[Video] Investor Talk: Eva Khoo (Vertex) + Bruce Schechter [Band of Angels]
Eva Khoo (Vertex) + Bruce Schechter (Band of Angels)
Where and how you get your funds for your startup is something investors take a close look at. Here is the perspective of two Silicon Valley investors on:
- SAFE notes
- pros and cons of equity crowdfunding
- key characteristics that make an entrepreneur successful
- key things to include in a pitch deck
Don’t miss the chance to hear from more experts like Eva and Bruce at the many tech startup events at Founders Floor in San Jose.
Investor, Vertex Ventures
Eva is currently Vice President of Operations at Vertex Ventures, who have a cumulative committed capital in excess of $2.5 billion. Prior to this, Eva was Chief of Staff and a founding member of Luxe Valet, a venture-backed on-demand startup. Eva launched Luxe’s initial market, supported its nationwide expansion and managed the company’s finances, including recruiting fundraising rounds.Prior to Luxe, Eva was an investment banker at Goldman Sachs, advising public and pre-IPO companies in the technology, media and telecom space. Eva holds a B.A. from the University of California, Berkeley, an MBA from the Wharton School at the University of Pennsylvania.
Angel Investor, Band of Angels
Bruce Schechter is an investor at the Band of Angels, Silicon Valley’s oldest angel group.
He is an active advisor/investor in a variety of tech startups, including Life360 (50M+ users), Proformative, TreasuryCurve, and Simplure. He is also the founder and President Emeritus of the Intel Alumni Network. Bruce is active in mentoring student entrepreneurs at both Stanford (StartX Accelerator) and Purdue University. Bruce received a BS in Physics and Math from Purdue University, where he graduated with Highest Honors and Phi Beta Kappa, and he received an MS in Computer Science from Stanford University.
This video was recorded at a Founders Floor Startup Event in San Jose, California. Our CEO, Matt Day, hosted this Investor Panel Discussion with Eva Khoo and Bruce Schechter. The transcript has been lightly edited for the purposes of easy reading.
Eva Khoo: I’m an investor at Vertex Ventures. We’re an early-stage fund focused exclusively on enterprise or B2B tech. So, early-stage for us means everything from incubation to probably Series B, but we primarily focus on Series A deals. The earlier stage tends to be in areas where we have a lot of experience or outsourced knowledge of the team itself.
Those areas are historically in infrastructure technology and cybersecurity, DevOps tools and increasingly, we’re looking more at application layer and Industry 4.0 technologies applied to older industries.
Bruce Schechter: So, I’m Bruce Schechter. First, a quick bit about me. I’m an Intel Corporation veteran from way, way back, which was a golden opportunity for me. I’m finally realizing I’m at the stage of life where I look around the room and I’m older than everybody in the room.
But, I’ve had the privilege of learning a lot from the well-known leaders of Intel, Andy Grove and Gordon Moore, back in the good old days and I did a variety of things, engineering and then product marketing for microprocessors and then a stint for four years in their first-ever corporate strategy organization. Really great prep for what I do now, although I had no idea back then that I would evolve into what I do now.
So, for the last 10 years, I really don’t do anything professionally other than work with startups, often in advisory roles. On rare occasions as an investor if I get super excited. I’m a member of the Band of Angels. We are classically known as the oldest organized angel investor network in Silicon Valley and, arguably, probably the world because it was all invented here; although, I’m a recent entry, starting about eight or nine years ago.
We’re a member group of 150 members, the vast majority of whom were actually startup founders, although there are rare examples of the corporate types like me. We do, obviously, early-stage angel investing, preferably the very first money into a company. We’ll typically put together within our group anywhere from three to 12 people will go together to form a pool of anywhere from $250 thousand up to a million dollars in an extreme case. Probably more often than not, it’s syndicated with other investors of some kind, either seed stage firms or other angels outside of our own network.
We call ourselves market segment agnostic. We don’t care where it is, but it’s got to be tech. And we have subgroups within our group of like light sciences and software and SaaS, cleantech and such, so we have a broad variety of interests. I, personally, tend to align towards things that are not consumer-oriented because I don’t understand consumers. I like to think about how things are sold into businesses.
Matt Day [Host]: So, I have a list of questions here.
I’m going to start out here. And one of the questions that a friend would like to know is — a lot of the people in the audience are fundraising right now, how much time should founders expect the fundraising process to take from start to finish? From start all the way to money’s wired in the bank.
Bruce Schechter: Well, every founder that I’ve ever talked to after the fact drastically underestimated the amount of effort it’s going to be. I would say, first of all, it is the job of the CEO. If you think you’re going to delegate it, you’re very likely wrong and I’m probably not exaggerating to say that for many months this could be like a half time job for that CEO.
I find fundraising to be a highly iterative process, like nobody gets it right on their first pitches. So, you have to assess that don’t worry when you fail and you get nasty feedback because you want that, you thrive on feedback. You want, every time, okay, here’s my thing. You go to a meeting with a VC or an angel or whatever and then when you come home, you don’t look at each other and say, “Man, that guy was an idiot. He just didn’t get it.” You do not say that. You say, “What did we do wrong? How can we do this differently next time? How do we evolve the deck? How do we evolve the way we behave, the way we talk, whatever?”
So, that’s my advice.
Eva Khoo: Completely echo everything he said. The other thing I would say is because it’s an iterative process, just know that when your first meeting an investor, you’re basically leaving little breadcrumbs with them. They’re going to latch on to any metric or number that you share with them and then if you resurface a few months later, they’re going to hold you to those numbers.
And so, you want to, again, everyone always says, you under … no. Over-promise, under-deliver, but make sure whatever you say in those initial meetings, you will feel comfortable repeating to them or having them repeat to you a couple months down the line because that’s going to be how they’re measuring your effectiveness as an execution team.
Matt Day [Host]: Next question, I’d like to give you the mic here. I’d like you to go ahead and ask it.
[Audience]: So, my question’s really about how do you actually get to pitch the next thing you choose to respond to and take a meeting with somebody? Where do those come from? Are they, you know, cold emailed in, or some other source?
Eva Khoo: More often than not, the ones that end up going the farthest in our process are ones where we have some kind of relationship with the founder themselves or they managed to introduce themselves through another mutual introduction.
That feels, again, this is a relationship game and these relationships the investors and entrepreneurs have last many, many years, and so having some kind of trusted foundation is helpful and a mutual introduction can be, you know, can provide that.
Have I taken an email off a cold LinkedIn message? Yes, absolutely, but that happens when I feel like it truly, like it’s not completely random, but they have actually, they know who I am, they know who my firm is, and it’s a catered message.
Bruce Schechter: Yeah, I have a hard time adding anything to what Eva said. I want somebody to come to me through somebody I know and trust, and it’s not just any old person that you find were connected via on LinkedIn because unfortunately, two thirds of the people I’m connected to on LinkedIn, I made the mistake of, you know, connecting with somebody.
So, yeah, in founders that are good at fundraising, on average, are really good at building their network and you can’t begin too early to build your network because when you get up there and start fundraising, all that building of your network’s going to pay off because you’re upping the odds that you’re going to be able to know somebody in common with some investor that you’re going to target.
Matt Day [Host]: Next question is from Wes?
Wes [Audience]: Hi, I’m Wesley. Hi, everyone. What are your thoughts on SAFEs for fundraising?
Eva Khoo: A SAFE is basically a convertible note that’s become very popular with Y Combinator and companies that go through Y Combinator. And so, as a result, they are seen as almost the defacto standard for a lot of companies raising seed capital because Y Combinator has made it the defacto for them.
So, I would say that no investor will blink an eye if you provide a SAFE note as the first form of money into a company. Yeah, that’s about it.
Bruce Schechter: I’m a little leery about having a strong opinion because I’m not an expert on Ts and Cs of, you know, investment vehicles but I will say I know a lot of my colleagues at the Band of Angels are … we’re kind of old-fashioned. We’re pretty leery about this because we want to know what we’re really buying and a SAFE, and the good news is that it’s really easy to do it, and it’s quick and it’s cheap for you because you won’t pay your lawyer a lot. The bad news is, it doesn’t lock down very well what our rates are going to be in the long term and, arguably, either yours.
So, it’s a really tough call. I mean, my only advice is get a great lawyer like this and just grill them and make them … you’ve got to understand this stuff way better than I do because you have a lot more at stake.
Eva Khoo: Yeah. The other thing I’ll note, I’ll add on to that, is these SAFEs, they convert into equity upon the pricing of the next round. And so, investors like it because it’s very easy. Entrepreneurs like it because it’s easy, but unless you are confident that you know what the value of your company is going to be at that next round, there’s a chance that you could become extremely diluted and lose a lot of your company.
Matt Day [Host]: Next question is from Maya. Maya? There’s a good question here I want you to ask if you’d like, yeah. Go ahead and introduce yourself, too.
Maya [Audience]: Hi, I’m Maya. So, my question is about equity crowd funding since that has been sort of the new thing that I’ve been hearing. What are your thoughts, from an investor’s perspective, like pros and cons on that kind of platform?
Bruce Schechter: All I know is I have nothing to do with it. I wouldn’t touch it, but I don’t mean to be facetious and I have maybe there’s great deals out there, but no knowledge.
Eva Khoo: So, it really depends on how much you actually value the help of an investor. The investor is really there to be an advocate, not only to help you grow your company, but also to help provide introductions and grow your networks that for future fundraises, you have someone to be in your corner.
When you’re doing a crowd funding campaign, those are all nameless faces. No one’s going to help you. It’s money, so, from that perspective, there’s another value in that, but there’s no value beyond that.
Matt Day [Host]: One thing I’ll ask as a follow-up to that, which is, and maybe Eva you might be able to shed some light on this, is when you see a deal that you guys like, it’s just that the cap table’s huge because they did some sort of crowd funding prior. Sometimes, do you see that as like a mess you just have to clean up? Or what’s your feeling when you see this huge cap table like that?
Eva Khoo: It gets confusing when, you know, an investor comes on, they have rights and, you know, there’s voting rights, and when there’s a really messy cap table that complicates the ability to pass through decisions because you’re like chasing down people left, right, and center. So, is it a deal breaker? No. Does it add a lot of complications and unnecessary headache? Absolutely.
Bruce Schechter: Does your firm see this stuff?
Eva Khoo: We don’t see crowdfunding campaigns necessarily, but we do see a lot of very large friends and family rounds where there’s a lot of individuals on a cap table.
Matt Day [Host]: Probably some convertible notes, as well. If you don’t know, some of them have different types of caps and stuff that they’re going to go and, you know, change and convert in weird ways, and so it’s just a mess sometimes you have to clean up. So, …
Next question is actually one that we asked here which was what are some of the key characteristics that make for a good entrepreneur to be successful? You guys have probably seen thousands of entrepreneurs throughout your career. What are some of those characteristics you like to see?
Eva Khoo: Obviously, you have to have a high IQ to build something, you know, tech-wise, which is an area we focus on, but I think having an high EQ is one of the most, it’s an extremely sought-after characteristic, primarily because, as the builder of the company, you’re also going to be the person who’s like advocating the vision of the company, which needs to like be, you know, and you get to build a team around you.
So, you might have a great idea, but unless you have the ability to actually build a team to be able to like represent your company in front of, you know, potential buyers for, you know, because you’re initially the sales person you start a company. We have to have the faith that you have the EQ and the ability to do all of those things, so, I would say that.
Bruce Schechter: Yeah, I agree with all of that. I would say a couple of thoughts come to mind. First on my mind is grit, you know, just utter, utter dedication to do what it’s going to take and, I mean, examples would be, I actually tend to be leery when somebody comes from a bigger company because they have this kind of mindset of well, I’m used to having all these cast of thousands to solve problems and now, all of a sudden, there are no casts of thousands. It’s you and the dog, you know.
So, but, second, I love the EQ comment. I would probably expand on that is just the CEO communication skills are everything. Oh, oh, here’s the way I’d put it. I heard a gentleman at one of the big VC firms say at one point that, I’m trying to think how he said it, but he said one of our final criteria before we write the check is we bring in the founding team and we spent a lot of time with them going through all the plans and whatever. And one of the key things we’re looking at, is any of the key founders who’s going to be working with us, I forget his term, but it was something like “complicators”. Do they tend to go in to deep explanation and start to use terms nobody understands of whatever they’re …
So, the guy, this gentleman’s point was, we got very little time to deal with this company. Everything’s got to be over-simplified and dead clear, you know. I mean, we got to be able to talk to them in short amount of time, get the big picture, and move on. And so, you know, you’re CEO and the people around you, you got to just practice, everybody in this world who will listen to you describing what is your company, what is your strategy, how do you acquire customers? You tell that story in very simple terms and do it over and over until it just flows mind-boggling clear out of your mouth.
Matt Day [Host]: But, what are some of the final thoughts on advice that founders, you know, who are pitching tonight, and in other events, what do they need to have in that deck to be able to get that next meeting? You know, what are some key things that they need to have that’s, you know, in this five minutes which is a short amount of time, you need to be able to have in your head and say, yes, let’s have a sit-down next week.
So, I’m going to give you the mic here.
Bruce Schechter: Well, for any of you who already know what I’m going to say, great. But, for most of you, overwhelmingly often, entrepreneurs want to spend way too much time talking about their products itself. And, for me, that’s like 10% of the story, you know, like I’m usually, it’s not that hard for me to get what is your product and what’s special about it. Although, you have to do a good job with that. I don’t want to take it away, but, in addition, and I’m probably exaggerating when I say 10%. Okay, maybe it’s 35%, but absolutely no more than that.
The key things I want to know are, do you know how to build a business around that product? So, in particular, I want to know about your team. I want to be, you know, we need to believe. These are not just good people. These are phenomenal people. These are exceptional people because if they’re not, there’s plenty of them out there, you know? So, that’s number one.
And number two is my ultimate favorite, is go-to-market strategy. You know, I would say, you know, more often than not, when dollars are spent investing in a company and then eventually those dollars are lost, the reason in one way or another relates to they couldn’t acquire paying customers fast enough to be able to, you know, have a sound financial plan. Even in spite of investor dollars coming in, those are not enough.
So, you’ve got to really obsess around go-to-market strategy, you know, you got to answer the question, how will we acquire customers? And, it will evolve. You don’t have to be perfect on the first try, but boy, you’d better be able to tell me, and anybody who talked to me here tonight already knows this. That’s what I’m going to ask you. So, …
Eva Khoo: I’d probably add that, you know, this kind of funnel approach where you have to have, be solving a problem that’s big enough for people to care about in a market that’s big enough for people to care about. And then, being able to actually take the technology that actually is defensible to solve that problem, and that you actually know who you’re selling in to.
And, a lot, this goes to the go-to-market piece, but really understanding your buyer and how they’re going to purchase and consume your product.
And then, the team, because we need to be able to believe that you’re, you know, the team to build, execute on it.
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