#8 – Demystifying Venture Capital, Private Equity and Start-up success

We demystify a whole lot in this episode of Tech DECIPHERED. We demystify Venture Capital and its nitty gritty decision-making processes and operating models. We demystify Private Equity vs Venture Capital and explain the differences between both. We discuss factors for Start-Up success and demystify entrepreneur “ageism”. Last but not least, we disagree … on the Tesla Cybertruck.

Navigation:

  • The other side of the table – Entrepreneurs who become VCs (02:31)
  • Decision-making and the operating model of Venture Capital (05:10)
  • VCs have to make lot of decisions with incomplete information (08:23)
  • Are VCs much less ambitious that PEs? (23:39)
  • Key reasons why start-ups succeed (31:27)
  • What successful second time founders do differently? (43:59)
  • Are older entrepreneurs more successful than younger ones? (56:08)
  • Tesla’s new Cyber-truck (59:28)
Resources:
Our co-hosts:
  • Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt
  • Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro
Our show:
 
Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.
 

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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Bertrand: Welcome to Tech Deciphered Episode 8. 

Hi, Nuno, how are you today?

Nuno: Hey, Bertrand, how are you? I’m well.

Bertrand: Pretty good, thank you, Nuno. 

So, what are we going to discuss today?

Nuno: So we’re gonna discuss a couple of different areas. 

One, we’re going to demystify VC: a couple of articles on the venture capital space and we’ll agree with some of the points made, we will disagree with others, we’ll again go in depth and try to demystify the discussion. Then some other articles on de-mystifying startups and founders in particular, and what it takes to be a successful entrepreneur.

And finally we’ll talk about gadgets and we’ll talk about cars today, which is really, really cool.

Bertrand: I know you are very excited.

Nuno: I am super excited. We only have one article on cars, but I think we can go on for some time.

Bertrand: And which car are we going to talk about? 

Nuno: We are going to talk about the cyber truck, that thing that does Tesla announced.

And we’re going to talk about other stuff that’s cooler and what’s happening in the space.

There was a recent announcement as well, of a couple of new electric cars, and so we’ll go a little bit off piste on that one.

The other side of the table – Entrepreneurs who become VCs (02:31)

So, let’s start with our first topic today , and we’ll start with this good article, from Andreas Goeldi,  titled “What I Didn’t Understand About VCs When I Was Still a Founder”. It’s great that he’s coming with his perspective having been a founder, an entrepreneur, now on the venture capital side, and being able to relate, in a way, more easily, from a founder perspective, entrepreneur perspective what it is to be a VC. 

And let’s go point by point on this one. So the first point that he makes, I agree actually with all of his points. I think there’s some nuances around some of the explanations and rationale that he’s giving that I would like to elaborate a little bit more. I do think he misses a few points in his rationale certainly. 

So the first one is VCs have a limited attention span because they have to context switch so often. 

This is true. We have to context-switch a lot. And actually it’s a little bit broader than that. Sometimes if you are, even in a thesis driven venture capital firm, it’s likely that’s you’re looking at different sub-industries.

You could be meeting someone in construction tech in the morning and meeting someone in the retail space in the afternoon. You could be meeting someone who’s direct to consumer in the morning and someone who’s B2B to see in the afternoon. So you do have to context-switch, not only in the sense you’re meeting different companies, very different stories, sometimes even different stage of development.

But actually you have to interact with sub-industries as well that in many cases are very different. And sometimes you get sub-industries that come through the door that you haven’t necessarily spent a lot of time on. They might match your thesis because there are somehow, for example, direct to consumer or B2B, but they might not match necessarily the industries where you spend most of your time.

And so that amount of context switching is pretty important.

Bertrand: Yes, I’ve spent more times these past few months meeting with a lot of entrepreneurs,  investing in a few startups, advising some VCs. And  probably one of the fun part actually of being a VC, is to see so many different industries, so many different type of business models. And hopefully from that you can form better judgment.

Nuno: Yes. And if you have a top of funnel, he mentions his own firm: 3,500 to 4,000 pitch decks in any form. So I normally talk about this as top of funnel: which might mean a pitch deck that is sent to us inbound, it might mean a first call, it might mean a reference from someone, but really the top of funnel. 

If you’re seeing 4,000 – 5,000 different companies a year, and let’s say you’re making five to six investments a year. His firm does do more than that, they do 20 to 30, which is quite a lot, certainly on a yearly basis. You know, the funnel is very, very steep, which means not only there’s a lot of context switching, but there’s a lot of attention that you need to pay to the companies. We’ll come back to that below. 

Decision-making and the operating model of VC (05:10)

He makes another point on decision-making and why it is so important to get decisions right, that links maybe better to the funnel and the drops off from the funnel. One thing I’d like to add as well, often hear entrepreneurs complaining to me saying: well, these partners are always speaking at events and there’s always shindigs and all this stuff, and they spend money, and all these different things that they do.

Well, that’s part of being a venture capitalist as well. And the reason for that is, certainly in a very classic playbook of venture capital, you’re attracting,  startups to you in many cases, inbound, which means you need to have a brand, you need to create a brand. You need to be known to the market for something, either because of your thought leadership or because you participate in events or network a lot.

Or is it because of your circles of influence that are present in your team? The access you have to different types of alumni networks, the different types of academia, institutions, et cetera. But people end up spending a lot of time doing these events, talking publicly. I personally talk a lot in public, not because we don’t have better things to do, but because we do need to create brand and we do need to have people recognize us for something.

Otherwise it’s very difficult to attract inbound deal flow. And that also means context-switching because we’re not just context switching between startups and companies. We’re context switching between speaking in public, writing an article, being at an event, networking, we are context switching as well in the case of many VC firms, between sort of operations where you need to manage the day to day, hire people, manage the office.

A lot of these VC firms are small, so you literally need to do everything. A general partner might have decisions in a day that go from: should we buy more paper or not, to shall we invest in this company or not? So it seems very glamorous all the time, but it’s actually like a tiny little startup that really manages a lot of capital at the end of the day.

Bertrand:  And to be fair, each firm will have a different strategy. Some have been historically very secretive, more a Sequoia type of approach, and even them, they have changed over time, while some other firms, especially newer ones, ones that have established themselves in the past 10 years have to demonstrate more who they are. If you don’t have 20 or 30 years of history, you have to make yourself known and spend some time, building a brand, and not just building a brand. For entrepreneurs, what you see coming from the partners should hopefully give you a good sense of who they are, what are their thesis, what is their approach to business. And hopefully, as entrepreneur, you can make a better pick and a better choice, initially based on that.

Nuno: There are very, very, very few venture firms that are staying off the press these days. You mentioned Sequoia, Sequoia’s more and more active, certainly more than they were five, 10 years ago. The only ones that occurred to me that are really still relatively away from the limelight but really more open in the last five years then they were before, would be a Benchmark. I would say probably Sutter Hill continues not being in the news at all, and it’s one of these really old firms that a lot of people don’t talk about that all, but with incredible track record. But there’s really very few venture firms that are really off the limelight. Accel has stepped back from the limelight quite a bit, but I think they’ve also started focusing a lot more on what I would call, a Series A, Series B that are very large Series A, Series B, almost like Series C, Series D, so maybe because of their focus, they don’t need to be as present in the market. but there are very few firms that have stayed away from the limelight recently.

VCs have to make lot of decisions with incomplete information (08:23)

Bertrand: So maybe, another point is: his point around VC have to make a lot of decisions with incomplete information. And that’s why they are eager to get any data point they can. 

Nuno: Totally true. In particularly in early stage, if we look at early stage, there’s very little data available. And let’s talk about different types of data. There’s the data that the company can supply us with, which normally is primary data on their own business. How are they doing if they’ve already launched, what’s their roadmap? Obviously it starts with a pitch deck, or with a teaser, but it normally goes into a lot more details. 

You know, what’s their financial plan look like, what their actuals look like, what their cost base looks like, you know, what their use of funds, if they have users, how are the users behaving, you know, analysis on traction, retention, engagement of users.

So there’s all these things that they can supply to us in terms of primary data, and normally entrepreneurs find it really strange if we ask them, by the way, do you have an analysis on competition, can you supply us with any markets  analysis that you’ve seen, et cetera. 

They find it really strange. And so normally there is a couple of reasons for that ask. One is we are actually evaluating the team as well, in that we’re trying to understand whether they’ve done their homework, whether they actually know who their competition is. Because we are certainly going to do that outside in. And I’ll come back to that in a minute.

So we want to know that you know who your competition is, because we are going to have an assessment on that. And if it’s really not matching, if you’re not seeing your biggest competitor right now, then you sort of have a problem. You have a huge blind spot. 

Bertrand: And sorry, even if you see them, you want to make sure that you are realistic about the state of your competitors. I mean, I’ve seen so many competitive analysis where the startup, 5 people, 10 people, everything is green, everything is “check”, up and to the right on the chart, and the more established business who raised $50+ million has everything wrong.

And that for me is also sometimes a bit scary. I think you have to be very clear and honest about: what are the strengths, true strengths of your competitors, what are your true strengths. But you cannot be all good and your competitors all bad, especially if they are bigger and more successful than you are, at least today.

Nuno: you have real information on these companies? Many of them are probably VC backed. They’re private companies. So this information is not readily available. Do you know what they’re doing? Right? Obviously above board, right? We’re not asking about industrial espionage, but do you know what these companies are doing?

And if you do, that’s a real big plus because then you’re fully aware of what they’re doing. You’re keeping an eye on them and you actually know that they matter. It’s not that you’re competitor driven, but at least you know who your competition is. So that’s normally one of the asks, that we have from founders.

The second reason why you might have this ask from certain VCs, it might be an industry that the venture capital firm is now looking at, they may have not looked at before. For example, we did some inroads into construction tech last year, and this was an area we haven’t spent a lot of time on. So obviously we’d read reports between the time that we decided we were going to look at it and the first meeting we had with startups. But at the end of the day, it’s interesting to see what else is there and how the industry works.

And so we are also learning a little bit on the job. And that’s part of being on the job. That’s more of what we ask normally from the startups. On the other side, you have our own analysis, and again, a lot of entrepreneurs, forget this: if you’re a good VC firm, you’re going to do your own analysis.

You’re going to do your own outside in analysis, mostly with secondary data, right? We would get data from whoever’s out there that can supply us relevant data points for what we’re doing. For example, it could be App Annie data if there’s, you know, mobile apps involved. It could be,  PitchBook information if it’s really linked to the company and competitors in terms of funding, fundraising, investors, et cetera. Crunchbase would be another source. 

But we will look at different data sources of analysts in the space, to really assess a couple of things. One, the competitive dynamics in that market Two, how big is the market and how is it growing? And is this the real market and what are the real mega trends of the market. And three, where do you stand effectively on that market? Are you already recognized in that market or not? You know, are you really coming in, and there is a lot of  opportunities and a beachhead for you to enter that market. Or not. 

So for me just to understand this notion that, the decision making and why we ask as much stuff as we can, is ultimately we need to make one a fact-based decision. We need to be able to compare you not only with your competitors, maybe in some cases also with other companies that are in similar cohorts or sub industries. And certainly we’re looking for the right metrics to do that under. And we need to do that within the context not only of the secondary data that we can get ourselves, but also the primary data that gets applied to us by the company.

Bertrand: And maybe, of course, one reason VCs think carefully about investment decisions is that, it’s very hard to reverse. Actually, it’s probably impossible  to reverse , so that’s something to take into account. And the opposite is true, as a founder the decision is also very hard to reverse. So, taking time through these discusions or fact gathering activities to learn more about the VC, how they think, how they work, can be a very useful time to make a better decision on your future  financial partner.

Nuno: And just to sort of amp up that point because I think it’s a very relevant one.  You know, asking the VC firm what they’re still thinking through, what their process is, how are they’re basically collating all this information. Do they understand my business, the venture capital firm, and the people that I’m talking to, do they understand?

Can they bring value to my business once they’re in? Particularly if they’re taking a board seat. Do they understand my market? Can they understand my market or are there other things they bring to the table? Maybe they don’t understand my market really well. They can help me with hiring or they can help me with business development.

Or do they understand really well consumer acquisition, retention, engagement, or they understand really well product, but why am I going with this VC firm and not another, to your point, is very relevant. And this process of due diligence is a dance where it’s very easy for the startup to fall prey of just supplying things and not really engaging in the discussion with a VC firm.

And it’s a great opportunity to engage in the discussion, and to really figure out if these are the right longterm partners that you’re going to get on board.

Bertrand: Yes, and I would say for me, it’s quite key when as an entrepreneur you work with VCs. You pick a VC that basically has an overall high level understanding and liking of your business and business model. It’s normal that the VC in front of you doesn’t know everything about your specific industry or business or competitive environment. But overall, let’s say you’re in construction tech, if you have to convince a VC on the other side that this is a valuable industry, this is an interesting one, this is something where stuff are happening,  you shouldn’t be doing only so much convincing, I believe, because at some point that should also be a fit for “Hey, let’s hopefully find investors who have already put some thought in that space, come with a positive bias around that space.” 

Nuno: In terms of the valuations in the same example of a company that has raised $10 million on a $100 million valuation,  it is true that they probably haven’t attained this valuation yet and that this is sort of a forward looking valuation, maybe in two years or three years now, if that gap is not two or three years, if that gap is six years, it will be very difficult for this company to attain not only the valuation that they’re given today that they’re recognized on today, within the next two or three years, but also to raise the next round.

Because whoever comes next, like you’re not worth that. You’re not going to be worth $200 million or $250 million. And that’s why you start having what we call flat rounds, where your valuation stays flat from one moment to the other, meaning the pre-money evaluation at your next round is the same as the post-money evaluation at the round before.

Or down rounds where you’re pre-money valuation might even be a little below the post-money valuation of the last round. So in this case, for example, let’s say the company raised at a $100 million post, and in the next round, they can only raise at $70 million pre or something like that. So, the logic of this is: be very careful and conscious of the valuation you’re raising at, what the expectations are, when will you need to raise money again? How much money is enough for you to get to that point in time when you need to raise again. 

And obviously the advice that’s always given to entrepreneurs is raise when you don’t need to raise, but just be careful in raising when you don’t need to raise because it does create dilution, it does create expectations, it does create higher valuation. So, just be very aware when you raise of the weight you are willing to carry with you in the same analogy of basically carrying stones with you.

Bertrand: I definitely agree with you. Maybe as a last point, because I’m not sure if I’m in full agreement here with this article, his point is that VCs like to take time, to make their decision, because from his perspective, it’s a good idea to do so. I would say yes and no. This article is coming from a European investor, and I’ve been in Europe, I’ve raised money in Europe, and maybe it’s less true today, but in the past, it used to take you 6 to 12 months to raise money. And 6 to 12 months is a crazy long time: your company can die multiple times, there is no way you can prepare a business plan for one year wait 6, 9 months, or 12 months to get the financing and hope to make your targets for the next year, if that’s what you need.  And so I’ve seen investor who just: yeah, just hope for the best during that time and either companies do great, and then they have validated their thesis or they are not doing so great, and then maybe opportunity to invest cheaply,  or not invest intimately. 

But my point is that, I don’t think that’s right. You cannot run the business like this. You need to move with speed at every level of your business, from recruiting, to selling, to getting financing. And so, I think there needs to be a balance: yes, it might be too short to do stuff in a week, if you have never met the investors the first time, but I can tell you from my experience have been closing rounds from first pitch to term sheet in as short as nine days and basically a few weeks with some other investors.

And usually it was with investors I met once or twice, or three times, six, nine, 12 months before. So, it was not truly first meeting, but it’s really the time between the true first pitch for a fundraising to getting a term sheet. And after that, it’s the usual 30 to 45 days to finalize  closing documents. And I must say that pace as an entrepreneur is very important because that way your business is not suffering of the time you’re fundraising and not focusing 100% on running the rest of the business.

So, it does a lot of positive, you limit distraction. At the same time, that’s true that you probably want to take time to know your investors, get a good sense about them. But again, having learned my lessons with European VCs,  at least the old days, let’s please be careful about not spending too long either.

Nuno: I would say on average and on median, you’re not even close to be on average or on median. So it’s like you’re super fast at raising. I’ve told you this a bunch of times before, which is very impressive. And it’s also true that you probably raise at moments where you didn’t necessarily need to raise, which also changes a little bit the shift of power , and how it is raised.

So it’s an incredible case study, I think to be honest, if people ever want to spend time with you and probe you on how you do it, but I don’t think that’s in any way the average or median to go from first pitch to term sheet in the industry. 

I do agree with you, 6 to 12 months is slow death. So totally agreed with that point, but clearly  it’s going to take some time. I always give the estimate of four weeks, six weeks, if we’re talking about a true term sheet, not one that you walk away from, but if you’re talking about a true term sheet, you know, and if it’s an industry that maybe you’re spending a little bit more time on, I would say four to six weeks.

If it’s an industry where the VC has spent a ton of time I see you can go much faster and you can do deals in, you know, at least put term sheets at the table in one to two weeks. But again, the one to two week is not the norm, it’s a little bit more of the exception at the table. 

Representing a little bit the VC mindset.

Why is it worthwhile to slow this down? Some of the points are already made in the article, but two things. One, at some point you need to justify your investment. Not that you need to justify to your own investors, which we call limited partners in venture capital, but you’re going to have to have an investment memo of some sort that justifies, why did we do this in the first place?

You need time to craft it, you need time to polish it. You need time to have something that you know, at some point if the limited partners come back, is like why did you make a decision on this company? And you spent all this money and the company failed, that you can at least justify it. And obviously failure’s part of venture capital, but still you need to have that memo well done.

The second thing that a lot of entrepreneurs should be aware of is in some cases. We are delaying the decision because we do want to see numbers. It might be that you just launched and you know, to be honest, I’d like to make a decision two months down the road. Not right now. And so delaying a little bit the decision from the perspective of the VC, if it’s not a hot deal or if it’s not a deal, we have five VCs at the table fighting for it, is something that’s needed by the venture capital firm to really take away some of that early risk.

If you’re coming to a VC saying, I haven’t launched it, I’m launching in three weeks. I can bet you most VCs will be like, yeah, let’s continue talking, but they will wait for the launch, right? Because why would you not? And if you don’t launch in three weeks, then that means something else. It means you weren’t ready to launch and actually you’re giving us a roadmap that’s not totally true. So there’s a little bit of this game as well in timing, in venture capital. And sometimes you can get away with it. Sometimes you can’t. Sometimes you run into a hot deal and you need to make a decision in three days. Which has happened to me in the past, and you need to somehow see if you really want to get in the deal and if it’s a deal for you, and how do you do at least the high level due diligence in three days, and how do you get to the table and are you ready to write a term sheet or not?

But timing normally is really a very, very important lever in this process.

Bertrand: Yes, it’s definitely a dance between entrepreneurs and VCs.

Nuno: One last point maybe, on the “no”, on why VCs don’t like to say no.  VCs don’t like to say no for a variety of reasons. It’s tough to reject companies and you have to reject hundreds of companies on a yearly basis. We have very specific rules, certainly at the VC firms I normally work on, which is normally the most senior person that was on the deal will write the refusal or the rejection, either through email or do a call with the entrepreneur depending how much time we spend together. We will try to justify, certainly at a high level why we’re passing. 

And then a lot of people ask me, why don’t you give very detailed analysis. Well, if you give very detailed analysis, two things are going to happen. One, you’re going to get into a fight with the entrepreneur because the entrepreneur is going to push back on your assumptions that have led you to pass on the deal. And you certainly, you don’t have a lot of time to do that, right? Because again, we’re seeing hundreds of companies a year. 

And the second thing is you’re creating effectively what I call this notion of you’re sort of potentially pissing off the entrepreneur, which for a VC is always a bad idea. I want to make sure that even if I passed on you as an entrepreneur, you don’t have a negative opinion on me because you might have access to other  VC investible startups that you might want to send my way.

This company might not work and you might do another startup next that I would like to talk to you about. And so that’s a little bit the two or three core reasons why VCs don’t like no.

Bertrand: And you might want as a VC to come back for the next round.

Nuno: Of course, that’s a really good point. You might  want to come into the next stage and still be on their list of people to contact, even for the same startup.

I see a lot of VCs that don’t say anything at all. I do think that’s a really bad practice. And so for me, saying no is part of treating an entrepreneur and a founder in a proper way.

Bertrand: I agree with you, as entrepreneur, you always want to know more, but at some point knowing too much, knowing how the sausage is made in a way doesn’t help you that much, actually.

And my best investors were usually investors that, I met the round before. And, it simply was not the right time at that time. But then the next round, they are ready, they know well the business. They have seen how it has evolved. They have seen the result, and now is the right time. And it’s good to really keep good relation just for that reason and understand that it’s not a fight. 

Nuno: Absolutely.

Are VCs much less ambitious that PEs? (23:39)

The other article we were talking about in demystifying venture capital, is a submission by Auren Hoffman. The title is venture capitalists are much less ambitious than their private equity siblings.  I have a number of objections to this analysis. I honestly don’t know the facts behind it or not.

There’s potentially one or two things that I could agree with, but let me start with the things I don’t agree. 

The apples and oranges comparison starts with, for example, vCs normally are partnerships only, they don’t have a CEO. They talk a lot about operations and how to build operations, and VCs don’t really build much operations, whereas private equity firms do. Talking about expenses and frugality, and non expenses, and the expenses in VC being very high. 

I think there’s a lot of anecdotal evidence here, but let me sort of address a few of these. The notion of having CEOs in private equity and not having it mostly in venture capital has to do with a couple of very important differences between both sides.

Private equity firms normally have a lot more assets under management. They’re larger funds because they’re more mid to late stage focus in some cases, even focused on late stage alone. Whereas venture capital firms are normally more focused on the earlier stages of investment and therefore with less assets under management. Assets under management are important because you pay salaries of people and operations with management fees. And so if your management fees, let’s say are 2% or 2.5% in venture capital, and let’s say in private equity, they’re between one and 2%. So it seems like private equity has less management fees. Well, but private equity has one to 2% of billion dollar funds. Whereas VC, let’s say, would have two to 2.5% of let’s say a hundred million dollar fund.

So very different numbers, which means that 95%, for example of all VC firms in Silicon Valley, have less than 10 people just as a very core stat and private equity firms normally you have more people, which means you have a lot more operations shared services, sometimes operating partners, et cetera.

The second thing is the nature of the business. Private equity firms invest mid to late stage, either as minority investors with significant strings attached and as senior investors. Or they invest as buyout players where they just take over the company. So they have total control over the company. And therefore, again, they need to have a lot more operations.

So why do they have a CEO? Because they have a much bigger team to manage, right? And so it makes sense to have someone that focuses not just on deal making, attracting deals, et cetera, and then doing ad doc, all the rest of operations. But you have to have someone that actually makes sure that the operations are getting properly done.

In some cases you have a lot more investor relationships because their funds are bigger, so they have to deal with bigger investors and therefore the CEO also has to do that. So the differences in the apples and oranges that are here, I don’t think make any point for less ambition from the VC side versus private equity.

Just very apples and oranges comparison for me.

Bertrand: Yes, and also you could argue that:  what is ambition about? Because most PE firms, it’s not about changing the world, it’s not about making the world a better place, it’s not about radically transforming industries, and that’s fair. Not everyone can do that. But it’s more, around let’s optimize, let’s fine tune, let’s provide liquidity. It’s not about creating these brand new spaces. So, it really depends what you want to do also in life. Is it more focused on financial management? Because at the end of the day, as a PE firm, that’s a lot around, financial management,  but also,  as you said it’s sometimes taking over the company, and running operations .

And I don’t think many entrepreneurs will be excited to see VC firms, come and takeover their company, and run it for them. So that would be a total mismatch, between entrepreneur who wants to develop by themselves their company, their business, and investor who want to take too much control of the business. So, I think in a way the VC business has adjusted itself to that reality, by proposing minority stake, by not trying to run the business for the entrepreneur, and also by staying human size, as a business, to stay closer in a way to their clients, the entrepreneurs, the startups, and making sure there is not too much of a gap on how you behave, how you act , and ultimately what type of business are you running. 

Nuno: So I’ll say something positive and then I’ll say something negative to end up on. From my perspective on this article.

The something positive, I think to Auren’s point. There isn’t many times in the venture capital space, with VC firms, the ambition of creating larger organizations that will scale through time, creating the next Sequoia, the next, you know, organization that will have maybe multibillion dollar funds like an NEA.

I do think sometimes, venture capitalists lack, that, ambition and part of lacking that ambition is they’re very focused on the deal. They’re not focused enough on the operating model of the VC firm. How do they distinguish themselves from others? And they follow in many ways, in a lemming manner, the playbooks that many others have followed before the brand building, the networking, the “they will come to us” model, which in some ways, and as you know very well, I think doesn’t work anymore, it won’t work very well in the future. So to Auren’s point, I think that point is taken. 

Just to end on maybe a little bit more negative angle, the low salary piece.

I don’t know which VCs he’s talking about, but I’ve seen even recently, some numbers on the U.S. on median pays and average pays and what constitutes 75th percentile and what’s constitutes 50th percentile, et cetera.  VCs, General Partners and principals was the data that I looked at. They can make a lot more money doing corporate things.

A VC on Sand Hill road could go to Google and make more money in terms of cash comp for sure on a yearly basis. If there were just a Director at a Google or Facebook, than they would in venture capital. There was no doubt in my mind. So this is really about the upside. They take actually lower salaries, even with bonuses.

And VC firms don’t pay much in terms of cash bonus, unless they have a lot of assets under management. Some VC firms don’t even pay cash bonus. So again, I think this is a little bit like, well, they’re not leaving money on the table. As an entrepreneur in venture capital, I can tell you I’ve left a lot of money at the table instead of going to the corporate route.

And so I do object a little bit to this point. I do think that the entrepreneurs that are in venture capital, the people that started their own VC firms, and even in their second fund, many cases are not taking very significant salaries, could take much higher salaries if they were doing something else.

Bertrand: Yes, I guess it’s like entrepreneurs. Some entrepreneurs can take a higher salary in some occasion. But I agree. I think there is that big difference between are you an entrepreneur in VC and starting your fund, because if that’s the case, first fund, second fund, I mean, initially, it’s a pretty painful road, actually.

Nuno: Yes. The point he makes is like the trade off, which is they take the 2% management fee and they pay themselves a salary, the VCs, and they could use most of those 2% to build the operations and everything that’s involved. What I’m already saying is when they take a salary, the salary they’re taking is normally already a much lower salary than they should take.

So again, you know. It seems a little bit of an apples and oranges comparison. I don’t want to totally dismiss the article. I think the broader point of lack ambition in building operations, building a big franchise play, I think is a fair one. I do think a lot of the analysis he does is, at least anecdotal to say the very least.

Bertrand: Yes. And, as we know, as a VC your returns, your carried, which is the true upside, it might take 7, 8, 10 years actually to really be there. So, would an entrepreneur refuse to pay himself market level salary during 10 years, I don’t think so either.

Nuno: I was talking to a General Partner today. I won’t say the firm, and he told me it took him 10 years to get his first carry check. I was having a discussion a couple of weeks ago with another General Partner. It took him 12 years to get his first carry check. So for example, if you get your first carry check within six to seven years, that’s really, really good.

Six to seven years. And you might not get carry at all. I mean, VC firms also fail, right? So it’s not like we’re not like entrepreneurs or startups. 

Bertrand: Not everyone is 25 percentile.

Nuno: Yes 

Key reasons why startups succeed (31:27)

Bertrand: So, Nuno let’s talk from an entrepreneur, founder perspective, and what are some of the key success factors. Let’s start maybe with the first article, from Alex Ponomarev about the five reasons why startups succeed according to a legendary investor, Bill Gross. 

Nuno: Well, by order of importance, Bill in his talk, talks about five reasons why startups succeed and he starts with the least important one, which is funding. And, I was a bit shocked when I saw least important is funding. Because normally you  obviously fail because of funding. They can’t raise money.

But I do understand the point he’s trying to make. The point he’s trying to make is not funding itself because there’s more important items down the list, that he mentions that really make the difference between a successful or non-successful company.

Bertrand: Actually, I like that part. I mean, it’s not a question of liking you could argue.  Hopefully, it’s an analysis based on some years of experience. But I think it’s a classic chicken and egg problem. Do you fundraise because you have great metrics? Or do you fundraise in order to get to great metrics?  And for sure, it’s much easier and probably better for the long run if you’re fundraising based on the back of great metrics.

I guess, we have all seen what happened when, the opposite  is in place, like a WeWork,  where you have a machine to fundraise based on some very suspicious type of data or KPIs. And I think the other way around, if you have great KPIs, great data, I think you’re ultimately building a business for the long run. And from there, it’s for you to decide if you want additional fundraising. And you might not need given your industry or you might not want, and it might be a good reason or a bad reason. Ultimately, I truly believe more or less financing depends on the competitiveness of the environment and your own competitiveness, how much you want to become on top of your industry.

Nuno: And he mentions as the next least important. 

So I guess number four on this list that the companies have a business model, and really highlighting the fact that having some form of business model is important, having those metrics in development is important. But there are, again, other items that might be important than the business model itself, and maybe go down the list and we check whether we agree with, you know, what he’s putting on the most important part. 

In number three. So halfway through is they have unique ideas. And it’s really the angle of idea into it. Honestly, I would say between business model and ideas, 

Bertrand: I will prefer business model.

Nuno: I would as well.

But anyway, it’s Bill’s view paraphrased by Alex. So we need to take it with a grain of salt, but nonetheless. 

Bertrand: Because, especially for me, from my perspective, and I’ve seen in every new industry, you always end up with five, 10, 20 competitors trying to fight to be the best in their industry. And,  basically, they all share the same idea. But usually, and we’ll talk more later about this, there are other factors. But definitely, business model will be one of your key differentiating factor. And some companies simply have the overall same value proposition, but execute very differently in term of business models, and that can be a very key difference between the winner and the losers.

Nuno: In second place. So almost at the top, we have: they execute their ideas with the power of teamwork. The whole notion that execution is everything. But the execution within the notion of bringing a team together and going out and getting things done.

Bertrand: That’s for sure, is true. It’s a key part of the game. You can have a great idea, but if you cannot execute on it, it’s completely useless. And to be frank, not everyone is able to execute on ideas. I mean, it’s hard. Execution is super hard, and especially early on when you have less capacity, you need convince everyone from investor to candidates, future employees, customers.

So, it’s hard to make, the magic So, execution is definitely for me a very, very important, key part of the game, and not just execution, but obviously somewhat efficient, execution.

Nuno: Yes, I would say execution plus business models, execution and the right angles and the right metrics put on place.

Bertrand: And that’s why I think idea at the end of the day, you might come up with an idea similar to somebody else, but you are overexecuting your competitors with a better business model, you will end up winning.

Nuno: You’ll win. So in number one, and we have drum roll I guess. 

Number one is timing. They have good timing. And I love  the Mike Tyson, quote as well. 

Bertrand: Mike Tyson was saying, everybody has a plan until they got punched in the face. And I’m sure many generals, share the same advice starting a battle . So it’s clearly important. But again, it’s important at very high level, in the sense are you five or 10 years too early? I’m not sure it’s important however, if you’re all starting in the six or 12 months apart, there is still time if you’re all starting six or 12 months apart to differentiate yourself, overexecute somebody else.

But definitely if you are five, 10, 15 years too early, let’s remember about General Magic, which was easily in that 15 years range. That’s true, that’s one of the biggest one, for VCs, for entrepreneurs, making sure you understand when the timing is right. The Internet bubble is another, great example. In a way, many of the business models that people were making fun in 2001 after the bubble burst 5, 10, 15 years after have become very legitimate business except it’s different companies and probably different individuals. Sometimes you find the same who come back. And what’s for sure and I guess you can relate to that Nuno, is that if are you too early as a  company, at the end of the day, it would be very tiring for you and your team to stay in the game for 5, 10 years before the industry, the market fully scale. How do you keep that motivation, that excitement? And I think as a VC you probably have suspicion quote on quote, when you see a team who has been at it, and has not met success for many, many years and suddenly start to look good, it’s still a big question mark around, is this team motivated, still ready, and  when a new competitor can start fresh actually. 

Nuno: Yes, that’s absolutely right. And I’ll come back to this point because I think it is an incredibly important one. Timing the point Bill’s making here on timing is market forces, and we always forget, we always say the Holy grail is finding product market fit. Well in product market fit, there’s a part that says market. It’s not just product. It’s not about executing a product that has a great play that has a great UX, that has a great business model link to it. There is a market that this product is going to need to meet with potential customers, users, with technology trends, with other competitors and other players.

For me, the element here that’s the most important is at the end of the day. The market normally wins. It’s incredibly difficult to build a great company on a very bad or non-existing market. I don’t know, cases of that. It is however possible to build a company that does incredibly well with a substandard team, in a great market. And so market is a very, very strong force. Until this day I see things that go on that seemed to me to be rather idiotic. But at the end of the day, other people don’t think so. So for example, we talk a lot about building ecosystems and the building, for example, of content and services around VR and AR, augmented reality and virtual reality.

Now for VR and AR to take off. There is a predisposition that needs to happen from the market, which is there needs to be devices that support this content and services. Now, if the attach rates, if the number of devices in the market is not very big, how the hell are contents and services in VR and AR going to become pervasive.

And so in some ways there is really basic market analysis that even entrepreneur should do day one, right? That shouldn’t call their judgment, which is, if I am very dependent on some platform being in the market at scale, and that platform isn’t going to be there for the next maybe three to five years, it’s too early. It’s way too early. Right? And we see all that with apps. You saw that with 

Bertrand: apps. 

I’ve seen that very big time. And for me it was very interesting to see progressively the market changed step by step just based on number of device in the market, just based on penetration rate. You could succeed in gaming initially, even if you had only 100 million smartphones as long as you monetize this game, for instance. But you couldn’t do e-commerce very successfully, because the install base was simply too low, initially.

You could start with very standardized, social, communication platform very early on because it was still useful for the few on the platform, but the more specialized become your platform, like a Snapchat, for instance, you needed to have lot of people already there to justify starting using it. If your friends are not there, nobody  would have been using it. But I would say another because you are talking about AR and VR. I feel people are forgetting one thing with smartphone, in general.

The phone has been there for 100 years. 

The personal computer has been with us for now close to 50 years. The smartphone is a combination of the personal computer in a way and the telephone.  And my point is that in term of consumer habits, in term of user expectation, in term of a lot of things, the smartphone success is really based on that, is that it was not such an unknown quantity. And every smartphone user, for instance, had a regular mobile phone first. I don’t think there is any smartphone users we saw with a regular feature phone. So, at the very least, you use your smartphone. You know what? It’s not such a big leap to start using it.

You could still use it the old ways, just doing SMS and calling people using the regular phone line. You are not making a big bet or investment. Worth case it is a bit more expensive than your previous phone, but, hey looks like you can do some cool video. So, why not? I’m simplifying, but when you pick VR or AR, it’s a completely different story. There has been nothing like it before , and so that, hey why the hell am I going to invest 400 bucks for that? Maybe the closest would be console gaming, in a way, to a predecessor to at least VR, given that VR today is at least it’s mostly successful on the gaming side.

So, people might have a similar perspective around, hey, you know what, this console stuff was good was fun, and maybe I should try that new kind.  and you see the most successful actually VR platform is probably PSVR, PlayStation VR. So we see that connection there. So, that’s why actually  I’m quite, negative on some of these chicken and egg effect in the sense that either it’s really happening on the back of really big scale, but again, that big scale is only made possible if it’s a changing habit or lack of changing habits  are truly there. If you’re asking people to change too much their habits, you might be talking about decades. 

It’s not just the technology. 

Nuno: And for me it’s very important in figuring this out, the notion of momentum, which is am I trying to ride a really big wave and I’m just going to ride it, and that’s where my success is going to come from. Or on the other hand, am I trying to create my own wave, which is incredibly difficult, very few people have ever had been able to create their own markets, or even worse than that, am I riding a little, little tiny wave , that’s a market that’s never going to be big in any case. So again, timing matters, size of market matters a lot. But this notion of momentum, I believe, is something that I’ve seen very, very, very few entrepreneurs that are acutely aware of it, that acutely understand market.

Bertrand: Yes, and I can tell you, me with App Annie when we started in the early days and even later, but having the wind at your back, that’s such a big difference. I mean, that makes everything easier. People want to talk to you: investors, customers, the press . They want to learn more about your business. It’s everywhere in the news ,  people talk about it in the industry in a positive way, and it’s sustainable, I mean, year after year, of constant, growth .

People talk about these different cycles, you know. There is a hype and then there is the other part after the hype, and then it goes back up. But I can tell you the numbers were just pointing into one direction for 10 years, which is up into the right, full stop. So, some might have artificially tried to say, “Oh, is it slowing down?” because journalists wanted to create stories, but I can tell you having the numbers, it was just going one direction. And when that stuff happen,  life is so much easier.

So, my advice is, pick a big trend, a big wave, surf a big wave, surf in the right direction,  don’t pick a wave that has not happened, not arrived yet.  And also don’t pick one that is dying. That’s also another big one. When I see some entrepreneurs that are building a brand new business, based  on some old trends that are going to change, or industries that are going to disappear, it’s a pretty tough game, because you are building a business for at least the next 10 years, maybe even more. You don’t want that industry to be dead in 10 years.

Nuno: So there we have it from Bertrand, the big wave rider.

Bertrand: Indeed, indeed.

What successful second time founders do differently? (43:59)

Nuno: So switching lanes, let’s talk about another article. What successful second time founders do differently?  In particular after having sold their first companies, here is what to serial entrepreneurs would do differently the next time.

Bertrand, this is based on just a conversation that the author, I believe had. What are your views on the points that he makes?

Bertrand: Actually I can relate pretty well to that, having been myself, a two times entrepreneur starting two businesses, as co-founder, that were VC backed or at least business angel backed, in the tech space.  And for sure you learn. I mean, hopefully you learn . 

Hopefully so, and you learn from your mistake, and you try to build it differently. So, I was relating quite a lot, actually, to some of their comments. I would say,  some might be mistakes that hopefully you don’t do even the first time, but please don’t do it the second time. So let’s pick a few points. 

One is around: drop “trial and error”, focus on other people’s experience instead. I think that’s very true. You cannot do everything yourself as a founder, you want to scale yourself, you want to bring talented people. So, initially, you need to actually know and do quite a lot of stuff.

I had to do a bit of everything as a founder each time, but definitely what you want is very quickly as soon as you can right people, to do stuff the right way and benefit from their learnings.

Another piece not focused on the small problems. For sure, you want to be careful, you want not to be bogged down on useless stuff. Focus on the big picture.  

Raise more money. Definitely, I did that the second time, no question. 

Nuno: And optimize for speed in fundraising, which we already mentioned.

Bertrand: Yes. I think that part is key. And that one I was surprised because I’m not sure who think even the first time, that speed is not a good thing.

Nuno: But I do think there’s a confidence that comes when you’re a second time entrepreneur in terms of understanding how VCs think, understanding how the process goes. So it’s a confidence in understanding the process and also in a confidence in pitching, that does make you more acutely aware of speed and then why speed matters and getting the money in the bank and moving forward.

Bertrand: Yes, you’re right, that’s true. 

So, definitely, I would say my point would be more raise the right amount of money. Not too little and not too much either. Speed, yes, speed is key. You want to find the right partners. You want to spend enough time understanding how they work, the investors. But at the same time, you should not be spending six to 12 months to do fundraising if you’re well prepared.

Reflect on strategy and work on the business. That for me is key. I’m always talking about that: you have to combine tactics and strategy. You have to combine the quarterly execution and the next year, the next five-year planning. There is no successful business or entrepreneurs that don’t combine both. So, people will say I don’t time for strategy or sometimes it happen, I don’t have time for the execution. It’s more rare. That doesn’t work. 

 Nuno: I see a lot of firefighting and hacks. So for me, there’s a spectrum that goes from all the way up to strategy and thinking through things very strategically, to more of the tactics of the game, operating models, processes, et cetera. All the way to getting bogged down in like day to day ops, which I call two things.

The chewing gum on the one side, which is the stuff that stops working and that you need to put some chewing gum in there, so it still works, which is really more of the classic firefighting, but also the hacks. There was a lot of people that are very smart and think through day to day ops and say, okay, I have a hack for that.

And they don’t understand, sometimes hacks don’t scale. They don’t become processes. They don’t magically become competitive advantages versus your competitors. They don’t. They don’t become something that you can manifest in an organization in the long term. And I see that a lot more often. A lot of people really focused, as you said, on the technical and hardcore day to day ops that just lose total track of strategy.

But at some point, people that actually focused so much on day to day ops, they even lose the notion of the middle, the operating model and how it’s changing.

Bertrand: Yes, that’s a very good point. That’s true that there is in a way something you could call the middle, which is processes. It’s not for investment for the next two years. It’s not product development, but it’s making sure that you keep doing in a more repeatable way and a more efficient way stuff that you do on a regular basis or that many people need to do in regular basis, and you want to standardize. And that I’m always very big on processes. I think this is a key part of the game. It’s not always easy to put that in every place of the business. Sometimes, it doesn’t feel like being really worth it.

But I would say, usually, it’s really worth it and it’s really necessary at every level, because you need to get better over time. You need to improve. You need to not depend on anybody else. 

People come and go. So, having strong processes very early on, I think is very valuable, as soon as you have figured out what is it that you are trying to achieve and you are delivering the right result. I mean, if you’re still trying to figure out stuff in the first place, no point in putting in place a process. That there is no question. 

And I would try to move quickly to the one that resonate the best: “recruiting professionally”, of course, you want to spend enough time with every potential recruit. It’s key, especially early on, but even after. After, it’s more a part of the process, but early on you have to do that. No question. Each mistake is painful. 

Hire a strong number 2, I totally agree. That’s something, I did, hiring relatively early on, a CFO/COO, when we are just 15 people, Marshall Nu, someone who did very well with us. That was a big game changer. That meant I was not bogged down in some of the details, operational details.  

Hire experienced employees, yes, for sure, you need that, but you have to be careful. There is being experienced, there is being smart, there is being a parrot. Don’t be a parrot. Don’t just repeat what you have done at your previous company. You need to find people who truly understand what’s happening and know what happened at the previous company, and know how to adjust to a new company. And you still want people who have passion for your business.

Nuno: I would make a point here that I think normally startups certainly that we see not only here in Silicon Valley, but also in Europe, do skew a lot to people that are young and lack work experience. I wouldn’t say there is necessarily ageism, and we’ll talk about age in just a second, but certainly there is a little bit of underestimating how much experience brings to the table. Someone that has 15 years experience versus someone that has 3 is a huge difference in a specific area because they’ve probably gone through a lot of things. I think what you’re saying is the other side of the coin, that experience itself is not relevant unless there is that passion and that motivation and that dynamic to really go into something that’s not fully formed and help scale it up.

But I do think normally this skew that we’re seeing in the Bay Area is the opposite, which is really, undermining experience when experience shouldn’t be undermined. I mean, someone that’s very experienced and dynamic and a team player and someone that can bring, for example, a lot of capability building to a young team is incredibly valuable.

Bertrand: That’s useful, but that’s also true that you have to be careful, especially early on you might not be able to afford the salaries that someone really experienced want. You want to make sure that you still get along and there is a good connection. The tolerance to risk might not be the same. So, even if you want someone really that experienced, you might end up with some surprise in terms of simply you’re not able to afford this person or you’re not able to guarantee that there will be little risk joining the business. I’ve seen quite a few who were keen to join us early on, but were asking ridiculously high salary at the time that even today would still appear, at our scale still expensive.

Nuno: But that’s in some ways a self fulfilling prophecy. In some ways, you also are looking for people that are willing to take the risk, as you were saying, of joining you with a lower salary, maybe a little bit more upside in the future of the company. But even that, as you said and mentioned quite well, doesn’t totally de risk you for, is this the right person?

Does this person have the right dynamics? Will it fit the team? Will it fit something that’s not fully formed yet?

Bertrand: Another one that resonate well is: talk to customers constantly. Yes, you have to do that. I’ve done that a lot. And that’s something that hopefully you enjoy, because you’re building products, solving customers’ problems, easing their pain. 

Focusing on KPIs, review unit economics? Yes. But, I think it’s more a step by step process. Initially, it’s more basic in a way you don’t have that many people. You don’t have that many expense when you’re still looking for that product market fit. But step by step, that becomes  more and more important.

Nuno: Which is the difference between management and being a founder. And for me that’s really, really very important.  At the end of the day, you need to learn to manage or don’t do it as how we refer to the point. A lot of founders don’t understand that there is a significant difference between being a founder, a strong individual contributor, or having a strong vision of what needs to be done than to being a very classic manager that needs to manage tasks that needs to scale, teams needs to get things done. 

And I still see this to this day. Some founders that go even through their first startup, and still they haven’t realized that, that they’re still not great managers. They’re good leaders. They’re incredible vision people. They can fundraise. They think about products like nobody else  that’s very classic around this part of the world. But sometimes they’re not managers. They can’t manage teams, they can’t scale teams, they can’t create processes. They can’t create KPIs. They can’t create all the other aspects that go into the infrastructure of the company. 

And on this point, I like his point around do the managerial basics, right? Because at the very least, you need to absolutely do the basics. And I was smiling when he talked about management practices like holacracy and basically, that’s so true. I’ve seen so many who are trying to change how you manage teams. Even Google initially they run that experiment removing middle management, and it completely broke down. And that was very early on in the history of Google.

So, my point is that: don’t do that. Just run the business normally, yes. Use more recent tools at your disposal, for sure. But don’t go into crazy, voodoo management, tactics because they don’t work and if they might work, good for that one company out of a million that managed to make it work.

other point is the: manage their culture through values. I would agree that you need to manage your culture through anchoring it around something. It could be a value system, could be a mission and vision statement could be a variety of things. In the early days, it’s very personal. It’s really around the founder and the founding team.

And what do they stand for? You know, what do they do? How do they act? It’s not just what they talk. Talk is cheap, but how do they act? And I think that’s the early days. But as the companies scale, normally you start seeing value issues and cultural issues. Not really in the first 10, 20, 30 people in the company.  But really you start seeing the cultural issues once you start scaling to a hundred or 200 people. That’s when things start breaking apart. And I do think writing it down, you know, what is the value system? I worked at McKinsey and company, which has a really interesting and very extensive value system defined.

And something that I still remember very vividly. Actually, it was one of the key things about McKinsey was that value system and values day, we used to have every year at McKinsey.  

Anchoring it around something that people can share is very important. And writing it down will become important, but then you need to live by it.

And the people that need to live by it are the senior people in the organization. If you write a value system with five things, seven things, things that the company stands for, and then senior people break that as a value all the time. Nobody will respect it. It will not matter. There will be just posters on the wall that nobody will remember.

Bertrand: Of course, and I think value needs to be created from both sides: from a bottom-up and as well as a top-down approach. And hopefully you can manage to merge the two. And, from there, as you say, it’s a question of executing on this value. And, potentially you re-adjust that over years to make sure that you didn’t miss something or you were not too optimistic on something, but ultimately you need to live by it.

Maybe one last point that was not in this article, I feel very strongly that, because I’ve seen that again and again with new managers, be they founders, or employees who have been promoted to management position. When you have somebody else to do the job that you were doing, or you’re managing more people,  delegating is not abdicating. I have seen too many situation where people say, “Oh, now I’m managing, I’m delegating. Therefore, I barely know what’s happening, actually. I barely check once in a while  , and I let people below do whatever they want.”

That has never worked. That has never worked. So, delegate, yes, you absolutely have to do that, there is no other way to scale a business. But don’t abdicate, put in place processes, put in place KPIs, put in place ways for people to bring you issues and problems, if they happen. But don’t abdicate.

Are older entrepreneurs more successful than younger ones? (56:08)

Nuno: So moving to our last lane of de-mystifying success in entrepreneurship. “The Age” article from Forbes. For entrepreneurs 45 is the new 25.

Bertrand: Yes, exciting.

Nuno: We are excited because we are in our forties. 

Bertrand: Yes, for me, it’s very interesting, especially in the US where there is a culture of you have to be the youngest.  And for me having being entrepreneur in my early 20s, in my 30s, it’s very fair point. 

So just to be clear on this article, they run very big detailed analysis of entrepreneur in general, entrepreneur in tech, in the sense of are you truly successful or not?

Nuno: And this was run by MIT, by Pierre Azoulay. 

Bertrand: Yes. And  what they come up with is not totally surprising. If you have some experience, functional experience, experience in an industry, it can take quite a bit to get there, and only a few exceptions exist. These exceptions exist  in more fast moving industries, like tech and not just any tech, probably more on the software side, and some exceptions also exist probably more depending on, are you more B2B type of business or B2C? 

And I think in B2C, yes, you can probably be younger, sometimes you will build products, especially for the younger generations. And then being close to that generation make a lot of sense, and you might be indeed one of the best placed  to undersand them and build product for them. But the more B2B side you are, the more you need to have some experience, relating to that customer base, and that might take a bit to get there.

So, what, ultimately, they came up with is that, usually successful entrepreneurs have started the business around 42, 43, 45. 

Again, it varies depending on the industries. If we pick oil and gas, it’s even later than that. If we pick, B2B, B2C, customer-facing technology, you can be younger than that and have true success on average. But we end up with that average around 45 years old and I believe it has not changed, actually, that much over the years.

Nuno: So to be specific, the authors conclude, and I’m reading the, 1,700 founders of the fastest growing new ventures, the top 0.1% in our universe of U.S. firms has an average age at founding of 45.0. Compared to 43.7 for the top 1% and 42.1 for the top 5%. So this is age at founding of the company, which means likely the company will be only successful already in their 50s. And again, it seems counter-intuitive being in this, greenhouse of Silicon Valley. But it’s true. It does feel, and it does resonate true that we see older entrepreneurs actually doing extremely well in the market. 

Bertrand: And at the same time, to be the devil’s advocate, when you look at some of the most successful tech companies or overall companies of our time, you could argue they had been started by really young people. I mean, take Microsoft and Bill Gates, he was in his 20s. Take, Mark Zuckerberg, he was in his early 20s. Take Google’s, they were in their early 20s. Take Apple, they were in their early 20s. So, it looks like maybe if you look at the 0.0001%, you end up with a very different thing. 

Nuno: Yes. I think that’s probably true. And these are the extreme situations rather than the median or the average. But if we’re looking at the companies that have done the best, and then we really go to like the 10 companies that have done the best, maybe we would see that pattern, which does not emerge from this study.

Tesla’s new Cyber-truck (59:28)

Bertrand: Let’s talk about gadgets. Let’s talk about the “Cyber Truck” 

Nuno: Well. It’s ugly as hell. I don’t understand what they’re thinking, but let’s get back to that in a second. Why does it make sense for Tesla to go after the truck market? The truck market in the U.S. is huge. Some of the numbers that are mentioned in the article, the F series of trucks of Ford alone is a $41 billion industry.

Bertrand: Wow

Nuno: The single most sold vehicle in the U.S is the Ford F150 truck. For many years now. So that’s the reason why he’s going after this market. This is as mainstream as it gets in the U. S. It’s an interesting market to go after. There are competitors. There’s an EV truck company called Rivian that has raised quite a lot of money, $700 million from Amazon recently.

And so there is competition. There are a bunch of players here. The demo of the cyber truck didn’t go as well as people probably thought it would. 

Bertrand: Indeed. Indeed. that was a funny one. 

Can you remind us what happened? 

Nuno: So in the demo basically in testing how strong the truck is, how bulletproof it was, there was a shattering of the glasses of the demo which did not really go very well. 

Bertrand: By doing what? By throwing a metal ball on the window?

Nuno: Something of the sort to the window. It was literally a demo, so it was like, how can it go wrong? Apparently it did.

That,  it has some ridiculous numbers that they’ve put at the table. I won’t go into that,  some ridiculous amount of torque,  and pound feet of torque, ridiculous amount of brake horsepower equivalent.

Obviously it’s an electric vehicle. I’m a little bit shocked. I know some people like the design, I don’t know how you can really, it seems like the birth child of a few other vehicles that came together.

Bertrand: If you enjoy Blade Runner, I think it would fit right in.

Nuno: There’s some DeLorean in it somewhere, but that’s the good part. And then the bad part, I just don’t fundamentally get. 

Bertrand: But, you know my take is that they have no choice.

They cannot come up with a normal regular boring design.

Nuno: But who is going to buy? 

Bertrand: They have to make it exciting and they know they cannot target the whole market, anyway.  They cannot produce them fast enough. So, my take is that they need noise. They need free marketing. That’s their only choice.

Nuno: But then it’s going to be a niche play. And what’s the point coming to a mass market play with a niche device? 

Bertrand: In five years from now there will be a V2 that maybe is a bit soften up. we will see, if it happens, but that might be a possibility.

Nuno: So you think this is their model S for trucks and they might come up with a model 3 for trucks later down the road ? 

Bertrand: I will definitely expect that in a few years from now they will make some change, like every car manufacturer is doing. Is it 5 or 10-year? I can see now they are small, so they have no choice but to find a new approach, a new angle, they cannot spend the marketing budget. 

Nuno: They are 80 something billion dollar company Bertrand.

Bertrand: In market cap, in market cap, cash is a very different matter.

Nuno: Market cap. But still, just to be clear, you’re starting to have competition all around on electric vehicles, Sony announced an electric vehicle. The Germans are coming for sure. They’re already here. 

So I’m like, why is this your next mainstream mass market play? I don’t get it.

Bertrand: You know, actually, what I see is that he has already started, a cotery of, companies that are copying his design for other use. So, I’ve seen the cyber truck garage. I have seen the cyber truck house. So, I think he is starting in a way a new movement. I think his approach is to find something that will resonate with some sort of super fans, and step by step people might at first be surprised or shocked. Step by step, they get more acceptance in some ways.

And if you like the numbers, if you like the vehicles how they’re handling themselves, then, ultimately, maybe you can forget about its design. And for sure, it’s a head-turner. Whatever you want to say, one way or another one, you like it or not, people are going to talk about it the minute you bring this car, at your home or at your office. And that might be something that attracts some people.

Nuno: I clearly think you’re more positive than me on this. I have to take my hat off to Elon’s audacity, yet again. It’s impressive. But I’m just very negative. I don’t get it. And this is from a guy who thought about buying a Ford Raptor truck, right? So I’ve thought about buying trucks in the past, which is for me, shocking because I drive a Miata as a daily car.

But, but when I thought about the Ford Raptor, I think it’s like a proper truck. It looks aggressive. It is what’s written on the tin. It has a lot of torque, etc. I know the cyber truck numbers are going to be great if he manages to really get the powertrain or equivalent running on this, but at the end of the day I am not convinved. 

Bertrand: But you know me, I never considered ever to have a truck. I don’t have the need for it, but  when I saw the Cybertruck, I was like “you know what?” 

Nuno: Oh, come on you thought about, maybe I’ll buy it? 

Bertrand: I started to think about it for maybe a few minutes ,  and I was like, “You know what? What happens when I bring that stuff back?” 

Nuno: will need to do an episode on cars definitely. 

Bertrand: But, no, I don’t think, I would consider, if I was in the market, I would be more looking for like, a small SUV. That’s already the, the category, I have today. But, yes, for me, that was funny to see. I would never have considered having a truck, but this one made me think differently, because it was actually looking very different, and in term of performance, metrics, even inside, the volume is huge.  It’s as big as your typical small SUV, the inevitable, part.

Nuno: Impressive indeeed.

Bertrand: And you have seen that, it comes with a big motorbike. I mean, it doesn’t come with, but you can buy one as an accessory.

Nuno: Yeah, whatever. I’m not convinced. Again, hats off on audacity, not convinced.

Bertrand: Thank you nuno.

Nuno: Thank you Bertrand