20VC Mike Lazerow on Why How You Operate As a VC Is More Important Than Who You Are and What You Have Done, Why Boards Are More Important for the Entrepreneur than Investor & How The Best Entrepreneurs Prep Their Boards & Extract Value From Them

In this episode of "20 VC," host Harry Stebbings interviews Mike Lazaro, the accomplished entrepreneur and co-founder of Velvet Sea Ventures. Mike shares his journey from founding media companies like Buddy Media, which sold to Salesforce for $745 million, to becoming a successful investor alongside his wife, Cass. Velvet Sea Ventures has an impressive investment portfolio including Twitter, Square, SpaceX, and Facebook. Mike emphasizes the importance of team, market, and networks in successful ventures and discusses the lessons learned from the dot-com era, such as the necessity of raising more funds than anticipated and focusing on business fundamentals. Additionally, he reflects on personal challenges, including overcoming serious health issues, which shaped his fearless approach to life and business. Mike's insights reveal the significance of experience and reputation in venture capital, the collaborative approach of Velvet Sea Ventures, and his philosophy of long-term investment without selling too early.

• Mike Lazerow is a serial entrepreneur turned investor.
• Co-founder and managing partner at Velvet Sea Ventures with his wife, Cass.
• Velvet Sea Ventures' past investments include Twitter, Square, SpaceX, Snap, Facebook, Pinterest, among others.
• Mike co-founded Buddy Media in 2007, which sold to Salesforce for $745 million.
• He also co-founded Golf.com, which was sold to Time Inc. in 2006.
• Acknowledgment of the team effort in scheduling the interview, with thanks to Karen Klein, Ian Sigalo, Roger Arenberg, Jules Moltz, Howard Lindson, Jeff Richards, and Cass Lazerow.

"Prior investments from Velvet Sea partners include Twitter, Square, SpaceX, Snap, Facebook, Pinterest and many more incredible companies."

This quote highlights the successful track record of Velvet Sea Ventures in investing in major tech companies, showcasing Mike Lazerow's credibility as an investor.

• Angelist Fund Admin Platform is praised for managing investments and back office needs.
• Over 10,000 investments in 6,000 startups have been made via Angelist.
• Ripling is introduced as a solution for automating HR and IT for fast-growing startups, especially in remote work environments.
• Ripling automates state tax agency registration and compliance with local labor laws.
• Terminal is mentioned as a service that helps build remote tech teams by connecting with elite global talent and managing the end-to-end process.

"Leading fund managers have made over 10,000 investments into 6000 startups via angel list, all online and all in one place."

This quote emphasizes the widespread use and trust in Angelist by leading fund managers for startup investments.

• Mike's entry into the world of startups was influenced by the timing of the Internet boom during his time at Northwestern's journalism school.
• He interned at newspapers but realized the future of ad-based media was bleak and shifted his focus to the Internet.
• Co-founded University Wire, which went public in 1999, and Golf.com, which was sold to Time Warner.
• Transition to investor began around 2010, with investments in friends' companies that became successful.
• Velvet Sea Ventures is the culmination of Mike and Cass's experiences as entrepreneurs and investors, aiming to scale their business for the long term.
• The venture is compared to starting a company, with similar processes of raising money and creating a well-received product.

"We've done 75 deals. And Velvet Sea Ventures is the vehicle in which we are transforming all of what we have accomplished as entrepreneurs, as investors into what we believe is a scalable business that we're going to do for the rest of our life."

This quote summarizes Mike's extensive experience in deal-making and the purpose behind Velvet Sea Ventures as a long-term, scalable business venture.

• Mike was born with a congenital heart defect and underwent two open heart surgeries at 19.
• The surgeries and the risk of death fundamentally changed his outlook, making him fearless and appreciative of life.
• This experience influenced his entrepreneurial spirit and risk-taking ability.

"I came out of it saying, what's the worst thing that could happen? I'm alive. That's really all that matters."

The quote reflects Mike's transformative experience and the profound impact it had on his approach to life and business, emphasizing the value he places on life above all else.

• Mike has been involved in tech startups since the early '90s and has lived through various market cycles.
• The dot-com bust in April 2000 was a pivotal moment for Mike, teaching him valuable lessons.
• The importance of raising more money than needed, focusing on business fundamentals, and recognizing that big businesses can emerge from crises.
• These lessons inform his current approach to both entrepreneurship and investing.

"Raise more money, focus on fundamentals. And when there are downturns, it's a great time as an entrepreneur to start a business, and it's a great time as an investor to deploy capital."

This quote encapsulates the strategic advice Mike has derived from his experience with financial market fluctuations, emphasizing preparedness, fundamental business strengths, and the opportunity presented by downturns.

• Mike believes that in venture capital, how one operates as an investor is more important than past achievements.
• Money is fungible, but experience and reputation are not, and they drive results.
• Entrepreneurs seek investors with experience and great reputations.
• Mike values the process of working with investors and how they made him feel as an entrepreneur.
• He emphasizes the importance of being a supportive and empathetic investor.
• Velvet Sea Ventures focuses on transferring experience and reputation to entrepreneurs to achieve outsized results for all parties involved.

"I care much more about how we show up, how successful we are at transferring some of our experience, our reputation, to the entrepreneurs, especially early stage, so we can produce outsized results for everyone, including the entrepreneur."

This quote highlights the importance Mike places on the investor-entrepreneur relationship and the impact of an investor's approach on the success of the entrepreneur and the venture.

• Mike Lazerow attributes his early investment home runs to three key factors: team, market, and networks.
• He emphasizes the importance of investing in teams with a track record of winning and the capability to tackle the problems they face.
• The market in which a company operates must be large enough to support massive growth companies; he notes that large companies do not emerge in tiny markets.
• Networks are crucial for growing businesses, as they require support from various stakeholders, including co-investors and employees with relevant experience.
• Mike Lazerow uses two main questions when engaging with entrepreneurs: their top three areas of focus and how he can help.

"So the early home runs, both investing out of our own balance sheet and now velvet C ventures, really boil down to three things that I think we all know, but we forget often one team. Obviously, it's always about the people."

This quote emphasizes the paramount importance of the team in early investment successes and how it's a commonly known yet often overlooked factor.

"It's hard to change pilots mid flight. It's even harder to change the market you're operating in, basically."

Mike Lazerow is highlighting the difficulty of changing a company's market compared to changing its leadership, underlining the critical nature of market selection in the success of a venture.

"It takes a village to grow these businesses."

The quote stresses the importance of having a strong network to support a company's growth, suggesting that it is a collective effort.

• Serial entrepreneurs are more likely to produce great results due to the learning experience from both successes and failures.
• A company's survival is linked to its ability to raise money; a failed product with sufficient funding still has potential, whereas a successful product without funding will fail.
• Mike Lazerow trusts his gut reaction when assessing people and notes that winners have the ability to build networks and teams.
• He refers to sports icons like Michael Jordan and Tom Brady as examples of winners who excel at team building.

"Well, first of all, serial entrepreneurs produce great results."

This quote implies that entrepreneurs with multiple ventures under their belt tend to have better outcomes due to their accumulated experience.

"The only way a company goes out of business is they run out of money."

Mike Lazerow points out the critical role of funding in a company's survival, indicating that financial resources can make or break a business.

"Winners figure it out."

He suggests that winners possess the resilience and resourcefulness to navigate challenges and succeed.

• Mike Lazerow describes a rigorous and unanimous decision-making process at Velvet Sea Ventures, requiring all partners to agree on an investment.
• The partnership between Mike and his wife, Cass, is highlighted as a key component of their success, with Cass bringing operational expertise and intuition to the table.
• Their process involves a healthy debate and a combination of vision and execution.
• Mike Lazerow values the trust and collaborative spirit within their partnership, which extends to their other partners, John and Matthew Gian Petroni.

"We are a firm that is unanimous. They're four partners, and so it's a family firm."

This quote describes the consensus-driven approach to investment decisions at Velvet Sea Ventures, emphasizing the familial aspect of their business.

"Cass and me, John Gian Petroni and Matthew Gian Petroni, we're all in with deals that we like."

Mike Lazerow is explaining the collective commitment of all partners to the deals they pursue, showcasing their unified approach to investing.

• Mike Lazerow considers working with his wife, Cass, to be a superpower due to their complementary skills and mutual trust.
• He believes that their ability to handle disagreements and maintain a strong partnership is akin to the relationship dynamics between co-founders.
• The couple's shared professional and personal journey has contributed to their success in both business and family life.

"Having sex with my co-founder is a feature, not a bug."

This quote humorously conveys the unique advantage Mike Lazerow sees in working closely with his spouse in a professional context.

"We know how to make decisions. We know have disagreements and we know how to go to bed not upset with each other, which is key."

Mike Lazerow is sharing the importance of resolving conflicts and maintaining a healthy relationship, both personally and professionally.

• Mike Lazerow attempted retirement but found himself drawn back to his passion for tech and entrepreneurship.
• He realized that while hobbies are enjoyable, they do not define one's identity or fulfill professional aspirations.
• Mike and Cass Lazerow's venture activities are an integral part of their lives, including their social circle and personal interests.

"I tried to retire after leaving Salesforce. I did an awful job at it."

This quote reveals Mike Lazerow's difficulty in stepping away from the professional world he is passionate about, leading to his return to investing.

"It's just what we do so what we do is venture, and it's a part of who we are."

Mike Lazerow is expressing how deeply intertwined his professional activities in venture capital are with his personal identity and lifestyle.

• Mike Lazerow views money as a means to freedom, allowing him to pursue his interests without traditional employment constraints.
• He reflects on the early days of the internet when starting a company was not driven by financial motives but by the excitement of a new frontier.
• Money has provided security, peace of mind, and the ability to have life-changing experiences through philanthropy and travel rather than material possessions.

"Money was never the reason I started the companies."

This quote emphasizes that Mike Lazerow's entrepreneurial ventures were motivated by passion and opportunity rather than financial gain.

"The money became my ticket to freedom."

He sees financial success as a way to achieve personal freedom and the ability to make choices independent of financial necessity.

• Mike Lazerow acknowledges the challenge of instilling a strong work ethic in children who grow up in different financial circumstances than he did.
• He and Cass aim to model the behaviors and values they believe are important, hoping their children will learn by example.
• The Lazerows strive to balance their professional success with raising their children to appreciate hard work and experiences over material wealth.

"Our hope, and this is a work in progress. So our kids are, we're talking about 1917 and 14."

Mike Lazerow is candid about the ongoing effort to instill the right values in his children, indicating that it is an evolving process.

"We think that if we model the behaviors that we think are important, that's the only way to learn."

He believes that setting an example through their own actions is the best way to teach their children the values they hold dear.

• Children learn by observing the behaviors of their parents, not just through verbal instructions.
• Demonstrating traits like self-awareness, compassion, and empathy is more effective than merely talking about them.
• Parents should express support and assurance to their children, providing both emotional security and clear boundaries.
• The challenges for kids today are amplified by the constant presence of social media and the pursuit of external validation.

"You can't talk about them. You just have to show it to them."

This quote emphasizes the importance of leading by example when it comes to instilling values in children. Rather than just discussing important traits, parents must embody them in their own behavior.

• There is a balance between providing guidance and allowing room for children and founders to learn from their own experiences.
• For both children and entrepreneurs, it is sometimes necessary to remove support structures to encourage independence and learning from failures.
• With founders, it is easier to provide advice based on personal experience, but ultimately, they must make their own decisions.

"You also have to take the guardrails away to let them fall and learn in some cases."

This quote draws a parallel between parenting and mentoring entrepreneurs, highlighting the need to sometimes allow for failure in the pursuit of growth and learning.

• The dynamic between investors and founders should not be overbearing; a heavy-handed approach can damage the relationship.
• Investors should be supportive, and entrepreneurs should feel comfortable and supported for success to be possible.
• Board meetings should be a mix of robust discussion and mutual respect, ending with alignment despite disagreements.

"If the entrepreneur isn't happy, if they're not feeling supported, if they're not comfortable, they're never going to succeed."

Mike Lazerow stresses the importance of a positive relationship between investors and entrepreneurs, where the latter feels supported and content, which is crucial for their success.

• Board seats are not mandatory for investors; they are taken if the investor can contribute meaningfully.
• Startup boards should serve as sounding boards and provide guidance rather than focusing on control.
• Financial engineering and control provisions are seen as negative signs, indicating underlying issues.
• Investors should listen more than they speak in board meetings, and when they do speak, it should be impactful.

"I go into board meetings saying, I'm going to say very little, but what I say I would like to count."

Mike Lazerow explains his approach to board meetings, emphasizing the importance of listening and ensuring that his contributions are significant and helpful.

• Board meetings are more critical for the entrepreneur than for the investor.
• Entrepreneurs should use board meetings as opportunities to step back, synthesize information, and communicate the company's direction clearly.
• A well-prepared board meeting document can help ensure that all team members are aligned with the company's goals and strategies.

"If I can't clearly articulate where the company is, where it's going, and the resources that we need to get there, no one in the organization is going to know it."

This quote highlights the importance of clarity and articulation in communicating a company's status and vision during board meetings, ensuring that the team is unified in understanding and direction.

• Founders should communicate openly and regularly with their board, sharing both successes and challenges.
• Transparency about issues is crucial, as surprises can damage trust and lead to negative consequences.
• Sharing bad news can be therapeutic for founders and prevent larger issues from arising due to unaddressed problems.

"Communicate clearly, communicate regularly. Communicate the wins, communicate all of the shit sandwiches that are going on."

Mike Lazerow advises founders to maintain open lines of communication with their board, discussing both positive developments and challenges to foster a trusting and supportive relationship.

• Investors should over-communicate their expectations and willingness to support founders through good and bad times.
• Establishing a safe space for communication is key to a productive founder-investor relationship.
• Investors should be approachable and empathetic, offering assistance in various aspects of the business, not just at the board level.

"Any relationship that's worthwhile is just communication. It's over communicating."

This quote emphasizes the value of constant and clear communication in building a strong and trusting relationship between investors and entrepreneurs.

• Transitioning from personal investing to managing a venture fund can bring new insecurities and challenges.
• Even experienced investors can face imposter syndrome or question their value-add to a company's cap table.
• Building relationships with co-investors and entrepreneurs at the highest levels requires confidence in one's strategic value.

"I had all these other insecurities that I hadn't felt since I started really Uwire at Northwestern."

Mike Lazerow shares his personal experience with insecurities that arose when scaling his investment activities, illustrating that self-doubt can occur at any stage of a successful career.

• Mike Lazerow discusses the successful completion of their first fund, highlighting the achievement of product-market fit and the trust of 15 entrepreneurs who wanted their leadership in investment.
• Emphasizes the importance of being genuine and presenting themselves as they are to entrepreneurs without boasting about a long track record.
• Mentions the value of trust and honor in getting a 'yes' from an entrepreneur, indicating the competitive nature of venture capital.

"We've product market fit. We are people who at least 15 entrepreneurs have said, I really want you, and many of which wanted us to lead. And there's no better honor that we could get of getting a yes from an entrepreneur."

The quote underlines the significance of product-market fit in venture capital and the honor they feel when entrepreneurs choose them to lead investments, reflecting the competitive environment and the importance of establishing trust with entrepreneurs.

• Mike Lazerow discusses his initial fear of moving from a collaborative to a competitive role in venture capital.
• He talks about maintaining a collaborative nature and optimizing for the long term rather than any single deal.
• Highlights the standardization of terms in deals and the focus on being supportive of entrepreneurs in both good and bad times.

"So that was one of my big fears. And so the way we've gotten around it is being who we are, which by nature is collaborative."

The quote addresses the concern about transitioning from a collaborator to a competitor in the venture capital space and how staying true to a collaborative nature has helped navigate that change.

• Mike Lazerow reflects on his biggest misses, including not investing in Instagram and Uber when he had the chance.
• Discusses the lesson learned about holding onto investments and not selling too early, especially when investing personal money.
• Emphasizes the importance of continuing to invest in great companies and mentions Velvet C's strategy of reinvesting in companies like Leo Labs.

"So my biggest misses were really as a personal investor sitting in a hotel room in 2011 with Kevin Systrom and Travis from Uber and having the opportunity but not raising my hand and saying like, hey, I'd love to invest."

This quote reveals a missed opportunity to invest in what became major companies and the regret of not taking action at the time, which has informed his current investment strategy.

• Mike Lazerow talks about the structure of their investments and the ability to spin up single-purpose entities for additional allocations.
• He emphasizes their multistage approach and their willingness to meet entrepreneurs wherever they are, rather than focusing on creating massive funds.

"Yeah, so we're registered investment advisors, so we don't talk that much about the structure. But we have funds which we invest out of, and all of our partners, including us, often want more allocation in certain deals."

This quote explains their fund's flexibility and strategy, highlighting their focus on meeting entrepreneurs' needs at various stages and the ability to create separate entities for specific investments.

• Mike Lazerow shares Viktor Frankl's "Man's Search for Meaning" as his favorite book, citing its message about finding purpose in life.
• Discusses the misconception rich people have about knowing all the answers and the importance of recognizing the role of luck in success.
• Advises to trust one's gut and intuition, as it often leads to the right decisions.
• Reflects on the importance of focusing on the deals you do rather than the ones you miss and the impact of your choices on your returns.

"My favorite book, by far, not even close, is Viktor Frankl's man's search for meaning."

The quote shares Mike Lazerow's personal recommendation for a book that has deeply influenced him, emphasizing the importance of finding purpose even in the most challenging circumstances.

• Mike Lazerow talks about his recent investment in Leo Labs, a company in the commercial space sector.
• He explains the decision to lead a $65 million Series B funding round based on the company's execution and potential in the emerging market of low Earth orbit.
• Highlights the relationship with the founder and the excitement to partner with a company that is enabling the business of space.

"Leo Labs, which is our last one, we just announced it, $65 million Series B funding. Velvet C led the round with insight partners."

This quote details a recent investment by Mike Lazerow's fund, providing insight into their decision-making process and the factors that contribute to their excitement about a company.