20VC The Transition From Founder To CEO, How To Determine When To Stretch On Price in Venture & The Benefits of Attribution for Partnership Dynamics with Jeff Richards, Managing Partner @ GGV Capital

Summary Notes


In this episode of 20 minutes VC, host Harry Stebbings interviews Jeff Richards, Managing Partner at GGV Capital, a leading venture firm with a portfolio including Alibaba, Slack, and Peloton. Jeff shares insights from his journey transitioning from a software company founder to a venture capitalist. He emphasizes the importance of founders evolving into CEOs, the need for early hiring of a VP of People, and the delicate balance of fundraising valuations. Jeff also discusses the significance of reserve allocation for VCs and the role of attribution in fostering accountability within firms. Highlighting recent investments in Electric AI and Lambda School, he underscores the potential of technology to revolutionize small business IT support and education-to-employment pathways.

Summary Notes

Introduction to the Podcast Episode

  • Harry Stebings introduces the episode, linking VC and founder perspectives.
  • Lambda School is highlighted as a company of interest.
  • Jeff Richards from GGV Capital is introduced as the guest.
  • GGV Capital's successful portfolio includes Alibaba, Slack, and Square.
  • Jeff Richards' background includes board positions and involvement in various successful investments.
  • Harry thanks Glenn Solomon and Dave Vassen for question suggestions.
  • Stripe and Intercom are mentioned as resources for tech companies.
  • Cooley is introduced as a law firm specializing in startups and venture capital.

"You are listening to the 20 minutes VC with me, Harry Stebings and I thought this week it'd be awesome for our VC episode and our founder episode to be linked in some way."

This quote sets the stage for the episode, highlighting the intention to connect venture capital insights with founder experiences.

"Now Jeff is a managing partner at GGV Capital. GGV are one of the leading firms of the last decade with a portfolio including the likes of Alibaba, Slack Square, Xiaomi, Peloton, Opendoor, just to name a few."

Here, Harry introduces Jeff Richards and GGV Capital, emphasizing their significance in the venture capital world and their impressive investment portfolio.

Jeff Richards' Background and Journey into Venture Capital

  • Jeff Richards shares his non-traditional career path and entrepreneurial background.
  • Grew up in Seattle during a time of grassroots entrepreneurship.
  • Attended college on the East Coast, then moved to Silicon Valley during the Internet boom.
  • Worked at PwC with time spent in Hong Kong.
  • Founded Quantum Shift during the Internet and telecom deregulation era.
  • Experienced the dot-com bubble's burst and the challenges of market downturns.
  • Founded a second company, which was successfully sold to Verisign.
  • Joined GGV Capital after being approached by Glenn Solomon.

"Well, I didn't follow a sort of traditional career path. I grew up in Seattle. My dad was an entrepreneur, and I grew up in an era in Seattle where a lot of folks were entrepreneurs."

Jeff Richards describes his early exposure to entrepreneurship and the unique business environment of Seattle, which influenced his career path.

"And then May of 2008, I joined GGV. It's interestingly, having been an entrepreneur for a decade, when I joined, I told my wife, I said, I'm going to do this for two years, sort of learn the venture side of the equation, then I'll spin out and start another company, and eleven years later, I'm still here."

This quote reveals Jeff's initial plans when joining GGV Capital and how his career trajectory changed, leading to a long-term commitment to the firm.

Impact of Boom and Bust Cycles on Investment Mindset

  • Jeff Richards reflects on the lessons from experiencing the dot-com bubble and financial crashes.
  • Emphasizes the lack of control over market dynamics and the importance of preparing for unexpected downturns.
  • Advises a long-term approach to building companies to ensure endurance through market cycles.
  • Cites examples of companies like Qualtrics that grew successfully over many years.

"I think anyone who has gone through, who went through the.com bubble in 2000, 2001, or who went through the crash in 2008 or 2009 has a very distinct view of what that's like."

Jeff Richards discusses how experiencing significant market downturns shapes a unique perspective on investment and business strategy.

"I'd much rather have you take ten years and build an amazing company that's wildly successful than take three years to build something that's a supernova but flames out in year five."

This quote highlights Jeff Richards' advice to founders on prioritizing sustainable, long-term growth over rapid, short-term success, which may not be sustainable.## Transition from Founder to CEO

  • The transition from founder to CEO is a significant milestone in the journey of running a company.
  • Founders initially do much of the work themselves, including building the product, raising money, and hiring team members.
  • Around 50-70 employees, founders need to shift to a professional manager role, delegating tasks, hiring skilled individuals, and focusing on leading and communicating.
  • GGV helps founders with this transition through their Founders and Leaders program, providing training and mentorship.

"But there's a moment in time, and I don't really have a perfect data point, but I would say what I've seen is it usually happens around 50 employees, when a company gets to about 50 employees, maybe 60 or 70, where the founder has to start transitioning into more of a professional manager type role."

This quote emphasizes the critical point in a company's growth when a founder must evolve into a CEO role, highlighting the necessity of this shift for the continued success of the business.

Lack of Structures for Transition Support

  • Silicon Valley has historically provided little guidance to founders on how to run a company after receiving funding.
  • GGV's Founders and Leaders program was established to fill this gap by offering training, mentorship, and leadership tools.
  • The program aims to support both founders and their management teams, recognizing that startups often lack resources for internal training.

"We launched a program called Founders and Leaders. And the idea was to provide that kind of support mechanism, that training mechanism, and the mentorship to help founders say, hey, it's okay to raise your hand and say, hey, I don't necessarily know what I'm doing and I'd love some help."

Jeff Richards explains the rationale behind the Founders and Leaders program, indicating its purpose to assist founders in their transition to effective leaders and managers.

Challenges in the Founder to CEO Transition

  • The transition involves a mindset shift from scrappiness to aggressive hiring and management.
  • First-time founders often struggle with hiring senior executives due to previous capital constraints and uncertainty.
  • Repeat founders tend to excel in building a strong management team early on due to their experience and understanding of its importance.

"I think being aggressive and hiring senior executives is probably the single biggest area where I see first time founders struggle."

Jeff Richards identifies hiring senior executives as a significant challenge for first-time founders, contrasting their cautious approach with the assertiveness of repeat founders who prioritize building a capable management team.

Importance of Early VP of People/Talent Hire

  • Founders often overlook the VP of People/Talent role until the company has grown significantly.
  • A VP of People should be among the first hires to establish the right culture, hiring processes, and employee satisfaction.
  • The scarcity of experienced VPs of People/Talent in Silicon Valley poses a challenge, but the situation is improving with better recruitment and networking efforts.

"A VP of people would be one of my first five or ten hires because I could delegate so much of, or not delegate, but I could rely on somebody who is senior in that role to help me put the right infrastructure in place, the right culture in place, the right hiring processes, help me hire better people and make them happier in the roles that they're in."

Jeff Richards advocates for hiring a VP of People early in the startup's life to ensure the development of a strong organizational culture and effective hiring processes.

Finding the Right C-Suite Executives

  • Startups face the dilemma of choosing between an unproven but ambitious up-and-comer or a more experienced executive who may be burnt out.
  • Exceptional, mission-driven founders can attract talented executives willing to take risks for a transformative company.
  • Companies with a strong mission and leadership can recruit top-tier talent despite the risks associated with early-stage startups.

"These companies that look transformative, that have powerful leaders, that can inspire people, I think those kinds of companies can break the mold and recruit super talented executives who will take the risk to come in earlier."

Jeff Richards discusses how startups with compelling missions and inspiring leaders can successfully recruit high-caliber executives early on, defying the typical hiring challenges faced by new companies.## Executive Recruitment at Buddy Media

  • Buddy Media was acquired by Salesforce for $800 million.
  • Mike Lazaro, the founder of Buddy Media, recognized the need for a talented executive at the sales stage of $20-25 million.
  • Susan St. Ledger, a top executive at Salesforce and now the president of Splunk, was recruited despite being overqualified.
  • The recruitment success was attributed to the founders' zeal, passion for the mission, and the company's strong culture and momentum.

"Mike realized he needed to recruit a super talented executive to help him run the company. We were able to get a woman named Susan St. Ledger, who was today the president of Splunk." "But Mike and Cass Lazaro were able to recruit people like Susan in because they had this incredible zeal for what they were doing."

The quotes emphasize the importance of founders' passion and vision in attracting top talent, even those who might seem overqualified for the company's current stage.

Fundraising and Valuation

  • It's commonly advised in Silicon Valley not to raise money at the highest valuation.
  • High valuations can create unrealistic expectations and pressure on companies to grow at an unsustainable pace.
  • Companies that fail to meet these expectations face challenges in subsequent funding rounds.
  • The concept of momentum is crucial for maintaining talent, brand, and recruitment.
  • Founders should aim for reasonable valuations and choose the right partners.
  • Lou Cern from New Relic is cited as an example of a founder who successfully balanced valuation with growth.

"It's a hard topic because I don't blame founders for taking money at the highest price." "But two or three years later, some of those companies... didn't hit their plans that they had given to those investors." "Josh talked about the value of picking. Pick the right partners at a reasonable valuation for you and for them."

These quotes discuss the delicate balance founders must strike when raising funds, highlighting the long-term benefits of reasonable valuations and the right investment partners.

Price Sensitivity in Venture Capital

  • Pricing is both an art and a science, with the science being setting the price and the art knowing when to stretch.
  • Venture capitalists often pay high prices for great companies, accepting unconventional valuations at times.
  • Success stories like Alibaba, Uber, and Facebook justify the high valuations for some investors.
  • The potential for exceptional returns can make high valuations worthwhile if the company succeeds on a large scale.
  • Investors reflect on their experiences with hits and misses to guide their decisions on price sensitivity.

"We like to say we don't mind paying high prices for great companies." "It's really hard to pencil out the valuation using any conventional math." "We ask ourselves that question, what if we got this right?"

These quotes reveal the mindset of venture capitalists regarding high valuations for companies they believe have exceptional potential, despite the difficulty in justifying these valuations with conventional metrics.

Reserve Allocation and Fund Size Management

  • GGV manages a $1.9 billion fund and $6.2 billion overall.
  • The goal is to produce outsized returns while also putting money to work for limited partners (LPs).
  • GGV pitches to entrepreneurs include the ability to support a company throughout its lifecycle with follow-on investments.
  • Decisions around reserve allocation involve balancing initial investments, follow-ons, and supporting winners.
  • Difficult conversations occur when a company is not performing well, and further financing may not be beneficial.

"We're trying to produce outsized returns, those 1020 30 x type returns." "One of our largest investments today is a $75 million investment." "Our lps would like to see us put the most amount of money that we possibly can behind our winners."

These quotes discuss GGV's approach to reserve allocation, emphasizing the importance of supporting companies with the potential for high returns and the challenges of deciding on further investments in underperforming companies.## Reinvestment Decision Making Process

  • Partners set aside reserve capital when making an initial investment.
  • Reserve allocation is based on company performance and requires high trust among partners.
  • Regular in-person partner meetings every 90 days to review portfolio and strategy.
  • Continuous dialogue rather than momentary decisions determines reserve allocation.

"And then over time, we make a judgment call as to how to allocate that reserve pool of capital based on the performance of the companies."

This quote explains that the allocation of reserve capital is a dynamic process that depends on how well the companies are performing over time.

"But to have a high level of trust that you'll make the right decisions about which companies to put the reserve capital behind..."

Trust among partners is emphasized as crucial for making the right decisions regarding where to allocate reserve funds.

"Every 90 days we get together and we go through every single portfolio company."

The quote highlights the meticulous and regular review process of the portfolio companies to make informed decisions about reserve allocation.

Venture Capital Risk-Taking

  • Early in a VC career, the tendency is to make safer investment choices.
  • Experienced VCs like Bill Gurley, Doug Leone, and Jim Getz take more risks as they progress.
  • Jeff Richards reflects on wishing he had taken more risks early in his career.

"I wish I would have taken more risk."

Jeff Richards shares his personal reflection on his earlier venture capital decisions, indicating that with hindsight, he sees the value in having taken greater risks.

Book Recommendation

  • Robert Rubin's "In an Uncertain World" provides insights into global economic interconnectivity.
  • The book's perspective is valuable for understanding technology trends and market bets worldwide.

"In an uncertain world by Robert Rubin just tells some great anecdotes about how all these economies around the world are interconnected."

This quote highlights the book's theme of global economic interconnectedness and its relevance for investors and firms operating internationally.

Advice for New Board Members

  • Understand the CEO's expectations and where you can add value.
  • Learn the roles of other board members and how to complement them.
  • Engage with CEOs and founders outside of board meetings for alignment and support.

"What role would he or she like you to play? Where are specific areas that you can add value?"

Jeff Richards advises new board members to clarify their role and areas of contribution with the CEO to be effective.

"So much of the dialogue that really is beneficial to you as a board member and to the CEO happens outside of the board meetings."

This quote underscores the importance of interactions beyond formal board meetings for meaningful engagement and support.

Performance Attribution

  • High degree of attribution and detailed performance tracking every 90 days in Jeff Richards' firm.
  • Attribution is used for accountability and to establish trust among partners.
  • Partners can make commitments to entrepreneurs with confidence due to mutual trust and accountability.

"We trust Hans or Glenn, or Jishun, or Jenny or Eric, or I can sit in front of an entrepreneur and make a commitment to that entrepreneur, knowing that we have the trust of our partners because we're holding each other accountable."

Jeff Richards explains how performance attribution and accountability foster trust among partners, enabling them to confidently make commitments to entrepreneurs.

Recent Investments

  • Electric AI: AI and modern tools for IT support to small businesses.
  • Lambda School: Changing traditional education models for workforce preparation.

"Ryan and his team are setting out to change the way those businesses manage their it infrastructure."

The quote describes Electric AI's mission to revolutionize IT management for small businesses, which aligns with the firm's investment interests.

"And Austin is really flipping that on its ear and saying, hey, if you think you want to go into computer science or you want to go into nursing or you want to become a doctor, we can help you accomplish that goal and we'll be on the hook for your success."

This quote highlights Lambda School's innovative approach to education and career preparation, which was a key factor in the decision to invest.

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