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What’s Unusual about Unusual Ventures?

What’s Unusual about Unusual Ventures?

UNUSUAL
Portfolio
9
 MIN READ
Rae Dinh
August 22, 2019
Editor's note: 

In case you missed it, we were recently on NBC’s Sand Hill Road podcast hosted by Scott McGrew. Here are some highlights from our conversation:

SM: What’s “unusual” about Unusual Ventures?

JV: Once we started telling people how we thought about building the firm, they kept saying, “That’s really unusual. We haven’t heard a venture capitalist talk like that.” Then we kind of fell in love with the name.

But to be honest, it wasn’t the original name. The original name was Integrity Ventures. When I talked to my co-founder Jyoti, the founder of AppDynamics, he said, “John, that’s one of those words that it’d be nice if people call us that, but you’d never want to be calling yourself that. It’s a bit like ‘humble’.” Unusual has been a lot more fun, and every time we talk about what we’re doing people say, “But venture capitalists don’t do that.” We say, “But we get to. We’re unusual!”

SM: What’s the “unusual” part?

JV: There are four things. The genesis of the whole idea was that the market in venture capital has changed a lot in ten years. Venture capital firms were originally set up to help entrepreneurs at the most difficult, early stage. What we’ve seen happen over the last ten years is a lot of the name brand firms are managing more money, which inevitably means that they focus on writing bigger investment checks. There’s less interest in spending a lot of time where they invest $2–5 million dollars. When they’ve got billions of dollars to invest, they’re more likely to spend the time on the $50 -100 million dollar checks. The way that’s translated for entrepreneurs is that when they’re at the hardest phase of the journey and need the most help, they’re not getting the time or attention they need.

We wanted to go back to what venture capital was originally designed to be, which was early stage, pre-proof of the idea working investment, and we asked ourselves what entrepreneurs truly need. Instead of just money (which is nice), they also need real help at this stage of the journey. As an experienced entrepreneur, my cofounder said there are three things that every entrepreneur needs desperately at the beginning: They need help with hiring. Turns out recruiting is pretty difficult, especially in the Valley today. They need help telling their story. They’re often technologists or product people who love to talk about how something works, but not why it matters. And they always need help with sales. It’s not usually the background they have so talking to more customers, more prospects, is usually something they always need to learn. We believed we could accelerate those three things and really get their idea to proof much faster than we thought any other VC firm currently was doing.

Secondly, we want the firm to make money for causes that are inspirational. If you’re working for children’s hospitals, financial aid programs, or medical research, we felt that not only would the team here be inspired by it, but our entrepreneurs would care too. And that’s proven to be very true.

The third thing is I have three daughters and my cofounder has a daughter. We felt there shouldn’t be a question about whether women belong in venture capital. They should be very successful and welcome, so half the team here is women. We started that way and we’ll never go below it, no compromises.

The final thing was the Catholic in me. “We learn in life through suffering” was a belief I grew up with. I think entrepreneurship is the same and it’s the underlying principle behind the Academy. The whole point of the Academy is to be exposed to how successful entrepreneurs overcame certain key obstacles. It’s a see one, do one, teach one model, and you can tell pretty quickly if someone understands something when they have to teach it to you. You take your own idea, suffer through that process, and then have to teach it to others.

SM: People are surprised sometimes to hear that venture capitalists spend a great deal of time instructing those that they’ve invested money in.

JV: Some of our investors ask us about Academy, “Do the founders really think they need help?” and I reply that the founders we want to work with have the humility to know that they need help. Nobody’s got it all figured out. It doesn’t matter how old you are or how accomplished, everybody’s trying to figure something out. If you don’t have that humility to want to learn from people who have been down the path ahead of you in some way, I don’t actually think you can build a successful company. I don’t think people will follow those people forever. To be a great leader, you need to be humble and so the whole design of Unusual and our various programs, such as Academy, require that you as an entrepreneur know that you need help. Now, you can be dogmatic, enthusiastic, and believe that your vision is right. That doesn’t mean you don’t need help getting there along the way.

SM: You were telling me about the source of funds and sovereign wealth funds in particular. You wrote, “It’s time to bring out into the open the conversation about where Silicon Valley gets its money.” More and more, that’s been the Kingdom of Saudi Arabia.

JV: There was a lot of interesting data published last year about how many of the iconic companies have been funded by different sovereign wealth, particularly from the Middle East and Saudi Arabia. Going back to the inspiring causes and LP’s that we wanted to have, we felt our entrepreneurs at a minimum deserve to know whose money VC’s are investing. Silicon Valley has this very opaque culture. In the spirit of transparency, we felt that at a minimum it should be very out in the open about where venture capitalists get their money. Jyoti likes to say when he got involved as an entrepreneur, he thought it was just the venture capitalists’ money themselves. He thought these were just wealthy individuals who were investing in his company only to find out later that the money actually comes from a lot of different sources. So it wasn’t an attempt to be judgmental about anything. The macro point is there should be transparency at a minimum. People should understand where the money’s coming from and where it goes.

SM: Softbank is a good example of staggering sums of money that’s coming into Silicon Valley. Is that harmful in any way? Just the sheer amount of it? Is there too much money chasing too few ideas?

JV: It’s more of a shifting of where the value goes. What’s happened with all of these large funds is that companies have stayed private much longer. In the past, as a company would reach $100 million dollars of revenue, they’d consider an IPO. Now, you’re seeing these companies get much bigger, backed by these large private funds. The value’s accretting to those funds while the companies are private, whereas before they would go to the public shareholders and the retail shareholders as the company grew in value as a public company. That’s because I think a lot of these big funds are chasing yield. The interest rates have been historically low for a while. They were looking at other asset classes and they saw that you could invest in a company in a billion or two billion dollar valuation and it might be worth 10 billion just a few years down the road. So a 5x or 10x on a $100-$200 million check is pretty attractive. That value used to go to the public investor and now it’s gone back to these sovereign wealth funds.

SM: You’ve done well for yourself. Heptio, Mulesoft, Nimble Storage, Datastax, AppDynamics…What’s the overall arching theme in your success?

JV: I was really fortunate to work with smart entrepreneurs. They do all the work. I also think I’ve just been very fortunate to be investing at a time where so much of the world’s enterprise software has turned over. People say sector and timing really matter. So if you look back over the last decade, we’ve gone through this historically significant transition period. People went from on-premise use of software to SaaS applications, to services like AWS, Azure, and Google.

These historically significant transitions have created an opportunity for new companies to be disruptive. So much of this depends on the macro economy and just the forces. We joke and teach a little class where we say you could have a yacht and no wind, you’re not going anywhere, but you could have a dinghy in a hurricane and that sucker will get moving. So the market winds is the point and in the last decade you’ve seen just tremendous momentum and disruption available to new entrants.

SM: What’s the next big opportunity?

JV: I think we’re still in the early innings of this transition to cloud-based computing. The amount of computer science graduates is accelerating. Now you have all of this computational power available to you at the swipe of a credit card. There’s no more infrastructure to put together. You just need to be a bright person with an idea and you can code up an application for a few dollars and see if anybody actually wants to use it. So innovation is accelerating exponentially because the resources available are at everybody’s fingertips around the globe. The internet took off in the 90s and enabled the creation of iconic companies in the following decade. Similarly, we now have Amazon, Azure, Google, and we’re going to see completely new applications. With the rise of ML and AI, which accelerate and improve the use of those applications, I couldn’t be more excited about the decade ahead.

SM: There is this ability to move money around the world and to work from anywhere in the world. Why isn’t everywhere Silicon Valley?

JV: I think the main reason is the willingness to take risks and fail. In no way is that a penalty on your resume in Silicon Valley. Everywhere else in the world, practically speaking, people are a little bit more afraid of that. I’ve heard so many stories of people from other countries where their families were successful and they don’t want to be the failure in that family. Or conversely, maybe their family struggled and now they have a college degree and can get a six-figure job for the first time and maybe in the family’s history. They’re not going to take a job at a company that might fail when they have that opportunity.

Whereas people come to Silicon Valley to change the world and they’re completely willing to fall on their face in the pursuit of that dream, and the community, the whole culture supports it. It doesn’t in any way create friction in getting the next job or starting the next company, and I think that is just idiosyncratic to the whole world. So that’s why Silicon Valley is just an amazing place. Then success begets success. People come here and they see Larry and Sergei, Zuckerberg, and now Ben Silverman and they ask, “Why not me?”

SM: You wrote, “We are not interested in people who start a company with the primary goal of making money.” What did you mean by that?

JV: I give almost every entrepreneur I know the book Shoe Dog, the story of Phil Knight and Nike. There’s an authenticity to his pursuit of changing the shoe industry. Not because he was destined to be a millionaire but because he truly believed in improving people’s lives. I think regardless of the money, it’s what energized him. Here’s the thing: all startups go through really hard periods just like in life. We all have our ups and downs. You have to believe so much in the North Star that you’re willing to work through the hardest of times. If it’s only money that ultimately drives you to do this, I don’t think you survive, nor does the team around you survive when you go through those inevitably most difficult periods. We talk about authentic entrepreneurs who just have to see the world in an improved state because of the thing that they’re building. That’s what we’re looking for.

Listen to the full conversation here and follow Unusual Ventures on Twitter for the latest on seed stage funding, entrepreneurship, and more.

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