20 VC 081: From YC to VC with Weston Gaddy @ Bain Capital Ventures

Weston Gaddy is a Senior Principal at Bain Capital Ventures where he focuses on investments in early-stage companies and assists the portfolio operations group. Weston is also a YC alum with Frogmetrics, a handheld survey device company, he co-founded in college and received funding from Founders Fund, Y Combinator and Alexis Ohanian at Reddit. Outisde of the tech and VC world Weston was a Weston worked as a strategy consultant for media, financial service, and consumer product clients at Bain & Company in New York. In Today's Episode You Will Learn: 1.) How did Weston make his way into the technology and VC? 2.) What was Weston's biggest takeaway from the YC experience? Has the experience impacted his investing strategy? 3.) Why is the world of branding changing from dominant players using traditional mainstream channels to a more open opportunity for startups to connect with consumers? What is changing? 4.) On the topic of brand loyalty how brands create brand loyalty in the fickle generation of young millenials often with a mercenary outlook? 5.) What sectors have most opportunity to exploit this revolution in branding? Why do you say those sectors? Have you based any of your investments around these assumptions? 6.) How important is it for VCs to specialize and have superb sector knowledge in something? Items Mentioned In Today's Show: Weston's Fave Book: The Sixth Extinction Weston's Fave Blog or Newsletter: Dan Primack's TermSheet Weston's Most Recent Investment: Jet.com As always you can follow Harry, The Twenty Minute VC and Weston on Twitter here! If you would like to see a more colourful side to Harry with many a mojito session, you can follow him on Instagram here!

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 to the 20 Minute VC with your host Harry Stebbings. And what a special episode do we have in store for you today as we welcome Weston Gaddy. Weston is a senior principal at Bain Capital Ventures, where he focuses on investments in early-stage companies and assists with the portfolio operations of the group. Weston is also a Y Combinator alum with Frogmetrics, a handheld survey device company he co-founded in college and received funding from Founders Fund, Y Combinator and Alexis Ohanian at Reddit. And outside of the tech and VC world, Weston was a strategy consultant for media, financial service and consumer product clients at Bain & Company in New York. And in today's show with Weston, we actually slightly follow on from our previous interview

• 0:45Harry Stebbings?

  with Patricia Nakache by discussing how the behaviour of the emerging millennial market is affecting startups and brand loyalty, and what sectors have the most opportunity to exploit this revolution in the branding industry. But first, would you like the chance to win Brad Feld's amazing book Venture Deals? If so, I want feedback. Now, there's a strict rule, there can be no positive feedback. I want to hear what you guys do not like, what you want more of, guests you'd like to have on the show and questions you'd like to hear answered. To do this, all you need to do is email [email protected], all in letters, with the suggestions that you'd like to make.

• 1:26Harry Stebbings?

  So when you email in the feedback, you'll be automatically submitted in to the competition to win Brad Feld's signed copy of Venture Deals. And to let you all know, we will begin releasing the names of the winners of this competition on Monday, the 26th of October, so stay tuned and enter now. But it is now time for me to pass the microphone to welcome Weston Gaddy, Senior Principal at Bain Capital Ventures.

• 1:57Speaker 01

  You have now arrived at your destination.

• 2:00Harry Stebbings?

  Well Weston, it's an absolute pleasure to have you on the 20 Minute VC. Thank you so much for joining us today.

• 2:06Speaker 02

  Happy to be here.

• 2:07Harry Stebbings?

  Now, I'd love to hear a little backstory about you and how you made your way into the VC industry.

• 2:14Speaker 02

  Sure, so my, my love of technology started at a very young age. I grew up in Albuquerque, New Mexico, a little bit outside of the one city in the state called Albuquerque. And spent a bunch of time sort of tinkering on, on everything that I could find. Was always very interested in the way that things worked. That led me to, to college on the East Coast where in studying engineering, just got very interested in the, again, the way that things worked and how they were put together and how new technology could be used in our lives. And I started two companies while I was in school.

• 2:57Speaker 02

  One was with a professor called Wisdom Tree Funds, which is all about making it easier for the average investor to, in a low fee way, access the stock market. And from that, I sort of caught the bug around starting new companies and what could be created from sort of sheer force of will. And with a fraternity brother of mine, started a company called Frog Metrics, which was born out of a project that we had done for a group on campus to help them gather feedback from students. And that led us to this idea that there are lots of brick and mortar environments, retailers who really have this big disconnect between having their customer in the store

• 3:41Speaker 02

  and not being able to take the opportunity while they have that customer in the store of being able to ask them how they feel about their experience. And so we created a device and a software that would allow businesses to, in a very low friction way, continue to gather information from customers while they were in the store. And that led us to actually join Y Combinator. And although the the business ultimately went to different direction and I went to consulting. You know, I stayed in technology. I did consulting for media companies and technology companies while at with Bain and Company. Did that for a couple of years and decided that I wanted to get back into technology.

• 4:25Speaker 02

  And venture felt like it sort of combined both the passion for building businesses and helping to build businesses with some of the analytical frameworks that I'd learned in consulting. And so I rejoined, stayed sort of in the Bain family, but start rejoined Bain Capital Ventures in two thousand nine. And I've been here ever since.

• 4:46Harry Stebbings?

  And talking then of your Y C experience, going back a little there. What was your one biggest takeaway from the experience?

• 4:55Speaker 02

  I I think it was it was two, two things that are interconnected. And they they sound contradictory to me, they're one in the same. It's start small and focus, but but work in a big market. And I think the the the reason that that's important is staying focused can often lead entrepreneurs to solve niche problems that aren't really big problems, that aren't big markets. But going after big markets, I think often leads entrepreneurs to wanna try and solve every problem in the market with one solution. And really, the magic of startups is find a big enough problems

• 5:38Speaker 02

  that can be solved with small enough solutions to start. I think that's the biggest thing that I took away from it.

• 5:44Harry Stebbings?

  And do you think that the experience at Y C has shaped your investing strategy?

• 5:49Speaker 02

  Absolutely, I think that that sort of core insight is something that I look for every day. And that was that was a big part of the feedback and the mentorship at Y C. And I think the other one. That I, the other big thing that I learned there that's continued to inform how I think about investing is asking the question, why now? What has changed in the underlying technology or the underlying market that creates an opportunity? And this was some feedback that I got, that assuming that everyone else has just done something badly in the past is arrogant. You've got to, you've got to understand why now is the right time and some structural

• 6:30Speaker 02

  change in a market or technology is really the only thing that I think creates new opportunity. Assuming that everybody who came before you who tried something was just doing it badly or stupid or didn't get it is, is very hard to justify. And so I always look for the answer to the question, why now? When thinking about investing and thinking about where the opportunities are for new technologies and new companies.

• 6:58Harry Stebbings?

  And then as a Y C alum, do you have a preference for investing in, in family Y C alums?

• 7:04Speaker 02

  You know, being on the East Coast, um, we don't really see a bunch of them. Bain Capital Ventures has invested in several Y C alums, um, out on the West Coast, but because I'm based in New York, we don't tend to get as many Y C alums moving to the East Coast. And I, I do think that there's something to be said for, um, focus, as I said earlier, focusing on a geography. And so I, I invest solely on the East Coast.

• 7:32Harry Stebbings?

  And how do you see the valuations differ then, East Coast to West Coast? Obviously you spent some time on the West Coast with Y C, now you're back in the East Coast investing. Do you see a divergence in the investments?

• 7:44Speaker 02

  Um, I, I don't think, I think good companies, um, are getting solid valuations on both coasts. I think the, the, the time in a company's life when they're getting

• 8:00Speaker 02

  A higher valuation is moving earlier and earlier in on the west coast. And that's sort of leading to this dynamic where both as founders and as investors. You're sort of picking the winner in a space earlier. And that means that the valuations relative to what's been proven have continued to increase. There's a little bit more of that on the west coast, but I think both in New York and San Francisco, you're seeing that same dynamic. The valuations have have gone up relative to what a company's proven.

• 8:33Harry Stebbings?

  And I'd love to delve into a little bit on startup branding now. And why the world of branding is changing from the dominant players using kind of traditional mainstream channels. To a much more open opportunity for startups to really connect with their consumers. Why do you think it's changing now?

• 8:52Speaker 02

  I think a big part of it is is not actually about the products. It's about the way that we interact with media. So in the past, the main form of media was sort of top down, pushed out. Um television communication where brands were able to tightly control their messages. And the rise of social media and direct forms of communication. Your email, push notification, downloading of apps means that that brands have much more of a direct connection. To their customers than they ever have in the past, and that dialogue with the customer is much more fluid. And so we're we're seeing that the relationship that millennials have with those brands.

• 9:38Speaker 02

  Is very different from their parents who were all singing the same jingles and that was the brand. The brand was very tightly controlled because the methods of communication to customers were pretty tightly controlled. And it's just a much more fluid world now. So the relationships that companies have with their customers are much more fluid. Which for the the sort of legacy players means that those brand loyalties are in flux. And they're having to evolve the way that they talk to their customers. But that creates opportunities. For our new brands to emerge and new startups to emerge that can speak more authentically

• 10:22Speaker 02

  to their customers and also more directly connect the nature of the product with the brand promise and the way that they're able to talk to consumers because there isn't a medium like television that sits in between that says a thirty second spot with a catchy jingle is the only way that you're allowed to talk to your customers.

• 10:40Harry Stebbings?

  And is it not ironic though that in this time when authenticity in reaching your consumers is at its highest and also kind of the fickleness of the young millennial generation is at its highest too?

• 10:53Speaker 02

  I think they're one in the same. I think that there is so much, uh, the two sides of the same coin. With so much media and so many different ways for us as consumers to find out about new products, it means that we're always looking for the next thing. And so that loyalty is not something that's just a given, it's something that has to be earned. Loyalty in the past could largely be bought by volume of advertising and by placement on the shelves in a retail environment. But now because there are so many competing alternatives, loyalty has to be something that's earned through having better products.

• 11:38Speaker 02

  And at the end of the day, I think that's the thing that is, that is, that is a benefit to consumers, that product has the ability to win above all else. And I think you see that in, in digital media products and communication products, both in the B two B world. I think something like Slack could have never been born, not just because the technology wasn't there, but because it was a sort of ground swell of support for this one communication method that just sort of blew up out of nowhere because the product itself was just superior. So you see that in digital products, I think you see that in physical products,

• 12:20Speaker 02

  things like Casper. The way that mattresses has been sold was the same for forty years. There were a couple Large brands that sold through regional and national retailers. And it really wasn't about product, it was about what the incentives were in the channel to sell the product. And Casper, you know, I think has created a superior product and is able to talk directly to their customers in a way that's much more authentic and direct because they don't have to rely on the retailer to do the communication for them.

• 12:55Harry Stebbings?

  And you, speaking of kind of the future then and future industries utilizing this branding, what sectors do you think have the most opportunity to exploit this revolution in the industry? And why do you say those sectors?

• 13:09Speaker 02

  So I think any, any sector where there's been a, an intermediary that hasn't lived up to its promise to provide value to the customer is where the opportunity for exploitation by new, by new brands is the highest. So I think Casper is actually a great example that the retailer that sat in the middle didn't provide a good experience for customers and therefore that direct relationship jumping over the retailer creates a huge opportunity. I think there are tons of opportunities left in big sectors where that's the case. Like auto is going to have a bunch of changes in the future and Tesla is just the tip of the iceberg.

• 13:54Speaker 02

  I think.

• 13:55Harry Stebbings?

  Do you think Tesla's branded itself brilliantly well?

• 14:00Speaker 02

  I, I think Tesla's done a fantastic job and I think it's, it's been viewed as something that is an environmental cause at early on and I, and I think the, the way for them to break into the mainstream is just to push the fact that it's a superior product. And not just a superior product on, in terms of the car, a superior experience in terms of the new charging stations. And increasingly an accessible price point and a price point that actually makes it cheaper than owning a traditional gasoline car. And then they, the, the announcements or the buzz is that there's, they're going to be releasing a much cheaper model in late 2016, a $35,000 price point car.

• 14:44Speaker 02

  I think that has the opportunity to make them a household brand and not just something that's accessible by Silicon Valley, New York elites.

• 14:51Harry Stebbings?

  So you think Tesla does have the possibility to become the kind of car of the people?

• 14:56Speaker 02

  I I do think so. I'm I'm I'm a huge Tesla fan.

• 15:00Harry Stebbings?

  And you mentioned your interest in the environment there. Um. So how important is it, do you think, for VCs to specialize and have a superb sector knowledge in something as you do in the environment?

• 15:12Speaker 02

  Well, so my my environmental interest actually is more of a an extracurricular than a place that I invest. Um, I have done a couple of investments, EcoSense Lighting, which is a connected LED lighting company um on the side, and investments in a restaurant called Freshy. But those things are more sort of passion projects and interest. Um, but I do think that it's incredibly important for VCs to specialize. So at at Bain Capital Ventures, I focus solely on enterprise technology and even inside of that, in technology that sells to the CMO. So marketing technology has undergone a sort of dramatic shift over the last ten years.

• 15:57Speaker 02

  And the CMOs are are poised to become the largest spenders on technology inside of the organization, even more so than the CIO and CTO in the next ten years. And that specialization, I think, is incredibly important, um especially at the later stages of investing. Um. When it's seed investing, the the I think a focus on community and and the geography is more important. But the later stage that you invest, the more important it becomes really to have a sector expertise. And so we at Bain Capital Ventures all do focus on different areas and inside of that, all areas inside of the enterprise.

• 16:36Speaker 02

  Um. My environmental interest, I think, is, I I think will become an area of increasingly important venture investing. Um. Historically, because it's relied so much on energy generation and transmission, which is highly regulated, it has been a a challenging environment to invest in.

• 16:56Harry Stebbings?

  Going back there to your experience in enterprise software now, uh how do you react to the latest announcement? I think it was this morning that Emergence, obviously a famous investor in SaaS and enterprise software, are moving away from the sector. How do you react to that?

• 17:12Speaker 02

  I think venture investors are always evolving their focus. And Emergent has had some great consumer investments. And my guess is the nature of the partnership evolved, where they had seen success, the types of companies that they were seeing and investing in may have led them in a different direction. I don't think that has any sort of embedded commentary on the future of enterprise investing. I think there's tons of opportunity left. The consumer world and we as consumers have benefited from more frictionless ways of

• 17:56Speaker 02

  interacting with other companies, with friends and peers. And largely, that has not hit the enterprise yet. The specialization of the enterprise and low friction tools to allow employees to better talk to each other, to better talk to their vendors and to better talk to their customers is still really in the first inning. And it's far behind consumer technology. So I think there's still tons of opportunity in the enterprise sector.

• 18:28Harry Stebbings?

  And if it's okay with you, we're going to move into a quickfire round now.

• 18:31Speaker 02

  Sure.

• 18:32Harry Stebbings?

  So productivity tools, what are your must haves? What keeps you focused?

• 18:37Speaker 02

  LinkedIn. LinkedIn is probably the most important tool for me.

• 18:43Harry Stebbings?

  For connecting to people or for publishing articles, what do you use it for?

• 18:47Speaker 02

  Really, I use it to keep in touch with my network. So both to keep tabs on where people are moving from and to, and to do searches on my own. You know, for venture investors, a big part of what we do is helping our portfolio to hire the best talent and to connect with customers. And so for me, keeping tabs on my own network is incredibly important, I'm both those.

• 19:15Harry Stebbings?

  And then what's your must read blog or newsletter?

• 19:19Speaker 02

  My sort of daily update is Dan Primack's term sheet. That's the one that I check every day just to see what's happening at a high level in the industry.

• 19:33Speaker 02

  And then to keep tabs on what's...

• 19:37Speaker 02

  Specifically is happening, you know, I do read TechCrunch and Pando. Um, and those give me, I think, good insight into the everyday and I, and I love just browsing around Medium as well. I think I, I. Come across something new every day.

• 19:52Harry Stebbings?

  And then what VC do you most respect or admire?

• 19:56Speaker 02

  Sorry, what was the question?

• 19:57Harry Stebbings?

  What VC do you most respect or admire?

• 20:01Speaker 02

  Um, I think Chris Sock has done a fantastic job. Um, seeing new trends and emerging trends and, and investing very early on with, with a lot of strong conviction in a bunch of really interesting companies.

• 20:15Harry Stebbings?

  And then your favourite book and why?

• 20:18Speaker 02

  My favourite book, I don't know what my favourite book is, but a recent book that I read. Um, that I think both connects to an evolving world and my interest in the environment is a book called The Six Extinction, which. Won the Pulitzer this year for, um, for non-fiction, which talks about. Um, the state, sort of the state of the environment and how we may be living in a time where we're, where. Humans are creating a mass extinction. That is unprecedented in the history of humankind and potentially is on order of large mass extinctions that we've seen that. Really changed the face of the planet.

• 21:02Speaker 02

  And what I really liked about the book was it's, it's very analytical, but it walks through some vignettes about specific species. But also provides some, some really, um, I think optimistic views on ways that we can, we as a, as a species can. Can change the direction that, that extinction is, is going. And I think technology can play a big part in that, um, both in terms of reducing carbon emissions. And in terms of keeping track of the environment and, and specific species to figure out how we can better protect them.

• 21:43Harry Stebbings?

  And then finally, your most recent investment and why you said yes?

• 21:47Speaker 02

  Um, so the most recent investment that I made, um, was a, was the follow-on investment that we had done. On a series A in a company called Jet dot com. Which is really changing um the face of retail in a pretty interesting way. So historically, um e-commerce had been driven by a couple of large companies that are obvious and don't need to be named, but really they lived in a world where they built infrastructure from the ground up to deliver a single item to a consumer at the lowest price. And what Jet is doing is applying some very interesting

• 22:29Speaker 02

  algorithms and technology to figure out how to deliver a basket of items and find the vendor in a new marketplace dynamic that can that can deliver that basket of items at the lowest cost. And going back to my earlier um point about why now, this, the ability to implement this sort of strategy and this approach in e-commerce wasn't possible before because both the the so by the high-frequency trading technology that Jet uses to power the algorithms and the number of vendors that sell things online that can become part of the marketplace weren't there.

• 23:11Speaker 02

  And so the the the move from a single large vendor trying to provide everything to consumers to taking advantage of lots of little pockets of infrastructure and supply chain and inventory that other vendors have built gives Jet the ability to really change the face of retail and the way that consumers shop online, really oriented around driving more savings to consumers at lower prices.

• 23:39Harry Stebbings?

  Well, Ruston, thank you so much for joining us today. It's been an absolute pleasure having you on the Twenty Minute VC.

• 23:46Speaker 02

  Yeah, I was was was happy to join. Thanks for having me.

• 23:50Harry Stebbings?

  What a deep dive that was on all things branding and a huge hand to Weston for giving up his time to be on the show today. And don't forget, if you would like the chance to win Brad Feld's Biblical Venture Deals, then all you have to do is submit your feedback on the show. What you guys do not like, what you want more of, the guests you would like to have on the show, questions you want to hear answered. Remember, no positive feedback, we want to hear how we can improve. And to do this, all you need to do is email [email protected], all in letters. And once you've emailed, you will be entered into the show competition automatically and we will be releasing the names of the winners on Monday the 26th of October. So stay tuned and enter now.

• 24:33Harry Stebbings?

  And as always, thank you so much for your continued support and I look so forward to hearing what you think of today's episode and seeing you in the next episode.