20 VC How To Say No Fast and Efficiently and Why UX Must Always Be At The Core Of What You Do with Sitar Teli, Managing Partner @ Connect Ventures

In the last 2015 episode of the 20 minutes VC, host Harry Stebbings interviews Sitar Telly, managing partner at Connect Ventures, discussing her journey from teaching English in South Korea to becoming a seasoned venture capitalist with a passion for early-stage tech startups. Telly shares insights from her experiences at Doughty Hansen Technology Ventures and her approach to investing, emphasizing the importance of founders understanding their market, being mission-driven, and focusing on user experience. She also touches on the evolution of the European tech scene, the challenges of starting a new fund, and the value of swift, clear communication with entrepreneurs, even when rejecting pitches. The conversation highlights Connect Ventures' strategy of building a reputation through a strong portfolio and the belief in the power of VC partnerships.

• Harry Stebbings introduces Sitar Telly, managing partner at Connect Ventures.
• Sitar has eight years of VC experience, focusing on early-stage investments in consumer and B2B companies.
• Previously led Series A round in SoundCloud at Doughty Hansen Technology Ventures.
• Experience in content gaming and e-commerce startups.
• Reminder to check out the two-minute takeaway from the episode.
• Acknowledgement to Matamark for data and analysis.
• Mention of additional reading material from @Thinker on Twitter.
• Promotion of a free ebook on conversion rate optimization from Loyalty Bay.

"You are listening to the 20 minutes VC and the last episode of 2015 with your host Harry Stebbings. And to mark this very special episode, I'm delighted to be joined by an incredibly special guest in the form of Sitar Telly, managing partner at Connect Ventures, one of London's most exciting new seed funds."

The quote introduces the special guest Sitar Telly and sets the stage for the episode, highlighting her role and the significance of the episode.

• Sitar taught English in South Korea after university.
• Worked in investment banking in the U.S. at Broadview, a tech-focused M&A bank.
• Realized a preference for being involved in the early stages of company building rather than banking.
• Wanted to learn about various technology-focused industries through venture capital.
• Transitioned from Broadview to venture capital, considering opportunities in different locations including London.

"I realized that I really wanted to be more involved with the journey the company went on, rather than the kind of exit or event that was there at the end."

This quote explains Sitar's motivation for moving into venture capital, emphasizing her interest in the developmental journey of companies.

• In 2005, the London VC scene was not as lively as it is today.
• Skype was one of the few known tech products from Europe.
• The VC industry in London has since grown, with many successful companies emerging across various sectors.
• Factors contributing to the growth include increased ambition among founders, cross-pollination between the U.S. and Europe, and a change in the ambition level of VCs.

"It was 2005, so it was ten years ago. And the New York scene was sort of very quiet then. Right? So if you can imagine how lively New York is now and how London is sort of kind of catching up at New York, but it's still a ways away from where Silicon Valley is."

The quote provides context for the state of the VC industry in London compared to New York and Silicon Valley in 2005, indicating the growth and development that has taken place since then.

• The emergence of great companies has been the biggest driver of the change in Europe's tech scene.
• Europe has seen significant growth in sectors like gaming, financial technology, music and content, and advertising technology.
• The increase in the number of large, high-growth companies in Europe over the past few years has been noticeable.
• The ambition levels among founders and VCs have risen, with more interaction between European and American tech scenes.

"I mean, the single biggest driver is there are just more and more great companies coming out of here, right?"

This quote highlights the primary reason for the growth of the European tech hub, which is the success of emerging companies.

• Many of Sitar's colleagues from Broadview transitioned into venture capital.
• The trend of investment bankers moving into VC is discussed, with a focus on whether this is still common.

"A lot of people from Broadview went into venture capital, and I talked to people in New York, I talked to people in California, and then I got a call from a headhunter who had an opportunity in London, which I hadn't considered, but I liked living abroad."

The quote reflects on the common career path from investment banking to venture capital and Sitar's personal experience with being recruited for a VC opportunity in London.

• The effectiveness of operationally experienced individuals transitioning to venture capital (VC) is mixed.
• Operationally experienced individuals can be both great and terrible in VC, similar to investment bankers.
• Having operational experience can be beneficial when starting a fund, as it allows for better understanding and relating to founders.
• A partnership approach in VC is favored for diverse perspectives on opportunities and investments.

"I know people that have been operationally experienced, that have gone into VC and been great, but also the same people have been operationally experienced, gone to VC and been terrible."

This quote highlights that operational experience does not guarantee success in VC and that individual performance can vary greatly.

"But I do think it helps if you're starting a fund to have someone, or at least some of the partners have started a company or been very early in a company, because I think they can relate to founders in a very different way."

Here, the speaker emphasizes the value of having team members with startup experience within a VC fund to better connect with and understand the founders they invest in.

• The concept of VC partnerships involves collaboration among venture capitalists.
• Diverse backgrounds, such as entrepreneurial and operational experience, contribute to a richer partnership dynamic.
• Different perspectives within a partnership can benefit the assessment of challenges faced by portfolio companies.

"I'm a big believer in VC partnerships rather than working alone."

The speaker advocates for the partnership model in VC, suggesting that collaboration leads to more robust decision-making.

"So Bill and I have been vcs for a long time... But Pietro has an entrepreneurial background... And Bill... worked operationally prior to becoming a VC."

This quote illustrates the varied backgrounds of the partners in the speaker's VC firm and how these diverse experiences contribute to the partnership's strength.

• Establishing a new VC fund is challenging and requires significant capital.
• New funds face competition from established entities and must work to build their brand and reputation.
• The initial phase involves convincing founders of the fund's legitimacy and value proposition.
• Building a reputation takes time and is heavily reliant on the success and treatment of portfolio companies.

"It's probably one of the worst startups you can think of."

Starting a VC fund is likened to a difficult startup venture, emphasizing the challenges involved in its inception.

"So a lot of the work we did the first year was really establishing that reputation and just focusing on making investments and working with those entrepreneurs in the best way possible for us."

The quote explains the initial focus on reputation-building and forging strong relationships with entrepreneurs, which is crucial for a new VC fund's success.

• The majority of effort in reputation-building is allocated to managing the portfolio and supporting founders.
• The speaker prioritizes investment activities and founder relationships over other marketing efforts.
• The VC's portfolio is a reflection of their thesis on technology and approach to investing.
• Handling rejections of potential investments is also considered important in establishing a VC's reputation.

"I'd probably allocate 99 of them to the portfolio, to just making the investments and building our reputation through the investments and how we work with the founders?"

This quote underscores the speaker's belief that a VC's reputation is primarily built through their investment decisions and their interactions with founders.

"The portfolio really is a reflection of the GPS. And without that portfolio and without consistency in your portfolio, I think it's very hard to establish a reputation."

The portfolio is described as a mirror of the VC's guiding principles, and consistency in the portfolio is deemed essential for reputation establishment.

• The most valuable action a VC can provide when rejecting a founder is to do so quickly.
• Saving the entrepreneur's time is considered a form of value, as time is their most valuable resource.

"The biggest thing that you can do to provide value is to say no as quickly as possible."

This quote conveys the importance of prompt rejection in the VC industry to prevent entrepreneurs from wasting time on futile fundraising efforts.

• Venture capitalists aim to make decisions quickly, especially when a potential investment is not a fit.
• Saying "no" directly in the meeting can save time for both the VC and the entrepreneur.
• Detailed feedback can lead to unnecessary debates, so it's often avoided.
• Entrepreneurs are naturally optimistic, which can lead to misinterpretation of non-direct responses as potential "yeses."

"And so what we try to do is say no as quickly as possible, as soon as we realize it's not a fit for us."

This quote emphasizes the importance of efficiency and clarity in venture capital decision-making, highlighting the practice of rejecting non-fitting investment opportunities promptly.

"I think the best thing I can do for the entrepreneur is to say, look, this isn't a fit, we're not going to invest."

This quote reflects the speaker's approach to providing clear and direct communication to entrepreneurs, which is considered more respectful and helpful than leaving them in uncertainty.

"If you don't say no, they're going to think it's a yes."

This quote captures the optimistic nature of entrepreneurs and the potential for miscommunication if venture capitalists are not clear in their responses.

"Because it gives the entrepreneur a hook. And a lot of times the entrepreneurs interpret the maybe as a not no, and it's just keeping them hanging on."

The quote discusses the issue with vague responses, such as "maybe," which can lead entrepreneurs to falsely believe there is still a chance for investment.

• Venture capitalists look for founders with a deep understanding and passion for their market.
• A founder's mission should extend beyond making money; it should involve solving a significant problem or enabling something new.
• User experience is a critical factor in investment decisions; it must be central to the product or service being built.
• Capital is not a monolith; there are different types of capital, each with its own focus and expertise.

"There's three things we look for when we look at a company."

This quote introduces the three core criteria used to evaluate companies and founders for potential investment.

"So one of them is founders that really understand the market that they're building for."

This quote highlights the first criterion, which is the founder's understanding of and passion for the market they are targeting.

"We look for founders that are on a mission which is related to the first one, but one is, you really understand the market. And the other is you're doing it for a reason other than you just want to make money."

This quote explains the second criterion, focusing on the founder's motivation and mission beyond financial gain.

"We're very user experience focused. So we look for people that put user experience at the center of what they do."

The third criterion is discussed here, emphasizing the importance of user experience in the products or services offered by the startups.

"Capital isn't just one giant bucket, right? There is different flavors of it."

This quote conveys the idea that not all capital is the same, and that different investors may specialize in different areas or types of businesses.

• Crowdfunding is not seen as a threat to the seed venture model but rather as a complementary element.
• Crowdfunding is suitable for businesses that require capital but not necessarily the high-risk, high-reward approach of venture capital.
• Some successful crowdfunding campaigns occur alongside venture capital funding.

"No, I should think it helps it. I mean, a lot of the best crowdfunding rounds I've seen have been alongside a VC one and two."

The speaker expresses the view that crowdfunding can be beneficial and can coexist with venture capital, especially when used in conjunction.

"A lot of what I've seen go through crowdfunding just doesn't fit that."

This quote suggests that many businesses that seek crowdfunding may not be suitable for venture capital, indicating a distinct role for each funding method.

• Venture capitalists seek investments with the potential for significant scale.
• Smaller ventures may be good investments but might not meet the VC's scale requirements.

capital and it's probably a very good investment, but it probably doesn't have the scale that a VC is looking for.

The quote highlights the importance of scalability in VC investments, indicating that a good investment opportunity may still be passed over if it does not promise the large-scale growth that VCs typically seek.

• "The Amazing Adventures of Cavalier and Clay" is a story about entrepreneurship in the comic book industry.
• The narrative parallels the challenges faced by startups across various industries.
• The protagonists deal with investor exploitation and the balance between product integrity and mainstream appeal.

A book that I've read a few times that I really like is the amazing Adventures of Cavalier and Pit, which is about a couple of kids in New York in, I think it's the, they start a comic book company and it's a really good story about entrepreneurship in a completely different industry.

The quote explains the reader's appreciation for the book, emphasizing its relevance to entrepreneurship and the shared struggles among startups, regardless of the industry.

• Sitar Telly does not actively seek out many blogs or newsletters but reads content recommended by respected peers.
• Benedict Evans' newsletter is read weekly for its data-centric and research-oriented approach.
• Strong opinions backed by data analysis and thesis formation are valued in content consumption.

I guess one of the things that I do read every week, probably without fail, is Benedict Evans newsletter.

The quote indicates a consistent reading habit and preference for Benedict Evans' newsletter due to its analytical and data-driven content.

• Sitar Telly frequently uses City Mapper, Outlook, Sunrise, Twitter, WhatsApp, and Strava.
• The use of these apps is related to their functionality in navigation, communication, scheduling, social media, and fitness tracking.

Citium appper, obviously. Let's see, City Mapper, Outlook, which I'm kind of amazed, but I'm actually using two Microsoft products at the moment. One is Outlook, one is sunrise. [...] The Twitter mobile app. [...] Whatsapp. And I run. So I've been using Strava recently.

The quote lists the apps that are most utilized by Sitar Telly, providing insight into the tools that are integral to their daily routine and activities.

• The effectiveness of social media for VCs depends on personal branding rather than firm representation.
• Personal social media accounts can reflect the VC's human side and interests, fostering stronger connections with entrepreneurs.

I think the vcs that use it really well are the ones who use it to build a personal brand.

The quote emphasizes the importance of VCs using social media to establish a personal brand, which can be more impactful for relationship-building than a firm's account.

• When thinking of a successful VC, Sitar Telly immediately mentions Fred Wilson.
• The mention suggests that Fred Wilson embodies the qualities or achievements that define success in the venture capital industry.

Fred Wilson.

This quote is a direct response to the question of who comes to mind as a successful VC, indicating that Fred Wilson is a notable figure in the industry according to Sitar Telly.

• Deal sourcing involves referrals from various entrepreneurs and deep industry research.
• Building a reputation for respectful rejections can lead to recommendations from entrepreneurs.
• Investigating startups in specific interest areas helps in forming investment theses.

So deal sourcing. So we have kind of two main prongs. So one is referrals. [...] And then the other is there are industries that we dislike, areas that we get interested in.

The quote outlines the two-pronged approach to deal sourcing, which includes leveraging referrals and actively researching industries of interest to discover promising startups.

• Nitten, a London-based company, represents the potential future of software-enabled manufacturing.
• The investment was driven by the belief in the transformative power of software in the clothing industry.
• The vision includes the possibility of personalized, on-demand clothing production in mainstream retail.

Our most recent public investment was knitten [...] And why we said yes is because we think what we saw when we spoke to the founders is potential for the future of a software enabled manufacturing.

The quote provides the rationale behind the recent investment in Nitten, highlighting the company's innovative approach to integrating software with clothing manufacturing and the long-term vision that attracted the investment.