5 Things I Need To See Before Making A VC Investment, With Arjun Arora of 500Startups
I had the pleasure to interview Arjun Arora. Arjun is currently a Partner at 500Startups — the most active early stage venture firm in the world. He leads the firms efforts for fundraising and investor relations, works closely with the accelerator, does direct investments and assists with the regional 500 funds. Arjun was the Founder of ReTargeter which was acquired by Sellpoints (March 2015). Arjun was the founding CEO of ReTargeter and bootstrapped the company to be in the top 100 of Inc’s Fastest Growing Companies list in 2013. He is a recognized expert in display advertising and retargeting and has been interviewed on Bloomberg TV, been quoted in the WSJ and been mentioned in Forbes. He has been recognized at the White House, at the UN and at the Global Summit for Entrepreneurship for his success and commitment to a values centered organization. Arjun was previously the head of business development for Yahoo! Real Estate. He was instrumental in helping bring residential listings online in the early days on real estate on the web. Arjun has advised on M&A deals and IPOs for various technology companies during his tenure at the international investment bank Jefferies Broadview. Arjun advises various start-up companies in the Silicon Valley with strategic planning, monetization and funding. He is also an angel investor to multiple companies and a LP at 500 Startups. Arjun graduated from UC Berkeley with degrees in Electrical Engineering, Computer Science and Entrepreneurship & Technology.
What is your “backstory”?
I grew up in Southern California, moved to Northern California to attend UC Berkeley and then never left the Bay Area. I studied Electrical Engineering and Computer Science, so have a technical background, but right after college went into the world of business. I spent time as a technology focused investment banker, then ran Business Development for Yahoo! Real Estate — at the time it was the largest online real estate site and we were involved in moving real estate listings from newspaper and magazines to the internet. In 2009 I started my first company, ReTargeter. We bootstrapped ReTargeter to be one of the fastest growing companies in the US (per Inc Magazine in 2013). I am most proud of the team and culture we built. We also helped 1000s of advertisers across the world run incredibly effective digital ad campaigns and at the same time taught them about the future of advertising through our phenomenal content marketing. I started angel investing and advising companies personally in 2010 and have been fortunate to be involved with some amazing startups like AngelList, Change.org, Branch, HOOKED and others. I joined 500 Startups as an investor in 2016 and now am honored to invest in and work with amazing founders from all over the world. 500 Startups invests across a variety of verticals at the early stages in the development of the startup, typically when there is a product, some traction and a strong founding team.
Can you share a story of your most successful Angel or VC funding? What was its lesson?
While it is still early, I have been most excited recently by RapidAPI. The company was founded by a brilliant young Israeli entrepreneur, who we (500 Startups) invested in, in early 2016. The founder is incredibly sharp, clear in his vision, coachable and willing to focus on product & sales. That combination of traits plus focusing on a massive and growing market made Andreessen Horowitz and SV Angel back the company after going through our four month Seed Program. They have been growing nicely ever since.
Can you share a story of an Angel or VC funding failure of yours? What was its lesson?
Without going into the name, the 1st angel investment I made was in a company in the ad-tech space which was building more of an arbitrage business vs a real strong sustainable long term business. While the founder was accomplished he also had challenges with leading and managing a team which became very clear over time. The biggest lessons I took away were one, find a strong and true leader, and two, focus on business models which can become long-term sustainable entities. Managing a team well and having long term potential are more important than short term arbitrage capitalizing on a unique element of the market.
Which person or which company do you most admire and why?
I am a fan of AirBnB and Slack because while they were building tremendous world-changing companies, they were incredibly thoughtful about creating cultures that reflect strong values.
How have you used your success to bring goodness to the world?
First and foremost, I love this question. Thank you for asking it. I focus on the Silicon Valley ethos of paying it forward and have been since I first got into the tech industry. I focus on spending deliberate time each week with founders who are deeply committed to their cause and are working on large ambitious products by providing guidance on strategy and help with fundraising. These are usually companies that are not in thesis for us but this allows me to give back. I also love helping people find the right role in the ecosystem and often help folks find their next position. I am also focused on assisting with, and donating to, several charities like Mama Hope which have strong impactful missions and take a fresh approach to the work of helping the world.
What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.
*Product* — a thoughtful product that is customer centric. It does not need to be perfect at the stage I invest in but it has to be thoughtful and solve a real problem for customers. A wonderful but obvious example of this is Lyft which provided a simple, clear user experience to solve a meaningful problem in San Francisco (20–30 minute wait times for a taxi).
*Team* — need a strong, well balanced (product, sales, design) team that is aware of their strengths and weaknesses. The team has ideally worked together in some capacity in the market that they are targeting. They are focused on building a hyper-growth business and have the grit and leadership skills to do it. Also it’s important to know that they have the ability to raise downstream capital. A great example from the earlier days of Silicon Valley is Jerry Yang and David Filo at Yahoo. Among other things, Jerry brought business savvy and a large vision and David Filo brought an incredible engineering and product sense to the team.
*Traction* — We invest quite early so we are not looking for tremendous traction but some early indication that a company has customers that are willing to pay with their dollars, attention, or time is critical. A simple example here would be that if we are looking at B2B SaaS company we would be looking for at least a few paying customers with minimal churn. There are always exceptions to the rule but we absolutely look for deep engagement with customers.
*Market* — we are ideally looking for markets that are currently large or are growing quickly. An important point here is that while going after a large market is important, it is not always necessary to start by tackling a massive market. Its OK to own a smaller subsection of that market and then go after the larger pie. An example of a great company that is targeting a large market is Zentist — they are helping people find affordable dental procedures in the US which is itself a huge market but can clearly tackle several other markets from there.
*Growth Mindset* — finding a team that is strong in their execution, intelligence and leadership is critical but I believe it’s important to call out specifically the growth mindset. Teams that embody this are focused on growth professionally in their business but also (and more importantly) personally — they want to continue to grow personally to take on newer challenges as the business grows. They learn about themselves and others and keep pushing forward on the skills sets required to continue forward. My favorite example here is Pep, the silver haired founder of BigFinite. He already had an illustrious career with an exit under his belt but moved his family to the Bay Area and started his company with deep humility and a willingness to learn about new methods for growing companies at hyper-scale.
I have been blessed with the opportunity to interview and be in touch with some of the biggest names in Business, VC funding, Sports, and Entertainment. 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, or I might be able to introduce you. (When you answer this, if you prefer that I not publicize this, please let me know. I might be able to help regardless)
Pierre Omidyar — He is a phenomenal entrepreneur, operator, investor, leader, and mostly recently a dedicated philanthropist. I would love to learn more from him on how he thinks about combining the worlds of technology, investing and impact.
I would be open to sharing this publicly.