SC Moatti is a technology visionary and investor. She is the founding partner of Mighty Capital, a Silicon Valley venture capital firm, and Products That Count, one of the largest and certainly the most influential network of product managers in the world.
Previously, she built products that billions of people use at Facebook, Nokia and Electronic Arts. She also serves on boards of both public and private companies, including mobile technology giant Opera Software (OPERA:Oslo).
An award-winning bestselling author, Moatti frequently gives keynotes on business and technology, and has been featured in The Wall Street Journal, the Harvard Business Review, and on NPR. She lectures at Stanford Graduate School of Business, where she earned her MBA and has a Master of Science in electrical engineering.
Andrew Chen, General Partner at Andreessen Horowitz, called SC “a genius at making mobile products people love.”
In this episode, you’ll learn:
- Other than money what value can Venture Capitalist bring to the deal?
- What is considered a good product?
- What are common areas of negotiations between entrepreneurs and Venture Capitalist?
- How is it different for a Venture Capitalist to work with an early stage company verse a later or pre-IPO stage company?
- What are some exciting changes in Tech to look for in the future?
We would also like to thank CJ Terral who made the introduction that allowed the interview to happen.
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Learn more about SC Moatti
- Personal Website com
- Mighty Capital Website
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Pre-Intro 00:00
You’re listening to the Silicon Valley podcast.
On today’s show, we have SC Moatti, who is a technology visionary and investor. She’s a founding partner of Mighty Capital, a Silicon Valley venture capital firm, and products that count one of the largest and certainly the most influential network of product managers in the world. She’s award-winning best-selling author, as frequently featured in Wall Street Journal, the Harvard Business Review and NPR. On today show we talk about other than money, what value can venture capitalists bring to the deal? What is considered a good product? What are common areas of negotiation between entrepreneurs and venture capitalists? How is it different for a venture capitalist to work with an early stage company versus later or pre-IPO stage company and some exciting changes in tech to look forward to in the future? This is much more today’s episode.
Intro 00:58
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 01:14
SC, thank you for taking the time today to be on Silicon Valley.
SC Moatti 01:18
Thank you so much for having me. This is going to be fun.
Shawn Flynn 01:21
Now, SC, you have an amazing background, and I mean, I just found out that you’re a pretty popular singer in a band here, but you’re also a VC in the Valley. Could you tell me a little bit about your background that has led you up to this point?
SC Moatti 01:35
Yeah, for sure. I grew up in Paris. That’s where I was born and raised and then moved here close to 20 years ago. I’m an engineer. I got an MBA at Stanford and then spent a dozen years building products and companies. I worked for companies like Nokia, Facebook, electronic cards and then companies on my own. And after I sold my last company, spent a couple years at Facebook, left Facebook because I was invited to write a book on what makes a great product. And that’s sort of what started the current chapter of my life, because as I was writing this book, I realized that every product leader, every peer of mine at the time had an interesting perspective to share on what makes a great product. And so, I started with today’s one of the largest networks of product managers in the world called Products That Count. We reach close to 300,000 product managers. And these product managers, they’re all innovators. So, as they were, you know, joining, participating, and getting involved in that network, they were sending us really cool startups. We were doing angel investing, but it became such a big opportunity that we spun out a venture capital firm a few years ago, Mighty Capital. And that’s how I got to where I am today, which is round this, you see firm.
Shawn Flynn 02:55
So, when a company comes to you, what’s kind of all the steps that take place from that first meeting to when they might get a check? What are all those middle things that happen?
SC Moatti 03:05
Yeah. That’s a great question. And, you know, we’re very traditional investors, so we’re not going to be writing a check on the first meeting. We’re super picky. We’ve only invested in the very best companies we have four IPO candidates in our portfolio. We have Airbnb, digital ocean, amplitude. But when we come into a company, then we put everything we have behind it, including the network. And so, to get a check, it’s not an easy thing. I’m not going to lie to you and our companies when they’re in there. They love it. But the process is a process. So, we see about 4000 decks a year. We meet in person with 400 companies. Then we do due diligence on maybe 40 and we invest in less than 10. But when we decide to invest, like I said, where we come in and the kind of value we bring is really, you know, I like to say, having been a founder myself. We redefine what it means to be founder friendly because we help our CEOs sell. Some of them have generated millions of dollars in revenue from having access to our product manager audience. We help them hire some of them have been able to attract talent. That’s like one in five in the world. Right. So sophisticated. This is really valuable. And thirdly, we help them fundraise and get their company acquired because the chief product officer or a V.P. of product, most of whom are part of our network very often they buy companies. Right. They look at their product portfolio. They look at where the gaps are built versus buy. And then they make it an imminent decision. And so, we really help our companies on an operational level by accelerating sales, hiring, and fundraising.
Shawn Flynn 04:51
So, in this whole process, what are some of the questions that the startup should be asking or come up in conversation during this extensive, extensive due diligence?
SC Moatti 05:02
I recommend that you ask these questions to every single investor, because the last thing you want is what I call dumb money. You want smart money and smart money is sophisticated. And so, it’s going to come after it gets to know you and it understands how great of a company you are. So, questions that you want to ask your investors, what value are you going to be delivering besides the check size? You’re going to give me money. That’s great. But what else are you going to bring me? Because right now, most entrepreneurs who have great companies know that it’s easy to get money. It’s hard to get smart money, but it’s easy to get any kind of money. There’s a lot of money out there, so smart money, they will come with value. An example is our value, right? The value of this ecosystem of product managers, which helps sale, helps hire, helps fundraise. Another example of value is something that we look at as well, which is, for example, governance like are you going to bring a great partner as somebody who has been on the board of amazing companies, who has connections at this very senior level, that’s going to help take your company to a completely different dimension. So, governance is a huge value that investors can bring. And then there are more examples of value, for example. If you’re a blockchain company, well, I would say, like you want to look for an investor that’s going to bring you way more than just the money that’s going to bring you value from the ecosystem of the product chain.
Shawn Flynn 06:32
So, then how can a startup put a valuation on all these extra services when they’re sitting down and deciding on which VC to take capital from?
SC Moatti 06:44
So, what I would say is you want to think about like, what do I need to get to the next level? And I’m going to oversimplify, but you’ll get my point. If you’re very, very early stage, you don’t really have a product yet. You don’t really have customers. You want people who are going to help you understand who to sell your product to, understand what product to build. Basically, they’re going to help you find product market fit. So you want to bring investors who either have a lot of experience at that super early stage who help bring products to market, or you want to have investors who have a network of people who can help you do that. Once you launch your product and you have some successes, you’re in a different category of companies. You’re in the category of companies that are scaling. And so, the kind of investor you want to bring at that point are investors who are going to be helping you accelerate your growth. So you want to bring people who will bring you a network of customers, people who will bring you a network of potential hires, people who will bring you checks that will help you grow faster and grow bigger. And then at the sort of a later stage, the kinds of investors you want are investors who are going to help you generate a huge exit so that, you know, you make it big. I mean, I know we do things we do for much more than money. We do it for changing the world, for building our own self-confidence, being recognized. But at the end of the day, successes are success. Right. So, you are going to at that stage want to bring investors who are going to help you generate that amazing exit. So either they have a ton of experience taking companies public or they have a lot of connections with potential acquirers at large companies that will justify, you know, pay big money for all the hard work you’ve put in building your company. So, you see how you know, it’s very simplified, as I say, and every situation is different. But at different stages of a company, you bring different types of investors. And then in different industries, you bring different types of investors. So, it’s really sorts of this matchmaking game to find the right investors, the right smart money for you. And it’s difficult to do because there isn’t a very transparent marketplace to find these investors. Some people are attempting to build that market angel list and so on and so forth. But to be honest that there isn’t a very transparent marketplace for early stage investing.
Shawn Flynn 09:13
To say there’s a perfect match. You’re the startup. The VC likes your company. You like the VC. You could tell that they’re going to bring a lot of value. What are some of the talks or terms or that term sheet, that contract that’s negotiated back and forth? What are some of the areas that seem to come up the most?
SC Moatti 09:33
Yeah, this is a really important question. And again, I’m going to use a super simplified example. So, my husband loves to race motorcycles. He races to caddy motorcycles. And so, when he goes into a dealership, he looks at all these new bikes and there’s like this little sticker on the windshield. Right. That’s the price of the bike. And then he sits down with the salesperson and he comes out of it with the bike. And the price of the bike is way, way lower than the price he actually is paying. Right. Because he’s buying maintenance. Maybe he’s financing the bike. He’s buying some regular tire changes, some insurance, whatever. Right. So, there’s a total cost of ownership of the bike that everybody knows is much, much higher than the list price of the bike. Well, it’s exactly the same thing with terms. So, a lot of entrepreneurs will get very hung up on their valuation, which is the list price, and they will ignore the terms which makes the total cost of ownership. And my recommendation is, don’t do that. Don’t get fixated on valuation. What really matters is the total cost of ownership. As the first thing like terms matter. And then the second thing is you’re entering a relationship that’s going to be most likely your longest, most exhilarating or most difficult relationship, depending on how you look at it. So, it’s not a transaction. It’s a long-term relationship. It’s like 10 years. So, when you come into this relationship, I’m at it with the idea that you want something fair. Your investors also most likely, if they’re sophisticated, they want something fair because they know that if they catch you at the first round, you’ll catch them at the second and vice versa. And it will not lead to a good long-term relationship. So, come out of it with a very collaborative approach of what is fair. And you’ll find that you’re building a very long relationship and it is important because a downturn is coming. And in a downturn, you don’t want to find yourself in a situation where, well, you need a little bit of extra money. You need extra support from your existing investors. And the relationship is so soured that they are not going to back you up. So, come at the table with a very open attitude of we want something fair for everybody.
Shawn Flynn 11:54
SC, when you’re looking at a company, what do you like to see in a company or for to be maybe part of your portfolio one day?
SC Moatti 12:02
Yeah, it’s actually pretty simple. We’re looking for a company that has already found product market fit. So, they are in that second stage of growth that I was describing earlier. And they have a very, very strong leadership team for us. The team is super important and a clear go to market strategy. Now, that’s at the high level. So, if you’re an entrepreneur, you run a company. You already have, say, like six, 10 customers. They are happy and you’re looking to go from good to great. You want to accelerate your growth. We’re a perfect fit for you. And we’ll add a lot of value through those 300000 product managers, whether it’s for the purpose of selling or hiring or some other things. Now, at a more detailed level. Right. When we go into our diligence, this is how we go about it. We look at what I call the entrepreneur dream story, and it goes like this. We are a unique team. Like, tell us what makes your team unique. Solving a big and hard problem, big and hard as in show us the numbers, but also make us feel the problem emotionally. Like, why is it so painful? Solving a big and hard problem with a sustainably differentiated solution. What do I mean by sustainably differentiated? Well, when you start to get traction with your product, your big competitors and your small competitors are both going to copy exactly what you’re doing. How do you still win in a situation like this? And we monetize our solution fairly. Like, again, this idea of fairness. If you are fair to your customers, you will keep them. If not, like you will have trouble and churn. So, we monetize it fairly. And as a result of that, we have very promising financials. But to get there, we need money. And that’s, you know, your asked to us. When we plan to return that money and much more in a reasonable timeframe so that entrepreneur’s story, it’s a very simple story. As very again, simplified, but you get the idea right. It answers some of the key questions that we as investors are looking for in in any company. Now, if you’re able to articulate that story to us, then we’re becoming really, really interested in the opportunity and we’ll do a due diligence. Our due diligence process is meant to understand whether we can have a long-term relationship with you. We’ll have multiple touch points. We’ll ask you some questions about your product and traction, your team, your financials, the fit with us, how you see us working together. And then we’ll talk to your other investors, to some customers. Some of our employees will do a side visit. And this really is meant for us to understand, like, can we work with that team? And then once we have conviction that this is a great business, a great team at large, not just the CEO, but also, like I said, investors, customers, employees, then will be very interested to come to the table and negotiated a great deal for us and for you.
Shawn Flynn 14:59
You talked a couple of times about product market fit. Can you talk a little bit about go to market strategies for companies that have identified a good product market fit?
SC Moatti 15:12
Yeah. So, this is a really interesting, great question, because I say product market fit and then I have a whole talk on product market fit is a myth. And what I mean by that is this. When you’re in the early stages of building a company, you get, you know, six, seven, 10 customers and you’re like, yes, I found product market fit. I have a group of people who are willing to pay money for the service that I offer. And immediately, when you reach that magical, you know, state of product market fit, what will happen is your next customer will have a requirement that will make your first customer and happy. Right. So, you’re going to lose product market fit the minute you reach it, you’re going to have to regain it. And you get into that mindset of there is no such thing as product market fit. I’ve never had this magical state of product market fit. In fact, this like I said, there’s 50 shades of product market fit. And it’s true because you never are done building your product. In fact, your product and your go to market are always going hand in hand. And it says more and more true for because of the phenomenon, the process that I describe, but also because so much of what we build now is like think mobile products is like embedded in the product. And the go to market is the same thing when you are building a new service. You have a mobile app to whatever manage inventory while your go to market is probably to get people to convert from their phone because that’s what they use all the time and sign up for your product. And so, the product is the channel in so many ways.
Shawn Flynn 16:49
So, your portfolio has companies from early stage to IPO. How is it working with each of these companies, considering how many different stages there at?
SC Moatti 17:00
Yeah, that’s one of the most difficult and the most satisfying part of being a venture capitalist. Constant context switching. So, I’ll be talking about, you know, an exit strategy and hiring an investment banker for an M&A. And then I’ll be talking about getting their first customers or hiring your first salesperson. All of that within the span of 10 minutes. It’s awesome. But it’s also I will tell you, as a serial entrepreneur, it’s actually one of the hardest jobs I’ve ever had. And there’s this miss that. Oh, venture capitalists. They sit on the beach and they have a great lifestyle. Like, for example, when I tell an entrepreneur, hey, you know, I can’t meet this week because I’m traveling, but we can meet next week. They’re like, oh, enjoy your vacation. Like, dude, I’m working six days a week. Like, this is a really tough job. And, you know, I’m also an entrepreneur because I started and founded Mighty Capital. So, in a way, I’m an entrepreneur who invest in another entrepreneur that that context switching is really amazing.
Shawn Flynn 18:01
What about one of these companies in your portfolio that are about to go IPO? What’s that like for the VC firm itself? What’s kind of the preparation or the process? How does that feel?
SC Moatti 18:12
Well, I’ll tell you, like the companies at later stage are easier because by then they have a team that can drive a lot of the execution. And so, in the case of our upcoming IPO, our BMB, frankly, we don’t have a very big role in the preparation to the IPO.
Shawn Flynn 18:33
So, most funds have a term life to your fund. A lot of the companies are about to go IPO. What happens in a situation where maybe there is not that exit, but yet the length that time of the fund, it’s coming close to the end?
SC Moatti 18:48
Yeah, these are really difficult situations. And they’re unfortunate because if a company has survived for this long, then there is something to it. I always tell entrepreneurs like there are so many ups and downs, like if you’re alive yet another day, this is something to celebrate. So, if you’ve been a company that’s been alive for the length of a fund that’s like seven, 10 years and you’re still working it. First of all, congratulations to you, because that takes so much grit. And then if you’re in a position where you’re not very close to an exit, you’re correct. Investors may start to put pressure on you. So, there are different things that can be done because nobody likes to pressure a company for an exit before it’s really time because it will dramatically impact their returns. So, there are ways that venture firm can extend the length of the fund by one year, two years, three years. These are, you know, subject to approval by their own investors and such. That’s one way. And then, you know, other things they can maybe, you know, venture capitals, firms raise multiple funds. So, one fund may be rolling to another, although that’s again, you know, a kind of a complicated situation anyway. So, the decision is rarely going to be we’re just going to cut ties with the company or write off the investment. It’s often a case by case. But there are different ways that venture capitalists can continue to support the companies. It’s hard to do and it’s unpleasant, which is why we don’t really like to do it.
Shawn Flynn 20:20
What about kind of the opposite situation where companies in hypergrowth. But yet the fun time is about to end. But the LPs and everyone wants to stay in for that extra two, three, four years.
SC Moatti 20:34
Yeah, so there are different ways to approach that. Like I said, you know, you can extend the length of the life of the fun in situations like that. Every you will say, of course, extend it right. As opposed to the more difficult situation where it’s like, well, you know, should we extend it? And so, when there’s an IPO on the docket, of course, everybody wants to extend. Now, if the company takes even longer than extensions that are possible. Or maybe it needs to raise additional capital and the fund has run out of capital generally, like there will be mechanism where the fund will offer to their own investors opportunities to continue investing in the company as part of their allocation. You know, these end of life issues, they’re difficult, mainly when you don’t have a clear winner. But when you have a clear winner, everybody is still on the same side of the table saying, let’s just keep going.
Shawn Flynn 21:23
Right now, venture community was kind of the thoughts of all these companies postpone their IPO to they get these bigger, bigger valuations. Twenty years ago, Amazon would go public them just top my head, three, 400-million-dollar valuation, whereas now it’s 10 billion they’re waiting for.
SC Moatti 21:42
Yeah. So, you know, this whole mega-fund and unicorn trend of the last few years, I actually will tell you I love it because it’s my opportunity. You know, their size is my opportunity. What I’m observing is venture capital is going through a very typical innovator dilemma, which is, you know, I need to keep getting bigger if I want to survive. Knowing that getting bigger is going to kill your returns and therefore is actually going to kill your firm. And it’s very similar to, you know, 10 years ago when the iPhone launched. I was working for Nokia at the time. And Nokia was all about like, we need to have better resolution camera if we want to win this market. And Apple came in and said, F that people don’t want better resolution camera. They want an app store and music and Internet, and they completely changed the game. Well, in venture capital, the same thing is happening where all the big firms are like, oh, I need to get bigger if I want to continue to be better. And we’re say no, we need to be different. You need to offer value. That’s way beyond your tech size, because at the end of the day, when everybody has money, money is no longer a differentiator. And therefore, how do you continue to offer value to your portfolio company? One of the biggest adjustments for me to go from tech to investing was exactly that. You know, when you’re in tech, everything you build is completely unique. Your product has slightly better performance than the competitor or has this feature that the others do not offer or what have you. Everything is completely unique. But when you’re an investor, you’re going to an entrepreneur. You’re like, hey, you should really take my dollar because, well, it’s green, whatever. Like your dollar is the same as everybody else, except if you add value.
Shawn Flynn 23:30
So can you tell a couple of stories of some of your companies, not necessarily in your portfolio, but if you’d like to, just how you worked with them and just some stories of maybe some hardships that they face that they’ve overcome?
SC Moatti 23:44
Yeah, absolutely, so I’ll tell you the story of we are one of our portfolio companies who has worked with us and known us for many years. Its amplitude. They started a few years ago doing some really awesome analytics for a bunch of customers. And the way that they got to know us, and we got to know them is they attended some of our products that count events. I mentioned to you we ran about 100 events a year. So, they came to the events and the founder was there at the time, very small company. He did shadows like, hey, guys, I’m growing. I’m excited. I’m hiring. I’m looking for testers and users. And he started to grow this way, became a fan of products that count and started sponsoring some events. And then as he was growing, he said, well, I need to take that relationship to a strategic level. And so that’s when he asked us to invest in his company. So how we work with them? Well, we invite them to some of our executive. So, we put them in front of 40 potential customers every few months. That’s so much more efficient and so much more scalable for them than if I was going to know write an intro email here and there. It is very, very scalable. That’s one example. Another example. I’ll pick an example of a company that’s actually not in our portfolio. I wish we had invested at the time. We went another way. Maybe it’s part of my shadow portfolio or my non portfolio. It’s a company that has a really interesting value proposition. They say, well, you know, you have a subscription to Netflix, one to Hulu, one to Amazon Prime, whatever. So, when you want to watch a movie, you go here. Oh, they’re not on Netflix. OK, let me go. Oh, they’re not on Hulu. Oh, OK. They are on Amazon prime. By the time you figure out which movie to watch. You’ve spent like twenty, twenty-five minutes. If it’s not just you trying to watch it movie but. Oh no I don’t want to watch that movie. Let’s watch another one. What they do is they have a single platform that lets you just find the movie you want to watch on the right platform. They have great team, great traction, great monetization. We met them again through products that counts through the product measure network. And at the time, they were very early, and they were still looking for that product market fit. They were still looking for that product offering. So, what we did is we connected them to some really senior product executives at Netflix and Disney and others. and they’ve been able through these advisors to really build an amazing product. They raise the big round a couple years ago from August capital and we’re still in contact. Right. We are still helping them. The fact that they’re not in the portfolio doesn’t mean that we’re going to completely ignore them because they’re a great group of people. Great company. There’s another company in every entrepreneur. Right. So maybe their next company will be lucky to be an investor.
Shawn Flynn 26:30
So, what really excites you about the future, the next few years in tech in the Valley?
SC Moatti 26:33
Yeah, that’s a really interesting question, because the way I think about it is in terms of platforms of data. So, right now we’re still building pretty much everything that makes it out, makes it through on top of the mobile data body of data. So, I define it as everything that’s outside of us. But right now, what we’re seeing is there’s a ton of great innovation built on top of the genomics body of data. And I use genomics very loosely. It’s basically everything inside of us. So, think of it as our genome, but also like our dental footprint or our eyesight at, you know, our fingerprints, anything that is inside of us. And if you apply the technologies that have been developed on top of the mobile body of data to the genomics body of data, you get some incredible innovations. We have some in our portfolio like Fabric Genomics, whose co-founder is the founder of Illumina and a few others. And so that’s something that I see, you know, really emerge now. And then the third body of data, which I think is too early but is very promising, is the block chain body of data. And this body of data is going to capture, I believe, every information about companies, contract, financing. So, it’s a business body of data. And if you think about it like you were asking me earlier, like, oh, funds have these constraints about like their lengths and they’re set up an IPO and windows. And this is just really market inefficiencies. Well, if you are going to put all the shares, all the equity of every company on a blockchain and you say, hey, rather than go public and ask, why don’t you buy a little piece of my equity here on this blockchain? Basically what you do is you eliminate all of that friction. You eliminate the IPO process. You eliminate the M&A process. You eliminate the constraints of like fund liquidity, what have you. You basically are able to buy small pieces of every company on the planet pretty much any time. Right. And so that’s going to take a long time to build. It’s really not ready for prime time. But I think it’s a very exciting opportunity for the next, whatever, 10 years or so
Shawn Flynn 28:50
and SC, if anyone wants to find out more information about you and mighty capital. What’s the best way to go about doing it?
SC Moatti 28:56
Yeah, so obviously you can go to our Web site, Mighty.capital, no .com, Mighty.capital, or you can e-mail me, my email sc@mighty.capital
Shawn Flynn 29:08
Great. We’ll have all that information in the show notes. I also want to thank C.J. Trail, who made the introduction that allowed this interview to happen. And also, if you enjoyed this episode, please share in your network. Please write a review on iTunes, whatever platform you are listening in on. And S.E., we look forward to getting you back on the show in the future.
SC Moatti 29:23
Thanks for having me. It was really fun.
Outro 29:27
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.
