Leo Polovets

Leo Polovets

Partner at Susa Ventures

THIS CHAT HAPPENED ON October 06, 2016

Discussion

Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
Hey everyone! My name is Leo Polovets and I'm a software engineer turned VC. I was very fortunate to be an early engineer at LinkedIn ('03-'05), then spent time working on payment fraud detection at Google and large scale data cleaning/processing at Factual. In early 2013, I started a seed fund called Susa Ventures with several friends. Over the last 4 years, we've made about 45 investments into companies like Robinhood, Flexport, and Andela, and we recently raised a new $50m fund. I love sharing things that I've learned (mostly at codingvc.com) in the hope that they're useful to others. I'm excited to be here. Ask me anything! Edit: Thank you to everyone for your thoughtful questions! I really enjoyed doing this LIVE session and would love to do one again sometime.
Andrew Ettinger
Andrew Ettinger@andrewett · 👟 @wearAtoms // ex @Twitter @ProductHunt
Being an engineer, do you openly favor technical founders?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@andrewett My favorite teams are balanced between technical and non-technical founders. Non-technical teams usually have a hard time building something, even if the idea is great. Purely technical teams usually face the opposite problem: they often spend all of their time on building and either neglect sales or aren't good at it. I've seen a lot of companies fail because they were founded by engineers who thought, "sales will be easy and I'm sure I can figure it out." So I love working with founders who are technical because we usually think alike, but I love them even more if they partner with someone who can manage the business side. :)
Bala Murugan
Bala Murugan@blrbalam · Freelance - Product ideas
Hi Leo, I would like know which funding method is best for Tech startups - Crowdfunding or seed funding?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@blrbalam Most of the crowdfunding sites I've seen so far, like FundersClub, are pretty similar to seed funds when it comes to the investing process. While the money comes from their members, the crowdfunding sites that I'm familiar with do a lot of diligence before featuring companies as potential investments. I think AngelList syndicates are similar: if you just put up a website that says you're raising $500k, you're much less likely to succeed than if you build a syndicate around around a professional investor who believes in you. Basically, you have to pass VC-style diligence tests with both crowdfunding and seed funds -- at least for now. Seed funds and crowdfunding also have different non-monetary benefits. I have less experience with crowdfunding, but my understanding is that you have access to a lot of people who have a small stake in your company. This might be valuable if you need a specific introduction, because the probability that someone among 100 syndicate investors knows that person is higher than the probability of one or two seed fund partners knowing that person. On the other hand, seed funds have a higher level of commitment because they invest more money and their jobs are on the line, so (good) funds will try to help you when you're in trouble or when you have a big favor to ask, while someone who invested $1k online might not really care.
Bala Murugan
Bala Murugan@blrbalam · Freelance - Product ideas
@lpolovets It explains lot, thanks for your time.
Ryan Hoover@rrhoover · Founder, Product Hunt
Hey, Leo! After years of investing, what's been most surprising?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@rrhoover It's very hard to just pick one thing! Here are three lessons from investing that surprised me: 1) I'm surprised at how many people (both founders and investors) do X just because they've seen others do X or think X is expected. There are a lot of cargo cult behaviors on both sides that seem kind of crazy if someone stops and thinks about them. (I wrote a post about this last week: https://codingvc.com/startup-car...) 2) Coming in as an engineer, I thought engineering caliber would be the biggest differentiator between founding teams that do well vs. those that don't. I was surprised to discover that's not true for 95% of products. The technical risk for most businesses is much smaller than other risks, like not being able to find product/market fit. 3) Advice is super hard to internalize. We all read "build something people want" or "build an MVP" and we think we get it, but then we go and do stuff that ignores that advice. A personal anecdote: when I first got into venture I had been thinking of doing a startup and had a bunch of different business ideas. I remember during the first few demo days I went to as an investor, I was surprised that a lot of early stage companies had no concrete plans for how to make money. I though "how can they expect investors to put in hundreds of thousands of dollars if they don't even have a guess of what the business model would be??" It seemed crazy. Then I had a moment of self-awareness where I realized none of *my* business ideas had business models attached to them, either. I had a lot of product ideas but wasn't thinking about MVPs or product/market fit or anything like that -- even though I had been reading about those things for years. I think a big chunk of my job these days is taking accepted advice and pointing out to founders (who usually believe that advice) that they're not following it :)
Emily Hodgins
Emily Hodgins@ems_hodge · Operations @ Product Hunt
What advice would you give to early founders looking to secure their first round of funding?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@ems_hodge It's cliche, but the easiest way to attract investors is to build something for a big market and to be able to show that customers are responding strongly to your product with their time or their money.
Brian Shultz
Brian Shultz@brianlshultz
Hey Leo! What’s your favorite way to learn about something? Do you have certain experts you contact? Do you like to go to relevant conferences?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@brianlshultz Reading works well for me. I'll often google a topic and read 5+ articles about it from different sources. While that won't make me an expert, it'll usually give me a well-rounded overview. If I'm very curious about a subject then I'll read 5+ books instead of 5+ articles. When I read, I try to think critically about what I'm reading, try to relate it to my personal experiences, try to make analogies to other subjects I know more about, and so on.
Peter Gross
Peter Gross@anglebalancing · Founder, Horizon PPM
Hey Leo, Susa are currently very focused on US based investments, but with an eye on overseas opportunities. What would that overseas opportunity have to offer that would encourage Susa to take an interest?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@anglebalancing Our criteria for non-US companies is similar but the bar is a little higher. E.g. not just a great team, but a *particularly* great team; or not just strong traction, but *particularly* strong traction.
Peter Gross
Peter Gross@anglebalancing · Founder, Horizon PPM
Thanks @lpolovets. Makes good sense. I'm sure you've already got a good network, but if you ever want a scout in the UK I'd be very happy to help.
Bala Murugan
Bala Murugan@blrbalam · Freelance - Product ideas
Are you in to any charity works?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@blrbalam I help my wife out on her non-profit (teaching dance and musical theater to young children), but otherwise have not done much on the charity side. My wife and I have a lot of ideas for projects and initiatives we'd like to try a few years down the line though!
Bala Murugan
Bala Murugan@blrbalam · Freelance - Product ideas
@lpolovets my wishes
Sean Byrnes
Sean Byrnes@sbyrnes · CEO @ Outlier AI / Founder, Flurry
Do you really code as part of your Venture Investing? If so what code do you write and what is it for?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@sbyrnes I still code a bit, but I'm starting to get stale =\. I do a fair amount of number crunching via code for portfolio analyses and blog posts, and I also write little scripts and tools that help me become more productive. For example, I type shorthand notes during pitch meetings, and I wrote a small program that cleans up the notes and adds proper capitalization, bullet points, etc.
Karthik Sridhar
Karthik Sridhar@antaryaami
@lpolovets @sbyrnes I once heard from a VC that he likes to invest in companies which appeals to his desire for working at that company. Does this sound like something you'd think of as well?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@antaryaami @sbyrnes I think that's an important thing to look for -- especially these days when the hiring market is competitive. CEOs and CTOs that are good at attracting talent (because of themselves, or their mission, or their product) have a big advantage over CXOs that cannot.
Malcolm Jack
Malcolm Jack@inquisitorjax · Tech Entrepreneur, Wibcisoft
Hi Leo - as a (still part time) tech startup entrepreneur in early stages of MVP development and validation, the lure of Seed funding / industry experience in the future to accelerate product development is very appealing - but I'm a bit apprehensive of the perceived divergent goals of investors to achieve high valuations and exits and the pressure that creates on scaling (prematurely perhaps?) vs building a sustainable, profitable business. Perhaps share some thoughts on that from a seed investor perspective?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@inquisitorjax Aligned goals between founders and investors are very important. If you raise funding from VCs who have their own investors to report to, you are committing to try to build a huge company. You might not get there, but you're committing to that goal and all of the strings and expectations that come with it. Usually that does mean pressure to raise money and grow faster rather than staying lean and growing organically. Because VCs' goals are a known quantity, most of the decision comes down to your own goals. If you want to build something that supports you and your friends, you shouldn't seek out VC money. If you want to build a big company that's not dependent on having lots of capital from the early days, then it's up to you if you want to go the VC route*. If you want to build a big company in a winner take-all-market, there's a good chance that VC is the best option. While VC money comes with expectations, working with the right investors who have experience or connections in your target domain can also have a big impact on your company's ultimate success. * There was an article about MailChimp yesterday about how they bootstrapped to 100s of millions in revenue, so becoming large w/o VC funding is certainly possible. Source: http://www.nytimes.com/2016/10/0...
Malcolm Jack
Malcolm Jack@inquisitorjax · Tech Entrepreneur, Wibcisoft
@lpolovets thanks Leo - really helpful advice and reaffirmation. Similarly (for others here) the best advice I've received so far (from The Founders Dilemma I think): Decide what kind of business you want to build, and then align yourself with people with the same vision. Generally I'm a big fan of companies like 37Signals and MailChimp - but as a passionate product / tech creator with a wife and 3 kids, it's reeeeally hard to exercise patience while working until the wee hours of the morning, and not being able to do it as a day job :)
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@inquisitorjax Founder's Dilemmas is a great book! I recommend that to a lot of friends who are thinking of starting companies.
Malcolm Jack
Malcolm Jack@inquisitorjax · Tech Entrepreneur, Wibcisoft
@lpolovets Are there other books on your hitlist that you would recommend? (for those wanting to delve into startup)
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@inquisitorjax A few book recs for founders: Founder's Dilemmas -- explains common issues at the earliest stages of companies. Traction (by Weinberg and Mares) -- great framework for getting traction for your product. Understanding Michael Porter -- excellent introduction to thinking about differentiation and competitive advantages. Art of Profitability -- lots of food for thought about monetization. What Got You Here Won't Get You There -- advice for addressing personal flaws that often get in the way of success.
Ben Tossell
Ben Tossell@bentossell · newCo
If you have to trade lives with a tech CEO for a week, who would it be and why?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@bentossell I don't want to name names, but I'd probably pick the CEO of some large tech company that I'm frustrated with in order to see if I could start some meaningful initiative within a week. Actually changing something at a big company within a week would be very unlikely, but it'd be fun to try.
Andrew Ettinger
Andrew Ettinger@andrewett · 👟 @wearAtoms // ex @Twitter @ProductHunt
Which company that you've invested in do you wish everyone on Product Hunt knew about?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@andrewett I personally love mission-driven companies, and two (of the many) in our portfolio that I'm excited about are LendUp and Andela. LendUp is improving access to credit for people who aren't well-served by banks because of their credit histories. Andela finds and trains the brightest people in Africa and matches them up with high quality, high-paying tech jobs.
saketsaurabh
saketsaurabh@saketsaurabh
As a smart engineer with strong business acumen how did you evaluate the choice of starting a company versus starting a fund?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@saketsaurabh Initially I wanted to do venture for a year or two in order to improve my network and learn more from other founders before starting my own company. However, I quickly fell in love with the job because of the leverage involved. Instead of having 50% or 100% influence on a company that I start, I have 5% influence on 50 companies that I work with. Also, I may have decent business acumen today, but that was as a result of working at a fund and not something that I had developed beforehand.
Caleb Andersen
Caleb Andersen@calebandersen · Entrepreneur
Are you satisfied with the current model for which VC's and startups find each other?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@calebandersen Not really. I like that there's more transparency now than several years ago (thanks, AngelList!), but I think there's still a lot of wasted time on both sides. Most investors have a good sense of what they're looking for, but there isn't a great forum to make that public and searchable. For example, some investors don't care about revenue for b2b SaaS companies, some want a little bit of revenue ($1k-$15k/mo), and some want significant revenue ($15k-$75k/mo). But if you're a founder with a b2b SaaS company, you have no idea which investor is in which bucket, so you end up wasting your time emailing anyone who seems like they might be a fit.
Caleb Andersen
Caleb Andersen@calebandersen · Entrepreneur
@lpolovets Thanks for the response! That makes a lot of sense. I agree that it seems to be difficult to find the right fit, but that the model itself does seem to work. We're just missing one piece at the moment perhaps.
Karthik Sridhar
Karthik Sridhar@antaryaami
@lpolovets would you say that this is true not just of revenue but also around market verticals that a B2B SaaS company is going after. Should companies seriously consider investor/company fit too, especially during seed stage?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@antaryaami Yes, I think it's true about level of traction; whether an investor cares more about product, market, or team; the vertical you're in; and so on. I think investor/company fit is very important, but if you can't raise money from your ideal investors, then just focus on raising money from any decent investor. (The perfect can be the enemy of the good.)
Emily Hodgins
Emily Hodgins@ems_hodge · Operations @ Product Hunt
How has your early experience being a software engineer at placed like LinkedIn and Google effected your investment strategy?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@ems_hodge Both LinkedIn and Google taught me the value of durable competitive advantages, which are a core focus of my seed fund. At Google, I worked on payment fraud detection algorithms (e.g. trying to predict if an incoming purchase was using a stolen credit card). I thought algorithms would be the key thing for that project, but it turned out that having lots of data was way more valuable. That made me realize that while algorithms and code and UI can be copied, things like data and network effects (in the case of LinkedIn) are very hard to overcome. So as an investor, I now look for companies that have similar long-term advantages. I think a deep competitive moat is key to building a lasting, valuable company.
Malcolm Jack
Malcolm Jack@inquisitorjax · Tech Entrepreneur, Wibcisoft
Are there exceptions to the "Mvp / traction / team" trinity requirements for seed investment? If so, what are the attributes that set them apart?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@inquisitorjax I think being amazing in one category can overcome weaknesses in others. E.g. if your traction is especially impressive, that can overcome a team that seems good but not great. Or if the team is amazing, you might be able to raise money before you even have an MVP.
Ben Tossell
Ben Tossell@bentossell · newCo
How did you figure out how to start a seed fund...I imagine if people thought they wanted to do the same they'd think 'Where do i begin'?! where did you begin :)
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@bentossell I lucked into investing, actually. I had seen firsthand as LinkedIn and Factual grew from ~15 to ~50 people and I really enjoyed those experiences. In late 2012, I left Factual after four years and was thinking of starting my own company but felt like I didn't know anything about the 1- to 15-person person phase. In order to fix that, I planned to read blogs, talk to friends and friends who were founders, and so on. However, one week after I left my job, one of my friends approached me with the seed fund proposition. She was starting a fund with two other friends, they all came from the business side (sales/marketing/product) and wanted someone technical to fill out the team. I thought it would be a great learning opportunity since I'd get to speak with many founders in the earliest days of their companies. I initially joined thinking I'd be an investor for a year or two, but I ended up really falling in love with the job and the opportunity and now I'm pretty sure it'll be my career for life. If I were thinking about starting a seed fund from scratch, I'd focus on a few things: 1) do a lot of angel investing -- even if the angel investments are tiny -- in order to figure out if you pick companies well and if you like the job. 2) share notes and work together with other investors as much as possible. This improves your thinking, helps you avoid mistakes, and might help you find a partner or two for your fund. 3) think hard about how you differentiate yourself to founders. These days deal flow is becoming more and more commoditized, so the biggest challenge is often getting into a deal that many other investors want to get into. What's the special thing about you and your fund that would make a founder take your money over someone else's?
Ben Tossell
Ben Tossell@bentossell · newCo
What have you learnt since you started investing that is vastly different to what you know now? And what is the same?
Hey Leo! how do you work on maintaining or improving the quality of your deal flow?
Leo Polovets
Leo Polovets@lpolovets · Partner, Susa Ventures
@mateohy My partners and me all have different ways of trying to improve deal flow quality. My top three strategies: 1) Working hard for founders so that they recommend my fund and me to their friends without hesitation. 2) Being approachable and helpful, even for founders who don't fall into my fund's focus area. 3) Trying to write high quality, actionable content on my blog and across the web.