Skip to Content

The “Startup Whisperer” Tells VCs Not to Expect Such Big Stakes

Y Combinator founder Paul Graham says venture capitalists should listen to entrepreneurs’ complaints.
June 27, 2013

Paul Graham, founder of the influential startup accelerator Y Combinator, gave some advice to venture investors at an event in San Francisco this morning: if you want to find the best opportunities for investing, start listening to what founders are complaining about.

According to Graham, who spoke at the PreMoney conference organized by another accelerator, 500 Startups, the two things that make founders most irritated are investors who take too long to make up their mind and series-A investment rounds where investors insist on too large a stake for a larger amount of money than the founders actually want (series-A rounds are a company’s earliest investment, or its first after getting some seed funding).

More generally, Graham said, “do something founders want.”

The advice reflects the way the startup ecosystem has shifted of the last several years. Thanks to cloud computing and powerful software it’s possible to start a tech company with relatively money–making venture capital less essential for many founders to get their ideas off the ground. Because of this, VCs aren’t able to command as large a stake as they used to in return for their investment (nowadays they’re fighting to get a 20 percent stake where they might have gotten 40 percent eight years ago, Graham said).

Graham said the first venture capitalists who “break ranks” and start investing in series-A without expecting to get huge amounts of equity “stand to reap huge benefits.”

“What will happen to the VC business when that happens? Hell if I know. But it will certainly be good for that firm,” he said, as they’d quickly get the best startups interested in taking their investments. “And the best startups are where the money is,” he said.

On the issue of speed, at least, Mark Suster, a partner at Upfront Ventures (formerly GRP Partners), disagrees. Speaking after Graham, he noted that one problem with quick decision-making is that neither the investor nor the startup knows much about the other.

Keep Reading

Most Popular

A Roomba recorded a woman on the toilet. How did screenshots end up on Facebook?

Robot vacuum companies say your images are safe, but a sprawling global supply chain for data from our devices creates risk.

A startup says it’s begun releasing particles into the atmosphere, in an effort to tweak the climate

Make Sunsets is already attempting to earn revenue for geoengineering, a move likely to provoke widespread criticism.

10 Breakthrough Technologies 2023

Every year, we pick the 10 technologies that matter the most right now. We look for advances that will have a big impact on our lives and break down why they matter.

These exclusive satellite images show that Saudi Arabia’s sci-fi megacity is well underway

Weirdly, any recent work on The Line doesn’t show up on Google Maps. But we got the images anyway.

Stay connected

Illustration by Rose Wong

Get the latest updates from
MIT Technology Review

Discover special offers, top stories, upcoming events, and more.

Thank you for submitting your email!

Explore more newsletters

It looks like something went wrong.

We’re having trouble saving your preferences. Try refreshing this page and updating them one more time. If you continue to get this message, reach out to us at customer-service@technologyreview.com with a list of newsletters you’d like to receive.