20VC How a16z Uses NPS To Create Better Founder Experiences, Why Intellectual Curiosity Is The Most Important Investor Trait & Creating A Fund To Last Through The Ages with Zal Bilimoria, Founding Partner @ Refactor Capital

In an insightful episode of the "20 Minutes VC" podcast, host Harry Stebings interviews Zal Bilimoria, founding partner at Refactor Capital. Bilimoria, with a background as a partner at Andreessen Horowitz and a decade in product management at tech giants like Microsoft and Netflix, discusses his journey into venture capital and the mission of Refactor Capital to invest in startups tackling fundamental human problems with a $50 million fund. The conversation delves into the importance of treating founders well, as reflected in Andreessen Horowitz's use of Net Promoter Scores (NPS), the value of being "insanely curious," and the concept of the "idea maze" for founders. Bilimoria also highlights the traits VCs should embody, including empathy, responsiveness, and curiosity, and emphasizes the role of storytelling for scientist-founders. They touch on the challenges and opportunities in funding deep tech and biology ventures, the need for patience in these sectors, and the potential for biology to revolutionize various industries.

• Harry Stebbings hosts the 20-minute VC podcast, featuring venture capitalists.
• Zal Bilimoria is the founding partner at Refactor Capital and has a background in product management.
• Refactor Capital is a new early-stage venture capital firm in Silicon Valley with a $50 million fund.
• Zal Bilimoria's previous experience includes being a partner at Andreessen Horowitz and working at Microsoft, Google, Netflix, and LinkedIn.
• Zal's partner David Lee introduced Harry to Zal for the podcast.

"You are listening to the 20 minutes vc, the podcast that brings you 20 minutes with some of the world's best venture capitalists. With me, Harry Stebbings, and I'm thrilled to welcome Zal Billamoria, founding partner at Refactor Capital."

This quote introduces the podcast and its host, Harry Stebbings, as well as the guest for the episode, Zal Bilimoria, who is a founding partner at Refactor Capital.

• Zal grew up around his father's computer business, which sparked his interest in tech.
• He spent ten years in product management at iconic companies like YouTube and Netflix.
• Zal transitioned to venture capital after being approached by Andreessen Horowitz while at LinkedIn.

"My dad had a computer business while I was growing up... And those experiences, I think they really drove me to want to have a career in tech."

Zal attributes his early exposure to technology and his father's computer business as the driving force behind his career in tech and product management.

"Andreessen Horowitz Cold emailed me asking if I was interested in learning more about roles on the investment team."

This quote explains how Zal was recruited into venture capital by Andreessen Horowitz, highlighting the proactive approach the firm took in seeking out talent.

• VCs should treat founders with respect as they are the reason for the profession's existence.
• At Andreessen Horowitz, they used Net Promoter Scores (NPS) to measure how founders felt about their interactions with the firm.
• Zal adopted the NPS system at Refactor Capital using a tool called Delighted.
• Being insanely curious and having strong convictions that are weakly held is crucial for successful investing.
• The 'idea maze' concept was a significant learning from Andreessen Horowitz, emphasizing the importance of navigating through complex ideas.

"The way VCs should treat founders. I mean, we are only in the graces of this wonderful profession because of them."

This quote emphasizes the importance of venture capitalists treating founders with respect and gratitude, as they are the foundation of the VC industry.

"How to be an insanely curious person, and why that's the most important thing about investing."

Zal highlights the importance of curiosity in venture capital, suggesting that a strong desire to learn and adapt is key to success in the field.

"The final thing I'll mention about what I learned from a 16 z is the idea maze."

The 'idea maze' is a concept Zal learned at Andreessen Horowitz, which involves the process of navigating through complex ideas and strategies in the venture capital industry.

• Founders navigate through their "idea maze" before starting their company.
• The process involves learning and decision-making, leading to eventual acceleration upon finding the exit.

And then after that seemingly 50th turn, you see the exit and you begin to accelerate at a velocity you'd never been able to reach before.

The quote highlights the moment of clarity and momentum founders experience when they finally navigate through the complexities of their business idea and are ready to launch their company.

• Empathy, responsiveness, and curiosity are key traits for venture capitalists (VCs).
• Empathy involves top-notch listening skills and respect for founders' journeys.
• Responsiveness is crucial for quick communication and support.
• Curiosity drives VCs to maintain strong convictions but be open to updating their beliefs.

In these nearly five years as an investor, I've come to believe that there's probably three most important traits that vcs should have.

Zal Bilimoria identifies three critical traits for VCs, emphasizing the importance of understanding, communication, and intellectual curiosity in supporting founders.

• Analyzing startups involves assessing the balance between scientific/technological understanding and the product's market viability.
• Questions about customer engagement, pricing, sales cycles, and competition are crucial.
• Preference for founders who can scale go-to-market strategies rather than struggle with initial market entry.

An actual product that can be sold is critical.

Zal Bilimoria stresses the importance of having a market-ready product and a clear go-to-market strategy for startups seeking investment.

• Scientist founders must be excellent storytellers to various audiences.
• Storytelling is a critical skill for reducing financing risk and attracting talent.
• The ability to communicate a compelling vision is essential for building a successful company.

They need to be able to tell amazing stories to investors, which reduces financing risk, but they also have to be able to tell amazing stories to customers, to talent that they want to hire the general public if they want to build a successful, enduring company.

The quote explains the importance of storytelling for scientist founders in reducing risk and building a successful company by engaging effectively with different stakeholders.

• Scientist founders must recognize the business potential of their scientific work.
• The transition from academia to business requires willingness to build a company, recruit a team, and engage with customers.
• The current ecosystem, including resources like podcasts, helps demystify the process of starting and funding a business.

And it's never been easier to start a company.

Zal Bilimoria acknowledges the increasing accessibility of starting a company, particularly for scientists, due to the wealth of available information and resources.

• Fundamental human problems are found in regulated industries like healthcare, biology, genomics, and agriculture.
• Founders in these areas aim to create products that lead to healthier, happier, and heroic lives.
• Successful founders in these fields often have strong academic or operational backgrounds.

These fundamental human problems are those that typically reside within traditionally regulated industries.

Zal Bilimoria defines fundamental human problems as significant challenges within heavily regulated sectors, where founders aim to make a substantial impact on society.

• Investments in companies solving fundamental human problems may require longer support periods.
• Alternative funding structures and understanding limited partners (LPs) can mitigate concerns about extended timelines.
• Seed investors face challenges with the traditional ten-year fund lifecycle due to longer paths to exit or IPO.

The typical ten year fund lifecycles are pretty hard, especially for seed investors that are writing those super early seed checks.

Zal Bilimoria discusses the difficulties faced by seed investors due to the extended time required for startups in complex industries to reach significant milestones.

• Belief in the potential of each investment to return the fund is essential.
• A focus on meaningful ownership and core investments is a strategy to achieve significant returns.
• The portfolio must be managed with the understanding of the high likelihood of failure, especially in startups addressing fundamental human problems.

So the idea here is you have to be able to believe that every single investment you make can return the fund.

Zal Bilimoria emphasizes the importance of having confidence in the potential of each investment to significantly contribute to the fund's success, despite the high risk of failure in the startup ecosystem.

• Refactor aims to invest in 40 to 50 companies, with the expectation that one will be a breakout winner.
• A few companies are expected to at least return the initial investment (1x return).
• The fund is structured to create value with a small set of companies.
• More than half of the invested companies are anticipated to fail (go to zero).
• This investment approach applies to both tech and harder science companies like biology, where commercialization and scaling are challenging.

"One of them has to be the breakout winner, and a few of them have to be able to cobble together another one, x, let's say."

This quote emphasizes the importance of identifying at least one highly successful investment that can significantly contribute to the fund's overall returns, while also acknowledging that some companies may only return the initial investment.

• Liquidity events vary by company type within the biology sector.
• Therapeutics companies often have longer timelines due to extensive clinical trials and regulatory processes.
• These companies may build relationships with pharma companies for potential acquisitions.
• Other biology companies, such as those working on industrial materials, may achieve value creation and product launches more rapidly.

"The idea of being able to actually create value in these companies can actually be much more rapid."

This quote contrasts the timeframes of different types of companies within the biology sector, with some being able to create value and launch products relatively quickly compared to therapeutics companies.

• Refactor uses first principles to understand opportunities.
• They rely on a stable of advisors for feedback and diligence of technologies.
• An in-house scientist has been hired to lead technology evaluations.
• Founders are a significant source for evaluating businesses and providing deal flow.

"We have an incredible stable of advisors that we rely on to get feedback and really understand and how to diligence some of these technologies, some of this science at the core."

This quote highlights the importance of expert advisors in evaluating the scientific and technological aspects of potential investments, ensuring informed decision-making.

• There is an increase in venture capital investment in deep tech at series A and beyond.
• Few dedicated seed funds exist in deep tech, unlike Refactor, which aims to be the largest check in seed rounds.
• Refactor's approach is to be a reliable daily guidance for founders, unlike other seed investors who may only partially engage.

"But we haven't seen many dedicated seed funds in these areas, especially those like us, who want to be that largest check in the seed round and be that investor founders can rely on day to day."

This quote points out the unique position of Refactor in the deep tech seed investment landscape, emphasizing their commitment to being a primary source of support for founders.

• Refactor aims to be in the top five consideration set for founders in hard science areas.
• They focus on short-term actions like treating and helping founders and tracking their net promoter score (NPS).
• Long-term success is measured by successful outcomes for companies and the track record with limited partners (LPs) and founders.

"But long term you need successful outcomes for companies, and track records are really the best milestones in the industry."

This quote underlines the significance of successful portfolio company outcomes and a strong track record as the ultimate measures of a VC firm's success.

• Refactor spends most time helping founders with go-to-market strategies.
• With seed capital, founders can commercialize products and generate sales.
• The goal is to help founders establish commercial partnerships and sales opportunities to reach series A funding.

"So we realize that with just $2 million of seed capital, founders can actually take their product, commercialize it, get some sales going..."

This quote explains how Refactor assists founders in using their initial capital to achieve early sales and commercial traction, which is crucial for securing further investment.

• Zal Bilimoria expresses gratitude for his partnership with David, describing it as a mind-numbingly awesome experience.
• The partnership originated from a shared focus on seed-stage investments in healthcare and biology.
• The co-founding of Refactor was driven by their common interest and vision.

"To have David kind of choose me as his partner was a mind numbingly awesome experience."

This quote reflects the personal significance of the partnership with David to Zal and hints at the alignment of their professional goals and values, which led to the creation of Refactor.

• David is highly regarded for his ability to listen and empathize.
• His relatability is evident in interactions with others.
• The partnership between Zal and David is successful due to their differences.
• David is fond of a quote by Maya Angelou regarding the lasting impact of how one makes others feel.

"Maya Angelou said, at the end of the day, people won't remember what you said or did. They'll remember how you made them feel." "People will forget what you said, they'll forget what you did, but they'll never forget how you made them feel."

The quotes emphasize the importance of emotional impact over specific actions or words. David's alteration stresses the enduring nature of emotional memories.

• Zal is ready for a rapid response session.
• His favorite book is "Seveneves" by Neal Stephenson, which he praises for its coverage of diverse subjects.
• The most memorable LP meeting involved rigorous questioning but led to investment and an advisory board invitation.
• Zal believes in the transformative potential of biology, contrary to the common belief in software's dominance.
• He anticipates biological advancements in consumer applications, such as replacing petroleum-based materials with safer alternatives.
• Fred Wilson's ABC blog is Zal's must-read for insights.
• Solugen is a notable investment for Refactor, due to their innovative hydrogen peroxide production using biotechnology.

"I'm strapped in. Let's do this." "Seven Eve's by Neil Stevenson." "I remember one meeting where as soon as we sat down, the LP just started hammering us with questions and pretty difficult ones." "We believe biology is eating the world." "Fred Wilson's ABC blog. I've been an email subscriber since 2009." "This one? I would say Solugen."

Zal's responses provide insights into his reading preferences, investment philosophy, and enthusiasm for biology's potential in technology.

• Zal believes biology will revolutionize many sectors, including consumer products.
• He is excited about replacing petroleum with engineered biology for a healthier planet.
• Applications in food, materials, and therapeutics are particularly intriguing to him.

"Literally every portion of it." "We're going to really be able to remove petroleum, which is the key input into a lot of these products, and use engineered biology to create a much safer, healthier, and really a long term planet for us."

Zal's statements reflect his vision of a future where biology supersedes traditional manufacturing inputs, leading to sustainable and healthier consumer products.

• Solugen's creation of a safe hydrogen peroxide alternative impressed Zal.
• They eliminated petroleum from production using air, water, and plant starch.
• CRISPR cas9 processes were utilized in optimized bioreactors.
• The founders of Solugen were scientists with a clear commercialization strategy and had sales before investment.
• Their storytelling skills were a significant factor in securing investment.

"They've created an ultra safe, ultra pure version of hydrogen peroxide." "And so sologen figured out how to eliminate petroleum from the production of hydrogen peroxide using only air, water and plant starch." "And frankly, these were just fantastic storytellers."

Zal's enthusiasm for Solugen stems from their innovative approach to a common compound and their effective communication of their vision.

• Zal expresses gratitude for the opportunity to share his insights.
• There is anticipation for the future developments at Refactor.

"Wonderful. Thank you so much, Harry."

Zal's closing remark reflects his appreciation for the discussion and the positive outlook for his company's future.

• Zal can be followed on Twitter for updates.
• Harry Stebbings shares behind-the-scenes content on Instagram.
• Ring's video doorbell and Floodlight Cam are highlighted for home security.
• Cooley law firm is recognized for its support of startups and venture capital firms.

"Well, if you're as excited as I am for the future of refactor, then you can see more from Zal on Twitter by following him on at zalzali." "You can find us on Instagram at hdebings 1996 with two b's." "Today, over a million people are using the Ring video doorbell to help protect their homes." "So to learn more about the number one most active law firm representing vcs and VC bat companies, simply head over to Cooley.com or you can check them out@cooligo.com."

Harry Stebbings promotes social media engagement and acknowledges the sponsors that support the podcast and the tech industry.