Fundraising Strategies with J. Skyler Fernandes, Founder & General Partner at VU Venture Partners

The MBA answer for people that have not been doing venture capital that long, the answer is team. That's all about team. I've learned that that's not true. And so I think if I look back at the, you know, 170+ deals that I've done, while it is all about execution, the problem is that even if you're the best executor in the world and you're going after a really small market, you can never generate a lot of revenue. If you can't generate a lot of revenue, or at least a lot of potential future revenue, um, you can't get acquired for a lot or go public for a lot of money. So I'm Sky, I'm the founder and general partner of VU Venture Partners. Uh, we launched the fund about 6 years ago, uh, pretty actively investing. Uh, we do about 15 new portfolio companies a year, uh, and about 10 follow-on investments a year. So in total we do about 25 investments a year. And so with 52 weeks in a year, we're pretty much making an investment every week or every other week. So pretty active. Um, on my background, I've been doing venture capital now for about 17 years, so pretty much my entire working career, uh, since college has been doing venture capital. Um, I've done everything from being a vertical-focused VC to most of my career being a generalist VC. Over those 17 years, I've done about a little over 170 investments. And between myself and my other partners that I launched VE with, again, about 6 years ago, we've deployed historically about $2 billion and have returned over 4x cash on cash on that $2 billion. So turning $2 billion into $8 billion. And we've been some of the earliest and largest investors now in about 25 unicorns. So companies like Facebook, in the Series A round of Facebook, very few investors that were that early on the cap table, but also companies like Twitter, Uber, we got in at Uber at $1 billion, got out at $39 billion. Other companies that we were helped also in the incubation of include companies like Palantir and Wish. I've done a lot of on the consumer side and on the frontier side. So companies like Beyond Meat, I was the largest investor in the company before it went public at about $14 billion. I got out about $9 billion, returned about 2 times my entire fund. And so good track record in kind of becoming very early and some of the largest investors now in a handful of those unicorns. On the background of the fund, we are a global fund. So we have headquarter offices in San Francisco. We launched that about 6 years ago, and then we launched our Hong Kong office about, now, 4 or 5 years ago. And we recently opened up an office in Munich, Germany, and in São Paulo, Brazil. And going into 2025, we'll be expanding likely into India and into Dubai. We have 6 different vertical teams. So we have our consumer team and our enterprise team, which look at pretty much everything. But then we also have 4 other vertical teams from fintech for financial services, blockchain, crypto, our Frontier team that looks at space technology, advanced AI, advanced robotics, and advanced materials; our Healthcare team, which looks at digital health, medical devices, biotechnology, and pharma; and our Real Estate Tech team for prop tech. Each team's about 7 to 14 people. In total, we're about 70— 7-0— people on the team globally, and we're in the process of now kicking off Fund 3. Um, and, uh, today's also an exciting day because we're officially closing, I guess today, tomorrow with the banking holiday. Uh, we're closing on our 100th portfolio company at VU, which is actually investing into OpenAI, um, and, uh, which is obviously a pretty exciting round and a number of reasons, uh, but a good example where, um, we're not as focused on the entry valuation as much as the exit valuation. Most the deals we're coming in on are pre-seed to Series B, But we'll always make exceptions as long as there's a potential to kind of get a 20x to 100x per deal, or at least enough to return 25 to 100% of the fund per investment. And yeah, I think, again, average check size for those of you guys that are founders, we're usually investing about $200,000 to $1 million per check. But we are also a long-term capital partner. So we'll do a lot of follow-on investing. Usually we'll look to do about 2 to 4 rounds per portfolio company. And so we like to be kind of a long-term capital partner. And part of the unique thing about VU is that we have the venture fund, but we also have our investor accelerator called Venture University. And that allows us to have significant scale compared to a typical startup accelerator. We're an investor accelerator, so people join our fund for 3 to 12 months to do deal sourcing, due diligence, and making investments. But that gives us the scale to look at about 20,000 deals a year globally. And then narrow it down to those kind of 15 new investments that we make a year. So with that, open it up, I guess, for questions and we can dive in on a lot of that stuff.

Awesome. Very, very impressive. I'm really excited to hear your thoughts on some of these responses. So everyone just start dumping your questions in. Look at other people's questions because what I'm going to do is I'm going to prioritize by upvotes and I'll start queuing them up. Uh, but okay, let's get things started. So the first one is by Piers from St. Paul. He's asking, what do you feel sets successful companies apart from all your time of investing? And now you said you just hit your 100th investment, so I'm sure you have some nuggets to share with the audience.

Yeah, yeah. So yeah, what sets successful companies apart? So, you know, I think the, the MBA answer for people that have not been doing venture capital that long, the answer is team. That's all about team. I've learned that that's not true. And so I think if I look back at the, you know, 170+ deals that I've done, while it is all about execution, the problem is that even if you're the best executor in the world and you're going after a really small market, you can never generate a lot of revenue. If you can't generate a lot of revenue, or at least a lot of potential future revenue, you can't get acquired for a lot or go public for a lot of money. So Um, you know, if you had to pick between an A market and an A team, uh, certainly we'd want A's for both. Uh, but if you had to go with kind of like a team that can execute pretty well and go after a massive market, um, I would certainly do that. And I think venture, if you look at how asymmetrical the asset class is, um, venture is one of those weird asset classes where you can get acquired, um, pre-revenue, pre-product, you know, for $250 million to a billion dollars. And You know, we have plenty of examples of that from, you know, Cruise Automation getting acquired for $1 billion, you know, roughly 18, 24 months after they launched. And they were pre-revenue, pre-product when GM bought them for $1 billion. That was created by a friend of mine named Kyle Vogt from MIT. And then also one of our other portfolio companies is Bear Flag Robotics. It's an autonomous driving tractor company, you know, self-driving tractor for farms. That got acquired for $250 million 13 months after we invested in their seed round, pre-revenue, pre-product. So not a lot of execution that necessarily happened there. And so why did one company get acquired for $250 million and the other one a billion? Was it because the founders were worth different amounts, or was it that the market size opportunity was worth a buyer actually paying $250 to $500 million from an opportunity cost perspective? I would, from a magnitude of, or call it an amplification of outcome, market size itself has the ability of, you know, a company can be worth $1 million to a few trillion dollars. And so if you do even like the multiple between, call it like $10 million to a trillion, you're talking about anywhere from like a 10,000 to 100,000 times different in amplification versus like a human's capability of executing I'd say is about like a 10x to 100x. Um, and so, uh, that's like if you're working every day, every weekend, all hours of the day. And so the amplification of actually how much the market, um, can dictate final outcome is significantly bigger actually than a person's ability to execute. And, um, I'm not alone in that particular viewpoint. Uh, you know, the great Don Valentine from Sequoia, um, has a great talk actually that he once gave at Stanford Business School about Why is also Sequoia one of the best performing venture funds? Um, and his main point was that they back, you know, some of the biggest opportunities, not necessarily the great founders. Um, they try to get, you know, A pluses in both. And I think if you, you look at the history of myself and my other partners, um, in Vu, we very much align with that logic. You want to, you know, go after great teams with great markets, but market is a bigger amplifier for outcome than actually a team's ability to execute Point being that you can actually have some pretty good exits without actually that much execution.

That's such a— that was so much value in one sentence. I appreciate so much. I hope the founders, uh, you know, who are watching this can slow down and unpack that, uh, that's those two, three sentences. Uh, but yeah, thanks so much. Very well, very well detailed response. I have nothing else to add. Let's move on to the next question. Uh, Yannick from, uh, I think you meant to say Portland or Port Pan. I don't know, Port Pan's a city. Uh, but he said, for first-time entrepreneurs, uh, what things are you looking for that inspire confident investing beyond solid business plan, product market fit? How do you stand out in pitch meetings, especially when you're not, uh, when you don't have like a Harvard MBA? So for some of these first-time founders, what are some of the other things that they should be looking for?

Yeah, absolutely. So I think when you're evaluating, um, team, uh, probably the main thing that we end up evaluating team on is their ability to sell. And the interesting thing about the skill of selling is it kind of permeates across all things that a founder needs to be good at. So the first one is, you know, are you actually able to effectively sell the vision? Um, and that's really how you're doing your pitch, like how good are you at pitching. Um, that's going to make a big difference on whether or not you're able to raise any, you know, pre-seed money, seed money, um, all the way up to raising like a Series D, Series H, um, you're gonna have to be really good at selling the vision and pitching. And if you're really good at selling on that, you can probably also convince people, uh, to join your team, uh, for equity before you can even pay them a salary. Uh, and selling is also really good for, you know, selling customers to generate revenue, selling partners to work with you. Uh, and ultimately you're going to need to be able to sell the company through an M&A process or through IPO. So that one specific skill of just being able to sell is something that we can tell even from when you're just doing your presentation, is how well were you able to tell the story about your vision and what you're going to be kind of doing to go to market. So that overall just skill of being able to sell is a big one. Um, things that certainly we look for, uh, in a pitch, um, other than kind of the market size— and I guess just a little bit on market for a second, I'll give a few other data points. But like on market, um, we don't have necessarily targets, but we have benchmarks. And so most founders are usually going after markets that are around $10 billion SAMs, meaning the number of potential customers multiplied by your average revenue per customer. If you look at the grand scheme of like all company concepts that one could create, they kind of average right around $10 billion. Um, and so again, that's not our target, but that's an interesting benchmark because 1% of $10 billion gets you effectively $100 million in revenue. And pretty much every startup that pitches us has $100 million in their 5-year projections, as if that's going to impress us, and it doesn't. Um, most companies, while they'll pitch the $100 million in 5 years, none of them will actually achieve it. Um, what's really interesting though is when you find companies that are going after significantly larger than $10 billion honest SAM calculations. So for example, in our average, uh, Fund 2 portfolio, The average SAM is about $60 to $70 billion, about 6 to 7 times that. And if you look at the revenue projections of the companies that we're investing in, you know, their 5-year revenue projections are about an average between $700 million and about $2 billion. So way above the $100 million, you know, revenue projections that most startups are doing. Now, most of our companies will also, just like most VCs, we have the Pareto principle. Most of the companies are not going to be successful in the end. But when you do have the winners, you want them to be really, really successful winners. And so if you're only building a portfolio where all of your companies only have $100 million, you know, 5-year revenue projections, you're going to underperform or be average at best. And so to significantly outperform as a venture fund, we have to go after significantly larger market opportunities that have the ability to generate significantly larger revenues and then get the significantly larger, you know, exit valuation. So that would be, again, what I would call not our, our target, uh, but certainly benchmarks that we look at of just how much bigger you are as a general opportunity. Other thing I would say to highlight in your pitch deck would be magnitude of improvement, right? If you look at the status quo, just how significantly different is your solution providing compared to the alternative options? So, you know, one of our companies, for example, digs tunnels and they dig tunnels about 100 times faster than typical boring companies at about a tenth of the cost. So you want to be able to kind of put something together that's really succinct and just really clear about what is that magnitude of improvement. Compared to status quo. We're not typically looking at investing in things that are iterative improvements. We are looking for kind of game-changing, paradigm-shifting plays. The other one would be in the go-to-market strategy, you know, what is your unique approach that's going to enable you to get mass market adoption, right? So a lot of companies will pitch, we only need 1% of the market. And, you know, my curious question is like, well, who's going to get the other 99% of So we really want to get like, what is that strategy to get meaningfully like 5% to 30% plus of the market? What is the pitch to actually achieving that? Now, I know that that's also unlikely to happen. The point is, do you have an approach that's actually going to do it? For example, one of the companies that we're investing in next week, I won't say the name of the company, but it's a fertility company. And one of their channel strategies is they have a partner that's 22% of all the IVFs in the country. And they're going to be buying the solution that this fertility company is doing. They have an instant way of basically getting into 22% of the market, which would let them, you know, ramp up with just this one channel partner to like $200 million of revenue. And so, you know, we're looking for what is that hack gonna be to getting significant market penetration? What is that unique approach that you're gonna do to doing that? So I'd say certainly emphasize that you're going after the biggest market that you can, you know, possibly pitch us that we've never seen before. Pitch us the way that you can do magnitude of improvement. And then what is the actual, you know, beyond that, what is the actual unique approach to getting mass market adoption? Those are kind of 3 elements that we definitely weigh pretty heavily in our investment evaluation before we're bringing something to investment committee.

Yeah, also one of the things we advocate heavily over at F5, like the very first session is called Vision. Like you need to have this big, bold vision. And then like, because I speak to founders all the time, they're like, yeah, like we can do this and it's like a little bit of this and it's a little bit of and we have like, we'll let you improve it by 2, 3x. It's like, no, no, like how do you 10x this, right? Like what's the big plan here? How are you gonna, you know, potentially impact millions or billions of lives? Or that's like the way you need to think that big because like if you want to be venture fundable, you like, you just, there's no other way, right? Like this could be a great lifestyle business, but you know, is it venture fundable? That's a question I really push to founders. You briefly talked about this in your responses, But, you know, I am from Perth is asking, one of the pitfalls for founders doing fundraising is overvaluation of the company. Obviously, you come across this quite a bit across different stages. How would good founders balance valuations for their company? Giving away equity for funds, such a double-edged sword. So maybe another way to position this.

Yeah, yeah, the whole valuation thing I think is, is relatively easy. Um, you know, if you look at the stats Carta came out, you know, now with their consistent annual numbers on dilution per raise between pre-seed to like Series C. And these numbers have actually been like the 17 years I've been doing venture capital, the numbers have been relatively consistent. So, you know, but if you're doing pre-seed, seed, Series A, you know, for the most part, you're looking at giving away about 20% on average, give or take 15 to 25%. Really dictated usually based on the amount of runway that you're raising for longer runways that you're raising is going to be for a higher end of that, you know, ownership. Series B ends up usually being around 15% and Series C ends up being around 10% and even Series D around 10%. So as long as the amount of money that you're raising, I would say directionally is in line with that, when we negotiate terms, it's a really short conversation. You know, the reason that your company is going to be successful or not has nothing to do with your valuation. And so there's not really going to be much of a negotiation of like, you want like $1 or $2 or $5 million difference in valuation. It's not something that's going to necessarily move the needle for either of us. The question is whether or not you're raising enough capital to successfully execute your plan, right? And so in general, I'd say, you know, make sure you are raising the right amount of money. That's going to get you to your next, you know, 12 to 24-month milestones. That's going to matter a lot. Like, we have one of our portfolio companies just got a term sheet on Friday for the $50 million term sheet at $100 million pre or $105 million pre and $155 post or $150 post, I guess $55 post. And the, you know, they're giving away a third of the company, but the company is effectively pre-revenue and just started kind of shipping out their product. But they got a lot of excitement around the deal, hence why they're— I think this is technically a Series A for it, but they're giving away a third of the company because they're raising capital that'll last them about 2 to 3 years of runway. It is something that's more in the physical world of what they do and engineering-oriented and like physical atoms engineering versus bit engineering. And so it's a warrant that they're fine to be able to do that. But it's, you know, what I also liked about the logic, for example, with this particular company, you know, if you look at what they're trying to achieve over the next, you know, 12 to 24 months, their goal is to get to, you know, call it around $75 million of revenue. And so if you take, okay, well, they're raising $50 million, let's say half of it goes to scaling the company, half of it goes to, developing the product further and improving it, if they spend $25 million to, uh, to grow revenues and they're basically at, you know, a largely pre-revenue— they got some early revenues but small— if they end up getting, you know, a 2x to a 3x, uh, capital efficiency on that $25 million, they can at least get to $50 to $70 million of revenue. Um, and if you give that like a, a 2x revenue multiple, then they're at least grown into their valuation of $150. So They're raising the appropriate amount of money that will allow them with relatively conservative capital efficiencies to get to like $50 to $75 million of revenue. Um, and then within the next, you know, 12 to 18 months, be able to grow into their $150 million valuation. If they ended up raising a lot less than $50 million, like they raised only $25 million, um, and they raised that at like a $75 million valuation, um, it's very likely that they would actually not be able to hit their milestones and then they'd be in a situation of doing like a down round. So part of this is that you want to fund it enough that you have kind of— you're de-risking it a bit by funding that amount, uh, for what they're doing. So, uh, again, uh, we don't focus too much on, on valuation for the most part. Like, we've had some great case studies internally where my partner Andrew, um, initially put in a term sheet for, for Square, uh, as he was an early investor in Twitter with, with Jack before he went on to create Square. and he put in a term sheet at a $40 million valuation, uh, and then Coachella came in for, uh, like a $60 million valuation. And, uh, Andrew's fund ended up not leading Square at RE, and Coachella did. And now the company's, you know, worth almost like $100 billion. So like, in the grand scheme of things, it doesn't matter if we're going to be investing at $40 million or $60 million. That's also why we don't focus on ownership, uh, in, in companies. We're just focusing on does it actually return 25% to 100% of our fund if we come in on the first round or multiple follow-on rounds? Can we get there? We don't care if we own 1% or 20% of the company. As long as that math works for our return for our fund, then we're good to go. But yeah, I'd say the main thing is you don't want to raise not enough money. It's probably more of the worst thing than raising too much money, especially when times are tough. Like the last 2 years have been relatively hard on capital markets, um, you know, definitely raise more money if you can, um, and give yourself a good amount of cushion because the worst thing that can usually happen is to, to do a down round, um, and a lot of the confidence just kind of comes out of the, the tent, uh, at that point. So keep yourself always raising up rounds, uh, and you can do that by always raising enough capital to meet your milestones within a certain margin of error.

Wow, so much, so many nuggets today. I appreciate All of them. All right, let's do this question by Sandeep from Dallas. He's asking, what interesting AI startup are you seeing and it's trying to gain traction? I guess also what type of vertical, like what's happening in the AI space because you're so close to it that you're still, that's keeping you up like, oh wow, this is super interesting because I have my own personal opinion like with these different buckets of AI. Some of them are like, there's a lot of just like noise in the market, but where are you seeing stuff being truly impactful? Yep.

Yeah, certainly the, you know, AI historically has had many winters and summers before now. So I imagine, you know, over the next 5 years, AI is not going to be the same hot vertical as it is right now because it was not always the hot vertical that it is right now. It's good to remember that. And so there will likely within the next 5+ years, we're not going to be talking about AI, we'll be talking about something else. But but it is having its moment, let's say, after many winters and summers over the last, you know, few decades. Um, yeah, obviously we're very excited about OpenAI given that we're participating in the round this week as part of the final close. Um, you know, the— if we look at other de companies in our portfolio that we're very excited about, we're also in Figure AI, uh, which is a humanoid, uh, general-purpose robot. Um, that was about a $675 million round And OpenAI actually put in $100 million of that $675 million. But I think general-purpose AI robots are certainly quite interesting. There's a whole bunch of different players in the space. I think Figure is the category leader. The closest you probably have next to that is Optimus with Tesla, but I think approaching it in a very different way for who their initial target customers are. Figure is going after more of an enterprise solution. Optimus is doing more of a consumer approach, which I think is actually a lot more difficult to achieve success in. But I think you're going to have a handful of companies success in this kind of robotic AI play. Other ones in our portfolio that I think are interesting are we just invested in a— hasn't been announced yet publicly, but we just did a consumer product brand where they're building kind of a modern conglomerate of food brands. Using AI to develop new consumer brands and SKUs. So I think leveraging this to build up new products is interesting. We have another company in our portfolio called Helix AI, which is doing AI drug discovery, created by the guy who founded Viagra, and his name is Dr. David Brown, and previously was the global head of drug discovery of some of the largest pharmaceutical companies in the world, from Pfizer, AstraZeneca, GlaxoWellcome. So we backed David for doing Helix. And I think that's an interesting play for— if you look at the old approach for doing drug discovery, it was about picking a target and spending a lot of time and money on figuring something out, then realizing it doesn't work. With this rise of a new approach using AI drug discovery, you're now able to develop novel new drugs a lot faster, with a much lower cost and a much higher likelihood of success. And I think the other thing that's maybe the downside of AI right now is just the lack of data for AI. And so even though we did the investment in Helix for AI drug discovery, as part of the due diligence, we also came across that there's just not a lot of actual data out there for these AI models and we need to create more of it. So we were also— we did this another company in the US called Advencia, which is developing a large number of organoids, 3D printed organoids of different like things of like hearts and kidneys to basically create high volume of human data for doing lots of different permutations of drug experiments. And then feeding that data into AI drug discovery platforms. But, you know, we have a lot of, you know, the data is definitely not all there. And so we need to create more of it for the models. So I think that's kind of a new thing of balancing the two. And let's see, I guess there's certainly a lot of conversation right now around AI agents. We haven't made a bet on any of those yet, but we're certainly actively evaluating them. And I think the other one that is a really intriguing space is personal AIs, kind of where they're creating a digital twin of yourself. One of my favorite portfolio companies is TouchCast, which can develop a very, very realistic digital twin that kind of looks like me, sounds like me. This might actually be my digital twin right now, for all you guys know. And so I think the fact that you can upload your own, you database of information and then have your digital twin convey that information in kind of live Q&A. We actually were about to launch my digital twin to be available for Q&A. About a few months ago, I believe we were the first venture fund in history where my digital twin raised capital from my LPs to invest in TouchCast. So my digital twin pitched to my LPs to then make the commitment to investing in that company. And so I think that the future of being able to scale, you know, personally in a way that we couldn't have done before— I could theoretically have, you know, 1,000 founders pitch me in 1 hour, and they could all effectively pitch my digital twin, and it could collect all of my, you know, common questions from my investment evaluation sheet and turn, you know, founders' unstructured data into structured data about their pitch. And so that'll certainly, you know, we're looking at about 20,000 deals right now a year. You know, that would basically allow me to infinitely scale the number of startups that we're evaluating. So I think utilizing AI to kind of personally scale yourself through for digital twins, I think is going to be very fascinating.

Yeah, very, very interesting. Uh, I know Andrew Chen, uh, talks about this with the future of AI. It's coming, is like we don't really know where it goes, but it's definitely going into like that personalization that's scale moment where it's like everything will look and feel so, so authentic. We're not fully there yet, but yeah, it's very interesting what you're doing with the digital twin. I saw the one that Reid Hoffman did on LinkedIn of asking himself questions, which is really, really wicked. Um, on that note, uh, Matthias from, uh, Revoice in Ottawa, uh, Canada is asking, you know, as a deep tech company, um, I find the last part of the question a little bit more applicable to the general audience. It's like, and as a deep tech company, like, how do you actually go and start to do the fundraising and secure seed round, because it's a very different, uh, I guess, ballgame. Because, you know, there might be some physical components, it might be pre-revenue. And we're seeing a, a, like, even at FI, we're seeing, um, like, this rise of pre-Series A deep tech companies. I think, like, this is an interesting vertical or space that's popping up. But yeah, I would love to get your thoughts on deep tech at the pre-Series A level. How do, how do you evaluate it? And yeah.

Yeah, I think there's two parts to that question. I guess certainly the first one around integrating with another tech platform that could take time. There are examples of companies that have gone on to be worth quite a bit of money that were built on top of other platforms, you know, in particular like Salesforce. So it's certainly not true that you can't become a big company by building on top of someone else's company. I would say is that you need to effectively address the risks of you building on top of this other technology, what are the downsides of if that underlying technology ever goes away? I'm not sure what you're building on top of, but, you know, it's good if it, if it's a company that doesn't leave, but otherwise you don't want to build yourself on top of a deck of cards that falls away. So just be mindful of if you're not going to build the actual infrastructure, the core infrastructure underneath it, but you're going to be building on top, just be mindful of you know, what is the quality of that infrastructure long term, uh, because that could meaningfully change the valuation of your company. Um, the, uh, you know, the other thing on, you know, business traction for kind of high-tech companies, um, you know, for the most part, most of the, the deep tech and kind of frontier tech deals that we're investing in, which is about 25% of our portfolio, is frontier. We have about, you know, 10% of our portfolio is space technology. And a lot of biotech where there's not going to be any real revenue for the, you know, initially 1 to 3 years. And that's okay. I think investors are certainly comfortable in investing in companies like that, knowing that the traction is really going to be in the milestones of achievement on the development side, not on revenue generation. One thing that you can show— so instead of showing capital efficiency on revenues. Instead, you can show a data capital efficiency, which is, are you able to generate more and better data in, you know, a shorter period of time or with less capital? And so if you are going to be showing what are those milestones of development versus the milestones of, you know, revenues, think about it in a data capital efficiency way versus a revenue capital efficiency. That's kind of like the example with Helix AI. As an AI drug discovery platform, even though they're pre-revenue and they'll be pre-revenue for a while, they're showing that they're able to identify these novel new drug concepts significantly faster with a lot less money with a higher probability of success. So it's okay to not have revenues if you're doing something that is more deep tech frontier. It's understood that there's going to be that longer development cycle. So you got to show how else you're going to be proving value Part of that will be, again, if you can prove out magnitude of improvement, you know, how much bigger is that compared to the status quo and alternative options? You can certainly focus on that. But yeah, you shouldn't have a problem with that. Most deep tech companies are not going to have a lot of, you know, business traction, but they'll have development traction.

Awesome. Thanks so much for that. I have another question. So I guess while I bring up the next question, folks, as I read your questions, please try to keep it more— I know some questions are very, very specific. We have a global audience here, so if we can make it a bit more generic, that would be helpful. I like this one question. Oh my God, what happened? Sorry, just bear with me. Yeah, this question here by Jeff. It's a bit different. So this is a little bit more on you as an individual. Sky, but, uh, Jeff, uh, from New York, New Jersey is asking, what have you learned from all these founders that you've invested in, uh, and all the pitches you've seen? I'm sure, uh, you've applied some of these principles to your business, but, you know, after all this AMA, I've never had somebody ask a question saying, hey, Mr. VC, what did you learn from all this time?

And yeah, my 17 years, I'm not sure I've been exactly asked that question either. Yeah, I think, well, I think what you're addressing there, Jeffrey, is at least a true statement, which is that a venture fund is a business. And so, you know, when you're launching your own fund, it very much feels like you're a founder because you also have to raise capital from LPs. You have to put together an LP pitch deck. You have to hire a team. Initially, you might not be paying them that much until you start getting management fee. So all of it is actually very similar. To a startup. But obviously the business model is pretty straightforward of getting a management fee, uh, on the AUM that you're doing, and then make really great investments. So you're going to really benefit from the upside of the equity, just like a founder is benefiting mostly from the equity upside, not just their salaries. The same thing is true of venture funds. Um, you know, we're really in it for creating significant equity value, uh, for our investors. I guess in terms of things that I've learned from founders, yeah, I guess the, you know, part of the thing is everything always does take longer than you think. So like raising a fund often takes a lot longer than you think. You know, knowing, you know, out of the 170 startups I've invested in, knowing that most don't work out so well and few do. I'm definitely a lot more cautious around, I guess, the decisions of how I'm building our fund and trying to build it to be a sustainable business. But like, we also have the same things that we have to focus on of like, what's the magnitude of improvement of our fund versus other funds? So, you know, our thing is that, you know, we source 20,000 startups a year. Most VC funds only source 2,000 a year. So we source about 10 times more deal flow. Than a typical venture fund, and we're about 10 times more selective. So like, that's our, our version of the startup pitch about magnitude of improvement for what we're offering, is our selectivity in, you know, picking out 0.1% versus 1% of the deals that we look at. Um, try to think other things around things I've learned from founders. Um, well, I guess I would say directionally, um, the way that management is designed is actually also a really good thing to learn Companies in general, you don't want to have to suffer from paralysis. And so having an inequality in terms of power is a really good idea. If you look at the likes of Zuckerberg and Sergey and Larry from Google, those were such significant players that you wanted them to have meaningful power that couldn't be taken away from them to build such massive companies. Otherwise, Yahoo would've purchased Facebook for $1 billion and been a very different company if Zuckerberg wasn't in control. I think the same thing is true of a fund when the buck ultimately has to stop with somebody. So you don't want to be stuck with paralysis of making an investment decision where it's a democracy of making final investment decisions. So you want there to be general openness to give feedback about the deals that we're doing. But ultimately, one person has to make the final decision about to do a deal or not to do a deal. And that's who the ultimate responsibility has to fall down to. But you need to get a lot of respect from your employees and your other fund managers. With our model that we have, we have about 6 partners. Each of us have an impressive track record before joining VU. And so I try to give a good amount of leeway in terms of respect, in terms of If some of them want to make an investment that they really, really want to make, I typically won't block it. But you ultimately need at least somebody to make final decisions and block in the very end. But try to keep it— you respect your partners and their track record. You try to give as much leeway as you can within reason. I guess other things would be for sustainability. As a venture fund versus a startup, Founders are very much focused on generating as much revenue as possible in the shortest period of time and getting to break even and being optionally profitable. So they're at least default alive versus default dead. I think venture funds fall into the victim of going after just raising bigger and bigger funds to generate more and more management fee. Our goal is to just outperform significantly. So Directionally, we're going to cap the size of the biggest— the fund that we would ever raise is certainly capped in our mind. Um, so we're not going to try to become, you know, raise a multi-billion dollar fund in the future, even though we probably could, um, given our track record. Um, our goal is to just significantly outperform consistently. So, you know, directionally, I think we'll probably stay, you know, around $150 million to $200 million funds. Um, I think if you look at some of the best VC funds from Union Square Ventures and Benchmark. They've been very disciplined of just doing what they do well and not having strategy drift. So I think that's another good thing of like founders will sometimes try to do everything and they'll start doing strategy drift and then they stop, you know, doing as great as they were before. So I think focus, just being sticking to what we're really, really good at and try not to do anything other than that is a good thing to learn from founders. Um, but yeah, I think the good thing about your question, I think, is at least you're rightly pointing out that a venture fund is also a business, and I think sometimes people forget that.

Awesome, thanks so much. Uh, yeah, that was a little bit of an anomaly question, but I was curious to hear your response. Um, all right, let's do a few more. So, uh, let me pull up this question by Trey. Trey from, uh, Olaf is asking, uh, for those that have a technical and product-focused background, what strategy resources you recommend them investing in to kind of get them investment ready, right? So I think this would be pretty tough to answer without the industry, but maybe, like, maybe if you want to go like SaaS, hardware, and then maybe like consumer, just like generally like a non— like a technical—

yeah, I don't know, like around, like, at least I can talk about strat resources that I'd recommend investing in. I probably wouldn't recommend investing in any resources for preparing for your seed investment or seeking investment. I'd probably just focus on developing a really good pitch deck. That's the main thing. I think probably getting feedback from people along the way. There's a template that I created, I don't know, 12+ years ago, but it's one of the most viewed and downloaded templates for startup pitch decks. It's been viewed and downloaded about 750,000 times. But it's called The Best Startup Pitch Deck. And it consolidates a lot of wisdom across myself and about 40 other venture funds, which is why I think it ultimately got to the status that it did. But I'd say, yeah, just don't focus on keeping your deck to a certain number of slides. Just focus on making sure it covers all the core questions that investors have. And you can do that in a 50-slide deck or a 10-slide deck. I personally prefer, you know, cleaner decks that are 50 slides versus a very condensed, you know, 10-slide deck. It just, you can get through them the same amount of time. It's just less words on each page to get through. But I think the old wisdom, which I think was largely a bunch of BS, is like it has to be a certain number of slides is silly. Just making sure it answers all the core questions and Uh, you can also download our investment evaluation sheet. We make it public. Um, so if you go to Venture University's website, if you go to resources on Venture University, uh, there's a thing called startup resources, and we have a link to our pitch deck that I made a number of years ago, as well as our investment evaluation sheet. And the investment evaluation sheet has 12 criteria. Each of the 12 criteria have a number of different questions. Yeah, I'd say go through that investment evaluation sheet and fill it out yourself. Like, do you actually have good answers for all those questions? And then you'll be pretty well prepared. Like, there shouldn't be that much mystery to the questions that we're going to ask, especially if you've gone through our investment evaluation sheet and we keep on updating it every so often. But it has a lot of good wisdom in the type of questions we're asking, you know, based on the deals that we've looked at over the— at least myself for the last 17 years. So I'd say, yeah, prepare for, for it with, with the investment evaluation sheet and that pitch deck template.

Thanks so much. I just threw the link to the chat and broadcasted it, so everyone should be able to access it. Yeah, I know that, that's cool. I love it when you share these amazing—

you guys also want a really good playlist. Um, I have, uh, the number one startup VC playlist on, on Spotify. Um, so if you want to like get in the zone when you're like working out or in the morning you're getting up I got about like 4 hours of songs that are specifically, you know, founder, uh, mental zone songs as well as investors. That's also, if you go to the Venture University website, it's under the VC startup playlist. So if you want to get in the zone, some— if you got any new songs that I don't have on that playlist, let me know and I'll add the songs to the playlist.

Is it the— it's not a podcast one. Um, I also get started VC song list. Okay, yeah, it's on the thing.

Awesome.

Yeah, let me put that up. Share, copy link to playlist. Uh, so this is a Spotify playlist right there. Awesome, thanks so much. It should be interesting. I don't think we've ever had a person come and share a Spotify playlist. I love it. Uh, cool, we're at 45 minutes. Usually we break out now for networking, but I think because there's so many questions. I just want to make sure that we kind of get through as much of it. And, uh, yeah, this has been a lot of fun. So one thing we didn't talk about so much is that, um, the founder-investor type of match and how should founders, uh, like select their investors. Because I'm seeing like you saw some things here in the chat like, hey, can we cold email an investor? And it's like, hey, like investor has a really strong, like a very specific thesis or very specific vertical. Like, can you talk a little bit about that? Like, how should founders be like looking at VCs and selecting VCs equivalently before they do the—

yeah, there's the, um, there's kind of the surface level answer, then there's the deeper answer. So, you know, surface level answer is, you know, make sure the VC actually invests in what your startup does. So, you know, do they invest at that stage in that sector, in that geography, um, you know, does it match the, the thesis of what the fund typically invests in? So, you know, definitely make sure all that stuff is, is good. Also make sure that, you know, they have not invested in a direct competitor or a strong indirect competitor. You'd be surprised how many decks we get for people that have not looked at who's in our portfolio and still sent us their pitch deck. So, um, you know, make sure that, that you're, you're, you're, you're looking to date someone who's not already dating someone that looks like you already and is already in that relationship. Yeah, I'd say the deeper answer to that question is on ultimately who can be the most value-add to you. Because at the end of the day, all VCs should have money. Some of them actually don't have money and they are meeting with founders, which is terrible. We had one of our founders actually this morning tell us that one of their VCs had to pull out because they never actually raised the capital for their fund. Not a good look. Um, but yeah, make sure that the fund that you're pitching actually has capital to deploy. That's a good one. Um, the, uh, you can just ask them that straight-up question, like, are you currently raising the fund? Did you do a recent capital call? Like, do you have money to wire if you end up doing the deal? It's a fair question, uh, to ask. Um, like, we're doing our capital call, um, you know, this week, uh, for my which will give us capital for like the next 6 months to deploy. Um, so I'm always happy to, you know, share that insight with, um, with founders of where we are in our, you know, we've invested in about 45 companies of our 60 companies. So asking where the fund is in terms of its deployment of capital is a good one. Like with Fund 2, we've invested in 44 of our 60 companies, but we still have another 15 that we're going to do between now and the end of 2025. Um, so we're still going and then we're kicking off Fund 3. Which will be another 60 companies. So, but it is good to know where you fit in the lineup. The other one would be, you know, that relationship on is the fund, you know, reserving follow-on capital or not? Do they plan just to make one check and then never invest in you again? Or do they have a meaningful amount of reserve capital? Like we have 50% reserve and we're intentionally looking to do like 2 to 4 rounds in every portfolio company. So we are looking to be a long-term capital partner with every company we invest in. That's good to know because if you choose to take capital from somebody else, they might only give you one check and then they're kind of done. So if you're going to be an oversubscribed round, you want to pick and choose the best investors that you can have, you know, on your cap table that can potentially lead your follow-on round too. So some of the best founders that I've worked with are basically daisy chaining their investors where they'll bring in someone in the Series A that'll then lead the Series B, and then they'll bring in someone on the Series B as like a smaller check that'll then lead the Series C. So if you can daisy chain that, again, like preemptively say, hey, you know, once we end up going out to raise the next round, you know, we're looking to bring people around the table that could potentially lead that follow-on round. And that makes leading, you know, raising the next round a lot faster. Like a lot of those companies end up raising the round in like 2 weeks. So like you know, when it's a very short, you know, fundraising cycle because they already have everyone around the table prior to even going out to raise that round. And they've already had early conversations about, uh, when the time's right, you know, one of their insiders, um, may lead that follow-on round. Um, the other thing you want to see is like who's going to be valuable outside of capital is going to be who can make the best introductions for you. Um, you know, if it's a small fund team, you know, you only can only leverage the network of those few people In our fund, we have 70 people, 6 partners. So our team size is much larger. So we can have a much bigger network for introducing you to potential customers, partners, key employees, other co-investors, future acquirers, things like that. So we typically will outperform on network value. Another key thing is a lot of VCs say they're value-add VCs, and a lot of them probably do more harm than good. So one of the questions is like, how are you actually going to provide value-add? A lot of them will promise value-add after they invest. One of the things that we do, which I think is the highest integrity way of proving value-add, is that if we move forward in the due diligence process, we will look to make introductions to potential customers, partners, key employees, and other co-investors. We'll do that during that due diligence phase. And so that way you get to benefit as a founder, we get to learn more, and then if we end up investing, we'll open up our Rolodex and do even more introductions. but at least we can prove that we're value-add before we even invest. And so, um, I think that's the other thing is, you know, is someone actually going to be valuable to you, uh, mainly probably in your ability to generate revenue, uh, get talent, or raise capital? Those are going to be your three, you know, big, uh, anchors. And then lastly, someone who's actually been able to work with founders from, you know, early stages all the way up through M&A and IPO. Um, so, you know, we have a good track record of, of 25+ unicorns uh, that we've done that with. And so you want to know that someone has seen around corners ahead of time and they can help you make things even better when they're good, and hopefully help you a lot when things aren't going so good. But that can really only come by having investors on your cap table have experience versus emerging fund managers that are kind of still figuring that out.

Awesome. Uh, Sky, we're good, 5 minutes before the hour, and be respectful of your time. Thank you so much. I've done a lot of these, and each time, you know, I walk away with a lot of insights. This has, you know, nothing been shy of that. This has been an amazing session. Thank you so much. There's so much knowledge you have. I wish we can have you for another hour. Uh, there's also like another 25, 30 questions, but unfortunately not at the time for that. Um, the way I like to wrap things up before we, we hop off, and then we'll open up for networking, uh, everyone else can still chat with each other. Uh, Sky, any, um, tidbits of wisdom before you hop off here for the founders on the call? We still have about 100 people live here, you know, another few hundred is going to watch this in the recording. But yeah, before, you know, in 2020, end of 2024, Q4— can we be in Q4? Yeah, Q4-ish, where everything's at. Like, any tidbit of advice for them?

Yeah, I think a few pieces of advice. One would be, um, I think founders oftentimes just focus on the first company that they think of and they don't compete 50 different ideas before picking the company they're going to create. I think if you're going to be dedicating your next 12 months to 5 years of your life on something, you should be a lot more selective about what company opportunity you're going to do that. So try to push yourself to compete 20 to 50 different opportunities against each other. To really decide what's the best thing for you to spend your time on, because I think time directionally is the most precious. And the other one I would say is, you know, we're, we're likely going to be living a lot longer than any of us think we're going to. If we look at the kind of the future of longevity. And so I think that also pushes everyone to start thinking about their life differently. So, you know, the companies that you want to create, I think people can start thinking of companies that will last significantly longer than 5 or 10 years, but thinking about companies they can create that can last decades. I think when you start thinking about the role of how you're spending your personal time versus your work time, how you're choosing to be with your significant other, I think is also going to have to change. The whole promise of being with someone forever, if we all start living until 200 to 500 years old, forever might be a lot longer. So I think be really careful about who you're also aligning yourself with for partners and for your significant others, because those can be definitely the biggest benefits to how you end up evolving your life and some of also the worst downfalls. So be very mindful of how you're living your personal life compared to your business life. But I think humans over the next handful of decades, if not the next 100+ years, I think the biggest dilemma we're going to face is purpose of life. And so I think a lot of people end up becoming— their purpose is, you know, the work that they're doing and/or their family. And I think as we start living longer and longer, that actually figuring out what is the purpose for your life will, I think, be the biggest dilemma that we're probably all facing. I'm very excited to keep doing it under venture capital because I think it's one of my biggest ways of helping to push, you know, the human civilization forward. But I think founders should spend a lot more time very carefully thinking about what they're actually creating and think about a much longer time horizon than they're probably thinking right now.

Wow, a lot to think, ponder post this call. Sky, thank you so much. This has been very, very insightful. As you can see, there's some emojis with claps and thumbs ups. You know, folks, we'll wrap up here. I'm gonna end the session and we'll break out to networking. Thanks so much, and we'll hopefully see you in the next event.

Cool. Awesome. Awesome. Thanks, everybody.

Thanks, everyone. Bye.