20 VC 085: Mark Suster @ Upfront Ventures on Being A Super Entrepreneur Driven VC

Mark Suster is Managing Partner at Upfront Ventures which he joined in 2007, having previously worked with Upfront for nearly 8 years as a two-time entrepreneur. Before joining Upfront Mark was Vice President, Product Management at Salesforce.com following its acquisition of Koral, where Mark was Founder and CEO. Prior to Koral, Mark was Founder and CEO of BuildOnline, a European SaaS company that was acquired by SWORD Group. Mark is also the writer of one of my favourite VC blogs, Both Sides Of The Table which is a centre piece to the whole VC community and is a must read for all interested in entrepreneurship and VC. In Today's Episode You Will Learn: 1.) How did Mark make his way into the world of tech and later make the transition to VC? 2.) How have Mark's entrepreneurial origins influenced his investment style and approach to startups? 3.) What really gets Mark excited in terms of the founders and the companies they have built? 4.) How does Mark recommend that startup founders can meet investors and get those initial meetings? 5.) What sector is Mark most excited by and why? 6.) Mark has said in the past 'too much money too early often fucks companies up'. Why is that and how should founders determine what is the right amount to raise? Items Mentioned In Today's Show: My Fave of Mark's Posts: Entrepreneur DNA, I Invest In Lines Not Dots Mark's Fave Book: The Accidental Superpower Mark's Fave Blog or Newsletter: Stratechery, Ben Evans, Chris Dixon, Tom Tunguz Mark's Most Recent Investment: Mitu Networks As always you can follow Harry, Mark, The Twenty Minute VC and Upfront Ventures 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?

  This is the 20 Minute VC with your host, Harry Stebbings. And following our fantastic episode with Antoine at Felix in London, we are now flying across the world to join the legendary Mark Suster. Mark is managing partner at Upfront Ventures, which he joined in 2007, having previously worked with Upfront for nearly eight years as a two-time entrepreneur. Before joining Upfront, Mark was Vice President of Product Management at Salesforce.com, following its acquisition of Coral, where Mark was founder and CEO. And prior to Coral, Mark was also the founder and CEO of Build Online, a European SaaS company that was acquired by Sword Group. Mark is also the writer of one of my favourite VC blogs, Both Sides of the Table, which

• 0:45Harry Stebbings?

  really is a centrepiece to the whole VC community and is a must-read for all interested in entrepreneurship and VC. Now, please, what I'm about to say is not an advert, or a sponsorship, or anything like that at all, it's just a resource that I absolutely love and wanted to share with you. It is, of course, Mattermark Daily. It's a hand-curated newsletter by a good friend of mine, Nick Frost, found on Twitter at @thinker. And it's compiled daily to bring you first-person accounts of entrepreneurship, investment, and insights from the startup ecosystem. Literally, it's the first thing I read every morning, and I simply could not live without it. And the links can be found in the show notes, or you can find it on any good search engine just by searching for Mattermark Daily.

• 1:30Harry Stebbings?

  And of course, Mark Suster has featured several, several times on Mattermark Daily. But now, enough from me, it's time to meet the legend, Mark Suster, managing partner at Upfront Ventures.

• 1:48Speaker 01

  You have now arrived at your destination.

• 1:51Harry Stebbings?

  Now, I'm hugely excited today to welcome the legend that is Mark Suster. Thank you so much for joining us on today's show.

• 1:58Speaker 02

  Well, you've already overhyped and overstated the truth, but let's get started anyway.

• 2:04Harry Stebbings?

  So if you could provide us with a little bit of background on yourself and how you made your move from entrepreneurship to VC?

• 2:11Speaker 02

  Sure, I think maybe instructive also to talk about my move into entrepreneurship. I started my life as a programmer. I was a developer in middle school. I was developer in high school, or I think in the UK, we call it college.

• 2:29Speaker 02

  And, you know, this is the eighties, you know, the late eighties, the mid to late eighties. So it actually was less common back then, but I just had an interest in it. My first job out of university was as a programmer for a company that was called Anderson Consulting. It's now called Accenture. And the reason I point this out is I ended up staying at Anderson Consulting for nine years. And so by the time that I actually decided to do my first entrepreneurial venture, I was thirty-one. And whenever I speak on university campuses, I always tell people as follows.

• 3:09Speaker 02

  Number one, entrepreneurship's not cut out for everybody, but if you wanna give it a try, it's infinitely better to start earlier. Number two, there are two skills you're gonna need, minimum two skills you're gonna need. You need to take some programming course, even if you wanna be the CEO, or the head of sales, or the head of marketing, or the head of biz dev. Understanding, having a fundamental understanding of how systems work is critical to being in the business. It's like trying to go into the music business, but having no appreciation for tempo, or for how, you know, music is actually packaged and created.

• 3:47Harry Stebbings?

  So what course should they learn then, jumping on that?

• 3:50Speaker 02

  Say again?

• 3:51Harry Stebbings?

  So what course should they learn? What should, what language should they learn? Is there one that shows the system?

• 3:56Speaker 02

  Yeah, I don't even think it matters. I mean, you can take Python, you can take PHP, you can take Ruby, you can take JavaScript. I might even choose four or five different courses. You're not trying to become the best developer in the world, because if you didn't take comp science, and you're not like, super committed coder, you're never gonna be the best in the world at that anyways. It's really about having a strong appreciation for how systems work. And I just quickly, the second piece of advice that I always give people is to get some sales experience. And usually the best way to do that is telesales. And even if you wanna be in marketing, even if you are in customer support, even if you wanna do biz dev,

• 4:40Speaker 02

  ask the CEO if you can, you know, just do an hour a week of sales calls just to get your experience with it. And that skill of how to deal with customers, how to close business, how to understand their concerns, how to understand whether or not product actually meets the needs of customers is something that you're gonna have with you for the rest of your career. Uh, so anyway, so I did that for too long. I finally cut the cord at thirty-one and decided to start a company. Uh, I ran two software companies. The first was based out of England. Uh, the second was based out of Silicon Valley. And having done it twice, having sold both companies, having seen what that was like, uh, one of my backers offered to bring me in as a VC.

• 5:26Speaker 02

  And, uh, I figured if I sucked at it, I could probably go back to being an entrepreneur. But this was, it's a very closed industry. It's hard to get into. And I thought this is my shot to give, you know, to give it a chance.

• 5:38Harry Stebbings?

  Absolutely. And, and then, did your entrepreneurial origins really shaped who you are as an investor and a VC?

• 5:47Speaker 02

  Uh, there's no doubt about that. I think it's, the, the hardest thing is if, uh, look, all kinds of people can succeed as VCs. And I think one of the most successful VCs of our era, Fred Wilson, you know, wasn't, uh, an entrepreneur. So really, anyone can succeed. But I feel like you're at a great, uh, advantage if you've been an entrepreneur because uh, so much about being a good coach, being good mentor, is really understanding the journey that the entrepreneur is going through psychologically, physically, emotionally. And what it's gonna take for them to get through that and understanding

• 6:29Speaker 02

  team building and how to assemble a team.

• 6:33Speaker 02

  Is really important. And if you've never done it, it's really hard to give generic advice, so. I feel like it's a, it's a very strong differentiator and advantage. And if I were an entrepreneur, I'd probably look for that. On the other hand, it's not one size fits all. There are great investors who just haven't done it.

• 6:52Harry Stebbings?

  And today we're gonna run through kind of a funding story. Um, so the story starts with a team at a startup looking to enter a round of funding. And you've said before that, and apologies for the language here, too much money too early often fucks companies up. Why do you think that is? And how can founders then determine what's the right amount to raise? Should they be raising a set? Amount for a certain run rate? What's your perspective?

• 7:18Speaker 02

  Well, I don't think you have to apologize for saying that, because I think I probably said it first.

• 7:24Speaker 02

  Listen, you know, it's, it's, it's something you can't teach because it's not formulaic. It's, here's the truth is that. A certain amount of constraint. Actually forces creativity. And when you have a little too much capital, you can take shortcuts or you can throw money at problems and it. It masks certain problems as well. So I'll just give you an example for anyone who's ever worked on a systems project, you know, if you. Create a system project and say, we have a year and a half to ship this product. And at the end of the year and a half, we're gonna have built this great thing.

• 8:03Speaker 02

  You know, people are just gonna screw around for the first six months, not for the sake of screwing around, but because you don't really get focused until you have the urgency, the sense of urgency that you have to deliver stuff. So I always tell people like. If you have the same systems project and you say, well, we're just gonna ship version zero dot four, but you have. Have to get it done in three months. In those three months, you're gonna be insanely focused because you know you're gonna be judged based on shipping that product. And the same is true with capital. Too much capital creates a certain laziness. Um, and people create shortcuts and that I think leads to making a lot of mistakes.

• 8:37Harry Stebbings?

  So is there any way to, how much capital should they raise in terms of run rate? Should you go for eighteen months run rate, twelve months run rate?

• 8:46Speaker 02

  I mean, the ideal amount of capital, if you can raise it, is eighteen months. But, but let me tell you why, though, Harry, just so you understand it. Is, you know, in a, in a normal funding environment, it probably takes you four to six months to raise capital.

• 9:02Speaker 02

  And let me just have that and call it, you know, let's say it takes two to three months to raise capital. You need enough time that you can actually prove something before you ask for capital. And you certainly don't wanna be raising capital when you have three months in the bank. So if it's gonna take you three months to raise, you better start raising with six months left in in the banking case, it takes you longer, right?

• 9:25Harry Stebbings?

  Absolutely.

• 9:25Speaker 02

  So if you if you have a year's capital, you're fundraising six months in.

• 9:29Harry Stebbings?

  Job of fundraising is never over.

• 9:31Speaker 02

  It never is over. I always say ABR, always be raising. And so just so you know that I live what I preach. This morning, uh, I had two meetings, one over the telephone, one in person with investors in my fund. And we're not fundraising, we're not gonna ask them for a check for three years. So I could easily be lazy and just see them once a year. But I view it as my responsibility to keep those relationships active. Because at the end of the day, when investors have to make tough decisions on whether they're gonna get their cash out of their pocket and hand it to you.

• 10:10Speaker 02

  Oftentimes, it's the intangible belief that you are gonna be a good steward with their capital. And you can't buy that. There's no great presentation, there's no amount of data that can get someone to wanna take that bet on you. Other than trust, and trust is established through rapport, which is built in meetings.

• 10:30Harry Stebbings?

  So you have frequent contact with your LPs then?

• 10:34Speaker 02

  All the time.

• 10:34Harry Stebbings?

  So do you, what do you expect from your portfolio companies in terms of engagement?

• 10:39Speaker 02

  Well, um, there are different stages of portfolio companies. I have some companies doing thirty to fifty million dollars in sales. And they're run by very professional people who have run even public companies before. And with them, you know, we're gonna do four board meetings a year, and I'm probably talking to them once a month. And probably hardcore interacting with them every day when things pop up, when we wanna buy a company, when we wanna hire a senior exec. When we wanna raise capital, when we're about to announce a major version of a product. Then I'm talking to them several times a day, either via email or via phone.

• 11:22Speaker 02

  Um, and then there's early-stage companies, and early-stage company I wanna see in person every single month.

• 11:30Harry Stebbings?

  And for upfront, what are your kind of metrics? Well, A, what are your round preference, sector preference? Are you stage agnostic? What's the kind of background or the mission to the fund?

• 11:41Speaker 02

  So our latest fund, uh, we just started investing it this year in 2015 as a $280 million fund. Uh, in case your viewers are interested in this sort of thing, I'll just tell you how we plan out our fund. We think about, if I take a $240 million of it. And I say, what I really want to do is invest half of the fund into companies. And reserve the other half of the fund to follow on my best deals. So that's about $120 million of primary investments. And we try to invest it over a three-year period of time, which means 80, sorry, means uh, $40 million per year.

• 12:24Speaker 02

  And if you look at $40 million a year, we have five full-time partners, that's about $8 million a year per partner. And we tend to do seed and A rounds, our average check size is between three to three and a half million dollars. So what you're really talking about is in terms of new investments, each partner doing between two to three deals per year maximum.

• 12:46Harry Stebbings?

  So you have two to three deals per year?

• 12:48Speaker 02

  Yep.

• 12:48Harry Stebbings?

  What is it that gets you excited?

• 12:51Speaker 02

  You know, uh, first of all, anything I say would just be cliche, but I'm super entrepreneur driven. It's something about that je ne sais quoi character of the individual that they know their market better than most, they seem to work harder than most, they seem to have a tenacity other people don't have, they tend to be natural leaders, that is something that's a very subjective assessment. Um, and my bet is that this entrepreneur is gonna create something out of nothing and when they get hit in the gut by Uber or Facebook or Disney or Fox or Google or anyone

• 13:36Speaker 02

  that they're gonna find a way around that, either jujitsu it into a partnership or adjust their products so that they're not in the crosshairs of someone big. Um, but I'm judging all those characteristics of are they a leader, can they attract a great team? Are they gonna figure out their customers? Are they gonna jump on an airplane at six in the morning? Are they gonna wait around to catch the ten AM flight? Um, there's all these intangibles that I'm trying to judge because I'm a seed or A round investor. So I'm usually not betting specifically on traction, which tends to be more of a B round activity.

• 14:11Harry Stebbings?

  And in terms of uh determining whether they have that, what's your kind of pre-investment uh contact with founders like? Is it, do you have a long time before you make an investment or do you make investments pretty soon after initial contact?

• 14:26Speaker 02

  I think so, you know, Harry, I know you know, I have a blog called Both Sides of the Table and on here.

• 14:32Harry Stebbings?

  The one of the best VC blogs around.

• 14:34Speaker 02

  Thank you. I really appreciate that. And on it, I have a link to the eleven attributes of um of entrepreneurs, if anyone's interested in what I think is important. But probably the best known post I've ever done was a post I wrote saying I invest in lines, not dots. And the metaphor is an X axis is time and a Y axis is your performance. And on any given day, I'm judging your performance on that day. How well did you present? How well did you make the case? How well did you respond to my questions? What is your current user base or user population or how are you doing in the media? Whatever I'm using to judge you. But you're just a dot to me. I don't have any pattern.

• 15:19Speaker 02

  And over time, the more interactions I have with you, I get to judge how responsive were you? How thoughtful were you? How did you respond to adversity? And I, it forms a pattern and it doesn't even have to be up and to the right. But over time, I get to know you and I decide, is this someone I want to do business with? And what I always tell entrepreneurs, the reason you should be meeting frequently with investors and always be raising is you want to know your investors. Like, do they respond to emails? Do they, you know, are they helpful in meetings? Are they respectful of your time? Did they follow up when they said they were going to do stuff?

• 15:58Speaker 02

  And if I get it wrong and I write a $2 million check and I was wrong and you're not good at tenacity or follow through, okay, I wrote off $2 million out of a $280 million fund and shame on me. But if you pick the wrong investor as an entrepreneur, you're stuck with them. That's, that's it. Like, you've got one company and there's no divorce clause from investors. So I really think entrepreneurs need to take the time to get to know their investors, which is why I'm not a big proponent of demo days or overhyping your company or waiting to meet investors so you can have six people meet you all at once and try to hype up the deal.

• 16:42Speaker 02

  I think it's way more important to make sure you get the right investor.

• 16:45Harry Stebbings?

  And how would you recommend that startup founders meet investors? That can often be the biggest problem, just getting the foot through the door. What would you recommend?

• 16:53Speaker 02

  Um, I have a piece of advice that I try to tell people. Um, I, I use a lot of metaphors. My metaphor is 50 coffee meetings. And 50 coffee meetings is committing yourself just one time per week for a year, one time a week to going and having coffee with another entrepreneur and getting to know them and their business and their journey and their story. And if you meet 50 people in a year, and that's a very low bar to ask, but if you do it, maybe 10 of them you'll become close with. And from those 10 people, you will find who their angel investors were, who their VCs were, uh, how did they hire staff? How much did they pay recruiters?

• 17:36Speaker 02

  How did they get in TechCrunch or Financial Times or whatever? And you earn the right. To then ask for introductions when they know you to their investors. The single best introduction is a portfolio company CEO. If one of the CEOs of the companies I've invested in sends me a deal, I'm gonna meet them every time. And that's a right that you have to earn. That's why you have to start the process early.

• 18:04Harry Stebbings?

  And then if you were to say now one sector that you're most attracted to for the future, what would you say it would be?

• 18:11Speaker 02

  Well, everybody's different, so I can't say my sectors are better or worse. I just know what I know. I built for ten years software companies. You know, people call them today SaaS, software as a service. That's what I did. So, uh, anything in the SaaS space, I'm probably, it's more attractive to me because I know how to be more helpful. Anything in the data space, you may know a company in the UK I've got called DataSift. Uh, based out of Reading. So I spent a ton of time looking at big data processing.

• 18:45Speaker 02

  And that's an area that excites me. Um, I, because I live and work in Los Angeles, I'm probably slightly more biased towards technologies that help and support the video industry than other VCs are. Because I know how big of a business it is, and I know how far behind it is, and I know how much on the verge of disruption it is. So, for example, I have active investments, personal, um, not our total fund, but just me. Eleven active investments now, five of them are video related.

• 19:18Harry Stebbings?

  And you, you mentioned SaaS there, and SaaS is also an incredibly hot, uh, topic. Have you seen, uh, very high valuations in the last few years in the SaaS sector?

• 19:29Speaker 02

  Yeah, it's funny. Markets come and markets go. Um, you know, there was a period of time where everyone wanted to fund e-commerce companies. There was a period of time where everyone wanted to fund Internet of Things. There was a time where nobody wanted to fund SaaS and no one wanted to touch it. They just wanted to do consumer apps or social networking. They wanted to find the next Facebook, the next Twitter, the next Instagram. So SaaS has been really in favor for the last few years because there's been high-profile acquisitions and IPOs. So everyone wants to be in SaaS. It's kind of flavor of the month. The unfortunate thing about markets is, you know, investors are like lemons. And when an idea works, everyone chases the same idea.

• 20:13Speaker 02

  By definition, if you're chasing a hot idea and you weren't early in that market, you're gonna lose. And so for me, I'm trying to find underhyped markets. Things that people are less interested in. About three years ago, we started a practice area in agriculture technology. We call it AgTech.

• 20:32Harry Stebbings?

  Yeah, absolutely.

• 20:33Speaker 02

  It's for a variety of reasons that we think are relevant to the future of humanity. And we think they're so relevant to the future of humanity, more and more dollars are gonna be associated with that industry. And for three years, we started meeting companies in the sector. And we didn't talk about it publicly because we didn't want to encourage the market. And now that we've got a few investments in the sector, we're starting to be more vocal about it. But I tend to look for underhyped areas.

• 20:57Harry Stebbings?

  And I'd love to move into a quickfire round now where I say a short statement and you give me your immediate thoughts.

• 21:04Speaker 02

  Sure.

• 21:04Harry Stebbings?

  So your career highlight?

• 21:06Speaker 02

  I will take, I'd say probably selling Maker Studios to Disney so far has been my career highlight.

• 21:13Harry Stebbings?

  What scares or worries you most about Silicon Valley and tech at the moment?

• 21:19Speaker 02

  I think we've returned to a moment where startups in Silicon Valley and tech have become fashionable. And everyone wants to do it, which means you're gonna have too many companies, too much money, and too many people who aren't truly entrepreneurs, kind of clouding the market for everybody else.

• 21:36Harry Stebbings?

  What's your favorite book and why?

• 21:39Speaker 02

  Right now, my favorite book that I read recently, which is also my favorite that I've read over the last five years, is The Accidental Superpower. It's a book that talks about world order and how world order tends to be determined by two things, mostly topography, the layout of the land and your natural strategic advantages and disadvantages, and the other is demographics. And I think it explains with a lot of data how the world over the next fifteen to twenty years is gonna go, and which countries are gonna struggle based on aging population and taxation and so forth. And there's just so much in there to explain the world that I try to recommend it to everybody.

• 22:24Harry Stebbings?

  When I say thought leader of the industry, who's the first person that comes to your mind?

• 22:30Speaker 02

  Thought leader of the industry, I mean, you know, I've always looked up to Fred Wilson a great deal. I think he's very thoughtful and doesn't get swept up in the fashion of the day, so he's someone I always turn to for advice.

• 22:43Harry Stebbings?

  The lean startup, immediate thoughts?

• 22:46Speaker 02

  I believe in being lean, so I love the concept of people trying to have constraints on an early business. The only negativity that I've ever had for lean startup was this idea of fail fast that they used to promote, which means, you know, pivoting or whatever. And I think a lot of people use that as an excuse to be quitters, and I like to see people who get through adversity.

• 23:12Harry Stebbings?

  The biggest misconception about entrepreneurship?

• 23:17Speaker 02

  That it's fun and exciting and that it's an adventure and that for most people it's economically your best alternative. I think it's stressful, it's hard, it leads a lot of people to depression and conflict and stress, and for most people it doesn't even pay off economically. And so if you're gonna dedicate yourself to it, you sure as hell better love the product, concept, or market that you're building and be in it for more than the money.

• 23:56Harry Stebbings?

  Other than your, oh, I presume you don't read your own blog, but I read your blog, but.

• 24:00Speaker 02

  Thank you.

• 24:00Harry Stebbings?

  What's your favorite reading material, newsletters or blogs, other than Fred Wilson's also, I presume?

• 24:07Speaker 02

  Yeah, no, you know, but uh if I'm really honest, his isn't my favorite because, I mean, I like it. Um, I like it because, uh. Because I think it just gives you a really quick snack of what's going on. Um, but it doesn't get into really deep insights and I like deep insights. I'd say strattery.

• 24:31Harry Stebbings?

  Yes, amazing.

• 24:33Speaker 02

  Is, it's just one, it's really thoughtful and it takes an interesting approach.

• 24:37Harry Stebbings?

  Have you read Ben Evans's newsletter?

• 24:40Speaker 02

  That was the second one I was gonna say is Ben Evans. And those are probably the two that I appreciate the most. Um, I love reading Chris Dixon when he writes, he writes less often, but he has a way of contextualizing issues. In a much more concise version uh than I do. But I'd say those are, you know, probably three that I really enjoy.

• 25:01Harry Stebbings?

  And then.

• 25:02Speaker 02

  I I should say Tom Tonga's, I don't know how to pronounce his.

• 25:05Harry Stebbings?

  Yeah, I know Tom, Tom, we've got coming on the show, so.

• 25:07Speaker 02

  Yeah, he's also really thoughtful. He, he puts a lot of data out there. He doesn't write long posts, he gives you a lot of structure and a lot to think about, so I think he's done a great job.

• 25:19Harry Stebbings?

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

• 25:23Speaker 02

  My most recent investment, so my most recent, we haven't announced, so I can't actually say it here.

• 25:29Harry Stebbings?

  Which one's the most recent that you have announced?

• 25:32Speaker 02

  I'd say the most recent I've announced is probably Me Too Networks, M I T U. Me Too is a Latino version of Maker Studios. It's kind of a cross between Vice, uh Maker Studios and maybe BuzzFeed. We're trying to build the first ever proper Latino media on digital media company. Just to give you the highlights of data, four hundred and twenty-five million people in the world, their primary language is Spanish. Three hundred and thirty-five million people. In the world, primary language is English. It's a very large demographic population in the United States.

• 26:15Speaker 02

  It's the fastest growing, the most politically active. And they over-index in mobile, they over-index in TV, they over-index in film consumption. And it's going to be an incredibly important constituency. And we have the opportunity, I believe, to build the best digital online brand.

• 26:34Harry Stebbings?

  Well, Mark, it's been an absolute honour having you on the show. Thank you so much for giving up your time today.

• 26:39Speaker 02

  I appreciate it, Harry. I love when entrepreneurs go out and do stuff like create shows that create content to help other people. So, thank you.

• 26:47Harry Stebbings?

  What an incredible interview that was with Mark. And I'd like to say a huge thank you to Sharon Weinbar, a previous guest of the Twenty Minute VC, for making the intro to Mark. Without Sharon's introduction, this interview would not have been possible. And again, a huge thank you to Mark for giving up his time to be on the show. And since the interview, Mark has been a phenomenal source of advice and guidance to me personally. So, a huge hand to him for that. And do not forget to check out his amazing blog at both sides of the table. Likewise, if you are more of a newsletter fan, you must head over to Mattermark Daily, their hand-curated newsletter that brings you the best articles and materials from investors and operators. As I said, I would be nowhere without it. As always, thank you so much for your continued support.

• 27:31Harry Stebbings?

  And we look so forward to seeing you in the next episode.