20VC What John Doerr Taught Me About Great Investing, Why Not All A Rounds Are PostTraction and Why Despite Overfunding, There Is Still Gaps In Venture Financing with Trae Vassallo, Founding Partner @ Defy.vc

Summary Notes


In this episode of "20 minutes VC," Harry Stebbings interviews Trey Vasalo, co-founder and managing director at Defy VC, a Silicon Valley Series A fund. Trey shares her journey from growing up in rural Minnesota to co-founding Good Technology and becoming a general partner at Kleiner Perkins. She discusses her affinity for hardware investments, like Owl Cam, and her approach to learning new skills, such as gymnastics. Trey also touches on the importance of operational excellence in venture firms, the challenges of establishing a new fund, and her commitment to promoting diversity in tech, as highlighted in her co-authored study "Elephant in the Valley." She emphasizes the significance of team dynamics in startups and how venture capital doesn't scale well with firm size, leading to her decision to start Defy VC.

Summary Notes

Introduction to Trey Vasallo and Defy VC

  • Trey Vasallo is the co-founder and managing director at Defy VC.
  • Defy VC is a Silicon Valley Series A fund.
  • They announced their debut fund of $151 million in September 2017.
  • Prior to Defy, Trey was a general partner at Kleiner Perkins.
  • Trey invested in companies like Eero, Nest, Dropcam, Aggregate Knowledge, and Opower.
  • She co-founded Good Technology, which sold to BlackBerry for $425 million in 2015.
  • Trey is also the coauthor of "Elephant in the Valley," a study on women's experiences in tech.

"I'm very proud to welcome Trey Vasallo, co-founder and managing director at Defy VC, one of Silicon Valley's newest and most exciting series A funds with the announcement of their debut $151,000,000 fund in September 2017, and prior to cofounding Defy, Trey was a general partner at Kleiner Perkins, where she invested in a number of leading companies, including Ero, Nest, Dropcam, Aggregate knowledge and opower."

This quote introduces Trey Vasallo and her professional background, highlighting her significant roles in venture capital and entrepreneurship.

Early Life and Education

  • Trey grew up in a small farming town on the Iowa border in Minnesota.
  • She was inspired by Apple II computers in grade school and decided to pursue engineering.
  • She independently researched top engineering schools and applied to Stanford and MIT without a college tour or guidance counselor.
  • Trey was accepted to MIT but chose Stanford due to its location and opportunities.

"So I grew up in the middle of nowhere. It was literally a farming town on the Iowa border in Minnesota. [...] I remember, gosh, when I was probably in grade school, being incredibly inspired by these apple twos we had at school, and it just clicked."

This quote gives insight into Trey's upbringing and the early inspiration that led her to pursue a career in technology and engineering.

Transition to California and Venture Capital

  • Trey enjoyed engineering but was drawn to creative problem-solving and design thinking.
  • She studied mechanical engineering at Stanford, which allowed her to explore various engineering disciplines.
  • Her interest in robotics led to her meeting her husband, Steve, in a class.
  • Trey's first job was at Ideo, where she worked on the Palm V handheld.
  • Working with a female CEO at Ideo inspired her to pursue leadership in the startup world.
  • She attended Stanford Business School to transition from engineering to business.
  • Trey co-founded Good Technology, which sold to Motorola for $500 million.
  • Her relationship with John Doerr at Kleiner Perkins started when she approached him at Stanford.

"Well, so the first thing I realized was that I really did love engineering, but not just computer science. [...] And then really it was robotics. So I ended up going straight through getting my master's degree and taking, and then tang this incredible class on robotics. And, of course, that's the class where I met Steve, of course, on the oscilloscope. Bench."

This quote describes Trey's academic journey, her broad interest in different engineering fields, and how it led to meeting her husband and her first steps in the tech industry.

Experience with John Doerr and Board Dynamics

  • Having John Doerr on the board was an incredible experience for Trey as a first-time founder.
  • John Doerr was involved with Amazon and Google at the time and provided valuable introductions and support.

"Well, and this is back, we founded good in March of 2000. So this is right before the crash. And John was on the board of Amazon and he had just done Google at this time and just this incredible"

This quote reflects on the significance of having a prominent figure like John Doerr as a mentor and board member during the early stages of Good Technology.## Working with John Doerr

  • John Doerr's ability to identify the core issue quickly without getting sidetracked by minutiae.
  • His focus was always on what would make an opportunity successful on a large scale.
  • Trey Vasallo expresses admiration for John's approach to opportunities.

So the thing that was so incredible about working with John is that he was really good at quickly identifying the big question, the big issue. He never got distracted by the small minutiae that so many folks can get distracted by. He was always laser focused on what's it going to take to turn this into a great big opportunity.

This quote highlights John Doerr's effectiveness in recognizing and concentrating on the critical aspects that would turn an opportunity into a significant success, emphasizing his strategic focus and ability to avoid distractions.

Learnings from First VC Job

  • Trey Vasallo's eleven-year tenure at Kleiner, working with 40 companies and various investors.
  • Importance of apprenticeship in investing and understanding different investment styles.
  • Exposure to different partners like John Doerr, Vinod Khosla, and Kevin Compton helped her learn diverse approaches to working with entrepreneurs and investment frameworks.
  • Observing the firm's growth led to the realization that venture firms might not scale effectively, influencing her future career decisions.

So I got to shadow John in some board meetings. I got to shadow Vinode. There were other incredible partners like Kevin Compton, who I worked really closely with.

Trey Vasallo describes her experience shadowing various partners at Kleiner, which contributed to her understanding of different investment styles and approaches to entrepreneurship, shaping her professional development in venture capital.

Identifying Personal Investment Style

  • Trey Vasallo's development as an investor was gradual, not marked by a single 'Aha' moment.
  • She faced challenges, such as leading a company through distress and a CEO change, which helped her identify her strengths.
  • Her engineering background and startup experience provided her with empathy and a unique connection with entrepreneurs.
  • Vasallo's strengths include engaging deeply in strategic conversations about products, which she leveraged as a board member.

And so one of the things that I found is I was connecting with the entrepreneur and the teams in different ways than my partners were.

This quote reflects Vasallo's realization that her engineering and entrepreneurial experience allowed her to connect with and support entrepreneurs in ways that were distinct from her colleagues, highlighting the value of diverse backgrounds in venture capital.

Starting Defy

  • The venture industry is overfunded, leading Vasallo to initially question the need for another venture firm.
  • Post-Kleiner, Vasallo explored different investment stages and engaged in seed investing and entrepreneur coaching.
  • She recognized a funding gap for entrepreneurs seeking $4-5 million venture rounds, as larger funds shifted towards bigger investments.
  • This realization led to the founding of Defy, aiming to fill the gap in the venture ecosystem.

And so it was through that following the path of the entrepreneur where I realized, wow, so there's a lot of money in this industry, but it's sort of pooled in very specific parts of the ecosystem.

Vasallo's exploration post-Kleiner highlighted the uneven distribution of venture capital, particularly for early-stage entrepreneurs needing moderate funding, which inspired her to start Defy to address this market need.

Perspectives on Series A Funding

  • Disagreement with the notion that all Series A rounds require traction, as it depends on what is being invested in.
  • The first investment by Defy was in a pre-revenue, pre-product launch hardware company, challenging the conventional wisdom.
  • Vasallo believes that early Series A investments may show early product success but are not necessarily ready for aggressive growth funding.

No, I don't actually agree with that. And I think it also depends on what you define as traction.

Trey Vasallo challenges the generalization about Series A funding requirements, suggesting that investment criteria can vary significantly based on the type of company and the industry, emphasizing a more nuanced approach to venture capital.

Investing Criteria and Hardware Focus

  • Team quality is the most crucial factor in investment decisions, especially for hardware companies.
  • Vasallo's personal affinity for hardware, stemming from her engineering background, influences her investment choices.
  • She highlights an investment in Owl Cam, a hardware company, as an example of Defy's approach to investing in teams with strong potential, regardless of product stage.

My tact is the most important initial piece is the team.

This quote underscores Vasallo's investment philosophy, where the team's capabilities and potential are the primary criteria for investment, particularly in the hardware sector where she has personal expertise and interest.## Early Involvement in Company Formation

  • Trey Vasallo discusses her early involvement with a founder who previously worked at Apple on the iPod and iPhone.
  • She and her partner, Neil, provided input on potential areas for a new company.
  • The founder eventually formed a team and presented his company idea.
  • Trey and Neil invested personal capital before their fund had closed.

"And so this is one where I was there right at the beginning. Both of my partner Neil and I were meeting with him and pushing him on areas that we thought would make for a really interesting company."

The quote highlights the proactive role Trey and her partner Neil took in shaping the initial concept of a company by providing guidance and input to the founder.

Fundraising and Dealmaking Dynamics

  • Trey explains the strategic decision to invest personal capital in a seed round before the fund closed.
  • This investment served as a demonstration of their deal analysis and teamwork to potential LPs (Limited Partners).

"But LPs absolutely wanted to see how we process deals and how we work together as a team."

This quote emphasizes the importance of showcasing the team's deal-making process and collaboration to LPs during fundraising efforts for their new fund.

Establishing a New Fund

  • Trey Vasallo shares her experience of establishing a new fund and the challenges of fundraising without a traditional LP base.
  • Partnering with Neil, who brought along LPs from his previous firm, was crucial to gaining initial support.
  • Momentum in fundraising was built through high-quality LPs who then referred others to the fund.

"And once you have some high-quality venture LPs on board, they then tell their friends, and that builds momentum and snowballs."

The quote underscores the significance of securing initial high-quality LPs, whose endorsements can create a snowball effect in attracting additional investors.

Fundraising Challenges and Surprises

  • Trey was surprised to find fundraising enjoyable, despite hearing negative stories from others.
  • She appreciated meeting LPs and building relationships during the fundraising process.
  • The fundraising experience strengthened the bond between Trey and Neil.

"I thoroughly loved meeting the LPs and the incredible institutions that they're working on behalf of."

This quote reflects Trey's positive experience with fundraising, which contradicted her expectations based on others' horror stories.

Team Formation Concerns

  • LPs were concerned about the new partnership between Trey and Neil since they had not worked together previously.
  • The partnership was carefully considered, with aligned values and complementary skills being critical factors.
  • The commitment to the partnership was likened to a marriage, given its significance and long-term nature.

"So Neil and I didn't have this story of, yeah, we've worked together for the last ten years, but at different firms, we really hadn't crossed paths."

The quote addresses the concern of LPs regarding the newness of Trey and Neil's partnership and their lack of a shared working history.

Infrastructure and Operational Excellence

  • Trey and Neil prioritized operational excellence for their firm.
  • They decided to invest in hiring an experienced CFO rather than outsourcing back-office functions.
  • The decision to hire internally was based on the firm's size and the importance of operational excellence to their vision.

"So we very quickly said we want to build our firm on the premise of operational excellence."

This quote highlights the strategic decision to focus on internal operational excellence as a foundational principle for the firm.

Advice for First-Time Funds

  • Trey suggests that smaller or seed funds might need to outsource due to budget constraints.
  • For larger funds, like theirs at $151 million, it makes sense to invest in internal resources.

"So our fund is $151,000,000. And so we absolutely make sense to bring that person on our team and invest the money into building out a platform for the future."

The quote provides insight into the decision-making process regarding when it is appropriate for a fund to hire internal staff versus outsourcing based on the size of the fund.

Significance of Fund Size

  • The specific fund size of $151 million was chosen due to an entrepreneur's personal connection and contribution.
  • The entrepreneur, a reference and supporter of Trey and Neil, wanted to invest in their firm while facing a personal battle with cancer.
  • Raising the cap to accommodate the entrepreneur's investment was an emotional decision that reflected the firm's values.

"But there was an entrepreneur who had been an incredible, is an incredible reference for us... he wanted to put a million bucks into our firm and be the 151 of what we were building."

This quote explains the personal and emotional significance behind the fund's size, highlighting the firm's commitment to its entrepreneurs and community.### Favorite Book and Its Impact

  • Trey Vasallo's favorite book is "Brotopia" by Emily Chang.
  • She values the book for its perspective on women in tech and the call for change in the industry.
  • The book highlights influential women at Google who are often overlooked.
  • "Brotopia" emphasizes the importance of recognizing and telling the stories of women who have contributed significantly to the tech industry.

"I just finished reading Brotopia by Emily Chang and I think she brings such a great lens to what is happening, why talking about it is important and how we can make change going forward."

The quote explains Trey's recent engagement with "Brotopia" and her endorsement of its critical examination of gender dynamics within the tech industry, as well as its advocacy for change.

Encouraging Diversity and Inclusion

  • Trey Vasallo discusses the importance of middle-class white men in promoting diversity.
  • Simple actions like networking with women and diversifying boards can lead to significant change.
  • It's about making a concerted effort to understand and support diversity in the tech industry.

"I do think there are a number of pretty simple things like that that with a little bit of effort can make a big difference."

This quote summarizes Trey's view on how relatively straightforward measures, if undertaken sincerely, can have a substantial impact on enhancing diversity within the workplace.

Memorable LP Meeting

  • Trey Vasallo feels proud of her LP base and is inspired by a particular LP who is a personal hero.
  • Due to an NDA, she cannot disclose the LP's identity but expresses excitement about their involvement.

"I'm super proud of our lp base, but one of our lps is a personal hero of mine."

The quote reflects Trey's pride and admiration for her LP base, particularly highlighting the influence of a specific LP who she holds in high regard.

Competing with Spouse

  • Trey Vasallo and her spouse rarely compete professionally.
  • She won a competition for a company investment against her spouse once.
  • Work is generally not a topic of discussion at home to avoid challenges.

"We tend to just not talk about work at home because it is a bit of a challenge."

This quote reveals Trey's approach to maintaining a healthy work-life balance by keeping professional competition and discussions separate from home life.

Learning New Skills

  • Trey Vasallo equates learning new sports to the entrepreneurial experience.
  • She emphasizes the importance of staying humble and embracing trial and error.
  • The process involves facing fears, making mistakes, and ultimately achieving breakthroughs.

"You're putting yourself out there. It's scary. You're failing, you're iterating, and then hopefully, you break through."

The quote draws a parallel between the learning process in sports and entrepreneurship, highlighting the resilience and adaptability required in both pursuits.

Current Learning Endeavor

  • Trey Vasallo is currently learning gymnastics.
  • She was inspired to start after watching her son, who is a competitive gymnast.
  • She attends an adult gymnastics class a couple of days a week.

"So right now, it's gymnastics, believe it or not."

This quote indicates Trey's latest personal challenge and her commitment to continuous learning and self-improvement.

Recent Investment: Owlcam

  • Trey Vasallo's latest investment is in Owlcam.
  • The decision was driven by the strength of the team and the entrepreneur's vision.
  • Owlcam aims to redefine car security and peace of mind through intelligent video technology.
  • The product has various applications ranging from personal use to enterprise solutions.

"The owl cam is a product that you put in your car. It's like a dash cam, but does a whole lot more."

This quote describes the unique value proposition of Owlcam and its potential to innovate the car security market through advanced video features.

Acknowledgments and Support

  • Harry Stebbings expresses gratitude for the support from both Steve and Trey.
  • Trey is active on Twitter and has authored a book titled "Elephants in the Valley."
  • Harry Stebbings also mentions the Twenty Minute VC website and his own Instagram account.

"And if you'd like to see more from Trey, which you must, then that's on Twitter at Trey, T-R-A-E."

The quote is an acknowledgment of Trey's contribution to the show and an invitation for the audience to engage with her work and social media presence.

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