20VC True Ventures Founder, Phil Black on 4 Major Risk Categories for Startups, Why The Funding Gap Is At The Rational B Round & Why VCs Must Start Small But Think Big

Summary Notes


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.

Summary Notes

Introduction to True Ventures and Phil Black

  • True Ventures is a leading early-stage venture capital firm in Silicon Valley.
  • Phil Black, the founder of True Ventures, has a portfolio including companies like Peloton, Automatic (makers of WordPress), and others.
  • Before founding True Ventures, Phil Black learned venture capital at Summit Partners and the predecessor firm to Lightspeed Venture Partners.
  • In 2003, Phil co-founded an angel fund called Blacksmith Capital with the mission to prove that early-stage tech companies can start and gain traction with $2.5 million or less in initial funding.

"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.

Phil Black's Background and Entry into Venture Capital

  • Phil Black studied at Stanford University, with aspirations to enter venture capital, investment banking, or consulting.
  • He secured a job with Summit Partners, a new venture capital firm at the time, and joined their analyst program, where he stayed for six and a half years.
  • Phil continued his career in venture capital after Summit Partners.

"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 Dot-Com Bubble and Lessons Learned

  • Phil Black experienced the dot-com bubble, which was marked by the Netscape IPO and led to inflated technology valuations.
  • The crash in 2000 resulted in a significant reduction in available capital, causing many companies to cut costs, lay off employees, or shut down.
  • The bubble and crash taught Phil the importance of financing risk in venture capital.
  • The aftermath of the crash led to a movement towards capital efficiency and lower costs to start businesses.

"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.

Blacksmith Capital: The First Super Angel Fund

  • Phil Black refers to his angel fund, Blacksmith Capital, as the first super angel fund, which had $4.64 million in capital.
  • He humorously notes rounding up the fund size to $5 million to seem more significant.

"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

  • Managing a venture capital fund is a significant responsibility that involves being a fiduciary of investor capital.
  • It requires making investment decisions and living with the outcomes from start to finish.
  • The process involves a learning curve, especially when dealing with smaller investment rounds that help startups get off the ground.
  • Success in these early stages can lead to companies gaining traction and raising further capital.
  • Fund management goes beyond investing in companies and encompasses managing returns, quarterly reports, and investment return metrics.

"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.

Transition to Fund Manager

  • Transitioning to a fund manager from an investor or board member involves understanding the complete lifecycle of a venture capital fund.
  • Key phases include: raising capital, investing, working with portfolio companies, and achieving liquidity through exits.
  • A fund manager must be aware of the leverage points in each phase and be prepared to repeat the cycle, showcasing successes to investors.
  • The role of a fund manager is more holistic compared to being a company investor or board member.

"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.

Early-Stage Capital Raising

  • The amount of capital raised by startups is influenced by the time period and cost of starting a business.
  • In the mid-2000s, investments ranged from $250,000 to $2.5 million, providing 12-20 months of runway.
  • Decreasing costs have enabled more founders to start businesses without needing large initial investments.
  • The "Goldilocks moment" refers to raising just the right amount of capital, which is specific to each founder's situation.
  • Founders should aim for a fundraising amount that allows time to be an ally, avoiding rushed capital raises with limited data.

"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.

Bridge Rounds

  • Bridge rounds are additional funding rounds intended to lead to further investment or an exit.
  • The success of a bridge round is often judged in hindsight, with unsuccessful rounds being labeled as a "pier that leads to nowhere."
  • The purpose and outcomes of bridge rounds can vary, and they may not always lead to the desired next round of funding.
  • Clarity on what a bridge round is intended to achieve is crucial for justifying the additional investment.

"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

  • Bridge rounds are seen as selling the future in each round of funding.
  • If a company can't raise capital now, a bridge round may only extend issues rather than solve them.
  • Investors are often concerned about bridge rounds due to the associated risks.

"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.

Risk Categories in Startups

  • There are four major risk categories: market risk, product risk, execution risk, and financing risk.
  • Bridge rounds are indicative of financing risk.
  • The validity of a bridge round depends on the specific issues it is meant to address, such as product delays, market evolution, or poor senior leadership.

"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.

The Role and Evolution of Seed Funds

  • Phil Black and his co-founder John Callahan established an institutional fund to fill a gap in the market.
  • The fund offered flexible check sizes at a time when angel money was scarce and larger firms required substantial initial capital.
  • The proliferation of seed funds is viewed positively, although it increases competition and the likelihood of failed ventures.

"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.

Funding Market Gaps and Inefficiencies

  • Phil Black identifies a gap in the market for what he calls "the rational B round."
  • This round involves a moderate amount of funding for companies that have shown progress but are not scaling rapidly.
  • There is a challenge in securing funding for companies in this stage as investors prefer either early-stage ventures or those that seem like a sure thing.

"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.

Operating with Large Assets Under Management

  • True Ventures operates based on first principles focusing on founders, blue ocean markets, and comfortable investment sizes.
  • The firm's investment thesis has not changed despite the evolution of markets and having more capital.
  • Staying current with market opportunities while adhering to foundational investment principles is key.

"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.

Portfolio Construction Thesis

  • True Ventures' investment approach is based on identifying outstanding founders and significant market opportunities.
  • The firm's strategy includes adapting to current market trends while maintaining their core investment philosophy.
  • The size of the checks True Ventures writes is influenced by their desire to achieve a certain level of ownership and impact in their investments.

"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

  • True Ventures focuses on small to modest size initial investments with a significant minority ownership.
  • The firm aims to stay with the company throughout its lifecycle of investing.
  • The approach is to start small but think big, scaling up investments as the company grows.
  • Importance is placed on being a significant and efficient partner to founders rather than the amount of money invested.

"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.

Quick Fire Round Responses

Convertible Notes and SAFEs

  • Phil Black views convertible notes and SAFEs as acceptable but believes they should be used in moderation, similar to alcohol.

"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.

Favorite Books

  • Phil Black's favorite books reflect his personal journey and interests, ranging from "Where the Red Fern Grows" to "Bonfire of the Vanities" and a book about Patty Hearst.

"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.


  • Greg Avis, who hired Phil Black out of undergrad, has been his biggest mentor throughout his career.
  • The mentorship relationship has lasted over six years and continues to this day, also extending to John, Phil's partner.

"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.

Blogs and Newsletters

  • Om Malik, Phil Black's partner, is recommended for his blogging and Twitter presence.
  • Dan Primack at Axios is also a favorite for venture capital news.
  • These sources are considered must-reads for their insights and information.

"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.

Unicorn Companies in Trouble

  • Phil Black previously tweeted about three unicorns he thought were in trouble: Jet.com, Benefits, and Magic Leap.
  • He was surprised when Walmart acquired Jet.com for $3 billion, which contradicted his prediction.

"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.

Concerns About Unicorns

  • An investor joked about the risk of a virus affecting all the unicorns in their portfolio, which would lead to a significant decrease in net asset value.

"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.

Recent Investment

  • True Ventures recently invested in Oreco, a company from Ireland focused on personalized sports medicine.
  • The company uses blood work, algorithms, and artificial intelligence to predict injury risks and assist with recovery.
  • Phil Black believes in the growing interest in personal health data and sees Oreco as a leader in this field.

"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.

Show Outro

  • Harry Stebings expresses appreciation for Phil Black's participation in the show.
  • Listeners are encouraged to follow Phil Black on Twitter and Harry Stebings on Snapchat.
  • Pendo, a platform for product teams, is promoted for its comprehensive product management tools.
  • Treehouse is recommended for those starting in the industry and wanting to learn to code.

"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.

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