How to Raise Money, and How to Succeed Long-Term - Stanford CS183F: Startup School

I am Aaron Harris. I'm one of the partners at Y Combinator. I've been working at YC for a while and I've gotten to fund a lot of companies and I've gotten to see a lot of companies raise money, everything from seeds to A's to B's to C's to weirdo in between rounds. So I'm really looking forward to sharing some of those lessons. But mostly I really want to learn and chat with my guest over here, Jess Lee from Sequoia. Jess, do you want to introduce yourself?

Sure, I'm Jess. Back in 2004, I was sitting where you guys are taking. I think I took databases in this room, but I studied computer science and then went to Google where I was a PM for Google Maps and then co founded a company called Polyvore. I was CEO there and then in the last six months I am now at Sequoia Capital as a partner.

So Sequoia is a reasonably well known venture capital list firm. It's actually one of the first firms in the Valley, one of the longest running and probably the most successful. What have you Learned in just 6 months? I guess about the people coming in the door? What distinguishes off the bat people who are succeeding or who are going to succeed in fundraising? What do you want to see?

Yeah, so part of what we look for at Sequoia is we're looking for really daring founders who want to build really legendary companies. So at Sequoia we've backed folks like at Apple, Google, Yahoo, Airbnb, Dropbox and Stripe. So part of what we look for is a founder who's special in some way, has some unique insight. And for me in particular, because you know me, Polyvore was an 8 and a half year journey of crazy highs and crazy lows. It gets, it's really hard. It's just right off the bat like the odds are against you. It's irrational, it's almost irrational to start a company because the odds are so bad. So you need to have a lot of grit. So that's definitely something we look for. And then I think one of the other things is a really clear understanding of the problem you're trying to solve. Right. I think that that's something that really distinguishes people. I think a lot of people spend time pitching the solution, but they don't really explain the problem. And it should be so crisp and clear what the problem is that you're solving, that the solution almost just flows from that. And the third thing we look for is ideally you're Working in a really, really big market where there's line of sight to billions of dollars of market cap. So those are some of the things.

That we look for. All right, so for me, that breaks down into, like, in three different areas, right? There's the qualities of the founder, right, in terms of the grit. Then there's something that bridges quality and the problem, which is both the problem, the way to explain it, and then the third thing is just how big that opportunity is. So let's take the three of those. So when I think about the first one, that's huge, right? This concept of grit. And it's really hard to assess that in someone. I mean, you look, see someone on the street, you don't know if they're tough. They might tell you a little bit about their lives. Maybe that tells you they're tougher. I know how we think about it. We look at people and we actually want to see how founders interact. We see how founders talk to each other and how they think about the idea that they're working on and what they've actually done in the past. Have they demonstrated fortitude and toughness? How do you change? Judge it, though? You spend more time with the founders, usually before investing. Are there tests that you make them? Do you drop them in the middle of a forest with a knife and a ball of twine?

No, nothing like that. I think grit can come from a lot of different places. It could come from you having. For example, we often ask about the inspiration for the company. Is it something that you're really passionate about that drives you, that you have to solve this problem? Or is it something you just thought would be a good business idea, but getting through the roller coaster, it needs to be. There's gotta be something that gets you through each of those really difficult moments. So sometimes it's because you just care about the problem so much. And there's an inspiring story there, like you're solving a problem. You have, your family had something that shaped you in your life. So that's one form of grit. Then there's, like you said, there's people who have demonstrated continued ability to just run through walls and break down problems. And sometimes that shows up in previous work history, previous things that they've done. And then there's also another form of grit, which is just. I mean, sometimes shows up in completely naive optimism. And sometimes it's almost better to be a little naive and inexperienced about something because you don't know how hard it's going to be. You just keep going. You just Very positive outlook. And sometimes it comes from like a chip on your shoulder where you just like really need to prove yourself. Like something's driving you, you've been underestimated your whole life and so you just keep going. You just have this desire to prove yourself. So those are some of the different forms that grit can take.

Or as a founder, how does a founder convince you that they have those things? Do they tell you those stories?

Okay, so we always try to dig in and try to find out what the inspiration for the company is. So that often is telling. And then you just, with your interactions with someone, you can kind of start to ask them about their background, what they did before, you know is this. Some people have been starting companies from an early age. Some people have worked on multiple businesses. Like those are some small signs. But the end of the day, a lot of it's also just about click with the investor that you're working with and whether they see themselves working. Because you have to remember like great companies, companies take, you know, I think on average it takes about eight years to exit. So when you and your founder, when.

The investor, okay, average time to IPO is now something like 11 years.

Yeah, I meant exit. So even just acquisition, but you know, it's, you're partnering with a person who you're going to be like, it's a long term relationship you're getting into, especially once you start to get to your series A and B. So you want to find someone who you have good fit with. Like it's almost like you're, this is someone you're going to be married to for 10 years. Except you can't get divorced because it's very hard to like you can't kick your investors off your cap table very easily. So something really important to think about is you prioritize picking an investor. So you kind of have to spend a little bit of that time, I guess, dating and getting to know each other, if that makes sense.

That's a super good point. This idea that you can't kick someone off your cap table. People, I think, often cavalierly take money because they say, oh look, I just need some money. Oh, this person offered me money. We always get these questions from founders saying, oh, this random person just offered me 10, 50, 100, $200,000. People do crazy things on fast meetings. And one of the hardest things to do at Seed, at A, at B is decide who it is that you're going to take money from. Now I'd say if you get to decide you're actually In a pretty good situation, because the first rule is, get the money you need to run your business. Now, if there are more people offering you money than you theoretically have room for, then you start to get choosy. How do you build a competitive dynamic in a round? How do you get people interested? Now you're all hopefully starting small companies that are going to be startups that are going to get big. So one day you're going to want to go out and convince a whole bunch of people to that you're going to be the next Google. So how do you build a competitive dynamic in that fundraising?

So I think, first of all, you can't go into fundraising as like a casual side thing that you do 20%. It's actually better to just be really dedicated to it and just like, all right, I know it sucks because I have to step away from running my business, but I'm going to go all in and just work on this process. And you kind of think about it as a process and time it so you have conversations at the right time. And I think you want to prioritize, like, the people that you talk to based on how much you want to work with them times, sort of maybe the likelihood that you might be able to and just work your way through. But, you know, you can also just kind of tell, I think when you have conversations with investors, like, this is someone who I can imagine working with for the next 10 years. This is someone who I cannot. So you'll start to feel that click. But you really just. It's all about timing it together and almost running, almost like you're trying to run a competitive process. Right? And you have to, I think, be subtle about letting people know and trying to set timelines and milestones. Like, you know, I'm hoping to get this done by this date. I think being clear about your expectations helps a lot. Setting that timeline and saying, I'm going into second conversations, like a few of them this week. And then, you know, I've got. Just keeping everyone informed of the timeline so that you, you create as much as possible that competitive situation.

I think that, that turning this into a process, turning fundraising into a process is something a lot of people ignore because they want to believe the stories of, oh, you know, I just, I happened to pitch this person, we hit it off, and all of a sudden they gave me this money and it was amazing. But the way to do this is actually build a spreadsheet. It seems crazy, but put every single person you want to talk to in that spreadsheet and note when you reached out to them, what their response was when you met with them, what the result of that conversation was. Probability weight those conversations, both by how much they're likely to give you and the likelihood that they're going to give you that money. And then you can start to decide who you want to spend time on. And now this changes between the seed and the A in terms of the time that you expect. So if you're talking to angels, one or two meetings, coffees, right. You need to have like some sort of. Well, actually we'll talk about Dec in a second. But you don't need that much material for pitching an angel. If you're going and pitching Series A funds like Sequoia, you have to have a lot more together. Right. And you have to be ready for longer conversations that are more in depth.

I will say though, I think the, the line between seed and A is kind of blurring, has been shifting over the years. So Polyvore raised our series A in 2007 and that was a two and a half million dollar round or 2.6, I think now that seems more like a seed. So I think it can bleed. I wouldn't, I would. I think when you're doing pre seed, it's definitely more the angels, but there are plenty of micro VCs as well as firms like Sequoia that participate at the seed stage. So just, you know, you have to be more buttoned up. Like the, more like I think the larger the fund size. But it is interesting. I've definitely noticed a huge shift in the size of rounds getting bigger and bigger and then they're starting to be called A's later. What used to be a B is now.

Right. The price at which they're done is more equivalent. I mean seeds are now being done at prices that are significantly higher than A's were done even three years ago. Now that's not always the case, right? That happens to be the case in the hothouse of Silicon Valley. Especially if you're doing something like yc, prices will be higher than they might be otherwise or if you're a well known founder or things like that. But I think people who get hung up on the amount of money you're raising or the price at which you raise are doing a disservice to the company. We talked about this the other day that people come in and like, oh, I have to raise 5 million at 15 for my seat. Why? Right. You're actually probably hurting the chances of your company by raising too much money too fast because you're setting the hurdles for your company way too high.

Yeah. You're not in some competition to try to have the biggest valuation. Right. Like you need to, independent of everyone else in the market and all your competitors. Like you need to think about what is the business plan that you have, what are the milestones you need to achieve, kind of, you know, and then what's maybe 12 to 18 months of Runway or what's the money you could use to accelerate that plan. Right. Think about it that way and then, you know, try to minimize dilution. Right. But at the end of the day, like if you're going to be worth it, billions of dollars or hundreds of millions of dollars, though sometimes people over optimize on valuation. And if you think about all the things you could be thinking about, like the valuation, the terms, the person that you're working with, the individual partner and then maybe the reputation or the firm that you work with and the brand and within the firm, I think the two things to look at are the firm's network as well as the community of founders that you step into. Right. Because as much as like getting help from your peers who are other founders and other CEOs and rubbing shoulders with like really amazing founders who help you out, but then also elevate your game, like that's really, really important. That's really something to look for.

Yeah. I think that the research ahead of time on whoever you're talking to is.

That helps too.

Yeah. And people don't do it. People walk into meetings cold or people start talking to investors or prospective investors knowing nothing about what they want, what they've invested before, what their interests are. And it's amazing how important those personal connections are and that knowledge. People really do react well when you know something about them, when you don't expect them to just bring everything to you.

Yeah.

Remember, it's a two way street. Right. It's a partnership, like you said.

Right.

I mean, I think the same goes in the other direction. Right. Like if you walk in and your investor's like what's your name again? And like what do you do? And like has not prepared at all. Like that's also kind of a bad sign. So you know, it's a two way street. Like you're interviewing, you're evaluating your investors just as much as they're evaluating you. You want someone who's going to be hardworking, who you feel comfortable with, who can be your first phone call. Right. Like startups, like I said, it's just like Roller coaster, epic highs, epic lows. Like, in your epic lows, like, you want someone who's going to be a shock absorber and help you through that. Not hit the panic button and be like, ah, let's like, all run around with like chickens with our heads cut off and panic and then make you. Make it worse for you, make it worse for your team. You, you want someone who has seen downs before, knows what to do and can help you out of them. And then also when you're at your epic high, you don't want someone who's just like, rah, rah, cheerleader, because there's always something around the corner that could tank you. So you want someone who's sort of a sparring partner who says, have you thought about this? Someone who pushes you and challenges you to go even greater. So that's certainly part of our philosophy as board members at Sequoia.

Yeah.

One of the hardest things to do for investors actually, is to give good feedback when things are going well that isn't about, oh, my God, you're going to kill it. It's going to be the best. Because I'll tell you, as a founder, you want to hear the best story of yourself. You believe the best story of yourself. You believe the best story of your future. And it feels so good when an investor, fancy investor, comes in and says, ah, you're totally right. You are going to conquer the world. And that advice is super easy to listen to because it's just a confirmation bias thing. Right. On the other hand, you don't want an investor who comes in and just beats you up over everything you do. And finding that medium in the relationship and finding a relationship where both sides can have that conversation is huge. So Sequoia was one of my investors and Brian Schreier and I used to do this, and he was super supportive about the good things and on the things that needed fixing. He didn't yell at me, but he pointed them out logically. I was like, oh, that's actually a good point. That's why he was a valuable investor. And I think a lot of investors refuse to do that because they just want to be best friends. And I think investors who want to be your best friend, not.

That's not an optimal model. Yeah, I mean, it can be kind of tempting, but I think that ultimately isn't good in the long run for you or for your company. I think the other model that's not great is the person who's totally uninvolved, you know, like, you want your Investors to work hard for you too. Right. So that's another sort of bad model. What's another? Oh, the one who's too involved, who wants to tell you exactly where your UI and your buttons need to go. And sometimes things like, well, my sister or my daughter uses your product and said blah, blah, blah, blah, blah. And sometimes that feedback can be sent in a constructive way. But if it's, I got this one data point for you, I don't know anything about your product and I think you should do this. And being very prescriptive about it, that's not good either.

Yeah, yeah, that's right. Investors need to know what their relationship to the company is. Here's a maybe counterintuitive tip. Try not to take office space in your investors offices for a long time. This is this thing that's like really tempting because hey, there's some free office space and hey, there's this perk that you get with it or come work in our accelerator incubator. You don't want your investor over your shoulder all the time. It really inhibits culture and crazy things. Right. Because if you know that your investor is going to come look at your spreadsheet or look at your product, you're not going to try the super weird, crazy idea that you had because it needs a little room to grow and to bloom.

Interesting. I guess. I think you can, I think, yeah, if it's going to be an investor who comes over and like stands over your computer and like says like, what's in that spreadsheet? Definitely, definitely not. But I think there are models where you can get office space and not have that really shift because many times investors are like running around too also just talking about a company, so they might not be there. And the other thing is, if you've got another company in the same space with you, that can be really awesome because then you've got a peer group, maybe ideally they're not super competitive, but you get that founder to founder support and that camaraderie. And I think that's a good reason to sometimes take investor office space.

Yeah, I think, yeah, there are two sides to that. One, one of the things you said really jumped out at me because it's something that we work on a lot with our founders is this idea of being able to clearly communicate the problem and what your solution is, is why is that valuable?

So you have to remember that you know your problem cold.

Right?

Like whatever space you're in, the problem you're solving, you've spent like hours and Hours thinking about it, and you're talking to someone who may not know anything about your space. In fact, I experienced this a lot at Polyvore, because the Polyvore is a fashion and shopping app targeted at women, and 94% of investors are male. So I couldn't rely on, you know, when I pitched an app saying, imagine an app where you can buy dresses all day. You know, 94% of us are like, why would I want that? That sounds terrible. I hate shopping. So it just didn't work. So you had to come up. We had to come up with a way to communicate that really clearly. So sometimes it's an analogy, sometimes it's you. You know, you draw out a Persona. This is your user, this is their problem. Use a real customer. For example, for me, what we did is for Polyvore, we were trying to explain an analogy. So what we did is we took a stack of fashion magazines, like the Vogue September issue, which is like this thick. All the September issues, we took them, we threw them on the table, and we said, this stack of magazines is like $300 million of revenue in one issue, right? Now, imagine that on the Internet. And people are like, oh, I get that. So it's sort of an analogy. And then we showed graphs, you know, and so you have to think about your audience, right? If it's a space that they don't understand, you really have to take more time to explain the problem you're solving, the customer you're solving for, and then from there, you can explain your solution. I've seen a lot of people just jump directly to the solution. I'm like, wait, what are you solving for? I don't understand how fish farming works. Why would I know what. So I mean, you just have to just know your audience.

Yeah, that communication thing, I'm guessing you've all been working on this with your TAs and group leaders in terms of encapsulating what you do in a sentence, if possible. And it seems a little esoteric because, oh, you know, I'm building this big complex thing. Why should I have to boil it down? And what it is, is it's really just this exercise in condensing and clarifying thought. And what we found and what we've seen again and again, is the best. Founders can communicate clearly and can adjust their explanation for whoever they're talking to such that it is meaningful. And this changes, Right? This is different for the engineer that you're pitching and the investor you're pitching and the customer that you're pitching. And telling your parents what you do so they get off your case about the fact that you're not going to work at Google, but working on a crazy startup, you have to be able to contextualize for people. But that clarity of thought, in the end, is a real defining factor when you're going in and pitching. And I'd also say it's one of the things that tells you that you're ready to go raise money. And I think this is really tricky. When do I know that my idea that I've been working on, this project that I've been playing with on the side is good enough to go raise money? And I think one of the things is that you can actually describe it and why it's valuable succinctly, and it doesn't take lots of jargon and a whiteboard to explain all the different dynamics.

Yeah. I think it also says something about a skill that's actually really important in being a founder, which is can you take a big, hairy, complex problem and then break it down into simpler problems? Like just how you'd like. Take a program, you're writing a program and you decompose it in different functions. Like if you can take something big and break it down into sub problems and solve those, then you know that's kind of what you have to do with your company. Right. Like it's. Whatever problem you're trying to solve is probably quite large, very complicated. All these moving pieces, can you figure out how to break them into smaller things and then solve them individually? And that that skill is just being able to do it with your. With your pitch deck and being able to explain this thing you're working on or have been working on for a few years and condense that down. Like that is actually very important. It's like a tell of an important skill for building a startup.

I think for the last topic we'll dig into, and honestly, fundraising could take up days of conversation in terms of case studies and role playing, how you do it. And unfortunately we can't do that now. But I think the next point for all of you as you build your companies is really figuring out when you're ready to talk to investors. And I mentioned it briefly for a second, but this is a really curious thing to figure out. So how do you know that you're ready to raise a round of financing? How do you know that you're ready to take someone's money?

So I think you might be better to talk about that one at the friends and family stage. And that very early stage. I mean, I think you don't want to like when you're. I think a startup is, like I said, it's hard. Right. It's not something you just kind of. It's not as glamorous as one might think. There's a lot of like grunt work that goes into it. So I think having a commitment to an idea that you can imagine doing for quite a long time, like we said, and it takes many, many years for a startup to become successful. I think to me that's one of the tipping points into being able to say to your, for your friends and family, hey mom, can I have $10,000? And to be able to know that you might not actually, in all likelihood you won't give that back to her. Right. So there's got to be enough of a personal commitment. So that's how I would describe the very first milestone. Maybe you have more thoughts on that one.

I think that's exactly right. It's kind of a fuzzy decision point, but it's just this thing in your head where at some point the balance of evidence says, I want to work on this for real full time and I'm okay losing moms or grandmas or my brother's 10 grand or 50 grand, like that's probably 98% chance that's just gonna go poof. And if you're okay with that from like a thought through perspective and not just, I mean, some people are cavalier with their friends and family's money, but if you're okay with that because you really want to commit to something, I think that's the time to go do it. Yeah. And then as your company grows, there become these other things. There are certain milestones and metrics. You know, if you're building a SaaS business and you get to a million dollars in ARR and you're growing at something like 20% to 30% a month, you might be ready for a series A. Like all this stuff, those are sometimes right in terms of the next round of financing. But even those are all like fuzzy lines. You can never look at someone else's experience fundraising and saying, ah, that perfectly ports over to me. So I think it actually plays out forward. At every point in time, there is a balance of evidence that makes you decide that you are ready or that makes someone else decide that you're ready and they come and hand you a check. I think that's what Sequoia. One of the things Sequoia does really well is they'll lean in on a deal before the founder even realizes that they're necessarily ready. Just be like, we think you're amazing and ready. We want to fund you.

Isn't that what happened to you?

It was part. Yeah, it's what happened to us at our seed round and it's something that's happened to friends of mine who have been funded later by Sequoia. So anyway, if you are, you know, get to the point where you're ready to raise money or have other questions about it, just email Jess. I think it's jlee jesseap jess@sequoiacap.com and I think we've got time for a few questions in the room. And you could obviously always email me or email yc. I'm Aaron. Aaronicombinator.com yeah, this takes up a lot of time and a lot of thought and unfortunately it actually fundraising takes up a lot more time and thought than it should because it seems like something that should be systematic, but it's actually chaos, which really confuses people, especially people who are logically brained. Yeah. How should the fundraising strategy be? Should it be like 50 companies and approach all 50 of them at the same time? Or should we do it over a month or two? Or what's the right approach in terms of running a process? Of running the process, yeah. Yeah. So the question was, what's the right way to run a process in terms of reaching out to firms or individuals? If you have a list of 50, do you do it sequentially or in parallel? Basically, I would say do it in parallel, like everyone to the starting gate at the same time. Because one of the things you want to create the competitive dynamic, and the best way to create a competitive dynamic is to have a lot of people trying to do the same thing at once. Right. So you want a narrow gate with a lot of people trying to push through it. The only situation in which that isn't true, if you have a super friendly investor who you know really well and you think you can get them to jump the gun and you can like sort of threaten them and say, like, ah, you know, I'm about to go out and talk to a lot of people, but I'd rather not spend the effort building a deck. And if you can trigger them to jump in, it works sometimes if you're good enough at playing it. But that's really hard. That's like next level stuff. Yeah. In the back, the question. So you mentioned that angel investors, a shorter time frame is from the Series.

A and Series B investors are a.

Longer time frame on the Topic of process. You know, if you were going after series A or your angel, like, how many more meetings or what kind of time frame do you think it takes from when you decide.

Decide to start that process to when.

You might expect to have a result? Yes. Let me repeat the question. Then you take it. So the question is, what is the timeline and what is the process for different stages of investing from the investor's.

Perspective, I would say I wouldn't think about it just as angel versus firm. I would think maybe a little bit about how much you're trying to raise. Like if you're trying to raise a $250,000 or $750,000 round and you're mostly talking to individuals and angels, then like that it can often be just a conversation. A slide deck helps, but doesn't always have to happen when you're getting to seed. So maybe like anywhere from, I don't know, one to two and a half. Then you can expect both from, like, the micro VCs as well as, like the Sand Hill Road investors. Probably one or two meetings. Right. And that can happen within a week. Like, for us, it could definitely be within a week or just. Just two meetings. I don't know about you guys. Well, I mean, your process could be different now and then when you get to an A, then you might probably what will happen with a firm is you might have one meeting with the first person, a second meeting with multiple partners, and then the full partner meeting. Right. Not every firm requires unanimous. Not every firm requires that everyone sees it. But that also tells you a little bit about how that firm is run. Is it more of a team sport or an individual sport kind of firm? So that's what I would say would be the cadence. And then it's really just about scheduling. Like, can you get those three meetings, meetings done in a week, in two weeks? Great. Firms will be able to move fast, though.

Yeah. And you will be amazed at how far timelines can compress in a hot deal and how long they can stretch out in a cold one. And one of the really interesting things is if you think about the incentive dynamic for an investor, it is in their best interest to wait as long as possible before making a decision, if they can, because they just gather more and more evidence. So but as a founder, that's bad for you, so you have to juggle those things. One more, one more. Any other questions? Awesome. You all know how to fundraise. That's great. Thank you so much.

Thanks, guys.

All right. I think I'm the Last person between now and lunch and now and maybe the summer, right, summer exams. So I'll try to be quick. My name is Ali Roghani. The subject of my talk is how to succeed long term. And I've been amazed. I was watching some of the videos that you guys saw and reading up on some of the notes you guys have heard from some amazing people. Emmett Sheer and Michael Seibel and Aaron Levy, et cetera, talking about how to build a great product. And Adam d' Angelo and Stuart Butterfield about how to come up with ideas and measure success. Peter Reinhardt about product market fit. Vinod Khosla about hiring and building teams. It's an incredible list of people. And now from Jess and Aaron about the tactics of fundraising. I'm here to talk about a topic that's perhaps more slippery and abstract than any of the topics you guys have heard about so far. And that topic is leadership. And in particular, I wanted to answer the following question. What do you have to do to be a great leader? And hopefully it goes without saying that that learning to be a great leader is pretty fundamental to long term success. And the reason is pretty simple. If you're going to succeed in building a really successful startup, there's really no way around having to hire a lot of people and motivating and aligning them and getting to achieve something much bigger than you could ever achieve on your own. So there's really kind of no way around learning how to be a great leader if you want to succeed. And for me, the question really starts. The most important initial question to ask is the following. When you study leaders, are great leaders largely similar to one another or are they really different? And I remember when I was sitting at Stanford, I was an undergrad and a business school student here. And I remember sitting in business school. And if you'd asked me that question, I would have said pretty clearly that I think there's kind of a single personality trait like leaders are all pretty much the same. And either you had those genes or that sort of leadership mojo, or if you didn't, then you better kind of work on changing your personality traits around so you could exhibit some of those leadership personality traits so you could be a leader. And this question for me was largely an academic one until after business school. I started working at Pixar, the animation studio, and had the extreme good fortune of working with four people, four leaders that I consider extraordinary. And these four people were Steve Jobs, who was our CEO, Ed Catmull, who was Pixar's founder and was the president of Pixar when I joined John Lasseter, who was Pixar's chief creative officer, and Bob Iger, who was the CEO of Disney, who acquired Pixar in 2006. The surprising thing for me about working with these leaders was that they couldn't have been more different in terms of their personality, their temperament, their style and really just the way they went about doing their jobs. And I want to tell you a little bit about each one of them with the aid of a picture. That's John Lasseter. John is an extroverted artist. He studied cartoons, he went to animation school. He's boisterous and fun loving. He loves toys and he has a massive toy collection. You can see part of that behind him. He's emotional, he's energetic. You could always read how he felt on his face. He loves wine and good food. He had dozens of hobbies outside of work. He didn't manage his time particularly well and was always over committed. And he always showed people a lot of love, the people around him. He gave everyone hugs and he wore Hawaiian shirts every day. Ed Catmull, on the other hand, was an introverted scientist. He had a PhD. He studied computer graphics at the University of Utah and graduated in 1974 with the Dream to one day make an animated film on a computer. He was quiet, thoughtful, exceptionally calm, never reactive. He was hard to read and decipher. He was really health conscious. He kind of lived his life the right way. He didn't drink, he didn't smoke, he ate well. And his primary hobby outside of work, believe it or not, was to go on week long silent meditation retreats. You guys all know about Steve. He was a college dropout. He never really worked for anyone in his life. He was a magnetic presence in meetings, walking around. He was intense, he was impatient, he was extraordinarily quick on his feet. He was not really prone to bonding with people or showing love or affection. I never saw him give anyone a hug at work. He could say really pointed things. He was aggressive. He was always in a hurry and he was in a hurry to get to the answer. He had this energy about him and a clarity of thought and communication that was really remarkable. And then finally, Bob Iger. Bob was the CEO of Disney. He had, unlike Steve, spent more than 30 years at the same company before he eventually became the CEO. He was diplomatic, he was genteel, he was patient, wise, calm. He had gravitas. He exuded a trustworthiness and honor that you wanted to be around and Follow. And he had really, really high emotional intelligence. Here's a picture of the four of them on the day we announced Disney's acquisition of Pixar. When I look at this picture, I think to myself, these four guys worked extremely well together. And if they'd been each other in high school or in college, there's no way they would have ever been friends. You had an artist and a scientist, a hippie and an athlete, and they just would not have run in the same circles. So working with these guys taught me a lot. And it kind of led me to my personal first insight about leadership, which is that there's no single personality type for great leaders. There's really no single model. And this is actually really great news if you think about it, because it means that people of varying personality types can all strive to be great leaders. There's not a gene set or a certain personality type that allows you to be a great leader or disqualifies you from being a leader. But the other implication of this insight is that in your quest to become a leader of your startup, or even a bigger asset for leadership, you have to be yourself. You have to be authentic. You can't try to be someone else or copy someone else's personality or style and hope to be a great leader. You can't try to be like Steve Jobs. And the reason for that is that as humans, we're actually really highly evolved at detecting inauthenticity in other people and we don't follow people we find to be inauthentic. So this kind of leads to my second insight that I wanted to share, which is, despite the variability in personalities, despite the fact that really all personality types can be great leaders, all great leaders have to do three things exceptionally well. The first is that great leaders think and communicate clearly. As a leader, you have to paint a compelling vision for the future that other people can understand and follow. And this is the case if you're a three person startup and you're trying to motivate your co founders or early employees. And it's even more the case when you're a Hundred Person Company, 1000 Person Company and so on. And the key thing about communication as a leader is that simplicity of communication is vital. I remember marveling at Steve Jobs ability at Pixar to take the most complicated problem we were discussing and be able to simplify it to its core essence. Break something complicated apart into what really mattered and how we should approach something first, second, third. It was like we were all sitting in darkness and there was one guy who had a lantern, and that was Steve. And because of that, because he had clarity and could explain something in a way that you could understand and sounded right, you would follow him. The other example I love on simplicity is an example from Jeff Bezos of Amazon. He once said that in Amazon's retail business, which now encompasses almost every category, if not every category, of products on Earth, he said only three things mattered. First, low prices. Second, broad selection. And third, fast delivery. These three things were the only things that consumers cared about, and they would always care about those three things. So anything that an Amazon employee would do to improve Amazon's performance in those three areas was aligned with Amazon's strategy. And that simplicity has been there, the bedrock of Amazon's retail strategy from the beginning. That's great communication. Now, obviously, Bezos and Jobs set a pretty high bar, and I'm not here to try to teach you to be any of those guys, but I can tell you that if you want to improve as a communicator, the first thing you should do is to step back and give yourself more time to think. Even Steve Jobs used to tell us that when he was at his best running both Apple and Pixar, half of his time, half of his schedule was unscheduled, meaning it wasn't filled with meetings with other people. He created time in his calendar to be able to think. And that's going to be really hard when you guys start your startups. It's going to be frenetic. Your time is going to be. You're going to be pulled in a million directions, and it's going to be very, very difficult to actually devote time to just thinking. I don't mean answering email. I mean time to think and plan ahead and plan your communication. What are you going to say? How are you going to explain what you think in a clear way? And so my best advice on this is force yourself to take as little as an hour a day or an hour every other day at the beginning and try to grow that amount of time on your calendar that you're devoted just to thinking. Go for a walk, sit at your desk. Whatever you do that helps you get clarity. Take that time, you can get better at communication. Some people have natural gifts, but anyone with practice and with giving themselves time to think can get better. And the core insight here is that clarity of thought always precedes clarity of language. Second thing all great leaders do is they show great judgment about people. So you heard Vinod Khosla a few weeks ago say that the first 10 people you hire into your startup are absolutely critical. And he's right. And when you grow your startup, you have to have great judgment, not only about the people you hire into sort of individual contributor roles, but even more so, the people to whom you decide to give authority and power, the people you decide to promote and to make managers and to make into leaders. And if you show bad judgment there, if you pick the wrong people, if you bring the wrong people into your company, you can never grow into a great leader. And like communication, you can actually improve and develop your intuition about people, practice and experience. Again, help here. And so, as you guys start your companies, many of you will likely be hiring people for the first time. And so here's my advice. Don't rush it. Take the time to get to know the people you're hiring. Ideally, start with co founders and early employees who you already know. It's important to be aligned from a values perspective. It's not just can this person code or can this person get the job accomplished. You want to try to hire people for the long term, spend time to get to know them. You know, it's not unusual when people at larger startups are hiring their first members of leadership that they spend 10, 20, 30 hours with the person before they decide to hire them. So spending time to get to know someone is very, very important. And trying to bond with them on values like what do they really care about? Are you guys aligned? Do you think you can get along well in the long term? Evaluate that as well as their competence. And the second thing that's very important in developing your intuition is try to meet people who are absolutely great at what they do, even if you can't hire them in order to develop your own understanding of what great is. Again, I could give you lots of examples of founders who spend a lot of time doing this, but the more people you meet, the more great people you meet, you fine tune your ability to detect those characteristics in other people. Finally, a lot of hires don't work out, no matter how well you do it. You're going to have to change people out, you're going to have to ask people to leave. Make sure you do that quickly. Make sure you're courageous about it, and make sure that you reflect on the lessons learned every time someone doesn't work out. And also every time someone works out, make sure you're reflective about your own process and how you've decided to bring people into the company and who you decide to promote into more bigger leadership roles. Last insight. Great Leaders have exceptional personal integrity and commitment. Integrity means standing for something that's important, bigger than yourself. It means having a mission to accomplish that is much greater than your own personal wealth or fame. It means avoiding behavior that would erode trust in all of us. Things like favoritism or conflicts of interest, or using inappropriate language or having inappropriate work relationships. The key test for me is if you consider if all of your communications, all of your emails, all of your verbal communications that you have with those around you, if they were all transparent to everyone, would you be embarrassed by anything you've done or said? And really, you should try to hold yourself to that bar. Commitment means making your work, making your startup into a life mission in a way that inspires other people. It means giving it your all that's inspiring when people see others, when people see leaders motivated by a big purpose and giving it their all to accomplish that purpose, it's motivating in and of itself. And when you think of the opposite, when you see someone who is motivated by selfish ends, who is cutting corners, who is slacking off, who is showing ethical weakness, those are not people you want to follow. So if you want to be a great leader, it's really important to hold yourself to the spar. So I wanted to leave you guys with the last insight I have and a piece of parting advice. Ultimately, if you want to measure a great leader by one thing, I think the most important success metric for a leader is trust. And trust is a squishy concept. And in the way I'm using it, I mean it almost in a 360 degree sense. The job of every leader is to build trust, is to build trust in employees and investors and customers and users. And building trust is both an art and a science. The science part of it is fairly easy. It means when there is an empirical question to answer, when you have to think through what is the technology we should build, or the product direction we should go in, or what sort of partnership we should strike in the marketplace. Like, you've got to be right about those things a lot, right? It's a question of competence. And it's also a question of competence when it comes to your people judgment. Are you good at the people choices you make, both hiring and promotion? The art of trust is more difficult. It's about showing empathy, having good timing, choosing the right words, dealing with the right different people in the right ways. And it's about the integrity and commitment that I mentioned, striving for something bigger than yourself, rather than being selfish or self centered and when you see a leader who has incredible trust, think about it in your personal life, the people you follow in your life, whether it's your friends or family members, etc. Think about who you have the deepest level of trust for in your life outside of, maybe outside of your parents. And it's likely that those same people are people you would listen to and follow because trust is such a strong bond. So here's my parting parting advice. At every step, as you guys move forward, build your startups. Startup may succeed, it may fail, you'll try it again, et cetera. You're going to have hard times and hopefully good times. Always try to optimize for trust. You're going to have a lot of hard decisions to make if you scale a startup. You're going to have to fire people. You're going to have to admit mistakes to your employees and to your customers. You're going to have to say no to people because you disagree with their ideas. Try to view every challenge you guys face as leaders as an opportunity to increase the trust that people have in you. And always, as you're evaluating one course of action versus another, my best advice is to ask yourself which path will generate more trust in you as a leader. And always try to choose that path. Thank you very much and I'm happy to take questions or not. Yes.

Did Steve ever mention where he learned.

How to communicate so clearly, or is.

It just a natural talent?

You know, Steve, as you guys know, started off very early as an entrepreneur and you know, there's a great interview of him if you guys haven't watched it with Steve Jobs and Bill Gates together. And one of the things that Steve talks about, he said, one of the things that Bill and I have in common is we were always very early on the youngest people in the room and how hard that was and sort of what a trial by fire that was to try to, as the youngest person in the room, convince other people that you're right. So I think in his case, he had years and years of practice before I ever met him. I don't know if he had any particular techniques. I'm sure a lot of these gifts came naturally, but practice definitely helps. And being around people who are great at it and observing them and holding yourself to a high bar really helps.

Aaron, how do you repair broken trust people? Not necessarily something you did unethically, but people make mistakes and that can hurt trust. How do you repair that?

I think the most important thing you have to do is to acknowledge your mistake and to talk about it brushing under the carpet or hoping that people won't notice or people will forget is a natural human instinct, but it's not the right thing to do. And so I think the first step starts with being able to admit it. You're absolutely right. Everyone makes no mistakes. And most people are forgiving of mistakes, but they want. I think people want to see that you're like them, you have some humanity and that you can accept when you've made a mistake, that you're open to feedback. All these things are really actually important. So don't feel like if you've made a mistake or goofed something up, talking about it and admitting it makes you weaker or that shows lack of leadership. It's actually usually the opposite. It usually builds trust. To see people be honest about mistakes that they've made and to see people have the self awareness to realize that they've made a mistake. Should we take one more? Yes.

Did you see a different driver behind.

Those four people's motivations?

Oh yeah, for sure. What were those? Well, it's hard for me to speculate. Well, I'll just talk about John and Ed because I know them the best. John was motivated, I think first and foremost by making great films that brought families together and would last forever. He used to say that what other film other than Snow White can anyone name that was made in 1937. I hope I got the year right. But it was in the 30s and he said if we do our jobs well, these films will live forever. And he was also motivated, frankly by just having fun doing what he did. That guy really squeezed all the joy he could out of life. And I think those were probably, from my observation, some of his biggest motivators. In Ed's case. I think Ed is a great learner and a thinker. I think what motivated him was trying to create an organization that could repeatedly be successful, repeatedly produce great films. And he kind of became an organizational thinker. He of course also wanted to make great films and he's also a technologist, so he cared a lot about the software we were building. But I think fundamentally he wanted to try to figure out how to make Pixar this sort of almost impossible, continue its almost impossible streak of creative success, build an organization that's able to repeatedly be successful and understand why and how that was so at least. But yeah, the motivations did differ. I think there was definitely some shared values, some shared aspirations, but each of them had a different. A different specific motivator. Yeah, you mentioned that if you looked at the picture. If they were in high school, they most likely want to hang out together. So we're kind of like on the earliest stage of things. So it's almost like high school. And in the future, you end up together earlier on, they won't get together. How do you kind of like, balance getting people of diverse backgrounds like that together? Well, I would say you shouldn't do that when you're an early startup. I mean, you should hire people who can, first of all of all, that you're connected with and you can work with well and you think can get the job done. The point about their diversity had to do with. For all of you in the room, I'm sure there are many personality types here. All of you in the room, your personality type, whether you're introverted or extroverted, whether you have a more silly personality, a more serious personality, whatever you've studied, whatever your background is, I don't think personality type disqualifies you from being a great leader or becoming a great leader. That was really the point. Not that every company should strive to hire four people as diverse as them as their first employees. That would probably. You're right. That'd probably be a mistake. Yeah. Terrific. Okay, thank you, everyone.