Hide

Sign Up

Get our monthly newsletter in your inbox.

Oops! Something went wrong while submitting the form.
see all feed
see all Podcasts
see all Elements
{feed}
No items found.

When and Why to Bring on VCs

November 16, 2022
Written By
November 16, 2022
Episode 25
36:20
Written By

Tom and Vivek describe the lessons learned from fundraising at Rapt in 1999 - the height of the first internet bubble - through their experience at Krux - amid the most recent tech bubble. After sharing war stories, they describe how super{set} melds funding with hands-on entrepreneurship to set the soil conditions for long-term success.

When should an entrepreneur raise money? What does the money do? How is a Series A round different from a seed round? How is a Series A today different from 1999? What makes a good VC?

We have a venture fund at super{set} but aren’t Venture Capitalists. What’s the difference? We’re operators, while the VCs are helpers. The best VCs come in asking the catalytic questions that encapsulate risks and delineate opportunities, but they aren't hands-on with the company. They know when they are needed and when they are not.

In the over-caffeinated recent years, seed investments have started to look like Series A. And it reminds us a lot of Tom and Vivek’s first foray into entrepreneurship - Rapt, which began in 1999. Rapt’s Series B was much larger than Krux’s Series B over a decade later, yet Krux had the more robust exit.

It’s not that we are proponents of bootstrapping - taking on outside investors for your company is necessary to move at the speed of business today - it’s that the right sized check at the right time is what matters.

That’s why part of our model at super{set} is giving seed-stage co-founders the space to be disciplined about product, product, product in the earliest stages. We create the soil conditions and the capital so that great entrepreneurs can focus on company-building, not pitching outside investors.

Transcript

Speaker 1: Welcome to the Closed Session, How to Get Paid in Silicon Valley, with your host, Tom Chavez and Vivek Vaidya.

Vivek Vaidya: Well, hello and welcome to episode seven of the Closed Session. I'm Vivek Vaidya and with me, I have Tom Chavez.

Tom Chavez: Hello, everybody.

Vivek Vaidya: All right. So today we're going to talk about outside investors, why you need them, when to bring them in, what value do they add or not?

Tom Chavez: How to pick good ones.

Vivek Vaidya: How to pick good ones, and how do you manage them?

Tom Chavez: Yeah, all weighty topics.

Vivek Vaidya:All right. All right. So Tom, you've been doing this for quite some time now, haven't you?

Tom Chavez: Just about three years. I'm 26 now. I started when I was 23, so I'm still fairly early to the game.

Vivek Vaidya: 26, huh?

Tom Chavez: Yeah.

Vivek Vaidya: Wow, I thought you were 24, but, okay.

Tom Chavez: Yeah, yeah.

Vivek Vaidya: Anyway, he's joking, folks. He's been doing this a long time.

Tom Chavez: No, actually because I'm old AF and that's real, dog.

Vivek Vaidya: He's old AF. Tom is old AF.

Tom Chavez: Yeah.

Back to the Early Days: Rapt, 1999

Vivek Vaidya: So why don't you take us back to the early, early days, Tom, and tell us about investment at Rapt.

Tom Chavez: Rapt, our first company. So yes, I was a puppy in 1999, that's when we got the Series A done. And I think it was an eye popping, crushingly huge number of $4.5 million. You got to do your Doctor Evil there, which in today's terms, would be a modest seed stage round. So, that's the first observation is that everything's bigger in 2022, but it's not just that. It's that the baselines for Series C and Series A have shifted in response to this burgeoning new class of angel investors, right? And they were there in '99.

By the way, before we get to the June '99 Series A for Rapt, there was a small little coterie of people that I'd met through graduate school who cobbled together $230,000, I think, in angel notes at the time. By the way, we didn't have safes, but it was a convertible note, which was really fundamental. And all of those people stood with us and actually made the introduction to the principal at Excel, who eventually let led us to Arthur Patterson, who made the investment.

So one conversation always leads to another, and those angel motions were sort of in place, but they were very raw. And I think if we just fast forward to today, as we think about investors, look, I mean, the fundamentals remain the same, right? You need capital to grow your enterprise. And by the way, big ups to all the entrepreneurs out there, the precious few of them who bootstrap-

Vivek Vaidya: That's right.

Tom Chavez: ... a kick-ass company by themselves without a nickel, much respect for those guys. Incredibly difficult to do. And those are the exceptions that prove the rule. In fact, VC is a great kind of accelerant to the build out of a company, and especially given the velocity of today's markets, right? In theory, you could do it by yourself and bootstrap your way to a company, but things move so fast, right? That's the other big change from 1999. You and I see this all day long, right? The velocity of markets and things that used to take three years to develop or three quarters to develop now happen in three weeks.

Vivek Vaidya: Three weeks, yeah.

Tom Chavez: Right?

Vivek Vaidya: Exactly, exactly.

Tom Chavez: It's so crazy fast. That's another big case for taking outside money. So as we think about VCs, maybe let's dig into, okay, why do you need them? And then when do you engage with them? When do you try to hold off? How do you raise money? We've had prior sessions dedicated to just that, so we're not going to replicate all of that here, but let's start with why do you need it? And can we just weave in a little bit of a little bit Sonic Candy here and listen to one of the greats, Spinal Tap, during their-

Vivek Vaidya: Give me some money.

Tom Chavez: During their Beatles phase, right? If you've seen Spinal Tap, what's the lyric? Let's play it. Let's pause for a minute and play it. Okay, there you are. You know what I want, don't make me have to come right out and say it, give me some money.

Vivek Vaidya: So that's why you go to VCs because you need the money.

Tom Chavez: You need the money. And a lot of VCs show up with varying levels of acumen and help. And we'll get to that in a minute, but be not confused, right? Their central purpose and their central reason for being is to provide the capital that makes these startups flow. And we're not diminishing the contribution, right, but money matters. And money is the principle reason to work with VCs.

Vivek Vaidya: Yeah, because a lot of VCs increasingly these days would say that they are part of the company building process and journey, right?

Tom Chavez: That's right.

Vivek Vaidya: And as we've noted in an earlier episode, we think the primary function of VCs is to critique.

Tom Chavez: That's right.

Vivek Vaidya: So how do you reconcile the two things, Tom?

Tom Chavez: Well, look, I mean, great VCs offer really intelligent critiques and ask super smart questions at exactly the right moment and in exactly the right way. They don't have to... Great VCs and Arthur Patterson is one of the ones we've been so lucky to work with, we'll ask... His partners, I remember, refer to him as the Riddler because Arthur will ask these open-ended questions and it kind of lets it waft in the air. And it's sort of like you're talking to Yoda and you just have to understand all the seven dimensions of this little riddle.

But as I've said in the past, he's annoyingly right about a lot of these things. So great VCs bring that kind of acumen. But let's also be real, I mean, given the changes now from '99 to 2022, markets are efficient. A lot of capital has flooded in and there are a lot of, let's just say VCs who are not as wise as the Arthur Pattersons and others of the world. And so you got to be careful, just because they show up with the money, and this is one of our beefs, let's do this here, VCs who show up with a big bag of other people's money. I have a close friend who's worked as an investor and he characterizes it at as, okay, this is a funny profession, very rich people writing very small checks of other people's money.

Vivek Vaidya: Yep.

Tom Chavez: Right?

Vivek Vaidya: Yep.

Tom Chavez: So a little reality distortion field sometimes settles in for some of those folks and they lose sight of, wait, what's your value add? Many of them have been operators, but most of them haven't, so they don't really have context. So you read something in a Morgan Stanley report on Monday, whatever, right?

Take Two: Krux

Vivek Vaidya: So [inaudible 00:06:56] which brings me... I mean, brings us to a very interesting question. When do you go and raise money?

Tom Chavez: Yeah.

Vivek Vaidya: I remember at Krux, the first six months or so, maybe a little longer, we didn't need any money because it was just you and I doing a thing, right? And we raised a seed round in May 2010 or thereabouts.

Tom Chavez: I'm always shocked how you remember those dates exactly. It's crazy.

Vivek Vaidya: I'm sorry.

Tom Chavez: Go on. It's weird.

Vivek Vaidya: It's a feature, not a bug.

Tom Chavez: It's weird.

Vivek Vaidya: So when should people go and start raising money?

Tom Chavez: Yeah, so let's go to that, right? Because what we see these days is a lot of gung-ho entrepreneurs with what they call a business plan and it's not really a business plan. It's an investment marketing document at best. And they get stars in their eyes and they say, "Oh my God, I got to run out." And say," I got to sing for my supper and get that money." To your point about Krux, we really did it right by just sitting at the kitchen table playing the you say it, I say it game, say it back to me. What's the thing? Just planning blueprinting so that when we were ready to go and have that seed round, by the way, that was a $2 million seed round that seemed to qualify as an actual seed even in 2010.

It still wasn't 100% baked, but it was a lot better than half baked, right? And so I think to answer your question, do it when you have clarity and precision of thought in terms of your business plan or in the context of super{set}, we've talked about our solution memos where you're thinking about the buyer, the who for, the why for, the what, in what stages does the company unfold? So you have that whole picture before hurling in. Too many people just have an investment marketing document and say, "Yeah, I'm ready for the money and you're not."

Vivek Vaidya: Yep. Yep. And then as you continue, it's interesting to compare the Krux journey with the Rapt journey. So Rapt, you did the four-and-a-half million Series A in June of '99. And then at Krux we did the $2 million seed in May 2010. And then we did a Series A at Krux, but there was a Series B at Krux, right?

Tom Chavez: Right.

Vivek Vaidya: And there were two... I mean, relatively speaking, the Series A at Krux was big. It was like whatever, $11 million, $12 million, I think.

Tom Chavez: Something like that. I think it was $13 million, whatever, something like that.

Vivek Vaidya: But the Series B at Rapt was much bigger.

Tom Chavez: Right.

Vivek Vaidya: Right? And in today's... At that time, in retrospect, looking back, it was caffeinated.

Tom Chavez: Right.

Vivek Vaidya: So what were the dynamics? What was the market situation lik that led to that caffeinated Series B at Rapt?

Tom Chavez: And it's very timely for us to talk about that now as the air comes out the [inaudible 00:10:00] 2022. That was a leading question. Yeah, I'm on you, I follow you. Because in '99, that was the dot-com boom. And I remember going to one of these CEO events in Pebble Beach and everybody's raising their glasses in the air, doing the clinky, clinky. And I just knew that I was late to the party. I didn't... Something awesome had happened and I totally missed it.

Now in today's context, we see all of these companies pulling back. There's been a lot of junk that's happened the last year and change where people are taking these exorbitant valuations because Tiger Co [inaudible 00:10:37] and others are just plowing money in. And so it sucks to be those companies if we're speaking plainly, right? Because now, you're going to go through. Now back to Rapt because that happened to me. And so I'm critiquing, but at Rapt to your point, we did that much larger Series A-

Vivek Vaidya: Series B.

Tom Chavez: Series B, you're right, at a caffeinated valuation. We absolutely didn't deserve. But those were the eMarket craziness of 2000, right? And I guess look, you just have to... You can't necessarily pick your spots or your moments and you can't make markets by yourself. But I think the lesson learned was when everybody's drunk, you don't have to do those shots. Everyone's passing around the baggy, you don't have to pop those pills, right? That's one of the things we've been trying to get right over here at super{set}. Because I think that there could have been moments when we could eject things up beyond their rational proportions in the last whatever, year-and-a-half. I'm grateful that we didn't, right? And that we're going to continue to show... Steady up into the right progress as a result.

Vivek Vaidya: Yeah. Because a lot of the stuff that's going on right now where companies laying off people, rescinding offers by the hundreds and all of that.

Tom Chavez: Yeah, it's on.

Vivek Vaidya: We had two rounds of layoffs at Rapt.

Tom Chavez: Three.

Vivek Vaidya: Three rounds, yes. We had three rounds of layoffs at Rapt and it was terrible.

Tom Chavez: Brutal.

Vivek Vaidya: Yeah, it was-

Tom Chavez: Sucks.

Vivek Vaidya: It really sucks. Yeah. And-

Tom Chavez: Learned a lot though. Pain is instructive.

Vivek Vaidya: Pain is definitely instructive. So in terms of the investors that were at the table, Tom, did you get the kind of advice that investors are throwing out right now? Control your burn rate.

Tom Chavez: Right.

Vivek Vaidya: Optimize your [inaudible 00:12:22].

Tom Chavez: Right. Amazing how fast the script changes, right? Because you're getting letters from Sequoia and YC and all these funds. "You really got to control your burn." And just three short months ago, I'm sure those investors were showing up at board meetings.

Vivek Vaidya: Grow, grow, grow.

Tom Chavez: Grow. Where's the ramp?

Vivek Vaidya: Yeah.

Tom Chavez: That was the code, I remember that vividly from '99. Because we'd raise all this money and board members would ask me, "I don't see the ramp here." Which is code for spend more.

Vivek Vaidya: Yeah.

Tom Chavez: Right? So no, I mean, it gets to good investors and wise company builders as we hope we are now. Understand that you can't spend your way, right, to a kick-ass product, or referenceable customers, or a replicable revenue motion for the company. You just got to do your 100 pushups, right? There's no easy button here. And look, I mean, we have one or two companies where I'm... We were in a board meeting I think last week where one of our CEOs could possibly be overcorrecting now, just raised a bunch of money, right, and has a market that's on the move and product market fit and all that good stuff.

And so I found myself being a strange kind of contrarian because now everybody's like, "Whoa, be very careful. Get into your crouch and wait." And I found it strange that I'm the one saying, "Well, listen, I mean, the point of the money, invoking that New Testament parable, "isn't to go bury bags of gold in the ground and show it back two years later. The point is to invest it and use it to fulfill the company's mission." So there's a Goldilocks point here.

Vivek Vaidya: Yeah, yeah. So as we talk about burn and all the advice and whatnot, right? Especially at the early stage, what do investors care about at? So say I'm an entrepreneur and a founder, I come to you, you're a VC and it's an early stage like seed like investment. Do you care about things like financial models at this stage?

Tom Chavez: Yeah. So it's funny because I think a lot of investors will... There's a certain pageantry to building your three to four, five year model. We all know it's bullshit. Right? And anybody who claims to know with precision what their [inaudible 00:14:39] and [inaudible 00:14:40] revenue and ACV and geographic mix three years from now, shut up. I mean, and there's no way, right? But somehow and for reasons I don't fully understand, I think what we've seen more recently as investors have, yeah, we don't have to spark up a big bowl and have a ridiculous conversation about that stuff now if you're at seed.

Vivek Vaidya: Yeah.

Tom Chavez: And to answer your question, the most important thing, and I think we find concurrence across lots of investors in this regard, is, okay, do you have a kick-ass team that has deep context for this problem, passion for solving it? Do you have a V1 product?

Vivek Vaidya: Yeah.

Tom Chavez: Right? That's well-conceived. In our framework at super{set}, and this is one of the things you and I spend a lot of time on is the staging and sequencing.

Vivek Vaidya: And frankly sometimes irritate people.

Tom Chavez: We drive people crazy. Well, there you go again with your stage one, stage two, stage three, please shut up, Vivek. But look, I mean, we've seen that that's super important. So it's product, right? And customers who are co-innovators.

Vivek Vaidya: Yeah.

Tom Chavez: Right? What's the big change, I think from before, at least from my perch, is it's almost like there's this extreme lack of concern for revenue. In fact, you and I, at one of our board meetings, we're seeing our investors push back and say, "Listen, don't break your pick on the $400,000 ACV deals. How about a 50K insertion point deal that turns into something larger?" So it's not to... Revenue matters, but it's really the redheaded, freckled stepchild to product and team in the early stage.

Vivek Vaidya: In the seed stage.

Tom Chavez: Yeah. Would you agree with that?

Vivek Vaidya: Yeah, I completely agree with that. I think you don't know enough, right? I mean, you need conviction around what you're building, why you are building it and context around the problems that you're solving-

Tom Chavez: That's right.

Vivek Vaidya: ... it's huge.

Tom Chavez: That's right.

Vivek Vaidya: Because that's what gives you the currency down the road if things are not going your way to fight your way out.

Tom Chavez: That's right.

Vivek Vaidya: Right?

Tom Chavez: That's right.

Vivek Vaidya: And I think that's what investors at this early stage are looking for.

Tom Chavez: That's right. See, and it's not just with the gods. It's not just intuition and lighting candles and hoping something good happens. There's a lot of informed intuition, right, around is this product... Do the unit costs and unit economics and marginal, incremental margins attached to this new product that we're talking about, do I have a line of sight? Could I persuade myself that that becomes a self-perpetuating thing that turns eventually into revenue volcano, right?

Vivek Vaidya: Yeah.

Tom Chavez: But trying to subject for... Let's pick on LTV and CAC. I think a lot of seed stage investors want to know what's your long-term customer value? What's your cost? Cost of customer acquisition? There are different schools of thought here. Some people really want to measure it at seed stage when you have zero data to support it. We tilt towards the latter, the other school which says, come on, come on. I mean, it's not knowable.

Vivek Vaidya: Yeah.

Tom Chavez: So stop claiming to attach this artificial precision to things that again, are just not knowable.

Vivek Vaidya: Right, because how do you measure the customer acquisition cost in a world where the founders are doing all the selling? Your CAC in some sense is infinity or zero.

Tom Chavez: Right.

Vivek Vaidya: Because that's what the founder's job is-

Tom Chavez: Right.

Vivek Vaidya: ... to sell, because they're learning so much through these customer 

conversations.

Tom Chavez: That's right. And we've talked in previous podcasts about the extremely relationship-driven, founder-oriented selling that goes on at this early stage. There's nothing scalable or replicable about it at all. Right?

Vivek Vaidya: Yeah.

Tom Chavez: It's founders who are just oozing conviction, passion, and smarts. I remember at Rapt, there was a board meeting where somebody, an investor's kind of schooling me and saying, "Well, look, this is missionary sale, Chavez. You got to get in there in missionary sale." I remember having the [inaudible 00:18:32] say, "Uh-huh, this is not a missionary sale, this is an exorcism."

Vivek Vaidya: Right.

Tom Chavez: By the power of Christ, I commend you to buy this software. And I think that every early stage company, customer motion has one or two exorcisms at least, right? If you're doing it about right.

Vivek Vaidya: Yeah. So now as you go from seed to Series A, what starts to change? What matters to investors as you go from seed to Series A? So if product matters in seed, what do they care about at Series A? [inaudible 00:19:08] Series A?

Tom Chavez: Yeah. Look, I mean, everybody talks about product market fit. By the way, we're going to have an episode dedicated just product market fit. So don't mind us hearing now what we kind of wave our hands past that. Because there's a lot of unclear thought and 25 million different distinctions and definitions of product market fit. But the gist of it is that you have something resembling in a replicable motion for getting more of the customers in your target zone to sign up and say yes to the product, right?

In a prior episode, we talked about market message fit. So let's dwell on that a little bit here because depending on the company, the founders, the context, your Series A has to have... You certainly have to have some product market fit, some level of product market fit. In other words, multiple customers who are signing up and actual money is changing hands. If you're an enterprise, which is where we mostly dwell, if you have a product led growth initiative, you have to have meaningful numbers of customers engaging in that way. You have to have a functioning product engineering team, right? It has to be fully-seated.

We have another company that's about to go out for a fundraising, that's important. And I think investors, wise investors want to see this team has congealed a little bit. They worried about ringers and consultants and having things loose in that regard. And you want one or two referenceable customers. You have to... And there again, it's not about the money. Yeah, money needs to change hands, so it needs to be a bonafide deal, right? But the revenue attached to it is much less important than what those customers will say to those investors when they call because they are going to call them.

Vivek Vaidya: Right.

Tom Chavez: Right?

Vivek Vaidya: Right. So what do you think about people throw out these numbers like oh [inaudible 00:21:01] series, before you raise Series A, you have to be at a million dollars of ARR. What do you think about that?

Tom Chavez: Right. And I think it used to be two people would say one or two, I don't know. I mean, on the heels of all the nonsense that's happened in the last couple years, those thresholds I saw were mostly out the window, right? It's now established. I think Databricks had maybe 500K of revenue before their investor came in and called it at an outlandish number.

Vivek Vaidya: Right.

Tom Chavez: Right? So those thresholds provide nice rules of thumb that I think a lot of more numbers oriented VCs like to follow. I guess from my perch, it just seems that more and more of those kinds of rules have been suspended in the last while.

Vivek Vaidya: Yeah. My theory on that is that for businesses and companies and products that are more transactional in nature, you need to have that kind of traction. But for strategic businesses, like a Databricks would be a strategic business, data analysis, AI, ML, a platform for doing all that. Because AI and ML are going to be huge in the future, if you believe in that, then an infrastructure play that gives you a platform to do all that is going to be big eventually. So for long-term strategic bets like that, revenue goals at Series A matter less compared to if you're building transactional businesses-

Tom Chavez: I agree.

Vivek Vaidya: ... like an e-commerce app for [inaudible 00:22:30] something.

Tom Chavez: Right, right. Strategic also means in that context sort of breakthrough. There's not an incremental or evolutionary play.

Vivek Vaidya: Yeah, yeah.

Tom Chavez: This is a whole new way to process and manage data in the service of analytics and machine learning, right?

Vivek Vaidya: Correct.

Tom Chavez: In the case of one of those kinds of companies. So yeah, I mean, and look, we all want to have tidy little rules of thumb that we can follow and that's where it just gets frustrating, right? Because it depends. And by the way, great VCs will take those leaps, right? And there aren't that many of them, but great VCs, you and I both enjoyed this book, The Power Law.

Vivek Vaidya: Yeah.

Tom Chavez: Let's talk about that.

Vivek Vaidya: Yeah.

Tom Chavez: Because I sure enjoy those stories about Moritz and Valentine and those key clutch moments, right? Cisco, the story behind Cisco and the level of dysfunction in that company among the co-founders. The amount of spade work.

Vivek Vaidya: That Don Valentine had to do.

Tom Chavez: Right? To come in. And actually that's not him being a conventional in today's VC, you show up at a board meeting, I critique. That was him on the ground doing shit, right? So really inspiring to see them making those moves. By the way, can we vent for a minute on-

Vivek Vaidya: Sure.

Tom Chavez: ... the VCs now. I mean, look, Markkula at Apple, Valentine at Cisco, that was some hero-

Vivek Vaidya: Huge props.

Tom Chavez: Right?

Vivek Vaidya: Yeah.

Tom Chavez: Heroic.

Vivek Vaidya: Yeah.

Tom Chavez: The ones who show up, jump the parade and make liberal use of the royal we.

Vivek Vaidya: Yeah.

Tom Chavez: We-

Vivek Vaidya: We built this company.

Tom Chavez: When we started Yahoo. Well, no, no, no. Jerry Yang and Dave Filo started Yahoo. You didn't start Yahoo, right?

Vivek Vaidya: Yeah.

Tom Chavez: Or when we built Yahoo. Mm, take it easy, right? And that's one of the themes that runs through parallel that worries me a little bit, is that yes, it's remarkable, venture capital, it's remarkable, engine for growth and entrepreneurship and capitalism broadly. Now, let's not overstate the case, right? Let's always remember that there are company builders behind every venture capital round, who are doing the pride-swallowing, soul-sucking work to build that thing every day. And some VCs lose track of that, I worry.

Vivek Vaidya: Yeah, they do.

Tom Chavez: They think that they did it. They didn't do it, the entrepreneur did it.

Vivek Vaidya: Yeah. And the entrepreneur and their teams did it. It's reall the company, everybody who works for the company.

Tom Chavez: By the way, let's not mythologize. And there I am making another mistake. The entrepreneurs, the management teams-

Vivek Vaidya: Correct.

Tom Chavez: ... did it Right?

Vivek Vaidya: Because everybody who works at a startup is an entrepreneur in some way, shape, or form because they all took a risk. They all made that leap of faith. So Tom, what we've talked about... I think we've kind of talked around this issue a little bit in the last five, seven minutes. So what makes a good VC?

Tom Chavez: Yeah. Well, along the lines of that last note, a good VC understands that they're helpers. They're not the boss, they're not the doer, they're the helper, the critiquer, right? And the best ones really don't just accept that, they embrace it and they get really, really good to that earlier point. They get really goo like Arthur, we worked with another guy named Mike Galgon at Krux. Mike just had this fantastic ability to show up. You were there for those board meetings, doesn't talk too much, right? Here's one of the mark of a great VC. Doesn't talk too much, but when they do, bam, it's just on the nose. Like, holy cow, why didn't I think of that? Right?

Vivek Vaidya: Yeah.

Tom Chavez: These catalytic questions that open up new apertures, new possibilities, risks, and flanks that you hadn't adequately thought about. That's for me the mark of a great VC. We also talk about, you and I have had VCs who in one or two cases, are a little too eager to be in the middle of places where they're not needed. I think another mark of a great VC is being very present in the places where they're needed and explicitly not around when they're not needed.

Vivek Vaidya: Yeah, I think, again, back to letting the entrepreneurs and the founders do their thing and knowing where to lean in and offer helpful advice, right? So then as you think about that, you kind of land up in a place where building and establishing that trust between VCs and the founders/entrepreneurs becomes paramount.

Tom Chavez: I think you're right.

Vivek Vaidya: Right?

Tom Chavez: It's really just trust is oxygen for any company building effort, but especially between the entrepreneurs and the VCs, right? And so I think it seems to me when I compare notes with others when they get crosswise with their investors, maybe there was no chemistry to begin with, but when it started out good, and then it goes wrong. It's where investors, and you and I have some of these dynamics that we attend to now these days as well. You can't break your pick being too prescriptive and snippy and persnickety about the things that need to happen, but maybe the entrepreneur isn't there yet.

Vivek Vaidya: Yeah. Yeah. And I remember we had a couple of situations like that at Krux also, where there were, I won't say disagreement, but differences of opinion, if you will, on whether we should do a particular thing or not.

Tom Chavez: That's right.

Vivek Vaidya: And you and I were passionate about, yeah, no, no, this is where we're going. And there was a lot of debate and discussion and perhaps even position taking.

Tom Chavez: That's right.

Vivek Vaidya: But we were given the leeway to go do the things we wanted to do.

Tom Chavez: Yeah, because we'd earned a little bit of credibility and trust-

Vivek Vaidya: Yeah, sure.

Tom Chavez: ... on the heels of Rapt. Can I tell a good story about Rapt?

Vivek Vaidya: Yeah.

Tom Chavez: So there was that moment, remember you were there, where we're a supply chain optimization company, right? Apple, Hewlett Packard, Seagate, those were our customers. And then Yahoo came [inaudible 00:28:59]. And it was clear, it felt clear to me like okay, this supply chain thing is going to zero. Because all of the companies they want to buy from SAP and Oracle, they don't want to buy best of breed from small companies like us. We'd done... It was incredible that we had those customers, but when the possibility of pivoting into media modernization away from supply chain optimization using the same cool algorithmic technology we developed, that was a really controversial thing.

Vivek Vaidya: Yeah, I'm sure.

Tom Chavez: So let's make sure that Arthur never listens to this podcast. Arthur, turn it off right now if you're listening. But there was that moment where Arthur had the CFO, invited CFO of the company to breakfast and told him, "Listen, you got to get..." I'm not going to do my Arthur voice for you right now. I know you want me to, but I'm not going to.

Vivek Vaidya: Okay, okay.

Tom Chavez: "You got to get Chavez off this crazy Yahoo media stuff. It's going to be... It's the path to perdition, you got to get them off of that." Right? And let's just say there were mighty clashings of antlers-

Vivek Vaidya: Yeah, I'm sure. 

Tom Chavez: ... [inaudible 00:30:08] that topic.

Vivek Vaidya: I'm sure.

Tom Chavez: Now, let's not also look at the outcome and say, well, of course... Because of the outcome, we were right. Maybe not, right? It could have gone... And that's the agony of the venture capitalists and the entrepreneurs, you don't know for sure. You're just trying to make good decisions and playing the odds. Now with the benefit of hindsight, and we try not to do this, you and I, but yeah, it worked out.

Vivek Vaidya: It was a great decision.

Tom Chavez: It worked out. Everybody, "Oh, you're a genius." Well, maybe, I don't know. But the point here is that the entrepreneur, and you and I also get worried, any entrepreneur who's doing exactly what you tell them to do is a shitty entrepreneur.

Vivek Vaidya: Is by definition not an entrepreneur, yeah, you want to work with.

Tom Chavez: Right?

Vivek Vaidya: Yeah.

Tom Chavez: You need that, what we call the obsessive intensity, the demonic energy of the entrepreneur. Like, "Damn it, I'm going to do the thing." So a little bit of that tension is good, but to your point, I think it's all about asking the right questions, being in the right places, being supportive. By the way, it's also being a father confessor, right? Sometimes an entrepreneur, it's a screwy job. And sometimes you just need to vent a little bit, right? We spend a good amount of time now just trying to be present for the entrepreneurs at super{set}, let them vent, compare notes.

Vivek Vaidya: Therapy sessions.

Tom Chavez: That's right.

Vivek Vaidya: Therapy sessions.

Tom Chavez: That's right, that's important.

Present Day: super{set}

Vivek Vaidya: I spend least amount of my time in therapy sessions these days. So Tom, how has all this experience now informed what we do at super{set}? I know we've been kind of talking about a lot of things. Let's try to close it out. How has that influenced what we do at super{set}?

Tom Chavez: Okay. So the first thing is, and this [inaudible 00:31:44] back to the angel investor round that we did at Rapt with $230,000. I spent hundreds of hours running around with my little tin cup, getting 10 and 15 and 20K slugs from angels. And I'm grateful for all of them. But I'm just pointing out that that was hundreds and hundreds of hours getting a tiny amount of money to keep myself in cookies and to keep enough oxygen going so that the company didn't die. Not the highest best use of time.

So the first answer to your question, we talk about this a lot, you and I is look, an hour spent pedaling idle PowerPoint on Sand Hill Road with a mountain of unverifiable claims to people who write very small checks of other people's money. That is an hour that you're never going to get back and would be much better used in working on customers product, right? Actual company building. So the first thing we try to do at super{set} is like, look, first thing's first, let's create the soil conditions and the capital so that great entrepreneurs can just focus on those bits. That I would say is the first most critical thing. What else would you put in this sort of lineup of key ways that we differentiate and build at super{set} relative to the other [inaudible 00:33:05]?

Vivek Vaidya: Yeah, I think the... Building on your point about what's important at the seed stages is we introduce this discipline of focusing on product, product, product. And the other aspect of company building at that early, early stage are just handled-

Tom Chavez: That's right

Vivek Vaidya: ... by us, by super{set}. And to the conversation that we were having about when to go raise Series A, we work with our co-founders to take them on that journey. And because there's a lot of this noise out there, "Oh, you need to be doing this to get Series A and whatnot," but introducing that, just that kind of narrative around, no, you could do this or you could do that. It's not always a million in ARR.

Tom Chavez: Right.

Vivek Vaidya: Helping them go through that journey is something that we also do with them together-

Tom Chavez: That's right.

Vivek Vaidya: ... at super{set}.

Tom Chavez: Let's come back to that product point and then map it to the book that you and I both like a lot, The Power Law. By the way, anybody listening to this, read it. If you want to understand venture capital, Silicon Valley, generally tech, it's a must read. We gave props to Markkula and Valentine in those contexts. It's really not clear to me that there are any venture capitalists who could mount a credible product attack for one of these new companies. Maybe in their former lives when they were operators, they could, but their models and their habits and the way they're set up, it doesn't allow for the kind of hardcore hands-on product work that we like to do, right? And so in a context where dollars are just infinite and everybody's... So much money sloshing around, it seems to us, and this is to your point, how do we do it at super{set}? Let's pick up a shovel and really focus on the staging, sequencing of a kick-ass product, right? That's what separates the tourists from the winners.

Vivek Vaidya: Winners. Yeah, yeah. Well, cool. So we've talked about a lot of... Covered a lot of ground in this episode, Tom. We talked about whether VCs are important or not. Of course, they are. When to go ask for... When to go raise money. What's the stage appropriate thing to do? What matters more in seed versus Series A and whatnot? So hopefully, our listeners have a good sense for the role of the VC and how it's evolving, especially with studios like super{set} coming up as well.

Tom Chavez: And we've talked all about investors, and I think we should take up in the next one is actual boards.

Vivek Vaidya: Oh, yeah, yeah.

Tom Chavez: Right?

Vivek Vaidya: Because VCs, if you have an investor who's put money in your company, they will want to be in your board. What does that relationship look like?

Tom Chavez: That's right. And that's a related thing, but it's a whole new kettle of fish.

Vivek Vaidya: Yeah, absolutely.

Tom Chavez: Let's take that up in the next one.

Vivek Vaidya: All right. Well, thank you everyone for listening. We'll be back with episode eight shortly.

Tom Chavez: Thanks everybody

Hide

Get our monthly newsletter in your inbox.

Oops! Something went wrong while submitting the form.
Written By
Written By
Read next

Introduction

In the first episode of The Closed Session, meet Tom Chavez and Vivek Vaidya, serial entrepreneurs and podcast hosts.

read more

Starting From Scratch

In the second episode of The Closed Session, Tom and Vivek discuss the framework for starting your own company from scratch, and the three dimensions that should be taken into account.

read more

The Business Plan

You’ve decided to launch a business, but before you hurtle blindly into the breach, you need a bulletproof plan and a perfect pitch deck to persuade your co-founders, investors, partners, and employees to follow you into the unknown.

read more

Early-Stage Funding Do’s and Dont’s

In this episode of The Closed Session, Tom and Vivek talk about dilution, methods, mindset, benchmarks and best practices for raising investment capital for a new tech startup.

read more

Early Team Formation

Now that you've written the business plan and raised money, it's time to recruit your early team. In this episode, Tom and Vivek cover the do's and dont's of building a high-output team - who to hire, how to build chemistry and throughput, how to think about talent when your company is a toddler versus when it's an adolescent.

read more

Creating a Winning Culture: Must-Haves, Memes, and Tips

read more

Building a Kickass Product & Technology Engine

read more

Women in Tech

read more

How to Interview for a Startup

read more

Is Tech Stingy? The Case for Doing Well *and* Doing Good

read more

And, we’re live at super{set}!

Welcome to Season 2 of The Closed Session! In this first episode of 2020, Tom and Vivek talk about the five companies super{set} launched in 2019 and the lessons they’re learning as they go.

read more

Equity and Inclusion

Tom and Vivek talk about inclusion and reflect on their personal experiences as brown guys in tech. Inclusion feels like a moral imperative, but does it really make for stronger, better companies? Are there unintended consequences of acting on good intentions to 'fix' an inclusion problem at a company? Why is tech so lacking in diversity, and what can we do to get it right?

read more

super{set}’s Spectrum Detoxifies The Online Space

We are living in a time of extraordinary concern about the negative consequences of online platforms and social media. We worry about the damage interactive technologies cause to society; about the impact to our mental health; and about the way that these platforms and their practices play to our most destructive impulses. Too often, the experiences we have online serve only to polarize, divide, and amplify the worst of human nature.

read more

From Watsonville To The Moon

This post was written by Habu software engineer, Martín Vargas-Vega, as part of our new #PassTheMic series.

read more

Not Just On Veterans Day

This post was written by Ketch Developer Advocate, Ryan Overton, as part of our #PassTheMic series.

read more

Thick Skin, Tech and Black History Month

This post was written by Ketch Data Privacy & Compliance Specialist, Jocelyn Brunson, as part of our #PassTheMic series.

read more

The Balancing Act For Women in Tech

This post was written by Ketch Sales Director, Sheridan Rice, as part of our #PassTheMic series.

read more

The Studio Model

What’s a startup studio? Is it just “venture capital” with another name?

read more

We don’t critique, we found and build.

The super{set} studio model for early-stage venture It is still early days for the startup studio model. We know this because at super{set} we still get questions from experienced operators and investors. One investor that we’ve known for years recently asked us: “you have a fund — aren’t you just a venture capital firm with a different label?”

read more

Silicon Valley’s Greatest Untapped Resource: Moms

This post was written by MarkovML Co-Founder, Lindsey Meyl, as part of our #PassTheMic series.

read more

New Venture Ideation

Where do the ideas come from? How do we build companies from scratch at super{set}?

read more

Good Ideas, Good Luck

Coming up with new company ideas is easy: we take the day off, go to the park, and let the thoughts arrive like butterflies. Maybe we grab a coconut from that guy for a little buzz. While this describes a pleasant day in San Francisco, it couldn’t be further from the truth of what we do at super{set}. If only we could pull great ideas out of thin air. Unfortunately, it just doesn’t work that way.

read more

Data Eats the World

The wheel. Electricity. The automobile. These are technologies that had a disproportionate impact on the merits of their first practical use-case; but beyond that, because they enabled so much in terms of subsequent innovation, economic historians call them “general-purpose technologies” or GPTs...

read more

The Four Types of Startup Opportunities

In our last post, we discussed how data is the new general-purpose technology and that is why at super{set} we form data-driven companies from scratch. But new technologies are a promise, not a sudden phase change.

read more

VCs Write Investment Memos, We Write Solution Memos

When a VC decides to invest in a company, they write up a document called the “Investment Memo” to convince their partners that the decision is sound. This document is a thorough analysis of the startup...

read more

Lessons of Grit from my Immigrant Parents

This post was written by Ketch Solutions Engineer, Sahiti Surapaneni, as part of our #PassTheMic series.

read more

People, First

What does it mean to be a super{set} co-founder and who do we look for? Why is the Head of Product the first co-founder we bring on board?

read more

Navigating Juneteenth

Considered by some to be “America’s Second Independence Day,” Juneteenth has only recently entered the national zeitgeist. Celebrated on the third Saturday in June, it became a federal holiday just last year under President Joe Biden. Many companies are left wondering how to acknowledge the holiday. We sat down with Eskalera’s co-founder Dr. Tolonda Tolbert to get her take.

read more

The super{set} Entrepreneurial Guild

Has someone looking to make a key hire ever told you that they are after “coachability”? Take a look at the Google ngram for “coachability” — off like a rocket ship since the Dot Com bubble, and it’s not even a real word! Coaching is everywhere in Silicon Valley...

read more

Why Head of Product is Our First Co-Founder

At super{set}, we stand side-by-side and pick up the shovel with our co-founders. Our first outside co-founder at a super{set} company is usually a Head of Product. Let’s unpack each portion of that title....

read more

Why I'm Co-founding @ super{set}

Pankaj Rajan, co-founder at MarkovML, describes his Big Tech and startup experience and his journey to starting a company at super{set}.

read more

Too Dumb to Quit

The decision to start a company – or to join an early stage one – is an act of the gut. On good days, I see it as a quasi-spiritual commitment. On bad days, I see it as sheer irrationality. Whichever it is, you’ll be happier if you acknowledge and calmly accept the lunacy of it all...

read more

The Product Heist

Tom and Vivek describe how building the best product is like planning the perfect heist: just like Danny Ocean, spend the time upfront to blueprint and stage, get into the casino with the insertion product, then drill into the safe and make your escape with the perfect product roadmap.

read more

Founder and Father: A Balancing Act

Making It Work With Young Kids & Young Companies

read more

Early Stage Customers

Tom and Vivek discuss what the very first customers of a startup must look and act like, the staging and sequencing of setting up a sales operation with a feedback loop to product, and end with special guest Matt Kilmartin, CEO of Habu and former Chief Revenue Officer (CRO) of Krux, for his advice on effective entrepreneurial selling.

read more

Overheard @ super{summit}

Vivek Vaidya's takeaways from the inaugural super{summit}

read more

How I Learned to Stop Optimizing and Love the Startup Ride

Reflections after a summer as an engineering intern at super{set}

read more

Why I Left Google To Co-found with super{set}

Gal Vered of Checksum explains his rationale for leaving Google to co-found a super{set} company.

read more

The Era of Easy $ Is Over

The era of easy money - or at least, easy returns for VCs - is over. Tom Chavez is calling for VCs to show up in-person at August board meetings, get off the sidelines, and start adding real value and hands-on support for founders.

read more

The super{set} CEO

Tom and Vivek describe what the ideal CEO looks like in the early stage, why great product people aren’t necessarily going to make great CEOs, and what the division of labor looks like between the CEO and the rest of the early team. They then bring on special guest Dane E. Holmes from super{set} company Eskalera to hear about his decision to join a super{set} company and his lessons for early-stage leadership.

read more

How To Avoid Observability MELTdown

o11y - What is it? Why is it important? What are the tools you need? More importantly - how can you adopt an observability mindset? Habu Software Architect Siddharth Sharma reports from his session at super{summit} 2022.

read more

When Inference Meets Engineering

Othmane Rifki, Principal Applied Scientist at super{set} company Spectrum Labs, reports from the session he led at super{summit} 2022: "When Inference Meets Engineering." Using super{set} companies as examples, Othmane reveals the 3 ways that data science can benefit from engineering workflows to deliver business value.

read more

Infrastructure Headaches - Where’s the Tylenol?

Head of Infrastructure at Ketch, and Kapstan Advisor, Anton Winter explains a few of the infrastructure and DevOps headaches he encounters every day.

read more

Calling BULLSHIT

Tom and Vivek jump on the pod for a special bonus episode to call BULLSHIT on VCs, CEOs, the “categorical shit,” and more. So strap yourselves in because the takes are HOT.

read more

Former Salesforce SVP of Marketing Strategy and Innovation Jon Suarez-Davis “JSD” Appointed Chief Commercial Officer at super{set}

The Move Accelerates the Rapidly Growing Startup Studio’s Mission to Lead the Next Generation of AI and Data-Driven Market Innovation and Success

read more

Why I'm Joining super{set} as Chief Commercial Officer

Announcing Jon Suarez-Davis (jsd) as super{set}’s Chief Commercial Officer: jsd tells us in his own words why he's joining super{set}

read more

When and Why to Bring on VCs

Tom and Vivek describe the lessons learned from fundraising at Rapt in 1999 - the height of the first internet bubble - through their experience at Krux - amid the most recent tech bubble. After sharing war stories, they describe how super{set} melds funding with hands-on entrepreneurship to set the soil conditions for long-term success.

read more

Startup Boards 101

Tom and Vivek have come full circle: in this episode they’re talking about closed session board meetings in The {Closed} Session. They discuss their experience in board meetings - even some tense ones - as serial founders and how they approach board meetings today as both co-founders and seed investors of the companies coming out of the super{set} startup studio.

read more

Q&A with Accel Founder Arthur Patterson

Arthur Patterson, founder of venture capital firm Accel, sits down for a fireside chat with super{set} founding partner Tom Chavez as part of our biweekly super{set} Community Call. Arthur and Tom cover venture investing, company-building, and even some personal stories from their history together.

read more

Former Salesforce SVP of Marketing Strategy and Innovation Jon Suarez-Davis “JSD” Appointed Chief Commercial Officer at super{set}

The Move Accelerates the Rapidly Growing Startup Studio’s Mission to Lead the Next Generation of AI and Data-Driven Market Innovation and Success

read more

How I Learned to Stop Optimizing and Love the Startup Ride

Reflections after a summer as an engineering intern at super{set}

read more

Navigating Juneteenth

Considered by some to be “America’s Second Independence Day,” Juneteenth has only recently entered the national zeitgeist. Celebrated on the third Saturday in June, it became a federal holiday just last year under President Joe Biden. Many companies are left wondering how to acknowledge the holiday. We sat down with Eskalera’s co-founder Dr. Tolonda Tolbert to get her take.

read more

super{set}’s Spectrum Detoxifies The Online Space

We are living in a time of extraordinary concern about the negative consequences of online platforms and social media. We worry about the damage interactive technologies cause to society; about the impact to our mental health; and about the way that these platforms and their practices play to our most destructive impulses. Too often, the experiences we have online serve only to polarize, divide, and amplify the worst of human nature.

read more

We don’t critique, we found and build.

The super{set} studio model for early-stage venture It is still early days for the startup studio model. We know this because at super{set} we still get questions from experienced operators and investors. One investor that we’ve known for years recently asked us: “you have a fund — aren’t you just a venture capital firm with a different label?”

read more

Why I'm Joining super{set} as Chief Commercial Officer

Announcing Jon Suarez-Davis (jsd) as super{set}’s Chief Commercial Officer: jsd tells us in his own words why he's joining super{set}

read more

The Era of Easy $ Is Over

The era of easy money - or at least, easy returns for VCs - is over. Tom Chavez is calling for VCs to show up in-person at August board meetings, get off the sidelines, and start adding real value and hands-on support for founders.

read more

Overheard @ super{summit}

Vivek Vaidya's takeaways from the inaugural super{summit}

read more

The super{set} Entrepreneurial Guild

Has someone looking to make a key hire ever told you that they are after “coachability”? Take a look at the Google ngram for “coachability” — off like a rocket ship since the Dot Com bubble, and it’s not even a real word! Coaching is everywhere in Silicon Valley...

read more

From Watsonville To The Moon

This post was written by Habu software engineer, Martín Vargas-Vega, as part of our new #PassTheMic series.

read more

Data Eats the World

The wheel. Electricity. The automobile. These are technologies that had a disproportionate impact on the merits of their first practical use-case; but beyond that, because they enabled so much in terms of subsequent innovation, economic historians call them “general-purpose technologies” or GPTs...

read more

Not Just On Veterans Day

This post was written by Ketch Developer Advocate, Ryan Overton, as part of our #PassTheMic series.

read more

Why I'm Co-founding @ super{set}

Pankaj Rajan, co-founder at MarkovML, describes his Big Tech and startup experience and his journey to starting a company at super{set}.

read more

Q&A with Accel Founder Arthur Patterson

Arthur Patterson, founder of venture capital firm Accel, sits down for a fireside chat with super{set} founding partner Tom Chavez as part of our biweekly super{set} Community Call. Arthur and Tom cover venture investing, company-building, and even some personal stories from their history together.

read more

Lessons of Grit from my Immigrant Parents

This post was written by Ketch Solutions Engineer, Sahiti Surapaneni, as part of our #PassTheMic series.

read more

VCs Write Investment Memos, We Write Solution Memos

When a VC decides to invest in a company, they write up a document called the “Investment Memo” to convince their partners that the decision is sound. This document is a thorough analysis of the startup...

read more

Thick Skin, Tech and Black History Month

This post was written by Ketch Data Privacy & Compliance Specialist, Jocelyn Brunson, as part of our #PassTheMic series.

read more

Infrastructure Headaches - Where’s the Tylenol?

Head of Infrastructure at Ketch, and Kapstan Advisor, Anton Winter explains a few of the infrastructure and DevOps headaches he encounters every day.

read more

Why Head of Product is Our First Co-Founder

At super{set}, we stand side-by-side and pick up the shovel with our co-founders. Our first outside co-founder at a super{set} company is usually a Head of Product. Let’s unpack each portion of that title....

read more

Why I Left Google To Co-found with super{set}

Gal Vered of Checksum explains his rationale for leaving Google to co-found a super{set} company.

read more

Good Ideas, Good Luck

Coming up with new company ideas is easy: we take the day off, go to the park, and let the thoughts arrive like butterflies. Maybe we grab a coconut from that guy for a little buzz. While this describes a pleasant day in San Francisco, it couldn’t be further from the truth of what we do at super{set}. If only we could pull great ideas out of thin air. Unfortunately, it just doesn’t work that way.

read more

The Balancing Act For Women in Tech

This post was written by Ketch Sales Director, Sheridan Rice, as part of our #PassTheMic series.

read more

Silicon Valley’s Greatest Untapped Resource: Moms

This post was written by MarkovML Co-Founder, Lindsey Meyl, as part of our #PassTheMic series.

read more

How To Avoid Observability MELTdown

o11y - What is it? Why is it important? What are the tools you need? More importantly - how can you adopt an observability mindset? Habu Software Architect Siddharth Sharma reports from his session at super{summit} 2022.

read more

When Inference Meets Engineering

Othmane Rifki, Principal Applied Scientist at super{set} company Spectrum Labs, reports from the session he led at super{summit} 2022: "When Inference Meets Engineering." Using super{set} companies as examples, Othmane reveals the 3 ways that data science can benefit from engineering workflows to deliver business value.

read more

Founder and Father: A Balancing Act

Making It Work With Young Kids & Young Companies

read more

The Four Types of Startup Opportunities

In our last post, we discussed how data is the new general-purpose technology and that is why at super{set} we form data-driven companies from scratch. But new technologies are a promise, not a sudden phase change.

read more

Too Dumb to Quit

The decision to start a company – or to join an early stage one – is an act of the gut. On good days, I see it as a quasi-spiritual commitment. On bad days, I see it as sheer irrationality. Whichever it is, you’ll be happier if you acknowledge and calmly accept the lunacy of it all...

read more