There are three things you need to build a company; an idea, a team, and money. Getting those three things can be exceedingly challenging; but Kevin Ryan has gotten them over and over and over again. He is the founder of 10+ startups that employ thousands of people, raising close to $1B in venture capital along the way. And, he has done it all in NYC, the not startup capital of the world (for now).

Despite this track record, the internet has left Kevin’s thinking on ideation, hiring, and fundraising buried in siloed interviews. After spending 2019 working for him at AlleyCorp, I have realized what a disservice this is to aspiring entrepreneurs and want to fix it.

According to Kevin, "70% of your success in fundraising is your business and your people, and VCs will look closely at both. But there’s 30% outside of that — things you can plan, do and say that’ll make a difference.” In line with that, I will spend the first 70% of this post uncovering his thoughts on ideation and hiring and will dedicate the last 30% to the tactics of getting money for your startup. Although the sources I am pulling from are filled with anecdotes from each of his businesses, I have tried to extract the generalizations I think will be useful to the broadest set of entrepreneurs.

For the rest of the essay the italicized portions are quotes from Kevin (some are lightly edited). If you have the time to dive into the sources, you won’t regret it — Kevin is equal parts witty and insightful.

Ideation

Good ideas are all around you

I’m always thinking about problems — what is too expensive, hard to get, or inaccessible? [video]

If you have a task that takes you more than 3 minutes to do online then there is an opportunity to start a business. [video]

When you see a market where people are making 40% profit margins, you have to think there is probably a better way. [video]

Whenever you have a question you want answered and you don’t know the site that will answer it — there is a company idea. [video]

Any time you see an area that is $50-$100 billion in purchases and there is not one site where you can figure out what you want to buy — especially in the B2B space — then that is where you want to launch a company. [video]

We like to make sure there is an obvious fundamental trend that can back us up for the next 5-10 years because when starting companies, we go with the assumption that we will be owning them 10-15 years later. [video]

You don’t need to be an expert to have good ideas

Entire industries are being replaced by people outside of the industry. Most of the best internet ideas come from people who don’t have a background in what they are doing. [video]

Big market, clear vision, no constraints

It has to be a big market so it’s interesting enough. It has to feel like there is a billion-dollar opportunity there. You’re not always going to get there but if it works, it’s that big. [podcast]

Is there a clear vision of the product that can be built? Is there a constraint? Is there some reason you can’t build this? [podcast]

There is always competition

Any time I've started an idea, including Gilt, if it's any good at all, there are 20 people doing the same thing. [article]

Value feedback but know when to discount it

I never put together a financial model even though I’m a former CFO. I really have to just understand the consumer whether that’s a B2B or a consumer-consumer. I just have to understand what’s going through that person’s mind, what are the challenges, what are the problems. So it really involves a lot of interviews of people. [podcast]

I threw the idea out to a couple of people, and some thought there were structural reasons why it would not work here, saying that France is a different market. And I just thought, "No, I think they're wrong. I think it's gonna work." [article]

Don’t over-index on the idea

The idea is not that valuable — what it is is execution. The idea only gives you a few months of extra time. [video]

When I think about starting a business, my view is that the idea itself is worth between zero and very little. Most new companies already have competitors when they launch and if they don’t, they soon will. [article]

Hiring

Don’t be an entrepreneur if you can’t hire

You're going out and finding people yourself. If an entrepreneur comes to me and says they can't find a person or can't convince people to join, I would say, "Unfortunately, that's the job." If a salesperson can't sell, then you can't be successful. If you can't convince people to join you, you shouldn't be doing this because it's very hard. [article]

Always be hiring

Your concept's not worth that much, but if you can get a great team, then you'll be successful. So that's what I do all day long, I hire. I'm interviewing people all day long and retaining, making sure that our good people stay and are in the right spots. [article]

It’s about the people. Ideas are easy to get. What’s hard is if two people have the same idea. Whoever has the best team that moves the fastest and works well together wins. It’s about making the right decisions and tough decisions. [video]


How to know if hiring is a priority

Kevin has two tests that he uses to decide if hiring is enough of a priority at a company outlined below.

Here’s a simple test: Ask the CEO if he or she spends more time on recruiting and managing people than on any other activity. For me, the answer has always been yes. [article]

Here’s another test of a company’s devotion to its talent: Is your head of HR one of the most important people in the company? I spend as much time with our head of HR as I do with our chief financial officer—and I have never considered having the head of HR report to anybody but the CEO. [article]

References over interviews

References matter most. It would be a great experiment to not interview people at all—to hire simply on the basis of the reference check—and see what happened. I’m pretty sure that most companies would make better hires if they did that. [article]

Below are some questions that Kevin recommends asking during a reference call:

Would you hire this person again?

If so, why and in what capacity? If not, why not?

How would you describe the candidate’s ability to innovate, manage, lead, deal with ambiguity, get things done, influence others?

What were some of the best things this person accomplished?

What could he or she have done better?

In what type of culture, environment, and role can you see this person excelling? In what type of role is he or she unlikely to be successful?

Would you describe the candidate as a leader, a strategist, an executor, a collaborator, a thinker, or something else? Can you give me some examples to support your description?

Do people enjoy working with the candidate, and would former coworkers want to work with him or her again? In what areas does the candidate need to improve?  [article]

How to fire fast

In what follows, Kevin outlines how he would approach telling a low performer they are being fired.

You rank 10th out of 10 in performance. You’re probably great, but this may not be the right job for you. We may not be the right company for you. I know you don’t want to be in a situation where people think you’re the lowest performer.

Sometimes we can find a position in the company that is a better fit. Inevitably, the employee will question the judgment: “I’m not really the lowest performer.” Then I say, “Evaluating talent isn’t a precise science. But it’s very rare that multiple managers think you’re 10th out of 10 when you’re really number two. Maybe you’re number nine—maybe. But the real point is that I want you to be successful, and I don’t think this is the right situation or career path for you. [article]

Why B Players hire C players

The common assumption is that "B players" hire "C players" because they are afraid that hiring people as talented or better than them will reveal their weaknesses and threaten their position. Kevin challenges this belief.

B  players hire C players not because they feel threatened by more-talented people but because most people don’t want to work for a mediocre boss. Think about it: Have you ever heard someone say, “I just got offered a job. The person I’ll be working for isn’t very impressive, but I’m going to take it anyway”? That’s not something talented people generally do. [article]

Good hires bring things to closure

I think, too, that the hardest quality to find in a new hire is the ability to bring things to closure. Some people don’t realize that analysis is useful only if it results in a decision and implementation [article]

Fundraising

As the opening quote alluded to, if you have a good idea and a great team, the money should follow. However, there are a few tactics you can follow to optimize your fundraise.

Start raising before you start raising

When I plan to be raising in six months, I’m already out there, proactively connecting with VCs, having coffees, making as many of them aware of my company as possible The conversation is safer when I’m not raising money. [article]

Hone your pitch with friendlies and poor fits

I like to have one or two meetings with either VCs that might not be the ideal fit or angels or other people who can give me commentary on the idea and how I’m presenting it. [article]

Exude confidence by knowing your numbers

Kevin recognizes VCs have biases based on things you cannot control when you are going to out fundraise – having gone to a particular school, having had a particular job, etc. However, VCs have biases that you can control.

There are two you can control: a bias toward founders who know their numbers backward and forward, and bias toward founders who exude confidence in every interaction. With practice, you can make sure you hit the mark on both. It requires a lot of arduous and uncomfortable rehearsal, memorization and rounds of feedback, but it’s well worth it. [article]

Here’s a micro example — I was in a VC meeting, and someone asked, ‘What do you think the commission structure will be next year?’ the CEO I was working with said, ‘I can’t remember the exact number. Let me get back to you.’ Once in a while, you have to give this answer, but it’s a terrible answer. I stepped in and said, ‘Between 15 and 20%, but it’ll get better over time. [article]

Give VCs Schmuck Insurance

Never tell them who, but do say that there are other people at the table. It’s simple really. A competitive round is better because that means more people are interested. People feel like they have schmuck insurance when they think other people like the company. [article]

At some point in your raise, you might remind firms you’re speaking to that you’re going to the other coast — San Francisco or New York, depending on where you are — on Monday, a way to signal that you’re going to a partner meeting without being obnoxious and bringing it up directly. Everyone will understand what you’re saying. [article]

Make VCs feel special

You want a VC to think, ‘I know there are other people interested, but I have a great relationship with the CEO. I think she really likes me and the firm and I have a good chance of winning that deal.’ You want all the VCs you’re talking with to feel this level of comfort. You need to make it clear you value the services, tools, resources that they bring to the table, and that you’ve been hearing good things about them in the market. [article]

VCs are just like everyone else in the world. They want to be wanted. They need to feel like they bring value and that very smart people (i.e. you) realize and appreciate that. “When a VC feels this, they feel more invested in you. [article]

Turn your raise into an auction

When I want to raise $5M or $6M, I go out and I say I want to raise $3-5M. I believe in the auction strategy. There’s nothing that makes people feel better than when you go back to [the VCs] in two weeks and say, ‘Actually, I know I said $3-5M, but it’s really going to be $5-6M.’ That means other people are interested. [article]

Your goal in this process is singular: get as many term sheets as you can — not 50, but two, three, four. [article]

Some founders may feel guilty about this process of asking for money in an auction, but Kevin reminds founders of the following:

What you’re doing is giving [VCs] an opportunity — a chance to be a part of a company that’s going to change an industry. [article]

Raise more money and be #1

I'm always pushing as hard as possible to be that number one player. You get all the PR, which is self-reinforcing. No one writes about number two. People want to work for the leaders — so do vendors and investors. It's about being there and going really aggressively in the beginning. I always end up raising more money than my competitors, spending more, hiring more people and hiring them faster to make sure that we win. [article]

Set firm but realistic deadlines

You should two weeks of meetings with VCs and ask for term sheets four weeks later. [podcast]

The right time frame between the final meeting and term sheet is typically three to four weeks. That gives VCs the time they need to get their ducks in a row, but not more. Be clear and specific about your deadline — give people the exact date when term sheets are due. [article]

You need to give VCs enough time but not too much time. Let’s say I told you that you’re back in college and there’s a paper you can write to win $10,000 but it’s due in six hours. You’re not going to work on it. If I told you it’s due in four months, you’re not going to work on it. If I told you it’s due in five days, you’d say, ‘Yeah, I can do that. [article]

Value the intangibles in moderation

What follows is relevant only after you have gone through the process of meeting with VCs and have multiple term sheets in hand.

For most [VC] firms — with a few exceptions — you will seldom see anyone other than your point partner. So you’re not getting a firm, you’re getting a person. You need to feel good about that person. [article]

In the situation that you have a firm/person that you would prefer to work with, Kevin lays out a rough rule thumb for deciding if you should go with them – even if they don't give you the best terms.

Within 5% [of the valuation] it doesn’t matter. At 10%, I still want to choose the right person. At 30%, I’m not going to go with someone that I like more. That’s too much for me to give up. [article]

If you’re raising your first round of funding, it’s always more valuable to have VCs that are local. For your second and third rounds, you can go elsewhere. It’s less important. [article]


Final Asks

Please reach out if any of the below apply:

  1. If you come across other articles/quotes from Kevin that you think should be added to this list.
  2. If you are an early stage entrepreneur thinking about fundraising – AlleyCorp makes investments at the earliest stages (pre-product, even pre-deck at times) through Series A.
  3. If you are someone who is considering starting a company and just need some guidance on where to start, I'm always happy to chat.

I'm most active on Twitter – just shoot me a direct message. You can also email me at cam@incremental.nyc.