A Swiss native who studied computer science at Santa Barbara City College and Stanford University, Toni Schneider started his career as a software engineer working on NASA virtual reality simulators. He went on to become a startup founder and CEO, and an executive at Yahoo!, before joining the True team as a founding Venture Partner. Toni is well known for his role as CEO of Automattic, the company behind WordPress.com. He helped WordPress become a globally known brand that powers over 30% of all sites on the internet. For his work, Toni was recognized at the Crunchies as CEO of the year.
When he is not running one company or advising another, you can find Toni in his VW van crossing the US with his family, coaching San Francisco Little League baseball, or tinkering with old cars.
How did you get into the world of venture capital?
I got into it first as an entrepreneur and founder, raising money from VCs. I did that for three startups. Then I switched to VC while also still being CEO of a startup. True Ventures is the only VC firm I’ve ever been with. One of True’s co-founders, Phil Black, was a close friend of mine. He was thinking about starting a new VC firm and asked me if I would be interested in being part of it. So when he started True together with Jon Callaghan, I said yes and dove in to learn from them how to raise money from limited partners and make venture investments as we pulled together True’s first fund in 2006.
That’s so interesting to be on both sides. You began on the entrepreneurial side pitching to VCs and now you are a VC. How do you think that transition helped prepare you? Does it help you identify what you are looking for in a company that you want to fund? What a red flag would be, that sort of thing?
It's probably both good and bad. The good part is that I was able to bring a founder’s perspective to how we structured True. Our goal was to be very founder friendly. I could share honestly what it was like to sit on the other side of the table from a VC. That helped in creating a firm where we really think of founders and entrepreneurs as our customers and where we do everything we can to provide a good service to them.
Another advantage is that when I look at startup teams, I have a good hands on feeling for their abilities because I’ve run several startups and hired and managed many startup teams.
The disadvantage is that it comes with biases. I had a certain experience as an entrepreneur and certain things that worked for me and certain things that failed. That very much shaped my thinking around startups. While it gives me a good point of view, I also have a harder time going outside of my own experience and being open to different approaches to starting businesses.
What for you personally makes a startup look like a good idea? What is something compelling to you as a startup you would fund?
For me it always starts with the team. I look for strong founder qualities, which in my mind are the ability to be very charismatic, and to have a really exciting, big, long term vision combined with flexibility when it comes to everyday execution that's going to be very zig-zaggy for a startup. There will be new challenges every day. So you look for somebody who's comfortable asking for help and being adaptable near term, but has an audacious long term vision that they don't waver from. The charisma and communication skills will help attract a lot of people to their startup.
Finally, someone who has a lot of depth in their area of expertise. This is something I always look for. As I dig into an idea, do I feel, “Wow, this person is three steps ahead of me and has really thought it through and knows everything about the space they’re about to get into”? Any good idea is going to have more than one team chasing after it, and I want to bet on the team that has a lot of depth.
There's a lot of emphasis for future founders on idea generation, but it honestly sounds like the idea comes second to more of the team, from what I just heard you say...
First step is to be in the right place at the right time for your skillset. There are other factors that play into it, but without the right people, none of it is going to work.
The second step is the product and the idea. The product needs to be unique and truly compelling and have a story that can be articulated in a simple way. What does the product do? Who is it for? What makes it unique? It's surprising how often founders can’t answer those three basic questions in a straightforward manner. I want to invest in a product that gets me personally excited, that I believe will have a positive impact on the world, and that will make customers say, “Wow, I want that, that’s different. That’s a totally new approach.”
For the third step, like everybody else in the VC business, I look at the market. Is this something that if it works out - there can be a ton of risk associated with, frankly we want a ton of risk - but if it works out, could it be a very big business? Is it a big market that seems ready for a massive change? That has to be in place as well, otherwise you can have an amazing team with an amazing product, but without big growth and revenue potential it won’t be a VC scale opportunity. That's not what we’re in business for.
What was the number one red flag that would caution you away from investing in a team or a startup?
On the people side, it's teams that don't seem to have the right chemistry or the right understanding of what their roles are going to be, or teams that don't have a track record together. That for me is maybe not a red flag, but definitely a yellow flag.
The biggest red flag usually comes up during initial due diligence. It happens quite a bit that I'll think “Wow, this is a really good idea, I'm going to dig in,” and when I do, I realize that there are already a bunch of teams doing the same thing and the idea quickly doesn't seem so original. It feels like more of a rehash or tweak of another idea. That usually throws cold water on a project for me. That’s the biggest red flag, that an idea isn’t that unique.
It's only one percent of startups go on to become really big. You really do have to filter out ones that you don't think are capable or have a clever idea.
Yes, and even when everything fits, even when you check all the boxes that I just described, it's still hard. Because nothing ever plays out exactly the way we plan and hope. Another filter we use at True is that we focus on one type of deal. We do two to three million dollar seed rounds. That’s it. If it’s something that is a really good idea with a good team, but two to three million dollars is not enough to get it off the ground or it’s already past the seed stage, we won't do it even though it might be a great opportunity. We are really trying to stay focused on one stage of investing, do it well, and have a whole portfolio of companies that go through the same stage so they can all learn from and support each other.
Seems like True has a specific focus on seed round innovative companies, what else do you look for?
We’re not thesis investors. We don’t have certain sector or certain type of business that we look for. We’re not a “SaaS fund” or a “Crypto fund”. We invest behind great founders and then double down when things are working. For example, we were early investors in Fitbit, a couple of years before hardware startups and connected devices became a trend. We weren't looking for that trend, we just liked that team and particular idea, and when we saw it working for them, we followed on with a bunch more hardware investments like Ring and Peloton. We follow wherever our founders take us. Recently, we've invested in robots, satellites, and biotech, which are all new areas for us. We try to be very open-minded about what the subject matter might be.
You really do try to treat founders and startups that work with you very well. Is that how your fund differentiates from others? There are certainly quite a lot of VC funds around here.
One thing that makes us different is that we invest earlier than the majority of VCs. We're really close to an angel stage, but we're a full service VC firm. We are there in the very beginning, often when it’s just two or three people with an idea, and we have our founders’ backs all the way through. Most VC firms want to see revenue traction and product-market fit before they even look at something.
The second thing we do that differentiates us is we are focused on the personal needs of a founding team, not just the business needs. We know what you will need as a founder, as a leader, to get really good at your job, to get through the ups and downs of doing a startup. If something goes wrong, we want to be your first phone call. We don't want to be the kind of investor where you feel like, “Oh God, something went wrong, how do I break this to my investors? I don't want to talk to them.” We hope to have a trusted relationship so that even when things don't go well, we're going to be there and help you through it.
Part of how we do that is to connect all the founders within our portfolio and they help each other improve. That's our founder network and platform. We have events and tools that facilitate direct, open, and honest collaboration. It’s optional, but most of our founders take advantage of this amazing peer network. I think it’s super valuable and quite unique among VC firms.
What made you to want to invest in Laura and her startup, Atipica? What made them stand out from the pack of other investments you were evaluating at the time?
Laura and Atipica really hit a lot of the boxes I mentioned earlier. She’s a very charismatic founder with a big vision, a great communicator with deep knowledge in the area of diversity, inclusion and hiring. She had spent several years working on the idea and product, talking to a lot of companies about their needs, so she had depth of expertise. We started working together a little bit over two years ago. It was still early days in diversity and inclusion tools and she was well ahead of many of the people we talked to. She had a small team, pre-revenue but she already had some pilot customers. So it was the right stage for us and we felt like our seed investment could help her build out her team, get the product launched, and get to the next stage.
The hiring and recruiting sector in particular was interesting to us at the time. We had just had a successful exit to LinkedIn with Connectifier, and I was and still am on the board of another investment we made in this space called Handshake. They’re in the college recruiting space and doing very well. So I was personally excited about hiring tools and got quickly interested in Laura’s vision to make the recruiting and hiring process become more fair and inclusive and help companies understand why they're having such a hard time building diverse workforces.
Is there any piece of advice that you would give founders who are up and coming next generation founders that you don't think get shared enough currently? Something that people are failing to focus on when they're thinking, “I want to become a founder”? Is there some aspect you see time and time again they forget and you would caution them to focus on?
Try and get as much perspective as possible. When I was an entrepreneur raising money, I felt that I knew and loved my team and my business, and I could pitch them all day long. But when I went into VC meetings, I was new at it and had never heard any other pitches. On the flip side, those investors had heard tons of them, yet I had no idea how I stacked up. I've definitely seen founders come through True who think they nailed it but they didn't. And I’ve seen founders completely hit it out of the park with us and were like, “Was that OK? I have no idea!”
My advice is to connect with other founders and see other pitches, or at least get some information on how high the bar is. I think that's how you get better. Don't try just work on your own idea, on your own pitch within your own bubble, but really try and see what else is going on out there, who's doing really well and connecting. How are they doing it? What's the subject matter?
A lot of what you're describing was actually the impetus behind why Alchemist got started. The founder, Ravi, felt the same thing, a lot of startups didn't really know how to compare and weren't really swapping notes and sharing. Alchemist has become like a community where you can share ideas, help each other out and that everyone is trying to get the best out of everyone else.
Exactly. The most worthwhile part of being a part of a program like that is learning from each other and getting perspective.
Then the last thing I'm really curious about is seeing how you get to see all the upcomings startups, tech products and services. What areas do you personally think are going to be the most exciting and you are most excited about in the upcoming near future?
I get that question a lot and actually I don’t know. Literally someone will walk through the door tomorrow with an incredibly exciting idea that we couldn't anticipate. All the super interesting things we have gotten really excited about are little bit out of left field. We're trying to be truly open to new people and ideas because our next great investment can come from anywhere.
About the Alchemist Accelerator
Alchemist is a venture-backed initiative focused on accelerating the development of seed-stage ventures that monetize from enterprises (not consumers). The accelerator’s primary screening criteria is on teams, with primacy placed on having distinctive technical co-founders. We give companies around $36K, and run them through a structured 6-month program heavily focused on sales, customer development, and fundraising. Our backers include many of the top corporate and VC funds in the Valley—including Khosla Ventures, DFJ, Cisco, and Salesforce, among others. CB Insights has rated Alchemist the top program based on median funding rates of its grads (YC was #2), and Alchemist is perennially in the top of various Accelerator rankings. The accelerator seeds around 75 enterprise-monetizing ventures / year. Learn more about applying today.