20VC Elad Gil's High Growth Handbook on The Commonalities of The Truly Great CEOs, How To Hire The Very Best Execs, Why Cash is A Defensible Moat Today & The Pros and Cons of M&A and IPOs

Summary Notes


In this episode of "20 minutes VC," host Harry Stebbings interviews Elad Gil, founder of Color and author of "High Growth Handbook." Elad discusses his journey from academia to Silicon Valley, his experience at Google and Twitter during their rapid growth phases, and his success as an angel investor with stakes in companies like Airbnb and Stripe. Elad's new book, which outsells "Zero to One" and "Lean Startup" in preorders, provides insights from interviews with 14 tech leaders and shares his own expertise on scaling companies. The episode also features conversations about the importance of hiring executives who fit the company's current scale, the role of a CEO in a growing startup, and the strategic use of capital as a defensive moat. Additionally, the episode touches on the trend of mega funds in VC, the delayed IPOs, and the decline in M&A activity in the tech ecosystem.

Summary Notes

Introduction of Elad Gil

  • Harry Stebbings introduces Elad Gil as an influential and supportive figure in the VC ecosystem.
  • Elad Gil is the founder of Color, a health startup that has raised over $112 million.
  • Gil is also an angel investor with notable investments in Airbnb, Stripe, Optimizely, Opendoor, and Wish.
  • Elad Gil has written a book called "High Growth Handbook," which includes interviews with industry leaders and his experiences at Google and Twitter.
  • The book is highly recommended by Harry Stebbings and is outselling other popular startup books.

"Elad Gil is the founder at color, the startup that shows you your genes can help you make better health decisions, and they've raised over 112,000,000 in funding from the likes of General Catalyst, CRV, eight VC, Aaron Levy and more."

The quote highlights Elad Gil's role as the founder of Color and the significant funding the startup has received from prominent investors.

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This quote emphasizes Terminal's commitment to helping companies build high-quality remote technical teams efficiently.

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The quote describes FreshBooks' user-friendly cloud accounting software and its popularity among users.

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The quote summarizes Highfive's role in simplifying business collaboration through its conferencing platform.

Elad Gil's Background

  • Elad Gil moved to Silicon Valley to join a telecom equipment startup after completing his PhD.
  • He transitioned from academia to startups to have a greater impact.
  • Gil's angel investing started organically by offering advice to friends who were starting companies.

"So I moved out to Silicon Valley to join a startup... And so it seemed like the best way to have impact was to go into startups and technology."

The quote explains Elad Gil's motivation for entering the startup world, seeking to make an impact through technology.

CEO Role and Responsibilities

  • The CEO's role varies with the company's scale, from finding product-market fit at early stages to managing complexity in larger companies.
  • Key CEO responsibilities include hiring talent, resource allocation, setting strategy, being the external face of the company, and fundraising.
  • As companies grow, CEOs spend more time on people management and strategic talent deployment.

"The role of the CEO kind of adapts to that complexity and really shifts and really it consolidates down to four or five different areas."

This quote outlines the evolving nature of the CEO role as a company scales and the key areas of focus for CEOs at different stages.

Hiring Executives

  • Hiring the right executives involves understanding the company's current scale and future needs.
  • CEOs should consult experts to define excellence in a role and learn how to screen candidates effectively.
  • Executives should have functional expertise, ability to manage and hire, strategic thinking, collaboration skills, and ethical standards.

"I think there's a multistage process to hiring great people."

The quote emphasizes the complexity and multiple steps involved in hiring the right executives for a company.

Timing of Hiring

  • Companies should look to hire three to six months in advance for roles they anticipate needing.
  • Well-capitalized, rapidly growing companies can afford to hire ahead, but rapid scaling can strain company culture.
  • Hiring too fast can lead to cultural disintegration, necessitating a balance between growth and cohesion.

"If you're a breakout company and you're truly scaling, usually capital isn't the issue."

This quote suggests that for successful, rapidly growing companies, capital is not the main constraint for hiring ahead.

Hiring Executives in Early vs. Late Stage Companies

  • Early-stage companies should focus on finding product-market fit and may hire generalists or industry experts.
  • Post product-market fit companies need executives with functional expertise who can scale teams.
  • Successful companies should be able to attract top talent, who are typically driven and hardworking.

"If your company is truly breaking out and post product market fit, you should actually be able to hire exceptional people like that."

The quote indicates that companies that have achieved product-market fit are in a strong position to hire exceptional executive talent.

Hiring Post-Product Market Fit

  • Organizations with post-product market fit can attract top talent.
  • Senior directors or VPs are often eager to take on more responsibility in a growing company.
  • Jason Lumpkin's advice may be more applicable to pre-product market fit companies.

organization, you hire their key senior director or their key VP who is really excited to take on an entire functional.org. So I'm guessing Jason. I don't know the full context, but I'm guessing Jason Lumpkin's advice is more geared towards a pre product market fit company. Because once you're post product market fit, often you have the pick of the very best people that you want.

The quote suggests that after achieving product market fit, a company is in a better position to hire high-caliber candidates for senior roles, which may not be the focus of Lumpkin's advice.

Role Allocation in Organizations

  • No universally correct structure for a company; it involves trade-offs.
  • Consideration of bandwidth and expertise within the team for function allocation.
  • Decision-making locations influence org structure.
  • Practical examples from Twitter's early executive team structure.

I think ultimately there's no correct structure for a company. And really there's a series of trade offs.

Elad Gil emphasizes that organizational structure is not one-size-fits-all and is based on various trade-offs, including bandwidth and decision-making.

Signs of an Employee Not Scaling

  • Signs include being frazzled, late to meetings, stressed, and unable to delegate.
  • Micromanagement can indicate an employee is overwhelmed.
  • Struggling to recruit talented subordinates suggests incompetence.
  • Lack of foresight and anticipation of issues is a red flag.

There's a few common signs, and sometimes there's very unique signs per person. The first 1 may just be, how frazzled are the people?

Elad Gil outlines common indicators that an employee may not be scaling with the company, such as visible stress and poor time management.

CEO Mistakes During High Growth

  • Growth can mask numerous mistakes.
  • Common errors include poor communication, hiring missteps, and failure to leverage company momentum.
  • Some CEOs neglect to evolve their company from product-focused to distribution-focused.

growth covers up for an enormous number of mistakes.

Elad Gil notes that rapid growth can conceal mistakes made by CEOs, suggesting that even successful companies may have internal issues.

Preemptive Rounds in Venture Capital

  • Preemptive rounds occur earlier than traditional funding cycles.
  • Driven by larger venture funds, fewer standout companies, larger outcomes, and successful examples of doubling down on investments.
  • Assessing preemptive rounds requires considering market size and future company position.

I think there's a few drivers of preemptive rounds.

Elad Gil explains the reasons behind the increasing prevalence of preemptive rounds in venture capital, highlighting changes in fund sizes and investment strategies.

Advice on Preemptive Rounds for Founders

  • Preemptive rounds can de-risk the company's future but may also lock in founders to a longer commitment.
  • Risks include overcommitment to a potentially unsuccessful venture and investor over-concentration.

I think in general, many preemptive rounds work well for founders from the perspective of it derisks the future of the company for them.

Elad Gil discusses the pros and cons of preemptive rounds for founders, emphasizing the importance of considering both the benefits and the potential for reduced flexibility.

Preemptive Funding Rounds

  • Preemptive rounds are driven by unexpected, phenomenal exits.
  • Extended periods of privatization in the ecosystem have led to a significant amount of illiquid company stock.

"You mentioned one of the drivers of these preemptive rounds being the just hugely phenomenal exits that, quite frankly, I don't think no one anticipated."

The quote highlights the surprise factor in the success of exits, which has been a catalyst for preemptive funding rounds.

Impact of Illiquidity on Venture Capital

  • Illiquidity can be defined as the ability to exit a position or a company’s acquisition/IPO.
  • A new generation of startups has not been evaluated by public markets.
  • Illiquidity has both positive and negative impacts on venture capital funds.

"So I think for a subset of companies, it's actually been positive for them to be private for longer. But it may be bad for the ecosystem overall, because it's tying up a lot of capital and talent into pockets that may not deserve that capital and talent as much."

Elad Gil suggests that while some companies benefit from staying private, it can negatively affect the broader ecosystem by misallocating resources.

"From a venture fund perspective, I think it's had both positive and negative impacts."

This quote indicates that the effects of illiquidity on venture funds are mixed, with both benefits and drawbacks.

The Rise of Mega Funds

  • Mega funds are raising record amounts, influencing trends like preemption and increased competition among VCs.
  • The rise of mega funds could lead to VCs being more defensive and less collaborative.

"I think that the sort of mega fund that's mattered the most in terms of impact is probably SoftBank."

Elad Gil points out SoftBank's significant influence due to its massive capital scale compared to other funds.

Advice for Founders Considering Mega Fund Investments

  • Founders should prioritize the helpfulness of an investor over valuation.
  • Late-stage investors may be valuable later in a company’s life for their ability to deploy larger checks.

"I would really focus on the helpfulness of the investor versus the valuation that they give you or anything else for my own companies as I've run them."

Elad Gil emphasizes that the value an investor brings to the table is more important than the financial terms they offer.

Market Share vs. Pricing Strategies

  • Silicon Valley often misguidedly follows the Amazon model of high market share with low margins.
  • High-profit margins and pricing power are more sustainable and advantageous for most companies.
  • Higher prices provide leverage for customer acquisition and R&D investment.

"And Mark Andreessen, I think, has a great quote on this where he says that if somebody were to ask him what to write on a billboard and you could only write one thing, he would write, raise prices."

Elad Gil concurs with Andreessen's advice, highlighting the importance of high margins for a company’s success and growth.

Capital as a Defensive Moat

  • Large amounts of capital can be used as leverage, especially with a strong customer lifetime value.
  • Capital is not the sole defensible point but can contribute to a competitive advantage.

"Oh, absolutely. I think that despite large amounts of capital in the system, there does become a point where it becomes reasonably uneconomical for other people to compete."

Elad Gil acknowledges the strategic use of capital as a competitive edge when combined with valuable customer relationships and data.

Reduction in M&A Activity

  • Fewer breakout companies are acquiring talent.
  • Larger companies are making fewer strategic acquisitions.
  • High private market valuations may deter acquisitions.

"So I think part of it too is just the private market pricing is a little bit out of whack."

Elad Gil suggests that inflated private market valuations are contributing to the reduction in M&A activity.

Founder Considerations in M&A

  • Founders should consider whether to engage in M&A discussions.
  • It's important to assess the potential acquirer as a good home for the team and product.
  • Early exits to breakout companies can lead to amplified financial outcomes.

"So number one is, should you even consider it? The second thing is, will it be a good home for you?"

Elad Gil advises founders to carefully consider the implications of M&A on their team's future and the product's success.

Founder Retention Post-M&A

  • Some founders have a significant impact by staying with the acquiring company.
  • Founder retention can lead to successful integration and growth within the larger company.

"There's a few really great examples of founders who've stuck around after getting acquired."

Elad Gil provides examples of founders who have made substantial contributions to their acquirers post-M&A.

Retention of Founders in Acquired Companies

  • Acquiring companies can achieve outsized outcomes by retaining talented founders.
  • Founders are driven by the impact they can have; creating platforms for them to make an impact is crucial.
  • Shielding founders from politics and bureaucracy enables them to work happily and effectively.
  • Ensuring founders receive financial rewards and outcomes is also essential for retention.

"So fundamentally, I think if you can retain some of these great founders, you can really end up with outsized outcomes for your companies."

This quote emphasizes the importance of retaining founders post-acquisition to achieve significant benefits for the acquiring company.

Key Factors in Founder Retention

  • Responsibilities: Founders should have the ability to make a big impact within the acquiring company.
  • Independence: Shielding founders from corporate politics and allowing them to operate independently is beneficial.
  • Financial Incentives: Ensuring founders have the potential for financial rewards is important for retention.

"Number one, the level of responsibility that that individual has, and can they really have big impact?"

This quote highlights the need for founders to have meaningful responsibilities post-acquisition to feel fulfilled and stay motivated.

Examples of Founder Independence

  • Instagram was allowed to run independently from Facebook.
  • Android had its own hiring practices, which differed from Google's standard procedures, allowing for more autonomy.

"Instagram was allowed to run pretty independently from the rest of Facebook."

This quote provides an example of how granting autonomy to acquired entities can contribute to successful integration and retention of founders.

The Prevailing Wisdom on IPOs

  • Current wisdom suggests delaying IPOs as long as possible.
  • Speaker C discusses the reasons to avoid IPOs and the potential overstatement of negatives by founders.

"Today, the prevailing wisdom is to delay as long as possible."

This quote introduces the topic of the timing of initial public offerings and the common strategy to postpone them.

Negatives of Going Public

  • Transparency can reveal sensitive information to competitors.
  • Smaller market cap companies may experience volatile stock prices, affecting employee focus.

"So you do have to reveal a lot more information, and you do sometimes reveal things that you don't want your competitors to know."

This quote discusses one of the drawbacks of going public, which is the increased transparency and potential disclosure of strategic information to competitors.

Misconceptions about IPOs

  • The belief that public companies are less innovative is challenged by the success of major public tech companies.
  • Public companies can attract talent by offering liquid and less risky stock options.
  • Overhead and processes increase with IPOs, but the impact is often overstated.

"I would argue that Google and Apple and Amazon are the most innovative companies in the world and they do that as public companies."

This quote refutes the misconception that public companies cannot be innovative by citing examples of successful, innovative public companies.

Access to Capital through IPOs

  • Public markets can offer access to new pools of capital, especially for companies not in the top tier of private markets.

"Public markets may actually be a good way to raise additional capital and find new sources of capital over time."

This quote explains how public markets can serve as a valuable source of capital for companies that are not mega-corporations with access to substantial private funding.

Quick Fire Round: Favorite Business Books

  • Speaker C admires books by Andy Grove, Ben Horowitz, and Reed Hoffman for their tactical business advice.

"I really like books by Andy Grove, Ben Horowitz and Reed Hoffman."

This quote reveals Speaker C's preferred sources for business wisdom and tactical advice.

Changing Silicon Valley and VC

  • Speaker C would like to bring back optimism to Silicon Valley, countering the erosion of positive outlooks.

"I think the biggest shift over the last decade is the amount of optimism in Silicon Valley I feel has really eroded."

This quote identifies a perceived decline in optimism within Silicon Valley that Speaker C believes should be reversed.

Most Memorable Interview from the Book

  • Speaker C enjoyed interviewing Clara Hughes Johnson, CEO of Stripe, and found her "Guide to working with Claire" to be an insightful resource.

"I'd say the one that I enjoyed the most was Clara Hughes Johnson, the CEO of Stripe."

This quote points out Speaker C's most memorable interview, highlighting the practical advice shared by Clara Hughes Johnson.

Mentorship and Community

  • Speaker C values a network of people to work with repeatedly over individual mentorship.

"The key thing to navigating a career is to figure out who's the network or group of people that you kind of want to work with repeatedly."

This quote emphasizes the importance of building a supportive professional community rather than focusing solely on individual mentors.

Book Writing Surprises

  • Speaker C learned a great deal from interviews with industry leaders, which enriched the book's content.

"Just how much there was to learn from the interview side."

This quote reflects Speaker C's surprise at the depth of insights gained from conducting interviews for the book.

Strengths and Weaknesses

  • Strength: Strong work ethic and a focus on ongoing reinvention.
  • Weakness: A late realization of the value of platforms in amplifying impact.

"I think on the strength side, it's probably very strong work ethic and focus on ongoing reinvention."

This quote identifies Speaker C's self-perceived strengths, which include a robust work ethic and adaptability.

Personal Roadmap for the Next Five Years

  • Speaker C aims to achieve leverage on time through initiatives like writing books and contributing to funds.

"How can I get ultimate leverage so that over the next five years, I can do as much as possible and work with as many great people as I can."

This quote outlines Speaker C's goals for the future, focusing on maximizing impact and collaboration.

Appreciation for the Book

  • Speaker B and Speaker A express their appreciation for the book's contribution to the startup community.

"Thanks so much for reading and for having me on the show."

This quote is Speaker C's response to the hosts' appreciation, showing gratitude for the opportunity to discuss the book.

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