20VC Why The Current Crop Of VC Does Not Understand Design, Why Product Market Fit Is A Liquid Not A Solid & How Graduates Can Optimise Their Career for Personal Development with Steve Vassallo, General Partner @ Foundation Capital

In this episode of "20 Minutes VC," host Harry Stebbings interviews Steve Vassallo, General Partner at Foundation Capital, discussing his journey from product designer to venture capitalist. Vassallo shares his experience transitioning from a Senior Vice President of Product and Engineering at Ning and a project leader at IDEO, to investing in successful startups such as Pocket and Sunrun. He emphasizes the importance of design in entrepreneurship, advocating for the "minimum awesome product" over the minimum viable product, and highlights the fluid nature of product-market fit. Vassallo also advises young professionals to prioritize mentorship and experience over salary in their early careers and stresses the value of building a broad network. Additionally, he critiques the venture capital industry's superficial understanding of design and calls for a deeper integration of design thinking in investment decisions.

• Harry Stebbings hosts the 20 Minute VC podcast and promotes behind-the-scenes content on Instagram.
• Steve Vassallo, a general partner at Foundation Capital, is the guest.
• Vassallo has experience in product design and engineering, with past roles at Ning and Ideo.
• He has been involved with companies like Pocket and Sunrun.
• Vassallo has written a guidebook for designers looking to become founders.

"So joining us in the hot seat, I'm thrilled to welcome Steve Vassallo, general partner at Foundation Capital, where he sits or has sat on the boards of the likes of Pocket, acquired by Mozilla, private core acquired by Facebook, Sunrun, Sentient Energy and many more."

This quote introduces Steve Vassallo and highlights his significant experience and roles in various successful companies.

• Cooley is a global law firm that specializes in startups and venture capital.
• Cooley has extensive experience in forming and managing venture capital funds.
• Zoom is promoted as a top-rated conferencing app with a free account option.

"Cooley is a global law firm around startups and venture capital."

This quote emphasizes Cooley's specialization in the startup and venture capital sector, highlighting its relevance to the podcast's audience.

"Zoom is the fastest growing video and web conferencing service."

This quote promotes Zoom as a leading service in the video and web conferencing industry, relevant to the podcast's business-focused listeners.

• Vassallo describes himself as an accidental venture capitalist.
• His career began in product design and robotics at Ideo.
• He transitioned into venture capital after an Entrepreneur in Residence stint at Foundation Capital.
• Vassallo's introduction to VC came through a personal connection at a TED conference.

"Well, I guess I'm a bit of an accidental venture capitalist, so I found my way here, actually to foundation capital as an entrepreneur in residence."

This quote explains how Vassallo's venture capital career was not planned but rather a result of circumstances and opportunities that arose.

• Vassallo did not have preconceived notions about venture capital.
• He values meeting interesting people and assisting them in building substantial companies.
• Vassallo enjoys the excitement and enthusiasm of entrepreneurs, even when not investing in their companies.
• He finds board work rewarding, especially in helping companies through challenging times.

"So for me, I think my expectations were to meet really interesting people working on some amazing adventures and to hopefully help them on the path to building something of substance."

This quote reflects Vassallo's expectation of venture capital as an opportunity to engage with innovative individuals and contribute to their success.

• Vassallo observed a lack of practical resources for designers aspiring to become founders.
• He noted that most industry observations were high-level and not tactical.
• The way to design was written to provide a practical guide for designers to become founders.

"But when you looked at what are the resources out there for those individuals who may have popped out of UCLA or Carnegie Mellon's design program, or spent a couple of years at art center, and you looked at kind of what resources were available to those individuals to help them figure out how to level up, to go from becoming a designer to being a designer founder, there just wasn't much in the way of kind of practical, tactical resources."

This quote highlights the gap in resources for designers looking to transition into founders, which Vassallo aimed to address with his book.## Evolution of Design in Business

• Design has shifted from being an afterthought to a fundamental aspect of understanding users and creating value.
• Design is now considered at the beginning of the product development process, focusing on what questions to start with and the opportunities to pursue.
• Design is no longer just a styling exercise but a tool for positive change and value creation in the entrepreneurial ecosystem.
• Designer Fund, as an example, signifies the industry's shift towards recognizing user needs as fundamental to value creation.

"I think design has gone really from that sort of styling exercise at the end to something that's much more fundamental to using design as a way of understanding your users better, using design as a tool for helping figure out not just how something is executed, but what question you're starting with in the first place."

This quote highlights the transformation of design from merely aesthetic improvements to a core component of strategic planning and user understanding in product development.

• The majority of venture firms still view design superficially, focusing on aesthetics rather than its strategic importance.
• Some VC firms have started to appreciate design's fundamental role by bringing on designers in residence to support portfolio companies.
• There is a need for more venture investors with design backgrounds to appreciate the nuances and contributions of design founders or co-founders.
• Design is seen by most venture firms as an add-on service rather than a key driver of investment decisions and team evaluations.

"I think most venture firms are probably still in this mode of design as sort of styling as opposed to design as a fundamental driver of value."

The quote emphasizes the current state of the venture capital industry, where many firms have yet to recognize design as a critical factor in creating value and making investment decisions.

• Changing the perception of design in venture capital will take time and requires upstream investment in educating designers about entrepreneurship.
• The emergence of successful design-led companies like Airbnb and Pinterest may help shift the perspective on the importance of design in business.
• Venture investors with design backgrounds can better understand and support design-centric startups.

"I think it will also require more venture investors to have design background."

This quote suggests that having venture investors with design expertise can lead to a better understanding and valuation of design's role in startups, potentially changing the investment landscape.

• A great product does not guarantee business success; other components like sales, marketing, operations, and business models are crucial.
• Designers need to broaden their focus beyond product design to consider the entire business ecosystem.
• Building a successful business requires intentionality and focus on all aspects, not just the product design.

"Building a great product is not enough, is very much kind of looking around the product to figure out what are all the things that need to be true for your product to be successful."

The quote underlines the necessity of a holistic approach to building a business, where a great product must be complemented by strong execution in other business areas.

• The key to product development is building prototypes that answer critical questions without over-investing in unnecessary details.
• Being too invested in a "perfect" product can lead to resistance to feedback and slow down the development process.
• The goal is to find a balance between creating a compelling prototype and avoiding the "polished turd syndrome" where too much time is spent perfecting unimportant aspects.

"The key here is to build prototypes that are of the right granularity or resolution to answer the most critical questions in front of you."

This quote advises on the importance of creating prototypes that are detailed enough to be informative but not so overdone that they hinder progress and openness to feedback.## Minimum Viable Product vs. Minimum Awesome Product

• The concept of the minimum viable product (MVP) is commonly discussed but is being challenged by some entrepreneurs.
• Steve Vassallo references Joe Gebia, who believes in creating a "minimum awesome product" (MAP) instead of an MVP.
• The MAP should be minimal but also stand out and provide an unforgettable user experience.
• The balance between "minimum" and "awesome" is crucial and often missed in product development.

"Joe outright rejects this notion of the minimum viable product. He actually believes in this notion of what he calls the minimum awesome product."

The quote explains Joe Gebia's preference for the MAP over the MVP, emphasizing the importance of creating a product that is not just viable but also exceptional in its appeal to users.

• Young professionals often overvalue job titles, salaries, and other transactional aspects of their first job.
• Steve Vassallo advises optimizing for the network, mentorship, and experiences gained from the first job.
• He suggests that young graduates should not focus on short-term gains but rather on long-term career development.

"Don't over index on title and don't over index on your equity package or your first year salary, because that's a very short sighted way of, I think, sort of seeing what is going to be a long term building part of your career."

This quote advises against prioritizing job title and salary in the first job, emphasizing the importance of the broader career trajectory and valuable experiences.

• Steve Vassallo introduces the concept of the "efficient frontier" for career planning for young graduates.
• He recommends either joining a hyper-growth company ("ride a rocket") or starting one's own business.
• The middle ground of joining a small startup without due diligence is seen as risky for one's resume.
• The efficient frontier focuses on maximizing career growth opportunities and building an extensive network.

"I think about it actually as the efficient frontier for your career. And that is that there are sort of optimal jobs or roles that you should be thinking about."

The quote introduces the efficient frontier as a framework for making optimal career decisions that will provide significant growth and networking opportunities.

• First-time founders often make mistakes related to fundraising, such as overemphasizing valuation or venture firm brand names.
• Steve Vassallo suggests that founders should apply the same discipline to fundraising as they do to building their companies.

"Oftentimes entrepreneurs get too hooked up on valuation. They need to be valued as a unicorn because they want to tell mom that they're the CEO of a unicorn."

This quote highlights a common pitfall for founders where they focus too much on achieving a high valuation for the sake of prestige rather than the company's actual needs or long-term strategy.

• Silicon Valley's fascination with achieving product-market fit is criticized for treating it as a static achievement.
• Steve Vassallo argues that product-market fit is dynamic ("a liquid, not a solid") and requires continuous adaptation.
• Companies should aim for multiple instances of product-market fit over time, considering competition and evolving customer demands.

"Product market fit is a liquid, not a solid."

The quote challenges the conventional view of product-market fit as a one-time goal, suggesting it's an ongoing process that requires companies to adapt and reinvent continuously.## Growth Rate and Product Market Fit

• Steve Vassallo emphasizes the importance of organic, unsubsidized growth rate in evaluating businesses.
• He identifies logarithmic growth as a key indicator that captures his attention.
• Product market fit is signaled by high user engagement, rapid growth, and strong word-of-mouth recommendations.
• Dramatic signs of product market fit include server overload and high consumer demand.

"So I think for us, and for me in particular, I look for growth rate, and I think about that in an unsubsidized way."

This quote highlights Steve Vassallo's focus on the natural growth rate of a company, without the influence of external funding or artificial boosts.

"When your servers are starting to light on fire, when people are lining up around the street corners to get your products and ripping the doors off of the front of your building in order to get at them. That's when you've achieved product market fit."

Steve Vassallo describes extreme scenarios indicating overwhelming demand, which he considers as clear signs of having achieved product market fit.

• Steve Vassallo's favorite book is "Poor Charlie's Almanac," which he values for its lessons on business fundamentals.
• He learned to use an oscilloscope with his wife, and this experience represents the beginnings of their collaborative relationship.
• Being the ninth child out of ten influenced his drive to stand out and make an impact.
• Steve Vassallo avoids competing with his spouse in professional settings and maintains a "chinese wall" regarding work discussions at home.

"So my favorite book, particularly around your audience, would have to be poor Charlie's Almanac."

Steve Vassallo shares his admiration for "Poor Charlie's Almanac," highlighting its relevance to the entrepreneurial ecosystem.

"Simply put, I think you have to figure out how to stand out or you starve. That's what it's like to be nine out of ten kids."

This quote reflects how Steve Vassallo's large family impacted his approach to life, instilling a sense of competition and differentiation.

"In general, there's no good in competing with your spouse."

Steve Vassallo discusses the importance of maintaining a healthy separation between his and his spouse's professional lives.

• Steve Vassallo carries a business card from his first venture, a snowblowing service, as a reminder of humble entrepreneurial beginnings.
• He believes in the natural entrepreneurial spirit, which can be stifled by education and early career experiences.

"So my little snowblowing business, which I remember having to first knock on my neighbor's doors to ask them whether they would be customers of mine and how difficult that was."

Steve Vassallo recounts his first business experience, emphasizing the lessons learned in customer acquisition and business management.

• The most recent investment by Steve Vassallo's firm is in a company called ForUsAll, targeting retirement savings for small and medium-sized businesses.
• He identifies a gap in the market for retirement savings and sees potential in leveraging technology to serve underserved populations.

"So the most recent publicly announced company would be a company called for us all."

Steve Vassallo explains his firm's latest investment, highlighting the unmet need in the market for accessible retirement savings solutions.

• Steve Vassallo thanks the host, Harry Stebbings, and expresses enjoyment in the interview.
• Harry Stebbings wraps up the podcast by thanking his supporters and mentioning the upcoming episode with Mariam Nafisi at Minted.

"Thanks so much. It was good fun. Thanks, Harry."

Steve Vassallo concludes the interview with a note of appreciation for the opportunity to share his insights.

• Cooley is presented as a global law firm specializing in startups and venture capital.
• Zoom is highlighted as a top-rated conferencing app, offering a wide range of services, including video meetings, webinars, and collaboration tools.

"Cooleys form more venture capital funds than any other law firm in the world."

This quote emphasizes Cooley's expertise and leading role in the venture capital space, particularly in forming venture capital funds.

"Zoom is a top rated conferencing app across various user review sites, including g2, crowd and trust radius."

The quote underscores Zoom's reputation and user satisfaction as a comprehensive and highly regarded conferencing service.