Inside the Mind of a Venture Capitalist with Stanford’s Ilya Strebulaev

In this week’s episode of Built to Sell Radio, we are joined by Ilya Strebulaev, a leading expert on venture capital and private equity and author of The Venture Mindset. Drawing from his extensive research and teaching at Stanford’s Graduate School of Business, Strebulaev shares strategies to help you think like a venture capitalist and make smarter business decisions.

In this episode, you’ll learn how to:

• Build a diverse network to uncover new opportunities.
• Apply the principle of saying no 100 times to focus on the best investments.
• Avoid the winner’s curse.
• Decide when to double down or quit an investment.
• Distinguish between venture capital and private equity.

Whether you want to attract the attention of a venture capitalist or just think like one, this episode is for you.

Show Notes & Links

Grab a copy of The Venture Mindset

Ilya at Stanford

Connect with Ilya on LinkedIn

Definitions

Convertible Note: This is a type of short-term debt that can be converted into equity, typically during a future financing round. It’s often used by startups when it’s too early to determine the company’s valuation. Imagine your friend is opening a lemonade stand and needs $10 to start it. You decide to lend them the $10 they need. But instead of just asking your friend to pay you back in money, you both agree that you can choose to get paid back with lemonades once the stand is up and running.

A convertible note works similarly in the business world. It is a form of short-term debt that converts into equity. In simpler terms, when you give money to a company using a convertible note, you’re initially lending money to the company, just like a loan. But, instead of getting paid back with money, you have the option to get paid back with shares in the company. So, if the company does really well, having shares might be more valuable than just getting your money back with interest.

In essence, a convertible note is like lending money to a friend’s lemonade stand with the option to choose lemonades over your money back in the future if you believe those lemonades will be worth more than your initial $10.

Minimum Viable Product (MVP): This refers to the version of a new product that includes only the necessary features to meet the needs of early adopters. It’s used to validate market demand and gather feedback for further development.

Preferred Preference: In venture financing, this term outlines the hierarchy of investor payouts, where certain investors have a preferential right to receive payouts before others, often due to negotiated contractual terms. Imagine you and your friends are at a pie-eating party. Everyone brings pies, but some people bring more pies or special pies, and everyone agrees that those who brought the special or extra pies should get served first if there are not enough slices to go around.

In the business world, when people invest money in a company, they sometimes get “preferred shares” instead of “common shares.” These preferred shares are like the special pies at the party. If the company makes money or is sold, the people with the preferred shares (special pies) get their money back before the people with common shares (regular pies).

So, a “preferred preference” or “liquidation preference” ensures that some investors get their investment back first, before other investors, if the company is sold or makes a profit. It’s a way of rewarding those who took a special risk or made a special contribution to the company.

About Our Guest

Ilya Strebulaev

Ilya Strebulaev is a tenured chaired Professor of Finance and Private Equity at Stanford Graduate School of Business and the author of The Venture Mindset. His award-winning research on venture capital, private equity, entrepreneurial finance, and innovation has been featured in major academic journals and media outlets like The New York Times and The Wall Street Journal. 

As the founder and faculty director of the Stanford GSB Venture Capital Initiative, Ilya promotes research and teaching on innovation and venture capital. He has received the GSB MBA Distinguished Teacher Award for his courses on venture capital, angel financing, and private equity. 

Strebulaev co-developed a framework with Will Gornall to assess the value of private VC-backed companies, revealing that most unicorns are overvalued by a median of 50%. His work, published in journals like The Journal of Finance and The Review of Financial Studies, has earned him numerous awards, including the Brattle Award and the Fama-DFA Prize. 

Ilya educates business leaders on venture capital, Silicon Valley’s ecosystem, corporate innovation, and strategic financial decision-making. He leads executive workshops, delivers keynote speeches, consults for global companies, and serves as an expert witness in litigation matters.