In this episode of "20 minutes VC," host Harry Stebings interviews Hadley Harris, founding general partner at Eniac Ventures, a pioneering mobile-focused VC fund with investments in companies like Soundcloud and Airbnb. Harris, a former engineer and two-time mobile entrepreneur, discusses the value of an engineering background in venture investing, the art of valuation, and the importance of founder-investor fit. He also touches on the challenges and strategies of raising subsequent funding rounds, particularly the Series A crunch, and the need for startups to have sufficient runway. Harris highlights mobile enterprise as an underhyped sector with significant growth potential and shares insights into New York's evolving venture scene, contrasting it with other tech hubs. Finally, Harris explains Eniac's commitment to follow-on funding and the nuances of navigating down rounds and maintaining company morale.
This is the 20 minutes VC with your host Harry Stebings. And joining us today, we have one of New York's best early stage investors, officially awarded by Business Insider. It is, of course Hadley Harris, founding general partner at Eniac Ventures, who are the world's first venture fund exclusively focused on mobile, and their investments include the likes of Soundcloud, Airbnb and Vungle, just to name a few.
This quote introduces Hadley Harris and Eniac Ventures, highlighting their focus on mobile technology and their successful investments.
Yeah, sure. I mean, I've always been really interested in technology, even as a kid I loved science and math, studied engineering as a university student, and then I've really been in technology my entire life.
Hadley Harris discusses his lifelong interest in technology and how it led to a career in engineering and eventually venture capital.
Yeah, I mean, I'm a big fan of engineering as a discipline. I think it teaches a lot of problem solving.
Hadley Harris explains the value of an engineering background in venture capital, emphasizing its role in fostering problem-solving skills.
Yeah, I think there was two main reasons. The first is that we were just at a belief that that was the next evolution of computing back in 2009, 2010.
Hadley Harris shares the rationale behind Eniac Ventures' focus on mobile-first companies, rooted in their belief in mobile as the future of computing and their personal expertise.
Yeah, it's interesting. New York has definitely grown a lot. It had always been not well respected in the venture scene traditionally, certainly San Francisco.
This quote reflects on the changes in the New York venture scene's reputation and growth over the past seven years, as noted by Hadley Harris.## Evolution of Tech Hubs
"I think Boston had kind of been the second biggest hub, and there were places like Seattle. And New York was always seen as something that had certainly big industries, for sure, finance and media, fashion, real estate, all these other areas, but tech had never really taken off." "I think it's gotten to the point where it's clearly the second biggest market."
These quotes highlight the shift in the tech industry's geographical landscape, with New York gaining prominence despite its historical focus on other industries.
"I mean, I think New York, amazingly, has come a long way without a real pure anchor." "I believe that there will be those in New York, but it's come a long way without it."
These statements reflect the view that while anchor companies are beneficial for a tech ecosystem, New York's growth has been notable even without such companies.
"We have a bunch of companies that we backed when we started 2010, 2011 that are getting to be sizable companies in their markets, but it takes a long time to create a Google type company."
This quote emphasizes the patience required in the venture capital industry, acknowledging the lengthy process of nurturing startups into market leaders.
"One of the things that we always are very involved with is follow on funding." "We're almost like, this would be an American analogy, but the minor leagues for them."
These quotes illustrate the venture capital firm's commitment to supporting their portfolio companies through subsequent funding rounds and the strategic positioning of the firm as a feeder to larger investment entities.
"I don't agree with the idea of not following on in your good companies." "But if you always follow when they raise a new round from a new investor, you also get around any signaling issues."
These statements convey Harris's belief in the importance of supporting portfolio companies through continued investment and the strategic benefits of doing so.
"I generally think that the company itself and what they're doing and their potential is certainly the most important thing." "I think there's a lot of companies now, especially at the later stages, that are going to have a lot of issues in the next year because they raised rounds at too high of a valuation."
These quotes highlight the balance that must be struck in venture capital between recognizing a company's potential and ensuring that valuations are realistic to facilitate future growth and success.## Valuation Challenges in Fundraising
"they need to raise rounds at down rounds or flat rounds. And that's going to really hurt the entrepreneurs in terms of liquidation, it's going to hurt the investors, and it's also going to hurt the employees that have all those stock options. So I think you need to find a value that is fair, rather than just kind of pushing for the highest valuation possible."
This quote highlights the negative consequences of down rounds or flat rounds on different stakeholders and emphasizes the importance of fair valuation in fundraising.
"But I think that everyone being the employees, the founders and the investors have to work together. And there's going to have to be some flexibility to make sure that everyone's fully vested and not vested from an equity point of view, but within the company, kind of morale wise."
The quote underscores the importance of teamwork and flexibility among all parties to maintain morale and ensure commitment to the company, beyond just equity stakes.
"It's much more of an art than a science. [...] Unfortunately, there's just not a lot of data and the idea of kind of doing it from kind of using some sort of formula is just not an option."
This quote explains the complexity of determining valuation for early-stage companies due to the lack of substantial data, emphasizing the artful nature of the process.
"The great founders, we find, have a passion for what they're doing that's beyond just monetary. They want to solve a problem and change the world in some way."
This quote emphasizes the importance of passion and a genuine desire to solve problems as key traits in founders that VCs look for when assessing potential fit and alignment.
"You could argue that probably the biggest drop off happens between the seed and the a, rather than the a and the b."
The quote discusses the significant challenge companies face when moving from seed to Series A funding, highlighting the natural attrition rate in the investment funnel.## Series A Crunch
I think one thing we've been trying to do for the last couple of years is set ourselves up for success so that we won't have to do that.
This quote emphasizes the importance of strategic planning and adequate initial funding to avoid the need for additional seed rounds.
The biggest mistake I see is companies not raising a large enough seed.
Hadley Harris identifies underfunding at the seed stage as a common error that startups make, which can lead to difficulties later on.
To you, 18 to 24, I think, is the right number.
Hadley Harris suggests that 18 to 24 months of runway is the optimal amount of time that seed funding should sustain a startup.
So generally when we look at companies, they've raised already a half a million dollars, and that's given them traction.
This quote explains that precede funding is often used to establish a startup's initial traction and set the stage for larger seed rounds.
I use Gmail with relate IQ kind of on top of it for all of our deal tracking and things like that.
Hadley Harris shares his preferred productivity tools, highlighting the importance of organization and task management in his workflow.
I especially like vcs and this has to do with kind of my own path for sure, who not only were great investors, also were great entrepreneurs and also founded their funds.
Hadley Harris values venture capitalists who have a strong entrepreneurial background and have founded their own funds, exemplified by Don Valentine and Mark Andreessen.
I'd say freakonomics. I'm not a huge reader of kind of books versus blogs and articles, but it was the one book I think I ever read kind of in one sitting and I just found it fascinating.
Hadley Harris shares his favorite book and reading habits, indicating a preference for shorter, more frequent reads rather than long-form books.
Underhyped for us I think is mobile enterprise. Overhyped, I mean I'm a big fan and do a lot of work with social, but the problem is that everyone try, you know, social is very easy and everyone has an idea about a new social platform so there just tends to be too many of them.
Hadley Harris discusses his views on current sector trends, highlighting mobile enterprise as an area with potential and expressing caution about the crowded social platform space.
The last one that we did that is announced is a company here in New York called photo with three H's.
Hadley Harris talks about his most recent investment, providing insight into the factors that influenced the decision to invest in a particular startup.