Warner Philips (Rubio Impact Ventures): Don’t just do it because you think there is a market opportunity, do it because you believe it solves a problem that is close to your heart.
05 Nov, 2021
Nicole Glaros is Chief Investment Strategy Officer at Techstars. She’s spent over 15 years working with and funding early-stage web software companies. She’s an expert in growing global organizations, building startup ecosystems, working with early stage startups, venture capital, and more. She sits on boards, has invested in over 90 companies. Entrepreneur Magazine called her “One of the 7 most powerful women to watch”.
I stumbled into it, to be honest. I started my first company when I was in college, and it ended up being a pretty good exit for me. But at the time I started the business through bootstrapping – I just didn’t know there was such thing as equity financing. I started the next two companies using the proceeds I’d generated after the sale of my first business. Neither one of those two companies were very successful, so I blew up a lot of money. I wanted to start another company, but, honestly, I was a little bit gun-shy – and broke. I needed a job. Being an entrepreneur, I was quite unemployable. I looked at a job description and couldn’t say, “Yeah, this is for me, I can do that job,” so I really struggled to find a job. I end up finding an organization that was here, in Colorado in the United States, that was basically an incubator or an early accelerator, it helped and supported entrepreneurs through advisors to help them grow their businesses. They were looking for a VP of marketing. I thought, “Sure, I can do a marketing job. I don’t really know what it does, but I could probably do that job.” But what I was more interested in was working for the organization, because I thought that if I could be around a lot of advisors who help and guide entrepreneurs, I can learn what I got wrong in my last two startups and I would have the confidence to do my next startup. That was my first entry into understanding the startup landscape and venture capital; through that role, I started to understand equity financing, learned that angel investors existed and that VCs existed, and so on. When I left that position, I ended up doing another startup that we sold in about 12 months, and from there I just got sucked into Techstars, which has just started. The founder, David Cohen, whom I’ve known from my previous role, asked if I can be an advisor or a mentor to the companies that are going through the Techstars program. That was in 2008, and I’ve been with Techstars ever since. We have been investing in early-stage companies since then. When I joined Techstars, it was just the one program in Boulder, Colorado, and now we have 46 programs in about 30 countries around the globe and invest in over 500 companies a year. So, I really kind of stumbled into it: I started as an entrepreneur, got myself immersed in a startup ecosystem, and I can say that Techstars and I grow up together, investing in a lot of companies.
One that comes to mind most easily is DigitalOcean. I was reinvesting in it in 2012, I think. It is a cloud web host company. When we were looking at them at the time, it was just four crazy founders, two of them were brothers, all four used to fight all the time and party like mad. They wanted to make a cloud hosting company, but doing it differently. If you remember, in 2012 the incumbent in the space was Amazon and pretty much only Amazon. All investors told us,” Are you going to invest in a startup that is coming up against Amazon? Are you crazy?” But the founder had a previous business in hosting in general and knew a lot about the space, and the way they approached the difference between what they were doing, what Amazon was doing was really impressive. I am not a web developer at all, and I went on Amazon to try to spin up a server – and I couldn’t do it. It was just really hard and it took a long time, and I just couldn’t believe how long it takes to figure out how to launch a server. When I went over and tried to do it on DigitalOcean, it literally took me two clicks. That one was my favorite one, mostly because everybody else that I talked were, like, “Are you kidding? You’re gonna find a company that’s coming up against Amazon? And look at these founders – they are insane and fight all the time!” I fell in love with their approach and the love they wanted their customers to feel. And look at them now: DigitalOcean is one of the biggest cloud providers, if not the biggest, and they won up against Amazon.
There are about 26,000 applicants for Techstars every single year, and those applicants come from numerous places. The managing directors do a lot of recruiting on the ground – they do educational seminars, speaking events, conferences, etc., etc. Those 26,000 applications are reviewed by 42 of our managing directors that try to identify the most interesting teams. Also, Techstars has a fund that only invests in companies that have gone through a Techstars accelerator program. So, those 46 managing directors are making investments in the 10 companies that are going through the program. From there we are making decisions on which companies we operate our priority rights. That is roughly 460 new companies every single year. Because there are so many companies in our portfolio, it is very very difficult to sit down and have meetings with all founders. In fact, there were 518 transactions that we looked at last year alone and over $2.1B was invested. I can’t take that many meetings every single year, and we have a formula that looks for a bunch of factors around each startup which includes their growth, the other investors in the around, dynamics of the round, and how much they’re raising – there is a bunch of factors. The founders don’t come to me per se anymore, if they are going to go anywhere, they go to our managing directors.
We are investing in companies up to about $100M in valuation, and north of that. Then we look to other later-stage investors. We do have a team of people inside of Techstars that help companies to find the right capital partners for them depending on what stage they’re in. We don’t have controlling interests of a company, and we’re looking at partners right after the accelerator program being coming in front of companies. We are small players in the ecosystem in a lot of companies rather than large checks in each individual company.
I tend to not like boring figures, however, figures talk about how well founders know their market and how well they know their business. While I’m not studying the figures that they give me it does indicate how much research and homework the founder has done. If you’re putting on a show, then I’m less interested, because I feel like I’m being sold. I’m really trying to get at what the opportunity is of the company and the strength of the founding team. I care about how well the founders interact with each other, how they communicate, how they navigate conflict together, how much passion do they have about their products, about the size of the market that they are in, I care about the product itself and how creatively they are thinking about the product, how quickly their traction has grown. I don’t necessarily care about how big the company is itself – I care about the shape of the growth graph rather than the absolute numbers in the graph. But numbers represent all that, you know, and help me to understand the story about that.
That changes from week to week. I would say, founders who are trying to catch my attention, are focused on the wrong thing. The stuff that’s going to catch my attention is the shape of the growth graph and how founders are developing relations. I like handles that shoot me really quick updates on what they’re working on, any changes or growth that has happened since the last time we talked. If I get one email from a founder asking to pitch the business, but I don’t have any contacts on the company, any contacts of the founder, no idea about their growth, it won’t work. So I would say, the very first thing is developing relationships, and you can do that over email, or social networks, whatever, and then show me the growth.
It’s not how we look at our portfolio construction. There are many investors who think this way because if you have 20 or 30 companies in your portfolio, that is a question you would be asking. We have 2300 companies in our portfolio and we look at price per share bought vs price per share sold. I care about the growth and price per share and I care about how long it takes to get that growth to happen.
Again, that’s not something that we think about. And again, when you have 20 or 30 companies, you need control over those businesses (and in order to get enough control you needed enough of ownership), and in order for them to have any serious outcome, you need the returns from that outcome to be able to pay back the entire fund. When you have as many companies in a portfolio as we do, you are simply after growth in price per share.
I look for a handful of different qualities. I look for the respect that the founders have for each other and for their ability to navigate conflict. Every single team will go through conflicts, in fact, 65% of startups fail because of founders’ issues – just because founders are not getting along anymore. I’m looking at their communication patterns, at how much they respect one another or how much contempt they have for one another, I look for their decision making patterns and who makes what decisions. I look for the passion they have around the product. And I look for their ability to execute.
I do, actually, however, they are not appropriate for Techstars. While Techstars does take single founder companies, our ecosystem itself, our program is not a good fit for them, because it’s not possible for a single individual to do the amount of work we are asking to do. However, there are lots of examples of great solo founders who run successful companies. And I don’t have a bias against investing in solo founders, still, they tend to be less appropriate for the Techstars ecosystem.
I would want to work with both of them. One of the reasons why I love working with entrepreneurs is that I’m always learning and growing. I want to work with people that are smart, and motivated, and driven, and insightful. I think the strength of their opinion is irrelevant, and I would enjoy working with both of those types of founders because I want to learn from them. I don’t want to work with founders who, I think, are abusive. There are many people who think that Steve Jobs was abusive – I don’t know that. I believe that he has his specific idea of how he wanted the world to work, and if you didn’t like that idea, he’d got in your face about it. But, I think, if you step back from it and realize that he was trying to push against the vision, I would have loved to work with him.
I like to work with different types of people, so Chuck Norris would be amazing!
I just had one of these. I was working with a founder retreat, and there were 6 different founding teams. We’re working on numerous problems and one of these founders stood up – and misunderstood the instructions, the exercise. We’re giving him feedback that he didn’t understand the exercise and that he should go back and try again, and that feedback upset him so badly that he had to leave the room. In fact, he didn’t come back – he actually left the whole thing. That is such a huge red flag for me because you’re going to come across situations all the time when you’re wrong. I want founders that are seeking truth rather than being correct, that don’t care as much about their ego but rather about finding the truth regardless of where it comes from and grow from every experience. It is a recipe for disaster if you’ve got a founder whose ego is so big that he refuses to take feedback and he is so sensitive that he can’t handle a situation. It’s so juvenile. I look for the emotional states of founders to see those traces.
It’s changed a lot, actually. When I first started in the business, there were no women at all, maybe like one or two. But in the last 5 years, that’s changed a lot and it’s changing rapidly. It’s true that there are not a lot of women in space still today, but it’s so much more than it was 25 years ago and it’s on the right trajectory. Now we see programs that do nothing other than support women founders and women peer groups to support each other. There are a lot more women in venture capital making investment decisions which will support more women. It certainly nowhere near 50/50, but it’s definitely changing in the right trajectory. I’m really excited about that.
Sure. All the time. I looked at Tinder way-back-when, before Tinder became popular, and said “No.” Interestingly, I struggle with that one: I don’t actually regret saying “no” but my LPs surely regret me saying “no.” I didn’t want to put that energy into the world, but I think that the innovation those guys did with “swipe right – swipe left” is great. I didn’t like that it was oriented around someone’s physical attractiveness and I did not want to put my dollars behind something that put that kind of energy into the world. So I don’t necessarily regret my decision and think it was right for me, however, in terms of the returns my program wasn’t right.
No. There are industries that have much longer time horizons and that makes them difficult to invest in, but I don’t think that I would not invest in a company because of that reason. Although I’ve just met an investor who did a huge investment in cold fusion which is like a 50-year time horizon. I don’t think as a venture capitalist we can make that kind because we don’t have, because there is no single fund that has got a 50-year time horizon. But I would make an individual investment in something like that. Any industries I wouldn’t invest in are those that don’t jive with my sense of values, so I would never invest in weaponry, in food genetics, and I’m not a big believer in drugs.
I would never try to marry them but I do make an introduction. I don’t think you can force things like that – it’s not your company, you don’t have the vision of those 2 founders. But I can introduce them to each other and say, “I think that there could be magic between what you guys are working on.”
If you would have asked me that question 5 years ago, I would promise a great list for you including various social media. I don’t follow it much anymore.
I do I have a personal blog and on occasion, I do post to it, certainly not as much as I used to. I used it in 2 directions: one is the ability to communicate with the world, but the second one is to help me work out my own thoughts. Sometimes I used it as a journal. I think that sometimes it’s hard in space that we’re in to find the quiet time to be able to write. I’m not reading social media that much – I’m almost not reading it, and it feels almost unfair to be posting to social media without consuming it.
No, it has not. If anything has changed in that the accelerator programs that we run, we have switched to virtual until it is safe going back in person. But it hasn’t changed the velocity, it doesn’t change the check sizes. We take a steady, consistent approach to the world and are doing the exact same thing right now that we did the last year at this time.
It is absolutely an opportunity – every crisis creates opportunities. What was happening before COVID is that you see companies going to the Bay Area and raising a $5M in $20M round with nothing but a pitch deck. I don’t think that we will see that anymore or see as much of that anymore. Those types of investments are not sound investments. As founders, you have to start doing something and you got to start demonstrating some traction. If you think you’re going to raise $5M in a $20M round with a pitch deck, that’s just an indicator of a market bubble, it’s not sustainable. If this was washed out, it is good. If this crisis forced founders to start building products earlier than they would and start demonstrating traction earlier than they would, it’s good. It also makes founders not rely that much on venture capital – I think, venture capital kills a lot of companies. Startups are learning to rely on their own revenue streams to grow their business, and it is the most powerful thing that ever happened. And from that come better opportunities for VCs.There are many companies dying now, which is unfortunate, but I will also say that many of those companies were, probably, not very sound investments before COVID. Maybe, they deserve to die.
The ones that come to mind are what AirBnB or Uber did around access capacity: if you got an extra bedroom in your house or you’ve got extra time on your calendar to drive people around – I think that it was really revolutionary. And how could you not say “Google,” right? What Google is working on in terms of storage, organizing, and indexing information was transformative to the industry. These 3 come to my mind.
The most recent is, probably, WeWork – they blew out a lot of money! They had such a great opportunity in front of them and they did not capitalize on that.
I don’t know an investor who doesn’t think about that. Ok, maybe, some of them don’t. It’s humans’ nature: we’re always naturally want to grow and change. As an investor, you’re exposed to so many ideas that, on occasion, something lights a fire for you. I think you’re always thinking about what’s next or how to do something different or better – it’s human nature.
Faith in a founder – really believing in your founders, supporting them, and being on their side. A lot of VCs approach this with “You’re working for me now and will listen to my orders” orientation, and it kills companies. So, believing in the founders, supporting them, helping them, sitting on the same side of the table with them – that’s a really important quality. You also have to be able to create a friendly founder-investor agreement. Another important quality is believing in your own decisions. It’s amazing to me how many VCs out there are wanting to get on the bandwagon and are not interested in something until a lot of other investors are interested in it. The great VCs are ones that have belief and faith in their own ability to pick and make a decision, rather than looking at others for a verification that is not a stupid idea. Of course, you need to generate returns for your LPs.
VC can be a beautiful alignment of success and outcome from LP to investor to founder to employees in the company if you get it right. If we can support the companies in their growth, we can hope that everybody in the entire stack becomes successful. I don’t look at startup – I look at the people behind the startup. I’ve done a lot of traveling in my days in a lot of different countries. It’s very very rare that I see a business pitch and it’s something I haven’t heard before. Because of that, I tend to go once that is further which is a look at the people, and the people, in most cases, are phenomenal. They are beautiful, driven, excited, fired-up, passionate, curious, hard-working – and that, for me, is as beautiful as it can be. It’s the human spirit in the full expression of joy.