Ravi Belani is the Managing Director of the Alchemist Accelerator which is a venture-backed initiative focused on accelerating startups whose revenue comes from enterprises (not consumers). The accelerator backs teams with distinctive technical founders. He is also a Lecturer, Fenwick & West Educator of Entrepreneurship at Stanford University where for the past 8 years he co-teaches The Spirit of Entrepreneurship, an undergrad/grad survey course on entrepreneurship
We talk about:
- What were some of the companies Ravi passed on investing in and why?
- How does one advise a company?
- Why teach The Spirit of Entrepreneurship at Sandford University?
- What are the most common questions your students ask you about entrepreneurship?
I would like to thank SC Moatti Managing Partner at Mighty Capital who made the introduction allowing the interview to happen.
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Pre-Intro 0:00
You are listening to the Silicon Valley podcast.
On Today’s show, we have Ravi Belani, who is the managing director of the Alchemists Accelerator, which is a venture backed initiative focused on accelerator startups whose revenue comes from enterprises, not consumers. This accelerator backs teams with distinctive technical founders. He is also a lecturer at Fenwick and West educator of entrepreneurship at Stanford University, where for the past eight years his co taught the spirits of entrepreneurship. An undergrad grad survey course on entrepreneurship. On today’s show, we talk about his time at DFJ and the investment into Justin TV, which later became Twitch. We talked about the times he did not write a check and why. We also go into some growth hacks and tips about raising venture capital and fundraising, and we talk about some of the differences between entrepreneurs and universities and key takeaways that you can get from a Stanford class without actually taking it. This is much more on today’s episode of Silicon Valley. And also, do not forget to write a review on iTunes or any other podcast platform which encourages us to continue creating this great content. All right. Now let us begin. Enjoy.
Intro 01:10
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 01:27
Ravi, thank you for taking the time, did we on Silicon Valley.
Ravi Belani 01:30
Thank you, Shawn, for having me. it is great to be here.
Shawn Flynn 01:33
Now, Ravi, can you give us a little bit of background of yourself in your career up to this point?
Ravi Belani 01:36
So, I am 43. So, it depends upon how far back we want to go. But I will try to give you the quick Cliff Notes version and then we can double click on any aspects that might be of interest. I am an Indian American, so I grew up in the Bay Area classic Indian American family. My mom was a doctor. My dad was an engineer. I went to Stanford and I thought the one thing I was not going to major in was engineering because my dad was sort of intimidatingly smart and I thought, I’m never going to be as smart as him, but I didn’t know what I wanted to do. I started out as premed, but ended up graduating in engineering, actually at Stanford. I got a bachelors and a masters. The time that I graduated late 90s, it was like being in a Renaissance artist and Florence during the Renaissance. Like the thing to do was entrepreneurship and engineering. And so, I got that bug. I worked in product management at two startups. One, we raised one hundred million dollars and totally died, completely failed. And the other was while I was getting my master’s degree at Stanford, I was a co term at a company that was doing something really boring expense reports at the time that went public. And so, I had these two orthogonal experiences of what entrepreneurship was like between those. I worked at McKinsey, between the startup experience as I was at McKinsey in San Francisco, where I learned how to basically be a consultant for big Fortune 500 companies to help them make strategic decisions. And then my main career after the startups was, I worked in venture capital. So, I spent six years at DFJ in Menlo Park. I was an analyst then an associate. Investments that I championed included a company called Twitch, which I funded, the precursor of it, which was called Justin TV. And I was the second investor in that. And they ended up getting acquired for almost a billion dollars. And then I also did a company called PubMatic, which was a company that was out of originally out of Pune, India, that did hundreds of millions in revenue. And during my six years, I also had a break and I went to Harvard for business school and then got my MBA, came back, continued in venture capital. And then DFJ was the anchor investor in Alchemist, which is what I am probably most known for right now is Alchemist is an accelerator for enterprise startups where like Y Combinator, but we just do B2B startups. So just like Sequoya was the main LP in NYC. when it originally started, DFJ was our anchor LP and we had four other funds, Khosla Ventures, USCAP Mayfield and Foundation joined too. And we were honored in 2016 by CB Insights by being the number one accelerator in terms of the median funding rates of our grads. Y Combinator was number two. We now write exceedingly small checks into a lot of companies a year. Fifty thousand-dollar investments and to over 70 companies a year. And my main job is I direct Alchemist, which is based out of San Francisco Mountain View. And we just opened in in Germany. And my second hat is I teach entrepreneurship in the engineering school at Stanford. So, I’ve been teaching there for five years now and I teach two classes in the engineering school.
Shawn Flynn 04:35
I am not even sure where to start considering in six years there, it sounds like you had an entire lifetime of job experience and careers. But how did that manage in going to schoolwork in for some of these amazing companies and these opportunities all in such a short amount of time?
Ravi Belani 04:52
Yes, it was terrific. So, when I got my master’s degree, I was working and studying. And I think I highly recommend that because I think most kids, when you go to college, if you’re doing the traditional path, you really don’t know what real life is like and you’re going to be accruing a hundred thousand dollars, if not more of debt. You are sort of doing that a bit in a vacuum. You are supposed to. It’s I think we spend a lot of conflicting signals to students where you’re supposed to be studying really hard, but you’re also carrying all this debt and you don’t really know what the real world is like. So, it’s very hard for you to try to map what your career is going to be based upon what you’re studying. If you have never actually worked before. So, I loved when I was a master’s student, I was TAing. So, I was paying for my tuition with my TAing with teachers at Stanford. And then I was also working during the summer. And that was terrific because I realized what I really disliked and what I also really like. I think you have to decide what type of person you are. I am the type of person where if you give me five things, I will tend to excel at all five versus if I’m just doing one thing, I’ll get antsy if I if that’s the right one thing to do. So in a weird way, having a bunch of balls in the air for me was comforting because I knew that if one thing sort of failed or if I didn’t succeed at one thing, I had these other four things that might hit. And I never, you know, I think a common theme in my life is, is that I have never really known what I what I’m supposed to do. So, I did not even declare my major at Stanford until the end of my junior year, which is very, very late. And I ended up doing an individually designed major. I just coupled together a bunch of things and I put them together and called that my major. And it was an engineering, but it was a sort of cross disciplinary engineering field. And I have always been somebody who has been very, very curious, but also somebody who was not necessarily clear that this is what I was meant to do. So, I found it very comforting to be overloaded. And I think for me, in a weird way, if I’m overloaded, I don’t have to think as much because I don’t have the luxury of sort of thinking of all these existential questions of do I really love this? Is this what I’m doing or what? So, I really relished that phase when I was working and also in school, and it made each better. I was better at getting a master’s in industrial engineering and taking a lot of business classes. My experience when I was working was helping inform that and then also those classes I could apply to the business stuff.
Shawn Flynn 07:19
What about that decision? After a few years to go to Harvard Business School, what brought that on in that little pivoted career? Because it sounds like right now at the Alchemists, your focused startup ecosystem, whereas the Harvard Business School is kind of more that investment banker corporate direction. What was kind of that thought process for little time period?
Ravi Belani 07:40
Yeah, I did not want to go to Harvard Business School, I should say, so I was pushed into it. So, the background here is I was an analyst at DFJ and at the time, every single partner at DFJ either had a Harvard MBA or a Stanford MBA. And I had worked there for around two years or two and a half years. And they basically said, you cannot progress it unless you go get an MBA. So, they forced me to. And at the time, just to be fully transparent, honest at the time, I thought I have the job that all those MBA is what I am working on sand hill road in venture capital. I already have a master’s from Stanford. I worked at McKinsey. I worked at two startups. There is nothing I am going to learn from a business school. And by the way, it is going to cost about one hundred and fifty thousand dollars. And I have to give up my salary for those two years. So, I went kicking and screaming because my bosses actually just said you had to do it. And then I loved it. So the irony here, my advice and I would say that you don’t need to go to business school, so if you know what you already love and you know the path that you’re in, there’s nothing that, you know, you’re going to necessarily need to get out of business school. If you can be focused. But it is a lot of fun. So, the for me, the analogy that I used to use, although I think I’m going to be dating myself, is there used to be the show called The Real World on MTV. And I do not know if it is still on. And I used to say that if you get invited to the real world, you do not need to do it, but you’re going to have a much more fun life if you do. And business school is the gift that keeps on giving. So, it’s very hard, I think, when you’re in your mid to late 20s or 30s to start to develop new deep friendships. And in some ways, business school is this opportunity where there is this class of people that are going to curate a community of potential leaders for you to meet and learn over two years. Everybody understands how valuable free time is because everybody has worked already before that. And people have money. So, you have suddenly these experiences over this two year where you’re just having a ton of fun and you’re becoming a better human just based on the types of people that you’re around. So I had a fairly narrow life before business school. I still have a fairly narrow life. But it was all Silicon Valley, it was all tech. And I think business school helped broaden me out more. And also, I am introverted, even though it may not seem like that it helped me get a little bit more emotionally intelligent. And the biggest thing that I think you learn in business is that it is the most valuable thing to do is not necessarily to know the answer, but to know who to loop in, to a process, to get input, to push something forward. So, your network can be more valuable than you trying to be just the smartest person in the room. And when I grew up at Stanford and in engineering, it was much more about individual competence. And a business school is much more about transitioning to developing leaders around you and also developing a network where you could find the answers more quickly than trying to figure them out yourself. So that was an unbelievably valuable lesson.
Shawn Flynn 10:33
Back to your time at DFJ. Draper Fisher Jurveston, when you were looking at companies like Twitch that you wrote a check to. What were you looking for in these companies that that kind of triggered you to want to invest?
Ravi Belani 10:45
The big thing that I am looking for is, you know, there’s a thousand reasons why you should not fund a company. And if you focus on everything that can go wrong, you are missing the point. The big skill set to have that; I think DFJ was remarkable at that. I think the top funds are at, is understanding how big something can get and why something can truly break out. So, the whole business model of venture capital is predicated on having made generally 30 investments in a fund. And you need to have a certain percentage of those become irrationally huge successes. Meaning more than a billion dollars of market value and only around 15 companies per year today that are funded become worth a billion dollars. So, it is there is a huge difficulty just in knowing if you have an opportunity that could even get that big, even if they if all if everything goes right. There was a ton of things. Why you reason why you should not have funded Justin TV, which was the precursor to Twitch. And I do not know if you remember this at the time, but Justin Khan was having had a video camera strapped to him and was basically like the first real time vlogger of his life on Justin TV. And even on Twitch, they had copyrighted content that was just being freely distributed. So, everybody was saying, these guys are going to get sued. What are they going after? Twitch ended up becoming focusing very heavily on games. And nobody understood that people would actually want to watch other people play games. So, it got shut down pretty heavily, actually, to be honest. Tim Draper was the one who led that investment out of his own independent conviction because it was a very controversial investment for the rest of the DFJ partnership. And at DFJ, we had these things called bullets, where you could if you had a huge conviction in a company, you could say I had one opportunity per year to say, I want to do this investment, even if the rest of the committee doesn’t agree. And I was going to be using my bullet on Justin TV. But Tim actually stepped in and sort of said, no, I see the vision. I want to do it. The reason why I liked it was because at the time so much, I think the most important thing for funding and for startups is timing. Generally, you are very, very rarely do we see an idea. And we say that is just a categorically a bad idea. Most ideas are good ideas, but the issue that you have as a founder is you have a limited runway in which to take off. And if you at the end of that run, when you don’t take off, the company will die, not because the idea is good or bad, but because you just didn’t make the right strategic decisions to take off. Taking off means getting cash. So, its funding or its customers, but it’s something to support the business, to continue to grow. And Justin TV was at this hallmark where we were having the ability for something to really, truly break out with a federated, distributed model of content and viewers that could never have existed before because of the ubiquity of phones, because of the ubiquity of gaming and things like that. So that was one element. The other and that was the team was you had just these phenomenal co-founders that all were old enough to be wise and young enough to be dangerous, that we are thinking that we’re iterating very, very quickly. So, it wasn’t necessarily that they knew deeply anyone space, but they could move so quickly. And it was a team. It was there was a core set of people that were all really dedicated to one another. And that team to date has been phenomenal. Michael Siebel is now the head of Y Combinator. Justin has done atrium, even Twitch and Justin TV was a little mafia, like a micro version of sort of the PayPal mafia, where you’ll have certain teams that have a certain spirit and they have fires that light other people’s fires and then even their employees will go on and start all these other movements. So, there is that element that I could see as well. And I should say it was not a slam dunk investment. I think most people thought that it was a crazy investment and we did not even realize how big it was going to be, even four or five years later into it. So I think the key things to understand, which are really difficult is, if everybody agrees on an investment, it’s usually a bad sign because the very fact that you can have transparency on agreement will mean that there is competition that will also encroach upon that space. And the companies, in order to be one of the 15 companies out of the tens of thousands of companies that are being started every year, you need to have alignment not just of a good idea, but you need to have an alignment of an idea that’s a contrarian idea, something that’s a little bit strange because you want to be the sole winner or a player in that space and you also usually have to be doing something new. So inevitably, it is going be something that’s not necessarily terribly transparent, but how that’s going to get there. But there should be certain optionality is where you can see how certain things unfold. It can become excessively big. And we saw that with the market trends of where things were heading, the team and just the agility of where they could where they could go towards. So that is what motivated the decision.
Shawn Flynn 15:24
At the same time, I mean, I am sure there’s a couple companies that slip through your process. Was there any that still to this day stand out that you missed that your time at DFJ? And if so, why was the pass on them?
Ravi Belani 15:35
Yeah, we’ve missed on several that I think we and I think every VC Fund has their own anti portfolio, which are companies that they did not invest in, which they wished they had. So, there’s several at DFJ. we’ve we missed out on LinkedIn. I remember that investment came in. We missed out on. We did several search engines, but we missed out on Google, Sequoia and Kleiner both co led the Google deal. I think for DFJ categorically was did some phenomenal investments. We were the only investors sort of like Tesla and Space X at the beginning, which are very controversial investments, Tesla and Space X are classic companies that you learn in business school not to fund VC because it’s hardware, it’s capital intensive, you’re selling to the government for space X, product could literally blow up. So, it was like the thing that no VCs would touch that with a ten-foot pole and DFJ did invest in it. And, you know, obviously these have become huge companies and huge returns. So, there is a lot of deep respect I have for all the careful thought that the DFJ has done. And I think the humbling and terrific thing about being an entrepreneur is that even the best funds are like baseball batters. They’re wrong like two thirds of the time. And the best ones are like, right, maybe a third of the time. And if you look at even sort of the correlation ventures, had some data where the top performing investments in terms of return are only funded around 35 percent by the top 10 funds. That is hugely humbling and it should be hugely invigorating to entrepreneurs or founders where if you get passed on by DFJ, which is now of several different funds or Sequoia or whatever, know that you’re perfectly fine because two thirds of the best investments are going to be passed on the top 10 funds. And the reason why is when you are an investor, there was nothing with LinkedIn. We should have invested in LinkedIn. Obviously, in hindsight and there was nothing wrong with the investment or the pitch, it was just you have to have this match between the individual personality of the partner and the entrepreneur. And so sometimes it’s just the personal dynamics of whether or not you get along with the CEO, regardless of if the company fundamentals make sense. And it’s not because the CEO is necessarily bad or good. It’s just each partner will have their own shticks on what they look for in that entrepreneur. And at some level, as an entrepreneur, you don’t want to get investments from somebody that you don’t strongly connect with, because even if you succeed in the fund raise, that’s just the initial game. The long game is you’re going to be working with this person for probably seven to 14 years. And do you want them on your board? Do you want them to be working and you’re not fully aligned, even if you convince them to invest? It’ll create misaligned incentives later. So, so much goes into those dynamics. I think it was I think for the ones that we missed out on; it was. It was as much due to just not necessarily any issues, but just a lack of that personality spark and chemistry connection between the partner and the entrepreneur and or we had funded other companies in the space. But we ended up not choosing the winner, though, the company that in breaking out, we chose one of the winners, but not the huge winner.
Shawn Flynn 18:51
You’d mentioned that one third of the unicorn companies are invested in by top 10 venture capitalist funds. I believe. What advantages does an investment from these top ten funds give that one third versus two thirds, that that don’t get it?
Ravi Belani 19:07
Yes. Good question. And I should clarify, the stat, I believe, is that if you look at the top returning investments, it doesn’t necessary mean that those investments became unicorns. It’s just the companies, the investments that return the most capital as on a per investment basis, because you could have a company that doesn’t become a unicorn. That’s a huge multiple if you if the investor investors at a relatively low valuation and then you can have unicorn investments that are like that, I should say names, but that ultimately don’t return a lot of capital because the investors invest in such a high valuation. This that was that. Thirty five percent of the highest returning investments are only done the top funds and sixty five percent are miss. The advantages are. I think there’s a lot of variance across with different VC funds. Do the first thing that I should say is, is that I don’t the venture capital in general as a monolithic industry. I think the analogy is more or that’s like a bunch of little mafias because each of these brands at the end of the day is usually rarely more than five core real general partners that are really involved with the real economics of the fund. And they have their own philosophies and their own ways that they deliver value. A good fund will be providing a lot more than capital. And usually what they talk about is, is that a good fund will be providing a network that you’ll be able to help support and build the company in terms of talent and customers and key strategic engagements. And an individual partner that can serve as a proxy coach or a coach and a confidant for the CEO. And so, and different firms will lay their services and values out in different ways. In my experience, the biggest value for venture capital funds, traditionally there are going to be exceptions to this is for hiring and for fundraising. And by that, what I mean is, is that in our experience at Alchemist, when it comes to customers, very few customers actually know the names of a lot of funds in Silicon Valley. They might know some of the funds, like the Andreessen Horowitz has a good brand and some of the others, but many very prominent funds, many mainstream customers or even customers that are in your domain have no idea who those who those people are. Where I think there is value is, is that when you’re raising your next round, if you’re doing well, if your company is breaking out, no investor is going to care who your previous institutional investor was. They just going to want to jump and invest in you. And so, it’s not going to be necessary or needed. And likewise, if things are going incredibly badly, but if you’re in purgatory, if things are sort of flat, then the having a brand name VC can be very helpful to have other investors that will just trust the faith of that branding VC and follow on because of that VCs track record. So, I think that’s one traditional way that where most VCs have a good brand can add value. And the second way is the branding itself can help attract talent. It’s not that the VCs will necessarily find the engineers or whoever that you need to hire but being able to have the branding can give confidence for engineers to join the firm. And so, I think those are the two. I think VCs are going to pound their chests and say that they had value in a lot of different ways. But in my experience, those are ultimately the two things that I think most value that actually accrues to founders in terms of what actually happens. Having said that, there are VCs that have done a phenomenal job of actually building real support operating systems for their portfolio companies. And I think that is funds like Andreessen Horowitz, First Round Capital, few others where they have whole teams that are there to help in more dedicated ways to business development and sales and talent acquisition. You know, I think when you are fundraising. What you’re getting from a VC is money, governance and support or advice. Money being put, the cash that they’re putting in, governance because they’re usually going to be serving on your board. So, they’re going to be having a governance function and then they’ll be having advice and support. You don’t need all three of those things to come from the same source. You could have your money be raised by people that are going to give you the best valuation or terms or the understand your space. You could have independent board members that you can bring on to provide the governance function and you can hire independent advisers or firms to help support you. And that might be better than trying to give up a lot of economics just to one VC if the VC is not terribly great. If you do have a VC that has a great track with them, they will more than pay it for themselves. And usually the biggest way that they come into play is not through day-to-day work, but through your strategic transactions when it comes to acquisitions or getting acquired when it comes to your next round of fundraising. The VC can play a very critical role or hiring a key hire. The VC can step in very strategically and add value. The one thing that I do want to impart is the real way to know if VC is going to be valuable is not to look at the VCs or an accelerator. So, this also applies to Alchemist’s is not to listen to what I say or what the VC or the GP says or to look at their site. But it’s to call up other founders that have been funded by that entity and to have them give you honest feedback on their experience with that founder. And if you are thinking about getting a check from VC. Make sure to ask for them to give you references for ideally founders where things worked out financially and founders where things did not work out financially. And call those founders up and ask those founders for references to the names of other founders at the VC didn’t give you and tried to make sure that you get a real snapshot of how that VC is, even if that VC is terrific. You want to get that feedback in terms of advice on how to manage your board and any advice that the founders have who are ready a year more ahead of you on how they would advise you to have the relationship with the VC and also how to take advantage of the VC so that their good calls to do regardless, even if, you know, you’re going to take the check from the fund or the accelerator.
Shawn Flynn 25:09
Now, you’re also an adviser for many companies. When you’re an adviser, what does that relationship look like? Are you given that same advice you just gave right now to them? What does that look like?
Ravi Belani 25:18
As an accelerator, it’s a weird role between being a VC and an adviser, because I am not on your board. But in many ways, I can be more trusted than a board member because you have to worry about me firing you. I’m just going to be there to give you advice. I want to give general advice when it comes to advisors. So people that if you are looking to bring on advisors in general, my advice is, is that we find that there’s very little correlation between how much you get out of an advisor and how much equity you give them. What is correlated is whether or not they have invested in the company. So, if an adviser invests in the company, they will. In our experience, be much more helpful. And also, if you’re very structured in creating a plan with that adviser and what they’re going to work on. So, what we advise our alchemist’s companies when it comes to advisors to do is if you see somebody who wants to help out. Ask them, hey, what do you think you can do for me? And if you want, you can say, hey, here’s my top needs right now. What do you think you can do for me? Have the advisor tell you what they can do and then put milestones, specific deliverables against the things that they say they can do. So if they say, hey, I can help introduce you to customers or I can help refine your fundraising pitch deck, or I can help you find talent, then put numbers against that, say, OK, I want to get 10 customer intros or I want to have my pitch deck be revised until I start to get second meetings or things like that and then decide how much equity you need to give the advisor. And honestly, it’s the least that you need to get away with. And we can talk about numbers if that’s necessary, but we don’t want you to set up an adviser engagement, which is a longtime engagement like two years or four years, because if that engagement is not working out, it’s very difficult for you as the founder to call the adviser up and cut the arrangement. It’s easier if you just have a shorter-term arrangement like three months or six months, and then you can just renew it if things are working out. So scale down the equity to the least that you need to give and then have half of the equity vest over time as a good faith gesture and have the other half be earned based upon having that adviser earn specific milestones or deliverables. And that way, if they don’t execute, you only are giving up half of the equity. And there’s also a natural structured plan that you’ve put in place about what exactly you’re using that advisor for. Generally, if you’re on a board of a post series, Seeds series, A company, the board will probably give you two percent of total equity of the company or around 10 percent of your option pool to be allocated to advisors. If you’re prefunding, I would say assume that your four percent of equity that you can distribute to advisors. That’s assuming the advisors are working for two years. So just going to be working with you for a year. Assumingly of two percent of equity that you need to distribute across all of your advisors and then put these plans in place for half of it vests over time and half of it’s based upon milestones. So that’s like just tactical advice.
Shawn Flynn 28:13
So, Ravi, you have a couple of roles. Not only do you have the Alchemist’s accelerator, but you’re also a lecturer of the course, the Spirit Entrepreneurship at Stanford University. Why did you want to co-teach this class?
Ravi Belani 28:24
I love teaching, so I think the hidden thing about teaching is, is that you actually learn a ton when you’re a teacher because when you’re forced to articulate or teach different lessons, you have to learn them more deeply. And I always say at Stanford. Every year the kids become smarter and smarter. And so, I said when I began five years ago, I was waiting for the point for them to be smarter than me. And I think that happened probably two years ago. The clip of just the sophistication of the students is phenomenal, how much people know at such a young age and how sophisticated the students are. So, I also selfishly do it because I learn a ton. And we put the resources up online. So, if people want to see our guest lectures, we have guest lectures every week it’s at ecorner.stanford.edu. You can check out that and all the Stanford Technology Ventures program, which is the Entrepreneurship Center within the School of Engineering. That is our site for all the all the content.
Shawn Flynn 29:19
So, what type of questions do most students ask you about entrepreneurship? What are the most common questions?
Ravi Belani 29:25
What basic advice do you have for me if I’m thinking about starting up a company? A lot of the students still don’t know what they want to do with themselves or their lives. So, they’ll come to me and they’ll say, what should I do with myself, which I do with my life? I don’t know what I want to do. There’s a lot of students that are also not besides entrepreneurship that are interested in venture capital. And so, they’ll be asking me how to do I get into venture capital? And then there are students that have very specific, clear ideas now that very just tactical questions on what they want about how to get their company started or something is very specific to their specific domain.
Shawn Flynn 30:00
So, what are the key takeaways that someone that may never get the opportunity to take your class. What are some of the lessons that they can learn?
Ravi Belani 30:09
I think here the lessons are the first is before you start anything, before you start a company, validate that the need for your product exists before you start working on the product. So, again, your company is not going to die because the idea is bad. Your company is going to die because you’re going to hit the end of the runway. You’re not going to take off. And that’s big oftentimes because people will have not validated if the need for the product exists before and instead, they’ll start working on the product without really being engaged with the user or the customer of the product. So, one of the first lessons is get out of your home or your office and go and assume that you’ve already built the product. What is the next thing that you’re doing the moment after you’ve built the product and do that now? That may be going and talking to your first prospective customer and validating if they actually want to use the product. So, a canonical office hour at Stanford, when you’re having an idea, or a company is to say is to ask what’s the pain point that you’re solving? Who are you solving that for? And what is the minimally viable product or key feature that you need to develop to validate that addressing that pain point? Those are the three canonical questions. And so, if you want to role-play office hours for yourself, ask yourself that. What is the pain point that you think you’re going to be solving? Who is that going to be for? And what’s the key feature that you need to build to validate that? And if you don’t know the answer to those questions, what can you do in the next two days to either determine the answer to that or to validate or invalidate your hypothesis. At some level, all office hours are going to back those core questions until you have confirmed and validated that there is product market fit. There’s a lot of thinking then around how do I know if I have product market fit? When do I know if I have something that is compelling enough that I should focus on it full time and we can chat about that as well? And then scaling. So, dive deeper if you want to double click further. Discussions around that first phase is called discovery or need finding validating if in fact there is a need for the product. And then you want to validate if that need is actually compelling. There are various ways to do so. One of which is generally what we’re looking for is willingness to pay. And I say willingness to pay. Not necessarily paying for the product to validate if somebody really loves the product. The real way that, you know, you’ve built a product that is compelling is if people tell other people about the product. That’s the ultimate final takeaway is that if you find that other people are telling other people about the product, you have a great product, not just a good product. The danger zone is, is that you might build something that is good, but not great. Spend all this time working on it. And it’s not that the idea was bad, but it wasn’t great enough to take off. That is the danger zone because it’s better to have a bad idea because you’ll have a categorical, clear signal that you shouldn’t pursue something. The worst is if you have something that makes sense. But it’s not so compelling that it’s going to take off. And the ultimate way that, you know, that the ultimate, ultimate way is if you find that other people are telling other people about you or your product and then people are coming to you asking for help. The tactical ways to measure that. Obviously, if somebody is paying you, that is one metric to know that you’re doing something compelling and Steve Blake has this hierarchy that he uses to determine compelling this one, does somebody have a problem? That’s why the base level. The second is, do they know they have a problem awareness? And then the level above that is, do they not only know they have a problem, but do they have a budget against the problem? And then have they even already start to scope out the solutions? So, if you find somebody who’s already thought about the problem, scoped out, the solution has a budget. You know, there’s a compelling need. Outside of that. If you’re building something which is not necessarily driven by monetization, but by growth. If you’re doing a consumer platform or a user platform where it doesn’t make sense to charge people immediately, there’s other proxies for willingness to pay. One of which is, again, if people are telling other people about your products or if you can grow virally, that is an indication that you’ve created something compelling and you can proxy that either by actually seeing if people tell other people about the product or asking questions. There is the classic net promoter score question, which is just, you know, on a scale of zero to 10, how likely would you be to recommend our product to somebody else, which is literally would you tell other people about it? And there’s a lot of great literature online. You can just Google Net promoter score on that, but you want to get a net promoter score, ideally above 50 percent for something very distinctive. And I won’t go into the details about the measurement, but it’s all very accessible on Google, or my favorite is Sean. Sean Ellis is the founding chief marketing officer of a bunch of companies that were in highly commodity’s spaces where there is a ton of competition. And he ended up being part of the team that became the winner. So, he did this with Dropbox. He did this with Eventbrite. And the question that he asks is, on a scale of zero to five, I think how disappointed would you be if this product did not exist? Five means very disappoint. I think it is one to five. Five means very disappointed. And Sean wants to get, I think, 40 percent of people to be very disappointed, to signal that he’s onto something that will take off. So, let’s say you started a product, you come to office hours and you’re like, you know, I think this product is going to be for men who are 35 to 40. We’re solving this need, and this is the minimally viable feature that we think that they need. You go out and you try this with 100 people in your demographic, but you find out that only four actually gave you a score of very disappointed. And when you ask them the question, how disappointed would you be if this product didn’t exist? But let’s say of those hundred people that you went out there, let’s say four of those were not just men who are 35 to 40, but they were men who were at Stanford. And of the hundred people, only 10 were men that were at Stanford. Then you have 40 percent within that demographic of not just men who are 35 to 40, but men who are 35 to 40 at Stanford. Then you have compelling-ness, then you have compelling fit. And then the idea then is that you go deeper, and you double click on that demographic. And then you want to focus just on men who are 35 to 40 at Stanford. And I shouldn’t have chosen this demographic. I why converged on this? But it’s what we are demographic. But then you have compelling fit within that. And then you want to think about deepening how you can. Go deeper towards doing more discovery to understanding other needs that they have, even if that niche on its own is not a billion-dollar market opportunity, let’s say that niche, just a million dollars. It doesn’t really matter when you’re beginning. When you’re beginning. You don’t need to try to solve for something that’s going to, on paper, look like it’s going to be huge. You just need to solve for high engagement and compelling-ness. And once you have dominated that vertical, the reason why is so much in the beginning as momentum. If you have a very specific, narrow niche where you have a compelling fit, your conversion cycles will be shorter because there’ll be less competition for that demographic to assess and you’ll end up getting more power over that demographic at scale, which means that you can start to increase your margins over time or you can start charging over time and you can start to build up some power over that. And then the key strategic question is, how do I pivot from this initial niche to my next niche? Do I pivot. Based on Stanford or do I put it based on thirty-five to four-year-old? Or do I pivot on something else? And thinking about where is there a strategic advantage for you to enter a new market with that current market base? So, this is probably the third lesson that you learned at Stanford. So, you know, it’s sort of staged with the first question is validate that the need exists before you start working on the product, then determine if that need is compelling, then determine which focus you’re going to go after and then determine the strategy for scaling beyond that. Those are some lessons. And I should say we cover a wide array of topics. There’s also topics that we’re exploring right now on ethics and then also topics on resilience and topics on strategy. And it’s a wide range.
Shawn Flynn 38:29
And it was mentioned that you like to teach because you also learn in the process. What was maybe the biggest thing you’ve learned so far through your teaching experience?
Ravi Belani 38:37
I learned so much. Some examples are, first of all, we had. There is like this movement, on three years ago where a lot of the Stanford kids were doing ICOs, these initial coin offerings. And that’s just a totally new financing vehicle that is, I think, very difficult to understand unless you actually go through it. And the amount that some of these I should call them kids because they aren’t technically adults. But the amount of money that some of the students were raising was just incredible. And I didn’t have a full appreciation for the how much community interest there was to fund crypto currencies. And I would say that some of them honestly were more opportunistic. People were just taking advantage of the capital that was there. And then there are also some companies that were really meant for a federated point, a utility coin for serving their companies. So, I learned a ton about that through my Stanford students. I’ve learned a ton about new domains that where things are headed because usually the students are more peer in their passions than adults. Adults get a little bit more tainted about realities of what they’ve done from their own work experience. And students are a little bit freer. So, one of my Stanford students from the fall is working on a new next gen rover for Mars. A lot of the innovation that’s happening in space I think is really fascinating and is coming out of universities. There was a big movement probably two years ago where a lot of the students started to converge on a high with ag tech. Then there’s a lot of interest in ag tech and climate. And I think that was also this combination of deep A.I. expertise that people were learning in computer science, coupled with true passion to change the world for the better. And that I learned a ton from my Stanford students. And then also just getting more aware of what it’s like now to be eighteen to twenty-two. And all the stresses in terms of things that they need to get done. I’ve learned that the other thing that I learned is that so I teach a speaker driven class where I do a theory lecture on Monday and on Wednesday we have a guest lecture and our guest lectures are just these phenomenal luminaries. So, every Wednesday I am a student. I am learning from the guest lecturers who are coming in. And we’ve had just really phenomenal speakers like Melinda Gates and Reid Hoffman and luminaries like that. But then also people that you don’t know of that or that you may not have known of. Like we had the Impossible Foods CEO just hearing the backstory about that. And he was a Stanford professor and why he created impossible foods. The whole food tech industry is something that I was really blessed to deepen my knowledge of. So, lots of stuff.
Shawn Flynn 41:18
So, the entrepreneurs that are in your class at Stanford versus the entrepreneurs that are the alchemist’s accelerator, where some of the similarities and differences you see between these two groups?
Ravi Belani 41:28
I think similarities are most successful entrepreneurs that we see are the ones that are the most dogged. So, it’s not. And this is also a little bit of a difference, I think. At Stanford, there is a little bit of what I would call functional classism. Like, people put more of a premium on tech and computer science and they sort of value engineering more than the other functional groups within an organization. So, sales are sort of a little bit lower on sort of probably the pull of value. In fact, you can’t even take a class. I don’t think Stanford has a class called sales, which I think is a huge disservice to the students. And I think it’s partly because there is this sort of value judgment on what is considered valuable and what isn’t. And Stanford doesn’t want to be viewed as a vocational school. It wants to be viewed as an academic institution. And I think to a fault. But I think the common thread is this, that the entrepreneurs that break out at Stanford have and also the entrepreneurs that break out at Alchemist are bifocal in the sense that they are able to carry and articulate a long-term vision in a sales like way, where they can create a compelling picture of the future that you may not have thought of. And they’re able to use that compelling vision to curry the resources that they need to get investors to fund them, people to work for them, even for free, customers to be their first partners. And then they also are very good in the near-term, in the short term at just getting things done and has nothing to do necessarily with intelligence. It’s just they are able to be persistent because the cornerstone, I think, experience of entrepreneurship is you are going through this irrational exercise of days where you’ll have high highs and low lows. And if you can’t control the rails, if you can’t create some type of constant in that, it is very difficult to succeed in the long term. And in Alchemist, our most successful fundraisers, and our most successful companies, we’re not necessarily the most charismatic CEOs, but they were the ones that were amazing at driving a process. At Stanford., there’s other similar data points that we have, and we have, frankly, also had crossovers. We have Stanford faculty and Stanford students that have also some crossover. So, some examples. Edith, who is the CEO of Launch Darkly. She has raised, I think, more money than anybody else that we’ve had in Alchemist’s. So, she’s raised one hundred and seventy-five million dollars. And she was in her own self-professed way. She is. She said she is not the most charismatic CEO, but she is the most persistent in the sense that. So, she is prefund will run century runs throughout not just a mile at just 10 miles. Is a marathon. She’ll go on. She’ll run 100 miles. And to do that requires a discipline that which very, very, very few people on the earth have. And that discipline is also what she is carried into her company. And if you meet Edith or if you see her little, become more tangible. But she has really just been the singularity. And it really is because she’s just driven a phenomenal process and she’s just very, very, very good at just getting things done. So I would say the cornerstone thing is that and even at Stanford, some of our students, we had a Jesse who is the CEO of a company called Neo Rich who also end up joining Alchemist’s, but he has been phenomenal. And he dropped out of Stanford. So, he’s not graduating, get sort of high honors or I think that, but he has us and he’s very smart, but he has just the singular vision of what he needs to get done. And he will go, and he’ll just get it done. So, I think the most common element that I am converging to in terms of predicting success is not intelligence, it’s not charisma, but it is building and creating and following through with execution and processes. And at the same time, you need a little bit also of a vision that on the long term that where you can inspire investors to fund you and people to work for you. Those are some elements. And then happy to go into more detail if you’d like.
Shawn Flynn 45:37
I’m really also curious about you’d mentioned one woman that raised one hundred seventy-five million and some of these numbers. Entrepreneurs often ask about raising funds and how to go about it. Do you have any tips or tricks that you can give us on the best practices or kind of hacks to go about it?
Ravi Belani 45:55
Yes. So, the on fundraising, there’s a bunch of advice on this. The first thing to understand is, is that there is not a monolithic investor. All these investors are different. And so, your trick the first thing I want you to understand if your fundraising is, is that your goal is not really to convince somebody to invest in you. Your goal is really to find an investor that’s looking for you and doesn’t know that you exist and make yourself known. And so, so much of fundraising is not so much about getting the perfect pitch, but a volumes game of getting exposed to the right investors. And this is going back to this point of process. If you need to raise a million dollars in our experience, you need to plan to have at least 60 meetings if you are fundable. And of those 60 meetings, our guidance is to try to have a mix of different investor types. So, I don’t want you to pitch just angels. I don’t want you to pitch just big institutions. I don’t want you to pitch just strategic funds. I want you to pitch all three. And you need to put together a CRM, a sheet list everybody out and you need to go after. So, on the angel side. Your strategy is going to be very different than the institution side because the dynamics are totally different. So, with the angels, the big dynamic is that they know that you can take a ton of checks. So, they’re going to just wait until they have to make a decision. And really, the approach with angels is that you need to psychologically be happier getting a no than a maybe. You need to get to the point where you feel comfortable enough to say, I need a decision by Friday of next week. Push them to make a decision instead of just having things drag along. And I can talk more about that in a second. Whereas with the institutions, the biggest dynamic is the scarcity of equity that’s available for them to get more than traction with an institution. There’s only room for you to have two or three institutions in your company to get their equity stake. Their dynamic is they’re competing against each other to make sure that they get into you. And you just need to signal that you are going to be one of these breakouts’ unicorns’ companies. And then to get them to invest. And I want you to do both, because you may be something that the institutions are just like. You might be the flavor of the month for VC right now. And you might be doing a company. You might be doing like a I for construction. So that was like a hot space maybe twelve months ago is still pretty hot. But if you were doing that at that time, all these VCs were looking for AI construction companies. And suddenly, even if you wouldn’t have been able to get a check from an angel, the VCs might have given you a check or you might be doing something where the VCs are just religiously against it. Like, let’s say you’re doing a H.R. company or an ad tech company. Those are harder companies now to get VC funded, but you can get angels who would really love that space. So, the first lesson is don’t be restricted in terms of the types of investors that you’re pitching, pitch all types and run a process. If you’re raising your first money, the biggest determinant of success is you just need to ask people to invest. It’s amazing how many founders have anxiety over just asking, will it saying, will you invest in my company? I’ll give you Hack’s if you want me to make that easier. But the key thing is literally, whenever you meet anybody who is a vice president or above at a big company, they could be an angel or any of your former bosses or people that you’ve worked with that are the VP or above. They have enough money to give you a check, and especially if you’ve worked at a major company before. I can assure you that your bosses may want to be investing in you, especially if they liked you. You’re just not asking them. And so you need to inventory a list of everybody that you might be connected to, your college alums, your work experience, people that you know, and just setting up a bunch of coffees and just saying, hey, we’re doing a small round right now of just 250 K at a discounted valuation. We’re trying to raise this in the next month. Do you want to invest? When you talk to the angels. You know, what you want to do is give them the quick overview. Ask them, hey, on a scale of zero to ten. And then you could do this for any investor. It’s a good rule of thumb to say, hey, on a scale of zero to 10, how compelling do you find this and see if there are nine or 10? I like asking that question, especially for the VCs, because most investors are going to be nice to you. There’s very little incentive for them to be mean because again, they’re wrong. Two thirds of the time. So, they want to keep the option open to invest you in the next round if they are in fact wrong. But the problem with that is that you’re not nicely going to get honest advice about where you stand. And so, if you don’t ask this question, you’ll end up doing like a ton of meetings. Everybody will be nice, but you won’t get second meetings. you won’t know what’s going wrong. So, you want to ask at the end of any meeting, hey, on a scale of zero to 10, how compelling is this? If you don’t get a nine or 10, if he will give you an eight or a lower ask, what would have made this a nine or 10 for you? and get really tactical feedback on them. If everybody’s giving you the same answer after you’ve done at least 12 meetings about why they’re not a nine or 10, then go work on that thing, then go back later for fundraising. For the Angels, you want to if they are if it is a nine or 10, then you want to ask them, hey, what’s your process to make a decision and who else needs to be involved? I don’t want to do it unless I say, hey, you need to make a decision. Even though I know I sort of hinted at this before, it’s not so much to say, hey, you need to make a decision by Friday of next week. The more the more important thing is for them to give you a timeline and then to hold them accountable to that. Just say, OK, you know if you need three weeks. Yes. See if they can get it done maybe in two weeks. But then after that, two weeks comes, if they haven’t invested, then say, hey, I just need a decision by the end of next week. Just based on the timeline that we said before, it’s easier if you anchor that off of the timeline than to say, hey, we have other investors that are raising because you might not have other investors that have come in. There’s getting more tactical, more specific. But the broader principle is you need to just follow through and have them give you a no rather than just keep them in a purgatory, maybe state if it’s an angel. And there’s a little other hack, you can always say with the angels or the angels, if you say that you’re raising like two million dollars, they’ll say, hey, that’s great. Why don’t you just come back to me once you close your lead and you’ll get this a lot, you’ll get people who will say, love this, love the idea, come back to me once you get a lead. And the reality is, is that you need them to show conviction and invest now. And so another approach is instead of saying you’re raising two million, say we’re only raising 250 K for individuals right now because we know once we do our bigger raise with the institutions, the feedback that we’re getting is that there won’t be room for any individuals. And so, we’re deliberately having this angel raise. Now, we’d love it if you could make a decision in the next. Let’s talk about a time frame. But in the next three weeks, once you get to 250 K, you can always expand it to five hundred K. So there’s nothing that is going to force you to stay with that 250 K. And one of the other rules that it’s much better to always be halfway close. So once you get to tooth decay, then you expand it to 500 because they are weary of tooth decay closed. We’re just doing five hundred twenty-eight to five hundred expand to a million to already have halfway closed. So you’re always halfway closed. So there’s a lot of tricks like that. And then of course, on the institutional side, there’s a ton of tricks too. So and that’s where, you know, that’s where I grew up and ended on the institutional side. I’d say the broad approach is just to get the quick summary of some of the tricks are there is the old adage that if you ask for money, you get advice. If you ask for advice, you get money. And there is, I think, a lot of truth to that in the sense that on the institution side, the dynamics are sort of the psychographic profile I think of the institutional investor is they can only do a few investments a year, but they’re going to write a bigger check. And what they’re really thinking is, are you any good? Are you really one of the 15 companies that’s going to be a billion-dollar company that’s been created this year? And then the second thing they’re thinking is, if you are so good, then why are you talking to me? Why haven’t you already been funded? And you need to come up with a on the meta strategy is to really come up with tactics that can address those two things and signal those two things. This is above and beyond just having a good pitch and doing all of that stuff.
Shawn Flynn 54:05
Ravi, the information you just gave in throughout this whole interview has been amazing. I’m definitely I start using double click. But we didn’t have enough time today to go into detail about difference between business-to-business accelerators and business to consumer accelerators. Also, what’s on the horizon for the alchemist and some of the biggest moments of your career? We got to get you back on the show in the future. And I also want to thank S.E. Maudie, who made the introduction that allowed today’s interview to happen. Her information be in the show. And if you didn’t listen to her episode, I definitely recommend going back in our archives and checking it out. And Ravi, if anyone wants to get a hold of you or learn more information about you or the Alchemists accelerator or your Stanford class, what’s the best way to go about doing it?
Ravi Belani 54:45
So for Alchemists, it’s AlchemistAccelerator.com or Google Alchemists Accelerator. for Stanford, it’s Ecorner.stanford.edu. You can follow me on Twitter @Rbelani or follow alchemist @AlchemistECC and you can email me at ravib@stanford.edu or Ravi@AlchemistAccelerator.com.
Shawn Flynn 55:09
Great. We are going to have all the information the show notes. And do not forget to write a review on iTunes or other podcast platforms that encourages us to create great content like this in the future. So, once again, Ravi, thank you for your time today.
Ravi Belani 55:21
Thank you, Shawn. This is great.
Outro 55:24
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.
