Investor Stories 356: Lessons Learned (Rueckert, Tunguz, Rotman)

On this special segment of The Full Ratchet, the following Investors are featured:

  • Rob Rueckert
  • Tomasz Tunguz
  • Frank Rotman

We asked guests to tell the most important lesson they’ve learned in their career.

The hosts of The Full Ratchet are Nick Moran and Nate Pierotti of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.

Want to keep up to date with The Full Ratchet? Follow us on social.

You can learn more about New Stack Ventures by visiting our LinkedIn and Twitter.

Are you a founder looking for your next investor? Visit our free tool VC-Rank and weโ€™ll send a list of potential investors right to your inbox!

Transcribed with AI:

Welcome back to TFR on today’s special segment, we ask guests to tell the most important lesson that they’ve learned in their career. Here’s a segment called Lessons Learned.

On today’s special segment, we have Rob Rueckert of Sorenson capital. Rob Q tells a story highlighting a critical lesson that has changed the way you invest. Yeah, it

was the very first company. What one of the first companies that I worked really hard to get into this, this industry, I told you, I started as an engineer, and it’s not a natural path to go from engineer to investor. And so I did all these steps to get into my investing career. I had just started making the first few investments. My employer trusted me to actually make some some investments. And I remember one investment, one of the very first investments I made. I made the investment really because smart people were investing in the company, and I felt like I’m just going to follow the the smart money, right? I’m going to follow the crowd a little bit here and get behind it. And I figured I was going to learn a lot in the process. And I did, but not in the way I thought, because the company, it was the only company I’ve invested in that went to zero, where I got nothing back out of it. And early in my career, I thought my career was over, they finally trusted me to make an investment, and I lost the entire investment into this company. What I learned during that process was I was never emotionally connected to the product. I never really believed that the product was great. It was something that I thought was going to have legs. I was really making the investment because I was leaning on what on other people’s opinions, other Silicon Valley luminaries that are still incredibly bright people. I have a lot of respect for them. I love what they’re doing. In that case, I was making my investment because I believed in them, not in the company, and it’s the last time I ever made that mistake. So now every company, if I’m not personally convicted in the product and the CEO, I just won’t make the investment, and sometimes I’ll miss out, and that’s okay.

On today’s special segment we have Tomas Tungus of theory. Tom, can you tell us a story highlighting a critical lesson that has changed the way you invest?

I remember when we invested in snowflake at red point, my partner, former partner, Satish, led that investment, and redshift was the fastest growing product inside of AWS at the time, maybe the fastest growing analytical database. And I remember when the company was trying to raise its Series C, and the gross margins were negative, and they were burning 5 million a month, and they were able to raise that round, and they became the company they are today. And I think the lesson that I learned is, if you really believe and you understand and you’ve done your work, then like the role of a capital allocator, the role of an investor is to continue to support even during times of hardship. I think VCs can provide a lot of value. The thing that stands out, I think, in the founders mind most, is, you a VC believed enough to write the first check and then the second is during a time of hardship, a VC wrote another check to see the company continue because they continue to believe. And so I think that’s like one of the reasons we’re so thesis driven, and we do a lot of research, is we want to have that level of conviction, even in the face of very challenging odds.

On today’s special segment we have Frank Rotman of QED. Frank, can you tell us a story highlighting a critical lesson that has changed the way you invest so

over the course of 16 years, which might seem like a very long career, you realise that the cycle times to get any learnings in venture are so long that you actually don’t get very many big learnings over the course of a career like 16 years in I feel like I’m one and a half cycles into learning venture, maybe two cycles into learning venture. That’s it, right? When you invest in a company, you’re really going to be at their side for seven to 10 years right before the outcome. Now, if a company fails, you learn the outcome, hopefully relatively quickly, and you don’t learn that much from some of the failures. Oh, it was harder to build than we thought. Oh, the market didn’t want this product. There are a lot of reasons why things fail. The founders that ended up not getting along, and they created a lot of chaos, and they weren’t able. To actually ship code and get anything done. What are you going to do about those things? But you really get very few learnings over the cycle of venture. So you’ve got to pay attention to everything that you can. And one of the biggest learnings that I have over this 16 year period is that I’ve kind of concluded that it is equally hard, if not more difficult, to build a medium sized business than to build a large business. And because of that, like when venture capitalists talk about the importance of Tam, which, again, is very difficult to actually figure out, and it’s mysterious. And if you’re creating new markets like tam can be expanded and blah, blah, blah, but if you’re chasing very limited markets, it’s actually harder to build a mediocre outcome than if you’re focusing on some of the bigger problems that are more profound, that have more customers that can ultimately buy the product. You just have so many more degrees of freedom and surface area to cover when you’re attacking big spaces. And I didn’t have an appreciation for this, because when I first started Nigel and I really thought that the arc of FinTech was going to be snapping single products out from banks, these tiny little things that banks might not do well, and do it better than them, and then sell it back to the banks. When you had it kind of scaled, you realise that even though you can probably find your customers a little bit easier, it’s just hard, right? You have to capture so much more of the market, you have to be that much better than the solutions that are out there. Capital is less available for you to build those businesses. Talent is less active in chasing down a lot of these ideas. So what I found is some of the more niche oriented ideas are actually harder to build and have, like worse outcomes. So you end up spending bang, spending seven to 10 years your head against the wall for what might be a limited sized outcome. And so again, it’s just one of the learnings that it sticks with me today, and it’s why I focus a lot on the surface area that can be covered by the idea.

That will conclude this instalment of investor stories. If you’re enjoying the programme and would like to see it continue, take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today until next time over. Prepare, choose carefully and invest confidently. Thanks for joining me.