amounts of money, right. It could be even easier next week we hope. Jobs accurate for instance... and then we'll get back in the search... which by the way, Mister . I kind of lot to do with getting that on the right track. What about the serious A crunch people talk about. Let's hear your field, right. You do a lot more series in investing. You said last week I talked to George and that you said like in a 48 hour spin, you got 70 e-mails from... and you had some off site and there was a whole bunch of e-mails that had been sent from people you were doing... and like people started panicking that they were... you were replying to them in a nano sec. Yeah. I was out last Monday and Tuesday. I went off site and had 70 e-mails. 40 of them were pretty serious summaries. A lot them were seeds seeking venture and I just can't... I'm not smart enough to 70 companies in 1 day or 2 days. I can't think of that many. So you know, it took me through out the rest of the weekend, the weekend to kinda sort it out but the interesting thing was like the tension in the air is definitely higher. So I've got some e-mails on Monday. On Wednesday morning, I got e-mails. Hey. I sent you an e-mail. Monday, wondering if you got the e-mail and there was a lot... did you read my e-mail that I sent you. No. I forgot. So that and the reactions that people are giving to me passing have changed... okay, thanks for replying. I have a couple of people who just wrote back and said, great. You are wrong and I'm going to prove you're wrong. I'm like I'm not even saying in right. I'm just saying I'm not ready to be an investor. So there's like I can feel the tension. Like people are seeing that there is big money available and people are feeling the gravitational pull to the money. So it's bringing out kind of a core behavioral characteristics of people and people want money, there's nothing wrong with that. Yeah. I think calling in a series A crunch tries to create this impression. There's less series A capital or there's something various underfoot. Really what's going on is there's... it's sub series A crunch. Series A is about to be stable to where it has been. Maybe slightly smaller or larger, depending where you are. But there's a lot more seed. And a lot of these seed companies frankly should either be merging joining other seed companies or not raising capital. They should be small business that are sustainable and grown in their own capital. But I think everyone is used to the old model. First, you do a seed and then you go raise a series A and I'm not sure that really applies to every company. But you know, like an angel, as we get a 100 to 150 companies coming in every single day. So you know, we've got multiples of his problem that we have to deal with and we have even left David to go on because these are much earlier companies. And out of that, you know, we can really only pick and promote 1 or 2, like that's it. So I think, you know, series A crunch is a completeness number. Like you know, yes. There are a lot more companies getting at seed than aren't gonna get funded at series A. That's always been the case. The fact of the matter is there's a probably a lot more series A going on now than there was 3, 5, 10 years ago. Well, maybe not 10 years ago. 3 to 5 years ago. And that's okay. I mean there's a lot of... that's gonna be crap and shouldn't be funded. There's some stuff which is okay and we'll find alternative sources of capital, either Bootstrap, they'll have to charge and make the money or they might, you know, seed or crowd funding and then there's stuff that will be great and then like, you know, goes to larger levels. I think a lot or larger VC's are experiencing is holy... there's 5 times as much deal flow as I ever saw before and I can't keep up with it. And it is true that some of that is gonna hit the wall. But the entire industry is way way more efficient than it was 10 years ago. Like we are not doing 5 million dollars into stupid... companies that are all like, you know, shoved into the retail market anymore. Maybe there's a little of that but there's a lot more scientific process. Okay, we'll 50k to trial your idea or your prototype. If you succeed, we'll give you 500k to go to seed. If you succeed with that in getting distribution or modernization, then we'll give you the 5 million dollar round. So the entire VC is way more efficient. There's a lot more good deals to look at. So for large VC who are whining about series A crunch, that's... and they just need to like follow up and sort of like basically become more efficient and become more scalable because like it's great for them. It's great for them to look at more opportunities and... Well, I think the new seed is actually 50k. That's the incubator budget and then the new series A is what we call seed today and that should be around 300 to 500k. Not even a million like people think it is. And the new series should be a million bucks, not 3 or 5 million like people are used to. So why do you think of those particular numbers? I just feel like the cost have come down enough that you can hit the milestones the used to be associated with seed and series A in those timeframes. So, you know, I did a company in 1999. Webspace Opinions and it cost us 3 to 5 million to really build our first product by sun service and Oracle andrun our own data center and write our own provision script and versioning control. It's just insane, right? So today, you can do that while you're sitting at (??) YC or text stars in 10 weeks, 25 to 50k. But that's the same milestone. So that's what to me the new seed round really is. And just, you know, people being what they are, it's like sticky wages, right. We haven't quite adjusted to the idea yet that those are the new check points and if you defined it that way, if you said a series A is half a million or a million dollars, then there is no series A crunch. There's a lot of series A being done. So why is there mania in the air? I think, you know, the public market has been on fire since the fall. People have forgotten about kind of the major, kinda macro head wind issues which are getting worked out but slowly. Those are 2 of the reason. You know, in the Milleinal IPO, asked the bankers on Tuesday what level of over subscription is the book. And I thought they would tell me the book is the order book for shares. And I thought they were telling me like 5x. And they said it's 26x. And I said, they're lying to me. There's no way it's 26x but it was... that they saw 10 million chairs, there's 260 million on the book. And I asked them why... why. And they said it's a hot market. Now, what they didn't tell me... what shouldn't they price it up if it's over 20... what I discover in the whole process is the investment banks, costumers are not mainly invested or stirred up. They are the mutual funds. So they have... the mutual funds will buy, will have relationships with the banks and they'll buy the good and the bad. Not that bad but some of the bad. So they're basically giving their costumers some advance profit if you call it that and today, there was a bunch of griping at Millenial. Like man, we could raise 260 million instead of a 130 million. We got screwed. If you wanna look at it from macro down, you would just say that the global markets are washed in liquidity 'cause every central bank in the world is now printing huge amounts of money and that money has nowhere to go and Silicon Valley seems like an efficient allocator that can only handle a very small amount. And the market seeking growth. Relatively speaking, it looks a lot better than real estate or financial services. Yeah. I mean if you pump 5 billion dollars into seed investing, just think about how many companies that funds. Oh, wait. That's probably what we have today, right. It just blows the whole company into, you know, 5x size like before. It was interesting, the questions the bankers ask 'cause I was some of the roadtrip meetings. They're like so what segment are you on. They said mobile, mobile jack. It's like, do you breath air? Yes. I get it. The 2nd thing is mobile (??). Okay, done. We're buying 10% position. How old is that company? 5 years... 6 years. And of all, what do you say it takes 10 years. I think it takes 7 years to build a company in average as long as exceptions and outlines. I mean you can always find exception to anything but I think it takes roughly from what I've seen for your average good company not bubble environment, not writing some ridiculous way. It takes 5 years to even get to the point where you are requirable or you have a solid business and then you usually have to stick up for another 5 years until you go public. I think it's shorter than that. But if you hear a good IPO window, I don't... you know, I have another rule that's related which is from the moment like he was an entrepreneur. Decides you want to start a company, it always takes about a year. Even thought you think like I wanna start a company next month right. Usually you don't have to find the right person. There's false starts. There's bad ideas. Just a certain natural latency to these things. So just to give you an example, if the number drops, if it takes 5 years to build a company, so many people the market and get so competitive that it takes 10 years to build a company again. So I just think there's a natural pain threshold below which, you know, too many people will show up and it just gets... that's capitalism. I mean... I have a different opinion which I think, you know, building a decent products takes 1 to 3 years, decent company takes 3 to 5 years. And I think, you know, I'm not defining building a great company is something that has to be IPOable. So yeah, it's a different definition. I mean I'm talking about the clients that George says he wants to invest at. George is looking at change like some companies... That kind of LP say either you invest in this or I won't fund you. George. Would you like to be an investor in Trillio and Wildfire? For sure. And both of those companies are less than 5 years old. Yeah. And I certainly think that both of them could be IPO capables. Obviously I'm pitching but... But I think it will be... But Dave, how many do you invest in? 100 to 150 a year. Okay. And so how many will be? I'm hoping about 1 to 5 a year and we'll look like those. That's why invested 100 to 150. To be clear, when I say... I'm not gambling. I'm doing a quantitative model that looks pretty predictable from my perspective if I'm aiming for 450 to 250 million size exits and occasionally, I'll see, you know north of 250 million dollars stories. And do you look at companies and think and try to think already where the exit might be? No... I mean I don't actually. I would I say I didn't think it's really thoughtful and smart about that. He's like great. About sort of like, you know, when he's thinking about the investment, he's already kind of like trying to vision like who needs this and how does it go and we'll probably try to learn more from him. I think about who's the costumer. Like will someone use this, will someone pay for this. And I almost like... smaller markets because there's less competition. Like we can make money on 25 to 15 million dollar exits. That's not where I really wanted to end up but, you know, I think it's actually much easier if let's say I've got 2 choices right. I'm building a product for women, right or I'm building a product for moms 25 to 35 in urban segments with 1 or 2 kids who own a car, right. Do you think you can build a more targeted for this market or this market. How many women are 25 to 35 with 2 kinds in every market with a car. Where, still... low. So like if I can have less competition and build a more targeted product in this market and make money at it, well hell. Like go build that product. It's easier, right. I don't need to build a product for like 50 million women to like, you know, go IPO. I can build it very reasonable. You know, I'm thinking of the (??) right now but also at the investor. And so actually I think what happened is the internet made us be able to be more focused on various ditch markets, specific costumers and we can build better things because of that. And, you know, yes. There will be large companies and there are still like great opportunities to find the next, not Facebook but let's say I don't know, nextmid.com or other nits product that is still a big win. But, you know, I think as an entrepreneur, I think we suffer from these duties and (??) unless you're a billion dollar exit, you're not a good company, right. And there are plenty of great companies that are doing meaningful world changing things on a smaller scale that will be 25 to 250 million dollar... yeah, the reason that happens is because the nature of the venture market which is the only liquidity really that makes a difference to a venture fonder than IPO. But yeah, the problem as an angel is even if you wanna invest in a small company, you know that the most common problem of the company is that no matter what they're going after, they gonna need cash and they will need more cash and then they go to the (??) and say no, it's not big enough. So you end up working backwards and even the angel only end up funding companies that are VC. And as a fundamental issue with the market and the way the funding market is set up, the exit market is set up. And I think some of those are starting to be solved by kick starter and crowd funding might help in those thing with that nature. But I think the exit side of the market is also an issue, right? So the problem that I would have with like the smaller exit is I need to find buyers, right. I cannot take this companies public and so in order to get liquidity, we have to find buyers and I think that market will change in the next 2 or 5 years as well. Yes. As these industries are under attack, they're gonna be buying a lot more of these smaller companies, one would hope. Well, I think like things like 2nd market will also find liquidity earlier on for this thing. What do you think of those platforms? Big fan. So I'm an investor in Caplink. I'm a Big fan of Angel List. We're investing in a company called Trusted Insight which is basically doing Angel List step, one level up for institutional investors. There's another reason why I think it's very awesome but I think, you know, market is gotta be more efficient and the only reason we can't be bringing IPO size thinks down is because right now, there's too many regulatory environments around retail investors. So I think the reason you're seeing 2nd market and other things come about is if you exclude the retail market investor and drop a lot of the regulatory hassle that is in place as a result of prospecting the retail investor. There's a lot of other alternative, you know, sources of capital and buyers. And so, you know, 2nd markets does exist for things that are 50 to 100 million dollar cap and up and that's a lot of companies. A lot of companies are that size and not IPO size and that provides greater capital efficiency for the market. So what about crowd funding? What it's gonna mean? A thought one. To who is the question. For people trying to raise money. Who should use it, what kind if platforms might exist, how useful will it be. It's a lot more crap. Yeah. Well, a lot of it depends on how it's gonna be structured. If you read the bill that actually pass, the senate amended version of the crowd funding bill, it leads a lot to the room... and the NCs got at least 9 months, possibly more to figure it out. And so it's gonna be a lot of periods of holding and comments and reviews and conferencing and so on, back and fort and back and fort and it could work out to the point where every Silicon Valley company may wanna raise a couple of 100k additional current funding or maybe poison pill and you can't touch it 'cause the liability of the fraud potential is too high and it degenerates to nothing. So it's... anybody who tells you exactly how it's gonna work out knows something about what the SCs will do that I don't know. Tell me more about angel... I'm sorry, go on Dave. It's in a current way that they were drafting a law that you have. They're gonna say yes but it has required it's regulatory approval for every Kickstarter or Angel List or somebody else that wants to do... Right. So it's actually quite complex and probably over the... yeah, it's a little too lumpy for here but it's... It's in NCC regulated platform. Yeah, you're gonna be the fund... the fund raising platforms are like lighter broker dealers so they can think about them. They have to be registered. The companies that go on, they have to have audited financial. Their specific liability provision around omissions and fraud. Other than financials before, yes... there are... exactly. There are quite severe liability provisions around the disclosure of information. There are restrictions in the platform of the curate and market. There are huge caps an hooking for (??) for how much and the investors will come on required training schedule. So the 1st... let's... I don't wanna go into regulatory. I mean like only 5 people in the world have actually read that bill. Like everybody has their opinion on it. There's so... well, you know, that's just the case. A whole lot of stuff is very complicated. Tell us about Angel List. How with... as Dave said. More crap coming. How with so many investors out there. How do you keep it so that it's not overrun. Yeah. You know, we curate quite heavily. Everything gets a listing on Angels but not everything get's noticed. Just collapse into the noise. So we do highlight, you know, sort of the best stuff and the community highlights the best to what it likes and what it's associated with. We have definitely raised the curation bar. The market itself moves very quickly. So, you know, 2 years ago, group 1 clone was fundable, then 22 months ago, it became unfundable. And then 20 months ago, a mobile (??) was fundable and then 18 months it became unfundable. And so just bar in the entire market keeps moving up and we've raised the bar quite a bit tho this point where I think right now we'll probably send out, you know, 3 to 5 companies a week were is so the time we are setting off the day. And we think that, you know, at the end of the day what the investors look to us for is actually keeping a high bar. They're not looking for more deals to George's point. They're looking for signal, not noise. Right. They wanted to look at good deals. I would say easily like I said before, Angel List is like the most significant thing that happened to Silicon for the last 5 to 10 years. You know, Paul Gram started YC or building the modern incubator model I think was the 1st light thing. Well, I think Josh did a lot of stuff. Josh (Compton?) did a lot of stuff for 1st run Capital. George has done a lot of stuff for quick start. But like I see it really changed the model dramatically and I think Angel List is changing the model dramatically... 'cause incubators in the 90's were like oh, we give you space. And we talk... it's our idea and we take 40%. Yeah. Unfortunately. So from in entrepreneur's perspective, what mistakes do you see most. Do they ask for too much money, do they for ask for not enough money, do they raise money too early on, do they go the incubator/accelerator? Do they... yes, yes, yes, yes and yes. If the list of mistakes is... the list of mistakes is long. Sorry, go on. The mistakes. List if mistakes is quite long. Where to start is the... yeah, it's a long list. It's funny because when these guys are going through their criteria or specially said what he wants to invest in, I realized like, you know, I don't have a formula or a model like that. And I probably looked at more deals now than anybody on the planet, right. We've got 30,000 deals on. And you, there is no pattern matching because there is just too much of variance. Each on is unique. And so what ends up happening is you start looking for 2 things. One is surprise me. Give me something exceptional. Excite me somehow 'cause you get radiated very fast. Right exactly. It's something I haven't seen before. That was different. Right. And then... that was basically a bunch of hackers who used to be farmers in Croatia who had, you know, were hacking software for farmers. That's incredible. We saw it in Angel List. Dave found it on the Angel List. I could see... and then they came here and now it's just a hot deal that just got done by a bunch of big investors. But anyway, so the 1st thing... follow that path, everyone. Farmers in Croatia. Found on Angel List. Funded in America. What a country. Actually scary but now there are multiple farming companies. It's so crowded. I see a farming company. Farmers at YC. Who knew, farming is hot. So the first I would say that... first is that it surprise me and the 2nd thing is bringing it back to what (??) is saying is don't screw up and most companies screw something up and you can catch it even in Angel List profile... like okay, all right. That's why you're screwed up. Okay. You brought in... those are some examples... or get used to screwing up fast. Yeah. I'll just run down. I'll give you like I can go all day, right. Okay. We gotta go to questions. Yeah. Tech Company. Too many different founders. Visionaries, you know, no product, you know. Just a product that you could have built in the time it took to build the powerpoint instead right. It's too long of business plan. Too long business plan. Tiny tiny market, nitch market to be exact... That's okay, that's okay. Way bad location like you're in Palsa, Oklahoma and we're staying here, right. Founders are clearly not ready to go, right. They have no real experience of space nor do they have anything that shows that hey have the experience in the space. Long cycle time on product... bad looking product. Bragging about minor accomplishments, right. Burying major accomplishments. Can't convince anybody else to join them. Yeah. Rambling 5 minute video. This goes on and on and on, you know, or yeah. And then they think they can fool us, right. So they'll do like cumulative traction grasp. Like come on, like we look at (??) a day. Downloads and users going up overtime. What does that mean? Yeah, actually. Your retraction is constant and not increasing. All right. But companies that have good ideas, good team, seem promising. How do they figure out how much money to ask for or to look and what kind of mistakes do they make on that front 'cause I hear this all the time. What you're actually talking about is the pitch. And I think people over emphasize the importance of the pitch. They obsess over the pitch. That vision chart, right. It's like what's the most important product or traction. In my world, like it's traction, team, you know, market, product, social proof and down toward the bottom is the pitch, right. And the... if you have a great team and you're building a great product and you're growing up something big, you will get noticed. You will get found. Even, I mean some of the best profiles on the Angel List, they're like you have like 1 team members bio. You have a slight description. You have 1 graph and you have 1 link to the product and like that's good. All right. And we'll e-mail them to fill them out and like come back and complete it, you know, we'll get you investors and all that stuff but you don't... the pitch is highly highly overrated. Although I think we also see the obvious thing is now there actually is a lot of good researches and producing a great pitch. One if which I've done. And now we're seeing like wow. A lot of pitches are starting to look pretty good but I'm not sure but I'm not sure that the product... no they don't. They all sound the same. You go to one of these demo days and they all get up and they all have their practice formula. Hello, we're the... that's not how you really talk. Pitch voice. Hello, we're about to conquer huge market. It's like... abstraction is overwhelming. Space sprockets. I think if Y has done 1 thing wrong is they've shlack all the founders in to being identical clones that operates the same way and I actually kind of wanna hear the wrongness of the person 'cause the wrongness of the person is the way that I actually connect to them and put some insight versus, you know, someone who's clearly never presented before basically like acting and I can't connect to the fellow. I kinda wanna hear. See the abstraction here? So abstraction... Facebook. Once it goes in public, what does it mean for starter. Soon. Mark had challenged Pam doing the IPO book. So what do you guess the timeline... I think... well, I don't he's in Shanghai visiting his... with his girlfriend's family about 2 weeks before they're gonna go IPO. So that's probably not why he's in China. Do you think it's just a few weeks away? I'm guessing weeks to single month. Yeah. I think it's late April and May. And when we're doing the Millenia, the bankers are the same as Facebook and they said we gotta get this done by the end of March. I said why the end of March. They said we got a lot other stuff we gotta take care of. I'm like I wonder what they're talking about... then I figured it. On second market, it's not trading about a hundred billion I think. They stopped it, right? No, it's not. Still trades. Yeah. They cleared 50,000 shares last week. Yeah. Okay. Still trading. And it's trading about 100 billion. And I think at this point, it's exploding the whole market up. I got reports for that. That's probably true. Still trading. We can ask Barry but I can't say... But seriously, what does it do for everyone else. Does it increase the mania? Does it increase the e-mails. Reevaluation, probably cross the line. Well, I just meant for other companies. I'm saying the rest of the market feels like oh, everything... but does that increase evaluation for companies that you'd invested? Probably helps with their companies getting evaluation. Probably hurts us in terms of evaluation of new investments. It's good for... probably good for entrepreneurs. I don't know. I mean they're gonna have a currency to buy things with which is gonna motivate other buyers. But they're not regular buyers. They're very anti acquisition. And when they do do acquisitions or small acquisitions and they tend to screw the investors in the acquisitions. They will move most of... what do you mean, Naval? Well, they'll move... the smart acquires all to do this now for the aqua hires, we basically buy the... I don't that smart acquires screwing investors is actually smart. I think that... the clever, right. The Clever acquires are moving most of the acquisition price into the package for the team. Any investors get their money back, maybe with investors if they're lucky. Yeah. So if (??) looking Google. Another folks are watching. That might work for individual Angel Investors. For those of us who are basically producing hundreds of companies in any basis, note for the record. That will not... work. Thank you. I think the smart investors are starting to do multiples on the exits to cover for that. Do we have a mic around? I wanna get questions if people have questions. And also I wanna know if any other predictions, I wanna know what you guys think the world likes a year from now or... International is very very interesting. I think international is way way underrated. That's where the opportunities are as an investor. There are so many good companies internationally that are starving for good investors. That is very smart. Interest in Facebook? I don't know. Probably, yeah. I heard they went from 11 to 16 million in the last month. Questions? And just announce yourself. Cream AK2MP3. In the next great currents, Silicon Valley, the web (??). What you guys see is the next evolution of companies. Is it more efficiency in less cost and black swans? Do you see people being able to build cash cals that also scale like that inefficiently or is there something else that the people are building or you think it the next model that will void Ashley I think a lot of the IPO constraints and twisting of this market. There are some strains on growth and scale and profability that the needs of the big animal at the top which if we can get around to a crow funding. We don't just need them anymore. They need to go away. So what's hot and cool? What's the question there? There's a lot in there. Okay. Okay. We got it. Yeah. Yeah. So there's a lot of things which are trendy these days and it would still stay say still, that social games and photos and to some extent, deal buying sites and... by the time it get's spotted, the trend is too late. I think education and like families are highly underrated and very undeserved. I think that market is huge and very... everyone's overeducated. Over educated? I mean don't go to college camp. Oh yeah. But that's why I think it's great to do education start ups. I used to be in software and now I've been working on gene technology to treat aging and I'm hoping to try and get... genes, you know, your genes that made you. And I'm hoping to do something disruptive there. But that funding system is very clevy, very old world and it's really really difficult. So one of the reasons why I came here was to see if there could be some possibility of getting people interested on that kind of a thing. So without talking about what you're company is, but the question is are there kind of funding models for your kind of business or... yeah, for things that are, you could say leading edge drugs or leading edge therapies. Still at large cap x and it's probably still the same sources. If the capital requirements for those business have changed or are changing, then maybe... there's tremendous technology and adoption and you call it regulatory risk in those businesses. And so they still tend to work very much like they used to work before and so you have to get through the technology risk for an investor by surrounding yourself with incredible advisers, university, researchers, validation. And so it... there's no shortcut in that industry for building up the credibility around you that will then get the investor to take the risk and unfortunately there's no short cuts for that one. I mean it's gotten a little better but not... I can do that. I mean can... Right. No, I think it's great. But I don't... like we have put a few bio tech companies up on Angel List and some of them have done well but usually they come in with like, you know, 5 Standford researches attached. The father of this is, you know, vouch is 4 white papers. So they just need to have that technical validation 'cause we can't do that. And even most of the investors wouldn't even spend the time unless they feel like there's a lot of technical validation around it. So this question is for Naval, like put you on the spot here but as just 1 of the 5 people who have read this bill or at least attempted to, I tried finding the latest version and I couldn't find but because there's so many version of this but are you guys definitively positioning yourself to try and actually get through this process because I know all the investors I speak with perceive so and so are you going to step through all of these, you know, bureaucratic steps in order to... I think it's an open question. So we're definitely looking at it. We're definitely engaged on it. I don't know if we'll go there. I think we'll only end up doing it if we feel we can do it for high quality companies and high quality companies will want to use it. And if we can do it with a lot of fraud preventions and checks in place. Talking about Angel List actually becoming a crowd funding site. Yeah. And so are you concerned in anyway that there is like this, you know, race to capture the market because I see... there's literally like a hundred of these star ups now that are trying to... that have positioned themselve for this market place. So do you think that... what are your thoughts on them? Every market is competitive. All right. Back there... The balls are extremely well positioned. I don't think there is a race. There maybe a race but it's a fools race if that's what's happening. I mean so it goes back to I think the end of the day when you're building a company. You'll always gonna have massive competition and anything worth doing. In fact, they people say we have no competition in anything worth doing. In fact, the people say we have no competition doesn't (??) on a fund 'cause there's some nitch market. And so what's much more important in execution capability and understanding. And so I think we have a good understanding of anyone and I think we have a incredible execution capability. Anyone who hangs on Angel List knows how fast we execute. So I'm not concerned about our ability do it. All of these people who are clamoring about it, you know. Sure. Back there. You talked earlier about the pitch. Can you talk about the quality, average quality of the pitch if you can compare it. If there is a comparison to the days just before the bubble burst back in 2000 when, you know, as we recalled, prices of everything were going to the moon and people where throwing around some crazy ideas. It's definitely much better than it was back then. I was round that bubble and I was pitching during that bubble and it was definitely a lot better that it was back then. You know, some one twitted and that kind of... maybe misquoting him but it was great. He said every bubble ends with someone trying to ship pet food across the country. And we're starting to get small variations. Yeah so... throw it all the way down. You know, it's funny 'cause there are now at these x in the box companies, the new article in Startup Stat you guys wrote it and I thought it was a brilliant article and you didn't make the obvious reference to dick in a box to the Youtube. That would be in the live sketch. Right. It was set on a live skit around us. This gentleman over here. Back to your comment on international. What is your perspective on sort of VC in product equity in the Asian markets. A lot of good ideas, India, Thailand. These markets are clearly starved. So is your outlook and how do you the due diligence? So we're actually modestly active in Asia right now. We've done about 15 or 20 deals across Cbina, Japan, Singapore, India, Australia. I think India is a huge market. I think South East Asia and particularly Indonesia is a pretty big market. Indonesia is not terribly magnetizable right now but that will change over time. China is a big market with lots of complexity. Japan is an underrated market. Extremely developed and great if you know what you're doing and not a lot of local encouragement of entrepreneurship strangely. So we're actually extremely bullish on Japan. My wife is Japanese... What do you think like funding market is developed backwards. You get your (??) investors first then you series C then your B then your A then your Angel Link incubator. And so that's the bad news internationally. It means like someone Angel investing in your company, you're gonna get stranded round some cash with no serious investor to fund you. So I think the logical model is for companies to get a little bit of traction internationally, establish an officer here and then make sure you have a foothold here for your full funding cycle to continue to attack your remote market and I think that model works. George. Are you involved overseas? No. I won't fund anything outside the US. There' only 1 reason and it's not that I'm a US interest. There's 1 company overseas. Yeah. But I personally, I won't do it because of 2 main factors. 1 is Baltimore. That's... I thought Allen who is assigned in Canada. So like the main reason is if I take a day off of 2 days to travel somewhere, I miss all those e-nails, all those people trying to get a hold me in meetings. I don't wanna do that. The 2nd reason which is actually the most important to me is I have young kids and I try to be there every night to put them to sleep. And tonight I'm not. They're watching the live streaming. And that's really important to me. So that's why I don't things overseas. Do you guys see due diligence one of the challenges or is that not a challenges? Is that easy to work... the problem is most due diligence is people diligence. And specially in place like China where they're running set of books, one for the investors and one real set of books. You know, you have to be a local player. Otherwise, you're not gonna figure it out. So it's probably gonna happen with people establishing cross boundary trust right, like I trust this angel in China 'cause he used to work here. He was a friend of mine. He invested a company then he vouches for them and then I can do the A. These trust gossip networks have to be extended out far enough. We acquired a woman in Brazil who is actually spending half time here, half time there because she's a Brazilian. We're... we're having someone in India. I mean I think you have to have feet on the street. You have to have local cultural fluency, language fluency. You have to develop mentor networks, you have to develop angel networks. I mean... I think the 1st fund that figures out how to do full cycle cross border investing is gonna make a killing. But it's a really hard problem. And the probably one country at the time. The opportunity is definitely there... you don't care about international very much. This is a really interesting topic. We should spend more time on this one... I just want more people. Thanks, thanks guys. I appreciate it. Thank you. I'm wondering if you guys have some perspective on the upcoming Facebook IPO and on the... Facebook is gonna public. They're gonna make a... load of money. We'll all use it. Like that's it. We don't need like talk multiple times... No. I'm asking. Hear me out. My question is if it's the pricing and aftermarket performance of the Facebook IPO might set the tone for future funding evaluations per companies down the road. Yeah. Maybe. It's a factor. Next... Facebook is a big ass company. They're doing really well. They're gonna make a lot of money. I think Dave should have invested in it. Okay... I used to work for one of the guys who was one of the biggest investors. Well, what (??) discover a long time line. The venture business on average barely makes money or loses money depending on who's stats it was into. That means for every 10 or 20 or 30 billion made in the Facebook IPO, it's gets reinvested in the frenzy and starts gets lost overtime. So just keep that in mind, all right. So yeah. That's the effect. I think Facebook is distorting what's going on. Like Facebook is this once in a decade really big business that makes a small number of people a large amount of money. And the actual trend is venture is getting a little bit more scientific. We're getting smarter about this business and it's easier to create 25 to 50 million dollar business with regularity. Like that's what's really and what's going on and why it's changing the dynamics because it's actually harder for large funds to make money now because it's easier for (??) to exit early. They earn more of their companies. They're more efficient about it. Like that's what's cool. And like crowd funding is challenging. Seed investors, seeds investors are challenging. A round are challenging. E round investors is like there is efficiency through out the whole system that's going on. Facebook is this... anomaly that is more the old world, not the new world. Yeah. So that's the most interesting thing. Yeah, people keep talking about Facebook but like, okay. How many people here are really still obsessive users of Facebook or have moved on to something else. Yeah. It's over, Facebook. You heard it hear first. It's not over but it's gone so... Short in Facebook. Facebook has gone so mainstream that I think most people here have moved on to Twitter or interest or whatever... But we're the edge. Yeah. I get it. But just saying I don't think Facebook is not interested in talk about here. It's not on the edge anymore. Okay. Next. My name is Elias. I'm an owner of a newly started app company called Appsent Media based out of Oakland and we creative Genetive Music System and we were able to leverage a lot of people that kind of... got in a position that where we have a little bit of capital that we can either A, invest and try to lawyer up and do the patent thing or just actually develop it and pushing the product forward. You know. So I just kinda wanna know what the take is on that and to provoke... okay. A simple answer. If you wanna spend a little of money of provisional patent, that's fine. Develop. Develop. You could have cost these guys afterwards. No. Develop. (??) cost me. I just gotta say that one word. If you fail to build and interesting company, the patents might be worth something when you're trying to sell. Okay. Come on. Seriously, enough. That's... we're running out of time. We cannot monitize patents. You, one over here. Mr. Google. Actually I have a questions 1st. I'm sorry, go ahead. No worries. Good evening, gentleman. My name is William Clenets. Actually I have a 2 part question. Just looking at how low start ups are focusing on certain consumer on the B to C model. Do you feel that they still have more opportunity for growth and for success in that particular part of industry or should we (??) B type business or enterprise clients. What problems do you have? What costumers do you know? Yeah. See, I hate these questions because it implies that you're still flexible that you could do one or the other and like it just doesn't work that way. Either you really love something though your market or passionate about it. Have a product in mind or you're not ready, you know. You shouldn't be that flexible. This is not about me being flexible. This is more about environment opportunities. For example, when we look at mosa, the start ups right now, they're usually as a consumer application. It's for consumer consumption. You can make money in both areas. It's like solve the problems that you have and the costumers... George has 3 claims (??) recently. Our 3 Twitter, Yamer and Millenial. And what does those have in common, nothing. Right. One is a enterprise software, one is a consumer and one is a mobile ad, you know. They're completely different. So I think you can make money anywhere. That's the people using the internet. Good starting place. Second question... with the regards to looking.. starts to looking into evaluate, how sophisticated the modernization strategy or part of (??) are you looking for them to add in order to take them seriously. You need a business model. I don't need to go at the beginning but I would like to know like what's the product, what does it do and who's it valuable to? That's kinda what I need at the beginning. We like to fund things that are simple and revenue model either transactional subscription or affiliate driven. But more important is is there a costumer, is there a problem or is there a strong desire and like problem desire proxy for future modernization. So if that's clear, I don't need to know how you're making money for the find me and nanny for my, you know, mom like that's gonna make money somewhere. One thing that I've learned is that if you have some nagging hunch that you haven't figured something out about your business model and you start a company, you'll never figure it out. Like usually the good entrepreneurs already know where they can money way down the road. I require is to have to hit media scale and hit a hundred million users but they know that they will make money at that point at the end game. So you guys touch the pen, how education is a bubble, kind of this theme... he said that. Yeah. So I understand how that kind of works but I think it's a bit myopic 'cause I don't think everyone can be an entrepreneur. How do you think this will work for the 90% or whatever percent who don't want to be entrepreneurs. Do you think... Higher education particular or... higher education. Yeah. What do you think it will go. Do you think there is room in the government or do you think this will be disrupted? I just think higher education set up is a scam, right? It's a brand based network effect. So everyone has to go to college 'cause you won't hire anyone who hasn't go to college so everyone has to go college. The college just figured that out so that they raised prices 5 to 7% every year with no end in sight... Isn't that like a top RVC though? Yes. No, I think it will get replaced by... we lower evaluations 5 to 7% a year. So what's gonna happen is obvious which is what is a college education (??) start getting debates because University of Phoenix or whatever, you go online and you get accreditation. You take self courses and eventually we will route around this brand based monopoly of the college set up. That's all. If you believe Mark Andresen, he thinks all these schools will be totally global and then you can, you know, people in Cambodia will be getting MIT degrees on their smart phones. I think it's gonna happen. I funded a company called Udacity which is one of the faster growing online universities and one of the co founders was a professor at Standford and he took me through a model which basically show that 75% of the cost of a Stanford Degree has nothing to do with getting an education. It's Real Estate. It's Facilities. It's Admin. And it's about the admin hiring admin. And in fact, I've seen the e-mails which is inside of Stanford. They're hiring admin to support admin so they qualify as a non profit. It's huge problem for the people running it. It's not a non profit. So you know, I think the one of the awesome things with Udacity and the other competitors are we can educated the world's population. If that's something I can do with my life and back, those people... that is great. That is so inspiring, for me to change people's lives. And we have e-mails from people all over the world saying Thank you so much. Like I'd never had a company where the user reaction was that positive and like if I get to this do this as a job, fund people to do that, that's my dream. I hope in my lifetime, we'll see people able to take a test and just get a college degree. Like you just take the test... like yeah, you're good enough. You got it. Here you go. I mean higher education itself, I mean I tend to agree with Peter that it's mostly... like I really think, you know. well, we funded a company called University Now that I think can do some interesting things at a broad based level and like trying to make that efficient and less costly and make that available online globally is important. But the way more interesting part of the education market is kid 0 to 7, maybe up to 10 or 12. Like that's where you do actually do real learning, meaningfully learning and then like 12 or older, (??) probably be vocationally oriented where like at least in most parts of your worlds, it actually raises your living standards like things that are important to do or trying to figure out like prenatal health care and education at 0 to 3, 3 to 6 and you've solved 80% of the problems if you do it before the age of 6. I just want to say Thank you for Udacity. I love the product. Hey, listen. I have quick question that a couple of people e-mailed me about which is that they're concerned about being over 45 or 50 and wanted to start something. Keep your (??) young. I started to fund when I was 44. No seriously. Will you fund guys or women who are older? Yeah. We have. We do. Assuming that they are active and they had a lot of energy to put into start up. I'm 38. I'm gonna start and hope I'm fundable. I'll give you some money. Quick question here. Can you talk about besides the obvious situation in terms of your actual capital investment for entrepreneurs. What else are you bringing or do you bring to the table for that entrepreneur? It's a good question. I mean, does... for an entrepreneur or what should they look at other than just a cash? I bring that. Oh, come on. You bring a lot. A lot of time. So I mean I think that's where again there's a real opportunity for innovation. So we're trying to bring design and usability services on staff, we're trying to add distribution services on our staff. We're trying to have distribution internationally as part of that. I think there's... it's interesting how many large VCs are not reinvesting in infrastructure and resources. I think... all of it. There's like 2... it does really like... and the 1st round had done that. I think you know, there are some other smaller folks doing something and stuff but not too many. So that's the interesting innovation of venture business which is that the incubators are building infrastructures to help their companies as supposed to just trying to help them with advice. And I separate out smart money and dumb money not based in the value they add because if a board member can walk in Monday a month and, you know, teach you stuff about your business, then you're not good enough to go back and you need to go back and learn more. So yeah. So that board seats are highly overrated? No no. That's not it at all. To me, what board seats are about is about investors investing the entrepreneur. So really, smart money and dumb money is when you get in trouble, will this investor back you, you know, bail you out, believe and he'll take you to the next round or they're gonna hassle you, harass you, make your life miserable. And if I'm selecting investors to my board, I care far more about supportiveness than about value. But you know, intellectual value add. I'm not looking for my board member to come and solve math problems for me. I think sometimes have a lot of entrepreneurs tend to approach their investors. I think it's silly. Yeah. Chemistry with the investor is what the person on your board is critical. If you don't have good chemistry, do not take their capital. Completely. Just like anything else in life. Good chemistry of the person do not get involved in whatever way you want. Do not have a smart jerk on your board. You will regret it 'cause they will screw and they will be really good at it 'cause they're smart. I think there's a ton of specialization and they should have a venture and I think we're seeing that right now. So I think you're seeing incubator sort of morphine to like health care focus, education focus, tech focus, platform focus. I think, you know, that's a good thing. That actually is the natural evolution. And I think there are some large and innovative VCs which are experimenting with modeling interesting ways. Time for one more. Sir, in the whole online internet space, the plane field is really leveled right now. And SOPA and PIPA have kind of died down a little bit but the telecoms and media companies are gonna keep trying to make it, you know, either pay to play or fight against net neutrality. Do you guys feel any responsibility as kind of figure heads or should there be more lobbying efforts to kind of stave off these kinds of attacks on something that could really hurt this entire industry? You know, I've spent some time in DC recently and as angels, we definitely we're vocal against SOPA and PIPA and we ran some campaigns and we were very active in a job sack. And I can tell you that DC now knows sort of value exist. And... 'cause we've got money and the want it. Well, we've got money and we've got a voice. And I think they are definitely paying attention. I don't think so (??) organized because by nature we're all sort of individuals and, you now, we all like to do our own thing and compete and all that. So we're not an oligopoly like the MPA or the RA. We're gonna band together and have a (??) effort. And I think it's silly to even try. I see all these grass roots efforts to like combine Silicon Valley. Let's get... it just doesn't work. It's not in our nature. But I think we could do is we could do is we can build a few internet scale tools and score cards and tracking systems that allow us to project of millions very quickly and very easily. And I think that's all we need. And I think... and I actually think start ups will do that. I think there are smart start ups that will figure out how to project the Silicon Valley voice and they will figure how to get paid on it. Beyond Twitter. Beyond Twitter. Yeah, 'cause Twitter doesn't aggregate. Twitter doesn't unify. So here's an example. So I think it would be amazing if someone built an Iphone app that if you are a preventative and by the way all the reps are on Twitter or all the centers are on Twitter and you can say okay, what of my constituents think of this bill and this issue? And it tweets out and it goes to all of your constituents and then they answer and then automatically adjust for their demographics. Like okay, based on people who districtly live here in the geo location maps. Here are the votes. 57% of the people who are just watching the vote on this bill. That simple app alone would change the world. I talked to the house majority and he said he said heat it up tomorrow and you force all the republicans to (??), right. So it's just waiting to be build. The investment can just go low and it's doing something like that but there are several companies doing basically campaign, electoral, sort of aggregation. Yeah. So I think, Silicon Valley. Yes. We should be vigilant but we're better off now than what we're before. I think we're out of time. Thank you all so much. You heard it hear 1st. Facebook is a fad. And don't work with smart jerks. Do not quote me out of that.