20VC: NEA Partner, Dayna Grayson on Sourcing, Picking, Winning, Gut vs Data in Investment Decision-Making & The Evolution of Entrepreneurial Expectations of Venture

Dayna Grayson is a Partner @ NEA, one of the leading venture firms over the last 4 decades with a portfolio including the likes of Opendoor, Jet.com, Uber, WorkDay, Plaid, Box and many more incredible companies. As for Dayna, she has led the firm's investments in the likes of Desktop Metal, Formlabs, Onshape, Glamsquad, Framebridge and Curalate, just to name a few. Prior to joining NEA, Dayna was an investor at North Bridge Venture Partners where she championed companies including Camiant (acquired by Tekelec) and Tapjoy. Before venture Dayna was an engineer at Eye Response Technologies, later acquired by Dynavox Mayer-Johnson and also a product designer at Blackbaud (BLKB), the leading global provider of software to nonprofit organizations. In Today’s Episode You Will Learn: 1.) How Dayna made her way into the world of venture and came to be a Partner at NEA from her roots in product design and engineering? 2.) Sourcing: How does Dayna approach the sourcing component of venture today? What does the deck filtering process look like to Dayna, prior to meeting? What has Dayna found works best in really building rapport in the first meetings? What does the conviction building process look like for Dayna from there? If negative, how has Dayna found is the most effective way to say no? 3.) Decision-Making: How does Dayna think about optimising the investment decision-making process? How does Dayna balance between data vs gut? Does NEA require unanimous decision-making? Why does Dayna believe that at A or earlier, the price really does not matter? When does price really become a big issue? 4.) Evolution of Expectations: How does Dayna believe entrepreneurial expectations of VC has changed over the last decade. Where does Dayna believe investors can really provide the most value? Which board member has been the most impressive to Dayna when sitting alongside them on the board? Why? Items Mentioned In Today’s Show: Dayna’s Fave Book: Dopesick: Dealers, Doctors and the Drug Company that Addicted America Dayna's Most Recent Investment: WhireWheel As always you can follow Harry, The Twenty Minute VC and Dayna on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 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 another week in the world of the 20 minute VC with me, Harry Stebbings. As always, I would love to see you behind the scenes. You can do that on Instagram at H Stebbings 1996 with two Bs. Some exciting things to come there for sure. But to our guest today, and I've wanted to have this guest on the show for a long, long time. And so when Rebecca Caden at USV suggested it, I was super excited to make it happen. And so with that, I'm thrilled to welcome Dana Grayson, partner at NEA, one of the leading venture firms over the last four decades, with a portfolio including the likes of Open Door, Jet.com, Uber, Workday, Plaid, Box and many more incredible companies. As for Dana, she's led the firm's investments in the likes of Desktop Metal, Formlabs, Onshape, Glam Squad, Framebridge and Curelate, just to name a few.

• 0:42Harry Stebbings?

  And prior to joining NEA, Dana was an investor at Northbridge Venture Partners, where she championed companies like Camiant and Tapjoy. And before venture, Dana was an engineer at I-Response Technologies and also a product designer at Blackboard. I do also have to say a huge thank you again to the wonderful Rebecca Caden at USV for the intro. It really would not have happened without you Rebecca, so I owe you many mojitos for this one. But before we jump into the show today, I want to spend a minute to talk about Brex, the first corporate card for startups. Brex founders Enrique and Pedro built a payments business in Brazil, but found themselves rejected for a corporate card when they were in Y Combinator. They decided to build Brex with instant online signup, no founder liability required and limits 10 to 20 times higher than standard cards. Pretty incredible, I know.

• 1:23Harry Stebbings?

  And you can sign up for Brex and get fees waived by entering the code HARRY during signup. Honestly, it really is such a special service. And speaking of Brex, an incredible high-growth company, well, a lot of what we do on the 20 minute VC is talk to experts, pick the brains of founders and investors who tell us which trends to watch out for, offer tips on fundraising and teach us how to excel at any company stage. And although there's no playbook for building a great business, we can certainly learn from people who've done it before. Beyond listening to this podcast and talking to mentors and advisors in your own network, it's important to have resources you can turn to when you're tackling a new challenge. Stripe has built those resources for you. Whether you'd like to learn how to run a pricing experiment or build a knockout landing page, Stripe gives you the information you need to start, run and scale a technology company.

• 2:07Harry Stebbings?

  Their guides are often written by or feature people like Eli Land Gill, an incredible individual whom you've probably heard on this very podcast. And you can read one of my favorite guides on scaling engineering organizations and many more on Stripe.com/20vc. That's T W E N T Y V C. And speaking of scaling engineering organizations, as we did that, did you know that there are five job openings for every one developer in the United States? No wonder hiring great engineers is impossible. And that's where my friends at Terminal come in. Terminal is your dedicated partner in quickly building skilled remote engineering teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up and support these teams. From little things like managing office logistics to big things like benefits, legal and community.

• 2:52Harry Stebbings?

  They've developed this proprietary and comprehensive remote team solution based on decades of experience building remote teams across multiple continents. So they know what works. But don't take my word for this. Take the word of Eventbrite, former 20 VC guest Hims and Dialpad, all customers and lovers of Terminal. And you can find out more today at Terminal.io. But it's now time for me to get off the mic and I cannot wait to introduce Dana Grayson, partner at NEA.

• 3:22Speaker 01

  You have now arrived at your destination.

• 3:25Harry Stebbings?

  Dana, it is such a pleasure to have you on the 20 Minute VC Stay. I have to say huge thank you to Rebecca Caden at USV for the intro. But thank you so much for joining me today, Dana.

• 3:34Speaker 02

  Thank you so much for having me, Harry. It's a pleasure to meet you.

• 3:37Harry Stebbings?

  It's so good to have you on the show, but I'd love to start today with a little on you. So let's kick off Dana with this. It's a very weird and wonderful world that we exist in, the world of VC. But how did you come to be a partner at NEA today?

• 3:48Speaker 02

  Sure. Well, I might start all the way back to my product development days prior to when I got into VC to begin with. I started my career after college in product development and design. In college, I had majored in engineering and so went right into new product development inside a consulting firm. I was there for just a little while before the dot com crash of the early 2000s. Then picked my head up and said, what am I doing with my life? I somehow found my way to a company called Blackbod that was a software company, somehow growing quite well. Despite the market downturn. And I was there for just a few years doing design. And all the while, the company was growing. And lo and behold, they filed for an IPO just in 2003, 2004 timeframe.

• 4:32Speaker 02

  And I remember sitting at my desk and reading the S1 that they filed to go public and understanding the company for the first time on a whole new level. You know, in product development, in product design. When you're sitting there day to day, reprioritizing product priorities, trying to ship product, trying to get things out the door. Sometimes you lose the overall context of where the company is going because you're making very micro minute, literal decisions about how the product needs to work over what timeframe. But when I poured through that, it just was hugely eye opening. And it connected me to, again, why this all mattered, what we were doing, why we were doing what we were doing, over what timeframe. And I thought, as I read this, I need to do something different. I want to be closer to that decision making. I had never taken a finance class in college.

• 5:17Speaker 02

  I was an engineering major, as I mentioned, but I also minored in English literature. So finance accounting was nowhere in my curriculum. And so I applied to Harvard Business School and lo and behold, was accepted and ended up going there. And that's where I learned more about company management. Not that it was a huge course in that, but it definitely gave me more perspective. While I was at HBS, I ended up meeting more people in the venture capital world. Blackbaud had been backed by Hellman and Friedman and JMI Equity, not early stage venture capitalists, but definitely growth equity investors. And so I had some insight into that through that process. And as I graduated from HBS, I landed at a firm called Northbridge Venture Partners with quite a few people that I still know and really respect and work with today. I was there for about five or six years.

• 6:02Speaker 02

  And after that time, I met NEA. I took some time to get to know them over a year or so and ended up joining here in 2012. And that's my story.

• 6:10Harry Stebbings?

  And what a journey it's been since joining NEA. It's been incredible to see. But I do want to start, say, running through the process of making an investment, starting from the beginning, right through to sitting on the board. Does that work for you, Dana?

• 6:23Speaker 02

  Sounds great. That's the fun part.

• 6:25Harry Stebbings?

  It is indeed. But if we start today on the very beginning, before even the sourcing work starts really, we need some form of strategy or thesis, and yours is very much centered around the world of manufacturing tech. And we're seeing ever increasing specialization among VCs. I have to ask, as a generalist VC, are we seeing the end of the generalist investor? And how do you think about kind of the ability to recognize themes across sectors?

• 6:48Speaker 02

  Yes. Short answer is no. I do not think we're seeing the end of the generalist investor. I do have quite a portfolio in the industrial manufacturing space today, but I also have a number of consumer investments as well as software investments. And I think for anyone who plans to be in venture or has been in venture for many years, spaces do evolve, specialties do evolve. And first and foremost, we're investing, I'm investing in people, in the actual entrepreneur. And that's frankly what then has led me in to the industrial space, pulling a thread of a different entrepreneurial trend and people connected to each other. And I discover one entrepreneur through the other, and then I see the space evolve. And that's given me the exposure to industrial that I have today.

• 7:29Speaker 02

  But I don't think, I don't think generalist is dying at all, so no worries for you there. I think what's interesting about the industrial space, however, a couple of trends that I've recognized are happening in the manufacturing world that also happened in frankly, the SaaS software world. First of all, it's the miniaturization of robotics and how these products are actually delivered to a shop floor. With miniaturization comes commoditization. You can buy a 3D printer, in the case of Formlabs, for $3,000 that otherwise would have cost you almost $100,000. In the case of Desktop Metal, it's $100,000. It would have cost you over a million. That's a huge change for these factories. The second, with that price commoditization, comes distributed decision making. So people on the shop floor, the process engineer, the plant manager,

• 8:13Speaker 02

  buy these things, especially in the case of Formlabs, directly out of their discretionary budget. So you can actually employ this software-like, SaaS software-like business model, as we know, totally transformed the software world over the past two decades. And I think can now have an effect on the manufacturing world. Time will tell, but that's definitely what's got me excited in the space.

• 8:32Harry Stebbings?

  Absolutely. But now we have that kind of slightly more focused aperture, as you said, that kind of having kind of pulled on that string and being naturally pulled into the space. We do need to source. How do you approach the sourcing component of venture state? Let's kick off with that.

• 8:47Speaker 02

  Sure. You know, I think there's this idea in venture, at least from the outside and oftentimes with new entrepreneurs, that somehow we're sitting back and waiting for ideas to come to us. Actually, I spend the majority of my time proactively researching spaces, researching sectors and getting to know networks of people. So, early in my venture career, someone gave me the advice that I should get to know all the director levels and the VP level people inside companies that I know and respect well, because one day they will be the company creators of the future. And that served me really well. Even if you don't end up investing, or even if those people don't end up in starting a company, you get to know them and those networks are really what you need to be doing early in your, building early in your career.

• 9:28Speaker 02

  Secondly, the way I do evaluate deals is often through warm introductions. Warm introductions from people that I really work with and that I know well, so entrepreneurs of my companies. So, I'd say probably half the meetings I take are kind of opportunistic intros that they're sending to me, and the other half are really formed by the proactive outreach that I'm doing on my own.

• 9:50Harry Stebbings?

  I'm so with you on the proactive outreach. It's one of my favorite elements of the job. I actually was chatting to a very young, kind of associate level person in the industry who's just joined venture, and they said, "Help me out, Harry. I'm trying to really form my benchmarks on what great looks like in terms of founders and opportunities. Should I meet as many companies as possible and kind of just smash the data through the kind of algorithm, so to speak, of what great looks like? Or should I take a much more filtered approach and really spend time researching the space before and have much higher quality but fewer meetings?" What would your advice be there, Dana?

• 10:25Speaker 02

  I would say if you're just starting out in venture and even if you're not, definitely take as many meetings as you can to really understand what great looks like, not in terms of the idea and the business necessarily, but in terms of the people. If you take these meetings early on, frankly, you may not end up investing in those entrepreneurs. You'll have a year or two after that to see how the business has played out. And you'll see, was my hunch initially correct about whether this was a great entrepreneur or not? Even if the business didn't turn out well, you can still assess whether that entrepreneur was on to the right threads and on to the right ideas. And that type of personal data refinement on your judgment is very helpful early in your career.

• 11:03Harry Stebbings?

  Speaking of those meetings with the entrepreneurs themselves there, what have you found really works best in building that rapport and engagement with the entrepreneur in the very first meetings?

• 11:12Speaker 02

  You know, I like to understand the history. I don't know if it builds rapport, first of all. You'd have to ask the entrepreneur on the other side. But for me personally, I love to hear from the entrepreneur of how they started the idea, how they came up with the idea, what led them to become an expert in this field. And an expert in the field does not mean that you came right out of industry and that you were doing this type of development in robotics, let's say. It could be as simple as you experienced the problem or you witnessed the problem in your last job or in your personal life. And that's what's created the idea of starting the company today. Often people are calling this storytelling. Frankly, I also just like to tell the entrepreneur why I'm interested in their space.

• 11:56Speaker 02

  One, saying that I really do not like in venture and in entrepreneurship is the idea that raising capital is like dating or investing in entrepreneurs is like dating. That's quite silly if you think about it. A VC and an entrepreneur should be quite upfront. And often that time, that would go something like, "Hey, I've been doing a lot of research and I've dated these three people in the past and I've been looking for something in this area because it's how I think the future will play out." That's not really an approach to dating that I would employ. I have been out of the dating world for quite some time.

• 12:24Harry Stebbings?

  I was wondering why I was still single, Dana, but you've just answered my question. I do have to ask that in terms of that kind of engagement, the question that always arises with me, you said about kind of the history and why they start the company there. When you look at someone like TJ, the founder of PillPack, incredible founder product and market fit and incredibly aligned and that story just works. But then there's also incredibly successful founders like Mark at Thumbtack who say that maybe isn't so prominent and you don't need to have like an idea to get started, so to speak. How do you think about founder product fit and its importance given both have been proven to work?

• 13:02Speaker 02

  I think there's merit to both approaches. I think really the best entrepreneurs are out to solve a huge problem, let's say in the market, and they might be starting with a core small technology. And there might be a lot of distance between those two things, how they're going to solve the problem and where the technology is today. But if that founder is really focused on, I'm going to change the world in this way. I'm going to solve this massive problem. And here are the one or two or three other founders who are going to join me in this journey. That's kind of the most inspiring thing I look for. It's not about I've got this little thing and I've got huge product market fit today. Yes, you need to accomplish that over, you know, the early days of the company's life, but you don't have to have it on day one.

• 13:43Speaker 02

  I'm much more interested to hear what have you been doing in terms of testing and learning? How quickly are you tacking and changing? Who are you inspiring to follow you? Who has joined you? Those are the most important things, vision, inspiring other people to join you and then changing quickly along the way.

• 13:59Harry Stebbings?

  So now we've built the kind of rapport and really had those first meetings with the entrepreneur. We need to kind of build our own internal personal conviction. What does that conviction building process look like for you, Dana?

• 14:10Speaker 02

  You know, I have a ton of respect for this approach and I try to really hone my knowledge, hone what I'm looking for and be able to recognize what's great in an entrepreneur so that I can do this myself. And that is making a decision based on my intuition in that first meeting. And often it's in the first 10 minutes or 15 minutes of that first meeting. I've seen some of the greatest investors do just that, meet with an entrepreneur. Within the first 15 minutes, they're either excited or they're not. If they're excited, They're investing. Scott Sandell at NEA is a great example of that. It's very much his style.

• 14:44Harry Stebbings?

  Can I ask, on that, I'm very much aligned to you in terms of having that gut excitement. And then you delve into the market and you see the nuances and quirks and sales cycles that are longer than you thought. The ACVs that are smaller than you'd like. How do you then go about it? And you're advising me personally now because I'm struggling with this as we speak, where there's an incredible founder, but you uncover the industry and the opportunity a little, and the warts are quite prominent in terms of specifically the size of the TAM, people scaling out of the TAM with the product over time if they're successful, and the ACVs being pretty small.

• 15:19Speaker 02

  Right. Well, the first thing I would do would be to feed that back to the entrepreneur, especially if it's someone hunting around for an idea. You know their overall vision is great, but they need to tack a little bit to find out what the right model is. I would tell them, I would say, this is really exciting. I want to work with you, but the way you're approaching the problem is really limiting your TAM, yet there's this whole other size of the market over here that I think you could address. And they may say, that's great, not what I want to do. Thanks for the advice, which is perfectly fine. Or they may say, that's great advice. Let me go think about that and maybe come back and build a business together. The latter is, I think, where really value-added investing comes. But recognizing that the former is absolutely possible. We're not, I'm not, you're not, none of us are always right in our advice, going back to the entrepreneur.

• 16:03Speaker 02

  The other thing we do in our research after we have that really initial hunch, I wouldn't say decision, after the first meeting that I want to invest with this person or invest in this person, is we absolutely do go back and look at the market, look at the TAM, look at the ACVs. We call people to make sure our knowledge is still current. We do try to go into meetings with some of, you know, with the most current knowledge about the space so that we can be prepared to make a decision on the spot if we want to, or certainly if we need to. But I will also say, and this is great advice for maybe first-time investors, is to beware of the expert reference. I got this advice early on also from Scott Sandell at NEA, which is we're often, in our diligence, prone to go call around and make sure we're shoring up our assumptions.

• 16:47Speaker 02

  And those can be some of the most helpful diligence. Calls because the spaces you're investing in are not written about online. They're not written about in reports. We all know this, right? So you've got to use your networks to really diligence them. But if you're relying on an expert, make sure you know what you're trying to understand in that expert call. That expert, most likely, if you tell them about the whole idea, which you may or may not want to do, is probably going to say, there's no way that industry could be disrupted this way. And that's a very natural reaction because what you're investing in is supposed to be so brand new that it's never been done before. But if you put too much stock on that, you could be talked out of some great ideas. So I'm very careful about the expert calls that I do.

• 17:26Harry Stebbings?

  No, I think that's super helpful. I totally agree. You can put way too much emphasis on them. But it's tough. I definitely find that tough when you're speaking to someone who's kind of 20 years of industry in there and you're kind of questioning or doubting elements of their thesis around it. I do have to ask, because it's interesting with different firms, when they do and don't bring in additional members from the team into that process, when do you at NEA, and you personally, think about bringing additional members from the team into that conviction building process with you? What's your preference?

• 17:54Speaker 02

  So we have a lot of associates and principals at our firm that are very smart on their individual spaces as they cover. They're also very scrappy. So I love the word scrappy. I love the word resourcefulness. It's the two things that I really try to embody in my own work. So I will often bring someone along fairly quickly to start employing some of the scrappy, resourceful tactics, whether it's to go research a certain space really quickly or frankly, to find ways to further endear ourselves to the entrepreneur. If it's a very competitive situation or frankly, just something we really want to do. In terms of the team as a whole, you know, it's probably the most common question I get from entrepreneurs being that NEA is such a big firm. We're $3 billion in size, 50 investing professionals across healthcare and tech.

• 18:38Speaker 02

  And so when you're just going to make a tech investment, do all 20 or so have to be aligned? The answer is no, but we don't also try to get those full 20 people to be aligned. We break up into smaller teams based on the experts around the table, the investors inside NEA who are prone to know something about that space. So if it's a robotics company, we'll grab five or six partners and general partners who could really help us make the best decision about that investment. And that's for the final, you know, sort of partner presentation.

• 19:07Harry Stebbings?

  Yeah, no, I'm totally with you on that kind of partner presentation. I do have to ask you a subsequent element. You said there about the associate kind of endearing themselves to the entrepreneur and you endearing yourself to the entrepreneur in that kind of process of winning a deal if it's kind of super competitive. I'm really concerned now Dana about the compression of round timeframes and people slam me on Twitter for this, so I'm well aware that it may be a VC centric point of view. But I just think that investors don't have the time to fully do their work on a space and founders don't have the time to fully bond with their investors to make sure it's a relationship they want for the next 10 years. Am I being fair? Do you see the same round compression and how do you think about this?

• 19:45Speaker 02

  I think that's absolutely true. There's always a healthy debate about whether there's too much money in the industry or too many companies looking for funding. I don't know which it is, but I do know that the best companies often can control the market and the pace for getting their company funded. They will have their pick of many investors who definitely want to work with them. So if I were an entrepreneur, knowing that it's on them, it's their market, they can set the pace, they can pick their investors. I would absolutely encourage them not to rush that process and I don't know anyone who would disagree with me on the entrepreneur side. That said, they definitely want to spend as little time fundraising and as much time as they can in building their business and that's also the right approach.

• 20:29Speaker 02

  You know, my advice to entrepreneurs, and again, we are on the same side of the table as them, once we've invested in the company, we go out to market with them. They're out front, but we're investors in the company and we see that process too. I encourage them to get to know the right investors for their business over time when they don't need the money. That's different than, you know, the advice of always be fundraising. It's more about relationship building and taking the time to run into the right people at the right time, taking the time to talk to their entrepreneurs casually. You're not reference checking that they haven't said they want to invest in your business, so it would be strange to go reference check them. But to really hone in on who is the right firm, who is the right partner, who's the right set of people to help me build my business over time.

• 21:09Speaker 02

  And if you know that and then are in that lucky situation as an entrepreneur that you can get your round done quickly. Hopefully the stars align with the investor you want and the time period you want and I can't argue with that.

• 21:21Harry Stebbings?

  Can I ask, do you think that's the role of the investor to really kind of assemble that hit list, so to speak, of five or so investors that would be perfectly aligned and they should build a relationship with? Or I've heard some investors say, no, that needs to be kind of sorted out on their own from the founders and just relationship driven alignment.

• 21:36Speaker 02

  You know, I think that is an investor's role on the board. If you're an investor and you've taken a board seat and the next stage of the company is to go raise capital, you absolutely want to have an open discussion with your founder and your CEO about who the best people would be to raise capital from. But as a board member, you're giving advice. You're not making the decision. You're not setting the course. And you're listening to your CEO based on what he or she also wants to do. If they've said, you know, I think what you're really saying is you want to find this type of fund in this type of space. Who could help me in this area? Hey, I've met this guy over here and he or she seems great. Why don't we also talk to them? Then your board member and your slash your investor should be very open to that too. So it should be a collaborative process.

• 22:20Speaker 02

  But I do find that CEOs often want my advice on that or my help on intros because we see a lot of investors across all the boards that we work on and all the companies we're invested in, we're probably co-invested with the majority of other firms out there.

• 22:35Harry Stebbings?

  No, totally. I couldn't agree more. Doing 2000 VC episodes, I feel like I've met my fair share too.

• 22:42Harry Stebbings?

  I do have to ask though, Dana, because this can kind of go two ways from here. We've had that conviction building process and say we land in the negative and we need to relay that bad news to the entrepreneur. How have you found is the best way to do this? And kind of advise me because I'm always quite stuck. If I give reasons, I tend to get long emails back or call back saying why I'm wrong. And then if I don't, they ask for feedback. I'd love your advice on what you think is the right way and works best really for you and the entrepreneur.

• 23:12Speaker 02

  You know, I try to be as upfront and honest and succinct as quickly as I can about the feedback. NEA has a large portfolio. If we have something competitive in the space, I will tell them that very quickly. Sometimes I will not realize that until later in the process because we won't realize another company is actually going in this direction until we bring it up at a partners meeting and another partner will say, oh, did you know this company is actually doing this over in their Skunk Works area? In which case it might be a surprise later in the process. But in terms of, you know, really fundamental reasons why I decided not to invest in the company, especially if I've taken two or three meetings, I usually try to share that back with the entrepreneur and I hope they appreciate that, even if they disagree. So it's a lot better than saying, I just don't want to invest in the business.

• 23:56Speaker 02

  If you say, I learned these three things, just like you said before, it's the TAM, it's the ACV. And then recognizing that you could be wrong.

• 24:06Speaker 02

  We often are as investors. We've passed a lot of opportunities over time that have ended up becoming big, successful companies. So things play out in different ways than we assess them and we recognize that's a possibility. But I think you owe it to the entrepreneur to give them some detail of what led your decision.

• 24:22Harry Stebbings?

  No, I do agree with you there. But on the flip side, we have a more happier story. We have when we're kind of looking to delve deeper. In terms of that investment decision-making process, how do you think about optimizing it within a structure like NEA and for you personally?

• 24:38Speaker 02

  There's two streams, right? There's one in working with the entrepreneur to make sure he or she understands that you're moving this forward quickly and you're very serious about investing in their company. In that regard, I try to be upfront and open about the things that I still need to do, whether it's merely scheduling them for a partner meeting, which sometimes at NEA could take a couple of weeks and slotting them into the calendar, or whether it's doing additional research and uncovering, we'll use your example again, more about the ACV that they're modeling or planning to have in their business. I'll be very open with them, but very encouraging along the way that I'm very interested in this business and we're just trying to shore these things up. Then internally, I will do just that. I will grab the four, five, or six people here at NEA who have an opinion

• 25:23Speaker 02

  or have expertise in that space, sit down with them and talk to them about the investment. I'll also run the diligence work with an associate, especially if it's more of a series A plus series B stage company, there's more diligence to do, but not a lot. And then it's just about building rapport with the entrepreneur and making sure he or she wants to work with us and we have a deal that could work.

• 25:45Harry Stebbings?

  Can I ask, often something that comes up in terms of complexities within deals is the element of price, especially today in this kind of excess capital environment we have. How do you assess your own price sensitivity today, Dana?

• 25:57Speaker 02

  You know, many people have said this on your show that price doesn't matter. That is right and wrong, depending on the stage, in my opinion, of the investment. I subscribe completely to the mentality that price does not matter at the Series A. At the Series A level, we as venture investors, anyone with more than a 25 or 50 million dollar fund should be looking for these outsized exits. They should be looking for category leaders one day, category creators, market creators, things that can be 10, 100 times multiples in their, on their initial investment. So it really doesn't matter if you pay 20, or 30, or 40, or more, you know, sub, let's say, 100 million or so, I don't think it matters. But with that, entrepreneurs also have to keep their expectations in check, depending

• 26:42Speaker 02

  on what they have, depending on how quickly they're growing. This should all lead to their thinking about not this round, but what is the price of the next round? Because the next round, the price is going to matter more. And again, we'll be on the same side of the table with the entrepreneur, so we just don't want you to get too far out ahead of yourself and ahead of the pricing of the next round. And that's something we can all make together. But if it's a competitive process, an entrepreneur really wants a certain valuation, and it's, the market usually clears at a certain price, and we kind of wait to see where that happens. Now, if you're investing in, say, a unicorn-type valuation, price matters a lot more. It should be more clear at that stage whether this is going to be, you know, a unicorn being a billion-dollar valuation, whether this is going to be a 50 billion-dollar company

• 27:25Speaker 02

  one day, or if that's what they're aiming for, or if this is more in the three to five times a billion dollars. But at a minimum, you really have to dig into the financials, and for us, really be sure at a minimum, it could be to three to five times that valuation from there.

• 27:39Harry Stebbings?

  Yeah, absolutely, and I couldn't agree with you more there in terms of just gauging that kind of quantum of multiple. I do have to ask, you mentioned the words entrepreneur expectations there. When we chatted before, you said something super interesting, being what entrepreneurs should expect from VC. Has I actually changed a lot over the last decade? I can't not dive in here. How do you think the entrepreneurial expectation of the VC class has changed over the last decade, Dana?

• 28:02Speaker 02

  You know, I think the venture market has matured a lot in the past 10 years. If the internet startup, if the startup in general has matured over the past 20 years since the internet bubble or the internet advent first started in the late 90s, the venture world has matured over the past 10 years. We've seen the rise of the seed fund. I credit Josh Koplman and First Round Capital for really starting that movement. And that's gone from 20 to 50 to 100 million dollar size funds. And then we've also seen the advent of the larger funds such as NEA. And I think what you've really seen is more of an institutional approach in both categories. At the seed fund level, the funds are often much more general. They're about getting your company started, providing that start of advice to the founder.

• 28:46Speaker 02

  Many of these seed funds have internal resources that they're really feeding back to the entrepreneur about how to get product market fit, how to raise your next round. And then at the large fund size, when you're going in and helping the company, it's really a full service mentality in that you have your board member, you have the partner that invested in the company. But then you have, you know, the associates that I've mentioned that are really helping the company on financial modeling or frankly, whatever they want over time. You're also expected as a larger fund, and you should be expected as a larger fund, to help on recruiting and business development, operational excellence. If you're a SaaS company, really understanding the model and the metrics. If you're a consumer company, understanding similarly the CAC and the LTV and how to really structure your company over time.

• 29:30Speaker 02

  And I think it's incumbent, and it will be more and more incumbent on these funds. And perhaps the size requirement will come down, even as smaller funds. You really should be expected to be more full service. If you think about it, as entrepreneurs, you're selling 10, sometimes 20 plus percent to any single investor or one single investor. And they're like a co-founder in your company. You don't want them there operationally and nor should they be there operationally on a day-to-day basis. But they should be adding that strategic advice that is really needed at the company at different points in time. And I would highlight that it's at different points in time. People often point to recruiting as the most valuable thing investors can help with. That is correct, and especially, you know, when you really need to

• 30:12Speaker 02

  Find that VP Marketing or a new VP Engineering or a CTO, you need that yesterday and anything you can do to accelerate that process is very important. But I would also say there are things like simply financial planning for the next year after you've raised another big round, understanding what burn rate to take on, whether you should invest more of the capital in the technology or more in the capital in marketing. Those are also the strategic levels of advice that your investors should provide you.

• 30:41Harry Stebbings?

  I totally agree with you that with regards to the strategic advice kind of beyond the commonly stated recruiting. I do have to ask, if we take this maybe to the board level approach, when we chatted before, you said ultimately the board is there to serve that CEO. I wanted to pick up on that as prior guests on the show have pushed back on this and stated that they're not there to serve the CEO, but the company itself. Where do you stand on this debate and how do you think about that dichotomy?

• 31:07Speaker 02

  I would say to me, when I said we're there as a board to serve the CEO, I call that sort of one in the same as serving the company because the CEO is the ultimate leader of the company. Yes, you could say hierarchically, I guess the CEO works for the board, but the CEO is guiding the board and their management team on the critical decisions. They have to take so much advice, both from their management team and the board, and really steer us back to what is the most important decision to make. Now, we all have informed decisions and we all can advise the CEO and we should be advising the CEO. But as long as that person is in place, we're there to kind of help them hone their decisions, but empower them to make the ultimate decision.

• 31:49Harry Stebbings?

  I totally get it and I love that on the ultimate decision. Final question before we dive into the quickfire round. I'd love your thoughts and advice here. Again, I mercilessly use the show for my own intellectual advantage, but I've just joined my first institutional board. Knowing all you do now from your many boards, what advice would you give me upon my joining my first?

• 32:08Speaker 02

  You know, I would say, many people have also said this, to listen, to show up, to give advice, but not make decisions. I would say some of the other nuanced things that you should do would be to really strive to be in sync with your other board members. And if you see conflicts, even very, very subtle at the board level, meaning one person, using your example from before, doesn't think ACV is as important as TCV, who knows what the other metric is, or doesn't think development at this pace is as useful as marketing, getting a hub ahead there. That can be very hard for a CEO to put those opinions together if you just lay them out on the table. I think it's incumbent on board members to really recognize when there are just little bits

• 32:50Speaker 02

  of conflict on the board, or little bits of differences in opinion, I won't even say conflict. And we should be proactively trying to help the CEO resolve those and get alignment. Because, again, you want to empower that person to really make the best decision possible. But if you lay a bunch of conflicting opinions on the table, it can be very, very difficult for them.

• 33:09Harry Stebbings?

  No, for sure. I think when you have multiple opinions and board members citing theirs, it's always a challenge. I do want to move into my favorite element, Dana. As you know from listening to the show, I absolutely love this section. So it's called the quickfire round. I say the short statement, you give me your immediate thoughts in 60 seconds or less. Are you ready to dive in?

• 33:27Speaker 02

  Yes.

• 33:27Harry Stebbings?

  So your favorite book and why? What is the must read?

• 33:30Speaker 02

  You know, I mentioned before, I was an English literature minor in college, so I have a lot of favorite books. And I will say, I don't read that many business books. Not because they're not valuable, but I really prefer to read biographies, or stories of how companies were formed. For that reason, I love books like Buffett, about Warren Buffett and his biography. But right now, the most recent, or I should say over the past couple of years, the book that really stands out for me is a book called Dopesick. And Dopesick is about the opioid crisis in the United States, and how that crept up over the past 20 years in plain sight for all of us to see. And how it was really a systematic failure. There were aggressive sales tactics being used by drug companies.

• 34:12Speaker 02

  I'm sure the individual companies thought they were overachieving and doing really well. There were also different sort of practices that doctors... were being trained in like that pain is really the fifth vital sign and you need to be constantly treating pain as much as you're treating hearing and that's sort of where over prescribing came from and I thought it it was just fascinating and in terms of understanding how different movements and different markets frankly get created and in this case it's obviously become a huge epidemic that we now are faced with dealing with.

• 34:40Harry Stebbings?

  What would you most like to change about the Valley and VC Dana?

• 34:44Speaker 02

  You know, I hate the word signaling. I think if we could change that word about signaling and just try to get to truth in everything we do. You know, there's so much said about, well, if you do this and you meet with this venture investor later in the process, they're going to think you already met with other venture investors or if you, there's a thousand other examples.

• 35:06Harry Stebbings?

  Okay, so I'm a seed fund. I would say to founders, if you take multi-stage money at my stage and then they don't follow on, it will be trickier. And I would advocate actively against them taking multi-stage money at seed for that and other reasons. Like it's not worth GP's time for to do a one million check and then spend active time working on a rebranding or messaging of the company or hiring a sales rep. Am I right?

• 35:30Speaker 02

  Yes, that's a great example of signaling. But I think you have to be upfront if one of your CEOs really wants to take money from a multi-stage venture fund in the very, very early seed stages, you have to ask why, you know, what is it that they want to accomplish? Is it that they just are wanting to make a ton of, you know, seed bets and they don't really follow on with those? In which case that's again, the truth and not a, not a signal. And so you should get that out of them. But the other case might be, who knows, it could be something that they're really actively trying to build a company with and they, or that they really have a strong relationship with that founder and that they want to make an exception. My point is that there are varying cases and if it's a legitimate reason and they're really value added investor,

• 36:15Speaker 02

  that should, you know, you should absolutely want to take money from them at any stage. But that's just one example of signaling. There's tons of other examples of pacing and, and the market does read signals. Certainly, you know, we talked about it at the seed level that you were just saying, but as companies. Mature more and more and eventually have a huge investor base. The market overall is a signal, so you have to be very cognizant of it. But I think we put too much stock in that word and not trying to get to the ultimate truth of what's going on inside companies. So I try to recognize in my own activities, what could be a signal that perhaps is being misread and always try to go, you know, meet the entrepreneur regardless of what I think the signals are in the market.

• 36:54Harry Stebbings?

  We mentioned board members. Who's the best board member you worked with and why?

• 36:58Speaker 02

  You know, it's really funny. I have several favorites. I can't pick just one, just like if you were to ask me which one is my favorite portfolio company, I can't say just one. I love working with all of them. However, you know, the things I said before about board members who seek alignment, who seek the best ways to support the CEO, who are certainly present, who are prepared. And I don't mean just being prepared by reading the materials, but actually just being deep in the space, even if it's not a space, let's say, that you continue to invest in over time, but you continue to follow it because you have to be engaged for that company. Ironically, two of my favorite board members are ones that I don't officially sit on the board with because in one case, Josh Koppelman, I'm on the board of the company and he comes to the board meeting because they've invested and have invested all along.

• 37:43Speaker 02

  We would love for him to be on the board, but he, and he practically is. So he's at every board meeting, but has elected not to take an official board seat. But he feels like a board member and he's just hugely helpful to the company. The other one is a situation where I'm in that seat where I'm not officially on the board, but Brad Feld at Foundry Group is. He's also a very wonderful board member to kind of watch in action and watch how he hones in on the issues and really speaks and engages directly with the entrepreneur and gets their attention.

• 38:11Harry Stebbings?

  The final one here, Dana, what's the most recent investment and why did you say yes?

• 38:16Speaker 02

  Okay, my most recent investment is in a company called Wirewheel that is in the data privacy and production protection space. I said yes because I actually think privacy is an epidemic in this country as well, perhaps as big as the opioid crisis, that in plain sight, over the past 10 or 20 years, we let this problem occur and we didn't know exactly what it is. It meant until it was already out of the bag. Luckily, I do think, being that this is a tech problem, that we have a myriad of tech entrepreneurs who can go solve this problem. I recently invested in Justin Antonopoulos, who was the undersecretary, the Department of Commerce with Penny Pritzker. And he has set out, after kind of witnessing the GDPR regulations and helping influence them frankly as they came about in Europe.

• 39:01Speaker 02

  He set about on the tech side to solve the problem and protect privacy, protect data at the data layer and understanding where it goes and who has access to it. He's also pointed out that GDPR is in fact a European Union, EU regulation. And the United States and the EU have had different approaches to regulation and policies over time. And good or bad, we should all, you know, the US should have their own approach to that. And so that's something I'm really excited to see if it happens over the next few years.

• 39:32Harry Stebbings?

  Dana, such an exciting time ahead. As I said, I had so many great things, both from Rebecca, but also from all of your CEOs within the portfolio. So I cannot thank you enough for joining me today and for me peppering you with questions. So off the schedule, but I really appreciate the patience there. So thank you so much for joining me.

• 39:48Speaker 02

  Thanks, Harry.

• 39:51Harry Stebbings?

  What can I say? Such a pleasure to have Dana on the show there. And if you'd like to see more from Dana, which is a must, then you can find her on Twitter at Dana Grayson. Likewise, it'd be fantastic to see you behind the scenes here at the 20 Minute VC. If so, you can do that on Instagram at H Stabbings1996 with two Bs. It really would be great to see you there. But before we leave you today, I want to spend a minute to talk about Brex, the first corporate card for startups. Brex founders Enrique and Pedro built a payments business in Brazil, but found themselves rejected for a corporate card when they were in Y Combinator. They decided to build Brex with instant online signup, no founder liability required, and limits 10 to 20 times higher than standard cards. Pretty incredible, I know. And you can sign up for Brex and get fees waived by entering the code HARRY during signup. Honestly, it really is such a special service.

• 40:36Harry Stebbings?

  And speaking of Brex, an incredible high-growth company. Well, a lot of what we do on the 20 Minute VC is talk to experts, pick the brains of founders and investors, who tell us which trends to watch out for, offer tips on fundraising and teach us how to excel at any Company stage and although there's no playbook for building a great business, we can certainly learn from people who've done it before. Beyond listening to this podcast and talking to mentors and advisors in your own network, it's important to have resources you can turn to when you're tackling a new challenge. Stripe has built those resources for you. Whether you'd like to learn how to run a pricing experiment or build a knockout landing page, Stripe gives you the information you need to start, run and scale a technology company. Their guides are often written by or feature people like Elan Gill, an incredible individual whom you've probably heard on this very podcast.

• 41:19Harry Stebbings?

  And you can read one of my favourite guides on scaling engineering organisations and many more on stripe.com/20vc, that's T W E N T Y V C. And speaking of scaling engineering organisations, as we did there, did you know that there are five job openings for every one developer in the United States? No wonder hiring great engineers is impossible. And that's where my friends at Terminal come in. Terminal is your dedicated partner in quickly building skilled remote engineering teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up and support these teams. From little things like managing office logistics to big things like benefits, legal and community. They've developed this proprietary and comprehensive remote team solution

• 42:01Harry Stebbings?

  based on decades of experience building remote teams across multiple continents. So they know what works, but don't take my word for this. Take the word of Eventbrite, former 20 VC guest Hims and Dialpad, all customers and lovers of Terminal. And you can find out more today at terminal.io. As always, I cannot thank you enough for your support. And I'm very excited to bring you a phenomenal Founders Friday this coming Friday.