Secrets of Venture Capital: An Insider’s View of Bias, Ethics, Rule Breaking

Secrets of Venture Capital: An Insider’s View of Bias, Ethics, Rule Breaking

Have you ever wondered how venture capitalists in Silicon Valley decide what startups to fund and what ones to skip? I had the opportunity to sit down with one of these “masters of the universe” and explore the secrets of venture capital. Scott Kupor is managing partner at Andreessen Horowitz (AH) – one of the most successful VC firms in the world – and we had a candid and lively discussion about the do’s and don’ts of pitching; lessons from Elon Musk’s entrepreneurial journey; diversity, bias and ethics; future trends; and when it’s OK to move fast and break things.  Scott teaches at Stanford and Berkeley and has a new book out – Secrets of Sand Hill Road – that aims to demystify the VC mindset. The conversation took place in front of a live audience at the Commonwealth Club in Silicon Valley on June 10, 2019.

Listen to the Fresh Dialogues podcast:

Here are some highlights of our conversation (edited for length and clarity):

Re. Women in business, diversity and bias

Alison van Diggelen: Let’s talk about diversity: Julian Guthrie’s new book is just out – called Alpha Girls – it’s about four women who took on the Venture Capital “bad boys” and succeeded, despite the odds. There are some good lessons in there. It’s a very tough place to thrive as a woman. Less than 10% of decision makers in the venture capital world are women.

Scott KuporThe number is about 10 or 12 %, depending how you cut the numbers, and about 2% of the funding going to female founders. It’s a real problem.

There are two types of bias: explicit bias, which clearly the #MeToo Movement exposed in a very horrible way. We have to root that stuff out. We need to shine the light on what was underground for many years. The more challenging problem is implicit bias…Whether I like it or not, I’m implicitly biased by the networks I came from. When I want to hire for a job, it’s more likely I go to people I know from Stanford. What we have to do is reach out to (other) networks. So we proactively send out job recs to MLT a group that works with African Americans who’re trying to get into business and financials; and we also have a Cultural Leadership Fund (at AH). 

It’s a network connectivity problem. It’s going to take time, it’s a deep rooted problem. 

Alison van Diggelen: How many general partners at Andreessen Horowitz are women?

Scott Kupor: 20%. Three out of fifteen are women. That’s only  in the last two years. For the first eight years we did not have any female partners…We changed our criteria and opened up the funnel to have a more diverse talent pool.

Re: Ethics and moving fast and breaking things

Alison van Diggelen: Let’s talk about ethics: lessons learned from Theranos (the blood testing company that imploded). And Facebook: they used to have a mantra: Move fast and break things. They have been cavalier about sharing our personal data. How do you train your entrepreneurs to have ethics front and center?

Scott Kupor: I think there’s a difference between outright fraud – we can’t have behavior like that in this industry – and there is this idea that sometimes you have to push faster than sometimes is comfortable and you do break things sometimes and ask for forgiveness second. I think there are elements of that that are fine in this business. There’s a difference between committing crimes and defrauding people and are you just trying to move the ball quickly? You recognize there’s going to be iteration of products and sometimes you’re going to put stuff out that may not be perfect.

The big difference is: as companies mature it’s a bit of the Elon Musk question (we talked about earlier) – I think different standards of behavior are appropriate depending upon the size and maturity of these companies. Running fast and breaking things – and putting out half baked products – is not as unacceptable in the pure startup world where the scope of the harm potentially is smaller because you’re still dealing with small amounts of customers, but when you get to the scale of a Facebook, you have a different responsibility. Our best bet on our companies is to use our persuasive techniques to make them value these things.  Over time,  your level of responsibility changes, based upon your success. At some point in time you have to act like the navy – not a pirate – once you conquer the ship.

Alison van Diggelen: Are you saying it’s OK to be a pirate in the early stages of a startup?

CWCluScott Kupor w Alison van DiggelenScott Kupor: It depends on what pirate means (audience laughter).

Fraud and misleading people is clearly not right. But the idea that you might enter into a market where you’re not exactly sure what the product should look like, you might have a theory on what your regulatory structure is, but you’re not 100% sure.

I’ll give you a great example: we’re investors in Airbnb and Lyft. These companies probably couldn’t have been successful if they’d asked for permission every time they went into a new market. You could argue that was unethical: They should’ve got permission first. The reality is, they said: we’re going to go into a new market, we believe we have a defensible theory that why what we’re doing is appropriate from a regulatory perspective, but we also know we’re likely to get challenged on that. But over time, if a consumer utility is big enough, there is a way to deal with these issues. So that’s my definition of a pirate: I think that’s reasonable acceptable behavior. Fraud and misleading people is not acceptable behavior.

We also discuss:

The do’s and don’ts of pitching Venture Capitalists @29:00 in the Commonwealth Club podcast

Lessons from Elon Musk’s entrepreneurship @20:00

Chinese investments, IP theft @40:00

Future trends in the economy; crowdfunding, competition in venture capital @58:00

Women in business, diversity and bias @48:00

Ethics, Theranos @54:00

Find out:

More about the VC Mindset from my interviews with Steve Jurvetson

More insights on Entrepreneurship at Fresh Dialogues

 

Vinod Khosla: Cleantech Wisdom

Vinod Khosla: Cleantech Wisdom

By Alison van Diggelen, host of Fresh Dialogues

Vinod Khosla recently announced a new member of his Khosla Ventures team: none other than former British Prime Minister, Tony Blair, who has been a vocal proponent of action to combat climate change. According to reports, Blair will be a paid advisor and will add his eloquence and global connections to Khosla’s plans to change the world through cleantech investments.

This from Dana Hull at the Mercury News:

“I’m absolutely thrilled, honored and delighted to team up with Vinod and the people he has working for him,” Blair said before taking the stage for a “fireside chat” with executives from six companies in Khosla Ventures’ vast portfolio. “Vinod is one of the most creative, dynamic and extraordinary people I’ve ever met in my life… the answers to climate change and energy security lies in the technological innovations. I am thrilled to play whatever small part I can.”

Chances are, Blair will play much more than a “small part” in keeping global warming and the need for cleantech innovation front and center. His eloquence and British accent will no doubt help. But he’ll be keeping his distance from his fellow Brits at BP who have created an environmental disaster.

Here is an interview from the Fresh Dialogues archives which explores Vinod’s motivations for investing in Bloom Energy, future predictions and his concern about cleantech bubbles.

Click here for the FULL TRANSCRIPT
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Download or listen to this lively Fresh Dialogues interview

 

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The interview was recorded at the SDForum Visionary Awards in June 2009.

To see many other exclusive videos at the FRESH DIALOGUES CHANNEL  click here

SEE THE VIDEO INTERVIEW HERE – A FRESH DIALOGUES EXCLUSIVE –

1. Bloom Energy: Fuel Cell Technology

2. Bloom Energy: Affordability is Essential Video

3. Bloom Energy: Mission to Change the World Video

For a full archive of interviews with Tom Friedman, Paul Krugman, Martin Sheen and many others click here

Guy Kawasaki: The State of Venture Capital

Guy Kawasaki: The State of Venture Capital

By Alison van Diggelen, host of Fresh Dialogues

This week, we feature an interview from the archives with Guy Kawasaki, Apple evangelist and venture capitalist at Garage Technology Ventures

He shares his candid thoughts on why he thinks the venture capital model is broken and delivers a bullish pitch for a $500 Million VC Fund.

On the VC Model and Startups

“I think the venture capital model is fundamentally broken, but for different reasons. It’s not the lack of exits. A series of forces: including open source, the recession – so there’s lots of people available for very low prices and cheaper commercial real estate…You can start a company for a lot less today than ever. Life is good in that sense. ..You really don’t need $2 million to build a prototype…I’m talking about a certain type of company…a web 2.0 content, social network something… I’m not talking about finding a cure for cancer.”
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Download or listen to this lively Fresh Dialogues interview

 

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The interview was recorded on April 8, 2009 when the DJIA stood at 7837

To hear or read more Fresh Dialogues interviews with Guy Kawasaki…

Click here for rules for Green Revolutionaries

Click here for Guy’s views on Prius and electric cars

Click here for Guy’s views on ebooks and the Kindle

To read transcripts click here

Laurie Yoler: On Tesla, Venture Capital and Obama

Laurie Yoler: On Tesla, Venture Capital and Obama

By Alison van Diggelen, host of Fresh Dialogues

Download or listen to this lively Fresh Dialogues interview

 

We welcome feedback at FreshDialogues.com, click on the Contact Tab | Open Player in New Window

Laurie Yoler, a managing director of Growth Point Technology Partners, was a founding board member of Tesla Motors and currently serves on its advisory board. I met with her at the FountainBlue Clean Green Annual Conference on Friday January 29th, the day Tesla announced its planned IPO. Needless to say, Yoler was bullish about Tesla’s prospects this year. We also discussed President Obama’s State of the Union Speech on January 27th and the government’s role in stimulating green technology.

Good news for Green Tech Venture Capitalists in State of Union Speech?

“Rather than what our president said that night, I look at what’s actually taking place, the changes I’m seeing. President Obama as a president has embraced sustainability throughout his tenure.”

Obama’s role: could he do more?

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Guy Kawasaki: Venture Capital Insights

Guy Kawasaki: Venture Capital Insights

By Alison van Diggelen, host of Fresh DialoguesGuy Kawasaki on Fresh Dialogues

Download or listen to this lively Fresh Dialogues interview

 

We welcome feedback at FreshDialogues.com, click on the Contact Tab | Open Player in New Window

This week, we feature an interview with Apple evangelist and venture capitalist at Garage Technology Ventures, Guy Kawasaki. He shares his candid thoughts on the venture capital industry; the fragile economy and why he sees light at the end of the tunnel.

On the stock market and VC investing

“If you are investing in two people in a garage today, it doesn’t matter what the Dow Jones Industrial Average is at all…if you say ‘the market is down so I’m not going to invest in a startup today,’ there’s something ass backward about that. It matters what it (the stockmarket) is in five years.”

Is there light at the end of the tunnel?
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