#1 – Lessons from the grandfather of Venture Capital, evolution of the VC landscape and how big is big (in markets)

We get Tech DECIPHERED started by discussing the lessons learnt from the grandfather of Silicon Valley Venture Capital and founder of Sequoia Capital, Don Valentine… learn what the Don Valentine jacket was all about.  We go behind the curtain on how the Venture Capital landscape has systematically changed in terms of stages of investment, risk taking and across consumer vs enterprise and software vs hardware … and why VCs have actually benefited from angel investors.  We discuss common pitfalls in pricing your products & services and the importance of gross margin or “If you truly mispriced [your product or service] by 10X, you are probably a dead company or soon to be dead”.  We share our “no bs” views on obvious and less obvious lessons on pitching to a VC firm and, in gadgets, we discuss the death of the Red Phone and the new Airpods Pro. Navigation: Don Valentine’s Passing and his Jacket (01:29) The importance of targeting Big Markets (02:41) Example of a big market: the app Industry (04:16) How big is your market? (06:00) When Silicon Valley gets markets wrong (08:02) The new early stage landscape - from pre-seed to series A (09:31) The Gross Margin Problem (19:47) Non-obvious lessons on pitching (27:34)  Airpods Pro (34:06) Resources: Jeff Morris Jr., Don Valentine, target big markets: http://bit.ly/2Q8cnL9 Pear VC, Navigating The New Seed Landscape: http://bit.ly/2TMoz6G  Craft Ventures, The Gross margin Problem: Lessons for Tech-Enabled Startups: http://bit.ly/2vlLQ6a James Currier, Fundraising is not natural: http://bit.ly/2TMp14S The Verge, Airpods Pro launch: http://bit.ly/39OvOjY  Inverse, Red Phone getting killed: http://bit.ly/2wVEh6k   Our co-hosts: Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro  Our show:   Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news. Subscribe To Our Podcast Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Bertrand: Hi Nuno, how are you?  Nuno: I'm well.  Don Valentine's passing and his jacket (01:29) So today we're going to start with some news, some sad news around venture capital with the passing of Don Valentine, the founder of Sequoia capital, obviously one of the household names in the venture capital community here in the Bay area and around the world. Sequoia capital having become one of the most significant players in the venture capital space.  And Bertrand you actually met Don and Sequoia was an investor in your company? Some words around Don and around Sequoia? Bertrand: Yes, I met him a few years back  at a private Sequoia event where he was, giving his jacket, the Don Valentine jacket to one exec who did a lot for  a Sequoia family portfolio company. Nuno: And what is the Don Valentine jacket?  Bertrand: It's a nice looking colorful jacket, if I remember well . Nuno: Does it have a specific meaning attached to it? Is it like someone that's helped Sequoia or the portfolio company?  Bertrand: I think it's about someone who not only helped a portfolio company, but if I remember well, this person also helped quite a few other Sequoia portfolio companies, was available and open to meet with other fellow entrepreneurs, and that seemed to have been a tradition at Sequoia.  The importance of targeting big markets (02:41) Nuno: In the news we're sharing this week is obviously, one of, his speeches at Stanford graduate school of business, around targeting big markets. You know, obviously there's a lot to be said about big markets. And I think in some ways there's been a lot of emphasis in recent times in particular, in the seed stage, we will talk about, some news around seed in a bit, there's a lot of focus on teams. Everyone talks about teams, we select teams, et cetera. And obviously Sequoia does mention that. And , if you go to Sequoia's website, there's a huge focus on the founders that they back. But at the same time, there is this notion that markets are pretty important and pretty pervasive in what we're looking at. So, how important was it, for example, for you, when you started thinking about markets, to really go after something that was untapped that was taking you to the next level. How important is markets? I think there's not enough discussion around it these days, strangely enough, certainly not in very early stage, which is a bit shocking to me.  Bertrand: Yes. I guess that maybe really early on at the idea stage, maybe there is also a belief that founders are going to tweak the business, pivot the company. That's why market might not seem as important because they're going to change markets pretty quickly. That's true that I've seen that: a few entrepreneurs doing that. They talk about A, and one year, two after they are working on B.  So it might make sense to be less focused on the market super early on. But I think very quickly, market is a key part of the game at two levels. One that it's big, but also that it's growing. You want to have the wind in your back.  Example of a big market: the App industry (04:16) And, when I started App Annie, that was early on during the app revolution in 2010. So, just two years after the launch of the app store, for quite a lot of people, it was not clear if it would get, ever big. For me it was clear.  Nuno: Well, I remember talking about it myself as the mobile app economy in 2009. And people laughed at me.  And then a year later people were saying HTML 5 was going to win the day, and mobile web was going to take over it.  And you know, at that point I was just an idiot and silly. And, obviously we met around that time and started working together around the mobile space. So apparently we weren't wrong.  Bertrand: Yes. That HTML 5 stuff going to take over apps. Actually Steve jobs started like this in 2007 when he launched the first iPhone. There was no apps. It was "hey", you want an app? Do your Web stuff, we'll call it a web app. That worked for a year, and then they changed their mind at Apple. And I guess the rest is history. Truly no change there, actually, when the web keep falling down, mobile web is at best a stepping stone, to an app. A few industries, e-commerce, news, probably still see it more than a stepping stone, but beyond that, it 's truly a stepping stone. So,  for me it was just that feature phones were going to be replaced by smartphones and having been in that space for a really long time, it was very clear that the way to deliver content was not working previously: from either mobile web, or the old apps that you could get from a Nokia phone. That's why it got me excited. That's why I saw a future where every phone will be a smartphone and every smartphone will mostly work with apps.  So when you are building your business on top of such a huge fast growing market, life is good, or certainly better than a smaller market or a market that is decreasing in size. How big is your market? (06:00) Nuno: I found the same, as a venture capitalist and looking at investments you really can't second guess markets, right? So sometimes you go into a market that seems like a growing market, a big market, but once you do the basic math on it, once you do your total addressable market analysis, your SAM and SOM, right, where you get to a share of market. Sometimes you realize actually it's not that big. And even if you did incredibly well, you wouldn't be a $1 billion company in that market. At any rate. And it's really interesting when you probe some entrepreneurs around their analysis on total addressable market and serviceable market and share of market. Even if they are actually quite conscious and do a bottom up. Sometimes they don't even realize what the numbers actually mean and the attainment of them. In my experience, I think to your point, if you have a huge amount of wind to take you forward, then there's huge momentum on a platform. You win.  And if you don't, then effectively you're out of the market or you really need to survive for a very long time. I think for me, one interesting counter market to, for example, the mobile app platform would have been the AR VR discussion where the attach rates of AR and VR devices very early on were very, very small. And still still to this day, they are. We'll see what happens in the next one or two years. But certainly the issue is then if you are riding on that as a platform and as as your sort of market play, you really are going to have to wait a really long time to have any traction whatsoever, right? You're not going to have the wind on your side. It's going to be against you all the time.  Bertrand: And it's very tough because if you try as a company to be successful with no wind in your back for 5 to 10 years, you're not going to make it. So guess who are going to make it, if your market ultimately work out, would be some new guys who are still fresh, but have time starting their business one or two years before this stuff start to scale and go big. So that's the even worst story. Is that if you are really too early from a decade or five years, you will probably not make it, even if you have done all your very best for many years. So I think that's something to be very careful. When Silicon Valley gets markets wrong (08:02) And I love your example about VR and AR because you can see, especially here in the Silicon Valley bubble, VCs specially, but also entrepreneurs always like to try to find out that new platform, that new stuff after PC, after web, after mobile. There must be something else. So is it VR, is it AR? Is it voice? The problem is that, as you say, if you take VR,...