"Power laws are very, very hard to internalize."

120819: Interview by Email: @lpolovets

Welcome!

For our 1st “Interview by Email” we had the privilege of meeting @vcstarterkit who is an Operator and Founder.

For our 2nd “Interview by Email” We are delighted to have @lpolovets, a leading Seed VC and ex-Operator at Linkedin. He’s he’s thoughtful, analytical extremely self-aware and someone I’ve had wonderful interactions over the years.

I hope you enjoy this edition of “Interview by Email”

From: Leo Polovets <leo@susaventures.com>
To: BUGGER OAF <buggeroaf@gmail.com>

What describes you?

1/ What describes you best?

I am co-founder / general partner at a seed stage fund called Susa Ventures. I was previously a software engineer for 10 years, most notably at LinkedIn, where I was a software engineer during its 15-50 person phase. I'm still very much an engineer at heart. 

2/ Where are you based? 

West Coast. I spend a lot of time in SF, but I'm also increasingly in LA, Portland, and other areas.

3/ How long have you been associated with startups?

15+ years.

As an Operator

3 lessons learnt working in startups?

Long hours don't ensure success; short hours don't automatically lead to failure.
When I joined LinkedIn in 2003, the 5-person engineering team worked 40-hour weeks. We had a life-changing exit.
I've also been on projects where I occasionally slept under my desk to hit deadlines. Some of those projects were successful, and some were not.
My learning is that your outcome does not ALWAYS depend on burning the midnight oil. Working hard is important, but so is working smart, working on the right product, etc.

If you pick jobs based on intrinsic rewards, you'll be happy even if the projects don't work out.
If you pick jobs based solely on financial potential, your satisfaction is much less certain. Every time that I joined a team because I was excited about my coworkers or the mission, I've been happy with the experience regardless of whether the product ended up a success.

Never underestimate the power of smart, motivated people in small groups.
Between 2003 and 2005, LinkedIn's engineering team consistently stayed below 10 people. But during that 2-year period we launched LinkedIn Jobs, Groups, ads, paid memberships, tons of partnerships, etc. A small team can do a lot under the right circumstances. Serial startup employees and founders often beat BigCos with tiny teams that are more productive than companies with 10x or 100x more resources.

As an Investor:

3 lessons learnt entering VC? 

* Power laws are very, very hard to internalize.
Everyone says that VC portfolio returns are dominated by one or two companies, but it's hard to grok how that feels. In a fund returning 2.5X the invested capital on Paper if 2x the fund returns are in a single company’s markup, then good luck not obsessing over how great it would be *if* that company's value can double, or worrying about how devastating it would be if that startup’s value declined.

* Most software companies ultimately have very little technical risk.
I initially thought my tech background would help me make better investment decisions because I could diligence a startup’s technological advantage. In practice, 7+ years has shown me that technology is actually table stakes in startups. Very few funded startups had a hard time building a product. Instead, the most common challenges startups need to overcome to WIN are figuring out what to build and finding a good go-to-market strategy.

* Pitching ability has an outsize impact on fundraising.
A good business with a charismatic founder will often raise more money with less effort than a great business with a founder who is bad at pitching. For example, the bar for most Series As is $1m-$2m ARR, but I've seen companies with $5m ARR struggle to raise because the founder didn't pitch well, and I've also seen companies with $500k ARR raise huge rounds because the founders were especially compelling.
I think this is kind of crazy. The engineer in me assumed that a startup raises based on the quality of its business, but the quality of the pitch ends up having a huge impact.

Pick a topic you'd like to discuss in detail:

Helping a struggling portco turn around - In my experience, a few things that help companies turn around are:
Assess what's going well and what's not.
If you don't know what the problem is -- or worse, you don't want to know -- you're not going to fix it.
Cut your burn rate down, and quickly.

If you're burning $100k/mo and have $500k in the bank, cutting burn in half gives you 10 months of runway. If you wait 4 months and then cut burn in half, you'll have 6 months of runway. When things are not going smoothly, each additional month has a big impact.
When struggling companies push on with the same team, office, marketing spend, etc. and hope that they will figure something out, they often fail. The ones that keep burn low and methodically work through their biggest challenges often survive and eventually thrive.
Talk to your investors 

1) Ask for their advice
2) Ask if they've seen other founders succeed in similar situations.
3) Try to talk to those founders and other founders in general to get their advice.
#2 above is helpful because it can be very encouraging to know that your situation is not a dead end, and that other founders have been in the same place and gotten through it.
#1 and #3 are good because you'll get a lot of advice. You can always choose to ignore most or all of it, but maybe you'll get some useful ideas for solutions, too.

2 big trends you're seeing around you.

Early stage fundraising climate continues to get better and better for founders.
There are a lot of amazing angels and seed funds out there, and more capital than ever.
After WeWork, there's an increased focus on good unit economics.
I think that's great.

3 founders you'd work outside your portfolio

Patrick Collison - @patrickc
Rich Barton - @Rich_Barton
Max Levchin - @mlevchin

3 twitter accounts you recommend we follow

@AliBHamed
@briannekimmel
@eriktorenberg

3 people you'd like to see interviewed on this blog.

- Startup L. Jackson (@pt)
- Ali Hamed - @AliBHamed
- Zack Kanter - @ZackKanter