May 10, 2016
Capital Efficiency: Lessons From the Financial Crisis
Javier Soltero discusses the challenges and lessons learned during the boom and bust period of his career. With past examples, Soltero cover...
In this installment of Venture Confidential, Peter is joined by Ryan Floyd of Storm Ventures to discuss the evolution of Storm and investing in general. Key points include when to stay out of the way as an investor, what it means to be client-oriented and why having expertise makes a big difference when choosing your next move.
About the Guests
Ryan Floyd is a founding Managing Director of Storm Ventures. He focuses on early stage enterprise SaaS and has primarily invested in applications and cloud/infrastructure related companies. Prior to founding Storm Ventures, Ryan directed business development activities at E-TEK. Before that he was with Summit Partners, a private equity firm, where he focused primarily on the communications industry, including Summit’s investment in E-TEK Dynamics in July 1997.
Peter Chapman: Ryan, welcome to Venture Confidential.
Ryan Floyd: Great to be here, thanks for having me.
Peter: I'd love to start with how you got into venture. You're one of the few people in this podcast that dove right into it post college.
Ryan: Yes, so, how did I get into venture? I'll make a short story. I went to go work for a group called Summit Partners, which would be a stretch called "venture," but it was private equity. I think for probably most listeners, it's pretty close. And my job there was basically to be, what the equivalent will be today of SDR.
Peter: It's probably a worthwhile distinction, how is venture different than private equity?
Ryan: I think private equity is kind of further along in the company trajectory. So revenue, profits. In the case of Summit, they were looking for profitable growing businesses.
In the case of venture, profitability is some distant thought. Sometimes we wish it was sooner, but it's not something we invest against.
So very different investment strategy, very different characteristics of the business. Private equity companies aren't growing as fast. A lot of differences, check sizes are very different, and so forth.
Peter: Great. And you hung out there for a handful of years.
Ryan: Yes, my job was to find and source interesting companies for somebody to invest in, which I did a few. Actually, one of my companies ended up going public, which I'm pretty proud about. And then I ended up joining another one called E-TEK Dynamics, which is an optics business during the telecom build-out in the late '90s, and I joined there to run business development.
Peter: And you also went public there?
Ryan: Yes, and then we ultimately took the company public, which was fantastic. It was just an amazing time because optics really came out of nowhere. When the internet became apparent that we really needed more bandwidth, telecom networks were at, basically, this need to grow very, very quickly. And there just wasn't a lot of technology out there at the time to do it, certainly not at scale.
You had what was a cottage industry, people making lasers and all these kind of bizarre components, all of a sudden now had to manufacture at scale. So it's what I did it E-TEK to enable basically now what we all take for granted, which is the internet and bandwidth. Then, on that, we ended up going public and then ultimately were sold to JDS Uniphase, another publicly-traded optics company. It was at that point that I ended up starting Storm with a couple of other owners.
Peter: How did you know that it was time to start a venture fund?
Ryan: Well, I'll tell you what the thesis is or what the state of reason, and then I'll you the real story. What we saw out there and what we tell people, which is authentic and the truth, was that there was a lot of venture investors at that time period that were investing in things they had no idea what they were investing in.
I think today in the venture business, people have a lot more domain expertise than they did 20 years ago. Twenty years ago, everybody was a generalist.
Oftentimes they came out of banking or something and they really didn't have any technology depth. Very different today. We felt that there was really a need for a venture investor to go deep in areas that they knew and understood. For us, that was understanding the enterprise.
The other trend that was going on back then, which is somewhat true today, is that venture funds have grown very large. I think people forget that back then, people were raising billion-dollar, early-stage venture funds. And this was 20 years ago when there was not nearly the number of opportunities that there are today
The public markets were still taking companies public at sub-billion-dollar valuations. And we felt there was a need for really an early-stage firm that was investing in domains that they understood. That was really the impetus to start Storm. But a big part about the story, and a true part, too, is really about the people.
It's advice that I give everybody that I talk with when they ask me about career advice, is to put a lot of trust and faith in the people that you're working with.
Beyond title, beyond salary, beyond function or even industry, potentially, because it's the people that ultimately determine your trajectory in life in companies.
People talk about the PayPal mafia often, right? Well, in my case at E-TEK and then now at Storm, it's the StrataCom mafia. PayPal mafia was not the first one. Fairchild had one. I mean, lots of companies that have come before it. In my case, it was an ATM Frame Relay company called StrataCom that had gone public and Cisco had acquired, and there was this amazing community around it.
A couple of my partners had been early employees there, at StrataCom. Having worked with one of them, Sanjay Subhedar, at E-TEK very closely, it was just very clear these were people that I needed to work with. I wasn't sure whether Storm was going to be successful. I was very concerned because it seemed like a one-way street, and I also, at that point, decided not to go to business school.
My parents were not super excited about it. They had a few comments for my decision to go do venture, and back then too I think it was more of a mystery, venture.
Today you're doing a podcast and people can read about venture. Back then it was very mysterious.
What is this venture thing and what do they do and how are you successful? How do you find opportunities to invest in? I think I was able to take the plunge because of the people, and that's still true today.
Peter: How did you fundraise for Storm back then?
Ryan: Fundraising our first fund was actually remarkably easy to raise. The reason for that was there's really very few investors who could even spell "optical." I mean, nobody knew optics like we did.
I think the equivalent today would be if you're a part of an AI team at Google and people thought you knew AI better than anybody else. Or autonomous vehicles. You could go start a fund today because that domain expertise is much more rare, right? It was the equivalent back then, perhaps even greater. And so raising that first fund was easy.
I'll tell you an interesting story about luck and why luck unfortunately plays a big role in this. So, 2000 was an interesting time. Probably a lot of your listeners probably were in high school or elementary school or I don't know what they were doing in 2000. But from a business standpoint it was interesting because you had this internet buildup and bubble that had been created and then literally overnight it began to unravel.
Finally, it happened to telecom as well. I remember Nortel preannounced, it was like October of 2000, that they we're going to miss their numbers. Nortel, by the way, isn't even around anymore. It went bankrupt. But it was the leading telecom equipment company.
As a result, everything began to implode, and we raised our fund in 2000. The reason that's significant is, if we tried to raise our fund in 2001, I'm almost sure it would've been very difficult to put together. Because people's attitudes about venture and optics and their optimism changed, literally overnight.
If we had raised our fund back in '98 or '99, I would tell you, too, we probably would not be around today. The reason for that is, back in those days, in '99 and 2000, people were investing half a billion dollars in a single year.
I'm not going to sit here and tell you we're smarter than everyone else, and we probably would've made a lot of similar mistakes. But because of our timing, that we raised late in 2000, we didn't have enough time to make a lot of mistakes and we raised it before the crash happened, which no one could really foresee. We were able to raise that fund and the rest has been history.
Ryan: You started this fund with a bunch of former colleagues. Had any of you done sort of venture-venture before?
Peter: No, not institutionally. I'd obviously been at Summit and so I knew a thing or two about private equity and private investing, but not venture specifically. And my partners actually, there had been a Storm one fund which had existed before 2000 when we started Storm. That was basically a collection of individuals, it was like an investment club and they had done a bunch of venture investing.
Part of the belief in why we could be so successful is that our deal flow was so good. We saw so many great opportunities, and so the portfolio was very, very good. That gave us the confidence to go and be investors. And of course, being former operators, I think we had a lot of hubris, which we can talk about, that our belief that, somehow, that would make for great investors.
Sometimes being a great operator is a hindrance to being a great investor. But we had the confidence to go do it, and it worked out.
Ryan: What are some of the things that changed, when you go from being an individual investor to running a fund?
Peter: Well, I think you're responsible for other people's money. I think that's the biggest thing. You no longer can do whatever you want to do and invest in an idea or a person just because you knew them from a product. You have to have a strategy, you have to have something that you believe that you're funding against, to build for the future. Being opportunistic is not a strategy that anyone's particularly interested in, at least the LPs that we work with.
I think that changes substantially. I think you have to work as a team, you have to be thoughtful for everyone else around the table in terms of what they're investing against, which you're investing in, is it all kind of a strategy that sort of makes and is cohesive? You can't invest in competitive things, at least we wouldn't, right? So as an individual, you're free to do whatever you want to do.
At Storm we're very focused just on doing enterprise, B2B investing, that's all we do. We don't do any consumer, we're not trying to send anybody to the moon, none of that. As a result, it's very focused but sometimes as an individual you might feel, well, that's kind of boring, right? You just do enterprise, B2B. What about this cool gaming company that my friend started? And I think all of a sudden, you're constrained there as well.
Ryan: Has the thesis changed at all over Storm's tenure?
Peter: Miraculously, the strategy has not changed in terms of focusing on the enterprise and investing in customer problems that we understand. We stayed very, very true to that, and we've also stayed very true to the stage at which we invest in. What has changed substantially is what we are investing in.
When we started, things like semiconductors were interesting. We just exited, last week we sold a company called Silego to Dialog, which we invested in over 15 years ago, 2002. It was a fantastic exit, but suffice to say we're not doing a lot of semiconductor investing these days.
The last semiconductor investment we made, I believe was in 2007, in a company called SandForce that did very, very well doing solid-state disk controllers. These technology areas have shifted over time, and as a result, we've had to shift with it.
I think our true north has always been enterprise and knowing those customers, and that's served us well.
Ryan: How do you stay up to speed on changes in technology?
Peter: Most technology target these enterprise customers. It evolves more slowly than people think. There are cycles that come and go and ebb and flow that are interesting, but it's not like they come on for a month, and then they're gone.
So I think actually there's time to really get your head around most of these opportunities, again, if you're within your domain. There are some areas that are more challenging for sure that really change the landscape, like the cloud and what happened with public cloud and Amazon and Google and Azure and what that does in terms of that dynamic. But that's not really a technology that you've got to get your head around.
Take something like AI that everybody talks about today. That's not a new idea. That's been around for a very long time. It just so happens that now the data and the compute makes it really affordable for most companies to basically implement something like that. So it's not like it's new, and I think that's given us a great advantage.
When there are new technology areas, we're generally pretty cautious going into them. A good example of that would be clean tech. Now, clean tech came on the scene a decade ago and it was very interesting, especially for most semiconductor investors, because it involved material science. And so for anybody that had their gravitational center around material science, it was pretty interesting stuff. They felt like they had a real advantage there.
The dielectric stacks and the way a lot of those solar cells are built, very similarly even to some of the things we did in optics as well. But we treaded very carefully in clean tech and we actually ended up not making any clean tech investments, not because we were uncomfortable with the technology, ultimately, but because we were uncomfortable with the politics.
It turned out, to be a really good clean tech investor, you needed to spend time in Washington to basically understand where the money was flowing and be somewhat connected there and have a sense for what was happening. That is not a skill set my partners nor I had at all, and so it wasn't a good fit for us. And so we got lucky. Otherwise, I think we probably would've ultimately made some investments there.
I think that lesson has really helped me, as I think about new technology areas and new areas to venture into, to be somewhat cautious. One area we're looking at right now that's new is healthtech. We're not alone there, there's other venture investors, too, that are interested in it. I'm not talking about healthcare or biotech drug discovery. I'm talking about the application of technology into healthcare.
The way I describe it is, the opportunity is, no matter what your politics are about healthcare in this country,
it's pretty easy to believe that technology is going to be part of the solution to drive more efficiency. It just has to be.
The costs are out of control and we need to figure out ways to be more efficient. Healthcare from an IT standpoint has been a relatively late adopter of technology but is a massive, massive market. And so we've begun to invest and we have a number of investments in that area now, that are basically helping to drive efficiency. And they've turned out, I think, so far so good in terms of our belief in where they're headed.
Peter: I'd love to hear a little bit about your own educational process. Healthtech is kind of new to you, you don't come from medical background. How do you go about diving into this new field?
Ryan: First of all, I didn't lead it. My associate or colleague at Storm, Arun, has lead lead the charge. He's really dug in and has basically built out an ecosystem of people that he knows in digital health and has basically become a student, I think, is the best way to describe it, of digital health and learning about it. It's really been a journey he's been on for the last three years now.
Admittedly, I was skeptical at the beginning about whether or not it was a sector we ought to get into. But he's done a great job not only of finding some great investments, but also convincing the rest of us at Storm that it's a great place to be thinking about.
One of the things he's done is he's built basically a very small digital health conference that he runs now, where he's able to pull some luminaries together and begin to have a discussion around what the problems are, what are some common solutions. Because there just isn't a lot out there today that's targeted at that. So I think by being early into that market, he's been able to do some interesting things and hopefully that'll lead to good outcomes.
Peter: You said something interesting earlier that I wanted to come back to. You said, "I thought that being an operator would help me be a great investor, and sometimes it's actually detrimental." How does operational experience trip you up as an investor?
Ryan: Well, it's not a truism so it's not an absolute. I think you can be a great operator and then become a great venture investor. So it's not necessarily detrimental. But I think the challenge is, as an operator, you have control. This is the big thing, right? I mean, as an operator, if you're executing inside of a company, you can make decisions. They can be very tactical, usually. You can make changes, very quick iterations, in order to get to the outcome that you're driving to.
In venture, despite how sometimes it's portrayed in the media, we really don't control anything. I mean, the only thing I really control is that first check I get to write.
Really, what do I have complete control over? That's really it. The rest of it, then, is just doing my best to help where I can, stay out of the way where I can't and try to make the best decision along the way in the journey.
I think for an operator, that's challenging because the natural instinct is, as an operator, I'll give you an example, most operators when they start in venture, they think their job is to invest. Turns out your job is not to invest, your job is to make money, right? And so if you sit on the sideline for a year and don't make any investments, rather than make some investments that are terrible, well, that's a good thing.
It's better to be patient and be slow as an investor than to be quick to pull the trigger. But that's contrary to all the instincts you build up as an operator. Because if you want to execute, it's, quick, quick, quick, get things done! Move, move, move, right? And that's not necessarily what serves you well as a venture.
One other thing there, as an operator, to mention is that I think as an operator, you can compensate for the team. You can have, as an operator, you can have a B player on your team, but maybe they're just a great cultural fit. They try incredibly hard, they rally everybody, and so it's all right that they're on the team. It's a B player.
So it takes a team, okay? You can't have all A players, sometimes, on your team. As an operator, you can compensate for that individual. You can hire other people around them, you can mentor them and help them be successful because you directly control their activity.
As a venture investor, if you invest in a B team or a C team, you can't control anything. They can't hire great people, you can't necessarily influence that. And so when you hear venture investors talk about the "want to back the best teams," this is why. The best ones at least talk about this, because you really can't control for a lot of that. But your instinct as an operator is you don't place enough value on that team because you think you can compensate for things. You think you can go in and fix it, you can help them. But oftentimes, you really can't.
Peter: How long did it take you to write your first check at Storm?
Ryan: Not long enough, is the short answer. Because of the time period that we got started, it was a heady time and people were moving very quickly. And so we were writing a lot of checks when we got started. We probably were investing in a new company every month and, for the first six months or so, which for a new firm is quite a pace, we also took the approach of investing as a team, which is another lesson learned for us.
What I mean by that, it's maybe a little nuanced, again reflects the fact that we came out of an operating background, we thought of investing as, hey, let's all get together and we'll make a collective decision about whether we invest in company X. You might think, at the surface, well, that sounds pretty good. You all get together, put your heads together and make a decision. But what that avoids is the consequential decision around who really is accountable for making that investment decision. Because in a partnership, nobody is CEO. So who's actually accountable for making sure?
Accountability is critical because it forces diligence, it forces focus.
It doesn't mean it necessarily drives to a better investment outcome, but I think it does in most cases, because it really pushes an individual to live with the decision that's hard to make. And if you make it as a group, it releases a lot of that pressure, which is again very different in an operating company where you want to make decisions that are not nearly as consequential.
And so we made that mistake early on. We were investing as a team. Now I think we've evolved to much more thinking about it as a team, and we're very team-focused in terms of our approach to investing. We all focus on the enterprise, we all help each other, we help each other on diligence. But ultimately it's one person's decision about whether or not that's the right thing to do.
I think it's uncomfortable sometimes, because you don't have everybody in the partnership telling you, "Hey Ryan, this is great, you ought to invest. This is awesome, you should actually make this investment." In fact, we push each other to build conviction before investing. We actually push back so that it just makes it that much harder to build conviction.
That process of building conviction about making an investment is, I think, pretty critical to success.
Because it pushes all the questions that you need to answer about, is this what I want to be investing in?
Peter: I'd love to hear more about that conviction-building process. What is the internal dialogue like at Storm when one of you brings an opportunity?
Ryan: Well, high level, the process is someone on the investment team, it could be a partner, a principal, or an associate, can bring something to the broader group. And we talk about it every Monday, like many venture partnerships, and we go through a series of opportunities.
What we try to do in that meeting is to surface if there's any, I'll just talk about them as like religious beliefs about things. The reason I use "religious," is maybe an interesting word, because it's an issue of belief. You never want to be in a situation where, if you don't believe, someone doesn't believe something, it's just very hard to convince people. Like in religion, it's very hard to convert. You can convert people, it's just that it's very hard, right? So it's an issue of belief.
If someone in the partnership has just a belief that something doesn't make sense or will never be an interesting business, then you know it's going to be very hard to convert that person to be a believer, right? And so I try to, I think
we all try to, get out there some issue fundamentally of belief, a religion in the partnership.
Like someone just doesn't believe a particular area is going to be interesting. I don't know, like open source just as a big, big high-level example. Maybe somebody, and this is not true at Storm, but as an example, it could be a partnership, they're maybe a group, open source has been a challenging area. There's been some successes, quite a number of failures; it's almost like the jury is still out on it after 20 years, it's amazing, or longer.
Someone in the partnership may say, "You know what, open source doesn't make any sense. We shouldn't be investing in any open-source companies, period." Well, it's going to be hard to convince that person otherwise, no matter how big the community is and how many stars the project has. It doesn't matter, right? They don't believe in open source. So we try to get those things on the table. And oftentimes, that's enough if someone has an objection, that we'll just pass on an opportunity.
Peter: Deal's over.
Ryan: Deal's over. Where, if someone is just that diametrically opposed, there's no absolutes. I mean, conviction needs to be much higher, then, because now you know that there's people in the room who just don't believe that makes any sense at all.
Your conviction about why this makes sense as an investment has to be that much higher. There has to be something fundamental that person's missing to make you believe that it's that great an opportunity that they would be so dismissive about it.
Peter: So you might say, "Peter, I know you don't believe in open source. I think this team is the next big thing. We're going to agree to disagree, and I'm going to put money in here."
Ryan: Yeah, it's not quite that simple, but yes. Ultimately, we make an investment decision around the table by all of us signing the check, okay? So what you're kind of driving at is, we don't have a voting system, we don't have some complex thing in terms of how we vote and this person gets dissuaded, or none of that. But we as partners basically all have to sign the check.
I think I have a very luxurious position where I have a tremendous amount of trust in my partners. So I know that if my partner Tae Hea wants to make an investment, even if I don't believe it's a great thing to invest in, I have trust in Tae Hea.
I know he's built a lot of conviction, because I've shared with him my opinions about it. And so I know that's pushed him to think more about it and it maybe, unfortunately, has caused him some sleepless nights. I know he's caused me some sleepless nights, but that's part of the process and that's a good thing to go through.
But us all sign the check? In theory I suppose I could veto something. I refuse to sign the check, I could or he could or, that's never happened at least in a first check situation, because we just don't get there. Because we sort of know where people stand. And again, you don't build the conviction around it. That's how we progress through.
The job at the partnership really is to try and push you into areas that maybe you didn't think of, your blind spots.
Maybe you got excited about one particular thing but you sort of miss these two other things about it. Partnership often will know people in the industry that can be helpful just thinking through the opportunity, and so that's the place where those contacts get surfaced that can help us think through those investment opportunities. And all of that goes into building conviction.
Peter: What are some common questions that you've gotten from the partnership?
Ryan: There's nothing that's going to stand out that's going to be an "aha" moment. But you know, hey, I don't believe, is the market really big enough? Can you really build a big enough business in that market? Is this the team that can go out and go compete with the four other companies that are already well-funded in that sector, and why?
It's, again, somewhat probably missed on a lot of entrepreneurs, but it's sometimes very consequential when we decide to invest in a particular company. Because that means we're not going to invest in any other company in that sector, right? At least for Storm. We try very hard. Sometimes it doesn't work out and we end up having competing companies. But generally speaking, we try very hard not to invest in competing companies.
So if my partner wants to invest in company A, that means we can't invest in company B and C in that same sector. And maybe company C hasn't even gotten started yet because it may be a year from whatever. It may take time for that next competitive company to emerge, but we'll be qualified out because will have made an investment a year earlier. So it's a lot of questions like that, that come up.
Peter: What is the Storm check size? Where do you guys play?
Ryan: We're investing right now out of a $180 million fund. Generally speaking, we do series A. We do some seed investing, but it's very small. But the bulk of our investments are what would be, most people would think of, series A where there's already a little bit of product revenue. And check sizes are anywhere from a million to five.
Sometimes we stretch a little bit bigger than that, but that's generally the check size. And we try to keep it relatively small in that zone because we're going to reserve capital for all the follow-on rounds and we need to make sure we preserve enough capital to do that.
Peter: Yeah, do you try to lead?
Ryan: We lead just about everything we do. We take a board seat in almost everything we do as well. Yeah, we found that the biggest governor for us is time. And that's probably true of most early-stage venture investors. The companies that we do invest in, we want to make sure that we're investing for us, significant dollars, and we own a reasonable amount of the company so that we can spend our time and really help them.
The reason that we really focus on the series A is that we really feel that, where we can impact a company's trajectory, is around go-to-market.
That whole journey around go-to-market, from marketing all the way through sales and business development and channel. Every enterprise company goes on a journey from that first customer sale to whatever million in revenue that is fraught with bumps and walls and hurdles and joys and defeats.
What's amazing is that there's a lot of similarities across all these enterprise companies. What matters actually more than the sector is often times the price point. What matters is, are you selling your product at $5,000 a month? Are you selling it at $20,000 a month? Is it SaaS or is it a perpetual license or a term licenses? Does it have hardware or no hardware? These questions are more important than, is it a security product or is it a developer tool? Or something like that.
We can apply a lot of the knowledge and experience we've had over the last 17 years, then, to the existing portfolio of companies. And we've learned a lot in terms of what makes sense and how we can help. We've also learned a lot about what doesn't make sense and maybe where you can go off track with the companies as well.
Peter: What are some common traps there?
Ryan: I think the biggest common trap is that you find often venture investors are very prescriptive. I've never met a venture investor that doesn't have an opinion about whatever it is you ask them. The problem with that is that for most companies, it's not that simple. Just because I had success with my prior portfolio company that went public and had no sales force, and so that's now my new mantra, it doesn't make sense it's going to work with all the companies going forward.
It's not to say every company is a snowflake and is completely unique, but I think you have to take into account the team, the culture, the product, the price point; there's a lot of factors that come to play in thinking about what that right go-to-market strategy is.
The way we think about it is, it's important to have a framework. And then within that framework, you can adjust. But you need to have a framework. That's really the way to sort of think about it. It's not like, this is the plan that works for every single company. We avoid like that, "hey, we got a hammer, everything's a nail" strategy, and it drives me crazy on boards when investors have that mentality.
I think that's probably the biggest trap. By far, that's the biggest trap that people run into. Maybe a close second to that would be just overly optimistic about the business. When venture investors are overly optimistic, they often encourage and reinforce bad spending habits.
Entrepreneurs, I think they have to be optimistic. You have to be, you can't get up in the morning. And venture investors, too, have to be pretty optimistic. I mean, have you ever met like a really cynical venture investor? It just doesn't exist, right? Because you have to believe in the future.
Entrepreneurs are even more that way. If you get a venture investor that just reinforces all the optimism, it can lead to very bad business decisions. Because then you invest in things you shouldn't invest in, you try to grow too fast, you spend too much money, and boom, you're in a bad spot.
Peter: You were talking about, you said it's important to be, I'll say, pragmatic, right? Like, you need to both believe in the vision of the company, but also be firmly grounded in the ways the company might go under. How do you balance communicating, talking about those risks in a way that feels supportive and enthusiastic and like you're bought into the vision?
Ryan: Well, it starts from a place of authenticity and honesty. And that may seem really simple and obvious, but sometimes just being honest and being direct, I guess maybe that's a better word, I don't mean "honest" in the sense of stealing or what, I mean, it's just honest in the sense of being very direct with people.
I think that's probably where it starts. And that doesn't mean being critical, necessarily, but it means being direct about the facts about the business and how it exists today relative to what everybody believes it's going to be, good or bad, right? In a negative case, it might be, "Look, we've got X amount of million ARR, we've got an awesome customer base and you've got a great team." Like, "Yes we had a terrible quarter, and yes, your whatever, CFO, just quit and your number-one competitor just went public and it's been about a week. But we've got a great business." It's looking at that existing fact set and helping people think about it.
Another piece of that is giving perspective. I think it's very hard to expect teams to have a broad perspective on the market, because they are in the company fighting to build that business. They're very execution-focused, and so
one of the valuable things I think venture investors can bring to the table is just a broader perspective on what's happening out in the market in general. A CEO is just not going to be seeing all of that day in day out.
They may know a lot about what's happening maybe with a particular competitor or with a particular customer, but what's happening in the broader market. Especially for Storm where we're just doing enterprise investing, that's a big piece of what we can bring to help kind of give some perspective.
Peter: How have relationships with founders changed since you've gotten into venture? How is Ryan now different from Ryan in the early days?
Ryan: It's very different, and it's a little embarrassing to talk about, because I just look back somewhat on my history 17 years ago and cringe a bit. But it's different and it's different in a couple of respects.
I think having been inside an operating company before, I felt like I had more control over things coming into venture, which we've touched on a bit ago. And as a result, it felt like I could dictate more than I really could or should. That comes across as, I think, for so many reasons, it's a bad way to behave. First of all, most of the time, what I would dictate or what I thought was the right thing to do and I stated as fact, it wasn't that clear. It wasn't that obvious that, "That is what should be done."
Second of all, I think entrepreneurs and CEOs knew ultimately that they had to have, we talked about accountability a minute ago, they ultimately had to be accountable for whatever execution decisions they made. The last thing they wanted or I wanted, I didn't realize it at the time, was for me to make any decisions for them, right? That leads to a just bad, bad things. So I think I've behaved in a way that probably wasn't the best in terms of really helping these entrepreneurs be as successful as they could be.
Early on, though, I think I adjusted and I began to change my behavior in terms of, as I saw that it didn't work particularly well and I wasn't getting the results that I wanted to get. And my partner Tae Hea actually taught me this, that he actually started out his career as an attorney.
As an attorney, of course you have no control over anything. I mean, it's a pure services business, really, right? Everybody is a client. And so he really had this kind of client mentality. And that's really the place to come from as a venture investor, that you really come from a service perspective.
We're there to make everybody else successful. If we do our jobs right in that respect, we'll be successful. That's ultimately the goal.
A good example of that, that I learned from him, is don't try to mold all of the CEOs to work with you. Instead, you change to work with all of them in different ways. So what that means is for some CEOs, they can be very aggressive and hardcharging, and that's their style. So then your style is perhaps to listen, give them some feedback, challenge them, but try to give them more context and perspective than just being hardcharging.
But allowing them to sort of do that, don't fight that, because that's who they are and that's a great trait in many respects. That's who they are and let them be that way. And help them be successful if that's their kind of personality. Versus, maybe another CEO that's perhaps more introverted, maybe very technical. So how do you make that person successful, right? And that's a different skill set then.
Both of those CEO profiles can be successful. It turns out there's just not one personality that leads to success. So how do you work with that other personality to make them successful?
Instead of trying to make both of those people mold into what my idea of success is, I've got to figure out how to make both of those people successful in different ways.
I think that's been very helpful for me because it really puts that center of attention on the team and the founders, rather than on me.
Peter: I'd love to get specific here. You've got hardcharging, aggressive CEO, and you've got introverted, more, let's say, thoughtful CEO. What are some of the things that you do differently?
Peter: I'll think about teams. For example, there's a certain personality let's say, what's a good example, hiring a VP of sales. Let's say both of these two hypothetical example of CEOs are hiring a new VP of sales. The hardcharging CEO, I know that they're going to have to have a VP of sales that has that style, because if they don't have that style, they're going to get just run over, okay?
It's very important I think, in general, to do basically like a match, a personality match. It's like dating or something. I mean, you got to find a cultural fit. For the more introverted CEO, if you have a really hardcharging VP of sales, that can sometimes lead to challenging situations because maybe they're going to be overly optimistic about a sales forecast or overly optimistic about the number of salespeople they want to hire, or just in terms of pushing the envelope on representing how much of the product is real versus what's going to get done next month, these sorts of things.
You have to think about balance and what that means. Maybe it's okay to hire that aggressive VP of sales, if you've got a great CFO in the company that can be a foil and help the CEO keep all of that. It's thinking about how all these pieces ultimately fit together.
Another good example would be if you have a really hardcharging CEO, you probably don't need to have a out-in-front CMO that wants to spend all of their time speaking at conferences and being really high-profile. Because the CEO, likely, that's what they want to be doing. And that'll create conflict if you have a CMO that also wants to be doing that.
So maybe the CMO in that case needs to be more of the thoughtful type that's really thinking more about the demand gen and really strategic stuff, which is just as important, but can complement that CEO to make them successful. Whereas the opposite might be true in the other case where you have a more introverted CEO, doesn't really like going out in front of conferences, that's not their thing. Maybe you want a CMO that is more comfortable with that and wants to get out there and do that and is more out in front.
Peter: What are some of the other things that you do or that Storm does to be really client-centered?
Ryan: I think the litmus test for us is that
I want every CEO team that we work with to look at us as a resource. What that focuses me on is really thinking about where I can help, but also importantly, where I can't help and staying out of the way.
I think you've had other venture investors on the show before, and I'm sure they've all talked about value add, which is important and we can talk about that. But I think it's important to think about where you can't help. And where you can't help, you stay out of the way.
I wrote a blog post several years ago saying venture investors ought to take this equivalent of the Hippocratic oath. Your first job as a venture investor is, don't screw it up. Again, you think, gosh, that's a low bar. But it turns out, it's not in all cases. So being thoughtful about where you can help and where you can't.
I'll give you an example of that. A lot of venture investors, especially the young Ryan, when I first got in, part of my job was I had to meet with all these CEOs all the time. I've got to be on top of what's going on. But it turns out, it takes time. It takes time when a CEO, they've got to sit down, they've got to meet with you all the time. If you're not helping and actively moving the ball forward in those meetings and it's just an update, boy that's not a good use of their time. Because even if they're not spending time working at the office and building the business, they've got a family.
I mean, the last thing they need is another hour gone out of their day. I mean, who has that? So I guess, said a different way, it's trying to put yourself in a position of, if you were running the business, how would you really think about what's helpful? How would you really think about what moves the ball forward? And a lot of the time that matches up with what a venture investor will say is "value add," but sometimes it's different.
I'll give you another example. We do a lot of events but not a ton. We're not doing an event a week where we ask all of our CEOs to come to a particular gathering or whatever, because I think we realized that, look, it's just hard. It's hard if they're out every single night at one thing or another. That's just not a great use of their time. I would love to have a get-together of all of our data science CEOs once every other month because I would learn a lot. I'm not sure that's necessarily making them more successful. So we try to be thoughtful about that in terms of time allocation.
But at the same time, where we can put everybody together, we get our security CEOs together probably once a year, once, twice a year, and there's a lot of value they get out of that as well. Because then they get to know each other and there's been lots of opportunities that have come out of it in terms of partnerships. So it's just trying to be really thoughtful about, if you were them, what would really help? And then trying to avoid everything else.
Peter: I love this Hippocratic oath of VC. What are other ways that VCs have accidentally interfered with companies?
Ryan: Well, I mentioned one by being very prescriptive. I think that's one, right? So just believing that whatever worked before, whatever you were successful with before, that's going to work again. I think insisting on hires. I see this mistake all the time. You know Jill, and you worked with Jill before at a company, and so you're trying to get Jill in as Director of Marketing at your portfolio company.
Look, Jill might be a rock star, but you've got to be careful, because you don't want them to hire Jill because they felt obligated because you're an investor. You're putting Jill in a terrible spot if you think about it, right? If they feel like they hired her and then she comes in but they aren't sure if she's the right fit. And then what if it doesn't work out? Then it's terrible. Then they made this decision, and so I think you have to help companies, certainly surface candidates, to hire, help them think through who the best person is to hire but then step back and ultimately let them decide who the best person is to hire.
Because I do think in a lot of situations investors don't appreciate like, look, if you jump in and torpedo a candidate, the CEO may not want to go against that, because, whatever, it's just not worth it, right? They don't want an investor saying that they made a wrong decision.
Unless you're 100% sure, sometimes you got to be careful with your opinions and how you share them.
It's kind of like running a team with more junior people. I mean, it's not exactly the same, because CEOs, we view them as kind of equals. But you've just got to be careful with who you and how you share your opinions around the table.
Peter: I end all these the same way. You've given us so much good stuff on this already. I'd love to know what's something you wish you knew going into this?
Ryan: I'm not sure it would have changed my mind about being in venture, but I'd say there's two respects that I didn't fully appreciate that, had I'd known at the time, I would've thought about things differently.
The first is, it's a long throw in venture. It is a long-term business. And like I was mentioning, Silego just exited 15 years later. That's not typical by any stretch, but look, Hummer and Winblad invested in Mulesoft that just exited, went public this year. I mean, that was a long throw, too. There's a lot of examples like that.
When you're in a long-term business, you have to take a different strategy. Really, it's a marathon and you have to think about it that way, because otherwise, you're just going to burn out and you might make decisions that are tactical but not strategic in your own personal career and growth.
Going back to early Ryan and some of those things that I did, that was not thinking long term, that was not thinking about, how am I going to build relationships, how am I going to make these people successful so that later on in their careers, they'll want to work with me again? I wasn't thinking about that as much then as perhaps I do today. It turns out it's not self-serving at all, because again, it goes back to all about, how do you make these people successful? It's so simple when I think about it now, but when I started, it wasn't obvious at all.
The other thing I think that again relates to keeping perspective, the second thing I wish I had a better sense for, is how much luck and fortune plays a role in all of this. You'll find some venture investors like me that maybe will talk about it, because I think we all as human beings, we want to believe that all of our success is due to "my intelligence and my ability to do things so much better than everybody else." And that's not the whole picture, right?
The whole picture has a lot to do with being fortunate with timing and luck. The reason that's important is not that like I'd plan my career around being lucky. I plan my career on how to create more luck, perhaps, but what that means is it keeps you humble, it keeps you thoughtful about what drives success. And it keeps things in perspective.
Like I was mentioning, there's good days and bad days on the journey being an entrepreneur, and that makes sense when you keep it in the context of luck and fortune, that some things are going well one week and then your fortunes may change the next month. And so it all kind of fits together.
I don't mean to sound too zen about it, but I think it helps just give the confidence for me as a venture investor to continue to work with folks even when things may not be going as well or when I find challenges, and to have a perspective that the future is very, very bright because I know what has come before and I know fortune's changed.
When things are going really well, it also drags me back down to earth knowing that tomorrow, things may not be going as well. And so whether I've got a couple, I mean, I'll give you another example. Maybe in a partnership, I've got a hot hand right now and I've got a bunch of companies that are doing really well. So I have to be careful about, how do I treat everybody else in the partnership? Maybe my partner's companies aren't doing as well. But you know what, in a couple of years, that may not be the case, it may be totally opposite. So I'd say luck and fortune is one, and then the second is really just kind of having a long-term perspective.
Peter: Ryan, thank you so much.
Ryan: Thank you.
Peter: Where can our listeners find you?
Ryan: I'm easy to find, email@example.com or on Twitter @RyanFloyd.
Peter: And who should get in touch with you?
Ryan: I think any entrepreneur that's trying to build an enterprise-focused business, especially if you've got some product market revenue. Great to talk to you.