Insider Stories of Silicon Valley

By pjain      Published May 4, 2020, 11:54 p.m. in blog Foodies   

Takeaways for Founders and Core Teams

The OLD Myth of Garage Startups

3-4 guys rent a house, sit on the living room floor with their laptops, work 24/7, eat nothing but pizza and drink Red Bull until they pass out, keep this up for a year and then suddenly swim in cash.

Idiotic Ideas

*Ideas without implementation, or without an exceptional team to implement them, are like assholes and opinions: everyone's got one." - Antonio García Martinez

Every Stanford 2.5 GPA or McKinsey consultant with a music app idea thinks he can be the next Mark Zuckerberg.

Bootstrapping, Ideas, Failures Cases and Lessons

The frantic pivots

Random Failures

Merger-Liquidations by VCs

AcquiHire

Intermediate, Capital and Time Efficient Success Cases and Lessons

The Acquisition Highway

Built on Sweat, Abuse of H1bs, Nerds and Hos

Risk taking Immigrants - Real Brains behind Silicon Valley

It is hard to immigrate to Silicon Valley, to the point that some immigrant resort to fake marriages to do so. Being able to work as an immigrant in Silicon Valley, often leads to exploitation.

Corporate Lobbying to exploit Immigrants - Bonded Labor

The H-1B visa, but only a limited amount of them is available. In 2013, 200,000 immigrants applied for one, but only 16,000 were approved and granted. Even if you do get approved for one, you are then at the mercy of your boss. The company may close down, or the person can get fired. If that happens, they are forced to a state of insecurity, as this invalidates their work visa. If that happens, they often are forced to work at smaller salaries. The companies win, as a result of this process. They get a highly skilled employee at their mercy, who has to wait 5 whole years before they can apply for a green card. Only a green card gives them better rights and a permanent-resident status.

Steve Jobs vs Nerds

Atari was the company behind the video game: Pong, in 1975. Steve Jobs was an unpopular employee at Atari. The CEO of Atari, Nolan Bushnell offered a reward of several thousand, to anyone who could code a single player version of Pong. Jobs got Steve Wozniak to solve this problem, pushing him hard. When Jobs got the prize money, he told Wozniak that the prize was only $700, and not several thousand. He only gave Wozniak $350. Shows how ruthless Steve Jobs and controlling!

Jobs' Reality Distortion Field - Work em till they drop!

Passive Aggressive Abused and Underclass of Immigrants

Immigrants go as far as faking marriages to be able to move to San Francisco.

H1b Odds are Daunting

  • Immigrant managers are the worst - they know how much control they have over their foreign employees. They can get stable "slaves" that slog 12-14 hours a day or face the continual threat of being deported at any time.

Beat H1b Odds: Start your own Corporation and Sponsor Yourself

Beat H1b Odds: Marry a Citizen

Beat H1b Odds: Fake Marriages, Student/Fiancee, Work-while-Learn Visas

One way to avoid being a slave to the Corporate-H1B process is a fake marriage. The fake marriage does not have to be to a US citizen. In an example in Chaos Monkeys, one of his employees: Argyris, a Greek computer specialist, got married to a Turkish woman, studying at Stanford, who only had a student visa. Argyris then was granted a student-spouse visa, and was able to work at the author’s company in the US. This may not always work, as often work permits (H4 visas) are not granted to spouses of even existing H1b employees.

Founders Fleece the Sheepies!

Founders take the Money and run!

Random Success, How Startups Sausages are made

Risk Taking at the edge

Founders are Crazy

If you want to build your own company and make it, you have to be a little crazy.

Even if you “just” want to build a normal business, you have to be crazy enough to refuse to give up on it until it works. ... The thing about being crazy this way is: we don’t mind. We’re in for the long run, the big reward, the payoff we know will come – and we’d rather die trying than not go for it. -- (founder of Four Minute books).

Lockdown

Super Focus - not "departments" or "Galactica"

The main word used to describe startup founders is obsessed. Until they’ve made it, whatever that means to them, nothing else matters.

Refuse to Give up

Where founders who succeed - refused to give up

Whatever it takes - Killer Instinct

How both Steve Jobs and Bill Gates played dirty in their early days

Most valued assets walk out every night

HIGHEST RISK Investors - Need to balance Risks - make sure compensated enough!

Why early startup investors always get disproportionately better deals

Start-ups are very risky investments, and there are plenty of them looking for investment. Investment in a startup starts with a “seed round”.

  • Pre-seed for Friends, Family and Fools. The startup operates on a very thin shoestring. Fools because in 90%+ of cases - the company fails and they never see your money again. In fact the "term sheet" may be very shitty or just verbal in many cases!

  • Seed phase. During this phase, they are trying to attract bigger investors. There are many main risks in seed funding:

  • The company fails and you never see your money again a high probability at 10:1
  • VCs come in and buy out seed investors for minimal gain - ie promise is met but get barely 2x over 5 years!

Investors POV - They are not mean, just ensuring fair portion of pie!

Dilution of Investors is a MAJOR risk

Even if the company becomes a huge success, and your share gets diluted to a microscopically small amount.

If seed investor invest $100,000 in a seed round, and later that company is valued at $10 million, and then goes public ten years later at $100m (a huge success sadly only occurs say 1% of the time). Then reality is due to value dilution he only ends up owning 1% of the company. (100,000 / 10,000,000 = 1%). So even if seed investor is SUPER successful and wins similarly 1 of 10 cases, he will lose $900k to gain ($1m-100k) ie ends up stochastically with 0% gain! But if as is most usual it is only 1% that go IPO, it is a HUGE loss. So even if "successful" he is again NOT rewarded for risk you took.

Founders MUST offer counters to dilution down the road

So rational To counteract the series round dilution phenomenon, and entice early investors more, companies offer special deals.

Debt positioned

2x, 3x AT VC Stage minimum returns before founders/employees/common stock

High enough equity stake

Anti-Dilution Clauses

Valuation Cap or Minimum share percentage

One such deal is to place a maximum cap on the company’s valuation, guaranteeing the seed investor a minimum percentage of the company. In above example of a seed funding of $100,000, if we placed a maximum valuation of $3 million on the company, this guaranteed that this early investor would, at minimum, ALWAYS own at-least 3.3% of the company. If the company suddenly was valuated at $100 million, then they would still be entitled to 3.3% of that (3.3 million). Now even if 9/10 companies fail - above logic is $900k loss + $3.3m - $100k or $3.3m gain on $1m investment over say 10 years or IRR of 12.6% - not that great but better than -0% with just a few lines in investing termsheet.

  • NOTE: Even though this special deal of setting a maximum valuation”, is helpful, it still doesn’t cover the risk that the company may simply fail at any time.

  • SRC

Unicorn Era - Decades of Power Plays - Uber Bros, to WeWork debacles

SO MUCH MONEY - keep growing valuation - don't sell out or go IPO early

Keep Valuation Rising = VC Paper Gains - Softbank success and Fall

Obscene Fortunes

Glass Ceilings everywhere

Governance control 5:1, 10:1, 20:1 voting power for founders

Of MBAs, and Experienced MBA-Managers

Bros before Hos

Enthusiastic ass-kissing

Excruciating internal politics

Mega Success Cases and Lessons

Apple - 1970s - 1990s

Atari was the company behind the video game: Pong, in 1975. Steve Jobs was an unpopular employee at Atari. The CEO of Atari, Nolan Bushnell offered a reward of several thousand, to anyone who could code a single player version of Pong. Jobs got Steve Wozniak to solve this problem, pushing him hard. When Jobs got the prize money, he told Wozniak that the prize was only $700, and not several thousand. He only gave Wozniak $350. Shows how ruthless Steve Jobs and controlling!

Microsoft

Bill Gates came from a rich family, and dropped out of Harvard to start Microsoft in 1975. Bill had inside connections at IBM, and they told him that IBM needed an operating system. Gates knew a genius by the name of Gary Kildall, whom he wanted to build the OS for Bill. Gary, however, did not agree to the IBM contract terms. So Gates got one of his Microsoft programmers simply copy Kildall’s code and rename it to DOS (Disk Operating System). Gates then copyrighted it under his own name, renaming it to MS-DOS. Kildall never got a cent from the sale of MS-DOS to IBM.

Google

Google AdWords - Minting Money 24/7/365

Dynamic Data Driven Ads - self tuned for Maximum Payouts - House Always wins!

How Google ads work – and make the company billions on autopilot

Google is one of the most profitable companies in the valley, with a yearly revenue of $70 billion. Besides the monstrously useful search engine that everyone knows, Google’s main revenue mechanism is their advertising platform, where they allow you to bid on any keyword. Some keywords, such as “Insurance”, for instance, are worth $54 per click. The system that controls the billions of keywords, and negotiate all bids is completely automated. Google uses an “fast, automated auction system” . The algorithm that controls which ad is served up at the top takes the highest bids for the keyword, and who has the best chance of being clicked on. The ads which fit both criteria in the best way, get placed at the top. Because of this, the ad results are highly dynamic and frequently change who appears at the top of the ads people see.

Twitter

Facebook

Fascist Culture, Super Political

  • "compares Facebook's culture to fascism but fails to prove it"
  • book Chaos Monkeys

Moderation to keep Facebook Less Toxic

  • Facebook’s security team acts in the shadows – and for good reason!

    Working at Facebook’s security team really must be a shitty job. You have to look at scams, violent status updates, and weird, pornographic content all day long, flag it and then remove it from the system. Even worse, you’ll get zero credit for your work, because if you do it well, no one will ever know about it. Only if you screw up and something slips through the cracks can you expect to get flack. To deal with this, the security team has created an internal group called Scalps@Facebook, which lists all taken down photos and profiles, so they can at least commend each other’s work. Apart from this group, keeping a closed lid on this line of work is probably a good idea: if people knew how many scammers and sex offenders hang around on Facebook, they’d probably stay away from the platform altogether - (- book Chaos Monkeys and founder of Four Minute books).

Case - Killing Google+ despite 2000+ team at Google

How Mark Zuckerberg rallied Facebook’s team to crush Google Plus - book Chaos Monkeys and

In 2011, Google launched GooglePlus in order to challenge Facebook’s status as the premier social platform. At this time GooglePlus’ design, photo-sharing and ad policies were all superior to Facebook’s. Google also had many other products, such as Gmail and YouTube with which they could promote their new social network. Facebook, however, had a loyal and dedicated team of employees. Zuckerberg actually placed the whole company on “lock-down”, ordering all employees to work 24/7, until the “threat was neutralized”. He gave a rousing speech that demanded that quality be improved in record time. He quoted the roman emperor Cato the Elder, with “Carthage must be destroyed!”, declaring GooglePlus the enemy. They redesigned their photo sharing functionality to be in line with GooglePlus, and even wore roman costumes while doing so. In the end, Facebook users didn’t see a reason to leave. Zuckerberg had shown that building a loyal culture can produce a team that rises to motivation and the toughest challenges. SRC

Evolution of Startups 2020+

AI a Key factor

Mobile is important - but 3 million Apps - no-one pays!

People do subscribe - Apple model!

Copy and Extend

First Person Stories, Insider

Chaos Monkeys

  • Antonio García Martinez’s Silicon Valley tell-all, “Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley” (2016 Harper).
  • SRC: Reviews and Audio book from lib. May'2020

The title Chaos Monkeys, referrs to a programming tool that introduces unpredictable failures in programs for testing. It refers to the chaotic impact that startups have on the economy. Also a portrait of a workaholic "crazy monkeys" who have little time or regard for making personal connections; including with their own families.

The book compares Silicon Valley to the "chaos monkeys" of society. He writes about real situations and discloses the inside stories he believes fill every industry. Garcia attempts to explain how advertising technology, startups, and venture capital work. It details his career experiences at:- - quant work at Goldman - launching a tech startup, AdGrok, providing software to optimize Google Ads, before they sold it to Twitter - working at Facebook from its pre-IPO stage.

  • Adgrok $5-10 m? sale to Twitter
  • Antonio was at the bottom of his PhD class, when he decided to make a product called: AdGrok, used to optimize GoogleAds. He did not consider himself to be as bright as most students in his class. He kept working on AdGrok for years, putting in ridiculous hours every day. He even gave up all family life. His daughters growing up without him… He had no hobbies, didn’t watch TV or movies, and didn’t read books anymore. His whole life was AdGrok, until it was completed and launched. In 2011, AdGrok was purchased by Twitter for $10 million.
  • Src1

Todo

ST Resources

  • Quora.com - personal comments, reviews - more authentic

VC Funding

Ebook Summaries to Blog

  • blinkist.com - 27 topics mainly self-help, book summaries - "dont have time to read", 7 day trial to $, Audio Available for many, mobile apps - founded by 4 friends 2012 in Berlin.
  • fourminutebooks.com Niklas Goeke - probably related to blinkist.com - serves to drive traffic to blinkist. PROMO: give 20 page guide to "remembering what you read" - to get your email! SEO/Google search title => seems to focus on unique, less popular books - smaller summaries.
  • Instaread summaries often sold on Amazon eg unlimited.

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