On today’s show, we sit down with Bill Reichert. Bill is the Managing Director at Garage Technology Ventures, a seed and early-stage venture capital fund, which invest in extraordinary entrepreneurs with unique technologies that will define the next era of innovation. He takes a hands-on approach from the very beginning, partnering with talented entrepreneurs to transform their vision into reality.
He is an entrepreneur, mentor, author, speaker, board member, adviser, educator, partner, spouse, parent, and general enthusiast. Not always in that order.
In this episode, you’ll learn:
- What are some of the misunderstandings on trends in technology?
- What is the typical view of leadership and why this view is flawed?
- What is the difference between innovation and invention?
- What are the different types of computing and how will they impact us in the future?
- What do you see as the “hot” sector or trend for 2020?
This episode is dedicated to Craig Johnson who had a great influence in Silicon Valley.
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- Garage Technology Ventures
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Disclaimer to the Transcripts:
Intro 00:00
You’re listening to The Silicon Valley Podcast.
Shawn Flynn 00:02
On today’s show, we sit down with the legend of Silicon Valley Bill Reichert, who is the Managing Director at Garage Technology Ventures, a seed and early-stage venture capital fund, which invests in extraordinary entrepreneurs with unique technologies that will define the next era of innovation.
Shawn Flynn 00:19
On today’s show we talk about: what is the difference between innovation and invention? What are the different types of computing and how will they impact us in the future? What are some of the misunderstandings on trends in technology? And what do we see hot in the coming years? This and much more today’s episode on Silicon Valley. Enjoy.
Intro 00:40
Welcome to the Silicon Valley Podcast with your host Shawn Flynn who interviews famous Entrepreneurs, Venture Capitalists and Leaders in Tech. Learn their secrets and see tomorrow’s world today.
Shawn Flynn 01:03
Bill, thank you for taking the time today to be on Silicon Valley.
Bill Reichert 01:06
Great to be here, Shawn.
Shawn Flynn 01:08
Now, Bill, you’ve been in the valley for some time. You’re kind of a legend here.
Bill Reichert 01:12
Which is another way of saying I’m kind of old. Is that what you’re saying?
Shawn Flynn 01:15
No. I’m trying to say that you’ve influenced and helped so many people here. For our listeners at home, can you give us a brief history of your time here in Silicon Valley? What’s led you up to this point?
Bill Reichert 01:26
Sure. So long ago and far away, I came here for graduate school at Stanford and came to Stanford. I was not exactly sure what I was going to do afterwards, but I assumed I was going to go back east. While I was here at Stanford, I wound up starting a software company. And that got me stuck here. I wound up becoming a serial entrepreneur. But the first company was…it’s the early 80s, to date myself. Early 80s, we were the first app development company.
The platform back then was the PC. The context of this was before graduate school, I had worked at McKinsey & Company. And at McKinsey & Company, I wound up being the guy who did all the analytics for the merger acquisition practice in the Los Angeles office, which was the practice lead for mergers and acquisitions. So, I was doing the equivalent of spreadsheets. And I was creating all these analytics for mergers and acquisitions. When I came to Stanford, I discovered that there’s really not very good software on the PC for doing serious financial analysis.
I happened to be doing a project with a venture capitalist as in my spare time, and I said, you know, there’s really no good software for the PC. And the VC said, “Well, then why don’t you start a company and solve that problem?” I said, “Nah. I’m going to go do other things. I’m going to go back to the east coast. Blah, blah, blah.” And he said, “Come on.” And so, I signed up for the entrepreneurship course. I wrote a business plan. It was… I figured I’m killing it. I’m getting credit, as well as writing a business plan. One call closed, go to the VC, and one of the most amazing experiences of my career still to this day. So, the VC says, “Okay, go open a bank account, call Carl. And tell Carl to fill it up.” I turned to my partner, I said, “God, I wonder what it means to fill up a bank account?”
Bill Reichert 03:15
I can imagine, you know, we didn’t even ask him what he meant. So, it turned out, he filled it up with $600,000. That was the deal. So, we started with $600,000. And we mapped out all of these applications that we were going to build. And it turned out, they went just phenomenally well, the original name of the company was Software Ventures, Inc. So, first board meeting, the VCs say, “Okay, we found a CEO for the company.” And I looked at my partners and I said, “Wait a second. We thought we were running the company. What do you mean you found a CEO? Well, you know, you guys, you know, I get you’re smart, but we need a, you know, seasoned and experienced CEO.”
So they brought in this old fart who was then named Mike. Turned out, Mike was a great guy. But you know, Mike was like 35 years old, right? He was like… What did he know about PCs and software? Turned out Mike was brilliant. And back then we didn’t call it pivoting. But Mike was very clever. One day, he winds up at a trade show up in Moscone, and these guys come by, and they say, “Oh, interesting. Software mentors. Can you guys write software?”
“Sure. So yeah, we’re from Rolodex. Maybe you’ve heard of us?” “Oh, yeah, we’ve heard of you. Do you think you could write software for us? Do you think maybe people would like to keep track of their contacts? The computer?” “Sure, good idea. We can do that for you.” So, you know, he comes back and talks to the software engineers and say, “Okay, how long do you think it’ll take us to do this?” And the software guys say, “Oh, geez, I don’t know. I don’t… I’ll probably get it done by Monday?” I was like “No. That’s not right. It’s got to be at least three months and at least $250,000.”
Bill Reichert 05:01
So, in any case, that was the beginning of the new model, and we wound up changing the name to Trademark Software, and doing software for brands. So, we got the Rolodex, the first software’s Rolodex release was powered by Trademark Software. And then we got Charles Schwab. And then we got Dow Jones. So, it was sort of crazy. We designed this accounting series, which was essentially QuickBooks, and they brought in one of these big CPA firms, and they looked at what we were doing. And the CPA firm said, “This is not real accounting. This is like a toy.”
We said, “This is a PC. You’re lucky if you have 256K of RAM. You probably did not have a hard drive. I mean, this is the state of the world. You can’t imagine this, right?” But they said, “No, no, it’s got to be a serious, you know, full professional accounting system.” So we said, “We’ll try.” And what happened was they announced the Dow Jones accounting series and we didn’t deliver. And one day they just walked in and they said, “We’re taking over the company.” “How can you take over the company?” “Well, you know, the advance we gave you? We said if you did not perform, you could either return the money, or we own the assets of the company.”
So we looked at each other, did anybody read the fine print? That was the end of that company, but um, so, one day, one day, it blew up. And in fact, side story, I just asked this gorgeous young Irish Catholic woman in New York to marry me. So, I had to explain to her that I think I had just lost more money than I’ve ever made in my life. So, she had this very false impression that I was…
Bill Reichert 06:40
In any case, the great news is she married me anyway, three kids later, whatever. So the good news is that what’s great about Silicon Valley is when you crash and burn, you pick yourself up and then you, you know, you spin the story, and then you go do it again. And so, I found the story and got asked to help another friend who happened to be ex-McKinsey. See if we could turn around this company called the Learning Company. So, the Learning Company was an educational software company that was sort of stumbling along. And the board was trying to figure out, should we pull the plug? Or should we give it another shot? So, my friend and I went in, took a look around, and we thought, whoa, you know, this thing is a diamond in the rough, that wound up spectacular. We went in, made a few changes, and took the company public.
Bill Reichert 07:29
The Learning Company became the leading seller of educational software in the United States. So, I did it again and did it again. And then after my fourth company, I decided to try something different and got a call from a friend of mine and said, “Hey, Bill, how would you like to start a venture capital firm?” It was a guy named Craig Johnson, who is one of the gods of the Valley who unfortunately has passed away.
Craig Johnson put me together with Guy Kawasaki and a few other people. We started Garage Technology Ventures and the big idea behind Garage was to be the first venture capital firm designed for the benefit of entrepreneurs. We thought it was a radical concept, right? Because our experience with VCs had been that they were sort of focused on making money, not necessarily on helping us entrepreneurs. That’s a little bit crass. But we wanted to be the most outgoing outreach, educational, supportive, roll up your sleeves and work with the entrepreneur VCs in Silicon Valley.
That was the original spirit of Garage Technology Ventures. So ever since then, I have been spending a big chunk of my time trying to share with entrepreneurs, what I learned as an entrepreneur, what worked, what didn’t work, what I’ve seen since then, that might help entrepreneurs be more successful. And so that’s how I’d like to spend my time now.
Shawn Flynn 08:49
You’d mentioned you know, “fill up the bank account.” How has those kinds of VC meetings changed in the valley from then till now?
Bill Reichert 08:57
Well, I have to say even back then, it was, that was the extreme exception. Even back then, when I was an entrepreneur, I figure over the five companies that I either started or restarted, I’ve pitched to well over 250 VCs, and was successful, maybe 10% of the time. So maybe, you know, I probably should do the math more carefully. But about 25 of those VCs wound up writing checks and funding my companies. So, it has always been brutal. The big difference in venture capital, I think, is that it has become… There are so, so many more VC funds now. And there’s so much more breath in the entrepreneurial community in terms of the technologies and the sectors that entrepreneurs are pursuing. It’s much more diffused than it used to be.
Bill Reichert 09:47
So back in the old days, you know, it was pretty much IT and biotech, right? That was you were one or the other, and there were variations on that theme. And so most VCs had a lot of experience in whatever you were going to write. If you’re going to do a software company, the VCs they had somebody who knew software, right? Or if you’re going to do hardware. Now, it’s interesting, because it’s really, really hard for VCs to be experts in all of the different areas that entrepreneurs are reinventing. It has created this unfortunate dynamic, I think, which is that most VC funding now is passive follow-on funding, as opposed to in the old days, VC funding was active and focused on helping build companies type of funding.
Bill Reichert 10:33
For entrepreneurs, the challenge is to find that lead investor, where you can find an active VC who understands your domain, who understands the challenges you’re going to need to overcome, who’s going to be your champion in the VC community. Because in order to build syndicates of investors and get follow-on investors, you need a VC who is smart about what you’re doing, committed to what you’re doing, and will actively support your follow-on financing.
When I was an entrepreneur, I learned that I was extremely fortunate I had some great VCs who are on my boards. And what I discovered is as smart as some VCs are, as connected as some VCs are, as well intentioned as some VCs are, overwhelmingly there is one critical responsibility of your VC. And that critical responsibility is the VC has to make sure you get your next round of funding. That’s the key. The single most important value-added VC can give you is to make sure you get your next round of funding. Because as an entrepreneur, you’re the one responsible for understanding the technology, for understanding the market, for understanding the customer, for understanding how to build a company. As an entrepreneur, that’s your responsibility.
Bill Reichert 11:47
But as an entrepreneur, there’s no reasonable expectation that you should be brilliant at fundraising. That’s not a normal sort of business-savvy thing to do. But VCs that’s their whole world. So that should be the expertise the VC brings to the table. So if you’re going to go get an investor, make sure that investor is going to be able to get you your next round of money, because that’s the highest bit that they can offer to an entrepreneur.
Shawn Flynn 12:16
So in the valley, I often hear about do you lead? Or do you follow-on for investments? How do you really know if the person does lead? How important is that question to ask?
Bill Reichert 12:26
So it is very important as an entrepreneur that you figure out who are the ones who are likely to lead versus who are the ones who are going to wait around and follow because you do not want to be wasting your time educating a bunch of VCs who are only going to come in, if you get a lead. You want to find out who’s the likely lead and you want to get that anchor investor to get the ball rolling. So it is very important that you pre-qualify investors before you spend a lot of time pitching to them and trying to schmooze them into investing because if they’re a follow-on type of VC, you are wasting your time.
Shawn Flynn 13:02
And you’d mentioned that right now it doesn’t seem like the VCs are subject matter experts like they might have been in the past. Has there been any misunderstandings in trends and technology that you’ve seen, such as with autonomous vehicles or artificial intelligence that might have been because of this?
Bill Reichert 13:18
The whole experience we’ve had over the last five, six years is a reflection of a whole bunch of money wanting to grab return and flooding into the venture market and chasing deals that seemed to be hot. And so unfortunately, because venture is such a tiny, tiny asset class in the grand scheme of global finance, a little bit more money, in this case, we’re talking about maybe $100 billion, which, you know, seems like a lot of money.
But in terms of most asset classes, like stocks and bonds, and hedge funds and real estate and whatever, $100 billion is tiny, tiny, tiny money. But it’s a huge amount of money for the venture industry to absorb when you think about it. So all this new money coming in and chasing return is basically following trends. And so, they jumped on the thing that’s hot. And so, you know, for the last several years, AI is hot for the last several years, autonomy is hot for the last several years, IoT has been hot, and FinTech has been hot. We’ve seen this explosion in valuations out there with later stage money chasing hot deals.
Bill Reichert 14:25
Meanwhile, the entrepreneurs who are really the ones who are inventing the future, the guy is sort of at the bottom of the food chain, the guys that are starting up companies that are looking to innovate around new areas… They’re not seeing all this money. It’s going to a tiny fraction of the innovation community; it’s going to a tiny fraction of entrepreneurs. And so there’s this huge asymmetry now in the entrepreneur world, where you’ve got literally thousands of entrepreneurs who are starting up companies, but are having enormous difficulty raising their Series A round, because the money that’s coming into the market only wants to invest upon validation. And so, the money that comes in waits to see if a company is deemed to be hot in a sector that is known to be hot, and then it chases that company.
Bill Reichert 15:17
It upsets me that there’s so much money in the venture industry that is chasing so few deals. It’s not that there isn’t plenty of brilliant innovation. It’s that too many of the investors out there simply look for signals as to where they should push their money, a hot deal with a hot investor and maybe a hot team and a hot category, rather than doing the hard work of figuring out what is the possibility for this novel technology in this corner of the market, in this particular white space to become a significant company over some period of time?
Shawn Flynn 15:56
What about the different types of computing? How is that impacted us now and how will it impact us in the future?
Bill Reichert 16:04
So in one of the wonderful things I get to do as a VC is I get to look at emerging technologies that may or may not play out in the near future. But at some point, they’re going to play out. So, I’ve spent my career in computing mainly on the software side but have played somewhat on the hardware side as well. And you know, the dirty little secret about the explosion of information technology, about all of the improvements in your computing and all the capabilities and all the capacity we have… The dirty little secret is, it’s all the hardware guys. The software guys are incredible slackers. The reason software is eating the world is because they’re fat pudgy slackers while all the hardware engineers are doing the real work that improves our computing environment. Think about it. How has software improved over the years? It hasn’t really.
Bill Reichert 17:00
So the biggest innovation in software, arguably, in the last 30 years, has been convolutional neural networks. In other words, you know, they came up with an approach to, which is really math and not exactly coding, right? So, it’s, it’s not even… can’t even give credit to the computer scientists, you got to give credit to the data scientists, and the, you know, artificial, intelligent community. Coming up with this idea of creating these algorithms that process data in such a way that it creates models that you can’t even fathom. So, the big concern as well as amazing aspect of deep learning is that these computer algorithms can create these models that humans cannot even understand, humans cannot even explain them. Magically, they do things so that magic is a revolution in computer science, arguably. And so that’s sort of the biggest innovation in computer science.
Bill Reichert 18:01
So now, AI algorithms, deep learning algorithms can do things that if you had to program it, you would not be able to program it. So that’s pretty cool. Other than that, everything else we get in terms of our computing capability, and our streaming and our wireless, and all of the amazing things about computing, it’s the hardware guys that have done all the heavy lifting.
I happened to have lunch, sitting next to a guy named John Kelly, who at the time was the CTO of IBM. And we were talking about this and Moore’s law and all that sort of thing. He said, “Yeah, you know, we actually tried to do an analysis of this. And what we realized is that 99% of all the productivity improvement in computing in the last 30 years, has come from hardware. 1% has come from software.” So, in any case, that’s my little rant about software, and it happens that my brother’s a hardware engineer, and he just hates software guys because he thinks that they’re lazy. And they like to use high level code and things like that, which is just sloppy. He likes to do machine code down at the bare metal level. And that’s whatever. But so he’s biased me a little bit on this topic.
Bill Reichert 19:13
But back to your question about the future of computing. Obviously, these new AI algorithms are affecting computing. But underneath that the hardware, what we’ve already seen is a revolution in processors. Forever and ever, we had this basic X86 you know, Intel processor model, that there were variations on the theme. And then all of a sudden Nvidia comes up with this concept called a GPU, because if you’re going to do graphics for games, a traditional CPU isn’t very good at that. And then the AI guys said, “Hey, that’s more useful to us than a CPU architecture.”
Then they went down that path and video goes up tenfold or whatever it does, not because of the original plan, but because of AI, right? And then the AI guys all say, “Well, yeah but the GPU is not exactly right either. So, let’s invent this XPU or, you know, tensor processing unit or some other architecture.” So now we’ve seen this explosion of chips in the valley… This is novel, five years ago, people were kind of wringing their hands saying, “Silicon Valley, there’s no silicon and Silicon Valley anymore, because there are a few companies that make chips. And that’s it right?”
Now, we’re seeing all these companies that have started up specifically around accelerating AI deep learning types of processes. A bunch of companies now, there are a lot of funding around it, focusing both at the server level, at the training level, at accelerating the ability to create good models, and then at the edge, creating chips that can accelerate what’s called inference, you know, the interpretation. When you see an image or you hear a sound or you hear speech, you need AI at the edge to be doing that processing. So, there’s an explosion of chip companies now which is great, which is wonderful in the valley.
Bill Reichert 21:00
But in addition to these sorts of new chip companies that are working on AI processing on the doing the math for deep learning, you’re seeing these other structures coming into play. So now, some of these AI accelerator chip companies are starting to use analog signaling on the chip, which there has been analog chips forever.
But analog was never used in a CPU because you had to digitize it, you had to make everything a one or a zero. Now what they’re starting to do is figure out well, for deep learning for some of the math involved in image recognition or sound recognition, you don’t need highly precise floating-point mathematical calculations. What you’re looking for are weights of how important is this factor or that factor and you don’t need precision. You can use analog data, add up analog data in an analog stack, and turns out that can be much, much faster and much cheaper in terms of power than doing with zeros and ones with everything that you’re working on.
Bill Reichert 22:03
So, this whole analog chip thing now has emerged, and people are trying to figure out how can we make processors using analog signals rather than digital signals? And then some people are going beyond that, to this idea of what can we make chips that are really a lot more like the brain. And by that they mean chips that mimic the way synapses fire and where the weight of the strength of a synapse between two neurons is reinforced, or not reinforced based upon the signals and training.
So this is what’s called a neuromorphic chip, designing chips that operate much more like neurons and synapses than transistors, ones and zeros. That’s coming down the pike. A bunch of people have been working on this, mainly research universities. Qualcomm has worked on it and I’m not sure I think they canceled their program Intel seems to be the leader. They have a chip called the LowE chip which mimics the endomorphic architecture using digital processes, but it’s at least mimicking neuromorphics.
Bill Reichert 23:06
And then there are a bunch of other startup companies out there that are trying to figure out, can we more precisely mimic biology in silicon with these artificial synapses? So, some really interesting things are going on there. Then beyond that, you have quantum computing.
So, beyond that, we’ve known that there’s this potential for quantum computing for I think it’s 50 years, we’ve known that there’s this concept of being able to take advantage of quantum level behaviors, to do calculations. And for the first 30 years of that time, it was all theoretical and mathematical. Then, about 20 years ago, people actually started to try to build things. A company out of Vancouver, called DWave, built a type of quantum computer that use sort of one aspect of it, and then IBM and Microsoft and Google and Intel have all jumped into the game to see if they can build a quantum computer. A few other startup companies now have started up on that side; a team called Rigetti, a venture backed company that is building a quantum computer.
And then another team called PsiQuantum out of the UK, now located here, they’re building an optical quantum computer. What they’re using is entangled photons. So, it’s like, wait, I mean, this is going to be god bless these guys. It’s extremely interesting. And then, you know, similar to PsiQuantum, then there’s other teams around that are trying to figure out: can we build photonic processors? So, can we use photons instead of electrons to carry signals and do math on chips? That’s a whole another domain, which probably will happen before quantum. We’ll see. I don’t know. All this stuff is pretty far out in terms of when it’s going to be significant in terms of our computing fabric, but it’s all fascinating stuff.
Bill Reichert 25:08
And the thing about venture capital is, and one of the things I learned along the way is, VCs don’t make money based upon the ultimate success of the company they invest in. They make money based on the trajectory of the company they invested. So what we’ve learned through various cycles is that companies and sectors and technologies do not have linear trajectories.
We have what Gartner has now coined as the Gartner hype curve. And so almost every technology that comes out that’s exciting, goes up this hype curve, and it looks like this is the next big thing. So, everybody jumps in, says, “Hey, this is exciting.” And almost always the technology underperforms. We’ve seen this already, at least twice, depending on how you measure it. But we’ve seen this already in AI, so nobody listening to this, I’m sure is old enough to remember the 80s. But in the 80s, there was an extraordinary hype curve around AI, you know, Japan was going to win the battle for AI in the globe. And you know, Silicon Valley was terrified, “Oh my god, Japan is going to win the AI battle.” Does this sound familiar? So, any case, so we way overinvested in AI. AI did not live up to its promise. Back in the 80s. It did reasonably useful things. Nothing close to what the hype said it was going to do.
Bill Reichert 26:38
So now we’re on another cycle, right? And so we have this extraordinary hype around AI, what AI is going to do and how it’s going to, you know, take over everything. And it is clearly overhyped, but prices keep going up, right? Because we’re still on this hype curve of the promise of AI. Believe me, the promise of AI is huge. It’s enormous, but it ain’t going to happen tomorrow. It’s not going to happen even within the time frames of most venture investors.
You know, most venture investors want it to happen in four to six years. It’s going to take a lot longer, which we’re seeing in the autonomous vehicle realm. So that autonomy and AI, obviously were closely are closely, closely coupled. I think we’re probably past the hype curve on autonomy. I’m not sure in terms of whether we’re going to see prices actually turning south. But everybody rushed into autonomous vehicles, assuming I mean, I was I was at a meeting in 2014, where a bunch of very smart people talking about autonomous vehicles, were assuring us that 2016-2017 we’d start seeing them on the road, and by 2018, they would be commonplace.
This was smart people predicting the future. And at this point, it’s very clear that it’s much, much harder to build an autonomous vehicle than anybody thought it was going to be. So, it’s… everybody’s now pivoting their autonomous activity away from pure autonomy, a driverless car, to advanced driver assistance systems, right? So-called ADAS, where we’ll see these technologies come into our vehicles that will make us safer. That will enable us to not worry, not necessarily have to work as hard to know what’s going on. Could be good, could be bad. But it’ll be a long time before we see lots of cars driving next to us with no driver.
Shawn Flynn 28:34
So out of all the technologies you mentioned, what do you think the next, I don’t want to say the next hype, but the next hot sector will be in maybe 2020, 2021, 2022?
Bill Reichert 28:45
I hate this question. But actually, actually, I love this question, because the answer is very, very clear and very, very simple. The answer is that everything is trending. It’s hard to see a sector of our lives that is not being affected by innovations in technology. As I said before, back in the olden days, there were kind of there was IT which basically meant computing and enterprise, and maybe some PC and home stuff, but there was biotech, which was drugs and stuff like that. And now that has expanded just enormously. So, it’s really hard to think of any sector that isn’t an opportunity for significant entrepreneurial success.
Yeah, when we started Garage, it was, in retrospect, kind of funny we would joke about, we were focused on real technology, and we wanted entrepreneurs, we’re committed to real technology and our, our job was, we’re not interested in shrimp farms or nail salons, right? So that was kind of the joke. It turns out that, you know, in the last several years I’ve seen traveling around the world, I’ve seen a number of IoT technologies focused on shrimp farms. So it turns out if you’re a farmer, you got to pay attention to that temperature, to the salinity, to the acidity, to the oxygen level. You got all of these metrics you got to pay attention to as a shrimp farmer, if you want to improve your yield. It’s a huge business, shrimp farms. Who knew right?
Bill Reichert 30:19
And then three years ago, I was at a pitch competition, and there’s a team pitching and what they figured out was how to use an inkjet printer in CAD design software so that you can print designs on your fingernails. So, they made this box, you stick your fingers in and it prints all sorts of designs on your fingers. Who knew, right? So even nail salons are a potential entrepreneurial opportunity. And I challenge whenever I’m working with entrepreneurs and groups, can you think of a market opportunity now that is too small for creating an interesting venture backed company? It’s really hard to think of something that’s too small.
My other example is a team comes into the office. And it’s a Pet Tech company. We got Ed Tech, we got FinTech. We got Ed Tech, we got Pet Tech, we got whatever. So, the Pet Tech company, okay. A lot of companies have been out there trying to figure out how to make sure you don’t lose your dog and all that good stuff, right? So, these guys come in, and they’ve got an IoT solution that will tell you, if your dog is sad. I almost explode with laughter when I hear this, this setup, right?
And the entrepreneur is like, turns red, and is flushing and saying, “You don’t think people care if their dog is sad.” Now, I got to admit, I’m not a dog person. It’s a little unfair. But there are 75 million households in the United States with dogs. 75 million households with dogs. What percentage of those dog owners do you think don’t care if their dog is sad? Every dog owner cares if their dog is sad, of course, I’m crazy that how could I possibly reject an IoT solution tracking your dog’s moods? But in any case, it was… So, it’s hard to think of anything that isn’t an opportunity. So why worry about the next big thing? Instead, if you’re an entrepreneur, you should be focusing on is there a corner of white space out there somewhere that somebody hasn’t figured out yet?
Bill Reichert 32:31
Okay, I’ll be a little crass here. And I’ll promote one of my own companies. All right, let’s just say a company that discovered that the way lawyers research patents is unbelievably primitive. For the most part, the best way to figure out what’s in a patent is to do a keyword search. And there are lots of databases. Google has a technology, you can do keyword search, and you can find patents and so what these guys thought is, we’ve already determined that keyword searches is a very imperfect way of understanding what’s in the document.
So, they just took that and said, we’re really, really, really smart about patents, Patents structure, the way patents are written, how to write patents, and how patents relate to each other and interact. And we developed an AI that is patent intelligence. And so, they did. They launched a company called Clear Access IP, which has this extraordinary AI patent intelligence that can understand deeply what’s in a patent beyond just the keywords and understand the relationship of patents to all other patents. And they’re sort of a social graph, in terms of how proximal or distant they are from other patents.
The example is many, many patents written on a whole bunch of technologies that nobody would have used the word autonomy or autonomous vehicle anywhere in writing the patent. Sensors, LIDARs, radars, ultrasound, all these technologies people care about for autonomous vehicles. The word autonomy probably never shows up anywhere in the patent, right? So, you can’t type in autonomous vehicle technology and find these patents. So how are you going to find them? So, you’ve got to figure out other ways to find relevant technologies that’s smarter than just keyword search.
You know, that’s a white space. And like anything else people had been working in it, but it’s not taken yet. And it’s a huge business, right? The whole globally, in terms of the number of patents that are filed, the number of lawyers working on patents, the amount of economic value that’s wrapped up in patents, the inefficiency of patent trading, and in a buying and selling and licensing. It’s a primitive part of the world. And they are going to drag it into the 21st century.
Shawn Flynn 34:44
So Garage Ventures, it sounds like you have opportunities to work with companies at all levels. Why continue over all these years to focus on that early startup?
Bill Reichert 34:53
Well, in the current cycle, a really good question in terms of the dynamics of the venture industry. So, what we’ve done, we keep a focus on early and try to find companies that are in sort of novel technologies in white spaces that have the potential to become significant companies. Meanwhile, meanwhile, we bump into this other venture firm called Pegasus Tech Ventures that originally came out of Japan but is now headquartered here in Silicon Valley. That is a $1.5 billion venture fund. And their entire focus is on the later stage.
I’ve affiliated with Pegasus, so that gives me this ability to straddle from startup to IPO. And so it’s been my solution to being able to cover the whole span. But the challenge that I have is I just hate the amount of capital that is being flooded into these unicorn companies with very little promise of return because there is this sort of logo envy that venture guys have around. People used to say, “Well, I’m an Uber, right?” Because they were in the last round of Uber. If they were in the last round of Uber, they’re not so happy anymore. I’m in Groupon. Well, if you were in Groupon, sorry, buddy. But that did not work out too well for you.
I look at the dynamics of the market right now. And I see so many companies that are so overvalued, that I really do not want to be chasing logos, just because they’re hot companies that have gotten overvalued, so that, you know, we can say, well, we’re in this famous brand name company… Because at the end of the day, we get measured on our ability to generate returns over a long, long term, not over a short term we got into this company. I prefer to be earlier. I like working with entrepreneurs and helping grow the company. It’s really hard if you invest in the unicorn to have much influence on the company. That’s fine. That’s a different type of investing. That’s kind of like stock picking, right? It’s not really venture capital from my point of view.
Shawn Flynn 37:09
There was a reference that I remember referring to the lean startup method, and you’d mentioned not to lean to scale up. Could you talk a little bit about that?
Bill Reichert 37:20
What I discovered is that all of the education around entrepreneurship has gone to the lean startup that totally dominates entrepreneurial education. God bless Steve Blank and Eric Reese, brilliant insights, you know, sort of codifying what was the lore of Silicon Valley forever and ever and ever. The lore was when you are starting up a company, your operations, your activities are divergent. You’re exploring, you’re trying to figure out what’s the right market for your technology, and what’s the right technology for your market, right. So, there’s this divergent process.
Then, once you figure that out, you figured out that fit, then it becomes convergent. Meaning you focus, you focus and you grow. And you scale. When I was a lad, I was taught these phases of entrepreneurial growth. And so that’s what we brought to the sort of Garage educational framework is, you know, as an entrepreneur, you need to be paying attention to how things shift, sometimes without your kind of quite noticing it because you’re so busy. But things shift as you grow a company. And what has happened is that the lean theology has so overwhelmed the entrepreneurial community, that we lost all of the other learning, which was the difference between starting up a company and scaling up a company.
Bill Reichert 38:46
Steve Blank has a very good definition for a startup company, which is that a startup company is a temporary organization designed to discover a repeatable business model, right? That’s, you know, sort of his insight is the idea of temporary organization and the sort of experimentation discovery process. So that’s right, that’s good. That’s great. But that doesn’t work for scaling up. So when you want to scale up, you have to not just change your methodology, you’ve got to change your mindset, you got to change your skill set, you’ve got to change the processes within your company.
And that knowledge, you know, that lore of the valley seems to have disappeared in all of this Lean Startup stuff. I like to make sure that entrepreneurs understand lean is great up until the point but when you get to the point where you have done the validation, you have to scale, you literally have to stop the lean mindset and the lean methodology. You’ve got to implement new mindsets, new methodologies, new processes, and new skills.
Shawn Flynn 39:54
So, would that be the CEO’s responsibility or a team leader, and actually is there a change in the leadership or a definition of how leadership should be for startup?
Bill Reichert 40:05
This is one of the biggest challenges for entrepreneurs because entrepreneurs don’t ever really understand what leadership is. Leadership, we talk about all the time. And you know, there are millions of books about leadership and how to be a better leader and how to be a more effective leader. And there are, you know, 52 adjectives that define the perfect leader, right, perfect leader is visionary and guiding, and delegates and has honesty and integrity and community. I mean, there’s all these words that define what a good leader is.
The reality is entrepreneurs operate with a functional execution team. Early days, you got four or five, six people around the table, they’re working 24/7, everybody’s wearing multiple hats. Everybody’s accountable to everyone else. Everybody knows what everybody else is doing. So, it’s this organism that is inherently leading itself, right, because it’s a coherent organism. You don’t have to worry that much about communication or strategy or planning or objectives and accountability and blah, blah, blah, because everybody’s right there doing it and sees everything that’s happening.
Bill Reichert 41:06
You scale up and what happens to most entrepreneurs is they don’t realize that that’s disappeared, they don’t realize that that organic leadership that was operating, has disappeared now that we’ve got 25 or 35 or 45 people because you can’t operate all together as a team of 45 people. And so, there are people who you say, okay, go make sure that Bob does this, go make sure that Mary understands that. And so, you think that’s good enough, that’ll work right? Because you know how to do it. Certainly, somebody can tell Mary how to do it.
But that doesn’t work. Because, you know, Mary switches jobs or Mary hires somebody else. And then how does that knowledge get over to that next person? Well, it does not. So most entrepreneurs miss the point that leadership is not about the CEO who has the vision and explains to the unwashed masses how we shall proceed into the future and which is, what’s our icon of what we’re all sort of raised to think of the leader is this person on high that we follow. That model does not make any sense for scaling an organization.
If you’re going to scale an organization, everybody has to be a leader. Now, that sounds crazy. And entrepreneur’s kind of wince when I say things like that. But most entrepreneurs, when they see things not working quite right, what their reaction is I got to get more control, I got to get more control over this thing. So, I’m going to make everybody report to me, in essence, right? I’m going to make sure that every decision, I’m approving because things aren’t working quite right. The only way for me to solve this is just to get my fingers everywhere in the organization. They just constrict the company like a bow, and everybody hates this experience, right?
And it just doesn’t work. You got to push it out. You’ve got to stop being that sort of organic leadership team. You’ve got the beginning when everybody knows exactly what’s going on. And you’ve got to change the way you operate. And that, you know, most entrepreneurs, they don’t know they got to do it. And if they are told they have to do it, they kind of hate doing it because a significant percentage of entrepreneurs are high achievers that have something of a control orientation. And so making that transition to pushing control out to the edge, hiring people who are leaders in their domain, and giving them the authority to be leaders, it’s very, very different, right? And so, that’s a transition most entrepreneurs do not do very well.
Shawn Flynn 43:43
Is that why so many entrepreneurs or founders of the companies get replaced A round, B round. Is that a big part of it?
Bill Reichert 43:52
Yes, that’s a part of it. That’s not the whole part of it. But a big part of it is that a lot of entrepreneurs just don’t scale with the business. They have an extraordinary competency of some sort. But that competency may not be the right one to remain in a CEO role or a management role on an ongoing basis. That competency may be individual contributor competency, but because of the psychology of startup companies, rarely do either the entrepreneurs or the investors confront that early on.
And so what we try to do is have this conversation with entrepreneurs right up front: what do you see your role being in this company over the next few years? What do you think you’re good at? What role do you want to play in the company going forward? And so you have to have this conversation with entrepreneurs about the possibility that maybe the role you’re in now is not the role you will keep two or three years from now. People rarely have that conversation, because it’s a really uncomfortable conversation. And certainly, it’s really hard for investors to have that conversation before the investment, because the reaction of the entrepreneur is, “Oh, this guy’s going to replace me as soon as he’s in.”
But I will tell you, VCs do not want to replace founders. No VC invests in a company with the intent of replacing the founders. That’s just a stupid investment idea because it’s so disruptive when the founding team doesn’t work out, and you have to reengineer it. We want the entrepreneurs to grow with the company, but sometimes it just doesn’t quite work out.
Bill Reichert 45:34
And so, what doesn’t happen because boards meet only seldom and founding teams rarely want to bring this up to the board. When there is friction in the founding team, generally, entrepreneurs bury it or repress it or somehow try to hide it or try to fix it themselves. They don’t air it out and they don’t have the conversation about, you know, “Bob, you really… CTO founder great. God bless you. But going forward, we need somebody else who is able to do these other things, right?”
Almost always, the first engineer is not the right VP of engineering. Because almost always, the way you build the first product is you hack it together. And you hope it works, right? And that’s great. God, you need those people. Those people are incredibly valuable, but they’re not the VP of engineering for a company that has to build multiple products and make sure they work and then revise them and make them localized. That’s not… that’s a totally different skill set and it’s a different mindset as well. It’s not about hacking something together that works. It’s about building something that is scalable and quality and work and can operate in the commercial marketplace. So, it’s, you know, it’s a different skill set. God bless the person who can make the transition, but it’s pretty rare that they do. So that’s why people turn over as much as they do because it’s so hard to make this transition from being lean to scaling up.
Shawn Flynn 47:06
Speaking of the startup in general, at the very beginning, I know that in the past, there’s been some comments about a difference between innovation and invention. Can you talk a little bit about this?
Bill Reichert 47:18
Yeah. So around the world, public policy gurus, whatever think that sort of the key to driving the economy is to have more invention. Somehow, inventions are what drive economic growth and we’ve been lured into this model because of sort of the history of great inventors that we idolize like Thomas Edison supposedly invented the light bulb, and then he went on to invent power, and he invented all these great things that were fundamental. And so, we think, “Ah, the key is invention.” But what we’ve learned here, particularly in Silicon Valley, is somewhat a subtle nuance and difference between an inventor and an innovator.
The challenge that we have is when an inventor walks into our office, they come in with this thing they’ve invented. So what is their motivation in life, their motivation in life is to prove to the world that this invention is brilliant. That’s their motivation: when that entrepreneur takes their invention to the marketplace, and the marketplace says, “Meh.” I mean, that inventor’s attitude is, “Well, you guys are stupid, because you don’t understand how brilliant this invention is.” So that’s not the right mentality.
What we’re looking for is the entrepreneur who has this sort of technology solution that they think is going to be brilliant when they take it to the market and the market goes, “Huh?” And he says, “Okay, tell me what’s wrong. Tell me what you would like, tell me how to make it better. Let’s figure it out, maybe I’m solving a different problem.” That’s the innovator. The innovator cares about the customer and solving a problem for the customer or exploiting an opportunity in the marketplace. The inventor cares about proving the brilliance of their invention.
Bill Reichert 49:06
Now, that seems nuanced, but you think about the
history of invention over the last 60 years, over the history of Silicon Valley. So the history of Silicon Valley, since HP on, that’s 70 years. So, over the 70 years, what compelling technology has been invented in Silicon Valley? Facebook, Netflix, Google, Oracle, and Apple. Think of all of these big, huge, amazing companies. What did they invent? So they have not invented anything to speak of, right? Just trying to answer my own question.
I can only come up with two companies that have built the success of the company on their own invention. One is Intel, right? So Intel invented the microprocessor. They get credit for inventing the microprocessor. The other is Cisco. Cisco gets credit for inventing the router. Those are the only two companies I can think of that built their success on their own invention.
Bill Reichert 50:08
Now, people come back at me and they say, “Well, what about Google? They invented page ranking.” Come on, really? I mean, that’s an invention. What Larry Page did? God bless him. Very, very clever. What Larry said, “Why are we ranking websites based upon the number of people that go to them? That doesn’t make sense. We do not rank academic papers, based on the number of people that read them. We rank academic papers based on the number of people who cite that. So why don’t we rank web pages based on citation, not on visitors?”
Okay, that’s a brilliant insight. That’s the insight of an innovator. An innovator looks at the world and says, “How can I take what I’ve learned from the world and apply it to a new solution that can add value to my marketplace.” God bless, right? That’s what we’re looking for, is innovators who are open to all of the opportunities in the world, all of the innovations, the inventions, the technologies, the people, the markets, and they’re pulling them together to find a solution that can offer some unique, compelling value. And so that’s what I mean by the difference between an inventor and an innovator.
Shawn Flynn 51:26
So when you’re sitting down with one of these companies, when they come in the door at Garage Venture, what due diligence are you doing?
Bill Reichert 51:34
It is a very messy, highly subjective iterative cycle that has many factors at play. But having said that, we have a scorecard that we use to try to sort of systematize the process, and the scorecard has the acronym WTF. So, to clarify, so the W actually, the W is to “Us.” UU, double U, right?
So, the first U is “unique, compelling value proposition.” So, the number one reason why an investor should ever invest in any company whatsoever is it’s got to have a compelling value proposition. Long ago, again, growing up in the valley, every VC panel I listened to the VC said we invest in teams, that’s the secret is, is you invest in a team. We would hear all these VCs say, “I’d rather invest in an A team with a B idea, than a B team with an A idea.” And I’m sitting there thinking, “Well, why wouldn’t you invest in A team with an A idea, right? Why is that a choice? There’s so many entrepreneurs out there.” So, it’s team is obviously important. It’s in the teeth part there. But the number one most important thing is there’s got to be a compelling value proposition that’s going to drive customer value and customer passion. You want your customers to fall in love with the solution. So that’s got to be at the core there somewhere. That’s the first U.
Bill Reichert 53:03
The second U is what is sometimes referred to as “unfair advantage.” It may be a brilliant idea to have the solution that has compelling value. But if the organization doesn’t have some unfair advantage, that’s going to give them some degree of a barrier to entry or some mode or some, you know, defensibility in the marketplace, it’s something that is inevitably going to happen anyway… I’m not going to try to fund the company to win that game. So, I want to see some unfair advantage. So that’s the double U.
Bill Reichert 53:33
The T is actually three Ts. It’s “team, technology, and traction.” So, the first T is team, right? So, we spent a lot of time with the team. So, here’s the dirty little secret. VCs never tell entrepreneurs that when they spend time with the entrepreneur, and you know, listening to the pitch and asking questions, about half of that time, is focused on acquiring information. The other half of the time is focused on trying to get a sense of the entrepreneur and the team dynamics. So, it kind of happens.
I mean, it happens surprisingly often, that entrepreneurs don’t realize that their behavior in front of investors is a significant factor in the investment decision. So we have so little time to be able to evaluate the team, every minute of interaction processing on what’s going on here. What type of person is the person who’s speaking? And what’s that person’s relationship to the other people, hopefully, who are in the room, or at least who are on the team?
Just the other day, we’re in a meeting with a team, two founders, and one founder kept interrupting the other founder trying to, you know, sort of clarify what he meant. Kind of surprising that they didn’t appreciate that dynamic suggests an unstable team. We look for a whole bunch of characteristics in the team. We like to joke that passion can be fake. Everybody says, “Oh we look for passionate entrepreneurs.” And you know, what cannot be faked is persistence and resilience when things get tough, that’s when you see the sort of true mettle of an entrepreneur when you’re pushing them. And again, the way we test them is we drill into some of their assertions, and if the reaction is defensive, if the reaction is to get upset, that’s concerning.
We talk about coachability, which I hate in the sense that it implies a sort of subordination kind of role or a condescension toward entrepreneurs. Are they coachable implies that their raw material you should shape but I try to tell entrepreneurs, “Look, the best Olympic athletes have a coach. The best at anything in the world, the best have coaches. The reason they’re the best is likely because they listen to their coaches.
The reason they switch coaches is because they’re looking for a coach who can make them even better.” So coaching is a perfectly legitimate concept in improving human performance. And so I hate it when it sounds condescending. But it’s an important dynamic, because no entrepreneur can know everything. No entrepreneur can have all the right answers now. They’ve got to be willing to listen to others, both others on their team, others on their board, others in the marketplace, others who are partners. You want to see that they have that listening ability. So that’s team.
Bill Reichert 56:27
Technology is disproportionately focused on technology-based business models, just by definition, we would not have invested in Uber, because Uber is not a technology company. It’s a business model. It’s a bad thing for me to say publicly because LPs listening would say, “Oh, this guy, you know what, he doesn’t understand how value is created.”
When you’re a seed early-stage company, if you don’t have a billion dollars, then playing in a game that is a winner take all… The secret to winning is having a massive amount of preemptive capital. That’s not a game we can play. We just can’t play that game. But we can play the technology game where our technology companies and this has happened, become unicorns.
We were the first investors in Pandora. Pandora feels like it’s just a music streaming service, but the core underneath Pandora is what Tim Westergren called the Music Genome Project. He developed this unique technology for analyzing the components of music, and very similar to the way that your access IP has a social graph of patents. Pandora, I can tell you the social graph of music and how this song relates to this song, in terms of some hundreds of components of music theory that relate music to one another. That was the core, the core IP of Pandora.
And the big idea was, if I could take this popular song that everybody loves and listens to, and then discover a song that nobody else knows about, then I can expand the access of new artists to the listening public. So, it goes public at $3.6 billion, around that little technology. It was an 11-year, overnight success. It went through three near death experiences. And Tim Westergren is my icon for the ultimate, persistent, resilient entrepreneur. Very few entrepreneurs could have been as persistent and resilient as he was in getting Pandora from where it was in a dorm or an apartment or somewhere at Stanford, to a public offering. But that was because he had this core technology that differentiated him from any other music discovery service. So, technology.
Bill Reichert 59:01
And then the third is traction, you just want to see even at the early stage, companies have momentum. The momentum of some for: they’ve talked to customers, they found partners, they’ve got advisors, they’ve got proof of concept, or beta or whatever. You want to see that they’re on this momentum track that hopefully will continue. And so that’s what we mean by traction. That’s the three Ts.
Bill Reichert 59:24
The F in WTF. The F is financials. We got to pencil out that we can see that our first check can generate a 20x return. We want to do the math in terms of looking at what their projections are, and then giving them a haircut, but sort of adjusting them for reality’s sake, and then convincing ourselves that yeah, that check, couldn’t generate at 20x and then we reserve a little bit for follow-on, but we’re not going to be able to play in the Series B, C, D in the current market. So that’s our scorecard. double U, two Us. T, three Ts, team, technology, traction. And F is financials and economic.
Shawn Flynn 60:06
So right now with Startup World Cup Global Pitch Competition, you’re seeing entrepreneurs from around the world. What’s surprising you right now from these companies that you’re coming across?
Bill Reichert 60:18
So one of the great things about the world today is this blossoming of the entrepreneur innovation ecosystem all over the planet, in corners of the planet you would never have imagined. I just came back from Vietnam a few weeks ago and I didn’t know what to expect. And Vietnam is still a developing country. Its GDP per capita is still only half of the GDP per capita of Indonesia, right?
Indonesia is still around half of India and India is around half of China, whatever. So, it’s still pretty far down the stack, in terms of its economic development. But they have these pockets of technology-savvy in Vietnam that are extraordinarily impressive. So, they’ve got great programmers because they are unbelievably scrappy and energetic. And they know how to tap the world. The world is not flat at all, but the world is open. Anybody in Vietnam can know pretty much what’s going on here in Silicon Valley in terms of emerging technologies and new variations on languages, programming, and new chips that are coming out and new hardware systems, and new IoT sensors. I mean, you can discover that from anywhere in the planet. And they do.
So you see this extraordinary range of innovation that’s going on, based upon global technologies and local needs. And so that’s the interesting thing that you see around the world. A lot of people talk about, how oh, you know, in other countries, all they’re doing is copying what we do here in Silicon Valley.” And that’s really it is, I mean, Facebook, is a copycat, right? I mean, so what… Google is a copycat, arguably. What’s with this copycat derogation?
Bill Reichert 62:08
You see these entrepreneurs who were saying, “That might work here, if we apply it in this way.” It turns out the winner of last year’s Startup World Cup in Vietnam is a company called Abivin. Abivin is two guys, Cambridge and Google, both enemies, who got together with a couple of other founders and said, the logistics analytics in Southeast Asia are terrible. Why don’t we modernize logistics in Southeast Asia?
And so they started this company Abivin and they won the Startup Cup in Vietnam. They come to San Francisco for the grand finale, competing against companies from all over the world, including Silicon Valley. Abivin winds up winning the grand finale $1 million grand prize. So it’s just an unbelievable story. And it’s partly because of this mindset and approach of being just incredibly scrappy, and incredibly focused in terms of really, really understanding their stuff. Anybody anywhere on the planet can have those characteristics. But the interesting story on Vietnam winning the Startup World Cup grand finale, so we went out with down to the top 10. The top 10 then have to pitch in front of a group of judges from a bunch of VCs on stage. And it’s clear as it’s going along, that the woman who was pitching for Abivin, you know, very nice pitch, good pitch. She knows her stuff, good slides and all that stuff. And the judges are grilling her, but just this company in Vietnam, how could this possibly be you know, whatever.
And one of the judges says, “Well, why can’t any logistics company just come to Southeast Asia and solve the problem?” And Cassie, the entrepreneurs’ name, doesn’t flinch, doesn’t miss a beat. She says, “Well, those companies don’t understand logistics in our country. We understand that there are some streets the truck can’t go down, you got to use a motorbike. There are some places that are not going to be on the map. We understand our country and an outsider is not going to be able to figure this out.” The judge kind of assumed that they were just going to get her.
The huge lesson for entrepreneurs is yeah, you got to have a good pitch. You got to have good slides, but investors make their decisions in the Q and A, not during the pitch. And very few entrepreneurs are coached to appreciate that fact. Entrepreneur spend time on the pitch, on the slides, and on the language of the pitch. And they spend hardly any time preparing for Q and A. And so one of my number one lessons for entrepreneurs is you got to prepare for Q and A, because that’s what’s going to determine whether or not the investor follows up.
Shawn Flynn 65:12
I want to ask if you have more advice for how entrepreneurs should pitch but it almost sounds like that summary captured it right there.
Bill Reichert 65:21
I have a lot of advice about pitching. And my other shameless plug is that I’m co-authoring a book on the art of the pitch. So, you know, stay tuned. So, there’s a lot to come. But my single biggest sort of advice to entrepreneurs about the pitch is to appreciate that a pitch is not a presentation. Now, what does that mean? Most, every entrepreneur is being coached by a pitch coach, who is usually a presentation coach.
The difference between a pitch and a presentation is a presentation is like a TED talk, right? You’ve got a specific amount of time, when you are guaranteed that the audience will be there. And you’ve got from the first minute to the 15th minute or whatever it is, when you can deliver your prepared remarks and your beautiful slides. That’s not the way a pitch works.
So usually what your situation is, is you bump into somebody who wants to hear more, what are you going to do, right? You cannot deliver a presentation. You’ve got to size up, whoever it is you’re talking to right then and figure out how am I going to get them? And the way you get them is in the first 20 seconds. You’ve got to figure out a way to get them to say, “Wow, that’s really interesting. Please tell me more.”
Bill Reichert 66:50
So that’s it, you got 20 seconds, because if you don’t get them hooked in 20 seconds, they’re either going to walk away to the shrimp bar or whatever. Or they’re going to start looking at their phone. You don’t have the luxury of framing your pitch. The way a presentation coach will tell you to frame a presentation. You can’t tell a story, you can’t say, you know, before I tell you about the company, let me tell you about the origin of this company.
When I was kid, my grandfather had a farm, and on the farm hit a pond and I used to love to go down to the pond in the afternoons and then look across and you know…. At this point, the investor’s brain is exploding. I do not want to hear this story. Every single pitch coach on the planet does tell a story and entrepreneurs… There’s a role for stories. I love you know, there’s a really important valuable role for entrepreneurs to have the story of their company, but almost never can you lead with the story. And rarely can you use it during the pitch. Maybe at the follow-on, maybe when you’re having dinner, you’re having a beer, whatever, you can tell the story.
You got to have that story but we can’t lead with the story, unless it’s a one sentence story, which is possible. But in any case, so that’s my biggest advice to entrepreneurs is to understand that there’s a difference between a presentation and a pitch. And the key to the pitch is to understand the pieces of your value proposition that you’re going to deliver in sequence to grab the attention of the person and get the permission to keep on talking and engaging.
Shawn Flynn 68:31
So is there any portfolio in your company you want to tell us a story about?
Bill Reichert 68:35
Probably my favorite story is the story of this company that actually, one of the entrepreneurs had pitched me before, happened to be an MBA student at Stanford. He pitched me before and I kind of said, “you know, Ned, I love the spirit. I love the idea of it. I just don’t think this is venture fundable.” And so yeah, generally entrepreneurs when they’re turned down by a VC, most entrepreneurs hate that VC for the rest of their life, right? I don’t know, I don’t know. So, arguably, then there must be a lot of people that hate me. But in any case, Ned, God bless him, came back after six, seven months later, and said, “Bill, I got a new idea.”
So, I brought four Stanford graduate students to our office: two MBAs and two engineers. And they tell us about this new technology they’ve built, which is a solar rechargeable lantern that is cheaper than kerosene, for the 2 billion people on the planet that depend upon kerosene for their lighting, Okay, interesting. Okay. But it sounds like one of those social philanthropic, do-good kind of social you know, so we listen to the pitch, extraordinary story. And we say, “Is this like a social impact deal you guys are doing?” And they came over the table at us. And they said, “You don’t get it. If we’re going to change the lives of 2 billion people, we’ve got to build a scalable, profitable, global multinational company that reaches all of these people all over the planet.” And we go, “Whoa, we love these guys.”
It was so impressive. We were the first venture investors in The Light Design. They were one of the very few companies we ever invested in that hit their first plan. They were going to deliver their first lanterns on $1.4 million. They had to go find manufacturing in China, one of my partners went over with them to China to go interview manufacturers, you know, set up manufacturing to a product and they did it. They said it would take us, I can’t remember how many months but $1.4 million, and they delivered their first shipment of lanterns on budget. It was unbelievable.
So that’s so rare that happens. And then they are now the leading solar rechargeable lighting system company on the planet. Unbelievable story. So, God bless them. They’ve changed. They used to be called The Light Design. Now they’re called The Light. They were originally doing lanterns. Now they’re doing whole house lighting systems in the developing world. It used to be that you had to, you know, figure out how to pay for them. Now they’re doing pay as you go. You could actually pay for your lighting the way you pay for your electricity, right every month, depending on how much you consume. And that’s what they’ve been able to develop over the years. So it’s just, it’s just a great story.
Shawn Flynn 71:47
Bill, thank you for taking the time today to be on Silicon Valley. And I also want to thank Wendy, who created a WeChat group that allowed us to interact.
Shawn Flynn 71:56
Bill, if anyone wants to find out more information about you and Garage Ventures, what’s the best way to go about doing it?
Bill Reichert 72:02
Well, my email address is actually on our website at garage.com. My email address is pretty simple. It’s reichert@garage.com And just as another shameless plug, there’s lots of information on the Garage website for entrepreneurs, who want to understand kind of the mindset of VCs, what we look for in companies, what we want to see in a pitch, what we want to see in terms of the way you size your market, that sort of thing. So, a lot of resources on the website at garage.com. And then I also want to just acknowledge one of the great people of Silicon Valley, a guy named Craig Johnson, who was the one who brought us together and actually was the godfather for Garage. Craig was an extraordinary individual, one of the early employees at Wilson Sonsini launched a venture law group, and has made a difference in thousands, if not tens of thousands of lives because of what he brought to Silicon Valley.
Shawn Flynn 72:57
Great. We’ll have a link to that in the show notes. If you want, visit The Investor’s Podcast, click on Silicon Valley, the information will be there. And also, if you enjoyed this episode, please write a review on iTunes or whatever podcast platform you’re listening to it. Also, share it with your network. Bill, once again, thank you for your time today.
Bill Reichert 73:14
Thank you, Shawn.
Outro 26:01
Thank you for listening to The Silicon Valley Podcast. To access our resources, visit us at TheSiliconValleyPodcast.com and follow our host on Twitter, Facebook, and LinkedIn @ShawnFlynnSV. This show is for entertainment purposes only and is licensed by The Investors Podcast Network. Before making any decisions, consult a professional.
