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Aaron's Essays

Aaron's Essays
The Hindsight Game There are all kinds of strategies for evaluating startup ideas - investors talk about having a...
a year ago
38
a year ago
There are all kinds of strategies for evaluating startup ideas - investors talk about having a “prepared mind,” others build market maps, I like to think about toys, and we could go on. What everyone wants to do is predict the future. That’s honestly impossible. But we can...
Aaron's Essays
Avoiding Errors in Demo Day Fundraising I’ll be addressing the topic below along with Alfred Lin from Sequoia and Ilya Sukhar from Matrix on...
a year ago
64
a year ago
I’ll be addressing the topic below along with Alfred Lin from Sequoia and Ilya Sukhar from Matrix on 3/24: https://us06web.zoom.us/webinar/register/WN_qgghYDq4QxCiW9REOOrbmw It would be challenging to name all the fundraising mistakes that founders make during the many demo days...
Aaron's Essays
There Are No (Absolute) Red Flags in Venture Capital Let’s accept, for the purposes of this essay, that founders and venture capitalists are engaged in a...
over a year ago
34
over a year ago
Let’s accept, for the purposes of this essay, that founders and venture capitalists are engaged in a simple trade. Founders sell business risk for the cash they need to take bigger risks; venture capitalists buy that risk hoping it will one day transmute into reward. Each side...
Aaron's Essays
Generative AI Might Just Save Venture Capital Originally published in The Information on November 2. For the past nine months, nearly every...
over a year ago
24
over a year ago
Originally published in The Information on November 2. For the past nine months, nearly every investor with a Twitter account, blog or board seat has been beating a unified and constant refrain: The go-go days are done. Founders were being pushed to build 36 months of runway,...
Aaron's Essays
When to Shut Down Your Company I originally wrote this essay four years ago and published it over at YC's blog at the time. A...
over a year ago
29
over a year ago
I originally wrote this essay four years ago and published it over at YC's blog at the time. A number of recent conversations I've had with founders made me realize that the framework below remains useful. As the market continues through its downswing, more founders will face...
Aaron's Essays
VCs are Scared When They Should be Greedy I originally wrote this essay for The Information, where it was published on July 6, 2022. I've...
over a year ago
16
over a year ago
I originally wrote this essay for The Information, where it was published on July 6, 2022. I've read a lot of the advice that venture capitalists have given founders on the current state of the markets. Most of that advice focuses on how founders need to adjust to survive the...
Aaron's Essays
In defense of exploding term sheets There’s a lot of content out there arguing that exploding term sheets—ones that expire after a set...
over a year ago
18
over a year ago
There’s a lot of content out there arguing that exploding term sheets—ones that expire after a set amount of time, whether or not they’re accepted—are bad. Some of this comes from founders who do not appreciate the pressure; some if it comes from VCs who want to emphasize their...
Aaron's Essays
The hot round fallacy I originally wrote this essay for The Information, where it was published on Feb 16. Here's a fun...
over a year ago
21
over a year ago
I originally wrote this essay for The Information, where it was published on Feb 16. Here's a fun little paradox in fundraising: Founders and the media love to talk about how quickly funding rounds happen these days—think about the big, rapid-fire raises...
Aaron's Essays
A framework for choosing what to do A year ago, I left YC and felt a bit lost about what to do next.[1] A lot of people were pretty sure...
over a year ago
33
over a year ago
A year ago, I left YC and felt a bit lost about what to do next.[1] A lot of people were pretty sure they knew what I should do. But...I didn't and most of their suggestions didn’t excite me. As I thought through my possible paths, I realized that I didn't have a useful framework...
Aaron's Essays
Pots of Gold Here’s a painful contradiction at the heart of spending time on startups: all the good stuff you can...
over a year ago
24
over a year ago
Here’s a painful contradiction at the heart of spending time on startups: all the good stuff you can create is in the future, but all the patterns you look at to learn what to do are in the past. This makes your brain do funny things. On the one hand, you see how huge things can...
Aaron's Essays
Pro rata is a bad term For a long time, I was a strong believer in investor pro ratas. As a founder, I understood the trade...
over a year ago
23
over a year ago
For a long time, I was a strong believer in investor pro ratas. As a founder, I understood the trade and was comfortable with it. As a partner at YC, I thought it made enough sense that I helped design an entire programmatic pro rata system that covered every investment YC made....
Aaron's Essays
20 Years Later Twenty years later, I can’t remember what I saw and what I think I saw. I remember listening to the...
over a year ago
24
over a year ago
Twenty years later, I can’t remember what I saw and what I think I saw. I remember listening to the news with my mom, Judah, and Mimi as the anchors casually mentioned that a small plane seemed to have hit a tower. We were on I-95 - or maybe the Garden State - headed south to...
Aaron's Essays
Why Build Toys I first wrote this essay a few years ago. A founder mentioned it to me over the weekend, and so I...
over a year ago
29
over a year ago
I first wrote this essay a few years ago. A founder mentioned it to me over the weekend, and so I decided to re-publish it here. One thing that's bothered me in the time since I wrote it is the way in which toys, which are meant to be harmless and fun can become companies capable...
Aaron's Essays
Asymmetries in Fundraising Too often, founders approach fundraising as if they are supplicants to the investors. They...
over a year ago
19
over a year ago
Too often, founders approach fundraising as if they are supplicants to the investors. They understand that fundraising features many asymmetries, but the founders mostly see the asymmetries that are tilted towards the investors. Here’s the thing - in today’s market, the...
Aaron's Essays
Unbundled Capital The way we talk about fundraising is wrong. Specifically, I don’t think that founders sell equity...
over a year ago
26
over a year ago
The way we talk about fundraising is wrong. Specifically, I don’t think that founders sell equity when they raise money. It’s the other way around - founders use their equity to buy capital from investors.[1] Investors know this, which is why they spend so much time and money on...
Aaron's Essays
Conflicted Capital I’ve spent a long time wrestling with how to advise founders about investors and the conflicts of...
over a year ago
16
over a year ago
I’ve spent a long time wrestling with how to advise founders about investors and the conflicts of interest generated by opposing incentives.[1] These considerations are especially important when a founder thinks about fundraising. The founder needs to figure out how to treat...
Aaron's Essays
Distributed Capital In theory, the hard part about finding capital for unproven founders with unproven technologies in...
over a year ago
20
over a year ago
In theory, the hard part about finding capital for unproven founders with unproven technologies in unproven markets should be that no one wants the risk. There was a time when that was true, but it isn’t anymore.[1] For a founder, the issue is different: venture capital is...
Aaron's Essays
Abundant Capital The venture capital industry was built on the premise that both capital and high quality companies...
over a year ago
18
over a year ago
The venture capital industry was built on the premise that both capital and high quality companies are scarce. For most of the history of the industry, this has been true. I remember sitting at demo day in 2011 and marveling at the fact that the combined capital of all the VCs in...
Aaron's Essays
Goodbye YC I sent this email to the whole team at YC yesterday: When I joined YC 7.5 years ago, there weren’t...
over a year ago
24
over a year ago
I sent this email to the whole team at YC yesterday: When I joined YC 7.5 years ago, there weren’t many people around. PG and Jessica were still running things. We had offices in Mountain View, Palo Alto, and on Kearny street, but they were nearly always empty. The only meeting...
Aaron's Essays
Raise less money Over the last few years, I’ve noticed that good companies are increasingly over-diluting themselves...
over a year ago
23
over a year ago
Over the last few years, I’ve noticed that good companies are increasingly over-diluting themselves in their seed and A rounds. Counterintuitively, dilution seems to rise along with price. One would expect the opposite correlation. Strong founders who command high prices should...
Aaron's Essays
Asking questions Small children are great at asking questions. Their questions are simple, direct, and utterly...
over a year ago
24
over a year ago
Small children are great at asking questions. Their questions are simple, direct, and utterly without ego. If you spend time with 2-5 year olds, you’ll find yourself answering a near infinite series of progressively more challenging questions. This is one of the main paths by...
Aaron's Essays
Fooled by experts Experts are generally right until they're wrong. Unfortunately, it's very easy to get fooled into...
over a year ago
39
over a year ago
Experts are generally right until they're wrong. Unfortunately, it's very easy to get fooled into thinking that experts are always right. This is because they are...experts. They are authoritative and knowledgeable. This is especially true when it comes to trying new things in...
Aaron's Essays
Why VCs sometimes push companies to burn Originally posted on the YC blog,...
over a year ago
21
over a year ago
Originally posted on the YC blog, here: https://blog.ycombinator.com/why-vcs-sometimes-push-companies-to-burn-too-fast/ In Investors and their incentives, I tried to give a broad breakdown of the incentives that drive the major types of startup investors. I want to dig deeper...
Aaron's Essays
Fundraising isn't predictable I recently had a conversation with a founder who'd just finished a number of unsatisfying...
over a year ago
31
over a year ago
I recently had a conversation with a founder who'd just finished a number of unsatisfying conversations with investors. The founder's company was growing well, had crossed $1mm ARR, but still couldn't raise money. According to conventional wisdom, that should have been enough to...
Aaron's Essays
Investors and their incentives It is incredibly important to understand the incentives of investors when you are raising money....
over a year ago
20
over a year ago
It is incredibly important to understand the incentives of investors when you are raising money. This used to be fairly easy - you raised money from Venture Capitalists who wanted to see a big return on their investment. The best of these investors were incredibly focused on...
Aaron's Essays
Carts without horses Investing in emerging markets such as India, Kenya, and Nigeria isn’t quite what I naively thought...
over a year ago
22
over a year ago
Investing in emerging markets such as India, Kenya, and Nigeria isn’t quite what I naively thought it would be. Before I started, I thought that finding a good company in an emerging market would just mean copying models that worked in developed markets. All I’d have to do is...
Aaron's Essays
Bad Terms Every startup fundraising process is influenced by the balance of power between the founder and the...
over a year ago
27
over a year ago
Every startup fundraising process is influenced by the balance of power between the founder and the investor. When the founder has a company that is doing incredibly well, and is being chased by lots of investors, the founder has more leverage. When the founder is inexperienced,...
Aaron's Essays
Utopia Bets / Apocalypse Bets I think that it is nearly impossible to figure out the exact changes that new technologies will...
over a year ago
22
over a year ago
I think that it is nearly impossible to figure out the exact changes that new technologies will create in the world. That's problematic because investing in startups is largely about figuring out whether or not a team with a new technology - or application of existing technology...
Aaron's Essays
Don't focus on the NASDAQ While thinking about wiggles (Ignoring the Wiggles ), I looked at when the biggest tech cos in the...
over a year ago
23
over a year ago
While thinking about wiggles (Ignoring the Wiggles ), I looked at when the biggest tech cos in the world started relative to NASDAQ. At first, I thought I'd find no correlation between how well the index was doing and when successful companies were founded. I love...
Aaron's Essays
Exceptionalism Startups that do well often follow a set of common principles. These principles influence how they...
over a year ago
18
over a year ago
Startups that do well often follow a set of common principles. These principles influence how they develop products, build teams, raise money, and get customers. The most successful startups, though, are exceptional and often seem to go against these principles in various ways....
Aaron's Essays
Things that aren't progress A few months ago, I wrote about things that look like work, but aren't. As I paid more attention to...
over a year ago
28
over a year ago
A few months ago, I wrote about things that look like work, but aren't. As I paid more attention to founders doing these things, I started thinking about why they were happening. I realized that the behaviors were largely a function of bad goal setting. When founders choose bad...
Aaron's Essays
I and We Starting a company is, in large part, an act of ego. When that business is a startup, the ego...
over a year ago
29
over a year ago
Starting a company is, in large part, an act of ego. When that business is a startup, the ego component is even larger. This is a good thing. Ego is what gives the founder the confidence to create something new. Ego powers the belief that the new thing the founder creates will...