November 3, 2020 –
As we approach an election where we are being asked to vote on which leader we can trust more, I am struck by how trust is a key ingredient for success between a founder and an investor. Trustworthiness is hard to search for–especially for first-time founders, without prior board experience. But even repeat entrepreneurs can make mistakes in choosing their investing partner, either over-indexing for a missing skill in their last board, or following a pattern which may not be relevant in their new company. Not getting it right can be toxic, as highlighted by the latest story making the rounds in Silicon Valley, but there are many such examples which prevent entrepreneurs from achieving their mission.
Building a zone of trust becomes especially important when you are raising your first round of capital from a founding investor who is willing to get deeply involved in your company. Sometimes investors follow an incubation model, demonstrated recently to great success by Mike Speiser of Sutter Hill who served as acting CEO of Snowflake at inception and set it on the path to escape velocity. As early-stage investors, our team at Mayfield helps incubate companies or partners with entrepreneurs at the ideation stage, acting as thought partners and as a sounding board, and shaping the foundation of a new company.
We have built up the expertise, passion and time to go deep into a company to help guide its trajectory. But we have realized that it takes a founders’ willingness to include the investors in their zone of trust, mutually identifying foundational opportunities or missing links, rather than keeping them at a distance or using them transactionally. From our experience of partnering at the earliest stages with over 500 companies, resulting in over 117 IPOs and 200 acquisitions, we have witnessed how trust in founder/VC relationships can help create iconic companies.
Here are some examples from our portfolio that might serve as a guide to founders:
Leaning into Founder Instincts
Pivots are part of building a company, so founders need to partner with investors who are comfortable with risk.
As the Series A investor, we partnered with Logan Green and John Zimmer on an earlier version of Lyft, called Zimride. This was a Craigslist for ridesharing–a bulletin board–to provide shared rides for commuting which was monetized through a SaaS model aimed at companies and universities.
When the founders decided to pivot to Lyft–a mobile, consumer-oriented ride-share service–our main role was to give them the freedom and encouragement to take risks. They launched the service while the laws were still being written. They diverted the vast majority of people to the new business, which at that time was unproven. They bet on consumer behavior to get into a car with a stranger. By moving fast, they were able to build brand value and momentum and, combined with their authentic culture, were able to hold a successful public offering, which valued the company as a ridesharing pioneer.
Embracing Unconventional and Unusual Founders
Sometimes it is the outsider and dreamer who builds a great company. A founder needs to find the rare investor who will take a leap of faith, even if it is orthogonal to his/her expertise or prior track record.
The iconic industry example of a founder whose next act was very different from his previous one is that of Netflix’s Reed Hastings, whose prior company was enterprise troubleshooting software leader Pure Software. We got to know Aly Orady by investing in virtual desktop provider Pano Logic, which was too early for the market. We invited him into Mayfield as an EIR, where he decided to build Tonal, a home fitness company, based on learnings from his own weight loss journey. He was a semiconductor and enterprise systems entrepreneur with no consumer experience and a first time CEO who faced investor skepticism. As avid investors in both people and innovation, we’ve found that those who can transfer skills from one sector to another are often the best equipped to drive massive innovations.
We worked with Orady at the idea stage and helped him put the business plan together. Today, with some lift from the at-home nature of the pandemic, Tonal is a breakout success, recently raising $110 million in capital from sports leaders and top-tier investors.
Attracting Key Talent to Round Out the Founding Team
At inception or early in their journey, self-aware founders realize that they are missing a key talent to round out the team. Finding the right person, who may be outside their networks, can help amplify their impact.
The iconic recent example of a founding stage partnership is that of Mark Zuckerberg and Sheryl Sandberg, whose complementary skills accelerated Facebook’s trajectory. When serial entrepreneur Manish Chandra founded Poshmark in 2011, he realized the need for a partner who understood the fashion business and reflected the needs of women, which were his primary customer base. In 2010 we connected him to Tracy Sun, who became his co-founder before he started Poshmark. Their partnership has been a very fruitful one as she has brought her retail and merchandising expertise to bear on the company’s success.
As HashiCorp evolved from an open-source phenomenon to a commercial software company, co-founders Mitchell Hashimoto and Armon Dadgar decided that their superpowers lay in staying close to the community and building innovative infrastructure software. They looked to us for GTM talent and, in a rare self-aware move among startup founders, decided to hire a business leader as CEO. We connected them to Dave McJannet, a seasoned software and open-source executive, who still leads the company as its CEO. Today HashiCorp is seen as an infrastructure leader and a valuable enterprise company; its latest round of financing valued the company at over $5 billion.
Partnering with Entrepreneurs Who Think Bigger
Engineering biology entrepreneurs pursue the one-product wonder or platform company path. To do the latter is harder but creates more enduring companies.
Trevor Martin had a vision to build a synthetic biology platform company as a Ph.D. student at Stanford. Janice Chen and Lucas Harrington had a similar vision as students of Jennifer Doudna at the Doudna Lab in Berkeley. We helped this team realize their visions by facilitating the conversations that led to Doudna, Chen and Harrington joining forces with Martin as co-founders of Mammoth Biosciences. This move expanded their focus from diagnostics to becoming a platform for the next generation of CRISPR products across diagnostics and therapeutics. The joint team has been executing exceptionally well and has emerged as the leading next-generation CRISPR platform company. The company is also at the forefront of COVID response for high-accuracy and portable diagnostics, and has partnered with the National Institutes of Health and GSK to deliver the same at scale.
Encouraging Entrepreneurs Who See Around Corners
A 10X entrepreneur who often predicts future trends can use the investor as a sounding board to test and deepen conviction.
Rehan Jalil is a serial entrepreneur who understands the enterprise infrastructure world.
As he founded Elastica in the beginning of 2012, he realized through customer conversations that the market was early for a security solution for SaaS and cloud. During many strategy discussions with his Mayfield board member, Jalil was able to deepen his conviction that the move to cloud and SaaS would disrupt existing perimeter-driven security models and a new category would be created faster than what his diligence had shown. Within a couple of years, CASB (cloud access security broker) became the No. 1 need in security and an important category, and Elastica became a market leader.
Following the successful outcome for Elastica, which joined forces with Symantec, Jalil realized that a new era of customer-driven privacy around use of their data was upon us. He decided to build a platform company as well as a movement around PrivacyOps; a new multidisciplinary approach within enterprises which tapped into compliance, IT and marketing. As a big thinker, he also had other business ideas. We helped him evaluate many options, and encouraged him to double down on his domain expertise in security and privacy where he is building Securiti.ai into a platform and movement leader.
Building iconic companies is a marathon, not a sprint. Building a zone of trust with your founding investors–who are willing to roll up their sleeves to help you amplify and accelerate your mission and impact–at the starting line, can be a rewarding equation for both founders and investors. And as long as this model continues to thrive, there will be many companies that change the world in which we live, work and play.
Originally published on Crunchbase.