Video Investor Discussion: Rachel Star & Jim Connors [2019]

Investor Discussion: Rachel Star (Shasta Ventures) & Jim Connors (Sand Hill Angels)


Silicon Valley investors, Rachel Star and Jim Connors, discuss what it takes to create a successful startup at the early-stage level. Watch the full version above or jump to the section of interest below:

04:49 – Ways to meet investors without referrals
08:29 – Is having a team in another country considered a positive or a negative?
11:05 – How long to set aside to raise funding
15:38 – Metrics and accomplishments investors are looking for
18:42 – Key characteristics of successful founders
22:02 – Key items to include in a pitch deck


Don’t miss the chance to hear from more experts like Rachel and Jim at the many tech startup events at Founders Floor in San Jose.


Our Investors



Rachel Star
Shasta Ventures

Shasta Ventures is a leading early-stage venture capital firm partnering with bold creative entrepreneurs who have a deep focus on emerging platforms. Founded in 2004, Shasta Ventures has more than $1B under management investing in enterprise and consumer companies including Anaplan, Apptio, Dollar Shave Club, Eero, Mint, Nest, Nextdoor, Smule, Turo, and Zuora.

Rachel Star holds a B.S. degree Engineering from Northwestern University with a double major in Manufacturing and Design, Psychology. Prior to joining Shasta Ventures, Rachel was part of the Corporate Strategy team at Nordstrom and a  consultant with McKinsey & Co., focusing on consumer brands, retailers, supply chain, and manufacturing.



Jim Connor
Sand Hill Angels

Jim is an investor at Sand Hill Angels and has been investing in and advising emerging technology companies since 2007.

He is the CEO of First Focus Learning Systems and Producer/Host of the talk show Game Changers Silicon Valley. He serves as a board member of Liftopia, Tabtor, KMVT Silicon Valley Media, the Angel Capital Association and Startup Learning. He currently serves as President of First Focus Learning Systems and was previously President of JPMorgan SymPro providing treasury and portfolio management software solutions.

Video Transcript

Jim Connor:
Jim Connor here. Been with Sand Hill Angels 14 years. I can’t believe it’s been that long, but it has. Boy, we sure made a lot of mistakes in our early years, and then I learned a little bit more about trying to make money as an investor, and frankly, it’s pretty tough. I have to tell you this – the horizon for an exit has gone longer, and it used to be six to seven years. Now we’re all agreeing it’s probably eight to 12 years, but to kind of give you more insight to myself, I’m a person that’s gone through just what you’re going though, exactly.

Started a company, had to go through the pivot to survive, then got into a long stretch of illiquidity, just trying to struggle and survive, and finally got through it, and then, I’ll tell you, I had an awakening one day. I said to my wife, “Let’s do one more year, and if we can’t pull it together, let’s walk away, and I’ll go get a job,” because I was just getting beat up too badly, and after six months, things had started to improve, and I just made some very important decisions of the cost structure of the company and the goals and got focused, and little by little, it turned around, and once we got going and got that momentum, I like to say, if I was going to describe myself, I never give up a lead.

If I’m in the lead, I’m never going to give it up. You’d have to kill me to get the lead, and once we got in the lead, we took off and grew, and so that’s my best story. Had an exit. It was great, but the key to the exit was, it was a profitable business. We were not burning cash. We were making money, and I could turn down the first offer, and I could turn down the second offer. I will say, my first two offers to be acquired failed. I went through due diligence, and they both failed. I thought something was wrong with me, but it wasn’t. It was those companies, but I didn’t know it at the time.

I was concerned. I was damaged goods, if you will. So the next one came along, and because those two exits had failed, I knew the game much better, played it right, and we were able to get through it, and everybody did well. Had to work three, four more years for that company, and then I was able to retire and become a full-time angel investor at that point.

So that’s the brief story. The current story is, I love education. I’ve invested in education, invested in a lot of other companies. I recently, as a result of the education, started doing the TV show about four years ago called Game Changers Silicon Valley. It’s on YouTube. It’s broadcast here, but the most important thing is, I started a podcast, and I’m looking to get feedback on the podcast. So I don’t want to take too much time, but I want to know how many people here listen to podcasts. Raise your hand.

Good. Put them down. How many people don’t listen to a podcast? Some of you are not listening, then. Okay.

So, go to Game Changers Silicon Valley. It’s four words. Search wherever you want, Google Play or Google Music and iOS, and tell me what you think. I only got seven shows out there. I have 90 episodes to convert to a podcast, and I’m experimenting with style. So that’s it, and I just want to say, I appreciate and I honor you guys because you are out there doing something very unique and very difficult, more difficult than the world believes, and so when you get beat up, realize everybody has pretty much gone through the process you’re going through. Everybody comes out with a lot of scars, a lot of wounds, but you’ll persevere or you’ll find a right way to be successful. I’ll stop here. Sorry.


Rachel Star:
Awesome. Hi, everyone. My name is Rachel. I work for a venture firm called Shasta Ventures. We do series A and seed investing. My focus is in the consumer sector, so anything that you or I might use on our phone or purchase or wear or something like that, but as a firm, we look across industries, so have been exposed to a number of different types of companies throughout my career.

I joined Shasta from Nordstrom, where I worked in corporate strategy, so came from a retail background, and before that, was a consultant with McKinsey and Company, consulting across retail and consumer, and I don’t have the same amazing story as…


Jim Connor:
You don’t have the same years.


Rachel Star:
… my partner here, but I too applaud you all for going through this process, and I think that it’s amazing to see a community of folks like this, and yes, there will be hard times; there will be amazing times, hopefully, and hopefully you guys can come together as a community and help each other through it.


Matt [host] :
Yeah, good. Thanks to you both. I thought we’d go ahead and answer some of these questions here. 

I’m going to go with the number one question here. So this is for the investor panel. The question is, what are the most effective ways to meet investors, outside of getting a referral? Because many times, founders, they’re first-time founders, second-time founders. They don’t have a big network here of VCs to know, investors to know, so what are some of the ways that you can meet investors without referrals?


Rachel Star:
I think that events like this are a great way to meet investors, but also, I think other entrepreneurs can be a really powerful tool to get to know investors, and a lot of my best referrals have come from entrepreneurs in our portfolio or even entrepreneurs that I met and decided it wasn’t the right fit but have kept in touch with, and so, look to each other, and if somebody has either gotten investment from an investor you respect or perhaps just, you could pick their brain on who they’ve liked working with can be a great way to get in the door.


Matt [host] :


Jim Connor:
Okay. So I could talk an hour about this, but I won’t, okay? Because I know you got to get going, but the best way is to find a common cause, and by that, I mean, either through research on LinkedIn, Facebook, whatever, find people who have an interest or an experience or some connection to what you’re an expert at, more or less an expert at, something you’re pursuing, and then look around to where they are, who you know, who knows them.

I’m getting requests not all the time anymore, but I used to get a lot of requests of, “Jim, I see that you know this guy, Ed Jacobs. Ed is in an area that I am trying to address. Would you mind making an introduction?” And I normally will, as long as the guy making the request isn’t ridiculous, and I’ll make the introduction, and I do want to know who you are first. You have to have met me. Don’t cold call me on that one, but if you met me and you see that I know somebody that you want to meet, then just send me a request through LinkedIn. I do it all the time. It’s very common, and you kind of want to know that you really have a reason for meeting Ed because you don’t want to embarrass me that you have no real story that Ed should me interested in; you’re just trying to raise money from him, but that’s the number one way to go: common cause.

So, I see Danny looking down. I met Danny tonight. Danny and I have common cause. We are both involved in fixed income. I’ll always remember Danny. Danny could ask me for almost anything to get an introduction because he’s a guy from fixed income. I worked in fixed income for years, so we have common cause there, and I’m saying that’s what you want to do, and to the extent you’ve met two investors here or you can meet two investors, my interests, I’ll tell you right away: education, I like payments, Game Changers TV, and the podcast. You do one of those four things, and we can talk, right? That’s pretty much… and you go out, and you start doing that, and you’re going to hit a lot that, “Oh, that didn’t work. That didn’t work.” But I know for sure, for every 10 you do, you will get two hits, two hits.

So you do another 10. You get two hits, another 10. Pretty soon, you’ve got six. Out of those six, you’re probably going to get four referrals then, and that’s what this game is about, okay?


Matt [host] :
It’s a probability game, basically. Yeah. For sure.


Jim Connor:
Probability game, and work. And work.


Matt [host] :
Sometimes with investors, if it’s easy, then they just get a flood of connections already coming to them. That’s what you guys get all the time. You don’t have a problem with deal flow. You have a problem with quality deal flow, you know? And so there needs to be some filtration process, and that’s what you use your network for many times.

So, events like this is a great one. When you don’t have connections, being able to just go up and talk to Rachel and Jim and maybe get a card and maybe ask if we can follow up with an email later on, that’s a warm intro at that point as opposed to a cold email tomorrow, you know? So…

The next question is from Batu. Batu, would you want to ask the question yourself, or do you want me to ask it? Okay. Yeah. Okay, great. I’ll hand you the mic here.


Batu [audience]:
Is having a team or first customers outside in another country considered a positive or a negative in terms of seed investors or angels?


Jim Connor:
You mean clients, or you mean investors?


Batu [audience]:
No. Having development or-


Matt [host]:


Batu [audience]:
Yeah, or customers.


Jim Connor:
My experience is, almost everybody has a development team outside of this area, maybe in the US, but they’re not going to be here, and if they are, they’re probably being poached by Cisco or Google, so you almost can’t recruit quality developers as a startup here unless they’re a founder with you, so you have to have a team outside of this area, and it’s the most common thing in the world to have a team in another country, especially one that you have a connection to.

So, you, Matt, me. You’re from Turkey. I would expect you would have developers in Turkey. So it’s very common to do that. I won’t say it’s expected, but it’s extremely common and completely acceptable.


Batu [audience]:
What about with customers?


Jim Connor:
Well, same thing. Sure. Of course. Customers are customers, so any customers anywhere is good.


Rachel Star:
Yeah, I would agree with that. I think that you’ll see a range across different firms and investment groups that have preferences for different things, so what I would encourage you to do is do your research on that front, and if there’s a firm that only invests within the U.S., then probably not a good fit, but if there’s firms that either have an office in the country that your customers are or have some tie to that region or area, that’s oftentimes going to be a good leading indicator that they might be willing to have a conversation.


Matt [host]:
I like to see technically led founding teams, and in that scenario, when you have a strong technically led team and you’re wanting to outsource development, that’s totally fine and makes sense. It’s just when you have kind of more of a business co-founder, a business founder or business-led team, you then need to outsource kind of technical work, and that becomes a little tricky because at that point, then we know that that early check is really going to the outsource consulting firm.

There’s a lot of what I call tribal knowledge built within that. You feel like you have your source code and you’re protected and everything. It’s not really true. There’s just a lot of iteration through the whole early stage process that’s really lost when you can’t, no longer pay that outsource development firm, so…


Jim Connor:
If you’re talking about a separate. I thought it was your company that was based in another country. Your company was based in Turkey, right? Or you’re talking about a third party outsource company?


Batu [audience]:
No. We’re based here, but we have key members over there.


Jim Connor:
Right, right. You have key members. That’s fine. Yeah, I’ve seen some real nightmares though about third party independent consultant developers in another country, very difficult, and I try to shy away from that one.


Matt [host]:
Good. So the other question here is about the fundraising process. I mean, it’s time consuming, and so from start to finish, how many weeks, how many months should a founder think to themselves they need to take in order to actually raise funding? From the time they start pitching all the way to money’s wired, how long do you think that is so you can give them an expectation, really?


Rachel Star:
That’s a really tough question. I think it really ranges. I think that there’s kind of two phases to that, right? There’s the initial meetings of gaging interest and perhaps engaging with a few folks upfront. Then there might be a phase, probably a few weeks of them wanting to get to know you better, maybe doing some diligence on whether it’s a technology that you’ve developed or talking to some of your early customers, and then once they’ve agreed, they’ve got documents in your hand, there can then be a period of legal discussions about what the terms of the investment are, and actually then getting the money wired can take some time as well.

So I do think it ranges a lot. Don’t be discouraged if it’s taking longer than you expected. There’s plenty of stories of companies that go out and take a ton of meetings and don’t have much success, and then two or three months later, somebody happens upon an investor, and it’s a match right off the bat.

So I do think… probably, absolute shortest you should expect is maybe a month, but definitely, don’t be discouraged if it’s longer than that.


Jim Connor:
So, I could have a long answer on this too. I’m trying to think how to tell you this. When I was trying to raise money, I really failed miserably, and the reason was, I was just trying to raise money. I was just, “I got this business. Would you invest in it? Please, please.” And when I didn’t really get anywhere because it was considered too slow, didn’t have enough growth, okay, and we did software and fixed income, I realized maybe we’re just not cut out to be invested in. And there were not angel groups as prolific as they are today, and there weren’t individuals out. It was always the VC world. That was it, and I said, “You know, we got a pretty good little business.”

And the question at that time was, “Are you prepared or can you be a $100 million company in five years?”

I said, “Honestly, I don’t think we could be a $100 million company five years. We could be a very profitable $40 million to $60 million company in five years, and I don’t see a problem with that.”

Well, it didn’t appeal to the people asking the question, so I just sort of rolled back and said, “I’m just going to build the company.” If you’re making money, really, if you’re delivering enough value and you can deliver it at an expense ratio that doesn’t exceed your revenue, where you get your pricing right, you’ve solved probably 90% of your problem because you can self-fund one way or another. Once you self-fund and once you’ve got a business model that is working, then you see people who invest for scalability.

In my experience, if you go to an investor and say, “I don’t need you for research. I don’t need you for market proof. I only need your money for scale.”

They go, “Okay, you’ve solved all these things, and you’ve got IP, and you’ve got a team?”

“Yep, I have all that.”

Then there’s something to talk about. Most investors, especially in the angel world, do not want to invest in things that need more research or more development. Some VCs will. Many won’t, but my take to you [inaudible 00:14:04], get your model right, and it’s going to take time, and the other thing is, when you get in negotiations, you want to be able to not just take the first offer. You want to find the right conditions and the right terms, so to me, it’s six months. I hate to say it, but it’s at least six months.

I’ve talked to a lot of people, “If I could just get that $500,000, I’d be all set.”

No. That’s really not true, and you’re only fooling yourself if you say that, so…


Matt [host]:
Yeah. It always takes double the amount of time you really think it’s going to, and so, what you don’t want to do is, you want to have kind of some sort of negotiating power of some way, if at all, but if you’re already waiting too long, and that’s a lot of times what startups end up doing is they just wait until it’s too late, and they think that they’re just going to raise within 30 days, and then they’re actually going to be out of cash, and now they’re already screwed, so you don’t want to start showing up to these investor meetings just already kind of knowing that you’re trying to make payroll at that point.

That’s tough, so you want to kind of think about what types of metrics you need to have way beforehand and work to those metrics because you’re just not going to will these metrics to happen, and so…


Jim Connor:
Dogs can smell fear. Investors can smell desperation. Just remember that.


Matt [host]:
Yeah. That’s true. That’s true.

That leads kind of to our next question, which is from Danny. Danny, you want to ask the question?


Danny [audience]:
All right, so when a company is early stage, pre-revenue, what are the most important metrics and accomplishments that you look at?


Jim Connor:
Well, there’s so much risk at pre-revenue, and we’ve been through it at Sand Hill. I personally have been through it. It looks good. It smells rights. There’s validation from their distribution chain. It was retail chain. Everybody’s saying the right thing. I almost started to wonder, just sounds like too good to be true, and it was, okay? And this is some years ago. It went up in smoke so fast, and I think the raise was $750,000.

Again, the pre-revenue carries an extraordinary amount or risk because no one has validated that someone will pay for it, and I know your business model, and the point I would imagine most of us are going to say to you is, “Show me your paying customers. Show me your paying customers. Okay, how long did it take them to become a paying customer? How much are they paying you? What did it cost you to get them?” And then you start to build that customer acquisition model.

For any investor, once you’ve got a couple paying customers, could be five, 10, and that investor or I could speak to them, I’ll understand why they bought. Maybe they were your relative. Maybe they owed you money, and they bought because of that. I mean, you’d be amazed what goes on, and in fact, I remember being in due diligence where we called up the customers, and they said, “Well, we haven’t decided to be a customer yet.” And the company represented they were a customer, so that’s another thought, and that’s why that happens. So it’s just tough. Yeah.


Rachel Star:
Yeah, agree. I think it’s tough. I think the one thing I’ll separate is revenue versus product/market fit. I think you’ll see companies like Instagram, right, that were worth a ton of money before they made any revenue, but there was clear signs that it was working, that consumers loved the product. People were engaging on the platform; people were posting pictures and talking to one another, so it doesn’t always have to be dollars in the bank, but there have to be some metrics and some signs that people out there are excited and using and engaging with your product.


Matt [host]:
To double down on what Rachel was saying there, it’s like, you’re on the way to finding product/market fit. You’re trying to show that there is increased utility in your product, even if there’s not revenue, and that’s okay sometimes, but there’s got to be some real usage within that, and those metrics, you need kind of slowly go up, so you want to be able to show investors that you’re iterating this product over time; you’re starting to get better at what you’re doing, and each iteration you make, you’re actually making a better product through utilization, potentially, and so finding out what those key KPIs are for your company, and for B2B, there’s sometimes kind of a set, and for consumer, there’s kind of a set, but then it gets more granular after that as well, so that’s one of the things you want to kind of think about early.

What are those metrics for your company that are important that shows utility, even pre-revenue? So it’s something to think about.

I got this question. This is one question that I have here, and this is one of those, I know it’s like a softball-type question, but I always like to hear the feedback from an investor. So, you guys have seen a lot of entrepreneurs throughout your career. What are some of those key characteristics and the ones that are successful that you feel like you just kind of see over and over again, potentially? What are those key characteristics that makes founders successful? Those founders that are successful, what are those key characteristics?


Rachel Star:
Yeah. I think that, especially when you’re investing early stage, the team is such a big part of the decision, and the way that we like to phrase it is, a business is going to change. Whatever we see today and no matter how amazing it is and how amazing they’re doing, it’s going to be different in five years, but the team is likely going to be the same, and so what you’re betting on is their ability to adjust to the market and potentially pivot the business and continue to grow and create new things that they don’t even know they’re going to create yet, and so with that, what we look for is teams that have some unique insight into the market that they’re working on.

So why is this person better equipped to handle whatever’s going to happen in this market than anybody else who might approach it? And so I think that can be all sorts of different things. It could be having worked in the industry for a number of years. It could be having unique connections to a market. It could be understanding something about a technology or a consumer set differently than other people might, but there has to be that unique reason why you are the founder to do this, rather than this is a great idea, but anybody could get it done.


Jim Connor:
Yeah, there’s lots of common characteristics. You want the ones that succeeded, right? Well, everybody says this. I don’t want to repeat it too much, but integrity’s a big one. I’m going to suggest a couple additional ones.

Every entrepreneur I’ve ever met has been frustrated with the pace of an investor decision cycle, right? Who hasn’t? But investors know one secret, that they do want to see you under pressure, because you’re going to be under pressure later on. They want to see how you react, and one of the ways that you get under pressure in an investor presence is time. Time works against you. You want to close this deal now. They want to be sure you’re the right deal, and they want to do the right due diligence because if this goes up in smoke, they want to say, “Well, we got fooled,” or, “But we did everything we could.” And every investor group will tell you, a lot of deals fall out during due diligence. They start out good, but then they fall apart, so I think that what makes a mark on me and some of the people we work with is that the CEO and any of the key management can keep a cool head under pressure.

If you get challenged on something, never lie, okay? And you’ll make mistakes, and admit a mistake. Just admit it right away. It’s so much easier to just be, “You know what? I was wrong. I made a mistake. Let’s move on.” Isn’t that easy than trying to argue against it? Don’t get into arguments. You get into an argument with the investor, it’s not that you know more; it’s that you allowed yourself to get in an argument. So those are some of the things that we watch for, I think.

Leadership goes along with it, but leadership is done in many ways. I do want to say that most of the times, we want to look for at least one person on that team being an absolute expert in this area where you’re working. Okay.


Matt [host]:
Final question, and then we’re going to go move on to the pitch event, but… this is a five-minute pitch tonight, but there’s sometimes, there’s different pitches. When you get a sit-down, it’s 20, 30 minutes, sometimes an hour with maybe the partners in the room. Other times, it might be just an elevator pitch, which is just one or two minutes. This is kind of five minutes with slide deck. What are some of the key things that founders need to have in this type of deck tonight and at nights in the future when they do other pitch events? What are some of the key things they need to have to be able to potentially get a sit-down meeting with investors like yourself in the future? So maybe I’ll have you…


Rachel Star:
Yeah. The biggest thing that I think people leave out of a deck and a pitch or however little time you have, be sure to hit whatever metrics are relevant to your business, and that could be revenue. Revenue’s a great place to start if your business is already making money. It might not be revenue. It might be some other metric that is important, but those are the ways that us, as investors, can benchmark companies against one another and get a sense of, “Okay, on any given day, I might see 10, 15 pitches. How do I know which is the one that’s worth my time?” And if they all have some common metrics in mind, I can say, “Okay, this one’s a little bit further ahead than this one.” Or, “This one has this positive thing, where this one has that positive thing.” And then I can make an informed decision, but if all I know is there’s this problem and you’re trying to solve it, then that doesn’t give me a sense of whether it’s worth that next meeting or not.


Jim Connor:
Like it or not, this is a perseverance game. A lot of times, those who succeed simply, and I don’t want to say “simply”, had the perseverance to stay through it all the way through. So I’m just trying to think of the main point I wanted to make was… Just let me think here. I wanted to say it.

I want to know, what was your a-ha moment? If I’m going to cut to the chase, you can tell me the problem; you can tell me the solution; you can tell me the team; you can tell me the market metrics.

Tell me your a-ha moment. Let me experience why you’re doing this, and that goes along the lines of, “I used to work at this company. I worked there for five or eight years. I reached a certain level of success. I watched a part of our market that was never being taken care of. We used to lose customers because this was not being addressed. I talked to the management about doing it. They weren’t interested in doing it. Something happened. Something happened, and this kept bubbling in my mind. I did some research. I verified some ideas. I found some of my ideas were right; some were wrong. Then one day, it hit me when I saw this technology emerge form over here that I could take this technology from university or I could invent it, and I could apply it to this problem and really knock the ball out of the park, and so I went and talked to those customers, and they told me, ‘Yes! Indeed! That would just be what we need.'” A-ha. Okay?

If you can share that a-ha moment, it goes a long way, I think.


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