20 VC 096 Developing The Idea Muscle and VCs Providing More Than Just Money with Dharmesh Raithatha, Partner @ Forward Partners



In this episode of the 20 minutes VC, host Harry Stebings interviews Dharmesh Rytatha of Forward Partners, a London-based fund focusing on ecommerce startups. Rytatha, with a background in AI and experience as a high-growth startup employee at Mind Candy and as a founder with a successful exit, discusses his unconventional entry into the VC world and the value of product expertise in early-stage funding. He emphasizes the importance of founders deeply understanding their customers' problems and the product's core value, often advising against outsourcing in the early stages. The discussion also touches on the trend of startups seeking more than just capital from investors, the benefits of having a technical co-founder, and the potential of the health sector due to technological advancements. Rytatha's recent investment in the Gifting company highlights the significance of market size and the founder's ability to offer a tenfold improvement in solving a problem.

Summary Notes

Introduction to Forward Partners and Dharmesh Raitatha

  • Forward Partners is a London-based venture capital firm with a focus on ecommerce startups.
  • Portfolio includes notable companies like Halo, Zopa, and Appear Here.
  • Dharmesh Raitatha is the head of product and tech at Forward Partners.
  • Raitatha has a background in artificial intelligence and was previously at Mind Candy.
  • He has founded two startups, with one successful exit.
  • Loyalty Bay, a SaaS conversion optimizer tool, is mentioned as a means to increase website conversions.

"And this week I'm delighted to announce we will be featuring the fantastic Forward partners in London. They're an incredible fund with a specific focus on ecommerce ideas and making them into strong businesses."

This quote introduces Forward Partners and highlights their specialization in turning ecommerce ideas into successful businesses.

"Joining us from Ford today is their head of product and tech, Dharmesh Ritatha. Simply put, Dharmesh helps Ford startups build great products."

This quote introduces Dharmesh Raitatha and his role at Forward Partners, emphasizing his focus on helping startups develop their products.

Dharmesh Raitatha's Background and Transition to VC

  • Raitatha has a startup-centric background with experience in software development and product management.
  • His last role before VC was at Mind Candy, where he experienced significant growth.
  • He founded two startups, with one leading to a small exit.
  • Transition to VC was driven by a desire to stay in the startup space and work on strategy and early-stage companies.
  • Met Nick Brisborn, managing partner at Forward Partners, and joined the firm after a trial collaboration.

"Yeah, so I think my move into VC has been very unusual."

This quote explains that Raitatha's transition from startups to venture capital was not a common path.

"So I've kind of done the startup thing myself."

Raitatha emphasizes his personal experience with startups, which informs his approach in the VC industry.

Role of Product People in VC Firms

  • Raitatha believes that early-stage funds can benefit from having someone who understands product development.
  • Startups seek more than just financial investment; they want sector expertise and skills that can aid their growth.
  • Product expertise is crucial for idea-stage startups that do not yet have a developed product.
  • Understanding the evolution of product functions within startup growth stages is valuable.

"So I would probably say yes, wouldn't I?"

Raitatha humorously acknowledges his bias towards the importance of product people in VC firms due to his background.

"I think at those stages, like having someone that gets products can be really helpful."

He emphasizes the value of product expertise in early-stage startups and venture capital.

Impact of Startup Experience on Investment Strategy

  • Raitatha is new to the investment world but sees the benefit of his product background.
  • Exposure to numerous ideas and long-term trends is different from the detailed focus of growing a single company.
  • His ability to evaluate companies through a product lens is seen as a unique and beneficial perspective.

"But you can still see the difference between someone like Nick, who's done it for a long time and has got a muscle that is developed in that, and I'm still developing that."

This quote acknowledges the learning curve Raitatha experiences in the investment realm compared to seasoned professionals like Nick Brisborn.

"Right, that's a useful lens to look at, because these are all software companies and the products are huge parts of their businesses."

Raitatha justifies the importance of his product management perspective in evaluating software companies.

Startup Idea Evaluation at Forward Partners

  • Forward Partners offers monthly office hours for entrepreneurs to pitch or discuss their ideas.
  • Raitatha looks for certain qualities in ideas that appeal to him and identifies traits that make other ideas less attractive.

"Yeah, so we do this monthly office hours where people with ideas can come and just spend 15 minutes with us, whether that's pitching or whether that's..."

This quote introduces the concept of open office hours at Forward Partners, which provides a platform for entrepreneurs to present their startup ideas.

Identification of Exciting Startups

  • The most exciting startups stand out because they offer unique solutions or address unsolved problems.
  • A deep understanding of the problem by the founder is crucial for investment consideration.
  • Startups that are exciting often have a strong idea that is different from the norm, either by targeting untapped markets or by innovating solutions.

"The best ones are a strong idea that feels very different to the ones that you see normally."

This quote emphasizes the importance of uniqueness and differentiation in startup ideas for them to be considered strong and exciting.

Role of Founder's Understanding and Experience

  • Founders with a deep understanding of the problem are more likely to succeed.
  • Direct experience with the problem can be more valuable than deep sector experience.
  • Internalized experience of a problem can be beneficial for founders, as demonstrated by the success of companies like Appear Here.

"They found a problem and they're going to go, right, we're going to build a startup, but they don't have that kind of deep understanding of either they felt it themselves or they've spent time really researching that problem and therefore we won't do the investment."

This quote highlights the necessity for founders to have either personal experience with the problem they're addressing or to have conducted thorough research on it to gain a deep understanding.

Youthful Naivety vs. Sector Knowledge

  • There's a debate on whether lacking deep sector knowledge can be advantageous due to being unaware of potential pitfalls.
  • Youthful naivety can sometimes lead to chasing a vision without being hindered by industry constraints.
  • The success of Appear Here indicates that personal experience can be as valuable as sector knowledge.

"Some people say though, that kind of having the youthful naivety of not having deep sector knowledge in that industry can help because it makes you unaware of the pitfalls that do potentially lie ahead and just kind of chase the vision."

This quote discusses the idea that not having preconceived notions about an industry can sometimes be beneficial for innovation and pursuing a vision.

Tips for Idea Creation and Brainstorming

  • Founders should identify problems they have personally experienced with no existing satisfactory solutions.
  • Brainstorming ideas should be followed by talking to people, interviewing, and observing to understand the problem in detail.
  • It's important to research competitive products and understand consumer frustrations and preferences.

"You brainstorm lots of ideas, but then the next step is to go out and talk to people and interview them and observe them and try to understand more detail in that problem."

The quote suggests that idea generation should be coupled with active research and engagement with potential users to validate and refine the ideas.

Overcoming Technical Hurdles for Non-Tech Founders

  • Non-technical founders often struggle with how to build their ideas into a product.
  • Forward Partners helps solo founders, typically non-technical, to overcome the challenge of product development.
  • Cultivating relationships with technical experts prior to starting a business is advised.
  • Outsourcing development, especially in the early stages, is generally discouraged unless the idea is straightforward and well-defined.

"So they might be going to all these meetup groups and they don't have a network, so they're going out trying to meet up groups, they're trying to find tech people."

This quote highlights the challenges non-technical founders face in finding the right technical partners or co-founders.

Recommendations for Non-Tech Founders

  • Non-tech founders should build relationships with potential technical co-founders early on, such as during university or while working at a startup.
  • Applying to startup accelerators like Forward Partners can provide the necessary support for non-technical founders.
  • Attending startup events and meetups can lead to finding a co-founder, as evidenced by the founding story of BorrowMyDoggy.com.

"I guess for me, if you can, I'm going to give you three. Right. So I think if you can cultivate those relationships, you know that you want to do a startup, maybe you're working in a startup, think about those relationships that you're forming with people and think about how that relationship could spin out when you leave."

This quote advises non-technical founders on strategies to find and build relationships with potential technical partners for their startup ventures.

Outsourcing in Early Startups

  • Outsourcing agencies can be expensive and require a clear understanding of what needs to be built.
  • Early-stage startups often lack the detailed knowledge required for effective outsourcing.
  • Founders should explore other options before considering outsourcing.

"Most outsourcing agencies cost a lot of money and they need to know more about what you need to want to build. And by definition at that stage, you don't really know."

This quote emphasizes the challenges that early startups face when considering outsourcing, as they may not have a precise idea of their needs, making it a potentially costly and inefficient option.

Qualities of a Great Founder

  • A deep understanding of users is crucial for founders.
  • Successful founders have a strong 'product muscle' and the ability to inspire people and articulate a big vision.
  • Founders should be involved in product development rather than solely focusing on building the business.

"The ones that I've seen that do well, they have a very good understanding of their users... They really got a really strong... So when they're making these calls about to do X or Y, they're making good calls and they're going out and they're speaking to people a lot."

This quote highlights the importance of user understanding and engagement as key factors in a founder's success, suggesting that a founder's ability to make informed decisions is tied to their knowledge of and interaction with their user base.

Admiration for Visionary Founders

  • Admiration for founders who aim for tenfold improvements in their solutions.
  • Visionary founders understand technology well enough to radically improve existing solutions.

"I like founders that think about ten X products. So where they found a solution that's ten times better... For me, those types of founders are really exciting, where they've taken a problem and they haven't just made it two or three times better, but it's like a radical solution."

This quote reflects the speaker's admiration for founders who are ambitious and strive for transformative improvements, suggesting that the most exciting founders are those who seek to revolutionize rather than incrementally improve.

Focus in the First 100 Days of a Startup

  • Startups should be able to succinctly articulate their core value proposition.
  • Early focus should be on understanding and optimizing the core value offered to customers.
  • The initial period is crucial for establishing a deep understanding of the startup's value to create an amazing company.

"In the first hundred days, I think the big focus is really getting down to the root of what is the value that I'm offering."

This quote underscores the necessity for startups to concentrate on identifying and refining their core value proposition in the early days, as this understanding is fundamental to long-term success.

Example of a Successful Value Proposition

  • Freeletics is cited as an example of a tenfold better solution in fitness.
  • The app eliminates common barriers to fitness by using bodyweight exercises, instructional content, and algorithms.
  • A strong focus on the core value proposition and branding has contributed to Freeletics' success.

"It's ten x better because you don't have to go to the gym and you don't need a personal trainer... They've really boiled down what it is about the problems about getting fit and what are the kind of barriers that can be in the way of you getting fit."

This quote describes how Freeletics has effectively addressed common fitness challenges by providing a comprehensive, accessible solution, demonstrating the impact of a well-defined and executed value proposition.

Building Emotional Connections with Customers

  • Founders should spend significant time understanding customer problems and emotions.
  • Initial customer interactions should focus on problem understanding, not product pitching.
  • Immersion in the customer's problem is key to developing a strong value proposition and product solution.

"We'll do an interview and none of it will be about pitching their idea. All of it is about understanding how they're solving this problem at the moment, how they feel about that problem, what solutions they currently have."

The quote illustrates the importance of empathizing with customers and deeply understanding their current struggles before attempting to introduce a new product, suggesting that emotional connections are forged through genuine problem-solving efforts.

  • Lexus Legal Marketplace started with a simple homepage and form.
  • Founder Daniel managed all processes manually, from receiving inquiries to finding and matching lawyers.
  • This hands-on approach allowed Daniel to understand the software needed for automation.
  • Daniel gained insights into customer problems, language, and questions, which informed product development.

You know, they launched with a homepage and a form. And after the month of interviews, at that point, Daniel, the founder, was doing everything by hand.

This quote highlights the early stages of Lexus Legal Marketplace, emphasizing the founder's manual approach to understanding customer needs and the groundwork for future software development.

Dharmesh Raitatha's Favorite Blog

  • Dharmesh's favorite blog is svproduct.com by Marty Kagan.
  • Marty Kagan is considered Dharmesh's mentor in product management.
  • The blog's content has had a massive influence on Dharmesh's career.

So my favorite blog is he only writes once a month, but it's called svproduct.com, written by Marty Kagan, who's probably my mentor in product.

The quote identifies svproduct.com as a significant resource for Dharmesh, providing insight into his influences and preferences in the field of product management.

Entering the VC Industry

  • Dharmesh notes that there are various routes into the VC industry.
  • One can start a successful startup and then transition into VC.
  • Having operational or startup expertise is increasingly valuable in VC.

So it's a hard one, given my route in. Most people I see in VC probably come from thought about going into VC from day one.

The quote reflects on the different paths into the venture capital industry and suggests that a background in startups can be beneficial.

Exciting Sectors: Consumer and Health

  • Dharmesh is particularly interested in consumer spaces over B2B.
  • He finds preventative health within the consumer sector to be super exciting.
  • There are many problems to solve in health, from booking appointments to accessing research data.

In the consumer space, I find b to b not really my cup of tea. And then I guess within that at the moment, health for me is like a super exciting place, especially kind of preventative health.

The quote conveys Dharmesh's enthusiasm for the consumer sector, with a special focus on the potential for innovation in preventative health.

Investing Philosophy: Focus on Founders

  • Dharmesh places significant emphasis on the founder when considering investments.
  • He values founders who deeply understand their users and their problems.
  • Founders should actively seek to understand their customers' needs.

A lot of it hinges on the founder. Obviously there's a good idea and a big market, but the founder and the ability to go real deep into their users minds, for me, that's looking for that in founders.

This quote summarizes Dharmesh's investment philosophy, highlighting the importance of a founder's connection and understanding of their customers.

Dharmesh's Favorite Book

  • "How to Create a Product that Customers Love" by Marty Kagan is Dharmesh's favorite book.
  • The book discusses developing a product muscle and processes for product development.
  • Dharmesh recommends this book to all founders.

He wrote a book called how to create a product that customers love.

The quote identifies a key resource that has shaped Dharmesh's approach to product development and his advice to founders.

Recent Investment: The Gifting Company

  • The Gifting Company is Dharmesh's most recent investment.
  • Founder Ben started by buying gifts by hand, which was well-received.
  • Gifting is a significant market with unsolved problems.
  • The challenge is to automate and scale the personalized gifting process.
  • Dharmesh's investment decision was influenced by the market size and the potential for a software solution.

The most recent investment is a company called the Gifting company. And Ben has, for the last year from know, loves buying gifts and started to do it for other people just as an evening thing for friends and for know, he's been doing it by hand, but people love the gifts that he buys for them or recommends for them.

The quote explains the rationale behind investing in The Gifting Company, focusing on the founder's passion, market potential, and the need for a scalable solution.

Loyalty Bay Promotion

  • Loyalty Bay offers a 30-day free trial to increase website conversions.
  • They also provide a free ebook on conversion rate optimization by founder Will Roberts.
  • Loyalty Bay has successfully worked with enterprises and startups alike.

Do not forget to sign up for the amazing 30 day free trial on offer at Loyalty Bay, who work with large enterprises like Virgin Media through to startups to increase website conversions, and they've done this on average by over 100%.

This quote promotes Loyalty Bay's services and the added value of their free trial and ebook, emphasizing their success in increasing website conversions.

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