Takeaways from YC’s Demo Day Pitches — from an alumnus turned investor

With every new demo day I see, I notice some more recurring themes and small optimizations that could be made to the pitches.

This is because I’ve attended many demo days: first as an investor, then as a founder (W15), and finally as an alumni/investor. I know what Demo Day means for both the founders and the investors given that with Mission and Market we’ve also already invested in 18 YC companies.

The pitches are superb, especially considering they are put together in the last few days, and these are just notes on the few things that I think could be improved. I hope they can be helpful and valuable for eventual W17 participants.

0. YC is scary good

This is another stunning batch. I’m still equal parts impressed and scared at YC’s sustained quality and incalculable ROI potential.

I’m equally more impressed at the genius of YCVC’s LPs who continue to get an index of YC companies at a great price with zero effort. Kudos 👏.

1. Mismatch between founders and investors perspective

As for fundraising itself, pitching presents a unique problem in the fact that an entrepreneur only needs to create 1 pitch, but an investor needs to sit through 100+. This creates a misalignment of incentives, perspective, information, and so on.

The founder wants to explain the key things and biggest achievements, and only really thinks about their pitch. But so does every other founder.

A founder thinks that as long as their pitch is good they’re golden, but the reality is that founders should pay a bit more attention to how all their batch-mates are presenting their companies — to really get a feel of what it could be like from an investor’s perspective.

As YC’s average company quality keeps on rising, it means that getting noticed becomes harder and harder, because having a big market, great traction and a good team are now just baseline.

An investor might sit there and see dozens of high-quality pitches that check all of the thesis / sector boxes, but will probably only invest in 1–5 companies.

2. No originality

As a result from the point above, this year too, most pitches are all the same.

Numbers, LOIs, revenue potential “from just these customers”, $B market, perfect team for it, and so on.

  • What the founder thinks: this is awesome, ticks all the boxes, yay me!
  • What the investor thinks: yawn, this is the 50th I see today that says the same thing.

The problem with non original pitches is that, for me, as soon as I start to get excited about one for some reason, I’ll kick myself and say: “why didn’t you get excited about the other 30 with the same exact numbers?” “maybe this is just baseline and none are exceptional”.

There is much more to gain than to lose from spicing up the pitch and trying something no one in the batch will.

Comedy, videos, animations, personal story references, whatever would usually be a total no-go for a pitch, become fair game when pitching as one of 100 others. (There’s the classic problem of needing to be the first and only to do it, because 100 animated pitches are obviously much worse than 100 normal speeches).

3. Unrealistic numbers

I clearly remember at my first investor demo day a company announcing they would be making an insane amount (9 or 10 figures) in revenues that same year.

Now, I’m sure we’ll see such a company in my lifetime, but it is extremely unlikely that a company would be pitching for an investment in front of investors if they’re going to make that cash.

This makes me discount all of the other things the company says + a lot of what the other companies will say.

In general, it’s really easy now for me to tell which numbers are genuinely true and which ones are only the result of a super-short unsustainable hustle that is clearly pre-PMF — as much so as I almost remove from the equation traction altogether at this stage.

4. Very early companies

I don’t know if there have been a lot of pivots during the batch or if there were a lot of very young companies accepted, but I’ve found a lot of companies saying “after just 2 months” etc.

This is making it obviously amazingly hard to judge any of these and justify the valuations. Eg. “if you’ve been able to do all of this in just two months, and there doesn’t seem to be any unfair advantage anywhere, maybe a lot of other people could do that too”.

5. Stories work, big numbers don’t

I have clearly noticed that the pitches I get mostly excited about don’t start by saying: “we have X customers and Y revenue, and there are Z addressable customers”, but are the ones that take time to explain the story. They get me interested in the market, team, solution — something.

I much prefer getting a glimpse of the vision and mission rather than a sterile recount of numbers.

6. Defensibility

As the startup market gets more and more crowded, something I worry about a lot is how defensible a technology, brand, market positioning, or whatever really can be.

It seems to me this is not addressed enough and sometimes might cause me to judge a company too quickly because I’ve either seen many other companies do the same thing or worry it can be replicated by great and fast companies in adjacent markets.

Imho, these would be wisely invested seconds.

7. no UA

I still don’t think I’ve heard from one company how they acquire customers. We certainly didn’t explain it in our pitch, and I regret it. But in today’s environment that is the #1 thing I think of and the easiest reason to dismiss something “cool, but how in the world are they going to consistently and profitably acquire customers at scale?”.

I know 2.5 minutes isn’t a lot of time to give a full picture of company, but 20 seconds to tell me about an edge acquiring customers can make all the difference.


  • I unfortunately wasn’t able to attend live this year, so I watched all presentation videos online (thanks YC!). I must say that I have really enjoyed the confort of watching the videos from my own couch at my pace, researching the company and the founders online at the same time, while stopping and resuming. I also had the privilege of having my two partners at the event who could ask the questions that came up and round details which made it the perfect setup. I highly suggest it.)

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Ideas aren’t worthless

I wrote this post years ago on my personal blog, but after having invested in ~40 companies (and raised a multi million $ seed round) I’m way more convinced about it and wanted to share it again here on Medium.

Let’s end this bullshit now. Ideas are not worthless. Ideas are important and the very foundation of every successful company.

TL;DR at the end.

The “ideas are worthless” mindset

I feel the industry is failing in messaging a very important point, and that is the fact that ideas are not the only thing in the success of a company. Being in love with the valley’s state of mind, I too have been drawn by this to think that ideas are worthless and execution is king. I actually believed this and told this to every founder that came in pitching their business while I was working in VC as well as almost everyone who asked for advice.

Well, turns out I was wrong. I’m sorry. Your idea was not worthless (even thought it was probably pretty bad).

It took me a while, but slowly I realized how broken this mindset is.

What is an idea?

It might help to define what we’re talking about.

I like to think about an idea as the sum of:

  • finding a pain
  • in a fast growing market
  • hypothesizing a product or service solution
  • and understanding how to bring it to your customers

So, for me at least, an idea is not: “hey, let’s build an app to get a black car”, but more of:

  • getting a cab sucks
  • transportation is enormous and people hate driving their cars around, parking is scarce and expensive
  • the easiest thing to do is to work with black cabs
  • we’ll build it as an app and get it to the tech elites in SF to make it look exclusive

It’s a story.

Do VCs value teams or ideas?

Valley VCs like to make you think that they only decide on investments based on the team, but in reality (consciously and unconsciously) what they are really valuing is a mix of factors, best represented by your idea (as defined above). The questions a VC asks and answers in his mind are along the lines of:

  • does this make sense? Is there a real pain and opportunity? Is the solution smart? Will people use it?
  • is there a big and growing market for this? if not, can it create a new market?
  • is this the right team to execute on this idea?

You only get to the team part if the ideas makes sense and the market for it is huge. On top of that, you have to be the perfect fit for the idea you chose (right skills, unfair tech or knowledge advantage, etc.).

Only very few and very early investors can afford to invest based exclusively on the team (Y Combinator most of all), and are probably skewing the message that needs to pass to entrepreneurs.

When I raised my multi-million $ seed round, no one dug into the team’s expertise as deeply as they did into the pain, market, solution and customer acquisition strategies.

The canonical pushback on the argument that ideas are important is the following.

Ideas are cheap. What matters is execution.

Which I would rephrase as:

Bad ideas are cheap. Good ideas are extremely rare and executing them is incredibly hard.

Ideas are valuable. Good ideas are scarce.

And when an investor finds one, he’ll definitely get interested into it even if he’s never heard of the team. That doesn’t matter that he’ll be funding it or that it will work.

There’s one catch tho: evaluating ideas might be one of the hardest and most counterintuitive thing ever.

Paul Graham recently wrote:

“the best startup ideas seem at first like bad ideas. […] if a good idea were obviously good, someone else would already have done it. So the most successful founders tend to work on ideas that few beside them realize are good.”

Not many investors realize good ideas actually look pretty dumb in the beginning to people who still can’t connect all the dots together. That is as true as hard to admit for an investor, so big kudos to PG on that.

This is also the only reasonable counterargument to the “ideas are important” philosophy: “ideas are extremely hard to evaluate”. YC now actually lets you apply without an idea. Does this mean that ideas are worthless? No, it means that they are receiving a ton of bad ideas and want to make sure that good founders work on good ideas. So often smart investors will strip down the idea into its core parts of market, opportunity and solution and will evaluate on those before moving on to the team.

When is an idea good or bad?

At this point we should probably start to explore what makes an idea good and what makes it bad, cause this is where most of the confusion happens. But don’t hold your breath, I don’t really know. I like to think that you have a good idea when you have a good number of those elements:

  • A deep understanding of something specific. An obsession.
  • Knowing something is true that almost nobody agrees with you on (cit. Peter Thiel)
  • The realization of a problem, gap in the market, future market shift
  • A creative and innovative way of exploiting that knowledge
  • A new enabling technology that dramatically lowers the barrier to creating something (better if proprietary)
  • A marketing insight to get people to notice your product
  • Some unfair competitive advantage and barrier to entry in respect to other competitors

A good idea is derived from spark, creativity, business acumen, luck, technical knowledge, madness, experimentation and sometimes laziness.

Wow cool, so that means I should ask everybody to sign an NDA before telling them my idea!

Not even in the slightest. Even tho ideas matter:

  1. execution is still what makes them successful
  2. you should have had the idea because you are passionate about the market and have either an obsession or deep knowledge that other people don’t so:
  3. other people will probably not think that your idea is good and thus:
  4. nobody will even consider copying your idea when they have an already long list of theirs to execute
  5. As a bonus, I’m a firm believer that you should be the right team for the right idea (probably another post about that too), meaning that anyone who copies your idea should fail. (They called this founder/product fit in the meantime)

But what about pivots? Every successful company pivoted from an original idea to something different!

You can’t pivot yourself from a stupid idea in a small market into a great one. Your original insight has to be a decent one first. you have to find the pain.

A pivot should come from a much better understanding of the market, the customers, the technology etc., and should be the ultimate good idea.

A pivot is not: oh photo sharing didn’t work so I’m going to do a subscription e-commerce for pets. And, as a bonus, a pivot is not: “oh podcasting didn’t work so let’s do status updates”, cause that should be phrased like “ok podcasting didn’t work, it was a bad idea because there was no market for it, let’s call investors and tell them they can take their money back or stick with us while we work on a new thing”. That’s not a pivot, but a new company entirely.

SHOCKER: most people invested in Twitter when it was already Twitter. And everyone invested in Facebook, Square, Evernote and Dropbox, when they were already working on the companies we know today.

Further awesome reading: The only thing that matters by Marc Andreessen (spoiler: it’s the market).

Happy to chat more about it on Twitter here

Why we need an alternative to venture capital

Having recently left San Francisco for the Italian alps, I have been reflecting a lot on the opportunities and problems for companies outside of startup hubs which, by the way, are the vast majority of the world’s companies.

In this post I’ll try to put down on virtual paper my current observations and the reasons I think there is a clear opportunity for alternatives to standard VC approaches at the moment and in the future.

The trends

1: VC isn’t for everyone.

Running a micro venture fund, I can more and more understand how VCs need huge outcomes to make any attempt at a decent return for their LPs.

The VC model makes it absolutely non-profitable to invest in any business which doesn’t have a very real chance of being a $100M+ business in a relatively short timeframe.

Oftentimes I’ve found myself saying:

wow, this is going to be an awesome business, but I seriously doubt it could scale past $5–10M in revenues.

If you think about it, that’s a crazy thing to say: an “easy” $5–10M business is amazing!

But the risk / reward balance is completely different from how we (and most VCs) set up our fund, where most businesses are expected to fail (because they risk big trying to become #1) and so the successful one needs to return the fund multiple times (eg return 50-100x).

This means that any business who structurally only has the possibility to become a $1M-$10M business, or is playing in markets who don’t enjoy massive margins and stellar growth, needs to find an alternative to finance itself.

And guess what, that’s 99% of all businesses in the world which are getting overlooked by VCs.

2: Growing trend of businesses aiming for healthy sustainability

Some savvy businesses now openly reject the VC-first, growth-at-all-costs mindset and intentionally go out to create a small, sustainable business that doesn’t drive them crazy.

This growing number of entrepreneurs is thinking very strategically about their funding options, and is not compromising on control of the company and dilution.

This is not only happening in not-sexy-anymore markets like retail, ecommerce, and services; but also more and more in traditional VC hotbeds like SaaS.

Building a 500+ person business or being the market leader in a category is not in the wildest dreams of most people. Most entrepreneurs start out wanting to bring something to the market and then use employees and growth as a tool to deliver a better product or service, while also making more money.

Most entrepreneurs are perfectly happy running a profitable business, which gives them a high quality of life and fulfills them.

3: Alternatives suck

So, we have VCs that rightly focus only on what will drive their very specific returns, but at the same time we would expect the market to take care of the remaining 99%.

Somehow that’s not the case. Financing a non-high growth business is a mess and business owners spend way too much time between bank loans, government programs, friends and family, reward crowdfunding, equity crowdfunding, etc

None of these options are easy to access, and most importantly none of these options are optimal for these businesses.

This means that these businesses also often go and try to raise money from traditional VCs and accelerators, wasting everyone’s time and creating a lot of discontent in the process: VCs are overloaded with mediocre “venture” deals, and entrepreneurs need to face multiple rejections (try hearing all over again “your business isn’t good/fast/big enough” multiple times per day) and end up spending a ton of time on activities which don’t contribute to the business.

View at Medium.com

As you can see from Frank Denbow’s post, it doesn’t look great for someone who wants to fund their business without venture capital. Especially if outside of the US.

There isn’t much for most small internet businesses that need an investment and which are somewhat risky (no bank loans), will only be able to return it in the medium term (no pure debt), and don’t have the possibility to become a $100M+ business (no venture capital).

4(a): Plummeting cost of starting an internet-enabled business

Nothing new here: cloud, open source, great content, etc.

Unknown source

What is rarely mentioned is the, quite obvious, impact this has: many, many more internet companies are being created every single month.

4(b): It’s getting harder and more expensive (plus physically and mentally taxing) to become a gorilla business

Uber has famously raised $12.5B in funding, and doesn’t look like it’s done, in order to become the dominant player in its market. Many other venture businesses are following suit and are having to raise bigger and bigger rounds in order to keep the growth trajectory needed.

Increased number of companies means increased competition, which in turn leads to higher customer acquisition costs for virtually anyone, requiring more and more cash in order to grow big.

It’s not easy wanting to become a big startup when you start with 3 competitors with $20M in funding each. Take for example all the food ordering startups, or even the much more unproven market of “we’ll park your car for you in SF”.

VCs are also all trying to put the most cash possible into the few deals who will return the most money, meaning funding for non-category winners could be scarce.

4(c): Bigger and bigger online markets

Again nothing new here, I could insert any other up-and-to-the-right graph in here to explain just how many potential buyers of products and services exist today online.

4(d): Increasing number of very successful niche businesses

The above points, mean that I believe we will continue to see more and more successful small internet businesses — which is an awesome thing.

These businesses will continue to enjoy the key traits of vc-funded internet businesses (high-margins, easy to distribute, scalable, easy to pivot and adapt to the market, etc.) but won’t have to compete to the extreme in order to become the dominant player in a specific market.

In fact, VCs’ biggest problem today isn’t finding which business will work and which won’t, but finding which business will scale and become massive.

Christoph Janz and Josh Hannah famously wrote that building a $1–2M SaaS business and a $10–20M ecommerce business is not that hard.

5: Not everyone can be located in a startup hub

Creating a high-growth startup outside of the traditional startup hubs adds another (big) layer of difficulty to achieving unicorn status.

Local VCs can surely fill the gap, but oftentimes it’s not particularly profitable to set up a VC fund in non-hot ecosystems which leads to scarcity of venture capital. Italy is a prime example of this.

The opportunity

Given all of the above, I think there is a clear opportunity for creating alternative financing programs that target this emerging crop of successful, profitable, quality businesses which I like to call SIB (small internet businesses).

I think the bulk of businesses that would be interesting candidates will fit in the three very broad categories of ecommerce, saas and services; and will exclude anything that is social, consumer and big tech; but I won’t be surprised to find unexpected business types in the mix.

I’m still figuring out what the perfect instrument would look like. It will most likely have to be a mix of equity, convertibles, pure debt, royalties, preferred dividends, and other exotic structures.

Who’s doing something about it

There are dozens of new venture funds launched each month, but surprisingly there aren’t many people tackling this new opportunity.

The one that drew the most attention recently is Bryce Roberts’s Indie.vc effort which started out as an experiment but has since raised a “big” dedicated fund to continue on the vision. They recently got a feature on the WSJ as well.

View at Medium.com

Indie.vc works in a very, very, very entrepreneurial friendly way: as soon as a company decides to pay a dividend, Indie.vc receives 80% of it until they get 2x their investment, after which point they will get 20% until a 5x return.

If a company decides to raise follow on funding or sell the company before they have returned the 5x, the investment will convert to a negotiated equity amount.

This model is very innovative and seems to have stirred up the interest of many entrepreneurs.

It remains to be seen how this translates to returns. 5x is not that much of a return, meaning that the margin of error in selecting the companies is very small and they can’t afford many to fail, otherwise they wouldn’t even be able to return the capital, let alone an interesting IRR (given that the return is also probably going to take a while).

That being said, Bryce has been thinking about this more than anyone else and already have a full batch of data to evaluated what would work best.

Others include Lighter Capital, which loans between $50,000 and $2M and gets repaid through a percentage of the company’s revenue. This approach is a mix. On one side, it can be considered less entrepreneurial-friendly and aligned to the company, as it takes away very valuable money from the company’s balance sheet, especially if still unprofitable.

On the other side, the business won’t give away any equity should it get acquired or raise more money, Lighter is incentivized to have the business grow faster, and the maximum repayment will be around 1.2–1.8 times the investment.

RevUp by Betaspring has the same model, but act as an accelerator program at a much earlier stage.

As I enter the next dimension of my life outside of a startup hub, I’m extremely interested in understanding how this growing number of businesses can be financed to enable more innovation, economic growth, job creation and ultimately value creation in places that can’t rely on billion dollars venture funds.

If you have any thoughts, I’d love to hear them. And if you’re going to be at Microconf Europe in Barcelona, I’d love to chat about it there!

p.s. I’m still very bullish on the venture capital business model for high-growth companies located in startup hubs and I’m still investing out of Mission and Market in such companies out of San Francisco, like our portfolio companies Eaze, Padlet, Transcriptic and more.

We’re specifically looking at any company that can leverage proprietary deep learning techniques to create previously unimaginable value and efficiency such as our portfolio companies Atomwise and Enlitic.

Goodbye San Francisco, Hello Italian Alps

Marmolada and Bindel Path. Copyright https://www.flickr.com/photos/jirisigmund/

Exactly two months ago I resigned from Kickpay and we packed our luggages, sold everything that did not fit in our car, gave back the keys of our home and started an amazing two months trip through the US and Caribbean.

Now that trip is over, and these are our last few days as full-time residents of San Francisco, the feelings are getting weird.

San Francisco has given us a lot. We both quit our jobs in Italy and moved here in the summer of 2011 with absolutely nothing.

It’s pretty unbelievable what we’ve done and experienced in this short 5 year period.

We met some wonderful people, brought an amazing new person into the world, changed a lot, achieved a lot professionally, and made lasting friendships that will be with us forever and shape our lives.

But, sometimes, you have to change.

Sometimes, you have to realize what is the most important thing in your life and why you’re doing what you’re doing: for us, that is family.

We realized that having kids and being only childs with older parents 10,000km away is a bad decision for all parties.

Life happens for everyone, and the regret of not being close to family when it does is just too big.

So we’re packing our bags and moving to Trento, Italy!

London, Berlin, Paris and Milan all less than 3 hours away.

Why Trento? The list of reasons is endless, but we like to sum it as “Italy not in Italy”.

  • Trento is an autonomous Province which gets to reinvest 90% of its taxes, which it does very well.
  • Easily connected to Milan and Rome with high-speed trains, airport is 1h away.
  • Nature without equals: the most beautiful mountains in the world.
  • Very sport-y culture: ski, mountain bike, kite surf, etc.
  • Hundreds of lakes, including Garda, Levico, Caldonazzo, Ledro and more.
  • Extreme focus on the “territorio”, which means a mix of nature and the social structures present.
  • Very community-focused.
  • Part of “Triveneto”, highest industrial output in Italy.
  • Most innovative district it Italy, with very heavy innovation investments.
  • Amazing schools, bilingual in english and a lot of german.
  • Great food and our favorite wines.
  • Tons of parks in urban areas.
  • Tons of kids-focused events regarding innovation and nature.
  • Optic fiber in town and a plan to bring it to everyone soon.
  • Consistently rated for highest quality of life in Italy.
  • Very very decent weather with tons of sunshine (but much more rain than SF).

San Francisco is a pretty amazing city, but if you have kids, I don’t think you could design a better place.

Where we’ll spend our first month and a half

We’ll miss San Francisco though.

There are a lot of things we will miss about San Francisco, and we’re going to find so many more after we’ll have been away for a while.

Most of all, I will miss working on Kickpay. Leaving a company you’ve founded and poured all of your effort into is very hard. Fortunately, my two co-founders are awesome and will continue to work to bring our vision to life.

We will also miss all of our SF friends, who have become as a family away from home.

And then YC; having meetings every single day with amazing people; the public parks, free tennis courts and amazing playgrounds; the weather; the scooter commute; cheap gas; being “the one who left everything and flew all the way across the globe”.. etc.

But we’re insanely excited about getting to raise our child in Trento, in Italy and in Europe.

We are excited about:

  • being able to afford any additional children;
  • having infinite small nice towns around;
  • living in real nice houses not built of cardboard;
  • eating good genuine food with no crap and infinite ingredients lists;
  • cheap rent;
  • free childcare and good public schools;
  • free healthcare and no insurance stress;
  • not having to worry about paying for college;
  • a lot of beautiful and affordable mountain lodges (“rifugi”);
  • being close to the sea (where you can actually bathe);
  • obviously real espresso, gelato and pizza;
  • and so much more!

We are also extremely excited about getting back into a young and emerging tech scene where we can have real impact by bringing back what we’ve learned in Silicon Valley as well as continuing to invest in more awesome founders with Mission and Market.

Being at a stone’s throw from Berlin, London, Paris and any other amazing European is the icing on the cake. More on this on another post.

Related to this, I’m also very excited about the work I’ll get to do at my new job, which I’ll announce in the coming weeks.

Not running a startup full-time, other than enabling me to spend more time in nature and with my family, will also enable me to start writing more — so expect a lot more posts coming in the next months as we settle down.

If you’re in Europe and want to meet, say hi!

What it takes to start your own venture capital fund

It seems that becoming a VC is a dream of many, and rightly so: it’s really a fantastic job.

As a venture capitalist, you’re paid to learn as much as possible about new markets and to meet with the smartest people you can find. You get to follow along the entrepreneurial journeys of founders much smarter, determined and audacious than you are, without the massive amount of risk of having all your assets and a lot of your professional reputation tied to a single outcome. That seems like a dream job description to me.

Working as a VC associate right after school, I really got spoiled and so after 3+ years in an operational role at a startup, I decided I wanted to start investing again.

There were just a couple of problems:

  • I did not have any money whatsoever to invest
  • It was highly probable that no VC firm would have hired me as anything more than an associate
  • I had an idea I was deeply passionate about and wanted to bring to reality:

While talking with my friend, he started suggesting we start our own fund and run it part time as “angels”.

I obviously thought he was crazy.

But dozens of espressos later, he had convinced me.

We came up with the idea of allowing our friends who are living in Europe to get exposure to the asset class of silicon valley startups.

The first person we pitched, gave us a resounding no. Not because he didn’t want to invest, but because he wanted to join our crazy adventure, and so over breakfast Mission and Market was born.

I get asked by a lot of people how they can get into venture capital. The answer is that it’s not easy given that jobs in the industry are scarce and usually reserved for people with a very specific background.

So, after having invested in more than 30 companies including Eaze and Transcriptic, I thought it might be helpful to explain what we did and why, and give a rough framework for people who want to get into venture capital by themselves.


These thoughts are meant for people who want to start a small fund. If you’re starting a 10M+ fund, most of the below won’t apply!

1. Commit mentally

Talk to people who’ve done it before. I reached out to Semil, Zac and Shruti to understand what they did and how, and it was super helpful.

Be sure that you’re ready to commit to this for a long time.

2. Do the math!


There is plenty of money floating around startups and (as this post demonstrates) it is fairly easy to become an investor.

This means that the gold mines are getting crowded and the chances of finding that big nugget are getting slimmer. Fortunately for us, startups are not a non-renewable asset like gold, so if you put in time, effort and get a bit of luck, it still is very possible to generate meaningful returns.

But going at it without modeling out all possible scenarios is not a good idea. The math will inform a number of key decision you need to make:

  • how many deals you want to make.
  • what check size you’ll be writing.
  • how much of the fund you will be reserving for follow on investments.
  • how many follow-ons you’ll be able to do and the amounts.

Doing the math will also show you how much enterprise value you’ll have to generate in order to return the fund, and how entry valuations will impact this.

In our case, we’re aiming to make 60 investments out of our first fund. That means investing $1.5M in first checks, and then keeping what’s left (~ $1M) for follow on investments.

The reason to make 60 investments is simple: building a highly diversified portfolio is key to having a higher chance of funding one “unicorn”, which means better returns and better brand, which leads to better dealflow, and circularly to better returns (even for potential future funds).

We’ve done 30 in our first year, and will be making 30 more in the following 1.5–2 years, and then will just use the remaining capital to continue investing in the winners.

3. Define your compensation

Given we’re doing this part-time, we decided to not take any management fee out of the fund.

By doing this on a $2.5M fund, you are deciding to use the $50k a year in fees to make more investments and have a higher chance to provide solid returns to your investors. Incentives are also much more aligned.

If we had taken out the fees, over 10 years we could have drown $500k. That’s insane. It’s one fifth of the full fund gone. So now, you need to return a multiple of a $2.5M fund, but with only $2M to invest.

Our compensation is fully based on carry, and only kicks in after we’ve returned the full amount invested first. After that, we start sharing 20% of the returns. If we double our investors’ money, then we receive 30% of the following profits.

Do not expect to get rich out of this.

Say we return 3x our fund, $7.5M. That translates to $2.5M * 20% + $2.5M * 30% = $1.25M. Divided by 3 people that’s $400k, and divided by 10 years, that’s 40k/year. We could all get $40k more a year just by switching jobs.

And that’s assuming you return 3X the capital!

4. Find a solid team.

You can go at it by yourself, like Semil did, but if you want to do this while still working at a company or even running yours, it’s pretty mandatory that you join in with one or two other people.

If you think you have what it takes to go at it alone, you’re better off angel investing or doing syndicates over AngelList. Raising and running a fund is a lot of work, and should only be done if you have the time and flexibility to do it.

It’s very important to choose people that you like A LOT.

Choosing partners for a fund is even more critical than choosing a co-founder, as you’re actually writing down on contracts that you’ll work together for 10 years minimum.

It’s also pretty important to choose very smart people with a solid network and flawless reputation. Investing experience is the least of the concerns.

Francesco and Simone are the two best people I could have started this with!

5. Define your thesis and value propositions.

A thesis is not only what you’ll invest in, but in my opinion should also include the reasons you’ll do what you’ll be doing.

As an investor, you have two customers: your LPs (which act as both customers and bosses) and the entrepreneurs.

Our value proposition to LPs is access to a diversified portfolio of SF/SV-based startups with a small sum of money, which would be impossible to achieve by direct investment. European investors don’t tend to have much access to funds or startups, other than what they can do on AngelList and so it’s been a fairly easy sell.

Because of that, we don’t need a very specific thesis about the type of investments that we look at (other than the fact that they should be local to the Bay Area).

If you’re going to target LPs who already have access to deals and funds, you might want to “verticalize” your thesis on a specific edge (some special dealflow source, some industry that you’re particularly connected in or knowledgeable about, some underlying trend that will make you deliver a higher return, etc.). Read my post on the rise of the thematic VC for more thoughts on this.

But it’s for you to figure this out.

6. Define the vehicles and incorporate.

Traditional funds are comprised of a Limited Partnership (the fund itself) and an LLC General Partner (which managed the fund).

We followed this traditional model but using a simpler LLC as the fund itself.

This setup is not extremely expensive and provides good flexibility, as well as a well tested and known structure to investors, accountants, etc.

Today, there are many options that make this much simpler, the most obvious of which are AngelList Syndicates and FundersClub Partnerships. (There’s a ton of content out there on this, so I won’t go into the details here.)

We still decided to create our own structure, even if more expensive, for a variety of reasons. If we ever raise a Fund II, we’ll revisit!

If you build your own structure, get a good lawyer who’ll defer your fees until closing!

7. Get some good people doing your backoffice

We initially had a startup do our taxes and reports, and it was the worst decision we ever made. We’ve now switched to a solid backoffice firm who specializes in VC and PE funds, and it’s absolutely worth the money.

8. Start pitching!



Also, it’s going to be way harder than raising money for your startup, should you know what that’s like.

So start pitching. Find all the rich people you know, and ask them to trust in you.

Accept small checks.

9. Start investing!

It’s super important to start investing as soon as possible.

If you can afford to, you should start angel investing way before your fundraise. If not, and if your structure enables you to, try to write some first checks as soon as you have enough money for them.

Investing in companies is the best strategy to get more quality dealflow, and will also help you get into other deals. It provides the foundation of your reputation and will help entrepreneurs judge you a bit better.

Additionally, showing LPs your first picks are good will make the closing process much easier.

Hopefully this is helpful to folks who are considering starting their own fund. It is a big undertaking in terms of time, money and mental energy, but it is fun and incredibly rewarding.

Best of luck to those of you who decide to take the leap!

P.s. You should follow me on twitter here.

How meditation killed my creativity and made me more stressed

Meditation and mindfulness are all the rage right now in SF.

Yesterday a friend said she now wants to meditate 2 hours per day.

A day doesn’t go by without an article on why mindfulness is the only thing that can save our race or a post by someone detailing their morning meditation ritual.

People are even starting to go on meditation retreats.

To be fair, the pitch for mindfulness is actually pretty great:

  • reduce stress and anxiety
  • make better decisions
  • increase focus
  • increase creativity
  • live longer
  • decreased blood pressure and hypertension
  • lower cholesterol levels
  • better sleep

That seems like a bargain for something that’s entirely free (unless you, like yours truly, want to spend $12.95/m to listen to a former buddhist monk with the best voice in the world) and only takes 10 minutes per day.

And so I started.

I downloaded Headspace and Calm.com, read about the best practices for meditating, and started my pursuit of mindfulness.

Meditate 10 minutes a day, extra meditation when feeling particularly stressed, mindfulness and being present in everything you do, feeling the food in your mouth, the water on your skin, the breeze, the city noises, etc.

Doesn’t that sound like a fucking dream?

And then just a couple of weeks ago, it hit me: meditation fucked me up big time.

After months meditating, I noticed something completely different about myself.

I’ve always been used to have my mind race with ideas, thoughts, to read as much as possible on every subject, just trying to learn learn learn and then regurgitate everything back into idea form.

I used to listen to audiobooks on my commute and have my mind racing with ideas on how what I was learning could impact my life and my business.

I used to get to bed and start thinking about a million different things until I was so exhausted that I’d pass out.

I used to get my best ideas and thoughts under the shower, in those 10–15 minutes where you don’t have anything else to do than think.

But: “no!”, the inner mindful voice said.

That’s all going to kill you. You should be mindful all the time and live in the present.

During the commute, just enjoy the breeze and the view, the people, the noises.

When going to bed, feel the weight of your body and clear your mind of any thoughts.

When taking a shower feel the water on your skin and relax, be aware of your body.

And so just like that, all the moments when I used to race with creative ideas and thoughts, got killed.

I was now left with no time to actually think.

The creativity that is generated by just thinking, and reading, and thinking, and trying to see how what you read can apply to other parts of your life, now just got completely lost. This led to a very stressful state, which was made even more stressful by the fact that I did not know what I was stressing about! My life did not change much, and I was even meditating!

Sure, I have a kid, and a startup, and a fund, but that had been the case for a while.

Now, I’ve stopped meditating and feel great.

My mind races with new ideas constantly and I’m both more creative and focused when I need to focus.

Look, maybe I was just doing it wrong, but maybe, just maybe, meditation is not for everyone.

Maybe it’s for people who tend to stress really easily about minor details.

Maybe it’s for people who don’t get energized by thinking a lot about new ideas.

I don’t fucking know.

But in that form, it definitely not for me!

That being said, if you think I have obviously been missing the whole point, done it completely wrong, or am just a soul that can’t be saved.. I’m all ears here and on Twitter!

Hack Reactor presentation: “How to choose a company to work for”

I’ve had the chance to speak to the remote Hack Reactor class yesterday about how to find a company to work for when they graduate.

I usually don’t like to publish slide decks without all the context of the talk, but hope this can still be helpful to someone.

In the talk I explained how the choice of company is really the biggest thing that matters, especially at the beginning of one’s career, as well as how to determine which companies are on a breakout trajectory. It’s usually fairly easy to do.

Roles and titles are MUCH less important than you might think. A good friend of mine got hired by a unicorn who at the time was only 40 people but on a clear breakaway trajectory as a technical support person. He’s now a lead PM there and, if he were to leave, he could pick any startup or company in the valley, as well as most probably raise a seed round pre-product.

In the presentation, there’s an example where someone asked me which company to join in late 2010, and Airbnb was easily the top pick even if they had just raised their Series A at the time.

When I myself was looking for companies to join, I had a much more risky goal of becoming one of the first 5–10 employees , but still managed to identify a number of clear breakouts ones, and pushed hard to join Stripe and AngelList 4+ years ago.

It seems that identifying a company is just one of the steps 😀

More information and a great list of companies can be found on www.breakoutlist.com

Why I deleted Brad Feld and other 1000 high profile connections from LinkedIn

For the last years, on LinkedIn I’ve religiously only added people I met or worked together, but I wasn’t always so diligent: when I first tried to break into the tech and startup scene, I most probably went on a “connect” spree.

Weak high-profile connections are useless

The other day I was looking at a LinkedIn profile in order to see if I could get a warm intro to someone. When I saw I had 15 connections in common I thought: “awesome, this is gonna be fast and easy” — but after looking at each one of them I realized I didn’t really feel comfortable asking for an intro to anyone of those.

Some of the people I had met 4+ years ago, some I had only exchanged a couple of emails with and some I literally had no idea who they were.

That quickly made for a loss of time.

But more worryingly, what if that other person was checking on me and looking for references? He would have reached out to most of these people and they’d all have responded something along the lines of “I have no idea who that is” or “Yeah, met him a long time ago, don’t know him that well”.

That’s not good at all.

I love Brad Feld, but I’ve never met the guy. I spoke to him on Skype more than 6 years ago about how to replicate TechStars in Italy — but he’ll never remember it (I almost didn’t!). What if someone had seen Brad as a mutual connection and reached out to him asking what he thought about me?

I probably need to do a better job of keeping in touch with people, but the reality is that I’ve probably been too liberal in adding people.

So, today I took some time, went through my 2.5k connections and removed more than 1000 of them.

Criteria I used

I decided I would remove anyone of the following:

  • I didn’t know / forgot who it was
  • I doubted they would remember who I was
  • I only exchanged a couple of emails with
  • I had never met

I removed more than 1000 but I still will probably need a second pass.

Why you should do it too

  • You’ll have a much better LinkedIn experience.
  • You’ll get better warm introductions.

But most importantly

  • When people will backchannel you they will only reach out to people that know who you are and can answer questions.

Removing high profile connections you might have added out of excitement in the past may sound crazy — and I had some reservations before removing partners at A16Z, Founders Fund, tons of entrepreneurs, etc. — but the reality is that they are completely useless connections and can oftentimes even hurt you.

Farewell, Betable

Our first milestones champagne bottles: Recapping of Betable 1.0, my hire, Jeffrey’s hire, Tyke’s hire, Seed round, Mike Malone’s hire, new office + major deal, Richard Crowley’s hire. Unfortunately all of these bottles got thrown out when we switched cleaning companies, so this is the only picture that proves their existence!

After 3 years and half, today is my last day at Betable.

I gave notice 2 weeks ago, with a lot of mixed feelings.

Joining Chris in helping build Betable was probably one of the best decisions I ever made, and I’m incredibly grateful to him for taking a chance on a young crazy immigrant he’d just met.

I joined in the summer of 2011, with no product, no funding, no team (0 engineers) and no customers — now we’re an amazing team of almost 40 people, raised more than $23M and have a game-changing product.

I’ve been lucky to be able to see such a high-quality startup get started from scratch, and blessed to have been able to help.

As I leave Betable, I realize the company is in the best shape it has ever been — with an awesome and committed team, an insanely good product and a world of opportunities at its fingertips.

I’ve learned an insane amount over the last years from Chris and the rest of the team and I’m sure the learnings will all be invaluable as I embark for my own entrepreneurial journey.

But I, and Chris, always knew this moment would come. I could feel the itch building.

So now the feelings of freedom, excitement, fear, restlessness, pride, and a couple more are all mixing up.

Moving forward I will be working on a new company in the fintech space with two awesome co-founders.

But the feeling that trumps them all is excitement: I’m incredibly excited about our vision, the opportunity and the early backing of some awesome investors.

I’ll be heads down building product for the next couple of months, but I’ll try to share publicly what we’re up to soon enough.

In the meantime, if you want to chat — you should tweet at me.

The renewed opportunity for incubators

Image: Wikipedia

It’s not all about accelerators.

Post by Stefano Bernardi. You should follow me on Twitter here.

We live in the age of the accelerator.

It seems like the 10-12 week “batch” model has completely taken over the pre-seed market.

And it’s all Y Combinator’s “fault”. They launched their Summer Program in 2005 and immediately started spurring copycats.

But was YC’s success attributable to the summer batch model or just to their hustle, product insights, marketing and connections?

I think the accelerator model doesn’t make too much sense outside of YC or a couple of other example. Aside from being really hard to self sustain financially, the reality is that most accelerators can’t quite accelerate a company like PG and YC’s current partners.

It’s time to face that YC is in a league of its own.

The death of the incubator

Before accelerators were all the rage, there were a number of traditional incubators, oftentimes sponsored or run by big corporates or universities, where companies were actually “incubated”. Companies would be accepted on a rolling basis and would be offered office space as well as general help and services.

Starting companies today has become much cheaper and easier than before, and this factors have led to a slow but steady decline for incubators. Why give away 20%+ more of your equity if you can just go out and raise a million dollar round for the same amount?

But the reality is that getting to product market fit and scaling a company are much harder than it seems. Everyone can get started, but getting started right is fairly hard.

When incubators make more sense than accelerators

In my opinion though, incubators can actually be better structures for some type of businesses and entrepreneurs.

Complementary skills

To make sense, the founder and the incubator each need to have very strong complementary knowledge and skills, just like in any traditional co-founder relationship.

For example, the incubator could be vertically focused on e-commerce and the founder extremely knowledgeable about and connected in the outdoors community.

Or the incubator could be vertically focused on fashion, and could accept teams with experience in data, logistics, marketing, e-commerce and so on.

The incubator I’m envisioning becomes really close to some foundry models, but those usually don’t accept external ideas for a variety of reasons. In my opinion, accepting external ideas, and most specifically founders who are really passionate and knowledgeable about a space and an idea is instead one of the great opportunities for incubators.

Strong, aggregate knowledge

The incubator needs to aggregate the most possible knowledge from all of its companies and redeploy it on all of them.

Being able to see patterns of errors and best practices amongst many companies is a privilege usually left to VCs. An incubator should do the same.

Remove complexity

A shared HR practice, as well as accounting, legal, EA, recruiting, etc. can help the companies focus on product market fit in the early days and reduce premature scaling problems.

Remove risk

Starting a company, even if less riskier than it once was, is still a bold and risky decision for most.

People have families and other commitments which in my opinion are preventing great companies to be created.

Incubators can target this specific niche of entrepreneurs and remove their risk by hiring them, while getting compensated in equity.

TL;DR — this is what a modern incubator should look like in my opinion:

  • Vertically focused on a specific business model or vertical.
  • Accept founders with complementary skills and knowledge.
  • Aggregate the most possible knowledge, best practices and connections.
  • Aggregate and provide basic company functions such as bookkeeping, tax, lawyers, HR, EA, etc.
  • Only accept founders/ideas where the incubator’s knowledge and services will have a positive impact.
  • Work with 2-10 companies at any given time.
  • Act as a full cofounder for at least 12 months.
  • Provide office space.
  • Aim for 10-40% equity stakes.
  • Hold a board seat, but without weird vetos or controlling provisions.


It’s not so simple.

Incubators are hard. Some of the biggest challenges in my opinion are:

  • Getting to financial sustainability. I’d treat an incubator almost as a traditional VC fund. The capital required to start something like this is non negligible, if you want to really help the companies and attract the best teams.
  • Attracting the best talent. The best people usually have no trouble in raising capital for their companies, and may not be interested in the additional services if it means giving away a huge chunk of equity.
  • Transitioning out the business. Not super easy to cut loose all ties with the incubator, but if done gradually can be sorted out.
  • Follow on investments. Getting VCs to invest in businesses spun out of incubators is a bigger challenge than clean cap tables.

I might write a post on these challenges in the near future, but I think they’re all solvable.

In the meantime I remain a big believer in nicely executed foundries and incubators.

You should follow me on Twitter here.