Transcript from my GrowVC interview
Marcus: Hello and welcome to this episode of the Grow VC Everyone
Funding Startups podcast. I’m your host, Marcus, and today we’re talking to
Josh Breinlinger, who currently works as a senior associate at Sigma
Partners, a venture capital firm in Menlo Park.
So, first of all, thank you, Josh, for being on the podcast
today.
Josh: Thanks for having me.
Marcus: Okay. Let’s start off with some background. Why don’t you
briefly introduce yourself to our audience.
Josh: Sure. So my name’s Josh Breinlinger. Once upon a time I was a
mechanical engineer, MIT student, and basically went into
consulting for about four years at a company called Arthur D.
Little. It’s a management and engineering consulting company in
Boston. I had a great time there for four years. It was really
kind of a dream job as far as mechanical engineering goes
because companies would come to us with just big problems that
they couldn’t solve and, frankly, write us a big check and say,
“Okay, we need a low emission fuel injector and we don’t know
how to do it. Go, run with that.” Or really interesting
projects, like Kentucky Fried Chicken actually came to us and
said, “Hey, we want to break the world record for the largest
chicken potpie, so we need to bake a 45 foot chicken potpie in
Central Park. How do we do that?” So it was a really great
problem solving sort of thing back in my mechanical engineering
roots.
About four years after I was doing that, I got the opportunity
to join oDesk as the fourth employee. I actually started as the
Director of Sales, which was a big career change for me. But on
the very first sales call that I was doing, I was talking to the
customer and showed them a demo of the oDesk platform, and they
basically just took it away. They were like, “Oh my god! This is
incredible. This is exactly what I was looking for.” So
immediately I realized that this was a really big opportunity
and switched careers. I moved from Boston to San Francisco and
ended up at oDesk for about five years in a variety of different
roles. Pretty much as any early employee will do, I did
everything from sales to running product, to operations, and
community and customer service, and then really spent the bulk
of my time there in marketing and business development.
Then about a year and half ago, I moved on from oDesk, really
just because it was becoming a later stage company and I
personally prefer the earlier stage challenges. So I moved on to
an online advertising company briefly and headed up marketing
and product. Shortly after that, I was approached by Sigma
Partners to join the team and help them find other great
startups.
Marcus: You made the transition to VC, was it last year?
Josh: Yeah, it was about exactly one year ago, August of 2010.
Marcus: Okay. What was the transition like? Was it what you had
anticipated?
Josh: Yes and no. In the process of deciding whether or not to take the
role, I talked with a lot of different VCs and a lot of
different partners. There are sort of pros and cons to anything,
and some of the negatives, or big differences I suppose, are
really the pace. So when you’re an entrepreneur, you’re hustling
all the time. You’re trying to move as quickly as possible.
You’re making decisions really quickly and implementing things
really quickly. VC, especially in the VC that we do, which is
not small angel investments but more serious A rounds, typically
our sweet spot is $2 million to $6 million, we really make very
few, but very big decisions each year. So there are only a
handful of investments that we’re going to make each year. So
you sort of intentionally don’t want to rush into things. One of
the partners really almost warned me ahead of time, he was like,
“You’re going to be frustrated by the pace, because you’ll see a
company, you’ll get really excited by it. You’ll go, ‘Oh my God!
This is so cool.’ Then it’s, 'Okay, let’s spend weeks, if not a
month, researching and doing diligence and really looking at all
the competitors.” So things basically move a little bit slower,
which is certainly a big change from entrepreneurship. But it’s
even more rewarding than I had imagined in terms of I meet
fantastic entrepreneurs every single day, and I’ve learned a ton
about their industries, about their segments, about emerging
technologies. So that part is great.
I think on the plus side, really the biggest surprise is how
much you learn in venture capital. It’s really an amazingly
rewarding position.
Marcus: We’ve talked before, as well, for example we’ve talked with
David Hornik on what a curious profession it can be. So for many
entrepreneurs, it is a mysterious occupation. So what was it
that kind of got you over the fence to actually make that move?
What was the biggest pro that you saw before you actually
transitioned?
Josh: Yeah, it definitely is, and there’s an interesting mystique to VC that
sort of goes away pretty quickly once you join the VC industry.
But I think the biggest positive is really just the learning and
the network. What I talked about when I joined, I was most
excited about, one just growing my network, meeting great VCs,
great entrepreneurs every day. It’s the best possible networking
opportunity in the world as far as I’m concerned. So that was a
huge plus.
Really the learning in terms of, I do believe that, in my
future, I’d like to go back the entrepreneurial side and found
my own company and hopefully grow it to be successful. I think
being in VC really helps you with pattern recognition issues.
You really start to see what are the companies that make it and
what are the companies that don’t, and what are the patterns you
see in those different companies. So the opportunity to learn
from other entrepreneurs and the companies that we’re seeing in
our portfolio companies was really enough for me to take the
plunge and jump on board.
Marcus: And your perspective as a VC must have changed a little bit, at
least comparing to that of an entrepreneur. How do you think
you’ve been able to apply your own background from the startup
space to working as a VC?
Josh: I think every VC will tell you, “We’re always looking for three
things - great teams, great products, and massive markets.”
That’s sort of the universal thing that VCs are looking for. I
think that most VCs will also tell you that team is by far the
most important. This is really a people business. I think that
having been an entrepreneur and having walked in those shoes,
it’s easier to identify the other great entrepreneurs. I think
if I hadn’t had that experience I wouldn’t be as good of a judge
of entrepreneurs and their skills. Oftentimes, it’s the little
things. I’ll be in a meeting and be hearing a pitch, and some of
the things that impress me the most aren’t even in the pitch
deck. They’re some little anecdote of some scrappy tactic that
the entrepreneur employed, whether it’s knocking on doors in
their neighborhood to find potential customers or Airbnb has
this sort of famous story about selling the cereal boxes, the
Obama O’s. That probably would never make it into their pitch
desk, but those are the impressive stories. So I think that,
having been an entrepreneur, I have an increased appreciation
for those sorts of things. So I do think it really helps me
identify the best entrepreneurs that we meet with.
Marcus: Did you work with VCs before, as an entrepreneur?
Josh: Certainly, but too a much more limited extent. I worked with our
board members quite a bit and worked on some ideas with them and
was involved in some of the pitches, but it was fairly limited.
So I didn’t have nearly as much exposure, obviously, as I do
today.
Marcus: Looking back at that time as an entrepreneur, is there anything
that you would have done differently had you known what you know
today as a VC?
Josh: That’s an interesting question. I think we probably would have paid a
little bit more attention to high level trends. One of the
things you get as a VC, and actually one of the warnings that I
received going into VC, is, “Hey, if you spend more than a
couple of years in venture capital, it’s going to be really
tough to go back into an operational role,” because you
gradually go up and up and up and you start looking at the world
from a 30,000 foot level, whereas an entrepreneur you’re always
in the weeds trying to grow the numbers day by day. So you’re
looking at Google Analytics every day, making sure things are
going up. I think as an entrepreneur it’s sometimes hard to get
out of that mode and look up. So you get stuck in those weeds,
and you may not recognize some of the larger trends until, not
necessarily it’s too late, but you could have certainly acted
sooner. So I think having both experiences now, as an
entrepreneur and a VC, I think gives me a better balance. I can
go down and execute and operate at a daily level, but I can also
go up and look at things from a 30,000 foot level and see some
of the big trends and, I don’t want to say pivot, but evolve the
company to meet those mega trends.
Marcus: I guess that’s a very relevant point, since as an entrepreneur
you do kind of get stuck in that day to day, regardless of if
you actually take time off and try to get that perspective, it
is still harder to get that 30,000 foot perspective, and it
might even be impossible to a certain extent.
Josh: I know it’s tough. I’ve seen some companies that are so focused on
the short term, trying to keep the chart going up and to the
right. Really, a big part of the driver is just to please VCs.
It’s like, “Oh my gosh, we’re going to need to raise our next
round. We need to show growth and momentum.” So they’re so
focused on the short term that they might be missing some of the
longer term opportunities. It’s a tough tradeoff. I don’t think
there are any easy answers. It’s one of those things, you just
need a good balance.
Marcus: I think balance is a good term anyway for any entrepreneur.
It’s something that is applicable to so many different
situations in that context.
If you look down from 30,000 feet at the moment, what are the
biggest and most exciting things that you see at the moment?
Josh: There are a lot of things. I personally am pretty focused on the
crowdsourcing space and the peer-to-peer marketplace space. I
think there are some amazing companies in that area. Kickstarter
just the other day released a press release that they’ve funded
10,000 projects and $75 million pledged. There’s a company
called Gigwalk that has done 110,000 small local crowdsourcing
tasks. So I really think crowdsourcing is going to change the
way the world works for so many different functions. It’s just a
better solution. It’s usually faster. It’s better. It’s cheaper.
So I believe that’s going to change the world.
The trend of the Internet of things or the quantified self is
definitely rapidly growing. I think one of the most exciting
things is that we’re seeing a lot of startups that aren’t just
building a new web app. Things have become cheap enough that a
small startup with a little bit of self-funded capital can
actually build a physical product and sell it. WakeMate is a
company I’ve talked with and they’ve built a really cool little
bracelet that helps you sleep and wakes you up at the proper
time. It’s connected to your mobile phone and things like that.
They’ve done it with a very tiny amount of capital that I just
don’t believe would have been possible a few years ago.
So those are some of the big trends. I also really think
startups are changing and they’re becoming more and more design
focused. In terms of design, we’re really seeing that more and
more startups just have incredibly well designed apps, and it’s,
for me, one of the big learnings, and this gets back to the
entrepreneurial side.
I’m a big believer in customer effort and things like Net
Promoter Score and customer effort and those are ways of
measuring customer satisfaction, but customer effort is a
specific question you ask people. You basically say, “Hey, how
much effort did it take you to resolve your problem or to get
what you wanted to be done, done?” I think that’s a really
powerful thing. When you can take something that used to take
people two hours or ten hours to do and you can make it a single
click and everything just works, that tends to grow virally. I
think that’s a big part of the reason DropBox has been so
successful is everybody that talks about it says, “Oh my gosh,
it’s so easy!”
So that’s one of the things I do look for in companies, people
that are making a step change improvement in customer effort,
regardless of what industry it’s in, whether it’s a web app or a
hardware thing or even solar panel installation. It doesn’t
matter. I want to see massive improvements in customer effort.
Marcus: All right. Since you mentioned that you’re looking into the
crowdsourcing, that space, I just want to have one specific
question, because that’s also one of the areas that naturally is
most relevant to what we’re doing at Grow VC. So in terms of
that area, and what we’re working on in terms of micro-
investments, of course that is a little bit of a complicated
area in some regions. But still, if you think of your role as a
VC, you focus on the Series A, the $2 million to $6 million
investment, so naturally you’re a little bit of a larger player
in that. But if you had a startup that had, for example,
convinced 20,000 investors, what would that mean to you in terms
of validation?
Josh: That’s a really interesting question. Frankly, it’s one we haven’t
come across too often yet. So it will be interesting to see how
these things play out over the years, because there’s no
question that sites like Grow VC and other crowd funding sites
are definitely changing the industry, and it’s a growing and
emerging trend. I think it’s very powerful. It’s definitely part
of that social proof. It’s one of the things we always look for,
social proof and traction. I think having 20,000 people invested
in a company does give you almost automatic evangelists. If I
invest even just $50 in company, I’m going to be promoting it.
I’m going to be referring it. I’m going to be posting their
things on Facebook. So it’s a powerful tool for social proof and
distribution and evangelism. So I think it’s definitely a plus.
Obviously, it doesn’t eliminate the need for demonstrated
traction and great products and massive markets, but it’s a big
plus.
Marcus: I think in terms of what we’ve been doing, it’s always been the
thinking that we’re not building a substitute for what’s out
there, but we’re rather building a complement, because in terms
of catalyzing that and just making it a little bit more
efficient and transparent. I think you mentioned in the
beginning that you’re very fond of the early stage, and the
early stage naturally comes with its own limitations just based
on the costs that go into finding, validating, and doing the due
diligence, and all that. I mean, that’s specifically the area
that we focus on. Naturally it is a little bit of a different
spectrum than the Series A, above $2 million investments.
Josh: Certainly, yes.
Marcus: All right. We talked about what’s going on in the market at the
moment, and we talked a little bit about what you see from the
high level. But going forward, what do you think are the most
interesting things that you look forward to?
Josh: I definitely look forward to sort of an increasing number of these,
call it, peer-to-peer marketplaces. I’ve already seen dozens of
startups that are calling themselves the Airbnb of Something. So
I think that is going to be a very big and continuing trend. I
really think of it as the decade of utilization. There are so
many things, whether it’s your time, or your possessions, you
car, or your boat, they go unused most of the time. I think that
that will change over time. Things will be utilized more and
have increased capacity. So I think that’s one big trend.
I do come back to the sort of Internet of things, more and more
devices, everything from your shoes to your watch to your
clothing will be connected to the Internet. Developers that are
building platforms there are opening up APIs so developers can
just unleash their creativity and really do amazing things. Just
as an example, I saw a company yesterday that built GP shoes.
They’re basically GPS shoes, and they give you walking
directions. What they do is, it’s just like a Garmin or a Tom
Tom navigation device, but they buzz your right foot with a
little vibration thing if you need to take a right, and they
buzz your left foot if you need to take a left.
So we’re going to see just more and more of those sort of things
that are really cool, and it’ll be interesting to see which ones
really take off, but certainly there are some really neat ideas
out there.
Marcus: All right. Let’s conclude this episode with a touch on personal
learning. We talked about this a little bit before as well. But
from talking to entrepreneurs in the VC role, what have been
your largest learnings so far?
Josh: One of the greatest personal benefits is that I learn about a lot of
industries and things that I might not normally learn about,
everything from a company called CloudFab that sort of educated
me on the 3D printing space, they’re doing some really
interesting things, to a water purification company called
Puralytics that’s using LEDs to purify water just with a little
bag. So one of the best personal benefits is I learn about these
emerging technologies and so that part is fantastic.
More back to the sort of the Web space, one of the things that I
get to see from these entrepreneurs is really the power of
social. Obviously, this is nothing new, but people are becoming
more and more sophisticated about how to harness the social
elements in their products. So they’re building in these viral
loops that it’s not uncommon now to see somebody that has
hundreds of thousands of users just a few weeks after launch,
which I just think was impossible a few years ago. So the social
elements are so incredibly powerful that I think it’s actually
making … people always used to talk about, “Hey, network
size is really defensible. If you have a million users, that’s
fine. You’re defensible, nobody can attack you.” I just don’t
think that’s the case anymore. So social has really broken down
some of that defensibility, which is a great positive for brand
new startups and for incumbents that are there with millions of
users. They really need to figure out new ways to become
defensible.
Marcus: Okay. I think that’s a good warning. Of course, the entire
market it is developing so fast that startups have more and more
opportunities. Also, as many of these spaces get more and more
saturated or more and more competitive, it is always a good
point to know that there is no guarantee in where you are.
Okay. I think that’s a good point to end the podcast on, so
thank you, Josh, for being on the podcast. It’s been a pleasure
speaking with you today.
Josh: My pleasure, Marcus. Thanks very much.
Marcus: And to our audience, thank you for joining us today. Join us
again next week with a brand new episode.
Audio transcription provided by Speechpad.com.