Best of Build Mode: Think like a VC

Yuri Sagolov: Hey.

Leah Sullivan: Hey.

Isabel Johannesson: Welcome back to Build Mode. I'm your host, Isabel Johannesson, and today I'm here with the producer of Build Mode, Maggie Nye. Maggie, what has been the most requested topic for Build Mode?

Maggie Nye: Well, that would be fundraising, and I just can't imagine why, because it's not very important in a startup journey.

Leslie Feinsig: Not important at all.

Isabel Johannesson: Who needs money?

Maggie Nye: Oh, well, it also just so happens that our next season will be covering fundraising from all kinds of angles. We have had a monster recording session and we are going to have a bunch of episodes coming your way discussing how you can fundraise, how you can pitch, how you can do all of the things. But for today, Isabelle, what are we talking about?

Isabel Johannesson: Today we will be sharing a clip episode that Maggie has compiled of all of the best tips from our VC guests over the last two seasons.

Maggie Nye: Yes, we're getting so much good advice. We're going to be learning what it's like to sit on the other side of the table and how founders can not only make sure they're landing the investor, but that the investors they're landing are actually the best fit for, for their startup. So, on that note, to start off, we're hearing from Yuri Sagolov, the managing director at General Catalyst. He's worked with hundreds of early stage startups and in this clip he shares how to spot and avoid the backseat founder types of investors.

Yuri Sagolov: I, I've always thought that there are three buckets of investors, and the first bucket of investors are investors who you really want on your cap table who are just like, they're going to be almost an extended employee of your company. Uh, they're going to help you with recruiting, they're going to help you with hiring, they're going to help you with go to market. And the most interesting thing with those investors is often it's actually completely disconnected from the check ties. They might be a $5,000 investor or a $5,000 investor. It's really up to the partner or the angel investor themselves. The second type of investor that you have is kind of an investor that gives you money and then disappears. And maybe they'll reply to an email once every couple of months saying congrats, and you just don't hear much from them. And, uh, they're actually fine as well, especially as you're trying to fill out your round. Obviously, if you can get the first category, focus on those. And then the only bucket that I avoid, especially for early founders, is like there's this third bucket of investors who they give you money and they're kind of in your kitchen meddling. They have an opinion on everything. They get stressed out when things don't go right. Which, uh, at every startup is always. And that is the only type of investor that I would like, actively steal, are free of everyone else. Like, obviously, if you can get the very first bucket, I think that's ideal. But the only one that I would truly avoid is that, like, third category, I guess.

Isabel Johannesson: I mean, I wonder if it's sort of hard for founders to tell the difference between, you know, a VC that is promoting the fact that they will be involved and they have support and structure in place versus those who will be sort of micromanaging.

Yuri Sagolov: Right? Yeah, totally. And I think that everyone, when they're looking to invest, is, uh, going to put on their best face. And so I think the best thing you can do as a founder is actually talk to portfolio companies, talk to other founders that they've worked with, ask for concrete examples of how they've been helpful, if they've been helpful, and then actually, uh, ask like, how they were when things didn't go right, you know, and you really just want to know that they're, you know, that they're supportive, that they're, they understand that things might not work out the way you want them to. And you'll hear, like, you'll talk to some founders and you'll hear some investors are just amazing. They were like the first phone call when something didn't go right. They felt like a trusted source to brainstorm on how to fix it. And other investors, you'll hear the feedback from founders where they'll say, like, I just couldn't bring myself to call this investor. And that's the type of person that I think you really kind of want to dodge.

Maggie Nye: So that's one type of investor you probably want to avoid. But what about the investors you want to attract? In the next clip, we're going to hear from Ross Fubini from XYZ Ventures and Leslie Feinsig from Graham and Walker about how they've each thought through their unique value add and how they use that to set up their portfolio companies for success.

Ross Fubini: To your point of things that you've changed, something you just said there really stuck out is I struggled in our early funds understanding what was my unique point of view.

Leslie Feinsig: Yeah.

Ross Fubini: And it's because I didn't just want to be a banker that happened to show up early. And now when we talk to founders and when we talk to LPs, but really founders, the thing that I now feel Much more, very confident. Telling them is the thing that we are best at. Well, that we only really have one job. And so our job is to raise the next round of funding for the founders. And because my lived experience now years in, is that the founders are always experts in their company, but having a unique voice at the table that both understands what's going on in the company, but then is intimate what's happening in the venture ecosystem. So you can understand, hey, if you don't have an AI story, oh my God, it's going to be hard just to stand out right now in this market. So find one that's authentic or everybody believes you can land for 30k. Let's put all of our energy in the next four months, eight months, proving that three of these companies can expand to 300 case you can have the ASP expansion or other more and less nuanced examples. They're not. Hey, I am, um, I'm going to text Mark Andreessen. He's going to think it's cool, but really you're actually plotting the path of the company with the founders from when you invest going forward. I found I did not expect that, but that's a very unique role to offer them. And then I felt much. Now I feel very comfortable that that's, that's our value prop. And I'm just curious, you said that shifted for you over time and I'm curious if you went through a similar shift in. Oh no, this is what is unique that we do in the world.

Leslie Feinsig: I'm just going to be really honest because almost ironically, I have found that one of our biggest value adds is the ability to have an authentic conversation with a founder, you know, with the majority of their investors or actually the majority of the world out there, they have to kind of put on a show. And I like to take a very similar approach to you, Ross, in that like having a VC on your cap table that is a founder, is an operator, is like well plugged in, but has a really high tolerance for the ugly, messy business of building a company and like what it actually looks like and feels like to have the sausage made. Like, I sometimes I look at other VCs that I admire and. Or not, right? Like, uh, these, like really, really successful VCs and, and to Ross's point, like they are financiers, like they are deal makers and I am not like, I am very much a builder and, and that's kind of what I bring to the table. But for me, discovering that, feeling confident and comfortable with that and also just growing as, you know, learning how to do the job and like getting a lot of reps in and like seeing a lot of deal flow because I feel like in the very early days everything you see looks amazing and um, because you just haven't seen enough. And so, I mean I'm, I feel, I'm, I still feel like I'm a baby dvc, right? Like I'm on, on my second fund and um, I've had the, let's call it luck and you know, hard work, et cetera. But the luck of having spent my time in VC through like really dramatic shocks in the ecosystem and having that be my learning experience, I almost feel like this is what the VCs that went through the, the like 2000, 2000, 2001 crash and the 08 crash, uh, would have learned. I feel like that has been my school of venture capital is like seeing m market behavior at the tippy top top of the market and seeing what happens like you know, a month later when the vibe changed. Uh, you know, the, the good news for my lps and for myself is that I have like the stubbornness of a middle child who doesn't like to be told what to do. And so I've like never been one to play into fomo. But I feel like, you know, if you kind of start investing and learn how to invest at uh, the tippy top top of the market, you're just gonna like throw your entire fund into like buzzy web3 crap. Right? Like, and I've like had the privilege to see all of that and that has been my formation of as a vc. And then uh, on the flip side, it's just like you look at, you know, the, so much of the model is like, especially when you're investing early is like helping those companies cross the chasm into raising their next round or just like getting the credentials so that they're believed in the next round. And I feel like I've gone through that journey myself as a vc, so I still feel like I'm super, super close to the founder experience.

Maggie Nye: This episode is, ah, all about getting a peek behind the VC curtain. So in the next clip, Paul Irving from GTM Fund shares the biggest red flag his team looks out for. And his best advice for founders to signal they've nailed their go to market strategy.

Isabel Johannesson: What are some red flags you would look for that might signal that a company may not have the chops to win in this distribution moat that they need to build in order to succeed these days?

Paul Irving: I think the one for us that stands out, uh, I'll mention two but the top one is in a competitive market having a non differentiated go to market motion in the early days is always difficult uh, because you're often going to go up against either incredibly well funded incumbents or soon to be very well funded competitors. And just using the old Playbooks, tried and true same channels that everybody else is tackling. And not having anything that's unique to your company and where you believe you can win I think is usually a red flag. And sometimes for founders it's you know, a great LinkedIn presence and thought leadership. Sometimes it's a newsletter that they built up and as uh, sort of an internal earned and built distribution channel that they can tap into. But, but we looked for you know, I would say earned secrets in why a team founded a company and why they're going to win. And then the other one is I think contracts is a very interesting area these days where uh, there's a lot of three month easy opt out trial, uh, contracts that are getting booked and treated from a company perspective as you know, earned and booked ARR. And I think there's no problem if enterprises, you know, do want to have a trial period as part of you know, their buying cycle. That can happen in a variety of different corners of software in the industry. But you want teams to understand that and understand the levers of that and understand how to renew and expand those contracts when the trial period comes to an end uh, and have a strategy to manage those.

Isabel Johannesson: And speaking of some of these competitors that might have more capital as you were mentioning. So what advice would you give to a founder who has extremely limited resources and can only focus on maybe two go to market initiatives? What should those be?

Paul Irving: It will go back to something that I mentioned a little bit earlier, but I do believe it's an AI native specificity of data and execution that you can do and it's, it's narrowing down your ICP so something that you can do now that, that was really hard to do historically. And I'll give another shout out to Jordan because he just did a launch, Jordan Crawford digital launch where he's building agents in cloud code that build clay gents for your, your, your clay tables, uh, which is a few different layers of AI native go to market. But what it does is instead of having a ICP that's very deterministic where you say you know, greater than 500 employees launched an AI product in the US and the EU has usage, uh, based pricing, you can get really specific with, you know, recently launched within the last couple of months. Uh, an AI product like has a pricing and packaging page that doesn't line up with best practices for pricing, which is if really if you're talking about your team internally, those are the contextual, non deterministic ways you talk about your icp, but they're really hard to program into a go to market motion. And I think there's more options than ever to really explore your ICP become very AI native and data forward with the way that you approach it and come up with, you know, start spearfishing for the right customers because you can't, you know, you don't have the resources to throw, you know, hundreds of thousands of dollars into paid ads, different channels, a uh, thousand different tools. But if you focus on the data, you focus on your ICP and you build an AI native go to market engine, I think there's a lot you can get out of that for a pretty limited capital investment at the outset.

Maggie Nye: So far we've really covered the courting stages of a VC founder relationship with. But in our next clip, Leah Sullivan, the founder and former CEO of TaskRabbit and current founder of Precedent Venture, talks about her lessons going from a venture backed founder to a VC in her own right. And a little spoiler alert, this insight can help founders ensure that they continue to get funded.

Isabel Johannesson: What was surprising to you about being on the other side of the table now as a vc?

Leah Sullivan: So much. I was surprised by so much. I think the number one thing that was the biggest surprise was when I was running TaskRabbit, I was always nervous about the competition. And the competition were, you know, Zara and homejoy and you know, Thumbtack and Handy and all these companies popping up that were doing the same thing as us. Oh, you know, these companies are going to fast follow. We were the first and now they're copying us. And that was like the obsession around competition. Now I realize as an investor that I should have been more interested slash concerned about what was the competition in my investor's portfolio because my investors actually making decisions about where to put their money next. And it has nothing to do with the competition in my industry. But as an example, Ann went on to invest in Lyft. Rob Hayes at first round went on to invest in Uber. Steve Anderson at baseline went on to invest in Instagram. So I'm now TaskRabbit in a portfolio with Lyft, Uber and Instagram. Do you think I'm the one that's gonna get their extra dollars or are they gonna put them in Lyft, Uber, and Instagram? Right. Like, it's just. It's just a matter of, like, where. What are the rocket ship deals? What are the rocket ship companies? And if you're in a portfolio of one of those, I think it's helpful to understand that your competition for dollars are those companies.

Maggie Nye: Well, that does it for this best of Build Mode episode. Thank you so much for sticking with us. We cannot wait to share season three with you, so be sure that you have subscribed to this podcast. Wherever you listen, make sure to check us out on TechCrunch's YouTube and share your favorite episode with a friend, your family, your coworker, maybe even your investor. All right, we will see you back in this feed very soon with season three.

Isabel Johannesson: Build Mode is a TechCrunch podcast. Each episode is produced and edited by Maggie Nye and hosted by me, Isabel Johanneson. Our art and design is also by Maggie Nye. A, uh, big thanks to Morgan Little, who leads our audience development, the Foundry and Cheddar video teams, and most of all, to you, the builders, and everyone else in the wider startup community. We'll see you back here next time.