June 20, 2014
Analyst Relations Secrets from 451 and RedMonk
It's not always clear why analysts are important to startups. In this talk, 451 researcher and former Redmonk analyst Michael Cote discusses...
In the latest episode of Venture Confidential, Peter is joined by Tom Drummond. Tom recounts his first foray into Venture Capital in San Francisco. Tom explains that the typical rise through the venture ranks necessitates a shift of focus from analytics to relationship building.
With absolutely no industry contacts, Tom describes how he set out to build his network by creating a very low bar for meeting people and rarely turning down introductions.
Peter Chapman: Welcome back to Venture Confidential. I'm super excited to be joined today by Tom Drummond, Managing Director at Heavybit. Tom, welcome.
Tom Drummond: Thank you. It's good to be doing this again.
Peter: How does it feel to be on the other side of the table?
Tom: Terrifying. It's a lot easier to be in the interviewer's chair.
Peter: Well we'll keep it gentle. I'd love to start with you describing your foray into venture. You're an anomaly in Heavybit in that you've been in venture for most of your professional career. How did you get into it?
Tom: I studied engineering at university. Engineering and computer science. And then when I left university I actually went and joined a small startup in London. It was kind of back in the days when the LAMP stack was cool and PHP and web front-end stuff was exciting.
I actually started working for a small start up and was enjoying that and then a friend of mine came to me and said he'd been approached by a venture firm to go and be a summer analyst. He wasn't interested in taking the role because he actually worked at a large bank. But he thought it was perfect for me and asked me whether I'd like to go and meet the folks running a venture fund.
And I just jumped at the chance. You know I'd read about Silicon Valley and I'd read about venture capital and startups from a distance, literally thousands of miles across the Atlantic. This was kind of a shot out of the blue to get into the ecosystem which was really hard to turn down.
Peter: Tell me a little bit about those early years. You started as an analyst and you sort of worked your way up.
Tom: Yeah I ground my way into venture capital. You know I've had almost every title that VC firms hand out. I've been an analyst, an associate, a principal. I've been a partner. The role really changes very very dramatically as you rise through the ranks. When I first joined the venture I didn't leave the building. My main job was to research new companies and existing companies that we were talking to. Competitive landscapes, market opportunities etc.
I was staying inside the building, almost entirely doing research online. Not a lot of face to face interactions like phone calls and things like that but quite heavy on the research. And then a little bit as well on the financial side. As you know the fund I was working for was a slightly later stage fund and so we did financial models, return profile's, liquidation, waterfalls, things like that.
I spent a lot of time building, advising and looking at our existing portfolio and negotiating with new companies.
Peter: Was there sort of a well-worn track to partner or did you expect that you'd have to leap in order to move up at some point?
Tom: It's very unusual to go from analyst to partner. Certainly at the same firm, it was almost unheard of. Good partners have a very strong understanding of what it means to run a business. And so you tend to find that most people who work in venture certainly at the senior levels have been leaders or some kind of operators. And so that might mean that you start a company or work as a CEO.
That also might mean that you joined early in a company. You might be running development or running sales or running product. You know, your exposure, your network, your experiences make you kind of well suited to move back into the venture afterwards. It's super unusual to kind of go through the ranks like that. For me to make partner faster I had to leave my last firm.
There are really three levels that you come in at. An analyst level, an associate level. And there's a principal level and the principal level is really a partner track. You know it means that if you can stick out to three years as a principal they'll make you a partner. Associate level, that tends to be a split between post MBA and pre-MBA associates and then the analysts are fresh out of university.
Peter: You know you've sort of spanned the gamut here and you've had this somewhat unusual career where you've really seen the whole breadth of possible venture jobs. You kind of mentioned that you need a fairly different set of skills. Starting out as an analyst through becoming a principal and then partner how did you get from "I have a super analytical job" to this really outward facing job where "I'm building relationships". Was that a difficult transition for you?
Tom: I mean it certainly took time for me and
I think the biggest change that happens as people rise through the venture ranks is going from analysis to relationships.
It goes from being a very desk focused job to being one that's mostly about meeting people and more importantly reading people. Understanding whether those people are good or bad. How strong a founder is, whether they have the right attributes, the right skills to be a successful entrepreneur. And that is simply stuff that you don't know as a junior person. You never really care about and never really look at.
The way I've tried to improve my skill set in that front is to have a really really wide aperture for meeting people. I've very rarely turn down introductions. I always try to meet as many people as I can when I go to a conference. You know collecting business cards is a poor measure. But it's it's kind of a yardstick of some kind.
I'd say "how many people do I know? Am I getting better at assessing these people all the more people that I meet? Can I see common traits amongst good founders, bad founders, good operators bad operators? Can I build relationships with these people and turn them from faces that you might recognize at a conference to close professional working relationships?" But you know the biggest thing that I've tried to do is as I say just really open up the aperture.
We had a very low bar for meeting people.
Peter: One of things I really admire about you is you've got a fairly impressive network in the Bay Area and I find it doubly impressive considering you're not from here. You moved to the States. Tell me a little bit about those early years you don't know a lot of folks in the area. You're trying to establish roots. How did you go about that?
Tom: You know when I first moved here it was a huge challenge personally and professionally. You have to remember the context. This is really the kind of at the bottom of the global financial meltdown. Institution LPs around the world were shutting down their capital investments and venture capital investors were therefore cutting back really heavily on the number of deals that they were doing and the prices and things like that.
And you know against this kind of terrible macroeconomic backdrop, I packed up all my stuff, moved from London to San Francisco and set up shop in a solo office in downtown S.F. with no network and no relationships whatsoever. So it was definitely a challenge. You know in many ways I think it helped because I had a really crap personal life.
I was working for a British fund. I moved out here to basically create a kind of satellite office for the British fund. And so every week I'd be going into the office around 5:30 or 6:00 in the morning to jump on a conference call with my partners to review deals. To talk about things we have coming down the pipeline.
And then I'd be in my office for the remainder of my day on my own unless I managed to set up some meetings or anything. Then I'd come home, say it's a pretty early start. So I'd come home around five or six would be shattered and would like nothing more than to basically just kind of crash out. And I didn't know anyone or have any friends. I basically just kind of threw myself into it and said "I'll meet anyone, I'll go anywhere, I'll do anything".
And you know I vividly remember going to all kinds of venture events that were either free or paid in the early days just to go and make friends. As much as it was to try and find professional experts, it was just to meet someone because living in this furnished apartment on my own and going to an office on my own, it's pretty terrible. But not having any preexisting relationships, not having any expectations of me was kind of liberating in some sense.
Peter: You know I'm relatively new to venture and I secretly dread networking events. They often feel super transactional and hard to get through to sort of the real relationship. What's your strategy for navigating these successfully? How do you actually build relationships from these things?
Tom: I don't think you can build a relationship at an event. That obviously takes time. Meeting someone once is not enough. You need to meet them several times over and usually in different context with different things to say to build a relationship. I was pushing people to do stuff. I was like "hey do you want to do something this weekend let's go hiking?" And "I heard that there's some wineries up in Napa let's go do that".
And I think you know in the very earliest days a lot of people looked to me like I was weird like an absolute weirdo because you know Venture is unfortunately a pretty closed space. I'd be going into venture capital barbecue's and most of the people there would already know one another half of them would have gone to university together probably Stanford or MIT or Berkeley.
And there was this weird British dude coming up and saying "can I be your friend?" effectively. And you know with a lot of people you get the kind of the usual variety of responses. Some people who are just kind of too haughty or not interested in making new friends.
And then you know at the other end inspection you get people who demonstrate the two best American virtues of openness and friendliness and you know kind of spirit of gungho. And those were the people I kind of latched onto and continue to kind of cultivate over time.
Peter: Are these people still in your network?
Tom: Yeah absolutely. In fact one of the first folks I met at this venture capital barbeque ended up being my being usher at my weddings and introduced me to my current wife. You know these are these people who kind of ended up getting folded into my personal network as much as my professional.
Peter: Amazing. I feel like I'm missing something here because you know when I think about the Tom Drummond network I think about partners at top tier firms. It's surprising that you meet those people at Venture barbecue's. Is there a path from Venture barbecue to a Venture career?
Tom: I still get barbecue's but maybe they're less important for my network building today than they were when I was really just starting out. There's no shortcut to building strong relationships with important people. You kind of have to work your way up to that. I feel fortunate to have some great investors and phenomenal entrepreneurs to be able to count them in my network but now it's taken me a part of a decade to build relationships.
And I think you know as well as trying to meet as many people as you can, the other thing that you can be doing is helping those people out. Right. You know people talk about demonstrating value but it's really just about being helpful.
If you are helpful to the first person they're more likely to recommend you to the second person and you can build a personal brand that way of just being a useful guy.
And you know the more useful you are the more connections you have. And so you go from being just a helpful guy and a valuable guy to being a well-connected guy or gal. You know the golden rule in networking is don't be a dick. You know it's a very simple mantra to live by right. I think I think there are a lot of dicks in venture as in any other industry.
Peter: You know it's one thing to have this awesome network and a whole program behind you. What are some ways that folks who are earlier in their venture career can demonstrate value?
Tom: I think there are some universal things like being a good connector, making introductions etc. Being respectful of people's time and energy. But I think you know mostly it's about understanding what you personally can really bring to the table right and so if your passion is product marketing and you can carve an hour or two out of your week to help the founder or start up with their product marketing thats hugely valuable.
If you're a top flight engineer and you see someone who is building something interesting, then go and build something with that product. I mean the biggest resource anyone has is their time, and if you're able to devote your time to people without an expectation of a return. I think that's really how anyone can be super valuable.
Silicon Valley thrives on a pay it forward culture. And I think if you want to succeed you kind of have to embrace that philosophy.
Peter: Sure. You said it helps to sort of figure out what you're good at and leverage that. What's the Tom Drummond special sauce.
Tom: You know if for better or for worse now I've been in venture for 13 or 14 years and the thing that you see most of in venture is pitches. Pitches and fundraising is a huge amount of any VC's time. And so you know I think that's probably where I'd say I try and help the most. I think every VC has very strong opinions on how to raise money and you know what a good pitch looks like. And I'm no different in that regard.
Peter: You know we could probably do a whole separate podcast called "revise my pitch deck". What are some common mistakes you see people making with their pitch?
Tom: There are so many mistakes, it's hard to narrow them down. You know I think the two broad categories of mistakes that I see are structural and focus or detail.
The structure of the pitch, the order in which you say things, the order of your slides makes a difference.
It has a really strong impact. It really determines whether or not your message, your pitch lands. And I see a lot of pitches that are you know a collection of facts or a collection of information without a narrative, without an order without kind of clear thought to what comes where. A lot of the times when I work on that pitches that's the first thing that I talk about is "what's the story you're trying to tell here? And what's the order in which you want to tell that story?"
And there are some pretty good standard structures for how to lay out a pitch. Building a good structure is not difficult. You know there are some pretty well thought out structures that people talk about. The second half that you focus on is kind of the detail level. Founders are obviously really deeply in the weeds of their business.
So it's often hard for them to understand what the right level of detail is or what the right piece of information to surface are. There is a right level of detail for every part of the pitch. And knowing where that is, or rather understanding what the investor wants to see is kind of key.
Peter: When I think about a pitch there are maybe three broad components. I think of the deck itself, the presentation of that deck and then there's this more strategic component of who you talk to when and how you sequence those conversations and how you manage information sharing. Is there a particular one of those three areas that you find yourself spending a lot of time on.
Tom: So my mental model for fundraising in general is the three P's. There's the pitch, that's the deck itself. And that's also how you present that deck. There's the people. There are other the investors you are going to talk their motivations their background their funds you know their available capital that sort of stuff. And then there's the process. You know what you alluded to the order of which you go and talk to people.
You know how you should be managing feedback that you get from one investor and how you should be revising and updating your pitch. And they're all equally important. You know I think founders tend to spend a lot of time trying to perfect the pitch or their story without thinking too much about either the people or the process.
When it comes to people you can't just pick random venture funds. You have to pick partners. You have to figure out how you can build relationships with partners or get warm introductions to those partners. You have to make sure that they have made competitive investments in the needs of the right people for your business. And then you know when it comes to process that's usually completely ignored by most founders.
Founders really don't think of fundraising as a process, but as a kind of a general amorphous exercise and that can be fatal.
You know it really helps to put rigor around the fundraising process. Find other people, external advisors, investors you know angels who can help you make sure you stick to that process as well.
Peter: Do you have a standard template for a good fundraising process or do you craft a new one per raise?
Tom: You know it varies a lot depending on how much money you are trying to raise and from whom. The process that you might have to raise half million to million half dollars in a seed round is nothing like the process that you have to raise 20 to 30 million dollars in Series B. So that's probably one big determinant of it. The constant that we always emphasize is the need to iterate and a lot of people don't. They treat fundraising as a kind of one way exercise. They don't gather information back in every pitch meeting and every partnership meeting.
You should be recording what the questions are. You should be trying to read between the lines about where people's concerns are. If they're pushing you hard on the market do they not believe in the total addressable market? If they are giving you a lot of questions about who exactly your co-founder is and how long you've been working together, do they not like the team dynamic or the management? And all of those things are useful feedback in and of themselves.
But ideally they should be reworked back into the deck and they should be used to inform how you pitch this thing. So if you find that people don't understand exactly what it is that you do, what your product is and they're asking a lot of questions about "so how does it work or how is this different from something else", then you need to know that in the next version of your pitch you're going to have to focus on that. Go back to update the pitch and say "okay let me be super clear about exactly what our product is exactly what pain it solves".
The key thing that we always push with founders is to constantly iterate on their pitch.
Peter: Interesting. I imagine this feeds back into the sequencing part right. You want a couple of good warm rounds before.
Tom: We always suggest that you first get advice from some friendly investors. In many cases that's advice from people who would never invest. Say you're trying to raise your series A and you've where you raise some seed money. You know the first people that you should talk to are your existing seed investors. You should go back to them and say "Ok folks we're going out to raise a monster series A. Here's the pitch deck and here's the story. I would love to sit down with you for a couple of hours and get your thoughts".
Because those are the folks who've seen dozens of their own portfolio companies either go on to successfully raise or fail to raise and who've seen hundreds if not thousands of pitches themselves.
The highest risk/highest reward pitches should come at the end where you have the best version of your pitch.
And again the issue is if you're not gathering that feedback, if someone is not kind of furiously writing notes during that pitch session then you'll never get any better. Right. It will be the same thing from start to end and who knows if it's any good.
Peter: So this is really interesting because one of the common complaints I hear from founders is pitching sucks. I never get any feedback. No one's direct with me. You know it's really hard to tell how I'm doing. And you're saying actually there's a there's a ton of feedback. It's just a question of sort of scrying a little bit.
Tom: Yeah. I think you have to read between the lines. If you're getting absolutely stonewalled by an investor in a pitch it's going terrible.
A terrible pitch is one where it's you talking constantly. Great pitches are like conversations.
They have questions they want to explore a bit more you can walk them through your story. A pitch where you know you are talking for 30, 40 minutes without investors saying anything is terrible. Number one you should be inviting questions. Well you should try and treat it like a conversation so stop in the middle of your pitch. Pause and ask them "does that make sense? Have you seen something like this and do you understand what the problem is?" Push.
It's very easy for VCs to give non-committal responses. There's a good theory that says the best thing for a VC to do is sit on his hands until he's very sure.
That confidence might come from other interests in the round. Confidence might come from doing due diligence. But there's a lot of good reasons why VCs try not to say no. It doesn't help the VC if he says "I don't like you Peter. You're not a very good founder."
It doesn't help them if they go out and say "I don't understand this product or I don't understand the problem". They're better off going and asking other people in their network confidentially. I still think that you can get good feedback some of that's fairly emotional. Like how do you feel the tone of the conversation is going? Is this a conversation or not? Or is it just you talking to a person reading their BlackBerry? Is this you talking to the VC who's checking his iPhone.
Peter: I want to bring it back to Tom Drummond's story because I feel like we left off at a pivotal moment. You're here in San Francisco, you're sort of miserable. You're going to barbecues and begging people to go hiking. And then at some point you meet James Lindenbaum and he has this crazy idea. Tell me about that moment.
Tom: Yeah. I mean the lead up to that was I was having a pretty terrible time personally when I moved out here. I was very independent and in an effort to fix that I tried to be my most social self and that included moving into a massive communal house. I moved into a 7 bedroom house with 14 other people living in it. Almost all of whom were entrepreneurs, founders or working at startups with almost no personal connection to any of these people.
I was on Craigslist. I went along to an open house and I said "hey this is me" and I tried to charm my way into this enormous commune and it was really as a result of that that my personal network started developing. There was a bunch of good friends & roommates that I could have introduced me to people who were working in other startups. They introduced me to other investors with VCs or angels and they knew and it was just really serendipity that through that network that I ended up meeting James.
I guess this would have been late 2000. So he would have still been running Heroku. We just got chatting. Sadly my fund did not get to invest in Heroku. James did a phenomenal job you know raised remarkably little capital had a phenomenal exit. You know for me it was just more interesting to kind of see some of that story evolve.
It was really just kind of serendipity that we got connected. And then after Heroku had been acquired by SalesForce.com, James and I started talking about some of the things that he'd seen as a founder. Some of the kind of requests he was getting for help and to advise other founders who were building some of the companies and it was really kind of from there that we started building Heavybit.
Peter: Cool. What were those early days like?
In the very early days of Heavybit there were four of us, James, myself Jason and Tim.
Jason and Tim are responsible for kind of community and the building that we run here. James was really working on the investments and pipeline side of the house. And then everything else was really my responsibility.
Peter: Such a small role.
Tom: Small role building the program, managing the budget and managing the team, continuing to build more investor relationships, helping our founders building the operational services, building content, building the website. It was kind of on me to fill in any gaps. I remember in the super early days we would get broken into and Jason would come in and sleep downstairs as security. He'd bring his dog Thor to help take care of the building.
I built the first version of the website in the video library. Tim started building the video content. I was responsible for booking and managing all of our speakers and office hours. And it was just to do everything we can to build a viable program and to help founders who are going to participate. Its not quite like that anymore. But it was do everything basically.
Peter: What are some of the biggest changes you've seen since then?
Tom: You know the biggest thing that we've done is invested more heavily in our own team and operational services that we provide. You know we started out with a very narrow focus really around coaching and education. We got phenomenal people to come and and speak to our founders and teach them, CEOs, founders of the important companies in our space. You know it was great to see our founders and their teams kind of grow it was great to try and it was great to watch that skills transfer.
But at the same time we kind of recognized that to really accelerate the growth of the companies we actually need to go in and help them make those interventions not just say "this is how you build a sales funnel. This is how you build a marketing plan or here is what content marketing is" but actually to say "right we're going to roll up our sleeves and we are going to do PR for you. We are going to go and build content with you. We are going to recruit for you. We are going to identify talent and put them in front of you."
Right. It was really an effort to try and help our companies grow faster. That led us to build more of the operational services. And I think that's the biggest difference over time. And the other thing that's changed is really just the scale and scope of our network. We kind of started with nothing. We had no founders. We had some LP relationships. You know we're on our way to having 100 founders in our Heavybit family.
We've got dozens and dozens of VCs who we count as kind of key supporters of Heavybit and who have invested in Heavybit companies as well as a host of other investor relationships seed and even some series stages. And we have a phenomenal network of advisors in the various stages.
It was James and my own personal network. You know we were reaching out to folks we had people picking people that we'd worked with in the past and asking them to come and speak. And now you know that's really just an incredible stable of entrepreneurs, operators, execs who we are lucky to count as Heavybit advisors.
Peter: I'm imagining that the feeling is pretty different from the early days. You've got this fairly tight group you're seeing all the founders on a daily basis you're working out of the same office. Now a bunch of founders have graduated many of our teams are remote. How do you preserve the sort of community and camaraderie of Heavybit at a larger scale?
Tom: I'm going to sound kind of cultish but you know they're all kind of the rituals of community that help form better community bonds really small things that help give the community a sense of identity. Whether that's the swag that you give people or style of events that you run. There are a million and one kind of small things that we care about that we think about to help build a cohesive community.
One of the most important things is instilling in our later stage founders a sense of responsibility over new members.
Often the best advice and the best perspectives come from founders who are 12 to 24 months ahead of you in your journey. They've literally just been through many of the same challenges that you have. And giving our early stage founders an opportunity to go and talk to those companies and talk to those founders and just to learn from their own personal experiences to learn from some of their scars.
I think that helps knit together a lot of the Heavybit community. We're still small in many regards. You know I think about the phenomenal scale that folks like YC and others have achieved and so compared to those programs you know were really kind of fledgling.
Peter: I really like the theme of paying it forward mentorship.
Tom: You know this idea of mentorship is key. We certainly think about our own educational program through the lens of mentoring. And that's really key for us as we get execs to come in and do a Speaker Series. Or operators come and host office hours. Being able to get mentored by and to have a frank discussion with founders who literally just have been through what you're going through. You know it is a huge opportunity.
Peter: Is this something you try to filter for when you look for Heavybit members?
Tom: Well I mean it goes back to our 'don't be a dick rule'.
Our sense of community is one of our most precious commodities.
And it's not really kind of part of the due diligence process. We do have this kind of emotional filter for like "are they going to be a good fit with the rest of us?" We do have this kind of almost you know emotional filter. "Are they going to be good community members?" You have to be careful about you know just finding more people who look like you and you know balancing good community members versus a homogenous community.
But we definitely recognize how precious our community is and so we want to make sure that we're not going to bring people into it who are going to be unnecessarily disruptive to it.
Peter: What are some warning signs that might cause you to say no to a founder?
Tom: The biggest thing is really close mindedness. You know obviously the program itself is very heavily centered around mentorship and education and if you are fairly close minded to the things that we have to say or the people that we're going to expose you to you're not going to get a lot of value out of the program.
Being open minded. Being inquisitive. The best people are people who are both interested and interesting. People you can sit down at dinner party. They're interested in what you have to say and they're interesting people to talk to because they have unique perspectives and different opinions. You know close minded people aren't interested in what you have to say or hearing your opinion, because close minded people have less interesting opinions because they've shut themselves off to you. Close minded people just aren't as interesting. They've not been exposed to a wide array of interesting things.
Peter: Ok so this is really interesting because I think it ties back to what you said way back when about developing your own sense for people. You said I try to keep a wide aperture. And one of my own pieces of learning was building a good intuition for the qualities of a good founder. You've named two of them. The first is don't be a dick. The second is look for folks that are curious and open minded. Any other traits that you look for in founders?
Tom: I mean there are a whole host of traits like technical ability, strategic sense, understanding their own market, management abilities there are a whole host of things. One of the big things that I personally look for is passion and conviction. You know I say it's nice to have people who are open minded but that doesn't mean you want people who are kind of easily swayed.
You know you want people with really strongly held opinions who believe in what they're doing and have a fire in their belly for going out and doing it. And I think you know that that's also a big predictor of success. You know there are people who are not just financially but emotionally bought in to the success of their product the platform and their company.
I prefer missionaries over mercenaries.
Peter: It's been a real pleasure having you. Before you go any final words of advice to folks who might be beginning their careers in venture? Stuff you wish you knew going into it.
Tom: If you're early in your venture career you should be absolutely fearless about reaching out to Founders and trying to build your network. Try to reach people who you think might be beyond your reach. It's about you kind of being fearless and about saying "I would love to talk to this person because they'll give me an interesting perspective so I'm just going to reach out". And being ok if they don't respond. Not thinking that you can't contact this person or that you know you shouldn't attend this thing.
You should just be absolutely fearless and try to get on the air as much as possible. And then you should be open minded because there are a million and one ideas out there and it's easy to think that all million of them are terrible. You know a lot of these phenomenal businesses started out as a terrible idea. And I think you know you cannot succeed in venture without being an optimist at heart by thinking this has the possibility of working this has a possibility of become something big.
Peter: Great. Thank you so much.