- Thank you all for coming tonight,

look at this crowd, this is great.

This is a fantastic event

and we're really happy to be introducing.

My name is Alex Lowe, this is Slava Balter.

We're the co-chairs of the B-Plan Competition,

the UC Berkeley Startup Competition

and we're really happy to present this event today.

Just a few things about B-Plan, how we're doing.

First of all, this is our 15th anniversary

of B-Plan here at UC Berkeley.

Pretty great. (audience clapping)

And it's gonna be an exciting competition.

Already we have signed up some really recognized mentors

and judges from Silicon Valley.

And this year there are over 160 teams that entered

and we have already selected the 39 teams

that will go to semi-finals.

- So quick brief before we get to Guy Kawasaki,

it's about where we stand with the competition.

Out of the 160 plus teams that did submit this year,

the 39 that entered, they're now getting battle ready.

So they're gonna start competing through the next few months

and we're going to start iterating on the process

and using some of the techniques.

Potentially a lot of them are here today,

learning some wisdom from Guy

and trying to get through the process

of what does my idea mean

and how to actually bring it to a prototype in April.

So really excited about some of the teams that have come out

of the process this year.

We'll continue to learn from them

and they'll continue to learn from some of the mentors

that we have on board.

So wanted to also give a quick round of applause

for the Lester Center and Kirsten

for putting on this event tonight.

(audience applauding)

Some of the fabulous work,

as well as the B-Plan Executive Committee.

So if you do have a chance to say hi,

quick round of applause for them as well, tons of work.

(audience applauding)

And last but not least,

the hard work of one of our own executive members,

Antonio Silva, he's been working diligently very hard

to get Guy Kawasaki to come on campus and here we are.

So Antonio come on stage, wanna give a quick introduction,

we'll pass it off.

(audience applauding)

- Thank you, so presenting Guy Kawasaki

is kind of sometimes nonsensical

for a group of geeks like all of us.

He's very well known

and he's also gonna be a semi-final judge

for this year's B-Plan Competition.

Guy was born in Honolulu, Hawaii.

He has a BA from psychology from Stanford

and an MBA from UCLA.

He's the Apple evangelist since 1984.

A term that he coined, evangelist marketing

started with him.

He's now an advisor for Google and Motorola,

so that's an interesting shift.

If we have time for questions

that it would be something that I would like to ask.

He's a prolific writer as you can see here,

has written for more than a dozen books.

And he's gonna talk to us

about top 10 mistakes of entrepreneurs.

I would like to say thank you, Guy Kawasaki

for coming here today and welcome.

- Thank you. (audience applauding)

Thank you very, very much.

This room, I have very good feelings about this room

because my son is a freshman here at Cal.

Yeah, so this is...

(audience applauding)

This is the room where during Cal Day

we got the pitch for Cal for Haas.

And so I have a very warm feeling about this place.

And I went to Stanford but I focus now on Cal.

(audience laughing)

Can I just say that?

So if any of you start companies and you need an intern,

my son is available. (audience laughing)

And if you combine the number of followers

that my son and I have on social media, it's 5 million.

(audience laughing)

I have 4,990,099 and he 1,000.

So I'm very happy to be here and it's gonna be a lot of fun.

I am going to present something

about the top 10 mistakes of entrepreneurs.

Let me give you a little bit more about my background.

I worked for Apple from 1983 to 1987.

I was Apple's software evangelist,

so it was my job to convince people to write Mac software.

This meant that I worked in the Macintosh Division,

which meant that I worked for Steve Jobs,

which meant that...

Let's just say I had a very interesting career.

He was not an easy person to work for

but he definitely got the best results out of people.

And so I learned a lot from him.

Back then, the Macintosh division

was probably the largest collection of ego maniacs

in the history of California.

And we held that record until last year

when Facebook broke it, but we held it for a good 30 years.

Just to show you what bad people we were,

back then, the company was the Apple Division

and the Mac Division.

The Apple Division was shipping boatloads of Apples IIs

and making tons of money.

The Macintosh Division was still in R&D,

so we were burning money.

So if you looked at the Apple P and L,

the P was Apple II and the L was Macintosh

and yet we would not let people

into the Macintosh Division building.

So if you can imagine.

And if you ever become CEO, don't ever let this happen,

where one part of your company

cannot go into the other part of the company.

That is not good for morale.

And then especially after the Apple II people figured out

that they were paying for the building

they weren't being led into,

as you can imagine, that really pissed them off

and quite logically so.

So they came up with a great joke,

I love to tell this joke.

Great joke about the Mac Division,

which is how many Macintosh Division employees

does it take to screw in a light bulb?

The answer is one,

the Macintosh Division employee holds up the light bulb

and expects the universe to revolve around him.

(audience laughing)

There's a Microsoft version of this joke.

And the Microsoft version

is how many Microsoft employees does it take

to screw in a light bulb?

And the answer is none

because Bill Gates has declared darkness the new standard.

(audience laughing)

Early in your careers, I'm kinda late in my career,

I started in technology at about 1983.

And so for about 25 or 30 years,

I watched high tech speakers.

And I'll tell you with the rare exception of Steve Jobs,

most high tech have two salient qualities.

First, they suck as speakers

and the second quality is they go long.

And that is a really ironic and dangerous combination.

Because if you suck and your speech is short, it's okay.

And if your speech is long and you're great, it's okay.

But if you suck and go long,

that was like being stupid and arrogant,

it's just not a good combination.

And so what I did early in my career

is I embraced the top 10 formats,

I always use a top 10 format for my speeches.

But I have to tell you,

this is a speech I have never given before.

And so I just realized

that I forgot to put numbers on my top 10 points.

But there are 10 points tonight.

And the reason why I use the top 10 format

is that in case you think I suck,

you know approximately how much longer I'll suck

(audience laughing)

'cause I have 10 points for you.

So with no fur or there do,

if you let me talk about the mistakes of entrepreneurs.

I have been an entrepreneur,

I have worked for a Fortune 500 company like Apple.

I have been a venture capitalist,

so I have funded companies.

I've been an advisor for many startups.

So I've sort of seen it from all sides,

the investor, the entrepreneur, the advisor.

And so this is really what I've picked up

after 25 or 30 years of working in technology, okay?

So and let's just say that I'm not known for subtlety,

so we're just gonna cut to the chase, okay?

'Cause you should hear it straight

from the bottom line actually.

So number one mistake is many entrepreneurs make the mistake

of taking a large market and multiplying it by 1%

and saying, how hard could that be conservatively speaking.

So we'll just walk through a hypothetical case.

300 million Americans, one in four owns a dog,

that's 75 million dogs.

Each dog eats two cans of dog food per day.

That's 150 million cans of dog food per day.

How hard could it be to get a mere 1% of 150 million

cans of dog food total addressable market?

That's one and a half million cans of dog food per day.

Let's say you make $2 per can,

that's $3 million a day.

And now, you know dogs,

this is not like enterprise software, dogs eat every day,

they don't take Saturday and Sunday off.

So this is 365 days a year.

We could, worst case, make $3 million a day.

So conservatively speaking, worst case,

with our rockstar programmers,

we should do a billion dollars in the first year.

I can't tell you how many stories I've heard like that.

You take a large market, you multiply by a small number

and you say, how hard could that be?

So there's two fundamental flaws with this.

First, getting 1% of any market is not that easy,

number one.

And number two, which sort of contradicts number one,

number two is no investor wants to hear

that you only are going to get 1%.

So in one sense, you're saying 1% is easy

but the investor is also hearing

that they're predicting they can only get 1% of this market.

So you're betwixt in between.

So don't use this kind of logic, okay?

Don't take this large 300 million times 0.25

equals 75 times two equals 150 times 1% equals 1.5 million.

It just doesn't work like that.

That's lie and mistake number one.

Mistake number two, sort of the flip side of this,

which is you scale too soon.

So this is how this goes.

So we go through the 1%, right?

So conservatively speaking,

you should be selling a million and a half

cans of dog food per day, worst case, okay?

So now you think, oh my God,

we're gonna need at least three facilities to ship this

and we're going to need co-location

because our servers can never go down

as these millions of dog owners come to our site

and order dead cows in cans.

And so we need order processing, we need fulfillment,

we need customer service.

So let's start ramping up because our rockstar programmers

who have never delivered a piece of software in their lives,

they are going to be on time, okay?

And with our rockstar marketing people

and our rockstar BMW, cornflower blue pierced ear,

business development vice president,

he's going to deliver all the partnerships.

So we need to ramp up.

We need several locations, we need co-location of servers.

We need customer service people.

And so what happens in the real world

is of course your rockstar programmers turned out

to be total bozos, right?

And so your software is late, your website is late

and the dogs, no pun intended are not eating the food,

it just happens that not that many people

wanna buy dog food online.

So your where as late,

these people are not buying your product

but you've already ramped up.

You have several facilities.

You have all this automation built in.

You have customer service, you have people in Bangalore

just waiting to take those calls

of people who need tech support

for opening cans of dog food, right?

So then what happens?

So then what you do is you have a board meeting

and you tell the investors, well, we were wrong,

our programmers have hit some limits using Visual Basic

that they didn't foresee.

(audience laughing)

So now we really got it right, now we're gonna go to Python

or we're gonna go to PHP or maybe we'll go to MySQL

but Visual Basic just didn't work out.

Okay, so investors are used to hearing this

that you're gonna miss your first mark

so of course they understand.

But then you say, but you know what,

we've been really great at recruiting.

So we have this great IT staff,

we have this great support staff,

we have this great fulfillment staff

and those people are rockstars.

And so we know that our rockstar team of programmers

is going to be a few months late,

but it would be a crying shame

that we recruited all these great other support people

to let them go now.

Because in three months,

we're gonna have to hire new people again

and bring them into the company and train them again.
And we have so much invested in these great rockstar people

that we shouldn't let them go.

And so what you do is you keep those people on board, right?

Because now you know you're gonna ship in three months.

Guess what?

Three months come by and you don't ship again.

And now you to go back to your board

and you have to explain again.

Well, we're not shipping

but we still have these great people we've invested in,

we need to keep them

because we will just have to hire people like them again

and start from scratch.

So that's what happens scaling too soon.

I in my career, I have never seen a company die

because it didn't scale fast enough.

For once in my life, God help me,

I would love to have a problem where I advise

or invest in a company that couldn't scale fast enough.

That would be as we say, a high quality problem.

Dear God, give me this problem once in my career.

The company is growing too fast,

too many orders are coming in for dog food,

they cannot handle the volume.

Please God, give me that problem,

I know how to solve that problem, okay?

Usually what happens is you scale too fast

in anticipation of a conservative 1% with the programs

created by your rockstar engineering staff,

it doesn't come true.

You're stuck with big overhead and you run out of money.

That's mistake number two.

Mistake number three is an obsession with partnering, okay?

Let me tell you something, partnering is bullshit.

(audience laughing)

Partnering is bullshit.

There's only one thing that counts in a startup, it's sales.

Partnering is bullshit.

Partnering means two organizations try to compensate

for their weaknesses by partnering with another.

Two plus two will equal three in this case.

Partnerships mean nothing.

Just don't get me started on this.

You know what entrepreneurs should focus on is sales,

sales fixes everything.

You wanna be left alone by your investors,

meet your numbers, that's as simple as that.

Nobody cares about partnering.

Partnering is total bullshit.

You only use that word whenever you don't have sales, okay?

Partnering is bullshit.

(audience laughing)

Number four, I think a lot of entrepreneurs

are focusing on the pitching process,

how do we pitch to raise money?

How do we win business plan contests?

How do we perfect our PowerPoint skills?

(audience laughing)

And I'll tell you something,

listen, I can help you win a business plan contest.

I can help you perfect your pitch, no whole question.

But in the real world, the key is not the pitch,

the key is the prototype.

If someone gave me a choice of having a team come in

with a great PowerPoint pitch

or come in with a prototype that is working,

I would pick the working prototype all day long.

Because in a few hours,

I can help most of you fix your pitch,

I cannot in a few hours help anybody fix their prototype.

Prototyping is the key.

In a perfect world, in this VC world

it's changed completely now.

And it used to be that you tried to raise money

because you had to build a team, to write software,

you needed a year, you needed $2 million,

you need something like that, right?

But now if you think about it,

all the things you need for a tech startup

they're free or cheap.

Let's go down through the list.

You need infrastructure, okay?

Infrastructure today is free or cheap.

You use Rackspace, you use Amazon Web Services.

You don't buy any servers anymore.

You don't buy buildings, you don't lease buildings,

you use Amazon, you use Rackspace.

1000 bucks, you get a terabyte in the sky.

Marketing, before you had to throw parties,

you had to hire PR firms,

you had to do all this kind of stuff.

Now you have Pinterest, you have Twitter,

you have Facebook, you have Google Plus, you have LinkedIn,

you have all this social media, the marketing is free.

Before you had to have commercial real estate,

you had to have a team physically in one place.

Now many teams are virtual,

you don't need as much commercial real estate.

Before you had to buy a license for SQL from Oracle.

Now everything is open source.

So if you go down this list,

everything is kind of free or cheap.

And so this is a completely different world.

And in this world,

you are expected to show up with a prototype,

not just a pitch, a prototype.

Because with 25 or $50,000,

which is money that you should be able to get

from your parents, from your credit cards,

shaking down people you know,

you should show up with a prototype.

It's completely different expectation.

And it works to your advantage

because when you show up with a prototype,

you have significantly reduced one risk,

which is that you can actually deliver a product.

Before with PowerPoint, you had a much lower valuation

because PowerPoint is total bullshit,

you're making stuff up for PowerPoint, right?

So let me tell you, I've been lied to so many times,

you could not possibly tell me a lie that I have not heard.

So the PowerPoint pitch

is fundamentally a lot of bullshit, right?

But a prototype is not bullshit

unless the person you're showing that is so stupid

that doesn't understand that you're using mockups.

But then if the person is that stupid,

arguably you wouldn't want that person's money

because that person is too stupid,

you don't want stupid money.

So the point is prototype, prototype not pitch, okay?

Next lie is, if you are going to pitch,

excuse me, next mistake.

This is called The Guy Kawasaki 10/20/30 Rule of PowerPoint.

I hope that you will trust me on this.

The optimal number slides in a PowerPoint presentation

is 10, 10.

You'd be lucky to get 10 thoughts across,

10 cogent points across, okay?

The time you should be able to give those 10 slides in

is 20 minutes, it's 10, 20, 30 rule.

Now you may ask, well, why would you limit yourself

to 20 minutes when you have a one hour meeting?

Well, probably not in this audience, but in most audiences,

roughly 95% of the world is still using Windows.

And so that 95% of the world, they need 40 minutes

to make their laptop work with the projector.

(audience laughing) Okay?

So if the whole world,

if the whole world was using Macintosh,

the rule would be 10, 60, 30, okay?

But it's not true.

So it's 10 slides, 20 minutes

and then the ideal font size is 30 points or larger.

If you use eight, 10 or 12,

you're gonna be tempted to put too much text.

Then you're gonna read the text.

And one slide into the presentation,

your audience will figure out

this bozo is reading his slides,

this bozo is reading verbatim.

I can read silently to myself faster

than this bozo can read them to me.

I will just read ahead, okay?

So if you remember nothing else from this presentation,

then in the business plan context, 10 slides.

Do they even have 20 minutes?

Do they even have 10 slides?

Even better.

In the real world, 10 slides, 20 minutes, 30 point font.

A good rule of thumb for the font size

is figure out who the oldest person is in the audience

divide his or her age by two.

60 year old VC divide by 2, 30.

50 year old VC divide by two, 25.

Someday you may be pitching a 16 year old VC,

that day, God bless you, use the eight point font.
(audience laughing)

But until that day, 10 slides, 20 minutes, 30 point font.

Next lie.

The next mistake of entrepreneurs

is they believe that they should do things serially,

which is to do things one at a time.

First you raise money then you build a team,

then you write the software, then you ship,

then you collect, okay?

That's a serial world.

The serial world in entrepreneurship does not exist.

Unfair as it may seem, if you are an entrepreneur,

you are going to have to be raising money, writing software,

prototyping, selling, recruiting and collecting money

all at the same time.

It is all these paths moving down the road at the same time.

It is not a serial process, it is a parallel process.

You need to understand that's how the world works

that it is all about moving multiple things down the road.

In a perfect world, I grant you,

it would be nice if all you could do was focus on money

and then all you had to do is focus on hiring

and then all you had to do is focus on programming

and then all you had to do is focus on selling

and then all you had to do is focus on collecting.

That is not the real world,

the real world is you have to do all that at once.

Next mistake.

Many, many entrepreneurs believe that as long as they

and their buddies own 51% of the company

they are in control of the company.

Because they believe in board meetings,

things come down to a vote and 51% wins.

I have never seen anything come down to a vote

in a board meeting.

It's either everybody wants to do it

or nobody wants to do it.

And the fact that you retain 51% of the company

may make you feel better

and make you think you are in control of that company

but the truth is that the moment you take outside money,

you have lost control of the company, okay?

It never comes down to a vote 51 to 49,

this is not the U.S. Senate, okay?

God help us, there's no such thing as a filibuster

in a venture capital board meeting.

But this is an illusion, the moment you take outside money,

you have a moral, ethical and financial obligation

to the outside money.

If you cannot deal with that, don't take outside money.

51% is an illusion of control.

The next thing is that you believe

that patents equals defense ability.

The ideal number of times you should use the P word

in your presentation is one.

We have filed patents, that's it.

If you say it twice, we have filed patents

and it is going to create a defensible position for us,

that's two, you're wrong.

Patents realistically will not help you.

If you are acquired someday,

yes, the acquiring company will love that you have patents.

That's a good reason to do it.

Another, probably the most compelling reason

to file for patents as a startup

is that it will make your parents proud.

(audience laughing)

That they can say that my daughter or my son

has a patent to her name, to his name.

That is worth something, okay?

But if you believe that you patented something

and that's going to make you defensible,

you are diluting yourself.

Because it takes about five or six years to file this patent

and get it done.

And then let's suppose you do this,

you file it, you get it done

and let's say Microsoft steps all over your patent.

So now you have to ask yourself,

do you have the time and the money

to out litigate Microsoft?

And the answer to that is no you don't, you never will.

Now every once in a while, you hear to this great story

that some file compression utility company

in Calabasas, California

has won a 60 million suit against Microsoft.

Okay, you will hear that.

But you know what?

Getting infringed and suing Microsoft successfully

is not a fundable business model.

(audience laughing) Okay?

And the reason why there's headlines

when Microsoft loses a lawsuit like that

is because it hardly ever happens.

If it happened every day, it would not be used.

And then they never follow up that story

to see if the thing was appealed

and if the little company in Calabasas, California

ever really collected the $60 million, okay?

So file the patent, God bless you

but don't think that it makes you defensible.

And for sure, don't tell a sophisticated investor

that the reason why we are defensible

is because we filed a patent.

In fact, that's a very good test.

If when you say that the investor laughs and rolls

his or her eyes, that's a smart investor.

If the investor says, yeah, that's true,

walk out of that room, okay?

That person is an idiot, patents do not...

I hope there's no patent lawyers in here.

Now I would say, the exception to that

is probably biotech where you can patent a drug, okay?

But if you believe that you can patent a method

to sell dog food online using crowdsource referrals,

(audience laughing)

let's just say

that I wish I could short privately held companies.

(audience laughing)

Next mistake is to hire in your own image.

You know what, if you are an engineering person,

you need to balance off

or balance out your engineering prowess.

So an engineering person should hire a salesperson.

A salesperson should hire an engineering person.

Many times companies like to all hire

the same kind of people.

And when that happens, you'll have glaring weaknesses.

You're totally engineering or you're totally sales

or you're totally Biz Dev.

You need to hire are people who compliment your skills.

Fundamentally, what you need in a startup

is you need someone to make it, you need someone to sell it

and you need someone to collect it.

You need those three people, okay?

I didn't mention Biz Dev, I didn't mention anything else,

I'm saying make it, sell it and collect it,

that's what you need.

And so the danger is that

if you're a sales and marketing oriented guy,

you hire sales and market and oriented people,

but you really need to balance off all the talents

in a company.

So remember, make it, sell it and collect it,

you need all three skills.

The next mistake is befriending your venture capitalist.

The way this works is you get funded by a VC

and the day that they say yes or the day the checks clears
you say, wow, I heard VCs are assholes but not this one.

This one really understands what we're doing,

this one really likes us.

This one said that he's never seen a team as good as ours.

And this one said that he's gonna stick with us.

And this one said that he has such confidence in our ability

having hired all these Visual Basic programmers

that basically he's gonna leave us alone.

We're not one of his problem portfolio companies,

we're one of the most promising ones.

And you know what,

he also said that they don't invest in technologies,

they don't invest in markets, they invest in people.

(audience laughing)

They invest in people and they invested in us.

So no matter how much we screw up,

because they invested in people, they're gonna like us

and they're gonna give us more chances to get it right

because they invested in us.

Not the prototype we showed,

not the market forecast we showed,

none of that it's people, they're our best friends.

They said that they'll always be available,

call them anytime, pick up the phone.

They'll even come in and roll up their sleeves

and work with us because they're investing in people.

They're my friends. I mean, I think I'll take up golf

and start playing golf with them.

Let me tell you something,

nice shirt up there, I like that shirt, yeah.

VCs and investors are not your friends.

I'm not saying you should hate them, okay?

But I am saying that it is a business.

They are in the business of making money,

they're not in the business of making friends.

Angel investors, maybe

but venture capitalists are not in the business

of making friends.

They would rather hate you as a CEO

but see you go public and make them rich, okay?

Don't believe that they're your friends.

Don't try to become their friend,

just make your forecast, okay?

That's all that they really care about.

And I've seen time and time again,

where the CEO really believes.

So here's like what happens.

So you raise money, you miss your first ship date.

The board knows you're gonna miss your first ship date

because everybody does that, everybody does that.

But you know they invested in you so they still support you.

You miss your second date

and now they say, well, you really have to be careful.

We're gonna give you another 5 million bucks

but now we're really gonna hold you accountable.

Then you can have one more meeting

and to your utter surprise,

they're saying we want you to step aside.

And you say, but last month you said

you're gonna stick with us because you still believe in us,

what happened in the last 30 days?

And the VC will say,

well, every Monday I was going to our partner meeting

and every Monday I was telling them

well, they slipped but they look really promising,

they have rockstars.

1% of all these dogs eating food, how hard could that be?

So I kept telling this story Monday after Monday

after Monday and then finally we had this partner offsite

and I just got tired of defending you guys.

And it's not worth my bandwidth

because my time and my mental faculties are so important.

So we're gonna take you as a loser company in our portfolio

and we're gonna take this other loser company

in our portfolio and we're gonna sell your assets

to the other loser company

and we're gonna declare victory that you were acquired.

(audience laughing)

So everybody's happy except you have to step aside,

you are now gone.

And then CEO goes home in a state of shock

and he says, fricking VC, last month they love me,

this month they don't love me, they're throwing me out

I don't understand what happened.

We own 51%, we're gonna take it to a vote, yeah, right.

(audience laughing)

Okay gain,

I don't want you to think I'm full of anger, okay?

But just don't try to befriend your VC.

The key to managing a VC or any investor

is to just meet your projections, okay?

Meet your projections.

My advice to you that you set projections

that you are 80% confident you'll make, 80%.

That's the minimum confidence you should have, 80%.

God bless you if you do 100%, you'll make history

because you're the first person who met your forecast.

If you do 120%, you're a god or a goddess, not to be sexist.

So you need to under promise and over deliver,

under promise and over deliver, okay?

Now you might ask,

well, what happens if our realistic projection

doesn't make the company interesting enough to get funded,

like what's the bottom end?

And that is a real problem.

And I will tell you that,

venture capital is not for everybody,

that venture capital is playing a game.

Every venture capitalist wants to fund

the next Google, right?

So lots of companies are just thrown out of that.

That there's no way that a new chain of restaurants

is likely to be the next Google.

It could be the next McDonald's, don't get me wrong

but the likelihood is very low.

It's unlikely that a consulting practice is the next Google

or that a web design company is the next Google.

There's some things that are just not applicable

for venture capital.

There's only several thousand deals happen

for venture capital per year

of the millions of companies that start.

So don't set yourself up for failure.

They're looking for the next Google.

They will settle for a $100 million exit,

but they want the next Google.

That's the game you've decided to play, okay?

So don't befriend your VC.

And then the last one is,

don't assume that VCs truly can add value.

At any given moment,

a VC is on five to 10 boards of directors.

They are also looking at companies every day,

they are very, very busy people.

They're a touch, ADHD, they're certainly ego-centric.

It's very difficult for most VCs to separate causation

and correlation, right?

That they invested in a certain company and it did so well

that it must have been them who made that company succeed.

Be interesting to ask the CEO

what his or her version of that success story is.

So a VC can pick up the phone and introduce you,

can send an email to introduce you,

can you can help you recruit, but you shouldn't think

that they're going to do a lot of heavy lifting.

Fundamentally, what you want from a VC is money

and you want two or three hours a month of their bandwidth.

That's a about it, you should be happy with that.

If you get that you're doing well.

And the irony is that the more successful you are,

the more bandwidth you'll get,

which is kind of unfortunate because the less successful

the more you might have needed the help.

But what happens with these things

is the venture capital game is a game of hindsight.

So what you do is you invest in 20 companies,

one or two become successful.

Maybe it's a mega success,

but let's just say it's a moderate success.

And so you have invested in 20 companies,

let's say one is successful.

So people ask you about the one company and you say,

I knew there was a good team.

I knew there was rockstars.

I know they were in a great market, millions of dogs,

more dogs coming out every day.

(audience laughing)

I knew this was a good business model

that we were to disintermediate this very inefficient way

of getting dead cows into cans to dogs, right?

Why was there a pet food store in the middle?

So stupid, the pet food store was grabbing 25% margin.

What value did that pet food store add?

You had to get in your car, drive to the pet food store,

find a parking space, go into the pet food store

and then what?

It's dead cows in cans.

Did you do any point of purchase analysis?

Did you do any taste tests?

No, they added no value.

So it was so obvious that of course

there had to be a better way to buy dead cows in cans.

So I knew that, I knew the team was rockstars.

I knew what a great business model.

I knew there was a great market,

so I invested in that company.

Then ask the VC, so what about the Webvan that you invested

and put $400 million in so people could buy broccoli online.

Why did you invest in Webvan?

Why did you invest in Webvan?

And the VC will tell you my partners did that deal.

(audience laughing)

I told them that was a stupid idea,

not nearly the potential of selling dead cows in cans

to the 75 million Americans who own dogs.

It's a very retroactive business.

I'm not saying that all VCs are like this,

but I'm telling you have realistic expectations

of venture capital,

it's a mistake that many, many entrepreneurs make.

And so believe it or not,

that's 11 mistakes that entrepreneurs make

because I believe in over delivering.

(audience laughing)

So with that, questions?

Yeah, thank you, thank you. (audience applauding)

- Is mic on?

For any questions by the way,

step up to the mics because we are having a video recording.

So if you do have any good questions for Guy,

please step on up.

- So Guy, Aja Bam here,

I'm faculty here at Haas in entrepreneurship.

And my question is we hear a lot about lean startup.

- Lean startup? - Lean startup.

And I wanna hear your take on that.

And are you seeing more companies

actually following that path?

- Yeah, exactly.

- And are you actually working with a company

that is doing that well?

- Well in a sense-- - Thank you.

- Well, first of all, I love the concept of a lean startup.

My experience is that too much money

is worse than too little.

Because when you have too much money,

you start thinking in very sloppy ways,

you start thinking we need to scale.

You start thinking, well, they gave us $5 million,

they didn't give it to us to collect 1% interest as a CD,

they gave it to us to invest, so we need to invest.

We need to invest in $1000 Herman Miller chairs

so that our rockstar customer service people

have comfortable seating arrangements.

And we have to have a rollout party

because we need to make a statement.

And so if you didn't have money,

you would not have such stupid conversations, okay?

So too much money is worse than too little.

When you have too little, you really have to think hard,

you have to do gorilla things.

You have to host your website on the UC Berkeley server

and not tell anybody here.

You need to do stuff like that.

That's just the way it is.

Don't feel bad, you can always endow a chair later.

(audience laughing)

So right now do what it takes.

Yeah, so I hardly endorsed that.

I went through my dialogue of marketing is free,

tools are open source,

virtual teams so you don't need commercial real estate

I mean, we're getting, you know, I mean.

That's why, Y Combinator is so interesting,

for 25 grand you can do a lot of damage.

And arguably,

if you cannot do a lot of damage with 25 grand,

maybe you're not such a great entrepreneur.

So if it takes you $2 million today to get to a prototype,

now of course we're not talking biotech,

we're not talking...

I'm obviously talking about a certain kind of startup.

That's a good test that you need too much money.

So I love the concept of lean startup, yes.

- Yes, so I started an incubator last year,

it's called Startups House, it's a residential incubator.

And there, we have speakers coming in,

it's here in Berkeley.

So one of the guys was called Alex Mann,

and he's doing a company called ClickTime.

And he owns the company with brother

and then they also did something called man consulting.

So they were able to fund whole-

- [Guy] With the consulting?

- Yeah, with the consulting.

And then of course a lot of disputes with his brother,

but they worked it out after like four years.

So now 12, 13 years later,

he's getting like two calls from VCs every week

wanting to invest in his company.

- [Guy] Okay.

- But he did tell this one story

where they were getting this competitor that was VC funded

and he was like devastated, he thought that this is it.

Now the whole click time thing is gonna be out competed

by all this VC money.

But within 18 months

they weren't able to get a new round of funding

and they just had to shut down.

So he's in a very good position right now

but you don't hear much of these stories.

But so there was a startup here like a week ago

and there was a company called Guidebook

and they've been able to use-

- [Guy] You need to embrace the 10, 20, 30 rule.

(audience laughing)

Unless you're in the freaking Transamerica Tower,

this elevator, I'm off the elevator, I'm gone.

I'm in a cab going to Union Square already.

Okay, so continue.

- Yeah, yeah, so-

- [Guy] I'm taking my son to Safeway to shop

for groceries tonight, it's open 24 hours,

(audience laughing) keep on going.

- So Alex Mann, he started in the '90s

when like Intel was brand new.

But Guidebook they started like a year ago

and now they're 20 employees

and they've been able to grow this organically

and they have so much cash now

that they have to double their employee rate

and still all this without VC funding.

But again, I don't hear much of these stories

and I've been studying entrepreneurship for-

- [Guy] Thank you for your question.

- For 15 years, so my question is--

- [Guy] Oh, there is a question.

(audience laughing)

I hope he's not in your contest

'cause I can tell you right now,

he's not getting past the semifinals.

Yeah, okay.

- I'm doing a PhD entrepreneurship,

so this is kind of broad.

But basically, my question is,

do you hear a lot of these stories

where companies grow organically and are successful and--

- Well, Jesus.

(audience laughing)

I'd like to pay you for what you just did

'cause you just you just proved everything I said tonight.

(audience laughing)

I think that the organic lean way is the way to go.

It's a harder way to go.

When you do it that way you have to prototype

because you need to sell, right

You're not just doing PowerPoints slides,

you have to sell something.

Nobody buys a PowerPoint slide.

So I think that is very good.

If you look at something like Microsoft or Apple,

they didn't start off with venture capital.

They started off with two is in a garage,

two girls in a garage

and they built something that they wanted to use.

They did it organically,

they didn't go and raise millions of dollars.

They didn't do PowerPoint.

And so I think a lot of these things that start organically,

it really serves a need and it takes off

and one day you're Microsoft or Apple.

And I love of that story.

I think if Sequoia ever comes to speak to you

like Michael Moritz,

I think he'll tell you that the richest vein

for Sequoia Capital has been two engineering students

building the product that they want to use,

which is very different than a group of people

who saw some kind of Jupiter

or IDC or IDG or McKinsey or Accenture report

about the market forecast

and decided that because the McKinsey report said

that the pet food business would be a $5 billion business,

we should have a pet food online store.

So I love the organic path.

- [Aja] Okay. - Thank you.

Yes.

- Hi, I'm not sure how much

this question applies to this talk,

but I work for Lawrence Berkeley National Lab,

and there's talk of perhaps starting a nonprofit company

to educate the youth in Richmond, say, like inner city--

- Educate the what?

- Like public health education

and youth education to promote that.

And we'd be interested in,

it'd be a nonprofit, we wouldn't be selling anything, right?

So would you have any recommendations

of how we could, would there be people,

companies that would be interested in funding that,

starting something like that?

- Venture capitalists or even angel investors

I would say, they are trying

to increase their financial returns as opposed to do good.

If they do good, it may be by accident.

It may be a natural outcome.

I mean, if you build the most successful solar panel company

in the history of mankind, you will arguably do good,

you'll reduce the carbon footprint of homes.

But they did it because they wanted to sell

a boatload of solar panels, right?

If I understand your question correctly,

it is not going to be very successful

for you to go to professional venture capitalists

to try to raise money for a not for profit

if that's what you're asking.

The way you should do that is,

what you want is you want rich people

who have made money through various means

to give you the money for philanthropic reasons

but it's not an investment.

So it's very different.

- [Man] Yeah, you answered my question something.

- I'm sorry. - [Man] You answered it.

- Okay, okay, thank you, one for one, yes, yes.

I'm seeing a trend you know,

if you ask another 15 minute question,

I'm gonna shut you down.

- Well, yeah, I actually had a 20 minute presentation

I wanted to give you guys.

Well, no, my name is Emeka,

I'm co-founding an incubator/accelerator program

called startup ups out of the South Bay.

And I wanted to see,

with the increased rise of incubator accelerator programs

also with those not giving any upfront investment,

what is your take on them

also with them disrupting the VC world?

- [Guy] I'm sorry, my take on the incubators?

- On the rise of incubator and accelerator programs

and also your thoughts on them disrupting the VC world.

- I really have mixed emotions about those

because I love visit them.

I love the energy, I love the sort of banding together

that we're all in this.

I love the sort of shared space,

hallowing together for warmth,

sharing expertise, sharing Xerox machines,

sharing Trixie the front desk receptionist.

(audience laughing)

Or it could be Biff, doesn't have to be a woman.

So I love that aspect.

But having said that,

I think that just because you have free space

and you have shared resources

that doesn't necessarily make you more successful.

To me, the most important thing is the prototype.

And if it advances your prototype,

then I would be all for it.

But just hanging around other people in shared space is fun,

ping pong table, all the good stuff,

but that doesn't necessarily increase

the chances of your success.

So the key is, I keep coming back to that

it's the prototype man,

build a freaking good prototype and get to market.

Which is one of the beauties of not having a lot of money.

Because if you don't have a lot of money,

you cannot dick around making a lot of crappy prototypes,

you have to get it right.

Which is a good outcome of not having money, okay?

- So you also mentioned about VCs

or the false perception of entrepreneurs

thinking that VCs can add value to their companies.

- [Guy] Yes.

- In most instances, these accelerated incubator programs

don't give you as much money

but may have different value adds.

So at what point does non-financial

kind of overtake larger investments?

- At what point does non-financial

overtake larger investments?

Wow, that is so much of a case by case basis.

I hate to, not that I have hesitated to generalize tonight,

I don't know how to answer that question.

I mean, someone like Paul Graham and Y Combinator,

he may just, in a five minute conversation

may add so much value to your company

that fundamentally changes your company.

Whereas you could be in another incubator

where the blind lead the dumb

and just hanging around there for years

you won't gain anything.

So it's kind of just a crap shoot.

But you know again, it keeps coming back,

get a prototype and put it out there

'cause either the dogs eat it or they don't.

I mean, that's the key data point, okay?

- [Emeka] Thank you.

- Okay, yes.

- So hi, my name is Romy, I'm a full-time MBA student.

- Okay. - And you mentioned

before that one to two out of every portfolio

of 20 companies actually succeeds.

- Yeah.

- Looking back, is there any characteristics

or things that you can highlight if there are

that really make those stand out?

Like those teams, is there any or is it just crapshoot?

- Well, first of all, in a rare moment of humility,

let me say I'm not exactly proven as a VC.

Because I haven't...

So you could take everything I say

and say, Guy, you're wrong.

So you could make the case

to do everything opposite of what I said

and you might be successful.

Well, I think when most people look back on their successes,

they will say that they quote

"Knew that it was a good team," okay.

The problem is that, you really have to ask,

well, if you knew that one was a good team

and that's why you invested in it,

why did you invest in the 19 other losers?

Because at the time you squeezed the trigger,

you knew they were good too

unless you were purposely investing in losers, right?

So it's not rational.

So at the time you squeeze the trigger,

all 20 you thought they were winners

otherwise you wouldn't have squeezed the trigger.

So why is it that one succeeded and 19 failed?

And it's not as easy as saying,

well, I knew that team would succeed

because what about the other 19?

As I get older and older I have come to believe

that it's better to be lucky than smart.

Just imagine from a VCs perspective,

these are some of the pitches you would've heard, right?

So we're PhD students at Stanford

and we're in this computer science class

and we're working on this new search engine

that measures inbound links.

At that point, there were five search engines,

did the world need a six search engine called Google?

Hmm, maybe not, right?

Or my buddy and I, we wanna have a business model

where we need infinite server space in the sky

with infinite bandwidth

so people can upload their videos that they stole, okay?

And what's going to make our company tip

is when people start dropping Mentos into Diet Cokes.

(audience laughing)

Okay, raise your hand, who would invest in YouTube?

Okay, none of you, right?

Okay, so we're going to enable people

to send 140 character text messages.

Oh, what a concept, have you heard of chat?

Have you heard of email?

Have you heard of text messages?

But you wanna send tweets and what's your business model?

Oh, we don't know, but lots of people

wanna tell everybody on the internet

that their cat roll over.

If just 1% of the cat owners use Twitter

(audience applauding)

to tell the internet that their cat rolled over,

you realize how many tweets that would be per day?

And so if you look at these things,

you have to sort of go back in time.

So at that moment, you had, you could invest in Twitter,

you could invest in Webvan, like lots of broccoli sold,

all those people need broccoli,

they don't wanna drive to Safeway.

Imagine if you could just go online and order broccoli,

if we just get 1% of the broccoli sold in America,

you realize how big that would be, right?

And so at the point or at any point

that you had to squeeze the trigger,

wow, I squeezed the trigger wrong many times,

I false negatives and false positives.

I think if you're honest,

you just have to say you got lucky.

Now clearly Kleiner Perkins and Sequoia

gets lucky all the time, so they must know something.

But wow, I'm gonna sneeze, one second.

(Guy sneezing)

- [Man] Bless you.

(Guy sneezing)

- Allergic to Cal, went to Stanford, yeah.

(audience laughing)

So it's very difficult to say.

But if you look at trends,

I really think it's the two guys in a garage,

engineering background

building the product that they want to use.

Another sort of retroactive story was,

my girlfriend wanted to sell

her PEZ dispenser collection online, so I started eBay.

Great story, total bullshit story.

(audience laughing)

PR wanted to make a perfect market online

but it's a great retroactive story.

So if you're successful, man,

you can just reinvent history, right, all the time.

You could just interpret history anywhere you want.

And if you fail, well, nobody's heard of you

so it doesn't matter.

So in that side you have nothing but upside, right?

I wish I could tell you.

You need to get another speaker to tell you that

'cause I cannot, yes.

Oh, we'll go back up there.

- Hi, my name is Ruben, and thanks for good talk and advice.

I'm a foreign student from Korea

and trying to start up here.

- [Guy] North or South?

(audience laughing)

Just in case we get nuked, I wanna know.

(audience laughing)

- When I try to like start off here,

I found it quite hard for foreigners

for like we just tough and I also have no connection here.

So can you give me any special comment or advice

for foreign entrepreneurs?

- I have to admit that I think the acoustics for this

is built for the audience, not the speaker.

So I could not understand your question, can somebody-

- Do you have any advice for foreign entrepreneurs?

- Oh, do I have any advice for foreign entrepreneurs--

- In U.S.

- In the U.S.?

I actually think that you have an advantage

as a foreign entrepreneur in America

because I think one of the richest veins for investing

in particular using the Sequoia theory

is two engineers who are first

or second generation American.

And if you look at it,

like Andy Grove from Hungary,

Sergey from Russia, look at all the Indian entrepreneurs

that built this valley, all first or second generation.

And I think that poverty is a very motivating force.

And so if you gave me a choice of investing in a startup

where this CEO is the fifth generation American,

his great, great, great, great grandfather

came over in the Mayflower,

started the largest, I don't know,

farming supply store in Connecticut,

built that up, built that up, billionaire.

And this person's name is Jonathan Sebastian the third

and father has endowed a chair at Yale and Dartmouth

and coincidentally he went to Yale and Dartmouth.

Total trust fund baby

and now sees that while there are 75 million dogs in America

versus Ash Smith, who one generation ago,

his parents were in Bangalore

and they put him through IIT and he came over here.

Or his parents,

they caught the last helicopter out of South Vietnam

and they landed in Sacramento.

And so his mother became a maid

and his father started running a liquor store

and they saved everything they could

and put their son through Sonoma State

and that kind of thing.

And I would invest in the immigrant all day long,

all day long.

Because if you just look at the history of entrepreneurship,

it's poor people who made big companies,

it's not Fifth Generation Trust Fund babies.

So I think, don't get me started in politics,

but if I were the president of the United States,

God help us,

(audience laughing)

first of all, Macintosh would be a standard computer.

(audience laughing)

If I were president,

I would say we should make the most flexible visa program

in the world, right?

(audience applauding)

Basically I would say, if you wanna come to America,

we have the greatest education system in the world.

Cal is not ranked ahead of Stanford as of yesterday.

So you come to United States, you'll get the best education,

you'll be in a legal system where it might be flawed

but it is not criminal.

You don't have to pay people off to get permits.

You don't have to pay people off

to get your money out of the bank.

You don't have to pay people off.

There's a common law system here.

And you don't have to fear for your life,

you don't have to worry about the mafia.

You don't have to do all this.

Come to America and start a great company.

I can solve the housing crisis.

If I were Obama, I would say,

all right, so this is the deal.

If you buy a house that costs

more than half a million in America,

you are now a citizen of the United States.

(audience laughing)

Our housing problem would disappear in one day

because all these rich people from all over the world,

they say our son,

our daughter can be a citizen of the United States,

buy him a house.

That that would fix the housing problem, right?

And then you know, like my strategy would be

instead of using drones, let's use the visa system, okay?

And so what we will do is, if you want to come to America

to study and work and start a company,

we will give you a visa come on down.

And because we want to create a brain drain,

we want all the countries of the world

to be pissed off at America, not for killing them,

but for draining their best people.

We want best people from every country to come to America,

start your company, create jobs,

do all that kind of great stuff.

Move back, send the money back, we don't care,

but just come to America,

America is the land of opportunity, I think man.

'Cause if you look at all the great companies,

it's immigrants that do it.

And so I think this like Ross Perot,

well, if we have people from Mexico come across

they're gonna take American jobs.

I don't think so, I mean, those are the hungry people,

they're the aggressive people, they're intelligent people,

we should should bring them all down.

Like I'm third generation Japanese-American.

What would've happened if they said,

no more Japanese-Americans

'cause Japanese-Americans they're taking away maid jobs

and the gardener jobs, no more Mr. Miyagi,

we want Americans to do the yard work, right?

I would not be here, right?

I would be working Starbucks in Hiroshima right now.

(audience laughing)

Don't get me started on this.

I think we should create a reverse brain drain.

We should have sucked the brightest people around the world.

You could have a test, just give everybody the SATs.

If you get 2,400 on your SATs, you get a visa in one day.

You get 2000, it takes six months.

You get 1500, stay in Russia.

(audience laughing)

What else do you wanna know?

Yes.

- Great, hey Guy, thank you so much for your time.

My name is Anthony Beldor,

I'm a first year MBA student here.

I wonder if you have advice for prototyping in industries

that have higher capital expenditure requirements,

consumer products or biotechnology,

stuff where the infrastructure for creation is not free

like in Tech.

- Wait, say this again, you want what?

- Do you have advice on prototyping

in industries that require a higher capital expenditure

or the infrastructure's place?

- Yeah, that's kind of where my whole pitch

for prototyping breaks down.

(audience laughing)

My advice would be change industry.

(audience laughing)

How's that?

Yeah, I mean, that is a flaw in what I'm saying.

It's hard to build a quick prototype

of a new kind of mini-nuclear power plant, right?

So you can't build a prototype of a funding

for your new neighborhood nuclear power plant,

but the message is you got to have something tangible

to show people, more tangible than PowerPoint,

whatever you can do.

I mean, point to a similar company in France

that has neighborhood nuclear power plant.

I mean, do something, but don't just talk about

the 300 million Americans who own 75 million dogs,

you have to do something more tangible.

There's the expectation in this lean startup world

where most resources are free or cheap these days

that you show up with more than PowerPoint.

So before I forget,

do any of you speak Hungarian in this audience?

(sighing) It's too bad

because I just got Hungarian version of my book

and I don't know what to do with it.

(audience laughing)

So If any of you know anybody who speaks Hungarian,

I think it's Hungarian,

(audience laughing)

please help yourself to this book.

I also brought some of my art of the starts,

which is the book that I wrote about how to start companies.

So I have this many here.

I don't know how we're gonna give them out,

people who asked the shortest question maybe.

(audience laughing)

So that, and then one more pitch.

My most recent book is the book called "APE"

which is why I singled out

that guy wearing the ape shirt up there.

And "APE" is a book that explains how to write a book.

And so if any of you are interested in how to write a book,

grab one of these cards

because this is innovation in the book business.

So these cards on the back have a place

where you scratch off a specific redemption code.

So you go to a website, you get this number, you type it in

and then you can download the ebook version of this.

For an author, this is probably 200 cards.

If I were to bring 200 books,

they would be stacked this tall, I would never do that.

So this is a way that I can fulfill orders.

This is a much better way to do this.

So if you're interested in a book about self-publishing,

this is my latest book called "APE" and how help yourself.

I do this for my love of Cal, yeah.

(audience applauding)

Okay, so last two questions, okay?

- [Man 2] Hey Guy-

- Last three, three, okay?

Nobody else come up though, yeah.

- I would vote for you any day if I could.

I'm a first generation immigrant from Vietnam

and this is my question for you.

So we didn't get to B-Plan,

I was trying so hard for four or five months

to get funding from angels.

So when is the time for you to-

- Give up?

- Give up, pivot or just find something else?

- Well, that is a difficult question.

Because, in a sense it's what's worse,

giving up too quick or staying too long, right?

And there is no simple answer it to that.

There are allegorical stories

about how Fred Smith was on his last payroll.

He went to Las Vegas and he made 10 grand

and he saved Federal Express, right.

But you never hear of the people

who didn't make 10 grand in Las Vegas

and missed their last check and went out of business,

you don't hear about those.

Well, listen, for one thing, how old are you?

- [Man 2] 23.

- Okay, so it's not like you're at the end of your life yet,

right? - Yeah.

(audience laughing) I hope that.

- So you're 23 years old

and you try to raise money for six months.

I mean, you got lots of time pal.

I mean, don't sweat it, don't do anything stupid,

don't kill yourself.

Don't do anything, this Asian kind of crap,

you're gonna commit-- - I am Asian.

- Yeah, yeah, don't sweat it.

Are your parents here or still in Vietnam?

- [Man 2] No, they're in Vietnam.

- And are they running liquor stores or are they-

- [Man] No, actually my parents are not the poorest people.

But I don't wanna ask them for money for some reason.

- Yeah, but you know, they're like...

They're so proud that you're at Cal, right?

- They don't, yes.

(audience laughing)

- All right, so now they're so proud that you're at Cal,

you know, they would probably really happy

if you went into dentistry or medical or lawyer

marry a nice Vietnamese girl.

(audience laughing)

Maybe if you filed for a patent, they would be happy.

(audience laughing)

You know what I mean?

I gotta tell you, so like obviously I'm Asian.

I went to Stanford, I graduated in three and a half years

and I have to tell you,

one of my biggest regrets in life is that

I was this freaking driven Asian, right.

So, you know you gotta like take as many courses

as you can go to summer school 'cause you wanna,

you're in a rush to get out there and work

and then you get out and you work

and you find out you gotta work for bozos

for the next 60 years of your life, right.

And so I would encourage all of you under at her grad

that you live off your parents, as long as you can.

(audience laughing)

- [Man 3] Your son in the room?

- No, my son is not in the room anymore.

I think he inherited that perspective.

But you know, because like your parents, right.

And they're like...

They're working hard and they're so proud of you

and they're telling all their relatives, you know what?

Our son is at the fifth best university in America.

(audience laughing)

Well, that's what the ranking says.

I, you know, what do you want from my life?

This ain't Harvard, so they're so proud.

They're telling all their friends and all that and you know,

I've been to Vietnam, man.

There's a lot of scooters in Vietnam.

You get 1% of those scooters, you do.

So like, I guess this is a long way of me telling you,

don't sweat it, I mean just, it--

- Just flow.

- Listen, I'll tell you another story.

So I'm full of stories, so after I graduated from Stanford,

the next year I entered law school at UC Davis

and I went to law school for two weeks

and I could not stand law school.

I just hated law school basically back then, anyway,

basically law school was,

they tell you that you're a piece of

and they're gonna remake you.

And I had a real fragile ego at that point in my life,

hard to imagine, but I had a real fragile ego.

So I just could not handle the concept

that they were going to remake me because I was a piece of.

So I left law school after two weeks.

And that's the first time I quit something in my life.

And I thought this was the fricking end of the world, right?

So Asian-American quitting law school.

Oh my God, like I thought, so there's like,

20 generations of Kawasaki,

they're like working in rice patties

and they're cleaning the homes of white people

and they're doing all this.

And so finally, one of you breaks through

and you get into law school and you stay there for two weeks
and then quit, right.

So like bringing shame upon the Kawasaki name

for the next 20 generations going forward.

Yes, what is it?

Suicide, what should I do?

Should I run away from home?

So I call up my father, I say, you know dad,

I just hate it, I can't, I gotta quit.

And so I thought he's gonna like disown me, right.

Or, you know, whatever, right.

And he tells me, that's okay,

as long as you make something of your life,

I was like, well, why the hell did you force me

to go to law school really?

(audience laughing)

Why didn't you tell me that

before you forced me to law school.

So anyway, that's a long story to tell you to relax.

(audience laughing) - [Man 3] Thank you.

- Okay you.

- Hi Guy, first of all, I wanna thank you.

This has been a great informative

and very entertaining talk.

(audience laughing)

So my question is what superior Mac or PC?

- Well, that is a question.

- Okay, so the reason why I say,

so I could get that book, so now onto my real question.

- That's the a short... - Strategy play.

- But stupid question.

- You said the shortest question gets the book, right?

- Well, that's like you go up to the Pope and say,

well, what's better Catholicism or you know what?

- Right, that's not that-- - Guess what he will say?

- Wasn't the real question though.

So my name is Roy, I'm a founder of an education startup.

And so this question pertains to the--

- So it's not a short question.

- No, no that was a joke, I was just trying to get the book.

- [Guy] I didn't say multiple questions.

- Okay, well this is the main one.

This pertains to your lesson about the 51%--

- Yeah. - Equal

in control of a company.

So right now I'm starting an education startup

and I'm trying to Bootstrap it as much as possible.

- Yep. - And while I understand

that's the ideal situation, what is the reasonable amount

or what is the maximum amount of equity

you might be willing to share or, give to VCs

with a reasonable expectation that and maintain control?

- Well, as I said, there is no reasonable expectation

of maintaining control.

The moment you take an outside investor,

you are kind of fiduciarily working for that investor.

Whether it's 1% or 51%, you just get that...

It's not exactly true, but it is a better model

to be thinking that way, that you're losing control.

But on the other hand, you're really not losing control,

you are getting capital to make it a bigger pie.

That's what truly do.

So also you should disavow yourself of the concept

that you are giving part of your company to the VC, okay.

You're not giving part of your company,

you are selling part of your company.

It is an arms length transaction.

You're not doing them a favor

anymore than they're doing you a favor.

It's a mutually beneficial arms length transaction, okay.

So having said that, generally speaking you try to sell

about 20 to 30% of your company per round.

So then the question becomes,

well, how much is your company worth?

And so if your company is worth 4 million pre money

and you raise 2 million, so now it's 6 million post.

So two sixth is a third.

So you sold off 33% of your company for 2 million.

You know that's kind of about, right.

If you're selling 40 or 50% of your company,

you're diluting yourself too much.

If you try to only sell 10% of your company,

most VCs will not be interested

because it's not lucrative enough for them.

So it's kind of in that range, okay.

- Great. - Thank you.

- Last question.

- Hi, my name's Daniel.

I'm undergraduate here at Haas just reentering,

grow up in the family with both entrepreneurs

as a mom and dad. - Yeah.

- Being second generation American.

- You're making me cry.

(audience laughing)

- So having the knowing that my parents

have always driven me to be innovative

and pushed to the next edge and believing in like

making a solid product that's gonna last

and something that you would want

that somebody else would benefit from.

- Yeah.

- I have and I've built prototypes

that are working prototypes with patents.

I had a problem where somebody had stolen these.

- They stole it.

- They stole the patents from me.

- Yeah.

- But the prototype is still workable.

- Okay.

- I'm trying to figure out--

- How did they steal a patent from you?

They copied what you did, you mean?

- They copied what I did. - Okay.

- But I have the originals. - Okay.

- When's the best time to introduce

this to my venture capitalist?

(audience laughing)

No, no, not that they stole the...

Not that they stole the patents,

they seen these prototypes and they're workable.

When's the best time to introduce these patents

and these products to the market

when you see there's viable solutions on the market.

But you know--

- Well, my advice is that

you should always deliver bad news early.

- Yeah.

- And so, it's a very good asset test

of how much the VC really believes in you.

If you tell them this and they say, okay, forget it.

I just think that if you are transparent and honest

from the get go, it just takes less mental energy

to maintain that.

I have come to the conclusion that when you lie,

it takes too much energy to lie.

Because when you start lying,

you need to keep track of what lies you told,

because you need to be consistent with your lies.

Whereas if you tell the truth and there's only one truth,

you don't have to remember

which version of the truth you told.

There is only one version, so I would be honest.

And if the VC or the investors

are truly believers in your company, now, first of all,

they would probably become stronger believers

because they now know that you have the integrity

to deliver bad news, which is a very, very useful thing.

- Yeah.

- Integrity is a very useful thing.

And arguably, if they just punt and turn around

and run away, they didn't really believe in you any away.

So-- - Yeah.

- I think earlier is better.

I would also make the case that

even if someone copied your idea,

the way that a company becomes defensible

is the first company to scale

as opposed to the first company to file the patent.

- Yeah.

- So I think even in a race, the race is to scale,

to build a successful company, as opposed to,

that the reason why we're defensible is a patent.

It is...

There are many...

I would rather have a company with a prototype

that is not patentable.

That has 1000s of people using the service

and joining every day,

then something that has rock solid, airtight patents

that no one is using.

- Absolutely. - Just, you want something,

the dogs are already eating the food, basically.

- Yeah, 'cause I've seen the need for this product.

Nobody else had this product.

I built the product, built the working prototype.

People have seen it and then I patented

and then they copied the patent,

but I still have the original prototype.

- Well, I'll tell you another perspective on this,

which is, if simply seeing your product

and copying it renders you non defensible,

then you didn't have a good enough product anyway.

It should take more than seeing the product and copying it

to make you vulnerable to that.

- Yeah.

- It should take more if that's all it is,

if just hearing what your idea is,

I'm gonna sell dog food online,

but I'll tell you that under nondisclosure,

you're a loser because that's just not...

Even if you had a patent for selling dog food online.

- Yeah.

- That's just not defensible, it doesn't matter.

So it's the first to scale the first to succeed.

And that's what makes it successful.

- Well, I guess I better start packing

a lot of dead cows and thanks--

- That's right, thank you very much.

(audience applauding)

- On behalf of B-Plan and the UC Berkeley student body

I wanna thank you Guy-- - Well, thank you.

- For taking the time to come with us

and have a conversation. - All right, thanks.

- Thank you very much. - Thank you, take care.

(audience applauding)