20VC True Ventures' Puneet Agarwal on Why EQ Is Going To Separate The Best Firms In Venture Over The Next Decade, The Negatives of Attribution in Venture & What Makes A Truly Efficient Venture Partnership



In this episode of "20 Minutes VC," host Harry Stebbings interviews Puneet Agawal, a partner at True Ventures, discussing the significance of True Ventures as a leading early-stage VC fund with successes like Fitbit and Peloton. Puneet shares his journey from product management to VC, highlighting the serendipitous nature of entering the venture world and his time at Mayfield. He stresses the importance of empathy in venture capital, where understanding founders' human challenges is key. Puneet also touches on True Ventures' investment approach, emphasizing the balance between maximizing risk on product market timing and minimizing risk on founder quality and investment size. The conversation includes insights into remote team building, spend management platforms like Airbase, and performance review transformation with Culture Amp. Lastly, Puneet underscores the value of diverse geographic investments and maintaining a culture of trust and risk-taking within the firm.

Summary Notes

Introduction to True Ventures and Punit Agarwal

  • Harry Stebings introduces Punit Agarwal, a partner at True Ventures, an early-stage VC fund.
  • True Ventures has had significant wins with companies like Fitbit, Peloton, Ring, Hashicorp, Duo Security, and Blue Bottle Coffee.
  • Punit Agarwal led deals in Duo Security, Trade.IO, Lumity, Solo.IO, and more.
  • Punit's background includes six years in product management and an early career in VC as an associate at Mayfield, post his time at Morgan Stanley.
  • Harry thanks Rich Waldron at Trey for introducing him to Punit Agarwal.

"But I couldn't be more excited today to be joined by one of True's rock stars in the form of Punit Agawal, partner at True Ventures."

The quote highlights Harry Stebings' excitement about having Punit Agarwal on the show and acknowledges Punit's significant role at True Ventures.

Venture Capital Experience and Perspective

  • Punit Agarwal describes his serendipitous entry into the venture world, beginning with the Mayfield Fellows program at Stanford.
  • He worked at Mayfield during the dot-com boom and bust, witnessing the rapid rise and fall of companies.
  • Punit met Phil Black, who later founded True Ventures, during his time at Mayfield.
  • After working in the industry, Punit joined True Ventures by invitation from Phil Black and John Callahan.
  • He became a partner at True within two years and has been there for over a decade.

"So I began my career really early. I was part of a group called the Mayfield Fellows, which is a kind of fellowship at Stanford where they take ten or twelve engineering students and they put them into various startups and that was back in 97, 98."

The quote explains Punit's early career start with the Mayfield Fellows program, which provided him with hands-on experience in startups.

Impact of the Dot-Com Boom and Bust on Investing Mindset

  • Punit reflects on the impact of the dot-com boom and bust on his investing mindset.
  • He observed a frenetic pace of investment and high company valuations during the boom, followed by a dramatic downturn.
  • The experience taught him about the volatility of the market and the importance of building companies with solid fundamentals.
  • Punit sees parallels between the dot-com era and the present but notes that companies today have real revenue and customer bases.

"To live through that was pretty remarkable. So when I got there in 99, Mayfield had done, I believe they had done 50 deals in 99, one deal a week."

The quote provides insight into the intense investment climate during the dot-com boom and how it shaped Punit's understanding of market dynamics.

Empathy as a Differentiator in Venture Capital

  • Punit believes that empathy will be a key differentiator for successful venture capital firms in the future.
  • He argues that intelligence and industry understanding are baseline requirements, but the human connection is most important.
  • Venture capital is seen as a fundamentally human business, dealing with emotional and personal challenges faced by founders.

"Venture capital to me is fundamentally a human business."

This quote underscores Punit's belief that venture capital is deeply rooted in human relationships and emotional intelligence.

Building Trust and Accessibility with Founders

  • Punit emphasizes the importance of accessibility and trust in the investor-founder relationship.
  • He advocates for a non-judgmental, supportive approach that allows founders to discuss issues freely.
  • Punit contrasts bringing fear versus safety into the boardroom, noting that fear can be detrimental to company culture and performance.
  • He highlights the skill of listening and giving founders the space to make mistakes as critical to building a constructive environment.

"I think a board member, an investor, can bring two emotions at a very high level inside of a boardroom. They can bring fear, or they can bring safety."

The quote captures the dichotomy between fear and safety that investors can introduce into board meetings and how it affects the dynamics with founders.## Investment Strategy and Risk

  • True Ventures invests a small portion of their fund initially to allow for creative freedom and risk-taking without fear of losing substantial amounts of money.
  • The firm acknowledges that a certain percentage of investments will likely fail, and this is built into their business model.
  • True Ventures focuses on maximizing risk on product market timing while minimizing risk on the dollar amount and founder quality.
  • The firm targets significant ownership early on and maintains it through heavy capital reserves.

"We invest a very small portion of our fund to begin with. It's $2 million, for example. Maybe that's one half of 1% of the fund."

This quote highlights True Ventures' strategy of starting with small investments to mitigate initial risk and allow for creativity and flexibility in decision-making.

"We are very open about the fact that 40% to 50% of the companies we invest in will probably lose or go to zero."

This quote emphasizes the acceptance of high failure rates as a natural part of investing in early-stage companies, which is factored into their investment approach.

"We maximize risk on product market timing, which means that you have to build failure into the model."

The quote illustrates that True Ventures intentionally takes risks on the timing of product-market fit, understanding that failure is an integral part of venture capital.

"We minimize risk... on the actual dollar amount... and on the founder quality."

This quote explains how True Ventures reduces risk by investing small initial amounts and by thoroughly vetting founders through their network and due diligence.

Portfolio Construction and Management

  • True Ventures aims for a diversified portfolio with about 45 to 50 investments per fund, which they believe is the right number given their failure rate and breakout success expectations.
  • They do not take a board seat with every investment, leveraging their broad team and founder community for support.
  • The firm adjusts its investment strategy to the evolving landscape of seed funding, maintaining flexibility in their role as seed round players.

"We do about 45 to 50 investments per fund."

This quote outlines the portfolio size and strategy of True Ventures, indicating a higher deal count than later-stage funds.

"Not with every check, not all the time. We do have a big team, though, so we have about 13 partners who can actually take board seats."

This quote explains True Ventures' approach to board involvement, highlighting their capacity to support companies without needing to take a board seat for every investment.

"We started with $165,000,000 fund. And I think Mike Maples was around, first round was around, some of the other funds were getting started."

The quote provides historical context for True Ventures' position in the seed market and their evolution alongside other early-stage investors.

Decision-Making Process

  • True Ventures encourages dissension and does not operate on a consensus-driven approach, which they believe leads to better investment decisions.
  • They focus on three key areas: the founder, the market potential (especially new markets), and the deal parameters.
  • The firm operates as a collective team, avoiding attribution to individual deals to prevent fear and politics within the firm.

"We don't have a consensus driven approach. We actually encourage dissension, and we want dissension."

This quote describes the firm's unique decision-making process that values diverse opinions and healthy debate, which they believe results in better investment choices.

"We think about the person and the team and the founder... the market... and then is the deal make sense for us."

The quote breaks down the three critical factors in True Ventures' investment decision-making process: the team behind the company, the market opportunity, and the deal's alignment with their investment criteria.

"We're playing basketball here, not tennis, I would say is an analogy to think about, because we think about everything as a team."

This analogy illustrates the firm's team-centric approach, emphasizing collaboration over individual success in their investment strategy.

Attribution Culture in Venture Capital

  • True Ventures does not do attribution, which is a departure from the star culture prevalent in the venture capital industry.
  • They believe that not doing attribution fosters a more collaborative environment and prevents fear and competition among partners.

"It's very much a star culture. It's very much about the Midas list. It's very much about what deals have I done?"

This quote criticizes the traditional attribution culture in venture capital, which often focuses on individual achievements and can create a competitive rather than collaborative environment.## Culture of No Attribution

  • Attribution in venture capital can create a competitive environment where individual performance is prioritized over company well-being.
  • A culture of no attribution helps in making decisions that are right for the company rather than for personal gain.
  • Making decisions without personal bias is challenging but crucial for the success of the business.
  • Empathy is tied to the ability to create a culture where the company's needs come first.

"And you end up sort of doing weird trades like, okay, I'll support your deal if you support my deal. That doesn't really further the business in the correct way."

This quote highlights the problematic nature of deal attribution within venture capital firms, where personal interests can overshadow what is best for the company.

"And people make the right decisions for the company at the right time. Not the right decisions for themselves, but the right decisions for the company."

This quote emphasizes the importance of decision-making that prioritizes the company's interests over individual ambitions or gains.

Unanimous Decision Making and Founder Relationships

  • Unanimity in decision making can be questioned by founders, wondering if all partners were supportive.
  • True unanimity may not exist; dissenting opinions often raise questions that align with the founder's concerns.
  • Dissent is part of the commitment to the company, and post-investment, the focus is on support and moving forward.
  • The venture firm's success is measured more by the decision-making process than by the end results or exits.

"We're very open about how our decision making occurs, but the one thing we always say is, yeah, we like dissension, but they're not necessarily hard no's."

This quote clarifies that dissent within the firm's decision-making process is not a sign of disapproval but a way to explore further questions and align with the founder's perspective.

"So we may disagree or dissent, but then it's all about commitment."

This quote emphasizes that despite any internal disagreements, the firm's ultimate goal is to support the investment with full commitment.

Overcoming Risk Aversion and Embracing Possibility

  • The venture industry tends to become risk-averse, especially as firms move to later-stage investments.
  • It's important to keep pushing boundaries and not fear losses.
  • Success can lead to searching for perfection, which can be counterproductive.
  • Firms should create structures that encourage taking calculated risks.

"I think one of the challenges, as we have in the venture industry, is we don't take enough risk."

This quote speaks to the tendency within the venture industry to avoid risk, which can limit potential opportunities.

"And so, yes, I've been lucky, and the firm has been lucky to have success, but we got to be very careful not to just look for the perfect deal."

This quote acknowledges the trap of seeking only 'perfect' investments and the importance of taking chances on less than perfect opportunities.

Board Membership and Evolution

  • Board members should resist the urge to be overly involved and learn to listen more.
  • It's important to maintain a calm and rational presence in the boardroom.
  • Trust with founders is built through restraint and providing support without being overbearing.
  • Board members evolve by experiencing various crises and learning to be a steady presence.

"It's one of the most important skills you can have as a board member to actually just listen and absorb and let the founder go through their process."

This quote underscores the value of listening over speaking for board members, allowing founders to navigate their own processes.

"If you can be that calm, rational voice, you'll earn more trust with the founder as well."

This quote highlights the importance of being a source of stability and reason within the boardroom to build trust with founders.

Unusual Challenges in Venture Capital

  • Venture capital can involve dealing with extreme personal and professional situations.
  • Investors may face unexpected crises, such as serious health issues of a CEO at a critical funding moment.
  • The ability to adapt and support companies through difficult times is a key aspect of the job.

"There's no real lessons for how you handle yourself in that moment, but we at that moment, instinctively said, no, you keep the money."

This quote captures the human element of venture capital, where investors must sometimes make decisions based on empathy and support rather than strict business considerations.

Friendship Between Board Members and Founders

  • Board members can form friendships with founders based on mutual respect, honesty, and transparency.
  • While there are differing opinions, some believe that friendship can enhance the board member-founder relationship.
  • The fiduciary duty to shareholders is balanced with the personal connection to founders.

"It means respect. It means love for another individual. It also means honesty and transparency."

This quote defines friendship in the context of a board member-founder relationship, highlighting the positive aspects that align with the duties of a board member.

Time Allocation Across Portfolio Companies

  • Allocating time across a venture portfolio is complex and cannot be reduced to simple formulas.
  • Time should be balanced among companies at different stages, not just focused on the apparent winners.
  • The relationship with portfolio companies is a social contract that requires attention, regardless of the company's current success.

"I don't think you can be ruthless in the business. And I think some of the time allocation statements that people make about, hey, you need to spend more time with the winners are maybe a little bit off base."

This quote challenges the notion that venture capitalists should focus their time solely on the most successful companies, suggesting a more nuanced approach to time allocation.

Geographic Diversity in Investments

  • True believes in investing across a diverse range of geographies.
  • Investments are made in various locations, including outside the typical tech hubs.
  • The firm's extensive network, built from numerous investments and operational experience, aids in sourcing geographically diverse opportunities.

"Great companies are being built everywhere, and we source them because our network has grown."

This quote reflects the belief that talent and potential are not confined to traditional tech centers and that a strong network is key to discovering these opportunities.## Investing Philosophy and Strategy

  • True Ventures does not discriminate based on the location of companies and is willing to invest anywhere.
  • Many VC firms are still provincial and may miss out on great companies being built outside traditional hubs.
  • Companies in less competitive markets can access tremendous talent without the high expenses and have very loyal employees.
  • True Ventures sees the value in learning from companies scaling in diverse locations.

"We've put a shingle up on top of true and said we're fine with investing in any company anywhere."

This quote emphasizes True Ventures' open investment strategy that does not limit opportunities based on geographic location, distinguishing them from other more location-focused VC firms.

Book Recommendations and Reading Preferences

  • Punit Agarwal recommends the book "Billion Dollar Whale" for its blend of historical truth and fictional storytelling.
  • He enjoys books that reveal the realities behind true stories, such as "The Big Short" and "Bad Blood."

"It's about an individual named Joe Low, who embezzled tons of money from the Malaysian government and ended up investing in all kinds of areas, everything from movies with Leonardo DiCaprio to all kinds of businesses."

This quote provides insight into Punit's interest in real stories that read like fiction, showcasing his preference for books that combine entertainment with educational value about real-world events.

Characteristics of a Successful Business Leader

  • Rich at Trey is admired for his authenticity, deep understanding of his business, and calm leadership.
  • He is a good listener and patient, which contributes to his success and the loyalty of those who work with him.
  • Rich's personal journey, including selling shoes to fund his business, is seen as inspiring.

"Rich is sneaky good... he's got so much authenticity and he really understands his business at a depth that is quite remarkable."

This quote highlights Rich's subtle yet effective leadership style and his comprehensive understanding of his business, which Punit respects and values.

Challenges in Venture Capital

  • The main challenge is maintaining the culture of the team and pushing the team to continue taking risks.
  • True Ventures emphasizes risk-taking as a core principle and strives to be proactive rather than reactive.

"Maximizing risk is such a core tenet to what we do."

Punit articulates the importance of embracing risk in venture capital, which is a foundational aspect of True Ventures' investment approach.

Personal Motto and Philosophy

  • Punit's grandfather's motto, "Only a person who risks is free," has been influential in his life.
  • The motto suggests that freedom comes from taking chances and not being overly concerned with others' opinions.

"Only a person who risks is free."

This quote reflects Punit's personal philosophy that taking risks is essential to achieving true freedom and success.

Highlights of the True Ventures Journey

  • The relationships and partnership at True Ventures are particularly meaningful to Punit.
  • The team has a deep personal connection that goes beyond professional interactions, which is unique and cherished.

"Our partnership... just has a lot of love between it."

Punit values the strong and loving relationships within the True Ventures team, which he considers a highlight of his journey in venture capital.

Reflections on Knowledge and Experience in Venture

  • Punit believes that having too much information at the start of his venture career might have been detrimental.
  • It's important to trust one's instincts in venture capital rather than being paralyzed by fear or information overload.

"If I knew it, I think I'd be walking in too fearful, or I would have tried to mimic a journey that wasn't my own."

This quote reveals Punit's perspective that naivety can sometimes be beneficial in venture capital, allowing for a more authentic and instinct-driven approach.

Recent Investment Excitement

  • Punit's recent investment in Upse, a warranty space company, is based on its potential to disrupt a large industry.
  • Upse offers direct-to-consumer warranties at significantly lower prices with high-quality customer service.

"It is a monstrous space... they're really upending this $70 billion old state industry with a consumer-facing product that is brilliant and beautiful."

Punit is excited about Upse's innovative approach to the warranty industry, seeing it as a transformative business with significant growth potential.

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