“Understanding What it Means to be a Passionate Founder”: An Interview With Derek Chau, Partner, Acorn Pacific Ventures

Over his career, Derek has been involved in over $3.5B of private and public company acquisitions. Prior to Acorn Pacific, he was the co-founder of a machine learning company in the news aggregation space and also served as the COO of a leading-edge government software company. He is a CFA charterholder and also actively mentors companies in the Dartmouth and Harvard alumni networks.

Can you tell me about your background?

I was an executive at a couple of software companies ranging from a 300-400 person enterprise software company, down to a startup level software company. Prior to that I was mostly in corporate finance.

Out of all your experience, what do you think best prepared you for your role in Venture Capital?

I served a lot of senior level operations, seeing--for a lack of better words--a lot of blocking and tackling. Dealing with a lot of headaches on the operational level really prepares you to understand what it takes to scale a company. I also had some experience operating a very small startup, working with my own team, bringing everything together, and raising capital.

Can you tell me more about Acorn? What is the approximate size of your fund? How much do you normally invest?

Acorn is a network of funds. Acorn Pacific Ventures is the fund with myself and three other partners.

Acorn was founded about 18-19 years ago as one of the first Chinese Americans funds here in the Valley, funded by a number of very successful Chinese American entrepreneurs in industry. They banded together with the vision to give back to the community, investing in founders and supporting that ecosystem.

Over time that morphed into a series of funds. Acorn Pacific is the forefront here in the valley. There are a couple funds in Taiwan and one in Shanghai, and a partner fund in Singapore. Between that ecosystem, we invest in founders and in their vision. We also look for companies that over time have an international component and can leverage our cross border experience. Things like optimizing supply chains and technology transfer.

How does your fund differ from other funds?

There are two main factors. Whereas a lot of funds have good operational people, at Acorn we  bring together all of our operational teams. From the very first founders, it is a requirement that we bring in people who have seen it from a variety of standpoints. Everything from robotics to supply chain optimization to software.

We look for people who've been through it and have got battle scars. People who understand how it works and are very sympathetic to founders, understanding what it's like to raise capital and scale a company. Understand what it’s like to go through the good times and the bad times.

Can you tell me about how you make decisions in investments?

We try not to be overly formal. We don't run traditional investment communities. Rather, we want people to meet people. So, the operating partners and GPs at Acorn want to work with folks. We want you to meet the folks who are going to be helpful and who are going to be working day to day with you.

As those conversations go over time and people become more comfortable, we run through our diligence. That is our process. We of course make unanimous decisions about the partnership. Once we are invested we get behind the company, working through the good times and bad.

How do you deal with cold calls and e-mails? Do you have any advice for entrepreneurs trying to reach out to the VCs?

It’s very very hard. We don't put a lot of weight on them. We're not trying to exclude cold emails and cold calls, but it's very difficult to get our attention. It’s not a deal that's introduced by someone in our broad network, which can be very broad. We're not going to give it a lot of weight unfortunately. By chance you may get our attention and may get a response but it's pretty rare.

What's the number one red flag you see that makes you pass on investment?

There's a lot of flags that we look for. A team dynamic is really important to us. First and foremost we invest in people. If we see that the team of founders or co-founders are not gelling or there’s some dynamic that’s missing there or if the team is not cohesive, that’s big flag for us. If we feel the technology is something we don't feel that there's much defensibility in, that’s another piece that could also raise a lot of questions. I don't think there's ever just one flag so to speak.

Can you tell me more about your investment in MetaData with Gil?

We met Gil probably a couple of years ago, and at that point the company was still very young. First and foremost I liked Gil. He had very good passion when he spoke. The market he is in is a very crowded space. It’s one that I traditionally did not spend a lot of time in, but there was something that was interesting about Gil.

After the first meeting, we continued to keep in touch. He did what he said he would do in terms of delivering, in terms of top line, in terms of product, and customer traction. Transparency was really important to us and and Gil was super transparent. When we talked, we could tell he had a lot of candor and things clicked. We could also tell he cared very much about making the best out of his company and also being successful for his investors. The fit was there in terms of the people.

How do you identify passion in entrepreneurs?

It's hard to boil it down to a few characteristics. The advice I give to all founders is to be true to yourself. If you’re not true to yourself, we can see through that. If it’s not something you are passionate about it’s, for a lack of a better word, fake. Obviously.

In Gil’s case, he was in an industry he spent a lot of time in. That's a good sign for us. He came from a frustration with this space and he saw an opportunity to make things better. Gil’s case is just one. We can tell even though he's been at a few different companies, he was very passionate about making sure he would succeed. He was hungry.

What do you find difficult about seed stage investing?

Startups are hard. Anyone who has done it knows that. It's easy to, after the fact, describe how everything went right, but we all know it's so non-linear. There's so many things that can go wrong. Everything from product market fit to technology to the team. It’s just pure luck.

For us there’s never just one thing. There’s so many reasons that a company can fail, even if a company has all the right people and execution. There's no perfect investment. For us it's very much an art and it’s really going with your gut.

Would you be more likely to fund a very experienced team with a mediocre idea or a novice team with an amazing idea?

Every situation we come across is different. It’s really hard to boil it down to such simple terms. If I had to give an answer, I would say that The Valley is full of ideas. There’s not a lack of ideas, but it’s more about the ability to execute. Operational experience counts for a lot.

Is there any one piece of advice you want to give to founders that doesn’t get shared enough?

Be true to yourself and be humble. I think humility is a really important skill that we really value at Acorn. Rejection is hard and it requires endurance and perseverance. It’s not an easy thing to do. We've done it and understand it. It’s hard to look around you see all these other startups that are getting so much money and valuations, but they’re the exceptions. If you’re having trouble raising money, just keep at it, believe in yourself, believe in your team.

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.

“What do VCs value in founders?” An interview with Jean Kovacs, Partner at Hillsven Capital


Jean has more than 30 years’ experience directing technology companies, and delivering exceptional results with growing enterprises. She is currently president of the Northern California Chapter of the HBS Alumni Angels, a forum for Harvard alumni to connect with, learn about, and invest in quality early-stage companies. Her resumé includes serving as CEO and Co-Founder of Comergent Technologies, and Co-Founder and EVP of Qualix Group. She was named to the Silicon Valley/San Francisco Business Journal’s list of Most Influential Women in Business and has been profiled in Fortune, The Financial Times, Computerworld, Internet World, and InfoWorld. She holds an MBA from Harvard and a BS from Northeastern University.

Can you tell me a little more about your background before venture capital?

I worked for technology companies in marketing, product marketing, customer support, sales, applications engineering, and then went to get an MBA, thinking that I was going to go to Wall Street. I ended up deciding to come out to the west coast. I worked at Sun Microsystems, which went public, and then Frame Technology, which also went public. Following that, started a company (Qualix), which we took public, then started another company, which we sold to AT&T. I was always on the operations side until I got involved in angel investing. About two years ago I joined Hillsven as a Partner.

What do you look at when you're looking at a startup?

We typically focus on enterprise companies. We don't do a lot of marketing of our fund. We typically look for “curated deals”, deals that comes out of an accelerator that we trust or is referred to us by someone that we trust. We'll do two to three deals per year. We typically go in at Seed and lead the round. We put in anywhere from $500K-2M.

What about MetaData stood out from the rest of the investments you were thinking about making?

I should say that I was not with Hillsven when they invested in MetaData, so this is a little bit of hindsight on my part. One of the things we liked was that Gil started as an engineer then got his MBA and went on to be a CMO, so he actually lived the customers’ lives before he started the company. He had that domain expertise and could talk the CMO language. As he was being a CMO he was thinking, “Why hasn't anyone developed a product like this?”

We felt he had that unique combination of business experience, domain experience, and technical experience. That experience and vision, combined with energy and tenaciousness, were the right ingredients that lead him to start MetaData.

What are your thoughts on Alchemist?

I like the Alchemist team. They seem to have a higher bar for companies going in, which also results in a higher bar for companies who are exiting.

When I talk to entrepreneurs who have gone through the program, they all universally say that it was really worthwhile. There are a lot of incubators and accelerators. That makes for a lot of noise, but I would say Alchemist is certainly in the top percentile, based upon their results.

Is there anything you’re excited about in the future?

I just think there's a huge opportunity for what we do. We're seeing SaaS is leading to the democratization of the enterprise. No longer are business people in enterprises beholden to huge IT departments or huge ERP vendors so that everything has to go through. It's much more accepted now if you have an application that fits a need in an organization, to go ahead and get that and deploy it within your organization. It's an opportunity we're seeing for startups that we haven't seen for a very long time.

What do you think is the number one red flag that would make you pass on an investment?

We invest very early on. Our number one priority are the founder(s). If we don't feel good about the founder and the founding team we won’t invest no matter how hot the space is.

What makes a good founder?

First, it's someone who can articulate a problem and has domain expertise with that problem. Second, it’s someone who can attract and build a great team. Third, the founders and especially the CEO has to be tenacious. Probably less than 10 percent of the companies that get started have an easy route creating a product, bringing it to market and growing sales. There are always ups and downs, so we need to know that that entrepreneur is so passionate that they're going to forge ahead even when the going gets tough.

Would you be more likely to fund a very experienced team with a mediocre idea or a team of novices with an amazing idea?

It's about the quality of domain expertise and focus. If they're novice they have to be coachable, have energy, and be tenacious. We'd rather have someone come in and say, “I know this problem. Here's how you solve it and here's who I've talked to and here’s who I’ve sold to.” Having early traction in a company is really critical.

Which of your investments are you most proud of and why?

We’re proud of all of our investments!

Can you tell me about how you deal with cold emails and calls?

That’s a tough one. We’re so busy getting curated deals that it’s hard to answer cold emails/calls. We try to get to them, but they typically don’t get the attention that we give to curated deals.

Earlier you spoke about finding deals through references you trust. What makes a reliable reference?

In addition to a few accelerators we trust, we get deals from several sources:

1. Other investors who understand our model and know how we invest in and support our companies

2. Our CEO’s/Founders - They understand our model and we trust their insights.

3. Customers. We keep in touch with enterprises and are always talking to them about the problems they have. If they find a company who is young and helping them solve a problem, we want to talk to that company!

What separates Hillsven from other funds in the area?

We take a very active role. Typically, we lead the round, and always take a board seat. There are three partners here and we all have different skill sets. We’ve all been founders ourselves and our careers have been focused building companies, not just investing. We really spend time getting to know the company, and helping with what they need, whether they want to brainstorm on technical concepts or market fit.

When they’re getting ready to raise their Series A, we also spend time helping them and making introductions.

Bottom line: We view ourselves as partners with our investments, not solely as investors.

What do you feel like your role in the company is?

We’re there to support the CEO and the team. If the CEO comes in saying I'm really wrestling with this or that, we’ll pull in the right partner who can help. If we don't have a partner with experience in that specific area, we all have networks that we can reach out and find someone who knows a lot more about a specific area.

What you think is the biggest indicator of failure for a startup?

If I were to sum it up, I would say believing your own bullshit. Someone who pulls together a great pitch and says, “if we build this they will come” and not really having that tie into the market and customer prospects. When you look at Gil, he was a CMO and he knows the pain that they have. We have a company called Retail Zipline, another Alchemist company. The CEO of that came out of the retail space. She knows the pain. It really is having that passion where you say, “this is an issue that my team and I can fix, and it's a big opportunity.”

Is there any one piece of advice you would give founders that you think doesn't get shared enough?

Do your homework. Look at the VC’s web page, talk to their portfolio companies to figure out what they focus on, get your information all lined up. Then, have the tenacity to, in a nice way, keep on top of the process.

Can you tell me about your experience as a woman in Venture Capital and any advice you'd give to young entrepreneurs and investors?

I would say right now, it's a fantastic time to be a female in the venture and startup worlds. There's been so much awareness in the market, that I think people are really realizing the talent pool and are going above and beyond to access it.

Do you have any advice for mothers who are trying to grapple with motherhood and their career?

It's never going to be easy. One or the other is going to suffer and I think you just have to make peace with that. Sometimes you’re going to be more career-focused and sometimes you’re going to be more family-focused. I think as a mother you've got to just come to grips that you can't be all things to all people, all the time.

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.

An Interview with Arun Penmetsa, Partner, Storm Ventures

 Arun Penmetsa is a Partner at Storm Ventures and focuses on early-stage Enterprise software companies, primarily in SaaS, Security and Digital Health. He has extensive experience building enterprise software solutions at Oracle and Google. Arun is passionate about healthcare and using technology to improve outcomes and drive efficiency for patients, providers and payers. He is also an investor in several healthcare groups in India where he serves as an advisor on technology and population health. In his spare time, Arun enjoys spending time with family and hiking.

How did you get into the world of VC? Was it your first job?

No, to give you a little bit of background, I started out on the technology and engineering side. After college and graduate school, I worked at Google and Oracle, building enterprise products for about five years. Then I went to business school, and joined Storm Ventures right after that. It wasn’t my plan going into business school, but I got introduced into the world of venture capital (VC) when I met a lot of VC’s, mostly at startup conferences and other networking events. I was really curious, because one of the things I was trying to do in business school was to learn a lot more about other industries. I’d only worked for a few companies, so I was curious how the industry worked. I spent the summer between my two years of business school at Storm. I really enjoyed the work I did, and really enjoyed working with the Storm team, so I was happy to have the opportunity to come back full time.

Did you see yourself doing this, or being where you are today, when you graduated college?

When I graduated from college, and when I finished graduate school, I was thinking about a more tech-focused career. Like I said, I worked in engineering and product at Google and Oracle. I was trying to transition more into a startup environment, so no, I wasn’t really thinking about venture capital.

Why did you invest in 4me, the Alchemist company? What differentiated them from other investments you were thinking about at the time?

A couple of things. At Storm, we focus on enterprise software and spend a lot of time on industries that are not necessarily mainstream. So I was always interested in the service management space. Given the general level of innovation that had been happening, the service management space was lagging a bit compared to other industries, so I thought there was a lot of opportunity there. When I met Cor, the founder and CEO of 4me, one thing that really impressed me was the caliber of their team. Cor’s background in the space—having started two other businesses, and having successfully exited them really stood out. I thought the team had a unique perspective and depth of knowledge about the industry. That was one of the biggest factors for us.

We also have a broader thesis about how data flows through a lot of these industries. Historically, if you think about it, the way that a lot of technology is set up in these industries has created data problems. There are different systems and different owners for a lot of the data that is needed for these companies to manage their own workflow. As service management has evolved, and this is playing out in a lot of different industries, the need to operate across boundaries and silos has increased more and more, whether that’s geography, or technology systems, or different departments. I don’t want to get too into the weeds, but service management is broadly going through a transition where the new focus is on SIAM or Service and Integration Management. The team at 4me really built their product for that. We thought the shift in the industry really aligned with the expertise the team had, so we thought that was a good match. Plus, they were winning against the more established incumbents as a startup that was bootstrapped, so the growth was impressive. A combination of these factors led us to invest in their company.

What are your thoughts on Alchemist in general?

I think the program is great. I’ll give you a little background about Storm. We’ve been around for about 19 years, invested through five funds, and we’ve pretty much been enterprise focused for those 19 years. The last couple of funds have all been focused on software. In many ways, what Alchemist does is really a perfect fit for us. It’s definitely a sector and stage fit, because we mostly do series A investment, so that’s been fantastic. I’ve met Ravi and Danielle a few times, and I think their focus on running a slightly longer program is important, because things take longer in the enterprise space, particularly as you go into some of these deep tech industries. This helps companies get to a stage where they can really start talking about go-to-market and what levers a venture capital firm like us can bring. I think that’s critical because a lot of times, when you work with accelerators, they have great founders and great companies, but it still ends up being too early for us.\ Alchemist has set up a good model, a long enough program with good mentorship and support, where you get to a stage where a VC firm like us can add a lot of value. I think I’ve been going to Alchemist Demo Day since the second Demo Day. It’s been great working with their companies and seeing them as they grow.

What’s the size of your current fund and how does that compare to funds at a similar stage in Silicon Valley?

Our current fund is $180M, which has been about average for the previous funds as well. Funds are obviously getting bigger, just given some of the recent raises we’ve seen. We’ve decided to stay at a similar size, primarily because we really focus on investing in companies just as they’re getting to the product market fit stage and we work with them on finding go-to-market fit and scaling beyond that. We help them think about building the right sales model, building the right playbook, and thinking about what hires they should make. We can definitely make the fund bigger and bring on more investors, but we’ve found that this has worked for us. Companies that we really want to work with are in that early stage, where they want that first institutional investor. We’ll partner with them and help them scale through the right process.

What’s the typical check size and how is that typically structured?

Typically, our check sizes for the A rounds are in the $2M to $5M range. We can go lower, and occasionally we’ll do seed rounds, or we’ll do larger rounds sometimes. Storm has invested in about 150 companies, led investments in a number of cases, and we’ve co-led, so we’ve pretty much worked with everyone. We’re not very rigid in terms of needing 20% ownership, but we like to own as much as possible, because we tend to be really hands-on with our companies. We’re definitely not a fund that makes a huge number of investments. We are somewhat concentrated and would rather go deeper with our companies than just go broader.

Is there a stage you typically prefer to invest?

Series A. The sweet spot is definitely the A for us.

Do you have a specific vision or focus that differentiates you from other funds?

The emphasis on go-to-market. We spend a lot of time working within the firm and working with other organizations that we can bring in to support our portfolio. Once you’re selling your product to a handful of customers, and there’s repeatability in the use case, we can help you figure out how to scale. One of the biggest issues is that early on, getting to that $500K or $1M run rate, a lot of that comes from founder sales. It varies depending on the size of the account and other factors, but when you make that transition to a sales team and the founder steps back a little bit, a lot of times that process doesn’t go smoothly. The depth of knowledge that the founders have about the sector, the problem they’re solving—it’s hard to replicate that throughout the teams. What we try to do is really think about the go-to-market as a science as much as we can. We want to think about the right playbook, the right sales model, the right customer you’re selling to, and really building those processes out.

We spend a lot of time with our companies building out that process hands-on, so that they can effectively make that transition to scaling, and they don’t hit a speed bump when they get to that stage. When companies come to us, a lot of times we’ll see that they have a grand vision and a good roadmap, and have predictions that are up and to the right that we hope they’ll hit. But on occasion, they’ll stumble a little bit. A lot of it is making this transition, and getting your playbook down, with the right sales model. That’s one way that we try to differentiate from other firms. Additionally, we’ve been very focused on enterprise for 19 years, so we have a huge network in the space across a variety of industries, that can add value to our companies.

How do you think you differentiate yourself individually from other VC’s?

To build on what we talked about, we have built deep relationships in various enterprise sectors given the focus over many years. I’ll give you an example: I spend a lot of time focusing on healthcare at Storm. Over the last few years, we’ve built a strong healthcare practice. As part of that, we have connections to a lot of health systems across the country—including physicians, practitioners, and entrepreneurs. In that one example, we can definitely bring a lot of those connections to bear for the startup. We’ve sat in a lot of these practitioner’s offices, so we can really understand the deeper workflows, that comes with selling to major players and providers. A lot of the work that happens on the backend isn’t really visible to these companies. That’s just one example of the insight and level of connection that we can bring for our portfolio. In terms of the broader firm itself, the go-to-market is a big area, but we also bring in a lot of experts who can specifically give advice on sales and marketing. One other area where I’ve spent a lot of time is security. In fact, we have a number of CSO’s working out of our offices pretty often.

What makes an investment particularly compelling and what’s a big red flag that would make you pass?

In terms of red flags, maybe this is an obvious one. We’re looking at mostly enterprise, so if the founders have never worked in industry, I think that’s a big red flag. It’s not that I wouldn’t talk to them or not invest, but it’s something where I’d definitely want to dig in more. Especially if it’s an area like Cor with 4me and service management, it’s hard for an outsider to really get a sense of what the problems are, and what the incentives are, in terms of why these problems get created. So, it’s not always a technology solution and it’s not always that the best tech wins in a lot of these cases. We really think hard about the unique insight that these founders are bringing, and how their background and experience really leads to that.

On the flip side, things that I would definitely look for, because we invest so early and have to bet on the team, would be the background of the founders. We also look for their early ability to win customers. A lot of times, we see founders that work hard and have passion, which enables them to get customers. However, a lot of the customers are using the product for different use cases. That’s fine early on, because they’re still trying to find the right product, but we’d like to understand what’s really working, what’s the sweet spot early on, so that they can find repeatability. I think that repeatability is important because that leads to more usage and lower churn. That’s when you’ve really found a pain point worth investing in.

We also think about market transitions, and ask if there is something fundamentally changing in the market. Not just a better version of what’s been done before, but something fundamentally changing in the market that will lead people to adapt a new technology, a new product, or a new workflow. When we meet entrepreneurs, we try to already have a thesis on the market, so that we can make faster decisions about whether the idea makes sense or not.

What do you think separates a great founder from a good founder?

One of the things is the ability to hire really great people. As a founder, you have insight into a certain area, but you can’t do it all. That’s why a founding team in general needs to be well-balanced. I think the biggest thing is being able to sell people on your vision and hiring people that are better than you. If you can hire well, I think in many cases, the rest of the issues can be addressed, because you’re getting the right set of people that can work together and solve problems. It’s a hard thing to test for, so we try to spend a lot of time with our founders.

Would you be more likely to fund a really experienced team with a mediocre idea, or a team with no experience that had an amazing idea?

It really depends on the idea and the use case. I would say I’d pick the team over the idea, because it’s unlikely you’re the only one with the idea, meaning that a lot of your success is based on execution. Ultimately, you really have to hustle and execute. On the flip side, if I can add a caveat, the one area where that can be a little more murky, is when there’s a huge market pull. In that situation, a mediocre team in a market that’s really taking off can probably execute better than a great team in a market that has no momentum. If the market is really taking off, a good team can have better outcomes than a great team in a bad market, no matter how strong they are. Oftentimes, we have theses in certain areas, so we have some view on the market and how that might impact these companies.

If there was a piece of advice that you’d give to founders who are raising money that isn’t shared enough, what would that be?

Founders often focus on the current product that they’re selling today and their long-term vision, which is grand and massive if you achieve it. However, a lot of times, in the middle, there’s a big gap. Having a clear strategy for how you’ll progress beyond the immediate pain point that you’re solving today is something that people don’t spend enough time on. I think having a viewpoint on how the market evolves is critical. It’s knowing what transitions are happening in the market and how that gives them tailwind, and understanding why that is the case.

Which investment were you most proud of and why?

Obviously, I like 4me quite a bit. I don’t know if there is one I’m most proud of. Going back to the industry transition idea, where it’s critical to find the right time to make a change in the industry, some of the best companies get the timing right, where many others are too early or too late. In healthcare, there’s a company we invested in called Lexigram, that’s helping payers and providers transition to the value-based care model. They’ve done really well. In security, there’s a company called TruSTAR that’s truly leveraging how companies share information with each other and really enabling that. Those are a few.

What areas are you most excited about now and moving forward into the future?

Security and healthcare are two areas I am excited about due to the changes taking place. A broader answer is that no matter what industry you’re in, if there’s a market transition that’s happening, I would be interested in learning more. The other thing that I think a lot about is the whole idea of the data economy. Historically, a lot of data was stored in silos across organizations, team, and geographies. Any company that is truly building insights across such data is a company that I would love to meet and speak with. So, there’s not one particular area, but these are a few of the areas that excite me.

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.

An Interview with Scott Raney, Managing Director, Redpoint Ventures

Scott invests in entrepreneurs at the seed, early and growth stages with a focus on cloud infrastructure, open source and SaaS. He’s especially interested in the rise of distributed computing and developer-facing businesses. Scott serves or has served on the boards of Guild Education, LaunchDarkly (an Alchemist company), Hashicorp, Platform9, Sourcegraph and Twilio, and led Redpoint’s investments in Stripe and Collective Health. Past investments include adap.tv (acquired by AOL), Cloud.com (acquired Citrix), Heroku (acquired by Salesforce), Jumptap (acquired by Millennial Media), and RelateIQ (acquired by Salesforce).

Prior to joining Redpoint, Scott was responsible for new products at NorthPoint Communications, a data CLEC providing nationwide DSL services. Prior to NorthPoint, Scott worked at Bain & Company helping clients in the private equity and technology industries.

Scott, how did you get into the world of Venture Capital?

I’d worked as a developer, product manager, and business development manager at a variety of companies including a couple of startups. I had a passion for entrepreneurship and technology, and I had an opportunity to join Redpoint as an associate a number of years ago. I’ve been lucky enough to get promoted a number of times and be in a position to work with a lot of really great entrepreneurs over the years. It's been a lot of fun.

You said you were a developer. Is that what you graduated college with?

I graduated with a B.S. in Electrical Engineering and had done a bit of software development as a part of my academic career. Then I joined, what at the time was called Andersen Consulting, but is now Accenture, as a software developer and, among other things, worked in their Advanced Technology Group. I did a lot of software development there at the dawning of client-server, and also got exposed to networking and communications and really fell in love with that.

Is your background in software development what led to your investment in LaunchDarkly?

I'm going to take it back a few years to 2007 and the launch of Amazon Web Services. As a former software developer, I saw the impact that would have on development, but also the emergence of this trend called DevOps, that we all know and love today. I met the founding team of Heroku, which was building the first PaaS (Platform as a Service.) Through that experience, I developed a deep admiration for entrepreneurs working on building products that developers love. You’re not selling products to developers, but you're selling through developers to organizations to solve big business problems. Heroku is near and dear to my heart and I learned a lot about the power of developers through that time. After that, we invested in companies like Stripe and Twilio and another company called Sourcegraph that's working on “code intelligence” again to help developers accelerate writing software. Through these experiences I was lucky enough to meet Edith and hear what LaunchDarkly was doing. It felt like it was the perfect continuation of that trend. It’s a piece of technology and a solution that helps developers, but ultimately unlocks so much value across an organization and could have a profound impact on how they think about their business.

What separated them from the other investments you were thinking of making in the space?

The things I look for when we find these developer-facing businesses are indicators that the projects have impact not just within the development organization, but with other functional areas. By changing the software development lifecycle, these companies can end up having repercussions that affect product, marketing, and even senior level decisions how a company runs its business. LaunchDarkly was an amazing example of that, through the idea of feature flagging: the ability to transform the velocity at which you could release product; the ability to give product managers control to deliver specific features to individuals; the ability for marketing to be able to provide early looks on functionality. These are interesting, profound capabilities that span across an organization. Maybe the most exciting thing to me is, we talked to one of their early customers during the due diligence. It's a very successful, large company today, a brand name. We talked to the CEO who was not only aware of the impact LaunchDarkly was having on the organization, but talked about how it impacted the way he managed the business. It changed the way he thought about what his team could do. I was incredibly excited when I heard that, because that’s the way you create massive value and have the opportunity to build a significant business.

What are your thoughts on Alchemist in general?

I love what Alchemist is doing. I think it’s clear that when Alchemist got started, there was a dearth of opportunities for entrepreneurs thinking about enterprise businesses to find mentors and advisors and organizations that could them to help them grow those ideas.  Ones that understand the nuances associated selling to enterprise buyers. There were things like this available to consumer and more consumer-like enterprise businesses, but there were very few people that could act as a resource for entrepreneurs who wanted to build traditional enterprise businesses. I've heard time and time again from the people that go through the program just how much value they're getting out of it. I don't want to suggest here that building a consumer business is easier than building an enterprise business, far from it. They're very hard, but they're very different. As a young entrepreneur, when you think about selling to businesses, there's some realities you just have to know. You have to understand what it means to build an enterprise-grade product. You've got to understand what it takes to market to enterprise buyers, and you have to understand what it takes to build and manage a sales force that can sell to enterprise buyers. Having an organization that helps young entrepreneurs understand the importance of all those things and what it means to do that is invaluable. I view it as a pretty unique entity in terms of what it's doing. The entrepreneurs that have been a part of the program say it was incredibly helpful.

What’s the size of Redpoint, and how does it compare to other funds of similar stage in the Valley?

We’re a unique animal in that we are always actively putting money to work out of two funds simultaneously. We have an early stage fund that is $400M focused on Seed, primarily Series A and occasionally Series B. We also have a $400M early growth fund that is focused on Series Bs and Cs. As a result, we span from Seed all the way through mezzanine financing with these two funds totaling $800M.It makes it a lot of fun for us. Our approach in the way that we we work with entrepreneurs, is they do not need to worry about which fund the money is coming from. Here we're going to work every deal exactly the same with an identical approach to thinking about engagement with entrepreneurs and the value that we want to add to them. We just have two pockets we can pull from.

What size checks do you typically write and how is that structured?

It's a hard one to answer given our stage-agnostic approach.  We write seed checks of a few hundred thousand to grow checks well north of $30M. The most important thing for us is to not try to force an entrepreneur to raise an amount of money that isn’t in the best interest of their company.  Ultimately, we want to do what is in their best interest and the good news is we have the flexibility to support a couple of smart people with an idea all the way up to a company well on its way to an IPO.  

What stage do you prefer to enter into, if there is a preference?

The earlier we can be involved with great entrepreneurs, the better, but again we are primarily interesting in working with great companies regardless of stage.  

Does your fund have a specific focus?

Broadly speaking, Redpoint invests in disruptive ideas across both enterprise and consumer technologies. That being said, with the rise of things like artificial intelligence and what's happening within SaaS and cloud, we're finding ourselves moving into adjacent markets. We've been spending time understanding how things like machine learning can transform the drug discovery process and the delivery of healthcare. We are spending time in areas like space and robotics. We have a pretty wide aperture. The common denominator is we are looking for bold ideas.  Companies that are building innovative technologies and that have the chance to fundamentally transform a market.

How do you think your fund differentiates itself from other funds?

First and foremost, it starts with entrepreneurs. Few jobs are as challenging as that of a founder creating and scaling a business; our team’s job is to work collectively for our founders and help them build successful companies. We view ourselves as going to work for the entrepreneurs, as opposed to them going to work for us. It’s a privilege.  

As a firm, we’re very collaborative in nature and we take a team-based approach. Most of our team have been former operators or founders ourselves and we have a deep empathy for the entrepreneur’s journey. We try to operate like a startup ourselves with a small and nimble team. Our firm’s 19 + year legacy gives us a fair amount of experience, perspective and connections, as well as a foundation for doing what’s right for the entrepreneur.   

The last thing I would say is that we really have deep domain expertise and we invest a lot of time and energy in building the networks and relationships around the thematic areas we invest to make sure that we can make a difference. This allows us to see over the horizon, and help our companies do the same.

How do you think you individually differentiate yourself from other VCs?

I try to be the best possible partner that I can be. I've been lucky enough to be a part of a lot of great companies and to have had a chance to work with a lot of great entrepreneurs. I hope that when they sit down across the table, they'll say “This is somebody who helped me, who had my best interests at heart, and who was great to work with.”

The other thing is just try to be a good human being. This is a long term relationship and we’ll be working with these folks for many, many years. The last thing that an entrepreneur needs is to be dealing with somebody that isn't 100% aligned with them and has their best interests at heart. I try to make sure that I'm always looking at the world through their eyes and trying to be as helpful as I can.

What makes an investment compelling for you?

It starts with the team. We spend a lot of time in our diligence process assessing whether or not we think a team has the opportunity to build something really differentiated and transform whatever market or industry they're part of. That is top of our list, bar none. We want to work with good people that we think are going to do things the right way. Second, we look at the markets the companies are operating in. We want to be going after big markets and taking bold bets. The last thing is we look for products and technologies that are differentiated and will create defensible moats making  it difficult for other people to replicate.

That used to stand primarily on the basis of high quality products and good technology. Increasingly, a lot of businesses we look at have other moats like network effects that can be extraordinarily powerful for businesses. In enterprise increasingly there are communities that get built up around some of these technologies. We put that all together and try to find things that are special and where we feel we can add value.

Bottom line is, we want to work with great people, and they come in all different shapes and sizes and all different experience levels. We've been fortunate to work with a lot of folks who are building amazing businesses as their first job. We've also been very fortunate to work with experienced executives who are doing it for the second, third, or fourth time. In the end, we don't think that talent comes in one shape or size or profile. At some level, to be a great entrepreneur, it’s some magical combination of intelligence, grit, determination, and experience. There's always a different combination of all those things, but in the end we think that people that have a vision for the future and have the ability to get it done are what matters the most.

Is there was a piece of advice that you could give to founders fundraising, that doesn’t get shared enough, what would it be?

The more honest and open and transparent you are, the more likely you're going to find somebody who is investing for the right reasons. I encourage everybody to make sure that you're not trying to manage the conversation. As an entrepreneur you need to be able to sit across the table from your investor and lay it all out there - the good and the bad - and get an honest reaction. It gives me great comfort when founders name the issues or challenges in their business because I don't feel like I'm being managed and I don't feel like there are things I don't know. Obviously, things are not always going to be going up and to the right. Every company has things that need to be worked on. Once I know what the issues are, it's much easier for help the entrepreneurs. There are a number of founders in these conversations that feel like they need to come off as infallible and “we've got this, it's all good.” No business is like that.

Which investment are you most proud of and why?

I love them all the same! But Heroku is special to me because it was my first investment.  It wasn’t obvious at the time, but I loved the founders and their vision.  Seeing their success was incredibly gratifying. As with all our founders, I am forever grateful to have had the chance to work with them.  

What areas are you excited about now and in the future?

It's a broad question and I don't think I'll be exhaustive in my answer. I will tell you where I spend a lot of time personally. I believe in this move-the-cloud-native movement - this move away from traditional monolithic to microservices and from on-premise to the cloud.  These moves are having profound repercussions it has in terms of software development, deployment, and operations, and also the impact it has on a company’s ability to move faster than ever through software. You can look at every tier of the application stack and realize that they're going to be fundamentally changed. Many already have been, but there are many things left to do. I'm a big believer in things which help organizations move to the cloud. I’m a profound believer in the power of the public cloud and the long term trends there. All the solutions that help companies begin to make that migration, I'm very excited about. We continue to be interested in SaaS in the way that it’s moving beyond broad horizontal applications and into more vertical solutions that do more than just automating a business process, but really help people do their jobs better by delivering insight. We continue to be excited about the long term trend trends there. And as I mentioned earlier, we're very interested in broad applications around AI and ML and in particular how these technologies might disrupt industries typically not addressed by venture capital.

An Interview with James Cham, Partner, Bloomberg Beta


James Cham is a venture capital investor with Bloomberg Beta, a firm focused on investing in the future of work. James invests in companies working on applying machine intelligence to businesses and society. Prior to Bloomberg Beta, James was a Principal at Trinity Ventures and a VP at Bessemer Venture Partners, where he focused on consumer services, enterprise software, digital media; and served on the boards of CrowdFlower, Open Candy, LifeLock, ReputationDefender, Sonic Mule, and BillShrink. He was previously a management consultant at The Boston Consulting Group and a software developer. James received an MBA from MIT's Sloan School of Management and Computer Science degree from Harvard.

How did you get into the world of Venture Capital?

After the startup that I was a part of got acquired, I went to business school. A good friend of mine introduced me to a firm called Bessemer, where I got my introduction to venture capital and how I ended up investing in startups.

And before Venture Capital you were a software developer?

That's right, I was a software developer in the late 90s to early 2000s. I was part of that transition from client-server over to web-based, enterprise applications, and I wrote a bunch of mediocre code and made a bunch of bad design decisions that other people suffered for as a result. So I’ve been through enough cycles to least understand what that feels like from a potential customer perspective.

Why did you invest in LaunchDarkly?

Let me take a step back. When we raised money from Bloomberg to start the fund nearly five years ago, one of the core claims was that we are living in a world where everyone's a knowledge worker. In that world, we should look at the best knowledge workers around. We should copy their techniques to find ways for them to scale what they're doing. And of course, the best knowledge workers in the world are software developers. This is in part because some of the best software developers are a mix of lazy and smart -- they spend all their time avoiding working on applications and instead work on frameworks and systems infrastructure. So broadly, that is what we’re excited about.

LaunchDarkly is exciting for two core reasons: One, there was an immediate sense of recognition of a problem. When I first heard Edith pitch the idea, I thought “Oh my goodness! I wish this existed when I was being yelled at as a software developer or when I was managing projects.” There's a sense that this should exist and this is the right way to do something. I think most software developers do this. You build your own bad bug-tracking system or slightly lame issues-tracking system. And I had done something like a features flag product for some other project, but I didn't call it that. There was a sense that Edith understood this and saw this more clearly than I did. That’s one excitement.

And then there's the other reality which is the excitement of seeing a leader like we did. There's a point when you meet her and say, “Oh, she's not just someone who has built something interesting, but she’s someone you can see leading something important.” That’s another important part of what made it exciting for me. As I've gotten to know her better, that’s only been validated more and more.

You met LaunchDarkly through Alchemist. What are your thoughts of Alchemist in general?

The thing that is most helpful about Alchemist is that it’s more systems driven. The people around it are quite credible and thoughtful. You look at the set of advisors: These are people who aren’t really famous and lightly involved, but rather accomplished and very deeply involved. From my perspective, that makes the process of diligence and validating people much easier.

There’s always a sense about Alchemist that you’re being as positive as possible about the opportunity, but at the same time you don’t lie. That's an important thing for an investor and really helpful.

What is the approximate size of your fund? How does that compare to other funds in a similar stage?

As the markets are fragmented, even in the earlier stage, judging how we compare to other funds does become more complicated. But the core physics of our first fund was $75M, and the second fund is also $75M. Our first check sizes range between $100K to $1M, and we participate anywhere from friends and family rounds to right before the Series A.

Does your fund have a specific vision or focus? I know you've touched on the future of work prior, but is there more to that?

We talk about the future of work, in part, because historians of science would say that it takes two generations of managers for any new technology to really make an impact on the economy. At the start of our fund, we were twenty years into the Web -- networked computers, which is another way to think about it. We were convinced that it is only now we’ll see massive changes in the way people work, because now you have a bunch of people creating businesses that are suited for the Web.

Within that vision, we have a focus both on productivity for knowledge workers -- we see a lot of opportunities to integrate and learn from developers -- and the way software ends up changing the way that people do business. New tools will be required to support this new kind of business, which include developer tools up to enterprise software.

We also believe that machine learning, model building, and AI in general are different than normal software development. I think they have profound implications that we haven’t understood yet, not just on all the cutting edge research we’ve done, but especially around the way that people make good software and machine learning models. Machine learning model building is different than software development. The economic characteristics are different, meaning machine learning will give rise to new business models. So somewhere out there, there’s going to be a person that is the Bill Gates or Marc Benioff of machine learning. They are going to do a mix of marketing, technical, and product insights and come up with a different way of providing machine learning or AI-driven businesses in a different light. They are going to charge in a different way or sell it in a different way. That’s the innovation or change in the way that people do business that we’re most excited about, and where we spend a lot of time.

How does your fund differentiate itself from other funds?

On the one hand, the money is a commodity. The money is the same, and so the way you differentiate is you bundle different services along with it. Some of that is the personality of the partners and the way that they relate to other people. A part of that is also a set of things that we focus on. I think, we think through more than other firms ways that founders can make a dent in the universe through the way they talk about themselves. On that side, we’ve thought a lot out. And we work with our companies a lot around that.

So much of it depends on the specific relationship that each partner has with the founder that that investor has invested in, especially at the seed stage. There aren’t magic formulas.

How do you individually differentiate yourself from other individual VC’s?

The right way to compete along those lines is not to compete. Instead, I’m most interested in angles that people aren’t thinking about yet. And I’m most interested in thinking through angles that are poorly understood.

So if someone has just another generic SaaS company that’s growing at a certain percentage, then I'm probably not the right person for them. An old friend of mind would say that there’s two types of VCs. There are VCs that if they weren’t VCs, they’d be bankers, and others who are VCs because they spent too much time pitching. I’m definitely part of the second camp. There are a whole set of ideas that should be enabled and would be if someone stuck their neck out and said they believed this founder could create something special and make the world better. And that’s what I try to do.

​What makes an investment compelling for you? Is there something in particular that makes an investment more compelling than not?

There are all the things that people talk about: traction, the team’s experience, potential, etc. I think those things are all really important, but the thing that might be under appreciated is that core insight. Sometimes the founders don't understand what the core insight is. There is nothing quite as exciting as sitting with a founder and discovering together what actually makes them special. And oftentimes that core insight can be communicated in a paragraph or it could take a lifetime to get there. For me, that’s what I'm looking for that. It’s going to be in areas where I have enough preconceived notions that someone could surprise me.

What is the number one red flag for you that would make you pass on an investment?

The moment I feel like I can’t trust someone is probably the number one reason why. When it’s close or we thought we should have invested, that tends to be the number one surprising thing about most folks that we pass on. Investing in a company is not something you take lightly. We take it very seriously and it’s a relationship we take very seriously as well.

What separates the great founders who get an investment from you vs. the good founders who don't quite make the cut?

There’s a way in which the best founders help you believe. Whether it’s helping the investors believe or first customers or the first employee or the co-founders. And that way of getting someone to believe, it comes in all sorts of ways. It’s not generic. It comes in many sizes and forms, but that ability to impose your will on the universe. It only works if you can convince other people.

Would you be more likely to fund a very experienced team with a mediocre idea or a team of novices with an amazing idea?

Nuance matters a lot here. I think that there are plenty of times when the very smart, experienced team can take a mediocre, initial idea and because they are so customer-oriented or technically visionary that they end up building something better, smarter, or more interesting. However, generically, I hunt for people who have extraordinary insight and how they get there. The insights do not have to manifest themselves with the first product, but they manifest themselves somehow that makes them extraordinary.

Is there any piece of advice you would give founders who are fundraising that you think does not get shared enough?

I think founders forget how much power they have in a situation. There are cycles that founders get in where they end up feeling like this is just another boring sales call. But what the founders are doing is they're sharing their most precious things. They're sharing things that they probably care more about than almost anything else in the universe. When they pitch, they should treat it that way. That investors are lucky to get a view into this. The moment the founder forgets that, humans can smell it. You have to continue to be resilient and continue to believe because investors, although we do it through a financial instrument, at the core, we’re declaring we have faith in someone and we have enough faith that we’re putting our money and our goodwill behind it.

If you think about Edith and the way that they were together and the way that they communicated and seemed to take what they do seriously, even when things are difficult, that’s the sort of thing that an investor is looking for.

What areas are you excited about now and in the future?​

I’m excited for when things that we call AI-related start being machine learning-related and get boring. When everyone understands how to engineer a bunch of problems, things get boring, and that's when you end up with a lot of product innovation. I’m very excited about that!

An Interview with Toni Schneider, Founding Venture Partner, True Ventures

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.

Funding Basics: Adopting the Best Business Model

The culture of nearly every business-to-business software startup centers on products. Everyone talks about product innovation and disruptive technology, but I think today’s founders need more than great product ideas to launch successful companies.

In my role as Managing Director of Hummer Winblad and also as an Alchemist Accelerator mentor, I share this advice with new entrepreneurs: Get as comfortable with your spreadsheets as you are with your product. By that I mean that your financial models show potential investors you’ll be a metrics-driven organization and that you understand you are building a business not just a product. I also believe that only metrics-driven companies can operate high-velocity business models.

A New, Emerging Approach

If success is 10 percent idea and 90 percent execution, deep thinking is required of teams pulling together new business models. For example, are you going to sell direct or through a channel?  Will you have a subscription or a perpetual model? Do you envision a “land and expand” model where you encourage a smaller, initial buy that increases over time? Does your business model reflect the way customers want to buy?

Teams developing enterprise software traditionally have had to factor in a 9-to-12-month sales cycle on top of the year or more it takes to deliver product. Both development and expensive sales professionals operating in this model require significant runway—and thus funding.

Fortunately, times are changing.

Taking a cue from evolving consumer models, I now encourage enterprise software founders to more precisely consider cost of sales (including customer acquisition costs relative to pricing and hiring) together with product decisions.

Our team members and other venture firms ask them to think about how they can achieve operational and growth targets from two perspectives:

  • The old model – Costly, large account-focused, in-person sales teams operating on a quarterly rhythm

  • The new model – High-velocity, mid-market-focused, inside sales teams operating on a weekly rhythm

The new, high-velocity model optimizes sales and marketing processes by measuring the end-to-end effectiveness of all touchpoints. With metrics, teams can determine what is and what isn’t delivering results. I created two blog posts a few years ago explaining the high-velocity business model and the metrics for a high-velocity business model—based on the success of teams that Hummer Winblad invested in early.

High-Velocity Benefits

For a startup pricing products in the USD$150,000 and up range, leveraging the traditional, enterprise sales model may still be practical and even preferred. For everyone else, here’s why a high-velocity model makes more sense:

  • Faster time to revenue – The combination of an assertive inside sales professional (who can reach 80 to 100 prospects a day) and a web purchasing model speeds sales, which enables the company to run on monthly recurring revenue.

  • Greater accountability – When your product team’s responsibilities expand beyond building the solution to the entire lifecycle (from first customer touch to download to using), teams are more collaborative and can achieve greater success faster.

  • Complete visibility – Companies operating high-velocity models are highly automated and instrumented, so individuals and teams are always aware of their goals and progress toward reaching them—from calls and demos to trials, seats, and monthly volumes.

Does Your Business Have the DNA?

In a high-velocity business model, leadership, product, sales and marketing teams all shoulder responsibility for success. We see entrepreneurs embracing this new approach taking a similar journey, learning from others that have succeeded already about how to ramp up fast.

My tips for them include the following:

  1. Hire consumer experts to run your enterprise marketing model, so it’s firing on all cylinders

  2. Simplify the sales process by adding a free or low-cost download feature

  3. Add insides sales professionals to follow up on every lead and upsell from the download

  4. Run everyone in the company through your sales process—from start to finish—to ensure everyone understands it

  5. Test online pricing and trial models by dividing traffic

  6. Test your social media and web flows, counting the number of clicks at each step

  7. If you choose to work with channels, hire someone that has previously built them

  8. Bet on mid-market customers to start, but establish a sales value that when exceeded, makes sense to add enterprise sales

For founding teams seeking funding, business models matter. Remember your ability to explain the thinking behind your business model is as important as explaining the product you’re going to bring to market—and sometimes, more important.

About Me

As Managing Director at Hummer Winblad, I oversee investments in SaaS, virtualization, cloud and mobile technologies. Prior to joining Hummer Winblad Venture Partners in 2006, I was involved in founding and operational roles at start-up companies. I was a co-founder of AutoFarm (now Novariant), a company focused on GPS and robotics. Although I spend less time programming now, I started my technical career coding and hacking computer games. I have a Master of Science (Engineering) degree from Stanford University, an M.B.A. from the Stanford Graduate School of Business, and an Engineering Physics degree from Queen’s University.

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.

This blog is the first in a financing series with topics designed to help entrepreneurs be better prepared for venture capital conversations.

How to get Momentum when Fundraising


The most powerful tool you have in closing an investor is fear of missing out (FOMO). FOMO only occurs when you have momentum in the round. Once you get that momentum, you start closing investors and a virtuous circle begins, increasing FOMO and carrying you to a great round. Here’s three ways to build momentum when you’re fundraising for your startup.

Low Round Targets

Setting a low round target does 2 things: first it broadens the number of investors who can participate in the round, increasing competition. Second, the round looks almost closed with even a small amount of investment. You can always increase the size of the round later as demand catches up. The only cost of this approach is creating a credible business plan for each successive target.

For example, you only need one investor with $50k to be half full in a $100k round. Conversely, if you tell an investor you’re raising $3M and have $50k raised, the situation seems less attractive. When you start getting yeses you can increase the size of the round in stages and still have the majority raised at all times.

Reserving Space

You can also build momentum by getting smaller investors to earmark parts of the round. This usually comes in the form of new, angel investors and existing investors participating with their pro rata (or more). Ask the investor if they’d like to reserve a spot while they decide? If you get a verbal yes, you can’t give that space to another investor and thus more of the round is now ‘earmarked’, ‘spoken for’ or ‘wrapped up’.

For example, say you’re raising $500k and currently have $150k committed. When talking to a new and interested investor, Investor-A, you ask their usual check size, which is $100k. Next, ask if they want you to hold that space for them while they decide, as the round is filling up. If Investor-A says ‘Yes’, then going forward you can’t offer that space to any other investors. Thus, your round is now half full.

Maybes are worse than Noes

One of the hardest parts of fundraising is hearing noes. Your fear of these noes can hinder momentum. All great companies get a lot of rejections during fundraising and being willing to push for a decision will actually help your process. Leaving a potential investor for weeks in the maybe column will almost certainly result in a no. Follow up regularly with updates but don’t blast everyone with fake success to push for an immediate decision.

To avoid hassling a deciding investor without cause, your follow ups should be focused on good news. Provide updates on new investors, or reservations, in the round, customer wins and product launches. At the end of each email you can ask if they’ve decided or need anything else. Eventually, you have to give a deadline to avoid dragging out the conversation too long. Even if that leads to a ‘no’, it’s still progress.

Hi Joe,
Wanted to quickly share some great news, the team closed Hooli today and the contract should be signed next week. Let me know if you have any questions or if you’ve come to a decision?
Thanks
Ash

Raising money for your startup is a grueling test for any founder but it gets better once you have momentum. Making use of these strategies makes it easier to get started and increases your chances of getting the round you need.

Thanks to Duncan Davidson, Pejman Nozad, Mar Hershenson and Kaego Rust for reading drafts of this.

Cofounder & CEO @SendHub (Cameo Global), Faculty @AlchemistAcc. Alum@YCombinator@UniofOxford. Prev: @Klout (Lithium), @OneRiot (Walmart). IG: ashrust

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