INSUBCONTINENT EXCLUSIVE:
Index Ventures — a firm with investments in companies like recent IPO Dropbox, a series of successful gaming companies like King, and
others including Slack and coming IPO Zuora — has seen a lot of moves in the past few months.There was the departure of partner Ilya
Fushman earlier this year, but the firm also brought on Sarah Cannon from CapitalG as one of their recent big hires
Index has also promoted former Dropboxer Mark Goldberg to partner
Prior to joining Index, Cannon led investments in companies like Looker, MultiPlan, Oscar and Care.com
Cannon will primarily be focusing on growth stage, and is also now a board observer for Slack
Goldberg has been at the firm for around three years and worked on deals like Nova Credit and CoverWallet.We sat down with the two new
partners to discuss some of their plans, as well as some broader parts of the venture ecosystem
Here’s the interview, which has been lightly edited for clarity.TC: What does the investment committee decision process look like these
daysMark Goldberg: In the last stage, we have a partner presentation, where the entrepreneur presents and we debrief
Then it’s a vote at the partner level
Everyone votes 1-10, and if it’s over 7 it’s approved
If it’s between 5 and 7, it’s the sponsor discretion
On average it’s around in the seven range
Some partners always rank lower, their most enthusiastic is at 8. It ends up being a pretty intellectually honest discussion, every vote is
I’ve worked at other funds before, and it seems like it becomes more of horse trading
This feels like a constructive debate, we operate as one team
pacific on Mondays, so there’s that.TC: When working with entrepreneurs, how do you keep them moving forward — especially when some seem
allergic to product changesGoldberg: I speak more to my background to being an early business hire at Dropbox, but it’s staying focused
don the end user and building something people actually want to use
Regardless the paradigm, [we ask], are you building a product where at the end of the day is the end customer happy user.Sarah Cannon: In
the board room so much of where we can help is focus
My role is not making decisions but helping the management team align on priorities and sharing an example from a company they respect. It
is often most helpful to connect them to another portfolio company
At CapitalG, we were investors in Lyft and Stripe, and a lot of learning would be between those companies
We would say, let me connect you to the head of product at Lyft
After that coffee, the priorities have been reduced to just a few.TC: What’s the filter for companiesGoldberg: First off, the [series] A
is where we’re really focused
I think historically Index had really built a brand in Europe
King, SuperCell, Skype, and others. When we set up the team in the U.S., we ended up getting pushed into more series B
We would have loved to see the Series A on many of these companies, but we were new it was harder to proactively get to these great deals at
So we’re pushing earlier into that Series A
Maybe 7 of the last 10 deals have been [series] A for us
The challenge is, how do we find these great founding teams and category winners at that stage
Despite the valuations, we want you to hit those check boxes.Cannon: As you move later stage, it’s much more on the unit economics
That’s part one — really understanding the unit economics, how big of a business can this actually be
The market could be really large, but what’s the size of the prize
Those are the two things I focus on
It’s easy to look at the unit economics
There are exceptions to the rule, like Amazon, where the margins didn’t look good along the way… Traditionally these companies haven’t
made money, and that’s how you miss really exceptional businesses
They are transformative businesses
That’s really how I’ve shifted my way of thinking.For consumer companies, I think of that has to be massive user traction and if
you’re seeing wild adoption or a differentiated technology.TC: How do you think about the state of how we talk about mental health in
Silicon Valley right now How do you help your founders in this respectGoldberg: I think being a founder is an extremely lonely job
I think one of the things that a strong venture partner can do is be a really good sounding board
The emotional fluctuations in these businesses are extreme
A founder has to be, even if they’re resilient and have a lot of grit, they’re absolutely going to feel the highs and lows
If you talk about what makes a venture fund and partner valuable, it’s the ability to damper some of that volatility by being available
If someone calls me on a Saturday night, i’m picking up the phone and being present and having that perspective
If you’re doing this job well, you can help the entrepreneur feel less lonely.Cannon: [Part of it is] regulating on both the highs and the
You’ve had the benefit of working with a lot of companies
You can say, this is a great moment, celebrate, but it’s not like we’re going public tomorrow
In the lows, you remind them of the good times, you’re modulating to the middle and giving some perspective.
It’s important to step in as an investor, and to say, ‘ok, this was a scary moment but this is why I have conviction in your
business.’It’s a topic that’s a lot of shame
It’s very much like an artist, there’s an individual genius creator but there’s a dark side
There’s a very known perspective in the founder world
I hope we have a few brave founders who come out and say, look, I really struggled, here’s how I managed to deal with it.TC: How have
things changed given the shift in the venture landscape, such as with mega-funds like SoftbankGoldberg: We see it as a good thing, for us
it’s additional optionality for a lot of our portfolio companies
Before SoftBank a lot of times your option is [just going public]
Softbank is not the only one, there’s Sequoia growth, there’s a lot of money sloshing around the late stage
It’s been a boon for our companies — we’re generally playing at a stage before we’d be competitive [with that].Cannon: For the later
stage, it’s absolutely changing the return profile
To Softbank’s credit, it’s a brilliant strategy, it’s like an index on the private markets.TC: How do you differentiate between
founders for companies you invest inCannon: For me, the adjustment [to earlier stage] has been a couple things, like adjusting your risk
You’re taking a lot greater risk
It’s easier to rely on cohort data, thinking that I’ve seen this for three years
[At earlier stages] it’s less data, and you’re taking more risk, you need to spend more time about thinking about the team
You need to believe that founder is capable of bringing on that high quality team
To move earlier stage, you have to have a lot more conviction
In later stages you have a bunch of investors already at the cap table.Goldberg: I think it’s absolutely critical that the market is
We’re stage agnostic and expertise driven
We’ll see a company at the series A or series B, and we get to know the founding team
We don’t wait for the round to form, we preempt it, and if we don’t do the deal we have a relationship going forward.Cannon: [I also
think it’s] very specific to the business
If it’s an IT infrastructure startup, the person needs to be highly technical people
Do they know their own strengths and weaknesses, do they know the strengths and weaknesses of their existing members.TC: How do you think
about diversity going forwardCannon: The major focus is how do I address this challenge
The numbers speak for themselves in terms of diversity of all types
A lot of founders aren’t happy with where they are, we think about what specifically can we do about it
That’s where we’ve been having a lot of discussions — how are you giving fair reviews, how do you make sure your compensation is the
There’s always the question about funnel and how do I see different candidates
My view on that is we should do a much better job in venture and companies in screening for the specific attributes you need in the job
We want to push people, rather than going to pools that are easy, such as just to banking, and say the attributes important to an investor
is high emotional intelligence, analytical thinking, and such
They don’t necessarily come from the same people.Goldberg: What’s changed is it is now a board-level conversation
At the last 4-5 meetings, this is now a topic on par with the KPIs of the business
That didn’t used to exist
I agree with the tactical points, we can do a better job with diversity, we’re having those conversations..TC: What about applications of
ideas like the Rooney RuleCannon: I think that’s exactly the tactical thing
People are just begging for an idea, something I can commit to changing my funnel
Changing my process to be more fair, founders I think are very more open to it.TC: How do you manage expectations with your base of LPs,
especially as the time threshold between an IPO and the founding stretches Goldberg: I think we’re fortunate that as a fund culture and
with the LP base, we’re afforded the ability to make a long term view
While the timeline is stretching, we don’t feel pressure
To the extent the companies continue to build value, the returns are gonna look good enough
We have not felt the urgency to try and realize gains faster, and part of that is our broader philosophy and ethos around investing
We’re here to support the entrepreneurs, and I don’t want to be prescriptive in an exit.I think we need to be thoughtful when we take a
Doing large secondaries in early companies can be detrimental
When we’re looking at rounds where secondaries are available we ask about proceeds being distributed, we want to know [if it’s just
certain executives or for the whole team].Cannon: You do want to think about the employees who have made significant contributions
In a market where companies are staying private much longer, for the employees, I do want us to find a way to have some liquidity
The key is how you structure it
You could buy a house, but you don’t need a mansion.Goldberg: What I don’t like is when founders or a select set of executives are able
As long as it’s equitably done in a way, like 10% to 15% liquidity being offered for employees.TC: What are some learnings you’ve picked
up from what’s happening in ChinaCannon: We are not currently investing in China, but I want to learn form China and see what insights we
can get from businesses there and how they will be different in the US
If you look at live video, a lot fo companies have taken off there
The social e-commerce business, mid-messaging, how does that change with transactions.Goldberg: On the fintech side, it’s almost like the
world has inverted, I used to do a lot of cleantech where we were worried China would copy the IP
In fintech, the most innovative companies are coming out of China
If you look at digital payments in China versus the west, they were already way ahead of the curve, and now it’s even more so
It really is, for us, about learning what’s around the future
We’re pushing ourselves.TC: The majority of that is owned by a few platforms like WeChat or Alipay
Is that a good thingGoldberg: Some of these platforms are becoming monolithic conglomerates at this point
My broader thesis in this point is, we’re gonna see a new set of companies and winners from the last few years that are gonna re-bundle
the rest of the feature rich companies into larger platforms
They’re building massive user bases with extreme engagements
You imagine what else can you cross-sell once you have that engagement and brand affinity
We’re gonna see massive category winners of the next digital bank in the US.TC: How are you thinking about ICOsGoldberg: We’re watching
I think crypto and blockchain have gotten a huge amount of airtime in the press, to me it’s distracting for financial services
The incumbents are absolutely vulnerable in a way they’ve never been before
We’re seeing huge success..Cannon: We’re very expertise driven
The two areas are really around blockchain and AI
We just had a presentation we call Monday musings — we’ve had them on gaming, bitcoin, and crypto in general — that’s an area where
we’re actively trying to build our knowledge set
I think there’s a lot of interest and the timing is of vigorous debate.One of the challenges is to be an effective unit of economic
transaction without the regulatory infrastructure like know your customer
As long as we have nation states we certainly will not see all transactions on blockchain
Regulators will have a way to regulate these transactions since at some point you are going to have to transfer your bitcoin into dollars or
some other currency at some point.Goldberg: I have had a challenge to find a [high-potential] Dapp
(Dapp is short for decentralized app)TC: Where are you finding these new areas of talentGoldberg: I haven’t found a magic bullet
It’s an aggressive push to reach a diverse set of channels of sourcing.Cannon: [Companies have big pools of strong candidates], the
challenge early stage is it’s harder to find out about those companies
At the beginning it’s hard for people that aren’t as well networked
What’s a role that a large company has a big pool, how can they help them connect
I think about how to do that in a scalable way. The innovation that Google really did have is doing interviews
Rather than saying we’re gonna get people from top schools, we’re gonna have a test that tests for the engineering skills for this job
If you can prove you have these specific skills, I think that’s a great way
You get people who have the skillsets.TC: What are you looking for in startups that say they specifically focus on machine learningSarah:
The way I thought about investing in AI is three buckets
One was on the generalized AI, and what would replace a human
That’s a lot of science and a lot of risk in the very early stage.The second bucket is vertical AI where I think health care and financial
services are most interesting
The third bucket is what I call machine learning for everybody else or democratizing access to ML
Google and Facebook can afford to hire data scientists of incredible caliber, but most companies can’t
There’s an interesting company to be built sharing standard ‘algorithms as a service’ with those companies.On the vertical side, a lot
of is is tech constraints
I’d love to get into contracts, but [you have to] think about what’s possible — what you can do with a camera, where we are with
machine vision and the applications of that with an immediate business context
[We look at] how many engineers and data scientists you have, what are the top 5 applications of your technology
You’ll very quickly find they’re doing something that could be automated quickly.Goldberg: 99% of the pitches that I hear across
industries talk about machine lerning
It’s become so ubiquitous as it’s almost meaningless, or it’s as horizontal as big data
What I look for is proprietary data
What is really critical is it’s not just algorithms but your ability to train a model faster than anyone else and in a way that’s more
You have access to some data pool, and the data is ultimately what sets it apart
For the vast majority, it’s a buzzword that they think will increase the valuation
A way to test that is to look at the technical DNA in the team
To me that’s a lot of suss out is this really machine learning, or is this empty words on a page.TC: What are the verticals you focus on
right nowGoldberg: There are massive segments of the economy coming online right now
Agriculture, construction, logistics, we look at where the data has been locked up in offline form like on paper or excel
As software brings it online, a lot of those industries are ripe for machine learning.Cannon: I am focused on consumer and the
consumerization of the enterprise
On the consumer side I cover marketplaces, millennial purchasing behaviors and what we can learn from China
On the consumerization of enterprise side I’m focused on productivity, particularly tools used across business units.TC: What signals are
you looking for in consumer startupsCannon: I always think chance favors the prepared mind
I do want to do thesis work in consumer, and think about areas where I see patterns
When I see the monthly active users data, [I ask], does it conform to the world
Millenials have contrarian thinking, one thing that stood out when the Robinhood founders talk, was that millenials didn’t want to pay an
I wonder if there are other models they’re resistant to
Maybe they don’t want to be monetized by ads, and are there businesses that could evolve based on that view.Update: Cannon reached out to
clarify a few things from the interview, which we’ve sprinkled some updates throughout.
