20VC Why Few Firms Are Doing True Early Stage Investing Today, Why Founders Should Spend Time with Analysts When Raising & The Rise of PreEmpting Rounds and How To Know When To Engage vs Wait with Anna Khan, General Partner @ CRV

In this episode of "20 Minutes VC," Harry Stebbings interviews Anna Khan, a General Partner at CRV, a leading Silicon Valley firm. Anna shares her journey from Stanford to finance at Goldman Sachs and Morgan Stanley, to venture capital, detailing her role in sourcing successful companies like Intercom and New Voice Media. She also discusses her experience as an immigrant from Pakistan and the unique perspective it brings to her work. Anna highlights the importance of early-stage investing, the value of analysts in venture capital, and the critical role of forming deep connections with founders. Additionally, she addresses the need for more female representation in VC and the challenges of competing with established firms. Anna's insights reveal the nuanced art of venture capital and the significance of people and relationships in driving successful investments.

• Harry Stebbings introduces Anna Khan, a general partner at CRV.
• Anna has a notable investment background with experience at Bessemer.
• She is also the founder and CEO of LaunchX Ventures.

"Now Anna is a general partner at CRV, one of the preeminent firms of Silicon Valley, stretching over what is an incredible 18 funds in their portfolio."

The quote highlights Anna Khan's current position at CRV, a prominent venture capital firm with a significant number of funds and successful investments.

• Harry thanks Anne Saff at Lightspeed, Anne Murat Izar, and Christian at CRV for their input.
• The collaborative effort in preparing for the podcast is appreciated.

"Thank you to Anne Saff at Lightspeed, Anne Murat Izar, and Christian at CRV."

This quote shows the appreciation for the contributions of various individuals in the preparation of the podcast episode.

• Carter is promoted for simplifying equity management and offering discounts to listeners.
• Brex is introduced as a corporate card for startups with benefits and credit offers.
• Zoom is recommended for business communication and video conferencing.

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

This quote is part of the promotional segment advertising Carter, a service for equity management for startups and investors.

• Anna didn't know about venture capital after graduating from Stanford.
• She began her career in finance at Goldman Sachs and Morgan Stanley.
• Her transition to venture capital felt like a blend of finance and startup ecosystems.
• Anna worked at Bessemer for six years, investing in various successful companies.
• She joined CRV as a general partner, focusing on software investments.

"So when I graduated from Stanford, I honestly had no idea what venture was."

Anna Khan discusses her lack of awareness about venture capital during her early career and how she transitioned into the field.

• Anna grew up in a 21-person household in Pakistan and moved to the US at 17.
• She lived through significant political events in Pakistan.
• The move to the US was driven by a desire to make an impact and the limitations for women in professional roles in Pakistan.
• Anna emphasizes the importance of not taking opportunities for granted.

"Growing up outside of the US gives you a lot of perspective."

Anna Khan reflects on how her upbringing in Pakistan and subsequent move to the US shaped her perspective and drive.

• Anna, as a former analyst, argues for the importance of analysts in venture capital.
• Analysts are seen as gatekeepers but also as advocates for entrepreneurs.
• She provides examples of successful companies sourced by analysts.
• Harry and Anna discuss the challenge for founders in managing outreach from many analysts.

"What I like to say is that people don't realize that most partners are busy with ten plus board companies."

Anna Khan explains the role of analysts in venture capital, emphasizing their importance in sourcing deals and advocating for entrepreneurs due to the partners' busy schedules.## Engaging Analysts in Venture Capital

• Anna Khan highlights the shift in the venture capital industry, where more young analysts are now involved.
• She advises founders to engage analysts by asking them to perform tasks that showcase their individual and firm's capabilities.
• Tasks could include providing insights on the founder's market, offering support in hiring, or facilitating introductions to potential customers within the VC's portfolio.
• This approach ensures analysts are not wasting their time and allows founders to gauge the potential value of partnering with the VC firm.

"You should reply and then you should get them to do work for you. It's very easy to send an email to an entrepreneur, but when they reply and they ask you to do something, I think that's when you can really shine both as an individual analyst, but also show your firm's worth."

The quote emphasizes the importance of mutual effort in the VC-founder relationship. Founders should engage analysts in meaningful tasks to evaluate their commitment and the potential value they bring to the table.

• Anna Khan reflects on her career progression from analyst to general partner (GP) and shares key lessons learned during her time at Bessemer Venture Partners.
• The three main takeaways are: the centrality of sourcing in venture investing, the significance of first impressions, and the importance of how founders treat analysts.
• Sourcing is crucial to venture success; it should be a continuous activity, regardless of one's position in the firm.
• First impressions, such as thoughtful emails, can have a lasting impact and contribute to building meaningful relationships.
• Founders' responses to analysts can be indicative of their future success and respectfulness towards all potential partners is important.

"The first is never forget that sourcing is still the heart of venture investing. Getting to a founder earlier than anyone else is how you succeed."

This quote underscores the importance of sourcing in venture capital and the competitive advantage gained by connecting with founders early on.

• Anna Khan offers a contrarian viewpoint on networking with other VCs, suggesting that it may not be conducive to effective sourcing.
• She advises new VCs to focus on building relationships with a small, compatible group rather than attending every networking event.
• Khan finds value in spending time with product and engineering leaders to stay connected to the products and technologies worth investing in.
• Blogging has been an effective tool for Khan, attracting founders who are aligned with her investment interests.

"I think that hanging out with other VCs, as fun as it is, is antithetical to good sourcing."

The quote reflects Khan's belief that networking exclusively with peers in venture capital may not yield the most promising investment opportunities.

• Anna Khan discusses the evolution of her investment decision-making over her nine years in venture capital.
• She mentions the importance of founder-market fit and product potential in early-stage investing.
• Khan has shifted from a data-driven approach to relying more on early signs, industry experience, and belief in the team.

"One of the reasons I was really excited to join CRV is that they have this laser focus on early stage investing, which is not just driven by data, because there is no data, but it's much more a belief in teams."

The quote highlights CRV's approach to early-stage investing, focusing on the team and product rather than relying solely on data, which is often scarce in early stages.

• Anna Khan acknowledges the challenges of competing with industry heavyweights for investment opportunities.
• She suggests that spending more time with entrepreneurs, being upfront about mutual success, and demonstrating deep sector knowledge can help newer partners win deals.
• Building a strong relationship with the entrepreneur and showing alignment of interests can be compelling, especially for underdog founders.

"My success is so aligned with yours in a way that it might not be for the 20 year VC veteran."

This quote captures the idea that newer VCs can appeal to entrepreneurs by emphasizing their shared interest in each other's success.

• Anna Khan comments on the current venture capital landscape, where rounds are closing quickly and with less price sensitivity.
• She advises that the decision to lean in on a deal or wait should be based on the VC's belief in the founder and the market.
• Building relationships and understanding market dynamics are key to making timely investment decisions.

"I think when to know whether to lean in or stretch in valuation has everything to do with your belief in a founder and a market."

The quote suggests that investment decisions, particularly regarding valuation, should be guided by confidence in the founder's vision and the market potential.## Early Stage Investing

• CRV focuses on early stage investing by prioritizing people over metrics, treating venture capital as an art form.
• Real early stage investing involves intentionally limiting fund size and focusing solely on early stage companies.
• Early stage funds like CRV, USV, and Benchmark have to make the right calls at Series A because they likely won't participate in later rounds.
• Early stage funds form closer bonds with founders as they often bet on them when they were unknown and their products unused.
• Multistage firms have to balance investing across early, mid, and late stages, which can dilute their focus on early stage companies.
• Multistage funds may avoid early investments to not exclude themselves from investing in competitive companies in future rounds.

Yeah, so obviously there are some fantastic multistage firms, but by default, if you are a multistage firm, you have to spend time doing early, mid and late stage investing, and the more capital you raise, the more incentive you have to not exclude yourselves from future rounds and competitive companies by doing deals too early.

Anna Khan explains that multistage firms spread their focus across all stages of investment, which can lead to conflicts of interest if they invest in competitors too early.

• Multistage firms may avoid certain early investments to not be excluded from future competitive deals.
• It's challenging to predict which products or pivots may become competitive, making exclusionary tactics less meaningful.
• Early stage funds can be more competitive by focusing on their niche and avoiding the competitive concerns of multistage firms.
• Multistage firms excel at scaling businesses from millions in revenue to IPO, providing specific operational expertise.
• Early stage funds are seen as more adept at guiding companies during their inception phase, providing customized support over generic playbooks.

Yeah, I think a lot of firms have found ways to market around that, but an entrepreneur still feels very uncomfortable if that fund makes a competitive investment.

Anna Khan acknowledges that while firms may find ways to invest in competitive landscapes, entrepreneurs are still uncomfortable with their investors backing competitors.

• Founders are increasingly taking multistage money at seed rounds, creating competition for early stage funds.
• Harry Stebbings suggests to founders that taking early stage money can lead to better price optimization for future rounds.
• Anna Khan advises founders to consider opportunity costs; working with a multistage fund is possible in later stages, but early stage funds offer unique early support.
• Early stage funds align more with founder incentives, whereas multistage funds excel at pricing growth rounds.

I really like that framework because I've seen it play out for me the answer is really simple. I just tell my founders it's like a basic economic principle, which is opportunity cost.

Anna Khan simplifies the decision for founders by framing it as an opportunity cost, emphasizing the unique benefits of early stage funds.

• The lack of female partners in venture capital is not a pipeline problem but a matter of firms not trying hard enough to find and promote women.
• Anna Khan believes that the best venture capitalists do not necessarily have to be technical, which is often used as an argument for the lack of women in VC.
• Success for women in VC often comes from proven results, whereas men may be promoted based on potential.
• To address diversity, firms should focus on education, hiring practices, and portfolio diversity.

I think pipeline is a lazy crutch.

Anna Khan expresses frustration with the "pipeline problem" argument, suggesting that firms are not putting in enough effort to diversify their teams.

• Firms should educate high-potential female entrepreneurs and demystify the venture capital process.
• Hiring female analysts and associates can expand a firm's network and lead to more pitches from female CEOs.
• Firms should consider hiring female GPs, sharing carry, and validating their work to truly commit to diversity.
• Giving carry to female GPs is a significant and meaningful way to validate their contributions to the venture capital industry.

The first I'd say is start a program or work with Launchx to teach very high potential female entrepreneurs who are raising their first round of institutional financing about what it takes to raise a great round.

Anna Khan suggests that venture firms should actively educate and mentor female entrepreneurs to improve diversity in the industry.

• Role models are crucial for scaling career ambitions and providing advice.
• Anna Khan's role models are more aligned with media than tech and business, which is considered unusual in the venture capital industry.
• The choice of role models reflects personal interests and can influence one's approach to business and investment.

And he said, your role models are much more aligned to media than tech and business, which I thought was super interesting.

Harry Stebbings points out Anna Khan's unique choice of role models, indicating a different perspective and set of influences in her venture capital approach.## Role Models and Their Impact on Venture Capital

• Anna Khan admires media role models like Oprah and Christiane Amanpour for their questioning skills and ability to connect deeply with people.
• She observes a lack of such deep connection in venture capital, which tends to focus on metrics like ARR and net dollar retention too quickly.
• Anna emphasizes the importance of understanding the people behind startups, as venture capital is essentially investing in people.

"What I like about them is more about how they ask questions and how they get to the truth earlier than anyone else."

This quote highlights the value Anna sees in the ability to ask insightful questions and uncover truths, which she believes is crucial in building relationships with entrepreneurs.

• Harry shares an anecdote about investing in an entrepreneur based on personal qualities and life experiences rather than the company's specifics.
• Anna agrees, citing examples of successful founders who pivoted their initial ideas, suggesting that understanding the founder is critical in early-stage investing.

"I think great founders can make new markets, and I think great founders, even if one idea fails, will pivot to the next."

Anna's quote reflects her belief that the potential of founders to innovate and adapt is more important than their current business metrics when considering early-stage investments.

• Anna recommends the book "Why We Sleep" by Matthew Walker, emphasizing the connection between sleep and performance.
• She shares her commitment to getting 8 hours of sleep after reading the book, despite others' skepticism.

"You have to, because I was like you in the sense that I took a lot of pride in how little I slept in a day."

Anna's quote reveals her initial pride in sleeping little and her subsequent realization of the importance of sleep for performance after reading Walker's book.

• Anna expresses her desire for equal representation of female partners in venture capital and equal funding for female-founded teams.

"I hope that in my lifetime, in a perfect world, there would be 50% female partners and 50% of VC funding would go to female-founded teams."

This quote conveys Anna's aspiration for gender parity in the venture capital industry, highlighting the current disparity.

• Anna praises Byron Dieter at Bessemer for his ability to balance the roles of founder and investor, maintaining high emotional intelligence.

"For me, it has to be Byron. Byron Dieter at Bessemer."

Anna's quote reflects her admiration for Byron Dieter's skills as a board member and her aspiration to emulate his approach in her own board roles.

• Anna challenges the belief that successful operators make good venture capitalists, suggesting that being a good investor requires dedicated practice.

"I think it's really tough to have two CEOs in the boardroom."

The quote expresses Anna's view that having former CEOs as investors can lead to conflicts and a repetition of past mistakes, rather than providing the distinct perspective needed for effective venture capital investment.

• Anna contrasts the decision-making processes at CRV and Bessemer, noting CRV's focus on early-stage investments and philosophical discussions versus Bessemer's emphasis on metrics.

"At CRV, because we focus so much more on the early stage and because our team is so much smaller, our conversations are almost more salon-like."

The quote highlights the differences in investment focus and team dynamics between CRV and Bessemer, with CRV being more discussion-oriented and Bessemer more metrics-driven.

• Working at a startup served as an inflection point for Anna, providing her with insights into the highs and lows of startup life and fostering empathy for entrepreneurs.

"Only when you work at a startup do you realize how much of a roller coaster it can be."

Anna's quote underscores the transformative experience of working at a startup, which has informed her empathetic approach to working with entrepreneurs.

• Anna is excited about her investment in Workstream, an HR platform for the frontline workforce, due to the founder's mix of empathy and grit and the potential to serve a large, underserved market.

"The founder there, it was one of those quintessential valley moments where within ten minutes of meeting him, I knew I wanted to invest in him."

The quote captures Anna's immediate conviction about the founder's potential, which was a decisive factor in her investment decision.

• Various products and services are recommended, including Carter for equity management, Brex for corporate cards, and Zoom for communication needs.

"More than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars in equity."

This quote promotes Carter as a widely-used platform for equity management, illustrating its significance in the startup ecosystem.