20VC Andy McLoughlin on The Benefits of Backing Unsexy Businesses with NonObvious Founders, How To Distinguish Between A Good Bridge Round and A Bridge To Nowhere & Whether VCs Really Do Add Value

In this episode of "20 minutes VC," host Harry Stebbings interviews Andy McLaughlin, partner at Uncork Capital (formerly Softtech), discussing his journey from co-founding Huddle to becoming a VC with a penchant for "unsexy" startups and non-obvious founders. Andy's angel investments include successes like Postmates and Buffer, and he emphasizes the importance of patience and calculated risk-taking, drawing from his experience and the grit of founders like Edith Harbaugh of LaunchDarkly. Uncork Capital's rebranding from Softtech is also explored, reflecting a move away from outdated impressions and confusion with SoftBank's rise. Andy advocates for a hands-on approach in VC, particularly in aiding founders with fundraising, while recognizing the challenges of long sales cycles and regulation in large, traditional industries. The discussion also touches on the nuances of British and American communication and concludes with Andy's excitement for Fritz, a developer tool for machine learning on edge devices.

• Host Harry Stebbings introduces the podcast and invites listeners to suggest guests and questions via Instagram.
• Andy McLaughlin, partner at Uncork Capital, is welcomed back for a second interview.
• Uncork Capital, formerly known as Softtech, is highlighted for its impressive portfolio including Fitbit, Sendgrid, and Postmates.
• Andy is recognized for his preference to invest in "unsexy" ideas with stellar teams and his successful angel investments.

Welcome back to the 20 minutes VC with your host Harry Stebings at H. Stebbings 1996 with two B's on Instagram. And there you can suggest both guests for future episodes and questions for future guests. It'd be awesome to see you there. However, speaking of guests, some guests are so special that one cannot help but want to have them back on the show for round two, and that's very much the case today. If you haven't listened to round one, then that really is a must. But I'm so thrilled to welcome back to the hot seat today. Andy McLaughlin partnered Uncork Capital, formerly Softtech, and one of the leading early stage funds on the west coast in their incredible portfolio.

The quote introduces the podcast episode, the host, and the returning guest, Andy McLaughlin, emphasizing the importance of the guest and the venture capital firm he represents.

• Harry Stebbings discusses the benefits of Affinity, a platform that utilizes communication data to create relationship graphs for business priorities.
• Affinity Alliances is mentioned as a feature that allows users to connect with external trusted individuals for referrals.
• The product is noted as being used by Fortune 500 companies and top-tier VC firms.

Essentially, have you ever wished all of your team's relationships were right at your fingertips? Well, through patent pending technology, Affinity is the only platform that analyzes your team's communication data and automatically creates the relationship graph you need to achieve your business priorities.

The quote describes the functionality of Affinity and how it serves businesses by leveraging communication data to enhance relationship management. It underscores the product's unique selling proposition.

• Movidium is presented as a solution for brands and agencies to connect with creative talent for video and digital content.
• The platform is praised for its global network and ability to save time and costs.
• Wonder Capital is introduced as a platform for investing in solar energy projects, offering up to 7.5% annual returns.

The movidium platform addresses that directly. It's now simple for brands and agencies to connect with the very best creatives for their projects. Wonder Capital, the easiest way to invest in large-scale solar energy projects across the US.

These quotes highlight the benefits of using Movidium for sourcing creative talent and Wonder Capital for investing in renewable energy, emphasizing their roles in their respective industries.

• Andy McLaughlin shares his journey from moving to the US in 2010 with his startup Huddle to becoming a West Coast investor.
• He discusses his initial plan to stay for a year, which extended due to the allure of the startup culture.
• Andy's first angel investment was in Postmates, which sparked his interest in investing.
• His connection to the Softtech team came through his investment in Postmates, leading to his partnership at Uncork Capital.

Well, I don't know about most prominent, but certainly I am a West coast investor. The quick backstory is that back in I moved the US in 2010 with my last startup, Huddle. My plan had been here to come out for a year and then go back and continue doing what we were doing in London. Of course, like so many other foreigners and Europeans, you come here, you get seduced by the blue skies and sunshine and snow and just being kind of in the mecca of startups.

Andy reflects on his unexpected transition from planning a short stay in the US to becoming ingrained in the startup ecosystem and ultimately transitioning into venture capital.

• The rebranding from Softtech to Uncork Capital was a significant decision.
• The need for a visual and name rebrand was driven by feedback from co-investors, portfolio companies, and LPs.
• The old name Softtech was considered outdated and not representative of the firm's investment in hardware and frontier technologies.
• The rise of SoftBank and the confusion it caused accelerated the rebranding process.

What had happened was, and actually kind of even rewinding from before I joined, I think from the time that Stephanie had been working with Jeff, I think she'd been pushing him to think about a visual rebrand. I mean, we had a logo that Jeff had bought on 99 designs for like $100 or something back in probably 2005 or something. And it was just a little bit stale and dated.

This quote explains the origins of the rebranding initiative and the motivations behind updating the firm's image to better align with its current investment focus and to distinguish itself from SoftBank.

• Andy acknowledges that rebranding will not please everyone and that it's important to accept this fact.
• The new brand aims to appeal to startups and co-investors.

I think you have to be good with the fact that you're not going to be able to please everybody with it. The brand itself is, I think it's very appealing to startups, it's very appealing to our co investors.

Andy discusses the inevitability of mixed reactions to the rebranding but emphasizes the importance of focusing on the appeal to the firm's primary audience—startups and co-investors.

• All early-stage VCs claim to add value beyond capital, but the differentiation lies in the type and amount of value added.
• VCs add value in various ways, with some potentially adding none.
• Investors should identify the specific needs of founders and offer help through experience, passion, or networks.
• Being hands-on with portfolio companies is time-consuming, which can limit the ability to produce content such as blogs or think pieces.
• Authenticity is crucial when creating content; it should align with personal interests and strengths.
• VCs can particularly assist in hiring, team building, product development, brand strategy, go-to-market, and fundraising.
• Ideal founders are deeply focused on their businesses, and VCs can smooth out the fundraising process by leveraging their understanding of the funding landscape and connections with later-stage VCs.

"Everybody talks about adding value when you're in the early stage VC game. Money is money."

This quote emphasizes that for early-stage VCs, the real differentiator is not the capital itself but the additional value they bring to a startup.

"I think that it's great to have the time to be able to kind of blog and to be able to kind of write think pieces for us."

Andy McLaughlin acknowledges the effort required to create content and suggests that while valuable, it's not feasible for all VCs, particularly those deeply involved with their portfolio companies.

"We want to get you in front of between five and ten VCs, make sure you build a relationship with them, get them an early look, and ideally one of them will pop down a term sheet."

Andy McLaughlin outlines a strategy for facilitating a smoother fundraising process for founders by leveraging VC relationships to avoid prolonged fundraising efforts.

• Fundraising is viewed as a core skill for founders, akin to product strategy and hiring.
• While founders should be skilled in pitching and storytelling, they are not expected to be experts in the VC landscape.
• The ability to sell and pitch is bound up with the art of fundraising.
• VCs can provide guidance in fundraising without expecting founders to navigate the VC world alone.

"I think that the art of fundraising, that the art of pitching and the art of selling are all kind of bound up together."

Andy McLaughlin agrees that fundraising is a critical skill for founders but also notes that they need not be experts in the VC industry.

• The term "non-obvious" refers to founders who do not fit the typical Silicon Valley mold.
• Non-obvious founders may come from varied backgrounds, industries, age groups, or geographic locations.
• Great entrepreneurs and businesses can emerge from anywhere, and supporting diverse founders is rewarding.
• Non-obvious founders may be driven by a desire to prove skeptics wrong, which can be a powerful motivator.

"Teams that don't necessarily come from Silicon Valley Central casting couch."

Andy McLaughlin uses a quote from Bucky Moore to describe non-obvious founders as those who diverge from the stereotypical Silicon Valley entrepreneur archetype.

"Finding those teams and finding those people who maybe don't look like they are out of Silicon Valley Central casting and then kind of helping implant them into the ecosystem here is just incredibly rewarding."

Andy McLaughlin expresses the fulfillment derived from identifying and nurturing founders who are not immediately recognized as fitting the Silicon Valley entrepreneur profile.

• Successful founders often exhibit determination, hard work, and intelligence.
• Evidence of these traits can come in various forms, such as athletic achievements or unique professional experiences.
• VC investments at early stages rely heavily on the quality of the founding team due to limited business metrics.
• First-time founders can be particularly compelling if they show signs of exceptional grit and fortitude.

"I think you're often looking for some kind of evidence of determination, hard work and intelligence."

Andy McLaughlin highlights the key attributes VCs look for in founders, suggesting these qualities are indicative of potential success.

"I think as well, with the state that we invest, that given it's so early, you often don't have a ton of metrics and data on the business itself to show."

Andy McLaughlin acknowledges the lack of extensive data on early-stage startups, underscoring the importance of assessing the founding team's quality.

• "Unsexy" businesses are those that might not be glamorous or widely appealing but are still significant and innovative.
• These businesses often involve applying technology to traditional industries or improving existing technology.
• The excitement for VCs in unsexy businesses lies in the potential impact and innovation, not necessarily mainstream appeal.

"Unsexy is, I think, kind of sexiness is in the eye of the beholder, because I think a lot of what these people are working on is super cool and very sexy."

Andy McLaughlin argues that the perception of what is considered unsexy varies, and to some, these businesses are engaging and exciting due to their innovative nature.

"It's just not the kind of thing which I would talk to my mum about and she'd be like, oh, that's cool."

Andy McLaughlin illustrates that unsexy businesses may not resonate with the general public but are nonetheless valuable and intriguing to those in the industry.

• Traditional industries like industrial manufacturing have seen significant technology investment, but the tech is often outdated and inefficient.
• There's a demand for technology in the workplace that matches the quality of personal-use tech.
• Innovations in these "unsexy" industries can be very exciting due to their massive size and potential for improvement.
• Founders with deep industry insights, often from years of experience, are key to driving these changes.

"Been a lot of technology spend in these industries, but the technology is kind of very much as you'd consider kind of typical enterprise. It's slow, it's unwieldy, it's kind of ugly."

This quote highlights the current state of technology in traditional industries, emphasizing the need for modernization and improvement.

• Long sales cycles at early stages can impede product iteration and feedback.
• Extended Runway is needed due to the slow sales cycle and high capital requirements.
• Proof of concepts and land-and-expand strategies can mitigate long sales cycle challenges.
• Bold investors are needed to support businesses that might not show immediate incremental growth but have potential for rapid scaling once established.

"I think anything where you're kind of helping an order industry be better, I think, is being unsexy, but very, very exciting."

This quote encapsulates the appeal of investing in traditional industries despite the challenges, due to the potential for significant impact.

• A 24-month Runway is preferred over 18 months to allow for product development and to avoid premature fundraising.
• The competitive landscape for Series A funding necessitates demonstrating strong traction to stand out.
• Companies are evaluated against all others seeking investment, with traction being a key comparison metric.

"The longer the Runway you have, hopefully the better time you'll have to either go faster or sell for longer, which ideally will mean that you're doing more revenue and therefore you look better than the other folks who are going out at the same time."

This quote stresses the importance of a longer Runway to develop a company's product and revenue, enhancing its appeal to investors during fundraising.

• Bridge rounds can be beneficial if they lead to significant revenue growth and are not just delaying the inevitable.
• Investment decisions in bridge rounds require discernment to determine if the company has a clear path to growth.
• Conviction in the company's trajectory is crucial when considering additional investment in bridge rounds.

"I think the challenge for an investor is to be able to discern between the bridge to nowhere and the added revenue to get them to actually break out."

This quote discusses the investor's challenge in evaluating the potential success of a bridge round and its ability to lead to company growth.

• Highly regulated industries pose additional challenges and are often avoided.
• Strategies include focusing on products that don't require immediate regulatory approval or starting with less regulated markets.
• Software for industries like manufacturing and pharma can avoid heavy regulation, making them more manageable investments.

"We stay clear of anything which is too highly regulated."

This quote reflects the investment strategy of avoiding highly regulated markets to reduce complexity and risk.

• The Bay Area has an oversaturation of seed funds, leading to increased living and business costs.
• Diversifying team locations can reduce costs and is a strategy that has proven successful for some portfolio companies.

"There are now two and a half thousand plus seed funds operating in the US with a large focus on being on the Bay Area."

This quote describes the crowded state of seed funding in the Bay Area, suggesting the need for strategic geographic distribution of team functions.

• Personal experiences and stories can lead to a fundamental change in investment thinking.
• The quote provided is incomplete, but it suggests that a specific event or realization has influenced the speaker's approach to investing.

"I'm guessing, Harry, you proba"

This incomplete quote implies a lead-in to a personal anecdote or lesson that has shaped the speaker's investment philosophy, but without the full context, the details remain unknown.

• Angel investors can be more spontaneous with their investments, as they use their own money.
• Professional VCs must be more cautious due to the responsibility of managing others' funds, such as pension funds and university endowments.
• The challenge is to balance the enthusiasm of an angel investor with the diligence required of a VC.
• Concerns about becoming too conservative and missing out on potentially successful investments, using the example of Pipe Drive.

"I think as soon as you're a VC dealing with pension funds and university endowments and, frankly, money that will go on to help real people and do great things, you have to become much more careful about the deals that you're doing."

This quote emphasizes the increased responsibility and caution required when managing other people's money as a VC, as opposed to being an angel investor using personal funds.

• Trade IO: A SaaS integration platform with a journey from humble beginnings to potential breakout company.
• Calm: A wellness app that has seen significant success and user adoption, representing a rewarding journey from multiple failed startups to a successful business.
• The personal gratification of witnessing the growth and success of invested companies.

"And to really kind of see this group of guys kind of go from really having no idea how this is going to work to actually being a real potential breakout company has been incredibly gratifying."

This quote reflects the speaker's personal satisfaction in seeing the growth and development of a startup in which they invested, highlighting the rewarding nature of angel investing.

• Parenthood has taught the speaker patience and the importance of being thoughtful and deliberate in decision-making.
• The experience of caring for a child has parallels to nurturing investments and not making rash decisions.

"I think that's actually worked pretty well a few times."

The speaker acknowledges that the patience learned from parenthood has positively impacted their investment decisions.

• Different interpretations of phrases like "quite good" and "not bad" between Americans and Brits.
• The importance of understanding these nuances in international business and communication.
• The speaker used to provide an American team with a cheat sheet to navigate British communication styles.

"I actually had a cheat sheet that I used to give to my american team of what british people say versus what they mean versus what Americans understand."

This quote highlights the speaker's proactive approach to bridging cultural communication gaps within their team.

• Fritz is a Boston-based developer tool that optimizes machine learning models on edge devices.
• The investment was driven by the convergence of edge computing and machine learning, two trending topics in technology.
• The speaker's strategy involves empowering smaller teams with tools previously available only to large, well-funded teams.

"I love the idea of putting the power and the expertise and the tooling that these teams already have into the hands of absolutely everybody else."

The quote explains the speaker's investment philosophy of democratizing advanced technological tools, making them accessible to a wider range of developers and companies.

• The speaker values the relationships built through the show and expresses gratitude for the support received.
• The importance of community and connections in the venture capital industry is emphasized.

"It's been my absolute pleasure. Thank you, Harry."

This quote conveys the speaker's appreciation for the relationship with the host and the collaborative nature of their interactions.

• Affinity is highlighted as a relationship intelligence platform that helps teams manage their business priorities and relationships.
• Movidium is presented as a solution for brands and agencies to connect with creative talent for their projects.
• Both platforms are promoted as innovative tools that address the needs of modern businesses.

"Affinity is the only platform that analyzes your team's communication data and automatically creates the relationship graph you need to achieve your business priorities."

This quote promotes Affinity as a unique and valuable tool for businesses to manage and leverage their relationships effectively.