The Human Side of Venture

A new month means a new guest host for the Kauffman Fellows Podcast: We are thrilled to have Mo Almeshekah (KF Class 25), Founder and Managing Partner of Outliers Venture Capital, leading inspiring conversations this month. As an entrepreneur, cybersecurity aficionado, and investor, Mo has done it all.

For the first time in history, venture capital is more constrained by talent than by capital. Both founders and VCs are making decisions based primarily on the people, the teams, and their relationships. In Mo’s miniseries, “The Human Side of Venture,” he explores and unpacks the human side of the VC industry. Throughout all six episodes, Mo and his guests dive deep into their personal best practices that have helped them differentiate themselves, build their networks, and develop deep and trusting relationships that are beneficial to both themselves as investors and their startup founders.

Mo’s first two guests are Duncan Davidson, General Partner at Bullpen Capital, and M.G. Siegler, General Partner at GV. Together they discuss the rollercoaster that is founding and investing, the advantages of knowing what your strengths are, and how good communication is vital at every step of a founder’s career. Catch each episode below or on iTunes, Spotify, and Anchor.fm.

This season of the Kauffman Fellows Podcast is produced in partnership with Mighty Capital. Together, we unravel what truly makes a great VC investor.

Bullpen Capital General Partner, Duncan Davidson, on Managing People and Personalities When Investing

This week on the Kauffman Fellows Podcast, Mo Almeshekah (KF Class 25) speaks with Duncan Davidson, General Partner at Bullpen Capital, as they dive into the benefits and characteristics of fast learning, how to manage expectations when investing, and how to empathize with the struggles that founding CEOs face.

Tune in and catch some of our favorite soundbites below!

https://open.spotify.com/episode/1V1keTp9T37vxu13mjm6pC

On how to coach investors to assess and evaluate the human side

If you’ve walked the walk, it’s easier to empathize. An understanding of the struggles that founding CEOs go through is also vital.

“We started at Bullpen Capital with a culture of being founder-friendly. We had all started companies. Collectively 10 or 11 between us. We’d been on the other side and knew how to deal with VCs. Part of the problem you have in a fund is over time you see this Gaussian curve of situations, positive to negative. You tend to get very concerned if you start seeing the negative and try to guard against it. Culture can be moved by experience to be more callous, more decisive, and almost meaner. Because we started with a founder-friendly, we-used-to-be-there culture, we’ve never gone that far.

We find that over the course of being a founder or being a CEO can be very lonely. The CEO might start with a group of co-founders and their friends, but eventually, they have got to make some tough decisions, often against the interests of the co-founders. We try to position ourselves to be the trusted adviser to that person, particularly through difficult times.”

On how emotion relates to founders and investors

Founding a company and investing in them is a rollercoaster of emotions.

“When I was doing startups, the highs were really high, and the lows were really low. There are times when you’re about to run out of money, and you want to go into your credit card to keep the company going. You’re at the very edge. Suddenly, you get saved. That’s the low. There are times when you launch something that doesn’t work out as you expect, and you’ve got to reshuffle the deck. That’s a low. Then there are highs. Not just going IPO, but scoring a really big account and growing really fast.

A lot of times, a founder goes through a learning cycle. They think it’s easy. They’re going up a positive move, they know how to do it, and suddenly it’s not working. Then they go mentally down what I call the valley of death. They go down to the bottom, and they don’t know how to get out of it. They don’t know what’s going on, and they’re losing control of their company. That’s the moment when you get to the bottom of the valley of death because you were overconfident at the top. Getting through that is everything. That’s when we have CEO coaches to help people through the valley of death and see the way forward.”

On how founders and investors handle expectation management

Communication is the key to expectation management.

“Often, for a VC, you invest without full knowledge. You get a better understanding at the first or second board meeting. Then you know if you made a good or bad investment because you’re going to find out if you are in misalignment with the founding team. Getting into alignment is extremely important. Otherwise, you diverge in expectations, and the founder lives up to the wrong expectations.

It’s incumbent upon the VC to take charge of that, not the founder. The investor has to let the founder know when they think they’re out of alignment on the direction. At that point, the founder has got a key decision to make. The decision is, they know the business better than the investor does. They’re the one that has the right direction, not the investor. Then it’s the founder who needs to stand up to the investor and convince them that’s the right direction to go in. If you can’t come together, things are just going to diverge.”

On the determining characteristics of fast learning

From the initial pitch meetings, investors must be able to identify a founder’s learning style.

“In a way, part of what you do when you get pitched is viewing what’s coming at you like an intelligence test. For example, no company ever hit their business plan. They either massively exceeded it or massively failed it. The process of walking through the business plan, the numbers, in particular, is an intelligence test of how well the founding team understands their business. Then you look at what their learning style is. If it’s to bluff, they’re going to fail. They’re going to fail because their learning style is pugnacious. It’s not experimental or philosophical. They get stuck.

You can talk about founders being persistent or breaking through brick walls and all that, but that process is not one of being stubborn. It’s a problem of trying to figure your way through the brick wall as fast as you can. The stubborn founders banging their heads against the wall gets bloody. The agile founders find a way to go around the wall or pull the bricks out but get through it cleverly. That’s learning style. You can usually see that pretty early on.”

Listen to the full episode above on Spotify or over on iTunes.

GV General Partner, M.G. Siegler, on Being a Supportive Investor

In the second episode of Mo Almeshekah’s series “Venture is Human”, he spoke with GV General Partner, M.G. Siegler. A writer turned investor, M.G. shares how knowing your strengths allows you to assist founders, the characteristics that make a good investor, and how he’s honed the skill of storytelling and communication.

Tune in and catch some of our favorite soundbites below!

https://open.spotify.com/episode/2EG1lIuWCKml8EGyRr2VpF

On having a desire to live by the success of others in VC

As a VC, a company’s success is your success. That’s easier for some than others to swallow.

“Coming from TechCrunch, I was covering so many different types of startups and writing about so many different types of companies that it was sort of a natural transition to move to the VC side where you have the same dynamic of watching a ton of things. Though in VC, you’re more actively participating. You’re giving the company capital, and hopefully more than that at the end of the day, but you are more actively participating than writing a story about them. It’s not something that I ever had an issue with moving to the venture side of things. It was more natural because, on the writing side, I had been living vicariously through these startups.”

On being an investor that’s in the founder’s corner

Knowing the value you provide can go a long way to supporting founders.

“Where I like to spend my time, and where I do think that I provide more value, is at the earlier stages. That’s right in the sweet spot where I would ideally like to be involved with the company. I’m not involved as an employee of the company or someone who’s a founder of the company, but I am at the call of these other very early-stage companies. Whenever they need me, I’m a text away or a Slack message away. I’m happy always to hop on, hash through some ideas, talk through anything, or help them with whatever may pop up.

That is easier to do at the earliest stages. It’s also more required at the earlier stages because these companies have smaller teams, and it might be a founder’s first time starting a company. My decade of doing this has enough data points to help point them in the right directions. I like to operate where I think I provide the most value to entrepreneurs and the startups themselves.”

On the importance of communication and storytelling

Being a good communicator is necessary at every level for founders, which is a skill that Siegler has honed over his career.

“The narrative is a critical part of a company. It’s not just a press release, an announcement of funding, or a statement of whatever the product is. It’s a slew of things, including internal communications, communicating with investors, a pitch deck. The narrative is used to convey, in a succinct way, the story of the company and a future vision that an entrepreneur has for their company. Everyone sort of overlooks that part. They don’t think about how vital it is to the day-to-day aspects of the company. Remaining on point about what it is that you do and what your reason is for existing.

Suppose a company, founder, or entrepreneur is unable to do that effectively. In that case, they’re going to run into challenges not only talking to potential investors but talking to potential customers that they’ll be signing up. People who hopefully will be using their products. If you can’t convey what it is that you’re doing, it’s not going to translate well.”

On what makes a great investor

Never underestimate how powerful knowing your strengths can be.

“There are many types of investors. The thing that makes someone a great investor over time is knowing, and ideally getting to as quickly as possible, the place where your lane is. For myself, it was recognizing that I’m better at this job at the earlier stages. That’s where I enjoy working more, and I’m providing more value to the companies in those stages.

It’s very hard to jump into this world and know exactly where you’re going to be operating and where you should be operating. It takes years to do it. The faster, the better. What makes a great investor is someone who as quickly as possible recognizes their strengths and can narrow in on utilizing those strengths to invest in companies that can also leverage those strengths.”

Listen to the full episode above on Spotify or over on iTunes.