In this episode of "20 minutes vc," host Harry Stebbings interviews Phil Black, the founder of True Ventures, a leading early-stage venture firm in Silicon Valley. Black discusses his journey from Stanford University to venture capital, starting with Summit Partners and eventually co-founding Blacksmith Capital, an angel fund focused on proving that tech startups can gain significant traction with minimal initial funding. He reflects on the lessons learned from the dot-com bubble's rise and fall, emphasizing the importance of capital efficiency and financing risk management. Black also addresses the current funding landscape, noting a gap in "rational B rounds" and the proliferation of seed funds, and comments on the importance of ownership over the amount of money invested. He shares insights on the ideal capital raise for startups, balancing enough runway to achieve growth metrics without succumbing to financing risk. Lastly, Phil discusses True Ventures' investment philosophy, which remains focused on founders targeting large, unformed markets, starting with modest investments and scaling alongside the company.
"So, joining me from true today, I'm thrilled to welcome Phil Black, founder at True Ventures, with a portfolio including the likes of Bit, namely recent Unicorn, Peloton, Automatic, the makers of WordPress and many more amazing companies."
This quote introduces Phil Black and highlights the successful companies in True Ventures' portfolio, emphasizing the firm's impact on the tech industry.
"However, it was in 2003 that Phil cofounded a small angel fund, Blacksmith Capital, with the mission to prove his thesis that great founders of early stage tech companies can and often prefer to start their businesses and get a lot of traction with two and a half million or less of initial funding."
This quote outlines Phil Black's early venture into angel investing and his focus on capital efficiency for startups.
"I was a undergraduate out of Stanford University originally... And so I applied for positions to all those kinds of industries and I got one job, and that was with the group Summit Partners..."
This quote details Phil Black's educational background and his initial steps into the venture capital industry.
"The.com bubble is often thought of as the crash of 2000... But the times from 1996-1997 up until that point were really heady days within technology..."
This quote reflects on the excitement and subsequent crash of the dot-com bubble, setting the stage for the challenges companies faced during the crash.
"It really underscores for you as an investor that one of the four major risks of venture capital investing is financing risk."
This quote highlights the key takeaway for Phil Black from the dot-com bubble, emphasizing the critical nature of financing risk in venture capital.
"So I had a very small angel fund. I now refer to it as the first super angel fund, although I would have never thought of that at the time."
This quote introduces Blacksmith Capital and positions it as a precursor to the super angel fund concept.
"Oh, it was $4.64 million, and I rounded up to 5 million to make myself sound bigger."
This quote provides a candid insight into Phil Black's early funding efforts and the modest size of his initial fund.## Venture Capital Fund Management
"Yeah, I would say that managing that $5 million fund, or 4.6, was probably the most seminal moment for me in my venture capital career, in the sense that you got a front row seat of what it means to be a fiduciary of your investors capital and having to make those investment decisions and living with all of those from start to finish."
This quote emphasizes the importance of the responsibility and experience gained from managing a venture capital fund, highlighting the comprehensive involvement from decision-making to witnessing the results of those decisions.
"I think as a fund manager, you have to be cognizant of the major leverage points in each of those kind of major blocks."
This quote outlines the critical aspects that a venture capital fund manager must consider, including the major stages of fund management and the need to understand the leverage points within each stage.
"To me, there's a Goldilocks moment of just the right amount of capital."
This quote suggests that there is an optimal amount of capital for startups to raise, which depends on individual circumstances and allows for strategic growth without undue pressure.
"In retrospect, when they don't work out, that's what you call them. And when they do work out, you're like, oh, that was the bridge round. To that. To your next up round, I think."
The quote captures the variable nature of bridge rounds, where their success or failure determines how they are perceived in the venture capital community.## Bridge Rounds of Funding
"If you're unable to do it now, that the risk is that money just extends the issue, it doesn't solve your problem for you."
This quote highlights the risk that bridge rounds may not address underlying problems within a company, but only delay the inevitable issues.
"So by definition, if you're doing a bridge round, you've got financing risk."
This quote indicates that a bridge round inherently involves financing risk, which is one of the four major risk categories for startups.
"My co-founder, John Callahan, and I when we started out in 2005... we could say, we'll whatever size check you want, Ms or Mr. Entrepreneur."
This quote explains the unique value proposition of Phil Black's venture capital fund when it was established, which was to offer flexible check sizes to entrepreneurs.
"The gap that has been present for a while has been what we've referred to as the rational b round."
This quote points out a specific funding gap in the market for companies that are in between early-stage and rapid scaling phases.
"Well, you kind of go back to your first principles and what is it that we started true based upon?"
This quote emphasizes the importance of staying true to the original investment principles that guided the establishment of True Ventures, regardless of market changes or the amount of capital managed.
"So today we are still looking for an outstanding founder or founders, usually one to four, going after a big market opportunity."
This quote summarizes True Ventures' consistent investment focus on identifying founders with the potential to address large, emerging market opportunities.## Investment Philosophy
"So our thesis is a small to modest size check for our first investment, a significant minority ownership, and then you just stay with that company through their lifecycle of investing."
This quote outlines True Ventures' investment strategy, emphasizing the importance of long-term partnership and ownership over the sheer size of the investment.
"Oh, they're okay, but it's kind of like alcohol, and it should only be used in moderation."
Phil Black compares the use of convertible notes and SAFEs to alcohol consumption, suggesting that while they can be beneficial, they should not be overused.
"So, when I was growing up, it was where the red fern grows... You move on to bonfire or the vanities... And a one that I just recently loved was the Patty Hearst book..."
Phil Black shares his evolving taste in literature, which mirrors his growth and experiences from childhood to adulthood.
"Oh, my biggest mentor for sure was the gentleman who hired me out of undergrad... And to this day, he's been a mentor to John and to me..."
Phil Black acknowledges the significant impact Greg Avis has had on his professional life and the value of long-term mentorship.
"You know, my partner, Om Malik, is a good blogger... I really like Dan Primac within venture capital news..."
Phil Black suggests following Om Malik and Dan Primack for their expert insights into the tech and venture capital world.
"Yeah. So I had a Twitter post about this about, I don't know, nine months ago... And then Walmart goes and buys Jet for $3 billion."
This quote reflects Phil Black's thoughts on the unpredictability of the startup market and the challenges in making public predictions.
"He's like, oh, my God, I've got so many unicorns in my extended portfolio. I just hope that there's no virus that overcomes all the unicorns out there in the field..."
The quote captures the investor's concern about market volatility and the potential collective risk to high-value startups, known as unicorns.
"Yeah, I was thinking about that. I think the most recent one is this company called Oreco... And I think the part that was interesting to us was this idea that you could use a reference set of blood work..."
Phil Black explains the rationale behind True Ventures' investment in Oreco, highlighting the innovative use of health data and predictive models in sports medicine.
"And if you enjoyed listening to the show today as much as I did recording the show with Phil, then you can follow him on Twitter and check out this handle, Mr. Velvet... Pendo helps companies create products that customers love... I went to Treehouse, the online school where you can learn how to build websites and apps."
Harry Stebings wraps up the episode by thanking Phil Black, promoting Pendo and Treehouse, and inviting listeners to engage with the show's social media channels.