The Venture Mindset: Mastering Venture Capital with Ilya Strebulaev

Welcome and Introduction

• The GSB VC chapter leader, Jin Kong, welcomes the diverse audience of three generations of GSB community members, including current MBA and MSS students, and new elements of the class of 2026, to the event (4s).
• The chapter's vision is to connect, collaborate, and catalyze change in the global Venture ecosystem, which resonates deeply with Jin Kong after graduating from GSB and working in the VC industry in China for 20 years (55s).
• Jin Kong has their own Venture Capital fund focusing on AI startups in Silicon Valley, prioritizing Stanford founders, and credits GSB as the cornerstone of their professional and personal journey (1m30s).
• The chapter aims to foster an enriching environment where alumni can share the GSB heritage, advance ambitions, and pass wisdom to the next generations, with upcoming events including thought leader series, VC and startup teach-in events, and social mixers (2m10s).
• To stay in the loop, GSB students and affiliates can access the chapter with their Stanford pass, while guests outside the Stanford community can follow the chapter on LinkedIn (2m43s).
• The event features distinguished guests, including Claudia Fan Munce, Venture advisor at NEA, and Bill Guttentag, double Oscar-winning director and lecturer at GSB, showcasing the cross-functional collaboration and opportunities available to GSB students (3m1s).
• Special thanks are given to Julia, HS Rama, Kathy from Alumni relations, Valera from the admission office, and student club leaders, including Ir, Gy, Hinam, and Tomo, for their contributions to the event (3m33s).

Introducing Ilya Strebulaev and "The Venture Mindset"

• Ilya Strebulaev, a renowned professor of private equity and venture capital, is introduced as a beloved teacher, recognized with the highest teaching awards, and a leading expert in the VC industry, with groundbreaking quantitative research and a significant influence on the industry (4m8s).
• Ilya Strebulaev's public posts showcase his former students who have become founders of unicorn companies and partners of venture capital firms, indicating his influence and success in the field (5m47s).
• Strebulaev's class is highly sought after, with a waitlist of over 200 people, and he advises current and new students to take his class, which will be a valuable experience and a great opportunity to be part of a network of successful individuals (6m22s).
• Strebulaev wrote a book, "The Venture Mindset," to share the principles he has discovered over 20 years of researching how venture capitalists, founders, and investors make decisions, which can be applied beyond the venture capital industry (7m12s).
• The book is not only for venture capitalists or founders but for anyone who makes decisions, including those in large organizations and non-profit organizations, and its principles can be beneficial for everyone (8m26s).
• Strebulaev's goal is for the book to become a bestseller, and he encourages everyone to help make it happen (9m32s).
• He plans to briefly discuss the content of the book, which he chose to share with the audience (9m57s).

The Pace of Change and the Venture Mindset

• The Easter Parade in New York City in 1900 featured mostly horse-driven carriages, with only one automobile present, but just 13 years later, the situation had reversed, with mostly automobiles and only one horse-driven carriage, illustrating how the world can change rapidly (10m21s).
• This rapid change can be challenging for those with traditional mindsets, as seen in a quote from the president of the Michigan Savings Bank, who considered automobiles to be a novelty and horses to be the future of transportation (11m32s).
• Innovative ideas, such as those dealt with by venture capitalists, are outliers by definition and require different principles to appreciate and evaluate (11m49s).
• The environment in which venture capitalists operate is hostile, requiring them to use different principles than those used in other industries (12m9s).
• The time it takes for disruptive change to occur is decreasing, from 30 years in the past to just a few years or even less today, and is happening across multiple industries simultaneously (12m20s).
• As a result, the skills and mindset used by venture capitalists are becoming increasingly valuable and relevant across various industries and geographies (13m9s).

The Impact of Venture Capital

• The venture capital industry is relatively small, with historically limited assets under management, but has still managed to produce significant results over the past 50 years (13m22s).
• Research has shown that companies backed by venture capital have been highly successful, with many going on to become publicly traded companies in the United States (13m58s).
• Venture capital has produced amazing results, with every second company that wasn't public in the US in the last 50 years being backed by venture capital, and many well-known companies such as Apple, Amazon, Netflix, and Google might not have existed without it (14m30s).
• Research shows that if there had been no venture industry in the United States, three out of four of these companies would not have existed, highlighting the huge impact of venture capital (14m51s).

Key Principles of the Venture Mindset

• The book "The Venture Mindset" is written in a non-academic way, aiming to be a page-turner, and discusses the research behind the nine key principles of the venture mindset (15m38s).
• The nine key principles of the venture mindset are discussed in the book, along with practical applications and "Playbook mechanisms" that can be implemented by leaders in various organizations or for personal use (16m9s).

The Venture Capital Business Model and Home Runs

• The venture capital industry business model is unusual, with most investments failing, a few being moderately successful, and one out of 20 being a "home run" that makes up for the losses (17m19s).
• Successful venture capital funds focus on maximizing the probability of hitting one or two "home runs" to make up for the losses and mediocre results (18m32s).
• Research shows that the top 10% of venture capital funds over the past 30 years have achieved significant success, with a focus on hitting "home runs" (18m45s).
• Venture capital is a business of outliers, where the most successful funds can become below average if they miss out on a single successful investment, highlighting the importance of consistently making successful investments (18m55s).
• Successful venture capitalists have a method to their investments, rather than relying on luck, and are able to "win the jackpot" multiple times (19m37s).
• Bill Gurley, a famous venture capitalist from Benchmark, notes that missing out on a successful investment like Google can result in a significant loss, while the losses from unsuccessful investments are relatively minor (19m49s).

Hunting for Outliers and Embracing Risk

• Venture-minded leaders should hunt for outliers, whether as investors or executives, and be willing to take risks to achieve success (20m15s).
• Alex Tarik, a partner at Andreessen Horowitz, notes that errors of omission (missing out on opportunities) are often more significant than errors of commission (making mistakes) (20m34s).
• Venture-backed companies, such as Amazon, are more likely to retain a venture mindset and culture, and are often more willing to take risks and experiment (20m52s).
• Jeff Bezos, the founder of Amazon, emphasizes the importance of scaling up, including the size of failed experiments, in order to achieve success (21m5s).
• Reed Hastings, the CEO of Netflix, also emphasizes the importance of taking risks and having a high cancel rate in order to achieve success (21m45s).

The Importance of "Agree to Disagree"

• The principle of "agree to disagree" is important in venture capital, as it allows for diverse perspectives and opinions, and can lead to more successful investments (22m11s).
• Nagraj Kashyap, the head of Qualcomm Ventures, was introduced to a startup called SAS (later renamed Zoom) by his junior partner, Patrick Egan, despite the startup having no clients, no sales, and a product that was not yet ready, with competition from large companies (23m5s).
• Nagraj Kashyap and Patrick Egan wanted to invest in SAS, but the investment committee rejected the proposal, citing the strong competition and the founder's limited English skills (24m21s).
• The investment committee's decision would have been final in most cases, but Nagraj Kashyap had negotiated a mechanism that allowed for small deals to be made without a formal vote, giving him the leeway to invest in deals that others disagreed with (25m48s).
• Initially, Qualcomm Ventures wanted to invest $2.5 million in SAS, but the investment committee's rejection led to Patrick Egan investing $500,000 on behalf of Qualcomm Ventures (26m17s).
• The investment in SAS, later renamed Zoom, became the most successful investment for Qualcomm Ventures, covering all other investments, and would have been even more successful if the initial investment of $2.5 million had been made (26m48s).
• The key takeaway is not that Nagraj Kashyap and Patrick Egan were visionary investors, but rather that the mechanism implemented by Nagraj Kashyap allowed for investments in deals that others disagreed with, highlighting the importance of having a principle that allows for such investments (27m19s).
• Zoom was initially considered a high-risk investment due to the presence of established competitors like WebEx by Cisco, but it eventually proved to be successful after investors took the time to understand its unique features (27m44s).
• The key to success in venture capital is not being lucky with a single investment, but rather having a solid process in place that increases the probability of success (28m16s).
• Most venture capital firms do not have the "Venture mindset," which involves being smart and adaptable, rather than relying on traditional methods (28m52s).
• Research has shown that many venture capital firms prefer unanimity when making investment decisions, with around 70% of firms in the US having this approach (29m29s).
• However, firms that prefer unanimity tend to have lower returns, while those that are more open to disagreement and diverse perspectives tend to be more successful (30m6s).
• High-performing venture capital firms are less likely to follow the unanimity rule and are more likely to have a "Venture mindset" (30m25s).
• The example of Reed Hoffman's investment in Airbnb is cited as an example of a successful investment that went against the consensus, with Hoffman's firm being one of the few that did not turn down the opportunity (31m8s).
• Many venture capital firms turned down Airbnb due to their unanimity rules, but Hoffman's firm was more open to taking risks and considering diverse perspectives (31m50s).

Conformity vs. Innovation (The Vervet Monkey Experiment)

• A study by Professor Erica V Deval in Africa involved vervet monkeys, which are more human-like than people think, and an experiment with two buckets of corn, one pink and one blue (32m41s).
• Initially, the blue corn was wrapped in Aloe Vera leaves, which the monkeys did not like due to their bitter taste, so they started eating the pink corn (33m9s).
• Months later, the blue corn was no longer wrapped in Aloe Vera leaves, but the monkeys still did not eat it, showing a cultural transmission and consensus among the group (33m26s).
• The monkeys were able to smell and taste the corn, but not see its color, and the cultural transmission was so strong that even monkeys who were not around when the blue corn was introduced did not touch it (33m35s).
• The study involved multiple groups of monkeys, with some groups being "pink cohorts" and others being "blue cohorts," and the monkeys that moved from one group to another would adopt the new group's preference (34m44s).
• Male monkeys that moved from a blue cohort to a pink cohort would immediately start eating pink corn and abandon their previous preference for blue corn (35m18s).
• One monkey, named Leer, did not conform to the group's preference and misbehaved by eating the non-preferred color of corn (36m14s).
• A blue corn monkey who tried pink food and convinced other pink monkeys to switch, demonstrates the power of conformity and innovation in the monkey kingdom, illustrating the importance of encouraging outliers in projects (36m25s).
• In large organizations and venture capitals, it is essential to have mechanisms that allow innovators, or "leers," to flourish, rather than just letting them exist (37m14s).
• A case study with MBA students showed that within groups, people tend to agree with each other, even if they disagree with other groups, highlighting the need for mechanisms to encourage innovation (37m39s).

Mechanisms for Encouraging Innovation

• Venture capital firms, such as Vro Capital, use specific mechanisms to encourage innovation, such as autonomy, where every partner has the freedom to make their own decisions (38m37s).
• Brian Roberts, managing partner at Vro Capital, shared a story about how his firm does not have an investment committee, and instead, every partner is responsible for their own deals (38m42s).
• The principle of autonomy allows partners to make their own decisions, even if it means going against the opinions of others, and is based on shared budget, profits, and losses (39m33s).
• Nagraj Kash, who designed the Microsoft Venture Fund, used his experience to create a system that encourages innovation and autonomy (40m27s).
• The "anti-V rule" is a decision-making approach where if one person wants to make an investment, they can find a couple of other people to agree, and the investment will proceed, unless the person with veto power, "N", decides to veto it (40m47s).
• This approach is used by M12, where N has the right to veto, but not to unilaterally approve a deal, and Founders Fund, which has a similar approach, requiring a partner to convince one or more other partners to approve a deal, depending on its size (41m52s).
• For large deals at Founders Fund, a partner must convince more partners, but it's never a unanimous decision, and for the largest deals, it's "consensus minus two," meaning that two partners can be opposed to the deal, but it can still be approved (42m12s).

Optimal Team Size and Decision-Making

• The principle of avoiding situations where too many people have to make a decision is important, as research suggests that the optimal number of decision-makers is between four and five (43m29s).
• Many successful VC firms have a small number of partners, typically around five or four, and it's rare to find successful firms with more than 10 partners (43m59s).
• Large VC firms may create smaller teams to make decisions, and some firms, like Amazon, use the "two Pizza team rule," which limits team size to six to eight people (44m30s).
• A large global company implemented a rule to limit the number of apps served, which led to significant changes and improvements, demonstrating the impact of simple yet effective changes (45m6s).

The Devil's Advocate and Anonymous Feedback

• The concept of "Devil's Advocate" is used by successful venture capital firms to prevent conformity and create a more critical evaluation process, where someone is appointed to go against a deal (45m39s).
• The Devil's Advocate approach is used to create a safe and impersonal environment for discussion, where individuals can express their opinions without fear of personal repercussions (45m52s).
• Implementing Devil's Advocate requires simple rules, such as having juniors speak first and experts speak last, to encourage diverse perspectives and prevent groupthink (46m10s).
• In venture capital firms, juniors should speak first to share their thoughts and opinions, as they often have a fresh perspective and are less influenced by authority (46m20s).
• Experts should speak last, as they often have the most authority but may be limited by their own knowledge and biases, which can hinder critical thinking (46m55s).
• Anonymous feedback is another effective approach, where individuals can provide their thoughts and opinions without fear of judgment or retribution, leading to more open and honest discussions (48m0s).
• Anonymous feedback can be implemented through a CRM system, where individuals can enter their thoughts and opinions before a meeting, without revealing their identity (48m9s).
• This approach can change the dynamics of meetings, allowing for more diverse perspectives and opinions to be shared, and leading to more informed decision-making (48m35s).

Implementing the Venture Mindset

• The Venture mindset has beautiful principles, but they require thoughtful implementation and effort to be effective, as people's natural tendencies often differ from these principles (49m3s).
• Anyone can guess which organization is the least venture-minded, but the answer given is the bestseller lists, as they are extremely unventured, only counting hardcover sales and not e-book or audiobook sales (50m13s).
• The goal is to increase input and become a bestseller, with the author encouraging people to buy hardcover books, offering bookmarks with a U code to purchase the book, and promising to sign books for those who pre-order and attend a signing event (50m32s).
• The response from students has been amazing, with some buying 10 or 24 books, but it's advised not to buy more than 24 from one Amazon account to avoid being counted as a bulk purchase (51m29s).

Stanford's Success and the Network Effect

• A question is asked about Stanford's unique ecosystem in generating uniform companies, with research highlighting that a founder from Stanford is 50% more likely to achieve uniform status (52m25s).
• The factors contributing to Stanford's ability to foster successful companies are difficult to pinpoint, but may include selection, education, and networks, with research suggesting that networks play an important role (53m36s).
• The author mentions that students who attended their Venture Capital class have a high probability of achieving higher-than-average income status, with some even achieving 50% higher than average (53m24s).
• A study analyzed the education of around 80,000 founders and their lead investors, finding that founders who received funding from investors with the same alma mater had a higher chance of success (54m31s).
• This phenomenon can be attributed to the network effect, where investors are more likely to find and invest in founders from their own alma mater, such as Stanford (55m1s).

The Role of AI and Avoiding FOMO

• In the context of evolving relationships with AI, venture capitalists (VCs) should focus on building productive relationships with entrepreneurs (55m36s).
• VCs should avoid suffering from the fear of missing out (FOMO) and instead invest when valuations are lower, rather than following the crowd when valuations are high (56m19s).
• Investing in early stages or during bad years can produce the best outcomes, based on 50 years of data (57m32s).
• The current year is a good time to start a fund, despite the challenges in raising capital (57m39s).
• Common pitfalls that VCs fall into include fear of missing out and escalation of commitment, where they continue to invest in a startup despite poor performance (58m5s).
• Escalation of commitment is a phenomenon where investors continue to invest in a venture despite it being a bad decision, in hopes of recouping their losses or achieving success, and it is particularly dangerous in venture capital due to the close relationships between investors and entrepreneurs (58m12s).
• The Venture mindset provides a mechanism to deal with escalation of commitment, and it is essential to understand this concept to make better investment decisions (58m12s).

The Future of Venture Capital and Corporate Venture Capital

• The future of the venture capital industry is expected to involve a significant role for corporate venture capital, as startups need to get close to large companies to scale quickly, and corporate venture capital will become more important than institutional venture capital (59m50s).
• Large corporations are no longer seen as "dumb money" and are expected to play a more significant role in the venture capital industry, with corporate venture capital becoming a more interesting proposition for students and investors (1h0m39s).

The Genesis of "The Venture Mindset"

• The book "The Venture Mindset" was written during the COVID-19 pandemic, when the author decided to use the time productively by writing a popular book on the topic of venture capital, after previously studying it extensively (1h1m41s).
• The author's background in studying fine wine and being a certified wine enthusiast is mentioned, and how the COVID-19 pandemic provided an opportunity to classify their wine collection and write the book (1h1m51s).
• The idea for the book "The Venture Mindset" originated from a conversation between the author and Alex, a former student and friend, while counting bottles of wine in the author's wine cellar, where they discussed the importance of having the right mindset for innovation and new product launches (1h2m14s).
• The title "The Venture Mindset" was chosen after testing around 700 different versions, and it consistently came back as the top choice (1h3m35s).

"Home Runs Matter, Strike Outs Don't"

• The book outlines nine principles of the venture capital mindset, but if the author had to pick one, it would be the first principle: "Home runs matter, strike outs don't," which emphasizes the importance of taking risks and aiming for big successes, even if it means experiencing failures along the way (1h5m11s).
• This principle is often counterintuitive and difficult to implement, especially in traditional organizations, but it is essential for driving innovation and growth (1h5m41s).
• The author believes that this principle is crucial for aspiring venture capitalists and entrepreneurs to understand and adopt in order to be successful (1h5m51s).

Venture-Minded Leaders and Organizational Design

• Venture-minded people can be found both inside and outside the venture industry, often working in companies that are venture-backed, and one such inspiring person is Jensen Huang from Nvidia, who has successfully reinvented the company multiple times (1h6m56s).
• Nvidia's success cannot be solely attributed to luck, as the company has demonstrated its ability to adapt and evolve, with Jensen Huang leading the reinvention efforts (1h7m1s).
• Venture-minded leaders, such as Jensen Huang, design their organizations and decision-making processes to drive success, rather than relying on individual genius or great ideas (1h7m34s).
• The design of the organization and decision-making process is crucial for repeated success, as great ideas may only help once, but a well-designed process can lead to multiple successes (1h7m56s).

The Value of Education and Making a Difference

• What matters most is giving students the knowledge and skills to change people's lives, and receiving feedback from former students who have applied the lessons learned in the past is truly inspirational (1h9m9s).
• The speaker values their time at Stanford, which has been their home for 20 years, and is grateful for the opportunity to make a positive impact on their students' lives (1h8m23s).

The Need for Change in Venture Capital

• Many venture capital firms on Sand Hill Road appear to be professional services companies that ascribe value to technology but do not accept technology in their own operations, with manual methods for sourcing, investment proposals, and decision-making (1h11m7s).
• Venture capital firms do not invest in technology itself, but rather in companies that reinvent their industries through different business models, serving different customers, or changing the relationship with customers (1h11m47s).
• In the past 50 years, most companies that met these criteria used technology, but this is no longer true, with many venture capital investments now being made in non-traditional technology companies such as food, Hollywood, and sports companies (1h12m21s).
• The Venture Mindset is not quantifiable, making it difficult to measure the success of venture capital firms, with principles such as "get outside your four walls" being hard to quantify (1h12m56s).
• Successful venture capitalists spend less time in their offices and more time building their networks, with the most successful firms being those that prioritize this approach (1h13m22s).
• The investment banker language and approach are still prevalent in the industry, but there is a need for change, with a focus on improving the Venture Mindset (1h13m44s).

Safety and Responsibility in Venture Capital

• Safety and responsibility should be a part of the Venture Mindset, with responsibility being not just a legal duty but also a key factor in achieving success as an innovator and investor (1h14m44s).
• Being responsible involves making decisions about individual investments, as well as portfolio allocation and the types of companies to invest in (1h15m15s).
• The concept of safety in investing and entrepreneurship is complex and has multiple layers, making it difficult to decipher, especially when it comes to the trade-off between safety and failure (1h15m41s).
• The idea that safety and innovation are mutually exclusive is a false dilemma, and it's possible to find a balance between the two, allowing for innovation while minimizing the risk of failure (1h16m6s).
• The London AI Safety Institute and a similar initiative in DC under the supervision of the Department of Commerce are working to combine safety and innovation, aiming to find a balance between the two (1h16m34s).
• The concept of safety can be understood differently depending on the context, and it's essential to define what safety means in a particular situation (1h16m56s).

Upcoming Events and Conclusion

• Venture capitalists are often too busy investing to attend conferences, which are typically organized by universities, and may not be well-represented at such events (1h17m4s).
• A virtual event with Professor Ilya Strebulaev is scheduled for May 16th, providing an opportunity for further discussion and learning on the topic of venture capital and the venture mindset (1h17m40s).