20VC Rob Go @ NextView on WTF Is Seed Investing Today and Why Raising Too Much Money Can Harm Your Startup

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Rob Go, co-founder and partner at NextView Ventures, a firm dedicated to seed-stage investments. Rob shares insights from his time at Spark Capital and eBay, and discusses the evolving landscape of seed investing, emphasizing the importance of focus and frugality in early-stage startups. He also touches on the rise of pre-seed funds, the impact of larger funds on the startup ecosystem, and the optimal runway for pre-product market fit companies. Additionally, Rob addresses the trend of personal branding among VCs and the value of authentic engagement with entrepreneurs. With his belief in the power of smaller seed rounds and the flexibility they offer startups, Rob concludes by highlighting his recent investment in Dia & Co, a fashion e-commerce platform for plus-size women, praising the team's authenticity and market potential.

Summary Notes

Introduction to Rob Go and Nextview Ventures

  • Rob Go is a cofounder and partner at Nextview Ventures, a firm focused on seed-stage investments.
  • Prior to Nextview, Rob worked at Spark Capital and eBay.
  • He is recognized for his contributions to the tech industry and his insightful blog at robgo.org.
  • Bradfeld facilitated the introduction to Rob for the podcast.

"Now, joining me in the hot seat today, I'm thrilled to welcome Rob Go, cofounder and partner at Nextview Ventures, a true seed stage investor."

This quote introduces Rob Go as the guest on the podcast, highlighting his role at Nextview Ventures and his expertise in seed-stage investing.

The Genesis of Nextview Ventures

  • Nextview was founded around six years ago by partners who were operators or entrepreneurs from high growth Internet companies.
  • Founding members had experience in the Valley and moved back to the East Coast to join larger lifecycle venture capital firms.
  • Identified an opportunity in the market due to the reduced cost of starting software businesses and the accumulation of capital by established venture funds.
  • Aimed to fill a void on the East Coast as a premier early-stage Internet and software investor during a generational shift in the venture landscape.

"And we saw a pretty obvious opportunity to start Nextview driven by two forces."

This quote explains the motivation behind starting Nextview Ventures, which was driven by market opportunities and a strategic moment in the venture capital landscape.

The Disconnect Between Large Funds and Startups

  • Large funds with hundreds of millions or nearly a billion dollars face a disconnect with startups seeking to raise smaller amounts like a million dollars or less.
  • Founders desire hands-on engagement from investors who care about seed dollars, which can be challenging for large funds to provide.
  • The tension arises from the need for large funds to either invest significant time and effort into small investments or not spend the time, leading to potential misalignment.

"I just think that it comes down to a difference of incentives."

This quote addresses the core issue of differing incentives between large funds and startups, leading to a disconnect in their relationship.

Nextview's Fund Size and Investment Approach

  • Nextview's current fund is $40 million.
  • The average check size is about $500,000, but investments can range from one to $200,000 for very early-stage companies up to a million dollars for more mature seed companies.
  • The approach is flexible, scaling investment based on the company's stage.

"Our average check size is probably about $500,000, but we actually have scaled our investment quite a bit, depending on the stage of the company."

This quote explains Nextview's investment strategy, which varies the amount invested depending on the development stage of the startup.

Defining Seed Investing

  • Rob Go's definition of seed investing involves supporting companies before they achieve product-market fit and helping them reach early validation and growth.
  • Seed rounds have evolved to be more akin to what Series A financing used to be, with most software businesses raising an institutional seed round as their first significant financing step.
  • The concept of a seed round has broadened over time, with varying round sizes and company profiles.

"The job of a seed investor is to invest in a company before product-market fit and try to take the company to the other side of product-market fit and into sort of early validation and early growth."

This quote defines the role of a seed investor according to Rob Go, emphasizing the phase before product-market fit and the journey to early growth stages.

Evolution of Seed Rounds

  • Seed rounds now encompass a broader range of company stages, from pre-product startups to those with significant monthly revenue.
  • Series A and later investors are moving upstream, looking for companies with meaningful growth or investing in proven entrepreneurs early.
  • Seed investing traditionally meant early-stage funding, but now some seed investors expect substantial revenue before showing interest.

"What we've seen is that the Series A and later investors have really moved upstream. Right. So increasingly you have series A investors saying, we really want to see pretty meaningful growth in these companies before they get excited or they're looking to invest in extremely proven entrepreneurs very, very early, but there's not much room in between."

This quote explains the shift in Series A investors' focus toward companies that already show significant growth or the involvement of proven entrepreneurs, leaving a gap in the early-stage investment landscape.

Market Dynamics Post-Economic Crash

  • After the economic crash, limited partner (LP) capital concentrated in fewer multistage funds.
  • A frenzy for mid and late-stage financings emerged as investors sought growth in a macroeconomic environment starved for it.
  • The focus on a few key companies each year led to significant investments at high valuations, regardless of price.
  • Series A investors adapted by investing in later-stage companies at higher valuations due to the expectation of rapid follow-on investments.

"And so you had this whole sort of mad rush towards pouring capital into unicorns, or supposed unicorns, which drove up mid and late stage private valuations significantly."

This quote describes the aggressive investment strategies targeting high-growth companies (unicorns) and the resulting inflation of valuations at mid and late stages in the private market.

Shift in Seed Investment Strategies

  • Seed investors traditionally focused on truly early-stage companies.
  • Increased capital and time requirements for companies to demonstrate potential have led seed investors to fund slightly later stages.
  • The trend towards later-stage seed investing is driven by the desire to participate in the growth frenzy, though a correction is anticipated.

"It makes more sense for me to then invest a little bit later as well, to try to invest in things that are already starting to show early growth, just to get it into this sort of frenzy of euphoric frenzy."

This quote reflects the strategic shift of seed investors towards companies that already exhibit early growth, aiming to align with the prevailing investment euphoria.

Debate on Seed Round Size

  • The size of seed rounds is not one-size-fits-all; it depends on the milestones a business can achieve with the funding.
  • Some businesses, particularly hardware-based, may require more capital to reach a product inflection point.
  • Raising more capital can lead to a lack of focus, scrappiness, and premature overhead investment.
  • Capital constraints can force startups to prioritize effectively and focus on what truly impacts their service and customers.

"There isn't a really obvious trend that companies that raise a lot of money pre product market fit end up doing much better than the ones that don't."

The quote suggests that raising more money during the seed stage does not necessarily correlate with greater success, challenging the notion that more funding always leads to better outcomes.

Benefits of Smaller Seed Rounds

  • Smaller seed rounds typically result in a lower burn rate, offering startups greater longevity and flexibility.
  • A lower burn rate allows startups to extend their runway with less additional capital and makes early revenue more impactful.
  • Raising less capital initially can position startups favorably for future fundraising by demonstrating efficient progress.

"Gets you closer to being at a point where your future is in your own hands."

This quote highlights the advantage of smaller seed rounds in giving startups more control over their destiny by reducing reliance on external funding.

Fundraising Dynamics

  • Positive optics associated with increasing fundraising amounts from a smaller seed round to a larger subsequent round.
  • Raising a smaller amount after a large seed round can indicate a company struggling rather than progressing.

"The optics of going from a million bucks to raising, say, two and a half million bucks is pretty positive, right?" This quote emphasizes the positive perception created when a company can increase its fundraising amount, signaling success and growth.

Advised Runway for Pre-Product Market Fit Companies

  • The recommended runway for a pre-product market fit software company is generally 18 months.
  • The focus should be on headcount rather than the duration of the runway.

"I would generally advise for 18 months. I think the lever is less sort of the time and it's more the headcount." This quote suggests that while 18 months is the standard advised runway, the more critical factor to consider is the number of employees, implying that headcount management is key during this stage.

Challenges with "Half Seed" Rounds

  • Founders often face issues with "half seed" rounds due to disproportionate dilution.
  • Raising smaller amounts can lead to selling a larger percentage of the company than if more capital were raised.

"So instead of raising the 3 million seed for 15%, they have to raise one and a half for ten and it's kind of misappropriated." This quote highlights the dilution problem where raising half the amount of a typical seed round does not halve the equity given up, leading to more significant dilution for founders.

Impact of Pre-Seed Investors on Seed Investors

  • Pre-seed funds are appreciated for embodying the original ethos of early seed investing.
  • Pre-seed funds focus on smaller, earlier rounds and are comfortable with the uncertainties of pre-product market fit stages.
  • Seed investors, like the speaker, are open to investing across the full spectrum of seed stages, with a preference for early investment.

"I love pre seed funds. I just think know they're kind of doing what seed investors were kind of meant to do when this whole thing started." This quote expresses admiration for pre-seed funds, suggesting that they are fulfilling the original purpose of seed investing by supporting companies at the earliest stages.

VC Branding and Marketing

  • VCs have historically avoided marketing but are now embracing it to benefit the ecosystem.
  • Early VC bloggers made the fundraising process more transparent for entrepreneurs.
  • There's a proliferation of VC marketing efforts, which can be seen as inauthentic, but it's also crucial for VCs to engage with entrepreneurs on emerging platforms.
  • Podcasting is a valuable medium for disseminating information to the entrepreneurial community.

"Vcs have historically been allergic to the idea that they do marketing. And actually I think Mark years ago made a post that said there's no shame in being good at like that's, that's a perfectly fine thing to do." This quote acknowledges the shift in VC attitudes towards marketing, highlighting that it's acceptable and beneficial to be skilled in marketing, as it helps in providing transparency and engaging with entrepreneurs.

VC Branding and Authenticity

  • David Tetton's quote suggests that the noisiest investors may have the least value to add.
  • Rob Go emphasizes the importance of the value in the information shared by investors.
  • Quality content tends to attract audiences, and the smart ones will tire of mere noisiness.
  • The true measure of an investor's value is what founders say about them, especially in difficult times.

"The coin box that rattles the most has the fewest coins in reference to kind of the noisiest investors potentially have the fewest value add."

This quote from David Tetton implies that investors who make the most noise may not actually provide substantial value.

"Nobody cares about noise, but if there's actual value in the information that's being shared, then there's actual value."

Rob Go counters Tetton's view by stating that the key is the actual value of the information, not the noise it's wrapped in.

"The most important aspect is what do other founders say about you?"

Rob Go highlights that the opinions of founders, particularly when things don't go well, are crucial indicators of an investor's genuine value.

Reading Habits and Book Preferences

  • Rob Go enjoys reading for information and fun, with a particular liking for dystopian fantasies.
  • His wife humorously comments on his book tastes being akin to those of a teenager.

"I have the book tastes of a teenage girl, so I love dystopian fantasies."

Rob Go shares his personal reading preferences, revealing a fondness for a specific genre.

Personal Growth and Self-Reflection

  • Rob Go learned about his judgmental nature from Bradfeld's reboot camp.
  • He recognizes that this trait is unhelpful and is working to change his approach.

"I'm a very judgmental person, and that has shaped a lot of how I approach my job and how I kind of the internal narrative that I have about myself."

This quote reflects Rob Go's self-awareness and his realization of the need for personal growth.

Morning Routine

  • Rob Go's morning routine starts the night before with reading a psalm.
  • He tracks his weight daily, which correlates with his mental well-being.
  • Time with family is a priority in the morning.
  • He is a regular podcast listener during his commute.

"I would actually say my morning routine probably starts the night before."

Rob Go explains that his morning routine is influenced by his activities the previous evening, highlighting the importance of preparation.

"I always weigh myself, which is kind of OD every day."

He shares his habit of daily weight tracking, emphasizing his love for data and its connection to his overall health.

Content Consumption

  • Rob Go is a fan of the blog "Wait But Why" for its depth of content.
  • He listens to the 20 Minute VC podcast regularly.

"I love. Wait, but why? It's not an industry newsletter. Level of depth is exactly what I like."

Rob Go expresses his appreciation for the detailed content provided by "Wait But Why," aligning with his preference for in-depth analysis.

Investment Decisions

  • Rob Go's recent investment in Dia & Co was influenced by the team's authenticity and the significant market opportunity.
  • Dia & Co addresses the needs of the plus-size market, which Rob Go sees as underserved.

"It's a deeply authentic founding story. And I think they're going after a huge market opportunity with a market segment that is severely disenfranchised."

This quote explains Rob Go's rationale for investing in Dia & Co, highlighting the authenticity and potential of the company.

Personal and Professional Values

  • Rob Go values authentic interactions with founders, regardless of the outcome of their ventures.
  • His personal faith and habits, like reading psalms, reflect his values and influence his daily life.

"Are you known for having an authentic interaction that founders walk away saying, you know what? They said no, or things didn't go well. But I valued every moment that I spent with this investor."

Rob Go stresses the importance of maintaining authenticity in interactions with founders, which he believes is a key factor in building a strong reputation.

Mental and Physical Health

  • Rob Go monitors his weight to maintain his physical health, which he finds correlates with his mental well-being.
  • He actively tries to improve his mental health by addressing his judgmental nature.

"So many things tend to correlate with kind of like, my mental well-being and weight is definitely one of them."

This quote shows Rob Go's understanding of the connection between physical health metrics like weight and mental health.

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