Not obvious. Never Easy. Does happen.

The links below show the early investor pitch decks for three of the most successful and industry changing tech companies of our generation: YouTube, LinkedIn and AirBNB.

Hindsight.

The scary thing is just how obvious the ideas appear in hindsight and also how little magic there appears to be on paper at the beginning of the journey.

The good news is that breakout success does happen (yay!). The bad news is that it’s extremely difficult to predict (boo!).

In fact this specific dynamic — outlier success — is the defining characteristic of the startup industry.

YouTube: Series A — 2005

(Founded Feb-05, raised $11.5m, sold to Google for $1.65bn in Nov-06.)

LinkedIn: Series B — 2004

(Founded 2002, launched 2003, Series A in late 2003, profitable in 2006, raised >$100m total, IPO’d in 2011, sold to Microsoft for $26.2bn in 2016.)

AirBNB: Seed — 2009

(Idea formation 2007–09, Y-Combinator in 2009, $7.2m Series A in Nov-10, raised c.$3.4bn total, current valuation c.$30bn. Still private.)

(There are a few others here if you’re interested.)

Not Obvious.

Time has an incredible ability to shift our perspective. If you’re tempted to think these ideas were obvious from the beginning then check out the post below from the AirBNB founder, Brian Chesky. It highlights the rejection emails he received from many high profile VC investors (even after leaving Y Combinator).

And this amazing exchange between Paul Graham and Fred Wilson (thank you Fred for the humility it took to publish this)…

“They have an interesting business
I'm just not sure how big it's going to be”
(Fred Wilson)

I’m hoping this example can provide some comfort to founders: VC investors (even the best ones) spend their careers being more often wrong than right!

VC Secret Sauce

And finally, if you think there’s some special secret sauce in a VC investment thesis then think again. The below link shows the investment memo for YouTube’s Seed round led by Sequoia in 2005. This one investment decision likely returned c.$500m to their fund and yet the most striking characteristic is its simplicity.

(note: the memo is part of a legal disclosure document so you need to scroll through the document to get to it)

It’s obviously fun to read all of the above with 20:20 hindsight but there’s also some important lessons for both founders and investors…

  • Stay open minded — the biggest successes and market opportunities are not always obvious from the beginning
  • Perception shifts over time — hindsight is not a great lens from which to learn important lessons
  • Be humble — our industry is built on the premise that we can make big bets and still be wrong most of the time
  • Don’t fear rejection — all the greats experience it
  • Have faith—outlier success does happen

The odds are so stacked against us in the startup industry that it’s often important to go back in time and remind ourselves how history is created. Outlier successes are not obvious, never easy but they do happen.

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