20 VC 056 The Life Cycle of Startups with Guy Turner, Partner @ Hyde Park Venture Partners

In episode 56 of the 20 minutes VC, host Harry Stebbings interviews Guy Turner, partner at High Park Ventures, discussing the journey from mechanical engineering to venture capital, the importance of a startup's ability to innovate and sell quickly, and the critical nature of an 18-month funding runway. Turner emphasizes the significance of product-market fit, gauged through revenue, customer acquisition, and renewals, and stresses the need for startups to have short sales cycles relative to their funding periods. He also touches on the potential perils of over-hype and the necessity for startups to maintain realistic expectations. Turner advocates for investing in founders who have a track record of following through on commitments and highlights the emerging potential in Agtech and logistics industries.

• Guy Turner is a partner at High Park Ventures focusing on B2B software companies.
• He has experience as a director at Geo Incontext Solutions and Iris Mobile.
• Guy is recognized as a Siebel Scholar, Kaufman Fellow, and co-inventor with two US patents.
• Before High Park Ventures, he worked as a consultant at the Boston Consulting Group, specializing in corporate strategy.

"And on today's show, we are heading to Chicago to interview Guy Turner, partner at High Park Ventures, where he focuses on fast growing companies run by ambitious entrepreneurs with disruptive ideas."

The quote introduces Guy Turner as the guest on the show, highlighting his role and focus areas at High Park Ventures.

"Prior to joining Hypark Ventures, Guy was a consultant at the Boston Consulting Group where he focused on corporate strategy across a variety of industries."

This quote provides background information on Guy Turner's professional experience before joining High Park Ventures.

• Guy started as a mechanical engineer and later realized the importance of understanding the business side of product creation.
• He pursued business school and interned with Hyde Park Angels, an angel group in Chicago.
• Together with Ira Weiss, he raised a fund and began investing full-time in late 2011 after working as a consultant.

"I started life off as a mechanical engineer and worked practice for about five years making assortment of different products and at one point realized, boy, it would be awesome to know more about who I'm making these for, why and how they're sold, and really to understand the mechanics of all the other parts of a business besides the engineering."

Guy Turner explains his initial career in engineering and his desire to learn about the broader aspects of business, which led him to the VC industry.

"And the two of us decided to raise a fund. And of course that takes some time. So I worked as a consultant for a few years while the two of us had many, many meetings with many awesome investors who ended up backing us and in mid 2011 started investing, or late 2011 started investing full time."

This quote details the process Guy Turner went through in transitioning from consulting to raising a venture fund and eventually investing full-time.

• Problem-solving skills acquired from engineering are applicable to investing and portfolio management.
• Consulting experience provided a more direct transfer of skills, offering unique perspectives and industry insights.

"Well, I think the part of engineering that's transferable to investing and both looking at investments and also managing an investment portfolio is the problem solving part."

Guy Turner discusses how problem-solving skills from his engineering background are relevant to his current role in investing.

"The consulting work was probably a little bit more transferable in the sense that as a consultant, you spend one to four months at a time looking at an industry and hopefully learning just enough with just enough of a different viewpoint than the company you're working with to provide some value and unique perspective."

Here, Guy Turner reflects on how his consulting experience has been more directly applicable to his work in venture capital.

• Lean startup methodology is a crucial part of startup success, emphasizing the importance of innovating, testing, and selling quickly.
• Startups must efficiently use their time and resources as they are limited by their financial runway.

"But the biggest thing is fundamentally time is money. Your time is really the oxygen of your startup, and that's all defined by how much money you have."

The quote emphasizes the importance of time management for startups, likening time to the "oxygen" of a startup's survival.

• For B2B software investors like Hyde Park Venture Partners, revenue is the primary measure of success.
• Early stages of success are determined by the ability to secure initial customers and then achieve multiple sales.
• The next measure of success is customer renewal and repeat business.

"So our greatest measure of product, market fit and value proposition is fundamentally revenue."

This quote from Guy Turner establishes revenue as the key indicator of a startup's product-market fit and overall success.

"And then the next measure is can you get those people to buy it again? Can you get them to renew?"

Guy Turner speaks about the importance of customer retention and renewal as a metric for continued success in startups.

• There are four steps to determine if a business has product-market fit and scalability potential.
• The first step is whether the founders can sell the product themselves.
• The second step is training a salesperson to replicate the founders' sales success.

"And the next step is, can you train a salesperson to go do what the founders did and sell that product?"

This quote emphasizes the importance of replicability in sales processes as a measure of a business's potential to scale.

• The assumption that selling to one implies the ability to sell to many is challenged.
• In B2B software, selling beyond the first customer can be difficult due to specific needs.
• Achieving sales to many more customers is seen as a significant milestone.

"Now, I certainly think if you sell it to one customer, you can sell it to one, two or three more. But I think selling to many more is an important milestone and by no means a foregone conclusion."

Guy Turner expresses skepticism about the idea that initial sales success guarantees broader market success, highlighting the challenge of scaling in B2B markets.

• The 18-month Runway is the minimum time a startup should aim for post-funding.
• It's divided into three steps: Plan A, Plan B, and fundraising.
• Startups need to show successful metrics 12 months in to raise funds again.
• An 18-month Runway allows for a pivot if the initial plan doesn't work.

"So if you give yourself 18 months under that thinking, and you start at month one and you try something and it doesn't work, you still have another shot at a plan b."

Guy Turner breaks down the strategic importance of an 18-month Runway, allowing startups the flexibility to pivot and still be in a position to secure additional funding.

• Investors generally favor a longer Runway for startups.
• A longer Runway is seen as increasing the company's chances of success.
• Investors are willing to provide more funds for a buffer, and founders accept more dilution for better odds.

"Investors want you to be successful and are typically willing to put a third more money to work to double the chances of the company being successful."

This quote clarifies the mutual benefits perceived by both investors and founders when agreeing to a longer financial Runway.

• Hype can be generated on a national level through PR and interesting stories.
• Local hype is also crucial for raising funds, hiring, and acquiring customers.
• Startups can maximize hype by having a strong culture, talent pipeline, and active hiring.

"A lot of the times. It depends on how interesting the story is."

Guy Turner points out that the narrative surrounding a startup can significantly affect its ability to generate hype and attract attention.

• Hype can set unrealistic expectations for a business.
• Overhype can lead to a disconnect between public perception and actual performance.
• This issue is particularly evident during financing rounds.

"We see that particularly in financing, when companies that at one point were very high on the hype curve."

Guy Turner acknowledges the risks associated with excessive hype, especially when it comes to financing and maintaining realistic expectations for company performance.

• Importance of executives maintaining humility to manage company hype.
• Hype should not exceed the actual performance of the company.
• Executives' public persona can influence the company's reputation.

"In other words, a company can have lots of hype about it. But if when the executives and CEOs and founders are out in public, they are humble and reasonable, I think any sort of acceleration of the hype beyond the performance of the company doesn't have a negative impact on the reputation because the executives are seen as being mature and thoughtful and generally backable people."

The quote explains that executives who remain humble and reasonable in public can prevent company hype from damaging the company's reputation, even if the hype exceeds the company's performance.

• Sales cycles should be shorter than funding cycles.
• Preference for sales cycles no longer than three to four months.
• Importance of a strong technical founding team with sales capability.
• The product rarely sells itself; active selling is often required.

"So our number one rule in startup sales, and when we evaluate a company, is that the sales cycle has to be much, much shorter than the funding cycle."

This quote emphasizes the investment criteria that startup sales cycles must be significantly shorter than their funding cycles to avoid running out of cash before making sales.

• Requirement for a strong technical co-founder.
• Various successful configurations of founding teams.
• Openness to different mixes of technical and sales expertise in founding teams.

"The one wrong way that we're pretty conscious of is we typically will not invest in a founding team that does not have a strong technical co-founder on it."

The quote indicates that the speaker's firm typically avoids investing in startups that lack a strong technical co-founder, highlighting the value placed on technical expertise.

• Willingness to invest in first-time founders.
• Recognition of the potential for success with first-time founders.
• Acknowledgement of the need for founders to learn quickly and adapt.

"We do. I would say probably about half of our investments are first time founders."

This quote conveys that the speaker's firm does invest in first-time founders, suggesting an openness to the potential that new entrepreneurs bring to the table.

• Startups should be vigilant for signs of commitment from VCs.
• Heightened level of commitment from VCs is a positive sign.
• Specific actions and next steps from VCs indicate serious interest.

"I think you should assume you're getting rejected until the check shows up."

The quote suggests a cautious approach to VC interactions, implying that startups should not assume investment is secured until it is officially confirmed through actions such as issuing a term sheet or providing a check.

• Non-committal responses often imply a negative outcome in venture capital discussions.
• Entrepreneurs frequently receive indirect rejections through phrases suggesting further internal discussion or contemplation.
• Such communication is typically a veiled way of saying no to a proposal or investment opportunity.

Most of the time there won't be that kind of commitment. It'll be something like, let me talk to my partners or let me think about it, or things like that. In any type of communication such as those is basically a no.

This quote illustrates the indirect manner in which venture capitalists often communicate a lack of interest in proceeding with an investment, highlighting the importance of reading between the lines in business communications.

• Guy Turner emphasizes the importance of giving feedback to entrepreneurs, despite its potential downsides.
• He suggests that venture capitalists should not assume entrepreneurs want feedback and should instead ask for permission to provide it.
• Feedback is seen as valuable as it can significantly impact an entrepreneur's ability to raise funds and succeed.

We try to provide feedback. Unfortunately, feedback can be a little bit of a double edged sword. And so I think one place that I'm trying to be better at is ask for the invitation to give feedback.

The quote reveals Guy Turner's approach to providing feedback and his awareness of its sensitive nature, as well as his intent to improve his method of offering it by seeking consent from entrepreneurs.

• Guy Turner's favorite book, "Thinking in Time," is about the use and limitations of historical analogies in decision-making.
• The book is relevant to venture capitalists as it addresses the common tendency to draw parallels between new ventures and successful businesses.
• It emphasizes critical thinking about the applicability of such comparisons.

So there's a book called thinking in time and I won't remember what the author is. And it's basically about how historical analogies provide strong guidelines to making decisions in the present and in the future, and also to how analogies can be broken down and very often don't apply.

Guy Turner highlights his favorite book and its central thesis, which challenges the validity of using historical analogies in business, a common practice in venture capital pitches.

• Guy Turner identifies Agtech and logistics as industries poised for disruption.
• He notes that logistics, in particular, is becoming increasingly relevant due to the rise of home delivery services.
• His investment firm has a significant interest in Agtech with a company called FarmLogs.

Agtech is going to be a hugely disrupted industry. [...] Logistics is a giant industry. Everything is moving around constantly. And that's only getting more and more true as home delivery becomes very ubiquitous.

This quote points to Guy Turner's foresight in predicting industry trends, particularly in agriculture technology and logistics, and his firm's strategic positioning in these sectors.

• Guy Turner's investment strategy focuses on the track record and reliability of entrepreneurs.
• He values founders who have a history of following through on their commitments.

Invest in people who do what they say they're going to do and have done what they said they will do.

The quote succinctly encapsulates Guy Turner's investment philosophy, which prioritizes the accountability and execution capabilities of entrepreneurs.

• When asked about successful SaaS companies, Guy Turner mentions both his portfolio company, Geophidia, and established public companies like Box and Slack.
• Geophidia is noted for its rapid progress through key business milestones.

I'd probably point to our portfolio company, Geophidia, which is just on a complete tear and has blasted through those five milestones that I described of first sales, multiple sales renewal, and then building a sales organization in far less than a year.

Guy Turner provides an example of a successful SaaS company from his portfolio, highlighting its swift achievement of critical business milestones as a measure of success.

• The most recent public investment made by Guy Turner's firm was in a company called 250ok, operating in the email deliverability space.
• The decision was based on the company's expert team and the ripe opportunity for disruption in a stagnant industry.

The most recent investment we made that is public was a company called 250ok. [...] It is an industry that's gotten stodgy and ready to be disrupted, and because of one of our partners, we have an extremely strong level of expertise in the space.

This quote reveals the rationale behind Guy Turner's firm's investment choice, emphasizing the combination of team expertise and market potential as key factors.

• Harry Stebbings concludes the podcast by inviting feedback and suggestions from listeners.
• He teases future content about startup accelerators, featuring Richard Hansen from Hiring Screen.

And I would love to hear what you're thinking of the show and how you think it's going and what guests you'd like to have on in the future, or if there are any questions that you'd like to ask.

Harry Stebbings wraps up the episode by engaging the audience for their input and previewing upcoming discussions that delve into the impact of accelerators on startups, showcasing the podcast's commitment to covering a range of topics relevant to entrepreneurs and investors.