20VC Accel's Sonali De Rycker on Building a Generational Defining Venture Firm; Hiring, Culture, Incentives Investing; Biggest Mistakes, Biggest Lessons from Prior Crashes, Why Market Size is Dangerous to Focus On DecisionMaking; Type 1 vs Type 2 Ri



In the latest episode of 20vc, Harry Stebbings interviews Sonali De Rycker, a partner at Accel, who shares her journey from a resourceful, ambitious student in India to a leading venture capitalist in Europe. Sonali discusses her early struggles, her bold move to the US, and her career trajectory, including her time at Atlas Venture and her role in guiding Accel's investments in companies like Spotify, Monzo, and Hopin. She emphasizes the importance of recognizing exceptional founders and the limitless potential of startups, while also reflecting on lessons learned from market downturns and the value of resilience and partnership in venture capital. The conversation also touches on the challenges of firm building, the impact of US funds entering the London market, and the critical role of nurturing talent within a venture firm. Sonali's insights reveal a deep commitment to supporting entrepreneurs and fostering a collaborative team culture at Accel.

Summary Notes

Personal Journey to Venture Capital

  • Speaker A shares their ambitious journey from India to the U.S. with no money and no experience abroad.
  • The determination to pursue a professional career due to limited choices in socialist India.
  • The scrappy, entrepreneurial approach taken to secure a scholarship in the U.S., likening themselves to a startup.
  • Transition from a liberal arts education to a job at Goldman Sachs, where they were exposed to tech startups and IPOs.
  • The decision to move into venture capital and relocate to Europe, perceiving it as an untapped market compared to the crowded U.S. tech scene.
  • Joining Atlas Venture and later moving to Excel in 2008.

"I feel like I was my startup." This quote emphasizes Speaker A's entrepreneurial spirit and the proactive steps they took to shape their own future, which mirrors the mindset of a startup founder.

"I joined a firm called Atlas Venture... and I moved to excel in 2008, and I've been here since now." Speaker A outlines their professional trajectory in the venture capital space, highlighting the significant career moves and their long-term tenure at Excel.

Venture Capital Insights and Experiences

  • Speaker A reflects on the dot-com bubble and the 2008 financial crisis, comparing them to current market conditions.
  • The importance of detail and value for money as illustrated by a call from David Bonderman during a difficult negotiation.
  • The lessons learned about the value of capital and the responsibility of being a fiduciary.
  • The strategy of never stopping investing and the importance of maintaining confidence.
  • The necessity of partnering and supporting entrepreneurs through confusing times, such as the conflicting advice given during COVID-19 and afterwards.

"The fact that this legendary founder investor could call me to ask about a very small amount of money... that's how he became a legendary investor." This quote illustrates the meticulous attention to detail and hands-on approach that successful investors, like David Bonderman, take even in small deals.

"The minute you lose your confidence, you lose your right to exist." Speaker A conveys the critical importance of confidence in venture capital investing, as a lack of it can lead to missed opportunities and the potential downfall of a fund.

"It's such a confusing time for these founders, right?... It's almost psychotic. So it's almost unfair." Speaker A empathizes with founders who receive mixed messages about growth and profitability, highlighting the importance of venture capitalists providing clear and consistent guidance.

The Venture Capitalist's Role in Market Fluctuations

  • The discussion of how past market crashes influenced Speaker A's investing mindset.
  • The recollection of the Lehman Brothers collapse during a fundraise and the impact on limited partners (LPs).
  • The emphasis on the role of venture capitalists as fiduciaries and partners to founders, especially during market downturns.
  • The challenge of giving consistent advice to founders in rapidly changing economic environments.

"Never stop investing. The minute you lose your confidence, you lose your right to exist." Speaker A stresses the necessity of continuous investment activity to maintain relevance and success in the venture capital industry.

"You have to partner with your entrepreneurs." This quote underscores the collaborative relationship between venture capitalists and founders, which is especially critical during uncertain market conditions.

Early Stage Investment Philosophy

  • Accel focuses on early-stage investments, primarily in seed and Series A rounds.
  • The firm maintains long-term relationships with founders, spanning ten to twelve years.
  • Emphasis is placed on building strong references and relationships with founders.
  • Accel is committed to supporting companies through both their highs and lows.
  • Time allocation and support strategies are carefully considered to maintain these relationships.
  • Repeat founders are a key focus, recognizing that while a first company may fail, the next could be highly successful.

"Yeah, we are in the business of partnering very, very early with founders. Right. The majority of what we do is either seed, who knows whether it's precede or seed these days? It all got sort of merged or series A, and those are ten to twelve year relationships."

This quote outlines Accel's investment strategy, which is centered around early-stage partnerships with founders and the expectation of long-term engagement.

Venture Capital Valuation Practices

  • Accel approaches valuations conservatively and realistically.
  • The firm proactively adjusts valuations rather than delaying them.
  • Valuations are based on deep discounts and thorough analysis.
  • Proactivity in revaluation is necessary, but outside marks are currently challenging to obtain.
  • The venture capital market is experiencing contraction multiples rather than business risk issues.
  • The current climate is one of wait-and-see, with a divergence in venture business responses.

"We've always seen that it pays to be a combination of conservative and realistic. We don't make up our own way of accounting, and so we're pretty proactive about taking down the valuations, but they're already sitting at pretty deep discounts."

This quote emphasizes Accel's valuation approach, highlighting the importance of being conservative and realistic, and the proactive nature of their valuation adjustments.

Role and Impact as "The Glue" of Accel London

  • The term "glue of Accel London" refers to someone who brings cohesion and stability to the team.
  • Creating an environment conducive to authenticity and personal best is crucial.
  • Continuous communication and real-time feedback are key practices.
  • Accel London has a dedicated talent individual focused on team mentorship and culture.
  • Vulnerability and openness are encouraged to foster a supportive team environment.

"It means there's a lot of communication. So constantly pulling people in, giving feedback, asking how they're doing, keeping an eye on when you see somebody sort of is not kind of as active or as happy as they were."

The quote highlights the importance of communication and feedback within the team, which contributes to the speaker's role as the "glue" of the organization.

Seniority and Vulnerability

  • Seniority may make it easier to be vulnerable and authentic in a professional setting.
  • The ability to be authentic is not universally accessible; it can be influenced by one's position and success.
  • Role modeling vulnerability can help reduce the discrepancy between different levels of seniority.

"I think it is easier when you're more senior, and that's great because you can role model it and hopefully you can change that discrepancy."

This quote reflects on the relationship between seniority and the ability to be open and vulnerable, suggesting that seniority can provide the freedom to model these behaviors.

Accel London's Culture

  • Accel London aims to be hyper-competitive externally and ultra-collaborative internally.
  • The culture avoids "sharp elbows" and is not centered around individual stars.
  • Collaboration is encouraged through both written and unwritten rules.
  • Team success and support are prioritized over individual achievements.

"The sentence that we use is that we want to be hyper competitive on the outside, but we're ultra collaborative on the inside."

The quote succinctly encapsulates the desired culture at Accel London, highlighting the balance between external competitiveness and internal collaboration.

Empowering Decision-Making

  • Empowerment of team members is essential to prevent bottlenecks in decision-making.
  • Younger team members are given the opportunity to make decisions and are supported in doing so.
  • The firm's culture supports dropping other commitments to assist team members when necessary.

"At the end of the day, you have to empower the right individual to be able to make those decisions and help them, support them, help them win."

This quote discusses the importance of empowering individuals within the team to make decisions and the support structure that enables this.

Talent Detection and Development

  • Accel London has shifted focus to homegrown talent due to a lack of operator pool.
  • Emotional characteristics and personal qualities are prioritized over technical skills in talent detection.
  • Resilience, self-awareness, and persuasiveness are key traits sought in potential investors.
  • Interview questions are designed to reveal candidates' reflective abilities and personal experiences.

"We weren't testing for how reflective you are, how self-aware you are. You have to be the person sitting at the side of the founder."

The quote emphasizes the importance of emotional intelligence and personal qualities in potential team members, reflecting Accel's approach to talent detection.

Resilience in Changing Macro Environments

  • The importance of resilience for young investors and entrepreneurs during economic downturns.
  • The value of leaning into early-stage businesses to maintain enthusiasm and remember what's possible.
  • The distinction between type one and type two mistakes, emphasizing learning from mistakes rather than dwelling on them.
  • The necessity to continue investing and meeting entrepreneurs even during tough times.

"So I'd do two things. The one is, and I think this is important, is I'd really lean in into your early stage businesses...The worst thing you can do, as I said before, is be frozen and stop investing."

This quote emphasizes the strategy of focusing on early-stage investments and the danger of inaction during economic downturns. It suggests that supporting entrepreneurs and continuing to invest are crucial actions to take when facing difficult macroeconomic conditions.

Learning from Market Changes

  • The recognition that even with sound decisions, external factors like changing macro environments can lead to unfavorable outcomes.
  • The lesson that cheap capital is not a permanent condition and the need to consider unit economics and the cost of capital in future investments.
  • The importance of not merely noting but truly understanding and internalizing potential risks in investment memos.

"You have learned that capital was cheap for a while, but it's not forever cheap."

This quote reflects the realization that the economic climate can change, affecting the availability and cost of capital, which should influence future investment decisions and considerations of business models.

Concerns About the Future of Investing

  • Worries about the potential reduction in ambition among investors due to a shift towards safer investments.
  • Concerns about the retreat from emerging markets and capital-intensive businesses, leading to a narrow focus on high-margin enterprise SaaS.
  • The belief that exceptional founders will continue to emerge and attract investment despite the downturn.

"I'm not worried about us losing confidence, not backing the outliers."

This quote conveys optimism that investors will continue to support exceptional and ambitious founders, even in a challenging economic climate.

Shifts in Capital Allocation

  • Observations on the migration of capital from growth stages to early-stage investing.
  • Speculation about price inflation at the seed stage due to increased investment from larger funds.
  • Discussions on whether early-stage entrepreneurs will work with passive funds.

"We can pay 50 instead of 25 at seed and put in five on 50."

The quote highlights the trend of larger funds entering early-stage investing, potentially leading to increased valuations and investments at the seed stage.

The Value of Relationships and Support in Venture Capital

  • The belief that entrepreneurs value relationships with their early investors, especially during challenging times.
  • The potential for a more concentrated allocation of talent and capital in fewer companies, possibly due to reduced competition.
  • The expectation that relationships and the desire for supportive partners will remain important to founders.

"I believe that it reverts to relationships and founders care about not all, but a lot do."

This quote expresses the view that despite changes in investment patterns, the foundational relationships between investors and founders will continue to be a crucial aspect of venture capital.

Evolution of Investing Style

  • Personal growth in recognizing the potential of exceptional companies and founders.
  • The realization that experiencing greatness firsthand changes one's perspective on what is possible.
  • The futility of outcome scenario planning when dealing with potentially uncapped returns from top performers.

"It's only when you're confronted with it in reality that I think you realize what unkept, kind of exceptional greatness looks like."

This quote reflects the speaker's learning experience that true potential is often realized through direct experience rather than theoretical understanding.

Reserves Management and Decision Making

  • The challenge of making follow-on investment decisions quickly in a fast-paced investment cycle.
  • The need for collective decision-making and heated debates within investment firms regarding follow-on rounds.
  • The importance of considering the opportunity cost of capital when deciding on follow-on investments.

"So you got to think very hard about that follow on capital, which is why for us it's the we versus just somebody believing in it."

The quote highlights the collaborative approach to follow-on investment decisions within the speaker's firm, emphasizing the collective responsibility and deliberation involved in such decisions.

Opportunity Cost of Capital

  • The discussion begins with a reflection on the opportunity cost of deploying capital in different market conditions.
  • It's suggested that investing in a depressed market may offer better opportunities than investing at higher valuations.
  • The importance of recognizing when to allocate funds based on one's belief in the market is emphasized.

"I think people forget the opportunity cost of that capital."

This quote highlights the need to consider the potential gains that could be missed when capital is invested in one place rather than another, especially in varying market conditions.

Faith in Founders

  • The conversation shifts to the challenge of losing faith in a founder and the importance of backing founders in venture capital.
  • Open and authentic discussions with founders are crucial when doubts arise.
  • The current market trend of "cheerleading" is criticized, indicating a preference for more substantive engagement with companies.

"I think it's very hard because as we all know, it's all about backing the founder."

This quote underscores the venture capital industry's emphasis on the importance of the founder in the success of a startup.

Investment Mistakes

  • Types of investment mistakes are categorized as false negatives (missed opportunities) and false positives (failed investments).
  • The speaker reflects on personal investment mistakes, such as underestimating market size and the availability of capital for fundraising entrepreneurs.
  • The value of learning from mistakes as a group is stressed, promoting vulnerability and shared learning.

"The false negative, when you say no to outlier of business, right, to a founder that creates an exceptional business that could have returned the fund multiple times over, that really hurts."

This quote explains the concept of a "false negative" in investment decisions, which refers to missing out on a highly successful investment opportunity.

Insecurities in Venture Capital

  • The speaker discusses personal insecurities, particularly regarding the ability to consistently identify exceptional founders at the seed stage.
  • The notion that venture capitalists don't need to invest in every successful business is proposed as a reassurance.

"Oh, my God. There are so many insecurities. It's probably around the fact I don't know if I can always get it right in terms of the exceptional founder."

This quote conveys the speaker's self-doubt about their ability to always make the right call when it comes to identifying and investing in the best founders.

Firm Building Challenges

  • The speaker reflects on the unique challenges of building a venture firm, especially in the European context.
  • The successful global strategy of having local teams and decision-making is highlighted.
  • The commitment to backing great founders regardless of their location is discussed, along with the logistical challenges it poses.

"We both know that if you just go back when we started out in 2000, we made the commitment to start excel here because it wasn't just about Silicon Valley, it was our first step in going global and then India was 2008, which has also been very successful."

This quote explains the strategic decision to expand a venture firm globally and the importance of local presence and decision-making in different markets.

US Players in London

  • The presence of major US venture capital firms in London is seen as a sign of a maturing ecosystem.
  • Building deep local networks and relationships is emphasized as critical to venture success, which takes significant time and commitment.

"I think it is sign of a maturing ecosystem. Right?"

The speaker interprets the arrival of US venture firms in London as an indication of the growth and development of the local startup ecosystem.

Personal Insights

  • The speaker shares personal tastes, strengths, and weaknesses, such as a love for a particular book and a tendency to worry.
  • The importance of team building and maintaining top talent is emphasized as a key aspect of the speaker's role.

"I care a lot about people, so I'm always trying to help. Biggest weakness. I'm a worrier."

This quote reveals the speaker's strength in caring for people and a weakness in worrying, providing insight into their personal characteristics.

Venture Capital Advice

  • Advice often given by the speaker includes not dwelling on the past and moving forward without regrets.
  • The speaker reflects on the underestimated potential of great founders and their ability to build exceptional businesses.

"Okay. I always tell people, don't have regrets, put a line in the sand, move on."

This quote represents the advice given by the speaker to others, emphasizing the importance of letting go of past decisions and focusing on the future.

Recent Investment Excitement

  • The speaker's recent investment in "BeReal" is discussed, highlighting the founder's effort to redefine social identity, which resonates personally with the speaker.
  • The conversation concludes with expressions of mutual respect and gratitude for mentorship and support.

"I think the fun one is be real. And the reason is because you should tell me. But we're lucky to be in it together."

This quote shares the speaker's enthusiasm for a recent investment, underlining the collaborative nature of the venture and its personal significance.

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