20VC Can Founders Really Trust Their VC & How To Navigate The Acquisition Process Successfully with Josh Felser, CoFounder @ Freestyle.vc

In the latest episode of "20 minutes VC," host Harry Stebbings interviews Josh Felser, cofounder and general partner at Freestyle, a prominent San Francisco seed fund with investments in companies like Airtable and Patreon. Felser discusses his journey from founding two successful companies, Spinner and Grouper, which sold for substantial sums, to becoming a venture capitalist. He emphasizes the importance of transparency and trust between founders and VCs, and shares insights on navigating the M&A process, stressing the need to anchor high during negotiations and the strategic use of time and board relationships. The conversation also touches on the importance of supporting women in tech and the role of VCs in hiring and company exits. Additionally, the episode features promotions for Foundersuite and Greenhouse, tools designed to assist startups and growing companies in fundraising and hiring.

• Harry Stebbings hosts the podcast 20 minutes VC and is active on Snapchat.
• He expresses gratitude for ad responses with personal thank you messages.
• Harry introduces the guest of the show, Josh Felsa, and mentions the recent achievements of the guest's firm.

"Hello and welcome back to the 20 minutes VC with me, your host Harry Stebbings, found most often on Snapchat at h stepbings with two B's and all ads get a personal thank you message from me."

This quote is Harry Stebbings introducing himself and his social media presence, highlighting his personal engagement with his audience.

"However, to the show today and what a great guest we have in store for you."

Harry Stebbings transitions to introducing the day's podcast guest, setting the stage for the interview.

• Josh Felser is a co-founder and general partner at Freestyle, a San Francisco-based early-stage seed fund.
• Freestyle has made investments in notable companies such as About.me, Airtable, Intercom, and Patreon.
• Prior to venture capital, Josh founded two successful Internet companies, Spinner and Grouper, which sold for substantial amounts.

"So, joining me in the hot seat day, I'm thrilled to welcome Josh Felsa, cofounder and general partner at Freestyle, one of San Francisco's leading early stage seed funds, with investments in the likes of about me, airtable, Intercom and Patreon, just to name a few."

Harry Stebbings provides a brief overview of Josh Felser's professional background and his venture capital firm's notable investments.

"As for Josh, prior to being in VC with Freestyle, Josh started two successful Internet companies, Spinner and Grouper, which were acquired by AOL Time Warner and Sony for $320,000,000 and $65 million, respectively."

Harry Stebbings summarizes Josh Felser's entrepreneurial success before moving into venture capital.

• Foundersuite is a CRM for raising startup capital, boasting over $130 million raised by its users.
• It has a database of over 50,000 investors and is popular among major accelerators.
• Greenhouse Software provides tools for hiring and has been recognized as a top workplace.

"Foundersuite makes the leading CRM for raising startup capital. Since March of 2016, Foundersuite customers have raised over $130,000,000 in seed and venture capital."

This quote explains the purpose and success of Foundersuite, a tool for startups to manage their fundraising efforts.

"Recognized as the 2017 best place to work in the US by Glassdoor, Greenhouse currently works with over 1500 of the world's most innovative companies, such as Airbnb, Slack Snap Inc. And Lyft."

This quote highlights the achievements of Greenhouse Software and its role in helping companies with their hiring processes.

• Josh Felser describes his transition from being an entrepreneur to a venture capitalist.
• He explains that the name "Freestyle" reflects the non-conformist approach he and his partner take in the VC world.
• The name embodies their identity as entrepreneurs and operators and defines their VC style.

"Well, I did name my, I did come up with know everyone has a different interpretation. And so I'll say it personifies the way that Dave and I kind of move through the world. We don't conform to anybody else's definitions of what we should be or vcs should be like. And so freestyle seemed to be a perfect know. We're entrepreneurs at heart, we're operators, and it defines how we are as vcs. So freestyle was the best name I could come up with."

Josh Felser discusses the origin of the name "Freestyle" for his VC firm, emphasizing their unique and entrepreneurial approach to venture capital.

• Josh Felser recounts the stress involved in operating startups and the relief after selling his companies.
• He touches on the emotional toll of entrepreneurship and the need to suppress negative emotions during the process.
• The flexibility and diversified stress of being a VC appealed to him as a more sustainable career path.

"But being an operator is the most stressful thing you'll ever do. I think it can evolve you, but it can also make it hard to experience the other pleasures in life."

Josh Felser reflects on the intense stress of being an entrepreneur and how it can overshadow other aspects of life.

"Both. It was such a relief to have sold it. And then kind of all the things that you push down inside as an entrepreneur, while you're in the middle of it, you can't afford to be depressed. You can't afford to have anything sway you from your mission."

Josh Felser describes the emotional release after selling his company, highlighting the necessity of emotional resilience during entrepreneurship.

• Josh Felser addresses the trust dynamic between founders and VCs.
• He believes that trust depends on the VC, the situation, and whether the relationship has moved beyond initial negotiations.
• Felser suggests that founders should be able to share personal secrets with their VCs, akin to a therapist-client relationship.

"Well, I think the easy answer is it depends, right? It really depends on the VC and the situation."

Josh Felser states that the trustworthiness of a VC is not a one-size-fits-all answer and varies with context.

"And so there are moments when you shouldn't trust your vc, and those moments should be called out. They shouldn't be mysteries."

Josh Felser acknowledges that there are times when founders should be cautious in their trust towards VCs and that these moments should be transparent.

• VCs and entrepreneurs often find themselves out of alignment, particularly around mergers and acquisitions (M&A).
• VCs may want the entrepreneur to sell more rapidly or to be more ambitious, which can conflict with the entrepreneur's wishes.
• It is advised not to trust VCs when their desires conflict with the entrepreneur's.

"Sometimes VCs want entrepreneurs to sell more rapidly and other times they want them to go for it. And these desires may be in conflict with what the entrepreneur wants."

This quote highlights the potential for misalignment in objectives between VCs and entrepreneurs, especially regarding the pace and scale of selling a business.

• The dynamic between VCs and entrepreneurs changes from pre-investment to post-investment stages.
• Later-stage VCs tend to be more transactional, altering the nature of trust and transparency.
• Early-stage VC relationships are more humanistic and involve building a deeper connection with the entrepreneur.

"Well, later stage VCs really become more transactional, I think, than early stage VCs."

Josh Felser explains that as companies grow and enter later stages of funding, the interactions with VCs become more focused on financial transactions rather than relationship building.

• There is a trend toward increased transparency between founders and VCs.
• Past experiences of non-transparency among VCs have led to negative situations for entrepreneurs.
• The future might see a closer alignment and understanding between founders and VCs.

"There is hopefully a trend towards more transparency between founders and VCs, so that it's actually not a mystery when you're not on the same page."

Josh Felser advocates for greater openness in the founder-VC relationship, reflecting on his own negative experiences with non-transparent VCs.

• Determining the right time for a founder to exit can be complex and is influenced by various factors.
• The example given shows a founder selling early due to a negative fundraising experience, despite investor belief in the company's potential.
• The personal circumstances of the entrepreneur can significantly impact the decision to exit.

"I believe the entrepreneur, for his or her own personal reasons, threw in the towel early because they were having a moment in time that was very negative around fundraising."

Josh Felser uses a specific case to illustrate how personal challenges in fundraising can lead a founder to exit prematurely.

• A board member's role varies significantly between early and later stages.
• Reputation and long-term relationships with Limited Partners (LPs) affect decisions around supporting or challenging acquisitions.
• The historical performance of replacing founders with new CEOs is generally poor, influencing the support for founder decisions.

"So if I look at my ultimate duties to my lps, so short sightedly, I could have said, well, I'm going to fight this acquisition and maybe maximize shareholder value for this company, but that could damage my reputation to the point where it impacts my ability to create great returns for my LPS longer term."

Josh Felser discusses the delicate balance between immediate shareholder value and the long-term reputation and trust that a board member must maintain with LPs.

• Early leadership transitions carry inherent signaling risks.
• Insiders leading funding rounds can mitigate these risks and help establish a new CEO.
• Disjointed leadership at early stages can be detrimental to the company's success.

"So the signaling risk I think you can overcome if the insiders decide to lead the next round, I think you can rage the company and the new CEO to some proof points that would work for the subsequent rounds."

Josh Felser acknowledges the challenges of leadership changes but suggests that insider support can help navigate the transition and set up for future success.

• Board members evolve in their roles and responsibilities over time.
• Balancing the emotional support for entrepreneurs with the duty to represent shareholders can be challenging.
• Transparency and communication are key to resolving conflicts and supporting the entrepreneur.

"So I guess my evolution is really around my communication style and being more transparent when we actually have a conflict and I have an internal conflict."

Josh Felser reflects on his development as a board member, emphasizing the importance of clear communication and transparency in managing the dual responsibilities of supporting entrepreneurs and maximizing company value.

• Transparency and open communication between board members and entrepreneurs are crucial.
• Entrepreneurs should be informed about any discussions concerning them among investors.
• Trust and conflict resolution are improved when founders are aware of and involved in conversations about them.

"I promise entrepreneurs that I will never have a conversation about them that they don't know about with other investors."

This quote emphasizes the commitment to transparency, ensuring that entrepreneurs are always in the loop regarding discussions that involve them, thereby fostering trust.

"It's been reinforced by the feedback I've gotten from founders that I've worked with."

Feedback from founders has highlighted the positive impact of transparency on their relationship with board members, reinforcing the importance of this approach.

• Entrepreneurs should actively engage in selling their company, as every interaction can influence valuation.
• All forms of communication, including social media, can be used strategically during the acquisition process.
• Entrepreneurs often need guidance in managing communications with potential acquirers.

"Every text, every email, every tweet, every call is an opportunity for you to sell your company, right? Or to improve the valuation."

This statement underlines the importance of considering every interaction as a chance to positively influence the perception and value of the company.

• Anchoring high is a negotiation strategy to set valuation expectations during company acquisitions.
• The initial high anchor can influence subsequent offers and negotiations, potentially leading to a higher final sale price.
• Conviction and strategic communication are key when presenting high valuations to potential acquirers.

"So when an acquirer asks you that, the goal is to come up with a valuation that's way higher than what you would take, but not so high that the acquirer hangs up on you."

This quote explains the delicate balance in setting an ambitious yet realistic anchor point in valuation discussions to maximize the sale price without alienating the acquirer.

"I remember I looked the corp dev person in the eye when I said it, and he looked down first."

The quote illustrates the psychological aspect of negotiation, where confidence and non-verbal cues can influence the outcome.

• Time and the board are valuable assets in negotiations, especially when alternative offers are not present.
• Creating a sense of urgency and leveraging the board as a decision-making body can strengthen the negotiating position.

"I wouldn't want time to be the reason we don't work together."

This quote suggests a negotiation tactic where implying a time constraint can create urgency and pressure on the acquirer to move forward with a deal.

"Use your board. Like, blame everything on your board. Say the board is the impediment to getting a deal done."

This strategy involves using the board as a scapegoat to avoid being the 'bad cop' in negotiations, thereby maintaining a positive relationship with the acquirer while still pushing for better terms.

• Founders should advocate for fair treatment of all investors during acquisition negotiations.
• Splitting the cap table, where a portion of the sale proceeds is set aside for management, can be contentious.
• The ethical stance is to support the investors who have supported the company.

"Just do the best you can for your investors. You won't always win, but you want to feel, as a founder, you want to feel like you support the people who supported you."

This quote advises founders to strive for equitable outcomes for their investors during exits, as a show of gratitude and fairness for their support throughout the company's journey.

• Aqua hires pose significant challenges in ensuring that investors and entrepreneurs act righteously.
• The psychological impact of potentially selling a company can be immense on founders.

You made an effort. It's one of the great challenges with the Aqua hire, and I feel fortunate. I think that when we've been in this situation that our investors have. I mean, our entrepreneurs have done right by us.

This quote emphasizes the difficulty of aqua hires and the speaker's gratitude for having responsible investors and entrepreneurs.

• Debates whether it's beneficial to be transparent with the team about potential exits.
• Advises against informing the team until a deal is certain.
• Discusses the psychological impact on founders once they consider an exit, which can lead to accepting lower offers.

I wouldn't tell the team until you have a deal. The founders just have to bear this burden on their own.

This quote advises keeping potential exit deals confidential from the team until they are finalized to prevent unnecessary distraction or disruption.

• "Snow Crash" inspired the speaker to pursue a career in technology.
• The book encompasses themes of dystopia, politics, and the metaverse.

Book and why snow Crash? Because it propelled me to do tech. It kind of has everything in there. Dystopia, politics, metaverse.

This quote explains how the book "Snow Crash" influenced the speaker's career choice by combining various compelling themes.

• Discusses the relationship between politics and technology.
• Quotes the band Rush to illustrate the inevitability of making choices.
• The speaker is actively involved in political campaigns to integrate more digital technology.

If you choose not to decide, you still have made a choice.

This quote, borrowed from the band Rush, implies that inaction is also a form of decision-making, relevant to the discussion on the intersection of politics and technology.

• The current political climate occupies a significant portion of the speaker's day.
• The speaker engages in online political discussions and strategizes for political change.

Taking up, I would say, a quarter of my day in thought and tweeting and responding and strategizing how to get ourselves out of this fucking mess.

This quote reveals the speaker's deep involvement and concern with the current political situation and its impact on their daily activities.

• Venture capitalists have large egos and receive numerous emails.
• Personalization, humor, and insight can make a cold email stand out.

So we have massive egos as think, and you have to remember, we get thousands of emails. So make me laugh, make it personal and make it insightful.

This quote provides advice on how to effectively cold email a venture capitalist by appealing to their ego and desire for personalized and insightful communication.

• The speaker discusses strategies for increasing female representation in tech.
• Recommending asking for help from women in writing job descriptions and outreach.
• Sharing a personal experience where changing the language in a job description and distribution method increased female applicants.

Talk to so men who make up most of the venture capital community. Men hate asking men or other women for help. We just hate asking for help.

This quote highlights the reluctance within the venture capital community to seek help, which is necessary to increase diversity in tech.

• Carbon Robotics was the speaker's last investment.
• The decision was based on the team's capability and the vast potential of the robotics market.

So the last investment I made is in carbon robotics. It's a sub $5,000 robotic arm with the payload of a massively expensive robotic arm.

This quote explains the speaker's recent investment decision, highlighting the value proposition of Carbon Robotics' product in comparison to more expensive alternatives.

• Foundersuite and Greenhouse are tools that assist startups with fundraising and hiring, respectively.
• Foundersuite aids in managing investor relations and has facilitated significant capital raising.
• Greenhouse is an applicant tracking system that helps companies make better hiring decisions.

Foundersuite makes the leading CRM for raising startup capital.

This quote introduces Foundersuite as a valuable resource for startups looking to raise capital.

Greenhouse software designs tools that helps companies hire great people and ultimately build better businesses.

This quote introduces Greenhouse as a tool for improving the hiring process within companies.