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

Intro (0s)

• Founders are not necessarily the most likable people.
• A key skill of a Founder is holding two realities in their head simultaneously: the big vision of the 1% best outcome and the top priority for today, this week, and this month.
• Founders must execute on the top priority while keeping the big vision in mind.
• Tom Blomfield, the co-founder of Monzo, shares his fundraising advice for startups.
• He emphasizes the importance of doing the best all raise pre-demo day.
• This includes getting the pitch deck right, practicing the pitch, and building relationships with investors.
• YC's fundraising advice to startups includes:
  • Focus on the product and the team.
  • Be realistic about the valuation.
  • Be prepared to answer tough questions.
  • Don't be afraid to walk away from a bad deal.
• Advice for founders who are struggling to raise money:
  • Keep going.
  • Don't give up.
  • There are always investors out there who are looking for good startups.
• Advice for founders who are feeling overwhelmed:
  • Take a step back.
  • Focus on the things that you can control.
  • Don't be afraid to ask for help.

Background (53s)

• Tom Blomfield, the founder of Monzo, believes that exceptionalism manifests early in life and that individuals are shaped by their early experiences.
• He began building websites in his teenage years and convinced a local estate agent to pay him for his services.
• A pivotal moment in his career was gaining acceptance into Y Combinator in 2011, which exposed him to the world of high-achieving technical founders and significantly influenced his trajectory.
• Despite facing 96 consecutive rejections while seeking funding in 2020, he eventually secured a $100 million flat round at a $2 billion valuation.
• Monzo encountered a funding crisis during the COVID-19 pandemic when a pension fund withdrew a $100 million investment at the last minute, resulting in a 50% revenue drop and a funding gap.
• The company managed to secure a down round of $100 million from existing investors, albeit at a 40% lower valuation of $1.3 billion.
• Blomfield emphasizes the emotional challenges of fundraising and the constant rejections entrepreneurs face.
• Monzo defied skepticism by successfully acquiring customers, expanding its user base, and generating revenue, despite initial doubts about its business model.
• The founder recognizes the unwavering hard work and dedication of the Monzo team in achieving the company's current success.

Switch from Founder to Investor with YC (10m7s)

• Tom Blomfield transitioned from being a founder to an investor with YC.
• After leaving Monzo, he took a year or two to recover and then started Angel Investing in 2021.
• He made 76 investments in nine months, mostly in the UK tech ecosystem.
• He learned that picking the highest quality founders trumps everything else, even if the idea is not great.
• He doesn't do outcome scenario planning, but considers if there's a world where the company could be a multi-billion dollar company.
• Tom's biggest mistake was over-indexing on the idea and not on the quality of the founder.
• He realized that working with the best founders makes everything else easier to fix down the line.
• He found Angel Investing to be a lonely process, with a lot of administrative work involved.

European Work Ethic Critique (13m43s)

• Tom Blomfield addresses the critique that the European work ethic is lackluster compared to the American work ethic.
• He believes that the difference lies in positivity, optimism, and ambition rather than work ethic.
• In the US, there is a strong belief in the American dream, where anyone can achieve anything if they try hard enough, which is not as prevalent in the UK.
• The UK has a culture of "know your place" and a more conservative approach to career choices, with many aspiring to become doctors, bankers, or lawyers.
• Blomfield notes that while mindsets have changed in recent years, there is still a significant difference in the startup culture between the US and the UK.
• Monzo's expansion into the US has not been successful so far.
• Only 2-3% of Monzo's total spending has been allocated to the US, and it has not received much management attention.
• Blomfield believes that directly replicating the UK product in the US is not the right approach.
• N26, Revolut, and Monzo's first attempt at a US launch have all failed, while Chime has found success by targeting gig economy workers.
• Chase Sapphire and American Express dominate the market for more affluent customers.

Transition from Angel to Investor in Partnership (17m14s)

• YC has a unique model where potential partners are visiting partners for 18 months before becoming full partners.
• Being a visiting partner is like being a teaching assistant, while being a partner is like being a professor.
• As a visiting partner, Tom learned from different partners, including Dalton's ability to help founders find new ideas and Michael's skill in giving brutally honest feedback with empathy.
• The hardest part of being a partner is accepting that you are not in the driving seat and that founders may choose to ignore your advice.

Signals of The Highest Quality Founders (19m47s)

• YC Partners worry that founders might blindly accept their advice without thinking, which is not ideal.
• YC Partners also worry that founders might come to them with every small decision, which indicates a lack of independence.
• The best founders are those who listen to advice but also think critically and make their own decisions.
• Founders don't need to be likable to be successful.
• Successful founders tend to be contrarian and willing to challenge the status quo.
• Founders may not be the most likable people because they are often impatient and irritable due to their desire to fix things.

Questions to Ask in YC Interviews with Founders (21m55s)

• Tom Blomfield, a partner at Y Combinator (YC), describes the process of selecting startups for investment.
• Each YC partner reviews applications and interviews potential startups. If a partner is the sole "yes" vote, they become responsible for working with the startup throughout the batch and beyond.
• YC aims to invest in approximately 25 startups per batch, with each partner having the autonomy to choose more or less.
• During interviews, YC looks for founders who demonstrate deep expertise and passion for their domain, often evident within the first few minutes of the conversation.
• YC values founders who have shown exceptionalism in some area of their lives, even if they lack a traditional background or formal education.
• After selection, all chosen startups are required to relocate to San Francisco for three to four months to foster collaboration and mentorship.
• YC has found that in-person interactions have led to increased happiness among both partners and startups compared to fully remote operations.
• YC has adopted a hybrid approach, retaining some remote elements such as virtual demo day presentations, while emphasizing the benefits of in-person interactions.
• In-person interactions, such as office hours and cooking for founders, create a stronger emotional connection and trust between investors and founders compared to virtual interactions.

The YC Batch: How it Works (27m8s)

• YC's batch process includes weekly group events, one-on-one office hours, and group office hours for knowledge sharing and goal setting.
• Common founder mistakes include launching too late and attempting to build a product with excessive features.
• Founders should focus on creating a limited set of high-quality features rather than replicating competitors' features.
• YC advises founders to maintain a balance between the long-term vision and short-term priorities.
• Founders should commit to an idea and avoid constant pivoting.
• The most successful YC companies secure funding before demo day.
• YC sets a deadline two weeks before demo day for founders to begin fundraising.
• YC discourages premature fundraising to prevent accepting low-valuation preemptive offers.
• Founders are advised to keep dilution low in their seed round to avoid hindering progress toward a Series A.
• Raising less capital before product-market fit is preferable to prevent excessive hiring and slowed progress.
• YC provides an investor database with founder reviews to help companies assess potential investors' behavior.
• YC is considering publishing internal data on investors' meeting frequency, investment rates, and check sizes to aid founders' decision-making.
• Founders Fund has a 3% conversion rate and invests an average of $2.7 million per startup.
• YC publishes fundraising data to help founders understand the fundraising landscape.
• YC companies have an 80-85% success rate in raising their target funding.
• YC partners collaborate and share carry equally without stack ranking.
• YC is exploring ways to curate more community-building experiences for founders, such as organizing dinners and meetups.
• AI companies now comprise 70% of YC companies.

The Hype Surrounding AI (43m38s)

• AI will revolutionize various aspects of our lives, acting as both a sustaining and disruptive innovation.
• The AI landscape may be dominated by a few prominent foundation model companies offering similar functionalities at commodity pricing, benefiting startups and the broader ecosystem.
• Successful AI startups require vertical focus, domain expertise, and tailoring software to specific industries.
• Distribution channels play a crucial role in the AI world, giving an advantage to companies with existing networks.
• Big companies are investing in AI solutions, presenting opportunities for B2B SAS companies targeting the mid-market.
• Tom Blomfield, co-founder of Monzo, shares insights on entrepreneurship, emphasizing the challenges of scaling a company and dealing with regulations.
• Blomfield discusses the importance of work-life balance and maintaining a company's culture while satisfying regulators.
• After leaving Monzo, Blomfield joined Y Combinator as an intern, experiencing a humbling shift in his self-perception and gaining a more balanced perspective.

Quick-Fire Round (58m25s)

• PG's optimism inspires founders and boosts their self-confidence, leading to increased openness to investors.
• When selecting board members, prioritize those who offer valuable personal connections and insightful thinking.
• Avoid arrogant and unprofessional investors, especially those who attempt to squeeze a significant percentage out of the round at the last minute.
• Guy Pani from Snickers stands out as an exceptional angel investor.
• Eileen, who worked tirelessly with Monzo for four days a week for six months, is highly regarded by Tom Blomfield.
• Gary Tan's experience within YC makes him an excellent CEO, as he can now fully focus on the core YC batch.
• Complacency poses the biggest threat to the YC model, potentially leading to a decline in the quality of partners and companies funded.
• Tom Blomfield expresses his admiration for the Ciscos and Brian Chesky, considering them ideal candidates for YC partners.
• Tom Blomfield's priorities have shifted from money to building things he loves and enjoying his personal life.
• He discusses achieving a balance between intellectual stimulation, hobbies, and friendships, explaining his decision to leave London due to changing friendship dynamics.
• Tom highlights the ease of making friends in the US, especially with the help of his well-connected friend Spencer.
• Tom has no desire to run a fund or another company in the future.
• He envisions a future where he can divide his time between San Francisco, New York, and the Caribbean, prioritizing personal relationships and potentially starting a family.