The Theory of Need — Why Founders Just Can’t Stop Creating New Companies
Ravi Gupta is a Partner @ Sequoia Capital & George Zachary is a General Partner @ CRV
(September 14, 2020 - 41 minutes)
Ravi Gupta is a Partner @ Sequoia Capital, one of the world's leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on.
The Twenty Minutes VC - Venture Capital, Startup Funding, The Pitch
By Harry Stebbings - Founding Partner @ Stride.vc & Founder of 20VC Microfund
FROM INSTACART TO SEQUOIA
During his time at Instacart, Ravi was fortunate to be the both COO and CFO where he oversaw the hyper-growth of the company. While lots of excitement came through then, issues were quick to shadow them too. Ravi eventually joined Sequoia following its partnership with Instacart where he was exposed and captivated by the working style of the former.
REVALUATING VISION
Visions are highly necessary to ground companies and encourage potential talents to join them. A good vision is one that successfully resonates with their audiences and clearly translates why said companies matter to their investors. While it is important to draw focus onto it, it is equally crucial to adapt to changes in the surrounding environment.
ON TEAMS & TEAMWORK
Ravi believes that the most important question to ask when reflecting about teams would be if one would enthusiastically rehire a teammate. This should be conducted every 6 to 12 months and should the answer be anything but a ‘yes’, that would be an automatic ‘no’. In doing so, the potential of a team could be introspected honestly and a higher collective standard could be set to achieve.
TALENT SCOUTING & ACQUISITION
It is important to seek out the very best talents unapologetically when developing an organisation. Such individuals are those who excel at something better than yourself and whose strengths complement the weaknesses of the business. The first step to acquiring such talent is to converse, understand them and earn their trust. Then, verify if they resonate with the mission of the company before deciding to add them to the existing structure.
PRIORITISATION IS KEY
A hard lesson to learn is knowing when to say “no” but in doing so, it will then be easier to ascertain what is important. From there, assert control over unanimously agreed goals and delegate the execution of said goals to trusted individuals who could deliver. Additionally, openly discuss with teammates on how to improve execution to maintain a result-orientated mind-set.
REDEFINING LEADERSHIP
Leaders should establish a push and support dynamics with teams to achieve desirable results. Drawing on his Instacart experiences with vulnerability, Ravi urges leaders to honestly converse with their teams about issues and mistakes as people positively respond to authenticity. As a consequence, a deeper bond could be forged out of respect and a willingness to uplift one another as well.
SEQUOIA SURPRISES YET AGAIN
Ravi is most impressed by the working culture in Sequoia whereby there exists a single-minded devotion to the mission of the company. He believes that daring to help build legendary companies is both purposeful and equally rewarding. He was also surprised by the high levels of collaboration amongst employees, supportiveness and passion towards undertaken projects.
TRENDING: SLOPES > INTERCEPTS
At Sequoia, Ravi observed the trend of investing in slopes rather than intersects which predicated on achievable possibilities within 10 – 15 years. He underlines that these rates of developments are vital in enticing investors to undertake such projects and improve their morale over the extended period of time.
ADVICES FOR NEW BOARD MEMBERS
Begin by building trust with founders and establish being their first point of contact. Concurrently, remember what is at stake and the importance of the project to the founders. Next, understand that quality is always better than quantity. Lastly, believe that founders are also looking for someone to trust so board members should return that sentiment by striving to support them.
(October 12, 2020 - 47 minutes)
George Zachary is a General Partner @ CRV, one of the nation’s oldest and most successful early-stage venture capital firms with a portfolio including the likes of Airtable, DoorDash, Dropbox, Niantic and many more.
The Twenty Minutes VC - Venture Capital, Startup Funding, The Pitch
By Harry Stebbings - Founding Partner @ Stride.vc & Founder of 20VC Microfund
GEORGE’S INVESTMENT MINDSET
George initially thought venture was about country clubs and playing tennis. He now sees it as a chance to work with interesting people who want to start doing new and exciting things.
He doesn’t get easily caught up in the onrush of excitement about valuations and is extremely careful about getting involved in capital-intense projects. The further you are in the cycle, the more careful you should be about financing companies that will take many rounds of capital.
TO INVEST, OR NOT TO INVEST?
It is better to invest in a great company at a good price than in a good company at a great price. Firstly, invest only if you have an internal conviction to want to invest. Secondly, think if it’s a good price for entry. Early-stage investors make this decision easier compared to mid-stage or growth-stage investors due to public market valuations. Allow yourself some flexibility on the pricing but also set a cap before you lose control of the situation.
Develop a human-led conviction by listening to the founder, the idea of what they are doing, and focus on what they say instead of what the report says. You will know to invest when you feel excited listening to this person and his ideas. George recalls getting compelled by Elon Musk’s core of excitement and intelligence when he first met him.
A FOUNDER’S CHARISMA
The amount of charisma that a founder has is inversely correlated to their potential for success. That’s because there’s a difference between charisma and force of will. Investors should go after founders who actually don’t want help or coaching from them because they’re smart, they know what they’re doing, there’s proof that the business is working, and investors shouldn’t want to get in their way. These people aren’t necessarily charismatic, but they do have a force of willpower. People call Steve Jobs a charismatic figure, but really, he just brought people into his forcefield.
RETURNS VS INVESTMENT BUSINESS
Ideally, an investor invests the least amount of money to get the most returns. It’s not a check-writing business but using the check-writing to create the returns. So if you lose sight of the returns, the business is over. People think of it as an investment business simply because fund sizes became too large, they started living off the management fees, and the incentives started diverging from the LPs.
MISALIGNMENTS
The misalignment of founders and investors’ check sizes increased predominantly after Google and Facebook, mostly due to the change in the cost of the structure of living. It’s essentially ‘what the founder needs’ vs. ‘a portfolio for the venture business’. Investors with a portfolio have multiple investments, but for the founder, there’s only one investment. Because of different motivation, there will be different outcome sizes, but it doesn’t mean that it’s bad and people should be ashamed or upset about it.
THE THEORY OF ‘NEED’
One of George’s key criteria with founders is, ‘does this person need to create a big company?’ People who need to create a company has some type of psychological need to “win”, and winning is based on continuously mastering chaos.
George’s theory is that they need to satisfy some psychological loop in their brain that they can master chaos, which probably evolved since young and has much to do with their upbringing — particularly home or parental instability. The smartest and strongest founder survives by learning to master chaos, and by doing so it becomes a tool to get through both intellectual and monetary challenges. That’s why they keep starting companies — not for the money, but for their own minds.
HUMAN FIRST, DATA SECOND
Coherency with what the company is about is extremely important, such as the case of TJ Parker, a pharmacologist pitching PillPack. George skipped over all the diligence on the data because he was convinced TJ understood pharmacology, was pitching PillPack for human-centric reasons, and was committed to building something that would help people.
We are all driven by the human side of things and rely on the data side of things to help make decisions. Investors should look for the same thing in founders and vice versa to ensure a corresponding method of determination.
THE CENTRICITY OF MARKET SIZE
Anyone can make up the market size. It’s really in the mind of the founder. Yahoo and eBay used to be passed on by everyone because of conservative views and restricted concepts. That’s why new types of investors are needed to conceive new models. Younger venture investors tend to invest in newer, more innovative models, and most venture people quit after a certain age point because they can’t catch up. The biggest challenge is that they project past successes or failures onto future opportunities.
WHY GEORGE PIVOTED INTO BIOTECH
George learned about a personal health challenge and saw that most people couldn’t take time off or had limited resources to do what he did — learning about his illness, finding professors, and consulting doctors all over the country. He couldn’t personally change the overall US health system, so instead, he invested in founders who had sincere interests to improve people’s life.
The pivotal transition was tough because George didn’t have any background in bioengineering or biotech so he turned to consultants at first before finding someone who understood the science and had a network to source and evaluate deals. He was the visionary; someone else had to be the ‘entrepreneur’ of the practice at the firm.
THE PHILOSOPHY AS A BOARD MEMBER
Build a primary relationship with the founder and have a high exchange rate of knowledge and communication. Don’t be intrusive, but add value to the company in terms of operations. Take up an emotional support role, help them strategize, recruit key executives, and just be there for the founder from the beginning.
George firmly believes in ‘nose in, hands out’; pay attention to what’s going on in the business, but don’t get involved in the company and screw it up.
GENERATIONAL TRANSITION
It comes down to the commitment of a partnership and the people at every firm — whether they want to milk the existing carry-on fees at their firm or carry on the name or value set of the firm. Immortality is not a good thing because you need a form of death to bring in new ideas. Nobody has a responsibility to keep building their firm, but if they want to, the best way is to bring in competent young partners who are excited about committing to building great companies and help them grow.
MONEY VS. PERSONAL RELATIONSHIPS
Coming from a poor family background, George went from making just enough to wanting to make more to give it away. He soon realized that people treated him differently like some form of power and always approached him with ulterior motives. He couldn’t read people’s intentions and didn’t know who to trust, so he started self-isolating and only hung out with people in approximately the same economic zone because he knew that they wouldn’t only be interested in his money.
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