Blitzscaling Course Lecture 3.3. Michael Diaring. Questions and Answers with Reid Hoffman

Original author: Michael Diaring
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This is a continuation of Synopsis 3 of the Stanford University Blitzscaling course lecture given by Reid Hoffman, John Lilly, Chris Ye, Allen Blue and others.

The lecture was delivered by Michael Dearing of Harrison Metal, who was also one of the first members of the eBay team. In the second part of the lecture, he was asked questions by Reid Hoffman, an American entrepreneur, venture capitalist and co-founder of LinkedIn.

Lecture 1: Introduction
Lecture 2.1: Startup growth stages, “family stage”
Lecture 2.2: Startup growth stages, “family stage”
Lecture 3.1. Michael Diaring. A bit from the history of entrepreneurship and management
Lecture 3.2. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 3.3. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 4.1. Ann Mura-Co: The Thunder Lizard Theory. Copyright value
Lecture 4.2. Ann Mura-Co: The Thunder Lizard Theory. Product, corporate and category value.
Lecture 4.3. Ann Mura-Co: Questions and Answers with John Lilly



Reid Hoffman: How should co-founders be chosen?

Michael Diaring: As a founder, you need to rethink your way of thinking. We published a video called “Cognitive Distortion of Founders” - how strange founders see the world.

For example, if you see the world only in black and white - very critical and make quick decisions - you need a colleague who thinks more in gray tones. The key is to find a cofounder who will complement you and mitigate your most dangerous risks.

Raid Hoffman: What cognitive traits in the founders are important to you as an investor?

Michael Diaring: Several qualities come to mind:

  • Personal exclusivity - the belief that you are not destined to live a normal life - is usually very helpful when starting a company
  • The perception of the world in black and white, which we just talked about. Of course, in this case, the probability of making a mistake is higher, but the speed of decision-making is also higher. Sometimes speed is all you have when creating a startup.
  • Schumpeter's way of thinking - no matter how many problems you run into, creative destruction is worth it.


Reid Hoffman: Another thing I noticed is that the founders should be more universal. There is a whole list of difficulties at the very beginning, which can only be solved by hiring more specialists as the company expands.

How to hire people? Especially regarding the first 3-5 people, what would you advise what should be done and what should not?

Michael Diaring: The main mistake we noticed is that the founders come to us with a shopping list: we need 1 kg of front-end developer, 0.5 kg of iOS developer, etc. This is not done.

The first few people you hire should share your passion, and then they will learn everything you need and will do everything you need.

We often saw such people in the immediate vicinity of the founders. Passion must come from natural sources. Using recruiting agents or advertisements is useful, but later, and not from the very first employees.

Raid Hoffman: What are the key points that an early stage startup should focus on?

Michael Diaring: When I visit companies, I go around them with a list of McCallum - Who is working on this? Does he have the authority to do this? Do you know how everything happened all this time?

You will be surprised, but even in an organization of 10 people, literally sitting in the same room, deadlines are violated and the deadlines are postponed.

Reid Hoffman: What do you think of the need to have a market entry strategy and distribution strategy?

Michael Diaring: I do not think that the founder must have a complete detailed plan of the strategy for entering the market, but he should at least have an idea about it.

Have the founders ever thought about entering the market? It helps me understand how their brains work. If the plan does not exist, it means that they are lazy.

Raid Hoffman: What can startups ignore?

Michael Diaring: In my experience, the main aspect of activities that startups can ignore is PR.

There is an opinion that the founders are a brand, and they must be professionals - this is a complete lie invented by those who sell ads for viewing on the page. You can do PR as you wish, but this will not affect the result.

For example, if you are doing PR for the sake of hiring, the people you attract are not the people you need. Startups are rarely written in the press; all startups are faced with low rates. You need to find people who want to stay with you even in the most difficult times.

Reid Hoffman: What recommendations regarding financing do you give to the teams that are at the formation stage?

Michael Dearing: Today, the generally accepted opinion is that you should not evaluate anything on loans - both convertible loans and SAFE loans. No one comes to this country for loans - investors need property.

I suggest you turn to real shareholders - people who are not protected from losses. It’s a terrible mistake to teach founders not to get involved with shareholders. You will not get the same level of obligations if you sell convertible debentures or distributed financing - no one has a manager who is interested in profit.

It is important to have a direct conversation about the assessment of the enterprise. This is simple math:

How big a loan you need / percentage of participation = company value.
Question from the audience  - What about convertible loans with a limit?

Michael Diaring: It's the same. This limit will never be the price of the company - investors should know the price of the company today.

Raid Hoffman:The option that I like in this case is to find a partner in the investment process. How your complex negotiations go, helps you understand how good your partner is and whether you can solve problems together.

Question from the audience  - What about fundraising in a competitive market? - What if they promised me a partnership, but they still want to make a convertible loan with a limit?

Michael Diaring: If an investor says that he wants to make a loan with a limit and help you, then this is obvious and incredible.

60% of the meetings that I have are held with the founders, in which I do not even invest. Most of these founders show me dirty capitalization tables with a lot of investors who promised to help them - but in fact, they never help.

This never happens, because the investor has property, and he can lose real money if your company fails. I saw many founders who had 30-40 investors who invested 20 thousand each, but they could not get help from any of them.

Question from the audience  - Which investors most often answer your calls?

Raid Hoffman:For LinkedIn, we made Series A investments with Mark Kwamm from Sequoia Capital and Series B with David Sche from Greylock Partners. We selected a few angels in round A, but not one of them got into our round, despite the fact that they were all active.

All leading funds have active participants, because this is what allows you to create great companies. One of our investor angels was Josh Kopelman, who invested and helped us even before he founded the capital of the first round.

I believe that you should discuss in detail with your investors what your alliance will look like in the future, and you should also remind them if they do not keep their word.

Question from the audience “If a highly distributed deal is not in your interests, then how should an ideal investment round look like?”

Raid Hoffman: First of all, you need a leading investor who will climb into all the trouble with you. Your startup will have difficult moments, and there will be many situations when you need help, and in these situations you will need a real partner. Your partner is your leader, and he will help you with the next round of financing.

I would also include several key investor angels that can provide clients / talents / advice in your industry. For example, if you are working on a startup with a lot of data, I would attract someone who is an expert in data.





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