[MUSIC] So it may seem paradoxical to some of the people watching this MOOC that somebody in the business of putting capital to work in fast growing ventures, somebody like you, would appear in a course that kind of argues that actually entrepreneurs should start, and at least in the early stages grow their business without your kind of money, so would you explain that apparent paradox? Sure, well I think again, it's an excellent question. And so at the core of it is, well why would a professional investor, a professional VC, not want to pile in early, versus the approach a company after it's achieved a more customer financed kind of success? And what I would say is that, the most important thing for us, at the end of the day, we're looking for companies that have explosive potential. Venture, itself, is a hits driven business. >> Yeah. >> So, the reality is, we sort through investment opportunities, our focus is on companies that, if they're successful, they can achieve massive returns. And in a portfolio, in any one fund, where we might invest in, say, 30 to 40 different companies, because we take on so much early stage risk, a lot of these companies won't make it. So the ones that do make it have to really make it at a very big scale. So what helps inform us is to what companies are likely to be successful, it's the ones that have the most market validation. Which is another way of saying, it's the ones that have the most feedback from customers. So when I'm looking in a career of early-stage investing, and my primary focus and where I've had the most financial success is by picking, by being the first institution, by leading this series A and achieving big ownership. But what I look for, is customer validation. And the best thing that entrepreneurs can do today is, you know, build a product or service and get that early validation from customers. And again, it's not just about financial results. It's about clarifying the blue print for the entire business. It's about understanding how does the product create value and measuring that internally with the customer. It's about understanding how you land a customer and then expand that opportunity over time. it's understanding how you make a product more strategic over time. So getting early customer validation informs your product roadmap. It also helps educate an entrepreneur about who are my partners? Who cares whether I live or die? So none of our companies live as a stand alone business. They're all part of an ecosystem. So it's really vital early in the life of the company that you understand what gives lift to my business. Where is there operating leverage over time? All of this is derived from having engaged customers early on, so I would say there's nothing that reassures us more that a entrepreneur knows what they're doing, than getting funding from customers. >> Yep, yep. So if an entrepreneur is successful in doing that, has the right idea where there's a real problem that some customer has that this new venture can solve, how does the entrepreneur know when enough traction is enough, and when it's time to go to somebody like you to put some fuel in the tank? >> You know, there's no perfect answer to that, really. I mean, you're going back to the supercell example, they didn't even have a successful game when we had enough clarity in that situation where we felt they had the right approach, they had the right expertise, the right discipline. So now again, that was a very experienced team, an unusually experienced team. But the truth is once an entrepreneur has significant, once the entrepreneur has real market validation, a handful or customers where the microeconomics are the busiest, what the customer's willing to pay for the product, what kind of value it's creating internally, when some of these things are shown, I would argue it's probably time to start socializing with some VCs. To understand who is expertise in my particular market. And it's time for them to start asking themselves, how can I make this business go faster? How can I raise the probability of success? because again, it's not just about, I mean the reasonable approach of VC Is not just for the money. I mean, obviously the money is helpful, but what you want are stakeholders that are aligned with you with expertise in how to optimize your particular business. And the reason we raise the probability of success is, we study certain kinds of business is very intensively. My background for example is primarily in data management and analytics. These are the kind of companies that I primarily focus on. And after 30 plus years of being both an investor and entrepreneur, you know- >> You know that game. >> I know that game. And I can help an entrepreneur avoid stepping on land mines and just go faster, make the business more efficient. Our job at the end of the day is to really make heroes out of the entrepreneurs that have the courage to start these companies. >> And courage is the right word. So I think we agree that it makes a lot of sense for an entrepreneur to go get customer traction, at least at the outset, and get to where there's genuine validation. Are there any drawbacks? because sometimes entrepreneurs tell me well, gee, I'm worried about doing that. Should they be worried about that approach? >> Well, there are drawbacks. I mean, the important thing for any entrepreneurs to know, who are the right first five or ten customers? And a classic mistake that some early stage companies make is they're so excited and enamored with the idea of selling to, say a Goldman Sachs or Morgan Stanley, you know, a giant bank or giant Telco, when generally speaking, those are just the wrong first customers for a small start up. >> Tell them why. Tell them why. Why are those the wrong customers? >> The reason it's vital to pick the right first five or ten customers is there's a real danger for early stage companies being abused by certain kinds of initial customers. And becoming captive R&D shops. So what you're looking for, is customers that are representative, you need archetypes that are representative of the broader market that you want to go after. You also need customers that have urgency to adopt, right? So you're not just looking for someone who's going to pay you money. The more important thing is you're looking for customers that are actively going to engage with you and give you feedback about your product. How easy is it to implement? What value does it create? How broadly does it touch the organization? Who looks at it? Is it targeted at mid-level executives? Is it targeted at C-level audiences? Is the premise that you have a beach head. In a sense, you're clarifying your insertion point, because what you want to learn from your first five or ten customers is how do I build an efficient repeatable sales model? So if you get the wrong first customers, the opportunity costs are enormous, because you're not getting that learning. So, you have to be careful that you don't have false positives, or that someone is saying, well, I love this product, but can you customize it in a bunch of ways that are unique to me. And then all that effort is squandered because you can't leverage that with other customers. So again, that's actually part of the role of a good board and a good set of investors, is to work with the entrepreneurs and say, if you could have anyone, who are the ideal first five or ten customers? And I find that young entrepreneurs in particular are not as adept at setting expectations with those first customers and making sure that they educate the customers about, this is a relationship, and here's what I need back from you. It's not just being, quote lucky to get a check from them, you need engagement, you need customers that are committed to giving usable feedback. >> Yep. Yep. So you're talking in part here about selling to the enterprise world. Of course, there are many entrepreneurs who want to build B to C businesses as well. Does that change things in any way? [MUSIC]