20VC What Does It Take To Gain A Late Stage Cheque Today The Fundamental Mistakes CEOs Make In The Scaling Process & The Importance Of Building The Next S Curve For Founders with Jules Maltz, General Partner @ IVP

In this episode of the 20 minutes VC, host Harry Stebbings interviews Jules Moltz, a general partner at Insight Venture Partners known for investments in high-profile companies like Slack and Twitter. Moltz shares his journey into venture capital, starting at 24 with investment banking and moving into a venture firm role. He discusses the shift in the late-stage investment landscape, where proactive deal sourcing and direct CEO engagement have become the norm. Moltz emphasizes the importance of trust-building with entrepreneurs and the need for CEOs to adapt their management strategies as their companies scale. He notes the trend of companies needing strong unit economics to secure late-stage funding and the potential for a robust IPO market in 2017. Moltz also touches on the significance of founders being able to pivot their business models and the role of VCs in providing counsel to CEOs, highlighting the balance between market and product importance over founder influence in later stages.

• Harry Stebbings introduces the theme of the week: the late stage environment in the investment landscape.
• Two interviews with successful late-stage investors are announced.
• Jules Moltz, General Partner at Insight Venture Partners, is introduced with his background and achievements.

Welcome back to another week in the world of the 20 minutes VC with your host Harry Stebings at H stepbings on Snapchat and recording from San Francisco today as we are just one day away from Sasta by the main man, Jason Lempkin. But to the show today and this week, instead of featuring a fund, we're featuring a stage of the investment landscape that we haven't deep dived into extensively before. And that's the late stage environment.

The quote from Harry Stebbings sets the stage for the week's focus on the late-stage investment landscape, which has not been extensively covered before on the podcast.

• Jules Moltz shares his serendipitous entry into venture capital in 2004.
• He reflects on his love for technology and regret over not learning computer science.
• Jules's background in economics and investment banking at Robertson Stevens led to his venture into VC.

Yeah, well, you're going to be in it soon. So I was very kind of serendipitously found my way into venture in 2004, and I had done a few years in investment banking at a firm called Robertson Stevens that actually is no longer around. And I had really enjoyed technology. I've always loved technology, even as a kid, but I'm not an engineer.

Jules Moltz describes his path to venture capital, highlighting his early interest in technology and his journey through investment banking.

• Venture capital has transitioned from a relationship-based industry to a proactive pursuit of companies.
• Later-stage firms now directly approach CEOs, offering value pre-investment.
• The fundraising process for top companies is rapid, with decisions made in days or hours.

What changed is with the Internet and just information being more readily available on how companies are doing. All of a sudden, as a later stage firm, you could actually figure out what are the best companies to go after.

The quote explains the shift in the venture capital industry towards a more proactive approach due to the availability of information on the Internet, allowing later-stage firms to identify and pursue leading companies.

• Jules Moltz discusses the importance of building trust with entrepreneurs before investing.
• He compares the investor-entrepreneur relationship to a long-term commitment, emphasizing the need for mutual trust.
• Jules believes in being genuinely authentic and spending face-to-face time with entrepreneurs to build relationships.

I mean, it's crazy if you think about it. These entrepreneurs have spent, they're spending their life doing only their company, right? And then they're going to get an investment from someone who's likely to join their board. They can't kick that person off for five or seven years, and they only have, in some sense, weeks or maybe months at most to get to know that person.

This quote emphasizes the significance of the investor-entrepreneur relationship and the challenge of building trust within a limited time frame before making a long-term commitment.## Investment Approach and Relationship Building

• Investing in companies is similar to dating; it's important to get to know the CEO and the company culture before discussing investment.
• Initial conversations are centered on understanding the company's challenges and potential synergies with the investor's portfolio, rather than immediately discussing funding.
• Building a rapport with the CEO outside of a professional setting can provide valuable insights into their character and business acumen.

"I invested in Buddy media with a CEO named Mike Lazaro, who's amazing. And I spent sort of every time I went to New York, I would visit Mike, and I went to a company barbecue event they had, and I went to their office, had drinks, and got to know Mike."

The quote exemplifies the importance of personal engagement with CEOs, illustrating the speaker's commitment to understanding the leaders and cultures of potential investment opportunities.

• Companies aiming for an IPO need to demonstrate significant revenue, growth, and a clear path to profitability.
• In the private market, a compelling story about future profitability and market leadership is crucial for raising capital.
• Data showing upward trends in users, revenue, or customers is essential for later stage investments.
• The speaker differentiates between the requirements for public market entry and private market growth funding.

"And companies need to be generally over $100 million in revenue. They need to be growing over 30%, and they need to have, if they're not profitable, they need to have a very clear path to profitability within two to four quarters."

The quote outlines specific financial benchmarks and growth expectations for companies considering an IPO, highlighting the market's requirements for public investment viability.

• The market's focus on unit economics has fluctuated over time, with a shift away from companies with poor unit economics despite rapid revenue growth.
• There's been a change from a willingness to invest in companies with potentially flawed business models to a preference for strong unit economics and profitability potential.
• The speaker reflects on the changes in investment criteria over the years, particularly in the context of the "unicorn boom."

"I think what's most surprising to me and what's really changed in the last couple of years, and it's kind of gone up and down, but we would see companies a few years ago with very poor unit economics."

This quote captures the speaker's observation of the changing investment landscape, particularly the shift in focus towards sustainable unit economics over mere revenue growth.

• CEOs of rapidly growing late-stage companies must be willing to adapt their management style as the company scales.
• Successful CEOs proactively seek expertise, embrace delegation, and plan for future market shifts.
• The speaker admires CEOs who anticipate changes and prepare their companies for transitions, such as Facebook's shift to mobile.

"The best ceos, even when things are going incredibly well, are constantly making upgrades and changes to their management team."

The quote emphasizes the importance of continual improvement and strategic foresight in leadership, particularly in the context of a company's growth trajectory.

• Trust between board members and CEOs is critical for effective guidance and strategic decision-making.
• Board members should not be overly forceful but should build a relationship where CEOs seek their input on important strategic shifts.
• The speaker advocates for a collaborative approach to board member involvement, steering clear of dominating the conversation with personal agendas.

"It really, again, it comes back to trust because I've been in board meetings where there's like the angry vc in the room pounding the table about you have to do mobile, or just says some ridiculous strategist thing about what's our chat bot or AI strategy, and takes the board meeting in a totally wrong direction."

This quote highlights the importance of trust and constructive dialogue in board meetings, cautioning against aggressive tactics that can derail productive discussions.## Team Development and CEO Relationships

• Effective board members facilitate self-realization in CEOs regarding team upgrades.
• Direct instructions can lead to CEO defensiveness; trust and a two-way relationship are crucial.
• Background in counseling equips a board member with listening and advising skills.
• CEOs who seek self-improvement and engage with board members can benefit from their support.

"And you get them to sort of come to the conclusion that maybe they need to upgrade in a certain position, but it needs to be a two way street."

This quote highlights the importance of guiding CEOs to self-realize areas for team improvement, emphasizing collaborative effort rather than unilateral directives.

"But it really takes the CEO wanting that."

The quote underscores the necessity of a CEO's willingness to seek and accept help for effective guidance and support from board members.

• Distance grows between venture capitalists (VCs) and younger CEOs and consumers.
• VCs must adapt to stay relevant and understand newer social networking products.
• Empathy for entrepreneurs is essential; VCs rely on the entrepreneurial ecosystem.

"I think there's two big challenges with kind of getting older and venture."

Jules Moltz identifies the main challenges faced by aging VCs: staying relatable to younger entrepreneurs and maintaining empathy despite a power dynamic.

"So I should go meet them on. That makes it easy for them."

The quote reflects Jules Moltz’s belief in prioritizing the convenience of entrepreneurs over the convenience of VCs, demonstrating respect and empathy for their efforts.

• VCs often say no to the majority of pitches, which can lead to an inflated sense of importance.
• Successful VCs remember their reliance on and the value of entrepreneurs.
• Humility and proactive support for entrepreneurs are key traits of a good VC.

"And so even if we're saying no to 98% of them, it's that ecosystem that creates venture capital."

Jules Moltz emphasizes the VC industry's dependence on the broad entrepreneurial ecosystem, which is the foundation of VC success.

"I'm definitely not a VC who plays hard to get."

The quote reveals Jules Moltz’s approach to venture capital, which is transparent and supportive, contrasting with other VCs who may use power dynamics to their advantage.

• The S curve represents a company's growth pattern, with initial slow growth, rapid acceleration, and eventual slowdown.
• Successful companies anticipate future S curves and adapt with new products or strategies.
• Companies like Salesforce exemplify the continuous pursuit of new growth avenues.

"The best businesses are actually thinking about even when they're going through that fastest s curve, they're thinking about what's the next s curve that I can build in the business."

Jules Moltz explains that forward-thinking companies plan for future growth opportunities even during peak growth phases, ensuring long-term success.

• The importance of founders vs. market is a common debate in venture capital.
• Both founders and market are crucial for a company's success.
• The entrepreneurial focus should not be overshadowed by market and product dynamics as a company matures.

"Like, is the founder more important? Is market more important? The answer is both."

Jules Moltz argues that both the founder's vision and the market's potential are essential, rejecting the need to prioritize one over the other in the success of a company.## Reinvention of Businesses by CEOs Howard Lerman and John Donham

• CEOs Howard Lerman and John Donham successfully reinvented their companies.
• Howard Lerman transformed Yext from a pay-per-call advertising product into a SaaS business.
• John Donham developed a premium subscription service at Tunein, offering exclusive sports content, evolving from free traditional radio advertising.
• Both companies are targeting large markets and are expected to be incredibly successful.

"Howard Lerman is the CEO of Yext and basically built a SaaS business out of what was originally a paper call advertising product. And John Donham at Tunein has built an amazing premium subscription at Tunein with exclusive NFL, Major League Baseball NBA content from a business that was originally focused on free traditional radio advertising."

This quote highlights the successful pivot and reinvention of two companies by their CEOs, adapting their business models to changing market conditions and opportunities.

• Jules Moltz enjoys reading fiction, with recent favorites being "All the Light We Cannot See" and Hemingway's works.
• Work-life balance for Jules involves spending time with family and running when possible.
• Andy Rackcliffe from Stanford Business School is a mentor to Jules.
• Jules recommends the blog 'Near and Far' by Nir Eyal for insights on habit formation.
• Jules advises junior industry professionals to leverage their unique advantages over more established individuals.

"I just read all the light we cannot see, which is a really awesome book about World War II and kind of a really cool story about a blind girl in Brittany."

Jules Moltz expresses his appreciation for literature and how it influences his intellectual pursuits.

"I don't know if I do. I love my children. I have a one and a three year old and I spend all of my non working hours with them and my wife and I try to run if I have any time left over."

Jules Moltz discusses his approach to work-life balance, prioritizing family and personal health.

"I went to Stanford business school and I really enjoyed classes from Andy Rackcliffe there who was a partner at benchmark."

Jules Moltz identifies Andy Rackcliffe as a significant mentor, indicating the value of educational experiences and industry connections.

"One of my good friends is near AaL and so I like his blog near and far. He writes a lot about habit formation."

Jules Moltz recommends Nir Eyal's blog as a valuable resource for understanding habit formation.

"Thinking about what you can deliver that other older people can't, I think is huge."

Jules Moltz advises junior professionals to consider their unique strengths and how they can offer something different from more experienced individuals in the industry.

• Jules Moltz believes in assessing the judgment of CEOs, particularly in social settings like parties.
• He values CEOs who network efficiently and avoid overindulgence, as it reflects on their decision-making and leadership.
• Jules's most recent investment in 2015 was in Checker, a Y Combinator-backed automated background check company.
• He praises Checker for its fast growth, efficiency, and strong leadership.

"You want to find the ceos who take one drink, they meet the right person in the room, get the business deal, and then they leave the person who's the last call at the bar CEO. Usually not good."

Jules Moltz shares his perspective on evaluating CEOs' behavior and decision-making skills based on their conduct in social environments.

"The last one I did in 2015 was Checker, which is automated background check kind of API company."

Jules Moltz discusses his investment in Checker, highlighting the company's market position and growth potential as key factors in his decision.

• Harry Stebbings thanks Jules Moltz for participating in the podcast and expresses a desire to co-invest in the future.
• Jules Moltz reciprocates the sentiment and looks forward to potential collaborations.
• Harry Stebbings provides information on Intercom, a platform integrating marketing and customer support messaging, and Cooley, a law firm specializing in startups and venture capital.

"I'm excited to hopefully work with you and good luck to you and venture as well."

Jules Moltz expresses enthusiasm for future collaborations with Harry Stebbings, demonstrating the importance of building professional relationships in the venture industry.

"Intercom is the first to bring messaging products for marketing and customer support together on one integrated platform."

Harry Stebbings describes the services offered by Intercom, emphasizing the company's innovative approach to customer engagement and support.

"Cooley is the global law firm built around startups and venture capital firms."

Harry Stebbings introduces Cooley, a law firm with a strong focus on serving the needs of startups and venture capital firms, highlighting its history and expertise in the field.