#8 – Demystifying Venture Capital, Private Equity and Start-up success

We demystify a whole lot in this episode of Tech DECIPHERED. We demystify Venture Capital and its nitty gritty decision-making processes and operating models. We demystify Private Equity vs Venture Capital and explain the differences between both. We discuss factors for Start-Up success and demystify entrepreneur “ageism”. Last but not least, we disagree … on the Tesla Cybertruck. Navigation: The other side of the table - Entrepreneurs who become VCs (02:31) Decision-making and the operating model of Venture Capital (05:10) VCs have to make lot of decisions with incomplete information (08:23) Are VCs much less ambitious that PEs? (23:39) Key reasons why start-ups succeed (31:27) What successful second time founders do differently? (43:59) Are older entrepreneurs more successful than younger ones? (56:08) Tesla's new Cyber-truck (59:28) Resources: Andreas Goeldi, What I Didn’t Understand About VCs When I Still Was a Founder - https://bit.ly/3bbf4UU Auren Hoffman, Venture Capitalists are MUCH LESS ambitious than their private equity siblings - https://bit.ly/2V5itin Alex Ponomarev, The Five Reasons Why Startups Succeed, According to a Legendary Investor - https://bit.ly/34wQuLy Feliks Eyser, What Successful Second-Time Founders Do Differently - https://bit.ly/3b86aYn Mark Travers, For Entrepreneurs, 45 Is The New 25 - https://bit.ly/3a3ypWz MotorTrend, Tesla Cybertruck - https://bit.ly/2V6jSoY 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 Intro (01:24) Bertrand: Welcome to Tech Deciphered Episode 8.  Hi, Nuno, how are you today? Nuno: Hey, Bertrand, how are you? I'm well. Bertrand: Pretty good, thank you, Nuno.  So, what are we going to discuss today? Nuno: So we're gonna discuss a couple of different areas.  One, we're going to demystify VC: a couple of articles on the venture capital space and we'll agree with some of the points made, we will disagree with others, we'll again go in depth and try to demystify the discussion. Then some other articles on de-mystifying startups and founders in particular, and what it takes to be a successful entrepreneur. And finally we'll talk about gadgets and we'll talk about cars today, which is really, really cool. Bertrand: I know you are very excited. Nuno: I am super excited. We only have one article on cars, but I think we can go on for some time. Bertrand: And which car are we going to talk about?  Nuno: We are going to talk about the cyber truck, that thing that does Tesla announced. And we're going to talk about other stuff that's cooler and what's happening in the space. There was a recent announcement as well, of a couple of new electric cars, and so we'll go a little bit off piste on that one. The other side of the table - Entrepreneurs who become VCs (02:31) So, let's start with our first topic today , and we'll start with this good article, from Andreas Goeldi,  titled "What I Didn't Understand About VCs When I Was Still a Founder". It's great that he's coming with his perspective having been a founder, an entrepreneur, now on the venture capital side, and being able to relate, in a way, more easily, from a founder perspective, entrepreneur perspective what it is to be a VC.  And let's go point by point on this one. So the first point that he makes, I agree actually with all of his points. I think there's some nuances around some of the explanations and rationale that he's giving that I would like to elaborate a little bit more. I do think he misses a few points in his rationale certainly.  So the first one is VCs have a limited attention span because they have to context switch so often.  This is true. We have to context-switch a lot. And actually it's a little bit broader than that. Sometimes if you are, even in a thesis driven venture capital firm, it's likely that's you're looking at different sub-industries. You could be meeting someone in construction tech in the morning and meeting someone in the retail space in the afternoon. You could be meeting someone who's direct to consumer in the morning and someone who's B2B to see in the afternoon. So you do have to context-switch, not only in the sense you're meeting different companies, very different stories, sometimes even different stage of development. But actually you have to interact with sub-industries as well that in many cases are very different. And sometimes you get sub-industries that come through the door that you haven't necessarily spent a lot of time on. They might match your thesis because there are somehow, for example, direct to consumer or B2B, but they might not match necessarily the industries where you spend most of your time. And so that amount of context switching is pretty important. Bertrand: Yes, I've spent more times these past few months meeting with a lot of entrepreneurs,  investing in a few startups, advising some VCs. And  probably one of the fun part actually of being a VC, is to see so many different industries, so many different type of business models. And hopefully from that you can form better judgment. Nuno: Yes. And if you have a top of funnel, he mentions his own firm: 3,500 to 4,000 pitch decks in any form. So I normally talk about this as top of funnel: which might mean a pitch deck that is sent to us inbound, it might mean a first call, it might mean a reference from someone, but really the top of funnel.  If you're seeing 4,000 - 5,000 different companies a year, and let's say you're making five to six investments a year. His firm does do more than that, they do 20 to 30, which is quite a lot, certainly on a yearly basis. You know, the funnel is very, very steep, which means not only there's a lot of context switching, but there's a lot of attention that you need to pay to the companies. We'll come back to that below.  Decision-making and the operating model of VC (05:10) He makes another point on decision-making and why it is so important to get decisions right, that links maybe better to the funnel and the drops off from the funnel. One thing I'd like to add as well, often hear entrepreneurs complaining to me saying: well, these partners are always speaking at events and there's always shindigs and all this stuff, and they spend money, and all these different things that they do. Well, that's part of being a venture capitalist as well. And the reason for that is, certainly in a very classic playbook of venture capital, you're attracting,  startups to you in many cases, inbound, which means you need to have a brand, you need to create a brand. You need to be known to the market for something, either because of your thought leadership or because you participate in events or network a lot. Or is it because of your circles of influence that are present in your team? The access you have to different types of alumni networks, the different types of academia, institutions, et cetera. But people end up spending a lot of time doing these events, talking publicly. I personally talk a lot in public, not because we don't have better things to do, but because we do need to create brand and we do need to have people recognize us for something. Otherwise it's very difficult to attract inbound deal flow. And that also means context-switching because we're not just context switching between startups and companies. We're context switching between speaking in public, writing an article, being at an event, networking, we are context switching as well in the case of many VC firms, between sort of operations where you need to manage the day to day, hire people, manage the office. A lot of these VC firms are small, so you literally need to do everything. A general partner might have decisions in a day that go from: should we buy more paper or not, to shall we invest in this company or not? So it seems very glamorous all the time, but it's actually like a tiny little startup that really manages a lot of capital at the end of the day. Bertrand:  And to be fair, each firm will have a different strategy. Some have been historically very secretive, more a Sequoia type of approach, and even them, they have changed over time, while some other firms, especially newer ones, ones that have established themselves in the past 10 years have to demonstrate more who they are. If you don't have 20 or 30 years of history, you have to make yourself known and spend some time, building a brand, and not just building a brand. For entrepreneurs, what you see coming from the partners should hopefully give you a good sense of who they are, what are their thesis, what is their approach to business. And hopefully, as entrepreneur, you can make a better pick and a better choice, initially based on that. Nuno: There are very, very, very few venture firms that are staying off the press these days. You mentioned Sequoia, Sequoia's more and more active, certainly more than they were five, 10 years ago. The only ones that occurred to me that are really still relatively away from the limelight but really more open in the last five years then they were before, would be a Benchmark. I would say probably Sutter Hill continues not being in the news at all, and it's one of these really old firms that a lot of people don't talk about that all, but with incredible track record. But there's really very few venture firms that are really off the limelight. Accel has stepped back from the limelight quite a bit,...