20VC Why There Is A Revolution In VC, Why Boards Are Inherently Inefficient & Why Data Will Be Central To VC In The Future with Chris Farmer, General Partner @ SignalFire

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Chris Farmer, General Partner at Signalfire, a venture capital firm utilizing a quantitative approach and a network of over 50 on-demand advisors to support portfolio companies. Farmer discusses his journey from a serial entrepreneur to a VC, emphasizing the importance of technology and data in modern venture capital. He criticizes the traditional VC model for its lack of innovation and reliance on pattern recognition without data analysis. Signalfire stands out by not taking board seats, engaging with companies on a weekly basis, and providing resources like a proprietary SaaS recruiting platform and in-house talent agency. Farmer envisions a future where VC firms are more accountable, data-driven, and entrepreneurially supportive, akin to the transformations seen in industries disrupted by companies like Uber and Airbnb.

Summary Notes

Introduction to the Podcast and Host

  • Harry Stebbings introduces himself as the host of the 20 minutes VC podcast.
  • Harry can be added on Snapchat for personal selfie responses.
  • Harry promotes the blog mojitovc.com, comparing its content to a blend of Fred Wilson and Freakonomics.
  • Chris Farmer, a general partner at Signalfire, is introduced as the guest.
  • Signalfire is described as the most quantitative fund in the world.
  • Chris Farmer has experience at General Catalyst and Bessemer Venture Partners.
  • Misha Chellam at Tradecraft is thanked for introducing Chris Farmer to the show.

"Welcome back to the 20 minutes VC with your host Harry Stebbings, and you can add me on Snapchat at H Stebbings with two B's."

This quote introduces the host of the podcast, Harry Stebbings, and invites listeners to connect with him on Snapchat.

"I'm thrilled to welcome Chris Farmer to the hot seat today."

Harry Stebbings expresses excitement about having Chris Farmer as a guest on the podcast, highlighting the anticipation for the conversation.

  • Harry talks about Xero, an online accounting software for small businesses.
  • Xero offers a free 30-day trial and is used by customers in more than 180 countries.
  • Harry discusses Headspace, an app for guided meditations aimed at improving mental health.
  • Headspace offers a range of sessions to help with stress, depression, and other issues.

"Xero is beautiful, easy to use online accounting software for small businesses."

Harry provides an endorsement for Xero, emphasizing its ease of use and aesthetic appeal.

"Headspace is meditation made simple."

Harry promotes Headspace as a user-friendly tool for meditation, suggesting its potential benefits for mental health.

Chris Farmer's Background and Path to Venture Capital

  • Chris Farmer shares his international upbringing and settling in California.
  • He describes himself as a serial entrepreneur from a young age.
  • Chris attended Tufts University and the Fletcher School of Law and Diplomacy.
  • He wrote his thesis on Internet marketplaces in 1996.
  • Chris worked on Wall Street before returning to California to support angel investors.
  • He was involved in early investments in companies like Applied Semantics (Google AdSense).
  • Chris helped navigate a company through the dot-com bubble burst and gained significant business experience.
  • He worked at Bain & Company and in tech private equity before returning to venture capital at Bessemer Venture Partners.

"I was a serial entrepreneur. Growing up, I started little businesses, not so much companies, but I knew I had sort of the entrepreneurial bug very early."

Chris Farmer explains his early interest in entrepreneurship and starting businesses.

"So right out of school, I worked in the venture capital group on Wall street, which I quickly discovered was very different than Silicon Valley."

Chris contrasts his experience in venture capital on Wall Street with that of Silicon Valley, indicating a pivotal moment in his career path.

The Genesis of Signalfire

  • Chris Farmer felt that the venture capital industry was outdated.
  • He embarked on a research project to deconstruct and study the venture capital process.
  • The research involved interviews with over 500 founders and 170 funds.
  • Chris used the insights from this research to create Signalfire.
  • He partnered with General Catalyst to launch GCC and built Signal Fire's foundation.
  • Chris spun out to launch Signalfire in 2013, fully committing to the venture.

"I left Bessemer to study one question. If you were to strip a venture curve down to the bare metal, were to recreate a firm from scratch, how would you build a next generation VC?"

Chris Farmer explains his motivation to reinvent the venture capital firm model, aiming to create a modernized version of a VC firm.

"So I hired six researchers for a year in 2009 to study precisely that question."

This quote details Chris Farmer's methodical approach to understanding and innovating within the venture capital industry by conducting extensive research.

Venture Capital's Lack of Evolution

  • Chris Farmer discusses the irony of venture capitalists investing in technology but not applying it to their own industry.
  • He criticizes the lack of accountability and measurement in venture capital firms beyond financial returns.
  • The structure of many venture capital firms has not significantly changed since the 1970s.

"Software may be eating the world, but it's barely touched venture capital."

Chris Farmer points out the discrepancy between the rapid advancement of software and the slow evolution of the venture capital industry.

"For the most part, the way most vcs do business has barely changed since 1970."

Chris emphasizes the resistance to change within the venture capital industry, highlighting the need for modernization and the application of technology in VC practices.## Venture Capital and Technology Utilization

  • Venture capital firms traditionally manage networks of relationships using outdated technologies.
  • Manual support in venture capital does not scale, leading to VCs becoming absentee as companies mature.
  • There is a reliance on pattern recognition in venture capital, but most firms do not seriously utilize data.
  • Singlefire has invested in a full-blown engineering team to leverage technology for venture capital processes.

"So it's amazing to me that we don't use technology to help us scale at all."

This quote emphasizes the speaker's surprise at the lack of technology adoption in venture capital to aid in scaling operations.

"So we invested heavily to build out a world class engineering team that you would typically only expect to find at a company like Google."

The speaker describes the significant investment Singlefire made to create a robust engineering team to address venture capital challenges through technology.

Human Element in Data-Centric Approaches

  • Singlefire believes in human-in-the-loop systems, meaning they do not use data to assess the quality of the founder.
  • Data is used for context, such as understanding competitors' strengths and growth rates.
  • Technology streamlines the due diligence process and enhances collaboration with a network of advisors.
  • Singlefire's approach focuses on enabling discovery, competitive intelligence, contextualization, and support.

"I still believe heavily in human in the loop systems, and so we're not trying to assess the quality of the founder with using data."

This quote clarifies that Singlefire values the human aspect of venture capital and does not rely solely on data to judge founders.

"We're using technology to enable discovery, competitive intelligence, contextualization, collaboration, and ultimately support of our portfolio companies."

The speaker outlines the various ways technology is used to support venture capital activities beyond just evaluating companies.

Evolution of Seed Funding

  • Seed investing has institutionalized due to capital efficiencies from technology like AWS and distribution channels like App Stores.
  • Seed rounds have evolved, with pre-seed and post-seed rounds becoming more common.
  • Founders now have more options to raise funds based on milestones and runway needs, rather than large VC requirements.
  • Major funds have shifted from being foundational investors to momentum investors.

"And so then seed became the new a, and everyone else sort of shifted upstream a notch, and then the a round followed seed at typically post product market fit, and then so on."

This quote describes the shift in how seed rounds are perceived and their place in the funding lifecycle of a startup.

"So this has really caused the major funds to, I think, to drift away from their roots of sort of being that sort of foundational investor, and they've become much more momentum investors versus sort of the initial partner that a founder has from inception."

The speaker discusses the change in major funds' investment strategies from early-stage foundational partners to investors who seek companies with established momentum.

Competitive Differentiation in Deal Access

  • Singlefire differentiates itself by having substantial resources, including a large team and advisors.
  • The firm focuses on addressing specific pain points for entrepreneurs, such as recruiting, which is a top concern.
  • Singlefire has developed proprietary technology and is building an in-house talent agency to support their portfolio companies.

"I think in the seed weight class, there's few of any firms that, frankly can come close to having the same sorts of resources we have."

This quote highlights Singlefire's competitive advantage in the seed funding space due to its extensive resources.

"We've really taken great efforts to architect the firm around the specific pain points that entrepreneurs have."

The speaker explains that Singlefire's strategy is designed to directly address the challenges faced by entrepreneurs, particularly in recruiting talent.## Venture Firm Resources and Scalability

  • Chris Farmer discusses the comprehensive support system his venture firm provides to startups.
  • They offer a wide range of expertise in areas such as technology architecture, sales, marketing, and M&A.
  • The firm has a high win rate against other venture firms due to the extensive resources they provide without taking additional equity.
  • Chris Farmer emphasizes the importance of technology and resources in scaling across a company's lifecycle.

"And as a result of that, we have an unbelievably high win rate against the top venture firms in the industry, and almost always win head to head against the seed funds, because typically we're competing with two guys and a dog, and we're bringing an army of resources to companies and not taking any incremental equity or economics as a result of that."

This quote highlights the competitive advantage Chris Farmer's firm has over other venture firms and seed funds due to the "army of resources" they provide to companies without demanding more equity.

Board to Partner Ratio and Board Engagement

  • Chris Farmer's venture firm does not take board seats, as he believes the cycle of board interactions is too slow.
  • The firm engages with companies on at least a weekly basis, providing a high level of support through in-house functional resources and a large investment team.
  • They have a talent partner, market development partners, and over 50 advisors to provide specialized operational experience.
  • Chris Farmer explains how their approach allows for more frequent interaction and support, contrasting with traditional venture firms.

"We're having much more degrees of interaction on a regular basis. And then over time, if we do take board seats, we actually bring to bear not just our own investment team, which has heavy operational experience, but a network of over 50 advisors..."

This quote explains the firm's strategy of frequent interaction with companies and the potential for leveraging their network of advisors if they do decide to take board seats, offering a more dynamic and supportive role than traditional board interactions.

The Future of Venture Capital

  • Chris Farmer acknowledges the innovative approach of Correlation Ventures but points out the differences between their strategies.
  • He aligns his firm more with what AngelList, Social Capital, and Google Ventures are doing, focusing on operational elements and peer-to-peer support.
  • Chris Farmer emphasizes the importance of helping entrepreneurs build their businesses and make better decisions using data.
  • He believes that venture capital firms need to invest in supporting entrepreneurs with data and technology to stay relevant.

"No entrepreneur gives a shit what algorithm we use to find them. They care about how we help them build the business as they should."

This quote underscores the importance of practical support for entrepreneurs over the technical methods used to identify investment opportunities, emphasizing the need for venture capital firms to focus on value-add services.

Personal Motivation in Venture Capital

  • Chris Farmer shares his personal drive as a serial entrepreneur who enjoys the ideation and product-market discovery process.
  • His preference for the early stages of a company's development led him to venture capital.
  • He finds inspiration in working with founders to build lasting companies.

"I'm a serial entrepreneur at heart. What I learned was I love particularly the ideation and the product sort of market discovery process more than I like the sort of long term operational elements. And so that's what ultimately drove me to vc."

This quote reveals Chris Farmer's passion for the creative and discovery phases of entrepreneurship, which aligns with his role in venture capital, where he can engage with multiple companies at these stages.## Entrepreneurship and Support for Aspiring Entrepreneurs

  • Harry Stebbings expresses his enthusiasm for entrepreneurship and the joy he finds in supporting aspiring entrepreneurs.
  • He experiences a thrill from the challenges and ups and downs of entrepreneurship.
  • Harry's wife comments on his eagerness to go to work, which she finds almost obnoxious.

"And so my wife says that it's borderline obnoxious that I almost skip to work each day, that I'm not supposed to be having this much fun."

This quote highlights Harry Stebbings' passion for his work in entrepreneurship and his daily excitement which is noticeable even to his wife.

The Success Equation by Michael Mauboussin

  • Chris Farmer's favorite book is "The Success Equation" by Michael Mauboussin.
  • The book provides insight into differentiating skill from luck across various domains.
  • Chris appreciates the book's analytical approach to understanding and replicating success.

"Probably the most recent book that I've read that I really loved was the success equation by Michael Mabasian. It's a fascinating look at how to untangle skill from luck in a number of domains such as sports, business and investing."

Chris Farmer explains why he values "The Success Equation," as it aligns with his preference for a rigorous and analytical perspective on success.

Venture Industry Conviction

  • Chris Farmer criticizes the lack of conviction among venture capitalists who rely heavily on validation from others.
  • He finds this fence-sitting attitude frustrating both as a co-investor and from the perspective of entrepreneurs seeking support.
  • Chris advocates for more entrepreneurial investors who are willing to support companies actively.

"There's a lot of wonderful people in the venture industry, but there's probably too many people and VCs in the industry who sit on the fence and don't have the conviction themselves to make their own decisions without pure validation."

This quote captures Chris Farmer's concern about the venture capital industry, where he sees a need for more decisive and supportive investors.

Bill Gurley's Blog "Above the Crowd"

  • Chris Farmer reads a variety of perspectives but praises Bill Gurley's blog "Above the Crowd" for its rigorous analysis and market insights.
  • He finds Bill Gurley's work particularly impressive and informative.

"But if there's one sort of person, I think, who does a really amazing job, it's probably Bill Gurley. And above the crowd, a combination of a really rigorous analysis and market insights and sort of, I really enjoy reading his work."

Chris Farmer commends Bill Gurley's ability to combine detailed analysis with market insights in his blog, which makes it a must-read for him.

Vision for SignalFire

  • Chris Farmer aims to build SignalFire as the firm he wished he had as an entrepreneur, with ample support, advisors, and resources.
  • SignalFire aspires to be the indispensable partner to ambitious founders and to revolutionize venture capital in the same way their founders revolutionize their industries.

"I'm trying to build the firm that I always wanted as an entrepreneur and the support and the advisors and the resources that I could never have."

This quote outlines Chris Farmer's mission for SignalFire, reflecting his desire to create a venture firm that provides unparalleled support to entrepreneurs.

Investment in Frame.io

  • Chris Farmer describes his recent investment in Frame.io, a media collaboration platform.
  • He was impressed by the scrappy founders with deep domain experience and the company's significant growth with minimal capital.
  • Frame.io's cloud-based platform offers a comprehensive solution for media collaboration, which Chris believes aligns with the trend towards distributed media models.

"So probably the most recent one is a company called Frame IO... I love the company from the first time I met them, super Scrappy founders with deep domain experience."

Chris Farmer explains his rationale for investing in Frame.io, emphasizing the founders' experience and the platform's potential in the evolving media landscape.

Sign-off and Acknowledgments

  • Harry Stebbings thanks Chris Farmer for the interview and looks forward to the future of SignalFire.
  • Harry also thanks Misha Chellam for the introduction to Chris Farmer, which made the interview possible.

"Well, Chris, thank you so much for joining me on the show today. It's been incredible to hear the journey of signalfire, and I look immensely forward to the months and years ahead and seeing you progress."

Harry Stebbings expresses his gratitude to Chris Farmer for sharing insights on SignalFire's journey and his anticipation of the firm's future developments.

Accounting Software: Xero

  • Harry Stebbings talks about Xero, an online accounting software for small businesses.
  • Xero offers features like online invoicing, cash flow tracking, payroll management, and inventory keeping.
  • It integrates with over 500 business apps and is used by a vast number of customers worldwide.

"Xero is beautiful, easy to use online accounting software for small businesses."

Harry Stebbings promotes Xero, highlighting its ease of use and comprehensive features that simplify accounting for small businesses.

Headspace Meditation App

  • Harry Stebbings endorses Headspace, an app that provides guided meditations for various mental health concerns.
  • Headspace is designed to help with stress, depression, anxiety, and promoting mindful eating, among other things.
  • Harry suggests that Headspace can contribute to a happier, healthier life.

"Headspace is meditation made simple."

This quote from Harry Stebbings summarizes the purpose of Headspace, which is to make meditation accessible and beneficial for improving mental well-being.

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