Ravi Belani (The Alchemist Accelerator): We are looking for distinctive teams

Ravi Belani is Managing Director & Founder of the Alchemist Accelerator. He is also a Fenwick & West Lecturer of Entrepreneurship at Stanford University. Alchemist is a venture-backed accelerator focused on accelerating the development of seed-stage ventures that monetize from enterprises. CB Insights rated Alchemist the top accelerator in 2016 based on median funding rates of its grads. The organization provides seed investment into companies it admits (typically $36K) and provides founders a structured path to traction, fundraising, mentorship, and community over the course of a 6-month program. Their backers include many of the top corporate and VC funds in Silicon Valley and Europe — including Khosla Ventures, DFJ, Cisco, GE, Next47 (Siemens), and Salesforce, among others. The accelerator seeds around 75 enterprise-monetizing ventures/year. Notable alumni include LaunchDarkly, Rigetti Quantum Computing, mPharma, Matternet, and MightyHive.

How’s it all started? How did you decide to enter the venture and investment business?

I worked at DFJ (Draper Fisher Jurvetson), the venture capital fund for 5 years before The Alchemist. At the DFG my main and famous investment was Twitch. I was the second investor in Justin.TV which was a company that became Twitch. And I always loved helping the founders out of the seed stage. So this is the way that we got started, the Alchemist which is the current fund that I invest out of, which is an accelerator. There was this problem for venture capital on how to deal with seed-stage investing. I’m sure you’ve heard of Y Combinator, but some people know that Sequoia the main VC fund was an LP of Y Combinator the main LP when they started, and I mentioned that because we got started in the same way. Our main LP was DFJ and four other venture capital funds  Kholsa Ventures US Venture Partners Cisco SAP Ventures and they give us money to invest in companies at the very earliest stages. So when the company is just starting, when it’s just two people and an idea we run a structured program that provides a structured path towards founding mentorship and a community. And we started this because it came out of a demand from the founders that we saw. So in 2012, I was running these events, these speaker stories events called The Alchemist series, so I also teach at Stanford and I was doing these events as a part of a Harvard club of San Francisco and we got these amazing enterprise founders that were joining these events and we asked them: “Why are you coming to these events?” and they said: “Because there is no accelerator program for us. We don’t need to raise 5 million dollars. We just need a small check.” But all the existing accelerators like Y Combinator and Five hundred startups were really designed for consumer companies, not for enterprise companies. So that was the light-bulb moment and we said we should create a platform just for enterprise. It’s all we do. We only find enterprise startups, not consuming startups. And we are the premier platform for companies before they raise the series A on the enterprise side. We rated number 1 in 2016 by CB Insights in terms of how much money our company’s raised. Y combinator was number 2. We really different shaded on the quality and focused on the program. 

What was the most unusual startup you ever supported?

Well, I think our famous one is Rigetti. We supported Rigetti which is a quantum computing company and they’ve raised 2 million dollars. They are building a quantum computer which is something that’s very difficult to pull off – that’s interesting. We also supported a company called Cambrian Genomics which was printing life forms, so it’s a 3D printer for DNA. Their first product was new fictitious genomes that people would create in your computer and they would actually physically print out them and those DNAs would self-replicate. So they actually were printing life and that was pretty unusual. They raised 70 million dollars. And we’ve had another company called Posetron which was doing an entire motor to go Mars. It’s Marc Thewis`s team and they built an entire motor to go to Mars. So those are some of the crazier ones that we funded

What Geography of companies are you interested in?

All over the world. Our main program is in San Francisco and in the Debar area but we also have a European program that is based in Germany. and we can find companies anywhere in the world. So probably about 60% of our companies are the US but 40% are international. 

How many startup projects do you review per year?

We review around 15 hundred. 

At what stage do you prefer to enter?

Any stage.  Well the most important part for us is the team. So we will be the first to check if a company has nothing and just co-founders  – we are happy to invest. And we can also help companies that are at later stages, that are further along, that have, you know,  a million dollars in revenue that need to scale in the United States. So it can be very very early to companies that have revenue, but typically if you raised more than 5 million dollars in venture capital you probably are not the right fit. But you can never be too early the earliest is. We can take companies very very early.

How do you select startups to support? What are your criteria?

The primary criterion is the teams. So the most important thing is that we’re looking for distinctive teams. and within the teams, the most important element is the technical co-founder. We’re looking for evidence of distinction of the technical side for the technical co-founders. We will not admit teams without technical co-founders and we’re looking for teams that have or distinctions evidence from either the university that the technical co-founders graduate from or the company that they worked for or just any achievement they have done technically beforehand. We look at that first and then we look at the overall market that they’re trying to attack and if we think it’s a big enough or interesting enough market that`s a second thing that we look at. So, it’s teams and markets.

How startups teams usually find you? Do you wait to inflow or scout actively for interesting ideas and perspective teams?

Most of our companies come to us through referrals. So we’re very lucky to have a lot of applications already into Alchemist. Mainly our alumni that refer other companies into us and then some people will discover us through other outlets that we have when we had covered if you search for us online but we get most of our companies from our past participants who tell their friends. 

What is your due diligence procedure and how long does it take you to cover the whole way from the first meeting with founders to contract and check signing?

Well, actually, there is an application, and then after some application that planting time is no more than 6 weeks for us to make a decision and typically it’s around 3 weeks for us to make a decision from when the application was submitted. There’s a written application, there’s an in-person interview and then we also will do our own diligence on the companies but it’s typically just only one meeting before we make a decision on a check

And how big is a check you usually issue?

Our typical check is 36 000 US dollars 

What multiplication of your investment do you expect on exit?

We do, I mean we want our companies to do big things that will go after big markets, but we are okay if you fail. So our biggest desire is most of our companies will fail, but the ones that succeed will succeed big. Our only requirement is that you do your best and then you go as big as you can, but we don’t have the main date that you have to get to a certain multiple or return. We’re not as financially driven, we’re more driven by building a community of great founders.

What percentage of ownership of a company is fair to take for an investment

Typically it’s 5% but it’s a wide range. I would say the range is between 1% to 8%

What are your red flags?

Our red flags if you’re doing something because you’re trying to make money or because you like the lifestyle of a founder and not because you care about the market. So when we ask somebody: “Why are you building this company?” if they say: “it’s because I’ve always wanted to be a founder”, that’s a red flag. I do look for somebody who isn’t looking for just to be a founder generically, but who is very passionate about the specific problem that they’re trying to solve on their own. And they’re only fit for this if their only problem is to be a founder and they’re really passionate about that, that’s what we look for. We’re looking for some unfair vantage or specific fit for that specific problem 

What are the most common areas of weakness in startups?

I don’t think they have weaknesses. Most ideas are good ideas. So, the biggest issue is not that you had a bad idea, it’s understanding how you’re gonna take off and why now is the right time to take off. So, most founders fail cause they think strategically about how to orchestrate the steps to take off and so, I think, it’s one thing in the new term is understanding how you need to focus in the new term in order to either seek your founding or seek your customers so you can succeed and deciding which markets to focus in on and to find something that is really important to work on. And you know, it’s important if people tell people about it. So there are a lot of things that would be nice to work on that will be good, but not great and you wanna find something that’s really really critical immediately to focus in on and then you have to also think in a long term of that how you pursue that initial traction into something that can become very big. So thinking about how something can grow a thousand Xs and not just 5 actual in a long term. So those are two main things that founders need to focus on. 

Has your VC approach changed after the COVID-19 started?

Yes. Our in-person program now is completely virtual. So we do still operate the 6 months program, but it’s done completely digitally, online and we redesigned our whole data to be virtual all of our sessions are virtual. It’s still been a very good well-performing program, but its all completely virtual now

But generally speaking, is COVID a threat or opportunity?

In a not so hypothetical situation, when you see that a couple of startups can perfectly complement each other and create an incredible product, what do you do?

It is both. For the third part of our companies, we’ve seen it’s an opportunity and for two thirds it’s a threat. It’s an opportunity if you are building a company that is benefiting from the COVID crisis. So, those could be companies typically anything in e-commerce, anything cloud-based, collaboration, supply chain, digital health those markets are doing very well. If you`re not in a core market that benefits from COVID then oftentimes your sales cycles aren’t lifting and the key thing is if you have cash or not. If you have cash COVID is an advantage because there’s less competition. So, if you have cash you can build some pretty ambitious things right now. You haven’t to be worried about a competition which is a big advantage. If you don’t have cash and if you’re none of these markets than it can be hard.

I typically don’t like startups to work with other startups, to be honest, because the biggest advantage you have as a startup is speed and if the market is interesting enough, it shouldn’t be dependent on another startup. And generally, if you have to collaborate with another startup, the friction costs of working together outweigh the benefits. So I rarely find that there’s an opportunity for the collaboration’s actually good when its startup to startup. When it’s big companies it’s good or if it’s a startup with a big company it can be good. But startup to startup can be very difficult, I find. 

Have you ever rejected a startup and then regret it?

oh, yeah. Yes, quite a bit. But it’s a beautiful thing that happens because I think it’s a testament to entrepreneurship, that you don’t need us or any investor if you’re a founder and if you really believe in what you’re doing than there are so many market opportunities. But yes, we had a lot. When I was a VC we passed on LinkedIn they’re famous now and that obviously a huge success. Then I was at DFJ and we should’ve invested and we didn’t. We just didn’t. I don’t think that we understood how big it could become and to read Hoffman’s testament, his vision. He understood what it could become and we didn’t. So, that just was one where we underestimated how big that could become. I think, obviously, it was a big mistake. There are other famous companies, I mean, we have passed on companies in Alchemist that have done very well and we should’ve invested in them in hindsight now. They’re not big names, so if I mention them you won’t know them because they’re still young, early companies but they doing well and we didn’t make the right decision. 

What conferences do you find really useful?

The conferences that I find useful, I’m not sure if people generally have access to them. But, I think that Andreessen Horowitz has an annual conference, which is excellent and they put a lot of their content up online. August Capital has the conference called “The Lobby” which is really terrific, but it’s very exclusive.

What books, movies, blogs, events can you suggest to startup founders? 

I think there are lots of great books in negotiations and fundraising. I love ‘Pitch anything’ by Oren Klaff I think it’s a really good simple book on thinking about how to pitch and fundraise. I love ‘The hard thing about hard things’ for the operations of running a startup by Ben Horowitz I think ‘Zero to one’ from Peter Thiel something of those books. And then, we have a podcast we’ll be putting out and I would recommend you check our podcast at Stanford. We put out a lot of videos if you know Stanford e-corner. We put all of our lectures up online at Stanford, so people can go and check Stanford e-corner https://ecorner.stanford.edu

With who would you prefer to work rather with, Steve Jobs or Steve Wozniak? 

Well, for me it would be Steve Wozniak because he’s a compliment to what I do. So you know I more on the business side and Steve is one on the technical side. So if we were starting a company, it would be fairly useless to ask Steve Jobs and me together. That’s not to say that Steve Jobs is not excellent he is, but in terms of his complimentary skills side, Wozniak would be my compliment. But, you know, I also think that Steve Jobs has a reputation who not easy to work with. So I think it would be more fun to be with Steve Wozniak. He’s a more fun-loving person. But I think I would probably learn a lot more if I was observing Steve Jobs. But at this stage in my life, I think it would be fun. I want something fun and I wanna do it with Wozniak. He’s a genius. He’s a technical genius. 

Are you satisfied with what you do, or do you think to apply your knowledge and skills to something else in the future?

I always love exploring other things. So, I think everybody’s always should grow. Having said that, I love what my job is and I’ve no regrets with my professional job and at the same time, I think its human nature to always want to expand and do more and so. I think life is very short and I’d love to have other experiences as well. So I think, I always wanna be doing more. I think if you’ve ever just complacent that on some level you’re not living. So, I love everything that I doing, but I would always love trying new things too.