Podcast Re-cappers: What Venture Capitalists Look For In a Start-up

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In this installment of Podcast Re-cappers we take a look at a recent episode of The Tim Ferris Show. In this episode Tim interviews venture capitalist Chris Sacca. In the 90-miniute talk, Sacca tells us how venture capitalists work, what they look for in an investment, and how we can inspire better entrepreneurial leaders.

Tim Ferris is the author of The Four Hour Workweek and has built up quite the reputation as a thought leader, investor, and innovator in the business world. Chris Sacca is a successful venture capitalist who’s invested in many well-known companies such as Instagram, Twitter, Uber, and Kickstarter. Most recently, Sacca was on the cover of Forbes magazine’s “Midas issue” which came out in April 2015.

Sacca doesn’t have any formal education in business. In fact, he even went so far as to say that MBA programs are a joke. He became successful in business because he had the right people showing him the ropes.

“I was really lucky when it came time for me to get started as an investor,” he says. “I had many guys paying it forward and teaching me about the game; guys like Josh Kopelman at First Round and Tony Conrad at True Ventures; being really generous with their time and helping me figure out what was going on.”

Sacca gives us four rules that he lives by as a VC.

The first one is to only get involved with deals where you feel like you can have an impact. Success is never a guarantee, but it’s important to feel like you can make a difference.

The second rule is to go with something that already looks good and you can make it even better. Don’t go in on a deal with a company that looks bad thinking you can fix all their problems.

“Give yourself a chance to get rich,” Sacca says as he explains the third rule. “It’s all well and good to throw 25k around into some of these deals, but most of them won’t be home runs. Most of them won’t turn into unicorns. Most of them will fail. Most of them will require a ton of work, but a bunch of them will be successful to the tune of doubling that money over a year of work.”

The fourth rule he had to share was just to be proud of every deal you make and believe in the company that you’re putting money into.

One of the red flags he looks out for with entrepreneurs is in their pitch. If they look as though they’re trying to convince themselves, Sacca will pass. Successful founders believe in their work 100 percent and when they talk about their plans for the future, they speak as though getting there isn’t a possibility but a certainty.

Sacca say that the venture capital game is tremendously unfair. Entrepreneurs are taking a huge amount of risk, but for the VCs there comparatively little risk. Sacca has nothing but admiration and respect for entrepreneurs because he understands how hard it is, and how slim the chances of success are.

Ferris asked him to talk more about the good deals that he missed in the past, and there were many of them. As an inventor, your default stance is always “no” until you really find a reason to think that a company is really worth investing in. Most deals won’t make money, but his instincts aren’t always right.

A good example of this is Dropbox. Sacca met the founders when they were still at Y Combinator and he told them that Google was currently working on a program called Platypus which would be released as Google Drive soon, so he suggested they pivot their business and decided not to invest. That turned out to be a bad decision as Dropbox now has over 300 million users, and a $4 billion valuation.

All this and much more is revealed in the podcast. It’s a long show, but an entertaining one and definitely worth a listen.

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Chris Riddell

Chris Riddell

Chris Riddell is a freelance journalist, copywriter and poet from Mississauga who now lives in Montreal. His byline has appeared in many newspapers and websites such as The National Post, The Globe and Mail, The Montreal Gazette, and Torontoist. He's an expert profiler and has interviewed many notable personalities such as KISSmetrics founder Neil Patel, Ontario Minister of the Environment and Climate Change Glen Murray, and Hollywood actor Michael Rooker. If you want to find out more about him, visit his website and follow him on Twitter @riddellwriter.
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