Best of Build Mode: Think like a VC

Instead of our usual news rundown, Equity is sending you off into the 4th of July weekend with a special episode of our sister podcast Build Mode. Season 3 launches July 9th, but before it does, Build Mode is revisiting some of the best fundraising and startup advice from the investors featured in last season. From choosing the right investors to building a differentiated go-to-market strategy, these venture capitalists and founder-turned-investors share hard-earned lessons on fundraising, portfolio dynamics, investor-founder relationships, and what separates the companies that successfully raise their next round from those that don't. In this episode, you'll hear from: ⁠⁠Yuri Sagalov, managing director at General Catalyst⁠⁠ ⁠⁠Ross Fubini, managing partner at XYZ Venture Capital⁠ and Leslie Feinzaig, founder and general partner at Graham & Walker⁠⁠ ⁠⁠Paul Irving, partner at GTMfund⁠⁠ ⁠⁠Leah Solivan, founder of TaskRabbit and founder of Precedent VC⁠⁠ Chapters: 00:00 Intro 01:19 Yuri Sagalov (General Catalyst): The three types of investors and who founders should avoid 03:29 Ross Fubini (XYZ VC) & Leslie Feinzaig (Graham & Walker): What great investors actually bring to the table 08:36 Paul Irving (GTMfund): The go-to-market signals investors look for 12:30 Leah Solivan (TaskRabbit / Precedent VC): Understanding the competition inside your investors' portfolios 14:30 Outro Subscribe to Build Mode on⁠⁠ ⁠Apple Podcasts⁠⁠⁠,⁠⁠ ⁠Spotify⁠⁠⁠, or⁠⁠ ⁠wherever you like to listen⁠⁠⁠. And watch the full videos on⁠⁠ ⁠YouTube⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

  Hello and welcome back to Equity TechCrunch's flagship podcast about the business of startups. I'm Kirsten Korsak and instead of our usual news rundown, we're sending you off into the 4th of July weekend with a special episode of our sister podcast, Build Mode. Season three launches July 9th, but before it does, Build Mode is revisiting some of the best fundraising and startup advice from the investors featured in last season. So if you're building, raising, or just curious how VCs think, this one's for you.

• 0:33Speaker 01

  Hey, hey, welcome back to Build Mode. I'm your host, Isabel Johannesen, and today I'm here with the producer of Build Mode, Maggie Nye. Maggie, what has been the most requested topic for Build Mode?

• 0:43Speaker 02

  Well, that would be fundraising and I just can't imagine why, because it's not very important in a startup journey.

• 0:48Speaker 01

  Not important at all. Who needs money?

• 0:51Speaker 02

  Oh, well, it also just so happens that our next season will be covering fundraising from all kinds of angles. We have had a monster recording session and we are going to have a bunch of episodes coming your way, discussing how you can fundraise, how you can pitch, how you can do all of the things. But for today, Isabel, what are we talking about?

• 1:11Speaker 01

  Today, we will be sharing a clip episode that Maggie has compiled of all of the best tips from our VC guests over the last two seasons.

• 1:20Speaker 02

  Yes, we're getting so much good advice. We're going to be learning what it's like to sit on the other side of the table and how founders can not only make sure they're landing the investor, but that the investors they're landing are actually the best fit for their startup. So on that note, to start off, we're hearing from Yuri Sagalov, the Managing Director at General Catalyst. He's worked with hundreds of early-stage startups and in this clip, he shares how to spot and avoid the backseat founder types of investors.

• 1:51Speaker 03

  I've always thought that there are three buckets of investors. And the first bucket of investors are investors who you really want on your cap table, who are just like, they're going to be almost an extended employee of your company. They're going to help you with recruiting, they're going to help you with hiring, they're going to help you with go-to-market. And the most interesting thing with those investors is often it's actually completely disconnected from the check sides. They might be a $5,000 investor or a $5 million investor. It's really up to the partner or the angel investor themselves. The second type of investor that you have is kind of an investor that gives you money and then disappears. And maybe they'll reply to an email once every couple of months saying, congrats. And you just don't hear much from them. And they're actually fine as well, especially as you're trying to fill out year round. Obviously, if you can get the first category, focus on those.

• 2:37Speaker 03

  And then the only bucket that I avoid, especially for early founders, is like there's this third bucket of investors who they give you money and they're kind of in your kitchen meddling. They have an opinion on everything. They get stressed out when things don't go right, which at every startup is always. And that is the only type of investor that I would like actively like steer free of. Everyone else, like obviously, if you can get the very first bucket, I think that's ideal. But the only one that I would truly avoid is that like third category.

• 3:05Speaker 01

  I guess, I mean, I wonder if it's sort of hard for founders to tell the difference between, you know, a VC that is promoting the fact that they will be involved and they have support and structure in place versus those who will be sort of micromanaging, right?

• 3:17Speaker 03

  Yeah, totally. And I think that everyone, when they're looking to invest, is gonna put on their best face. And so I think the best thing you can do as a founder is actually talk to portfolio companies. Talk to other founders that they've worked with, ask for concrete examples of how they've been helpful, if they've been helpful. And then actually ask like how they were when things didn't go right, you know? And you really just want to know that they're, you know, that they're supportive, that they're, they understand that things might not work out the way you want them to. And you'll hear, like, you'll talk to some founders and you'll hear some investors are just amazing. They're like the first phone call when something didn't go right. They felt like a trusted source to brainstorm on how to fix it. And other investors, you'll hear the feedback from founders where they'll say like, I just couldn't bring myself to call this investor. And that's the type of person that I think you really kind of want to dodge.

• 4:02Speaker 02

  So that's one type of investor you probably want to avoid. But what about the investors you want to attract? In the next clip, we're going to hear from Ross Fubini from XYZ Ventures and Leslie Feinzaig from Graham and Walker about how they've each thought through their unique value add and how they use that to set up their portfolio companies for success.

• 4:23Speaker 04

  To your point of things that have changed, the thing you just said there really stuck out is I struggled in our early funds, understanding what was my unique point of view.

• 4:35Speaker 02

  Yeah.

• 4:35Speaker 04

  And it's because I didn't just want to be a banker that happened to show up early. And now, when we talk to founders and when we talk to LPs, but really founders, the thing that I now feel much more, very confident telling them is the thing that we are best at, well, that we only really have one job. And so our job is to raise the next round of funding for the founders. And because my lived experience now, years in, is that the founders are always experts in their company, but having a unique voice at the table that both understands what's

• 5:17Speaker 04

  going on in the company, but then is intimate what's happening in the venture ecosystem. So you can understand, hey, if you don't have an AI story, oh my God, it's going to be hard just to stand out right now in this market. So find one that's authentic. Or everybody believes you can land for 30K. Let's put all our energy in the next four months, eight months, proving that three of these companies can expand to 300K. So you can have the ASP expansion or other more and less nuanced examples. They're not, hey, I'm, I'm going to text Mark Andreessen, he's going to think it's cool, but really you're actually plotting the path of the company with the founders from when you invest going forward.

• 6:02Speaker 04

  I found, I did not expect that, but that's a very unique role. To offer them and then I felt much now I feel very comfortable that that's that's our value prop and I'm just curious you said that shifted for you over time and I'm curious if you went through a similar shift in oh no, this is what is unique that we do in the world.

• 6:23Speaker 05

  I'm just gonna be really honest because almost ironically I have found that one of our biggest value adds is the ability to have an authentic conversation with a founder. You know, with the majority of their investors or actually the majority of the world out there, they have to kind of put on a show and I like to take a very similar approach to Ross in that like having a VC on your cap table that is a founder, is an operator, is like well plugged in, but has a really high tolerance for the ugly, messy business of building a company and like what it actually looks like and feels like to have the sausage made like I sometimes I look at other VCs that I admire and or not, right? Like these like really, really successful VCs.

• 7:07Speaker 05

  And to Ross's point, like they are financiers, like they are dealmakers and I am not like I am very much a builder and that's kind of what I bring to the table. But for me, discovering that feeling confident and comfortable with that and also just growing as you know, learning how to do the job and like getting a lot of reps in and like seeing a lot of deal focus. I feel like in the very early days, everything you see looks amazing and because you just haven't seen enough. And so I mean, I'm I feel I'm I still feel like I'm a B D V C, right? Like I'm on on my second fund and I've had the, let's call it luck and you know, hard work,

• 7:46Speaker 05

  et cetera. But the luck of having spent my time in VC through like really dramatic shocks in the ecosystem and having that be my learning experience, I almost feel like this is what the VCs that went through the the oh, like 2000, 2001 crash and the oh, eight crash would have learned. I feel like that has been my school of venture capital is like seeing market behavior at the tippy top, top of the market and seeing what happens like. You know, a month later, when have I changed? You know, the, the good news for my LPs and for myself is that I have like the stubbornness of a middle child who doesn't like to be told what to do.

• 8:29Speaker 05

  And so I've like, never been one to play into FOMO. But I feel like, you know, if you kind of start investing and learn how to invest at the tippy top, top of the market, you're just gonna like throw your entire fund into like buzzy web three crap, right? Like, and I've like had the privilege to see all of that. And that has been my formation as a VC. And then on the flip side, it's just like you look at, you know, the so much of the model is like, especially when you're investing early, is like helping those companies cross the chasm into raising their next round, or just like getting the credentials so that they're believed in the next round. And I feel like I've gone through that journey myself as a VC. So I, I still feel like I'm super, super close to the founder experience.

• 9:09Speaker 02

  This episode is all about getting a peek behind the VC curtain. So in the next clip, Paul Irving from GTM Fund shares the biggest red flag his team looks out for and his best advice for founders to signal they've nailed their go to market strategy.

• 9:24Speaker 01

  What are some red flags you would look for that might signal that a company may not have the chops to win in this distribution moat that they need to build in order to succeed these days?

• 9:37Speaker 06

  I think the one for us that stands out, I'll, I'll, I'll mention two, but the, but the top one is in a competitive market, having a non differentiated go to market motion in the early days is, is always difficult. Uh, cause you're often gonna go up against either incredibly well-funded incumbents or soon to be very well-funded competitors. And just using the old playbooks, tried and true, same channels that everybody else is tackling and not having anything that's unique to your company and, and where you believe you can win, I think is usually a red flag. And sometimes for founders, it's, you know, a great LinkedIn presence and thought leadership. Sometimes it's a newsletter that they built up and, and as sort of an internal earned and built a distribution channel that they can tap into.

• 10:22Speaker 06

  But, but we looked for, you know, I would say earned secrets and. Why a team founded a company and why they're going to win? And then the other one is, I think contracts is a very interesting area these days where there's a lot of three-month, easy opt-out trial contracts that are getting booked and treated from a company perspective as, you know, earned and booked ARR. And I think there's no problem if enterprises, you know, do want to have a trial period as part of, you know, their buying cycle. That can happen in a variety of different corners of software and industry. But you want teams to understand that and understand the levers of that and understand how to renew and expand those contracts when the trial period comes to an end and have a strategy to manage those.

• 11:07Speaker 01

  And speaking of some of these competitors that might have more capital, as you were mentioning, so what advice would you give to a founder who has extremely limited resources and can only focus on maybe two go-to-market initiatives? What should those be?

• 11:21Speaker 06

  It will go back to something that I mentioned a little bit earlier, but I do believe it's an AI-native specificity of data and execution that you can do. And it's narrowing down your ICP. So something that you can do now that was really hard to do historically. And I'll give another shout out to Jordan, because he just did a launch, Jordan Crawford Digital Launch, where he's building agents in Claude Code that build clay agents for your clay tables, which is a few different layers of AI-native go-to-market. But what it does is, instead of having a ICP that's very deterministic, where you say, you know, greater than 500 employees, launched an AI product in the US and the EU, has usage-based

• 12:05Speaker 06

  pricing, you can get really specific with, you know, recently launched within the last couple of months, an AI product, like has a pricing and packaging page that doesn't line up with best practices for pricing, which is a really, if you're talking about your team internally, those are the contextual, non-deterministic ways you talk about your ICP, but they're really hard to program into a go-to-market motion. And I think there's more options than ever to really explore your ICP, become very Very AI native and data forward with the way that you approach it and come up with, you know, start spearfishing for the right customers because you can't, you know, you don't have the resources to throw, you know, hundreds of thousands of dollars into paid ads,

• 12:49Speaker 06

  different channels, a thousand different tools. But if you focus on the data, you focus on your ICP and you build an AI native go to market engine. I think there's a lot you can get out of that for a pretty limited capital investment at the outset.

• 13:02Speaker 02

  So far, we've really covered the courting stages of a VC founder relationship. But in our next clip, Leah Sullivan, the founder and former CEO of TaskRabbit and current founder of Precedent Venture, talks about her biggest lessons going from a venture backed founder to a VC in her own right. And a little spoiler alert, this insight can help founders ensure that they continue to get funded.

• 13:27Speaker 01

  What was surprising to you about being on the other side of the table now as a VC?

• 13:31Speaker 07

  Ooh, so much. I was surprised by so much. I think the number one thing that was the biggest surprise was when I was running TaskRabbit, I was always nervous about the competition and the competition were, you know, Zarly and Homejoy and, you know, Thumbtack and Handy and all these companies popping up that were doing the same thing as us. Oh, you know, these companies are going to fast follow. We were the first and now they're copying us. And that was like the obsession around competition. Now I realize as an investor that I should have been more interested slash concerned about what was the competition in my investors' portfolio?

• 14:11Speaker 07

  Because my investors actually making decisions about where to put their money next? And it has nothing to do with the competition in my industry. But as an example, Anne went on to invest in Lyft.

• 14:28Speaker 07

  Rob Hayes at First Round went on to invest in Uber. Steve Anderson at Baseline went on to invest in Instagram. So I'm now task rabbit in a portfolio with Lyft, Uber, and Instagram. Do you think I'm the one that's going to get their extra dollars? Or are they going to put them in Lyft, Uber, and Instagram? Right? Like, it's just, it's just a matter of like, where, what are the rocket ship deals? What are the rocket ship companies? And if you're in a portfolio of one of those, I think it's helpful to understand that your competition for dollars are those companies.

• 15:03Speaker 02

  Well, that does it for this Best of Build Mode episode. Thank you so much for sticking with us. We cannot wait to share season three with you. So be sure that you have subscribed to this podcast wherever you listen. Make sure to check us out on TechCrunch's YouTube. And share your favorite episode with a friend, your family, your coworker, maybe even your investor. All right, we will see you back in this feed very soon with season three. Build Mode is a TechCrunch podcast. Each episode is produced and edited by Maggie Nye and hosted by me, Isabel Johansson. Our art and design is also by Maggie Nye. A big thanks to Morgan Little, who leads our audience development,

• 15:45Speaker 02

  the Foundry and Cheddar video teams, and most of all, to you, the builders, and everyone else in the wider startup community. We'll see you back here next time.