Navigating VC & Startup Growth with Michael Gilroy
Are one-pagers good or bad? Does the founder matter as much as the product? Should a founder only start looking for capital after getting traction?
Honestly, the answers to these questions all depends on the investor.
Investors have vastly different approaches in choosing companies to invest in. Entrepreneurs searching for funding are looking for the right investor who believes in them and in their product. On the other side, investors have to peruse thousands of ideas in order to find one they believe in. What is that magic bullet that investors are looking for in a startup? In a previous #ThoughtImports, we spoke to VC partner Anthony Liveris, who shared valuable insights on pitch deck best practices and fundraising tips for entrepreneurs.
Tell us a little bit about your background and experience.
I grew up in the bay area and have been around tech and innovation my entire life. I went to Berkeley and studied economics. I’ve always had a passion for finance and trading stocks as a kid. Coming out of school, I was deciding between going to a tech company or into a finance role. The natural choice then was going into tech investment banking, which sat at the intersection of tech and finance and was where my passions collided. The past four years I’ve been at Canaan Partners investing in fintech and enterprise software at the application layer.
What inspires you?
Every single day I get to meet and work with people who quit their corporate/safe jobs with steady incomes in order to pursue their passion. That’s the coolest thing about being a VC. By definition, you are work with people who have gone very deep in a space and operate with an above average level of passion and intensity.
That’s the coolest thing about being a VC. By definition, you are work with people who have gone very deep in a space and operate with an above average level of passion and intensity.
What do you look for when choosing ventures to invest in? What makes a company stand out in your eyes?
The very first question I ask myself is, “Would I work well with this person? Do our talents and personalities complement one another, especially in the boardroom?” This very high-level but it is crucial because we will be embarking on a 7-10 year journey together.
The next thing I consider is founder-market fit. Why is this founder uniquely qualified to solve this problem? The advantage — the moat around the tech itself — is gone quickly as others hop on the bandwagon and replicate the technology. What is left then is the moat that the team brings to the table (only lasts for a short time at the early stage!). Their background, experience, and dedication is what can lead to a sustainable competitive advantage over time.
Why is this founder uniquely qualified to solve this problem? The advantage — the moat around the tech itself — is gone quickly as others hop on the bandwagon and replicate the technology. What is left then is the moat that the team brings to the table (only lasts for a short time at the early stage!). Their background, experience, and dedication is what can lead to a sustainable competitive advantage over time.
Finally, this is obvious and well documented but crucial, is this a big market that needs this technology and is growing quickly?
What are the most important materials an early stage startup needs to build out before looking for investment?
This is dependent on the stage of the startup. The basic deck and a vision is important no matter what stage the company is in. A very high level deck helps to mold the conversation. It’s not needed, but it certainly is helpful. Proactively avoid 1-pagers. It’s something that I did a lot as a banker, but I don’t see them very much anymore.
When is the best time for an early stage startup to raise capital?
The right time is when you, as a founder are 110% convicted that the market is there and you just need capital to go, build your product, and capture that market. Once you convince yourself beyond a shadow of a doubt that the need is there, that is the right time to raise capital.
Once you convince yourself beyond a shadow of a doubt that the need is there, that is the right time to raise capital.
What are the best ways to pitch an investor and then follow up?
Personally, I love a good story. Going really deep into the market and the problem that you are solving is compelling.
A lot of folks tend to lose the big picture when, at the seed stage, it’s really about the monster vision. Tactically, just stay on queue and keep coming back to the story. You’re not going to have numbers and market validation at this time. So it’s all about storytelling.
For following up, you learn a lot about the company throughout the diligence process. The entire time you’re doing diligence, you’re understanding how the team works. For example, I just did a Series A with a company. And they way they followed up just reinforced my confidence in the deal. Definitely know that the investors are looking at more than the actual content. They’re also looking at how it is delivered, when it is delivered, and the way it is delivered.
In your experience, what are the greatest challenges early stage startups face? And how do they combat them?
This is a highly highly stressful industry. The biggest challenge startups face is human conflict. You have to make sure you pick a cofounder that complements you, cofounders that you work with on a personal level well, that understand you.
The biggest challenge startups face is human conflict.
There’s a program called Reboot that helps CEO’s and VC’s look inward and helps them understand what drives their ego. Looking inward, learning about your cofounder’s drivers and irritants is essential. Understanding that we are all only human and working through issues with those individual personalities, drivers, & quirks in mind can save you from a lot of heartbreak.
What are some of your greatest challenges in the investment world?
The obvious answer is the challenge that drives the entire industry, the reason venture capital even exists — how do you do the good and not the bad deals?
My second answer is not letting the stressors of work affect your relationship with the startups in your portfolio. As an investor, there are a lot of things that we are worried about, about our portfolio and our own P&L. You cannot bring those stressors into the lives of the teams in your portfolio. This is an industry with very high High’s and very low Low’s. The challenge is staying even, remaining calm and staying balanced. You have to not get too high or too low.
This is an industry with very high High’s and very low Low’s. The challenge is staying even, remaining calm and staying balanced. You have to not get too high or too low.
If a founder calls me and they are having a really stressful day, my job is to be the calming presence in their lives. This is something I am now very deliberate and very thoughtful about. This isn’t something that is obvious to outsiders but it is one of the most important things I’ve learned from this job.
What advice would you give entrepreneurs across the world?
Enjoy the process. There’s a lot of ups and downs, but you’re doing it for a reason. Just make sure you’re having fun while you’re doing it.
The Key Takeaways for Ventures, Founders, and Investors
This is a long game. It’s easy to get caught up in the money, the blown up valuations, and the race for funds. In the end, it boils down to the technology, but also to the founder’s belief in the market and his/her willingness to work to achieve that vision for 10 long, difficult years or more. And that kind of grit (perseverance plus passion) is exactly what Michael looks for in a founder.
Above all else, you are a storyteller. As Michael says, it’s about the monster vision. And at every point, bring everything you are doing back to that vision.
Understand yourself, your working style, your flaws and communicate them to your team. Then switch. You are entering into an intense, long-term relationship with several other humans. It is so important to understand how they work, what makes them tick, and what infuriates them. Using tools like Reboot or even therapy will help you work together for the future of your company.
Craft Your Story & Apply These Insights to Your Venture
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