20 VC 081 From YC to VC with Weston Gaddy @ Bain Capital Ventures



In this episode of the 20 minutes VC, host Harry Stebbings interviews Weston Gaddy, Senior Principal at Bain Capital Ventures, discussing the impact of millennial behavior on startups, brand loyalty, and the branding industry's evolution. Gaddy shares his journey from founding Frog Metrics during college to his current role, emphasizing the importance of starting small in big markets and the critical timing of investments. He highlights the shift in media interaction and its effect on startup branding, suggesting that sectors with disintermediation opportunities, like auto and mattresses, are ripe for brand revolution. Gaddy also touches on his environmental interests and the importance of specialization in venture capital, particularly in enterprise technology. Additionally, the episode includes a call for listener feedback with a chance to win Brad Feld's book "Venture Deals."

Summary Notes

Introduction to Weston Gaddy and Bain Capital Ventures

  • Weston Gaddy is a senior principal at Bain Capital Ventures.
  • He focuses on early-stage company investments and assists with portfolio operations.
  • Gaddy is a Y Combinator alum and co-founded Frog Metrics, a handheld survey device company.
  • He has a background as a strategy consultant for media, financial service, and consumer product clients at Bain & Company in New York.

"Weston is a senior principal at Bain Capital Ventures, where he focuses on investments in early stage companies and assists with the portfolio operations of the group."

This quote introduces Weston Gaddy's current role and focus areas at Bain Capital Ventures, highlighting his involvement in early-stage investments and portfolio management.

The Emerging Millennial Market's Influence on Startups and Brand Loyalty

  • The discussion with Weston Gaddy follows up on a previous interview about the behavior of the millennial market.
  • It will explore how this demographic is affecting startups and brand loyalty.
  • The conversation also touches on the sectors that could benefit from the changing branding industry.

"In today's show with Westham, we actually slightly follow on from our previous interview with Patricia Nakashe by discussing how the behavior of the emerging millennial market is affecting startups and brand loyalty, and what sectors have the most opportunity to exploit this revolution in the branding industry."

The quote sets the stage for the discussion about the impact of millennials on startups and brand loyalty, and the potential for sectors to leverage these market shifts.

The Backstory of Weston Gaddy and His Path to Venture Capital

  • Weston Gaddy's interest in technology began in his childhood in Albuquerque, New Mexico.
  • He pursued engineering in college and started two companies, Wisdom Tree Funds and Frogmetrics.
  • Frogmetrics was created to help brick and mortar retailers gather customer feedback in-store.
  • After Y Combinator, Gaddy shifted to consulting at Bain & Company, then returned to technology and venture capital by joining Bain Capital Ventures in 2009.

"And with a fraternity brother of mine, started a company called Frogmetrics, which was born out of a project that we had done for a group on campus to help them gather feedback from students."

This quote explains the origin of Frogmetrics, which was aimed at enabling businesses to collect customer feedback efficiently.

Key Takeaways from Y Combinator Experience

  • Start small and focus on solving specific problems within large markets.
  • Avoid solving niche problems that are not sizable or addressing every problem in a market with a single solution.
  • Strike a balance between focus and market size for startup success.

"It's start small and focus, but work in a big market."

This quote captures the essence of Gaddy's key takeaway from Y Combinator, emphasizing the importance of starting with a focused approach in a large market.

Impact of Y Combinator on Weston Gaddy's Investing Strategy

  • The insights from Y Combinator have shaped Gaddy's approach to investing.
  • He applies the principle of starting with focused solutions for significant problems in large markets to his investment decisions.

"Absolutely. I think that sort of core insight is something that I bring to the table when looking at new investments."

The quote confirms that Gaddy's Y Combinator experience has directly influenced his investment strategy at Bain Capital Ventures.

Importance of Timing in Investment Opportunities

  • Understanding the significance of "why now" in the context of market and technology changes.
  • The necessity of recognizing structural changes that create new opportunities.
  • Avoiding the assumption that past efforts were simply poorly executed without understanding the timing.

"What has changed in the underlying technology and the underlying market that creates an opportunity."

This quote emphasizes the need to identify specific changes in technology or market conditions that open up new investment opportunities, rather than just assuming previous attempts were flawed.

"Assuming that everybody who came before you, who tried something was just doing it badly or stupid or didn't get it is very hard to justify."

The relevance of this quote is to caution against arrogance in dismissing past efforts and to highlight the importance of understanding the unique factors that make the present time right for a new venture.

Geographic Focus in Investment

  • The speaker's preference for investing in the East Coast due to geographic focus and fewer YC alums relocating there.
  • The role of focus in investment strategy and decision-making.

"I invest solely on the east coast."

This quote indicates the speaker's investment strategy is geographically focused, with an emphasis on East Coast opportunities.

  • Observing higher valuations for companies at earlier stages on the West Coast.
  • The trend of picking winners earlier in the investment cycle.
  • The rise in valuations relative to company achievements on both coasts.

"I think good companies are getting solid valations on both coasts."

This quote suggests that while there are regional differences, quality companies can command strong valuations in both East and West Coast markets.

"The time in a company's life when they're getting a higher valuation is moving earlier and earlier on the west coast."

The speaker notes a trend towards earlier high valuations for companies on the West Coast, impacting how founders and investors approach market opportunities.

Evolution of Startup Branding

  • Shift in media interaction changing the branding landscape.
  • Direct communication channels enabling closer customer-brand relationships.
  • The fluidity of brand loyalty due to new media forms.
  • Opportunities for startups to establish authentic connections with consumers.

"It's about the way that we interact with media."

This quote highlights the fundamental shift in media consumption as a driving force behind the changing nature of branding and marketing.

"Brands have much more of a direct connection to their customers than they ever have in the past."

The quote explains the impact of direct communication channels on the relationship between brands and consumers, leading to a more personal and fluid dynamic.

Authenticity and Consumer Loyalty

  • The correlation between authenticity in branding and the fickleness of millennial consumer loyalty.
  • The need for brands to earn loyalty through product quality rather than through advertising volume or retail placement.
  • The benefit to consumers of product quality being the primary determinant of success.

"Loyalty is not something that's just a given, it's something that has to be earned."

This quote captures the essence of the modern consumer-brand relationship, where loyalty is contingent on the brand's ability to consistently deliver value and quality.

"Product has the ability to win above all else."

The speaker underscores the primacy of product quality in achieving success and maintaining consumer loyalty in the current market landscape.

Disruption in Traditional Industries by Direct-to-Consumer Brands

  • Traditional industries have been disrupted by brands that offer a direct line of communication to their customers.
  • Casper is highlighted as an example of this disruption in the mattress industry.
  • Direct-to-consumer brands can provide a more authentic and direct relationship with customers by bypassing traditional retail channels.

"The way that mattresses has been sold was the same for 40 years... And Casper, I think, has created a superior product and is able to talk directly to their customers in a way that's much more authentic and direct because they don't have to rely on the retailer to do the communication for them."

This quote emphasizes the shift in how products are sold, highlighting Casper as an example of a company that has changed the traditional retail model by selling directly to customers, thus offering a superior product and customer experience.

Potential for Brand Revolution in Various Sectors

  • Sectors with intermediaries that fail to add value to the customer experience are ripe for disruption by new brands.
  • The automotive industry is mentioned as an area with potential for significant change, with Tesla being a prominent example.

"So I think any sector where there's been an intermediary that hasn't lived up to its promise to provide value to the customer is where the opportunity for exploitation by new brands is the highest."

This quote identifies sectors with underperforming intermediaries as prime targets for new brands to revolutionize the industry by establishing a direct relationship with customers.

Tesla's Branding and Market Position

  • Tesla has branded itself effectively, initially as an environmental cause and increasingly as a superior product in terms of both the vehicle and the customer experience.
  • The upcoming release of a more affordable Tesla model is seen as a potential catalyst for the brand to become more mainstream.

"I think Tesla's done a fantastic job and I think it's been viewed as something that is an environmental cause early on... And the announcement, or the buzz, is that they're going to be releasing a much cheaper model in late 2016."

This quote highlights Tesla's successful branding and the anticipation of a more affordable model that could broaden its market appeal.

The Importance of Specialization for Venture Capitalists

  • Specialization is crucial for venture capitalists, particularly at later investment stages.
  • The speaker, Weston Gaddy, focuses on enterprise technology and marketing technology, emphasizing the growing importance of the CMO's role in technology spending.
  • While Gaddy's environmental interests are more personal, he acknowledges the potential for increased venture investment in this area.

"But I do think that it's incredibly important for vcs to specialize... And that specialization, I think, is incredibly important, especially at the later stages of investing."

This quote stresses the importance of specialization for venture capitalists to have deep sector expertise, which becomes increasingly critical at later investment stages.

Reaction to Industry Shifts in Venture Capital

  • Venture capital firms are constantly evolving their focus areas, which is a natural progression and not necessarily a commentary on the future of a sector.
  • The speaker reacts to the news of Emergence, a firm known for SaaS and enterprise software investments, moving away from the sector.
  • There is still a significant opportunity in enterprise investing, especially in creating low-friction tools for better communication within and outside of companies.

"I think venture investors are always evolving. Their focus and emergence has had some great consumer investments... I don't think that has any sort of embedded commentary on the future of enterprise investing."

This quote reflects the speaker's view that venture capital firms naturally shift focus based on their partnership dynamics and past successes, and it should not be interpreted as a negative outlook on the future of enterprise investing.

Importance of LinkedIn for Networking

  • LinkedIn is crucial for staying connected with professional networks.
  • It is used to track movements within one's network and to search for venture investors.
  • LinkedIn aids in hiring talent and connecting with customers for portfolio companies.

I use it to keep in touch with my network. So both to keep tabs on where people are moving from and to, and to do searches on my own for venture investors.

The quote explains how LinkedIn functions as a vital tool for maintaining relationships and keeping informed about career changes within the speaker's professional network. It also serves as a resource for identifying potential venture investors.

Daily Industry Updates

  • Dan Primack's term sheet is a daily go-to for industry-level updates.
  • TechCrunch and Pando are also read for everyday insights.
  • Medium is browsed for discovering new content daily.

My sort of daily update is Dan Primack's term sheet. That's the one that I check every day just to see what's happening at a high level in the industry and then to keep tabs on what specifically is happening.

This quote highlights Dan Primack's term sheet as a key source for staying informed about the venture capital industry and broader market trends.

Admiration for Venture Capitalists

  • Chris Zuck is admired for his ability to spot and invest in emerging trends early on.

I think Chris Zuck has done a fantastic job seeing new trends and emerging trends and investing very early on with a lot of strong conviction in a bunch of really interesting companies.

The quote acknowledges Chris Zuck's talent for identifying and investing in new trends with conviction, which is a quality the speaker respects in a venture capitalist.

Favorite Book and Environmental Concerns

  • The book "The 6th Extinction" is admired for its analytical approach to environmental issues.
  • It discusses the potential for a human-caused mass extinction.
  • The book offers optimistic views on how technology can help prevent environmental degradation.

My favorite book is, but a recent book that I read that I think both connects to an evolving world. And my interest in the environment is a book called the 6th extinction, which won the Pulitzer this year for nonfiction, which talks about sort of the state of the environment and how we may be living in a time where humans are creating a mass extinction that is unprecedented in the history of humankind...

The quote provides insight into the speaker's recent reading choice, "The 6th Extinction," which is significant for its Pulitzer-winning analysis of environmental issues and the human impact on mass extinction events.

Investment in Jet.com

  • The speaker's latest investment was a follow-on in Jet.com's Series A.
  • Jet.com is changing retail by optimizing the delivery of a basket of items using algorithms.
  • The investment was timely due to advancements in technology and the increase in online vendors.

So the most recent investment that I made was the follow on investment that we had done on a series A in a company called Jet.com, which is really changing the face of retail in a pretty interesting way.

The quote describes the speaker's most recent investment in Jet.com and the reasons behind it, particularly the innovative approach to retail and e-commerce that Jet.com is pursuing through technology.

Show Feedback and Improvement

  • The podcast encourages feedback to improve future episodes.
  • Listeners are invited to submit feedback and suggestions for guests, topics, and questions.
  • A competition is mentioned for those who provide feedback, with winners to be announced.

What you guys do not like, what you want, more of the guests you would like to have on the show, questions you want to hear answered. Remember, no positive feedback. We want to hear how we can improve.

This quote is a call to action for listeners to provide constructive criticism and suggestions to enhance the podcast, emphasizing the importance of feedback for continuous improvement.

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