247. Leaving Kleiner Perkins to Start Defy Partners, The State of Venture in the Bay Area, and Maintaining a Beginner’s Mind (Trae Vassallo)

Full Ratchet Trae Vassallo

Trae Vassallo of Defy Partners joins Nick to discuss Leaving Kleiner Perkins to Start Defy Partners, The State of Venture in the Bay Area, and Maintaining a Beginner’s Mind. In this episode, we cover:

  • Can you talk about your transition from Kleiner Perkins?
  • How tough was that decision to make?
  • What was it like to work with John Doerr?
  • What’s the thesis at Defy Partners?
  • When you began Defy you chose not to look at San Francisco. Can you talk about why that is?
    • How do you think this plays out? What will tech and venture in the Bay Area look like a few years from now, when COVID is behind us?
    • Any stats on flight of talent form Bay area to other cities/regions?
  • What changes have you observed in venture/tech that this crisis has either caused or accelerated?
  • You’ve been a founder and can relate w/ the folks you’re working with. How do you try and keep that beginner’s mindset as you gain more experience and get further away from your founder journey?
  • What are some the biggest mistakes you see founders making when pitching investors?
  • What tips can you give founders around building relationships as well as pitching in a completely virtual environment?
  • You experienced a severe personal experience… near death situation a few years ago. How has that changed you as a person and as an investor?
  • 3 data points…
    • Let’s say you’re approached to invest in a consumer hardtech startup.
    • The startup is doing $1.5M ARR
    • It’s growing at 15% MoM
    • And LTV:CAC is 4:1
    • Catch is, you can only ask 3 questions for 3 specific data points, in order to make your decision. What three questions do you ask?

Guest Links:

Key Takeaways:

  1. It’s crucial to understand what the correct objectives and key results are when building a business. Alignment and communication on what matters and measuring the right things are foundational.
  2. Venture Capital is a services industry. VCs are in service to the entrepreneur, and it’s important to remember that they are doing all the hard work and that this is the entrepreneur’s life and dream.
  3. Defy Partners is a generalist firm investing in both consumer and enterprise. They see lots of parallels to consumer investing in enterprise and vice versa. Whether it’s building out viral loops or key infrastructure, the line between consumer and enterprise is beginning to blur.
  4. When companies have to go through budget cuts and hard times, they sometimes unlock incredible productivity. In situations with excess, resources can unintentionally be spent in areas that aren’t actually contributing. In some ways a couple steps back can help reset priorities.
  5. Companies under duress can also undergo a renewed focus on product. If buyers aren’t there and customers aren’t calling, it forces teams to think harder about their product. Is there a way to make margins better? To make products self service?
  6. Metrics like capital efficiency should be measured against the market the company is disrupting. If operating in HardTech, the rewards may justify some of the capital efficiency risks involved.
  7. Defy Partners has a Sage Program that brings in active CEOs, investors and operators to help with their portfolio. Defy’s sages are like venture partners with a twist; they all have active roles outside of Defy and are thus in the flow of their domain and close to the ground.
  8. In order to keep a beginner’s mindset, Trae enjoys testing and beta-ing products. Approachability and authenticity are crucial when speaking to founders about their business. Understanding their language and their product, helps give context when evaluating a company.
  9. When pitching a company, one of the keys is to make it memorable. Establishing a personal and emotional connection helps your audience remember.
  10. One of the other keys is to nail the ‘Why you?’ and the ‘Why now?’ question. What is the authentic story of what led you to this point, and why is now the right time? Understand that no idea is new. Why will your team win? What is now possible that makes this opportunity so attractive?
  11. During a pitch, rather than explaining and going deep on a technology, demo it. If a picture is worth a thousand words, a demo is worth a million.
  12. It’s no longer enough to just have strong technology. Technology has been democratized, so it is no longer enough. A product needs to have crystal clear value to the end user and needs to prove that it’s solving the problem in the most elegant and efficient way possible.
  13. If at all possible, Trae prefers to have a safe meeting with the founders before investing. Pre-COVID, Defy would go into the founder’s office for the partner meeting. By watching the team interact with each other and by seeing the founder in their own domain, Defy is able to really understand the team.
  14. The best investors unlock a founder’s potential. They ask good questions, apply pressure and encouragement where needed and support them throughout their journey.
  15. Trae practices ruthless prioritization. As a VC there are always a million things that she should be doing and at times, it can be tough to determine what really moves the needle. And not just in work. It’s equally as important to spend time on things outside of work to build balance.