For venture capitalists, it’s a matter of balancing the opportunities and risks associated with every investment. Tugce Ergul interviews Silicon Valley’s VIVEK RAMASWAMI, ALEX FAYETTE and SUNIL CHHAYA.

Tugce Ergul: You are all rising stars of the venture capital world in Silicon Valley. How have you made your way into the world of venture?

Vivek Ramaswami: I would describe myself as still a very young, constantly learning investor. I focus on early-growth investments typically at the series B/C stage, with a focus on enterprise SaaS, infrastructure and fintech. I originally worked in investment banking out of college, focused on technology deals at Goldman Sachs, but was drawn to VC because of the direct investment approach and the ability to work with amazing founders at a very early stage.

Alex Fayette: I’m fortunate enough to be on a team at ACME Capital where there’s a lot of latitude to explore and learn new things that are inherently pretty exciting; everything from prescription acne medi­cation to rockets.

So I imagine that my curiosity and luck got me in the front door. Many people talk about the job of venture investors to be good sourcers and pickers, but in reality, that is table stakes for any investor.

At ACME we focus a lot of our energy on the servicing component of our role. We serve not only our limited partners, but also the entrepreneurs we support. We work diligently to help them create new inflection points for their business, instead of just sitting back and watching a company succeed or struggle.

This is a path that requires people who think in that mindset at a fundamental level. Personally, coming from the investment banking world helped shape that. The attention should never be on us, but on founders, their businesses, and the incredible things they achieve that we hope to catalyse in ways beyond just investing capital. 

Sunil Chhaya: I’m very fortunate to be working alongside some of the most amazing entrepreneurs and investors but similar to the journey of an early stage start-up, my journey as a venture capitalist has merely begun. One of the hardest aspects of this job is balancing the opportunity and risks associated with every investment. By being thematic and specialised, I have been able to cultivate a deeper viewpoint that has helped me earn a seat among some of the fastest growing companies in and outside of the valley. Lastly, I am very fortunate for my multicultural background and international travels that have often given me a unique prospective that others often don’t have.

TE: Your firms receive up to 1,000 pitches a year. How do you decide which are worth financing?

VR: We have a team of amazing partners and investors across Redpoint so it isn’t just one person looking at every pitch. The way we think about it is like a funnel approach. You start by weeding out the companies that either don’t fit our sector focus or are too big or small for our fund. Then you drive towards companies that have the best combination of market opportunity, execution and team. Finally we try and determine which of those companies we can have a successful partnership with, and ultimately try and make an investment.

AF: We treat early-stage investing like a marriage: this is a deep partnership that may last a decade if a business is even moderately successful. As such, the most pivotal factor we tend to dig into is real, long-term sustainable competitive advantages. The world is more competitive than ever, and the truly great startup successes are frequently built within some impressive moats. Those types of businesses are unfortunately few, so a great team, going after a massive space, with a refined plan of execution, and sustainable competitive advantages get us excited really quickly.

SC: There are five key areas I dig into in every pitch: management team, market opportunity, product offering, business model and amount fundraising. But as an early stage investor, there are really two attributes that I look for in every entrepreneur: authenticity and fearsomeness – the entrepreneur leaves you in awe after pitching a company that is going to completely revolutionise a product or experience.

TE: What questions must young entrepreneurs ask investors?

VR: We try and be as transparent as we can with founders about our investment process, and in particular try and give feedback in short order so they can see our thinking and hopefully help them improve for the next pitch. Young founders should ask investors about what gets them excited, whether they have experience in the sector that founder is building a company in, and how involved they like to get in the investment. Investing is a very long-term relationship, so it’s important the founder and investor are aligned before any term sheet is signed.

AF: Venture firms are different from one another as regards their cultures and decision-making processes. One of the most tried and true ways to get the best outcome is to get more than one advocate on the investing team. It can sometimes prove difficult for a single investor to push an opportunity through if they are excited about it and the other investors are indifferent. Even a second person can turn the tide.

I encourage every founder to ask investors for examples of how they add value above and beyond the capital they invest. You want to understand how they help companies that have hit some tough challenges. 

SC: Founders and investors need to be able to trust each other and communicate. It’s crucial for each party to understand how each operates during the good and bad times. While face-to-face interactions are helpful to building a relationship, speaking to references can provide further insights into what a working relationship may look like.

TE: What are the ideal attributes of the founder-investor relationship? And is it right for investors to also be friends with their founders? 

VR: Yes, it can be fine for the investor to be friends with the founder. The key is making sure the personal friendship doesn’t hinder the business relationship. One of the key things founders should do early on is build a relationship with an investor and vice versa. Founder and investor should build trust with each other and be fully aligned on values and vision well ahead of the actual investment.

AF: Great early-stage investors are friends, cheerleaders, coaches, and, in some ways, thera­pists. Being a founder can be profoundly lonely experience for many people. I honestly check-in with founders about how their mental health is as I work with them, because it matters to us that founders are handling the challenges of their roles in healthy ways. Most burnout is pretty avoidable, and building a personal relationship between founders and investors builds mutual trust and solves many of the challenges that come with such relationships.

SC: It’s crucial for each party to understand how each other operates during the good and bad times. While face-to-face interactions are helpful to building a relationship, speaking to references can provide further insights into what a working relationship may look like.

TE: As a decision-maker at Silicon Valley, what trend excites you?

VR: Technology innovations in healthcare. Given advances in AI, the current regulatory environment around healthcare and other factors, we are seeing a new generation of healthcare companies that are leveraging new technologies to build better consumer healthcare products. We have invested in several startups like Bright Health and Cityblock Health.

AF: I’m really jazzed about vertical-specific marketplaces, action-oriented AI applications vs purely analytical ones, the entire space ecosystem, and hardware that will power machine learning systems

SC: One trend I’m particularly excited about is the rise of voice applications. Storage and compute in the cloud continues to be cheap­er each year. Just years ago, the cost to record, store and transcribe audio was too prohibitive. However, we are now at a point where the relatively inexpensive (and declining) cost allows this data set to be captured and used for use-cases that previously were not feasible.

In the case of a Maltese company, I would put more emphasis on understanding how they would plan on attracting top-tier talent as well as their plan to efficiently scale internationally

TE: You are in Malta to speak about investing in AI. How do you view the current state of play for AI and machine learning? And how does the rise of automation shift the economy as we know it? 

VR: We’re still very much in the early innings of AI and machine learning. I think it will still be some time before we see large companies built off general purpose AI, but we are certainly seeing many startups leverage AI and machine learning algorithms for specific use cases.

AF: I think we are past the point of investing in artificial intelligence. Top investors are focused instead on investing in enterprises that are inherently great businesses that have created impactful ways to leverage what machine learning can empower. The most value will now be created from new applications of AI, not necessarily the protocols that underpin them. I think the crypto space is in the earlier stages of going through the same transition. 

As to the shifting of the economy, it’s important to note that automation has been shifting the economy since the industrial revolution, but this change is about the automation of intelligence vs la­bour. I believe this shift will also be positive, but we should heed the lessons of history and deliberately focus time and resources on proactively helping to guide and enable the retraining of labour forces into roles where humans are still much more effective than machines. 

I’m not sure governments are necessarily doing their best yet on tackling this fairly inevitable socie­tal shift, and likely more inequality will stem from it in the short-term. In the long-term, I believe this shift will actually empower people to do work that requires them to more creative and ultimately more empathetically human towards others than the world we live in today.

SC: The media has been consumed with hype stories about how AI and machine learning will revolutionise how humans and machines interact, and this has led to near-term inflated expectations. The next phase of AI is all about substance over hype – the focus now is on the hard work of building and strengthening real businesses that can go the distance. A great example of this is the autonomous vehicle, where AI is a critical component to helping solve some of the complexities and cost requirements associated with sensing, imaging and mapping. Over time, these advancements across different industries will have a force multiplier effect on productivity and help reallocate resources accordingly.

TE: What would it take for a Maltese company to be able to raise money from Silicon Valley investors?

VR: Great companies are built everywhere around the world. This has dramatically increased over the last few years due to the rise of remote teams, low cost of compute infrastructure to start a company, and incredible cloud products like Slack and Zoom. So we are seeing ambitious founders build companies all around the world, that can scale. The additional criteria we look for is when a company has started in a small place like Malta and starts to take off is what does it take for the company to scale? Do they need to build a sales team in San Francisco? Will they have difficulty hiring exec-level talent? 

AF: We have invested outside Silicon Valley and the US, and are thrilled to do so. There is no geographical stranglehold on innovation. There are some more mundane tasks we definitely consider when looking at those opportunities, such as how legal structures may differ, but the biggest criteria we like to measure is how big the founders’ visions are. I sometimes see founders outside of the US focused on tackling a big problem for a more modest, sometimes rela­tively local, market. Even if we get really excited about the founder and their ideas, it’s hard to make our investment model work unless we believe they can execute their plan against an absolutely massive, frequently multinational market.

SC: As we are already seeing, more great tech companies are being built outside Silicon Valley. In the case of a Maltese company, I would put more emphasis on understanding how they would plan on attracting top-tier talent as well as their plan to efficiently scale internationally.

TE: What’s the ideal roadmap for Malta to have its own special place in the innovation world?

VR: Start investing in a tech ecosystem. Countries like Estonia have done an incredible job of building great tech talent from the ground up, and have a government that is tech-forward which helps build innovation.

AF: Malta is already taking some great first steps. We are now in an era where it is more feasible than ever for politicians, community leaders and citizens to propose tech-enabled solutions to tangible problems, test out those hypotheses and enact im­pactful change as results. Nations and communities can be startups. I think any place that deeply embraces such experimentation will be­come exciting hubs for innovators, entrepreneurs and investors.

SC: The Malta AI & Blockchain Summit is a great example of how Malta can attract global talent. Additionally, creating laws and governance that are founder- and investor-friendly will naturally attract both talent and capital.

 

Vivek Ramaswami is a vice president at Redpoint Ventures. He focuses primarily on companies in the enterprise SaaS, infrastructure and security sectors, as well as healthcare and fintech. Prior to joining Redpoint, he was in the technology, media and telecommunications investment banking division of Goldman Sachs.

Alex Fayette is a principal at ACME Capital in San Francisco. He focuses much of his time leading investments in emerging technology opportunities for ACME. His investment history includes Pillpack (acq. AMZN), quip, Stealth Spac˚e Company, Light Field Lab, Replika.ai, OpenGov, and Owl Cameras. Prior to ACME, he was a Principal at Sherpa Capital, and an investment banker with J.P. Morgan.

Sunil Chhaya is a vice president at NextWorld Capital, an enterprise focused venture capital firm. His current investments include Aircall, CasaOne, Gong.io and Headspin. Prior to joining NextWorld Capital, he was an investor at Tenaya Capital and was involved in the investments of BaseCRM [acquired by ZenDesk], Optimizely, Numerify, Revinate and Wavefront [acquired by VMware]. 

Tugce Ergul is a partner at Angel Labs, a San Francisco-based venture capital and advisory firm. She has facilitated the deployment of over €300m into direct startup and fund investments and was recently recognised as a 30 under 30 by Forbes Magazine for her work in the finance world. She is an active member of the European VC network and regularly speaks at events around the world regarding entrepreneurship, economic deve­lopment and technology.