319. Investing Nerdy & Early, The Story of Auth0’s Seed Round, and Why You Shouldn’t Leave to Start “The Right” Company (Sunil Nagaraj)

In this episode we cover:

  • Sunil’s Transition from Bessemer to Founding Ubiquity
  • His Thesis of Software Beyond the Screen
  • Why He Invests “Nerdy & Early”
  • How Auth0’s Seed investment came from Prepared Hands
  • Customer Discovery vs Customer Research
  • Maslow’s Hierarchy of Pitching

Guest Links:

The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in the exceptions.

To learn more about New Stack Ventures by visiting our Website and LinkedIn and be sure to follow us on Twitter.

Want to keep up to date with The Full Ratchet? Subscribe to our podcast and follow us on LinkedIn and Twitter.

Are you a founder looking for your next investor? Visit our free tool VC-Rank and tell us about your business. We’ll send a list of possible investors right to your email’s InBox!

Transcribed with AI:

Sunil Nagaraj joins us today from San Francisco. Sunil is founding partner at Ubiquity Ventures. Ubiquity has led investments in Esper, Halter, Loft Orbital and Parallel Domain amongst many others. Prior to Ubiquity, Sunil led the Seed and Series Auth0, RocketLab, and SPIRE while at Bessemer. Sunil, welcome to the show.

Thanks for having me here.

Of course, it is always a pleasure to chat. Very excited to get into some of these details today about ubiquity. It’s definitely a different model with a different approach and excited to hear more about it. But can you walk us through your background and your path to Vc?

Yeah, I’m happy to tell you, Nick. So I have been a VC now for 11 years. And my path to venture capital started as being just a technical engineer, nerd love code, love anything sciency along the way, from as young as I can remember, I have a five year old daughter now and we spend a lot of time tinkering around with things in the same vein, but I attended UNC Chapel Hill in North Carolina studying computer science. I worked at Bain for three years leading up on kind of business concepts, but secretly nights and weekends, I was still doing a ton of coding. For a few years, I ran the number one interesting fact website in the world, which I coded up in Pearl, MySQL, and a few other things. So did that on the side, when the Bane business daytime work, didn’t stroke the nerd itch enough, I went to business school at Harvard from 2007 to 2009. And it was actually the summer of 2008. When I came out to California for the very first time, it was my MBA internship. And I came out to the promised land, the Bay Area, and I was struck by how technical everyone was, you know, walking down the streets of University Ave, in Palo Alto, you’d hear people talking just casually while they’re walking down the sidewalk about servers and clouds and gigabytes and things like that, which was amazing to me, I’d never been in that world. So when I graduated business school in 2009, I moved out to Silicon Valley, and I’ve been here ever since. So that was summer 2009. The first two years I did a startup, machine learning startup focused on online dating, we can talk more about that if you’re interested. And it was as I was shutting that company down after raising some venture capital in 2011. That’s when I joined venture capital. And I would say it was not a deliberate effort to joint venture capital, I was winding down the company trying to find places for my old employees to go. And in that process, I got pulled into Bessemer in 2011. So that was my path to venture capital. But along the way, I think the anchors were just staying close to technology, beating up on business concepts. And being a venture back startup CEO has helped me to prepare for venture.

And if you had to give a short summary on why that business didn’t work. And what would be the key reasons? 

I was captivated by trying to understand people and figure out what would be good for them, you know, algorithmic matching. And I think in certain areas, people don’t really want an algorithm. If I put five guys or five gals in front of you, you are pretty confident in which one you want based on your own internal algorithm. And you know, the rise of things like Tinder and sort of totally visually focused dating sites. So I think that the company was called triangulation 2009 to 2011. I think it failed, because we were focused on algorithmic accuracy machine learning, the highest fidelity recommendation, as opposed to giving you lots of choices. And I think there are certain areas where machine learning is good, and recommendations are good. And there’s certain areas where people just want to be on their own and sort of have their own sorting out mechanism themselves tops.

So Sunil, you had quite a run at Bessemer. Investing in Auth0, Rocketlab, Spire. To a certain degree, these were successes by the time you left and subsequently have become enormous successes. Curious, how did you make the decision to leave? And what was the inspiration behind Ubiquity?

That’s a great question, Nick. So I was at Bessemer, from April of 2011, until July of 2017. So a little over six years. Bessemer was a fantastic training ground for learning about venture investing. Bessemer invests at the seed stage investor at the series D. So all up and down the gamut. And as a really high volume investor in the sense that just about every week, there’s a new investment at Bessemer. So it was really a great place to learn from some of the best investors in the world. And the best summer approach is categorized as one that’s roadmap driven, where we would think about a new area, learn everything, we could write out a physical roadmap of how we think the sector is going to evolve and then start to find companies along that set of milestones we think will happen in the industry. So that roadmapping process was critical to Bessemer at Bessemer. Every summer, all 50 or so investors, we’d get together every summer for an all hands meeting. And usually two or three people would present new roadmaps, so I can tell you at Bessemer for those six years, I presented a roadmap every summer so the most prolific new idea guy at Bessemer wizard Are the presenting roadmaps and they included augmented reality space developer tools, Internet of Things mobile for deskless, workers, and space. And so these are all new areas I was pulling into the firm. And so some of the investors, let’s say that the folks who are focused on growth, aren’t looking for nascent new technical areas, I was always obsessed with nascent new technical areas. So as you ask about starting to leave for thinking about leaving, I started to realize that I wanted to devote all my energy, not just a portion of my energy to seed precede early nascent new nerdy technologies, but applied the discipline of a big firm, the investing discipline of not getting captivated with dreaming new technology. So as I made investments in things like Rocket Lab or rocket going to space Spire, a satellite constellation, fellow 3d Metal 3d printer tile, the lost and found, I started to see trends were these companies that felt very risky to the average VC, I didn’t feel that was the case, because they were actually software companies underneath it. Rocket Lab looks like a 10 meter tall rocket, 20 meter tall rocket, but when you dig into the technology realize that they operate at the pace of software, because the most important component, their electric turbo pump runs lines of C++, and they’re able to use Agile and Scrum. So that realization Rocket Lab was one of the biggest inspirations for me wanting to leave and start Ubiquity was Rocket Lab kind of convinced me and these other companies convinced me that there’s an opportunity here where something is misunderstood in the market. It’s a nascent technical trend, and I could really pursue it with 100% of my time, if I were to launch my own firm, Ubiquity Ventures.

Awesome. So yeah, give us the broad strokes on your thesis stage, check size sectors and categories and whether you lead or not.

So Ubiquity is predicated on three core ideas. Number one, that software is moving beyond the screen, that’s a really vague statement or a precise statement, depending on how you look at it. I think that software in a computer or using a mouse, and a keyboard has had a great run. This includes SAS, by the way, software on a mobile phone is pretty darn cool. It created new companies. But we’re kind of done with both of those, we’re ready for the next phase of software, where it jumps off of the screen into the real physical world understands the real world around us navigate some real world dense is the real world. And so ubiquity Ventures is so named because of ubiquitous software. So the thesis has to do with that technical trend, it usually manifests as two core sectors, smart hardware, or machine learning powered businesses that are focused on solving business problems, check sizes, one to one and a half million, usually leading seed or pre seed rounds. Typically, the company’s back have one or two or three people working at the company, usually just co founders. And they’re somewhere between zero and six months old, maybe a third of my investments were made the data companies Incorporated. So really trying to find high potential teams at the very beginning of their journey and help them like crazy. As a result, my model is really to focus my energy just on the seed runway, when I help a company raise a Series A, I’ll usually step back my involvement, so I can focus on the newer seed investments. So one of the highlights, though, is that because of this focus, the companies that I back at the seed stage, learn how to be series al ready companies pretty early on and they succeed at doing so at a much higher rate than the industry average, something like 90% of the companies where I lead a seed round successfully raise a top notch series. And I think that harkens to a lot of the Bessemer training as well as a tight focus on helping just a certain stage of company.

Yeah, I’ve heard that you’ve described your strategy as nerdy and early. Does that mean that predominantly These are technical teams? Or what does this mean?

Yeah, I see that expression nerdy and early about 100 times a day. And I think it’s cute, it’s kitschy, but it’s also totally true. So I will not invest in a company unless I understand just about everything about how the technology works. And I think that is all too rare in seed stage venture capital. Because I’m investing in companies that usually haven’t launched their product. I’m not looking for revenue, I’m not looking for customer usage. I’m looking for those earlier signals that this company is predicated on a trend that I understand and believe in, and that these people I’m backing are experts in that trend. So as a result, I you know, try to immerse myself in these technologies, whether that’s reading textbooks, watching videos, coding myself, on a regular basis, I want to stay nerdy, something fun I like to do, but it also helps to be a better nerdy and early investor. So these two things go hand in hand being nerdy is what allows me to go early. I like to say that Gartner reports are totally useless to me, right? That’s projecting a pretty mature trend. The 2035 projection of IoT devices is usually total BS and useless. What I want to do is I want to spend an hour with a group of PhDs from Stanford Robotics Lab. Right. That’s my Gartner report is nerding out with technical people to understand the latest trends. So this is sort of foundational for Ubiquity Ventures.

Is there any challenge if the CEO is also a PhD, or is that typical?

I’ve invested in several, maybe a third of the Ubiquity portfolio. The co-founders are PhDs. It actually harkens to the general model of the kind of founder I invest in. I’m typically investing in first time founders who are deeply technical and because I’m finding them at the seed stage, I find they often go on the same journey. Over the next 12 to 18 months, and part of that is finishing out the product, figuring out how to set timelines and milestones that are more in line with entrepreneurial culture as opposed to academic culture, figuring out how they can successfully recruit employees and recruit customers. So there’s a few areas that are recurrent in my relationships with all my companies in the first 12 to 18 months. And so investing in PhDs actually works pretty well because they can kind of go to the same journey that a lot of technical founders do, whether they’re undergrad and Computer Science Masters or PhDs, backing nerds, almost exclusively allows me to have a pretty common coaching path over the next 18 months working with them closely.

Sunil, many investors are critical of deep tech investing, claiming it’s cool, but its capital intensive, has feature financing risk, and few exit options doesn’t make money. How were you able to overcome these objections while you were fundraising?

It’s a great question. Deep tech investing is kind of a subset of investing off the beaten path. And I think a lot of the answers to your questions just have more to do with breaking from the mold today feels like SaaS investing growth state SaaS investing is all the rage, all the kids on the soccer field are all chasing the ball. And if you’re going the other direction, you look silly, you look irresponsible, why are you running back to the other side of the field. And that can be because you’re doing sort of anything different, right? Everyone knows what a soccer ball is, you should go chase it. Now, I probably don’t need to tell you that, that compresses margins for growth stage SaaS, it kind of makes things more competitive people bid deals up, which ruins the and return multiple. So I think in general, I always want to be investing where others are not. And that’s easy to say. But what’s trickier is what you said people saying why are you doing crazy stuff? Are you sure that’s a good idea that feels a little too dreamy? Everyone knows space fails? Do you remember hearing about a radium losing $5 billion, you know, things like this. And so step one is decide you want to invest off the beaten path, develop thick skin and embrace the risk that very likely, you may look totally stupid for doing this in five years or seven years, right. And that’s the nature of risk, because there’s potentially more return when that happens. And I would race specifically with regard to space. I think that a lot has changed in space over the last 10 to 12 years. And most people and very much most investors who say negative things about the sector have outdated, fundamental notions of the sector. So I wrote a blog post, which I would recommend, it’s called Why We Must Never Forget to Keep Forgetting. And it’s a ridiculous title. But the core idea is that if we remember the lessons of the past two, well, we will never invest in sort of innovative new things. And I brought up the example of web van with groceries and everyone says how stupid it was to ship dog food. And then you have this company Instacart come out, and it’s a fantastically successful company. Now, if you remember web being too much, you wouldn’t have never done Instacart. And so it’s space, there were a lot of failures in the past in the space sector, and the world has changed a lot. You know, to be really precise about it. Low cost commodity consumer electronics can now be used in space, they won’t last very long in space. So you launch multiple satellites, and you build resiliency through a multiple satellite constellation as opposed to $1 billion satellite, you can have 10 $1 million satellites. So it’s still a 100x decrease in that cost. And you end up with even more flexible solutions over the air updates, shorter lead times for launching satellites. So I think the lesson here is if you’re going to do intrepid investing, where people think it’s a little bit silly, you want to make sure at least a core principles are you do your homework all the way down to first principles, and you understand what’s changed why it’s changed. And that’s how we were able to find companies like Rocket Lab, Rocket Lab, to repeat some of the core premise, you know, they have the world’s first electric turbo pump driven rocket that removed one of the most complicated parts of a rocket. Normally, it’s a physical turbo pump. I won’t go into detail while it’s so complicated, but it effectively puts like a Tesla style electric motor at the center of the equation. Rocket Lab uses that to be able to launch a rocket to space for maybe 1/10 or 100th of what a typical rocket company takes to get to space. So very rough numbers, you know, a new rocket might cost five $10 billion of r&d to design, build, launch, Rocket Lab did it for about 100 million. And that is a gigantic deal. But if you listen to lessons of the past, you would never investigate it closely enough. Now, Rocket Lab we invested when they had one engine that turned on for two or three seconds. Now they’ve been to orbit delivering commercial payload, like 30 times public company. So I think this is an important piece of the puzzle is to do things that are different research down to first principles, and once in a while it will pay off well, but I feel like that’s a much more interesting way to invest than chasing all the other folks running after the soccer ball.

You know, Sunil quite a few folks who’ve been on the program over the past eight years, incited timing as the thing that they get wrong. How do you factor that in when you’re doing a lot of deep tech, new businesses and new technologies?

Timing is tricky. Luckily, as venture capitalists we get to make a dozen or two dozen bets in each fun. So we have some buffering from that but nailing the timing for me comes down to trying to be deep connected to focus on the ground in a sector to understand the exact date of the technology, and having some discipline about not getting too enamored with technology. So let me go into those one by one. So if I were to read reports, or have just read the news, a general news about quantum computing or something like that, I might get excited about it dig in, say it’s time to make a bet. That would be totally different than spending time with 10 different technical experts in quantum computing, going to their research talking about how it’s developed over time and using that to pin down the exact state of the technology and how ready it is for growth to inflect. Or how ready it is for it to be commercialized. And I prefer the ladder, modular COVID. Every month or two, I have a group of technical people over to the house, whether it’s Stanford PhD robotics lab, or a computer science club at Berkeley over my house for pizza and beer, or wine and cheese and will nerd out on technical topics. And this is a really critical input for me to understand the state, the timing of any given technology. Now, the second piece of it is, as a nerd and backing nerds, it would be easy for me and my founders to get enamored with the technology, or let’s say ambitious, of course, we can make this work, or this is so cool. It’s so crazy, you know, like to get too deep into the tech. And I find that it’s really important for myself and for my founders to once in a while turn off the nerd switch, and just be business folks and be hard nosed and say you know what, this isn’t going to work, let’s cut it off. Or let’s dial down the product, right? Most engineers would love to build a more feature rich product, or would love to take it to the next level or build a more technically impressive product. But very often the answer is to, to lop it in half and just nail the piece that you can do. So I actually think problem selection and sizing down a product is a critical piece in deep tech, the long way of saying, I think to be a good deep tech investor, you actually have to be pretty good at cutting off dreams once in a while, right? Shrinking things as opposed to being more ambitious.

Interesting. Can you give us a sense for you know, the way that you work with your portfolio companies post investment, it sounds like to a degree it’s hands on? Is there a regular cadence beyond just the typical board meeting?

Funny you say typical board meeting because most seed or pre seed investors I know in 2022 Tell me that doing board meetings is a waste of time for the entrepreneur and for the investor. And I completely disagree with that idea. We do have monthly board meetings for just about every one of ubiquity, his portfolio companies. And then in between, we’re trading notes on like, every day or week texts, emails back and forth on input on recruiting and put on product and put on customers input on cash management, fundraising. So it kind of runs the gamut of just a seed stage set of issues, which is build a team finish the product and get it in front of excited customers. And I’ll try to help as much as possible with those areas in a pretty hands on way. You know, looking over financial models for many of my companies, I’ll craft the first pitch deck draft, I’ll make their VC fundraising lists for the series A and guidance the process. One of the founders, I backed jokingly said that while he was fundraising for a month or two, he talked to me more than he talked to his fiancee. So there’s that hands on level of interaction. And I think it produces great results when investors just focused on a particular stage. I could not do that for series ABCD. But when it’s just a seed stage, I can offer exactly the kind of help that these kind of founders need

Sunil, back when you were at Bessemer, you made the seed investment in Auth0. As we mentioned before, a company that ultimately sold to Okta, for 6.5 billion. You said that decision came from a prepared mind with prepared hands. Can you take us back, talk us through the story? And then also tell us what you mean by that comment?

Of course. So it was July 2014, when at Bessemer, we invested in Auth0, the way that I met that company, you know, there’s a little bit of a lesson there. I was at South by Southwest and met a few 100 people while I was there, you know, at events shaking hands, this that the other. And rather than say that I was an enterprise investor, or something vague like that every person I met, I said, Hey, I’m investing in security in Developer Tools. That was my focus at the time. So this gets back to the benefit of being focused security and dev tools was specific enough that one of the hundreds of people I’ve met said, Oh, I know the perfect company. They are a security dev tool, right? They actually merges those two things, and said You should meet. So I met with John Gelsey, Eugenio Pace and Mateus Olasky in Seattle, and in that first meeting, this is where the prepared mind versus prepared hands comes in. We started the meeting, you know, the first two or three minutes were like a typical pitch meeting, you know, they start to introduce themselves, they start to flip open their slides. And then as they were starting to talk about what they do, which is to abstract identity, so more developers can kind of focus on building the product as opposed to building the identity layer. I asked a technical question. I remember from my time at triangulate just a few years before having to write something and hashing the passwords, doing two factor authentication that forgot password and asked one or two takeover questions. And as soon as that happened, the whole pitch meeting flipped. It was no longer about entrepreneur pitching a financier, you know, making it sound fancy on purpose. If it wasn’t like uptight, financial pitching, it was for nerds. nerding out together, you can see their shoulders dropped, they opened up more they realized it was an Engineer To Engineer conversation. And when I say prepared mind versus peered hands, I’m trying to summarize that I think it’s very invoke among venture capitalist right now, to say that we are prepared mind investor, which is a version of the roadmap idea that before you meet a company, you learn about a sector. Now, what I’m contrasting that with this prepared hands, actually putting your hands on a keyboard typing in a terminal window writing lines of code to do identity, it changes the dynamic of that pitch. When it’s an identity company, I’m kind of highlighting the emotional connection, the the openness and frankness of that first pitch meeting. But it also benefited because it means that within one hour, I don’t know we went three times as deep as a typical pitch. They didn’t hold anything back, I felt like I was getting more transparent information. All of that manifested in the fact that within seven calendar days from the first meeting to final investment approval from the Bessemer, partnership, you know, 20 page investment memo, I think it’s public on the web. And that was important to have the context prepared mind but also prepared hands to be able to quickly dig in quickly, impress them, have them impressed me understand their technology, talk to customers and move through that full investment process, which usually takes at a big firm, you know, a month or two to do it quickly. And that’s where we were able to leave the seed round. When it sold Aqua for six and a half billion I believe Bessemer was the largest shareholder because we let the seed and we led the series A so I joined as a first board director in July 2014 and stayed on as investment director until July 2017. When I left Bessemer.

Amazing, you know, as an investor, one must be enormously excited about every investment we make, otherwise we wouldn’t do them. Was there anything different about Auth0 or Rocket Lab or some of the other big successes? And if so, do you now seek that out in new investments?

Yeah, very much so. So talk about Auth0 and Rocket Lab and apply it to a more recent investment of mine with Auth0 July 2014. You know, sitting down you Hania was in the room there you end on Mateus had literally written the book, the Microsoft book on identity LDAP Active Directory was written by you honey on Mateus, like five years earlier, when you talk to them, and you talk to him about startup stuff. They’re like pretty excited you talk to him about identity and Active Directory and authentication protocols are isolated. Right? Like this is for me if you talk to me about nerdy topics, but if you’re talking about like ceiling or piano or astronomy, the eyes light, right, those are things I love. And so that’s a critical piece of puzzle. It’s hard to fake. So I’m always looking for somebody who has years and years of authentic connection to domain. And with Rocket Lab, Peter back the founder CEO of Rocket Lab, he built his first rocket at like 12 He has a 15 year kind of journey building rockets that are called sounding rockets suborbital rockets, before we met him and decided he wanted to go orbital, which is a much much, much bigger problem. But you talk to Pete about rockets and sort of the innards of him in his eyes light up. So that is a critical piece of the puzzle. I’m less a fan of founders who sort of stumble upon a problem and want to find the opportunity as an outsider. I think that personal connection results in skipping some landlines and having a more empathetic discussion with potential customers. So if we fast forward to ubiquity, launched ubiquity, in July 2017, in May of 2018, I invested in the seed round of halter halter is a company that turns cows into software. It’s an operating system for a dairy farm. More specifically, a typical farm in New Zealand where the company is based has 500 dairy cows. When you install the halter collar, you put the halter collar on all of your dairy cows, each of the 500 cows, you now can manage your dairy farm. Using software, you pick up your phone and you move your finger on your phone and cows move in the real world. This allows you to write code for your cows. We jokingly call them Calgary rhythms. But this creates digital fences and allows you to digitally shepherd them back and forth. Now, to your question. When I met Craig at il fornaio. in Palo Alto for breakfast, we started talking in the first five minutes, you could see his eyes light up when he was talking about cows when he was talking about PCBs, when he’s talking about Laura connectivity. He could run the gamut up and down and, and a critical piece was he grew up on a dairy farm, his family still owned a dairy farm. And for 15 years he had been working on it. So it was this authentic connection of the problem. And this energy and enthusiasm for the domain that I think is so critical. And that’s been a hallmark of the best investments I’ve been loving. 

So while we’re talking about sort of these initial founder meetings, love to hear your thoughts on the pitch, you’ve created this hierarchy of pitching. You’ve published some articles about it seems like a very different and novel approach to thinking about pitching to investors. Sunil, can you give us an overview of the ground rules for pitching?

Of course. So if anyone is interested, I think it’s called Maslow’s hierarchy of pitching is the nickname for the blog post. You could Google that. And it’s clearly a reference to Maslow’s hierarchy more generally. I think that the reason I wrote that post is really because you can’t jump levels in the hierarchy of pitching the same way you can’t jump levels and Maslow’s hierarchy, you can’t worry about self actualization until you’re warm and have a full belly, right. And that’s why it’s a hierarchy. It’s a pretty strict hierarchy, it’s ridiculous to try to worry about another level before you get the basic ones met. And I think in pitching, what often happens is you can start talking about how big the idea is, before you’ve explained what the product is. Or you’ve before you’ve gotten your zoom turned off, if that makes sense. So so on the hierarchy, you know, it sounds extremely remedial, perhaps even condescending, but I’ll say it because it comes up all the time, the base, the foundation of the hierarchy is to have a professional shared space, that means you arrive on the zoom on time you get the right link, your laptop has power, your cameras turned on, things like that, when they get in the way, they just ruin the rest of the pitch. Now, in theory, Nick, you and I are smart enough to see past that, but it’s very annoying, right? It’s objectively annoying to understand a company and then it doesn’t convey that future sales pitches to entrepreneurs doing you’re going to be professional either. So that’s the first piece is doing the Google Maps in advance to get to the VCs office or get to the coffee shop on time, things like that. The next piece is where I recommend people start is a basic understanding of what the product is specifically, just to say it in very simple words, as if you’re talking to, let’s say, my sister, right? So my younger sister is a doctor, she’s a pediatrician doesn’t know a whole lot about how technology works. So if you were to pitch it to her, how would you communicate it, you would not, say, a collaborative synergistic API driven SDK, right? Like you would just never say those words, you would say, this is an app that helps you find someone to walk your dog when you can’t walk your dog, right, like a really simple solution. So I find that that simple description, this is the single biggest mistake I think entrepreneurs make is not communicating exactly what your product is, in the first, let’s say, 30 seconds of a pitch far too often, I’m 45 minutes into a 60 minute pitch. And I still don’t know what the product is. I’m just waiting and waiting. I’m hearing the backgrounds of the founders. I’m hearing about the trends I’m hearing about the Gartner reports, I’m hearing about the future of the company, but I just want to know what the hell the damn thing is right now. And so in the blog post I mentioned, you know, don’t use the word synergy collaboration or platform in the first 30 seconds, just kind of see what it is. And later, it’s about two or three levels up higher in the hierarchy, then you can convey the dreamy future, right, so So really, you know that the corollary is develop a shared space, have a basic understanding of what the hell the product is, then start to build excitement. You either communicate why you think it’s exciting, or better yet, why prospective or current customers think it’s exciting. And then touch on greed, you know, how can this get so big? You know, at the end of the day, our job is to grow money. And so how quickly can this company grow? And then finally, where’s the dreamy future? What motivates you to chase this? So I think sequencing of the whole point of the post is that the sequence of that is critical. If you flip it around backwards, you can often miss people completely miss the pitch.

I love it, because we’ve seen so many posts on what slides are necessary. But I think you cut through to the feeling of the receiver, right the investor? And if the investor doesn’t go from comfort, to understanding to excitement to desire, then you’re not you’re not going to get the desired outcome. Sunil What, in your estimation, what are the biggest mistakes that you see founders making during their pitch? 

So one of them is communicating exactly what the product is. Number two, I think it’s very understandable. Maybe poor answer your question, offer context, I pitched Triangulate about 100 times before I got a yes, when I was a seed stage entrepreneur, so I have a direct and even painful memory of all those pitches to all these annoying investors. So I know what it feels like myself, because it was not that long ago. And so I think one of the more common mistakes is thinking about the pitch. As I know how I thought about it, I was putting my life on the line asking someone to judge me. And if I didn’t get a yes, it was a failure. And I think that’s completely the wrong way to look at it a pitch, I would think about it more as a honest conversation between two humans about a subject to see if there’s a fit, right, that’s like totally different. It’s not like you’re going up to a guy or a gal proposing to see if they love you and want to get married. That’s not what the first pitches, eventually it starts to approach that, by the way, after three or four meetings, but the first pitch is to see if you like them if they like you if they follow what you’re doing if they have interests. And so what that means is you can look at a pitch, as did I get some interesting information out of the VC over the course of the pitch, you know, new ideas for product, new metrics, I should be focused on maybe some intelligence about the competitive landscape, you know, what trends are coming. And I think that can relieve a lot of the pressure on the pitch. If you don’t have that, then you if you have too much pressure on the pitch, then it’s the second mistake emerges where entrepreneurs are very adherent to the sequence of their slides and won’t deviate or go off script at all. Hey, I don’t want to answer your question. Let me just get back to my slide, right, which misses the point, the point of the pitch is not to go through your slides. The point of the pitch is to get to know somebody and see if they warm up to your idea and eventually want to partner with you. And then maybe the third mistake is many folks look at the pitch as an atomic unit where you should have a yes or no at the end. As opposed to if it’s a no you should do a no right and maybe 90% of the pitches I take in the first pitch I’ll say no, but the yes we’ll take two or three meetings. So you don’t have to spit everything out in the first 30 minute pitch or the first 60 minute pitch, I think it’s this notion of warming someone up to the idea of warming up their partnership did it over two or three meetings that can occur over five days, or it can go over, you know, five weeks or longer. But that can also relieve a lot of the pressure from that first 30 minute meeting.

To your point on establishing fit, I mean, that takes a lot of the pressure down, I’ve got to share this email I got yesterday from the founder, and this is just over email, never met this person in my life. We had passed, it wasn’t a fit for some thesis reasons, basic thesis reasons. He replied, I looked at your thesis, and we are a match. If this is not a fit, you must surely be looking for potential unicorns that will breed fire like dragons. In that case, I wish you all the best of luck in finding your dream startup to invest in.

Yeah, I mean, it, it hurts as a founder to get rejected. But I think it requires maturity to realize that it’s going to take a lot of meetings with regard to that particular email, you know, that’s not somebody you’re gonna back like ever, right like that, that kind of emotional response. And I think many entrepreneurs listening to this will take some solace in the fact that you and I pitch to LPs, right? Like, the money doesn’t just show up magically. So we go on the road, and we pitch to LPs. Sometimes LPS don’t respond to us, sometimes they lead us on and leave us at the altar. You know, like, we don’t unfortunately, VCs don’t talk about our fundraising as much, but we go through some of the same issues as them. And it behooves us to be professional to look at it as a fit conversation as opposed to a you know, immediate marriage. I get some of those kind of same feisty emails. And it’s um, it just basically means we’re never going to partner ever. Right, right.

Right. Yeah. Yeah. A lot of entrepreneurs don’t quite realize that dynamic hearings, we as a firm here in New sec, we have over 100 LPS at this point. And that may seem like a lot of yeses, but what what it really is, is a lot more nose. Exactly. And so you know, you have to learn how to take the hits. Sunil any advice to someone considering taking the entrepreneurial plunge?

Yeah. So a lot of people I know will tell me that they would join a startup or start a company for the right idea, or the right company. And I think this word right is just such a red herring, it’s a misleading idea. It feels like there is a set of information you can gather, that will switch you from feeling scared to feeling confident. And that is a complete fallacy, right? I would say 100% of founders, I know, when they launched their company, they did not have all the data that prove that this would work, or prove that this would be a good idea. And frankly, the biggest exits, the data was the opposite. Because you know, I handed Twitch their series B term sheet, for example, Twitch up until Series B was Justin TV, which is streaming, you know, your day to day life with a camera on your back. That’s totally different than video games. So even if someone had done all the research made all the spreadsheets about live streaming your day to day physical life, they would have thrown out all that research in order to take the plunge and pivot the whole company to twitch, which, you know, ended up being a billion dollar exit to Amazon. So if you’re thinking of taking the plunge, you want to temper your expectations that you will have enough information for it to be a rational decision. I think it’s almost never a rational decision rational meaning there’s enough formulas and enough data that says yeah, you should do this.

To do this question is called three data points. I’m going to give you a hypothetical situation with a startup. And you can ask three questions for three specific data points. Let’s say your approach to invest in a seed stage hardware startup, let’s say smart hardware companies based in San Francisco, the sector is industrial IoT, they have an initial pilot with 10k of MRR. Again, the catches you can only ask three questions for three specific data points. What three questions you ask?

That’s a great question. Three data points. I guess it really hones in on my process. Maybe unsurprisingly, my first answer would be what does the product do? I would have to know kind of what solution what does it solve? What are the features, but like, what is the thing industrial IoT is not enough for me to get excited. So what does the product do? My second question would be: What did this customer this pilot customer do before meeting you? Because that helps me understand the context of how the Solution slots in it also helps me understand the alternative landscape. I want a competitive landscape. What’s the alternative landscape? May we use a pen and paper or we use walkie talkies, you know, it also helps me understand the addressable market in essence, this customer used a you know, million dollar clipboard so now the TAM out there is other companies using million dollar clipboards or maybe it’s like a three $10 clipboard. So there’s a lot more companies use $10 clipboards prior to meeting you. And then the third data point would be to ask about customer pipeline prospects, you know, is it at use to formal or advanced terminology like that’s a series B question asking about customer pipelines. I would just ask what other kinds of customers have you interacted with who Are you chasing? Who else has sort of like winked or smiled or replied to your email any level of early customer interest? So if I if I had a good sense of what it is, what was being done before, and then who else is out there that they’ve interacted with? That’s like, you know, I’m 80% of the way through my diligence.

Again, it’s me all if we can feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about?

One of my favorite LP’s is Chris Douvos of Ahoy Capital. Chris has been an LP, you know, very active LP for 20 years. And I would love to have him come on the show and talk to you more about venture funds, venture fund trends over time and sort of the quirky stuff that happens. Chris is a colorful guy full of fun stories. And I think he’d have a lot of really interesting stories to tell about how things have changed over the years and what he’s looking for now. He’s one of my most helpful LPs to offer that perspective. To me as an emerging manager.

He’s the best. And it’s been a couple years since we’ve had him. So we’ll have to get him back. Sunil, what do you know, you need to get better at?

That’s a good question. You know, venture capitalists, probably more than most people have a extremely low signal to noise ratio. That means that this year, I might meet 1000 startups, and I might invest in three or four. So if I could, what I would love to get better at is time management, specifically, quickly focusing my time on the things that are bubbling up. Startups, I can’t not meet the 1000 I want to meet all 1000. But very, very quickly, I want to reduce time on the ones that aren’t going to be a good fit for ubiquity, and devote more time to the ones that are. And so adjusting that skew all the time is a tricky thing to balance but critical for I think all venture capitalist,

Any hunches as to what some of those things might be that can help you pre qualify or pre filter more quickly? 

Yeah, I think Nikki and I are relatively nice, guys, I think there’s this nice person mentality of not wanting to say no to prematurely or not wanting to hurt someone’s feelings, or you know, and think that can often lead to like taking another meeting with an entrepreneur, even when you know, it’s probably not going to work. And I’m guilty of that, you know, far too often, which ends up dragging things out, it wastes my time and is wasting entrepreneurs time. So at least one thing I could do is to say no even quicker, when I don’t totally feel it. Because when you talk about making three or four investments out of 1000, I need to be almost physically jumping out of my chair in the first meeting. Otherwise, it’s very unlikely to work out. So I think unfortunately, there’s a dozen companies every year that get stuck in purgatory in my mind, where they’re like, they’re great companies, but they’re not the great, great, you know, the ones that I’m like talking to everybody about for the next couple of weeks right after I meet them. And I think that it’s actually really unfortunate, because entrepreneurs, you know, having been one, you know, get really excited and think it’s really close. But unfortunately, with venture capital getting really close to an investment is miles away from actually getting the investment.

And finally, here Sunil. What’s the best way for listeners to connect with you and follow along with Ubiquity?

Of course, I love when people reach out if you have a startup idea or start a company on a technical topic you want to discuss. I love connecting with nerds to hear about research or otherwise, my email addresses is Sunil@ubiquity.vc. If you want to hear more about some of the ideas I mentioned, you know why we must never forget to keep forgetting or the Maslow’s hierarchy. That’s all at blog.ubiquity.vc.

All right. Well, if you’re nerdy and early, your man is Sunil and he’s at Ubiquity. Thanks so much for the time today. I really appreciate the insights and all the backstory on some of the big hits that you’ve been involved with since the very early stages. So congrats on those and looking forward to hearing about many more.

Yeah, thank you, Nick. I really enjoyed being here.

Transcribed by https://otter.ai