20 VC 080 How VCs Can Differentiate Themselves with Patricia Nakache, General Partner @ Trinity Ventures

In this episode of the 20 minutes VC, host Harry Stebings interviews Patricia Nakache, a general partner at Trinity Venture Partners, renowned for her investments in innovative online services. They explore the cutthroat competition among VC firms, the rise of female entrepreneurship, and the persistent gender imbalance in venture capital. Nakache shares her journey from the tech industry to VC, highlighting the importance of domain expertise, trust, and mutual respect in successful partnerships with entrepreneurs. She also discusses the apprenticeship model for nurturing female VCs and the significance of early-stage company support, particularly in hiring. Nakache's insights extend to investment strategies, the impact of millennials on various industries, and the on-demand economy's future. Her latest investment in Maven, an e-commerce platform empowering hairstylists in the African American community, exemplifies her focus on underserved markets.

• Patricia Nakache is a general partner at Trinity Venture Partners.
• She specializes in funding innovative online consumer and business services.
• Patricia's investment portfolio includes successful companies such as LoopNet and Care, with IPOs and acquisitions by large firms like Warburg Pincus and Groupon.

"Patricia is general partner at Trinity Venture Partners, where she focuses on funding companies launching innovative online consumer and business services."

This quote introduces Patricia Nakache and her role at Trinity Venture Partners, highlighting her focus on innovative online services and her successful investment track record.

• The podcast discusses the increasing competition between VC firms to fund top startups.
• The rise of female entrepreneurship is also a topic of interest, alongside the gender imbalance in senior VC roles.

"In today's amazing interview with Patricia, we discussed the ever increasing competition between VC firms to fund the hot startups of the day, the rise of female entrepreneurship, and the gender imbalance in the higher circles of VC today."

The quote summarizes the main topics discussed in the interview with Patricia Nakache, including VC competition, female entrepreneurship, and gender imbalance in venture capital.

• Patricia grew up around technology, with her father being an early employee at Computer Sciences Corporation.
• She majored in physics and chemistry in college and worked at a telecom startup during one summer.
• Patricia's experience at McKinsey and freelance writing for Fortune magazine led her to interview venture capitalists and eventually join Trinity Ventures as a contractor.

"Yeah, so I grew up around the technology industry. My father was one of the first employees at Computer Sciences Corporation, which is a big systems integrator and was a startup in its time."

This quote explains Patricia Nakache's early exposure to the technology industry through her father's career, setting the stage for her own interest in the field.

"After I graduated from college, I went to McKinsey in San Francisco, in Silicon Valley, and I served a bunch of technology clients."

Patricia Nakache's work at McKinsey in Silicon Valley provided her with significant experience serving technology clients, which contributed to her knowledge of the industry.

"I was actually writing freelance for Fortune magazine... I was interviewing venture capitalists, and a friend of mine introduced me to the partners here at Trinity, and I interviewed them for a couple of articles."

Patricia's freelance writing for Fortune magazine and interviews with venture capitalists gave her insight into the VC world and led to her introduction to Trinity Ventures.

"I actually joined Trinity Ventures as a contractor... And then three months later, I converted to a full-time principal, was my title, and the rest is history."

This quote narrates how Patricia Nakache's initial contract role at Trinity Ventures evolved into a full-time position, marking her official entry into the venture capital industry.

• Patricia was drawn to venture capital because of the opportunity to meet exceptional entrepreneurs and engage with innovative ideas.
• The cultural fit and the importance of relationships in small partnerships were key factors in her decision to join Trinity Ventures permanently.

"What I really loved about venture capital was getting to meet such phenomenal entrepreneurs and getting exposed to all these really interesting ideas."

This quote captures Patricia Nakache's passion for venture capital, emphasizing the appeal of working with entrepreneurs and exploring new concepts.

"I felt like the fit with the culture here at Trinity was excellent... You have to make sure you really fit in with the culture."

Patricia highlights the importance of cultural fit within a venture capital firm, which was a significant reason for her decision to stay at Trinity Ventures.

• Patricia Nakache acknowledges the disturbing trend of decreasing female representation in VC partnerships.
• She attributes the gender imbalance to two main factors: pipeline issues and the apprenticeship model in VC firms.
• The podcast suggests that nurturing early-career hires and addressing the sources of partners in VC could help improve female representation.

"A recent study has shown that the total number of female partners has fallen from 10% to 6% in the time that you've been at Trinity. So why do you think there is this gender imbalance, and what do you think we can do to improve female equality in the vc industry?"

This quote presents the concerning statistics of female partners in VC and prompts a discussion on the causes of gender imbalance and potential solutions.

"Yeah, it's been a disturbing trend. Why? I believe there is this misrepresentation. I point to something I call the two P's. The first p is pipeline."

Patricia Nakache refers to the "two P's" as key factors in the gender imbalance, with the first being the pipeline issue, which affects the number of women entering and rising in the VC industry.

• Patricia Nakache discusses the two common paths to becoming a partner in a venture capital firm: apprenticeship and direct hire from a senior industry role.
• Apprenticeship is a nurturing path where individuals are trained over time within the investment industry.
• Direct hire from industry is more common recently, but there's a lack of women at executive levels in tech, leading to a pipeline issue for senior roles in venture capital.
• The decline in women's representation in venture capital is attributed to pattern recognition and industry retrenchment.
• Growth times like the dot-com boom present opportunities for minorities, while retrenchment often results in "last in, first out," impacting minorities negatively.
• Initiatives to increase the number of women in tech and the rise of micro VC funds started by women are helping to reverse the decline.

"The pipeline issue, I don't think applies to the apprenticeship side, because there are plenty, I think, of very bright young women who are working in the tech industry, who are getting their MBAs, who might even be getting technical degrees."

This quote highlights that the pipeline issue for women in venture capital is not due to a lack of qualified women entering the tech industry at a junior level but is more of a problem at the senior level due to the hiring practices of venture firms.

"The second p is what I call pattern recognition. And that's just the notion, and it applies to investment decisions, too. But it's the notion that decisions are made based on recognizing attributes that have worked for you in the past or been successful for you in the past."

Pattern recognition is identified as a barrier preventing women from being hired at senior levels in venture capital firms because hiring decisions are often based on past successes, which may not include women with similar profiles.

"I think focusing on this apprenticeship model can be helpful because I think that there are plenty of good candidates coming in that direction."

Patricia suggests that focusing on the apprenticeship model can help increase the representation of women in venture capital, as there are many qualified female candidates at the junior level.

• Patricia Nakache invests in female entrepreneurs and resonates with the problems they are solving, often because of her own experiences as a woman.
• She gives the example of Care.com, a marketplace for care services, which filled a gap between free but unreliable services like Craigslist and expensive nanny agencies.
• Confidence in female entrepreneurs comes from their domain expertise, ability to learn and adapt, and leadership skills.
• Patricia conducted due diligence with Anna Zornosa of Ruby Ribbon and was impressed by her learning curve and potential for success.

"I resonate with the problem they were solving, and they really inspired confidence in their ability to tackle the problem at know."

Patricia is drawn to invest in female entrepreneurs who are solving problems she understands and who inspire confidence in their ability to address those issues effectively.

• High burn rates at early-stage companies without product-market fit are a yellow flag for Patricia.
• The availability of capital in the current environment has led to companies raising more money and increasing their burn rates prematurely.
• Wise entrepreneurs are cautious about ramping up spending before establishing product-market fit.

"A really high burn rate can be a bit, you know, can be a yellow flag if it's, if it is out of proportion with the stage of the company."

Patricia points out that disproportionate spending relative to the company's stage, especially before achieving product-market fit, is a concern and a potential red flag in her evaluation of startups.

• Founders should determine how much money to raise based on milestones they want to reach.
• Raising too much can lead to high expectations for growth, potentially leading to wasteful spending.
• It's crucial to have leeway to slow down if necessary, without pressure to spend unwisely.

"Well, I think the best approach is to think about it in terms of what kinds of milestones they want to try and reach and sort of back it up from there."

This quote explains that founders should plan fundraising based on the milestones they aim to achieve, suggesting a strategic approach to capital raising.

"And so if you raise too much, it doesn't give you as much leeway to slow down."

This quote highlights the risk of raising too much capital, which can limit a company's flexibility to adjust its growth pace as needed.

• The right time to "put the pedal to the metal" is after achieving product-market fit.
• Product-market fit should be defined broadly to ensure scalability.
• An example is Eat Club, which proved its model in the Bay Area before expanding.

"I think it's when you have achieved product market fit, with the market defined fairly broadly."

Patricia Nakache suggests that aggressive growth is appropriate once a company has broadly defined and achieved product-market fit, indicating readiness for expansion.

• Domain expertise and a sharp point of view are crucial for VCs to compete.
• VCs now tend to specialize rather than be generalists due to increased competition.
• Building trust and mutual respect with entrepreneurs is essential.
• Establishing relationships well before fundraising and offering help with hiring are key strategies for VCs.

"Domain expertise is key. Having a sharp point of view on the space in particular, I think is important."

Patricia Nakache emphasizes the importance of VCs having in-depth knowledge and a strong perspective in their focus areas to stand out to entrepreneurs.

"At the end of the day, I'd tell you, Harry, I think the most important factor continues to be for entrepreneurs, trust and mutual respect with their investor."

This quote underscores the importance of trust and respect in the VC-entrepreneur relationship, suggesting it's a foundational element for successful partnerships.

• Some VC firms have directors of talent to assist with hiring needs.
• Regular newsletters with vetted resumes can help portfolio companies with hiring below executive level.
• VC firms often help with executive hiring, dedicating partner meeting time to discuss available talent.

"Some have directors of talent. In our case, one of the things that we're doing is we've created a newsletter that goes out to our ceos on a regular basis with vetted resumes that we've all come across."

Patricia Nakache describes how their VC firm proactively supports portfolio companies with hiring by sharing vetted resumes, highlighting a value-add beyond just providing capital.

• Success for a VC is measured by returns to limited partners (LPs) and helping entrepreneurs achieve their dreams.
• VCs aim to build companies that positively change people's lives.

"So that is pretty simple on two fronts. Returns to lps and on the entrepreneur front, helping them achieve their dreams, helping them build companies that change people's lives for the better."

Patricia Nakache defines VC success in terms of financial returns and the impact on entrepreneurs and society, indicating a dual focus on profit and purpose.

• Millennials have a distinctive approach to life, prioritizing immediate gratification, flexibility, and an affinity for mission-driven brands.
• They prefer access over ownership, influencing various sectors such as ecommerce, education, and financial services.
• Industries must adapt their strategies to cater to the preferences and values of the millennial generation.

"Well, I am very intrigued by the impact of millennials across all industries. You're probably just on the cusp of that generation, right? Millennials have a very distinctive approach to life. They seek immediate gratification. They look for flexibility. They care a lot about the mission. They care a lot about the story behind the brand. They don't necessarily want to own products, that they want access to them."

This quote highlights the significant influence millennials have on market trends and business strategies. Their distinct values necessitate a shift in how companies approach product ownership and brand narratives.

• Patricia Nakache expresses optimism about the on-demand economy's growth potential.
• However, she predicts a market shakeout, as not all on-demand services are essential to consumers.
• The closure of homejoy is cited as an example of the on-demand economy's challenges.

"I am bullish on the on-demand economy, I will tell you, and I wrote this in a TechCrunch article at the end of the year. I also think there's going to be a shakeout in the on-demand economy because there's been, well, I'm bullish. There are a bunch of services that are going to thrive, but I think there have been a lot of services that have been funded under the auspices of on demand that people don't actually really need on demand."

Patricia Nakache's quote reflects her mixed outlook on the on-demand economy, acknowledging its promise while also recognizing its limitations and the inevitability of market correction.

• Some services, like home cleaning, may not require an on-demand model, as customers are generally fine with scheduling them regularly.
• The on-demand model might not add significant value to certain services when compared to traditional models.
• The real benefit of mobile technology in these cases may be more for the service provider than the consumer.

"Well, what I mean by that is that there are services, and I would put home cleaning in that category that I think in the past have been generally, people are fine scheduling them, kind of scheduling them on a kind of repeat basis, like, hey, come every two weeks or come every week, as opposed to they sort of just need, I'm sure there is a segment of the population, but I'm not sure it's the majority who just kind of need the random cleaning on demand within a few hours."

This quote clarifies Patricia Nakache's perspective on the practicality of on-demand services, suggesting that not all services benefit from an on-demand model and that traditional scheduling may suffice for many consumers.

• Patricia Nakache reads strictly VC daily for venture capital news.
• She uses Owler, a portfolio company, for tracking competitive intelligence and alerts on announcements and fundings.
• Owler is preferred over Google alerts due to its better signal-to-noise ratio.

"I do read strictly VC. Every day I will tell you that I will give a plug for one of my portfolio companies, Owler. Which... Owler, yes, which allows you to track Owler, and it allows you to track competitive intelligence, competitive information."

Patricia Nakache shares her go-to sources for staying informed about industry news and competitive intelligence, showing a preference for specialized tools that provide targeted information.

• Maven, a recent investment, co-invested with Andreessen Horowitz, is an ecommerce platform for hairstylists.
• It focuses on the African American community, selling hair extensions – a $5 billion market in the U.S.
• The market has favorable ecommerce characteristics, like high average price points and low shipping costs relative to value.
• Maven empowers hairstylists to sell products without holding inventory, aligning with Patricia Nakache's interest in underserved markets.
• Maven's scrappy team and significant revenue with minimal seed capital were key factors in the investment decision.

"So my most recent investment is a company called Maven, where I co invested with Andreessen Horowitz. It's an e commerce platform for hairstylists to sell. It's mainly today focused on the african american community, and they today focus on selling hair extensions into that community."

In this quote, Patricia Nakache explains her rationale for investing in Maven, highlighting the company's market focus, economic potential, and alignment with her investment philosophy, which includes a preference for underserved markets.

• Harry Stebbings encourages listeners to participate in a competition to win a signed copy of Brad Feld's "Venture Deals."
• To enter, listeners need to upvote the podcast episode on Product Hunt's podcast section.
• The competition is part of the show's promotional efforts and engagement with the audience.

"And don't forget, if you would like to be in with a chance of winning the legendary Brad Feld's venture deals signed by Brad himself, all you have to do is head on over to product Hunt's new section entitled podcasts. And all you have to do is upvote this episode on the podcast section and you'll be automatically entered into the competition to win the signed copy of Brad's Venture deals."

Harry Stebbings provides details on how listeners can engage with the show and potentially win a valuable resource for those interested in venture capital, thereby promoting both the podcast and the book.