20VC Accel GP, Rich Wong on When Is The Right Time To Scale A Startup, Optimising Initial vs FollowOn Investment DecisionMaking & The Globalisation of VC In Recent Years

Harry Stebbings hosts general partner Rich Wong from Accel on the 20 Minute VC podcast, discussing the venture capital landscape and Wong's journey from an operating executive to a venture capitalist. Wong shares insights from his experiences with companies like Rovio and Atlassian, emphasizing the importance of building relationships and the prepared mind strategy Accel employs for successful investing. They explore the globalization of VC, the shift from geographical constraints to an entrepreneurial mindset, and the significance of strategic board membership. The discussion also covers investment tactics, such as the timing of scaling, reserve allocation, and the dynamics of competitive deal landscapes. Rich highlights the Accel philosophy of nurturing the next generation of VCs and underscores the value of diverse perspectives in a syndicate.

• Harry Stebbings is the host of the 20 Minutes VC podcast.
• Harry encourages listeners to interact with him on Snapchat and to use the podcast's app for episode tagging, resource finding, and feedback.
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Welcome back to the 20 minutes vc with me Harry Stebbings at H Stepbings with two B's on Snapchat. I always love to see you there. And you can download our app on the App Store by searching for 20 vc.

Harry Stebbings introduces the podcast and his presence on Snapchat, promoting the podcast's dedicated app for a better listening experience.

• Excel is recognized as one of the top-performing funds with investments in major companies.
• Rich Wong, a general partner at Excel, is featured in the episode.
• Rich Wong has been involved in significant investments and sits on the boards of multiple companies.
• Rich's background includes roles at Openwave Systems and Covad Communications.
• Brian O'Malley and Manu Kumar are acknowledged for their contributions to the episode.

And I'm thrilled to feature one of the top performing funds of the last decade with investments in the likes of Facebook, Dropbox, Slack, Atlassian, Deliveroo and many more incredible companies.

Harry Stebbings highlights Excel's successful investment history and introduces Rich Wong as the episode's guest.

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• Rich Wong describes his entry into venture capital as "accidental."
• His background as an operating executive in mobile technology led him to venture capital.
• Rich was looking for COO or President roles when he connected with the Excel team.
• Excel was seeking someone with mobile technology experience, which aligned with Rich's background.

So I was actually quite an accidental venture capitalist. I was a operating exec. I ran the products group of a company called Openwave Systems, which was a pioneer in wireless Internet and mobile technologies.

Rich Wong explains his unexpected transition from an operating executive to a venture capitalist.

• The conversation is set to explore the lifecycle of a deal, from sourcing to post-investment.
• Topics include finding entrepreneurs, investing mindsets and mechanics, and scaling and board membership effectiveness.

But I want to start today and go through the lifecycle of a deal. So starting with sourcing and finding the incredible entrepreneurs in Excel's portfolio, then discuss some of the investing mindsets and mechanics, and then talk about post investment, how you think about scaling and being an effective board member.

The host outlines the structure of the discussion, focusing on the stages of a venture capital deal.

• Rich Wong has observed a shift from local investing to a global mindset in venture capital.
• Innovations in technology have enabled companies to grow significantly outside of Silicon Valley.
• The entrepreneurial mindset of Silicon Valley is now more of a global phenomenon rather than a physical location.
• The globalization of venture capital is seen as a positive change that increases entrepreneurial opportunities.

And I think it's pretty obvious now whether it's companies like Spotify or Supercell or Atlassian or other companies of that form, that that is now an outdated view.

Rich Wong remarks on the outdated notion of investing only in local companies, citing examples of successful companies that grew outside of Silicon Valley.

• Excel sources entrepreneurs by building relationships and investing time with founders.
• Companies like Atlassian had a known presence, but it was uncertain if they would ever raise capital.
• Venture capitalists must decide how much effort to invest in building relationships with founders who may never seek venture capital.

And so I think you had to make the calculus in one's head of how much time did you spend with those founders? And would you spend 14 hours plane flight to go, quote, have lunch with them and spend the time to build the relationship?

Rich Wong discusses the strategic considerations venture capitalists make when deciding to invest time in potential investments, such as traveling to meet with founders.

• Networking with local entrepreneurs and angel investors is key to uncovering hidden companies.
• An example of a hidden gem is Qualtrics, a multi-billion dollar company in market research surveys, located in Salt Lake.
• Building relationships with founders, such as Ryan Smith of Qualtrics, is crucial in the early stages.

"The company you were mentioning a moment ago, Qualtrics, is a good example of that."

This quote highlights the importance of recognizing companies like Qualtrics that may not be obvious investment opportunities due to their location or industry sector.

• Assessing the effectiveness of GP (General Partner) time when building relationships with companies.
• The worthiness of time investment depends on the potential uniqueness and special nature of the company.
• Proximity to the company does not influence the value of the investment as much as the company's potential.

"The longest flight you'll ever take is to the deal that's not working or that it's not special."

This quote illustrates the philosophy that time should be spent on potential investments that show promise, regardless of their location, rather than wasting time on less promising deals.

• Price sensitivity varies depending on the stage of the company and the perceived potential for unbounded upside.
• Early-stage investments are often more about team potential than valuation.
• Some companies, like Atlassian, justify higher valuations due to their significant upside potential.
• Price discipline is important in categories with limited upside potential.

"I mostly agree, but not completely. I mean, I think certainly at the early stage, you're purely betting on team."

This quote conveys the stance that while team potential is a major factor in early-stage investments, valuation still plays a role, particularly in later stages or in certain market categories.

• Large multi-stage funds may adopt different strategies for early-stage versus growth-stage investments.
• Early-stage funds aim for high upside opportunities, while growth-stage funds may accept lower multiples if the upside seems capped.
• Excel's fund structure includes a $500 million early-stage fund and a billion-plus growth fund, each with different investment goals.

"On the early stage side, you're shooting for the metaphorical ten x... On the growth stage, you are still looking for the upside opportunities."

This quote explains that the investment approach differs between the early-stage and growth-stage funds, with early-stage focusing on higher risk-reward ratios.

• Reserve allocation is typically equal to the initial investment amount for early-stage companies.
• The reserve ratio decreases for later-stage investments.
• Investment follow-on decisions are now more strategic, focusing on companies with the potential to scale significantly.

"When you do an early stage investment, on average we at least reserve an equal amount of capital."

This quote outlines Excel's approach to reserve allocation, ensuring they have the capital to support a company's growth through subsequent funding rounds.

• Internal debates within partnerships are common when deciding on follow-on investments or exits.
• The decision-making process includes evaluating the unique potential of companies and the opportunities presented by new funding rounds.

"There's a fair bit of debate about all of this."

This quote acknowledges the complexity and collaborative nature of decision-making when it comes to allocating funds to high-performing companies within the portfolio.

• Excel's partnership recognizes top 10% of companies as special and directs more follow-on dollars towards them.
• There is often debate and no consensus on investment opportunities.
• The process of selecting companies for additional investment is ongoing and not yet perfected.

"We all know who the top 10% companies are and which ones are quote unquote special. And so I think those are the ones we try to direct chunk of our follow on dollars towards, as opposed to just spreading it peanut butter across everything in the portfolio."

This quote explains that within Excel's partnership, there is a clear understanding of which companies are considered top performers or have special potential. These companies receive a larger portion of follow-on investments, rather than distributing funds evenly across all portfolio companies.

• Competition affects the ability to invest in special companies.
• Staying relevant involves adapting to new market entrants and changes over time.

"Speaking of kind of identifying those really special companies around them, there's always an intense amount of competition, and one element that kind of affects your ability to get in is that competitive landscape."

The quote highlights the intense competition in investing in standout companies and how this competition can influence an investor's ability to secure an investment opportunity.

• Excel looks for investment opportunities globally to find less noise and more interesting companies.
• The "prepared mind" approach is used to sort interesting deals from the deal flow.
• Having a thesis and an inductive approach helps in identifying valuable investments.
• Excel positions and markets the unique experiences of its portfolio companies to attract entrepreneurs.

"One of the ways to help reduce that, to improve our focus is to look in areas where others are not."

This quote emphasizes the strategy of seeking investment opportunities in less saturated markets to improve focus and reduce competition.

"Chance favoring someone who has a prepared mind."

This quote, originally from Louis Pasteur, is used internally at Excel to emphasize the importance of being prepared and having a well-thought-out thesis to identify the best investment opportunities.

• Deciding when to scale is based on value proposition, market fit, and unit economics.
• Companies often scale too quickly, wasting capital and causing unnecessary founder dilution.
• Repeatability of success and proof of unit economics are indicators for when to scale.
• Median time for repeatability is a few quarters, with the focus on unit economic viability.

"It relates to the simplistic and straightforward points around value prop market fit and the proof of unit economics, and the belief that one can start to see the scalability of those unit economics in general."

This quote explains that the decision to scale a company is based on fundamental aspects such as the value proposition, market fit, and demonstrable unit economics that indicate potential for scalability.

"There are certain magical moments you look for to see that while the core unit economic is really starting to work."

This quote suggests that there are key moments or indicators that reveal when a company's fundamental economic unit is effective and ready for scaling.

• Rich Wong reflects on past mistakes where scaling was based on a changing customer base.
• A focus on a single customer base can lead to missed opportunities for diversification.
• Recognizing and adapting to market shifts is crucial.

"I think that was an example where we both, in some cases, were successful too quickly, and so the company scaled so quickly that we were trying to build our entire business on that one customer base versus diversifying and looking at other customer bases or other value propositions."

The quote illustrates the pitfalls of scaling too rapidly based on a single customer base without considering market changes and the need for diversification.

• Rich Wong's approach to being a board member has evolved from tactical help to strategic focus.
• Understanding competitive dynamics and market development is crucial for venture capitalists.
• Board members should leverage their industry-wide perspective for strategic guidance.

"And so I think being able to focus on the more strategic elements of understanding the landscape and how the landscape is changing is where."

This quote underscores the importance of focusing on strategic elements such as competitive dynamics and market changes, utilizing the broader industry perspective that venture capitalists have.

• Harry Stebbings has shifted from providing tactical support across many areas to focusing on specific tasks.
• The transition reflects an evolution in his role as a venture capitalist.

I'm starting to spend more time as opposed to racing around trying to do every area of tactical support in my earlier days of being a VC.

This quote indicates that Harry Stebbings has adjusted his approach to venture capital, dedicating more time to specific areas rather than trying to cover every aspect of tactical support as he did in the early days of his career.

• Rich Wong's favorite book is "The Big Short" by Michael Lewis.
• He appreciates the book for its discussion on perceiving things differently from conventional wisdom.
• The book's narrative on the few who saw the mortgage-backed securities crisis coming resonates with the venture capital practice of identifying and capitalizing on market misjudgments.

My favorite book is the big short by Michael Lewis. The reason why I really enjoy that book is first of all, I enjoyed Michael Lewis's writing all the way back to liars poker when I was, I guess, still in know back when he first wrote that. But I really like when you read the big short. It's a great discussion about how to perceive something that's different than the conventional wisdom.

Rich Wong explains that "The Big Short" is his favorite book because it challenges conventional wisdom and discusses the importance of recognizing market bubbles and the potential for significant gains by going against the crowd.

• Rich Wong criticizes the advice of investing in "hot" categories without discernment.
• He warns against the mentality of needing a venture capital bet in trendy sectors, as success often comes from selecting the best rather than following the crowd.

Oftentimes, in terms of bad advice, there is a discussion about how a category is quote unquote, hot and how maybe we, as a venture capital firm, need our bet in x category.

Rich Wong highlights the flawed advice often heard in the venture capital industry, which pushes firms to invest in popular categories without proper evaluation, potentially leading to a lack of success.

• Rich Wong has changed his mind on the value of having a strong syndicate of fellow board members.
• He now believes that diverse perspectives on the board can significantly contribute to a company's success.
• The example of Osmo, with board members from varied backgrounds, demonstrates the benefits of this approach.

I think out of some learning of the past five to seven years, I think Osmo, by the way, as we mentioned, is a very good example of this, having a diverse syndicate that has different points of view to the board, even if you don't 100% always agree with the other members of that board, can actually make a dramatic difference in helping the company be successful long term.

Rich Wong shares his evolved belief that a diverse board with different viewpoints can dramatically impact a company's long-term success, as evidenced by his experience with the company Osmo.

• Rich Wong's preferred blog is Wolf Street.
• The blog discusses the global economy and identifies potential bubbles in real estate and tech.
• It aligns with Rich Wong's interest in the themes of "The Big Short," such as questioning conventional wisdom and identifying market inaccuracies.

My favorite blog is a blog called Wolf street, and it is a blogger that talks a lot about what's going on in the world economy, about bubbles in real estate, about bubbles in tech.

Rich Wong enjoys Wolf Street for its analysis of the global economy, particularly its focus on identifying bubbles in various sectors, resonating with his interest in understanding and challenging market norms.

• Excel places importance on quickly integrating new employees into the partnership and encouraging them to lead deals.
• The firm's approach to training emphasizes hands-on experience and rapid responsibility to maintain a healthy venture capital practice.

Training the next generation is something we spend a lot of time thinking about... And so the idea of how do we get folks that are just starting in their career engaged, plugged into the partnership as quickly as possible and leading deals as quickly as possible.

Rich Wong discusses Excel's commitment to training new employees by rapidly involving them in the partnership and empowering them to lead deals, a practice that has proven successful for the firm's vitality.

• Rich Wong's most recent publicly announced investment is in Instabug, a company based in Cairo, Egypt.
• He was impressed by the founders and their proven market fit at an early stage.
• Instabug's location and sector fit into the broader theme of venture capital globalization and technology upcycles.

The most recent publicly announced investment is a company called Instabug, which is based out of Cairo, Egypt... I think they're a team that had proven, even at this very early days, value prop and market fit.

Rich Wong shares his enthusiasm for Instabug, highlighting the team's early demonstration of value proposition and market fit, which aligns with the venture capital strategy of identifying promising opportunities globally.

• Harry Stebbings promotes the 20 minutes VC app and social media presence.
• He emphasizes the importance of HR in building a successful company, endorsing Namely for HR management.
• The show also promotes Eero for providing reliable Wi-Fi coverage, enhancing connectivity in homes.

Likewise, you can follow us behind the scenes at the 20 minutes VC on Snapchat on at Hdebings with two B's... Namely is the all in one platform that helps companies manage hr, payroll, benefits and more... Eero is the world's best reviewed Wi Fi.

Harry Stebbings encourages listeners to engage with the 20 minutes VC platform on various channels and highlights the significance of HR and Wi-Fi solutions in building and maintaining efficient workplaces and homes.