What Marc Andreessen and Ron Conway teach Stanford students about raising money (in 4 quotes)

Stanford University continues its overcrowded class in building super-successful startups, and every week, noted investor Sam Altman brings in local business celebrities to distill the secrets of Silicon Valley. Most recently, he gathered Netscape founder Marc Andreessen, SV Angel patron Ron Conway, and Zenefits founder, Parker Conrad, to talk about what they look for in an investment.

We have the full 50-minute lecture, below. And below that, four quotes that stood out as worthy of attention:

[aditude-amp id="flyingcarpet" targeting='{"env":"staging","page_type":"article","post_id":1586644,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,","session":"A"}']

“So the big thing that we’re looking for, no matter which sort of particular criteria we talked about, [is] they all have the characteristics that you are looking for the extreme outlier.” – Andreessen

There’s a reason he’s looking for the outlier. The Netscape founder says that a handful of companies will generate most of the revenue for an entire industry. Four thousand companies are looking for investment from a top venture capitalist, 200 will get funded, and 15 will generate 97 percent of the industry revenue. Investors are looking for potential stars.

“When you first meet an investor, you’ve got to be able to say in one compelling sentence — that you should practice like crazy — what your product does, so that the investor that you are talking to can immediately picture the product in their own mind.” – Conway

It’s a common piece of advice, but Conway says that startup founders don’t practice this nearly enough. Time is extremely valuable to investors. He says that if the initial pitch goes well, founders are asked to send a crisp executive summary; only after that does the team vote on whether to have a phone call.

“If your company is successful, at least the ones we want to invest are the ones that want to build big franchise companies. So we are talking about a ten- or fifteen- or twenty-year journey. Ten, fifteen, or twenty years, you may notice, is longer than the average American marriage.” – Andreessen

The team all agreed that founders should not underestimate the value of good team members and the right investors. A good company can last longer than a marriage. So pick people who will offer good advice and open up their Rolodexes. The investors also strongly evaluate whether the founding team will stay together.

“The way I always think about running a startup is also how I think about raising money. Which is a process of peeling away layers of risk as you go. So you raise seed money in order to peel away the first two or three risks, the founding team risk, the product risk, maybe the initial watch risk. ” – Andreessen

Say a company is lucky enough to get funding; it needs to be strategic in how it accepts more later. At various stages of growth, it’ll face challenges from the initial launch, getting market traction, and then from big competitors trying to copy them. At each stage, the amount raised needs to take expanded risk into account.

[aditude-amp id="medium1" targeting='{"env":"staging","page_type":"article","post_id":1586644,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,","session":"A"}']

Too many founders, Andreessen argues, just try to raise as much money as they can get. Instead, convince them that you’ve said this yourself, “Here are my milestones, here are my risks, and by the time I raise go to raise a C round, here is the state I will be in. ”

Readers can see the full transcript here and visit the class website here.