Vaibhav Agrawal of Lightspeed: 5 Things I Need To See Before Making A VC Investment

An Interview With Jason Hartman

Team: I believe this is the most important aspect of picking a winning investment. Product, market, approach, basically everything else can evolve, but founding teams are really painful and hard to change especially in the first year of business. I look for founding teams that are ambitious, have the necessary skills to ship product and sell to the first few customers, and that are good storytellers.

As part of our series called “5 Things I Need To See Before Making A VC Investment” we had the pleasure of interviewing Vaibhav Agrawal.

Vaibhav, or ‘Dr.V’ is a Partner at Lightspeed Venture Partners based out of the San Francisco Bay area. He has led early investments in or served startups such as Innovaccer, Glean, Zetwerk, Apna, Udaan that are collectively valued over 10 billion dollars. He previously co-founded two companies, worked at McKinsey, attended Stanford GSB and trained as an ER doc.

Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?

I’ve followed the proverbial slow drunken walk to venture capital. I grew up in New Delhi in a family of middle class professionals (think CPAs, educators, consultants). My parents started their own financial services firm. I trained as a physician after high school; it was during my time as an ER doc in Bronx, NY that I clearly saw the big need for effective primary care.

I left medicine to start Prima Clinics — you could compare it to the better known One Medical — where I learned my formative lessons of entrepreneurship. A lot of people ask me: did you not enjoy medicine? No! I loved medicine and leaving it was among the hardest decisions I’ve made.

After exiting the business, I went on a tour drinking from the firehose: I worked across the Clinton Foundation (non-profit that works like McKinsey), Lightrock Aspada (private growth fund), and later McKinsey silicon valley and insur-tech startup, Stride. Shaped by these experiences, I knew I had to either build companies myself or help founders build them.

Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

The one book I’m reading right now, Trillion Dollar Coach, is about the life and lessons of legendary coach Bill Campbell. I find that it has a lot of relevance for my work as an investor and board member. Not many people realize this, but an investor’s job is not too different from that of a doctor or a coach: to discover and bring out the best in people or founders they serve.

Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?

I’m a big fan of the philosophy of: the only failures are those of integrity or failure. I’m not sure where I came across this, or which famous person said this. Growing up in medicine, where every time I failed someone lost their life, I had subconsciously developed an adversarial, a very strict can-not relationship with failure.

I exited my first company — by the way it still runs today! — upon realizing that I had made an error in understanding the business dynamics. As a primary care clinic chain, the better we were at our job at keeping patients healthy, the less money we made! So, we needed to build an insurer + clinics business, not just one or the other. This was a very painful period for me because I felt like a total failure. I was harsh on myself and my personal relationships.

This philosophy has changed my relationship with failure. I no longer see something not working out as a failure. As a venture investor, if I’m working with companies that are solving hard problems — these problems are hard for a reason! — odds are that we’d go through a lot of ups and downs. This philosophy has helped me maintain equanimity through the turmoil, and be a better partner to my founders.

How do you define “Leadership”? Can you explain what you mean or give an example?

For me leadership is about helping your teams or founders be successful beyond their own beliefs. Let me explain the first one: In the ER I would often ask nursing assistants to work on procedures — like airway intubation — which were outside their comfort zone. On boards, I regularly find myself supporting founders and challenging their limiting self-beliefs to take on bigger challenges or trusting their own intuition. I believe we all have several opportunities to serve as leaders in our daily lives, irrespective of the profession.

How have you used your success to bring goodness to the world?

At Lightspeed, I helped launch Extreme Entrepreneurs, a no-cost bootcamp for underserved founders. This program aimed to level the playing field for ‘outsider’ founders — much like the 23-yr old Dr.V building Prima Clinics! — by providing them access to the world’s best ideas and people. The program invited luminaries such as Max Levchin, Ming Maa, Tony Fadell to share lessons with over 50 founders. Several of these outsiders have gone on to build inspiring companies. I am grateful to my partners at Lightspeed for ideating, supporting and spending countless hours on this initiative, it just couldn’t have happened without them.

Ok, thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race, diversity, equality and inclusion. This is, of course a huge topic. But briefly, can you share a few things that need to be done on a broader societal level to expand VC opportunities for women, minorities, and people of color?

All the most important women in my life — my wife, mom, and mother in law — have launched successful careers in medicine, tech, and finance. This gives me hope that people with underrepresented backgrounds and ethnicities can break into all professions, including venture capital.

Sadly talent is uniformly distributed but opportunities are not. To make change, I think we need to do two things: One, improve access to knowledge, work, and people working in venture capital. Communities of podcasters, journalists and initiatives such as the Startup School by YCombinator have made important progress here, and we need to continue to do more. Two, highlight and encourage role models. Human history is filled with leaders who galvanized mass movements and change. The beauty is that these role models exist in startups and venture capital! We need to raise their awareness and encourage them to take the next step of broader advocacy. When a young student internalizes — if the role model could do this, so could I — it could be very powerful.

Can you share a story with us about your most successful Angel or VC investment? What was its lesson?

Let me share a story about Zetwerk, which is the largest b2b custom manufacturing platform connecting large enterprises with small and medium suppliers all over the world. I had worked with Amrit, the co-founder and CEO, during my time at McKinsey. I knew he would make a special founder. However, when I met them, he and his co-founders were building operating software for factories which I thought would be a tough business in view of low budgets and long sales cycles. So, in spite of thinking highly of the team, I didn’t pursue the business’ seed financing round.

A year later, I realized that the founders had pivoted the business from a software company to a marketplace that was growing very fast. That’s when I realized my mistake and thankfully got the opportunity to partner with the company at their Series B. My biggest learning is that the strongest founders may not have the right approach on day one, but they will navigate to it eventually. So if you know strong people, as an early investor, it pays to take a forward bet on them!

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

Sure, but first, recall my philosophy about failure! I wouldn’t call this a failure, just a startup endeavor that did not work out as anticipated. I led our investment in an e-sports streaming company, like Twitch, which went kaput when large countries banned hit gaming titles such as PubG and FreeFire. Once the games got banned, the players or ‘streamers’ vanished, and the business took a nosedive. The biggest lesson for me from this experience was that there is a lot more chance involved than we acknowledge behind every successful company.

Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.

Oh, there are so many! One of the companies in my portfolio has a solo founder. He is an amazing CEO and a visionary product leader — those skills were essential to launch an app that was an instant hit with users. However, a few quarters into the business it became clear to me that strong sales and ops would also be needed to build a winning company, but we didn’t have a senior leader who had super-powers in those areas.

I invited the founder to lunch and brought up my observation. Inspite a healthy debate, he did not agree with me. Changing tracks, I asked him to write down the key assumptions his argument was based on — e.g. that small businesses will self-serve the platform, they won’t need to be ‘sold to’ — and offered introductions to other CEOs who had operated similar businesses and could therefore validate his assumptions. Five conversations and a few weeks later, the founder came around to agreeing with my viewpoint, and we both started an executive search for this person together. My lesson is that it’s more effective to help founders get to the right answer than providing the answer itself.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

Early on in my investing career, I would sometimes ignore my positive intuition on a company if my more experienced colleagues had a negative view. While this helped dodge some bullets, it also caused me to miss a software company that went on to be valued for billions of dollars. I learned that confidence has a huge role to play in an investor’s success. If you’re not confident, you won’t rely on your intuition. Thus it’s really important for thriving partnerships to have a temperature check on how partners are feeling, draw out strong intuitions, and reconcile divergent viewpoints through effective communication.

Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why? Please share a story or example for each.

There are five things I look for:

1. Team: I believe this is the most important aspect of picking a winning investment. Product, market, approach, basically everything else can evolve, but founding teams are really painful and hard to change especially in the first year of business. I look for founding teams that are ambitious, have the necessary skills to ship product and sell to the first few customers, and that are good storytellers
2. Market: I look for markets that are either forgotten (we call them ‘sneaky large TAMs!’) or small but rapidly growing. Population Health software — the category where Innovaccer started off — is a great example of a small but rapidly growing market spurred by Obamacare
3. Approach: This is something I learned from my mentor at Lightspeed. For example, if a startup wants to solve the problem of faster furniture delivery, how is it choosing to solve it: via better software for retailers or suppliers? Or via a marketplace connecting retailers and suppliers? Or via building a supply chain company itself? All these are different approaches and have implications on the right team profile, growth, and margins.
4. Customer insight: Usually founders that are close to their customers have a deep, nuanced understanding of a problem. If the insight is contrarian or overlooked, even better. But that can’t happen unless someone spends time diving deep. So, I look for founders who are ‘divers’ not just surface ‘snorkelers’
5. Right to win: What I like to see is a sharp articulation from the founders of how they will win e.g. via low-cost distribution, or a highly differentiated product, any other unfair technological advantage

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I wish leaders of the startups and the venture capital industries devote 1% of their time (not just money!) to spread the knowledge of building successful companies. Our world and future generations face large unsolved problems — education for all, climate change, equitable access to job opportunities, malnutrition, conflicts — that will require the efforts and creativity of thousands of entrepreneurs. Our generation has the opportunity to inspire the next.

We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might see this. :-)

I’d love to meet Rafael Nadal, winner of a record 22 singles grand slam tournaments. He has overcome injuries, adapted across playing conditions, competed against powerful players, Federer and Djokovic, yet managed to dominate the sport of tennis over a long time. It’s really hard to be at the top consistently for that long. I’m curious about his mindset, models, and methods.

This was really meaningful! Thank you so much for your time.

About The Interviewer: Jason Hartman is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.

Starting with very little, Jason, while still in college at the age of 19, embarked on a career in real estate. While brokering properties for clients, he was investing in his own portfolio along the way. Through creativity, persistence and hard work, he earned a number of prestigious industry awards and became a young multi-millionaire. Jason purchased a California real estate brokerage firm that was later acquired by Coldwell Banker. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author, and media personality. Over the years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments nationwide for their portfolio. Jason’s sought after educational events, speaking engagements, and his popular “Creating Wealth Podcast” inspire and empower hundreds of thousands of people in 189 countries worldwide.

While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 to provide financial literacy education to young adults providing the all-important real world skills not taught in school which are the key to the financial stability and success of future generations. We’re in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start. Visit JasonHartman.com for free materials and resources.