20VC Why We Are Valuation & Ownership Insensitive, Why We Do Not Take Board Seats & The Effects Of The Series A Crunch with Topher Conway, CoManaging Partner @ SV Angel

In this episode of the 20 Minutes VC podcast, host Harry Stebbings interviews Toffer Conway, co-managing partner at SV Angel, a prominent seed fund in Silicon Valley. Conway shares his early venture into angel investing with Napster and his journey to SV Angel, where he's worked closely with successful startups like Gusto, GitHub, and Lookout. He emphasizes the importance of founder grit and determination over environmental conditions when assessing potential investments. Conway also discusses the evolving seed funding landscape, SV Angel's approach to pivots and founder support, the significance of reputation in venture capital, and the firm's strategy of not leading rounds or taking board seats to remain founder-aligned. He highlights recent investment in BetterUp, underscoring the value of executive coaching within organizations. Throughout, Conway shares insights on the seed investment ecosystem, including the Series A funding crunch, the rise of bridge rounds, and the crucial role of hard work in achieving success.

• Topher Conway is a co-managing partner of SV Angel, a leading Silicon Valley seed fund.
• SV Angel has notable investments in companies such as Facebook, Airbnb, Twitter, and Dropbox.
• Topher works closely with companies like Gusto, GitHub, and Lookout.
• He was listed in Forbes magazine's 30 under 30 in 2015.
• Topher's previous experience includes working at ECal, ECOST, and a summer internship at Google.
• He is a member of the UCLA VC fund to support university entrepreneurship.

So joining me in the hot seat, I'm thrilled to welcome Topher Conway. Now, Topher is a co-managing partner of SV Angel, one of Silicon Valley's leading seed funds with investments in the likes of check this out. Facebook, Airbnb, Twitter, Dropbox.

This quote introduces Topher Conway as the guest on the podcast and highlights his role and the success of SV Angel in investing in major tech companies.

• Topher made his first angel investment in Napster in 8th grade.
• His father involved him and his brothers in the due diligence process for potential investments.
• Topher's early exposure to venture capital shaped his desire to become an investor.

My first angel investment was when I was in 8th grade. It was in a company called Napster. And my dad would ask my brothers and I for diligence sometimes on companies.

This quote explains how Topher's first experience with angel investing was at a young age and involved the influential role his father played in his early venture education.

• Topher knew he wanted to be in venture capital but was unsure when he would transition into the field.
• He gained experience by attending meetings with his father and observing the venture capital process.
• Topher worked at ECal in Los Angeles, producing shows for YouTube, before deciding to return to the Bay Area to re-enter the technology sector.
• He joined SV Angel when it was just starting and quickly realized he would be an investor for life.

I never knew was which point in my career I would actually move over to the venture side. And in this case, it actually is. A little earlier, I was working at a then portfolio company in LA called Equal.

This quote describes the uncertainty Topher had about when he would make the official transition into venture capital and mentions his prior work at ECal.

• Topher believes that founder grit and determination are crucial for success, not just environmental conditions.
• SV Angel looks for grit and other traits when considering investments.
• Assessing grit is challenging, but it involves analyzing the founder's background, challenges faced, and reasons for starting their company.
• Topher and his team use pattern recognition from seeing numerous founders to identify desirable traits.

There's a saying, it's never been easier to start a company. It's never been harder to build a business. And so that grit and determination is what's going to set apart one founder versus another that might be working on similar ideas.

This quote emphasizes the importance of founder grit and determination in the face of the challenges of building a successful business in a competitive environment.## Precede Stage in Investing

• Precede is a relatively new term in the investor world.
• It refers to a stage before traditional seed funding, often involving just the founders and initial concepts like drawings or wireframes.
• Investment decisions at this stage are more focused on the founder than the idea.
• The sector of the idea matters, but the main criteria is the founder's potential.

"Yeah, precede. It's a new term in the investor world, relatively." "We're investing in the person and the founder, not necessarily the idea."

These quotes emphasize the concept of the precede stage as an emerging investment category and highlight the investor's focus on the founder's abilities and potential rather than the startup idea itself.

• SV's latest fund was reduced in size to allow flexibility in investing at either precede or seed stages.
• The fund can make smaller investments, demonstrating a commitment to the founders over the specific stage of the company.
• Investing early, such as at the precede stage, allows for supporting founders from the outset.

"So we can make that $100,000 investment where it's really just the founders that we're investing in." "We have the ability to invest in that person as we do."

These quotes reveal the fund's strategy to invest in founders at very early stages and its ability to support founders regardless of the company's development phase, emphasizing the person over the business stage.

• SV invests in founders and supports them throughout the entire lifecycle of the business.
• They trust founders' knowledge of their business and support pivots if deemed necessary by the founder.
• A significant portion of their portfolio companies fail, which is considered a normal part of venture investing.
• SV is committed to backing founders even if their first company did not succeed.

"We only invest in the founders, so we are in it with them from beginning to end, no matter what the end looks like." "We're in this until the very end. If it's a win or the company goes out of business, we're in it for the founders and to support them on their journey."

These quotes highlight SV's founder-centric investment philosophy, indicating a long-term commitment to the founders they invest in, regardless of business outcomes, and their acceptance of business pivots as part of the entrepreneurial process.

• SV leans towards first-time founders, influenced by the seed and precede stages they invest in.
• Young and often inexperienced founders are common at these early stages.
• This preference is not exclusive, but indicative of the typical profile of entrepreneurs they encounter.

"I think we probably lean towards first time founders, but that's often just dictated by the stage that we invest in."

This quote suggests that SV's investment strategy naturally aligns with first-time founders due to the early stages at which they engage with startups.

• The seed environment has become more crowded over time, which SV views positively.
• The increase in seed funds and angel investors is seen as beneficial for entrepreneurs.
• SV's role is not significantly challenged by competition due to their cooperative approach and smaller check sizes.
• SV does not lead rounds but collaborates with other investors, who each bring unique skills to support the founders.

"We love the fact that there are so many more seed funds and angel investors out there." "We rely on all the other investors just to participate in the round."

These quotes express SV's enthusiasm for the growth and development of the seed investment ecosystem, highlighting their collaborative investment approach and reliance on the broader investor community to support entrepreneurial ventures.

• Reputation is considered the biggest asset in the venture investment community.
• Building a strong reputation involves responsiveness, dependability, and being helpful to founders.
• These qualities have been integral to SV's and Ron Conway's reputations.

"Your reputation is your biggest asset." "That's something that I've been focused on since day one of being an investor."

These quotes convey the importance of reputation in the investment world and the proactive efforts to build a positive reputation through consistent, founder-friendly behaviors and support.## SV Angel's Approach to Supporting Founders

• SV Angel focuses on building reputation through founder advocacy rather than marketing.
• The firm prioritizes being helpful to founders, especially in challenging times.
• Assistance provided by SV Angel includes help with financing, business development (biz dev), and corporate development (Corp dev).
• SV Angel maintains a vast network of relationships with founders, investors, and corporate partners to support founders at critical inflection points.
• They choose not to take board seats to avoid potential conflicts and to remain as advocates for the founders.

"So we really try to let our reputation kind of do a lot of the work for us and let founders tell their friends, hey, the guys at SV angel really helped me when I was in a bind."

This quote emphasizes SV Angel's strategy of building its reputation through word-of-mouth endorsements from the founders they've assisted, rather than traditional marketing efforts.

"We help a lot around financing biz dev and Corp dev. So those are the three main areas that we really focus on when it comes to helping founders in our portfolio."

Topher Conway outlines the three main areas where SV Angel provides support to founders, highlighting the firm's targeted approach to assisting startups.

"We think that at some point in the business, boardroom will get contentious and founder will and the board won't agree on something. And so we never want to put ourselves in that position."

Topher Conway explains why SV Angel opts out of taking board seats, to maintain an unwavering position as the founder's advocate.

• Topher Conway believes it's possible to maintain a healthy relationship as both a friend and an investor.
• By focusing on supporting founders at critical moments and leveraging relationships, SV Angel builds strong connections with founders.
• The firm's approach to not taking board seats aligns with their commitment to always advocate for the founder's interests.

"I think you can have a very healthy relationship as both."

Topher Conway asserts that it is possible to have a dual relationship with founders that is both supportive as a friend and professional as an investor.

• Topher Conway suggests that founders should consider establishing a board post-seed, closer to Series A funding.
• Early on, the focus should be on the team's execution and responsiveness to user feedback.
• As the business grows, a board can provide valuable mentorship and fill skill gaps in the management team or provide specialized expertise.
• The construction of a board should be timed with the company's needs and growth stage.

"Postseed closer to series A when the company is just getting off the ground."

Topher Conway recommends the timing for establishing a board, indicating that it is most beneficial when the company begins to scale its operations.

"The founders should really focus on where they think they need the most help and then offset that with particular board members."

Topher Conway advises founders to strategically select board members who can provide expertise in areas where the founders need the most support.

• SV Angel does not heavily focus on ownership and valuation during investment decisions.
• The firm is generally ownership and valuation insensitive, except in extreme cases.
• The belief is that if a company is going to be successful, early valuation differences will not significantly impact the ultimate return on investment.
• SV Angel has an internal rule to avoid lengthy discussions on valuation with founders, as it may indicate underlying issues.

"We're pretty much ownership and valuation insensitive."

Topher Conway explains SV Angel's approach to investment, highlighting that they do not prioritize ownership percentage or valuation in their decision-making process.

"If it's going to be a big, successful company... it doesn't really matter what the ownership is."

Topher Conway reinforces the point that for SV Angel, the success potential of a company outweighs the concern for specific ownership stakes.

• There has been a noticeable Series A funding crunch due to the proliferation of seed funds and the reduced cost of starting a company.
• This crunch has forced companies to focus more on core metrics and business fundamentals.
• The result has led to a healthier ecosystem where founders are more focused on building valuable products and businesses.
• The rise of bridge rounds is seen as a natural byproduct of the crunch, which SV Angel views as acceptable under certain conditions.

"We've definitely seen the series a crunch."

Topher Conway acknowledges the challenges startups face in raising Series A funding, given the increased number of companies seeking investment.

"What really happened over the last couple of years is series A investors and B started really focusing on is this a good business?"

Topher Conway notes a shift in investor focus towards the fundamental viability of businesses seeking Series A funding.

• Bridge rounds are considered acceptable by SV Angel if they are used to reach clear milestones.
• The firm sometimes participates in bridge rounds if they believe in the company's potential and milestones are well-defined.
• Bridge rounds should not be seen as a negative sign but rather a strategic step for extended growth runway when necessary.

"If there are clear milestones, then a bridge round is absolutely okay."

Topher Conway agrees with Mike Maples' view that bridge rounds are suitable for startups as long as they serve a purpose and are not an end in themselves.Investment Philosophy and Approach

• SV Angel invests in companies regardless of the stage if they are great companies.
• Clear milestones and justifications for raising a bridge round are crucial.
• Companies sometimes require additional runway, which SV Angel is willing to provide.

"It doesn't really matter if it's a great company, it doesn't matter which stage you get in at." "Sometimes companies just need the extra Runway, and that's completely fine."

The quotes highlight SV Angel's flexible investment strategy, focusing on the quality of the company rather than the stage of investment, and their understanding that sometimes additional funding is needed for growth.

Quick Fire Round

• Topher Conway's favorite book is "The Score Takes Care of Itself" by Bill Walsh.
• The biggest day-to-day challenge is managing a large portfolio with a small team while scaling SV.
• SV Angel prefers to keep the fund size small to align with founders and maintain investment flexibility.
• Topher Conway's reading habits are primarily email-based, including articles sent by others.
• Topher's biggest mentor is his father, who is a leading figure in seed investing.
• The biggest takeaway from his father is that success is a result of hard work, not luck.
• The most recent public investment is in BetterUp, chosen for its unique approach to executive coaching for all organizational levels.

"The score takes care of itself by Bill Walsh. It's probably a very popular answer." "We're a small team of eleven people...continuing to revise and implement new processes so we can continue to scale at the pace that we are." "In our most recent fund we actually reduced the size of it." "Lots of people sending over articles and just interesting things that they're know probably like every other vc read Ben Thompson every know we do read a lot but it tends to be in the form of email than anything else." "To be my dad...he's also probably one of the best in the business." "Success isn't given to anyone, it's not by luck. Good old fashioned hard work." "But it's a company called BetterUp...they provide executive coaching but for everyone in the organization."

These quotes capture the essence of the quick fire round topics, ranging from personal preferences and challenges in venture capital to mentorship and investment decisions.

Podcast Show Acknowledgements

• Harry Stebbings expresses gratitude to Topher Conway for joining the show.
• Acknowledgement of Keith Tar's role in facilitating the interview.
• Promotion of Harry Stebbings' Snapchat and blog, as well as a call to action for feedback.
• Advertisement for Intercom, emphasizing its integrated messaging products for business growth.
• Promotion of Cooley, a law firm specializing in startups and venture capital.

"Well, Topher, it's been so brilliant to have you on the show." "A huge thank you to Keith Tar for the introduction to Topher today." "If you love the interview and would like to see behind the scenes of the 20 minutes VC, then you can add me on Snapchat at htebings with two B's or you can check out the new blog mojitovc.com." "Do not forget to check out Intercom." "With Intercom, no one can beat Cooley for serving their clients for the longest."

The quotes serve as a conclusion to the podcast, thanking the guest and contributors, promoting the host's social media and blog, and advertising for Intercom and Cooley, which are relevant to the podcast's audience of startups and venture capital enthusiasts.