In this episode of the 20 minutes VC, host Harry Stebbings interviews Chad Byers, General Partner at Susa Ventures, who shares his journey from growing up in Silicon Valley's tech scene to becoming a prolific angel investor and establishing Susa Ventures. Chad discusses Susa's recent $50 million fund raise, their investment focus on companies with strong defensibility through data network effects or economies of scale, and their unique approach to LP relationships, viewing them as strategic partners rather than just capital providers. Byers emphasizes the importance of hands-on involvement with startups and the firm's long-term vision to cap fund size while increasing operational support for portfolio companies. He also touches on the challenges of fundraising as a new VC firm, the evolution of the industry, and the strategic shift towards maintaining a higher reserve ratio for follow-on investments.
"We are back at the 20 minutes VC with your host Harry Stebings, and you can follow me on Snapchat at htebbings to see everything that goes on backstage, from content creation to VC offices to live interviews."
This quote introduces the podcast host and encourages listeners to engage with additional content.
"So joining me today, we have Chad Byers, general partner at Susa Ventures."
This quote introduces the guest of the episode, Chad Byers, and his role at Susa Ventures.
"Last week they announced the raise of fund two, a new $50 million fund."
This quote highlights the recent achievement of Susa Ventures, raising a significant new fund.
"Yeah, I mean, I guess the starting point for me was really growing up in the Bay area and being fortunate to be raised in sf and then moved down to the Bay Area near Stanford University."
Chad Byers describes his early exposure to the tech industry due to his geographic location.
"I remember being one of the first sellers on eBay during the Beanie baby craze in the late 90s."
This quote illustrates Chad's entrepreneurial spirit from a young age.
"So after college, I knew I wanted to get some operating experience. I knew I wanted to work in tech."
Chad Byers explains his desire to gain hands-on experience in the tech industry post-college.
"We were all operating different companies, we were all doing some small angel investing, and as a group really thought about, hey, this is something we're all really passionate about."
Chad Byers recounts the origins of Susa Ventures and the shared passion that led to its creation.
"When you're angel investing, a lot of things are different. Your tolerance is probably a little bit different. You don't really need to have as much of a cohesive story and thesis around how you're investing."
Chad Byers contrasts the informal nature of angel investing with the structured approach required in venture capital.
"But for us, all of us having run companies, wanted to build a startup fund, right? We've always thought about the fund as a startup and for us, like, institutionalizing, it was really the only way to go for us."
This quote explains the team's mindset toward creating a structured, startup-like venture fund.
"Yeah, I mean, no question, that's the way to go. And I think the simplest reason for why that's the case is as an angel, you can build an actual portfolio and track record, right?"
Chad Byers acknowledges the progression from angel investing to venture capital as a natural evolution based on the ability to build a track record.## Fundraising for Venture Capital
"When you want to go institutionalize that and finally go raise money from LPs, there's a portfolio of companies that those LPs can look at."
This quote highlights the importance of having a portfolio for LPs to evaluate when raising capital for a venture fund.
"So we took some investments we had made the year before, put them in the fund at cost, even though some of them had some markups."
This quote explains the strategy of incorporating previous angel investments into the fund to demonstrate the fund's investment thesis to potential LPs.
"We were trying to raise a $25 million seed round with no product."
This quote illustrates the challenge faced when fundraising for Susa One, likening it to a startup seeking seed funding without a product.
"We went from trying to raise our seed round with no product to trying to raise a series A with what I consider product-market fit."
This quote contrasts the fundraising experiences between Susa One and Susa Two, highlighting the development of a successful investment thesis as the 'product' that achieved market fit.
"Initially, throw a bunch of reasons on a wall, and we got every single one. But probably the most common ones were new fund, new team."
This quote summarizes the broad range of objections encountered when fundraising for a new venture fund, with emphasis on the novelty of the fund and team as key issues.
"Our LP base is 100% strategic to us, and we built it very intentionally."
This quote emphasizes the deliberate strategy behind selecting LPs that can contribute more than just capital to the venture fund.
"How do you look to establish the mind share with entrepreneurs and other VCs for Susa?"
This quote, a question from an LP, addresses the challenge of gaining recognition and influence within the entrepreneurial and VC communities.## Thesis Driven Investment
"So we strongly believe that for businesses to create long term value today, you have to have some form of strong defensibility or moat." "We think the best moats today are built with data network effects or economies of scale."
These quotes highlight Susa Ventures' investment philosophy, emphasizing the need for businesses to have defensible qualities, particularly through data network effects and economies of scale, to ensure long-term value creation.
"So we strongly believe that you have to have a lot of free time to get extremely involved in these businesses." "We wanted to bring the same operating model you see in late stage venture. With the amount of involvement bcs take to early stage, we thought there was a hole there."
The quotes emphasize Susa Ventures' commitment to being highly involved in their investments by maintaining a low partner-to-company ratio and providing the operational support typically seen in late-stage ventures to early-stage companies.
"So we are product market fit investors." "We like to invest in something that's already in customers hands."
These quotes underline Susa Ventures' investment strategy of focusing on companies that have already achieved product market fit, ensuring that there is a tangible product that addresses customer needs.
"You have to be helpful, right. The best way to build a brand, in our opinion, is not to do tons of fancy events or do pr, all these other things. It's to build word of mouth marketing." "Is Susa Helpful? Like what do they help with? Are these guys going to be here to stay with the type of stuff and support they can do?"
These quotes stress the importance Susa Ventures places on being helpful to founders as a means to build a strong brand and reputation through word of mouth, rather than relying on traditional marketing or public relations efforts.
"So there's no question they can be." "We just probably aren't the best investors for that type of defensibility."
These quotes show that while Susa Ventures recognizes the potential of brand as a defensible asset, their focus and expertise lie in other areas of defensibility, such as data network effects and economies of scale.
"It's probably more so that we actually believe for businesses that are building defensibility through data and data network effects, we can be the most helpful."
This quote indicates that Susa Ventures' specialization in data and network effects is driven by the belief that they can offer substantial support to companies focusing on these areas, rather than just using it as a competitive edge.
"What we learned in fund one, which is really important to inform what we did in fund two, was that these companies that grow really quickly for us, it was companies like Robinhood where we invested at seed, and a year and a half later they had raised a $50 million Series B was our pro rata in these companies, was getting pretty large pretty quickly, and that our reserve strategy just really wasn't the right one for the firm we were trying to build and the ownership we were trying to maintain."
The quote explains the rationale behind Susa Ventures' adjusted reserve strategy, highlighting the need to adapt their approach based on the rapid growth of their investments and the desire to maintain a certain level of ownership in their portfolio companies.
"They're kind of, if you think about it, it's a more structured way of doing what a lot of folks were doing, which are called SPV special purpose vehicles."
This quote describes the shift towards more structured opportunity funds as an evolution of the use of SPVs, indicating a trend in the VC industry towards formalizing investment strategies for later-stage funding rounds.
"So where we're headed, we have a very clear kind of understanding of what we want to become."
Although the quote sets up the topic of Susa Ventures' vision for the future, the transcript does not provide further details on what that vision entails.## Fund Growth Strategy
"The end state for us is $125 to $150,000,000 fund capped at that size, never getting bigger. Focused exclusively at early stage."
This quote outlines the long-term vision for the fund size and investment focus, emphasizing a cap on the fund size and a dedication to early-stage investments.
"We're in phase two of this. Again, we think of this as a startup, so we've done the seed round, we just closed our series a."
Chad Byers likens the fund's growth to that of a startup, indicating that they have completed early funding stages and are progressing methodically.
"Anytime you scale people, you scale complexity."
Chad Byers expresses the challenge of scaling the team while maintaining efficiency in decision-making, recognizing that more people can lead to increased complexity.
"I think recently it's when breath becomes air."
Chad Byers explains that his favorite book resonates with his personal values, highlighting health and family as central themes.
"So Facebook or Amazon? I don't think it's Apple. I don't think it's Google."
Chad Byers shares his prediction for the first trillion-dollar company, considering market trends and company growth trajectories.
"My biggest challenge [...] is probably building the machine that is the firm."
Chad Byers emphasizes that his focus is on developing the operational aspects of the fund, which is crucial for its success and growth.
"Just seeing kind of the growth trajectory and stories of these companies through the eyes of the founders is what makes this job exciting to me."
Chad Byers expresses his passion for participating in the entrepreneurial journey and the satisfaction of seeing companies flourish.
"And what she's building is the ability for anyone to remodel their home using their actual space."
Chad Byers describes the innovative service provided by Modzi, emphasizing the technological edge and the practical application for home remodeling.
"What a top man and such exciting times ahead for Susa."
Harry Stebings concludes the interview with appreciation for Chad Byers and anticipation for the future of Suse Ventures.
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Harry Stebings provides a promotional message for Eve Mattress, tying in the theme of well-being and rest with the podcast's content.