I am Kamini Ramani. Thank you so much for taking the time and about 50 minutes with Navin Chaddha, my friend and boss and longtime Silicon Valley entrepreneur. He has been named to the Midas List 14 times, and is a former serial entrepreneur and investor. And what we want to do is use this time to raise and share some learnings from his three decade journey in Silicon Valley as both a founder, as well as an investor. We also want to use this time to hear from you, and to answer any candid questions you have. We promised an unfiltered chat with a VC and we want to deliver on that. So let me turn it over to Navin and ask him to share some learnings from his journey as a founder and investor in Silicon Valley.
Let’s start with a poll of the audience. How many people in the audience are founders? Wow. How many want to be founders? That’s the whole group. How many are VC’s? I guess I’d better be careful with my comments. I am a serial entrepreneur, I’ve run three companies; two were acquired, one went public from ’96 to 2004. In my 30 years as a VC I’ve invested in over 60 companies. I have been very fortunate to partner with some great entrepreneurs who have gone on to create 18 IPOs and another 25 have been acquired.
For those of you who don’t know Mayfield Fund, here is a quick snapshot. We are one of the earliest funds in the business, founded in 1969. In our history we have raised 20 investment funds, 500 plus investments, 200 plus acquisitions, 120 IPOs. And the fund has a philosophy of betting on people first, market second. 90% of the investments we do are at the inception stage or the idea stage. So the people are more important than their idea. Our founder believed people make products; products don’t make people. And we are known for betting on the jockey, and not the racetrack. The initial idea may not work, but a great entrepreneur is sure to find the right one to adopt. That’s what early stage venture capital is about and that’s what the startup genre is about. The team I’ve assembled have all been former entrepreneurs. They’ve founded companies, sometimes one, sometimes two, sometimes three. Partnering with all these great entrepreneurs, being their backbone and helping them build great companies is a privilege.
1. Mission and Values Count
So, there have been lots of learnings over the years as an entrepreneur and as a VC. I want to share five key learnings with you. The first one is the story of Lyft, a very successful ride sharing application. From day one they had a strong mission to improve people’s lives by providing the world’s best transportation and they had some core values of being yourself, uplifting others, and making things happen. They quickly discovered the shared ride market, and put normal people in the business of driving cars. And they went through lots of ups and downs in their business. What made the company succeed was fortifying their mission and values from day one. If you’re starting a company, the first question any VC is going to ask you is, “What’s the vision? What are your values?” Because if you get those things right, it’s like setting the basement or the foundation of a tall building you will build one day.
2. Surround Yourself with Excellence
The second lesson is about surrounding yourself with excellence. This is the story of three founders of NUVIA; John, Manu and Gerard. They were the key people for 10 years at Apple, they built all the chips and subsystems for the iPhones. One was my classmate, and before they even left Apple, he approached me and said, “Man, I’ve been in Silicon Valley for 25 years. How do you do a startup? How do you start a company? What does it repay? Which market should I go after?” So we got involved in helping put the company together and they were just engineers. They hadn’t managed big teams of people. They didn’t have marketing DNA, they didn’t have sales DNA. During COVID, they hired 150 people. It was their year to attract people and before they spent years shipping their product they were acquired for $1.6 billion. So I have a feeling if you have an A+ founding team, go hire A+ people. Figure out what your gaps are, and surround yourself with people who cover those gaps. It’s extremely important.
3. Design and Own a Category
The third lesson comes from another successful company that I’ve had the great fortune of working with, HashiCorp. HashiCorp was started by two developers in 2012, Mitch and Armon. They were developers who had never thought about starting a company. Today, they’re a cloud powerhouse. HashiCorp went public at over $10 billion, but they had the vision from day one to build a cloud infrastructure automation company, by designing a category and creating multiple products to be able to address it. So, even though you may not start with a big vision or you may not start with thinking about building a category, you can still dream big. Ask yourself, what could it become one day? And that’s what the VC’s are interested in knowing, is how far can this thing go? Can you reach for the moon?
4. Embrace Pivots
Fourth is another successful company. Outreach is the leading sales engagement platform, sitting at a $4.4 billion valuation. This is a story of pivots. The company was redefined at the inception stage and they never ended up doing the thing they started with. They pivoted. There’s no linear line in these kinds of businesses and it never just goes up. It goes through ups and downs. So, Outreach sells SaaS software to sales people. When they started they were serving recruiters and the name of the company was GroupTalent but it wasn’t getting any traction. They were using this in-house tool that their sales people would use to reach out to potential customers. They had two months of cash left so they said, “Well, we’ll go into software revops,” and the rest was history. So, don’t be afraid of pivoting from what you started with. As in pharmaceuticals or in life, if you have to fail, fail early. Fail fast, adapt and go after the right thing.
5. Embrace a People-First Philosophy
The next lesson comes from a favorite company of mine, Poshmark. Naver just announced its intent to acquire Poshmark for $1.6 billion. Poshmark pioneered the social fashion marketplace. And the reason the company became so successful is because they created the category of community led commerce. They put 70 million humans in the business of selling clothes from their closet and elevated stylists who were ordinary people to curate online businesses. There are now 70 million online boutiques on Poshmark. This company became successful because the founder and CEO Manish leads with love. Everything this company does starts and ends with people. The largest department in the company is focused on customer support and community development. And this is what it takes. If you’re building a company, keep people first, whether the people are your customers, whether they’re your suppliers, whether they’re your partners or whether they’re your employees. Get that right because we are not building manufacturing businesses in Silicon Valley, right? People operate companies so you need to treat them well. And if you can do that, wonders can happen.
Then finally, my big learning is company building is a marathon. It’s not a sprint. If you’re trying to run a sprint, don’t build a startup. So if you have to build a startup, think it’s a marathon. It’s going to take 10 years of going through lots of ups and downs, but it’s a lot of fun. So, those are some of my key learnings over the last 18 years as a VC and 10 years as an entrepreneur before that.
Thank you, Navin. Let’s move on to some questions. Innovation is clearly alive on the floor here at Disrupt. But out there, it’s a scary world right now. The markets are turning. Lots of innovative companies are going downward and Navin has navigated through at least three recessions. So I’m just curious how is this downturn different from 2000 and 2008? Any insights you would like to share?
Yeah, absolutely. So, I think in the first recession, I started getting white hair. In the second one, I started losing hair. After this one, I’ll have no hair. Jokes aside, I think this is pretty serious and this is not like the 2008 recession, where primarily the financial services industry was impacted. This is impacting tech, it is impacting jobs, inflation is really high. Interest rates are moving up.
And today, we have only seen the effect of this in public markets primarily, which is around public company valuations of mid caps and small caps. There’s always a lag in the private company world. It’s started running into late stage companies where valuations have been down. The liquidation payment structures are changing. It’s broader than the mid cap. And eventually it will enter the early stages. But that’s the bad news. So what’s the good news for founders in the room? I would say, crisis is an opportunity for the bold. Tough economic times are the best times to start a company, and here is why it’s the right time to do it. Everybody will be scared. Less and less companies will get funded. Big companies are not in a hurry and they won’t innovate. They’ll wait for markets to happen and then they will be way off scaling for new areas. The same talent that was impossible to get and hard to pay for will be available.
So, what are you afraid of? Jump in. Capital will be available if you have the right idea. You’ll be able to assemble the right team. This is for early stage founders. And when we come out of this troubled economic environment, we’ll be the ones who’ll be providing products to consumers. So I’m very bullish on the opportunity. I saw that in 2000, 2001, the existing companies were in trouble, but a lot of the next generation of companies got built and the same happened in the downturn of 2008 and 2009.
If you look at venture data, history has shown the performance of venture funds are successful in years where the public markets have been terrible. Because remember, you have to invest at low prices and when the market recovers in seven to 10 years, you get the benefit of the expansion of the market. So, I think it is a great time to be an entrepreneur, but patience and perseverance is going to be critical in this environment.
Thank you. You have to be realistic, but you have to be optimistic as well. And a question that just came in from the audience – do cold introductions really work? How do you actually get to an investor to consider your idea?
I think investors are busy and distracted with big portfolios which are going south right now. Public market stocks of theirs are making them really scared. So the best thing I would say is, try to read about what these people are investing in, what are they talking about? Go to their LinkedIn and see who they’re connected to. You can try to send an email, but the spam filters have gotten so good there’s a high chance it won’t reach them.
But try to find common connections who can make an introduction. So that’s what I would recommend. Do some homework, try everything, but these spam filters have just gotten too good.
The other thing we advise founders is, look at a VC’s bio page, which talks about the things they’re investing in, as well as the companies they’ve invested in. And to that end, Navin, are there some things that you’re particularly excited about these days?
Yeah, there’s a lot of things, but it all starts with people. At the end of the day, I’ll start with people and then I’ll come to markets. We’re looking clearly for people who are confident and who have big dreams. But there are some softer skills after spending 20, 30 hours with them that we are trying to evaluate as well. We are asking ourselves, how good is their EQ? How good is their self-awareness? Are they going to put the company first, or themselves first? So, there are some red flags that we look for. You’re looking for self-awareness among these entrepreneurs. They need to be team players, because companies cannot be built with just the founders. These are movements, they need people, and if you are playing a solo sport, just build a lifestyle business. Building a company is a team sport. Then finally, the founder’s focus is very, very important because startups die of indigestion, not starvation. But at the same time, they need to be nimble because dinosaurs never survive.
So one of the trends we are very bullish on is, applications of AI. Especially things around generated AI, which will make humans super humans. I call it human-centered AI. So that’s an area, which is a big focus of ours.
The second area that we are spending time on is companies which are elevating developers from just coding in the back office, to being strategic thinkers. We call these dev first companies, where developers are the influencers, and the customers. They may not be able to pay, but getting your product loved and adopted by them is very, very important.
We are investing in Silicon again. We believe it’s the renaissance of Silicon with a flattening of Moore’s Law. A lot of new Silicon companies are going to be created, which is going to bring Silicon back to Silicon Valley. We have a huge portfolio in that area.
The next big trend we are spending time on is how biology is becoming more like information technology and the combination of bio and engineering. What has been called bioengineering is going to transform all the work that has been done using genetics and CRISPR around healthcare. At the same time, companies are building applications using genetic engineering and biology to save the planet. These are some of the things we are spending time on, but at the end of the day, you need to have an open mind. People in the audience actually tell us where the world is heading.
We’re investors in companies in robotics and in the quantum computing industry. We are investors in a company which is making Web3 infrastructure and they’re doing extremely well because Web3 technologies will be used in the future. We have companies which are making solid state cooling devices where fans usually go in thin laptops or mobile phones. So there are all kinds of new and innovative ideas that are being created. And Web3 is an area of focus for us and I think it’s here to stay.
When you talk about people, one of your beliefs is invest in relationships, not transactions. This is something I’ve heard you say over and over again, over the last 15 years that we’ve worked together. And so how does a founder build that zone of trust? Starting from you know, the first meeting, the first chat, the first board meeting, all the way through decade long journeys like you’ve shown with HashiCorp and Poshmark. How does a founder do that?
So, I think the way founders choose co-founders and their first investor is extremely, extremely crucial. They have to be an extended member of your team where you feel they’re not measuring you, but can be your safety net. Without being afraid of them, you have to be able to pick up the phone and call them and say, “Hey. I’m in this crisis. In your experience, what would you do in this situation?”
So, start building a relationship with a VC. Not only look at their trends, but talk to their entrepreneurs. “How’s it to work with them? How engaged are they? Are they really behind me, or if the company starts meandering, will they just move on?” So, for me the most important thing in finding entrepreneur-investor fit is making sure you have alignment on your mission and values from day one. And if you can do that, wonders will happen. It’s a marriage. There’s no overnight success in the startup business. It takes seven years, eight years, 10 years, 20 years. You might be getting a higher price, but do your work. Do blind references. Are these the people who will support you through the ups and the downs? While you’re working on one company, VC’s have 10-30 deals. Even if they do 10 deals a year over 10 years, they’ll have 100 deals. You’ll have done one. So they are doing so much diligence on you. So do that diligence and make sure they are the right partner for you.
Correct. We always tell people, “Call off the list.” You know, call the entrepreneurs that are not just the ones that the VC provides you, for instance. Let me take a question from the audience that just came in, which was, what would you see as two or three common pitfalls for founders when they’re starting a company?
I think the first one is being overambitious. Rather than focusing on one thing and becoming the king or queen of that skill, they want to be a jack-of-all-trades. Don’t do that. You have to start with one thing and build trenches in that area.
The second thing I would say is that building teams is extremely important. And knowing what your weaknesses are, being self aware, and being secure in your skill and demonstrating vulnerability is also important. You should be able to go to your investors and say, “Hey. I don’t know these areas. Can you help me hire?” They’ll be delighted, because you’re not an individual contributor you have to go from a founder, to being a CEO. You become a manager of managers. Right? Your job is to help others grow, and a lot of the time founders just stick to what they’re doing. So, I would say focus on team building.
And the other thing I would say which is very, very important for founders, is having a growth mindset. Just a learning mindset. Things change and a startup needs to evolve. So, I think those are three things that come to mind, beyond some of the lessons I’ve talked about.
Sure, thank you. One of our beliefs at Mayfield is that great people evolve, and sometimes CEOs are made, not born. So, you have been talking about being vulnerable to learn, having the growth mindset, and being willing to work with the board. It’s not a downside if you choose to work with the board, which leads me to our next question which is, how does an investor add value to a fund? What should founders expect from their investors and how do they measure investors are keeping their promise to be true partners?
I think the number one thing investors need to do is listen to what entrepreneurs have to say before they give advice. Investors, having seen so many companies, are so eager to give advice. But what if the entrepreneur doesn’t need advice? Or you’re telling the entrepreneur, “Hey. You have a cold.” He doesn’t have a cold. He has a heart problem! Are you even listening? So, I think listening is very, very important and in your interactions with investors, right from the time you are pitching just see, are they really focused on you? Or are they looking at emails? Or are they distracted selling index stocks or looking at what’s happening in their portfolio?
I think the second thing I would say is, due diligence the investors. They are doing their due diligence on you. Go and check how many repeat entrepreneurs have worked with them. Because a first time entrepreneur has never worked with a VC, so how do they know they are is the best? If you see a pattern, entrepreneurs that repeatedly work with them; they must be doing something right. How many boards are they on? Are they available? When you send them an email at 10:00pm are they going to respond by the next day? Two days? Three days? Getting to the zone of trust with an investor is very, very important, but in today’s world where money, at least in COVID times, was a commodity, making sure your investors have the right entrepreneurial experience and empathy is really, really important, right? Because how could I tell you how startups run if I’ve never worked in a startup.
Some entrepreneurs don’t have choices, they just take the first money that they get. But if you have choices, do your work. VC’s like us meet 1000s of companies a year. Meet. Not what we get in our emails. And we only invest in 10; that’s one in 100. So if you have the choice of three investors, do your work. We are so selective, you should be super selective too. Because if you get it right, magic things will happen.
Well, there’s tons of questions that have come in to me, so I’m going to try to get to all of them. This is a good, challenging one.
I love challenges.
Yep. I hear that investors want fast growth and fast iteration. You are emphasizing patience, perseverance, and running a marathon. Have I been hearing it wrong?
From others, or from me? I think that there is a myth about company building, but itis a marathon. You’ll see all the companies in the public market that don’t have a path to profitability, but they’re trading. It’s very simple. You can keep growing, but in the end if you don’t follow the rule of 40, where your revenue growth; that’s the free cash flow you generate, is not over 40, you very likely won’t be independent. It’s not good, so you can have a 60% growth company, which uses 60%. The rule of 40 is zero. I can have a 40% growth company with 20% free cash flow in this other company. In the end, you can’t just grab more VC money. You have to be self-sustainable.
So, you have to get a long term view, right? Markets will go up, markets will go down. Just be balanced. A lot of people will give you advice, but if it doesn’t work, all of them will come to you. Because they’ll say, “I was just kidding, you know? It was your fault.” That’s what happens. There are always scapegoats when things don’t work out.
Right, right.
So I think to me, it’s a philosophy of investing. When you are doing VC, it’s really a long term business. Don’t go after artificial growth. Go after what’s possible. Once you hit the market with the right product , then grow! Because you know if you’re going to spend a dollar, you’ll get it back. Don’t come tell us and say, “I will spend a dollar and in four years I will get it back.” That’s a weak fund, which means you should be selling more because every time you spend a dollar, you’ll only get the money back in four years. So, have sustainable growth, have sensible growth.
Right, right. Absolutely. So, this next question actually plays to one of Mayfield’s beliefs, which is being loyal to a fault. Someone is asking, any advice on how to have difficult conversations with key team members, or even a co-founder without risking their departure?
So, I think right from the get-go, you need to set a culture of very open candor. I think you have to be clear with people. You can’t be weak about that, but at the same time you want to challenge them directly. Because it’s not about them; it’s about the company. At every opportunity you get, right from day one say, “These are the objectives of the company. This is what, as a CEO and founder, or the leader of a department, I expect from you.” Do yearly check ins, do monthly check ins. My style is leading with empathy and leading with heart. Ask big questions. Right? “These are our objectives. What’s going well? What’s not going well? How can I help?” So, as with kids, you don’t do their homework, right? Basically you teach them the art. So we give an inclusive management style and there’s a lot of good work on radical candor, but don’t surprise people. Don’t surprise people. Make it a continuous journey of measuring their success.
But if they know you care about them, wonders can happen, right? So give them the emotional support, but at the same time say, “Hey. This is what the company expects.” Think about a car if one of the tires is going slower then the car’s going to be wobbly. Right? You move at the pace of the slowest link, so have candid conversations.
Thank you. We have two last questions from the audience that we’ll be able to field because sadly, that’s all the time we have. First is a very good one. How can I be one of those 10 out of the 1000 a year that get your attention?
Mine?
You said you meet 1000 companies and you make 10 investments. So this audience member is saying, “I want to be one of those 10. How do I get your attention?”
So, I think first and foremost, in my case I actually do due diligence. Everybody has their own limitations. I don’t need more than 30 seconds to decide if this is going to be a fit for us. And then all my questions and their answers are going to be about the deal. So that’s a signal; in 30 seconds, can you get the message across? It’s the elevator pitch, right? If you can articulate in 30 seconds what you’re trying to do, why is it important, why is it worth it? And also go through a warm introduction. That will help a lot. There’s so many people who are struggling to get attention.
Right. So, the final audience question, unless people want to send in more, is a personal one. Somebody wants to know, if you prefer being an entrepreneur or an investor? And preferably, tell us one or two stories.
I run Mayfield Fund with some of the smartest people who are my partners and I love every day with them. And then every day I get pitches from entrepreneurs, and see these entrepreneurs in the trenches from their corner offices, building companies; it’s a great privilege to do this. And I feel I’m better suited to be a VC because I have ADD, so I cannot do one thing for nine or 10 years. I need to do lots of things. I have so much energy that if I just keep doing the same thing, I really can’t keep it up. So I’m better suited for being a VC where I can multitask and do 10, 12 things at the same time. I might be only good at getting things in the 30th percentile or 50th percentile. We need to get things to the 99th percentile. So you need to surround yourself with those people who can do the installation part. They need to have the persistence and the patience and the passion to build something with you.
So I totally enjoy being a venture capitalist, but if I wasn’t building a firm, I would be on to other things. But having the combination of managing a firm and investing in entrepreneurs is a happy medium.
This leads into a really quick question that maybe you can elaborate on, that just came in, which is, as a recent graduate, would you advise me to work in a corporation or fund a startup?
I think there’s no right answer. What I would say is write down what you want to accomplish after that experience, right? And if you go to corporate, you will learn all the right skills. There are no short cuts. You can do this for a few years and then go and start a company, or you can go to a startup and learn the hard way. There’s no process, nothing gets followed, right? It’s just brute force.
So it depends upon you; what you are looking for. There’s no right answer. But if you can be in a seasoned team which has built companies and has the benefits of bigger companies, and still the nimbleness of a small company, that’s ideal. It’s a combination of both worlds, but please define what you want and then pick it. There’s no right or wrong answer for this.
So I think we’ll end with this final question from me. Put yourself back to your 20 something self, when you were at Stanford in the PhD program, and tell us that story. How you founded that first company. Because it’s great to see you now as a leader and a successful investor and a serial entrepreneur, but you started where a lot of the young people are today.
Yeah, so I was part of a PhD program at Stanford. I got my undergrad from India, from IIT Delhi, but I had a passion to build a startup. So in ’94 when the internet happened and the browser was created, I realized, “Hey. The internet is only for text. What if you add audio and video to it?” So luckily my PhD work was in the area of video, so we figured out how to put Stanford classes, what is called distance learning today, on the internet in 1995 using video compression. And every VC came and said, “Hey, you should start a company.”
So it took us six months to decide as a company team, should we even do a startup or not? Because it meant dropping out of the PhD program and taking a one year leave of absence. We took six months to decide that we wanted to do it. My professor told me, “Hey. What will happen? Take a one year leave of absence,” and he was my co-founder too. “And if it doesn’t work, come back and finish your PhD. Because you have done all the work.”
So that’s what happened. When one door in life opens another door closes. Then I built my second company and then a third company. But it wasn’t an easy decision to drop out of a PhD program, when your family is wondering, “Are you crazy? Dropping out of college? Doing a startup? You won’t work for Microsoft? You won’t work for these companies?”
A long line of 20 something dropouts who go on to great success. So thank you, everybody. We really appreciated your time. Hopefully we leave you with a little bit of inspiration and a lot of support. Because being a founder is hard and we’re here to help you. Thank you.
