Heidi Roizen (Threshold Ventures): On average our investment period is somewhere around 6-7 years. It’s longer than the average marriage in the United States. Take your VCs very carefully
26 Oct, 2020
Venktesh Shukla is General Partner at Monta Vista Capital. He has been involved with numerous start ups as an executive, investor, board member, or adviser. As President of TiE Silicon Valley and Chair of TiE Global, he has had transformational impact on the organization in Silicon Valley as well as at TiE Global. As the founding President of Foundation for Excellence for the first 17 years of its 20 years existence, set the stage for its current success in providing scholarship to thousands of talented but poor students pursuing engineering and medical education in India.
I used to be an entrepreneur myself, and I had some successes and some failures. In Silicon Valley we don’t call them “failures,” we call them “valuable learning opportunities.” So my last startup was a valuable learning opportunity. One learning I took from was that I should not jump into anything, I should take my time and do some diligence, before I accept a new position. So I decided that for 18 months I will not do anything, I just do my looking around before I commit myself to a new opportunity. When I got bored by not doing anything, I started an angel investor group in Silicon Valley, called TAE Angels, and within two months I had 200 investors joining me up. I did that for 3 years, I ran this Indian investor group, which made 25 investments in 3 years. I made 5 investments, and those 5 Investments turned out to be the best investment of the group. This gave me the confidence that I can make the right judgement. The other two things I’ve discovered and liked about investment world are these. In an investing community you’re meeting the most optimistic people in the world and the most enthusiastic people in the world. And most of them are going to fail, but, despite that, their energy and their optimism are very infectious, and it’s a good feeling to hang around with people who are so optimistic and positive about the future. The second thing I like is that everybody who came was an expert in some area. Because they were experts, they were willing to teach you what they knew (because they wanted your money). It was the fastest and the cheapest way to learn something about the world, about the technology, compared to any other profession. Because of these two things – I enjoy being a VC and I feel confident that I can make right decisions – I became a full-time VC.
First of all, it has to be B2B. We don’t do B2C kind of investments, like the next taxi, or the next hotel, or the next to Duolingo – whatever – we don’t want that. Second, we do only something that has some significant technology in it, so technology becomes a barrier to entry. The third thing is that we focus on only those startups where founders have really deep relevant domain expertise. If someone is coming and saying, “I want to change this in the global supply chain,” I want to know, have at least one of the founders had spent time in shipping and logistics? If someone says that I’m going to make autonomous vehicles used in mining or construction industry, the one of the founders has to have experience in the mining industry. There are a lot of really smart people in Silicon Valley, who solve tough technology problems and then they try to to look for a business problem to solve. I don’t like to invest in those guys, I like to invest in those people, who know some big industry, and have an idea of how to solve some real problem of that industry using technology.
If you look at our portfolio, you’ll see, that we invested in Shipping and Logistics industry, in Mining, Audio Design, in Sales Automation, Marketing Automation, in Cloud Infrastructure, we have invested in Automatic Fleet Management. As you see, we are not constrained by any particular industry, more by the founders knowledge of that industry and their unique insight about how technology could change that industry.
We have a small fund and invest only in American companies. They may be solving problems in the rest of the world, but the company has to be incorporated in the US.
I want to see, how deeply they understand the industry and how balanced the team is. In a balanced team someone should understand the business and industry, someone should understand technology and architecture. Ideally there should be a third person that knows how to develop and ship a product. Ideally, a three person team is the best from our standpoint but we are ok with investing in two person companies also, and in some rare cases we can invest in one person company, but only if this one person combines industrial expertise with a technology insight.
We had invested into a one-person company, but this person has PhD in AI, worked for 5 years in Caterpillar with the team that produced the first generation of autonomous mining vehicles. Then he worked for 2 years in Apple in the self-driving business unit. He decided to
start a company and solve the problem in the mining industry. That experience immediately caught my attention and, despite normally we don’t invest in one person company, we made an exception and funded him.
They should have known each other and they should have worked with each other – not just as friends, not just the same college students. If they have worked together professionally, with each other, it’s very valuable, because they know each other’s strengths and weaknesses and there’s some degree of trust between them. This is the second thing. Also the founding team should be balanced in terms of skills and industry knowledge, and this is the most important thing, as I mentioned before.
I think the combination of Steve Jobs and Steve Wozniak is more interesting than any one of them individually.
We do 3 to 5 new investments a year. For every company that we invest to, we have looked at 20 others, at least. The first filter is how they get to us. If they get to us through someone we know, someone very successful, that’s already the first filter.
We don’t scout activity, we don’t need to. We are very well known, at least personally I’m very well known in Silicon Valley and outside. A lot of very successful people know us in Silicon Valley and outside. Typically, those are the people who have been successful with VC entrepreneurs. The people they send have a passable level of quality.
We do it as quickly as in 4 to 6 weeks, sometimes it takes 8 to 10 weeks. But typically we do it within 4 to 6 weeks.
We can write check up to a million dollars.
We are taking anywhere from 10 to 15% of a company for our investment of $1m to keep it developing.
We don’t care if they have other investors or not and we are OK if we’re the only investor in the company. It is very hard to say, but you always hope that every investor will become a huge success and give you 20x return. But that’s the hope.
In some cases we haven’t invested, because the founding team did not inspire confidence, either they didn’t have enough drive, or didn’t have enough conviction, or didn’t have the right skill set. It was a company that we like a lot. One of the founders had become a full-time chairman, another founder was a technical guy, and the third one was a sales guy, but he was based 3000 miles away. They had made the technical guy to be the CEO; I think, they believed in his ability to drive the company. He was a very-very good technical lead, but I wanted someone to take the business responsibility, and it wasn’t him. Soon he decided not to work full-time, because he started yet another startup and became a part time team member. So we didn’t fund that company, even though it was in good space and we liked all the team. The person, who becomes a CEO, just has to be there; he inspires confidence, handles ups and downs, and drives the business as part of it.
Yes, it happens sometimes. We are looking at a company, and it takes us some time to make up our mind, and they’re got acquired. If we had invested, we could make 3x or 4x money in just six months, and that got away. But that’s OK.
Lot of them! Luckily, not all of them. Every investment that you make is a learning opportunity. After a while you realise, what wasn’t right about the company.
I normally don’t take consumer companies, but I’ve invested in a company called ThirdLove. ThirdLove makes bras and underwear for women, and that has been the biggest success story in my portfolio.
I don’t think that I’m ready to say “Never.” I really like Health Care, it is an area that I’m very interested in. But I’ve not found a good company to invest in yet.
I think, it’s both. If you’ve already invested in companies, you may see that the market for practically every single one of those companies has collapsed. Of the revenue projection they’ve made for this year, they will be lucky to get 20% of it, because at a startup there’s not much expense to cut anyway. It is quite possible that they won’t be able to raise the next round of money. Their revenues have collapsed, so how long can they survive? It is a huge challenge, hugely depending on how long it takes for the world economy to resume normal operation. Because, if it will take, as some economists say, more than a year, most of the startups may not be able to survive that long.
In terms of books, startup founders should read everything that Steve Blank writes. The only guy, who really understands startup dynamics, is Steve Blank. One of his books is The Four Steps to the Epiphany, it should be a must-do reading for anyone who wants to start a company. Another book is Testing Business Ideas by David Bland and Alexander Osterwalder. These are the books people should read before they start anything. Once they are started, they should read different books that are relevant to different stages. About conferences, once startups have a product and are ready to start selling it, they should go to the conferences where their customers are present. Before that, it is a waste of time and money.
Of course, I think, that’s easy: Apple, Google and Facebook.
This is the most satisfying career choice that I have ever made. Here I may use all the accumulated knowledge and experience, that I’ve got while working for other companies and startups, to deploy it for benefits of the startups I’m investing in. This is intellectually challenging, this is fun, and this is financially rewarding, so I can’t think of anything else.
None of these. Chess is basically one-on-one game, but startup is not one versus the other. This is something that you’re creating from scratch. In none of these games you create something from scratch.