what’s that believed and welcome to
another YouTube hangout super excited to
be here I have a new friend with me his
name is Bill Malloy he is the founding
general partner from a venture capital
company in California called sway
ventures he is an expert on building
teams on building revenue on investing
in brilliant people he was an early
investor in uber and a bunch of other
high-profile tech companies and today
we’re going to talk about how to raise
capital and answer your other
entrepreneurial questions bill from the
offices of sway 9:00 a.m. in California
how you doing man we are slightly above
freezing today so that’s exciting since
the snow is melting down but yes we are
envious of the San Francisco weather I’m
excited to have you on here we haven’t
had we’re just talking this Dupre show a
lot of the people in the VC industry are
not recognized as thought leaders yet
haven’t really broken through and the
people talking about raising capital are
not necessarily the ones actually
practicing it and being in the business
so it’s awesome to get your firsthand
experience I’m excited for the questions
as people are joining us live I just
want to get your quick take on where you
think the state of VC is right now if
I’m an entrepreneur looking at raising
venture capital why should I go with a
VC firm versus other options by
entrepreneurs so you know massive
amounts of capital and part of that the
question was raised her own eyes are
icos which there was only 5 billion so I
still feel like venture capital is a
major access to capital for
entrepreneurs and part of the reason
that a venture capital bioscientists
getting getting money to fund your
business is a number of venture capital
firms including ourselves at sway
ventures have really taken a value-add
road that we’re really having been
entrepreneurs before and having built
successful
businesses we built our teams around
many operating businesses to help
healthy entrepreneurs as we know how
hard it is to build and scale a company
so where would you start in terms of how
much money you would put in like what’s
the first check that you put into a
company typically yeah so our our sweet
spot if you with all for investing is we
ideally want to be entering Series A and
that that can mean a number of different
it’s all generalized typically that
company will have product they’ll start
to have some customer traction you can
see the line of sight to about a million
dollars in reoccurring revenue so for us
that’s a you know we like to look at
investing about five million dollars in
that round we do invest in Series B as
well and and for us the average check
the initial check is ten million
can we just led Series B at a company
called best robotics they’re autonomous
robots that help move goods for
companies like DHL in their warehouses
so it was a twenty five million dollar
round we led with him so though that’s
the sweet spot now when I will state
entrepreneurs out there we as well as a
number of other venture firms will and
after leader though I do have the
ability we just invested in an amazing
machine learning company Berkeley in the
small track it was only a hundred
thousand dollars our goal there is that
the entrepreneur he has some pilots but
he doesn’t have revenue our goal is will
help that entrepreneur build his
business and then we can invest you know
a larger capital amount so it’s kind of
that range it’s a it’s a broad answer
but for us it’s almost like idea through
Series B and depending on where any
entrepreneur is it scalable depends on
the track size and now I know you love
technology you want to hyper grow
companies but you’re also about the team
and a management so if I’m an
entrepreneur I’m looking at getting
venture capital funding I’m gonna I’m
gonna pitch you I’m gonna pitch sway
what are the three to five most
important things that you look at to say
this is worth me putting some time and
money into yeah your as past
former life is er you’re already
alluding to somebody areas to focus on
so different venture capital firms they
focus on different areas for us it’s
sway ventures first and foremost we’re
all about team so we tend to look for
founders that have done kind of one of
three things you’ve worked inside of a
larger organization in a product line
that’s very similar to what you’re doing
no number one number two you’ve already
found an exit maybe it failed maybe you
have a good exit but you’ve already done
something in that space or you’re just a
genius that has a unique insight from
undergrad or actual and I think the
common theme is we’re looking for a
unique competitive advantage in the team
I think that’s one number two I think
entrepreneurs really need to focus on
co-founders but ideally you want to have
three co-founders there’s a company we
invested in called split dot IO they’re
in the developer tool space all around
release management for software and the
three founders had work together at
Salesforce two were technical so you you
get this balance it’s kind of a hit by
the bus scenario that venture
capitalists will look at if you just
never knows the track create a balance
with your your your co-founders I think
in the key part and then the final piece
is for us we look for software as a
unique competitive advantage so ideally
we want to have someone that’s the part
of the founding team that has a
technical background if it’s too
brilliant MBAs and they outsource a
product some develop a shop it’s really
not not for us so those are probably the
three areas that I focus on as an
entrepreneur around team and then
there’s some other areas but if I had to
pick one that’s team in those three
areas got it now now around the idea of
partnerships it comes up a lot on this
channel a lot of my viewers ask how do I
find the right business partner how do I
know that it’s gonna work out long term
what advice do you have for
who are trying to find that right person
especially if they’re kind of gearing up
to be able to really hyper scale and go
out and get venture capital do you have
pearls of wisdom around finding that the
perfect business partner for you yeah
well this is the some concrete examples
look in Canada you know Waterloo as an
example is really you know scale is an
amazing engineering school so depending
on where you went undergrad or brat
trying to tap into your alumni network
is I think a great great area we see
founders actually inside of larger
organizations that beaker founders there
and then they decide to leave obviously
being very careful about the
intellectual property that you leave
behind so I mean you got universities
you’ve got companies as you work out and
then there are a number of great
incubators that come up a part of that
is you may be a brilliant entrepreneur
and a part of what the incubator does is
help you find that co-founder on the
board of an incubator called next few
and it’s one of the things that they
focus on so you can have a great idea a
great technology and a part of that
process is actually finding that founder
is that ever something that you guys
participate in like if there’s a
weakness in the management team that you
helped find maybe the the president or
the CEO of the person is like really
good technical marketing but they need
the leader do you guys get involved in
that process or you want that figured
out before they come to you one of the
main pillars rustics way ventures is
focusing on adding value where the
entrepreneurs want it that’s a key thing
it’s not just about value that’s being
aligned with the founder or founders and
part of that is talent so I don’t want a
founder community they don’t feel like
they need to come with everything
completely completely baked and
completely ironed out early on and we’re
currently we’ve been working maybe for
six months with one founder yeah a
successful exit in the voice Enterprise
space we’re working with him on his
business model
we’re working with him on five dating is
co-founder and we had an investment a
time so what they’re it’s early on or
later on there’s a company Makana in the
security space and you know we helpline
a CEO because I’m the VP of engineering
because teams change over time and the
founder may want to move to an executive
chairman role or CTO role so I think
there’s a number of dynamics that we
pride ourselves in in value as we grow
it when an entrepreneur is going out
looking for capital whether that’s a VC
or even even smaller they’re going after
angels what do you think are the best
questions that the entrepreneurs should
be asking the investors either doing
their pitch they’re gonna get asked a
lot of questions but what questions
should I be asking you if I’m coming to
pitch you the reality is it is a two-way
street meaning with the venture
capitalists as well as the foreigner and
I think first informative I think
there’s a cultural you know core values
or principles whenever you you using
your own terminology I think you need to
find out and a partner level who you’re
going to be working with and what their
core values are and I think part of this
conversation and part of its finding I
put them outside of the office so I
think they’re there’s that first and
foremost because it’s given me a
long-term relationship I mean it could
be my music 50 10 years it could be
longer number two I think what are the
specializations at that part from that
firm focus all right for us it’s way
Venturi’s its capital revenue account
the different firms may have different
approaches some entrepreneurs are better
off with venture capitalists that are
just financial investors we want to give
you money and then it’s up you to go
execute so I think focusing on what is
the partner and what is the what is the
venture capital firm do and then finally
I think the key thing is how much
capital is going to be in what’s called
reserve
so if we’re writing a five million
dollar or use this example we’re running
the ten million dollar investment into a
series B we typically hold ten million
dollars over to the side for follow on
message so I think the the idea on can
the firm grow with you as an
entrepreneur is important I like it
well guys if you have a question for
Bill leave it in the live chat and I
will hopefully be able to get to a good
chunk of them up first is M of M Hussain
first question for bill going public
versus private capital funding what do
you think yeah very very timely
conversation I was just meeting with an
endowment as we made my arm out there
drug capital in downloading because
larger companies uber Airbnb Dropbox
Palantir our house staying private
longer it’s actually causing a ripple
effect and the problem at the LPD the
limited partner community so four
founders okay I think going in public is
is something that’s costly and something
that has a level of regulation and
oversight so I could get all depends on
the investors and the founders is a long
way around to say that because that is
staying private is great but you need to
find ways to inject capital so if you
are someone like Airbnb or Alan here and
you can stay private longer and you can
get private market investments then
there’s no downside the only thing that
I would say is as companies stay private
longer they need to implement it
regulations compliance and oversight
like they were operating as a public
company you mentioned it earlier rear
and investor in uber and you know I
think we’ve also seen the troubles that
they’ve gone through it’s an amazing
business I think it’s changed the way
that we think about transportation and
logistics but at the same time they were
able to stay private longer and now new
CEO new focus on control so if you do
stay private
focus on the back kind of
like control mechanism early just like
you were public I love it a bunch of
people want to know what your thoughts
on education is and how it relates to
entrepreneurship should they be going to
school should to be doing their business
what what are your thoughts maybe where
we’re hitting a hot topic but what do
you think about education and the
relevance to entrepreneurship education
for all of us it’s going to be very
interesting the next 25 years to see how
the education landscape changes there
are some amazing branded schools that
you know still today people are looking
for that that checkmark right if you
think about graduating from a university
either es hora or master’s degree so I
still feel like it’s a checkbox that a
lot of people are looking for but we’ve
seen some amazing founders that just
found their niche early on and it could
have been in computer science and it was
a laser who’s on what they were
passionate about and they are they’re
amazing founders and they’ve been able
to succeed so I think it all depends on
the person and what their unique
competitive advantages for me I felt
like I needed I needed to focus my
underground onion hearing and get those
technical skills I felt like I needed to
get a master’s in business because I
needed to round out what I’d done from a
technical standpoint but I’ve also seen
amazing entrepreneurs you know dropped
out of one or two years of undergrad
because they felt starting their
business I was rightly down so I used to
work at a venture capital firm here in
Toronto and if we saw a business plan
where all the founders had all had PhDs
and multiple PhDs and no kind of
entrepreneurial background it’d be
almost a strike against like too much
education and not enough practical
experience I wonder from your
perspective if you see everybody with
phd’s is that a good thing is that a bad
thing do you even care where they went
to school like how do you evaluate
education when you’re looking at who
you’re gonna invest in you know I have
one of my old mentor best thing you can
do is look at someone’s resume or
and because it starts to create this
this box right PFF ehe do you not have a
degree so I try to follow that as much
as I can as I’m meeting simple and
really understand them or who they are I
think it’s something that’s very
important I think it depends on the type
of technology right for us we’re using
we’re looking at software as a unique
competitive advantage we will invest in
hardware companies but as an example
some of the unique stuff is happening in
artificial intelligence and machine
learning the truly truly unique stuff is
still in universities so you’re actually
it’s actually a benefit that three PhDs
that have never really built a business
because you’re you’re betting that
they’re gonna create some new algorithm
around machine learning that’s a more
mature business that’s security or
infrastructure that’s more business
execution where the PhD wouldn’t really
matter god it’s really interesting how
you don’t want to look at a resume the
mansion partner at my firm would always
say he’d always try to find the horse
for the course like bet on the jockey
not the horse and so I’m curious for you
how do you getting the meeting with the
VC is is the first step and most people
don’t even get that first meeting so how
do you determine where you’re gonna
spend your time because it’s so valuable
if you’re not looking at the resume with
the person how do you make that judgment
call and who to who to spend time on so
you know for us we investors in great
companies Twilio sind grid for like you
uber so we got the time referral network
that now comes from our existing
founders where they’re having exits
we’re now investing in their next
companies we’ve got great relationships
with with large corporations which I
think spawned some of the innovation
that’s
in technology Google Cisco Microsoft so
our deal flow against has come from
known networks as opposed to just kind
of sitting there stumbling and do it
we’re very proactive about how we think
that our deal well the next question
feeds into that neezy is writing in to
say how do you connect into the networks
of venture capital so what would you
recommend a few months ago about this I
think it’s it’s like anything treat it
like sales meaning do your research and
try to find something unique so
different venture firms focus on
different areas for us it’s advanced
enterprise transportation logistics
cyber and then finally like hard tech on
the consumer side and then each partner
you can find all this public information
on on databases like CBM sites
CrunchBase each partner does a certain
type of deals focus on their thought
leadership on medium and really try to
find a connection to a partner that is
in an area i think someone that’s just
going out and blanketing I haven’t
really invest in Bitcoin as an example
firms in point
personally I may be some if I’m getting
that business plan that that person
hasn’t done research on what I’m
passionate about its way of what I got
it
next question bill I want to ask you if
you had a chance to meet yourself 15
years back and you had one minute to
give yourself advice what would you say
wow that’s an easy question so I think
my father says as well I think you know
you need to do a better job of stopping
and smelling the roses I think taking
that example I’d say continue to drive
hard but spend more time focusing on
those relationships right we’re talking
about team and people as opposed to for
me every execution or in oh I
my bollocks say stop and smell the roses
a little bit or so so then my follow-up
to that is if we if we you know fast
forward 15 years later you get asked the
same question would you be telling
yourself the same thing we’ll be doing
it in VR though and not not over YouTube
Hangouts please sleep
Salima is asking what kind of control do
you give up as an entrepreneur when you
get money from a venture capitalist yeah
so venture capital compared to private
equity is you’re typically not taking
controlling states and companies so
you’re buying you know I’m saying on
average 10 to 25% of the company now
what does come with that is I’d say a
board governance so in every reckon that
we’re leading when it’s happening is we
create a board structure so if it’s
early on and we’re the first money in
we’ll create a board of three it’s us
the founder and then an independent
that’s selected by us and the founder so
that board control sets the governance
for the for the company so it does
become a more of a balance we’re down
the pool or do sentence controls the the
company necessarily hears the founder so
that was interesting because you said if
I’m the first money in if if you’re not
if there’s angel investors that people
taking deals with what percentage is the
entrepreneur still have to own
themselves when they’re coming to you
that you would still look at the deal
because you don’t want to buy out
another investor and you want them still
to have enough equity so it’s meaningful
right yeah you know it ranges is such a
wide right see depending on the stage
accommodate these founders you know who
get alluded over time it could be they
own 10 to 15 percent of the company and
if it’s early on and they own in a
seventy percent of the company so the
good thing if you’re doing it right
with the right venture capitalist what
you do is you go through new financings
you’re doing what’s called expanding the
option pool because the founder let’s
say you start with 50% ownership as the
new money comes in that founders gonna
get diluted down 50 will go to 35 but
what you can do the founders still
active is you can issue the new stock
options it’s a way to kind of re up
their ownership so we’re a big proponent
of that because you wanted to be anymore
the founder not only for the founders
but for the executive team we spend a
lot of time focusing on cash
compensation that well as equity
compensation we actually have a matrix
that we developed for our founders helps
them baseline because a company example
the company in our portfolio you say
look I don’t want to pay market rates
for our for our for our team and that
goes for me as well as the CEO right now
I’m gonna make you know X dollars a year
and that’s 50% of what market is but
we’re going to overcompensate in equity
so a part of it is what what is the
company modality to compensation and has
to the CEO and the founders have to uh
to live what they’re saying for them
personally but then just get that
benchmark cuz you may say look we want a
cash compensation 125 which in the
market and under compensated equity just
understand what that that ratio is for
you as a founder what percentage are
there warning bells kind of going off
for you look if I’m coming to you for
Series A and I own eight percent of my
company that’s probably a big risk right
so what’s the lowest percent that like
where it word starts to your alarms are
going off for you your ownership early
if there are three co-founders and
everyone owns twenty to twenty five
percent well maybe then it starts to
make sense
I think it depends on how many come back
you have yeah it’s one founder and you
call that series a with 15% or something
going on got it
the next questions coming in around
margins what kind of margins are you
looking for for the products or services
that your companies are selling yeah so
we invest in both hardware and software
we’re always looking upwards a
competitive manage the hardware
companies obviously have because
inherently lower margin bumpy that
they’re good so we invest in a company
called new home it’s part of the
executive team from nest which sold it
to Google the multi-billion dollar exit
have now launched a lighting product
that’s hardware software and the market
is in that are going to range from you
know 35 is 60% and so we’re fine with
that right because they can get scale
and volume and it’s a very hard
technological problem to solve and if
you’re able to solve it it’s a massive
business on the software side we’re
looking at 60 to 90 percent margins and
so I think it very much depends on how
much do you prioritize top-line revenue
growth versus actually turning a profit
yeah there’s this term inventor that’s
called unit economics so I think what
you have to be careful of are the unit
economics of the business or what I mean
by that are if you look at a top-line
revenue growth you’re willing to absorb
a loss and please for the hit scale so
you have to make sure that the unit
economic that’s a deal makes sense
we’re investors and ecommerce and
logistics company college toad so as
they add new distribution centers their
margins dramatically increased because
the cost of shipment goes to have them
to make a business case that the unit
economics get get better over time is
almost all the time we’re investing in
businesses that are losing money right
they’re investing so heavily in the R&D
the
all about can you prove the unit
economics make sense I think to the
founders and entrepreneurs that are
listening I think that’s a key thing to
focus on them is to focus on the unit
economics your business and proving that
you can get to a profitable business and
those assumptions can be validated got
it next one coming in saying bill I’m 17
years old I want to be an entrepreneur
what advice do you have for me either
start coding on your own go to like a
reactor or if you want to go to the
University but I’m being an engineer
myself you’re a software and master and
I invest in technology and innovations
and I think you really need to
understand how products and companies
are built it would be number one and
number two it’s like just going to start
something then you have technology but
if you can like building that get it
lost try to do something you know write
a book see if you can take it out make
money just do something that is running
businesses is hard you know when I was
an entrepreneur sitting here on board
meetings the venture capitalists that I
loved the most
weren’t the venture capitalists that
when my business would have downturn
they were criticizing me every minute or
helping me and their ballot II love this
business venture capitalists and built
businesses so they understood how hard
it was so I think focus on the technical
side and then just go start something I
think time for one more question
I build what advice do you have for
entrepreneurs who want to develop their
leadership skills leadership skills so I
think the best advice that I can give is
focus on surrounding yourself either
officially or unofficially with mentors
and advisers so you know you can do this
where if you have you know one to five
mentors or advisers I think like really
go out and ask them and it could be you
know your way to to treat them as you
fight them out to lunch
but really focus on people that are in
sectors that you want to middle
businesses or have leadership skills
that you feel like you need to focus on
so I think that’s the informal way if
you already have a business I highly
highly advise building yourself if you
don’t already have a horrible or you can
build an advisory board and actually
give them some sort of stock options in
your business and we’re gonna come up
with a template that the audience can
use I mean the way to do this is not
this the issue I’ll make this up
X percent to the advisors but to really
make it based on what they do for you so
we’re gonna agree on a 90 day plan Jane
Doe and you’re gonna help me with how to
think strategically about my business
and I’ll give you why percent those
stock options and then let’s dip down in
90 days and see if it’s working for both
of us I think there’s a lot of drag and
businesses that I’ve been vested in for
the boxers that don’t really add a lot
of value focus on the informal take
someone out to lunch or dinner and just
ask them to be a mentor advisor and it
you’re a scale build yourself an
advisory board it is cool well if you
get that template created let me know
I’ll share it I think it’d be really
hurtful ah I’m curious myself to see it
so I’m excited bill it’s crazy how
quickly time flies one like 30 seconds
final message that you want to share to
the entrepreneurs watching yeah okay for
us its way ventures a part of our belief
is over the next 25 years that software
is gonna help improve the lives of
process consumers as well as businesses
they’re running the world and I think
it’s this idea that old industries are
being transformed machine learning
artificial intelligence are really now
starting to become mainstream and then
finally this idea that device is right
the Internet of Things it’s really
coming coming through ition so I think
for the audience that’s listening
there’s any way that we
and what you’re building your business
you’ve got my Twitter account but please
come to sway venture comm sway VC calm
and happy to be helpful I love it bill
thank you so much for the time guys
check out sway ventures bill on Twitter
is be Malloy III we’ve linked it up in
the title those videos you can check him
out there really appreciate you spending
the time with us
and looking forward to connecting in
hopefully faster than 15 years on VR
[Laughter]
Cheers
another YouTube hangout super excited to
be here I have a new friend with me his
name is Bill Malloy he is the founding
general partner from a venture capital
company in California called sway
ventures he is an expert on building
teams on building revenue on investing
in brilliant people he was an early
investor in uber and a bunch of other
high-profile tech companies and today
we’re going to talk about how to raise
capital and answer your other
entrepreneurial questions bill from the
offices of sway 9:00 a.m. in California
how you doing man we are slightly above
freezing today so that’s exciting since
the snow is melting down but yes we are
envious of the San Francisco weather I’m
excited to have you on here we haven’t
had we’re just talking this Dupre show a
lot of the people in the VC industry are
not recognized as thought leaders yet
haven’t really broken through and the
people talking about raising capital are
not necessarily the ones actually
practicing it and being in the business
so it’s awesome to get your firsthand
experience I’m excited for the questions
as people are joining us live I just
want to get your quick take on where you
think the state of VC is right now if
I’m an entrepreneur looking at raising
venture capital why should I go with a
VC firm versus other options by
entrepreneurs so you know massive
amounts of capital and part of that the
question was raised her own eyes are
icos which there was only 5 billion so I
still feel like venture capital is a
major access to capital for
entrepreneurs and part of the reason
that a venture capital bioscientists
getting getting money to fund your
business is a number of venture capital
firms including ourselves at sway
ventures have really taken a value-add
road that we’re really having been
entrepreneurs before and having built
successful
businesses we built our teams around
many operating businesses to help
healthy entrepreneurs as we know how
hard it is to build and scale a company
so where would you start in terms of how
much money you would put in like what’s
the first check that you put into a
company typically yeah so our our sweet
spot if you with all for investing is we
ideally want to be entering Series A and
that that can mean a number of different
it’s all generalized typically that
company will have product they’ll start
to have some customer traction you can
see the line of sight to about a million
dollars in reoccurring revenue so for us
that’s a you know we like to look at
investing about five million dollars in
that round we do invest in Series B as
well and and for us the average check
the initial check is ten million
can we just led Series B at a company
called best robotics they’re autonomous
robots that help move goods for
companies like DHL in their warehouses
so it was a twenty five million dollar
round we led with him so though that’s
the sweet spot now when I will state
entrepreneurs out there we as well as a
number of other venture firms will and
after leader though I do have the
ability we just invested in an amazing
machine learning company Berkeley in the
small track it was only a hundred
thousand dollars our goal there is that
the entrepreneur he has some pilots but
he doesn’t have revenue our goal is will
help that entrepreneur build his
business and then we can invest you know
a larger capital amount so it’s kind of
that range it’s a it’s a broad answer
but for us it’s almost like idea through
Series B and depending on where any
entrepreneur is it scalable depends on
the track size and now I know you love
technology you want to hyper grow
companies but you’re also about the team
and a management so if I’m an
entrepreneur I’m looking at getting
venture capital funding I’m gonna I’m
gonna pitch you I’m gonna pitch sway
what are the three to five most
important things that you look at to say
this is worth me putting some time and
money into yeah your as past
former life is er you’re already
alluding to somebody areas to focus on
so different venture capital firms they
focus on different areas for us it’s
sway ventures first and foremost we’re
all about team so we tend to look for
founders that have done kind of one of
three things you’ve worked inside of a
larger organization in a product line
that’s very similar to what you’re doing
no number one number two you’ve already
found an exit maybe it failed maybe you
have a good exit but you’ve already done
something in that space or you’re just a
genius that has a unique insight from
undergrad or actual and I think the
common theme is we’re looking for a
unique competitive advantage in the team
I think that’s one number two I think
entrepreneurs really need to focus on
co-founders but ideally you want to have
three co-founders there’s a company we
invested in called split dot IO they’re
in the developer tool space all around
release management for software and the
three founders had work together at
Salesforce two were technical so you you
get this balance it’s kind of a hit by
the bus scenario that venture
capitalists will look at if you just
never knows the track create a balance
with your your your co-founders I think
in the key part and then the final piece
is for us we look for software as a
unique competitive advantage so ideally
we want to have someone that’s the part
of the founding team that has a
technical background if it’s too
brilliant MBAs and they outsource a
product some develop a shop it’s really
not not for us so those are probably the
three areas that I focus on as an
entrepreneur around team and then
there’s some other areas but if I had to
pick one that’s team in those three
areas got it now now around the idea of
partnerships it comes up a lot on this
channel a lot of my viewers ask how do I
find the right business partner how do I
know that it’s gonna work out long term
what advice do you have for
who are trying to find that right person
especially if they’re kind of gearing up
to be able to really hyper scale and go
out and get venture capital do you have
pearls of wisdom around finding that the
perfect business partner for you yeah
well this is the some concrete examples
look in Canada you know Waterloo as an
example is really you know scale is an
amazing engineering school so depending
on where you went undergrad or brat
trying to tap into your alumni network
is I think a great great area we see
founders actually inside of larger
organizations that beaker founders there
and then they decide to leave obviously
being very careful about the
intellectual property that you leave
behind so I mean you got universities
you’ve got companies as you work out and
then there are a number of great
incubators that come up a part of that
is you may be a brilliant entrepreneur
and a part of what the incubator does is
help you find that co-founder on the
board of an incubator called next few
and it’s one of the things that they
focus on so you can have a great idea a
great technology and a part of that
process is actually finding that founder
is that ever something that you guys
participate in like if there’s a
weakness in the management team that you
helped find maybe the the president or
the CEO of the person is like really
good technical marketing but they need
the leader do you guys get involved in
that process or you want that figured
out before they come to you one of the
main pillars rustics way ventures is
focusing on adding value where the
entrepreneurs want it that’s a key thing
it’s not just about value that’s being
aligned with the founder or founders and
part of that is talent so I don’t want a
founder community they don’t feel like
they need to come with everything
completely completely baked and
completely ironed out early on and we’re
currently we’ve been working maybe for
six months with one founder yeah a
successful exit in the voice Enterprise
space we’re working with him on his
business model
we’re working with him on five dating is
co-founder and we had an investment a
time so what they’re it’s early on or
later on there’s a company Makana in the
security space and you know we helpline
a CEO because I’m the VP of engineering
because teams change over time and the
founder may want to move to an executive
chairman role or CTO role so I think
there’s a number of dynamics that we
pride ourselves in in value as we grow
it when an entrepreneur is going out
looking for capital whether that’s a VC
or even even smaller they’re going after
angels what do you think are the best
questions that the entrepreneurs should
be asking the investors either doing
their pitch they’re gonna get asked a
lot of questions but what questions
should I be asking you if I’m coming to
pitch you the reality is it is a two-way
street meaning with the venture
capitalists as well as the foreigner and
I think first informative I think
there’s a cultural you know core values
or principles whenever you you using
your own terminology I think you need to
find out and a partner level who you’re
going to be working with and what their
core values are and I think part of this
conversation and part of its finding I
put them outside of the office so I
think they’re there’s that first and
foremost because it’s given me a
long-term relationship I mean it could
be my music 50 10 years it could be
longer number two I think what are the
specializations at that part from that
firm focus all right for us it’s way
Venturi’s its capital revenue account
the different firms may have different
approaches some entrepreneurs are better
off with venture capitalists that are
just financial investors we want to give
you money and then it’s up you to go
execute so I think focusing on what is
the partner and what is the what is the
venture capital firm do and then finally
I think the key thing is how much
capital is going to be in what’s called
reserve
so if we’re writing a five million
dollar or use this example we’re running
the ten million dollar investment into a
series B we typically hold ten million
dollars over to the side for follow on
message so I think the the idea on can
the firm grow with you as an
entrepreneur is important I like it
well guys if you have a question for
Bill leave it in the live chat and I
will hopefully be able to get to a good
chunk of them up first is M of M Hussain
first question for bill going public
versus private capital funding what do
you think yeah very very timely
conversation I was just meeting with an
endowment as we made my arm out there
drug capital in downloading because
larger companies uber Airbnb Dropbox
Palantir our house staying private
longer it’s actually causing a ripple
effect and the problem at the LPD the
limited partner community so four
founders okay I think going in public is
is something that’s costly and something
that has a level of regulation and
oversight so I could get all depends on
the investors and the founders is a long
way around to say that because that is
staying private is great but you need to
find ways to inject capital so if you
are someone like Airbnb or Alan here and
you can stay private longer and you can
get private market investments then
there’s no downside the only thing that
I would say is as companies stay private
longer they need to implement it
regulations compliance and oversight
like they were operating as a public
company you mentioned it earlier rear
and investor in uber and you know I
think we’ve also seen the troubles that
they’ve gone through it’s an amazing
business I think it’s changed the way
that we think about transportation and
logistics but at the same time they were
able to stay private longer and now new
CEO new focus on control so if you do
stay private
focus on the back kind of
like control mechanism early just like
you were public I love it a bunch of
people want to know what your thoughts
on education is and how it relates to
entrepreneurship should they be going to
school should to be doing their business
what what are your thoughts maybe where
we’re hitting a hot topic but what do
you think about education and the
relevance to entrepreneurship education
for all of us it’s going to be very
interesting the next 25 years to see how
the education landscape changes there
are some amazing branded schools that
you know still today people are looking
for that that checkmark right if you
think about graduating from a university
either es hora or master’s degree so I
still feel like it’s a checkbox that a
lot of people are looking for but we’ve
seen some amazing founders that just
found their niche early on and it could
have been in computer science and it was
a laser who’s on what they were
passionate about and they are they’re
amazing founders and they’ve been able
to succeed so I think it all depends on
the person and what their unique
competitive advantages for me I felt
like I needed I needed to focus my
underground onion hearing and get those
technical skills I felt like I needed to
get a master’s in business because I
needed to round out what I’d done from a
technical standpoint but I’ve also seen
amazing entrepreneurs you know dropped
out of one or two years of undergrad
because they felt starting their
business I was rightly down so I used to
work at a venture capital firm here in
Toronto and if we saw a business plan
where all the founders had all had PhDs
and multiple PhDs and no kind of
entrepreneurial background it’d be
almost a strike against like too much
education and not enough practical
experience I wonder from your
perspective if you see everybody with
phd’s is that a good thing is that a bad
thing do you even care where they went
to school like how do you evaluate
education when you’re looking at who
you’re gonna invest in you know I have
one of my old mentor best thing you can
do is look at someone’s resume or
and because it starts to create this
this box right PFF ehe do you not have a
degree so I try to follow that as much
as I can as I’m meeting simple and
really understand them or who they are I
think it’s something that’s very
important I think it depends on the type
of technology right for us we’re using
we’re looking at software as a unique
competitive advantage we will invest in
hardware companies but as an example
some of the unique stuff is happening in
artificial intelligence and machine
learning the truly truly unique stuff is
still in universities so you’re actually
it’s actually a benefit that three PhDs
that have never really built a business
because you’re you’re betting that
they’re gonna create some new algorithm
around machine learning that’s a more
mature business that’s security or
infrastructure that’s more business
execution where the PhD wouldn’t really
matter god it’s really interesting how
you don’t want to look at a resume the
mansion partner at my firm would always
say he’d always try to find the horse
for the course like bet on the jockey
not the horse and so I’m curious for you
how do you getting the meeting with the
VC is is the first step and most people
don’t even get that first meeting so how
do you determine where you’re gonna
spend your time because it’s so valuable
if you’re not looking at the resume with
the person how do you make that judgment
call and who to who to spend time on so
you know for us we investors in great
companies Twilio sind grid for like you
uber so we got the time referral network
that now comes from our existing
founders where they’re having exits
we’re now investing in their next
companies we’ve got great relationships
with with large corporations which I
think spawned some of the innovation
that’s
in technology Google Cisco Microsoft so
our deal flow against has come from
known networks as opposed to just kind
of sitting there stumbling and do it
we’re very proactive about how we think
that our deal well the next question
feeds into that neezy is writing in to
say how do you connect into the networks
of venture capital so what would you
recommend a few months ago about this I
think it’s it’s like anything treat it
like sales meaning do your research and
try to find something unique so
different venture firms focus on
different areas for us it’s advanced
enterprise transportation logistics
cyber and then finally like hard tech on
the consumer side and then each partner
you can find all this public information
on on databases like CBM sites
CrunchBase each partner does a certain
type of deals focus on their thought
leadership on medium and really try to
find a connection to a partner that is
in an area i think someone that’s just
going out and blanketing I haven’t
really invest in Bitcoin as an example
firms in point
personally I may be some if I’m getting
that business plan that that person
hasn’t done research on what I’m
passionate about its way of what I got
it
next question bill I want to ask you if
you had a chance to meet yourself 15
years back and you had one minute to
give yourself advice what would you say
wow that’s an easy question so I think
my father says as well I think you know
you need to do a better job of stopping
and smelling the roses I think taking
that example I’d say continue to drive
hard but spend more time focusing on
those relationships right we’re talking
about team and people as opposed to for
me every execution or in oh I
my bollocks say stop and smell the roses
a little bit or so so then my follow-up
to that is if we if we you know fast
forward 15 years later you get asked the
same question would you be telling
yourself the same thing we’ll be doing
it in VR though and not not over YouTube
Hangouts please sleep
Salima is asking what kind of control do
you give up as an entrepreneur when you
get money from a venture capitalist yeah
so venture capital compared to private
equity is you’re typically not taking
controlling states and companies so
you’re buying you know I’m saying on
average 10 to 25% of the company now
what does come with that is I’d say a
board governance so in every reckon that
we’re leading when it’s happening is we
create a board structure so if it’s
early on and we’re the first money in
we’ll create a board of three it’s us
the founder and then an independent
that’s selected by us and the founder so
that board control sets the governance
for the for the company so it does
become a more of a balance we’re down
the pool or do sentence controls the the
company necessarily hears the founder so
that was interesting because you said if
I’m the first money in if if you’re not
if there’s angel investors that people
taking deals with what percentage is the
entrepreneur still have to own
themselves when they’re coming to you
that you would still look at the deal
because you don’t want to buy out
another investor and you want them still
to have enough equity so it’s meaningful
right yeah you know it ranges is such a
wide right see depending on the stage
accommodate these founders you know who
get alluded over time it could be they
own 10 to 15 percent of the company and
if it’s early on and they own in a
seventy percent of the company so the
good thing if you’re doing it right
with the right venture capitalist what
you do is you go through new financings
you’re doing what’s called expanding the
option pool because the founder let’s
say you start with 50% ownership as the
new money comes in that founders gonna
get diluted down 50 will go to 35 but
what you can do the founders still
active is you can issue the new stock
options it’s a way to kind of re up
their ownership so we’re a big proponent
of that because you wanted to be anymore
the founder not only for the founders
but for the executive team we spend a
lot of time focusing on cash
compensation that well as equity
compensation we actually have a matrix
that we developed for our founders helps
them baseline because a company example
the company in our portfolio you say
look I don’t want to pay market rates
for our for our for our team and that
goes for me as well as the CEO right now
I’m gonna make you know X dollars a year
and that’s 50% of what market is but
we’re going to overcompensate in equity
so a part of it is what what is the
company modality to compensation and has
to the CEO and the founders have to uh
to live what they’re saying for them
personally but then just get that
benchmark cuz you may say look we want a
cash compensation 125 which in the
market and under compensated equity just
understand what that that ratio is for
you as a founder what percentage are
there warning bells kind of going off
for you look if I’m coming to you for
Series A and I own eight percent of my
company that’s probably a big risk right
so what’s the lowest percent that like
where it word starts to your alarms are
going off for you your ownership early
if there are three co-founders and
everyone owns twenty to twenty five
percent well maybe then it starts to
make sense
I think it depends on how many come back
you have yeah it’s one founder and you
call that series a with 15% or something
going on got it
the next questions coming in around
margins what kind of margins are you
looking for for the products or services
that your companies are selling yeah so
we invest in both hardware and software
we’re always looking upwards a
competitive manage the hardware
companies obviously have because
inherently lower margin bumpy that
they’re good so we invest in a company
called new home it’s part of the
executive team from nest which sold it
to Google the multi-billion dollar exit
have now launched a lighting product
that’s hardware software and the market
is in that are going to range from you
know 35 is 60% and so we’re fine with
that right because they can get scale
and volume and it’s a very hard
technological problem to solve and if
you’re able to solve it it’s a massive
business on the software side we’re
looking at 60 to 90 percent margins and
so I think it very much depends on how
much do you prioritize top-line revenue
growth versus actually turning a profit
yeah there’s this term inventor that’s
called unit economics so I think what
you have to be careful of are the unit
economics of the business or what I mean
by that are if you look at a top-line
revenue growth you’re willing to absorb
a loss and please for the hit scale so
you have to make sure that the unit
economic that’s a deal makes sense
we’re investors and ecommerce and
logistics company college toad so as
they add new distribution centers their
margins dramatically increased because
the cost of shipment goes to have them
to make a business case that the unit
economics get get better over time is
almost all the time we’re investing in
businesses that are losing money right
they’re investing so heavily in the R&D
the
all about can you prove the unit
economics make sense I think to the
founders and entrepreneurs that are
listening I think that’s a key thing to
focus on them is to focus on the unit
economics your business and proving that
you can get to a profitable business and
those assumptions can be validated got
it next one coming in saying bill I’m 17
years old I want to be an entrepreneur
what advice do you have for me either
start coding on your own go to like a
reactor or if you want to go to the
University but I’m being an engineer
myself you’re a software and master and
I invest in technology and innovations
and I think you really need to
understand how products and companies
are built it would be number one and
number two it’s like just going to start
something then you have technology but
if you can like building that get it
lost try to do something you know write
a book see if you can take it out make
money just do something that is running
businesses is hard you know when I was
an entrepreneur sitting here on board
meetings the venture capitalists that I
loved the most
weren’t the venture capitalists that
when my business would have downturn
they were criticizing me every minute or
helping me and their ballot II love this
business venture capitalists and built
businesses so they understood how hard
it was so I think focus on the technical
side and then just go start something I
think time for one more question
I build what advice do you have for
entrepreneurs who want to develop their
leadership skills leadership skills so I
think the best advice that I can give is
focus on surrounding yourself either
officially or unofficially with mentors
and advisers so you know you can do this
where if you have you know one to five
mentors or advisers I think like really
go out and ask them and it could be you
know your way to to treat them as you
fight them out to lunch
but really focus on people that are in
sectors that you want to middle
businesses or have leadership skills
that you feel like you need to focus on
so I think that’s the informal way if
you already have a business I highly
highly advise building yourself if you
don’t already have a horrible or you can
build an advisory board and actually
give them some sort of stock options in
your business and we’re gonna come up
with a template that the audience can
use I mean the way to do this is not
this the issue I’ll make this up
X percent to the advisors but to really
make it based on what they do for you so
we’re gonna agree on a 90 day plan Jane
Doe and you’re gonna help me with how to
think strategically about my business
and I’ll give you why percent those
stock options and then let’s dip down in
90 days and see if it’s working for both
of us I think there’s a lot of drag and
businesses that I’ve been vested in for
the boxers that don’t really add a lot
of value focus on the informal take
someone out to lunch or dinner and just
ask them to be a mentor advisor and it
you’re a scale build yourself an
advisory board it is cool well if you
get that template created let me know
I’ll share it I think it’d be really
hurtful ah I’m curious myself to see it
so I’m excited bill it’s crazy how
quickly time flies one like 30 seconds
final message that you want to share to
the entrepreneurs watching yeah okay for
us its way ventures a part of our belief
is over the next 25 years that software
is gonna help improve the lives of
process consumers as well as businesses
they’re running the world and I think
it’s this idea that old industries are
being transformed machine learning
artificial intelligence are really now
starting to become mainstream and then
finally this idea that device is right
the Internet of Things it’s really
coming coming through ition so I think
for the audience that’s listening
there’s any way that we
and what you’re building your business
you’ve got my Twitter account but please
come to sway venture comm sway VC calm
and happy to be helpful I love it bill
thank you so much for the time guys
check out sway ventures bill on Twitter
is be Malloy III we’ve linked it up in
the title those videos you can check him
out there really appreciate you spending
the time with us
and looking forward to connecting in
hopefully faster than 15 years on VR
[Laughter]
Cheers
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