20VC Raising A $1.35Bn Fund I, The Emerging Secondary Opportunity For Early Stage Managers and Founders & What It Takes To Win The Best Growth Deals Today with Ravi Viswanathan, Founder & Managing Partner @ NewView Capital

Harry Stebbings welcomes Ravi Viswanathan, founder and managing partner at Newview Capital, to discuss his journey from a career in science and technology to leading a venture capital firm with a $1.35 billion debut fund. Ravi, who previously spent 14 years at NEA and was a VP at Goldman Sachs, shares insights on the changing venture landscape, the importance of companies staying private longer, and the role of secondary markets in providing liquidity. He emphasizes the significance of founder quality and building close relationships with CEOs and fellow board members. The conversation also touches on operational value addition in growth-stage companies and the careful navigation of founder secondaries. Ravi underscores the potential misalignment between VCs and founders regarding exits and the need for venture funds to adapt to the decade-long gestation of startups.

• Ravi Viswanathan is the founder and managing partner of Newview Capital.
• Newview Capital was launched in 2018 with a $1.35 billion debut fund.
• The firm has achieved three significant exits in less than two years.
• Prior to Newview, Ravi spent 14 years at NEA, becoming COO in 2016.
• Ravi's earlier career includes roles at Goldman Sachs and McKinsey & Company.

"I was first alerted of this guest's incredible last twelve months by Chaithan at benchmark, who also made the intro so huge thanks to Chaithan for that. But I'm very, very excited to welcome Ravi Viswanathan, founder and managing partner at Newview Capital."

This quote introduces Ravi Viswanathan and acknowledges Chaithan for the introduction. It sets the stage for the discussion about Ravi's background and the creation of Newview Capital.

• Ravi was born in India and educated on the East Coast at Penn, studying bioengineering.
• He pursued a Ph.D. in material science and chemical engineering at UC Santa Barbara.
• Ravi worked at Raychem in the Bay Area in the 90s, which sparked his interest in the commercialization of innovation.
• He transitioned to business by attending business school and then joining McKinsey.
• Ravi entered the investing world with Goldman Sachs and later joined NEA, where he spent 15 years.

"I was born in India, grew up on the east coast and college. I went in the east coast to Penn, and I studied bioengineering."

This quote provides background on Ravi's early life and education, which laid the foundation for his professional journey.

• Newview Capital was founded due to the changing landscape of venture capital, with companies staying private longer and larger funds being raised.
• The firm started by spinning out from NEA with a portfolio of over 30 companies.
• The idea was to focus on growth-stage companies that were not receiving enough attention due to being in older funds or their lead partners having left.

"So that's what we did in 2018, we orchestrated a spin out from NEA with 30 odd companies and that's how Newview was formed, which when we closed the fund in late 2018."

The quote explains the strategic move behind the creation of Newview Capital and its initial portfolio composition.

• The fundraising process was unique, aided by the spinoff nature from NEA and the quality of the companies involved.
• Most investors in Newview were also investors in NEA, which facilitated the fundraising process despite it being lengthy and involving numerous legal consultations.

"I would say it was a pretty unique process. It was really helped by the fact that this was a spinoff from NEA."

This quote highlights the distinctiveness of Newview's initial fundraising process, which was influenced by its relationship with NEA.

• Ravi believes they did well in focusing on the limited partners (LPs) and the companies they were spinning off with.
• In hindsight, Ravi suggests he would have started building his team sooner and prepared better for the legal complexities of transferring companies.

"Not necessarily with a lot of forethought, but I over index on two critical constituencies. One is obviously the lps, and the LPS is really a lot of it was myself, my background, but also telling the story of this evolving market and how we thought this could be an emerging product, an emerging part of that market."

The quote reflects on the successful aspects of the fundraising process, emphasizing the importance of engaging with LPs and portfolio companies.

• Ravi advises new fund managers to find their product market fit within the VC ecosystem and to differentiate themselves to attract LPs.
• LPs are interested in new ideas but are also looking for assurance of best-in-class returns.
• The challenge is to stand out in a crowded market of established and emerging VC firms.

"I would probably have each of these firms say, what is your product market fit in the vc ecosystem? How will you differentiate? How are you novel, unique? And how can you convince lps you're going to get best in class returns?"

This quote offers strategic advice to new fund managers on positioning their firm in the competitive venture capital market.

• The venture capital landscape has significantly evolved with an increase in billion-dollar funds and large investment rounds.
• Bill Gurley highlighted the abundance of capital as a major challenge in the industry.
• Excessive capital inflow typically leads to diminished returns in any asset class.
• Despite concerns, there is recognition of ongoing innovation and the potential for new company creation, particularly in areas like SaaS.
• The key to success in this environment is differentiation and establishing a strong connection with entrepreneurs.

"If you look at the history of ventures, at least the modern era, I'd say the last 2025 years, in 2000, I think 100 million was either raised or invested. And that movie did not end well, as we all know."

This quote reflects on past venture capital trends, implying that large inflows of capital have historically led to problematic outcomes, likely referencing the dot-com bubble.

"So I do think that that is an issue. Having said that, there are incredible companies getting started."

Acknowledges the problem of capital oversupply but also highlights the positive aspect of ongoing innovation and company formation.

• Being top of mind for entrepreneurs is crucial, which often involves being visible and vocal in the industry.
• Data availability has made identifying potential winners easier, but it also requires a clear understanding of how to secure the best deals.
• Building relationships and adding value beyond financial investment are key components of winning strategies.
• Hustle and relationship building are emphasized as essential in the venture capital industry.

"I think that you have to have a reason why this entrepreneur wants you in the cap table."

This quote underlines the importance of providing unique value to entrepreneurs as a venture capitalist to be chosen as an investor.

• The perceived value added by venture capitalists to portfolio companies is often overstated.
• A focused approach to adding value in one or two key areas is recommended rather than trying to be involved in all aspects of a company's growth.
• Operational value add is particularly critical for mid to later-stage companies that are scaling rapidly.
• The right balance between supporting and not micromanaging companies is essential for their success.

"We do have a pretty heavy operational value add model, several operating partners and I think where we invest, which is a lot more mid later stage."

This quote explains that the speaker's firm has a strong focus on operational support for their investments, particularly at later stages of a company's growth.

• Price sensitivity varies depending on the stage of investment, with early-stage investments being less price-sensitive.
• For later-stage investments, valuation becomes more critical as the potential for outsized returns diminishes.
• Learning when to be flexible on price for exceptional opportunities is a key skill in venture capital.

"Peter Fenceon on the show and he said, never turn down a deal based on value valuation. It's a mental trap."

This quote suggests that being overly concerned with valuation can prevent investors from participating in potentially successful deals, especially in the early stages.

• Real-world experiences can offer valuable lessons in price sensitivity and investment decision-making.
• Iconic companies that transform the tech ecosystem warrant investment despite high valuations.
• Identifying and investing in fundamental companies is crucial for venture capitalists aiming for significant impact.

"It was when workday came into our offices at NEA over ten years ago... we just had to fund that company."

The speaker shares a personal anecdote about investing in Workday, emphasizing the importance of recognizing companies that are fundamentally changing the industry, regardless of their financials at the time.

• Venture capitalists aim for a base return but also look for potential for outsized returns in each investment.
• Investing in hyper-growth companies involves risk, and the possibility of high returns justifies this risk.
• The mentality of later-stage managers includes a balance between seeking reasonable multiples and the chance for exceptional returns.

"The standard that a lot of people throw around is kind of, let's make sure that the company is in that three to five x range."

This quote indicates a common return expectation in the venture capital industry, with the speaker adding that there should be potential for even higher returns.

• The entry of private equity firms into later-stage venture capital introduces significant capital and competition.
• These firms operate at a level of investment that may not be relevant for all companies.
• The presence of PE firms can be viewed as both a challenge and a healthy development for the venture ecosystem.

"They're coming in with 50 to 250,000,000 checks wanting to invest in our companies, and that obviously is a big bolus of capital."

This quote discusses the impact of private equity firms entering the venture space with large amounts of capital, which can affect the dynamics of investment rounds.

• In the past decade, a new trend has emerged where private equity firms are not only investing as minority growth investors but also purchasing venture-backed startups.
• The influx of capital from private equity firms is seen as a double-edged sword—it presents both opportunities and risks for startups.
• Maintaining company ethos is critical when accepting significant capital to prevent the development of bad habits within the board and management team.

"A lot of these firms are coming in not only to invest as minority growth investors, but also to buy our companies, which is a very new vein of exits for a lot of these venture-backed startups that's really emerged, I'd say, in the last decade, in much more fortune."

This quote highlights the emergence of private equity firms as new players in the exit strategy landscape for venture-backed startups, marking a significant shift in the industry over the past ten years.

• Founders transitioning from a lean operation to managing significant capital can find it challenging to shift their mindset towards aggressive growth.
• The key is to scale efficiently, focusing on product-market fit and growth metrics that allow for profitable expansion.
• Founders should avoid indiscriminate spending, especially in competitive markets, as it can lead to poor outcomes for all players involved.

"You see it really in smaller markets where there isn't as much venture. [...] It's really thinking about, all right, where is the stickiness of this? [...] How do you scale that efficiently?"

This quote discusses the importance of maintaining an efficient and disciplined approach to scaling a business, especially after receiving a substantial capital injection, which is more likely to happen in markets with previously limited venture capital availability.

• Companies staying private longer to improve metrics, governance, and scale for an eventual public offering are acting with positive intent.
• Conversely, staying private to exploit valuation arbitrage is considered a negative motivation.
• Providing liquidity to investors and employees is essential, and private equity can offer a solution by allowing companies to stay private while offering liquidity through cap table exchanges.

"If it's for the right reason, I think it's great. [...] But you do have to figure out a way to give liquidity to your investors, your venture and other investors, and even your employees."

This quote emphasizes the importance of companies staying private for the right reasons, such as improving their readiness for an IPO, while also acknowledging the necessity of providing liquidity to stakeholders.

• Decisions to sell a company often depend on the CEO and founding team's perspective on the company's potential for future growth versus current offers.
• Secondary markets present opportunities for earlier investors to achieve liquidity, aligning with the founding team's desire to continue growing the company.
• Private equity firms have long practiced exchanging positions in companies, a strategy that can be adopted in the venture ecosystem to address misalignments between fund life cycles and company growth trajectories.

"I think that a lot of times it really begins and ends with the CEO and the founding team, let's say selling the whole company."

This quote underscores the central role of the CEO and founding team in making the critical decision of whether to sell the company, based on their assessment of its current value and future growth potential.

• There is a potential misalignment between venture capitalists and founders regarding exit strategies, often influenced by the VCs' need for liquidity to satisfy their own investors.
• Secondary sales at scale can help resolve this misalignment by allowing earlier investors to exit while new investors who align with the founders' vision step in.
• The venture ecosystem is evolving to accommodate longer private company lifespans through innovative liquidity solutions.

"It's a great question. Also, you've just articulated a slide in our deck, which is one of the areas we have played a role, and you're dead right."

This quote acknowledges the misalignment issue between VCs and founders and suggests that secondary sales at scale are a viable solution that venture firms are actively exploring and implementing.

• Founder secondaries are increasingly common as companies stay private longer, and it's considered reasonable for founders to take some liquidity after years of hard work.
• The concern is ensuring that the amount of liquidity taken does not dampen the founder's motivation to grow the business.
• The trend of providing liquidity to founders and early employees is expected to continue and is seen as beneficial for the ecosystem as it enables reinvestment and diversification.

"The way I think about it, I think it's very reasonable for a founder who's been incredibly hard at work for 510, whatever number of years to take some liquidity."

This quote supports the idea that founder secondaries are a fair and necessary practice, provided they are done prudently and do not negatively impact the founder's commitment to the company's success.

• Bringing in operators and independent board members early is crucial.
• Avoid having a board dominated by VCs, especially when planning to go public.
• Diversity and independence on the board should be prioritized from early stages.

"I think that a huge mistake is not bringing in operators and independents soon enough... you want to go public and you literally have a board of seven to ten people and two thirds of them are vcs."

This quote emphasizes the common error of not diversifying the board with independent members and operators early in a company's growth, leading to a VC-dominated board that may not be optimal, especially for a public offering.

• Developing close personal relationships with CEOs and founders is key for board members.
• Trust and partnership between board members and founders are essential during challenging times.
• The goal is to be the first call for founders when issues arise.

"Build really close personal relationships with the ceos and the founders... they view you as a partner, not just as an investor."

This quote highlights the importance of nurturing a partnership and trust-based relationship between board members and founders to ensure open communication and support during difficult decisions.

• Cultivating collaborative relationships with fellow board members is transformative.
• Board members should ensure their values align with each other for effective teamwork.
• Curating a board is as important as curating investors.

"I've been on boards where there wasn't that close knit collegiality, and now I try to do the opposite."

The speaker reflects on past experiences with non-collaborative boards and advocates for creating a cohesive and value-aligned board environment.

• New board members should focus on adding value in specific areas.
• It's important not to spread oneself too thin by trying to contribute in too many ways.
• Board members should recognize their role is to be accretive in particular aspects.

"Build a close relationship with the CEO... focus on where you can add value early on."

This quote advises new board members to establish strong relationships with CEOs and to concentrate on areas where they can provide the most value.

• Resist the temptation to add value constantly; focus on significant moments.
• Playing the long game and contributing meaningfully at the right times is key.
• The board should consist of role players who can step up when needed.

"Add value where you can... and if he or she has built the right board, then it's because someone's always coming in at a certain point and stepping up."

The speaker encourages board members to add value strategically and trust in the collective strength of a well-composed board to support the company at various stages.

• "Shoe Dog" by Phil Knight and "Born a Crime" by Trevor Noah are favorites.
• Both books illustrate overcoming hardships in professional and personal contexts.

"One is shoe dog... The second was Trevor Noah's born a crime."

The speaker shares two book recommendations that showcase individual perseverance and success against challenges.

• Tom Bogan is highlighted as an exemplary board member.
• His credibility, operational and VC experience, and ability to unite teams are commended.

"Just had incredible credibility... He was able to deliver tough messages."

The speaker admires Tom Bogan for his effective board membership and ability to navigate difficult discussions and decisions.

• "Focus and execute" is a frequently used motto.
• The importance of concentrating on objectives and executing tasks is emphasized.

"Focus on what you need to do the job at hand and just really execute."

This quote encapsulates the speaker's guiding principle of maintaining focus and following through with execution to achieve success.

• Balancing time between sourcing, supporting the portfolio, and building a firm is a significant challenge.
• Effective time management is crucial for venture capitalists.

"I think it definitely is time management, which is obviously a broad umbrella of term."

The speaker identifies time management as the overarching challenge in their current role, encompassing various responsibilities.

• Emphasizes the importance of focusing on the quality of founders and CEOs.
• Early career seduction by product, technology, or market hype should be avoided.
• Long-term relationships with high-quality founders are pivotal.

"I would say the single biggest thing that I would tell myself is just focus much more on the quality of the founders and actually the quality of the CEO."

The speaker reflects on the importance of prioritizing the caliber of founders and CEOs in venture capital, as these relationships can span a decade or more.

• Plaid is the most recent investment, with a personal connection to its early funding.
• The decision to invest was driven by belief in the company and its leadership.

"It's plaid, which I was part of the team that led the seed in series A at NEA many, many years ago."

The speaker shares enthusiasm for their recent investment in Plaid, a company they have a longstanding relationship with and confidence in.