Tom Blomfield: Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | E 1152

Tom Blomfield discusses the dual nature of being a founder, emphasizing the need to balance visionary goals with immediate priorities. He reflects on his entrepreneurial journey, highlighting early ventures and pivotal moments like joining Y Combinator, which transformed his career. Blomfield shares insights on fundraising challenges, noting the emotional toll of repeated rejections. He also discusses his transition from founder to investor at Y Combinator, emphasizing the importance of founder quality over ideas. Blomfield expresses excitement about AI's potential and outlines his belief in the importance of maintaining high standards in investment and mentorship.

• Founders must balance cognitive dissonance by maintaining a grand vision while focusing on immediate priorities.
• Successful founders are often not the most agreeable, as they must challenge the status quo to innovate.
• The ability to envision a successful long-term outcome while executing short-term tasks is crucial.

"I don't think Founders are necessarily the most likable people honestly if you just agree with everything that happens around you you're never going to create something different."

• Founders need to be contrarian to drive innovation and not just agreeable to existing paradigms.

• Exceptionalism often manifests early, with many entrepreneurs showing business acumen as children.
• The speaker recounts early attempts at business, highlighting a lifelong inclination towards entrepreneurship.

"I was fascinated by lots of different things I got into computers very very young and I was honestly trying to start businesses from when I was about six or seven."

• The speaker's early interest in computers and business indicates an innate entrepreneurial spirit.

• Y Combinator (YC) played a pivotal role in transforming the speaker's career and mindset.
• Being surrounded by ambitious founders and role models at YC elevated the speaker's aspirations and capabilities.

"Being in YC just put us amongst this group of like high ambition High achieving technical Founders who thought they could accomplish something."

• YC provided an environment of ambition and high achievement that inspired and guided the speaker's entrepreneurial journey.

• The speaker faced significant challenges in fundraising, including receiving 96 consecutive rejections.
• Perseverance and belief in the business vision were crucial in overcoming these obstacles.

"It was really dispiriting just saying the same thing over and over again about how I believe this bank was going to be valuable how we going to make money how people are going to deposit their salaries and people just not believing me 95 96 times in a row."

• The speaker highlights the emotional toll of repeated rejection and the importance of resilience in fundraising.

• The speaker contrasts the optimism and ambition found in the US with the more conservative mindset in the UK.
• This cultural difference impacts the entrepreneurial landscape and the support founders receive.

"The American dream is not a reality that most people get to live but it is a dream that a lot of people experience they that optimism that idea that anyone can create anything that they try hard enough is so deeply American."

• The optimistic and ambitious culture in the US fosters a more supportive environment for entrepreneurs compared to the UK.

• Investing in high-quality founders is more important than the idea itself.
• The speaker learned valuable lessons about evaluating founders and the importance of team quality.

"The biggest mistake was over indexing on the idea and not in on the quality of the founder."

• The speaker emphasizes the critical importance of founder quality over the business idea in investment decisions.

• The transition from solo angel investing to a partnership at YC involved learning and adapting to a new role.
• The visiting partner role at YC served as an intensive apprenticeship, providing valuable experience.

"Being a visiting partner is a great apprenticeship but it feels like a little bit like being a teaching assistant at a University versus being a professor at a university."

• The visiting partner role at YC offers a rigorous learning experience, preparing individuals for the responsibilities of a full partner.

• The experience of being a visiting partner involves learning from various influential figures in the startup ecosystem.
• Dalton's approach is highlighted for his ability to help young founders discover ideas by analyzing their backgrounds.
• Michael Seibel is noted for his ability to deliver harsh feedback with warmth and empathy, a skill admired and sought after by others.

"Dalton can come in and sort of unpick their background and history and find some thread to pull on that they're super excited about and turns into a great startup idea."

• Dalton's method involves connecting founders' past experiences with potential startup ideas, making it feel like their own discovery.

"Michael Seibel has this incredible way of giving the most brutally hard feedback you can imagine the founder absolutely needs to hear and then finishing off with this like heartwarming chuckle."

• Michael's approach combines critical feedback with empathy, balancing the harshness with care and support.

• Transitioning to a partner role involves accepting a coaching and mentoring position rather than being in control.
• The weight of a partner's advice can be significant, and founders must learn to discern which advice to follow and which to ignore.

"Accepting again we talked about this earlier that I'm not in the driving seat that I'm a coach and a mentor."

• The role of a partner is to guide rather than control, emphasizing the importance of founder autonomy.

"If someone blindly accepts everything you say without thinking, not great."

• Founders must critically evaluate advice rather than following it without question.

• Investment decisions are based on potential rather than likability; founders may be contrarian or unlikable but still successful.
• Exceptional founders often have a drive to fix broken systems, which may not make them the best employees but great entrepreneurs.

"I don't think Founders are necessarily the most likable people honestly."

• Success in founding a company often requires a contrarian nature and a willingness to challenge the status quo.

"It's not calming to be around you like just generally impatient generally quite irritable because you want to change something."

• The drive to improve and fix issues is a common trait among successful founders, even if it makes them difficult to work with.

• The selection process involves reading applications, interviewing, and deciding which startups to fund.
• Key indicators of potential include teaching something new about their industry and having a deep understanding of their domain.

"If I read an application and I'm the first one to say yes that's mine then I get to interview it."

• The process involves a sense of ownership and responsibility for the selected startups.

"They teach me something that they're so expert in their domain and so obsessive."

• Founders who can offer new insights and demonstrate deep expertise are favored in the selection process.

• In-person interactions are preferred for building trust and emotional connections, whereas remote interactions can feel transactional.
• The in-person experience includes group events, office hours, and shared activities like cooking, which foster community and collaboration.

"Everyone's a lot happier now with the all in person."

• The return to in-person interactions has improved satisfaction and engagement among participants.

"The act of cooking dinner for a group of people you've invested in and then serving them with your own hands it's just like an act of care."

• Shared activities enhance trust and emotional bonds between partners and founders.

• Founders often make the mistake of not launching early enough due to fear of releasing an imperfect product.
• Successful founders balance a narrow focus on quality with a broader long-term vision.

"Not launching early enough very often so being too afraid to get something out there and iterate."

• Early iteration and feedback are crucial for startup success, despite fears of initial imperfections.

"I would always encourage Founders to go for a very very very narrow feature set like even narrower than they possibly could imagine and polish it to a very very high level of quality."

• A narrow focus on a high-quality product can lead to greater initial success and customer engagement.

• Around 20-25% of companies pivot during the batch process; successful ones stick with their chosen ideas.
• Founders must balance long-term vision with short-term execution to avoid becoming either too idealistic or too narrowly focused.

"The worst pivoting Founders just um can never get the conviction to stick with anything."

• Repeated pivots can indicate a lack of conviction, while successful founders commit to their ideas.

"Dalton say something very funny uh a couple weeks ago pivoting is like divorce it's like maybe one or two is reasonable but if you're doing it multiple times in a row maybe the problem is you."

• Excessive pivoting may reflect deeper issues with the founder's decision-making and commitment.

• Founders are advised to avoid early fundraising to maximize competitive offers and terms.
• The process is structured to encourage competitive bidding, enhancing the potential for better investment deals.

"What happens is nervous Founders will fundraise early because they're like well what if demo day isn't well."

• Early fundraising can lead to suboptimal terms, and founders are encouraged to trust the process for better outcomes.

"Running a competitive process with lots of people bidding is going to get them better terms."

• Competitive fundraising processes can lead to more favorable investment terms and greater success.

• Founders are guided on how to structure investment rounds to optimize their chances of success.
• The focus is on creating a competitive environment to attract better offers and terms.

"We strongly encourage them not to and will be very very disappointed if they do because it's not in their interest."

• Founders are advised to avoid early commitments and instead focus on creating competitive bidding scenarios.

• YC's advice is customized for each company, emphasizing that founders were historically over-diluted in seed rounds, often giving away 25-30% of their company, which is too much.
• Founders are advised to retain control and aim for less dilution, but flexibility is key if a great partner wants more ownership.
• Raising less money pre-product market fit is advised to maintain urgency and execution speed.

"The advice we've seen or the trends we've seen over the last few years is that Founders were getting way over diluted in their seed round. They're giving away 25 or 30% of their company at seed. That's too much."

• Founders should avoid over-dilution in seed rounds to maintain control and make progress toward Series A milestones.

"We are telling Founders that over diluting a seed is not good for them and that retaining control would be good for them."

• Flexibility in ownership percentage is important when great partners are involved.

"If a great partner comes in if a top tier fund or someone they has a specialism they really really like and they'd want 15% ownership or even 20% ownership great cons absolutely consider it."

• Raising less money pre-product market fit helps maintain urgency and execution speed.

"We push Founders to raise Less in general because most of our companies at demo day are pre-product Market fit."

• YC maintains an investor database with reviews and ratings from founders to track investor behavior.
• Bad investor behavior includes not wiring money after making an offer and being overly demanding with small checks.
• YC plans to publish data on investor meetings, investments, and check sizes for founders to make informed decisions.

"YC has an investor database which has 10,000 people... and it has reviews from all of the YC Founders that have taken investment from them both on their process and what they would like to work with after the investment."

• YC's investor database helps founders identify trustworthy investors.

"Very typical bad investor Behavior would be something like making a binding handshake offer... and then not wiring the money."

• Publishing investor data will help founders understand the likelihood of investment and expected value of meetings.

"We have data on how many meetings each VC takes how many Investments they actually make and what the check size is and so we can tell our Founders what is the percentage chance of conversion."

• YC is experimenting with curated networking events for founders to enhance community and networking.
• Randomly matching groups of founders for dinners was challenging, leading to more curated events.
• The goal is to create a strong network among YC founders and alumni.

"I ran an experiment last batch where I randomly matched groups of eight to six to eight founders with across groups for dinner and just sent them out for dinner."

• Curated networking events aim to foster community and shared experiences among YC founders.

"The thing that I found most valuable as a Founder in London was meeting groups of peers that I would then share experiences with."

• AI is seen as a technological revolution comparable to the internet, with potential to transform every industry.
• There are two camps regarding AI's impact: sustaining innovation for existing products and disruptive innovation creating new markets.
• AI is expected to drive the creation of new consumer companies and transform consumer behavior.

"We are now going through another which is AI which is going to be as big as the internet I think really there a technological Revolution that I think will impact every part of our lives."

• AI's dual role as sustaining and disruptive innovation offers opportunities for both existing and new markets.

"I do think big incumbents with distribution who can add sort of AI co-pilot functionality will make their products more effective but I think there are huge new categories that will be created as well."

• Uncertainty exists about the profitability of investing in foundational AI models, with large tech companies likely dominating.
• The application layer of AI, built on foundational models, is seen as a promising area for startups.
• Understanding industry-specific needs and integrating AI into existing processes is crucial for application-layer success.

"I don't know and I sort of don't really have a horse in that race what I hope the best case for for me and for YC probably probably and for you and like Humanity I'd argue is that um roll forwards 10 years and there are like five or six foundational model companies."

• The application layer's success depends on deep industry integration and understanding of specific needs.

"Most people work in AI now most people building application layer stuff in an AI say it's 80 to 90% traditional software with 10% AI."

• Distribution is crucial for AI applications, with large companies having an advantage due to established channels.
• Specialized AI tools tailored to specific industries may offer more value than general-purpose solutions.
• Startups should focus on vertical integration and industry-specific expertise to compete effectively.

"What I worry about is distribution Trump's product in this world which is where Microsoft Office just bake it in and because of Microsoft's distribution capabilities into all was it oncologist or dentist or whatever."

• Specialized AI solutions tailored to specific industries can offer more value than general-purpose tools.

"I don't think you can tell me Microsoft Office is going to help write those patents no so I think that it's that vertical Focus."

• Big companies are more open to spending on AI, creating opportunities for startups to secure contracts.
• Startups are advised to target midmarket and larger companies, moving beyond selling to other startups.
• The rapid adoption of AI by large companies is driving significant revenue growth for startups.

"Every manager of every big company in the world is being asked by their boss what is AI going to do to our company and many of them do not have a good answer and they're looking around for startups to help them."

• Startups should target midmarket and larger companies to capitalize on the growing demand for AI solutions.

"I've seen companies go from zero to like half a million or a million of Revenue within the YC batch with really really big companies like Fortune 500 companies."

• The speaker expresses uncertainty about their capabilities as a coach or mentor, despite confidence in their skills as a founder and operator.
• Founding and operating companies, particularly startups in regulated industries, can be exhilarating but also life-altering and challenging.
• The transition from a small, agile company to a large, regulated entity can be difficult and frustrating.

"I think I'm a good founder and operator... I'm not sure I'm like that temperamentally suited to being a coach or a mentor."

• The speaker acknowledges their strengths in founding and operating but questions their suitability for mentorship roles.

"I love the earlier stages... I love having my hand on the steering wheel and making decisions quickly... but that stuff turns into a big company and then you have to run a big company which sucks."

• The speaker enjoys the dynamic early stages of a company but finds managing a large, established company less appealing.

"We intended to be a regulated Bank from the very very start... now 10 years on we are reaping the rewards of that."

• Emphasizes the long-term benefits of starting with regulatory compliance in mind.

• Success in startups often requires intense dedication, sometimes at the expense of work-life balance.
• The culture of work-life balance can shift as a company grows, creating tension between early employees and newcomers.

"The reason why monzo and go cardless were successful is because you didn't have balance... nothing great is created actually with balance."

• Suggests that the lack of balance is integral to achieving great success in startups.

"It was really annoying actually when we got to like a thousand people... these newcomers are demanding like, you know, they want to work 25 hours a week."

• Highlights the cultural clash between early employees who sacrificed for the company and new employees seeking balance.

• Scaling a company introduces complexities, especially in regulated industries where external factors can disrupt plans.
• The speaker expresses frustration with regulatory bodies that can impede progress despite positive customer feedback.

"It was just like having this random Team Rolling In Hand Grenades every two or three months... the regulator decided for some reason it's not treating customers fairly."

• Describes the disruptive impact of regulatory interventions on company operations.

• Leaving a company can lead to identity crises, as individuals often tie their self-worth to their professional roles.
• Rebuilding self-identity after stepping down from a leadership role can be humbling and rewarding.

"I had to rebuild my sense of identity, my ego... going to America where no one knew who I was... was incredibly humbling and really positive."

• Reflects on the personal growth and humility gained from starting anew in a different environment.

• Investors can significantly influence a company's direction, and experiences with them can vary widely.
• The speaker shares negative experiences with certain investors and emphasizes the importance of aligning with supportive ones.

"Probably SoftBank... I had a very unpleasant experience with the SoftBank London team... just a bunch of pretty arrogant like Deutsche Bank Traders turned Venture Capital investors."

• Critiques the experience with SoftBank, highlighting issues with arrogance and lack of support.

"Our seed investor was the most personally helpful... she came and did an exact job at monzo effectively for like four days a week for six months."

• Praises the exceptional support and commitment from a seed investor who went above and beyond.

• Achieving financial success does not always equate to personal happiness or fulfillment.
• The speaker discusses the shift in priorities from building a successful company to seeking personal happiness and balance.

"I chased success and money... building a big company... it drove me to do monzo and drove me to stay at monzo for a long time after I was happy."

• Acknowledges the initial drive for success and money but notes a shift in priorities over time.

"I don't want to run YC... I have tons of hobbies and friends and I'm not striving for it like external validation as much."

• Emphasizes the newfound contentment in personal life and hobbies over professional ambition.

• The speaker expresses a desire for a balanced life, including personal relationships and potentially starting a family.
• There is an appreciation for the freedom to choose different paths without the pressure of building another large company.

"I'd love to have a family... if I met someone great and we had a family that would be happiness for me over creating another billion-dollar company."

• Prioritizes personal life and family over professional achievements in the future.