What startups were created by Paul Graham

Dear group members,

Here on Xing you can find it again and again: people who are looking for "investors". For an investment of perhaps 50,000 euros.

With the question: "Why can't I find investors when every IT nonsense finds investors?"

Such statements suggest that those seeking investors are misjudging some fundamental things.

In 2009 there was an essay by Paul Graham on this subject, which is essentially still relevant today. For this purpose, Anna Vital created a compact graphic summary.


The Hacker's Guide to Investors



> Investors exist to make money. Venture capitalists and angel investors exist to make money orders of magnitude bigger than the money to be made elsewhere, legally. So why doesn't everyone do it? Because venture capital and angel investing is extremely risky.

Investors want to make money. Why doesn't everyone do it? Because it's extremely risky. The following sentence

> As Graham mentioned in another one of his essays, only 50 from about a thousand VC firms in the U.S. actually make money.

makes me smile: That is roughly the rate of successful Internet companies. 5% of all companies make money at some point, 95% go bust more or less loudly.

Some insights:

> Without a fund they are not a VC.

VC companies are looking for investment opportunities. If you don't invest, you are not a VC.

Then a single successful company won't be of much use to them.

> A single successful company doesn't show that their good judgment is consistent. Instead they want a certain percentage of their portfolio to be doing really well.

You need a certain quota of successful companies in your portfolio.

> They need to avoid the thousands of people who want to pitch their startups only to waste the VC’s time.

You want to avoid letting thousands of people burn your time.

> At the same time they need to know when a startup is becoming hot, earlier than the other VCs so they can get the deal. Since most startups will fail, and therefore are a waste of time, they probably only take meetings with people who are recommended by other VCs they trust.

But they want to know when a startup gets "hot" earlier than other VCs. And at the same time they orientate themselves on these other VCs.

If you look at the graphic


look closely:

> (6) VCs want startups that can go public.

VCs are looking for startups that can go public or that can be sold. Investments in partnerships are therefore already out of the question. See the initial example. Anyone looking for money on Xing in the legal form of a partnership is unsuitable for venture capitalists.

> (5) VCs invest in what other VCs invest in

Not the single donor for the rocket startup (which is hard to find). Rather, it is better to be the sponsor with others for something that develops sufficiently usable.

> (13): Investors are emotional like high school girls: They don't want to be rejected.

And very important:

> (18): VCs are bigger risk-takers than founders

You take higher risks than founders.

> (21): Investors don't like to say no

Whoever has a contract has one. If you don't have a contract - they said "no".

Finally, very aptly:

> (23): Investors like it when you don't need them

> They like when you come to them saying: "The train is leaving the station, are you in or out?"

If you realize these points, then it is also clear that various inquiries about "donors" cannot mean venture capitalists.

Either you go to banks. However, collateral is required (usually in a 1: 1 ratio). Banks are not venture capitalists!

Or you can try crowdsourcing if Family & Friends cancel. Otherwise, I can only advise everyone: Better to work like this for a few years first in order to build up certain reserves for a start-up. If you set up a company, possibly get a loan without collateral and then fail: You may suddenly have a five- to six-digit mountain of private debt that you can hardly get out of.

Best wishes

Jürgen Auer