vinod khosla sam altman

Picking Investors, Early Employee Equity, and Recruiting the Best – Vinod Khosla and Sam Altman on The Y Combinator Podcast

Check out the Y Combinator Episode Page & Show Notes

Key Takeaways

  • “A company becomes the people it hires, not the plan it makes. That’s grossly underappreciated.”Vinod Khosla
  • Most investors are negative value add to a company 
    • “90% of investors add no value. 70% of investors add negative value to a company.” – Vinod Khosla
  • Founder should be much more generous with early employee equity
    • “Being super generous with early employee equity, and getting founder-quality people as the first ten employees, I think all the evidence is on the side of doing this, and yet, almost no one does. There’s a huge edge if you’re willing to do it.” – Sam Altman
  • “The only recipe I’ve ever seen work for making really impactful companies is both a giant vision and a good step 1, 2, and 3. You have to have both. Neither without the other will work.”Sam Altman

Books Mentioned

Intro

The Difference Between a Zero-million-dollar Company and a Zero-billion-dollar Company

  • “When you set out on a journey, your mindset determines who you bring on board, how you approach it, what deals you do, and what investors you take on” – Vinod Khosla
    • In a zero-million-dollar company, you’re only thinking short-term
    • In a zero-billion-dollar company, you’re thinking long-term from the get-go (this then affects who you hire, etc.)
  • “One of the things people seldom realize when they’re starting up: you don’t ever plan what you’re going to do, you build a plan to make a plan” – Vindo Kodla 
    • “A company becomes the people it hires, not the plan it makes. That’s grossly underappreciated.”
  • With a zero-billion-dollar approach, because you’re always thinking long-term, you’re able to be flexible with your tactics and strategies

Most Investors Add Negative Value to a Company

  • 🎧 “90% of investors add no value. 70% of investors add negative value to a company.”Vinod Khosla
    • “Just because you got an MBA and joined a venture firm doesn’t mean you’re qualified to advise an entrepreneur”
  • Ask your investors: “Have you built a large company yourself? Have you gone through how hard it is?”
    • Entrepreneurship is filled with TONS of risk-taking and decision-making under ambiguity. If you, as an investor, have never personally experienced this, you’re probably not qualified to help.

First Principles Thinking & Rate of Change

  • How someone approaches a problem they’ve never been exposed to is the best indicator of how fast they’ll learn
  • Sam & Vinod agree that, specifically with Y Combinator-participating companies, their rate of change is the best indicator of their success (AKA how fast they evolve/chang their plan)

Great Interview Questions

  • If you’re hiring a higher-up:
    • “How will you make the CFO or the VP of Engineering better?”
    • “If you were CEO and had to make a different set of decisions in X scenario, how would you go about it?”
  • “If I gave you $10 MM, what three startups would you consider building, and what are the reasons, as an investor, you wouldn’t want to invest in those?”
  • In general, try to get to the root of how a candidate thinks about problems because, in a startup, there’s nothing but problems
    • Related: “I often tell entrepreneurs that a business plan is completely irrelevant, other than to judge how somebody’s thought about a problem” – Vinod Khosla

How ambitious should a founder be?

  • “I like founders who are very ambitious, mostly because if they’re not ambitious, they’ll hire a team to build a zero-million-dollar company. If they’re ambitious, they’ll hire a team to build a zero-billion-dollar company” – Vinod Khosla

Recruiting the Best

  • “I always say, when recruiting, a no is a maybe and a maybe is a yes” – Vinod Khosla
  • 🎧 “The very best people I’ve ever recruited have all taken at least months to recruit because they always had something great to walk away from” Sam Altman
    • Vinod adds: “The people who don’t have something great to walk away from are probably the people you don’t want”

Founders Should Be More Generous with Early Employee Equity

  • “I see this as a major problem nowadays. People aren’t allocating equity widely enough.” – Vindo Khosla
    • “Among the first 3 or 4 founders at Sun Microsystems, we kept less than half of the common, which was 25-27% for the founders, and an equal or slightly larger chunk for everyone else we hired, and then investors had the minority, but a significant minority (~40%)”
    • When Vinod’s son started his company, he advised him only to keep 15%, and to offer each of the first few employees 15% as well
  • “If you believe a company becomes the people it hires, then your key task becomes attracting the people”Vinod Khosla
    • And what better way to attract people than a nice equity chunk? 
  • 🎧 “Being super generous with early employee equity, and getting founder-quality people as the first 10 employees, I think all the evidence is on the side of doing this, and yet, almost no one does. There’s a huge edge if you’re willing to do it.” – Sam Altman
  • Two related pieces from Vinod for further reading:

Pick Investors That Care About Your Vision

  • The money you get from investors matters far less than the advice they give you
  • Look for investors that care about your vision, as well as your technological approach (thus, they’re much more likely to tolerate things going wrong)
  • How do you know when investors genuinely care about your vision? – Talk to other founders, particularly those who’ve had hiccups along the way
    • “When things go wrong along an ambitious path is when you can actually judge an investor” – Vinod Khosla
  • “An investor is an employee you can’t fire; that’s how you should think about it” – Vinod Khosla

The Recipe for Success

  • “The only recipe I’ve ever seen work for making really impactful companies is both a giant vision and a good step 1, 2, and 3. You have to have both. Neither without the other will work.” – Sam Altman

What does Vinod hope to accomplish over the next 10 years?

Additional Notes

  • The best board members are people who calm you down and subtract from your stress, not add to it
  • “Whose advice to trust on what topic is the single hardest decision an entrepreneur makes” Vinod Khosla
    • (But this is where the right investors can help)
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