20VC Unusual Ventures’ John Vrionis on Why We Need To Raise The Bar In Venture, Why Taking MultiStage Money At Seed Is Not In The Best Interest of Founders & Why To Be The Best, You Have To Specialise To Be The Best

In this engaging episode of the 20 Minute VC, host Harry Stebbings converses with John Vrionis, founder and managing partner at Unusual Ventures. They delve into John's journey from his early days in rural Georgia to becoming a venture capitalist after a stint at Lightspeed and his own experiences in product management and sales. John emphasizes the importance of specialization and focus for venture capital success, critiquing the trend of multi-stage firms expanding into seed investing, and advocating for a hands-on, founder-first approach. Unusual Ventures stands out by investing primarily in nonprofits and maintaining a diverse team, aiming to transform the venture industry and elevate the support provided to entrepreneurs. Harry and John also touch on the significance of building trust with founders, the value of mentorship, and the need for venture capitalists to truly believe in and support their founders, not just financially but through the trials of startup growth.

• Harry Stebbings introduces the episode of the 20 minutes VC podcast.
• The episode features an in-depth conversation with Jon Vrionis, founder and managing partner at Unusual Ventures.
• Jon Vrionis has a background with Lightspeed and investments in successful companies.
• Harry thanks individuals for question suggestions and promotes Carter, Pendo, and Room.

"We are back. This is the 20 minutes VC with me, Harry Stebbings, and you can see all things getting in the Christmas spirit here at the 20 minutes VC on Instagram at H. Debbings 1996 with two B's."

The quote is Harry Stebbings' opening line for the podcast episode, setting a festive tone and inviting listeners to engage on Instagram.

• Jon Vrionis discusses his journey from rural Georgia to Harvard and into the venture capital industry.
• He highlights his experience in product management, sales, and his time at Lightspeed.
• Jon emphasizes the importance of seeking mentors, referencing his relationship with Andy Ratcliffe, a benchmark founder.

"Yeah, the thumbnail is I grew up in pretty rural Georgia. I went to Harvard because they take one person from Georgia every year and they needed a warm body for their soccer team."

Jon Vrionis shares his modest beginnings and his path to Harvard, illustrating his unique entry into higher education.

• Jon Vrionis and Harry Stebbings share a personal connection through their experiences with family members diagnosed with MS.
• Jon reflects on how the disease impacted his life, instilling values of hard work, perseverance, and competitiveness.

"But look, I learned from my mom that hard work, perseverance, just refusing to fail, you can actually really get to where you want to go."

Jon Vrionis explains the life lessons he learned from his mother's battle with MS, which shaped his determination and work ethic.

• Jon Vrionis shares insights from his twelve-year tenure at Lightspeed.
• He discusses the evolution of Lightspeed into a global brand and the skills he developed there.

"I mean, it was a great twelve years in a lot of ways. I learned a lot of things, many of them good."

Jon Vrionis reflects on his positive experiences and learning outcomes during his time at Lightspeed.

• Jon Vrionis talks about founding Unusual Ventures and the intention behind the firm's name.
• He expresses a desire to improve various aspects of venture capital, from entrepreneur engagement to team composition.

"We felt all of these things could be vastly improved. And inertia keeps most of us from living the life we want to. VC firms are no different."

Jon Vrionis critiques the venture capital industry's resistance to change and outlines his vision for improvement with Unusual Ventures.## Venture Capital Fund Structure and Inertia

• Venture capital funds typically have a ten-year legal minimum life cycle.
• Fund relationships and terms are often confidential and legally complex, creating "legal molasses" that impedes rapid change.
• Cultural resistance to change is strong in successful organizations, making it difficult for VC firms to adapt quickly.
• Both legal and cultural factors contribute to the slow pace of change in the VC industry.

"I mean, these funds are ten years legally, minimum. The relationships, they're not to be disclosed. There's all kinds of legal molasses that keeps people from making these changes."

This quote highlights the legal and structural rigidity of VC funds, which contributes to the industry's resistance to change.

"But I also think it's just a cultural one. Right? When organizations are working, when they're successful, it's very hard for them to embrace significant change."

Jon Vrionis points out that successful VC firms may be culturally resistant to change, reinforcing the status quo.

• Jon Vrionis and his team sought to diversify their LP base by engaging with nonprofits and other entities not traditionally involved in VC.
• Historically black colleges and other institutions often lack sophisticated investment managers, making it challenging for them to participate in VC.
• Jon Vrionis hopes to standardize the involvement of a diverse range of LPs in the VC industry over time.

"So we had to go and do a little extra work, a lot of work in some cases, to convince them these off the beaten path lps to come work with unusual because we wanted to open the asset class and the best of it to schools and hospitals and foundations that should be getting the wealth creation that VC provides."

Jon Vrionis emphasizes the effort made to include unconventional LPs in their fund to democratize access to VC wealth creation.

"Oh boy, Harry, I hope so. I mean, that's one of the things we really hope to change in the industry."

Expressing hope for the future, Jon Vrionis wishes for a more diverse LP base to become the industry standard.

• Fundraising for a new VC firm is a hands-on and personal process, requiring involvement in all aspects from initial meetings to final agreements.
• Empathy for founders increases as VCs experience the repetitive and challenging nature of fundraising.
• The process of convincing LPs to invest in a new fund can be laborious and requires a strong value proposition.

"So when we did unusual, you own all of that, right? So from the first meetings to creating them to the slide deck and the information and managing the whole thing, I mean, it's quite a process."

Jon Vrionis describes the comprehensive responsibility and effort involved in fundraising for a new VC firm, highlighting the contrast with established firms.

"Their empathy goes up when you take four meetings in one day or five meetings in one day, and you've said the same thing over and over again, you realize when the founders show up and they're doing their process, boy, you should show up for the meeting on time, and you better lean into it and put your phone away and pay attention because this is hard."

This quote reflects on the empathy gained for founders through the rigorous fundraising process and the importance of being present and attentive in meetings.

• Embrace the volume of work involved in establishing a new VC firm.
• Accentuate strengths early in meetings to capture interest.
• Choose meetings wisely and seek out LPs with a history of backing emerging managers.
• Continuously iterate and improve the fundraising narrative based on market feedback.

"You have to accentuate your strengths and get that out right away, because just like when you hear founder pitches, those first few minutes are key."

Jon Vrionis advises new VC managers to highlight their strengths quickly to engage potential LPs effectively.

"Talk to other emerging managers and get a sense of who's pleasant to deal with and who's incredibly difficult."

He recommends networking with peers to understand which LPs are supportive of emerging managers and to manage time efficiently.

• To achieve best-in-class performance, specialization is necessary in highly competitive fields like venture capital and entrepreneurship.
• Jon Vrionis criticizes the lack of focus in VC firms that try to excel in multiple areas simultaneously.
• He draws parallels between sports, medicine, and art, where specialization leads to excellence.

"To be best in class, to be truly the best you can be, you have to specialize. And it's not just sports, it's medicine, it's music, it's art."

This quote emphasizes the importance of specialization for peak performance in any competitive field, including venture capital.

"I find it ironic when the VCs show up at board meetings and tell their founders, focus, and then you look at their own business and they're all over the place and they expect that they can be world class at all these different things."

Jon Vrionis points out the inconsistency of VCs advising founders to focus while their own firms lack specialization.

• The 2008 Kaufman report advised LPs to invest only in the top decile of VC managers, resulting in elite firms raising substantial funds.
• VC firms have diversified across sectors, stages, and geographies, driven by the incentive to maximize fee-based income.
• Jon Vrionis questions the ability of VCs to maintain world-class performance across multiple dimensions of diversification.

"So their risk tolerance is less than a founder. By having this basket, what you've now given them is a free ticket, right? Raise as much money as you possibly can."

Jon Vrionis criticizes the risk-averse nature of VCs compared to entrepreneurs and the resulting push to raise more funds.

"They've literally diversified in all three dimensions and they're telling the story that they think they can be best in class at all of those things."

He challenges the notion that VC firms can excel across various sectors, stages, and geographies simultaneously, suggesting that this belief is unrealistic.## VC Fund Performance and Generalist vs Specialist Approach

• Generalist funds like Sequoia, Benchmark, and Founders Fund have historically performed well.
• These funds are perceived as generalists but have specific strategies such as staying early stage, maintaining fund size consistency, and being selective.
• They may appear to be thematic agnostics but often invest in companies with clear product-market fit and momentum.
• Benchmark has recently done nine deals in Europe, indicating some geographic expansion while maintaining their early-stage focus.
• Sequoia is an anomaly in operating globally, and it's uncertain if other firms can emulate their success.
• The debate is whether the next decade will see a shift towards thematic specialization being a superior strategy.

"I mean, we model ourselves very much after benchmark, partly through Andy's influence, but I would push back on you. Are they really generals?"

This quote highlights a challenge to the perception of successful funds as generalists, suggesting that their success may actually be due to a more focused strategy.

"I think Sequoia is anomaly operating a VC firm the way they have on a global basis. It's unbelievable."

Jon Vrionis acknowledges Sequoia's unique global success and questions whether this can be replicated by others.

• VC is cyclical, with historical patterns repeating, such as too much money chasing too few good deals.
• Thematic specialization has been around in different forms, with platform shifts like SaaS and cloud enabling startups to disrupt legacy companies.
• Focused firms may have an advantage during platform shifts due to their ability to move quickly and achieve outperformance in returns.

"VC is very cyclical. Harry, if you really go back to the late sixty s and seventy s when it started, there's some things that are consistently true."

Jon Vrionis points out that certain patterns in the VC industry, such as capital abundance and deal scarcity, are recurrent.

"So I don't think it's the first wave of anything. I think there's been focus in different areas and when there's platform shifts like SaaS businesses or cloud, then that's when vcs make money."

This quote explains that thematic specialization is not a new phenomenon and that VC success often coincides with technological and platform shifts.

• Multi-stage firms are increasingly participating in seed-stage investments.
• These firms are seen as buying optionality and want to secure deals before they reach their typical Series A investment stage.
• There is skepticism about whether multi-stage firms truly serve the best interests of founders at the seed stage.
• Founders may be attracted to the brand and network of multi-stage firms, but they require hands-on, practical help in the early stages.

"I personally think that the stage agnostic firms, as you pointed out, are buying optionality."

Jon Vrionis suggests that multi-stage firms' involvement in seed funding is strategic rather than a genuine interest in early-stage company building.

"It's not the brand or the network that they need. They need someone to actually get in and give them real help, company building help."

This quote emphasizes the need for early-stage founders to receive practical, hands-on assistance rather than just the prestige of a well-known VC firm.

• Company builders are hands-on and help founders with core tasks such as hiring, storytelling, and early sales.
• Private investors or multi-stage firms focus on metrics and financials, which are less relevant for early-stage companies.
• The engagement style of company builders involves practical support and often includes having operators with desks at the companies they invest in.
• Growth investors' engagement is more about scaling strategies and financial metrics, which are more applicable after achieving product-market fit.

"You don't come out of the womb knowing how to do this stuff. Most of these founders are product people, they're technologists, and they need to learn these other things."

Jon Vrionis highlights the learning curve for founders, particularly those with technical backgrounds, and the need for early-stage guidance.

"They could never hire the people that we give them, because who would join a four person company, it's really hard."

This quote explains the value company builders add by providing access to high-caliber talent that would otherwise be inaccessible to a nascent startup.

• Trust-building with founders is crucial for VC success.
• Founders-first philosophy does not exclude being company-first; both can coexist.
• Empathy, active listening, and prioritizing founders' needs over the fund's interests are key to creating a safe environment for founders.
• Building goodwill early on through practical support and understanding is essential.

"Do unto others, put yourself in their shoes. How would you want them to treat you if you do that from the very beginning?"

Jon Vrionis advises on the importance of empathy and treating founders as one would like to be treated, to build trust and support.

"You think about their needs. If you do that, they will pick up on that."

This quote reinforces the concept that prioritizing founders' needs leads to a strong, trust-based relationship.## Building Trust with Teams

• Emphasize the importance of vulnerability in leadership.
• Encourage leaders to share personal challenges to foster openness.
• Trust is established through genuine personal connections.

They will begin to trust you. I also think you said it early. Be vulnerable. Tell them about the things that are hard in your own life. You're not Superman. So be open with them about that. They'll be open with you.

This quote highlights the significance of leaders being open about their own difficulties to create a trusting environment where team members feel comfortable sharing their own challenges.

• Discusses the balance between professionalism and friendship in VC-founder relationships.
• Advocates for a supportive yet demanding approach to help founders achieve their potential.
• Stresses the importance of honesty and fulfilling fiduciary duties within professional boundaries.

Look, I don't know that being friends doesn't mean you can't be professional, right. You have a fiduciary duty as their partner.

Jon Vrionis emphasizes that it is possible to maintain a friendly relationship with founders while still upholding professional responsibilities and duties.

• Recommends "Give and Take" for its transformative insights on culture and hiring.
• Suggests "Shoe Dog" for its portrayal of authentic entrepreneurship and perseverance.

I think give and take is one of the most transformative books any founder or investor could read.

Jon Vrionis believes "Give and Take" provides valuable lessons that can significantly impact founders and investors.

• Highlights the role of a board member in guiding founders.
• Praises Andy Reccliffe for his reflective approach in board meetings.
• Values the ability to focus founders on strategy and direction.

He would hold up the mirror and ask questions, do we have product market fit? He knew the answers were in the team.

Jon Vrionis admires Andy Reccliffe's style of prompting founders to self-reflect and strategize effectively during board meetings.

• Acknowledges the romanticized perception of venture capital versus its demanding reality.
• Expresses the personal challenge of meeting high expectations for his team and founders.

It's to show up, work hard, do what I set out to do for them.

Jon Vrionis discusses the pressure to fulfill his commitments to his team and the founders they support.

• Believes that instilling belief in founders is a crucial aspect of venture capital.
• Reflects on the importance of showing support, especially during challenging times.

Belief is the most important thing we can give these founders. Just the way your lps believe in you, Harry.

Jon Vrionis shares his realization that believing in founders is one of the most valuable forms of support a venture capitalist can offer.

• Advocates for increasing diversity within VC firms and LP bases.
• Calls for VCs to engage more deeply with founders rather than adopting a "spray and pray" strategy.

Founders deserve better. They deserve not advice or a VC who's playing a spray and pray strategy.

Jon Vrionis expresses his desire to improve the venture capital industry by providing more meaningful support to founders.

• Discusses the investment in Shijinko, a company specializing in compliance solutions.
• Cites the founders' authenticity and relevant experience as key factors in the decision to invest.

We invested in a company called Shootjinko, based in Seattle, and they were the IT specialists at Starbucks that ported Starbucks from their own data centers to using AWS.

Jon Vrionis shares details about a recent investment in Shijinko, highlighting the founders' expertise and the company's potential in the compliance space.

• Endorses Carter for equity management and valuations.
• Recommends Pendo's product performance benchmarks microsite.
• Suggests using Room's soundproof phone booths for quiet workspace solutions.

Carter Carter simplifies how startups and investors manage equity, track cap tables and get valuations.

Harry Stebbings promotes Carter as a valuable tool for startups and investors to manage equity-related tasks efficiently.