The Secrets of Sand Hill Road uncovers the inner workings of one of Silicon Valley’s most iconic streets.
There are a number of large venture capital firms in the area that have funded some of the biggest names in tech.
Scott Kupor has dealt with many venture capitalists, and he shares his insider knowledge in this book – allowing the rest of us to make sense of the mystery of venture capital and how to obtain it.
You may be wondering if you should read the book. This book summary will tell you what important lessons you can learn from this book so you can decide if it is worth your time.
At the end of this book summary, I’ll also tell you the best way to get rich by reading and writing.
Without further ado, let’s get started.
Secrets of Sand Hill Road Book Summary
Lesson 1: A good pitcher strikes a balance between adaptability and resolve.
You’re well aware of how nerve-racking it is to present a business plan to potential investors. You might have quit your secure job to launch your startup, and now your income depends on how well your pitch goes.
Since the author spent ten years at Andreessen Horowitz, he has heard thousands of pitches and can distinguish between the good and the bad. Given that we need to understand it by contrasting a bad pitch with a good one, let’s examine the latter first.
Many startup presentations include a list of potential buyers for the company if it becomes successful. Despite what some may think, venture capitalists do not agree.
Investors in startups care about founders’ grandiose plans, even if they have little chance of coming to fruition. When considering who might want to buy the future company, a venture capitalist is more concerned with the world after the founders have conquered it with their idea.
As expected, founders will put their global expansion plans to the test when pitching to venture capitalists. As the author calls it, investors will find ways to poke holes in founders’ strategies during a pitch.
Entrepreneurs are probed about where their ideas came from, what made them think the product would sell, and what kind of market research and consumer feedback they considered.
The term “pivot” is used in the venture capital industry to describe how many founders end up creating a completely different product than the one they initially pitched. Investors’ questions during the idea maze session aren’t meant to predict whether or not the product will be a commercial success, but rather to gain insight into the founder’s thought process and level of expertise.
Changing tack like this during the presentation is unacceptable.
It shows a lack of commitment to the conquer-the-world strategy that investors expect from entrepreneurs if founders change their entire pitch in a 60-minute meeting due to idea mazes.
Nonetheless, entrepreneurs need to be receptive to constructive criticism and willing to adjust their presentations accordingly.
Lesson 2: Since term sheets typically cover both financial and management concerns, they can be confusing.
If founders are able to impress venture capitalists with their pitch, they will move on to the next, more challenging, stage: negotiating a term sheet. A term sheet is a document that specifies the terms and conditions of an investment deal between a venture capital firm and a company.
For founders who are less familiar with term sheets than the venture capital firms with which they are working, investing in a startup can be a difficult and confusing process.
Term sheets, on the other hand, can be simplified into two main parts, making them accessible to both founders and venture capitalists.
The first aspect of the agreement addresses financial considerations. The size of the investment, the investor’s liquidation preferences, and the distribution of the company’s stock are just a few of the variables to think about.
Term sheet negotiations should focus on the economics in the short and medium term, but the governance should be given equal weight because of its far-reaching implications. When discussing a company’s governance, it’s important to look at who is on the board of directors and how they are chosen to serve.
Because the board decides how the company is run, who runs it, and whether or not it should exist, who gets a seat at the table during term sheet negotiations is critical. Additionally, a company’s chief executive officer is typically selected by the board of directors.
According to the author’s company’s term sheet, the board of directors must consist of at least three people. One position is filled by a representative from the venture capital firm, and the other by the company’s CEO, who is also its founder.
The third director is a neutral party who has no vested interests in the outcome of the board’s deliberations.
A company’s board of directors expands as the business expands. A term sheet should be part of your initial offer letter in order to guarantee a balanced board. If your company receives additional funding, a new venture capital firm will likely request board representation.
Put a company representative on the board for every new venture capitalist.
Lesson 3: Since term sheets usually cover both financial and management issues, they can be confusing.
If founders succeed in impressing venture capitalists with their presentation, they can move on to the next, more difficult phase: negotiating a term sheet. A term sheet is a document that sets out the terms of an investment deal between a venture capital firm and a company.
For founders who are less familiar with term sheets than the venture capital firms they work with, investing in a startup can be a difficult and confusing process.
Term sheets, on the other hand, can be simplified into two main parts so that they are accessible to both founders and venture capitalists.
The first aspect of the agreement deals with financial considerations. The size of the investment, the investor’s liquidation preferences, and the distribution of the company’s stock are just a few of the variables you need to think about.
Term sheet negotiations should focus on the short- and medium-term economics, but corporate governance should be given equal weight because of its far-reaching implications. When discussing the governance of a company, it is important to look at who is on the board and how they were selected.
Since the board decides how the company is run, who runs it, and whether it should exist at all, who gets a seat at the table during term sheet negotiations is critical. In addition, a company’s chief executive officer is usually selected by the board of directors.
According to the term sheet of the author’s company, the board must consist of at least three people. One position is filled by a representative of the venture capital firm, and the other is filled by the CEO of the company, who is also the founder.
The third director is a neutral party who has no interest in the outcome of the board’s deliberations.
A company’s board expands as the company grows. A term sheet should be part of your initial offer letter to ensure a balanced board. If your company receives additional financing, a new venture capital firm will likely require board representation.
Put a company representative on the board for each new venture capitalist.
Lesson 4: When a venture capital investment has expired, the board has two options.
Let us assume that your company will not fail because you did not receive venture capital. If so, congratulations: you are among the successful 10% of new companies.
You can expect to receive acquisition offers now that you are the CEO of a successful company that does not need a large infusion of venture capital. In fact, more than 80% of startups funded with venture capital end up being acquired by larger companies.
It’s important for boards and CEOs to weigh a number of factors before deciding to make an acquisition.
Retaining key employees after an acquisition is a major concern. As a CEO, you have likely had the same team of dedicated employees for many years; now is the time to show your appreciation.
To successfully integrate your team into the acquired company, you need to offer them attractive participation opportunities.
In addition to mergers and acquisitions, boards also have the option of going public. An IPO means selling shares on a public market.
One of the most important factors is the share price. For comparison, Facebook’s IPO share price was $38 in 2012. However, within just one day, it fell to $14.
Fortunately, by mid-2019, shares had more than quadrupled, which was a pleasant surprise. Overvaluing your IPO, on the other hand, can give your company a bad name.
Before you decide on a stock price, talk to an investment banker.
When a company is acquired or goes public, VC companies want to know how much they will earn. There is little time for a successful venture capital firm.
Venture capitalists are close to earning a return on their initial investment in the company. However, venture capitalists may sell their shares too quickly, causing the value of the company to decline because of the perception of a massive sale.
For this reason, many venture capitalists prefer to sell their shares in a company gradually rather than all at once.
The next phase of your executive career is fast approaching. Whether you just completed an initial public offering (IPO) or were acquired, your company’s first appearance with venture capitalists was the beginning of a new chapter in your company’s history.
Depending on the size of the company, you now report directly to the CEO or to the company’s public shareholders.
You should be happy that you are one of the few startups that have left the venture capital stage.
Secrets of Sand Hill Road Book Review
Secrets of Sand Hill is a great book I’d like to recommend to anyone who is interested in business. If you spend some time digesting the ideas, it might make a positive impact on your life.
Many new technology companies emerged in the early 2000s, and this ushered in a new era in the partnership between VCs and business owners. Today’s venture capitalists place a premium on companies with founders who have a deep understanding of the issue their product is meant to address.
Mastering the art of the pitch—displaying a willingness to adapt while remaining 100 percent committed to the validity of your idea—is crucial if you want venture capitalists to invest in your product.
Keeping in good standing with your venture capitalist backers is essential once you’ve secured funding, and a solid term sheet can ease this process. If you make it to an initial public offering (IPO) or acquisition, you will be among a select group of successful startup founders.
About the Author
Scott Kupor is the CEO of Andreessen Horowitz, a venture capital firm that manages more than $7 billion in assets.
They’ve put money into well-known companies like Facebook, Twitter, Airbnb, and Groupon.
In addition to teaching venture capital courses at Stanford University, Kupor co-founded Stanford’s Venture Capital Director’s College.
Buy The Book: Secrets of Sand Hill Road
If you want to buy the book Secrets of Sand Hill Road, you can get it from the following links:
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