EP#88: Why Most Founders Misread Their Own Traction. Vanessa Larco - Premise VC

The flip side of that is in venture, when SoftBank came into the scene and gave all these companies $100 million and they were like, I'm gonna crown you king because you're gonna have an arsenal of capital behind you. And so by default, you will be the winner. And they drowned those companies. Like, very few of them became winners.

Mm-hmm.

And I think it's because they had $100 million in the bank before they needed $100 million. So they didn't have the constraints they should have. They didn't have to be creative. They didn't have to listen to customers because it was live or die. They didn't have to prioritize their roadmap because they could do all of it. They didn't have to make choices. And I was like, the constraints are what trains you to be successful.

Welcome to Startups Decoded, the show that gets real about what it takes to build a successful startup. I'm Andy Walsh, 2x exited founder, advisor, and your host. Each week I talk with great founders and top investors. We unpack the plays that drive real traction. If you're building something bold, this is where you'll get earned insights to scale with confidence. Let's keep growing together. Hit and share with your community. It would mean the world to me. Hello and welcome back to Startup Decoded. My name is Andy Walsh. I have a pretty big opinion around VCs and the good ones versus the great ones and whether or not they've had a startup experience in their own right. And today we're gonna tackle it very directly. And I'm so lucky to have Vanessa Larko with me today. Vanessa, welcome.

Hey Andy, thanks for having me.

I'm not going to put you in the spotlight and make you the ambassador for one opinion or another. I won't do that to you straight out of the gate anyway, but we can ease into that as we go. But the thing that I'm really fascinated about, and you put this right in front of me when we first met, the skills that you learned as a product person and the skills you're using now to write checks, the intersection of those 2 and how closely they align, it makes a lot of practical sense. When you actually say it out loud, but I'd never really clocked it. So that's going to be our focus today. And I'm fascinated to get into it because I have a point of view and most of it comes from the, probably a small percentage of VCs, you know, the ones that overstate their opinion when they haven't done it before. They've just been around the periphery and they can actually cause a little bit of chaos in the wake of those ill-informed opinions. So I'm trying to separate the pack a little bit.

That's totally fair.

Okay. So let's get into it a little bit about you to start. So you've got this fascinating path, as I set up, you started as a product person that ended up going investor side, and that's not uncommon, but I love your journey particularly. Can you tell us a little bit around the product path? Because you've worked with some big companies and had some really interesting experiences. I just want to get under the hood of that.

Okay. So I think, I think we have to go all the way back to like, I was born into a family of entrepreneurs. So we'll start there. I think my, My first job, my mom, so my mom was computer science in the '70s and she was a bootstrap hardware software entrepreneur, serial entrepreneur my whole life. And I say like my first job, I was 4 years old and it was to copy floppy disks. So I literally, it was her, it was her product catalog and I had a stack of floppy disks and I had to burn the product catalog into the floppy disk and put it into an envelope to mail to her clients. Like, this is how long ago, that was like in the '80s, right? But I got to see entrepreneurship really up close and personal. And then when I was in, I wanna say like middle school, her, the company she had was basically selling computers to Africa, um, but she was assembling them in Miami. So my brother and I would like build computers in her office. So I think it was a surprise to no one. I studied computer science in undergrad and then I went to go work at Microsoft's consumer hardware and software division. So I worked on Surface and it was a big table. And my job was on the SDK team convincing developers not to port over their mouse-based applications to touch, but to build an entirely new user interface for their products that did not have a mouse click. And like, people were like, wait, what? How do I do a context menu? How do we do a right-click? How do you do a double-click? Like, what do you mean there's no clicks? I'm like, no, there's touches and presses. And this is before the iPhone App Store. So like, people thought it was totally stupid. They weren't totally wrong, right? Like, If you were building an application for a Surface table, there was like a couple hundred of them in production. Like the TAM wasn't big, but I learned a lot about building innovative technology, getting developer on the importance of the developer ecosystem, right? You can't build everything yourself and distribution. So many questions about distribution there. And then I went over and joined Xbox to work on Kinect on speech recognition. Similar vibes, right? There were really no far talk devices at the time. Like Alexa didn't exist. Google Home didn't exist. There was a lot of research said they would never exist. It would never work. But we were figuring Figuring it out. There was no precedent. And again, my job was like, go convince game developers to build speech recognition experiences into their games. I was running, I was on the speech recognition team. And then how do I teach users to talk into their devices? And what can I, like, it wasn't natural language by any stretch of the imagination. It's a very limited library of vocabulary. It's like, how do I teach you what you can say and when you can say it? And so it was like all these, like inter— there was like all these user interface challenges. There was all of this like developer ecosystem challenges. There was all this like technology and hardware risk. It was really, really fun. It was extraordinarily challenging. I worked 80 to 100 hour weeks every week for a year. Um, so I saw like nobody and hadn't— my friends had a going away party from my social life, um, which was really funny.

Yeah.

They were like, it's a going away party. And everyone's like, but you're moving. I'm like, no, I'm just, I took this job and I'll never see you again. So I'm like, basically like I've moved on or died or something. But that's when I was like, okay, I love solving hard problems. I love being scrappy. I like working on V1 things. I should go work in startups. And that's what propelled me into the startup world. And then I was in a bunch of startups. Which one do you want to pick? Gaming, Twilio, Box. Like there's, there's been a lot of them.

Let's pause there for a second. First, I had Microsoft as a client. We talked about this. I spent a lot of time at the Redmond campus and it's such a fascinating world. And the part that I love which informs a lot of what you do and not to give the end away, so to speak, but the part that you're looking at there, which is you're thinking about a native experience for people that use a computer in the same way for a long time into how new forms of communication build, which is externalizing things that we do as humans with touch and talk. It's not like we haven't done that before, but you're applying it to technology in a way where you have to understand human beings. You have to understand motion. You have to understand processing that and an that comes off the back. And there's so much about that that requires a look around the corner. Mike Maples, who I love, talks about great founders who can see around the corner. They see a state that no one else can see and build for a future world. And I want to carry that thread through today. So when we go into your next chapters, Disney, Twilio, some massive companies, some of those experiences working for a major product, some of the things you extrapolated for what you do now, I'd love to hear some of that journey.

Yeah. Everyone thinks Xbox is massive, but Kinect was like nothing. Nobody knew what it was until it launched. And Disney, well, we got acquired into Disney. I worked at Playdom, which was building social games, right? It was like the Zynga competitor back in the day. And there was a lot of weird social norms that developed when people played games over Facebook and ask you to like water my crops, right? So, I, all these experiences, I learned so much. So, At Xbox, we really didn't have a lot of data to go off of because of the antitrust lawsuit. Microsoft wasn't collecting data on people that were connected to Xbox Live. We had to like contract a survey company to survey our users to know like what games they wanted to play, even though like if you're online, we could technically see it. We weren't allowed to touch it and we were so scared. And so we operated basically running blind on user data. And We were just like, if we build magical experiences, we will have engagement, we will have returning users. And so, it was all like gut feel, magic experience, the small whimsical details that make something feel extraordinary. And that was the talk, like magical, magical, magical. Then, I get to Playdom and it was during the time, it was right after like Wall Street collapsed, right? 2009. I joined late 2010. And all these like Wall Street bankers came to Silicon Valley and they're like, we're gonna apply math to everything and predictive models. And so, They came into Facebook Gaming, we had all this data, all this usage data. We had all the data you can imagine about every single user. Basically, you could take the URL from the game, like whoever registered, and plug it into your browser, and I could pull up the person's profile even if they'd set it to private. So I could see like what they were posting, who their friends were. I could stalk every individual user, which was so wrong for so many reasons. But we had all this data, and so like every decision was meant to be data-driven. So, everything was A/B tested, everything was an analysis, and nobody used the word magical. Nobody cared about the little details that would never move the needle on an A/B test, but intuitively, you know that some of these things on the edges have to make a difference over the long term or are a differentiator, but maybe the data won't show you that. And so, I went from this like highly qualitative, we only value qualitative data, to highly quantitative, we only value quantitative data. And I bought into the, I'm like, qualitative, that's, that's woo woo. That's, that's silly. No, no one should believe in that anymore. And then after Facebook Gaming collapsed, I was like, whoa, we were doing micro optimizations. We never did anything innovative. We never took a real risk and we never ran an experiment for more than a couple weeks. So we actually never understood the long-term implications of these tests. And then I went back to having appreciation for qualitative data. Which is great because then when you go in, I went from Playdom, I did my own gaming startup, but then I went into enterprise software. And I think when you're selling to enterprises, you have to care about qualitative, like your customers will call you and yell at you. So you get the qualitative whether you want it or not. And then you still have to care about the quantitative and you're like, what are the end users doing? What features are they adopting? Like, where is this going and how do you compete and win?

It's interesting to be able to go to the polarizing ends almost of both ways of thinking about it because hardcore quant people will be like, I don't need some random opinion from some person to steer. But ultimately for me, my opinion is that the quant side leans too much into triage and just maintaining status quo and lacks the innovation where the qual part is interesting. 'Cause that's where you start to get into Easter egg territory and you can start to get a sense of people's emotions and feelings and things where it's unexpected. 'Cause like quant, you can overanalyze and almost be a little bit contrived in nature. 'Cause you're overanalyzing where qual is, that's dreamland. And it's people that use something all the time have such a different perspective than you who's building something.

Yeah, it's funny. My husband and I were debating this literally last night with my 8-year-old on. I was like, I don't know. I think quantitative data is as biased as qualitative. You can slice data to look any which way you want to make the argument. And I think it creates this like potentially like false positive where you can convince yourself that this is black and white and it's not. You just like omitted a certain piece of data that would be against the argument argument that you're trying to make. And I was like, because my husband's like, science is absolute, just like math. I'm like, I don't know, math is more binary and absolute to me. I think science is more like qualitative because you can slice data any which way and draw whatever conclusion you want. But ultimately what I think is the, the quantitative data tells you what is happening but not why. And what I find is people use the what and guess on the why because they think they don't need to ask anyone about why because the data said something that just confirmed some bias of why you think what's happening is happening. So I can make an argument, a pretty contrarian argument that qualitative data could be more objective than quantitative data. I'm happy to have that debate with anyone.

And I've done a lot of brand strategy and research and those 2 live hand in hand in the sense of understanding people, because if you have a hypothesis, which you typically do, Then it comes from a place where you have an instinct, right? And if you're trying to have something that you prove right, it's pretty easy to design something so it is. You need to be able to have almost someone who's completely neutral design the research piece for you to make sure that your hypothesis is stress tested both ways because it creeps in in all sorts of ways. But okay, stepping back, I, for you, you sound like you're just a person who's been curious from a young age.

Yeah.

And you commented on something there. Now that you have kids of your own, I'm interested, did your 8-year-old have an opinion on the value of qual versus quant and which way they thought they would go?

Yeah, he sided with me on you can design any experiment to prove a point. And so like he agreed with me on that, but he's like, 2 plus 2 is always 4. And I was like, I win! And my husband's like, wait, whoa, whoa, whoa, whoa, whoa, whoa. But yeah, I think we've matched that point.

Kids are so much more perceptive than we give them credit for. And it's amazing just that insight and neutrality as well as an openness. But there's also this great conviction that's something that I want to carry through is that this conviction of a founder in what they're doing. And the part that I teach regularly is strong conviction, weekly held. And it's anchored in research. It's anchored in conversation, peer reviews. It's anchored in qualitative feedback and quantitative feedback from customers. But the part to have a point of view is really important. And through that time you've learned a lot of things. And at some point along the way you decided that the product hat had a place, but you wanted to apply it in a new way. And the curiosity that I touched on there, it sounds like it's foundational from you, from your mom, now from your son as well. And there's, it runs in the genes. What made you ultimately start to explore being on the investment side, but then ultimately what made you take the leap?

Okay. There's like a really flowery, lovely story I could tell, or I could give you the raw, unfiltered truth.

I'm down for raw. I do flowery stories all the time. I'm Australian, so raw is always best.

I mean, the truth is I'd had a startup. It didn't have the exit I wanted. I had a chip on my shoulder, but I didn't have an idea and I didn't have the savings to go do it again. And so I was like, I'm going to go learn something new. I'm going to go from, because it was consumer, it was Gaming, right? And all I'd done was gaming. And my gaming startup, we raised a little money. It was, we got acquihired, not what I wanted. And I saw it as a massive failure. I was like, really? Like, it was, I was trying to explain to a friend, I'm like, it felt like the worst breakup I've ever had in my life. And they're like, what? Like a guy breakup? I'm like, yeah. But they're like, but it's a company. I'm like, yeah, felt just like that. Like, I didn't wanna get outta bed. I was like mopey. Anything reminded me of my startup made me cry. Like, it was, it was like, it was a breakup. And I was like, so like, I want revenge on that. Like, I wanna prove that I can do it, but I was like, I need to learn new things. I need to like try a different angle. I, I need to, I need to like save money again. I was like, I'm gonna go learn enterprise software. So I, that's why I joined Twilio. And then I joined Box 'cause I'm like, okay, I'm not gonna build dev tools for a lot of reasons. It's not my superpower, but app layer is. And so I'm gonna go and do enterprise app layer. And so I learned a ton at Box. Aaron Levie's one of the best CEOs in the business and venture. was like not in the cards. And I swore I would never wear a vest. And I thought VCs were kind of silly. And so I was like, absolutely not. But I'd known a VC for a really long time, uh, Pete Cincini. He was at NEA and I, I think he's one of the most brilliant, high-integrity people in the business. And he was like, hey, look, I think you're gonna make a, I think you'd make a great VC. I was like, me? No, no, no, no, no. You, you've got the wrong read. Like I build, I ship, I'm like founder mode. Like I, I don't, I don't do this like spreadsheet thing. I'm not a banker. I'm not a banker. And he is like, no, no, no. Early stage, you need to be a banker. How about this? And I was like, no, no, no, this is like not my thing. And he's like, no, no, I will teach you everything I know. And if you hate it, I'll fund whatever you do next. And then like that got my gears turning. I was like, will you now? I was like, okay, so I can do this VC thing for like, I don't know, 2 or 3 years, learn how VCs think, make a lot of VC friends, understand fundraising from the other side of the table. That should make me much better at fundraising as a founder. And then when I leave, you'll fund my company for the first round, like down zero risk here. And so that was the plan. It was like a secretive plan to then eventually build my own startup again and get like vindicated. It didn't end up working out that way. I ended up falling in love with venture for a lot of reasons, and now I have my own startup VC firm thing. Um, so it all came full circle, but in a way I never, never expected it to come.

The part that I hear there is the openness to challenge yourself and contextually understand what you know and what you don't know. And part of it was maybe a chip on the shoulder, as you said, in the sense of this is another path for me to be able to have a future version of me that I can tackle and have a second go at the startup side of it. But the part that I really want to unpack is this notion of product-market fit being The ultimate thing for an early-stage founder. And I had Eric Ries on the show, great episode, to launch his new book, Incraftable. Eric, in his big book, The Lean Startup, he actually talked about the fact that he penned the term product-market fit, which I found fascinating. He's got a bunch of them. It's wild. But on the product side, product-market fit has a set of things that can be relatively consistent, but that's changed a lot, which we'll cover today. But for a founder, it's everything for you. You're trying to get a sense of feedback, qual and quant, if you're doing it well. But as someone who's an investor and coming out the other way, you're looking at the same data points. And I'm curious for you, is it that obvious as far as investor and founder side that those things marry up and you're both looking at the same information, but the output is different?

Yeah. Okay. So, um, I'll wrap up on one quick thought and then I'll directly answer that. The quick thought was when I went into venture, I thought I was throwing away all my product knowledge. I thought I was like, well, I'm gonna pause on my growth as a product person. I'm basically gonna start from scratch in this VC role, which was like a hard pill to swallow cuz I have all these years of, like, decade of experience. I'm gonna go in with like zero experience in venture. And I was like, I will take that hit to learn this new thing. And then I was surprised to realize like how much of the product stuff I was pulling in and leveraging in venture to do venture like a little differently than I thought it was typically done. And then a big part of that was product market fit, right? I was like, well, in product, we need to figure out like what to build next. We're, we're evaluating all these different features we could build in the roadmap, and we had to figure out like, what do our customers need? What are the competitors doing? Where do we think the market's going? What are future needs of our customers? And what did they like us for today and what it's like our biggest risk in that for tomorrow. So, it's like all these different sources of information you need to balance and figure out what signals to listen to, to give you conviction on that, like, next 5 things you're gonna build with your team. Um, 'cause you can't build it all, right? You have to pick. And in venture was very similar. When I found myself meeting with founders, they were like, here's what we've built and here's why I think there's product market fit, and here's what I wanna build next and next and next. And like, here's how this becomes An enormous company, an enduring business. And I was like, huh, that's a lot of how we talk about— I mean, it wasn't the business, it was like the product or my scope in my little world, but like, you're looking at the same data set that I was. And so, when you ask like, how does that align with founders? Well, it doesn't always, right? Like, the founder might be like, I have product-market fit because of these things. And I'm like, I don't know. I don't, I don't, I don't buy it. Those things aren't giving me conviction that you have product-market fit. It's not obvious from where I'm sitting. And there's some founders that when they explain it, I'm like, yes, 100%. Like, the signals you value are the signals I value, and we're completely aligned. And that's what gives me conviction I'm the best partner for you, and I want to do this deal, and I want to invest. It's not to say that the founder that I don't align with on the signals lining up to being product-market fit is right or wrong. It's just like, I don't buy it. I don't buy it. So, I probably am not the best investor, but there will be an investor out there who sees those signals and has conviction that that means product-market fit. And so, I, I do think it's, it's not an absolute, like anything in life. It's just like not an absolute. There's some people that will see the world the way you do and will have the conviction you have, and there are others who won't. And so, you just kind of, well, absolutely for an investor, make sure that they see the world and the opportunity that you see and they value the signals that you see. Because then, you know, you're aligned and you have this foundational agreement that makes like future decisions so much easier.

The term product-market fit is an old term and what it applies today is very different. And the evolution of AI in the build process has changed it dramatically. And the ability to hit market sooner has never been easier to build a lookalike product. has never been easier. And what we're seeing is people getting to market and getting market share very quickly. And I see fundraising decks and I laugh because they talk about annual recurring revenue, which is future state promised revenue, and it's fluffed up to the hills and there's a lot of misleading numbers. But the fact that they're able to do that, even if it hasn't landed on the books, like the story aside, is that the fact you can make money easier changes the relation a little bit. And you'll see certain startups, and I see it where it turns into a slight frenzy where someone actually has early traction that's quantifiable and the product market fit is completely undeniable. And that wouldn't have happened 3 years ago, right? To be able to get to that point so soon. So the, just by definition of what product market fit is, it's changed. And as an investor, if you don't even understand that in its entirety, Yet speaking a different language is my observation.

Yeah, the rules of the game have absolutely changed and honestly, they keep changing every 6 months. So just because you have a bunch of bookings doesn't necessarily mean product-market fit. It used to absolutely mean product-market fit. Now it's like there's product curiosity fit. Like the, the, the customers are like, I don't know, maybe we should be doing this. Let's allocate some budget and we'll, we'll experiment with it. And so you have to be really careful. There's like, What we look for now is like quality of revenue or quality of engagement. And so like we're double-clicking into the numbers in a way that was less common 8, 9 years ago.

And I'll give a good example. I had Michelle Parsons on an episode. She was CPO at Hinge, left, went out and started a business called Lora, L-O-R-A. And she's a fascinating human in just how she thinks about the world, but her business is anchored around a social community But focused around star signs and Co-Star is obviously having a moment. Star signs are social currency everywhere. But what she did was had a waitlist and she started a Discord group. Last I saw her numbers, it was around 150,000 people had signed up before the product was even live. There were a few thousand people in Discord. She just turned Instagram on and had 15,000 followers in a few weeks because there was so much energy around it. And they built their product in 8 weeks from memory and went live. And I haven't seen any data yet on usage, acquisition, retention numbers, but for me, what she did beautifully was a storytelling approach. So you talk about product market fit, different than having paying customers or regularly using customers. She had that before she even went live.

Yeah, I love to see that. I think about it as a little bit of an iteration of product market pull. Like the market wants this. It doesn't exist yet, but they want it. And so they are pulling the product out into the wild and they're pulling it to go serve the thing that they think it should. That's really exciting. And the risk there is that like, you have to be so empathetic to your users and you have to continue to give them the things that they want it to do. And sometimes they might not even be able to express what that is, but you have to have a really, really strong vision to lead those companies. And with the right set of factors in place, they can be Enormous companies.

And for her, she leaned into just general consensus of people that bond over things that are happening in their stars. So if obvious one, Mercury's in retrograde and you've had a hell of a time, if you get onto a Discord group and you find another 10 people that are having a hell of a time because Mercury's in retrograde, there's an empathy that comes through and you forge a relationship with someone through an aligned passion. And it can be a turbulent time, it can be the best time of your life, but there's a common denominator in the sense of social currency in star signs and what it means, but then a unifying approach of bringing people together because they're into the same thing. And there's something really human about the community element. So she's tapped into something quite unique and I called it out because it is a different way to have product market fit today than it would a few years ago where you may build a product for a year, 2 years and launched and, and hope that it stuck.

Exactly.

But you wouldn't have had that kind of buy-in ahead of time.

Yeah, I think the insight there that I subscribe to is the best thing the internet gave us besides like tapping into any knowledge that we want. But like as humans, one of the best things it gave us was the ability to find your people, right? Like before, if there wasn't anyone like you in your community, you effectively felt like you might be the only person in the world that has that interest, that disability, that whatever, right? But the internet allows us to find other people who might be facing similar things. And so it helps you find your people when you might think like, there's no one else like me. And like, that's one of the like beautiful parts of tech in society. There's a lot of downsides, but that's one of the nice things. And so if you can build products to bring that to life more and to give that access to more people, I think that can be really magical too.

And the part that when we talk about it in the episode at 68, if you wanna go back and have a listen, if you're listening right now, we talked a lot about the problem with social media and the toxic behavior on there, what it's taken away from a concentration perspective, a lack of effectiveness. And we're seeing it now applied to human skills where people are actually losing the ability to sit and have a conversation. It's wild that this is not some global pandemic that we're intervening. There was obviously this huge lawsuit, Meta, I think it was $18 billion were fined by a combination of states across the US for intentionally tricking kids into staying on social media longer. And there was no admission of guilt. They just paid the fine and moved on because it was spread over 10 years. And for them, $1.8 billion a year is a rounding error when they're making $200 billion plus. So it's like, that's the world that we live in. So for her, she's tapped into something really wholesome. But this is not about that. It was a good example of what PMF can be today. And the pool part of it is interesting. So for you, let's fast forward a little bit to Premise, which is now your own VC. So going full circle, as you said, you've gone from person who's building product, you've been a founder, you went investor, and now you're doing all of them wrapped up in one. Can you tell us a little bit about where you started and from a thesis perspective, where you're going to focus on?

Yeah, look, I think the founder journey into this is, it's going to feel very similar to a lot of founders out there. I think if you have a propensity to be a founder, meaning that you're like, you're kind of always seeing things that are broken that need to be fixed or things that are like, opportunities. Um, I'm like, gosh, founders, we're all so grumpy. Like, we can't just like enjoy the little things. We're constantly seeing all the little things that are not working, right? And all the things that like make no sense. Like, why does things work this way? This is so inefficient. Or this is such a terrible user experience. Like, why does this exist? So, we're, I feel like we're just a little grumpy that way. And then, when you see like, okay, you can marry a technology to this, and there's a, a time and a place, and culturally things are changing, and then there's an opening for this, like, maybe we can do things differently, and people would adopt it because it's so much better. Very similar, right? But in venture world. So, I, I, it was venture world. really long time, I started seeing the ecosystem changing, the pre-seed, seed radically changing, venture bifurcating into like mega funds and micro funds and new liquidity channels. There was a lot of things from the inside that I was like, huh, I think this is like a, I think there, it could be done differently. And if I look at like what I'm good at, what I'm passionate about, and what I can make money doing, I think I have like my best odds of like starting my own thing. And this is like my co-founder and I were like, we wanna do it a very specific way. And so, um, we, we took the lead. It wasn't, everyone's like, were you scared? I'm like, no, cuz like we were so obsessed with the problem we wanted to solve that we're like, we gotta go do this. This is like our calling. We must, we must try this. Um, the world needs this. And everyone's like, the world needs another VC firm? Yes, it does. Um, so said no one ever but us. So it, it was a, it was a really fun journey, uh, to get there. And we are still like, we did a lot of experiments on product market fit and we interviewed a lot of people. And we looked at a lot of data to land on like where we landed on what we're building. But ultimately, like, we're really excited to back AI-native companies, right? We're in the Bay Area. It's kind of hard not to. Everything is AI-native here at the app layer and the dev tool layer. I would say like my strength is app layer. It's what I've been living in both on consumer and B2B and fintech. But because we're so early in the cycle, a lot of the engineers that we're like backing, they're like, man, if I had like this capability from my infrastructure, I could deliver this entirely new feature set. And we're like, okay, let's go find some dev tool, dev tool companies that can like build that so that this end-user-facing thing can exist in the world. And so, we've gotten pulled into what I'm calling mid-layer. Um, so, we're doing basically mid-layer, app layer, generalist, so B2B, B2C, and, and fintech.

I love it because, uh, I'm gonna call it unsexy, not in a negative way, but overlooked. Is probably a better way to describe it because it's not going to jump out, right, amongst all the super funds that are out there, like those kind of businesses. But their ability to create something through a lens that no one else is looking at is the secret sauce from what I'm seeing.

I mean, that's our bet. But I will say like a lot of the, what gets me most excited is finding companies where like I really understand the problem they're trying to solve and I like believe that the way they're solving is the right problem. There's a lot of companies I see and I'm Like, as the founder pitches, I'm like, oh, that makes sense. I have no pull towards that. I don't have a lot of empathy towards that problem. Like, I don't deeply understand it, but like, as you explain it, it makes sense. And the solution you're building makes sense if that's a real problem. But I don't feel this like deep draw of like, oh, I get this deeply, or I see this problem manifesting itself in the companies that we've backed already. So when I have like a deep understanding and empathy for the problem they're solving, That's when I like perk up, lean in, and I just like want to absorb as much information as I can.

And that's the epitome of a gut check. And as a term, it sounds like it's a little bit off the cuff, but for me, it brings in lots of information. It brings in your career experience. It brings in your life experience, investment experience, founder experience, the things you've read, heard, talked to someone about. You've got this filter and it's active and dynamic, and you're leaning into that and trusting yourself because of the experience that you've had. And I love it because it's opening up a chance for founders to have conversations that they may not be able to have with other VC firms. So it's important to have a broad and robust ecosystem is to have people that can see an opportunity within a certain segment to be able to unpack it and offer capital for people that have great ideas.

I think so. I think that's really well said. Thank you.

I want to follow on a little bit from product market fit, and this builds on that question. So we're talking about products, we're talking about founders, and there's a lot of conversation that happens now because of the ability to get a product live. There's tension between, are you backing the founder? Are you backing the product? What in your mind is the sweet spot as far as what makes a backable company? You've talked around you as a philosophy standpoint and what you're seeing where you can feel like you live and breathe the problem or you observed it at scale. So from an industry-specific standpoint, then you have the product of how they're solving for it. What's the healthy mix there for you to double down?

Andy, I'm really glad you asked this question because it changes depending on the stage that you're investing in. So at the pre-seed, seed, which is the world I live in, it's all about the founding team. And so like how you explain the problem and the problem that you're tackling and the reason you have conviction in that problem, all of that is a reflection of the founder and how they think. And so all I am doing is constantly understanding who you are, how you'll react in different situations, how you'll make decisions, how you find opportunities. Do I believe in the evidence that you use to get conviction? Like, are those the right signals that I would also have dissected? Like, are we aligned in a decision-making framework? We don't really, like, call it that or ask questions around, like, what's your decision-making framework, right? But I am trying to, like, understand how you've made all the decisions to date. How did you pick your co-founder? How did you pick what, where you're going to start the company? Are you self-aware? Do you understand the pros and cons of the trade-offs you have made along the way? So all of it is the founder, founder, founder, founder. How you've picked the industry, how you've built the product, why you think the product is great, what your questions are about the product, how you've thought about the risk you've undertaken. All of that is a reflection of the founder. But once you get to the Series A, it's founder. And execution. I'm trying to figure out, like, are you the right founder to execute on this opportunity? And is the opportunity big enough? But all of that is, are you the right person for this thing that could potentially be big? Um, at the Series A, it's, can this person scale to be like the public-facing C? We know that founder-led companies all the way through the end tend to do way better. So we want to know, like, is that true? And then what have you de-risked to date? Right. And so, and then at the B, it's like, Basically, you made it this far, so you're probably scaling. You've hired great people, so you probably know what you're doing. So, and then it's just like proof in the pudding. Like, what do your numbers say? How have they, how have your numbers changed over the course of the last couple years? What are your projections? How real can those be? How do we price this? At the Series C, D, E, it's like, how does this exit? What multiple gets placed on it, right? So, so it, it really, it really changes. And so that's what's really important. That a seed, pre-seed, Series A investor is very different than the profile for like a B, C, D investor, which is very different than an E, F, G investor. And we all look for different things. And I think that's the hardest thing for the founder because they like have a successful fundraise at the seed and then they just think like, oh, I'll just do it like that for the A. And I'm like, no, you have to do it differently for the A. And they're like, oh, I nailed my Series A, I'm just gonna do like that for my B. And I'm like, no, no, definitely not. Definitely not. And so it's a different ballgame every round.

It's one of the clearest articulations I've heard of the current way of thinking about the difference between each of the stages, which is super helpful for a founder to understand that. And I've done a couple of episodes now where I've talked about the founder's journey into a CEO because I have a very strong opinion in that those 2 roles are very different. Being an early stage founder, up to Series A, you have a certain mindset where it feels like you're running 10 parallel paths all at once, but you're getting your hands dirty. And to be a good Series A+ founder, which then becomes CEO, you're thinking more future state, you're thinking strategic planning, and you need to be able to hand over things to somebody else. And those 2 skill sets are very different.

I had a founder a couple years ago and they were like, oh, this is gonna get so much easier when I hire Like 20 more people and we're gonna triple the size, or we're gonna double the size of the team. We're gonna go from 20 to 40. And I'm like, you just realize you're trading the problems of like doing it myself. I don't have enough time to people management. People don't like their, where their desk is. They may not like their manager. Like you're just now just gonna deal with people. Like you, you were dealing with problem issues now that are like feel taxing. You're trading those in for people issues. Like what, what kind of problems do you wanna deal with? He is like, oh God, no, no. I wanna just deal with problem issues. And I was like, then grow your team slowly, very slowly, because as you get more people, the mix of the types of problems you're gonna face is like changing. And then I will say like at least half the founders by series D and E aren't having fun anymore. And they were like, you know, I just wanna go, I like miss the zero to one phase. And I'm like, oh, remember when you were in zero to one, you were like, I can't wait to get to C and D and E and like have money to pay for, you know, a custodian or someone to clean the office cuz you were cleaning it yourself. Remember those days? Like, do you miss those days? And they're like, yeah, I miss those. I would trade all of the things I was doing there in a heartbeat. And so, yeah, I think it's funny because every founder thinks it'll get easier and more fun at the later stages. And when those later stages, they look back and they think that backwards were the best years. Um, I don't know what that says about us as masochists of founders, but it's an interesting observation.

100%. And we were talking about kids a little bit, and it's the same cycle. It's, The early years seem chaotic, but then when you go, well, no, my child actually slept a lot and I had more time to myself. And like there's ups and downs with all of them. But the thing I've, I can say with such certainty is that a lot of founders are not suitable to be good CEOs. And my own personal experience was I started a business working in music technology and hands dirty doing everything, working with artists. And I was loving life as much as it was hard work. But then all of a sudden, you're right, I was managing people issues, tax issues, cash flow issues. It was just All this stuff. And I'm like, everyone else gets to do the fun stuff doing what I love, and I'm just running the business now.

Yeah. I think that the CEOs that end up really liking the CEO role find joy in continuously staying engaged with their customers, or they're like in love with their products. So like on the weekend, like I, when I worked for Jeff Lawson at Twilio, he dogfooded, like he used all of the latest APIs we'd built before they were public, and he would build stuff over the weekend and then he'd come in Monday morning for our all-hands with like what he had built. And then he'd send the like copious notes to, of feedback to the teams. And so like he maintained his love for the business because he always carved out time to play with the product, dissect the product, give notes to the team. So he like ended up continuously finding the joy. Working for Aaron at Box, he likes to give, God, does he love to give, um, feedback on the product. It was like midnight and he was like pinging me and texting me like, this drop shadow is 2 pixels too thick. And I'm like, what, dude? What? But he also, like, I think he thrives off of talking to his customers. Like, he loves spending time with his customers and seeing how they use it and why do they use it? Where is it going? And so he finds so much joy in spending time with our customers. And I think, like, you need to hang on to that thing that you, like, love about your business that you can keep, that is, like, still appropriate for you to do as a CEO. Through all the stages. And I find like those are people who end up staying excited and not burning out in their CEO role.

Love that. And good examples. And for me, the word that I use to run through both is a leader. A great leader can be a founder and a CEO, and you have to have your hands in all of the things and not in a way to micromanage, but have the ability to contribute in a way that brings the best out of you. And allows others to get a front row seat to that as well.

I would say the majority of these amazing CEOs, someone on their team will say they micromanage. Like, it's a fine line. It's a fine line. And I think that's okay. It's their company.

I get told I'm an optimist, so I'm just going to pretend that that's the way that it is.

Okay.

Okay. Okay. We are coming close to the end of the show, but when we spoke, we spent more time talking about Bluey than we did talking about the episode. Being the parent life. And if you haven't watched Bluey, I don't even care if you've got kids or not, put on 10 episodes, you'll cry before you get to the end of episode 4. They're about 8 minutes long. It's not a big time investment. One of the best shows ever, not because it's Australian, just because it's beautiful. So the question I want to ask you, in the show Bluey, what can we learn about building a startup or as a founder that there's some good lessons that may not even be related to being a founder? It can just be good life lessons that you can take from Bluey.

Okay. I will say that I have learned more about life from Bluey than I have from any YouTube videos, no offense, podcasts, uh, newsletters I subscribe to, all the leadership books I read over the years. I have learned more from Bluey than I have from anything. And one, I think it makes you a better parent because like you see them parent in a way and you're like, oh man, yeah, I could have handled that situation the way Bluey did. And they're like very aspirational as parents. But in, in terms of like, there's a— the most interesting thing, and I always like point it out to my kids when we watch Bluey together, is that constraints breed creativity. Like the whole game is around like the whole— the episodes are short, they're like 14 minutes, 15 minutes, and it's always around like they have some constraint and they invent a game around it. And so they're always able to build a game quickly off of like a broom, a stick, or whatever, right? And a balloon. I love that keepy-uppy game. And then they learn something from that. And so I'm like, for founders, constraints breed creativity. And I feel that every day at RBC Firm. We have so many constraints and we were able to do some really interesting things. And I'm like, I don't think I would've ever thought of that if I wasn't super constrained on time, money, whatever, uh, talent. And, uh, so, so that I think is one of the most important lessons and I think that The, the flip side of that is in venture, when SoftBank came into the scene and gave all these companies $100 million and they were like, I'm gonna crown you king because you're gonna have an arsenal of capital behind you. And so by default, you will be the winner. And they drowned those companies. Like very few of them became winners. And I think it's because they had $100 million in the bank before they needed $100 million. So, So they didn't have the constraints they should have. They didn't have to be creative. They didn't have to listen to customers because it was live or die. They didn't have to prioritize their roadmap because they could do all of it. They didn't have to make choices. And I was like, the constraints are what trains you to be successful. And so the constraints breed creativity, I think, is like the key thing for me and Bluey. I, I also think that like they have, there's There's conflict. There's always conflict. There's something sad. Parents let down the kids. Kids fight with each other, whatever. There's always conflict. And the show teaches you how to repair conflict. And I do think one skill that founders or any leader needs is like not avoiding conflict. Like conflict is okay, but you just have to repair it. Like repair matters more than avoiding conflict. And so my co-founder and I talked a lot about how we deal with conflict, why conflict is important, why tension and having like opposite end of the spectrum. And the minute we stop having that tension around some decisions, then we're probably not pushing ourselves hard enough and we're not being intellectually honest, right? How you disagree and how you push each other matters. And then if it goes awry, how you repair that matters. But you— but if you have no conflict, you're not really pushing yourself. And Bluey is great because there's always conflict and it's always all these examples of how you can navigate conflict. And I was like, man, This episode should be required watching for every business school student, every executive at companies.

Well, if you were paying close attention there, the story behind the story you just shared is that there's so many lessons that you couldn't narrow it down to one that you had to share 2, which I love. And first one particularly is the constraint and how you be creative within certain rules. And the second one, conflict. I listened to just the other day as a recommendation from a friend, a podcast about conflict, and it was so insightful. And the idea to be able to communicate, be constructive, have resolution, listening, being curious. There are so many things that are just good behaviors as a human, let alone as a founder and leader. So I love those 2. And what a great point to wrap up. Vanessa Larko, this has been so fun. I'm gonna book you in every week. I don't think people will get bored. We'll just do a recording week after week and we'll just find new stuff to talk about.

Happy to be a guest anchor anytime you want.

Perfect. Let's do it. Well, thank you again. You have a good day and yeah, look forward to everyone getting their ears around this one.

Thanks, Andy.

Thanks for listening to Startups Decoded. If today's conversation helped you think differently, share it with a founder in your network. And don't forget to subscribe for real-world startup insights every week. We really value your support. If you're interested in sponsoring the show, Hello at startupsdecoded.com. I'm Andy Walsh. I'll see you next week.