20VC: Why Market Is More Important Than Team, The 4 Key Roles of A Board Member & Why Founders Get Market Sizing So Wrong with Rory O'Driscoll, Founding Partner @ Scale Venture Partners

Rory O’Driscoll is a founding member and Partner at Scale Venture Partners. An active investor for the past 20 years, Rory is focused on early-in-revenue software companies benefiting from the move to Software as a Service and the wider transition of enterprise computing to the cloud. Rory currently sits on the boards of Axcient, Bill.com, Box, Chef Software, DataSift, DocuSign, DroneDeploy, Forter, Katch, OneLogin, Pantheon, WalkMe and Wrike. Prior investments include ExactTarget (ET; Acq: SFDC), Omniture (OMTR; Acq: ADBE), ScanSafe (Acq: Cisco), Frontbridge (Acq: MSFT), Placeware (Acq: MSFT) among others. Rory has been recognized by the Forbes Midas List and AlwaysOn Power Players in Venture Capital for his investments. In Today’s Episode You Will Learn: 1.) How Rory made his way into the world of venture and came to be a Partner @ Scale. 2.) How does Rory address market size? Does he utilise the bottom up or top dpwn approach? What is his strategy? 3.) Why are markets more important to Rory than management? What do each element have a different role in achieving? 4.) How does Rory look to navigate board conflict? When conflict does arise, how does Rory look to resolve a CEO who does not listen? 5.) What are the 4 fundamental roles of a board member? Why is competence underrated? What should founders and CEOs look for in prospective board members? Items Mentioned In Today’s Show: Rory's Fave Blog: Term Sheet Rory's Fave Book: SuperForecasting: The Art & Science of Prediction Rory's Most Recent Investment: DroneDeploy As always you can follow Harry, The Twenty Minute VC and Rory on Twitter here! Likewise, you can follow Harry on Snapchat here for mojito madness and all things 20VC. So many problems start with your head: stress, depression, anxiety, fear of the future. What if there was some kind of exercise you could do, that would help you get your head in shape. That’s where the Headspace app comes in. Headspace is meditation made simple. The Headspace app provides guided meditations you can use whenever you want, wherever you want, on your phone, computer or tablet. They have sessions focused on everything from dealing with stress and depression, to helping you eat more mindfully. So download the Headspace app and start your journey towards a happier, healthier life. Learn more at headspace.com/20vc. That’s headspace.com/20vc. Xero is beautiful, easy-to- use online accounting software for small businesses. With Xero, you can easily manage your accounting anytime, anywhere from your computer or mobile device. When you add Xero to your small business you are able to: Send online invoices and get paid faster. Get an instant view of your cash flow. Track your payroll and keep tabs on your inventory. Partner with your accountant and bookkeeper in real time whenever you like. You can also customize your Xero experience with over five hundred business apps, including advanced solutions for point-of- sale, time tracking, ecommerce and more. Sign up for a free thirty-day trial at xero.com/20vc

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Hello and welcome back to the 20 Minute VC with your host Harry Stebbings on Snapchat @HStebbings and on the amazingly named new blog mojito vc.com. I'd love to hear your thoughts. It's slightly risky, slightly out there, but it'd be great to have your feedback. However, to the show's state, and I think this show might be one I'm more proud of than any other, actually. For me personally, it was a massive learning experience and the guest was simply exceptional. So, time to meet the man himself, Rory O'Driscoll, founding member and partner at Scale Venture Partners. And Rory is an active investor for the past 20 years, focusing on early in-revenue software companies benefiting from the move to software as a service and the wider transition of enterprise computing to the cloud. Rory currently sits on the board of some incredible companies, including

• 0:40Harry Stebbings?

  Bill.com, Box, DataSift, DocuSign, OneLogin, and many more incredible names. And due to Rory's incredible investing career, which also includes investments in the likes of Exact Target and Omniture, Rory's been recognised by Forbes Midas List and Always On, power players in venture capital for his investments. However, before we meet Rory, accounting always used to be a tricky one for me, and then Xero came along. Xero is beautiful, easy-to-use online accounting software for small businesses. With Xero, you can easily manage your accounting anytime, anywhere from your computer or mobile device. When you add Xero to your small business, you are able to send online invoices and get paid much faster, get an instant view of your cash flow, track your payroll, and keep tabs on your inventory. You can also partner with your accountant and bookkeeper in real

• 1:25Harry Stebbings?

  time, whenever you like. You can also customise your Xero experience with over 500 business apps, including advanced solutions for point-of-sale, time-tracking, e-commerce, and much more. It's no wonder over 860,000 customers in more than 180 countries use Xero. Sign up for a free 30-day trial at xero.com/20vc. That's xero.com/20vc. And now, Xero saved you so much time in your day, you have time for Headspace, because so many problems start with your head. Stress, depression, anxiety, fear of the future. What if there was some kind of exercise you could do that would help you get your head in shape? Well, that's where Headspace come in. Headspace is meditation made simple. The Headspace app provides you with guided meditations you can use whenever you want, wherever you want, on your phone, computer, or tablet.

• 2:10Harry Stebbings?

  They have sessions focused on everything from dealing with stress and depression to helping you eat more mindfully. So download the Headspace app and start your journey towards a happier, healthier life. And you can learn more at Headspace.com/20vc. That's Headspace.com/20vc. However, enough from me. So without further ado, I'm delighted to welcome Rory O'Driscoll, founding member at Scale Venture Partners.

• 2:38Speaker 01

  You have now arrived at your destination.

• 2:41Harry Stebbings?

  Rory, it's such a pleasure to have you on the show today. A huge thanks to Sharon at Hackbright for the intro. But thank you so much for joining me today, Rory.

• 2:48Speaker 02

  You're welcome.

• 2:49Harry Stebbings?

  But I'd love to get started today by discussing a little about you and how you made your way to the US and came to be a GP at Scale.

• 2:56Speaker 02

  Sure. I actually, I'm Irish, as I'm sure you can tell as a Brit, though sometimes over here people get confused. But I lived in England for eight years, including having my own business in the UK. It didn't work out in 1991 during what is now maybe three or four recessions ago, the Norman Lamont recession. And I actually immigrated to the States literally with nothing because I had no money. Hence the definition of nothing. We had my then girlfriend, now wife, we had to save up 200 bucks so you could clear customs in San Francisco, California and prove you could support yourself. So I came to the States in December 91. Actually, my first job in America, I literally worked in a graveyard. Not, I always add people digging the graves, but actually doing the books for a cemetery

• 3:39Speaker 02

  in LA. Was lucky enough to meet up with someone who was working in what was then Bank of America's Corporate Everyday Group. I met up with him. A year later, he took over the venture capital group. I moved down with him then in 93. And he's long since retired. And I've been in venture capital ever since. So not quite a replicatable model in terms of how to get into venture capital.

• 4:01Harry Stebbings?

  So much more interesting though. But I do want to break the show up today into three different sectors and start on the macro, then move to scale, and then move to you as an investor and a board member. So I want to start on the macro. And Scale's a mid to late stage investor. So I'm intrigued here how you and the firm react to valuation increases in recent years.

• 4:24Speaker 02

  Yeah, I mean, to state the banal, you don't like them, right? You know, you try and find sectors where you avoid them. I think the valuation increases in the last few years have primarily been in the late-stage part of the business, which is, you know, that kind of 10 million plus in revenue, at which point it's pretty self-evidently a winner and you get a pile of money coming in. About 75% plus of our dollars go in that kind of mid-stage, which is, you know, fairly early on in the company's life cycle. It probably has a couple of million dollars in run rate revenue. It's got some early customers, but it's still got a lot of business risk. At that stage is where we typically invest. You don't see as much price and value competition because there's simply not as many investors who have the appetite for that kind of risk.

• 5:07Speaker 02

  So what we see, as fundamentally what we've done over the last five years to avoid valuation risk is we've done few, if any, late-stage deals and we've really focused down on the mid-stage because that's where we still can find some reasonable amount of value.

• 5:22Harry Stebbings?

  And when do you expect it's kind of a more palatable environment for valuations? Is there a time horizon you have?

• 5:28Speaker 02

  You know, it's utterly unknowable and the reality is success brings in big piles of money, big piles of money builds up valuations. It'll last for an extended period of time until all that money gets lost and then it goes away and valuations go down. It's kind of the cycle, there's not much you can do about it. So, you know, I really, I'm not sitting here going, I'm holding my powder dry, waiting for the right time to invest from a valuation perspective. Instead, what I'm doing is taking on more operational risk in return for less valuation risk because I believe that right now that's the right trade-off to make.

• 6:03Harry Stebbings?

  And in that mid-tier investing period that you stipulated, what does that look like then in terms of cadence of investments?

• 6:09Speaker 02

  No, no different. I mean, you know, we aim to do one to two deals per partner per year. So there's not much difference. You're taking a board seat in every case. So you're very much time limited by what you can do anyway. So it's, you know, no different than, I would say, early stage or even the early part of the late stage. I mean, I think that the rate-limiting factor and how many deals you can do is practically speaking, how many board commitments you can take on. So it tends to be two deals per partner per year in modest Amount of variation.

• 6:35Harry Stebbings?

  Uh in terms of then kind of LP pressure on these valuations, is there is there a kind of pressure or a desire from their behalf in terms of investments from you?

• 6:45Speaker 02

  No, I mean, I think most LPs understand that pressuring their GPs to make investments when they don't want to is a very good way to lose a lot of money. So we really don't get that kind of pressure. In fact, you usually get the alternative pressure, which is an understandable anxiety about valuation. You know, if you think about from the LP perspective, it's a ten year blind pool that they're doing. They're giving us this money for ten years and very little say over what happens after they invest. So there's a fair amount of anxiety, which I totally respect. So, you know, there's always you you get the eternal question on valuation. You know, and I think, you know, our philosophy on that is, you know, valuation matters, it matters a lot. But it's not as dispositive for us as it is for the LBO guys or the public markets.

• 7:29Speaker 02

  And that's because there's a simple engineering principle, which is you're only as accurate as your least accurate variable. And it's a very important point. If you're trying to value Coca-Cola, it's going to grow two or three percent a year. You know, there's not a lot of variation up and the growth margins aren't going to change. The SGA isn't going to change. The stock is what it is. So if you get your valuation wrong by more than ten or fifteen percent, you know, you can go way out of whack and not make money for a couple of years. Because everything else is pretty bounded. The reality is the big unknowns in a venture capital company in a in a venture startup that's doing a million or two million dollars in run rate revenue is the growth rate. Is it two, ten, twenty or two, four, six? One is amazing, one is a disaster.

• 8:11Speaker 02

  It's the potential competition two years out and it's more than anything else. It's the size and conviction you have in the market. So if you think about all those variables, yes, you weigh valuation and you should never be so wrong that, you know, you just can't make any money. But the practical answer is you have to weight in the other things, which are what's your level of conviction on growth? What's your level of conviction on market size? Take those into the running too. I mean, it's worth pointing out that the single most successful venture investment in the last probably twenty years was done in nineteen ninety nine and it was done at an absurd. Valuation, that's Google. Kleiner and Sequoia paid almost a hundred posts for a pre-revenue company that was doing a search engine in nineteen ninety nine.

• 8:52Speaker 02

  It's the year that most people lost their money and the deal that made the most money was wildly overvalued. The lesson there is value is important, but market size, market leadership and company traction are far more important and far harder to assess. Therefore, you've really got to weight your ability to assess them and your certainty and your conviction around those issues at least as high as valuation.

• 9:14Harry Stebbings?

  I'm super intrigued to hear you say about market size there because I often see the the wild numbers of the fifty billion market size on a kind of hairdressing pitch deck. How do you address market size? Do you do the top down, the bottoms up? Is there a unique approach you take to it?

• 9:28Speaker 02

  Sure. And first of all, you're exactly right. One thing we don't take entrepreneurs for is there are stupid and incorrect estimates of market size. Just as I don't know how to do ten things that the VP of Engineering at a company does. I've now long since recognized that most entrepreneurs can calculate the market size and their estimates are invariably wrong. You know, someone comes in and says it's a software market that's a twenty billion dollar market size software company. And then you say to yourself, well, you know, Windows, the operating system is a fifteen or twenty billion dollar a year business. Are you likely to be bigger than Windows? Hmm, maybe not. So one of the things I do is use comparative. I use bottoms up analysis. You know, I remember for one company in the web analytics space,

• 10:12Speaker 02

  we literally used Alexa, which is a system for ranking websites and just counted the number of websites and made a pretty good bottoms up estimate of the number of companies that would need analytics, came up with a market sizing there. So very much bottoms up estimates, comparative estimates, especially if you're doing an investment that's, you know, a next generation ERP or software accounting package company. The number of companies out there hasn't changed. So if they're all buying software on premise and they're moving to buy it in the cloud, then you probably have a decent proxy for the number of customers. You're sometimes surprised then either way. Sometimes you're surprised down, the market crutches in more than you thought. But then other times, the really good deals, you get this, I always call it the widening effect. You start off with a relatively small market

• 10:55Speaker 02

  because you need to be able to win in a market that you can dominate. And then what you find is that market expands, as you see in more and more use cases for your product. And then you have the best of both worlds, is that you start with a small market so you can win it easily, and then that market expands and you just grow with it. And that is actually the typical, uh, successful example. I mean, the cliche example from the nineties is the original positioning of eBay as being, you know, collectible for pears dispensers and Beanie Babies, a very niche business. And then it expanded out to the marketplace through everything. Same thing with Amazon. Amazon used to just sell books, and then they sell everything. So starting off with a niche and expanding and finding that white space is one of the ways that your initial market size estimates can be wrong to the high side.

• 11:40Harry Stebbings?

  I'm always intrigued then, what, uh, what do we want from founders then? Because we always say, you know, we want the billion dollar markets. They put the billion dollar markets in the decks, and then we say it's unreasonable. So should they say, actually, this is a thirty million dollar market to start with?

• 11:53Speaker 02

  If someone says to me, it's a thirty million dollar market right now, expanding at a hundred percent, I'm intrigued. If someone says to me, it's always going to be a thirty million dollar marketplace, I gotta turn it down. But I understand your question, but there's another nuance to the answer, which is this. Maybe the current situation is exactly what you'd expect. There are lots of founders. They know they have to claim billion dollar markets to raise money. They claim it. And frankly, it's our job and why we get paid to figure out which of them are wrong. I mean, I don't blame them. But if someone comes in and pitches a business where intuitively I feel it's a hundred million dollar market max, it's their right to say it's a billion dollars because they gotta get the money. It's my job to figure out it's not a billion dollars and not give them the money. I don't blame entrepreneurs for wanting to paint the biggest story as possible. If the alternative

• 12:36Speaker 02

  to a big story is a small story and no upside, they got no choice. Because if they paint the small story, they're not going to get any money. What I find most convincing, however, is exactly what I outlined earlier, which is the entrepreneur who says, this is the product. Right now, only ten percent of companies are suitable for this. Product, therefore it's a hundred million dollar marketplace and we're going to dominate it and then as more and more companies adopt this technology, we'll be in a great place to get to a billion dollars. That is the more typical technology adoption curve and the people who can articulate that, i- i- it's often the best of both worlds and this savvy entrepreneur knows on the standard.

• 13:09Harry Stebbings?

  So that's our take on markets. We mentioned valuation as not being a dominant factor for you in terms of kind of whether making the investment or not. What are the other important factors for you that determine your willingness to invest or not?

• 13:23Speaker 02

  Yeah, I mean, I do start with markets and I know about, you know, we talk about, we were talking about specifically about market size, but I think there's more to it than market size because that really underestimates what we're looking for. When I say market, I mean, we start with the certainty that the change that the entrepreneur is advocating is going to happen. You know, what is our conviction? That the trends that are driving that market are real and pervasive and will in that particular market allow a new company to be built. That is probably our single first, you know, not almost non-negotiable investing stance. And to be very direct, if you think about some folks, you get into this discussion about is it markets or is it management? And some really early stage investors say it's management, they just back people and they figure out good stuff.

• 14:06Speaker 02

  And they may well be right for them at the stage they're investing at, but at the stage I'm investing at, they're not. So a very hard-nosed comment is, we start with markets, I'll come back to management next, because if we're backing a good management in a bad market, I mean, it's a Buffett cliche, but it's also true. The best you're going to get is a social outcome, whereas if you start in a great market, sometimes even with idiots, you can get a good outcome. And I'll give an example of that very clearly in a second, right? Is that, so number one thing for us is, do we have conviction that the trends are going to drive disruptive change in that market that will allow a new company to be built? Markets make outcomes. What I say about management is this, if you think about the market as determining the size of the prize, the management determines where you rank in terms of getting that prize, right?

• 14:51Speaker 02

  If there's a, you know, if there's a billion dollars for first place and three hundred million dollars for second place and a hundred million for third and nothing for fourth, which is a not unusual payout structure for a new market. Good news for me is Now I want to invest in our market because of a billion dollar outcome. Management is vital to determine which of those wins you get. Do you get the billion dollar win? Do you get the three hundred million dollar win? So markets make outcomes and management determine where in that outcome set you end up ranking. The best example is of course, search. Lots of people made money in search. There were four search IPOs in nineteen ninety six. Yahoo, Infoseek, Lykors and one other whose name escapes me. And you know, fast forward ten years, Google, who went public much later on, ultimately won. And some part of that was luck and timing, which is always a factor.

• 15:33Speaker 02

  But some part of it was management and Google's crystal clear focus on search. In a world where Yahoo kind of focused on everything and what became a media company and changed CEOs multiple times. So search was a hundred, actually a two hundred billion dollar opportunity. That was the market to play in and the outcome was determined by which of those, which of those management teams executed well. Plus a little bit of luck.

• 15:56Harry Stebbings?

  Absolutely. No, I I agree with you and I see similar transferables in terms of kind of your Uber and lifts.

• 16:01Speaker 02

  Yes, you're exactly right.

• 16:03Harry Stebbings?

  But but you know, we discussed the the incredible investments there. I do want to touch on one aspect of your life as an investor and that's your kind of role as a board member. Uh, Mark Suster said before about your incredible impact as a board member. So I'm intrigued here what you think makes the truly successful board members, having seen so many.

• 16:20Speaker 02

  First of all, I think truly successful is a lofty goal. And might in fact get in the way of being, get in the way of being a good board member. I think, you know, honestly, a lot of the time in in boards. And I was just doing a CEO interview yesterday where someone asked me exactly this question. Deep in the entrepreneur's heart, his question is not, is my board great? But can I make sure my board's not bad? Because every time you have a group of people making decisions, it's just always, it's a weird process. So I I go into boards saying competence is underrated. And competent execution of your board role is one of the major jobs you have as a venture capital investor. So then CEOs ask me what my board role is. You know, how do I perceive of that? And I I'm very clear about it. Because I think you have to have a philosophy on what you're trying to get done.

• 17:05Speaker 02

  And it's not all the rubbishy little stuff that people talk about all the crime, like introductions and contacts and all that rubbish. That's all app, it's useful, but it's very second order. I say to entrepreneurs, if you want someone who has contacts and can introduce you someplace, yeah, maybe I can, maybe I can't. Just hire an advisory board member, save yourself the pain. As a board member, you have four jobs. And the definition of a job is if you don't do it, it doesn't get done. The four jobs are, you hire and fire the CEO. You finance the company, because if the insiders don't finance the company, new investors won't. You agree with the CEO of the broad strategic direction, and I emphasize the broad use of the word. I have to decide the nuances, but we have to be aligned on the big bet. And last and finally, you determine in conjunction with the CEO when to exit. Those are your jobs.

• 17:49Speaker 02

  And what I say to CEOs who ask me is that if you get board members who do those jobs well, then you're set up where you can do what your job as CEO, which is to create value. If you get board members who do those jobs badly, then no matter how well they do in other things, like helping you with contacts, giving you advice in engineering, you're screwed. Because what you need are those four things to be done well. And it's sobering for CEO, if you think about it, it's very sobering for CEO when he's picking an investor. He's picking a board member who has, you know, who you never get rid of, because practically speaking, as long as your private venture board seats last forever, and where that person has, you know, maybe a one in four vote and firing him. So I think those are the things that you have to focus on. And doing those jobs well is hard.

• 18:32Speaker 02

  It involves a lot of very clear communication and very direct communication. You know, if you are uncomfortable with direct communication, it's very hard to do those jobs. I mean, you regularly have to sit down with CEOs and say, look, I'm telling you now, you're not on a trajectory to success, these are the mistakes you're making as far as I see it. And then, you know, continue and say, I'm not saying we should terminate you, but I'm saying, right now, if you don't improve these things, you will probably fail, or at some point it will become an acute issue. And being able to have that conversation, have enough background for that conversation to be real and meaningful, and for him to wait, him or her to weigh your opinion, and then, you know, get on with the business of working together. Those are the parts of being a good board member. It's very much down in the day-to-day weeds of helping the CEO deal with these issues.

• 19:18Harry Stebbings?

  I'm intrigued. You mentioned about the kind of macro strategy going forward and then the exit strategy. Often two points of conflict. In terms of kind of board conflict, how do you look to navigate that? And in the cases where it does happen, how do you resolve a CEO who doesn't listen?

• 19:34Speaker 02

  Well, board conflict and the CEO not listening are can be different things. First of all, if the CEO doesn't listen and he's turns out to be successful, you forgive him because that's fine. I regularly have CEOs where I say, look, you're being wildly successful. I think you should also do this and this. I've told you this, you're ignoring me. There's nothing more I'm going to do right now. I think this issue is going to bite you in the ass. And when it does, you know, hopefully it won't be a fatal bite and we'll just have to fix it then. I have one company that's doing extraordinarily well. I really think they need a professional, more experienced CFO. They've chosen not to hire one and just stick with a controller. They're at a scale where they should, and I just say to the CEO, whom I respect and admire, you're making a mistake here. And hopefully we don't make a $10 million mistake that we can't fix.

• 20:17Speaker 02

  And we make a million dollar mistake and we're all fine. But there's only so much you can do. You you you can't make them listen. The only time you take preemptive action, and this is the CEO not listening, I'll come back to the board separately. You take preemptive action when it's a fatal error. What I tell my CEOs is, are you making a mistake or a fatal error? If you're making a mistake, knock yourself out. We all make mistakes. You don't have to get them right. We don't have to get our business 100% right. If you're making a fatal error, it's my job to intervene. You know, we have very few weapons at our disposal. They're all extraordinarily powerful. So you have to pick the moments when you intervene. So that's it with the CEO. Because I mean, at some point, if you don't believe where he's going, you have to either replace him or that's all you can do. In terms of board conflict, you know, boards are made up of human beings.

• 20:59Speaker 02

  You know, the the practical reality is you have a range of opinions, a range of experiences. And you've got to just work as a board to ensure you're capable of making difficult decisions. Getting through them and not having it block your ability to function. Most of the time you can get there. Sometimes it takes a little more effort than others. Most of the time with effort and diligence you can. Sometimes you can't. Sometimes you have people who just, I mean, I've seen that over the years where it's just like, this person is going to take. This perspective and they're not gonna move and I disagree and it should be the other perspective. And then it is what it is, either you prevail or they prevail and you're either right or wrong. That's obviously why you have a portfolio. But most of the time, if you make the effort with most people, you can work it out.

• 21:43Speaker 02

  It's why when the people ask me what kind of board members they want, I always say the non-negotiable for me is I want a rational decision maker. If I understand how that person processes, even if the things they value are very different than I value, and I disagree with them on how their decision making is, I can at least say, okay, you're deciding this. And therefore, if we can give you some of that, we can get a deal done, right? I remember one investor where I realized their whole willingness to sell or not sell depended on them getting a certain amount of return in return for waiving certain clauses. So you just decide you're willing to pay them the tax to get the deal done. So, you know, most of the time with rational people, you can work it out.

• 22:22Harry Stebbings?

  And last question before we dive into the quickfire. Mark Suster stated you as kind of a hailed board member and a brilliant board member to be part of. Are there any from your experience on boards who you particularly have enjoyed working with and have really learnt a lot from?

• 22:36Speaker 02

  Yes, and of course those, they're often overlapping and sometimes very different, right? In the sense of I enjoy working with people, then you learn a lot from the people you enjoy working with. And then sometimes you go, oh, I don't, I mean, so you know, the easy answer is, hey, I love working with Mark. We've had a good time and we've made money and I've learned things from him. He is so much more up to date and hip than I am. So those kind of things are easy to have. I mean, I've loved working with Josh and Box, all those kinds of things. What's more interesting is where you go, hmm, I don't like that person's approach, but on this issue, he was right. And that's a much more interesting learning experience, you know? And I think, you know, you have it especially early on. I had a lot of times where you go, the older board member says, look, this is what I'm seeing.

• 23:20Speaker 02

  This is the way it's gonna end. We should make this change now. And you're young and you're hopeful and you say, no, things will get better, things will change. You stick with the executive too long or you stick with the business too long. And what you invariably discover is quite often the grim old. Bastard was right. And you know, people who disappoint you in the short term disappoint you in the long term. And you play the tape back two years later and you realize, oh my God, the guy was right. We should have got, you know, we should have sold the company two years ago. It is never going to get better. So I would say that's a much more interesting example to me. Do you understand me? It's easy to learn from the people who are sympathetic with, but when you kind of go that guy who's, you know, when I was twenty years young, oh my God, I'm probably that guy now.

• 24:00Speaker 02

  Who was twenty years older than me, which is probably where I am now. And he just sits there and says, I've seen this movie twenty times. We're not making our numbers. We're not going to make our numbers. We should close this company down right now. The first time you hear that, you do kind of recall in horror. You're saying mean things about my investment. You are a mean person. Then when you've been doing this for twenty years, you realize he's right. You should probably close this thing down now and move on. Sell it, do the best you can, try and land the plane, sell the technology, get the people working in another company when the company gets acquired and move on because things don't get better. So those are kind of some of the interesting folks I've learned from over the years.

• 24:34Harry Stebbings?

  But I'd love to dive into a quick fire with you now. So I say a short statement and you give me your immediate thoughts. About sixty seconds per one. Does that sound good?

• 24:40Speaker 02

  Yes, it does.

• 24:43Harry Stebbings?

  Pensively answered. Uh, let's start with your favorite book and why?

• 24:47Speaker 02

  Favorite book right now, Super Forecasting, Philip Tetlock makes the point, how how to predict things, a point that is actually very apropos, given today is the day after the US election. And about how incremental learning can lead to better forecasting, whereas experts consistently overestimate their ability to get to be correct. So a very good book for our business because our business is all about decisions and examining how decisions are made and who gets them right and who doesn't. So Super Forecasting, Philip Tetlock.

• 25:15Harry Stebbings?

  Are founders too ambitious nowadays? I've seen trillion dollars three times in a fortnight in pitch decks.

• 25:21Speaker 02

  Anyone who puts a trillion dollars is obviously a buffoon and an idiot and just doesn't understand macroeconomics. But no, I mean, you've got to be, I mean, to me, that's just founders who don't understand how to do market sizes. But as I said earlier, I forgive them that because it's not their job. You want people to be ambitious and try and build big companies. All people are doing when they say, I'm going to build a trillion dollar company is merely indicating they don't understand large numbers. And that's okay. We can teach them large numbers. Do they understand how to get a business to twenty million bucks in revenue is the more interesting point.

• 25:49Harry Stebbings?

  And then most exciting greenfield opportunity for you.

• 25:52Speaker 02

  You know, it probably has to be with many caveats, artificial intelligence and machine learning, and the caveats are all about the fact that for the last fifty years and people have consistently overestimated how far along this technology is, and I think continue to do so. I think some of the things that people are worried about are way outside the realm of our lifetime. I don't believe the machines are going to take over the world any meaningful time soon. That said, I do believe that the ability of artificial intelligence to make many business processes more efficient is real and to have some very interesting and disruptive impact on wider society. So I think that's absolutely the place to be investing right now.

• 26:32Harry Stebbings?

  What's your favourite blog or newsletter? What do you love to read when it comes in?

• 26:36Speaker 02

  You know, I, I, I am sad to say a grim little workaholic when it comes to email. So I just, I, you know, I grind through what used to be Dan Primax and now Aaron's, you know, Daily Deal Update, because the practical reality is more than anything else. What you want to do is know what's going on in the business you're in. So the, the thing I read every day is that. Anything beyond that, you try and get to, you know, I think that, you know, I will, I just, you end almost, almost overwhelmed in terms of content. So if I'm honest about my triaging every day, it really is. The one thing you gotta know is what's happened in the business you're operating in, and the

• 27:17Speaker 02

  best way to get that is probably, you know, the term sheet update, which comes in around seven, seven, or seven fifteen every morning.

• 27:24Harry Stebbings?

  No, love term sheets. And then let's finish today on your most recent public investment and why you said yes.

• 27:31Speaker 02

  Sure. My most recent public investment, and by public obviously you mean disclosed investment, rather than investment in public company, is Drone Deploy, which is a software company that focuses on enabling enterprises to leverage commercial drones for commercial advantage. It basically manages, you know, flight planning, uploading data after flights, stitching together drone data, and allowing companies to either, depending on what they're doing, kind of monitor build progress. On building site, monitor progress in agriculture, monitor progress on any kind of engineering project they're doing. So it's all about an entirely software cloud-based architecture that takes cheap consumer-level drones and enables business to get enormous advantage from them.

• 28:16Speaker 02

  Nice deal, growing quickly, you know, twenty thousand plus free users, a thousand plus paying customers. So nice combination of new and exciting market drones just became effectively legal in the US this year, coupled with a business model we know and understand for many years in SaaS and a good team.

• 28:32Harry Stebbings?

  Well Rory, I heard so many wonderful things from so many different people. So thank you so much for coming on the show today. It really was such a pleasure.

• 28:38Speaker 02

  You are welcome.

• 28:41Harry Stebbings?

  What a fantastic guest Rory was to have on the show. And again, a massive thanks to Sharon Weinbart, Hackbright Academy, for the intro to Rory today, without which the show would not have been possible. And if you enjoyed the show with Rory today and do not want to leave the world of the twenty-minute VC, then you can add me on Snapchat, at H Stebbings with two Bs, or simply head over to the new and very risky mojito vc dot com to see my thoughts in longer form. But before we leave you today, as I said earlier, accounting was always a real headache for me. And then Xero came along. Xero is beautiful, easy-to-use online accounting software for small businesses. With Xero, you can easily manage your accounting anytime, anywhere, from your computer or mobile device. When you add Xero to your small business, you are able to send online invoices and get paid faster.

• 29:24Harry Stebbings?

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• 30:09Harry Stebbings?

  Meditation made simple. The Headspace app provides guided meditations you can use whenever you want, wherever you want, on your phone, computer or tablet. And they have sessions focused on everything from dealing with stress and depression to helping you eat more mindfully. So download the Headspace app and start your journey towards a happier, healthier life and you can learn more at headspace.com/20vc. That's headspace.com/20vc. As always, I so appreciate all the support and cannot wait to bring you Friday's episode.