20VC Index Ventures Partner, Mark Goldberg on The Questions Founders Must Ask A MultiStage Fund Before Taking Their Money At Seed, Why Most Angels Will Lose Their Money & Why We Will See Our First $100Bn NeoBank Shortly

In this episode of "20 Minutes VC," host Harry Stebbings interviews Mark Goldberg, a partner at Index Ventures, known for backing major companies like Dropbox and Revolut. Goldberg, who transitioned from operations at Dropbox to venture capital at Index, emphasizes the significance of building strong, trusting relationships with founders and the potential of fintech, predicting the emergence of $100 billion neo-banks. He also discusses the importance of direct communication and authenticity in venture capital, the risks of angel investing, and the future consolidation of the fintech industry. The episode also touches on the value of product-focused companies like HelloSign and Pendo, and the convenience of services like Pilot for bookkeeping.

• Harry Stebbings introduces the podcast episode and expresses his enjoyment in recording it.
• He highlights the guest, Mark Goldberg, a partner at Index Ventures, mentioning his background and the success of the firm.
• Harry notes Index Ventures' portfolio, which includes major companies like Dropbox, Revolute, and Transferwise.
• He acknowledges contributions from Adam Nelson, Wasim at Pilot, and Mike Volpe for their question suggestions.
• Harry briefly promotes Hello Sign, Pendo, and Pilot, which are tools that benefit companies and founders.

"Welcome back to the 20 minutes VC with me, Harry Stebbings, and it'd be great to show you behind the scenes of how the show gets made."

This quote introduces the podcast and the host, Harry Stebbings, setting the stage for the episode.

"I'm so delighted to welcome a friend in the form of Mark Goldberg, partner at Index Ventures, one of the leading venture firms of the last decade."

Harry Stebbings is excited to introduce his guest, Mark Goldberg, highlighting the significance of Index Ventures in the venture capital industry.

"Before we move into the show today, though, I wanted to take a moment to mention hello sign, a great example of a company that found success in building a product focused on user experience."

Harry uses this opportunity to promote Hello Sign, emphasizing its user experience and success, which culminates in its acquisition by Dropbox.

• Mark Goldberg discusses his accidental path into venture capital.
• His experience at Dropbox, where he saw significant company growth, led him to seek out VC firms for advice on the next generation of companies.
• Mark's interactions with Index Ventures, who were investors in Dropbox, influenced his decision to join the VC world.
• He emphasizes the importance of hiring and team-building during periods of hypergrowth.

"Really by accident. The way that I got to index was I had been at Dropbox before this."

Mark Goldberg explains his unintentional journey into venture capital, which started with his time at Dropbox.

"The right decision when you're in hypergrowth like that, is to make the investment in people."

This quote highlights Mark's key takeaway from Dropbox about the critical role of hiring and investing in people during hypergrowth.

• Mark Goldberg addresses the commoditization of venture capital.
• He notes the abundance of money in the VC industry, including the entrance of hedge funds and corporate venture funds.
• Mark believes that the differentiation for VC funds lies in providing more than just capital to founders.
• He discusses the evolution of VC firms and their approaches to adding value, such as Andreessen Horowitz's services organization and Ribbit Capital's sector expertise.

"First, I think what people get wrong about VC is it's a highly commoditized product. It's money, and there's more of it now than ever."

Mark Goldberg describes the venture capital industry as commoditized due to the abundance of available capital.

"The strategy we're pursuing here is just trying to build those sort of, kind of deep relationships from the beginning with founders."

Mark emphasizes the importance of building deep, trust-based relationships with founders as a way for VC firms to differentiate themselves.

• Mark Goldberg and Harry Stebbings discuss the importance of enhancing the founder experience in VC.
• They talk about being direct and upfront with founders from the very first meeting.
• Mark suggests that VCs should project the relationship forward, imagining working alongside the founders beyond just the pitch.

"The way that you can enhance the experience is to be direct and upfront from the very beginning."

Mark Goldberg advises on how VCs can improve the founder experience by being straightforward from the start of their relationship.

• The importance of authenticity between investors and entrepreneurs is highlighted.
• Being genuine from the beginning sets a strong foundation for long-term relationships.
• Multistage investors often have relationships with founders that can last over a decade.
• Pretending to be someone you're not can harm the relationship between investor and entrepreneur.
• It's crucial for investors to maintain their authenticity while striving to work with great entrepreneurs and win deals.

"And so if you're trying to be someone, either as an investor or as an entrepreneur, that is not authentic to who you are, you're doing a great disservice to the relationship."

This quote emphasizes the detrimental effects of inauthenticity in the investor-entrepreneur relationship, suggesting that it's important to remain true to oneself for the sake of a healthy, long-term partnership.

• Young investors should seek a team and platform that allows for autonomy and learning opportunities.
• Mark Goldberg joined Index Ventures at 30, accepting an associate position despite previous experience.
• The flat hierarchy and autonomy at Index Ventures enabled rapid learning and growth.
• Advice for newer investors: find a platform that allows you to learn and become comfortable with risk to excel in the venture industry.

"But the reason I did it, it was because what index promised me was a flat hierarchy, a ton of autonomy and the ability to start doing investments."

Mark Goldberg explains his decision to join Index Ventures was based on the promise of a flat hierarchy and autonomy, which were crucial for his growth as an investor.

• The value of founders meeting with associates in venture capital firms is defended.
• It's not about the title (associate or partner) but the ability to lead an investment round.
• Index Ventures empowers associates to lead rounds, challenging the industry's outdated thinking.
• Founders should inquire if the investor can lead the round, regardless of their title.

"What you want to know is, can the person sitting across the table from you, if they share your excitement for the idea, can they lead your round?"

Mark Goldberg stresses the importance of a founder's understanding of an investor's capacity to lead their funding round, emphasizing capabilities over titles.

• Index Ventures, like other multi-stage funds, leads seed investments to connect with founders early.
• The choice between seed funds and venture funds offers founders valuable optionality.
• Founders should prioritize investors who are passionate and supportive, as well as consider the platform's resources.

"So we'll lead a seed round, but we'll also partner very closely with a seed fund. To me, this is just good for founders, having the optionality of working with either a seed fund or a venture fund, it's just creating option value."

Mark Goldberg discusses the strategy of Index Ventures in seed investments, highlighting the benefits for founders in having diverse funding options from both seed and venture funds.

• Founders should assess a VC's time commitment to their company, especially in large funds where smaller investments might receive less attention.
• Index Ventures leads fewer seed deals to ensure adequate time allocation for each investment.
• The size of the fund is less important than clear communication and alignment on time commitments.

"You end up spending more time with the earliest stage investments because sometimes they need the most help and you can have the most impact."

Mark Goldberg explains Index Ventures' approach to seed investments, where they spend more time with early-stage companies to maximize their impact, regardless of the fund's size.

• Angel investing's risks and limitations are highlighted; it's not suitable for everyone.
• Most angel investors will likely lose money, and even successful investments can be diluted over time.
• Founders should consider their reasons for angel investing, as financial motives may lead to disappointment.
• Scout funds leverage talented founders and operators who historically lacked liquidity to invest.
• The involvement of founders and operators in investing is seen as a positive development for the ecosystem.

"I mean, best case scenario, you're talking about having your money locked up for probably over a decade, at which point the company has raised so much additional capital that your position could be diluted down to less than half of what it started with."

Mark Goldberg outlines the potential downsides of angel investing, including long-term capital lock-up and dilution from subsequent funding rounds, indicating that it's a high-risk endeavor with potential limitations on returns.

• The trend of founders increasing their wealth and participating in larger funding rounds is discussed.
• Founder-led rounds, like the one by Front, are considered clever moves that bring experienced founders into the mix.
• This shift in founder involvement is part of the evolving venture landscape.

The final quote is incomplete and therefore not provided. The discussion points to a changing dynamic where founders not only seek investment but also become investors themselves, influencing the venture capital ecosystem.

• Institutional leads bring resources and experience that can be invaluable to founders.
• They offer more than what a single individual could provide.
• Many companies prefer working with institutional leads despite some successful late-stage rounds led by strong founders.

"At the same time, I think when you're talking about leading large rounds again, if I put myself in the founder's shoes, I think having an institutional lead can be very powerful."

This quote emphasizes the advantage of having an institutional lead, especially in large funding rounds, from the perspective of a founder.

• Listening is crucial for new board members rather than speaking on every topic.
• It's important to be judicious with one's contributions and to use political capital wisely.
• Offering praise and critique at the right times can be impactful.

"I think the most important thing you can do as an early board member is listen."

This quote highlights the importance of listening over speaking for new board members to maintain authority and effectiveness.

• Board members should recognize their strengths and defer to others when appropriate.
• It is beneficial to connect the company with experts in areas outside of one's expertise.
• Admitting to not having the answers can build trust and vulnerability in board relationships.

"I think that there's a lot of trust and vulnerability when you acknowledge when you are not the right person to opine on a question."

This quote suggests that acknowledging one's limitations can foster trust and vulnerability, which are valuable in a board setting.

• Observing experienced board members, like Mike Volpe, can teach valuable skills.
• Communicating difficult messages to founders is an important skill for board members.
• It's essential to learn how to have hard conversations with finesse.

"Probably the person who I learned the most from was watching Mike Volpe... the sort of personal finesse of having hard conversations and delivering hard messages is something that I learned a lot by watching him."

The speaker learned the art of communicating difficult messages from watching an experienced colleague, Mike Volpe, which is a key skill for board members.

• Investors should create an environment where founders feel comfortable sharing bad news.
• It's the responsibility of investors to provide context and guidance during challenging times.
• Building long-term relationships with founders can mitigate rushed investment decisions.

"It's very much on the investors to figure out how to make sure that the founder understands that you have their back."

This quote stresses the investor's role in building a supportive environment that encourages open communication with founders.

• Being open and vulnerable with founders can lead to strong relationships.
• Long-term acquaintance with founders can be beneficial for future investments.
• Honesty and directness are crucial in forming solid relationships.

"I try to be very open and to some extent, vulnerable with a founder, and acknowledge what I can be helpful with, and also the areas that I will probably need to complement myself to really drive that value."

The speaker describes their approach to building relationships with founders, emphasizing vulnerability and honesty.

• Declining investment opportunities requires direct communication and closure.
• Providing constructive feedback and offering help, even when saying no, can leave a positive impression.
• It's important to maintain relationships for potential future investments.

"But some lessons I learned and I've really taken to heart one is, again, to just be really direct about why you're passing."

This quote addresses the importance of being direct and transparent when declining investment opportunities to maintain good relationships with founders.

• The fintech industry has experienced significant growth, leading to debates on its valuation.
• There are varying opinions on whether the fintech market is overinflated or appropriately valued.

"The boom in fintech has been greater than ever."

This quote introduces the topic of the fintech market's rapid growth and the subsequent discussions regarding its sustainability and valuation.

• Harry Stebbings expresses strong optimism about the future of the fintech industry.
• He believes there is an upcoming explosion of activity, not a bubble.
• There's a significant market cap shift from traditional financial institutions to digitally native consumer finance companies.
• Focus within fintech should be discerning, especially given the long bull market.
• Skepticism is expressed towards excitement in lending companies or those with large balance sheet exposure.
• The broader view suggests significant opportunities in fintech for both investors and founders.

"I don't think we're in a bubble. I think we're on the precipice of an explosion in activity in the space."

Harry Stebbings suggests that the fintech industry is not experiencing a bubble but is rather on the verge of significant growth and activity.

• Speaker B mentions a disdain for traditional banks, exemplified by HSBC.
• Mark Goldberg points out that banks have taken customers for granted.
• He uses his own experience with zero interest on a checking account as an example.
• Goldberg highlights the scale of the banking industry, with the 50th largest bank having a $50 billion market cap.
• He predicts the emergence of huge consumer finance companies due to better consumer experiences and a vast market.

"Banks have largely taken their customers for granted."

Mark Goldberg criticizes traditional banks for not valuing their customers, which he sees as an opportunity for new fintech companies to provide better services and gain market share.

• Speaker B and Mark Goldberg discuss the potential of neo banks, like Monzo and Revolut, to dominate the market.
• Goldberg believes that the best fintech companies will own the entire banking stack by starting with current accounts and cross-selling other products.
• He sees this as an opportunity for growth and increased revenue per customer.
• The emergence of next-generation banks is expected to be massive.

"The best ones will. And I don't think this is specific to the UK."

Mark Goldberg asserts that the most successful neo banks will be able to offer a full range of banking services, not just in the UK but globally.

• Mark Goldberg predicts a massive consolidation in the fintech industry.
• He believes there will be a clear divide between successful companies that achieve scale and those that do not.
• Companies that grow through product-driven growth and active user base expansion will be the winners.
• Those reliant on performance marketing and offering point solutions will likely fail or be acquired.

"There's going to be a massive consolidation in this industry."

Mark Goldberg foresees a significant consolidation in the fintech industry, with a divide between companies that can scale successfully and those that cannot.

• Speaker B and Mark Goldberg share concerns about the investability of companies offering ancillary financial services.
• Goldberg reassures that while there will be consolidation, it is aligned with the trend of rebundling banking services.
• They both criticize the notion that enterprise software founders need to reach $1 million in ARR to raise a Series A.

"The companies that are stuck in point solutions and rely on performance marketing to grow will die and will be acquired."

Mark Goldberg emphasizes that fintech companies offering only niche solutions without scale will struggle and likely be absorbed by larger entities.

• Mark Goldberg's favorite book is "Barbarian Days" by William Finnegan.
• He wishes for more private investment in climate change, seeing it as a critical issue.
• He views the Plaid acquisition by Visa as a win for consumers.
• His personal concerns include his son's teething and the common advice given to enterprise software founders regarding ARR milestones for funding.
• Goldberg's recent investment is in a data privacy company, highlighting data privacy as a key trend for 2020.

"So my favorite book, and this is from the last twelve months, is barbarian days."

Mark Goldberg shares his personal recommendation for a book that has made an impact on him recently.

• Harry Stebbings endorses HelloSign and Pendo for their focus on user experience and product performance.
• HelloSign, acquired by Dropbox, and Pendo's product benchmarks are highlighted as valuable resources for companies and founders.
• Pilot is recommended for bookkeeping, emphasizing the importance of focusing on product development over financial management.

"Hello Sign is an effortless esignature solution used by millions to securely send and request legally valid digital signatures and agreements."

Harry Stebbings provides an example of a successful company, HelloSign, which prioritizes user experience and has achieved significant funding and acquisition milestones.