2022 Year in Review

2022 continues to test our resilience on the economic, political, and social fronts. However, as a People-First firm with a 50 year plus history of investing through up and down cycles, we remain eternal believers in the power of entrepreneurs and their ability to build a bright future. Our team of founders turned investors is eager to partner with entrepreneurs who are changing the way we live, work and play, and we look forward to our shared inception to iconic journey. Join us as we look back on 2022 and forward to the journey ahead.

The Golden Age of Semiconductor Innovation Continues

As a venture capital firm that has been investing in tech for over 50 years, we have witnessed many technology inflection points. Iconic semiconductor companies, which gave Silicon Valley its name, grew by taking advantage of Moore’s Law, doubling processing speeds every 24 months by packing more transistors on chips. About five years ago we, along with others, observed a plateauing of Moore’s Law, giving rise to a need for architectural innovation & workload-optimized silicon. I shared how the Renaissance of Silicon would create new industry giants, and wrote about opportunities for startups.

As we close 2022, the golden age for semiconductor innovation continues, enabling the rise of startups to serve emerging market needs. This is driven by new governmental policy and four industry shifts.  

CHIPS Act: The recently signed CHIPS Act, through which the government will provide incentives for companies to manufacture semiconductors within the US, is a major development. These incentives extend to the supply chain and companies operating in mature nodes. In addition, there are R&D provisions that intend to improve access to prototyping which can encourage startups that need to leverage fab process changes to innovate. There are also expectations for a $500M fund for chip startups.  

RISC V: We have seen the increasing momentum of the RISC V movement, an open source architecture which has the potential to create exponential opportunities, similar to how Linux impacted software. Startups who are freed from using the closed X86 system or paying the prohibitive licensing fees imposed by ARM, are inventing new processors for new applications. 

Chiplets: The emergence of chiplets –  tiny integrated circuits that contain a well-defined subset of functionality and which can be implemented in a mix-and-match “LEGO-like” assembly – is another trend powering innovation. 

EDA-as-a-Service: Cloudification has come to semis with the emergence of EDA-as-a-service, providing vendors access to design tools in a pay-per-use model. 

Shuttling: And the prevalence of *shuttling* – the ability to utilize partial capacity in fabs – similar to renting space in shipping containers, has greatly reduced the cost of getting to the tape out stage.


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Eight market opportunities will benefit from the availability of specialized silicon:
  • IoT  – The 100 billion devices that are touching all aspects of our lives – smart thermostats, doorbells and more – need to have intelligent processors with cellular internet connectivity.  
  • Autonomous – This is a complicated problem, as self-driving and ADAS (advanced driver-assistance systems), are augmenting humans for the first time. A car is bigger than a data center with 100s of interconnects. There has to be breakthrough processing at the edge, through inference chips as an example, as a bandwidth heavy solution like sending data back into the cloud for AI processing will not work. 
  • Cooling – Climate change is coming to data centers which are already moving to liquid emergent cooling, but that is not enough. Phones have 10x the power of desktops 10 years ago—when they overheat, they have to throttle the CPU, leading to poor performance. Miniature devices struggle to fit fans. There will be a new wave of solid state cooling startups addressing this need. 
  • Biology – Breakthrough health devices such as next generation sequencers, needle-free glucose monitoring sensors, new diagnostics systems and the like are creating the need for new kinds of special purpose chips.  
  • Vision – Most devices now have eyes (phones, doorbells, cars) and as their resolution goes higher, we need their processing power to catch up.
  • Optics – Copper wires have limited capacity leading to the need for optical interconnects to handle 400-800 gigabits/second. What used to happen in telecom with undersea fiber will now happen in commercial offices and data centers for connectivity.
  • MEMS – There will be a lot of new innovation in sensors for various applications. 
  • Web3 – Similar to how Cisco, Sun Microsystems, Palo Alto Networks or Juniper Networks served as the gateway to the Internet in Web 1.0, we believe that new equipment giants for Web3 will be created.  

The semiconductor industry has a 70+ year history of innovating at inflection points to create new categories of products and maintain the US competitive advantage. I believe we are at another such inflection point, one in which governmental support and the driving force of new markets are coinciding to help entrepreneurs put silicon back into Silicon Valley.

Saving the World: The Playbook for Building Planetary Health Unicorns | TechCrunch Disrupt 2022

Mayfield Partner, Arvind Gupta led a session at TechCrunch Disrupt 2022 where he shared insights into creating built to last human and planetary health startups. Here are some key takeaways: 

Define your keystone problem

When building companies that aim to tackle some of humanity’s biggest challenges, it’s easy to get distracted by the noise of endless problems that need to be solved. Focus on one keystone problem and ignore everything else. When working to solve your keystone problem treat your first product as if it were your last and ensure you can demonstrate a high surface area of impact. Arvind warns that the risk vs reward ratio becomes difficult for investors to justify if startups are not addressing a large enough market, so keep TAM in mind when visualizing your product and deciding which problem to solve. 

Company building is a team sport

In turbulent markets the highest quality teams come out on top. Founders should concentrate their efforts on attracting an all star team, including expert advisors, to help them navigate the long and winding road of company building. It’s important to acknowledge your own areas of weakness quickly and hire a team that complements your skill set.

Lean in

Human and planetary health founders often find it difficult to evolve from scientist to CEO, as succeeding as a founder requires a different skill set and mindset compared to academia. Founders have to understand both the science side and the business side in order to galvanize their team around the core mission and ultimately build iconic companies.


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How Startups Can Survive The Downturn With Financial Planning | TechCrunch Disrupt 2022

Former 3x CFO turned Cube CEO & Co-founder Christina Ross joined Mayfield Partner Rajeev Batra at TechCrunch Disrupt 2022 for a candid conversation on what startups need to survive today, and how financial planning can help them emerge stronger on the other side. Here are some key takeaways. 

Engage potential customers to iterate your way to success:

It’s essential your product is a painkiller not a vitamin. For Christina, this meant figuring out who her ideal user was and building trust and rapport with them. Through consistent conversations with potential customers Christina was able to gather meaningful feedback on her product. Rajeev reflected on Cube’s journey by remembering that even when Christina had confirmation bias she continued to test her idea. This became a key part of setting herself up for a great Series A funding round despite the fact the pandemic was in full swing. Eventually Christina began to ask her potential customers if they would consider paying for Cube’s spreadsheet-native FP&A software. When she started receiving consistent yeses, she knew it was time to launch. As Rajeev says, a product that people won’t pay for is not a product, it’s just technology.

Manage your capital to your goals:

In recessionary environments there tends to be pressure to immediately cut costs because, as Christina has said, cash is king and runway is queen. However Rajeev warns that you cannot cut your way to success, you have to manage your way to building a great company. You should think of capital as something to be managed to a goal. When managing for growth, it’s useful to keep the rule of 40 in mind: your revenue growth rate plus profit margin should be equal to or more than 40%. During challenging financial times, Christina advises finance leaders and founders to take a look at their strategic priorities and focus on one or two only, then manage your capital to these milestones, as many startups die of indigestion, not starvation. 


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Build a zone of trust with your investors:

At Mayfield we invest in long-term relationships with founders on their company-building journeys from inception to iconic. Spending time to build trusting relationships with your investors ensures that as a founder you have someone to lean on for advice, which is especially important when times get tough. The path of an entrepreneur can be a lonely one, so set yourself up for success by building strong relationships that can withstand the ups and downs of the company building journey.

How to Recession Proof Your Company | TechCrunch Disrupt 2022

Ursheet took to the stage at TechCrunch Disrupt 2022 to share lessons learned during multiple financial downturns as an investor and a founder, as a follow up to his Masterclass session with the Battlefield cohort. Here are some key takeaways. 

Running your company during a downturn requires razor focus

Even though in a recessionary environment cash is king and runway is queen, you can’t become over conservative during a recession, because you can’t cut your way to profitability. Build a zero-based budget and then find the areas for quality growth and double down on them. Concentrating your resources and attention to fewer things will increase your odds of coming out stronger on the other side. 

Build meaningful relationships with your investors

At Mayfield we invest in long-term relationships and support entrepreneurs through all the ups and downs of a startup. A common mistake founders tend to make when they are feeling the weight of an economic downturn is partnering with misaligned investors. Don’t take money from investors who are looking for a quick exit – it’s important to find someone you trust who will champion your vision for the company. At the same time, during economic downtowns it’s important as a founder to become situationally aware as fast as you can. Demonstrate to current and potential investors that you understand the environment by planning based on historical multiples. 

Look for the silver linings

Although challenging, recessions can provide a great opportunity to build successful and long lasting companies. Hiring during a downturn is significantly easier, and the people you hire will be there because they genuinely want to be at a startup, instead of hopping on the bandwagon. There is also less competition during a recession, both from other startups and big companies. We look forward to investing in entrepreneurs changing the way we live, work and play.



 

Evolving Your Selling Approach for Today’s Economy

Questions you should be asking your sales team:

  • So you got a meeting, but can you stay relevant?
  • 2023 will be the year of the CFO, are you prepared?
  • The pandemic caused huge changes, but are you still selling the same way?
  • Honestly, how well do you know your customer?

Mayfield hosted Gary Sorrentino, Global CIO at Zoom, to have a discussion with our portfolio companies on how CIO and other executive spending dynamics are changing in this turbulent market. Gary shared what works and what fails, and how to evolve for today’s market dynamics that require more high impact business value as the core vs. relying on underwhelming technology features, functions and “please no” demos!

Corporate tech leaders are revisiting budgets and vendor relationships in preparation for the possibility of tougher times ahead, and it will become increasingly important for startups to begin adapting to these headwinds. Gary dives into how exactly executives are editing their priorities, and how sales and marketing can best position to win over difficult deals in today’s more challenging market. Because after all, you can get the meeting, but do you really know how to add value? Can you stay in the room? This is a very simple concept, but tactically less simple than it initially appears? How can startups move beyond being interesting and having cool tech to being high-impact and high-value? How are they making this worthwhile for the buyer? Because at the end of the day, that person has to take the product down the hall and actually get budget (or bigger budget). The goal should always be to create a lasting, long-term, relationship.

Key Takeaways

  1. Business Value Comes First – Remember that CIOs are nice people – they’re not necessarily telling you “no” when they won’t buy your product – they’re telling you that you’re not high enough on the business value chain that they can pay that for it. Business value is fundamentally the key – not cost savings
  2. You’re not Selling SKUs, You’re Selling Solutions – You’re selling happiness, customer experience, client experience, user experience. If you think you’re selling software, you shouldn’t be selling it
  3. Buyers are Accountable to Those Above Them – Your deck and your presentation must provide them with the right tools to sell this product to the rest of the organization, and make them look like the smartest person in the room

A Few Words on Starbucks and Doing Business Right

Modern Selling – What Should the Post-COVID Sales Pitch for Enterprise Look Like?

It’s important to keep in mind that buyers are accountable – so a good sales presentation needs to speak to that. A startup’s deck should make the potential buyer look good to their superiors, by covering things in a way that can be easily passed along upstream. A few core tips for these decks that Gary covered include:

  • Kick things off with a solid executive summary. If you get stuck on that one slide for the full hour or 45 minutes just talking about the product or business value of your solution, that’s a successful meeting. Consider: Here’s what makes us different, here’s what your C-suite wants and you want, and are we missing anything that’s on your internal list?
  • Consider how the customer will present this internally. That has to be 90% your work and 10% theirs. Make sure that whatever you’re giving them is easily digestible for their internal team. As the selling team you can even ask them: “How can I properly arm you? How can I package our content in a way that makes sense for you to share?” Make the buyer the smartest person in the room when they go to talk to the board
  • Educate yourself about the person on the other side of the table. Two pages is a good rule of thumb. The more you know about them, the more successful the conversation is going to be. Are they a buyer or a seller? Do they believe in self-development? Do they believe in the cloud or are they really one of those on-prem guys? Do they believe in flexible work? Everyone is all over LinkedIn. It’s almost like dating today – you Google someone before you meet them – why aren’t you doing that to the person you’re presenting to?
  • Don’t try to convince the buyer that they have the “problem” you’re trying to sell. In that case you’re basically telling them that they don’t know what they’re talking about. If the buyer doesn’t know the problem, there are larger issues afoot. That being said, providing a quick overview, and proving that you understand the buyer’s space is extremely valuable. Don’t just kick things off with a bunch of questions (“You just said you serviced a bunch of banks! Don’t you already know the answers to these questions?”). State the problem back in terms the buyer will understand. Plus, have different game plans: Have a game plan for J.P. Morgan, but also have a game plan for the regional bank. They are not the same
  • Be careful when using competitor logos. Everyone knows each other and it can come across as arrogant – perhaps save some of that data for the appendix
  • Business value is extremely important. What is the value? How will you make the buyer successful in their firm by using the value to fix a problem?
  • What are the next steps? Do not forget to have a clear path forward
  • Don’t spend too much time talking about cost or discounts. If the buyer doesn’t like the product, who cares about the cost or discounts? This can be covered briefly towards the end. Additionally, ROI can be very hard to sell as well. If you come in and say you’re saving a company a million dollars, there’s probably no way you’re saving that company a million dollars (or at least not green dollars). It gets discounted 1000%. Consolidation/eliminating tools can be an easier sell here (because headcount reduction won’t actually happen but consolidation of tools might actually happen). So many ROI numbers are just completely made up
  • Don’t sell SKUs, sell solutions. The true value that you’re providing is not the product, it’s in between the products. It’s when the client asks: Do you know how I could take this beyond the scope? Don’t fail to tell them how to fully leverage it
    Video speaks a lot of words today. Perfect and record the elevator speech. Attach it to emails

On Customer Councils and Advisory Boards

Do these bring real value? Starting industry-specific councils to listen for feedback can provide tremendous customer insights (vs. using them to push SKUs). Bring in your biggest customers and have them help you understand what their problems are in a given area. How can your products be better designed to help them?

First, you learn how you have to mature the product. That’s always good. But you also learn what they’re thinking, so that when you go to sell their peers, you can take their words and regurgitate them back. Instead of “J.P. Morgan said X so you should do X,” you want to be saying “We work with your industry and we have heard from your industry that you have a need to do this better.” Do you want to be a vendor or a partner? Everyone is a vendor already, you have to earn partner. Lead with thought leadership.

But don’t forget that incentivizing customer councils or advisors is important as well – it has to be a two-way street. People don’t need a bottle of wine shipped to their home, what they want is to not waste that hour and a half. People want to communicate with their peers and feel like a) they’re experiencing insider secrets, and b) they’re helping guide this product that they championed (and are learning something in the process). It shouldn’t be your council, it should be theirs. Ask them: Do you want to hear about new products or what we’re doing in the future? Do you want to add value to some of the things we’ve been thinking about? Do you want to present successes and failures? Let them help set the agenda.

Marketing Spend – How Can it Be Best Utilized to Get in Front of Major Buyers?

Executives don’t walk through an airport and read the signs for the technologies, but if they don’t recognize the names on those signs, shame on them. The secret is to be where those executives are. CIOs go to Gartner, go to Avanta, go to Orbies. Sponsor some of those where the CIOs are at. Get in contact with them, be there. Be at the bar and put your card down, not at a booth. Go where they are.

Prospecting emails are okay, but you need to grab someone in the first couple of lines. Don’t mention funding, don’t mention your advisory board: What is the product and value prop? Don’t waste words in your email. The first paragraph should be about you, the second should be about the buyer, or the third paragraph won’t get read. And be personable. For example: “Hey Gary, I saw on LinkedIn last night that you were a nominee for OnCon – I actually went on and voted for you. Listen, I really think we have something that will bring value to your company. I don’t need a lot of your time, could we just figure out how to meet for 15 minutes?” That’s all it really takes.

Simplification vs. Best of Breed

Keep in mind when selling that sometimes B+ can be good enough. Most best of breed solutions are never fully leveraged, and can often require more human capital to be successful. Simple and easy solutions that spin up quickly often have a lot of appeal even if they are missing some of the bells and whistles. That being said, there are some areas where a best of breed stack is truly better, for example, the CI/CD space.

2023 Budgeting

The pandemic was the year of the CIO, the post-pandemic is the year of the CFO. What’s important is that if the CIO can keep eight out of ten solutions – you’re in the top eight. Is your value proposition a “need to buy,” rather than the “want to have?” Are you higher up the value chain? Companies aren’t about saving money per se, they’re about spending money in the right places. The pandemic was a black swan event, and the spending taking place just wasn’t realistic – there will be a return to a bit more normalcy.

Post-COVID Selling

Are we the same employees they sent home two years ago? No. It’s not about working as many hours as you can, it’s about bringing value back into your life and bringing value back to other people. So, it’s safe to assume that your clients have changed, which also means that the way you sell has to change.

We talk a lot about “experience” today – employee or customer. Think about how that model has changed. Empower your team to make your customers happy.

About Gary

Gary Sorrentino serves as Zoom’s Global CIO, after spending over two years as our Global Deputy CIO. A former Managing Director for J.P. Morgan Asset & Wealth Management, Gary was the Global Head of Client Cyber Awareness and Education.

For over 12 years, Gary was the Chief Technology Officer for J.P. Morgan AWM’s global technology infrastructure initiatives, where he managed its Data Privacy program and was responsible for Infrastructure, Application and End User Technology Production Support. In 2014, he assumed a new role as the lead for their Cybersecurity efforts and developed a firm-wide “Protect the Client” Cyber program designed to raise cybersecurity awareness among employees and clients.

With almost 40 years of experience in Information Technology, Gary has served in various other IT leadership positions in firms across the financial services industry. Prior to joining J.P. Morgan in 2005, Gary was Head of Global Infrastructure and Head of Technology Efficiencies at Citi Private Bank, where he was responsible for Global Infrastructure Support and strategic technology initiatives. Other roles he has held include Global Technology CFO at Credit Suisse and North America IT Controller at UBS

The Modern Identity Stack: Startup Opportunities in the $80B Identity Market

How to Recession Proof Your Company | TechCrunch Masterclass

 

Neesha Tambe:

Welcome again to the TechCrunch Startup Battlefield Masterclass Series. For those of you who haven’t joined our past masterclasses, this is an opportunity for you to hear from experts in this space about a variety of topics. I know a lot of you are very interested in what we’re going to be talking about today, which is how to recession proof your company. So with that, I want to take a second to introduce our folks on the call today – first we have Ursheet Parikh, who is a partner at Mayfield and he invests primarily in cloud computing, cybersecurity, human and planetary health.

Before Mayfield, he had a successful operating career as a serial entrepreneur, executive at Cisco and Microsoft. And then in the summer of 2009, during the height of the great recession around the time where a lot of us joined the workforce, Ursheet co-founded and was the CEO of StorSimple, and that company became the leading cloud integrated storage company which was acquired by Microsoft in 2012. Now, if you’re looking at those dates, you know that those are some really big economic moments in the country and in the world. So we’re going to have some really exciting stuff coming down the pipeline from him.

He was also an entrepreneur for a startup that failed when the dotcom bubble burst so we have the spectrum of both successes and lessons learned as well. And with him there is Kelsey from the Mayfield team. She is on the marketing team at Mayfield and her mission is focused mostly on delivering Mayfield’s brand promise to entrepreneurs and providing a range of support to the portfolio companies. She graduated from Stanford in 2018 and has been with Mayfield ever since. With that, I will let you two take it away and again, thank you so much for joining us and sharing your wisdom. We’re really excited to have you today.

Ursheet Parikh:

Thanks for having us here, Neesha. And Neesha and Kelsey, thanks for pulling this together. I think Kelsey’s going to run this as a Q&A but Neesha, you know your team and your audience really well so please feel free to chime in with questions as well.

Neesha Tambe:

Sounds good, will do.

Kelsey Reardon:

I wanted to give a little bit of context about Mayfield before we jump in. Mayfield is a 50 plus year old venture capital firm. We were founded in 1969 and we’ve always been very focused on having a people first philosophy. Our founder always said, “People build products, products don’t build people.” And that’s carried through all four generations of leadership at the firm. Our team has a lot of entrepreneurial DNA. You heard a bit about Ursheet’s background and founding companies, and our investors all have some founding experience.

We’re very focused on investing in companies at the earliest stages, what we consider inception stage. And we work with them all the way through what we would call iconic, an exit IPO and beyond. We invest across consumer, enterprise and human & planetary health. Some of our portfolio companies include HashiCorp, Lyft, Outreach, Mammoth, Alchemy, Poshmark. And so, that’s Mayfield at a glance. With that we can jump in and Ursheet, I would love to start by hearing more about your experiences in building companies in both 2000 and 2008.

Ursheet Parikh:

Sure. I’ll give a quick background on my journey. I graduated with a degree in computer science. I grew up in India and I ended up getting a job in Orange County with White Consulting and that gave me a lot of exposure to the C-suite. The internet was coming into business in the late 90s and so, after a year or so on that job, I left to start a company. That’s when I moved up to the Bay Area in 99. And it was just an amazing time to move up here. I had four other co-founders andwe raised what was back then called a series A of $4 million at 10 pre, these days that’s called a seed round. We got a product in the market, got some customers and signed a term sheet. We had several options, and we picked the highest valuation option.

01, 02 started happening before the round could close, some of our customers went bankrupt and our lead investor asked us to move on without them for the round. They had given us a bridge and they said, you can keep it. So that was then a very hard pivot for the company. I left the company as it moved away from core tech to services. l asked around and I was introduced to what was probably the highest pedigree team I could find where the CEO had been a successful CEO and had built a really nice company that had been sold for a good price. The board had an amazing track record, they had helped found and sell companies of over 20 billion.

I went and joined that company and a year later that company shut down as well, and I learnt a lot of lessons. But that company had lots of financing options and most of them were not good enough. And by the time they were ready to take money on the terms that were offered to them, the world had moved on. I don’t know how many founders here are immigrants or on H-1B. But you typically have to leave the country in a couple of weeks or find a job. So then I ended up joining a company that was acquired by Cisco. And I saw Cisco get built from zero to scale. At the same time, I had joined a San Francisco Wharton program. And when I was done with that, I figured I still had not felt that I’d built a business from scratch, from the ground up.

And so in 05, I got the opportunity to start a new business and a new product for Cisco. And from 05 to 09 it went from a concept product to something close to a hundred million dollars a quarter. And that was the only time that Cisco had a new product or business built like that without spending a billion dollars buying something. And so, now comes to 08, 09, we are sitting in another recession. I felt that I actually wanted to go ahead and do another company, but it’s just a really, really tough time. I get looking for co-founders, I get introduced to someone and that is when we form StorSimple in 09. Then the next four years are pretty cool. We get the concept, the product to market and show the scalability of the business model.

We get the business really tracking. And as we are doing a growth round within Microsoft, one of the GTM partners acquires us. Before we got acquired, my primary contact there had been Satya Nadella and this was his largest acquisition before he became CEO. By the time I left Microsoft, it was considered one of the most successful acquisitions we had. As an acquisition it counted for a very significant portion of Azure revenues and it was 10 times the acquisition business plan three years out within the first year. And that’s when I had the opportunity to join Mayfield. And so, I look at my operating life and within the first 10 years we had two recessions. and now… And my investing life, I look at the last 10 years and we had a little blip. There was a big challenge for the world. We’re all products of our experience. You can then put this context on top of your own experiences and see how much of that may or may not apply to what you want to do.

Kelsey Reardon:

Yeah, you’ve got a lot of lived experience and not to mention the past, close to 10 years at Mayfield. So based on all of that experience and what you’re seeing now, how should these founders think about running companies in this downturn?

Ursheet Parikh:

So every company and every stage is different, the challenges are different. But I’ll say that the core of company building is about building and selling amazing products, right? And everything else is overhead. In the end you want to have a strong mindset and culture so that people believe in the mission. You need a very strong culture to make it through tough times. And the culture is not really a set of statements, it’s the lived experience. Why are your people spending  long hours at work? Why are they making the personal sacrifices to be at a startup?

By definition the odds are generally stacked against a startup. In the startup that I co-founded, I had quite a few of my college friends. And as things got tough, people started coming in later into the office, but they still left late. So, it went from people coming in at 10:00 and leaving at 10:00, to people coming in at noon and then getting lunch and then still leaving at 08:00 or 09:00, and it starts feeling tough and miserable.

And then when things were going well, two of my best friends in the startup that had a successful acquisition, we’re still great friends 20 years later, both got divorced. And so, it’s important to set up company culture for longevity because in many ways when people are working at a startup, they’re bringing their full selves and their families along. And so, when people are behind a mission they understand the challenges.

It’s a true test of a founder’s leadership skills. An example of something that I would do at StorSimple is invite everyone’s families to company events. We’d pick a time when people could be there. Over the years people developed friendships, and the families could see what people were working for.

We decided to pay for breakfast and lunch, and if somebody was in the office late and wanted to order dinner, that was fine. But as a leader, I did not schedule a single meeting after 5:00 PM. It didn’t matter that our team would go home and then plug in and continue working late in the night. It was important that people could get that three hours or so of family time or personal time or workout time. I added a lot of resilience into the culture. So you want to think about  resilience and strength, right? You don’t want to let the highs take you to the clouds, but in a tough market you don’t want the lows take you down. And as founders it’s important to understand that your mood is reflected in the company. And that is one of the crosses of leadership to bear.

Kelsey Reardon:

You have to be supporting your team during challenging times because they can’t bring their full selves to work if they’re dealing with a lot of uncertainty, right?

Ursheet Parikh:

Correct. So then how do you as a founder support your team, right? As a leader it’s useful to have either one or two advisors, board members or investors who act as your support team as you work through challenges and strategic issues. These advisors can show you what’s around the curve, right? In my first startup that failed, we had a term sheet to raise $8 million in a Series B at 30 post. Instead, we ended up picking a term sheet which was $15 million at 60 post, right? And of course, the difference was that the former was from a very top tier firm who had enough experience in helping founders navigate through downturns, and they could see where things were coming. And the latter was a fund which was born in the past decade. And so, it does come down to how you take advice.

You have to remember all history, not just the recent history. So for example, if you look at SaaS companies in the enterprise space, during the peak of the market, companies were going public at 50X trailing revenues, right? These were companies like Snowflake or HubSpot. Right now, if you looked at the last 10 year historical average, the top quartile companies are in the 8x to 10x range. And so, currently the market is 8x or even below 8x in some cases. And so you’re not going to see a 30x to 50x, right? We may go from 8x to 10x or 12x.

And so the money that is raised, has to be spent in a way where it gets you an operating plan, gets you the operating metrics for a solid up round. Talent is still going to be very scarce. People who can work at startups can walk out the door anytime. And so, as a CEO you want the company stock value to be going up and to the right. And when it goes flat or down you are very vulnerable to people leaving because there’s the next company that’s always going to get funded, there’s the next large company which can offer a big paycheck. And so you need to set the company up to have the right operating mindset.

It’s important to think about what you really control, and you really control where you spend the money and how you spend your time. And one of my partners at Mayfield, who I knew as an advisor when I was an entrepreneur in the early 2000, he would say, “Startups don’t die of starvation. They die of indigestion.” You can take on too much on your plate. And so, picking a few things and being really focused ends up being very critical, and it’s important to get a sense of the operating milestones.

A natural corollary is you don’t just do something this month because you were doing it last month, right? It’s always worthwhile to take a first principles view and do zero-based budgeting, to really think about what you should be spending time and money on as a team, as a company, as a firm. You have to have some people on your team who are agile athletes but not everybody in the company can be learning on the job. Investors start gravitating towards teams that are reasonably complete, right? Where they have a lot of the core skills to help the company get to that next operating milestone. Also, when you have that team in place, your operating plan looks a lot more credible, right? Versus saying, “I’m going to go ahead and raise this money and then hire this leader for go to market.”



And as an entrepreneur you can see, “Okay you have the money, I’m going to go get these people and then we’ll execute.” The investor mindset on this is, “What is my confidence in this operating plan, right? Who are the people who are going to be responsible for spending the money that’s going to be invested and getting it to these metrics, and have they been the people who came up with the plan?” And so I’ll give a prime example on this, right? So when we did StorSimple I was looking for a co-founder and I got introduced to someone who was thinking along similar lines and was a seasoned repeat co-founder and was in his 40s, he had started a company in the .com years, and had actually sold it for a few hundred million. And then, he had gone on to lead all the engineering for the company that had acquired him and his company. And he wanted to do this other company, and he had been trying to fundraise for six plus months. And it had been relatively challenging.

And then, when he and I came together, we ended up snapping into a much more complete team. And even in 2009 when the country was struggling financially we were still able to go and raise a round in a couple of months. We had four term sheets within a week or so of our first meetings. And what helped was that I had the track record of having been the product, the general manager, the GTM person. My co-founder had this exceptional track record of having been an amazing product person and leader, and we snapped into place.

And for what it’s worth, if I had to tell you what the round was, it was eight at eight and a half with a 20% option pool. And that was still a spectacular round. Most VCs would tell us that you’re asking for too much. And our view was that we would probably not do this company if we weren’t raising the right amount of capital. We didn’t want to raise for an air pocket, we wanted a two year runway because we were doing a deep tech product. And so, when I would ask investors about their concerns, they would say that the Pre-money for Series B is now 12 or 13, pre. And it used to be like 50 pre, and it had to be what it had to be. And then of course, we did a Series B at a 2X markup.

So the first point is you need to have a strong culture, the second point is you have to have an operating plan, right? The third is you want to have your founding team relatively complete.The fourth point is you want to control where you spend, but the thing is that you need to look for opportunities and invest in that. You can’t cut your way to success. So you have to really focus on where the company is, and you want to know where your key operating metrics are and how you’re tracking to those. And once you sense that you’re tracking to some of that, then there is value in doubling down and truly getting ahead. Because a lot of amazing companies get formed and built during this recession phase. And it can feel very daunting for entrepreneurs, right? Because fundraising may feel harder, recruiting may feel harder because now suddenly you don’t have a lot of people, it’s no longer cool to be a startup.

People are more cautious, more worried. Leading your teams is often harder. Selling your products is often harder, right? If some of you haven’t heard of a guy called George Jeffrey Moore, I’d recommend a couple of books from him, one we’re “Crossing the Chasm,” and the other one’s called “Inside the Tornado.” Crossing the Chasm talks about how a lot of companies find early customers and then fail. And then Inside the Tornadoes is about how when your market becomes a full hockey stick, what are the attributes of such markets and what strategies you can take to become a category leader? And so one of the things I looked at was, how do I truly validate that I have a strong proposition, because my feeling was I could sell anything in the bubbles of New York and San Francisco? And is this going to be a core meaningful thing where most of the enterprise customers were located, right? 

Our view was that the first sales rep I hired, I wanted to hire somewhere in the middle of America, and it actually was in Detroit. And my view was to do two things. First, we have to be able to scale and support our customers remotely. And so if my customer is local, we probably will be able to just walk down to their office and work through any issues. Second is if we have a proposition that can stick in this geography, it probably will sell everywhere. Selling your product itself is also a lot more work. But you want to enhance, get that intellectual honesty and you want to get a true signal. And it takes a lot of experimentation. So, of the first 40 trials that I had with our product, only two became customers, right? But we had to really learn our lessons and see what to do not do. And we had to iterate and improve. And out of the next 70, 50 became customers. And as an enterprise company, we ended up having over 108 customers within a few quarters.

We had a very extended period of early access where we had a lot of the learnings. And then when we felt things were good, we said, “Okay, let’s go double down and start building out teams.” And even with just four sales people, we were able to get revenues to go from $150,000 to $300,000 to $500,000, $700,000, $1, 2 million, and $3 million in the quarter that we acquired. And there was a lot of teamwork, right? I had an amazing independent board member. She had just started as CEO of a company that was in a similar space but a few years ahead of us. Her name was Jayshree Ullal and I had known her from Cisco, she is the CEO Arista Networks.

She’s one of the most successful entrepreneurs and she is the only self made female entrepreneur in the Fortune 500 who took a company from inception to iconic. So it was amazing to have her as a coach and advisor when she herself was going through the early stage thing, but a few years ahead.  I would ask her, ‘How should I compensate sales people’ and she would offer advice based on her experiences. So you have to go ahead and be intellectually honest, to see opportunities and invest in growth.

Kelsey Reardon:

So Ursheet, you had talked about raising that $8 million round, and people were saying you’re crazy, you’re asking for too much. And we have a question in the chat that I think is related to that. Mohammad is asking, “Given the recession buzz looming around us. As an early stage startup, should we be conservative when asking for a pre-seed or seed round?” I would love to hear your thoughts on that.

Ursheet Parikh:

Yeah, so I think that it’s a great question and the answer will depend, but I’ll give a couple of scenarios. So, I think there’s two parts to being conservative. One is the size of the race, the second is the valuation. If you’re a founder of a company and the company succeeds, it doesn’t matter how much of the stake you own. If it is successful enough, it will be a life changing event for you, right? When you do startups, fundamentally there’s a small subset of companies that succeed, most don’t. 

As an entrepreneur my view is that I want to maximize my odds of success. So, what is one of the biggest factors that maximize my odds of success? It’s actually having a better balance sheet, more money, right? So that I have more time and more resources to get to the operating milestones that matter. And so, when we were raising that $8 million round we needed that capital to truly make an impact. Now, when we raised our Series B, we had only spent $2.7 million out of the 8 when we raised the $13 million series B. And so, maybe we were too conservative but my optimization function was that I wanted to maximize my odds of success, my stake in the company is only going to go down over time, right? The only thing that I have to focus on is how I take and increase equity value for it to be worthwhile.

And so at the exit, it didn’t matter, right? It clearly became life changing. The company had only 30 people who had been at the company for more than a year, and when it was acquired the  majority of them had life changing outcomes. Seven digit outcomes and things like that. So I would not recommend being underfunded, right? I had a co-founder who had a track record and I had a certain track record, so we were good enough for people to fund us right away. 

So that would be my high level thinking: don’t underfund your company, if anything else raise more capital to last you longer but think about the cap table. And for all of your early investors and founders, your stake of the company is going to go down. And so, you should just focus on the equity value.

Kelsey Reardon:

And what advice would you give to these founders that are raising in this environment? What are investors looking for in this environment that’s maybe different from what we were seeing before? Because you said that they should have these trusted advisors that they go to, but curious if you can share anything that you’ve been telling our founders.

Ursheet Parikh:

Yeah. So fundraising in these markets is tricky, but people want to get comfortable with the fact  that you will be able to execute and get to your core milestones. And so, you want to balance out experience and potential in the core team as you get there. And if it’s just potential then you need some reference points, like an advisor. Secondly people are also looking for situational awareness, right? A common question people will ask is ‘What kind of a round are you looking for, what valuation are you looking for?’ And you need to judge whether or not you have a team around you that’s helping you understand where the market is or helping you stay on track. 

You need to ask yourself, what are your operating plans going to be? Ironically investing is quite emotional, right? And so, this is a great time for investors to be investing, because people are really feeling  the external factors and so investors are patient and will factor in more time for fundraising, because people will ask more questions. Investors will want to understand your business better. And it’s a good thing because you don’t want anybody with buyer’s remorse on the board. It’s easier to end a marriage than to split from investors who are on your board. And so you want to ensure that you are aligned on the expectations, you want to understand that investment thesis.

Often what will happen when you’re pitching is somebody will ask a question, and it’s very natural to defend and sell the company. Investors will ask “Do you do X?” And you may do 80% of it and the default tendency is to say, “Hey, yes we do this 80%.” And what the investors are trying to see is can they have a conversation with you when you’re on the board. I’m talking about investors who are going to go and spend as much time in helping you build the company. And so they’re trying to understand if you acknowledge where the gap is.

So those would be some of the intangibles on the fundraising side of the house. I think the more confidence you can create the better, right? Which are the variables you need to de-risk from an investment perspective, is there demand for this product? You may not have a product in hand, but if it’s a consumer product, do you have enough prebuy or presale? If you’re an enterprise company, do you have enough reference customers? So, put yourself in the investor’s shoes, and just as you have customer empathy when designing an amazing product, when you are selling your stock in the company, think of your investor as the customer for stock.

Kelsey Reardon:

Yeah. Makes sense. And then further down the line, how do you think that company should think about M&A, having a company that was acquired?

Ursheet Parikh:

I’ve been part of two acquisitions which have been very successful, but that experience is generally an anomaly, right? One into Cisco, one into Microsoft. When companies get acquired most of the time even if the financial outcome is great, people feel a certain degree of remorse that the mission or the purpose of the company didn’t get addressed. So generally speaking, a bad time to sell a company is a recession, right? The reason why it becomes a bad time to sell a company during a recession is because acquirers themselves are under duress. The challenge they will have is on the OpEx side. So when I was at Cisco I would be part of teams that were looking to acquire companies. The top challenge would end up being that your business is not doing as great, so your numbers are tightened up, you have a lot of room on the balance sheet as a large company, you can spend a lot of cash. The challenge is when you acquire something, in order to realize value out of it, you have to invest in it. You have to invest in building more of the product or selling more of the product. And that OpEx room then impacts price to earn, like your earnings. And so, it becomes more challenging to acquire companies at a time like this. And so acquisitions require more effort and the valuations are not all that great. Having said that, companies still sell in recessions and there are feasible deal dynamics. Early in a recession there’s actually a lot more potential for M&A than deep in the recession.

What happens is that the acquirers are not as valued at a very high multiple like the emerging companies are, right? And so a public company with a big balance sheet like Salesforce or Microsoft, Cisco or Google, they trade at say 5x to 10x revenue, but the acquired startups are trading at 40x or 50x revenue. If they’re small tech tuck-in acquisitions, it’s a different question if their acquisitions are bigger, right? And so, there’s a little bit of a phase where the companies certainly feel affordable, because startups are not necessarily getting valued as much. And if you see what has happened in the public markets, a lot of the companies that have been public in the last five, six years are down close to 70% to 80% from the peak, while the biggest companies are down maybe 30% from their peak.

So it becomes more in range, more affordable. If you truly need to sell, you’re better off getting ahead of the pack, acknowledging the market situation, the new reality and the new multiple rather than being anchored to the last two years average versus the last 10 years average, right? So when enough startups teams get into that mindset, and the boards get into that mindset and you start seeing really interesting deals emerge. The value is in the eyes of the beholder. But as far as Wall Street was concerned, Adobe overpaid for Figma for a $20 billion acquisition, the acquiring company lost $40, $50 billion of market cap, right? And so anytime anybody has to acquire, there’s even much greater scrutiny.

And so, people take a lot of personal risk to acquire companies at that stage, and you have to have that degree of empathy. So the point is you have to be more empathetic to understand not just the recent history but the long term history, right? You have to think about why you want to sell. If you think that you can’t really make it to the other side in the next two to three years, then you may have to go ahead and acknowledge reality and sell.

But generally if you have the staying power to get over to the other side or you can raise capital or you have a board that is supporting and is not pushing, then recessions are great times to build companies rather than sell companies. You can recruit people, because large companies aren’t necessarily hiring as aggressively anymore. The people you hire are mission oriented, they want to be at startups, they want to make an impact, you can form strong cultures. So that’s the high level M&A advice.

Kelsey Reardon:

Yeah. So, I think that’s about all we had planned to cover, and we’ve got a couple of questions in the chat. So, how do you feel about moving into some Q and A?

Ursheet Parikh:

Sure, I’d be happy to. There is a question from  Chris, “From your experience is there a difference in the impact of recession across different types of startups?” Great question. Enterprise, deep tech, hard tech, SaaS, consumer, each of the categories ends up having its own drivers, but yes there is. Let’s take an example of a company in hard tech, where you have to invest a lot of money before you get into big revenues. Those companies could be in healthcare, med devices, deep tech etc.

My advice to those companies is very counterintuitive to more recent history but has traditionally been the way it’s happened until the last five, seven years. Which is you want to actually raise more capital and you want to have a syndicate that can actually support you to get through the key value inflected milestones, right? You want your early syndicate to be able to get a product in the market. And you want to pick a product strategy that is much more about proving the technology and the product faster rather than focussing on what could be the biggest application of the product.

So, in those companies, the ability to pivot and the cost to pivot is very high. In contrast, when you are in startup companies which are only software based, be it SaaS or consumer, you want to actually get the smallest possible product so you can start having engagement with customers. And then learning and iterating, and giving yourself enough time to get to some core milestones. And then looking at the quality of the data and going ahead and working through that.

In recession times you want to actually get more money upfront. Because as crazy as it sounds, believe it or not, for most entrepreneurs the first round is still the easiest round because that’s all about promise and potential. After that everything is about results, and investors who invest in later rounds just get to go ahead and see what you’ve done with the money, and decide whether or not it is deserving of more cash. So give yourself enough time for that.

On to the next question, “I’m looking to raise a seed round. How likely is it that I will be able to raise the full amount on SAFEs or are firms going to want more equity now?” This is one of my favorite talking points. Somewhere along the way the world started thinking of a cap as evaluation, right? There are a number of companies that are doing extensions to their SAFE rounds, right? I think SAFEs can become weapons of mass destruction in a falling market like this. They’re true WMDs because if you raise the first $3 million on a 12 SAFE, you’re going to go and raise more money and you’re still raising on SAFE you’re probably get another 3, 4, 5. So, I’m finding that companies that raise small amounts didn’t get to the big milestones, and are going and raising more money.

They’re basically effectively diluting 40% or 50%. And in many ways when somebody invests in you with the SAFE, they are not really taking the risk on the downside. Only you are taking the risk on the downside.Say you had taken $3 million on a 12 cap, right? Or you had taken on a $3 million post money priced round at 12. Now if your next round is happening at say 10, 3 for the next $5 million, in a SAFE bucket, you yourself end up taking all of that dilution and the investors basically got an option. So it’s less about the investors. You don’t get boards, you get money and you don’t get any time.

So I would say, the question is whatever capital you’re going to raise is going to be expensive, it’s going to cost you a bunch. So you really want to think about who you are raising it from and what you are going to get out of them to improve your odds of success. And generally speaking, from an investor perspective, it’s a bigger commitment to do a price round than to do a SAFE. So think about that part of it as well. Neesha, go ahead.

Neesha Tambe:

Yeah, I’m just going to jump in because some of these are longer questions. We have a number of teams who are international. “Some folks have gotten investment internationally but might have clients in the US. With that in mind, where should they be spending their time in terms of getting their next round of investment? Should they focus on trying to get US investors or does it matter where they get that money from?”

Ursheet Parikh:

Every company’s situation is different, but generally be mindful of the fact that this is expensive money, right? This is some of the lowest price equity that you’ll ever sell in your company. And so you should ask yourself what is the most you can get out of it? If you get people with experience who can help you build companies and help you realize the mission, that’s intangible. You have to see what the working dynamic of your relationship with your investors will be. If you can get that, it will be very, very helpful. Now, the geography of where people are matters less. At the same time, there’s lots of investors, right? A lot of us have big anti-portfolios of companies we didn’t invest in because we thought it was too crowded, and there were other people who ended up investing in them, right?

If you have to build a company, there’s only so much time you can spend on fundraising, right? You have your stock to sell but you also have your products to sell. No amount of investor money is going to realize your mission. If you have to solve a big problem, your business has to generate enough operating margin for you to be able to reinvest back into the business to build that. The investor’s money can only take you so far. There’s no upside for most investors to tell you why they’re not investing. Because, first they have to think about it instead of making an instant decision. Second, if they come across as negative, people don’t want to hear them, right? Thirdly, a lot of people like to think of their company as their baby and nobody wants to hear bad things about it.

So, the one thing you can do though is to learn a lot from people, but you have to ask for feedback and most importantly try not to become defensive. A lot of the VCs may not give you the right reason but they will give you a reason that may not be the primary reason why they didn’t invest. Is it the team, is it the product, is it the segment, is it the operating plan? You want to get a lot of that feedback and that’ll help on your fundraising journey.

Neesha Tambe:

We have a couple of questions around revenue. So, as we mentioned before, a lot of these companies are early stage, mostly pre-series A companies. The next question is  “How much revenue should you have, is that necessary? And then how does that stack up against developing your valuation during a recession?”

Ursheet Parikh:

I think at every stage, one thing that changes in a recessionary or a falling market dynamic is people have to have a compelling reason for why to invest now. If you appear as a better company, people will want to go do that. Now the early stage investors, and now I’m going to talk about the top VC funds, right? They tend to produce outlier returns and partner with funds over and over again. At Mayfield, we ask who are the founders? How are they going to grow? I say that a company cannot go faster than its founders. In fact, the learning agility and ability of the founders is probably the primary limiting factor, only second to the actual market.

So in early stage you’re looking at the data points that exist.  Because in many ways when you go to fundraise you have a resume, and what you’re doing for the company itself is a resume, right? And so there’s a lot of things you could be doing to prove that there’s a demand or a market for your product, and you have a sense of customer empathy and product market fit. Some of it directly shows up with revenue, some of it shows up with references or other indicators or demand. It’s almost like 20% of the business can cause 80% of the cost, right? If you can find that 80% business that you can get with 20% of the friction then you can do well.

So it’s not just the raw numbers, it’s the texture, and it’s almost always easier to raise on promise than on results. But in markets like this your first round will probably be the easiest, especially if you have a very credible founding team. So I said, it requires a little more specificity in the context of each company, but hopefully that gives you a framework on how to think about it.

Neesha Tambe:

When raising during a recession, how much of the story and team is influencing investors decisions versus just the actual product milestones themselves?

Ursheet Parikh:

Great question. I think the story and the team will definitely be very helpful. So, I think the way I look at it is that every firm is different, right? I think the people matter a lot. I think storytelling becomes even more important than raw milestones, because what is the job of a CEO? There’s a lot of things, but one of them is storytelling, fundraising, strategic deal making, exec recruiting strategy, right? The founder/CEO can actually build a team for building an amazing product and selling that product.

So, I think now not everyone is born that way and the skill to be a great CEO/Founder can be learned and taught. And that’s why we have the Mayfield Velocity Program and a coaching dynamic. So I think it’s not storytelling versus product, it’s important to have a full package.

I would not think of it as a trade off of one or the other, but you should aim to be the best company in your category. Generally what we see is that, in most categories the category leader ends up getting 70%, 80%, 90% of the value. So, is this team or is this company looking like they can become a category leader over time? So what are the functions in it? How is the team’s execution capability? And that’s where some of your product and other milestones come in.

Neesha Tambe:

So, I think we have time for about two more questions. “When you’re managing your roadmap during a recession, how do you pick which items are critical? What is the framework that you use and when do you decide to spend that business money on certain things or spend your bootstrap money on certain things?”

Ursheet Parikh:

Business at the core is to build amazing products and sell more products that people will use. So you probably want to build enough for people to understand what you’re saying, because there are times when you can just keep on describing a product, but when they see it, they instantly get it. So you want to have the minimum viable product. Truly, the tendency tends to be, “Oh, I can do this, this, this.” You want to find the narrowest possible definition that you think will address customers, and then prove the demand for that before you can go and invest more money. And so, we find that the core of most great products come from teams that are in single digits on the development side.

And then, once you find that iteration then things happen in a big way. Now again, every category of company is different and some places you just have to have a greater level of investment. But it doesn’t cost much to sell as a founder. Because founders are almost always better salespeople than regular sales people because you’re way smarter, you have way more energy and way more passion. And the customers who buy from startups, are often buying into a vision. So, spend the minimum to show them your vision for the product, and then get validation, be it with trials or references. So when you are at the seed stage it feels repeatable and scalable.

Neesha Tambe:

And then for the final question, we have a couple we didn’t get to, but I really do want to get to this one which is, “When people are fundraising during a recession, a lot of times investors will say, I can go in on the round, but I won’t be the lead investor.” How do you manage that?

Ursheet Parikh:

Yeah, so that is often a euphemism for a few things, right? It’s a euphemism for a soft pass. I don’t want to say no, but if you suddenly become hot, come call me. It could be a euphemism for the valuations that you want. I don’t want to break it to you that your expectations are not aligned. I’d rather let the market teach you than actually tell you that maybe it may be different.

It may also be that you don’t have conviction. What you have to look for, is this a firm that almost always follows or do they lead? If they are the firm that tends to lead and is basically asking to follow, then it’s one of the euphemisms. If they’re always followers, then it’s a different dynamic. Then you want to ask them, who are the people that you tend to work with as leads, and can you connect us up to them? And some of them will do that.

Neesha Tambe:

That’s fantastic. Well, we are just about at time, and I just wanted to say, thank you to both for coming on. This has been extremely valuable for all of our founders. I have learned quite a bit as well. And I just wanted to also give you a second if you had any last thoughts to share, but thank you. This has been absolutely fantastic.

Ursheet Parikh:

I’ll just make one final comment. I’m delighted that you all are going and building companies. The bigger the problem, the bigger the entrepreneurial opportunity. I’m just delighted to see all of you go and continue through this, I wish you the best in building amazing companies and realizing your missions.

Neesha Tambe:

Thank you so much. All right, thanks all. Thanks for tuning in.

 

Getting to Yes and What Happens Next: An Unfiltered Chat with a Top VC | TechCrunch Disrupt

Navin and Kamini on stage at TechCrunch Disrupt
Kamini Ramani:

I am Kamini Ramani. Thank you so much for taking the time and about 50 minutes with Navin Chaddha, my friend and boss and longtime Silicon Valley entrepreneur. He has been named to the Midas List 14 times, and is a former serial entrepreneur and investor. And what we want to do is use this time to raise and share some learnings from his three decade journey in Silicon Valley as both a founder, as well as an investor. We also want to use this time to hear from you, and to answer any candid questions you have. We promised an unfiltered chat with a VC and we want to deliver on that. So let me turn it over to Navin and ask him to share some learnings from his journey as a founder and investor in Silicon Valley.

Navin Chaddha:

Let’s start with a poll of the audience. How many people in the audience are founders? Wow. How many want to be founders? That’s the whole group. How many are VC’s? I guess I’d better be careful with my comments. I am a serial entrepreneur, I’ve run three companies; two were acquired, one went public from ’96 to 2004. In my 30 years as a VC I’ve invested in over 60 companies. I have been very fortunate to partner with some great entrepreneurs who have gone on to create 18 IPOs and another 25 have been acquired.

For those of you who don’t know Mayfield Fund, here is a quick snapshot. We are one of the earliest funds in the business, founded in 1969. In our history we have raised 20 investment funds, 500 plus investments, 200 plus acquisitions, 120 IPOs. And the fund has a philosophy of betting on people first, market second. 90% of the investments we do are at the inception stage or the idea stage. So the people are more important than their idea. Our founder believed people make products; products don’t make people. And we are known for betting on the jockey, and not the racetrack. The initial idea may not work, but a great entrepreneur is sure to find the right one to adopt. That’s what early stage venture capital is about and that’s what the startup genre is about. The team I’ve assembled have all been former entrepreneurs. They’ve founded companies, sometimes one, sometimes two, sometimes three. Partnering with all these great entrepreneurs, being their backbone and helping them build great companies is a privilege.

1. Mission and Values Count
So, there have been lots of learnings over the years as an entrepreneur and as a VC. I want to share five key learnings with you. The first one is the story of Lyft, a very successful ride sharing application. From day one they had a strong mission to improve people’s lives by providing the world’s best transportation and they had some core values of being yourself, uplifting others, and making things happen. They quickly discovered the shared ride market, and put normal people in the business of driving cars. And they went through lots of ups and downs in their business. What made the company succeed was fortifying their mission and values from day one. If you’re starting a company, the first question any VC is going to ask you is, “What’s the vision? What are your values?” Because if you get those things right, it’s like setting the basement or the foundation of a tall building you will build one day.

2. Surround Yourself with Excellence
The second lesson is about surrounding yourself with excellence. This is the story of three founders of NUVIA; John, Manu and Gerard. They were the key people for 10 years at Apple, they built all the chips and subsystems for the iPhones. One was my classmate, and before they even left Apple, he approached me and said, “Man, I’ve been in Silicon Valley for 25 years. How do you do a startup? How do you start a company? What does it repay? Which market should I go after?” So we got involved in helping put the company together and they were just engineers. They hadn’t managed big teams of people. They didn’t have marketing DNA, they didn’t have sales DNA. During COVID, they hired 150 people. It was their year to attract people and before they spent years shipping their product they were acquired for $1.6 billion. So I have a feeling if you have an A+ founding team, go hire A+ people. Figure out what your gaps are, and surround yourself with people who cover those gaps. It’s extremely important.

3. Design and Own a Category
The third lesson comes from another successful company that I’ve had the great fortune of working with, HashiCorp. HashiCorp was started by two developers in 2012, Mitch and Armon. They were developers who had never thought about starting a company. Today, they’re a cloud powerhouse. HashiCorp went public at over $10 billion, but they had the vision from day one to build a cloud infrastructure automation company, by designing a category and creating multiple products to be able to address it. So, even though you may not start with a big vision or you may not start with thinking about building a category, you can still dream big. Ask yourself, what could it become one day? And that’s what the VC’s are interested in knowing, is how far can this thing go? Can you reach for the moon?

4. Embrace Pivots
Fourth is another successful company. Outreach is the leading sales engagement platform, sitting at a $4.4 billion valuation. This is a story of pivots. The company was redefined at the inception stage and they never ended up doing the thing they started with. They pivoted. There’s no linear line in these kinds of businesses and it never just goes up. It goes through ups and downs. So, Outreach sells SaaS software to sales people. When they started they were serving recruiters and the name of the company was GroupTalent but it wasn’t getting any traction. They were using this in-house tool that their sales people would use to reach out to potential customers. They had two months of cash left so they said, “Well, we’ll go into software revops,” and the rest was history. So, don’t be afraid of pivoting from what you started with. As in pharmaceuticals or in life, if you have to fail, fail early. Fail fast, adapt and go after the right thing.

5. Embrace a People-First Philosophy
The next lesson comes from a favorite company of mine, Poshmark. Naver just announced its intent to acquire Poshmark for $1.6 billion. Poshmark pioneered the social fashion marketplace. And the reason the company became so successful is because they created the category of community led commerce. They put 70 million humans in the business of selling clothes from their closet and elevated stylists who were ordinary people to curate online businesses. There are now 70 million online boutiques on Poshmark. This company became successful because the founder and CEO Manish leads with love. Everything this company does starts and ends with people. The largest department in the company is focused on customer support and community development. And this is what it takes. If you’re building a company, keep people first, whether the people are your customers, whether they’re your suppliers, whether they’re your partners or whether they’re your employees. Get that right because we are not building manufacturing businesses in Silicon Valley, right? People operate companies so you need to treat them well. And if you can do that, wonders can happen.

Then finally, my big learning is company building is a marathon. It’s not a sprint. If you’re trying to run a sprint, don’t build a startup. So if you have to build a startup, think it’s a marathon. It’s going to take 10 years of going through lots of ups and downs, but it’s a lot of fun. So, those are some of my key learnings over the last 18 years as a VC and 10 years as an entrepreneur before that.

Kamini Ramani:

Thank you, Navin. Let’s move on to some questions. Innovation is clearly alive on the floor here at Disrupt. But out there, it’s a scary world right now. The markets are turning. Lots of innovative companies are going downward and Navin has navigated through at least three recessions. So I’m just curious how is this downturn different from 2000 and 2008? Any insights you would like to share?

Navin Chaddha:

Yeah, absolutely. So, I think in the first recession, I started getting white hair. In the second one, I started losing hair. After this one, I’ll have no hair. Jokes aside, I think this is pretty serious and this is not like the 2008 recession, where primarily the financial services industry was impacted. This is impacting tech, it is impacting jobs, inflation is really high. Interest rates are moving up.

And today, we have only seen the effect of this in public markets primarily, which is around public company valuations of mid caps and small caps. There’s always a lag in the private company world. It’s started running into late stage companies where valuations have been down. The liquidation payment structures are changing. It’s broader than the mid cap. And eventually it will enter the early stages. But that’s the bad news. So what’s the good news for founders in the room? I would say, crisis is an opportunity for the bold. Tough economic times are the best times to start a company, and here is why it’s the right time to do it. Everybody will be scared. Less and less companies will get funded. Big companies are not in a hurry and they won’t innovate. They’ll wait for markets to happen and then they will be way off scaling for new areas. The same talent that was impossible to get and hard to pay for will be available.

So, what are you afraid of? Jump in. Capital will be available if you have the right idea. You’ll be able to assemble the right team. This is for early stage founders. And when we come out of this troubled economic environment, we’ll be the ones who’ll be providing products to consumers. So I’m very bullish on the opportunity. I saw that in 2000, 2001, the existing companies were in trouble, but a lot of the next generation of companies got built and the same happened in the downturn of 2008 and 2009.

If you look at venture data, history has shown the performance of venture funds are successful in years where the public markets have been terrible. Because remember, you have to invest at low prices and when the market recovers in seven to 10 years, you get the benefit of the expansion of the market. So, I think it is a great time to be an entrepreneur, but patience and perseverance is going to be critical in this environment.

Kamini Ramani:

Thank you. You have to be realistic, but you have to be optimistic as well. And a question that just came in from the audience – do cold introductions really work? How do you actually get to an investor to consider your idea?

Navin Chaddha:

I think investors are busy and distracted with big portfolios which are going south right now. Public market stocks of theirs are making them really scared. So the best thing I would say is, try to read about what these people are investing in, what are they talking about? Go to their LinkedIn and see who they’re connected to. You can try to send an email, but the spam filters have gotten so good there’s a high chance it won’t reach them.

But try to find common connections who can make an introduction. So that’s what I would recommend. Do some homework, try everything, but these spam filters have just gotten too good.

Kamini Ramani:

The other thing we advise founders is, look at a VC’s bio page, which talks about the things they’re investing in, as well as the companies they’ve invested in. And to that end, Navin, are there some things that you’re particularly excited about these days?

Navin Chaddha:

Yeah, there’s a lot of things, but it all starts with people. At the end of the day, I’ll start with people and then I’ll come to markets. We’re looking clearly for people who are confident and who have big dreams. But there are some softer skills after spending 20, 30 hours with them that we are trying to evaluate as well. We are asking ourselves, how good is their EQ? How good is their self-awareness? Are they going to put the company first, or themselves first? So, there are some red flags that we look for. You’re looking for self-awareness among these entrepreneurs. They need to be team players, because companies cannot be built with just the founders. These are movements, they need people, and if you are playing a solo sport, just build a lifestyle business. Building a company is a team sport. Then finally, the founder’s focus is very, very important because startups die of indigestion, not starvation. But at the same time, they need to be nimble because dinosaurs never survive.

So one of the trends we are very bullish on is, applications of AI. Especially things around generated AI, which will make humans super humans. I call it human-centered AI. So that’s an area, which is a big focus of ours.
The second area that we are spending time on is companies which are elevating developers from just coding in the back office, to being strategic thinkers. We call these dev first companies, where developers are the influencers, and the customers. They may not be able to pay, but getting your product loved and adopted by them is very, very important.



We are investing in Silicon again. We believe it’s the renaissance of Silicon with a flattening of Moore’s Law. A lot of new Silicon companies are going to be created, which is going to bring Silicon back to Silicon Valley. We have a huge portfolio in that area.

The next big trend we are spending time on is how biology is becoming more like information technology and the combination of bio and engineering. What has been called bioengineering is going to transform all the work that has been done using genetics and CRISPR around healthcare. At the same time, companies are building applications using genetic engineering and biology to save the planet. These are some of the things we are spending time on, but at the end of the day, you need to have an open mind. People in the audience actually tell us where the world is heading.

We’re investors in companies in robotics and in the quantum computing industry. We are investors in a company which is making Web3 infrastructure and they’re doing extremely well because Web3 technologies will be used in the future. We have companies which are making solid state cooling devices where fans usually go in thin laptops or mobile phones. So there are all kinds of new and innovative ideas that are being created. And Web3 is an area of focus for us and I think it’s here to stay.

Kamini Ramani:

When you talk about people, one of your beliefs is invest in relationships, not transactions. This is something I’ve heard you say over and over again, over the last 15 years that we’ve worked together. And so how does a founder build that zone of trust? Starting from you know, the first meeting, the first chat, the first board meeting, all the way through decade long journeys like you’ve shown with HashiCorp and Poshmark. How does a founder do that?

Navin Chaddha:

So, I think the way founders choose co-founders and their first investor is extremely, extremely crucial. They have to be an extended member of your team where you feel they’re not measuring you, but can be your safety net. Without being afraid of them, you have to be able to pick up the phone and call them and say, “Hey. I’m in this crisis. In your experience, what would you do in this situation?”

So, start building a relationship with a VC. Not only look at their trends, but talk to their entrepreneurs. “How’s it to work with them? How engaged are they? Are they really behind me, or if the company starts meandering, will they just move on?” So, for me the most important thing in finding entrepreneur-investor fit is making sure you have alignment on your mission and values from day one. And if you can do that, wonders will happen. It’s a marriage. There’s no overnight success in the startup business. It takes seven years, eight years, 10 years, 20 years. You might be getting a higher price, but do your work. Do blind references. Are these the people who will support you through the ups and the downs? While you’re working on one company, VC’s have 10-30 deals. Even if they do 10 deals a year over 10 years, they’ll have 100 deals. You’ll have done one. So they are doing so much diligence on you. So do that diligence and make sure they are the right partner for you.

Kamini Ramani:

Correct. We always tell people, “Call off the list.” You know, call the entrepreneurs that are not just the ones that the VC provides you, for instance. Let me take a question from the audience that just came in, which was, what would you see as two or three common pitfalls for founders when they’re starting a company?

Navin Chaddha:

I think the first one is being overambitious. Rather than focusing on one thing and becoming the king or queen of that skill, they want to be a jack-of-all-trades. Don’t do that. You have to start with one thing and build trenches in that area.
The second thing I would say is that building teams is extremely important. And knowing what your weaknesses are, being self aware, and being secure in your skill and demonstrating vulnerability is also important. You should be able to go to your investors and say, “Hey. I don’t know these areas. Can you help me hire?” They’ll be delighted, because you’re not an individual contributor you have to go from a founder, to being a CEO. You become a manager of managers. Right? Your job is to help others grow, and a lot of the time founders just stick to what they’re doing. So, I would say focus on team building.

And the other thing I would say which is very, very important for founders, is having a growth mindset. Just a learning mindset. Things change and a startup needs to evolve. So, I think those are three things that come to mind, beyond some of the lessons I’ve talked about.

Kamini Ramani:

Sure, thank you. One of our beliefs at Mayfield is that great people evolve, and sometimes CEOs are made, not born. So, you have been talking about being vulnerable to learn, having the growth mindset, and being willing to work with the board. It’s not a downside if you choose to work with the board, which leads me to our next question which is, how does an investor add value to a fund? What should founders expect from their investors and how do they measure investors are keeping their promise to be true partners?

Navin Chaddha:

I think the number one thing investors need to do is listen to what entrepreneurs have to say before they give advice. Investors, having seen so many companies, are so eager to give advice. But what if the entrepreneur doesn’t need advice? Or you’re telling the entrepreneur, “Hey. You have a cold.” He doesn’t have a cold. He has a heart problem! Are you even listening? So, I think listening is very, very important and in your interactions with investors, right from the time you are pitching just see, are they really focused on you? Or are they looking at emails? Or are they distracted selling index stocks or looking at what’s happening in their portfolio?

I think the second thing I would say is, due diligence the investors. They are doing their due diligence on you. Go and check how many repeat entrepreneurs have worked with them. Because a first time entrepreneur has never worked with a VC, so how do they know they are is the best? If you see a pattern, entrepreneurs that repeatedly work with them; they must be doing something right. How many boards are they on? Are they available? When you send them an email at 10:00pm are they going to respond by the next day? Two days? Three days? Getting to the zone of trust with an investor is very, very important, but in today’s world where money, at least in COVID times, was a commodity, making sure your investors have the right entrepreneurial experience and empathy is really, really important, right? Because how could I tell you how startups run if I’ve never worked in a startup.

Some entrepreneurs don’t have choices, they just take the first money that they get. But if you have choices, do your work. VC’s like us meet 1000s of companies a year. Meet. Not what we get in our emails. And we only invest in 10; that’s one in 100. So if you have the choice of three investors, do your work. We are so selective, you should be super selective too. Because if you get it right, magic things will happen.

Kamini Ramani:

Well, there’s tons of questions that have come in to me, so I’m going to try to get to all of them. This is a good, challenging one.

Navin Chaddha:

I love challenges.

Kamini Ramani:

Yep. I hear that investors want fast growth and fast iteration. You are emphasizing patience, perseverance, and running a marathon. Have I been hearing it wrong?

Navin Chaddha:

From others, or from me? I think that there is a myth about company building, but itis a marathon. You’ll see all the companies in the public market that don’t have a path to profitability, but they’re trading. It’s very simple. You can keep growing, but in the end if you don’t follow the rule of 40, where your revenue growth; that’s the free cash flow you generate, is not over 40, you very likely won’t be independent. It’s not good, so you can have a 60% growth company, which uses 60%. The rule of 40 is zero. I can have a 40% growth company with 20% free cash flow in this other company. In the end, you can’t just grab more VC money. You have to be self-sustainable.

So, you have to get a long term view, right? Markets will go up, markets will go down. Just be balanced. A lot of people will give you advice, but if it doesn’t work, all of them will come to you. Because they’ll say, “I was just kidding, you know? It was your fault.” That’s what happens. There are always scapegoats when things don’t work out.

Kamini Ramani:

Right, right.

Navin Chaddha:

So I think to me, it’s a philosophy of investing. When you are doing VC, it’s really a long term business. Don’t go after artificial growth. Go after what’s possible. Once you hit the market with the right product , then grow! Because you know if you’re going to spend a dollar, you’ll get it back. Don’t come tell us and say, “I will spend a dollar and in four years I will get it back.” That’s a weak fund, which means you should be selling more because every time you spend a dollar, you’ll only get the money back in four years. So, have sustainable growth, have sensible growth.

Kamini Ramani:

Right, right. Absolutely. So, this next question actually plays to one of Mayfield’s beliefs, which is being loyal to a fault. Someone is asking, any advice on how to have difficult conversations with key team members, or even a co-founder without risking their departure?

Navin Chaddha:

So, I think right from the get-go, you need to set a culture of very open candor. I think you have to be clear with people. You can’t be weak about that, but at the same time you want to challenge them directly. Because it’s not about them; it’s about the company. At every opportunity you get, right from day one say, “These are the objectives of the company. This is what, as a CEO and founder, or the leader of a department, I expect from you.” Do yearly check ins, do monthly check ins. My style is leading with empathy and leading with heart. Ask big questions. Right? “These are our objectives. What’s going well? What’s not going well? How can I help?” So, as with kids, you don’t do their homework, right? Basically you teach them the art. So we give an inclusive management style and there’s a lot of good work on radical candor, but don’t surprise people. Don’t surprise people. Make it a continuous journey of measuring their success.

But if they know you care about them, wonders can happen, right? So give them the emotional support, but at the same time say, “Hey. This is what the company expects.” Think about a car if one of the tires is going slower then the car’s going to be wobbly. Right? You move at the pace of the slowest link, so have candid conversations.

Kamini Ramani:

Thank you. We have two last questions from the audience that we’ll be able to field because sadly, that’s all the time we have. First is a very good one. How can I be one of those 10 out of the 1000 a year that get your attention?

Navin Chaddha:

Mine?

Kamini Ramani:

You said you meet 1000 companies and you make 10 investments. So this audience member is saying, “I want to be one of those 10. How do I get your attention?”

Navin Chaddha:

So, I think first and foremost, in my case I actually do due diligence. Everybody has their own limitations. I don’t need more than 30 seconds to decide if this is going to be a fit for us. And then all my questions and their answers are going to be about the deal. So that’s a signal; in 30 seconds, can you get the message across? It’s the elevator pitch, right? If you can articulate in 30 seconds what you’re trying to do, why is it important, why is it worth it? And also go through a warm introduction. That will help a lot. There’s so many people who are struggling to get attention.

Kamini Ramani:

Right. So, the final audience question, unless people want to send in more, is a personal one. Somebody wants to know, if you prefer being an entrepreneur or an investor? And preferably, tell us one or two stories.

Navin Chaddha:

I run Mayfield Fund with some of the smartest people who are my partners and I love every day with them. And then every day I get pitches from entrepreneurs, and see these entrepreneurs in the trenches from their corner offices, building companies; it’s a great privilege to do this. And I feel I’m better suited to be a VC because I have ADD, so I cannot do one thing for nine or 10 years. I need to do lots of things. I have so much energy that if I just keep doing the same thing, I really can’t keep it up. So I’m better suited for being a VC where I can multitask and do 10, 12 things at the same time. I might be only good at getting things in the 30th percentile or 50th percentile. We need to get things to the 99th percentile. So you need to surround yourself with those people who can do the installation part. They need to have the persistence and the patience and the passion to build something with you.

So I totally enjoy being a venture capitalist, but if I wasn’t building a firm, I would be on to other things. But having the combination of managing a firm and investing in entrepreneurs is a happy medium.

Kamini Ramani:

This leads into a really quick question that maybe you can elaborate on, that just came in, which is, as a recent graduate, would you advise me to work in a corporation or fund a startup?

Navin Chaddha:

I think there’s no right answer. What I would say is write down what you want to accomplish after that experience, right? And if you go to corporate, you will learn all the right skills. There are no short cuts. You can do this for a few years and then go and start a company, or you can go to a startup and learn the hard way. There’s no process, nothing gets followed, right? It’s just brute force.

So it depends upon you; what you are looking for. There’s no right answer. But if you can be in a seasoned team which has built companies and has the benefits of bigger companies, and still the nimbleness of a small company, that’s ideal. It’s a combination of both worlds, but please define what you want and then pick it. There’s no right or wrong answer for this.

Kamini Ramani:

So I think we’ll end with this final question from me. Put yourself back to your 20 something self, when you were at Stanford in the PhD program, and tell us that story. How you founded that first company. Because it’s great to see you now as a leader and a successful investor and a serial entrepreneur, but you started where a lot of the young people are today.

Navin Chaddha:

Yeah, so I was part of a PhD program at Stanford. I got my undergrad from India, from IIT Delhi, but I had a passion to build a startup. So in ’94 when the internet happened and the browser was created, I realized, “Hey. The internet is only for text. What if you add audio and video to it?” So luckily my PhD work was in the area of video, so we figured out how to put Stanford classes, what is called distance learning today, on the internet in 1995 using video compression. And every VC came and said, “Hey, you should start a company.”

So it took us six months to decide as a company team, should we even do a startup or not? Because it meant dropping out of the PhD program and taking a one year leave of absence. We took six months to decide that we wanted to do it. My professor told me, “Hey. What will happen? Take a one year leave of absence,” and he was my co-founder too. “And if it doesn’t work, come back and finish your PhD. Because you have done all the work.”

So that’s what happened. When one door in life opens another door closes. Then I built my second company and then a third company. But it wasn’t an easy decision to drop out of a PhD program, when your family is wondering, “Are you crazy? Dropping out of college? Doing a startup? You won’t work for Microsoft? You won’t work for these companies?”

Kamini Ramani:

A long line of 20 something dropouts who go on to great success. So thank you, everybody. We really appreciated your time. Hopefully we leave you with a little bit of inspiration and a lot of support. Because being a founder is hard and we’re here to help you. Thank you.

Founding Voices: Know the Story Behind the Product

Originally part of our Founding Voices newsletter series. Read more insights here.

Know the Story Behind the Product

As a founder, you are undoubtedly close to your product. You have intimate knowledge of its benefits and its potential, and you believe it can deliver value, shake up the market and even change the world.

But outside observers will not have your depth and perspective. That’s why you must learn to articulate the value of your product and vision to a wide variety of audiences. For this reason, the best founders are good storytellers as well as strong leaders.

 

“You have to tell people why what you’re working on matters. It’s obvious to you as the founder—that’s easy. It’s about how you articulate that and tell people why it’s important—not just to you, but to the market—and how it’s going to help people.”

MITCHELL HASHIMOTO
Co-founder, HashiCorp

Everyone who touches your product – your team, customers, investors, and partners – will look to you for a vision that inspires them and wins their support. And this narrative can’t be static, rather it must adapt to address the goals, outlooks and concerns of the different groups you address.

“Your message must be accessible and relatable to each audience, whether that’s end users, executive decision makers, or potential investors,” says Navin Chaddha, Managing Director at Mayfield. “This is how you convey why your product is so important and how it will change things. Work on this message. Hone it. Because a clear and compelling product narrative is how you spread your vision of the future.”

Navin Chaddha

NAVIN CHADDHA
Managing Director

Enterprise, Consumer, Semiconductors