20VC Learnings From Mary Meeker & Larry Summers, Missing Out On Uber & The Changing World of VC with Canvas Partner, Rebecca Lynn

Summary Notes


Harry Stebbings, host of "20 minutes VC," welcomes Rebecca Lynn, a partner at Canvas, to discuss her journey from chemical engineer to venture capitalist, her pivotal role in early-stage investments like Lending Club, and her operational experience at Nextcard. Rebecca shares insights on the importance of being thesis-driven yet open to opportunities outside one's focus, like her recent forays into autonomous driving and healthcare services. She emphasizes the critical role of hiring and adapting management teams to a company's evolving needs, advocating for a balance between board involvement and allowing CEOs to lead. Additionally, Rebecca touches on the challenges of managing mega-funds and the benefits of a boutique firm's aligned interests with LPs and entrepreneurs.

Summary Notes

Introduction to the Podcast

  • Harry Stebbings introduces the show and guest Rebecca Lynn.
  • Rebecca Lynn is a partner at Canvas with a focus on fintech, digital health, SaaS, and mobile.
  • Rebecca has led investments in significant companies like Lending Club and others acquired by Intuit and Salesforce.
  • Prior to VC, Rebecca had operational roles at Nextcard, contributing to its public offering.
  • Harry gives a special thanks to Matt Garrett for introducing Rebecca to the show.
  • Harry also promotes Xero, an online accounting software, and Pearl, an automotive technology company.

"Now for the show today and I really am so excited for our guest. I heard her first on Stanford's ETL podcast and realized that I simply had to have her on the show."

The quote indicates Harry Stebbings' enthusiasm for having Rebecca Lynn as a guest, having been impressed by her previous appearance on another podcast.

Rebecca Lynn's Background and Path to Venture Capital

  • Rebecca Lynn shares her journey to venture capital, starting as a chemical engineer in the Midwest.
  • She transitioned from an operational role at Nextcard, funded by prominent firms like Sequoia, to founding her own consulting company.
  • Rebecca pursued further education with a JD MBA at UC Berkeley.
  • She emphasizes the serendipitous nature of her entry into venture capital through Morgan Thaler Ventures.
  • The venture capital role aligned with her natural skills in business strategy and networking.

"Absolutely. So I think, like most venture capitalists, I never intended to be in venture capital."

This quote summarizes Rebecca's unplanned entry into venture capital, which is a common narrative among venture capitalists.

Transition from Morgan Thaler to Canvas

  • Rebecca explains the strategic transition from Morgan Thaler to Canvas.
  • The move was driven by a need for focus and brand clarity in the venture industry.
  • Teams collaboratively decided to spin out functions into specialized entities like Lightstone for life sciences and Canvas for software and services.
  • Rebecca credits the leadership, particularly Gary Little, for the thoughtful transition process.
  • She highlights the importance of being thesis-driven in venture capital to select the best startups among many.

"Yeah, I think I would say we navigated that process and ended up with three amazing firms because of the thoughtfulness of the leadership."

The quote emphasizes the careful and strategic approach taken by the leadership in transitioning from Morgan Thaler to specialized entities like Canvas.

Importance of Being Thesis-Driven in Venture Capital

  • Being thesis-driven helps venture capital firms understand the market deeply and select winning startups.
  • It enables firms like Canvas to provide strategic assistance and make valuable introductions for their entrepreneurs.
  • Rebecca discusses the necessity of having a clear focus in today's venture landscape.

"And the other thing we know too is that we believe at least is it's incredibly important, especially in this day and age, to be very thesis driven."

This quote underscores the belief that having a strong, research-backed investment thesis is crucial for success in venture capital.

Thesis-Driven Investment Strategy

  • Rebecca Lynn discusses the importance of being thesis-driven while remaining open to unexpected opportunities.
  • She emphasizes the need to maintain a balance between having a focused investment thesis and being opportunistic about emerging innovations.
  • Rebecca mentions her recent investment in the autonomous driving space, which was outside her firm's thesis area but presented a compelling opportunity.
  • The importance of understanding the broader market context and regulatory environment when evaluating potential investments is highlighted.

"Well, that's where having ADD just helps you immensely, because if you have a little ADD, you can't help yourself but look at all these other things. And so while I say I'm thesis driven, if I'm looking at, if I'm diving into life science or healthcare services or whatever, I'm always looking at some different opportunities, right?" "And so by being thesis driven, you can really be ahead of the curve."

These quotes explain Rebecca's approach to investing, which involves a strong focus on specific themes but also a willingness to explore and invest in areas outside of those themes when unique opportunities arise.

Balancing Focus and Opportunism in Investing

  • Rebecca uses the sailing metaphor of "steerage" to describe how investors should navigate the market.
  • She highlights the need for momentum and focus, akin to steering a ship, while also being ready to seize new opportunities.
  • The challenge of deal filtration versus deal flow is discussed, emphasizing the importance of discerning the quality and potential of investments within a large volume of opportunities.

"So I think you have to have sort of, I would say it's steerage, right, with the thesis." "Deal flow is not at all a problem. Deal filtration is your problem."

Rebecca suggests that having a clear investment thesis helps in filtering deals and staying ahead of market trends, but one must also remain flexible and open to new, potentially groundbreaking investments.

Early Adoption and Market Leadership

  • Rebecca describes her firm's early investment in healthcare services and the strategic advantages of being ahead in a new market.
  • She details the creation of the DC to VC conference to bridge knowledge gaps between Washington DC and Silicon Valley, particularly regarding regulatory changes affecting healthcare investments.
  • The discussion emphasizes the benefits and challenges of being a market leader and the subsequent influence on other investors and the market as a whole.

"So we were one of the first people that jumped into healthcare services back in nine." "And we were so early, in fact, that we had to start a whole conference called DC to VC, just to bring Anishopra and the people from Washington DC to the valley to explain to vcs what was happening in the regulatory space."

Rebecca's recounting of her firm's pioneering role in healthcare services investment illustrates the strategic value of early market entry and the importance of understanding regulatory contexts to succeed in new investment areas.

Lessons from Serving on a Board

  • Rebecca reflects on her experience as a board member at Lending Club and the transition from being a player to a coach.
  • She emphasizes the importance of mentorship and receiving honest feedback when first joining a board.
  • The key to being an effective board member is identified as focusing on the most crucial issue that can make a significant difference to the company.
  • Rebecca shares her hands-on approach to adding value, such as assisting with hiring key personnel.

"And so with Renault, if you talk to him, I think what he would tell, you know, hiring and recruiting was the one thing, because I'd had so much experience in that space that in financial services that I could go in and really be helpful." "And then also knowing when it's not your role."

Rebecca's insights into board membership highlight the delicate balance between providing valuable assistance and knowing when to step back, allowing the company's management to operate independently.

Balancing Involvement as a Board Member

  • Rebecca discusses the importance of open communication and trust with the CEO to determine the appropriate level of board involvement.
  • She stresses the need to quickly transition from advising to hiring the right people for the job when necessary.
  • The conversation touches on the impact of adding the right people to a company and how it can significantly contribute to its success.

"As soon as I feel like it's too much, I go immediately to hiring somebody." "And when I've had companies that have had challenges, which are probably all of them at some point in their life, and then really ended up on the other side of that, which is most, which is phenomenal right. When you look at what changed, it was the people."

Rebecca's comments reflect her approach to board involvement, focusing on the critical role of personnel decisions in a company's trajectory and the importance of knowing when to transition from direct involvement to facilitating the hiring of the right talent.

Management Churn and Scaling Challenges

  • Rebecca discusses the reality that some people are excellent at starting companies but may not be suited for scaling them.
  • She addresses the misconception that the inability to scale with a company is a negative trait, instead highlighting the value that early-stage contributors bring.
  • The conversation acknowledges that different stages of a company's growth may require different skill sets and that transitions in management are a natural part of a company's evolution.

"Yeah, some people can scale and some people can't." "And the hard thing about this is that it's seen as a negative sometimes if people can't scale."

These quotes from Rebecca address the nuanced understanding of personnel dynamics within growing companies, recognizing the varying abilities of individuals to contribute at different stages and the importance of respecting those differences.

Early Stage vs. Scaling Mindset

  • Individuals often have a preference for either the early stages of a startup or the scaling phase, but not both.
  • Early stage enthusiasts thrive on solving initial problems and setting up the company.
  • As companies grow, some founders and CEOs may not enjoy the administrative aspects of scaling and prefer to focus on what they love.
  • A learning mindset is crucial for a CEO to transition from a startup to a public company.
  • A good relationship with the board can facilitate a successful transition where the founder remains productive and happy.
  • It's important to align team members with roles that suit their strengths, much like players in a sports team are positioned based on their skills.

"People are kind of in their element, right when they're very early and just sort of figuring all the problems and getting everything together."

This quote emphasizes the natural inclination of some individuals to thrive in the early stages of a startup, where they can engage in problem-solving and foundational work.

"But we've had big successes too, where the CEOs come to us at some point and just said, or the founder and said, you know what, company is doing great. I really love being there, but I don't want to do all these administrative things."

Rebecca Lynn highlights the instances where founders or CEOs prefer to focus on their strengths and passions rather than the administrative tasks of scaling a business, leading to successful role transitions.

"Like you wouldn't expect somebody who was a great point guard to be able to play center right and then consider them a failure if they couldn't do that."

Drawing an analogy to sports, Rebecca Lynn indicates that it's unreasonable to expect individuals to excel in roles that don't match their skills, just as it would be to expect a basketball point guard to play as a center.

Fintech Innovation: Modeling Risk vs. Innovating on Distribution

  • The fintech industry can be simplified to two core innovations: modeling risk and innovating on distribution.
  • Better risk modeling is difficult to achieve and sustain as a competitive advantage.
  • Distribution and customer acquisition are critical for fintech success.
  • Lending Club and Check are examples where timing and market conditions played a significant role in their success.
  • Nerd Wallet's content marketing strategy exemplifies innovation in distribution.
  • A unique exogenous factor or market opportunity is often necessary for a fintech company to truly stand out.

"Yes, you find better ways to model risk, but other people do that very quickly."

Rebecca Lynn suggests that while innovating risk modeling is important, it is often quickly replicated by competitors, implying that it may not provide a lasting competitive edge.

"The distribution, I think, is probably more important. It's all about acquisition at the end of the day, and acquisition is incredibly important."

This quote underscores the significance of customer acquisition and distribution channels in the success of fintech companies.

"Lending club, we came in in Q1 of 2009 after Lehman crashed... it created this chasm in the marketplace where even if you were super prime, you couldn't get a credit card at that point in time."

Rebecca Lynn explains how Lending Club capitalized on a unique market opportunity created by the financial crisis, which allowed them to serve a market neglected by traditional banks.

Quick Fire Round Responses

  • Favorite book: "Influence" by Robert Cialdini, for its insights into human behavior and marketing.
  • Importance of brand and IP for defensibility: Both are needed.
  • Biggest mentor: Gary Little, met serendipitously in line for pizza.
  • Favorite blog/newsletter: The Daily Shot for economic news.
  • Biggest myth and FOMO avoidance: Missed investing in Uber, illustrating the challenge of regulatory hurdles and the importance of due diligence.

"And why influenced by Caldini. Because it helps you understand people and it helps all the marketing and the business and people in relationships make sense."

Rebecca Lynn values "Influence" for its comprehensive understanding of human psychology, which is essential in business and marketing.

"I think you need both."

In response to whether brand or IP alone can provide sufficient defensibility for a company, Rebecca Lynn believes that a combination of both is necessary for a robust defense.

"Gary Little, my partner here at canvas, and before that, Morgan Thaler. And we met in line for pizza at Berkeley when he was doing an event for me there."

Rebecca Lynn credits Gary Little as a significant mentor, highlighting the importance of chance encounters and the value of mentorship in professional growth.

"The biggest myth was Uber... I said, you know, I hear you, but I've seen a couple of those already. And here's the issues and the regulatory problems and all that."

Rebecca Lynn recounts a missed opportunity with Uber, reflecting on the complexities of regulatory challenges and the need to evaluate potential investments carefully.

Venture Capital Investment Philosophy

  • Rebecca Lynn reflects on missing out on investing in Uber, acknowledging it as a significant oversight.
  • She emphasizes the importance of being selective in investments as a boutique firm.
  • There is a distinction between boutique firms and larger firms that have a "capital deployment problem."

"And then we hear we have Uber today. Right. So that would by far be my biggest miss."

This quote shows Rebecca's reflection on a missed investment opportunity, highlighting the importance of decision-making in venture capital.

"We are a boutique firm and so we get rewarded for what we do, not what we don't do."

Rebecca explains the rewards system in boutique firms, focusing on successful actions rather than opportunities passed up.

"We just have to be highly selective."

This quote emphasizes the boutique firm's strategy of selective investment to ensure quality over quantity.

The Rise of Mega Funds

  • Rebecca discusses the challenges associated with managing large funds and the preference for smaller funds that allow for better alignment of incentives.
  • She believes that a fund size of $300 to $400 million is optimal for her firm's strategy.
  • The goal is to have a fund large enough to have "dry powder" for future investments but not so large as to misalign interests.

"We had one at one point in time and we no longer do by choice."

Rebecca mentions her firm's past experience with a larger fund and their decision to not continue with it.

"I like the situation where one amazing deal can return the entire fund because then my incentives are aligned, my LP incentives are aligned, and my entrepreneur incentives are aligned."

This quote highlights the importance of alignment between the investors, limited partners (LPs), and entrepreneurs, which is more achievable with a smaller fund.

"300 to 400 is really your optimal range."

Rebecca provides a specific range for what she considers an ideal fund size based on her respect for other successful funds and the need to stay competitive.

Market Creation and Investment Decisions

  • Rebecca discusses the concept of market creation and how it can lead to significant investment opportunities.
  • She stresses the importance of being open-minded and listening to entrepreneurs who can provide unique insights into future trends.
  • The biggest opportunities often come from markets that were not obvious at the onset.

"Market creation is really interesting."

Rebecca introduces the topic of market creation, indicating its significance in the venture capital industry.

"The biggest opportunities are ones nobody could have predicted."

This quote underscores the unpredictable nature of market creation and the potential for substantial returns.

"Usually when I make an investment, it's when I had sort of one thought in my head and the entrepreneur changed my mind by their own belief system and what they've proven out."

Rebecca shares her personal experience on what influences her investment decisions, highlighting the impact of the entrepreneur's vision and achievements.

Recent Public Investments

  • Rebecca talks about two recent investments: one in an autonomous driving company and another in healthcare services.
  • She was impressed by the CEO and team of the autonomous driving company and their ability to meet milestones ahead of time.
  • In healthcare, she was convinced by the numbers and approach of a CEO she had respected for years.

"One is this autonomous driving company."

Rebecca mentions an investment in an autonomous driving company, highlighting the sector's potential impact and the company's solid technology.

"The other one is in healthcare and healthcare services."

She also discusses an investment in healthcare, focusing on the impressive performance and strategy of the company and its CEO.

"My partner Paul's actually done a couple very recently too, also not announced yet."

Rebecca points out that her partner has also made recent investments, suggesting a proactive approach to finding new opportunities.

Acknowledgements and Future Discussions

  • Harry Stebbings expresses his gratitude to Rebecca for joining the show and to Matt Garrett for making the introduction.
  • Harry also mentions his social media and blog for listeners who enjoyed the episode.
  • He concludes with a promotion of Xero accounting software and Pearl automotive technology, highlighting their benefits for businesses and individuals.

"Such a fun episode with Rebecca and a huge thanks to her for giving up the time today to be on the show."

Harry thanks Rebecca for her participation, indicating the value of the conversation.

"Also, a massive hand to Matt Garrett at Salesforce Ventures for the intro to Rebecca, without which the show would not have been possible."

Harry acknowledges Matt Garrett's role in facilitating the interview with Rebecca.

"Now Xero is beautiful, easy to use online accounting software for small businesses."

Harry transitions to discussing Xero and Pearl, providing recommendations for his audience based on their utility and convenience.

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