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Venture Confidential
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Ep. #22, Feat. Dan Scholnick of Trinity Ventures

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In episode 22 of Venture Confidential, Dan Scholnick, General Partner at Trinity Ventures, discusses how his past experience as a two time entrepreneur helps him determine which promising companies and charismatic entrepreneurs to invest in as well as what sets Trinity Ventures apart from other funds.

Dan Scholnick is a developer, technologist and product-oriented entrepreneur-turned-investor. Dan began his career as the second employee of Wily (acquired by CA) and co-founded Flurry (acquired by Yahoo!) before joining Trinity Ventures in 2007.


Tom Drummond: I'm excited to say today we have Dan Scholnick from Trinity Ventures joining us here. Hi Dan, welcome.

Dan Scholnick: How's it going?

Tom: Good, Thank you.

Dan: You pronounced my last name correctly.

Tom: I've been practicing, it's all part of the media training we get. Excited to have you here. Tell us a little bit about Trinity.

Dan: Sure. We're a classic early stage venture capital firm. We've been in business for 32 years. We're investing out of our 12th fund which is a $400 million dollar fund. When I say, "We're classic early stage investors," I mean that we focus exclusively on early stage investing and have been for 32 years. We exclusively invest in what would be considered seed, Series A, and Series B rounds, and try to be the most helpful partners to early stage companies that we can be. We invest across both consumer companies and have a long history of investing in consumer companies going back to the early days of Trinity, when we were the first investors in Starbucks, to enterprise and infrastructure software. I have a feeling, given that we're at Heavybit, we'll spend more time talking about that part of our business today.

Tom: Hopefully. Although I'd love to hear about the Starbucks story as well, but how about yourself? How long have you been with the firm?

Dan: I've been at Trinity for over ten years.

Tom: Always focused on enterprise, always focused on infrastructure?

Dan: Yeah, that's my background. I'm a former software engineer and entrepreneur.

It's easiest to invest in the areas that you know well.

Tom: Does that feel like a lifetime ago, or do you feel like you're still taking a lot of your entrepreneurial experience and applying it to the startups and the ventures you look at today?

Dan: The thing that is wonderful about this job is you're learning every day. It doesn't matter how long you've been doing this. You could be doing it for two years or 20 years, things change quickly and every day there's a new situation you haven't seen before. My prior entrepreneurial experience is definitely still relevant but I'm learning new things every day. It's as likely, if not more likely, that I'm going to bring my experience as an investor and board member observing hundreds of startups to bear than my previous entrepreneurial experience.

Tom: Sure. You've been a pretty active investor this year. I understand you guys are doing deals at quite a pace. I was going back through Crunchbase and looking at some of the deals you've done this year. Recently, you guys announced investment in Gatsby. We share a lot of investments together in Meteor and PagerDuty and Contentful, and a whole bunch of other stuff. How has 2018 been treating you so far?

Dan: 2018 has been great. I will say though, I'm sure the Crunchbase data doesn't reflect the reality of our investment pace. Because in many cases, there are companies we invested in last year such as W&B, Weights and Biases for example. But we didn't announce the funding until this year, and it shows up in the Crunchbase analysis as, "Trinity is on a real investment tear." The reality is, it might not be interesting to the audience, but a part of Trinity strategy is we invest in a consistent pace every year.

That comes out of learnings from previous economic cycles where the pattern you see in the venture industry is, when times are good everything speeds up, and firms start blowing through their funds quickly. 20 years ago Trinity made that mistake during the dot com bubble and that came back to haunt us. Ever since then, one of the things we've done to moderate our investing pace, is to have a strategy to be consistent.

It helps you in down markets and up markets, because it means in a frothy market like today's market you don't invest too quickly and get overexposed, and in a down market it forces you to invest.

It's the best time to be investing, but psychologically if you can remember back to 2008, 2009, 2010. It's hard to invest because today we're optimistic about everything. Any company comes in through the Heavybit doors and you're like, "This is going to be huge!" But in 2009 it felt the world was falling apart. Imagine every company walking through these doors and you think, "This is never going to work." How do you ever get an investment done? We've found that strategy has positive ramifications on the way we operate.

Tom: And when you talk about consistent, do you think about that in terms of the number of deals or opportunities?

Dan: The number of deals and the amount of dollars we deploy every year, and we are consistent. If you look at our fundraising pace at Trinity, how often we raise a new fund, it's been the same for a long time. Roughly three and a half years is our fund cycle .

Tom: OK, cool. You mentioned you think this is a frothy the market, or close to the top of the market. How close are we? Is there a top to this market? Can it get frothier? Where are we in the cycle?

Dan: You asked me this question before we sat down for this interview, and I'll give you the same answer, which is I've been calling the top of the market for at least six years . So, I don't know.

Tom: But as you said, you are consistently investing, do you not get worried about putting money to work at such high prices or high valuations? Versus trying to get your ownership level? Or, do you scale your check size with where the valuations are at?

Dan: A couple of things. We're paid to invest, and there are good opportunities for investment in any environment, whether it's a frothy environment or a or a down market. One of the reasons why we've stuck to our knitting as early stage investors, besides the fact that we're passionate about it, I was a two time entrepreneur before I became a venture capitalist and the firm was founded by a three time venture backed entrepreneur.

Most of my partners are former entrepreneurs. We love early stage because we lived it at one point when we were all founders. But the other part of the reason why we've stuck to our knitting in early stage is we think there are good investment opportunities at the early stage in any environment. Even if valuations are higher than they ever have been, the reality is relative to where our great companies are going to exit. The entry valuations we are paying are pretty low.

If you think about a company like New Relic, to use an example from my portfolio. I don't know what it's trading at today but it's been jumpy. The market has been volatile, but it's trading somewhere between $5.5 and $6.5 billion dollar market cap. Whether we got in at a $5 million or $15 million pre, it doesn't matter much in terms of how meaningful the return is to our fund. That calculus changes if you're a late stage investor and your entry price is $500 million or a billion dollars.

Tom: You as a firm, are you following on all your investments and thinking about not just when you make a series seed investment sale, are you taking a significant portion of the fund and setting that aside to do a Series A and you'll pro-rata in the B and C, and so on?

Dan: When we do seed investments it's not a spray and pray strategy yet, at the seed level we're buying meaningful ownership and we're taking board seats and we're treating those companies any other Trinity portfolio company. Which means they get our full attention and engagement and all of the value added services we provide to our more mature companies as well.

Tom: What does that mean for a typical seed stage company that's raising $1-2 million dollars, or $2-3 million dollars from Trinity and putting a board together. How does that, if I'm an early stage entrepreneur, what can I expect in terms of how to work with Trinity?

Dan: That's a good question. Philosophically we're active and engaged investors, but we want our entrepreneurs to drive the engagement. We don't dictate a certain format or method or system of engaging with us, and we're oriented towards building relationships and being partners with our entrepreneurs. What ends up happening typically, I know this sounds fluffy and unstructured, but what typically happens with a seed stage company is that we're meeting with them more frequently than we do with later stage companies.

I have Serverless, which is a Heavybit company for example, I have coffee with Austin at minimum every two weeks and we have board meetings every month. I want to be available to him and my other entrepreneurs for whatever they need.

It turns out generally at the seed stage you could use more help than you can when you're later on, you have more money in the bank, you have more board members around the table and you have a management team you can lean on.

We help with things like strategy, business strategy, pricing and packaging, lots and lots of recruiting. It depends on what the company needs. I find that at the early stages, the seed stage, there's no one path for how the company gets built.

Tom: In terms of building a venture firm though, that's the one that adds a lot of value. Is there a separate operations team, or do you have non-investing operating partners or staff that works with portfolio companies? Or is it just you?

Dan: We don't. We're an old school venture model and we've tried to stay true to those roots. What I mean by that is we make sure our partners aren't on too many boards, such that when a general partner joins the board of a company that person has time to get to know the company to build a relationship with the entrepreneur and be active and engaged with the company.

We've decided that's a better model, at least for us and our companies seem to like it. There are other models out there in the venture industry that have merit, they're just different. When we think back to when we were entrepreneurs ourselves, we're trying to build the firm that we would have wanted, and the firm we would have wanted was one where the partner who joins our board--

When you're an entrepreneur you're making this big decision around not even what firm you're going to work with, but what partner is going to join your board.

To us it doesn't make sense to have that partner join the board and not be engaged or never do anything, and you're handed off to other folks. We don't operate that way. We've kept our fund size small, and the number of partners relative to the fund size at a ratio where even with our continuous pace of investing, no single partner ever gets overloaded on board seats.

Tom: I should have asked you, how many partners are in the partnership right now?

Dan: We have six general partners.

Tom: OK. Cool. Let's talk about working with early stage companies, because that's clearly a passion of yours. In fact maybe before we talk about working with them, we talk about picking them. You meet dozens of founders every week, hundreds of founders. What's your mental process for evaluating those early stage companies that you meet? What are the things you are looking for?

Dan: All of us at Trinity have focus areas in terms of what markets we invest in, and we know our markets very well . I invest in a lot of developer companies, a lot of opensource companies, a lot of enterprise infrastructure companies. If you look at my portfolio it's concentrated in those areas, so I know those markets very well. I know all the players, both startups and big companies, in the areas that I own for Trinity just like my partners know their markets. It's fairly easy when an entrepreneur comes in to pitch me, for example. I have a fairly easy time saying, "This is an interesting part of the market to be in," or not, and that comes from--

Tom: Being steeped in the industry.

Dan: And years of working with companies in the industry and building a network.

Tom: It sounds like you get to skip a lot of the, "How big is the market?" ind of questions.

Dan: I tell most entrepreneurs-- They'll always have a slide like, "Cloud computing is a big thing." And it's like, "We can skip the next two sides in your deck. Seriously. You do not have to convince me cloud computing is a big thing, or developer oriented businesses are the future. I get it. OK?" Or, "I'm wrong and I'm going to fail as a venture capitalist because I put all of my money into that."

Tom: You and me both.

Dan: The thing we spent a lot of time on at Trinity collectively, and I spent a lot of time thinking about personally, is how do you assess entrepreneurial talent at the earliest stages? Especially when you're investing in entrepreneurs who haven't done it before. It's relatively easier when you have someone like Lew Cirne at New Relic, who had started Wily and built it up to $60 million of revenue and sold it for $400 million.

It's relatively easier to look at a guy like Lew and say, "This is a guy who's going to be a great entrepreneur." But how do you know Solomon Hykes at Docker is going to be a great entrepreneur? Lukas Biewald at Figure Eight and W&B, and some of the other great entrepreneurs we back.

There are attributes we're looking for when we're meeting with them. It's things like passion, and charisma, and insight, and expertise in the area they're working in.

Tom: I've always thought being a good venture investor is as much about assessing people as it is about assessing markets or products, or even traction. It's being able to look across the table and say, "Do we think this person can execute?" For me it's something of a black art. Or, there's a set of ingredients but there's also a certain alchemy that goes on .

It's not simply enough to say, "This person has these specific attributes and therefore we think they're going to be a successful founder." Because to take an example, you can be all of those things and be a complete egomaniac, and you'll never be able to get people to work with you or be able to lead a team effectively. How do you normalize that across the partnership? How do you get everyone in a partnership to think the same way, or approach deals in the same way? Because your idea of who a good entrepreneur is can be different from the next.

Dan: Totally. That is the key. That's the key question, and within the venture partnership, how you do that is hard. What we do at Trinity is we spend a lot of time defining what we think the attributes are of successful entrepreneurs. To make sure we're all using the words the same way, and we think they mean the same thing. It's like if you say, "This person has grit," and grit is an important attribute in an entrepreneur. How do I know your definition of grit is the same as my definition of grit? Or, what's our definition of charisma? The interesting thing in developer oriented businesses is there is a certain type of charisma that resonates with developers, and may not resonate with--

Tom: Ordinary human beings?

Dan: Ordinary human beings. It's funny to think about but there's nothing wrong with it. You're looking for a slightly different type of charisma in a leader of a developer oriented company than say, Dave Asprey at Bulletproof, who's building a mainstream consumer brand. It's making sure we get on the same page about what all those things mean, that we have deep discussions when we're evaluating entrepreneurs, and that we're tracking and learning over time and we're finding our definitions in the way that we assess people.

Tom: How much of it do you think is your own assessment versus referenced assessment? People coming to you and saying, "This guy or this gal is great," or you going and having other founders or other execs vouching for individuals?

Dan: We put almost zero weight on on-list references, first of all. We put a ton of weight on back channel references. In our diligence process that's where we'll spend the bulk of our time. At least on the team reference side, it's all back channel. We put an enormous amount of weight and make sure we put more weight on that than our own assessments, because it's so easy. So many founders are charismatic, they're smart and they're such good storytellers. It's easy to get swept away in what they're telling you.

We're optimists by nature. I don't think you can be successful as a founder or a venture investor if you're not an optimist.

The things we do are crazy. Most of the time these companies aren't going to work and they shouldn't work and we invest in them anyway. It's easy to get swept up in it, so the third party perspective the referencing provides, it grounds you. In hiring, I tell the same thing to my CEOs and my founders who are building their teams. "Invest in back channel references. We will help you with that."

Tom: Do you spend a lot of time working with hiring for your companies?

Dan: It's the number one thing we do.

Tom: What does that look like? Is it mostly you spending time with candidates, with partnership sourcing candidates, or is it guided strategy--?

Dan: It generally starts with us working in partnership with the founder to understand what the organizational needs of the business are. That's step one. Who do you need to hire, when you need to hire, why are you hiring these people? Is it the right time? What does a spec look like? We spend a huge amount of time sourcing folks, working with recruiters, if we hire executive search firms we're on the cadence calls every week with the founder and the search firm. Unless the founder doesn't want us, but typically they want us.

We will actively screen candidates I'll tell my founders and my partners do the same thing, "Look. If you're feeling like you're too busy and you want me to take a bunch of the first meetings for you. Sure. Happy to do that. Because this is the most important thing we can do to help our company." We have processes internally to source great candidates at Trinity that we can spread across the portfolio. We keep track of the most talented executives.

It usually starts by keeping track of the most talented executives in our portfolio, and we know there's not much lifetime employment in Silicon Valley. Generally after two or four or six years, even if a given company is successful the executives are going to turn over at various points. So we try to keep them close and we will try to direct them toward opportunities in our portfolio.

Tom: Do you find a lot of cross portfolio support out of this talent coordination/sourcing/hiring piece? Do you get your portfolio together a lot to talk to one another?

Dan: Absolutely. That's the other benefit that comes from the fairly specialized sector focus per partner . I have, I don't know, five opensource companies in my portfolio right now. That's probably the number. They're the founders and various executives at the company. Functional area leaders are talking to each other all the time.

Tom: That's great. It's interesting that you mentioned opensource. Do you find there are things that are specific to building an opensource business versus another traditional closed source enterprise software business? Is there a reason you bring those opensource companies together specifically?

Dan: Yes. Building opensource companies is different from building traditional enterprise software businesses. It's more similar to building a high velocity SaaS business than anything else. Even though New Relic is an opensource for example, or Pipefy one of my other B2B SaaS companies is not opensource. The thing that all these companies have in common, whether they're opensource or not, is that they are product-led business models with high velocity go-to-market motions.

Where you're using primarily online channels to bring as many people into the product as possible, converting them into paying customers as quickly as possible, and then growing those customers over time.

There's a lot of similarities in the opensource world to high velocity SaaS, but where opensource has some unique dynamics is around the opensource community itself and how you manage that.

You have to be a bit more intentional and careful about how you manage that. It's a dynamic that doesn't exist in most non-opensource B2B SaaS companies.

Tom: Does that mean you as an organization need to be slightly more human? Or, you need to be something around having a better marketing competency, or having a stronger customer support competency than you might--?

Dan: The best product lead companies, regardless of whether they're opensource, are authentic. Because people will see that and it will come through in the product. They're almost authentic by nature, because it requires building a great product, and to build a great product you have to have an enormous amount of customer empathy. You can't fake it. These companies are genuine, and there are nuances around how you manage an opensource community effectively that are important to know. It goes beyond authenticity and good marketing. It requires good community engagement and it requires an enormous amount of transparency.

The opensource community will accept a lot of different business models, decisions, whatever. As long as you're transparent about it. It's when you try to hide things that you get into trouble.

For example, you can do more user behavior tracking in opensource than most people expect.

Tom: You mean gathering user telemetry?

Dan: Yeah, gathering user telemetry. A lot of opensource founders don't realize that, so they're building their businesses blind because they work on the assumption that the opensource community won't tolerate it. In fact from what I've seen, the opensource community will tolerate it as long as you're transparent about it, and you give the users an easy way to turn it off and to know whether it's on, and all those kinds of things. You have to be good about how you accept contributions from the community.

You also you have to be thoughtful about where you're going with your product roadmap, what's going into the commercial version, what's going into the opensource version, and you have to communicate your product roadmap. Close source companies don't have to think about that. They own their product roadmap and the world finds out about their product or map when they release the product. The opensource world doesn't work that way. There are a bunch of nuances there you have to be careful about, but it's not hard to navigate as long as you know the rules of the road so to speak.

Tom: Rule number one, be transparent. You brought up this idea of what goes into the commercial product versus what stays opensource. That's long been one of the criticisms of opensource companies is that, "You're giving away a lot of the product. What can you charge for?" Do you think that's still valid today? There are some successful large opensource companies now, but is that a valid criticism or does that no longer apply?

Dan: I don't think it's a criticism that's unique to opensource. If you look at freemium SaaS businesses, look at Slack. There's a free version of Slack, there's a paid version of Slack. There's a free version of New Relic, there's a paid version. There's a free version of GitHub, there's a paid version. Any of these companies you have to be very thoughtful about and intentional about what's going to be in the free version, and what's going to be in the paid version. It's not a problem that's unique to opensource. It can be a hard problem to sell, but if you solve it you can build powerful business models, and we've seen that in today's market with the phenomenal growth of some of these companies.

Tom: Isn't it slightly more complicated than what the freemium user might have? Because in many instances these developers are saying, "I don't want to pay for that because I can run it myself," or "I don't want to pay for that because I could build it myself." Unlike a freemium SaaS product I can extend the product or the software as I choose, as I'm sure you know.

Developers notoriously overestimate or underestimate how long it takes to build good product or develop something, and overestimate their ability to reinvent what's been invented elsewhere.

Dan: The reality is that the vast majority of your revenue is going to come from larger enterprises who are your customers, not from startups or individual developers who are using your product. The key to making these models work is to orient your commercial product roadmap around the features and functionality that's valuable to the big companies,

and they will typically decide that it is better to buy and to have the support of a commercial vendor than to build it themselves. Then you can afford to give away your software to the smaller customers, or just charge them much less money.

Tom: Are there good examples of that product separation, all of that revenue distribution in your portfolio? If you think about Docker or Meteor or whoever, are there cases where you can see that? What's a good example of that happening?

Dan: For sure. I can give you a couple examples. InfluxData was a super controversial thing at a certain level because we didn't handle it well with the community, but conceptually we did the right thing. If you need clustering of the database and high availability, that is a paid version, and we have made the single server version of the database as performant as possible. You can scale it up pretty far on a single block. What that means is, for most smaller organizations, if they don't want to pay anything they're going to do fine with a single server version. Because it--

Tom: It scales well.

Dan: Scales very well to their needs. But if you're in enterprise, scaling beyond where a typical small company is going to go, not only are you going to need the clustering support but also you're going to want high availability failover, multi data center applications features, because maybe you have a bigger application and you're more risk averse. There's a clean separation there.

Tom: Just on that, probably worth 10 seconds on what InfluxData does?

Dan: Sure. InfluxData makes the leading opensource time series database, which is called InfluxDB, believe it or not.

Tom: It is super popular for a lot of metrics applications, but also a lot of--

Dan: Metrics and IoT, because all those connected devices out there, whether it's your Tesla or Nest thermostat, or a windmill somewhere. They are all generating time series metrics and you need a way to collect all that and then make the data usable and actionable. It turns out that time series data is growing so exponentially that it has surpassed the capabilities of traditional relational databases to handle that data.

A purpose built database becomes really important and necessary for that market.

Tom: Good stuff. I didn't want to interrupt your thought.

Dan: That's OK. Docker has a slightly different model that's just as valid. The container technology, the Docker desktop technology is all free and opensource. Then we have, and I'm simplifying it a little bit, because there's a lot of nuance here and we don't have all day. But there is an enterprise suite that is geared towards the needs of enterprises that need things like, a way to migrate their legacy apps into containers. That's a commercial product.

They need ways to enforce policies across their development teams and production systems, and there's a list of features like that. But the Docker enterprise offering has all of those things that big companies need more than any anyone else. We're able to give away a lot of software to smaller companies and to startups, and monetize the companies that can afford to pay us. And also, frankly, prefer to pay for things, and get support and get packaged software, rather than having to--

Tom: And peace of mind.

Dan: Exactly.

Tom: Docker has given an amazing piece of technology to millions of developers around the world. That is an enormous community. A lot of these projects have smaller developer communities, or smaller opensource communities that are just starting out. How do you think about putting a price on that community or valuing an opensource company, when there's no paid product yet? There's no customers, no revenue, no nothing. They have an interesting opensource project and some people using it, but how do you think about investing in something like that? How do you value it?

Dan: What I'm looking for is community momentum in two forms. One is the obvious thing, which is the sheer growth rate of the community. I want to get to the truest metrics possible . GitHub Stars downloads, often these are vanity metrics. They may be directionally correct, but they're not accurate measures of how much momentum there is behind the community. We'll ask the team to peel back the layers of the onion until we feel confident that we see what's going on with the actual numerical growth of the community.

The other thing we're looking for is a community that's passionate about the project. When we see those two things, we at Trinity don't care whether there's any monetization, whether it is even a monetization strategy. Usually there will be some story, maybe it's half baked, but honestly we don't care. This varies from investor to investor. We have a lot of experience in opensource.

We feel confident if we can find a community and an opensource project that's in an interesting market and has some momentum behind it, and a great product, then we can figure out over time how to monetize it. We've done that time and time again, and we feel very confident in that. If you talk to investors who are less experienced with, and therefore less comfortable with opensource, you'll get a different answer.

Tom: You guys have recently led a seed investment in GatsbyJS. Does that fit into that same bucket for you? Passionate community of developers, growth metrics, momentum that's enormous and growing? I'd love to hear more about that.

Dan: Gatsby is a great example. When we funded Gatsby the company had either just been formed or it was in the process of being formed, and the company was all of Kyle and Sam, and nobody else. Even Sam had recently joined, because Kyle started Gatsby as a personal project, so even Sam had joined relatively recently. When they were pitching us Sam hadn't left his full time job yet, so it was that early. But what we saw was an enormous amount of community growth, and an enormous amount of enthusiasm for the product.

We also saw lots of companies using it in production, and one of the metrics the team tracks is the number of the top 500,000 sites in the world that are using Gatsby, and it ticks up at a pretty good rate. Month after month, it's remarkable. Gatsby from a community growth perspective is the fastest community growth that I've ever seen at an early stage opensource project outside of Docker, and it's pretty close to Docker. Docker is a real outlier, and Gatsby is doing very well by comparison. That was enough to get us excited. Plus the fact that our assessment of Kyle and Sam was they are exceptional entrepreneurs.

Tom: Awesome. I'll throw this over to you. Are there things you'd us to talk more about?

Dan: I'm a VC, so I can ramble on about all sorts of--

Tom: As I say, most of the folks who listen are entrepreneurs and they're trying to get into your meeting calendar, if not your head. Part of that is people want to come and talk to you. For them, knowing what are the buttons to push if someone writes an e-mail and says, "Dan I heard you on the podcast and I love what you were talking about how community is important. These are all my community numbers, what do you think?" Kind of thing.

Dan: If the question is, "What's the most successful way for people to get a meeting with me or most venture capitalists?" I'm a little bit different than--

Tom: Absolutely, I'm always interested in--

Dan: Maybe, than the average beast.

One thing that is true is going through trusted referrals is always the best way to get an introduction to a venture capitalist.

We get an enormous amount of inbound e-mail, and there's typically not enough time. Almost all of us publish our e-mail addresses. Dan@TrinityVentures.com, I'm not hard to track down. But if you just throw an e-mail over the transom the chances that I or any other venture capitalist is going to get to it is slim, and we're well connected.

If we're second degree connected to almost every entrepreneur that we've ever met. Whether we were introduced to them or met them randomly out in the street, it means that entrepreneur is also second degree connected to us, so you should be able to get an introduction. Those introductions go a long way.

Tom: But even then, again you're fielding a lot of inbound intros or inbound requests for your time. What are the things that pique your interest when you see an intro, when you see it comes from a trusted party. But what else are the other things that you--?

Dan: For me it is if you can demonstrate that you have a great product that your customers or users, whether they're paid or not, are super enthusiastic about. That is one thing. Because as I mentioned earlier, I bias towards investing in product led companies and business models. I want to know you can build great product, and the real sign of great product is not whether I look at the product and think it's awesome, or whether you tell me that the product is awesome. It's that the people who actually need to use it to solve some business problem think that it's awesome and are willing to speak up about that.

Whether it's to me directly or on Twitter, or in support emails to you, or through the fact that they're engaged with the product every day, or they're paying you money for the product. The second thing is especially if you're building a high velocity business, whether it's a freemium SaaS business or an opensource business, is some user momentum even if it's early.

In an opensource business in particular we want to see that you can start building a community, because not everybody can do it. There are special founders that can build big, vibrant opensource communities, so you need to show some evidence that's starting to happen.

Tom: Do you have a rule of thumb or yardstick that you say, "This is a decent sized community now." What's enough developers?

Dan: People always ask that question.

Tom: What's the magic number?

Dan: I always give an unsatisfying answer to that question, which is, "The number doesn't matter. It's the growth rate." It could be small, but show me that it's growing quickly. If you're growing 10% week over week and you've done that for multiple weeks in a row, and you can explain why it's happening and expect it's going to continue happening for a while, then things get pretty exciting.

But it's not a hard and fast number because I've invested in companies like Gatsby, that had enormous communities even before they started the company, Or companies like InfluxData that had small communities at the time we invested but were growing rapidly month over month for many months in a row..

Tom: It sounds like it's never too early to get in touch with you. If I'm an entrepreneur with a small community that's growing well, you guys are happy to have a conversation and build that relationship even if maybe the absolute number is not that big.

Dan: Absolutely. InfluxData is a great example of that. They had a relatively small community at the time that we invested. Serverless didn't have a huge community at the time we invested, but it does today. Gatsby's an outlier. The other thing is, at least at Trinity, venture firms are different in this way. Given that our partners, when we join the board we take our commitment as board members seriously, and we promise to be active and engaged with our companies. We limit the number of board seats we take. For us joining a board is a big deal, and the more and the longer we can get to know an entrepreneur the better.

Because it is a marriage. We want to work with people we feel like we can build trusted relationships with, people we feel like we can be real with and have a productive relationship.

If the first time we're meeting you is when you're a week away from getting a term sheet, that's a hard and tricky time to assess whether the marriage is going to work.

Tom: It's the venture equivalent of a Vegas wedding.

Dan: Exactly. Frankly a lot of entrepreneurs make a mistake when they don't view fund-raising as a relationship oriented process. Your board members matter and they end up in bad situations with their board, or suboptimal situations with their board.

Tom: How do you square that with other advice that says, "You shouldn't be talking to VCs outside of a fundraiser. You should be focused on being heads down and building the business."

Dan: The right balance there is you should have a small number of investors that you think would be a good fit for your company that you meet with on a regular basis. By regular basis we're not talking about every week or even every month. It might be twice a year. It might be once a quarter. It's not big of a time commitment. By the way, I'm giving the exact advice I give to my CEOs after I've invested, "Pick two to four investors, so it's not a huge number, that you think might be a good fit for your next round. Build a relationship with them."

Which maybe means meeting them maximum three or four times a year, but more likely once or twice a year. If you think about that time commitment, if it's across four people and with each of them you're spending three hours. Let's say you have two meetings that are 90 minutes each or something like that. You're talking about four times three, so it's 12 hours out of your year to decide who you're going to get married to. It's not that big of an investment for something that is a hugely impactful decision on your company.

Tom: Good stuff. Dan, thank you very much for joining us. That was fantastic. If anyone wants to get in touch with you, what's the best way to reach you?

Dan: Through a warm introduction to Dan@TrinityVentures.com.

Tom: Awesome. Thank you very much.