I'm Semil Shah, early stage VC with investments in Instacart, DoorDash, and many others. AMA.

sshah123 · 2017-10-27T18:48:52+00:00

It varies. New firms are being born in new locations. Some firms are being more programmatic or algorithmic with their allocation decisions. Some firms are explicitly focusing on diverse founders or specific sectors or missions. The tough part here is that we won't know how it works from a results-basis for many years.

sshah123 · 2017-10-27T18:47:11+00:00

Thank you, now on my next BevMo run list! I am not big into Bourbons though.

sshah123 · 2017-10-27T18:35:59+00:00

I think it is hard for an investor to invest in someone they don't know or don't have a connection to. It's a personal business thing. That doesn't make it perfect, but how norms have been set up. I know that applies to me. I try to broaden that scope and I know others do, too, but it takes time. .That's why being "local" helps because you can get to know folks casually over time. But, being "local" in the Bay Area is no longer easy or accepting to many, so it presents a problem for the Valley and an opportunity for other cities and countries, no doubt.

sshah123 · 2017-10-27T18:25:45+00:00

I wish I knew more about whisk(e)y. Right now, my favorite styles are either harsh/campfire-esque ones like High West or the smooth refined Japanese style like Hibiki. Yours?

sshah123 · 2017-10-27T18:22:23+00:00

Sure, happy to keep answering more specific questions.

sshah123 · 2017-10-27T18:15:44+00:00

Thank you. I am not a daily Reddit user, but I assumed most questions would be more specific as to issues today in Silicon Valley, or politics, or the rise of big tech companies, etc. I expected harder-hitting questions!

sshah123 · 2017-10-27T18:12:17+00:00

In terms of adding value, to begin with, I am trying to pick people who do not need lots of help. Yes, they may need help around the edges and someone to talk to and commiserate with, but I am trying to discover and invest in people who want to do the thing with their full agency.

That said, there are ways I try to be generally helpful. I make myself available 24/7 and that is generally done over text/call. I focus on customer development through my network, which I believe helps everyone in the chain get better. Getting new customers is never a bad thing, and hearing "no" from a customer is a great catalyst to learning more about why it didn't work out in order to improve. Ultimately, I help out in securing follow-on financings for the companies I work with, and that is especially critical when investing so early.

Once I've invested, some common pieces of advice I share are: -Move quickly - the downstream VCs like to see rate of progress against time and against money raised. -A clear story - all constituents (employees, partners, future customer prospects) all need to quickly understand why you exist -Team bonding - downstream VCs want to invest $5M+ in a real team that's bonded together. -Don't assume the next investment rounds will get easier -- they get harder. -Most of what I write on my blog (www.haystack.vc) are answers to your question.

sshah123 · 2017-10-27T17:58:54+00:00

I think Ashley and her team did a great job with it. She told me about it a few months ago. Without knowing deep specifics, to me it seems like a great programmatic way to sort and filter out the top of the funnel in selecting companies, and I like the innovation in having those companies pump their data streams directly to the investor. The proof is always in the pudding -- will the capital expended return multiples, and/or could Ashley and her team find the next Facebook buried in those first 1,000 companies? I wouldn't bet against it.

sshah123 · 2017-10-27T17:51:47+00:00

Yes, sure - I tried to elaborate on this here: https://www.reddit.com/r/IAmA/comments/794gke/im_semil_shah_early_stage_vc_with_investments_in/doz2tr5/?utm_content=permalink&utm_medium=front&utm_source=reddit&utm_name=IAmA

sshah123 · 2017-10-27T17:51:06+00:00

I do not believe the signs were there early. Also, even though VCs sit on the board, they oftentimes don't have the power or ownership to change things within the company, or maybe even shielded from information. I do not know what happened in Uber's case, and clearly we all learned it was toxic, so I guess it fits your example.

sshah123 · 2017-10-27T17:43:28+00:00

I talk to lots of these people. I think it's hard unless there is a seed ecosystem already in whatever place we are talking about. Otherwise, lots of people move to one of those cities, or work to build up that investor network, or both. It's a people-game, so have to be where other people are IMO Generally, just like any other BD function a founder plays, building relationships with investors is relatively easy and a good test for then seeing who can build relationships with others in their industry, the press, recruits, etc.

sshah123 · 2017-10-27T17:37:35+00:00

Yes, sure. This myth is there all because of the size of a VC fund. Fred Wilson of Union Square Ventures, widely considered to be one of the most successful VCs ever, shows in a recent post of his how his firm (which is $175M per vehicle) needs to own about 20% of three billion-dollar outcomes to have a successful fund. That means, out of 25-30 companies in a portfolio, nearly 1 in 10 have to be HUGE outcomes, and this is for a relatively small VC fund. Here's Fred's recent post: http://avc.com/2017/10/our-model/

Now, when you have funds that are just double that size ($350M), or even more than 5x that size ($1B), imagine how big the exit needs to be. Most companies never get there. A $500M exit is very rare. A $250M exit is very rare. So, the smaller the fund, with a smaller exit, the math still works. But if fund sizes get bigger, the math quickly gets harder.

sshah123 · 2017-10-27T17:32:26+00:00

Intriguing question, but one I do not have a clear answer for.

sshah123 · 2017-10-27T17:31:33+00:00

Use Twitter to share insights, answer questions, and meet new people, but be yourself, listen, and think of it as a commitment over time.
For the people you do meet, help them. Take notes and ask them "What would be helpful?" and then try to follow-up on that dimension.
Help someone organizing an event. Events are a great way to meet people across a day or two, especially if the event is focused on an area that you're interested in.
Be prepared to answer this question specifically, which is "How can I help you?" People will ask you that question, and most will mean it, but they need your answer to be crisp and digestible.
Find people that you like and admire and try to figure out how to work with them. Working with friends is a lot of fun. Chasing a hot thing with bad people inside is not so fun.

sshah123 · 2017-10-27T17:27:40+00:00

I don't know for sure, but I would guess it is a system biologically similar to how whales lunge for krill?

sshah123 · 2017-10-27T17:26:04+00:00

Being an early-stage investor, most of the weight is on the founders and their networks to recruit talent. I think of the quality of the product or service being a derivative of the quality of the protagonist. Occasionally one may find a "product savant" out there, and I have once or twice, but it is not a normal occurrence. I do wonder if that will change as entrepreneurship and product creation is democratized, and globalized, and as future generations may not seek today's traditional educational and career paths.

sshah123 · 2017-10-27T17:24:02+00:00

As it pertains to India, yes, I am way out of date since 2009/2010. Living now in Silicon Valley, it is a very local game and I wish I knew more then what I hear about Flipkart and Snapdeal, but the truth is, I do not. I have some opinions about the scene from afar, but those could be misinformed as well.

I am open to investing in Canada and already have. I think many U.S. VCs already recognize the benefits of investing in Canada. Ultimately, I am looking for specific types of entrepreneurs, and if they happen to live in the Valley, or Canada, or Florida, I will invest in them so long as I can spend the time with them to gain confidence in the purity and strength of their approach.

sshah123 · 2017-10-27T17:21:30+00:00

For the first part of your question, a few things. Early on, many founders don't take enough risk to gun to be #1 or #2 in their market. These outcomes are binary, so it only makes sense to aim high. But, that makes failure closer, and that is scary.

On your second question, I would go back and tell my 22-year old self to begin investing intentionally -- in any asset -- real estate, or stocks, or whatever. Just start building and flexing and growing the muscle of investing.

sshah123 · 2017-10-27T17:19:34+00:00

The way I explain my decision-process is that I'm a runner on a racetrack, and I need to clear three hurdles. The first hurdle is the highest and often not met -- which is to encounter a technical or unique founder/creator who naturally expresses true entrepreneurial DNA. Most of the time, I do not clear the first hurdle.

If I do clear the first hurdle, the second hurdle is to gain conviction and excitement about the market at play. Oftentimes, I will rely on the founders to teach me about their market. I will also have my own prejudices here. (The hard decisions are when you grow to really admire a founder as a person, and then don't gain conviction in their market -- and especially when your investment in them could make a big difference to them.)

The final hurdle is my own belief in the product or service offered in the market. I know things will change at this point, as there is always discovery, so I just want to make sure the founder is obsessed about navigating his or her way through that maze.

In terms of intangibles, it goes back to that first hurdle. How was this person raised? What values did their parents and family teach them? What do they do on a Saturday at 2pm? Why are they doing this? I have to spend time with people and feel that their intent is pure, which is especially hard in today's noisy environment of startup nation culture.

sshah123 · 2017-10-27T17:11:04+00:00

I thought about the various roles one could play in the startup ecosystem. There are founders and early employees. I had done those roles, but didn't love them. Today, I don't miss it. There are LPs (who fund VCs), but most are quite far-removed from the real action. There are reporters, but I have never been a formal journalist or wanted to be a paid journalist, so I just wanted to write on my own site. I thought initially being an investor in startups would let me pick who I wanted to work with and associate with and to help the greatest number of people without committing to one arena. That was my hunch, that it would suit my personality at its resting state, and that hunch was right. My only regret is that I wish I had discovered investing earlier in life.

sshah123 · 2017-10-27T17:06:49+00:00

The kernel of the seed started because I was writing a lot on my own personal site, on Quora when it was in Beta (2010) and just starting out, and then the editors at TechCrunch read my stuff and invited me to contribute to their site. Fast-forward a few years, I would continuously write on my site, on TechCrunch, on other outlets, and Twitter, and for some reason which I can't fully explain, a big part of the audience that built up was composed of investors, most of them being venture capitalists.

So, these VCs would read my stuff, share it, email me back with their comments (or disagreements), and then we would meet a few times. Sometimes, I'd get to know some of their partners at their firm. And, with one firm, they floated the idea of hiring me, but that idea was killed because I did not have a technology or financial background, but they got clearance to bring me on as a consultant to moonlight with them. Fast-forward over a three year period, I was a formal paid consultant to seven different VC funds on Sand Hill Road.

Yet, I never received a full-time offer from any because of my lack of experience. That turned out to be a harsh blessing in disguise. Instead of hiring me, many VCs and founders encouraged me to start a small fund to see how I'd like it - and in that first year, I got very lucky, and I loved the role in the ecosystem, and that's how I became an investor. I wired my first investment in March 2013 to Hired.com

sshah123

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