TSP055 | Nihal Mehta – Transcription

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TSP056 | Andrew Goldner – Transcription
TSP054 | Adam Quinton – Transcription

John Livesay:

Welcome to The Successful Pitch. Today’s guest is Nihal Mehta, who is the partner at Eniac Ventures. He’s invested in so many great startups that you’ve all heard of from Airbnb to Uber. He has a really great look as to what he is looking for when he decides who he’s going to fund. 65% of it is all about the team. He wants them to not just be hungry, but be ravenous and be mission-driven, so compelled to make a difference, and he’s also looking for someone who’s got a big vision and a big market, and then he likes to see product demos because he wants to see if it works and he wants to play with it.

He’s a real specialist in the mobile world. He has a whole focus about, “As a founder, you should create the lightning and your team should be able to catch it,” and he also really talks about the need to fund founders who are humble and care about the right things. For example, really being mission-driven but not really caring about fancy cars. So those are the secrets that you’re going to learn today. Enjoy the episode.

Hi, and welcome to The Successful Pitch Podcast. Today’s guest is Nihal Mehta, who is the founding general partner of Eniac Ventures, which is a mobile venture firm. He’s founded five startups and invested in more than a hundred since 1999. Clearly, a very busy man as one of the things he did was LocalResponse: the revenues grew over 2,000% over a three-year period, which was able to place the company at the #204 slot on the 2014 Inc.’s 5000 fastest growing companies, and on the Forbes list in 2013, he was #67. So, clearly, he knows what he’s doing. He’s invested in things ranging from AdMob – which got sold to Google – Airbnb, and, of course, the famous Uber. He was named the semi-finalist for Entrepreneur of the Year and, in 2012, a top 100 coolest people in New York tech by Business Insider. So, clearly, that’s somebody I want to get to know. Welcome to the show.

Nihal Mehta:

Thanks for that crazy introduction. It’s an honor to be here. Thanks for having me.

John:

Oh, you’re very kind to say that. You know, one of the things I want to jump into, which I normally don’t do is you have this wonderful video called A Day in the Life where there’s no white space on your calendar. I just so responded to that as, “What a smart branding statement for you, your company.” I mean, I literally felt like I got to experience what a typical day was for you starting with walking your dog to work. What gave you the idea to create such a great video?

Nihal:

Yeah. I think it’s interesting, actually. It took a while to get that video on the calendar but I like to, especially during the day, just kind of run super hot in terms of optimizing your time and maximizing and then literally, having meetings every 30 minutes. I think it’s important, obviously, to have some time to follow up but, I think, during the days when everybody’s active and when you can get the most face time with folks and then kind of early mornings or late nights, you can kind of do more asynchronous things like catching up on emails or doing your work. So I feel like during the day when people are out and about is your time to make the most impact and have meetings and I’ve always done that.

John:

It’s a fascinating look at your focus is on mobile and yet you’re such a big believer in face to face, which I love the dichotomy because so many people think, “Oh, I’ll just text everybody,” and you’re like, “No, we’re going to have meetings.” One of the things that really stood out in that video was you’ve created a circle of trust. Can you talk to us a little bit about what you do and how you came up with that?

Nihal:

Yeah, I think every – so, I’m now a full-time venture capitalist, but every startup that I had created prior to becoming an investor, I think it’s really important to have a very strong management team. Especially when you’re out there pitching to investors or large customers, you need somebody to make sure the trains are running on time. So, I think I’ve been fortunate to have those at some of my companies and those companies have done well and I’ve been unfortunate to have put – not set up stellar teams at some of the companies as well, and those companies are not doing so well.

But if you look at some of the folks that are probably the most ambitious in the industry, if you look at people like Elon Musk with Tesla and SolarCity and SpaceX or if you look at Jack Dorsey with Square and Twitter, I think that’s probably the number one thing that they all say is make sure you have a killer team, a killer M team that can run the show and your job is to kind of create the lightning and their job is to catch it and make sure they can distribute it internally. But it’s definitely easier said than done. It’s a pretty big challenge to be able to do that.

John:

Well, it’s what I hear over and over again from investors like you that you’re looking for and whether you decide to fund a startup or not, when they pitch you is the importance of the team. Do you have any lessons learned that you can share with founders about how to create a good team? I’m guessing part of it is being able to articulate the vision or, as you described, to create the lightning.

Nihal:

Yeah, I think, for us now, investing from Eniac, we want to make sure the founding team is self-sufficient, meaning, they can build and ship the products themselves, and that basically requires a technical co-founder and I think our bar is higher than most where we will not invest in a business unless they have a technical co-founder. So this is somebody that, maybe, is full-stack or they can at least build a prototype and ship it, and the reason we demand that is because, first of all, if the company can’t raise additional funds, the market goes south or for whatever handful of reasons, that founding team can still work all day long, all week long, all night long to get product out. They don’t have dependencies on other folks. So, I think that’s really important.

Two, I think, when you’re building a team to garner respect of people that you recruit, you should definitely know the trade. Know the trade enough to speak the language and if you can’t, then it’s going to be very hard for you to recruit amazing people that respect you. So I think that’s another reason why we require a technical co-founder. So that’s kind of our emphasis on teams as it can be two or three folks. It doesn’t have to be a large team. Two or three folks can build and ship the product and build the company and raise seed financing and then make all the other critical hires, afterwards.

John:

Great. Can you take us back to your early days? Did you always know you wanted to end up here? Did you know you wanted to be a venture capitalist as opposed to an angel seed investor? How did you craft that? Obviously, you’ve been a very successful entrepreneur yourself first and that must help a lot.

Nihal:

Yeah, I think – I never imagined myself, actually, to being a venture capitalist. I was always a computer nerd growing up. I, like many others, kind of disassembled and reassembled the computers and root drives and operating systems at a young age. Was always tinkering, had, basically, all the phone lines and fax lines in my household occupied with bulletin boards constantly transmitting files or messages or whatever it is, pre-internet in the late ’80s and early ’90s.

You know, I was always super passionate about computers and connections, and so I think my inspiration was, I always say, kind of my only real job was working for Microsoft in 1998 as an intern the summer before my senior year of college, and getting to the valley, being a computer nerd at that time, was a dream. It was an oasis driving up and down 101 and seeing the first Yahoo billboard. This is pre-Google and kind of the gold rush that was happening.

That really got me excited, and I think I came away from that summer back to college knowing that I wanted to start something. I wanted to start a tech startup and so I did that right after college, literally accepted a job with a bank in New York, which was kind of the typical track for folks coming out of UPenn – where I graduated – but I never worked a day in my life at that bank. Instead, I started my first startup and I never looked back, and that was an amazing experience.

John:

Can you take us back? Was there a moment when you said, “I’m not going to take the expected safe route and work for a bank. I’m going to go do a startup even with all those risks and I may not have tons of experience since I’m just out of school but I’m investing in me.” Was there a moment when you said – that you made that decision and was it easy?

Nihal:

Yeah, I think, now, we coach folks, entrepreneurs all day long and we tell them to fail fast. I think, find a way to just fail fast and learn from your failure, get back up, and go at it again. The best learning will come from you swinging the bat and trying it out. Now, as a VC, I don’t tell your founders to fail fast. We hope that they’ve already failed and they’ve learned their lessons and now they’re back at it, much smarter and more experienced for a win. But I think that’s what you got to do. You got to go through the ups and downs of startups. You’ve got to learn from your own experiences. You can’t learn from just reading TechCrunch all day long. You got to get out and do it yourself.

So I was fortunate after school, after college, my parents who became entrepreneurs about 30 years ago after immigrating to this country from India, I got to see their ability to control their own destiny by not going to work anymore, but working for themselves and working from home and, eventually, in offices that kept on getting bigger and bigger and they were definitely the strongest force in my career for telling me, “Listen, there’s nothing like it and the worst-case scenario, you can go and work for this bank. The best-case scenario, you’re going to hit it out of the park and, in the worst-case scenario, you’re going to learn a ton,” and I think my first startup failed. We actually declared bankruptcy after flying super high and hundreds, maybe thousands of other startups had declared bankruptcy in 2001 during the first bubble burst.

I’m really glad I experienced that because, literally raising money, going from 2 folks – myself and my co-founder – to 40 folks, commercials on MTV, billboards on I-95 all the way down to 2 folks, and then declaring bankruptcy was an amazing experience. It was very humbling, as well and I think, after experiencing that trajectory up and down, you feel kind of invincible. You feel like you can kind of do anything. You can start anything because the worse thing that will happen is you get right back to what you’ve already experienced, and it took a little bit of time to shake it off, you know, dust yourself off, but then when you get back up, you’re much stronger and I think I’m really happy I had that experience as my first entrepreneurial experience in ’99 to 2001. That was about 14 years ago after we had to declare bankruptcy and I think I’m a much stronger entrepreneur and a much stronger investor because of that.

John:

Oh, I have no doubt. One of the things I’m constantly coaching founders on when I’m helping them with their pitch and how to approach investors is you need to stay humble and yet confident at the same time and, in your video about Day in the Life, you talk about going to a certain restaurant that looks like nothing that you could just walk by and when you go in, it’s got delicious food but the ambiance and the people there are still humble and I love that. Is there something you can speak about when you’re evaluating people who are pitching you and deciding whether you’re going to invest or not? The factor of how to balance confidence with humility?

Nihal:

Yeah, it’s actually really funny. We had an off site just last week. We’re going through our portfolio and kind of looking at — specifically analyzing lessons learned from either successes or failures and now, almost 80 or 90 companies, and there seems to be kind of a success ratio that’s kind of inversely proportional to how smooth or put together the entrepreneur is.

It’s almost like we want founders to be super scrappy, they don’t really care what they’re wearing or how they necessarily come off as super polished, but they’re super passionate about their company and their products and they think about it all the time and I think there’s a reason why Steve Jobs and Mark Zuckerberg wear the same clothes every day, and Zuck was quoted by saying, “Listen, it’s one less decision that I have to make on a daily basis,” and there’s something powerful there. It’s like you’re literally red lined to the max where you don’t have any extra time and so, literally, one less decision makes all the difference and we look for founders that really just care about the right things. They don’t care about fancy clothes and fancy cars and smooth talk and name-dropping. They care about building great products very quickly, getting data from their customers, and iterating as fast as they can to grow a very big business. So, those are some of the lessons that we’ve learned and, obviously, we’re getting better with, hopefully, with about every investment kind of identifying those types of founders.

John:

So much of pitching is all about storytelling, don’t you think?

Nihal:

Yeah, I think so. I think you definitely have to convey your message articulately. I think, these days, I always say the best pitch deck is a product. Give me a test flight. Instead of taking me through 30 slides, we probably are already somewhat familiar with the market and already somewhat familiar with the vision. Just show me the products. That also puts a little bit of a pressure and onus on entrepreneurs. I think there’s a lot of folks that cannot build and ship mobile product quickly and that kind of puts pressure on them and that’s a natural filter for us if teams are not able to show us a product that they can build quickly and iterate on it quickly as we’re tracking them, then that’s a potential red flag. But I think that’s the best deck; that’s the best way to pitch your product is, “Here, download my product. Now, play with it.”

John:

I love it. There, obviously, is a beyond a working prototype for the most part by the time they get VC money, right?

Nihal:

Yeah, I think that’s right. Listen, prototype these days is pretty easy to build, if we have a strong founding team. Again, a strong tech co-founder; you can put something together in a week. My wife runs a non-profit called Girls Who Code and she always jokes to me about it. She teaches, literally, 14-year-old girls who come in knowing nothing about computer science and in six weeks, they’re publishing to the App Store. They’re literally publishing apps for iOS company App Store. So, she jokes to me, “If 14-year-old girls can do it, you can find founders that can do it, too.”

John:

What do you think makes a good pitch besides having a great product and a great team? Are there other things like barriers to entry that you look at? Is there any other things that you think that are really important questions you ask that you wish founders had answers to that they typically don’t?

Nihal:

That’s a good question. I think we really look for three things in a team or in a pitch in a business. So, the biggest by far we mentioned is the team. I’d say that’s probably 60, 65 percent of the weight of our decision. You know, the team needs to have a tech co-founder. They need to have some history of working together. We like founders that are kind of one of two things. If they have both, even better. So, one is that they’re super hungry, maybe because of a recent failure, maybe from their last business failed, or maybe they exited but they didn’t make any money or they just made a little bit of money so they got a little taste but it could have been much bigger. So, they’re just hungry. They’re literally ravenous; they’re ready to go, you know?

John:

Got it.

Nihal:

So that’s kind of one quality. The other quality is that they’re mission-driven that they’re building a business that’s much bigger than themselves. They literally want to change the world in this little niche that they’re focused on. The best example I mentioned – Elon Musk. We’re building space travel to Mars by 2020, SpaceX. We’re going to build sustainable travel, Tesla, all of these things is very mission-driven.

So, occasionally, you got a combination of both. You get somebody that’s just come off of failure that also wants to change the world, and I think those are very unique folks with unique experiences that we want to seek out and fund and fund. So, that’s the team that’s 60, 65 percent of the equation. The other second 20% is a vision in the market. So, this is — we’re not investing in a Foursquare for puppies. This is a –

John:

Right, big enough.

Nihal:

We want a big swing. We want a company that can be at least a billion-dollar market cap independently. So, these are big industries that the entrepreneur’s going after disrupting or augmenting, and so we’ve got to make sure they think big and the market is big enough for them to grow a very big company.

Then, the remaining 15, 20 percent is the current products and it’s okay if it’s a prototype. We rarely invest in anything that’s pre-prototype, pre-launch. We want to make sure that the team is capable of building and shipping. We want to play with it. We want to also give some time to track the team to see how quickly they iterate. Get some users through the funnel, get some revenue through the funnel, whatever it might be.

We’ve all been entrepreneurs before so we know products are going to change a ton, they’re going to twist and turn, they’re going to pivot a bunch, but we want to just get our hands on some prototype and see how good the team is at responding to feedback and data from their customers.

John:

Well, I have two questions from what you just said; that’s great information. When you’re talking about mission-driven, in addition to being ravenously hungry, the mission-driven could be as big as what Elon Musk is doing, but it could also be what you had talked about earlier, I think, which is, “I’m mission-driven to make mobile ads become more relevant where people see them as content and might even welcome them as opposed to seeing them as a distraction.” Would that be a good example of being mission-driven?

Nihal:

That’s right. Yeah, that’s absolutely right. Your mission can be anything within your niche that you just feel super passionate about. Again, it’s much bigger than just yourself. It can be anything. It’s like, “I’m going to make a shoe that’s going to blow away all other shoes” or “I’m going to make ads that will not annoy users that will add value to their experience” or whatever it might be. But I think you can sense that mission-driven nature from the way the founder kind of talks about their business, how they articulate their passion.

John:

The other question I have for you is very specific about when someone’s talking about their product and you were starting to allude to getting some revenue and some people through a sales funnel. Do you ask them or hope that they have already thought this through about how much it’s going to cost them to acquire a new customer?

Nihal:

Yeah, I mean, we definitely look at unit economics for businesses that — I mean, both B2B and B2C. So, what is the acquisition cost for the customer versus what is the lifetime value? Usually, companies at the seed stage are thinking about it, but they don’t have enough data reinforcing these calculations. I think, today, those are what series A guys dive into a lot more than seed investors. I think we just want to make sure that the founders have thought about it and that there’s a path to profitability based on customer acquisition costs and lifetime value. So I think that’s important.

More important than the economics is how are you going to get customers? Let’s talk about distribution, and I think, obviously there’s Google Play and App Store and just by building and chipping an app doesn’t mean you’re going to get thousands of users overnight. You need to have a strategy. You need to have, for a consumer business, network effects are very important. So, being able to leverage your graph in Facebook or Twitter to turn the service on to others, having certain viral loops for B2B businesses where you might have less network effects, making sure your product is just so good that it just spreads by word of mouth.

John:

Yes, the virality. The earned impressions, right?

Nihal:

Yeah, I think distribution’s much more important than the economics, at the seed stage, at least.

John:

Got it. Well, you’re at the venture capital stage so you’re looking also, probably, at in addition to all these other things, what the exit strategy is to make sure you’re going to get your money back and there’s reasonable time, right?

Nihal:

Yeah, I think we’re probably a little bit different than other investors. Actually, I had a few conversations earlier today about this. We don’t invest in quick flips. We want founders to really shoot for the moon. There’s a pretty interesting quote that I heard a few weeks ago. “When you shoot for the moon, you land on the stars,” and I think –

John:

Haha, yes.

Nihal:

— it’s probably the other way around, but from an astronomy perspective.

John:

All right. Yeah, the concept is – yes.

Nihal:

But I think there’s something to be said about just going big and literally trying to build a multi-billion dollar, independent enterprise. You know, companies are bought; they’re not sold. So, as we’re going up, as your trajectory is climbing, that’s good if you have many opportunities to get bought and it might make sense, based on market conditions based on ROI to your shareholders to seek out those opportunities when they arise. But I think we’re wary of entrepreneurs creating businesses to sell them or for the sole purpose of selling it to another company. We don’t invest in quick flips. We want companies to really thrive and grow as large as they can become independently.

John:

Great. Is there a particular way you like to meet founders? Do they have to be so tall – like at Disneyland, you have to be this tall to ride the ride. Do they have to have achieved a certain amount of seed funding before they can even have a conversation with you? If so, then what’s your favorite way to – is it through warm intros? How do you like to find people?

Nihal:

We actually put on our website that you can reach out to us through somebody that we both know. I think that’s another natural filter is we’re out there all the time. We’re at events, we’re on Twitter, the four partners have fairly large independent networks. So if you can’t get to us, then there’s probably something wrong. If you can’t get to us directly, then you’re probably going to have a hard time fundraising because we’re pretty accessible. I even respond to LinkedIn and Twitter.

But I think the best intros come from credible introductions from other folks, from other investors or we actually love other founders in our portfolio making introductions. Then that’s a growing segment of our inbound deal flow. But, I think, between founder referrals, other co-investors, and just our networks, that’s probably about 70 or 80 percent of the, say, 300 to 400 deals that we get on a monthly basis and those are inbound. The other kind of 20, 30 percent are when we catch up with other co-investors, maybe the series A guys where deals are too early for them or even the pre-seed guys where deals are graduating their programs. But vast majority are inbound.

John:

Do you have a specific category? Since you have such an expertise in mobile, do you typically like to invest in things that have some connection to mobile or is it broader than that?

Nihal:

Yeah, mobile first is our thesis so that means – I think we all define it a little bit differently – but I find it can exist outside of mobile and because it’s mobile, it’s incredibly disruptive. So think about a business like Uber just can’t exist outside of mobile and just that’s little, that geolocation, GPS, satellite, whatever it might be. It makes that service magical and so it really can’t live outside of mobile.

You know, within mobile first, half the businesses we invest in are B2B, half B2C. I think we’re looking every quarter, our thematic approaches change a little bit. I think, right now, we’re looking more at mobile marketplaces, both on the demand side and on the supply side, mobile logistics, augmented reality and virtual reality, drones, mobile healthcare, mobile real estate, artificial intelligence that’s powering personal utilities. Messaging is the new app and chat is the new app. These are some of the themes, I think, that we’re thinking a lot about.

John:

Yes, I love all those topics, artificial intelligence and messaging in particular. Recently, the New York Times did a story about how Apple wants apps and Google wants people to search the web. Do you have thoughts around that?

Nihal:

Yeah, I mean, I think they’re all trying to just drive more traffic to their own bottom line. I think the app – the native app experience is still much better than native web, today. I think there probably will be a day where mobile software follows desktop software. You know, now desktop software is all in the Cloud – it’s all browser based. But 10, 15 years ago, we all had CD-ROMs and that’s how we would install software.

So I think we’ll probably get there one day – I think, probably, 10 years from now when speed is not an issue, when the browsers are so beautiful, and the OSes are so beautiful that you can’t tell the difference between native and web. But, today, I think the app is definitely the way to really capture the best experience of your company. You don’t have to ship a bunch of apps on a bunch of different operating systems.

We recommend founders just prototype on mobile web to get closer to product market fit and then roll out an app and all of us kind of roll out the iOS first just because it’s just much easier to iterate and test on and then, once you’ve kind of figured it out – it’s like the Instagram strategy – then roll out Android when traffic is growing and I think you’ve figured it out.

John:

Is there any one book that inspired you or that you would recommend founders to read either about life or business?

Nihal:

That’s a good question. There’s so many books out there that – I’m trying to think of a few. Let me grab a – let me see what’s in the Kindle right now.

John:

Okay. I love it when it’s this live. It’s happening now. He’s literally opening up his Kindle.

Nihal:

That’s right. I have two phones. I have an Android Note — a Samsung Note that I kind of read and consume media on and then an iPhone that I do most of my messaging on. So the Kindle is loading. I think, Zero to One was pretty good this year by Peter Thiel.

John:

Yes.

Nihal:

I think, from a founder perspective, I think there’s a lot of pretty awesome tips and tricks in there. I think, Ben Horowitz, The Hard Thing About Hard Things, was also very good. The Everything Store with Jeff Bezos and the Age of Amazon. Nick Bilton’s Hatching Twitter. Malcolm Gladwell’s David and Goliath. These are just kind of – this is just from this year.

John:

That’s great. No, those are all exactly what – we’ll put all those in the show notes with links to link them up. How can people follow you best? On LinkedIn and on Twitter and all that good stuff. Since you’re –

Nihal:

I think I’m pretty active, fairly active on Twitter. Just @nihalmehta.

John:

Fantastic. Well, you’ve been an incredible guest. Thank you for sharing your insights. I love your focus on what makes a good team, and I’ve never heard it described as ravenous before but definitely going to remember that and this whole concept of being mission-driven, which you certainly are. Thanks again for being on the show.

Nihal:

Thanks so much for having me.

John:

Thanks for listening to The Successful Pitch Podcast. If you like the show, please go to iTunes and write a review and encourage your friends to write reviews, too. It really helps get the word out. You know, people say that the longest distance is between someone’s mouth and their wallet. People can tell you they’re going to invest, but when it comes time to write the check, they don’t do it. So how do you get people to say yes and then follow through? Visualize yourself on the left side of a riverbank and you have to cross the river and on the other side of the river is where the funding happens.

So, first, you make up your idea and then you make it real and then you make it reoccur. Once you start dipping your toe into the water to get to funding, that’s where I can help. I get you across that river faster than you would on your own with a lot less frustration than you will get when you hear a bunch of no’s and you don’t know why. So if you want some help getting funded faster with less frustration, go to my free funding webinar, sellingsecretsforfunding.com/webinar. Sign up, and get in depth information on how you can get funded fast. Thanks.

TSP056 | Andrew Goldner – Transcription
TSP054 | Adam Quinton – Transcription