20VC Why Warm Intros Are Mostly Dumb, Why Ownership is Built On First Check and 4 Crucial Elements To Make Cold Inbound Attractive with Leo Polovets, General Partner @ Susa Ventures

In this episode of 20 minutes VC, host Harry Stebbings interviews Leo Polovets, general partner at Susa Ventures, touching on his transition from engineering at LinkedIn and Google to venture capital, and the founding of Susa Ventures. They discuss the importance of moats and defensibility in startups, the effectiveness of warm introductions, and the value of providing constructive feedback to founders. Polovets shares insights on investment strategies, including the significance of initial bets, the impact of pricing on seed rounds, and the importance of supporting all portfolio companies, regardless of their performance. They also cover the operational challenges startups face and the criticality of considering competitive advantages from the outset. Additionally, Harry promotes wellness brand Hims and Terminal, a service for building remote technical teams, highlighting the convenience and efficiency they offer.

• Harry Stebbings expresses gratitude towards today's guest, Leo Polovets, and his partner, Chad, for their support in his career.
• Leo Polovets is introduced as a General Partner at Susa Ventures, a seed fund with a notable portfolio.
• Harry highlights Leo's career journey, including his time at LinkedIn, Google, and Factual before joining the venture capital world.

"Well, this is very much the case with today's guest and his partner, Chad. They've done so much for me and I actually just feel very grateful for all their support."

This quote shows Harry's appreciation for the support he has received from Leo and his partner, which has positively impacted his career.

• Harry Stebbings endorses Hims, a wellness brand for men, emphasizing its convenience and the benefits of its hair loss and wellness products.
• He also promotes Terminal, a company that assists in setting up remote technical teams, and Mhelp Desk, a field service management platform, highlighting their effectiveness and customer satisfaction.

"And so you do not want a bald spot to pop up? Or do you want to do something about it first and be proactive? In that case, head to fourhims.com, the one-stop shop for hair loss, skincare, and sexual wellness for men."

The quote reflects Harry's endorsement of Hims as a proactive solution for men's wellness, emphasizing the ease of use and avoidance of awkward doctor visits.

• Leo Polovets shares his background as a software engineer at LinkedIn, Google, and Factual.
• He describes his transition into venture capital through a friend's invitation to join a seed fund, which led to the founding of Susa Ventures.
• Leo finds fulfillment in venture capital and appreciates the opportunity to work with talented founders.

"I got really lucky, and I worked at two great startups when they were both about 15 to 50 people. And so one of those was LinkedIn, which everybody's heard of. The other one's called factual, which is a location data platform in Los Angeles that many people haven't heard of."

Leo's quote outlines his fortunate early career experiences at LinkedIn and Factual, which provided him with valuable insights into the startup world and influenced his path into venture capital.

• Leo discusses the debate on the benefits of having an operational background in venture capital.
• He believes that empathy for founders is crucial, regardless of one's background.
• Leo emphasizes the importance of humility and not dictating to founders how to run their companies.

"I have a lot of empathy for founders because I saw it just as somebody on the front lines, an individual contributor, and it's building a company seemed really hard for me, even from that perspective."

This quote highlights Leo's understanding of the challenges faced by founders, stemming from his own experiences as an individual contributor in startups.

• Leo Polovets criticizes the overemphasis on warm introductions in the fundraising process, calling them "dumb."
• He explains that many introductions are not genuinely warm and do not provide a strong signal of a good fit.
• Leo identifies two main downsides: limiting investor access to diverse founders and delaying the investor's opportunity to lead rounds.

"Well, I think many investors talk about only wanting to meet founders through warm intros, but I think the truth is most intros aren't actually that warm."

Leo's quote challenges the common investor preference for warm introductions, suggesting that they often lack genuine warmth and can introduce unnecessary friction into the investment process.

• Leo advises investors to engage in more outbound work and directly reach out to founders of interesting products.
• He encourages investors not to wait for introductions but to be proactive in their approach to finding investment opportunities.

"So if you're an investor and you see a product that looks interesting, you don't need to wait for an intro. You can just reach out to the founders directly and maybe that's a warmer intro."

The quote conveys Leo's recommendation for investors to take initiative in contacting founders, which can lead to more meaningful connections than waiting for third-party introductions.## Investor Approachability

• Investors should be more approachable and open to communication without the need for formal introductions.
• Approachability can lead to discovering good opportunities even if they come through unsolicited emails or direct messages on social media platforms.
• Being open-minded can be beneficial for both investors and founders seeking investment.

So, Harry, for example, if you came up to me at a conference and you started trying to talk to me, I wouldn't say, hey, Harry, I'll only talk to you if you can find somebody to introduce us first.

This quote emphasizes the importance of being accessible and willing to engage in conversation without requiring a formal introduction, suggesting a more casual and open approach to networking.

• Investors receive a large volume of emails, making it a challenge to determine where to spend their time.
• Leo Polovets looks for four main qualities in emails: succinctness, clarity, key highlights, and personalization.
• Succinct emails demonstrate a founder's ability to pitch their product effectively.
• Clarity ensures the investor understands the product and the founder's needs.
• Including a few key highlights can excite the investor about the opportunity.
• Personalization shows the founder has done their research and sees a mutual fit with the investor.

And the first one is I really like emails that are succinct.

This quote highlights the first quality Leo Polovets looks for in emails, which is brevity, as it indicates a founder's ability to communicate their pitch concisely.

• Good cold emails are short, to the point, and make the investor eager to learn more about the company.
• Mentioning how the founder's work aligns with the investor's interests can make the outreach more compelling.
• Providing a few impressive facts or achievements helps the investor quickly gauge the potential of the opportunity.
• Personal research and tailored messages can significantly increase the chances of a positive response from the investor.

But it would be like if somebody emailed me and said, hey, Leo, I read in your blog post you wrote that you really like products that democratize financial services.

This quote illustrates an example of a cold email that effectively captures Leo Polovets's attention by aligning with his interests and providing compelling reasons to engage with the founder.

• Moats are defined as sustainable competitive advantages that are difficult for competitors to replicate.
• Moats are crucial because they determine a company's profit margin over time.
• Without a moat, a company's margins may eventually shrink to zero due to competition.
• Investors should consider a company's potential to maintain or increase its margins as it grows.

Well, I think a moat is basically a sustainable competitive advantage or a sustainable edge.

This quote defines a moat and underscores its importance in maintaining a company's competitive position in the market.

• It is essential to think about moats from the inception of a company.
• Developing a moat can take years, but considering it early on can prevent future issues of replicability.
• Moats like proprietary data and brand loyalty are not binary and grow stronger over time.
• Accelerating the growth of a moat can be done from the beginning, rather than waiting until the company is more established.

I really think it's important to think about moats from day one.

This quote stresses the significance of considering moats from the very start of a company's journey, highlighting the long-term strategic thinking required for building a sustainable business.

• When assessing opportunities, investors look for signs that founders have considered moats and defensibility in their business model.
• Direct questions about a company's moat can reveal the level of thought a founder has put into long-term competitive advantages.
• Nuanced answers about building and sustaining moats are more convincing than generic responses about working hard or having industry expertise.

I think a really basic question that we often ask is we'll actually just ask directly, like what do you think your mode is?

This quote demonstrates how investors can directly assess a founder's focus on moats by asking them to articulate their competitive edge.## Defensibility and Platform Shifts

• Defensibility does not become obsolete due to platform shifts; businesses may need to adapt.
• Amazon is cited as an example with numerous moats that could be undermined by technology like 3D printing.
• Incumbents with strong moats should consider disrupting their own products to stay ahead.
• Being proactive about platform shifts is crucial to sustaining success.

"Well I don't think it renders moats obsolete. I think it just means that there are changes that will happen, that maybe you will have to change your business to be able to sustain your success."

The quote explains that while platform shifts can challenge existing business models, they do not eliminate the need for defensibility. Companies must evolve to maintain their competitive edge.

• Direct feedback is preferable to ghosting when passing on investment opportunities.
• Constructive feedback shows respect for the founder's time and effort.
• Positive aspects of the pitch should be highlighted, along with the investor's concerns.
• Kindness and a desire to help should underpin the delivery of feedback.

"And I think it's best to send a thoughtful pass rather than disappear. And if you give constructive feedback about what you liked, about somebody's pitch and company, and where your hesitations or where you see the risks, and you can give that feedback with kindness, then I think that shows founders that you respect their time and you're willing to put effort into working with them and want to help them succeed."

This quote emphasizes the importance of providing thoughtful and constructive feedback to founders, indicating a respect for their efforts and a willingness to support them even when not investing.

• Pushback from founders after receiving feedback is rare.
• A founder's response to feedback can be an insightful data point for investors.
• Engaging in intellectual debates with founders is not time-consuming and can be constructive.
• Founders who respond negatively to feedback may be challenging to work with.

"But I also think it's a valuable insight because if somebody takes your feedback and then they say, oh, like, this is an interesting point, can we discuss it a little bit? I'm happy to chat about it. And if instead their response is more like, well, I think you're dumb and you're just not seeing it, then it's a good signal that maybe this person would be a little bit hard to work with or that they don't take back well."

The quote suggests that a founder's reaction to feedback is indicative of their character and potential as a business partner. Constructive engagement is a positive sign, while negative responses may signal difficulties in future collaboration.

• Investors can benefit from feedback from founders regarding their performance.
• Surveys can be a tool for investors to gather feedback post-meeting.
• Feedback helps investors understand their strengths and areas for improvement.
• Making an investment thesis clear to founders is important and can be refined based on feedback.

"I get feedback all of the time. I actually got this idea from Finn at first round where he started sending a survey to founders he met with to basically ask them what they thought of the meeting."

This quote highlights the practice of seeking feedback from founders to improve investor performance and interactions, demonstrating a commitment to self-improvement and effective communication.

• The initial investment is crucial, and follow-on investments are secondary.
• Meaningful stakes in successful companies from the outset are key to high returns.
• Founders may allow investors who add value to make follow-on investments.

"And, you know, I do believe, actually that you make most of your money on the right initial bets, and the key is just to make those bets meaningful."

The quote underscores the significance of making substantial and correct initial investments, as these are the primary drivers of an investor's returns.

• Seed investment pricing is important; paying too much can halve returns.
• Most investments won't reach Uber-level success, so price sensitivity is necessary.
• A slight deviation from the ideal price is acceptable, but significant overpayments are problematic.

"But if you pay a higher price on all 40, let's say you're paying double the price that you should be, then that just means your returns will be cut in half."

The quote conveys the risk of overpaying for investments, cautioning against a lack of price sensitivity that can significantly impact overall returns.

• Investors should support all portfolio companies, not just the high performers.
• The fund's ethos of treating investors and founders like family underpins this approach.
• Supporting struggling companies is seen as both a moral obligation and a commitment.

"So just like you wouldn't disown your kid if they're not doing well in school, we're not going to stop talking to you or trying to help you just because you're struggling."

This quote draws a parallel between family support and investor commitment to portfolio companies, emphasizing the importance of loyalty and assistance regardless of performance.## Venture Capital Investment Dynamics

• VC investment is not always clear-cut; companies can show varying trajectories of success.
• Initial struggles do not preclude future success, and early success does not guarantee long-term viability.
• The reputation of VCs is built on how they support companies that face challenges.
• Supporting all companies in a portfolio is seen as essential for building a strong entrepreneurial brand.

"We've had companies that felt like they were struggling for two or three years and then suddenly they really took off. And we've had other companies that took off really quickly, but then a year later they ended up struggling."

This quote highlights the unpredictable nature of startup success and the difficulty in identifying long-term winners early on.

"VCs making their money on their big winners, but the reputations on the companies that struggle."

This quote by Fred Wilson emphasizes that VC financial success is tied to big winners, but reputation is built on the support given to companies during tough times.

• The challenge in predicting which companies will be the all-stars leads to questions about capital allocation.
• There is a belief that more support and capital should be provided to struggling companies if they show potential.
• Doubling down on investments may be appropriate when a company shows a breakout potential.
• Market signals, such as Series A VC interest, can be an indicator of a company's promise.

"Do you think then subsequently it's fundamentally almost naive to think that you can concentrate capital into the winners early and really build up ownership?"

This question reflects skepticism about the ability to identify and concentrate investments in early-stage winners.

"I think when a company is struggling... that's a good time for you to invest a little bit more."

Leo Polovets suggests that additional investment in struggling companies can be both a show of support and a strategic move if the company still has potential for success.

• Picking the right investments is crucial; access to deals is secondary.
• If a VC has a contrarian approach, access is less important due to reduced competition.
• For non-contrarian VCs who like popular companies, access is critical due to high competition.

"I definitely think picking is more important because if you don't pick well then it doesn't really matter if you get in or not."

Leo Polovets believes that the ability to select promising companies is more important than simply having access to investment opportunities.

• Founders may mistakenly believe that VCs know more about their business than they do.
• VC advice should be critically evaluated as their knowledge is broad but not deep.
• VCs may not understand a founder's specific business and market context.

"A lot of people assume that VCs know more about your business than you do as a founder."

Leo Polovets points out a common misconception that VCs have in-depth knowledge of a founder's business, which may not be true.

• The decision to invest in Interviewing IO was based on the strength of the team and the product.
• The CEO's domain experience in engineering and recruiting was a key factor.
• The product's innovative approach to interviewing practice and job access was compelling.
• The investment supports a meritocratic system that values skills over resumes.

"We invested in a company called interviewing IO... the team and the product."

Leo Polovets shares his positive assessment of the team and product of Interviewing IO, which influenced his investment decision.

"The CEO had really great domain experience."

The CEO's background and experience in the relevant field contributed significantly to the decision to invest in Interviewing IO.

• The conversation concludes with appreciation for the discussion and anticipation of future success for Sousa.
• There is mutual respect and fondness between the podcast host and the guest.

"Thanks so much, Harry. It was a pleasure being on the show."

Leo Polovets expresses gratitude for the opportunity to be on the podcast and engage in the conversation.

• The podcast includes a promotional segment endorsing various products and services.
• Brands such as Hims, Terminal, and MHelp Desk are mentioned for their respective offerings.
• The host encourages listeners to follow the guest on social media and to engage with the podcast's behind-the-scenes content.

"I want to talk a little bit about Hims, a new wellness brand for men."

This quote introduces a promotional message for Hims, highlighting its offerings and convenience.

"Terminal is your dedicated partner in rapidly standing up, world-class remote technical teams."

The promotion for Terminal emphasizes its ability to help companies build remote technical teams efficiently.

"MHelp Desk is a mobile field service management platform that helps companies spend less time organizing their business and more time perfecting it."

The endorsement of MHelp Desk outlines the benefits of using their platform for field service management.