I think this downplays things quite a bit. I grew up as a middle class immigrant in Canada. My parents have office jobs, but basically 0 connections (certainly not the ones you're implying you need to raise).

In university (which I paid for myself through internships + loans), my cofounder and I just started coding on an idea, which got us into YC, which helped us get in front of a bunch of VCs, which allowed us to raise $3m in seed funding. No connections, just lots of googling and talking/pitching to anyone that would pay attention to us.

It could've been the 5% luck you're talking about, but certainly don't think that coming from a well-connected family is the only way to fundraise in 2021.

You used YC's connections. You applied were accepted and now are part of that network.

Leveraging YC's rep for selection is one way to break in. You were part of the lucky 1% who make it through the program from application to funding,congrats!

An aside.. How did the company do?

It's not the lucky 1%, it's the carefully selected 1%.

The other 99% is where the random rejection component amounts to more like "bad luck".

IOW good luck on its own isn't even enough, but bad luck can set you back years.

And since there's realistically at least another 2% out of the 99 who would have been equally performant if there was actually room for them to be accepted, the greatest pool of most promising candidates are among those whom have been the most unlucky.

Hmm.

Do you think everyone who wasn’t accepted simply did not work as hard?

Think of entrepreneurs as athletes. Working hard is a necessary but not sufficient condition.

So they all worked hard and some got lucky?

I completely believe you, but anecdotes are not data. There are exceptions, but most of the VC world is a circle-jerk of nepotism and "social proof".

> In university (which I paid for myself through internships + loans)

So you got a loan that your family backed and you were able to work as an intern in various places. You also went to a prestigious university. You were a privileged 1% and after entering YC you are part of the 0.1%. This would not have happened if you had been born in Namibia.

My complaint is that by using the leverage of the 0.1% you try to convince the 99,9% that: if you work, think and play hard you can achive your dreams. This is no longer the case. Maybe it was like that 10 or 15 or 35 years ago. Today the wealth difference and inequality is abysmal because of the network effects. So basically you don't need to be good or bad business, you just leverage your network and keep going.

PS: I'm also a 1%

> which got us into YC

That's your "connections" right there

Which university did you go to?

This is also the case with government contracting. Just like how VCs ignore most pitches that come in cold through the "front" door, so too does the government ignore most responses to solicitations. 90% of deals go to those who are connected to the original source through personal relationships of "back door" deals. 5% of the deals go to those who know how to persistently work the system. And only 5% go to those who actually have the best product at the best price.

When the worlds of venture capital and government contracting collides, it gets even more murky. There are many deals in that government folks are closing with silicon valley firms where someone within the government then ends up working for that same silicon valley firm. It's such an I scratch your back, you scratch mine world.

I don't doubt that VCs tend to prefer those they know to those they don't for the very same reasons.

There are people whose job is to just write grant proposals. Someone told me they had a guy who was making almost twice as much as the developers, just because they were afraid he would leave. Which means the company decided it was better to get contracts even if it meant 1-2 less people available to fulfill them.

Isn't this pretty much true of any bidding process? The people already know who they want, but go through the mandated bids just to say they did while ultimately picking the group they already intended to use? From my experience that's the SOP for ad/creative agency bids, so I just extrapolate that to the rest of the world ;-)

It's worse when the VCs put their own people specifically in positions of control in the government to funnel deals to their portfolio companies, and then those people in positions of control leave to then work for those portfolio companies that now have dozens or hundreds of millions of dollars in government funds. It's much dirtier than just building relationships with people before the offer goes out.

Like this guy who sold US$20MM of nonsense decryption technology to the CIA: https://www.nytimes.com/2011/02/20/us/politics/20data.html

Or Peter Thiel using his personal relationship with the Trump admin to make his crony Kratsios the US Federal CTO and Undersecretary of Defense with a huge budget, who then pumps Gov money to Thiel investments (Palantir, Scale, and others), and then leaves the government to join one of the Thiel portfolio companies (Scale). What a sham it all is. I can provide links to all the above, but these are easily searchable.

What do you base this on?

I'm just curious how this works. Here are the two possible scenarios I came up with.

Scenario 1: Fund managers are altruistic and not particularly interested in making money. So they give money to people they know personally.

Scenario 2: Fund managers are greedy, but success is essentially random. So they are indifferent to their investments, so they invest in friends and people they know personally

Is there some scenario in which fund managers are both greedy but also invest in relatively crappy ideas just due to happenstance of having a personal relationship with a founder?

Scenario 3: Fund Managers are very interested in making money, and also realize that (1) advancing the culture of and maintaining their position in elite backscratching networks has payoffs for that outside of portfolio returns, and.(2) the same networking and nepotism factors are at play for many of the other business deals besides venture capital that a new business will need, so just from an investment perspective weighing those factors heavily makes sense.

> advancing the culture of and maintaining their position in elite backscratching networks has payoffs for that outside of portfolio returns

But they have investors. Their investors care about portfolio returns, not the elite networks of the VC administrators.

> the same networking and nepotism factors are at play for many of the other business deals besides venture capital that a new business will need,

So basically running a business is easy and pretty much anyone can do it, you just need connections rather than competence.

None of this makes any sense.

> But they have investors. Their investors care about portfolio returns, not the elite networks of the VC administrators.

I mean, those investors are often part of those networks.

Those networks are cut-throat while being clubby which is actually super negative on bad performance.

Instead of answering your specific questions, let's address the fundamentals here: the entire private equity sector is based on relationships. There is little to nothing that occurs organically. You'll basically never land an investor at a startup conference or pitch contest or any "my idea/execution is going to be more lucrative than other people that you also don't know" scenario.

private equity funds "subsidize" all their losing equity investments with the winning ones, as well as additional investor capital - subsidize only being a useful term if they participate in an additional financing round for one of their poorly performing companies. The rest just fade away into nonexistence. It is not uncommon, unheard of, or odd that the founders of some of those companies has a personal relationship with a fund manager. And more likely the founders at all the companies have a personal connection to one of the private equity firms that invested in the funding round, who then convinced other firms to invest. One triggers the other, but the first one was a relationship.

Most ideas work with infinite money invested, and infinite budget to convince people to purchase or otherwise buy into that idea. Typically ideas work long enough for the same organization to pivot to another idea, or have enough money to buy the better executed version of the idea they originally wanted to do. It doesn't matter. The only thing that is a waste of time is being extremely good at a discipline and hoping that translates into financial investment. It is not an important part of the puzzle.

> You'll basically never land an investor at a startup conference or pitch contest or any "my idea/execution is going to be more lucrative than other people that you also don't know" scenario

Every startup I know or have worked at went through a pitch contest that was pretty boring and not at all based on relationships. You often speak to multiple funds, they kick the tires, interview the team, size out the market opportunity, look at revenue or users, or growth or whatever you have, and they choose to invest. My wife's company also had a PE firm invest in her company and they did the same process and are focused on growth. No one is doing favors for anyone else.

What are you basing your answer on? No offense, but it sounds like you're just going off a caricature of how a very young inexperienced person thinks business happens.

> The only thing that is a waste of time is being extremely good at a discipline and hoping that translates into financial investment. It is not an important part of the puzzle.

I guarantee you if you build a product w/ a high growth rate or engagement, VC will be kicking down your door to give you money.

> I guarantee you if you build a product w/ a high growth rate or engagement, VC will be kicking down your door to give you money.

Why I need a VC then? Did you understand why the Venture Capital industry was created in the first place on the United States in the 60's? If I have a working product with high rate and cashflow, I just use the private debt markets and keep going and expanding. We are not talking about that.

While those things may be helpful, they aren’t good advice because they aren’t easy to do nor are they actually required.

Investors want to make money and they very frequently invest in people who do not meet that criteria. So it’s helpful to too how people were successful without the nepotistic criteria you outlined.

In general your post just complains about privilege without being helpful or insightful.

Also Top 40 under 40 - https://www.youtube.com/watch?v=BBbwAjhVM7M

Start by having rich parents

/s

Funny, of all the investments I've done to date not a single one would have any of these attributes.

And of all of the investments of all of our customers I think I might be able to point to one or two cases where one or more of these were true but I highly doubt they were the deciding factor because the bulk of those did not go through, mostly because having such a relationship - and having it declared - would cause a lot more scrutiny on the fund managers than would happen otherwise because they'd be open to claims.

Now of course it is possible that a bunch of them passed under the radar without being declared.

WeWork - and SoftBank in general - are weird outliers, there is very little logic (to me, maybe they do understand) to their investments.

Actually things have never been easier. You have access to cloud computing, infinite free tools and learning resources. Social platforms to spread your product. If you fail its not your fundraising. Build something better. However when all else is right, a good story helps. Hence this article.

If you don't have any of these then you might try to compensate with better skills or by being better at communicating with investors / being better at telling stories.

Relationships matter almost everywhere.

bad investors will eventually go broke in 7 years when they have no actual exits, but what’s insane is that bad investors aren’t going broke, the insanity is insanely profitable, presumably due to the macro climate, which makes them good investors (or selection bias but what’s the difference)

Wholesale replacement of the current way of creating and allocating capital and debt with a better system.

That’s just a proposal for basic income with some weird paperwork involved. It’s trivial to stamp out detailed business plans when you don’t have to convince people they are feasible.

Have you ever heard of an SBA loan? The difference here is that it becomes an grant, and has a exit gateway of demonstrating cashflow (or some other merit) to get to higher stages of funding.

When you look at numbers of new business starts - even with venture capital and the yc model becoming popular, the numbers are at a multi decade low. The people who our current system selects to take a risk with look far too uniform from far to homogeneous an outlook. This would be a way to setup a monkey throwing darts at random, but the non randomly pick up the next stage winners to position them for private investment. But with society reaping benefits of wins.

> The difference here is that it becomes an grant

Yes, that’s what makes it basic income. What’s to prevent people from copy-pasting the same “local restaurant” business plan every year and just going “whoops, it failed”?

It's not like this isn't a hole in the market. The problem is the incentive to invest in better ideas isn't stronger.

Please define a better idea, and why that is valuable, and how much that might be worth.

I’m always surprised at how much people value an idea verses making that idea happen.

Sorry to say this is bad advice and essentially misleading.

"You have sold your previous business or already own a very successful one."

This is of course very true, and probably the #1 factor which will help you raise money, but that's an authentic reason to invest in someone.

No serious fund will give you money because you 'know them' or are the 'son of an important client of some investment bank'.

Graduating from a Top School will be beneficial but it's neither sufficient nor necessary.