C2V August Notes From The Trenches
Welcome friends! We hope everyone has had a nice summer so far, and we appreciate you taking time out of your well-earned vacations to read this (even if you’re just using it as an excuse to duck your families).
We’d also like to thank the good people at Andreesen Horowitz for spicing up an otherwise dull news cycle with the announcement that the firm saved its biggest ever investment for… Adam Neumann???
As shocking as the decision itself and headline numbers here are, the reality-bending and impressively tone-deaf blog post on a16z’s rationale is truly mind-blowing and almost certainly removed any remaining doubt that the Bay Area is America’s most airtight echo chamber. Where else could someone with Neumann’s track record secure $350 million at a $1 billion valuation from a tech investor for a pre-revenue company that has nothing to do with tech? Andreesen’s commentary on Neumann’s earlier work really hammers this home: “We understand how difficult it is to build something like this, and we love seeing repeat-founders build on past successes.” Yes, he actually said “past successes”. In writing.
Is this worse than Masayoshi Son dropping his first $4 billion on Neumann after (a purported) 12 minutes of due diligence? Actually, it might be. At least Son didn’t have a past dumpster fire that was the subject of dozens of exposes, documentaries and re-enactments to serve as a warning, and he can say he just got caught up in the heat of the moment or whatever. Andreessen has that track record in hand, seems to have actually done real DD here, and still concluded this was the guy to back.
In any event, grab your popcorn; this should be fun.
Deal Flow
Following up on last month’s recap of some fundraising lessons we took away from closing our first two funds, we thought we’d share how we think about and manage deal flow.
Size Does Matter
Nearly three years after the launch of our first fund, we’ve reviewed 1,922 deals and invested in 33 companies (1.7% of deals reviewed). That’s not a targeted number (if a company makes it through our screening process, we invest), nor do we think there’s any magical threshold a VC should be aiming for, so this isn’t to say that if you invest in 5% of the deals you see, you’re doing something wrong, but casting a wide net is important for many reasons, the two biggest being:
1. There isn’t a whole lot of truly proprietary tech out there.
Most companies differentiate themselves more through the way they apply the tech and deliver it to users. As a result, you’re likely to see more than one company tackling any given problem, and the more you see, the more conviction you’ll have that you’ve identified the best one.
2. Pattern recognition. Usually, it’s no more than a handful of startups going after the same problem, but sometimes it’s dozens (creating a wall of noise for customers that is difficult to penetrate, even if you have the best product), and you wouldn’t necessarily know that (especially at the early stage) if they weren’t all pitching you for funding.
So How Do You Get Consistent Volume?
It’s not dissimilar to fundraising:
1) Leverage your network, your network’s network, your network’s network’s network… you get the idea.
2) Make sure they send you everything they see. Often people feel like they need to curate intros for you. You should actively discourage this. It’s always better to spend a few minutes on an additional pass than to miss a potential winner. Plus, more reps never hurt.
3) I hate to say it, but an active social media presence really helps. If founders know you exist, they’ll come to find you, so the easier you make it, the better.
Quality Matters Even More
Investing in great companies is hard if you don’t see great deals (write that down).
This is where the sources of your deal flow come into play. While we’ve invested in only 1.7% of the deals we’ve seen overall, we’ve invested in:
17.5% of deals received from angel investors
5.6% of deals received from LPs
3.6% of deals received from other founders
This is not to say there isn’t value in the other channels. In addition to the benefits of sheer volume, two of our best companies came from cold outreaches (one LinkedIn, one email), but you need a balance.
How Do I Ensure I’m Getting Good Quality?
The three best things you can do are:
1) Identify the people/organizations who consistently get you the best looks and triple down on them. Some people are just more plugged in than others. Make sure those people have you on speed dial.
2) Be clear, consistent, and specific in your messaging. Saying you invest in great founders and innovative companies isn’t helpful to a founder wondering if you’re a good fit.
This may seem like a no-brainer but go look at the websites of any 10 VCs and see if you can figure out where they focus (we bet you’ll go 3 for 10 at best). Some examples from a quick scan of the websites of several large, well-known VCs:
“Our team partners with audacious entrepreneurs building enduring companies”
“We seek emerging, transformative technology and technology-driven founders who create and lead companies that will influence the behavior of millions.”
“[We are] a venture capital firm that backs bold entrepreneurs building the future through technology.”
“We help the daring build legendary companies.”
“We are a venture capital firm focused exclusively on supporting visionary founders”
See what we mean?
3) DO NOT try and rely on other VCs. We have many friends in the space who we greatly respect, but what we respect even more is the power of selection bias. Even with the VCs you trust the most, you always need to ask yourself, if this was one of their best opportunities, would they share it with me (or any other VC)?
Managing That Firehose
We’re seeing more than 80 deals per month, but we get through our weekly reviews faster than we did two years ago with half that volume. How? Ruthless, disciplined triage.
The key is to understand that there are reasons to say “yes” to any company; you need to look for reasons to say “no.” And the minute you find one, cut bait and move on (trust us, you’ll land on “no” eventually, you’re just skipping the hemming and hawing in the middle).
Don’t Forget That This is the Fun Part
If a consistent stream of new ideas cooked up by people generally much smarter than you doesn’t wind your clock, you’re in the wrong business. But sometimes you find yourself overwhelmed by the sheer number of deals you have to sift through or dispirited by a run of crap companies, in which case we find it’s helpful to:
1) Remember that feeling you get when you’re halfway through a deck, and you realize you’ve struck gold and soldier on, and
2) Find stuff to laugh at (there’s plenty if you’re paying attention).
Sometimes this means taking a minute to savor all that a completely unhinged pitch has to offer. For example:
This promo video:
This entire submission:
Startup names are also a consistent source of entertainment for us, particularly when attempts to be clever go awry.
Matt posted some of his favorites to Medium in early 2021, and he updated that post here. We hope you enjoy them as much as we did.
C2V By The Numbers
C2V In The Trenches
Ben Cantey, Founder of Rumby.co, joined Matt to talk about his career as a serial entrepreneur. He shares some of the funny companies he created, like, You Dump It, and his favorite hobby (which is so cool). He talks about the lessons he learned from failing and getting back up again and how he is doing things differently this time.
Lucas Takahashi, Founder of Medmo, got into a deep conversation with Matt about the disadvantage of measuring a company’s success based solely on revenue. He shares the pitfalls of working with the outdated “shmoozing ideology” of old-school physicians. And there is a brief discussion of what a dinner conversation would be like with Bill Murray, Jackie Chan, and Vin Diesel as guests.
Lucas also shares some fun memories of when he first started Medmo, “In the past, one of the funniest things from clients is that we’ll call them and say, “We’re Medmo,” and they’re like, “Oh, we know Venmo. My wife uses Venmo.” So we got confused with Venmo a lot, which I thought was really funny. And we probably need a branding exercise in light of that.” Read the article here.
Portfolio News
Koffie Insurance Raises $11 Million to Drive Expansion and Growth
“We’re excited to show how InsurTech 2.0 can make a demonstrable impact on the industry. At Koffie, we are proud to integrate safety into the bottom line of trucking companies, accurately tailoring products to fit the needs of individual fleets. We’re excited to collaborate with our customers to continue to deliver best-in-class solutions.”
This is the pitch deck that landed them $11 million.
Zero Trust Data Security MUZE Platform Reduces Breach Risk and Incident Response Cost with Automatic File-Level Encryption
Phalanx AI Inc. (Phalanx), a Techstars-portfolio startup company operating in the greater Washington, D.C. area, announced the official launch of MUZE (Monitoring Unstructured data with Zero trust Encryption), which reduces the risk of data breaches, reduces the cost of incident response if a breach occurs, and provides data security through automatic, productivity-centric file-level encryption.
Rumby racked up 500+ new cleaner locations at a recent cleaner show in Atlanta. No wonder they got so much attention; check out their killer setup.
Noteworthy AI Raises $3M to Increase Electric Grid Reliability, Resiliency, and Safety via AI-Powered Asset Inspection
The company's technology directly addresses the need for grid reliability, resiliency, and safety in light of increased demand for electricity and extreme weather events that put the deteriorating distribution grid at risk. By reducing inspection costs, Noteworthy's solution enables utilities to increase the frequency of pole inspections while proactively identifying problem areas that require maintenance, all of which aim to make communities safer by reducing preventable service interruptions and outages.
"The U.S. power grid is at a critical juncture, already experiencing outages with unprecedented frequency and facing considerably more strain in the coming years with the accelerating adoption of electric vehicles and renewable power generation facilities," said Matt Olivo, general partner of C2 Ventures, an early-stage venture firm focused on software productivity tools for legacy industries. "Noteworthy's use of machine learning to automate grid maintenance will provide crucial cost-savings and necessary scale to utilities currently facing an untenable multitrillion-dollar price tag over the next decade."
Steelhead Technologies Raises $2.2 Million Seed Round
Steelhead Technologies, a platform for process-based manufacturers, announced it raised $2.2 million in seed funding.
Steelhead software helps manufacturers manage their plants and improve efficiency through automated business intelligence that helps track metrics like costs and throughput time. The software can also track invoicing and shipping and can help train employees. The company, which is based near Detroit and has a team in Minnesota, plans to use the recent funding to further build out its platform and improve its customer service offerings.
15 Female Fintech Leaders That are Revolutionizing the Industry
Ksenia Yudina recently named one of the top 15 female leaders in fintech, is the founder and CEO of UNest, a financial app to help you save money for your child’s future.
She is a financial expert and entrepreneur with over a decade of experience and has an MBA from UCLA Anderson School of Management and CFA Charter. Ksenia believes that accessibility of financial advice is key to solving the student debt problem in the U.S. Therefore, she built UNest for parents who care about the success of their children and want to give them a financial head start.
Anyone with a cell phone can start their journey on the platform within minutes without dealing with paperwork. UNest eliminates the complexity and limitations of legacy 529 and custodial (UTMA) products.
Beam Named One of the 5 Luxe Products for a Good Night’s Sleep
The CDC says that a third of American adults don’t get the recommended 7 to 9 hours of rest per night. Sleep is tied to overall health; poor sleep can affect concentration and memory. While not everyone will need the same products, here are some of our favorites to get a good night’s sleep.
Job Opportunities
Noteworthy AI: Technical Customer Success Manager.
Paladin: Customer Experience Manage
Director of Data and Analytics