20VC Investing $200m In Facebook, The 3 Stages of Founder Development & Why Creating A New User Behaviour Can Be Unit Economics Inefficient with Rahul Mehta, Managing Partner @ DST

In this episode of "20 Minutes VC," host Harry Stebbings discusses late-stage venture capital with Rahul Mehta, Managing Partner at DST Global. Mehta, recognized for his role in deals with high-profile companies such as Facebook, Twitter, and Spotify, emphasizes the importance of founders in driving a company's success, particularly their ability to maintain long-term vision and attract top talent. He also delves into the nuances of late-stage investing, highlighting the balance between proactive sourcing and having access to quality founders. Mehta believes that while unit economics are crucial, they must be considered alongside growth, market share, and the potential for long-term profitability. Additionally, he discusses the strategic benefits of global investing for pattern recognition and thematic approaches, as well as the necessity for founders to evolve from product visionaries to effective managers and CEOs. The episode also briefly touches on the value of integrated payment solutions like WePay and sales CRM tools such as Pipedrive for managing complex sales processes.

• Harry Stebbings hosts the podcast "20 minutes VC".
• Harry invites listeners to suggest future guests and questions via Snapchat.
• The podcast will feature guests from opposite ends of the investment spectrum: a leading late-stage fund, a new seed fund, and a founder who advocates for slow growth.
• Harry Stebbings can be found on Snapchat at H. Stebbings with two B's.

You are listening to the 20 minutes vc with your host Harry Stebbings, and you can join me on Snapchat at H. Stebbings with two B's to recommend future guests for the show and suggest questions for future episodes.

The quote introduces the podcast and its host, Harry Stebbings, while also inviting audience interaction through social media.

• DST is a leading late-stage venture fund.
• DST's portfolio includes Facebook, Twitter, Airbnb, Spotify, and Alibaba.
• Rahul Mehta is the managing partner at DST, focusing on the U.S., Indonesia, and India.
• Rahul led deals in Snapchat, Slack, Ola Cabs, Howes, and Zalando.
• Rahul was listed on the Forbes Midas List in 2016.
• Eric at Kleiner Perkins is thanked for introducing Rahul to the podcast.

And I'm thrilled to be joined by Rahul, meta managing partner at DST, one of the world's leading late stage venture funds, with a portfolio including the likes of check this out, Facebook, Twitter, Airbnb, Spotify and Alibaba, just to name a few from the incredible portfolio.

The quote highlights Rahul Mehta's role at DST and the fund's impressive portfolio, establishing his credibility in the venture capital industry.

• WePay provides integrated payments processing for online platforms.
• WePay offers a balance between UX and fraud prevention.
• Platforms mentioned include Constant Contact, Equid, and GoFundMe.
• WePay has award-winning support and offers a year of free premium support via a special URL.
• Pipedrive is a sales CRM used by "20 minutes VC" for guest pipeline management.
• Pipedrive is praised for its visual pipeline interface and customization options.
• Pipedrive offers a free signup without upfront payment.

WePay helps online platforms increase revenue through integrated payments processing, constant contact, equid and GoFundMe use. Wepay. Why? Because WePay uniquely helps platforms offer ROI positive, integrated payments to their users within their UX and without taking on fraud and regulatory exposure.

This quote explains the benefits of WePay's services for online platforms, emphasizing the balance they strike between user experience and security.

• Rahul joined DST before it was established, coming from Goldman in London's tech banking sector.
• He joined Mail.ru in late 2008 to help consolidate companies and prepare for an IPO.
• The day Rahul accepted the job at Mail.ru coincided with the Lehman Brothers collapse, which was seen as a risky move by his peers.
• Mail.ru had a vision for global expansion, which was considered ambitious at the time.
• DST's first major investment was in Facebook in mid-2009, marking the beginning of their global investments.
• Investments in China and Europe began in 2011 with companies like JD and Spotify.

So actually there was no DST when I joined. I was at Goldman in London and tech banking and mail was a client of ours. So I joined mail back in late 2008 and the idea was to basically help them consolidate the various companies we had and also work on taking it public over time.

This quote details Rahul's transition from Goldman to Mail.ru and the initial objectives that would eventually lead to the creation of DST.

• DST's first investment in Facebook was made using Mail.ru's balance sheet.
• A subsequent opportunity arose to buy more secondary shares in Facebook, leading to the establishment of DST.
• Initially, DST operated with a company SPV (Special Purpose Vehicle) structure rather than a typical fund.
• DST evolved into a typical fund structure after Mail.ru went public in late 2010.

The first investment in Facebook actually happened from the mail balance sheet. And then when this was the first 200 million dollar round that we did in May 2009, that all came from the mail balance sheet.

This quote describes DST's initial investment strategy and the pivotal role that Facebook's investment played in DST's early days.

• There is a debate about the importance of founders in growth-stage companies.
• Some believe that market dynamics play a more significant role in growth-stage outcomes, while the impact of founders and teams diminishes.
• Rahul Mehta holds a different view, emphasizing that strong founders create disproportionate value.
• He believes that the tech industry's rapid pace requires a long-term vision, which founders are uniquely positioned to provide.
• Strong founders can manage their companies with a long-term focus, attracting top talent and driving success.
• DST's investment thesis places significant importance on the founder's vision and leadership.

So I think, you know, obviously respect everybody's view here, but I have a slightly different view. I think strongest founders create disproportionate value and the pace at which the tech industry is moving, long term vision has become an extremely important part of the success of these businesses.

This quote conveys Rahul's perspective on the critical role founders play in the growth and long-term success of technology companies, even at the late-stage investment level.

• The importance of the founder is emphasized in the investment decision-making process.
• Other elements such as product, competition, category, leadership, market, and potential company size are also considered.
• In consumer internet, founders are crucial in business transitions and vertical expansions.

"under led companies from the very beginning. At the same time, obviously, we combine the founder view with the view around the product competition category, leadership, the market, the potential, how big the company could be, et cetera."

The quote highlights that while the founder's vision is central, other factors like product, competition, and market potential are also integral to investment decisions.

• The transition from a founder to a manager is critical during the growth stage.
• Founders must be able to manage larger teams, attract talent, inspire new leaders, and retain smart talent.
• Investors spend time understanding the founder's personality and working style.
• Smart founders grow over time, often finding mentors and learning from other successful founders.

"But it's extremely important to transition from like a founder to a true CEO. And that is something that we have to judge as well when we are investing."

This quote stresses the significance of a founder's ability to evolve into an effective CEO as the company grows, which is a key consideration for investors.

• There are three stages of founder development: seed/Series A, growth/late stage, and public company founder.
• Founders should be in the process of becoming mature leaders by the growth stage.
• Founders often learn to be public company CEOs on the job.
• Investors build relationships with founders early to observe their growth into managers and leaders.

"So when we would be investing, they are already in that process, or have actually truly become very mature leaders as well."

The quote indicates that by the time of investment at the growth stage, founders are expected to have matured significantly in their leadership capabilities.

• Building relationships with founders early is key for sourcing and gaining an edge in investment.
• Ideally, investors like to know founders 12-18 months before investing.
• Investors aim to provide value to founders to establish a partnership.
• There is no fixed timeframe for meeting founders, but the earlier, the better.

"You would like to know them as early as possible to build a relationship, because that's an extremely important part of our sourcing, where we would have the edge as well."

This quote underscores the strategic importance of early engagement with founders to build relationships that can lead to investment opportunities.

• Unit economics is a critical factor in the evaluation process.
• It must be considered alongside growth, retention, engagement, market share, and other metrics.
• New user behaviors might lead to initial inefficiencies in unit economics.
• It's important to assess if mature markets or product categories have positive unit economics.
• Emerging markets may take longer to show fully proven unit economics due to infrastructure investments.

"So unit economics is definitely a very important element in our evaluation, along with other metrics on growth, retention, engagement, market share, et cetera."

The quote conveys that while unit economics is vital for evaluating a company's performance, it should be viewed in context with other growth and engagement metrics.

• Unit economics and market competition are crucial factors for late-stage investors.
• There is no universal strategy; each case requires a tailored approach.
• Profitability potential is a key consideration for investors at all stages.

Or there could be significant competition as well, which can impact near term unit economics.

This quote emphasizes the impact of competition on the financial performance of a company, particularly on unit economics, which is a critical aspect for investors to consider.

• Speed and aggressiveness in capturing market share are recommended if the product idea is sound and capital is available.
• Investing in competitive moats is as important as gaining early market share.
• Companies sometimes prefer to remain stealth to avoid drawing competition.
• Announcing funding should align with business logic.

Speed is always very useful. So if you have access to capital and the product idea fundamentally makes sense, then I would say it overall is the right thing to do, to be pretty aggressive early on and try and take as much market share as possible.

Rahul Mehta advocates for a proactive approach to capturing market share when conditions are favorable, highlighting the strategic importance of speed in market penetration.

• Different industries have unique competitive moats.
• In the social media industry, network effects serve as a significant moat.
• Exclusive supply arrangements can also be an important moat.
• The suitability of moats varies across industries.

I think different industries have different moats, like in the social world, your network is your mode already.

Rahul Mehta explains that the type of competitive advantage, or moat, that a company can build depends on its industry, with network effects being a key example in social media.

• Late-stage investing has shifted from reactive to proactive sourcing.
• Building relationships with founders before they reach the late stage is crucial.
• Proactive engagement allows for a more informed view of the founder and the company.
• Identifying potential high-value companies early on is a strategic focus.

I think it's become proactive in a way around the sourcing side, because you have to build a relationship with the founder before they reach the late stage or whichever stage you're investing at.

Rahul Mehta discusses the importance of early engagement with founders for successful late-stage investing, indicating a strategic shift in the industry toward proactive sourcing.

• Late-stage investing involves both access to companies and the ability to make the right investment choices.
• Access is necessary to have the opportunity to invest in the best companies.
• Past investment performance affects future access to high-quality founders.
• Being part of a network of successful founders is attractive to prospective investees.

I think it's kind of a combination of both. Right. Because you would not be able to pick the best company unless you have access to it.

Rahul Mehta highlights that late-stage investing requires both the opportunity to invest in top companies (access) and the skill to select the right ones (picking).

• Global perspective aids in pattern recognition across different markets.
• DST's thematic investment approach has led to successful investments in various sectors.
• Early investments in social media set the stage for subsequent investments in similar companies.
• Being thematic and global has been beneficial for DST's investment strategy.

Absolutely. So being global has been very useful for us in pattern recognition and we've also been fairly thematic in our approach overall.

Rahul Mehta explains that DST's global reach has provided valuable insights and patterns that have informed their thematic investment strategy, leading to successful investments across different regions and sectors.

• Global presence is an essential aspect of sourcing for investors.
• Founders are keen to learn from peers globally to apply new strategies.
• Local involvement is beneficial for early-stage companies.
• Global reach becomes a competitive advantage at later stages.

"And this being global really helps us to share our view or also connect them to our network."

The quote emphasizes the importance of a global network in sharing perspectives and making connections, which is particularly valuable for founders looking to scale their businesses.

• A segment where short statements prompt immediate responses.
• The format is designed for quick, concise answers.

"I do want to move into a quick fire round with you now, so it's my favorite part of the interview."

This quote introduces the quick fire round segment, indicating the host's enthusiasm for this part of the interview where rapid responses are expected.

• Rahul enjoys autobiographies and finds them inspiring.
• "Open" by Andre Agassi is the current book he is reading.

"So I like reading autobiographies. I'm reading right now the book called Open by Andre Agassi. I really find this pretty inspiring."

Rahul shares his preference for autobiographies and mentions "Open" by Andre Agassi as an inspiring read, reflecting his personal interests and sources of motivation.

• CEOs should focus on proactive hiring and invest time in it.
• Building relationships within the industry ecosystem is crucial.
• Avoiding blind spots and being prepared is better than corrective actions later on.

"I think they have to think of hiring aggressively and investing a lot of time into it because that's your operational infrastructure as a large company, you cannot have blind spots and corrective course of action becomes tougher as you become bigger."

Rahul advises CEOs to prioritize hiring and relationship-building within their industry, highlighting the challenges of correcting course as a company grows.

• Successful investing appears obvious but is challenging.
• Growth stage investing is complex and requires making tough calls.
• The industry can be lonely, similar to sports, entertainment, or founding a company.

"Successful investing is not easy. It looks very obvious from the outside, but it is not easy."

Rahul clarifies the misconception that investing is straightforward, stressing the complexities and challenges faced by investors.

• Rahul reads blogs to stay informed on industry developments.
• TechCrunch and Recode are implied to be among his preferred sources.

"I would be reading blogs to keep myself abreast of what's going on."

The quote suggests Rahul's habit of reading blogs to keep up with the latest trends and news in technology and business.

• Founders look for supportive, long-term oriented investors.
• Investors should be passionate, experienced in scaling, and serve as a sounding board.
• Low maintenance investors are preferred.

"I think founders want supportive, long term oriented investors who are passionate about the business..."

Rahul outlines the qualities that founders typically seek in growth stage investors, emphasizing support, long-term commitment, and low maintenance.

• Recent investments were made in Vish (US) and Gojek (Indonesia).
• Decisions were based on strong founders, teams, large markets, and innovative approaches.

"One was a follow on Vish in the US and a new one about a year ago was Gojek in Indonesia."

Rahul shares his most recent investments, highlighting the reasons for choosing these companies, which include the strength of the founding teams and their market potential.

• Rahul expresses gratitude for being on the show.
• Networking and introductions are crucial in the venture world.
• Eric at Kleiner Perkins facilitated Rahul's appearance on the show.

"Eric was great. He said great things about you as well, and Harry, this has been a lot of fun, so thank you so much for having me on the show."

Rahul thanks the host and acknowledges the role of networking and introductions in the venture industry, showing appreciation for the opportunity to participate in the podcast.

• WePay and Pipedrive are promoted for their services.
• WePay offers integrated payments processing with support options.
• Pipedrive is a sales CRM and pipeline management software used by the host's team.

"WePay helps online platforms increase revenue through integrated payments processing... Pipedrive is the sales CRM and pipeline management software to use..."

The host promotes WePay and Pipedrive, explaining their services and benefits, and providing personal endorsements for their utility in business operations.