What seed investors are looking for in 2022

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It’s hard to imagine that seed-stage investing used to be a nascent portion of the venture ecosystem. But the first round of capital into a company used to be the sole domain of angel investors, friends and family, or the rare small fund. Seed as a developed sector didn’t really pick up steam until the late aughts. Nowadays, it’s a bedrock that feeds the growing venture ecosystem—we’ve even seen the rise of “pre-seed” in recent years.

This ever-changing startup and VC landscape can leave founders with more questions than answers. What’s the best way to approach a venture firm? How do you find the right seed investors to  pitch? Why do certain investors stick to specific markets and others are more agnostic?

Alexa von Tobel of Inspiration Capital, USV’s Rebecca Kaden, and Sean Mendy of Concrete Rose Capital shared their take on those questions at the Carta Equity Summit. 

This transcript has been edited and condensed for length and clarity.

Steven Wolfe Pereira: Well, hello everyone, and welcome to the Carta Equity Summit. My name is Steven Wolfe Pereira. I will be your host, your moderator for this amazing panel to talk about seed investing, and I think this is probably one of the best topics that we need to discuss with some of the most incredible venture capitalists in the industry. We have Ms. Alexa von Tobel, Rebecca Kaden, and Sean Mendy. So, I’d love to just have each of you just introduce yourself and your firm. Let’s try to keep it 60 seconds or less, and we’ll start with you, Alexa.

Alexa von Tobel: First, hi, everybody. Happy to be here and with such fun, awesome fellow panelists. I myself am a serial entrepreneur sitting right now in New York City. I’m the Founder, Managing Partner of Inspired Capital, which is an early-stage fund here in New York. We’re a generalist and very, very excited to be here.

Steven: Awesome. Rebecca.

Rebecca Kaden: Hi, everyone. This is awesome. I’m super appreciative for the invitation. I’m Rebecca Kaden, managing partner at Union Square Ventures. We’re a New York-based, early stage, primarily thesis-driven fund, managing three pools of capital: our core fund, which is largely seed and Series A, an opportunity fund, and a climate and sustainability-focused fund.

Steven: Awesome, and certainly not least, Sean.

Sean Mendy: I’m Sean Mendy, co-founder at Concrete Rose Capital. We invest early, pre-seed and A, with a focus on diversity. We think about diversity beyond founders. So, while we absolutely look for underrepresented founders, we’re also looking at companies being built to meet the needs of underrepresented consumers or that should be thinking about the needs of underrepresented consumers, and also founders of all backgrounds who are committed to building diversity and inclusive team. We partner with them to actually achieve that vision.

The state of seed investing

Steven: That’s awesome, and full disclosure, I am both a fan and friends with these three amazing panelists. Sean is actually also an investor in Encantos. For those of you that may be curious, Encantos is a creator platform built on a crypto stack that is helping creators from around the world help kids learn 21st century skills, but this is really about you guys.

Certainly, I think there’s so many questions about what is going on in seed. What is the right size for a seed investment? What are the trends that you’re seeing? So, maybe we could start with a general question in terms of what do you think is happening in trends with seed investing, because it’s all over the map these days. Maybe we can start with you, Rebecca.

Rebecca Kaden: Sure. I mean, much of this is kind of the obvious stuff. I think there are two trend lines here. One is around capital, and one is around ideas. Around capital, a huge amount of capital has gone into the private investing markets, right? It’s come from both traditional firms, new firms, and other asset classes that are more interested in going earlier and earlier. As late stage has gotten more competitive, it’s pushed the capital earlier in the market towards seed, and so it’s flooded it, changing the dynamics. 

At the same time, I think we’re in a unique era of innovation, and that there are new unlocks in the market that have huge opportunities to build new businesses in. So, part of the frenzy and excitement is because of that, is justified. It’s because there’s a lot to be done and a lot of really smart, interesting people going after it. I think startups are more known and understandable. I think COVID has been an unlock and inspired people to change up their lives and careers and do more things on their own, and all of that is fueling a time of innovation and really changing the seed market. So, it is both crazy but also pretty exciting.

Steven: Give me a sense in terms of dollar range, right, because I feel like what really is a seed now because I hear from so many folks, well, years ago, we knew what a seed investment was, but now, all bets are off. Do you feel that way?

Rebecca: I think we no longer really think about it as what things are called. Realistically, our entry check is generally somewhere between one and 10 million, and it’s generally, for us, post-product, pre-product market fit. Sometimes, that’s called the seed. Sometimes, that’s called the Series A. Sometimes, that’s called the pre-seed. Who really knows? So, I think the vernacular has been thrown off, but the substance is kind of the same.

Steven: Would you agree with that, Alexa? I mean, do you feel like the term doesn’t even mean anything these days?

Alexa: If I go back 10 years ago when I was building a company, my seed was very specific.—a million or so, around five million valuation. The Series A was five-ish around 15. Both of those right now aren’t even seed deals. So I do think a lot has really changed in terms of how we think about this. I actually think seed and Series A have even been segmented into literally first money and pre-seed, seed, bigger seed, small A, big A, and so I think many variations of that exist.

Alexa: I also want to echo what Rebecca said. I think we’re in a really unique moment in the 2020s with Covid. I kept joking last year, we started last year in 2020, and we were kind of finishing the year in 2030, in terms of just like seismic innovation that has created true challenges.

Think about the fact that we’re doing a Zoom hop-in meeting right now with thousands of people. Think how quickly we’ve normalized new behaviors, and so I think it’s one of these really fascinating times where big ideas feel more possible than ever, particularly matched with the amount of capital that’s out there. So, as an investor, it’s a really crazy time. It’s pretty hectic. It’s quite a frenzy, but it also feels like this is a unique moment, which I think is what makes this job so rewarding.

Steven: So, you mentioned a brave, really interesting time. I mean, that’s kind of how you guys started Concrete Rose, right, Sean? Backing bold leaders, building exceptional companies, but lots of people say that. How do you see it in terms of trends? Are you really seeing really innovative entrepreneurs and companies coming through? Is it harder to find deals?

Sean: I’m seeing more innovative, compelling opportunities than I have time to accept meetings for. So, there’s a ton of innovation out there, a ton of exciting things happening. I think it’s never been cheaper to start a company, and there’s also never been as much capital available, and there’s also capital available to folks who typically weren’t able to access it. It’s still not where it needs to be, but there are more funds like the three that are represented here who are investing in women, underrepresented founders, and founders who have maybe non-traditional backgrounds. So, yeah. Deal flow is not a problem.

I think strategic deal flow is actually where we’re spending a lot of time in that you can’t accept every meeting. You can’t have every conversation, or you’re not going to do anything well. We’re really focusing more on who we are spending time with and how we are making a decision on who we’re spending time with, but there’s plenty of innovation out there, more than ever.

Best strategies for founders trying to reach VCs

Steven: So, I’m curious, and this is kind of a jump off question for folks, so there’s tons of capital, what an incredible time, COVID being an unlock, but yet I feel there’s almost like a barbell, right, where there’s a whole bunch of folks that probably would love to talk to you guys, but they don’t know how to get through to you because they either don’t have the network, they don’t have the relationship. Maybe their company wasn’t featured in some hot startups to watch.

On the other end of the spectrum, there’s the typical folks that we all know and love. Oh, product manager at Google, someone that worked at Facebook. Sorry, Meta. All that kind of stuff. I feel like there’s so much access and opportunity for folks that know how to get to you, but for the folks that probably don’t know, and maybe some of those are listening right now, how would you recommend they approach you, right, because it’s so hard to be a founder if they don’t have a relationship? I’m just curious. I mean, Alexa, you also were in an entrepreneur’s shoes. So, how do you kind of encourage a founder to reach out to you?

Alexa: Some of this you sort of have to learn, but you can almost Google “top 20 venture funds that do seed and Series A” and you’re going to get a great list. So much publicly available information is out there. I, myself, was a fintech founder. I’ve written some books in fintech and around the wallet. So, approaching me if you’re a fintech founder, hey, send me a message. You can message me in lots of places. My email address is very figure-out-able. Send a note saying, “Hey, I’ve been really thoughtful.” I think what investors really respond to is people who are very thoughtful. It shows a high quality of work, approaching investors, understanding who they are and what they’ve done prior, and again, all of that is out there. So, rather than sending a totally random email that feels like it’s a stock email, being really thoughtful. Investors respect people who are trying to do good work.

Steven: Rebecca, you obviously have an incredible brand in Union Square Ventures, and your co-founder is very prolific. I think everyone loves reading all of his daily blogs, but you probably must be inundated with people trying to reach out to you. I mean, is it similar to Alexa? What’s the reco in terms of how founders should think about approaching?

Rebecca: Yeah, I think it’s an interesting time. As we’ve all articulated, the velocity of innovation and company creation is very, very high, so I want to tell it as it is. I’m not going to be able to meet with every founder that I would like to meet with, and so the way we confront that is we try to get very tight on our thesis, and try to really think about what we’re looking for, and use that as the guide. I would say that in the last 12 months I’ve taken way more meetings off of DMs on Twitter or Discord than I ever have before. They’re often things where they say, “Hey, I read something you wrote, or I read something USV wrote, and I’m working on something that’s related, and I think we shouldn’t meet.”

That is effective when people have taken their time to do the homework and find out what we’re interested in. As Alexa was saying, what I think is less effective is when I get a DM that says, “Hey, has USV ever done anything in crypto? If so, we should talk,” right, because then, it’s very hard for me to filter that for obvious reasons

I think it’s the same thing when you’re an entrepreneur. With a bounty of choices, you would choose investors that have concise thesis on the category you’re working on. I think we approach it the same, but I actually think the roads to direct communication with people we don’t know in general are richer than they’ve ever been if you can navigate them precisely.

Steven: These are nuggets that are so important for a founder to hear. Sean, I feel like you might not know the rules of the game, if you are a woman, person of color that probably doesn’t know how to play that game, there’s stuff out there, but still, how would you encourage someone that probably doesn’t have the background, didn’t go to Stanford, didn’t work at Google? What would be some of your recos to that founder?

Sean: I think Rebecca just gave the playbook right there. Do your research. Understand who you’re reaching out to, and customize, personalize something that is going to get their attention. That’s actually part of what we’re underwriting for,  are you somebody who can make things happen? And I think 10 or 15 years ago there were barriers that don’t necessarily exist with the existence of technology. The fact that Rebecca’s answering Discord and Twitter DMs. Like you don’t need to fly to New York and, and show up at her office and get past security and the receptionist to have a meeting with her.

On our website, you can submit your pitch right there. And while that might not be the fastest way for us to get to you, eventually, somebody’s going to read what you sent and get back to you with either a pass, or some questions, or even some feedback. So I think it’s really just all about finding folks who have invested in companies or people that you would put yourself in the same bucket as, and then reaching out in a way that’s compelling, not just a general email blast that could have been sent to anybody.

What VCs look for in a founder

Steven: And I feel like at this stage, let’s say they, they reached out to you, they were able to do the research on Alexa, they found all the stuff that kind of Rebecca has written for USV, they figure out a way to get the meeting with Sean. When you see folks come up, what really are you looking for? Because I feel like my experience, at the end of the day, it’s seed.—it’s early. And you’re never going to have all the metrics. You’re never going to have the product fully baked. You always need more. But you guys are obviously looking for something. And I think each of you have your own unique either process, approach, or philosophy. So I’m curious, Alexa, when you’re looking at someone, what are the things that you are going through your checklist in your mind?

Alexa: A bunch. I’ll start with just the most high-level triage that we do. I think the first thing you’re looking for is an exceptional person. There’s a lot of great people in the world, and then there’s exceptional people in the world. And that can come in lots of different shapes, sizes, flavors, etc. But you’re looking for somebody, and I specifically look at their background, and their narrative, and their story, or you’ve seen someone who over and over has found a way to beat the odds in some special way.

The second thing that you’re really looking for is somebody who has a very, very unique view of what the future is going to look like based on whatever their personal orientation is to the problem they want to solve, where they are so clear on the future in 10 years. And they’re so clear on the problem that they want to solve, that they know exactly how to build it. That’s sort of a very specific thing to say, but you kind of know it when you see it. Somebody who is very, very passionate about a certain specific thing that they want to run after, and because of their unique point of view, their background, their experience, because maybe an engineering orientation that they’ve had, they feel that they are uniquely equipped to solve that.

The third thing that you really look for is unfair advantages. And that kind of couples with number two, which is why is this person, side by side with five other people trying to solve this problem, going to win? And that can come in lots of flavors. That can come in, “Wow, you are literally a summa cum laude superior engineer who solved really unique machine learning problems prior.” That can say you’ve been spending eight years in the web3/crypto space and you have a very unique point of view and exactly the right engineers already surrounding a problem to go tackle something. That can be a person who shows up with eight million followers on their Instagram account, who wants to launch a specific product. That’s an unfair distribution advantage. It comes in a lot of shapes and sizes, but those are at the simplest, the three high level things that I quickly process before you then process about 25 other things that are more nuanced around the problem that they’re going after.

And just to kind of echo Rebecca’s point, which is if you’re an investor who boils the ocean and looks at literally everything, it’s very hard to know what you’re looking for, which is why being more thesis driven, having categories that you’ve spent so much time really knowing the space, that you have better insights and are also a good match for those founders as well. It really is a marriage.

The best way for founders to partner with VCs

Steven: Absolutely. It seems that you say the word marriage, because I feel like there’s this, maybe from a founder perspective, like, “Oh, these are folks that give me money.” But I don’t think that’s the way that each of you have approached your investment. I can only speak from personal experience. Sean is my business partner. He’s trying to help me build this company. Maybe Sean could share a little bit about how you’re approaching that, because I know each of you really view that it’s not an arms length relationship. You actually want to be helping the founders build.

Sean: Yeah. I work for you. I don’t even know if it’s as a business partner. I’m a service provider to the founders in our portfolio. You’re somewhat selling us for the investment, and then for the best deals, we’re selling on getting it in overall, so now we’re your service, right? We want you to win. We want to empower you. We believe in you. We don’t have the ability ourselves to build great companies. We’re better in that service role. And just very quickly on the previous question, I think one thing that I’m proud of about Concrete Rose is we’ve really tried to take bias out of the equation as much as possible and create as objective a way of evaluating deals as possible.

And you’re never going to totally eliminate bias. I was nervous that you were going to come to me on the, “What are you looking for in founders?” Because we’ve got this rubric that is too long, but we haven’t figured out how to cut it down, of 12 different categories, seven different qualities within each category that we’re evaluating. Only one of them is on the founder, but there’s a lot of different things that we’re looking for in founders and I think the things that Alexa laid out, she hit on all of them.

In terms of how we think about partnership, part of what we look for in our founders, one of the things that we look for is are they going to be able to leverage the social capital that Concrete Rose brings? What are they going to be able to do with the support that we provide? Can we truly add value through our social capital ecosystem? And then also just by the founder actually directing us. What that looks like, we onboard our founders, we tell them everything that we do, and then we say, “Please aggressively, aggressively, aggressively reach out asking for help, or telling us what we need to do, because we’re as invested in this as you. It’s not the only company that we’re working with, but it’s not going to be a lack of effort on our end that’s going to keep this thing from being successful.” So I think it’s as simple as that. It’s our entrepreneurs communicating what they need and then us doing it.

The one thing that we do, I think that is very unique, because I think all investors try to be supportive on things like talent, and customer introductions, and strategic advice, and even on the financial side you, is we actually underwrite for inclusivity in the leaders that we back and then we provide very unique supports to that. So first we have programmatic, inclusive leadership coaching and training. We believe that it’s very important for this next generation of talent to be able to feel like they’re working at a truly diverse and inclusive organization. And that’s not always intuitive and it’s not always easy at the earliest stages to do those things right. So I have a partner who leads on that, Danae, who spends time with all of our CEOs, both ad hoc, and then also some programmatic programs that she put together.

We also support the talent side with underrepresented talent. Jason, my partner, has built a talent network of about 6,000 Black and Latino professionals that we are constantly putting jobs out in front of and doing the work, reaching out on behalf of our companies to get candidates in front of the leaders that we have already vetted for inclusive behavior, because we feel like, one, it’s going to be a good fit for those professionals that are in the talent network. And two, it’s going to help our portfolio companies succeed at building that diverse organization.

Those are two unique things I think that we do, and I’m hoping that more venture firms will start to do that as well, because I feel like there’s a ton of opportunity out there and the more that we all do this, the more diversity we’re going to see in all ways throughout the ecosystem.

Steven: It’s interesting, right? There’s not one way. The investors are choosing the founders, but the founders are also choosing the investors. I mean, it is an active, conscious decision who you bring onto the cap table, because again, every time you’re raising money, you’re selling your company. You’re getting diluted. And so, who are you going to have in the trenches?

Rebecca, when you think about some of the things that they said, please comment as well, but what are the things that you actually get turned off by? What are the don’t-dos? Because I could only imagine, whether they’re is a valuation question, or are they really not seeing the forest for the trees? What would be some of the watch-outs? If founders are listening, what would you advise them not to do?

Rebecca: Yeah. I always struggle a little with this question, because I feel like there are more things we want to do or want to see than that we particularly don’t. And there’s some things that I don’t blame founders for at all and I think are reasonable. And this goes to all of the questions that we’ve been talking about. I don’t think there’s one way to run a firm or have a strategy. I think it’s actually the most important that everyone’s up front with what the strategy is. There are investors out there whose strategy is, “I will write a check and I will leave you alone, and I will answer you if you talk to me.” And there’s a good place for them in the ecosystem, it’s just best when it’s up front.

There are some historic, great examples of that with fantastic people who are investors. If your model is like ours, which is we’re going to be a low velocity, high conviction shop. Each partner’s going to do one to three investments a year, and we’re going to spend a lot of time on that. As Sean said, we’re going to make talent intros, we’re going to make customer intros, but mostly we’re kind of going to be in it with you. We’re asking founders to take on a huge amount of ambiguity, and I think that becomes really, really central to their life. And what we can do is say, “We’re going to ride that ambiguity with you. And we’re going to try to take this learning and experience from this horizontal portfolio and help when it feels really hard, because you’re all-in on this specific thing.”

And hopefully as a platform and as a network that can add value along the way. And the other thing we’re going to do is we’re going to make the investment decision once. We decide to invest and we’re in. We’re not reevaluating it, we’re not thinking about, “Do we still care? Do we still want to be involved along the way?” Once we’re in, we will be in the entire ride. And that’s how we do it. I don’t think everyone has to do it that way, but we try to be upfront about that.

Some things that don’t work with that model, even though it works with others are, “Hey, I just met you. I’m closing the round on Friday. You can decide whether you want to do it or not.” I have heard really great investors say, “This is a four-day diligence market. It is what it is.” I think that’s fine. It’s not going to be our model. We just don’t have to do everything, and so we won’t. That’s one thing. The valuation thing, I think, is tougher. I think, look, it’s part of the founder’s job to optimize for themselves and their shareholders. So if they want to push valuation, they can push and we’ll tell you what’s fair.

I think the other one is, and Alexa pointed to this too, is this is a fast market and there are a lot of people trying to start things. It matters to us to be clear on why this is for you. Why are you advantaged in founding it? Why do you care? If you assume that great ideas will be competitive, why are you positioned to win it in a kind of structural way? We tend to not do things where we think the answer is we’re going to outraise. Right? We’re going to have more capital. We’re looking for some reason, particularly at seed, that you, your model, your approach, which will undoubtedly change along the way, is structurally advantaged to what you’re trying to do.

Alexa: I was just going to echo Rebecca there and Sean, which I really liked, which is it’s more about, are we going to be the best partner for you than it is about bad traits of a founder. Maybe said simply, the team that inspired our founding team, together we built and scaled 10 businesses through many different chapters of life, in a recession, out of recessions—we’ve seen a lot.

Steven: With kids, without kids.

Alexa: With kids, without kids. And I think the way that we really approach this is, is this your life’s work? To build anything great takes time and we look for founders who want to create compounding results over long periods of time. And the kind of shorthand of that is it probably takes seven to ten years. And so we approach partnerships that same way, which is a really long term view. And we all know that building a great company is never a straight line, and in fact it actually probably has some pretty rough cul-de-sacs. And so to Rebecca’s point, it’s really about we are going to be in it with you. It is that long term commitment.

Really it’s about in the darkest moments, making sure you have the psychological safety to actually put your hand up and help other people help you solve really complex problems. Because if building a company was easy, quite literally the numbers would not look the way that they do. You’d see a lot more success. It’s brutally hard, and so we really approach it in that way. 

What you don’t want to see is somebody who wants to build a company because they want to be a CEO and they want to do it for two to three years because it seems really fun and exciting, because that wears out pretty fast. And after getting gut punched five times in the face, it’s less fun. So you’re really looking for someone who’s compelled by something far bigger than capital and making money and being in the CEO seat.

Steven: I think something that, as a founder, we probably aren’t having a lot of empathy for people being in your shoes. But there are also responsibilities, as the fiduciaries of capital, that you guys have. Tell us a little bit about what are the other stakeholders that you guys have. There are obviously LPs, GPs, and you need to make a return. You’re trying to get alpha, just like any investor. So help us understand a little bit about what are the other things, outside of just the founder, the other things that you guys are assessing as investors? 

Rebecca:  Our model is that we raise money from a pool of LPs. Hopefully for us, we care a lot, they’re people we’d be proud to make money for. That are going to do good things with it. And we commit to them a strategy and we say, “This is the strategy of how we’re going to deploy the fund.” And we care a lot about deploying it in the strategy we articulated. For us part of that strategy is, we articulate a thesis to our LPs and we stick really closely to that thesis. We also say, “We have structured these funds and the size that we chose because we don’t need to be in every investment. We don’t want to take a top-down approach to the market. We want to believe that we can do the investments we think are right for us and where we’re the right partners. And if we’re right enough on enough of those, the numbers will work out.” We’ll get the returns that we are shooting for.

In exchange, we ask a lot for our LPs. We ask that we can do creative things that when we want to distribute in crypto or we want to try new categories or we want to dip our hands into climate, that they’re going to be on the ride with us. And we can earn that trust by kind of doing what we say we’re going to do on the rest of it. And so that’s kind of how I think about our basic model as a fund.

How to navigate different firm dynamics

Steven: I more meant that there’s probably a lot of uncertainty from the founder perspective. What are the other factors that go into a decision? I mean I know one of the things that founders always question is, “Oh, I met,” for example, “a junior person at a firm.” It gets very high school very quickly. Right? Do I talk to that person? “Oh, this isn’t the Partner. So I’m not going to talk to a junior person.” Is there a point of view on that kind of stuff, the entree? Alexa?

Alexa: Yeah. I mean I would say at Inspired, and I can only speak for Inspired, but everybody that sits on our investment committee can deploy capital and take board seats. And so it is not an, “Only if you’re speaking with a partner, are you going to get anything accomplished.” In fact, everybody that has a seat at the table quite literally has a seat at the table. So that would be the way that I think about it. That said as you probably approach much bigger firms that have multistage and they have decision committees where you need X, Y, and Z, maybe that changes. But I can speak for Inspired and say every single person on the investment committee can deploy capital.

Steven: That’s awesome. Rebecca, Sean, any thoughts on that?

Sean: We’ve got five partners, so if you’re talking to any of us, you’re talking to a decision maker. On the other factors or other stakeholders that you’d think about, we’re about founders. So another reason an investor could pass on a deal is because they’re invested in something competitive, or when they’re thinking about portfolio construction.

In this crazy time, when there are 100 million post-money seed deals, while we’re trying to stay disciplined and stick to some form of price sensitivity. We do make some exceptions, right? But we can’t make exceptions in a fund where we’re going to have 40 investments. We can’t do that 20 or 30 times. Right? We might do it four times. And so I guess that could be a reason somebody would pass, either they’re in something competitive or just looking at their portfolio, the risk-reward just doesn’t make sense just given where a company is. That’s the only other factor I can really think of outside of having an explicit agreement with some type of LP on a type of deal that you’ve said you would not do, or a strategy that you wouldn’t employ.

What goes into a good VC meeting

Steven: I always love asking investors, “What are the questions that you wish founders would ask you?” Right? As you go through the process, I think as a founder, it’s very easy to get caught up. “I have this Zoom meeting with Rebecca, I have 30 minutes. I’m just going to vomit every single thing that I’m doing, mention every single buzzword.” But I was taught maybe you talk one third of the time, listen two thirds. You’ve got one mouth, two ears kind of thing. But I’m curious, what are the questions that you wish founders would ask you guys? And maybe we start with you, Rebecca.

Rebecca: Everyone knows the feeling of walking out of a great meeting and it just kind of clicked. You felt like there was a vibe, you walked out energized. It’s not going to happen all the time, but I think everyone knows that feeling. To me, it’s a two way street. I’m going to have that feeling when I’ve done my homework. Right? When I come in having read the material, having done my research, and having a perspective. I think they will when they balance the desire to get through the material and cover the points that need to be covered with a conversational approach that makes it a dialogue and a conversation.

I’m excited to work with people when I feel like we can dialogue about stuff—when there’s a kind of natural conversation and we’re going to be able to have that because it’s most realistic to what that relationship will be. I think there are founders who really excel at that, but it is a learned skill. Practicing that with people you know and trust can go a long way. And I would think about who you’re meeting with and think, if you’re meeting with Alexa and you’re a fintech company, she built an awesome fintech company. Be like, “Hey, this is my hypothesis for growth channels. What do you think about it? I’m going to pitch you, but what do you think?” It’s also really helpful to get as much of that feedback in real time as you can for your own process. So I would try to think about how to make it that dialogue.

Alexa: First of all, thanks Rebecca. I would add that, I think right now every founder has been so coached and so pitched. And so you can learn everything about how to run a good meeting. I actually like it when they throw away the entire fundraising veneer altogether, I think it’s an unproductive veneer. And I think just letting your guard down and being two people, two minds who are really excited about a certain topic or category. And to echo Rebecca, really getting into the dialogue of, “Hey, here’s what I’m thinking. Here’s what I’m worried about.” And I actually find founders bring, in the same way that people build trust, by being vulnerable.

I love when founders actually tell me what they’re worried about, and the best founders out there are very worried about their businesses. They know exactly what to be worried about. In fact, they can name priority one, two, three, four of what could go wrong. They ask questions and listen because they want to keep getting better. And the job, Steven, of a founder is the only job that rewards with complexity. The better you are at it, the harder the job gets. And being very, very comfortable with learning and a getting better mentality is in many ways, quite literally, critical to being good at the job.

Alexa: It’s also just this kind of mental click that neither of us is going to have the best answers, but actually in debate, in dialogue, we’re going to evaluate something from a few different degrees, and we’re going to get to a better answer as long as we can kind of mentally push and spar with one another. I actually think that’s also how you build good management teams. And so just starting to pick up on those attributes from a person is powerful, but you can’t do that if a big fundraising veneer is up and you feel like you have to be perfectly polished—because no great founder is perfectly polished.

Steven: Yeah. And in fact, you had one of the best, what I’ll call a nickel drop. What was one of the things that you would ask yourself about a founder?

Alexa: After I leave a great meeting I ask myself, “Would I go work for this founder?” And if the feeling is yes, one, that’s a very high bar, and it’s a really clear sign: Oh my goodness, this is a person who is compelling in a way that is so magnetic and has this clear vision.” You sometimes leave meetings where you’re like, “That person is going to make something very powerful happen and change the world.” You want to go sign up to work with that person. Again, it’s a simple question I ask myself sometimes.

Steven: That’s awesome. Sean, what do you wish people would ask you, man?

Sean: I mean, the worst meetings are when somebody gets on to a 30-minute meeting and presents for 30 minutes and doesn’t even take a breath, allowing you to interject. It’s awkward, and you don’t want to be rude, so you let them do it. Then, you’ve wasted 30 minutes in those cases.

So, even just getting on and saying, “Where do you want to focus our time? How do you want to use the time?” It’s something that I always ask founders, but that being reciprocated can actually help us get to where we need to get. If I’ve reviewed materials in advance or if I’ve done my homework in advance and I have some very specific questions, then we can accomplish something in five minutes that might take 25 minutes to get to if somebody just gets on and starts talking. So, any time you’re in any conversation, you’re talking for more than five minutes, that’s probably not good. You should just pause, and do a temperature check in the Zoom room.

Then, along the lines of what Alexa said, it’s great when founders can actually point out the things that they’re worried about. I think it’s also really interesting, and leads to generally good conversation, when folks ask what challenges we might see. It disarms any tension that might occur if you do. It invites that conversation, which can be mitigated by founders, who are as prepared as Alexa laid out. It allows you to just get through those major issues, or it allows you to identify issues that folks aren’t going to get over. And you don’t waste your time pitching for another 20 minutes or trying to set up another call or wondering what’s going on. Give us an opportunity to say how we’re feeling.

Also, as Alexa said, we’re not always right. We’re actually statistically usually wrong, but we can be. We can afford to be just given that we’re constructing a portfolio. We don’t have to be right 100% of the time, and so still having the confidence and the judgment to know when to take what an investor is saying seriously and change your thinking or to say, “Actually, I know this space better than this person, and while I hear them, I actually disagree.” Actually consciously make the decision to disagree. I actually respect that when founders push back in a way that is not emotional but rational and rooted in their expertise. They usually have more expertise in whatever they’re doing than I do.

Rebecca: I actually think that’s often a very good sign because one thing you’re looking for in a founder is being able to process inputs and wait for the decision, right? A founder’s constantly getting advice and thinking from so many people. You have to filter that and say, “Here’s where I’m going to agree, but I’m not going to always agree.” They’re not always right. I think part of this and part of what I’m trying to figure out in that pitch is what’s sacred and what’s flexible—because at a seed stage, much is flexible. Almost everything will evolve along the way, but there are a few bets that are sacred to that founder, things that they believe in and are going to root the company. Understanding what those are and how those decisions are made is really what I’m trying to get out of that conversation.

How much founders should share with potential investors

Steven: Yeah. Well, what I love about this is I feel like we’re debunking all these myths, the myth of the, I don’t know, master presenter, founder, that everything has to be perfect, dropping the veneer, being vulnerable. We only have a couple minutes left. I’d love to maybe debunk some other myths, right? For example, sending the model. I mean, this is like total bras tacks but the metrics like, “Oh, my God. I’m so afraid to send the model. I’m so afraid to send the deck.” I mean, do you guys have a point of view on that because I know that’s one of the fears that founders always have? It’s like this chicken and egg. We don’t have the metrics, or I don’t want to show you the metrics. Do you have a point of view on that?

Rebecca: My point of view is the better I can be prepared for a meeting, the more fruitful that conversation’s going to be. I think in general, when you put things into the world, you have to assume they’re going to get into everyone’s hands. I think that’s wise on the part of founders. But you have to also remember your goal, which is to raise your round and get to the right place. Things are often less sacred than they feel at those early days, and equipping the person you’re talking to with information is going to make that conversation exponentially better. It’s also going to let you figure out who does the work, who has the conversation that you want to work with, all those things, which is really important.

The idea of concealing metrics—I understand the goal. If I could just explain the context, if I could get you to understand, right? Then we could get to the metrics and you’re going to get it differently. I understand it, but I’m not going to make an investment without understanding the metrics. In some ways, as a founder, your most precious asset is your time—really figuring out who’s going to get there and who’s not going to get there as fast as you possibly can. If I’m not going to get there, you don’t want to be spending time with me. So, I would really prioritize that, as your goal isn’t really another conversation. It’s to flesh out who’s going to get there in your process.

Steven: Yeah. I couldn’t agree more.

Alexa: I agree, and I was going to just add a few quick tweaks. So, number one, I think sending a deck over before is really helpful because you can get very informed and actually have a high quality convo. If you’re at seed stage, the metrics literally don’t matter anyway, to some degree. It’s so early. It’s like, “Hey, I have three months of metrics on 1,000 users.” I mean, it’s directional, it shows something’s working, but you’re not exactly sharing the house secrets or your special sauce in that regard. I understand as you get further into Series A, you probably don’t want to lead with, “Here’s our exact funnel. Here’s every detail”—but having none in a deck also just makes it more of a red flag. Having some level of directional data, how things are going, is really helpful. Showing even early financials in some regard is helpful. I think really high-quality and  trustworthy venture funds don’t share decks.

Then, lastly, I’ve had a number of founders, this is just a sub-point, ask to sign an NDA. You should approach the world of what you’re building with there are at least five other teams running faster than you at all times, and there’s no house secret. You just need to outrun them with better capital, better partners and quite literally better customers. So, it’s a little bit of an odd thing to do it. Also, very few people will actually sign one, and so that always for me is an odd flag where I’m like, you really don’t get how this game is played.

Sean: It’s about execution more than anything. You got to out-execute people, and you should have a version of your deck that it wouldn’t matter if anybody saw. Tell the story. You can sanitize things that you need to sanitize and give the voiceover when you’re talking to folks, or have two versions of the deck, but you equip people with the information they would need to know whether they want to get on the phone with you or on the Zoom and then actually have that be a fruitful meeting, as Rebecca called it.

Themes to look for in 2022

Steven: That’s awesome. I’d love to just get, as you go into ‘22, Alexa, what are you most excited about as you look at the landscape, companies, sectors, etc?

Alexa: Yep. I call it the evolving wallet. I think the wallet between digital, Web3 digital currencies, I think the fact that literally, the way that we are thinking about work has shifted. Rebecca started saying that just a lot’s changed in the last 15 months, two years, however you want to slice it. We’ve dramatically changed the way that we think about our labor and how we go to work, and I just think the evolving wallet, the sum of all of that, is extremely powerful and some of my life’s work, so pretty excited about it.

Steven: That’s awesome. Sean, what are you excited about for next year, man? You got your baby.

Sean: Alexa, let’s hang out and talk fintech, and we can talk babies too if you want to talk babies, but we’re, as a firm, we’re looking at a lot of sustainability, a lot of fintech, a lot of enterprise. While we raised Fund I saying we’ll invest in anything but biotech and blockchain, we’re obviously now looking at a lot of blockchain and Web3 stuff.

Steven: Rebecca, you guys have just obviously an incredible track record. What are you most excited about for next year?

Rebecca: I think technology is allowing new kinds of access to people previously excluded across all categories in financial services, in education, in healthcare, and the ability to forge your own path and how you work and where you work and how you connect to others in completely new ways, and we want to think about all of that. I think this year ramped that up, and next year, it’s going to totally explode, so I’m pretty excited.

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