So hello, everyone. Welcome to the Silicon Valley Innovation Center interview, very glad to have you with us. We are coming to you live with me, your host, Rahim Rahemtulla, and my guest today, who is Pierre Rodgers. He is the founder of PuroTrader and he’s also a venture capital investor. So Pierre, it’s great to have you with us on this live SVIC interview. I’d like to start, if I may, because we’re talking about VC today, venture capital, venture investing, and when I look at the tech or the business newspages recently, a lot of the stories I see are about how some of the biggest names in tech are going to be going public very soon, so maybe this year or next year. And I’m talking here about Lyft, Slack, Uber, Pinterest, Airbnb. They’ve all been in the business, in the tech pages recently for this because they’re going to go public. And the story I see here is that these are old, as it were, first generation big unicorns, the billion dollar companies, and they’re going public. And so those industries are not going to be disrupted in the same way as they have in the past and those billion dollar opportunities in accommodation, in taxis, those are not going to come around again anytime soon. So if you’re a venture investor, you’re looking for the next big opportunity, the next big unicorns, one idea goes that these are going to come from more narrowly-focused software companies, so ones that are looking at a specific industry, for example software companies which can help agriculture take advantage of big data. That’s a very sector specific case, but that could lead to the next big opportunity. So Pierre, I want to just start with that as an opening salvo. What do you think about that as a VC? Does that correspond to the picture that you see out there in the world? Pierre Rogers: I think that’s a great short-term view as to what’s happening within venture. As you described it, some of these early-stage unicorns have really taken off and they’re now multi-billion dollar companies. Let’s, add a little context to that. When Apple originally IPOed, it IPOed at $100 million market cap. Lyft and Uber, their combined market cap – and I bring them up because they may IPO around the same time – will be $180 billion. So said differently, so much wealth creation has happened now in the private markets, where a long time ago, 30 years ago, it was all in the public markets. So for a short-term perspective, I agree 100% with you, you’re going to find these niche businesses – it falls victim to the very niche business for what PuroTrader does – but you’re going to see that more and more. However, longer term there are still many more disruptive industries to happen. For instance, space is the new frontier. We’ve made some investments to space in various angles of that. And that is ripe for change and mass unicorn building, if you can find certain ways to attack that. I think of Dr. Peter Diamandis, with the XPRIZE and mining asteroids for rare earth metals. And they’re profitable, so it sounds kind of futuristic sci-fi, but they’re actually making money. So short-term, I agree, metadata, agro, it makes a lot of sense to create a kind of three to six year business plan if you’re a VC investor, and we’re very much community niche based and we think you’re going to see more of that. There’s rumblings in the spirits industry of bourbon and scotch and, in this tight-community, the value of items has gone through the roof. And so there’s these niche collector markets that have taken off, I agree with all that. Longer term, though, there’s still plenty of big, big opportunities that are sort of en masse or will positively disrupt large parts of the population. Rahim Rahemtulla: That’s interesting. And you talk about space. I mean, I think we all sort of think about space, one of the headline companies we think about there are the ones who are pioneering in passenger spaceflight, but I think that’s just the ones that we hear about. By the sounds of things, there’s a lot more going on there potentially with consequences for the industry and so on, more business-focused stuff which we, as consumers, may not be aware of. Pierre Rogers: Right, so one portfolio company I recently invested in, they use a version of sonar in satellites to ping back down to the United States to get real-time imaging regardless of weather patterns. So of course we’ve done that with radar and images in the past, but with sonar it doesn’t matter if there’s fog or cloud cover or any weather patterns disrupting – you can always get a highly accurate image in real time. And so that’s been actually a fantastic investment for us. Think about that, you can have satellites whizzing around up there that are giving you real-time data on everything that they’re sort of photographing, for lack of a better term, below. We’ve never been able to do that before. So there’s a kind of an interesting space investment that is and is not a space investment, for lack of better term. Rahim Rahemtulla: Sure. Isn’t something like that, Pierre, a bit difficult, though, for you as a VC, to assess how good an opportunity that is? Because if someone said to you, “Look, I have this app for taxis,” “I have this app for accommodation,” it’s pretty self-explanatory, it’s very intuitive that that could be a game changer and that could be something really incredible which could generate huge returns. But when you look at something like space or when you look at something like data analytics and agriculture, if you’re not a specialist in these things, does that not create a difficulty there to really look at it and understand, Is this a good opportunity or not? Pierre Rogers: I will say that may be the single hardest challenge that we in the VC industry have. So I could go on and on about our process and due diligence. And Kleiner, they’ve got a great due diligence program, and so do Sequoia and many of these other phenomenal venture shops. But, at the end the day, you’re making a bet on the team and you’re making a bet on that individual. And that is really hard to do because you can’t just say, “Well, this person went to a good school so clearly they’re smart and they have a high SAT or something, some arbitrary measuring stick, thus they’ll be successful.” Because honestly, when you look at most of the unicorns that are out there, many of them didn’t go to great schools – their founders, that is – they didn’t go to great schools and they may or may not have a high SAT score or IQ. But yet they have this thing inside them. Is it tenacity? Is it grit? Is it creativity? Is it creative problem-solving? I would say yes, it’s yes to all of those things. And so really, one of our jobs is, “Does the business makes sense as an addressable market? How is the minimum viable product?” All the cliche words we’re supposed to us as we go through that process. But, at the end of the day, any of these cutting-edge businesses that are going to be disruptive, they’re going to bump into challenges that you just don’t see coming and you can’t plan for. Okay, then you’re betting on the guy or the gal that’s leading that. Do they have what’s in it for them, this tenacity, the creativity to come around that? So the universe or whatever you want to call it will put obstacles in your way. It is oftentimes those obstacles that actually become the successful way out. Rahim Rahemtulla: And do you, over time, get better at assessing that and recognizing that in people? I mean, I know you – and we’ll maybe talk about this a little as well – I know you have your own business and you went through obstacles to make that happen. Is it a case of, for example, seeing a potential founder there who wants some investment and you say, “Oh, I recognize myself in them,” for example? Do you have to have trod that path yourself in order to understand what you’re looking at? Pierre Rogers: That’s a very good question. I would say one of the things that has made me a successful venture capitalist, I would say “the” thing, is the fact that I went through the entrepreneurial journey not just once but a few times. Some of it was successful, some of it was not successful, and it’s actually in experiencing both sides of that that allow me the ability to connect with the founder, entrepreneur much, much better. We speak the same language, we’ve been there in those sort of dark and difficult times. But it’s when I recognize the patterns both within myself and these founders, that I go, “Okay, they have it.” Whatever the “it” factor is, the esoteric “it” factor, do they have it or not? And it’s through that pattern recognition of a) going through it, but b) doing it over and over and over again, that helps me source and understand better that entrepreneur and if they have it in them to get up early and work hard when everything is against them and sort of everything is failing. Do they have that self awareness in them to go, “This isn’t working over here, but what if I pivot over here? What would that look like?” That takes giving up what you sort of started with and being able to pivot. So there’s different personality traits that I look for in that process. Rahim Rahemtulla: And speaking of personalities, I wonder what is your feeling on the personal relation of a founder to the problem that they’re trying to solve. Because I see this is a sort of, perhaps, a debate, if you will, in VC, where some believe that, in order for a company to be successful, the founder needs to personally have experienced the problem that they’re trying to solve. You can’t just be a smart person looking for a problem to solve; you really need to know it yourself and have experienced that pain in order to make a successful business out of it. And, again, I know you’re a cigar enthusiast and your business is in cigars and so I wonder, would you be willing to back yourself to turn to another industry, another sector? Or do you feel like that personal link and experience you have is crucial? Pierre Rogers: I think it is crucial. I think it’s credibly crucial. And I think that one of the problems is that the media and Silicon Valley have sort of perpetuated this myth, which is you get smart people that go, “Hey, go find and solve a problem and that’s the business.” Now you’ve got a lot of people trying to solve problems that aren’t really that big of a deal that no one really cares about. And that doesn’t create a business, that just creates somebody working on a project. Those are two different things. And if it’s your problem, you’ve experienced the pain, then you are in a unique situation to go, “I’m a first customer, number one. I look at this business very differently because I’m their number one customer. I have this problem.” And most likely, if you have that problem because you’ve experienced it, there’s a good chance there are many other people like that. Quick story about another portfolio company that we invested in. SendaRide is the name of the company, they are effectively a Uber- or Lyft-type service, but they are specifically made for people who need to get to medical appointments. Rahim Rahemtulla: Okay. Pierre Rogers: They have drivers that have background checks, that have credit checks, that are not expected just to pick someone up and drop them off but they’re actually there to help you from your home into the vehicle, from the vehicle to your doctor, check you in and help pick up a prescription. So this is particularly important if you’re either disabled, you’ve taken some pain medication, or you have a cast on or if you’re elderly, for instance. We’re not talking about just wheelchair-bound folks, but if you’re elderly and you can no longer drive or what have you, you need someone to take you to all of your appointments. This is incredibly impactful business that disrupting that space because, prior to this, there really wasn’t anything. Uber and Lyft are ill-equipped to take that customer and thus that person would be really relying on their friends and family to carry that burden. And it is a burden. So that is something that the founder experienced herself when she was perfectly healthy, was in a car accident, was debilitated, had to go to physical therapy and other things, couldn’t drive on pain medication. So she had this experience. She’s uniquely qualified to build that business because she understands that pain point and it is a phenomenal, phenomenal job. Rahim Rahemtulla: Yeah, interesting. That’s very interesting, Pierre. And, I wonder, if we just maybe step back a little, let’s think about VC as an industry, as a concept, as it were. I ran across some some data recently from CB Insights. They found that venture capital investments into U.S. companies had gone up to $99.5 billion in 2018 and this was the highest level that they had found since 2000. And so I look at that, and I think, “Okay, it’s a very healthy industry, business as usual, things are going well.” But I do read as well about alternatives to VC, about how certain founders, certain companies don’t like the VC model that we see today in Silicon Valley especially. They don’t like this idea of hyper-growth, that growth above all is what we strive for. They’d rather do things a little more slowly, make sure that they can earn what they need to reinvest back into the business and grow it in a more, potentially, sustainable way. I wonder what your thoughts are on this, Pierre. I think this is still a very small percentage of the sort of alternative types of VC, but can we talk about changes in the VC industry? Is “disruption” too far of a word to go at this stage? Do you see that happening? Pierre Rogers: So I encourage that to happen, as a matter of fact. So in venture capital, when we look for exponential growth, we look at that hockey-stick approach to the growth of a particular company because most venture firms are looking for an exit. They’re looking for that exit as soon as three years, most of us are looking for five, six, seven years, which is why your average venture fund has a ten-year lockup. Because historically speaking, from your series A round to your liquidation or a liquidity event, call it an acquisition or what have you, is typically 7.2 years on average. So why most venture funds have a ten-year lock up is because of that, it gives you kind of a wiggle room. Now, the problem with that is it puts an enormous amount of pressure on the founder and the C-Suites that they’ve got to get in this hyper-growth mode, like growth at all costs. And oftentimes, you can bump into problems. So to point fingers here, Uber has been the prime example of a phenomenal growth company that’s had its fair share of problems between the CEO and, frankly, many of the C-Suite executives. There was a kind of joke that Uber was the first self-driving company – haha – because they had no C-Suite executives. And some of that was from the pressure of this sort of hyper growth. Then you look in a different direction, you look at a Basecamp. They’ve had one investor, it was Bezos, he invested early on. They’ve grown very linearly, they have an incredible business model, a lean team, a ton of cash flow, it’s been wildly successful. I would argue that that long-term is a more sustainable way to get there. So I’m actually a big fan of that, even though flies in the face of what I do currently. I think that that is slowly becoming a trend. Let me put it a different way. Becoming an author these days, writing a book, is the easiest it’s ever been. The problem is you write a book now and there’s a million other people who’ve written a book and cutting through that noise can be incredibly, incredibly difficult. It’s no longer five major publishers that publish you – you could do it yourself. So how do you sell a book if there’s a million people creating millions of books per year? There’s so much noise, there’s so many competition. Even if your content is phenomenal, cutting through that noise can be very difficult. And so what we’ve seen authors do, as kind of a microcase of what you’re talking about, is they’ll start a blog, social following around their thoughts, being a thought leader or a fiction writer or a biographer, what have you, then when they go to release that work, they’ve built their own audience and it’s much easier for them to sell into. That’s a micro-case, but you can apply that story to any business that focuses on one particular niche as a way to have that niche actually be the marketing engine to drive it out, i.e. you might not need either venture capital dollars at all or less venture capital dollars, give up less equity in terms of a founder, to be able to grow a little bit more linearly and more long term. Rahim Rahemtulla: And then, so do you mean a company should start a blog? Or is there something corresponding for a company? For an author, it’s a blog. For a company there might be other ways to sort of generate that audience. Pierre Rogers: Right, that’s exactly right. So let’s take a completely different example, Dollar Shave Club. Rahim Rahemtulla: Yeah. Pierre Rogers: It started on a viral video. It was, it was a funny video about how expensive Gillette is effectively, commercial razors. Rahim Rahemtulla: And for anyone who may not know Dollar Shave Club, this is a sort of razor blades as a subscription. It’s just recurring, sending you razor blades and it’s just a sort of recurring payment. Yeah. Pierre Rogers: Right. And so they made a clever video on YouTube that was funny, addressing that market. Didn’t take themselves seriously at all. And from that one video, it got picked up, people loved it, they started subscribing to that service and off they went. And so you think, “Well, what’s sexy and cool about razor blades?” Well, you can actually make it that way. You don’t have to run a blog about razor blades, there’s other outlets to get your story out there, to build an audience around your brand, your company, your product, whatever it might be. It is possible. Dollar Shave Club is a great one in that context. Ultimately, they took on venture dollars later, which means the founder got to keep more money, they sold for a fantastic valuation in an incredibly short period of time. Zero to north of a billion dollars in five years. It’s just an incredible journey. Rahim Rahemtulla: Yeah, yeah, that’s interesting. And Pierre, a lot of our clients at SVIC are corporate clients, so they come from established businesses and they’re looking to innovate on their products and keep up with startups. What lessons do you think, what we just talked about, this potential to go a different way from VC, what lessons do you think might help corporate companies, large corporations who want to partner with startups? When they’re looking at startups and how they work with those startups, should they potentially then give startups more time? Should they not necessarily put so much pressure on them? How does that work, do you think, in a corporate environment when it comes to partnering with startups? Pierre Rogers: So I speak a lot about this specific subject, so I travel around the world, mostly United States, and speak at large corporate functions specifically talking about how to attack difficult problems. And many of the ways that large corporations do that, as you mentioned, is partnering with startups or sort of incubating startups. And one of the things that I advise them to do, both the startup as well as the mothership, the larger corporation, is to ask why they are trying to solve the problem. And why do they have the problem in the first place. So said differently, there’s a certain protocol, a certain way that we all sort of solve particular problems and it’s often done because of our experience, and we’re often taught, “Well, that’s how it’s been done.” “That’s how it’s been done” is often the kiss of death in any business and you need to fundamentally question why that is. Now, the fastest way skip to the last chapter of this book is to literally look at the “how it’s been done” and do it the exact opposite way. That’s a great way to test why you do it that way, whatever that traditional method to solve that problem is. And if you can do that, the output of doing the exact opposite will often be really effective in you understanding the problem. Either it’ll solve the problem or it will have told you why that problem can’t be solved in that way. Now, that may sound a little obvious but, unfortunately, very few corporations are willing to take the risk in doing that well. So what I advise is, when you’re partnering with a startup, you need to allow those smart, beautiful, creative people to take risks, to be counterintuitive. Give them the leash in order to do that. You hire them for that ability; don’t bring them into your ecosystem and try to train them to be more like your large corporation. If that’s why you hired them, you should have just hired some employees in that case. So it is a unique thing. It’s not necessarily time, it’s not necessarily money – it’s actually giving them the leash to be able to do things in a very unorthodox manner. Rahim Rahemtulla: But you do ultimately believe that it can be a fruitful partnership between between corporates and startups? You’ve seen examples of this, I assume? Pierre Rogers: Over and over and over. So I’ll give you a big example of this. Two companies. Small startup, founder lived in a tiny 400 square foot apartment, slept on the floor, was creating a software-based system for file sharing in massive bulk. And then there’s another company, we’ll call them Google, that had all the money in the world, that had all the resources, the best engineers, the best brand and they both tried to launch this thing. One launched Google Drive and the other one launched Dropbox. By all intents and purposes, academically, Google should have won that race. They have far more money, far more engineers. But they didn’t, they lost. And Dropbox won, a much smaller company without the capitalization, without the skill set that Google had. How did Dropbox win? Well, they did it because they were more creative, they wanted it more, they were singularly focused on one problem. Google had G Suite, Google Drive was only part of the G Suite. They took their eye off the ball, they didn’t execute well. Google learned a very painful lesson, which is they could have just partnered with an early startup and brought those Dropbox guys in and let them be the experts in their niche. Instead, they tried to do it themselves. It obviously didn’t work. Dropbox ultimately goes public at a fantastic valuation. So there’s an example of them not doing it and it being a very painful lesson. Since that time, we have seen Apple and Amazon and many of the FANG stocks actually do the opposite. They’re starting to understand, “Hey, we’re going to hire this small startup, we’re going to acquire them or incubate them or what have you because they are very powerful in this one niche that we need to be better at and it can add value to our business.” And what you’ve seen is the IPO market has actually weakened, but the acquisition market has gone through the roof. And Amazon, for instance, is known for acquiring these small niche startups and integrating them into their overall platform. So I actually think this is a long-term trend that VC is going to have. It’s going to look very, very different in that landscape. Rahim Rahemtulla: And it’s interesting, Pierre, what you’re describing. I think I might have heard the term “open innovation” used to describe this process where a company needs to be able to leverage internal resources, but also be humble enough to look externally as well and be able to have the processes in place to actually be able to bring in that innovation and make it work effectively. That’s a tricky thing to do, is it not? Pierre Rogers: I would challenge that and say it’s one of the hardest things to do. So let me use a good quote here. Socrates was the wisest man because he knew he didn’t know everything. The Issue is when you have a large corporation that has a large C-Suite and big board directors and they’re all very accomplished and very smart for them to be self-aware enough to go, “Hey, I don’t know how to solve every problem and I’m going to allow this sort of young upstart team to come in and experiment effectively.” That takes a lot of guts, because that group of people has to say, “Hey, we don’t know how to solve this. We can’t just hire for it, we can’t just throw money at it. It’s going to take more than that,” as we’ve seen. So that is incredibly, incredibly tricky to do. Rahim Rahemtulla: And Pierre, we’re almost out of time, unfortunately. But if we draw things to a close, I wonder if we can look at the term or the word “risk” and get your views on risk because I think it underpins everything we’ve been talking about, whether it’s corporate venture capital, looking to partner with startups, whether it’s you as a VC looking at what new opportunities might be out there. What are your attitudes to risk? Because you’ve got to be good at taking it and you’ve got to be good at letting failure happen, too. So how do you do that? How do you develop those skills? And how do you live with that risk on your head all the time? Pierre Rogers: So I am a huge proponent of risk, I am always telling people to take bigger risks, swing bigger. We suffer far greater in our mind than we do in reality. It was Seneca’s favorite quote, “We suffer more in imagination that in reality.” And that’s because in our minds we make up like, “Oh, my gosh, we’re going to fail with this thing, and when we fail it’s going to be apocalyptically bad, and I’m going to be homeless and it’s going to be terrible.” When actually, in reality, that’s just simply not true, that’s simply not true. You can look throughout history at the amount of people who have failed over and over and over and over again and have still become wildly successful, because when you are successful in whatever your idea, your product is, it tends to far outweigh any losses or failures that you’ve had. Peter Thiel has what he calls it “the Power Law”, more commonly called “Thiel’s Law”, that expresses this exactly, that a failure is actually very easy to quantify but a success is actually more difficult to quantify. So if I say, “Hey, if you make an investment for $100, the worst that you could lose is $100.” And it may be a little embarrassment because you picked a bad investment, but how much could that $100 turn into? It could turn into $1,000, $1 million, $1 billion, etcetera. It’s much harder for the human mind to be protective in that way. So I always encourage people to do that. How to do that? Let’s be granular here. I want you to whip out a pen and paper – not a laptop, you’ve got to write it down old school here, analog – and I want you to do a postmortem of whatever your idea and product is, whatever the thing is that you want to do, whatever the thing that you could fail at. And I want you to write down exactly a plan of what it’s going to look and feel like when you fail. So we are going to plan to fail. If everything we possibly could do went completely wrong, the worst case scenario that could possibly be. Block that all out, write it all down. How are you going to feel? Where are you going to live? What is that going to look like? That is fear setting, not goal setting. That is fear setting. Once you better understand the worst-case scenario, you suddenly realize, “Oh, that’s actually not that bad.” Now I feel more prepared to a) problem-solve any of those failures as they arrive before they get there – because you’ve already pre-discovered that – but b) you’re going to be able to do a risk-reward balance on “Okay, what am I really risking?” Not what is my mind and my imagination thing, but “What am I really risking?” versus “What’s possible? What’s attainable?” So fear setting, write it down, write down the worst-case scenario. It’s going to do two things for you: a) it’s going to make you much better prepared to face those hurdles when they happen in real life, but b) to it’s going to set a much better expectation for you to be able to rationally take appropriate amounts of risk. Rahim Rahemtulla: Fantastic. Well, Pierre, thank you so much. It’s wonderful to have these interviews to talk about these issues but also to have a real practical takeaway, some practical advice there to end on. I think that’s a wonderful thing. So Pierre, we thank you very much for joining us today and we appreciate your time coming on this SVIC interview. Pierre Rogers: Thank you so much for having me. It’s been an absolute blast. Rahim Rahemtulla: And to our audience out there as well, we hope you have enjoyed it too, listening to my conversation today with Pierre Rogers. Remember, if you have found it useful, you can check out our other expert talks we have online, you’ll see the recording with Pierre up there shortly as well as our past interviews and webinars that we’ve done. We also run a Venture Capital Academy at Silicon Valley Innovation Center. So if want to go deeper into the topics I’ve discussed with Pierre and you want to see how this is all working in Silicon Valley today, do check out our website, siliconvalley.center. Do check out the website and you can find out more about the Venture Capital Academy and how you can sign up. There’s still time for the next program, which is running in April. And so, I think, on that note, that’s where we will wrap things up. So from me, from my guest today, Pierre Rogers, venture capital investor and the founder of PuroTrader, we wish you a great day and we’ll see you again very soon. Goodbye.