For all the founders and startups and unicorns in Silicon Valley—not to mention the leaky data sieve that is the internet—there’s remarkably little public, easily accessible information on how venture capital (VC) works. Term sheets, General Partners and their relationships with Limited Partners, and other such details of the niche1 industry are rarely disclosed outside of the VC community itself. Unsurprisingly, when startups engage with VCs to raise money, this information asymmetry tends to put the former at a disadvantage.
This book, Secrets of Sand Hill Road was written to level the playing field.
Granted, the first thing to notice is that the author, Scott Kupor, is a managing partner at the VC firm Andreessen Horowitz (a16z). It raises the immediate question: why would a venture capitalist reveal a bunch of insider knowledge about their own industry and willingly give up their own leverage? One possible answer is that a16z itself broke into the VC industry by differentiating itself from its peers through its founder-centric investment theses, and have built a full team to assist its companies throughout the phases of their startup lifecycles. That is, it is to a16z’s advantage to commoditize capital, so they can further emphasize their proprietary services to win VC deals.
Motivations aside, the material in Secrets of Sand Hill Road is pretty solid. Being only an employee of startups, I’ve read my fair share of advice on how startups and equity works, typically written by other employees based on their own experiences. From our standpoint, knowing what a non-participating liquidation preference on a term sheet doesn’t really make a monumental difference in evaluating a job offer, but I still find it useful to understand the financial mechanisms. If nothing else, the explanations fill in important details routinely left out of funding press releases.
Particularly, it was interesting to learn about the governance controls set by an investor relationship. The author even acknowledges that the rules and voting procedures within a Board of Directors and the CEO & founders is much less eye-grabbing than massive valuations, but they do matter in how some of the biggest decisions are made within a company. As the WeWork IPO saga is demonstrating—quite publicly—how a company runs itself can matter quite a bit, especially when things don’t go as well as expected.
One aspect I really like about the book is that the author spends the time to define insider terms which would be wholly unfamiliar to those not versed in startup-speak. The intended audience is truly first-time founders and startup participants, even though the jargon and complexity ramps up quickly from first principles. On the flip side, the specific examples it uses and its assumptions on the current economic and regulatory environment may date its utility; who knows how the norms of how VCs and startups will evolve in even a couple of years?
Overall, Secrets of Sand Hill Road is easy to recommend, for startup newbies and veterans alike, or even those just curious about how hundreds of millions of dollars gets allocated in the most dynamic capitalist system we have today.
In the sense of the number of people it employs, and how much capital it utilizes compared to the broader public markets.↩
