20VC Why You Don't Have To Have Operational Experience To Be A Good VC, Why There Is No Optimal Stage To Invest & Why VCs Should Focus on Reputation Ahead of Cash On Cash Returns with Lyon Wong, General Partner @ Spectrum 28

In this episode of the 20 minutes VC, host Harry Stebbings interviews Leon Wong, the founding general partner at Spectrum 28, a $170 million Silicon Valley fund. Wong's background includes experience at Lightspeed Venture Partners and SV Angel, and he brings a wealth of knowledge about the intersection of data, computation, and industry transformation. The conversation delves into the nuances of venture capital, with Wong challenging the notion that all great VCs need operational experience, emphasizing instead the importance of investment expertise and a strong operational network. He also outlines Spectrum 28's unique investment approach, which involves a hybrid model focusing on multiple verticals to remain flexible and efficient amidst changing market conditions. Wong and Stebbings discuss the evolving VC landscape, the significance of VC value add, and the strategies for building a cohesive and lasting venture team. Additionally, Wong shares insights on Spectrum 28's recent investment in a company addressing the challenges of accessing medical records.

• Leon Wong is the founding general partner at Spectrum 28, a $170 million Silicon Valley fund.
• Spectrum 28 invests in companies that use data and computation to transform large industries.
• Prior to Spectrum 28, Leon was a partner at Lightspeed Venture Partners, a $3 billion VC fund.
• Leon has also worked with SV Angel, alongside Ron Conway and David Lee.
• Leon's introduction to the show was facilitated by Eric Tornberg and his partner Alok.

"So joining me in the hot seat today, I'm thrilled to welcome Leon Wong. Now, Leon is the founding general partner at Spectrum 28, $170,000,000 Silicon Valley Fund..."

The quote introduces Leon Wong, emphasizing his role as a founding general partner at Spectrum 28 and his previous experience in the venture capital industry.

• Effective communication is crucial in venture capital.
• Angel Loop is a platform that facilitates communication and data sharing between companies and investors.
• The platform allows founders to track performance metrics and update investors on their business state.
• Investors can respond in real-time to support founders with introductions, funding, and more.
• Angel Loop is free for investors and costs $59 per month for companies, with a free two-month trial available.

"And Angel Loop is free for all investors and only costs $59 per month for companies."

This quote highlights the pricing model of Angel Loop, a platform designed to enhance investor-founder communication, emphasizing its affordability and accessibility for users.

• Wonder Capital is an online investment platform that allows individuals to invest in solar energy projects.
• Investors can earn up to 8.5% annually while also contributing to environmental sustainability.
• The platform is part of a movement towards socially responsible investing, combining financial returns with positive environmental impact.

"Wonder Capital, the award-winning online investment platform that allows individuals to invest in solar energy projects across the US, earning up to 8.5% annually..."

The quote explains the core offering of Wonder Capital, highlighting the dual benefits of financial returns and environmental impact for investors in solar energy projects.

• Leon comes from an engineering background, having studied at the University of Waterloo.
• He began his career at Microsoft and Microsoft Research, focusing on search engines and storage.
• Leon's venture into healthcare was influenced by Bill Gates' focus on health and education.
• He founded a company at the intersection of traditional Eastern medicine and Western practices, which was later acquired.
• After his company's acquisition, Leon transitioned into venture capital.

"I went to the University of Waterloo, started in a fairly technical part of the space at Microsoft and Microsoft research, designing search engines and search and storage."

The quote provides insight into Leon's technical background and early career, setting the stage for his eventual move into venture capital.

• There is a common belief that great operators make great investors, but Leon believes otherwise.
• Not all great operators are naturally good investors; investment skills are developed through experience.
• The best investors are those who start investing early in their venture careers.
• Institutional investors should prioritize investment exposure to identify talent and develop skills.
• Leon compares starting in venture capital to entrepreneurship, where foundational skills are necessary regardless of prior experience.

"I actually believe the opposite, which is that not all great operators are naturally going to be good investors."

This quote challenges the conventional wisdom that operational experience is a prerequisite for successful investing, suggesting that investment acumen is a distinct skill set.

• Having an operational network is essential, but direct operational experience is not always necessary.
• As venture capital becomes more competitive, the relevance of operational experience diminishes over time.
• A real-time network of current operators is more valuable than relying on personal, outdated operational experience.
• Leon predicts that the competitive advantage in venture capital will lie in having a network that can provide immediate operational insights.

"The more real time your operational relevance is, the more powerful it's going to be."

The quote emphasizes the importance of having a network with current operational expertise, rather than relying solely on one's past experiences, in the context of venture capital.

• Leon Wong successfully raised funds for Spectrum 28, which was acknowledged and praised by the host.
• The discussion did not continue into specific details about the fundraise.

"I want to congratulate you on the incredible fundraise with Spectrum 28."

The quote is a congratulatory remark on the successful fundraising efforts for Spectrum 28, recognizing Leon Wong's achievement in securing capital for the venture fund.## Venture Environment Shift

• The venture environment experienced a significant shift from 2015 to 2016.
• Limited Partners (LPs) became more conservative and focused on the return of capital and exit potential of investments.
• LPs are now more concerned with the substance of deals and the ability to invest in quality over quantity.

"Yeah, so definitely there's been a shift. I mean, we went from things were exceptionally good towards the beginning of 2015 to things are incredibly rocky in terms of the start of 2016." "Do your investments have exit potential and will they survive the longer period in the market?"

The quotes highlight the change in the venture capital environment and LPs' increased emphasis on sustainable investments with clear exit strategies.

• The initial target raise for the fund was $125 million, which was increased to accommodate long-term planning and relationships with LPs.
• The fund size was considered adequate for a two GP (General Partner) fund and was increased to $170 million due to the addition of exceptional team members.
• The fund size was adjusted with the confidence in being able to deploy the extra capital effectively.

"So our target raise was closer to 125, and I think we continually increased it because of thinking for the long term, there were LPs that we wanted to include in this fund to start building a relationship in order to raise a larger fund later." "So ended up bringing it to 170 because we also brought on some team members we felt were exceptional and we could be confident deploying that extra amount."

The quotes explain the rationale behind the fund's target increase, emphasizing strategic relationship building with LPs and confidence in the team's capabilities.

• The venture capital market is characterized by an efficiency curve with no optimal stage for investment.
• There is a high amount of capital in late-stage investments due to companies staying private longer and public investors participating in private rounds.
• Seed stage sees a lot of activity and capital availability due to the trend of operators investing individually.
• Capital gaps exist post-seed and post-Series A, particularly in industries requiring more substantial capital and in the team building phase.
• These gaps represent opportunities for adding capital.

"So I think anywhere in the efficiency curve you're going to see superior returns." "Where you see capital gaps are in phases after that, where you have the larger seeds that require larger amounts of capital because they're tackling something harder."

The first quote suggests that returns can be superior at any investment stage if it's on the efficiency curve. The second quote identifies where there are capital gaps in the market, indicating potential investment opportunities.

• Spectrum 28 operates as a hybrid fund, not limited to a single stage or vertical.
• The fund invests across various stages and opens up a new vertical each quarter, allowing for flexibility and avoiding constraints.
• The strategy is designed to adapt to the market and not be restricted by a mandate to deploy capital in a specific industry or at a particular time.

"We're a hybrid of the two. We invest across stage, but we don't limit ourselves to single vertical." "So that's the experiment we're running and that's why LP supported us, because we have a different playbook."

These quotes describe Spectrum 28's unique approach to investing across different stages and industries, which deviates from traditional fund structures and appeals to LPs seeking a diverse investment strategy.

• Specializing in a single vertical allows for in-depth pattern recognition and data comparison.
• Spectrum 28's broad investment thesis requires significant effort to achieve the same level of depth in each vertical.
• The current approach is not infinitely scalable but is designed to provide more value and build a strong reputation for the first fund.

"So for each vertical, when we focus on it, we do get to that equal level of depth." "However, for first fund, we're providing way more value and going much deeper than we otherwise would, because we're trying to build the reputation of delivering on that value."

The quotes explain that while Spectrum 28's investment strategy is broad, they still achieve a deep understanding of each vertical they invest in. The focus is on delivering value and building a reputation, despite the challenges of scalability.## Impact on Company Growth and Value Addition

• Reputation is prioritized over short-term cash returns.
• Long-term investment from LPs is sought, with the belief that cash on cash returns will follow.
• Fund resources are reinvested to develop specific verticals.
• Establishing depth in verticals is initially resource-intensive but less so for maintenance.
• Resources can then be reallocated to other areas.

"They care about how impactful were you to them as a company, growing them and adding actual concrete value."

This quote emphasizes the importance of venture capital (VC) firms providing tangible benefits to portfolio companies, which in turn builds the VC's reputation and justifies long-term investment from limited partners (LPs).

• Traditional VC roles of providing introductions and advice are still valuable, especially from a select few with exceptional capabilities.
• VCs differentiate themselves by impacting key business metrics and offering measurable value.
• Value addition is beyond advice and introductions; it involves contributing to the company's growth in significant and quantifiable ways.

"So I don't think introductions and advice is outdated... However... which are the ones that we're uniquely going to be able to move the needle on, and how can we really add value that's in a measurable way?"

Leon Wong argues that while introductions and advice are not obsolete, the focus for VCs should be on unique contributions that measurably advance a company's key metrics.

• Reputation is built through action and delivery, not just announcements of fund raising.
• Spectrum 28 delayed their fund announcement to demonstrate results first.
• Building a sustainable reputation involves transparently showcasing the impact made on portfolio companies.

"I think the only way you establish a reputation is actually by doing what you're saying."

Leon Wong stresses that a VC's reputation is established by fulfilling promises and delivering results before making public announcements.

• Venture capital has traditionally been viewed as an individual sport, but Spectrum 28 values team orientation.
• The goal is to create a lasting institution, not just a platform for star investors.
• Team members focus on collaborative success rather than individual achievements.
• Spectrum 28's team approach involves shared credit and a united effort across different perspectives.

"Could you build a team that is actually team oriented versus stars?"

Leon Wong discusses the concept of building a VC team that is collaborative and institution-focused, contrasting it with the traditional model of individual star investors.

"So who gets credit? Who gets credit for the work?"

This quote highlights the challenge of ensuring that in a team-oriented VC firm, credit for success is shared among team members rather than attributed to individuals, fostering a collaborative culture.## Recognition in Team Dynamics

• Recognition distribution within a team is a deliberate architectural choice.
• Team success is influenced by how recognition is shared among members.

recognition is dispersed has been something we've had to explicitly architect in.

This quote emphasizes the importance of intentionally structuring a team to distribute recognition evenly, which can contribute to the team's overall success.

• The integration of team members and minimizing individual egos can be critical to success.
• Benchmark's approach to team dynamics is cited as a contributing factor to their success.

No. I had Andy Ratcliffe from Benchmark on the show and he said that kind of inherent integration of the team and kind of lack of vc Persona, it was inherent to their success at benchmark.

The speaker references a conversation with Andy Ratcliffe, highlighting the role of team integration and the absence of strong individual egos in the success of Benchmark.

• Predicting a seven-year timeline for the mass proliferation of self-driving cars in specific sectors.
• Belief that global domination of self-driving cars will take longer than a decade.

I think seven years.

This quote is a prediction for when self-driving cars will become widespread, at least in certain applications like warehouses.

• "Meditations" by Marcus Aurelius is favored for its grounding, anti-hype message.
• The book serves as a reminder to stay focused on essential goals amidst public hype.

Meditations by Marcus Aurelius because that book is about anti hype.

The speaker expresses admiration for "Meditations" due to its lessons on staying grounded and not getting caught up in power or hype.

• AI is seen as a catalyst for change rather than a threat to employment.
• Confidence in human adaptability and evolution in the face of technological advancements.

So jobs is about humans. Humans are always going to find something to do.

This quote reflects the speaker's optimistic view that humans will always find ways to stay employed, even as AI changes the job landscape.

• Humans have infinite wants and needs, which drive societal evolution.
• Challenges, including those brought on by AI, can push society to evolve and improve.

Humans wants and needs are infinite and I think we just adjust to them with time.

The speaker agrees with the notion that human desires are limitless, and this drives continuous adjustment and progress.

• Preference for less curated and more organic platforms like Medium and Quora.
• Appreciation for diverse voices and the evolution of thought through community interaction.

I actually like medium and quora in a more organic way that's less structured.

The speaker prefers platforms that allow for a variety of perspectives and the natural progression of ideas.

• Recent investment in a company aiming to simplify access to medical records.
• The investment was made with the belief that the team could navigate past failures in the space.

So our most recent investment is one that solves or attempts to solve the problem of medical records.

The quote explains the reason behind the speaker's latest investment, highlighting the need to overcome the traditional hassles of accessing medical records.

• Thanks given to guests and contributors to the show.
• Anticipation for the future success of Spectrum 28 and its team.

But Leon, thank you so much for coming on the show today.

The host expresses gratitude to the guest for sharing insights and contributing to the discussion on the podcast.

• Angel Loop is recommended as a post-funding management platform.
• Wonder Capital is introduced as an investment opportunity in solar energy projects.

You'Re a founder or an investor, Angel Loop is a must.

This quote introduces Angel Loop as a valuable tool for founders and investors to manage post-funding activities and keep track of performance data.