EVALUATE STARTUP OPPORTUNITIES IN SILICON VALLEY
How to identify high-growth opportunities and
build an ecosystem of top startups
ABOUT THE WEBINAR
- Identifying and sourcing great startup opportunities
- Building a brand and platform that brings great companies to you
- Approaching topics such as due diligence, valuation, and talent assessment
ABOUT OUR GUEST
Said Mia is the Founder of Sweat Equity, an advisory firm focused on helping young companies grow.After years of investment banking Said wanted to cultivate deeper, earlier-stage relationships with young companies. Sweat Equity began as an advice blog for founders based on his experiences as an investment banker, founder, athlete, and underprivileged minority. The grit, resourcefulness, and acumen he built from these experiences are especially useful to early-stage companies—that’s how Sweat Equity took off.
Said has helped these startups raise capital, make investor presentations, draft marketing documents, oversee their strategic directional decisions, and manage their hiring growth plans.
Sweat Equity was created to help founders wade through the minutiae of “experts” and connect with a genuine, candid person who’s been in their position. All Said's work and recommendations come from his own life experiences and include concepts from his own ventures.
Very glad to start this webinar with you Said. And to the audience who are with us today, welcome to this Silicon Valley Innovation Center webinar. I’m your host, Rahim Rahemtulla. And, as I’m sure you know, we have Said Mia with us today. He is the Managing Partner at Sweat Equity and he’s going to be leading us in our discussion today on evaluating startup opportunities in Silicon Valley, so very exciting talk ahead of us. Just before we get to that, I’d like to remind you that we very much encourage you to participate today in the discussion, so do locate the Q&A button on your toolbar there and do submit your questions at any time during the presentation. What we’ll do is we’re going to have Said present for about 35 minutes or so and then what we’ll do is we’ll open it up for discussion and the questions after that, but do send them in at any time and we’ll collect them all and then, at the end, we will go through them.
So I think at this stage that’s all I really wanted to say and I think now’s the time for me to hand over to our guest today, Said. And Said, thanks so much for coming and for joining us today. It’s a pleasure to have you with us.
It’s always a pleasure, Rahim.
Thank you, Said. Thank you, it’s wonderful to see you again. And do, I think, Said, take over with the screen share if you’re ready to do so. I know you’ve got some slides for us. And yeah, take us away when you are ready.
Great. Thanks, Rahim. Again, always a pleasure. I appreciate being a host and guest at SVIC, nothing but great things to say about the platform that you guys offer and it’s completely my honor to present today, so thanks everyone for joining. My name is, as Rahim alluded to, my name is Said Mia, I am a long-standing investment banker here in Silicon Valley and also the founder of my own practice called Sweat Equity. And so today I’m going to be talking about approaching and engaging with Silicon Valley startups and how to best capture the benefits of the innovation from that ecosystem. So let’s get started.So as I alluded to earlier, a little bit about me. So I was born and raised in Canada, I spent a couple years on Wall Street and then moved out to the Bay Area here in Silicon Valley, where I have been a technology investment banker for several years. And I’ve since transitioned from my long-standing career in investment banking to becoming the founder of my own practice called Sweat Equity. Throughout the course of my experience as both an investment banker and with Sweat Equity, I’ve had a wide range of transactional experience and so some of the earliest deals I worked on were IPOs from a lot of the top leading tech companies out here in Silicon Valley and I’ve also worked on a variety of cap raises from the millions of dollars to the billions in M&A deals as well. And so pretty much any staple on the Silicon Valley landscape in terms of a big tech company, I’ve had exposure to those and I’ve learned a lot along the way. As I mentioned earlier, most of my experience has to do with technology. It’s just a very near and dear to my heart, both from a professional and a personal standpoint, and it just really excites me and I’ve gotten the most fulfilling and rewarding experiences out of helping technology companies.
A little bit about Sweat Equity. As an investment banker, as I kind of rose up through the ranks there, I just kept coming into too many companies that were way too promising, but I couldn’t help them because they’re too early-stage. And so, generally, investment banking targets later stage companies and I just saw it as a missed opportunity to not help a lot of these promising companies that we’re on the precipice of something really special, and hence why I started Sweat Equity. And fast-forward to today, it’s been an incredible experience where now it’s a portfolio of about 20 companies where I’m helping them with anything and everything that they possibly would need, from strategy, business development, long-term planning, cap raises – anything and everything that they would need. And I’ve since transitioned this into running a venture fund to kind of help them both with a lot of the things I just mentioned, but also being able to kind of help fund them earlier on to take them into that next phase of growth and riding out to that long-term trajectory.
So, as it pertains to innovation, working with startups, especially here in Silicon Valley, a lot of venture firms – and I’ve done this throughout my whole career – when you’re evaluating and company, it starts with the individual, it starts with the founder. And so that’s why I have this slide, “What makes a successful technology entrepreneur?” And this is not exclusive to technology, but for all founders. I mean, you really need to be in it for the right reasons. And so by that I mean this is not a get-rich-quick scheme and there are many easier, more certain ways of becoming richer quicker than becoming an entrepreneur, but you’re in it because you’ve seen an opportunity firsthand and you have a burning desire to tackle that opportunity. Or you’ve seen a problem firsthand and it just burns you to your core that there’s no solution and there’s nothing you’d rather do than build a company and attack that opportunity or tackle that problem. And so, especially in the early goings, in the early innings, things are tough and you’re going to need a burning desire in order to kind of carry you through those early days and doing it for the right reasons speaks a lot to that.
Being resourceful and creative is really, really important and, unfortunately, this is not something that really gets talked about a lot, in the sense that everyone’s smart, everyone’s hard-working – I mean, if you’re in this game, the bar is pretty high – but being resourceful and creative, I think, is what really separates the great founders from the good ones. And I mentioned an example on this bullet where there is a story of a guy here in Silicon Valley. When he was starting up his company, he was eager to get exposure and so what he would do is go to all the Apple stores in Palo Alto but when they opened and he would run around to the computers and preload his website onto the computers and that way all the customers, when they come into the Apple Store first thing in the morning, after the Apple employees chased that guy out of the store, they’d go on to the computers and go, “Wow, this is a great MacBook Air. But wow, what is this? Pinterest.com? It’s actually pretty exciting.” And hence, that’s where a lot of that early exposure came from. And things have since worked out quite well for that founder. So resourcefulness, creativity will go a long way, especially the early days. I mean, the founders of Eventbrite, same idea. They would go around the coffee shops in San Francisco and they’d offer to pay for the coffee of customers there as long as they’d use the app and give them feedback on the app. So out-of-the-box creative thinking like that goes a long way.
Being relentless and tenacious, again, is key here. People are going to tell you no at every opportunity. Especially for first-time founders, a company is your baby and it’s very near and dear to your heart and so when folks tell you no or when customers don’t give you the time of day or when partners or whomever it might tell you it’s not possible, it takes growing some thick skin, being relentless, being tenacious in order to keep going, especially when things get tough early on. And you’re not operating in a vacuum. Having a supportive ecosystem is key. And so, by that I mean having mentors both professionally and personally. So having professional mentors, having a supportive family, having people tell you that you’re going to make it, that you’re doing it for the right reasons, all these things will really come in key, especially when you face a lot of adversity along the journey.
One of the things I do at Silicon Valley Innovation Center is speak to a lot of companies about how they can engage startups in order to bring innovation into their companies. And so this is not a topic that gets a whole lot of attention, but I do think it warrants some mention in this discussion. So not only for investors, but even for corporates, bringing innovation and startups into your ecosystem is a great way of introducing fresh thinking into your organization. Having outside perspectives definitely helps remedy a lot of the tunnel vision that comes from having an earlier stage company grow into a bigger one, because along the way, sometimes that startup, that energy, that innovativeness, a lot of it gets lost along the way. And so keeping a pulse on the ecosystem, especially here in Silicon Valley, and especially in earlier stage community, will go a long way. And with companies as well as internal innovation opportunities, it does not have to be an innate desire to reinvent the wheel. In fact, a lot of the best companies that are on the landscape today have actually started inside bigger ones and they just saw a unique opportunity that other people weren’t seeing from the outside. And they saw a unique use case that just wasn’t getting attention or they just saw that they were able to do something better than the bigger company was able to do because it was just spread too thin across too many use cases.
And so I’ve seen, especially in the software space, that a broad-based software company is doing many things okay, good to okay, but folks within that software company can do something very specific, much better and they decide to jump out of that company and start their own. Boosting reputation and new opportunities is really relevant here in the sense that, if a company is seen as kind of ornate or kind of worn down or not really interested in innovation, then folks aren’t really going to pay attention to them. But if a company has a real commitment and real energy and real desire towards innovation, embracing startups and kind of fostering an ecosystem there, then that actually attracts opportunity towards the company in the sense that newer, innovative, leading edge companies will reach out to them to partner with them on use cases, investors will start paying more attention bringing opportunities that way. And it’s just kind of a virtuous cycle because the more this happens, the more opportunities that the bigger company has to engage and it just boosts reputation over and over and over again.
It does cost money to engage with startups, but a lot of bigger companies are actually paying a lot of this money through their income statement on R&D expenses. But, actually, to the extent that a company starts making real long-term investments in a startup ecosystem and engaging with younger stage companies, that actually reduces or turns redundant a lot of the R&D investment that the company would make from R&D dollars on your income statements, to make it redundant via R&D investment on your balance sheet. So I would say it’s just turning a lot of those R&D dollars redundant and it pays you back many times more forward.
And then I also say that engaging with startups is a two-way street. I mean, you might think that you’re the one chasing them and that they’re the ones getting the benefit, but actually you get the benefit and they get the benefit. So they get the benefit in the sense that, obviously, it opens the door for funding from you or for increased business from you, but what really speaks to them is the opportunity to attack bigger and better use cases that they otherwise would not be able to tackle. And so, by this I mean, if you have very specific problem with you and your organization, there they have the opportunity to tackle that and then boast about it on their website or when they go out to raise capital saying, “You know what? Not only did we solve these low-hanging fruit problems, but we actually tackled bigger problems and bigger companies. And that makes us a more attractive company.” And then, similarly, they solve your problems and they get you to get exposure to their innovation. So it’s a two-way street and I think keeping an open mind to these opportunities will go a long way towards ensuring success.
So embracing innovation and startups is really key in the sense that you can’t just really pay lip service towards it, this is something that really needs to be institutionalized from the top-down. And by that I mean you can’t just kind of issue a newsletter and say, “Okay, we’re going to start engaging with startups” or “Innovation is really important to us.” But it needs to be coming from senior leadership in an organization down. And so, for instance, Google does a really, really great job of this where they actually carve out and incentivize employees to spend 20% of their time tackling side innovation projects and that way it’s less awkward because they’re not having to sneak around the background, but instead they know what they’re doing is congruent and aligns well with what senior folks want them to be doing anyways. On that last point about making it less awkward, you need to create incentives towards embracing startups and innovation. So by that I mean engaging with startups or fostering innovation will not always be a successful endeavor. I mean, failure is part of that and you actually learn a lot from the failures in these cases. So creating incentives, finding a way to kind of pay and make time for employees to do this will really go a long way. And actually, including it in their employment agreements or their contracts will go a long way as opposed to, again, having them kind of skulk around the backgrounds and they’re not quite sure if this is something that you’d want them to be doing anyways.
A lot of companies in the Bay Area do a really, really great job of incubating companies. And so a lot of the top companies in the Bay Area today, they’ve actually started while the employees were employees at bigger companies. And one of the great things about this is that they just have visibility and exposure and support that they otherwise wouldn’t have if it was just two guys in a garage starting a company. And so incubating and possibly spinning out while retaining an ownership interest in that company is actually a great, beautiful way of both internal and external entrepreneurship that kind of helps all parties involved. And something that companies have done really, really well, especially as of late, is corporate venture arms where you have that interest in bringing the innovation into the company and kind of attracting startups, but at the same time, there’s a funnel and there’s a gateway towards having that align well and bringing innovation into the company, but then also riding the financial upside as well. And it’s something that companies continue to get better and better at and you’ll definitely see more of that moving forward.
Engaging startups does not take place in a silo. One of the things I wanted to make clear in this slide is that none of these items are mutually exclusive, but you can tackle one, two or more of those and then ride the benefits accordingly. So a good way of starting out with to deal with startups is actually by partnering with them, tackling use cases together, engaging in distribution agreements, whatever it might be together. That way, along the way you are able to kind of diligence those companies quite well and get to know them better and more intimately to see if you’d actually want to further the relationship with them down the road. Being a customer at the company is really really important, is a great way of doing it and I don’t mean by giving them six, seven-figure contracts from day one, but having them tackle specific use cases that you have right in front of you that are real pain points to the organization, like proof of concepts, where they’ll prove out a proof of concept first and let’s see how that goes and we can kind of take it from there. Investment, making a minority investment either off the balance sheet directly or through a corporate venture arm or whatever it might be, that’s another very obvious way of going about it and then, ultimately, investment could be a precursor to acquisition or not. I mean if you know the company well enough and it solves a real issue for you or opens up a real opportunity for you, then full out acquisition might be the most viable path. And, as I mentioned, these aren’t mutually exclusive but one can lead to many of these and they’re all beneficial towards each strategy.
Approaching early-stage companies is really key and going about it the right way is important. And so you can’t do it from being an armchair expert or just researching companies on the Internet – the reality is that you just really need to get out there and just get immersed in the ecosystem. And by that I mean there’s a lot of opportunity, especially here in Silicon Valley, to attend demo days, to attend showcases where the next wave of leading companies are being showcased. And you need to get in front of them, you need to be able to speak to them, you need to offer some sort of value to them in order for them to remember you and to want to continue to interact with you. And, like I mentioned earlier, you don’t want to be seen as an ornate, worn down company, but instead one that has a real commitment towards innovation and fostering entrepreneurship and supporting startups, and so branding is key. They need to know that company X has a real commitment to innovation and that this is a company that will not be a waste of our time. And the brand is key. So having a website, being visible, there’s no uncertainty about what it is that you do and why is that you’re doing it, you’re at every conference, etc, etc. So, again, branding is key because you want to be top-of-mind when companies think about who they want to engage with and deal with and there can’t really be any uncertainty there.
And this goes for companies, for corporates, for investors, for anyone in the ecosystem. Having an open mind is important here and there’re no dumb ideas. In fact, some of the best companies actually sounded like dumber ideas in bigger companies. And so, as an example, inviting strangers into your home and inflating air mattresses to have them sleep on your roof sounded like a pretty sketchy idea at first but Airbnb has done extremely well since then. There were many search engines and, I mean, the 18th search engine didn’t sound so unique and kind of just seemed seemed redundant after the likes of MSN and Yahoo and etc. But Google, I mean, people have a hard time imagining what the world would be like without Google. And then lastly hiring a guy and hooking a webcam up to his head and streaming that footage on the Internet sounded like a pretty silly idea at the time, but that idea actually manifested itself into Twitch, which sold for a billion dollars to Amazon and is doing extremely well these days. So those ideas sounded less than ideal at the time, but they’ve actually turned out to be great ideas, and the ones who’ve really profited and the ones who have really benefited from those companies are the ones who had an open mind. And so, again, there’s no dumb ideas in startup land. Have an open mind, be respectful.
Engaging with startups and building deal flow is something that really needs to be paid attention to in the sense that, like I said, you can’t do it from being an armchair expert, you can’t do it from kind of just sitting in front of a web browser, but instead getting out there, building that network, building the ecosystem in every way possible. So, especially if you’re looking to be an investor, connecting with other investors. I mean, your competitors, but you also can benefit from each other. So something that’s really common here in Silicon Valley is investors are sometimes conflicted out of opportunities because say, for instance, that as a venture investor you invested in a specific brand of widgets. Well, then that company’s biggest competitor, when they’re looking to raise capital, it’s kind of a conflict of interest for you to invest in their biggest competitor, so you’re forced to pass because you’re conflicted out. That doesn’t mean that the company’s competitor is not a good investment opportunity, and so you might tell your friend who’s another aspiring investor, “I can’t invest in this opportunity, but you can. I think that’s a great one.” And people will remember when you passed them along opportunities that way and they’ll want to pay it back. Even if a company is not conflicted out, opportunities to co-invest. I mean, companies always need to fill out rounds and so to the extent that you open up your network or open up opportunities to other folks, they’ll want to return those favors. And it kind of just breeds a virtuous cycle that way, where it’ll just open up bigger and better opportunities for all parties involved.
Like I said, getting out there is really key, getting in front of companies, going out to incubators, going out to everyone in the ecosystem, speaking to customers. I mean, customers live and breathe interacting with these companies on a daily basis, they’ll know better than anyone if a company is viable or not and what’s good and what’s not good about them. And then, like I said before, being as helpful as possible to the extent that you help out a company or you help out another investor or anyone in the ecosystem – folks will remember that. People have long memories in this ecosystem and they’ll want to pay it back and it builds your brand and it builds up greater opportunities for you, etc, etc. So that virtuous cycle will continue to get better and better and it’s a no-brainer just to be as helpful as possible.
So obviously, because of my banking background, valuation is near and dear to my heart. We’re not going to get too immersed in this, but I’ll just say that, especially in early-stage land, it’s no secret that valuation is more of an art than a science. And so you’ll kind of use a few different methods and somehow triangulate on value, but one thing to be aware of is that, because the company is earlier stage, that means that there’s less traction and less of a track record to evaluate in order to ascribe value to, so it’s more of an art than a science and it’s imperfect at best. One thing that a lot of folks use is scorecards are rubrics and there’s a very famous SaaS valuation napkin that folks will say, “Okay, well, if a company sits within X to Y million dollars in annual recurring revenue, then we’ll ascribe this. If they meet other items on our rubric or a scorecard then either we’re favorably or unfavorably towards valuation.” So that’s kind of a guidepost that folks tend to use.
Comparable companies, looking at companies that are in a similar space, is a good way of looking at it. However, just keep in mind that because a company is earlier stage, if they’re growing at triple-digit hypergrowth in the first couple months of their existence, well, then that’s not a reasonable metric to apply multiples towards. And so just take that with a grain of salt and try to normalize things in order to make it true apples-to-apples when you’re using comparable companies. Precedent transactions is another good way of looking at it. If a similar company achieved an exit in recent history, then that can be a good way of looking at an X multiple or value. However, just keep in mind that there’s a premium associated with those companies that have been acquired.
And then also realize that there’s the idea of strategic versus financial value. I mean, if a company acquires a startup, chances are they’re less acquiring it for the financial value as opposed to keeping it out of the hands of their biggest competitor or whatever additional opportunities it might open up. And so that additional value is baked into whatever they paid for the company and so just kind of take it with a grain of salt as well. Financial models and things like discounted cash flow models, keep in mind that it’s garbage in, garbage out. If a company’s trajectory always looks rosy and they always have this hockey stick growth, keep in mind that it’s largely a function of the inputs and if you put favorable inputs or rosy inputs then it will give you a higher valuation and if you apply more conservative ones then it will only give you a lower value. And so just try to find a healthy medium. And, obviously, none of these items none of these methods are perfect but they can always be used as helpful guideposts to find the right valuation for you. As I mentioned, this is a very famous SaaS valuation napkin that folks have used in the past and, again, just keep in mind that these are just purely illustrative ways and there’s no perfect method here, but folks have generally used some of these as kind of a thumb in the air to at least hone in on value. Again, here it’s less of a scorecard and it’s more, if a company falls within a certain degree of traction as it pertains to product development or customers or recurring revenues, then those will obviously warrant potentially higher valuations.
So we’ve just spoken about valuation and more quantitative elements of evaluating companies but, as I said at the beginning of this presentation, it’s largely qualitative and it starts with the person. So how obsessed, how driven, how hungry, how tenacious is the founder? Are they doing it for the right reasons? Is the person using the company as an excuse to get rich quick and to be their own boss? Or are they doing it because there’s nothing else they’d rather do and there’s a great opportunity that they see right in front of them? Or there’s a problem they faced on a regular basis and it’s just that they have a burning desire to solve that issue?
Is there a clear product market fit? And I’ll say this with the caveat that showing slides to investors with big TAMs is not always the best thing to do. And I’ve also heard of investors saying, “The TAM is not big enough,” but one of the criticisms of a very famous ride-sharing company that’s poised to go public later this year, one of the criticisms for them is they were saying, “Okay, well, a ride-sharing company, then their associated TAM is the taxi industry. Well, the taxi industry is only a certain number of billions of dollars and that’s not big enough.” Well, the thing about that very famous ride-sharing company is that they actually created their own TAM, they created a market, they created opportunities that were not present otherwise. And so I would just say to take it with a grain of salt or don’t be limited by that narrow view on TAM but instead be excited about companies that could potentially create their own addressable market. But still having at least a gauge or product market fit will definitely be helpful here.
Is revenue spotty or recurring? I mean, one of the things that makes software companies really great is that they have predicted very recurring high-margin, low customer acquisition costs, recurring revenues. And that’s really helpful because it creates a great foundation, margins keep going up, customer acquisition costs keep going down, unit economics keep getting better and better. You want to see recurring revenue as opposed to spotty revenue because that’s just not sustainable, it’s just lumpy. Does the cost structure scale with revenue or you the more you sell, the more money you’re losing? Ultimately, you want to see costs go down as revenue scales up and those margins keep getting better and better. And then if a company is looking to raise money, where’s that funding going? Are they looking to reach certain milestones where that would warrant potentially higher valuation 18 months from now? Having specific guideposts and milestones that can be achieved with the funding as opposed to just wanting a cushy bank account, these things will really speak to the founders, knowing what they’re doing and having a specific path forward and a plan to achieve hyper growth.
I just talked about evaluating the founders, but also recruiting talent. Again, people are a really, really important part of this. And so finding people who are hungry to get into the ecosystem is real key. And so a lot of the stuff here you can teach, but you can’t try to teach desire, drive, hunger, and all those things. And so, again, I would take that work ethic, that drive, that hunger over kind of subject knowledge in a heartbeat because, at the end of the day, this is not an easy job, this is not an easy path and having people who are tenacious, who are hungry, having a desire to jump out of bed in the morning and do this, that really what’s going to make companies successful.
Like I said before, having people know that you’re open for business, like build that network, build that reputation, build a brand, have people want to reach out to you as opposed to you having to chase other folks – that’s the only way this is going to be sustainable. And just be wary of track records. If a person says they’ve done a certain thing or a number of great things, were they along for the ride or were they actually the one driving the bus? And so just be wary of track records. And, ultimately, it comes down to genuine, hungry people who wouldn’t rather do anything else that build companies, find companies, help them and foster the ecosystem that way.
And this is the last slide, it’s kind of a catch-all that I didn’t capture earlier in the presentation but, as it pertains to specific deal terms, there’s a lot of gray area and it’s kind of a give-and-take. So proof of concept, earnouts, vesting, ratchet, other, find ways of aligning the interest among founders, among the startups. There are different nuances around agreements and contracts that you can put so that everyone’s kind of aligned and working towards the same thing. Be very careful in negotiating. At the end of the day, you just want to find good companies and be fair to everyone, and so there’s no point in haggling over specific deal terms that will ultimately cost you the opportunity to engage with that startup. And so there’s a story, a very notorious story where there’s a guy here in Silicon Valley, he was going to invest in a Series B of a very prominent company here and, as a part of the company, he was going to invest $50,000 into the Series B and the company would also want to lease some office space from him. Well, they agreed on the deal terms, but they didn’t agree on the monthly lease amount and so eventually the deal fell through. That company turned out to be Facebook and it was $100 million mistake for the guy. And so just be weary that haggling over finding ideal terms actually might come back to bite you if you end up missing out on great companies that way.
Term sheets are a give-and-take, so if you’re haggling over specific terms, just realize that if you give on some you can get on others. And so, ultimately, you just don’t want to miss out on good deals. Watch out for expensive deals and by that I mean don’t kind of take the gears to a founder to the point where they get disincentivized to build the company and have you breathe down their throat because ultimately the company fails and you miss out that way. Too much dilution is not helpful. Again, if you think you’re taking more of the company than you should, just realize that you’re taking away some of the incentive for the founder to keep building that company and making it successful towards a successful exit. And so just be wary that if you think you’re gaining in the short term, then you might end up losing in the long term.
And just keep it in perspective in the sense that, if you’re stringently negotiating on earlier rounds of companies or investment, usually the last round before IPO is the one that really, really matters and can wipe out all the negotiating that was taking place in series A and Series B land, so just keep it in perspective, realize that it’s only at later rounds that the terms of those actually might trump early around. And so this is kind of a catch-all but, again, just be fair to folks and just be weary that, at the end of the day, you just want to find and help and capture good companies and you don’t want to miss out over being stringent on terms that eventually might not matter at the end of the day.
Well, that’s it for today. This is kind of a quick primer on a lot of the observations that I’ve made, but I really appreciate you making the time and coming out to hear me. Here’s my contact information, I’ll be more than happy to connect with any of you offline, answer any questions you might have. And I’ll turn it back over to Rahim to facilitate any Q&A that might be there.
Wonderful. Thanks so much, Said, that was a wonderful presentation, a real great overview. I think you covered a lot of ground on various aspects. Said, I think we’ll we’ll open it up for discussion, for Q&A. So for anyone out there listening, watching, if you have questions for Said, do send them in. I will, perhaps, get the ball rolling. Said, with your work at Sweat Equity advising founders, what do you hear from them in terms of partnering with corporations? I mean, for a startup, as I understand, there are several different ways they could go to grow their business – there are traditional VC, there’s incubators, accelerators. Partnering with corporations is one of those avenues. What do you hear from startups in terms of what advantages corporations might offer them which might make them want to go down that road as opposed to others?
Got it, got it. So that’s a great question, Rahim. I’d say that partnering with corporations is great and I mentioned on an earlier slide that it’s a two-way street. I mean, the startup obviously benefits in the sense that it opens them up to additional, more profitable revenue streams, but also the real currency there is the use cases. I mean, if they can all of a sudden say that they have a big Fortune 500 company as a partner or as a customer, it helps them iron out a lot of those startup wrinkles very early on, it helps clean them up their supply chain if they’re selling into a bigger retailer, or it helps them kind of just clean up their cap table or wherever it might be in order to make sure that they’re kosher with that bigger company. And so I’d say, if anything, it kind of helps them accelerate getting their business together more so than from a financial element and it just positions themselves really well.
I mean, for me, a really big space right now is the D2C e-commerce element or space with companies like Warby Parker and Casper Mattress and Bonobos and stuff. And I mean, it’s no surprise that Walmart has taken a real interest in companies like this and has actually gone from partnering to acquiring a lot of the companies just because it’s worked out so well. And companies like Casper Mattress and Quip, for instance, the toothbrush manufacturer, those products are now sold in Target just because they’ve kind of ironed out a lot of those wrinkles and the bigger companies want access, they want exposure and they want to be part of that story. And so, back to my original point, it is a two-way street. More companies know more customers will start going to Target because they offer sexier newer products and those companies, those startups obviously benefit because they’ve kind of had that stamp of approval and that exposure and that real shot in the arm from partnering with bigger customers.
Yeah. And so for the startup there’s big value in partnering with the bigger companies. They get in front of so many more people and potentially for them, I suppose, it’s a new challenge. They’ve got to, like you say, they get their products and things in order to be able to meet those market demands. So, I mean, there’s no sense then for smaller startups of selling out in any sense, they don’t necessarily see it that way. They see it as a positive thing.
I agree, I agree. And there’s a company that I was helping late last year and it was an e-commerce company that started selling into one of the biggest brick-and-mortar retailers in the world. And I would say it’s actually a double-edged sword because, all of a sudden, because they’re selling into that big, big, big, big retailer now, it’s obviously benefiting them from a boost in their growth rate, a boost in their orders, a boost in their revenues. But, at the same time, that company, it kind of caught them off guard how much they would need to sell, how much demand they would need to meet. Do they have the inventory? Do they have the distribution channel? Do they have their business in order in order to kind of keep up? So kind of, you know, be careful with what you wish for. If you want people to buy your product, just be wary of that – they’re going to be buying off faster than you can stock it on the shelves. So although it kind of caught the company off guard and it was a bit tricky, kind of a tricky exercise, that company is way, way, way ahead of where otherwise it would have been had they not had that experience. And so short term pain for long-term gain is something that they would have taken in a heartbeat.
They learn a lot, presumably, in doing so.
I think, and I said before, the real currency is the experience, is in the enhanced and fast-forward growth as opposed to the monetary. The monetary will come but, ultimately, it’s ironing out those startup wrinkles early on which will position the company for success down the road.
And what about, in that particular example, from the side of the bigger company? What would have been their role, their sort of position towards, maybe, the wrinkles that the startup would have been having to meet those demands and to get everything ready? Presumably, from the corporate side, there would have had to have been a lot of empathy there and a lot of willingness to be flexible to give the startup the time and space to grow into the bigger role.
And I’ve seen that, not only on that retailer standpoint, but also with software companies here in Silicon Valley, that it’s a two-way street to the extent that the bigger company can help alleviate some of those startup growing pains earlier on, then that benefits the bigger company because then they’re spending less time working on distribution or that stuff as opposed to just doing what the founders do best, which is solving those bigger problems. And so, to the extent that the bigger companies help alleviate some of those startup hands, then it just frees up the founders, frees up the companies to do what they do best, which is kind of offering that IP, offering that proprietary thought, offering problem-solving that the company wasn’t able to do on its own.
Sure. And to what extent do you think the corporation was ready for that themselves? I mean, were they too along that process, had been learning something too, perhaps? I mean, I suppose it depends, some companies may have more experience working with startups than others and they may expect that there could be some friction then.
Well, yeah, that’s a great question. And as much as the smaller company is learning from the bigger one, related to your point, the bigger one is learning a lot from the smaller one and it helps best position themselves the next time around when they have another specific use case that they need a startup to help engage with them. And it just builds a lot of that muscle memory for the bigger company to keep engaging with startups and knowing some of the pitfalls and not expecting the world from them from day one but fostering them, nurturing them, encouraging them, so that it just creates a virtuous cycle. When that company, the startup, is bigger and better, they won’t forget who helped them along the way and they’ll also referral their startup friends who needs similar help or offer an even more promising opportunity.
Sure. And so, we’ve had a question from the audience, I’m going to get to that in just a second. I just want to follow this train of thought a little bit, just one more question on this topic. So, but when do you sort of cut the cord, as it were? I mean, if you were the bigger company working with the startup and, of course, you’ve got to show patience, you’ve got to show willingness to work with them. Of course, it takes both sides. But at some point, do you get to a point where you just have to cut your losses, so to speak, or move on because things haven’t worked out? Is there a way to gauge that?
Well, that’s a good question. The bigger company needs to see the benefit that they’ll eventually derive and they need to see a clear path towards that. I mean, if they’re helping the startup more than the startup is helping them or will eventually help them, then it’s probably like a negative NPV proposition. This is not a charity. I mean, if a little bit of help or a little bit of nudging along the way is required, then that’s fair game, but otherwise, I mean, if a company is kind of pouring in more resources than they’ll ultimately get and benefit down the road, then look at the next startup, because there’s no shortage of companies that are chomping at the bit to solve some of these problems that bigger companies are facing. And I would just say, that value prop or the ROI here is pretty clear early on and if there’s not a clear line of sight towards that, then it might not be worth their while.
Sure. Thank you, Said. And we’ve had a question come in from the audience, from Tracy Newhart. So Tracy, thank you very much for sending this in. And Tracy asks, “What’s the best way for a startup to approach a company to get on their radar screen, to partner or to get them to support their synergistic development and growth?” So from the startup point of view, what’s the best way to get on the radar the big company?
So I alluded to this earlier in the presentation. So getting out there is really, really key. So, I mean, cold outreach is never an enjoyable experience but reaching out to folks – and I hate to say this just because it’s just so not a glamorous path – but reaching out to folks in Engineering or Product Management or whatever it might be like on Linkedin or meeting them at trade shows, going to a lot of these conferences is really, really key because a lot of people are going out to meet startups and to kind of engage in like who should be the next wave of companies that they look to hand out proof of concept contracts to etc, etc. So I would say cold outreach, conferences, events, showcases, meetups, etc, etc, going to places like SVIC in San Mateo. There’s no shortage of ecosystem/innovation hubs throughout the Bay Area where a lot of these bigger companies are on the lookout for companies just like you, just like these little startups and stuff. And so every opportunity you can get just get out there, chances are there’s going to be a bigger and bigger company that’s on the lookout for a company just like you, so hopefully that’s helpful.
Yeah, for sure, Said. And I think, it’s funny, we talk a lot about corporations reaching out to startups and having innovation departments within the company. It sounds almost like, in some sense, startups as well need to have their own, as it were, corporate outreach departments.
Agreed, agreed, agreed. And I’ve spoken at SVIC several times in the past and a lot of the folks that I’ve spoken to are bigger companies who are looking for startups to engage with and they’re wondering, like, “How do we get in front of the startups? We have real pain points in our organization that we need startups to solve,” or, “We’re looking to acquire startups,” or whatever it might be. I get CEOs asking me for access to the startups that I’m helping all the time. And just realize that you’re not doing them any favors, this is not a charity, but you’re solving real issues for them as much as they’re helping you grow and so you’re looking for the same thing. You’re looking to connect with them, they’re looking to connect with you and there’s no shortage of opportunities to do that.
Yeah. And so I think, as a startup, it obviously makes sense to really try to find corporations who you think will have pain points that you can solve. So you have your technologies, wherever your innovations might be and you go to these corporations and you find them and you make your case.
Agreed, agreed. And especially in the software space, I’ve seen cases where that first meeting the startup has done a product demo for that bigger company and their jaw has just dropped in the sense that, “You’ve solved a problem that we haven’t been able to solve internally for years and years and years.” And I’ve seen kind of the lightbulb go off above the bigger company’s heads and it’s just a very special moment and it’s one that, with the right exposure, getting in front of the right folks, there’s a world of opportunity out there for this kind of thing.
For sure. And you’ve talked about having a presence and really being active and being out there. I mean, a lot of the companies, for example, that we work with at SVIC, they don’t come from Silicon Valley. They may be from elsewhere in the States, but quite often they could be from Latin America, from the Middle East, from Australia, places which are far removed from Silicon Valley, and they don’t necessarily have a presence there or in any other startup ecosystem. And making a presence in these areas can obviously require investments of time, money and so on, it can be hard to monitor as well from afar. But, from what I understand, Said, you do believe that is something that is beneficial, even essential to finding innovation?
Yeah, I completely agree. And I was thinking like, you’re going to be spending sales and marketing dollars on your income statement anyways, you’re going to be spending R&D dollars on your income statement anyways, so why not start investing off that balance sheet in kind of longer term things? So either establish more, invest in more of a presence in Silicon Valley or attend some of the online stuff that groups like SVIC offer, get engaged on social media where a lot of startups are involved already, start reading the blogs that a lot of founders start posting or VC start posting, have a website draw people towards that. I mean, at the end of the day, the only way this is successful is if, instead of you chasing the startups, a lot of folks start reaching out to you. And the only way they’re going to reach out to you is if they know you’re looking in the first place. So I would say, from day one you don’t have to set up a big fancy office in Silicon Valley, but let people know you’re open for business and that this is what you’re looking for. That’s becoming easier and easier to do with the technology of today and there’s just really no excuse for just kind of remaining siloed or remaining in the dark when there’s a world of opportunity available to you today.
And Said, to zoom in a little bit more then on this idea. So, we talked a lot about finding those opportunities in the first place. Say, the company has several startups who maybe it’s looking at to work with and you talked a lot about understanding where, who to partner with. We talked about founders there and that they need to have the right characteristics, the right skills. It’s strikes me that knowing what to look for is, perhaps, one of the hardest skills to have for a corporation. Corporations are used to looking inwards, they’re used to relying on their own resources and suddenly for them to say, “Look, now you’ve got to go outside because innovation today is happening outside of your company.” Internal R&D departments are not what they used to be. The smartest, brightest people are going and doing their own ventures because today it’s it’s so much easier to do that. They don’t need to join the big companies to realize their ambitions, they can do that themselves. And so you have to look outwards to do that but, as a corporation, having the skills to know who’s good and who’s bad out there is very, very difficult. So, I mean, how do you develop those skills? I mean, is it a case of bringing someone, an entrepreneur who’s in Silicon Valley, bringing them in and turning them into your entrepreneur-in-residence, having them be able to be the one assessing the opportunities for you because they themselves have gone down that path and so they therefore know what to look for? How does that work?
Well, that’s a great question. And the quick answer is that, as you alluded to, it’s not just a switch you can flip and, overnight, from day one you can start bringing in and get startups in your ecosystem, but having fresh thinking. And I don’t want to say that folks who’ve been in an organization forever are less capable of doing that, but having folks who are kind of open to new perspectives or open to new ways of doing things as opposed to kind of just saying, “You know what? The whole company is just in on this, including the folks who are kind of just cruising towards their pensions or cruising towards retirement.” Having folks who have a real commitment, a real hunger, a desire to kind of find new innovations, find new startups, that’s really important here. And it doesn’t necessarily have to be coming from outside of the organization, but if it’s going to come from within, then it has to come from folks who are really excited about doing this. And this is just not like one-off, spotty, every-now-and-then efforts, but instead, like, have demo days where you invite startups to come in and pitch to the company.
And if you’re looking to invest in companies, don’t write a cheque from day one, but do it once a quarter or something like that until you kind of start getting a gauge on which are the better companies and which are not. Start going out to events, so start talking to other companies who’ve been doing this for a while and find out what’s worked really well for them. You need to be able to crawl and walk before you run and being able to kind of build that muscle memory along that process will go a long way. But there’s a lot of low-hanging fruit, like attending a lot of the hubs, a lot of the meetups, a lot of the demo days, a lot of the conferences – all these things will start to help inform and sharpen that lens for companies to start finding what works for them and what doesn’t.
Fantastic. Well, thank you, Said. And just looking at the clock, I’m worried that we’re almost out of time for today’s session, so I think I just want to give you the last word, Said, on that note. I think, yeah, we’ve covered a lot of ground and I think what I can take away, perhaps, is that for the companies who aren’t already doing this, the best thing to do is really just to make a start, to get out there. But they’ll also, presumably, have to have some tolerance for failure as well and there’s going to be people inside the company who aren’t going to be too happy about that as well, obviously, they’re going to want to maintain the status quo. And how do corporations deal with that? You might have a small department which is charged with innovation and those guys might be comfortable with failure and they understand what it means to take risks and how to work with startups and they understand that these things don’t always work out. That may not be understood elsewhere in the organization. But how do they deal with those sorts of challenges, dealing with risk, dealing with failure and explaining that more widely?
Got it. Well, I hate to use a sports analogy because some people roll their eyes at this but you need to be willing to strike out if you want to hit a home run. And the only way you’re going to do that is, if you never come to bat in the first place and if you never swing in the first place, then you’ll never hit that home run. But there’s also a likelihood of you striking out and you have to be willing to strike out. And so, similarly, failure is part of this and some of the best ideas, best innovations that have come out of companies had failures along the way, but it was that willingness and acceptance of failure from those bigger companies that made the founders or the innovators feel like it was a safe zone for them to continue innovating, and that’s a necessary part of this whole process.
And the way venture investors here in Silicon Valley look at it is, No. 1 item that investors look at is the founder. They look at the people. And the reason why is because it’s easier to change or tweak a product or an idea versus tweaking a founder. You can’t really change people, but you can change an idea or you can change a product. And so, ultimately, the biggest asset that a company, a startup has is people. And those people need to know that it’s safe to fail, it’s safe to iterate and they’re not going to get it right from day one and that’s okay. Because, eventually, you’ll get there and you’ll get there with the people. You won’t get it from never failing, because that’s just not feasible but, at the end of the day, creating that safe zone will facilitate that muscle memory to keep getting better and better and you can kind of go from there. But failure is an important part of this and you might actually end up learning more from the failures than you do from the successes and you should take that any day of the week over kind of a sure-fire, flash-in-the-pan success.
Sure. Well, thank you, Said, that’s great. So I think it’s a great note to end on, take heart in your failures. You’ve got to make a few before you hit the big time. And, yeah, I think it’s an excellent note to end our discussion today. So, Said, all that’s left to say is a big thank you today for joining us and for presenting today. We really appreciate the time and we hope to see you again very soon.
My pleasure. Thank you, Rahim, take care.
And to all our guests today, our audience members who have participated and listened in to our discussion today with Said, we do thank you as well for joining us and for making it a lively debate and discussion today at this SVIC webinar. I just like to say, before we leave, that if you are interested in finding out more about any of the topics that we’ve talked about today with Said, you should check out our website, siliconvalley.center because we do run a Venture Capital program right in Silicon Valley. Said has spoken on that program and the next run of it is going to be in April and it’s a great chance to really put into action some of the thing Said’s been talking about today, where you can really get to Silicon Valley, you can meet startups, talk to other companies, talk to the investors who are living and breathing this stuff every day and really learn how to apply a lot of what we’ve talked about today within your own organization. So do check out our website siliconvalley.center for more details if you’d like to register. You will also find the recording of our discussion today with Said up there very shortly as well as past expert talks, so be sure to check those out as well. And I think, on that note, that’s really all we have to say today. So I’d like, again, to just thank you very much for joining us. And thanks again to Said, our guest today. Said, we will see you again very soon. And from ourselves, from Said, thank you very much for joining us and goodbye for now.