20VC How Startups Should React To Today's Funding Environment & Why Big Markets Are More Forgiving with Jenny Lefcourt, Partner @ Freestyle.vc

In this episode of "20 Minutes VC," host Harry Debbings interviews Jenny Lefcourt, partner at Freestyle, discussing her transition from entrepreneur to venture capitalist, her investment philosophy, and the current state of the market. Lefcourt, who founded startups like weddingChannel.com, shares insights from her operational experience and emphasizes the importance of investing in teams with an unfair advantage in large markets. She also touches on the nuances of seed investing, the impact of market shifts on investment cadence and burn rate, and the significance of a product being significantly better than the status quo. Lefcourt's latest investment, Crexi, exemplifies her criteria, targeting a massive market with a transformative product and a team with unique industry expertise.

• Harry Debbings introduces the 20 Minute VC podcast.
• Harry mentions his Snapchat and promotes following him.
• Jenny Lefcourt, a partner at Freestyle, is the guest.
• Jenny's background includes founding companies and raising funds from notable investors.
• Harry thanks Artie and Arab Shahi at Carlin Ventures for the introduction.
• Harry promotes the Sunrise Conference by Blackbird Ventures.
• He also advertises Lisa mattresses, highlighting their social impact mission.

Welcome back to the 20 minutes vc with your host Harry Debbings. And if you've not already followed me on Snapchat, then you can do that by adding h debbings.

This quote is Harry introducing the podcast and promoting his Snapchat for followers.

I'm thrilled to welcome Jenny Lefkor, partner at Freestyle, where she invests in early stage tech companies.

This quote introduces Jenny Lefcourt and her role at Freestyle.

It's the 18th today and that means it is twelve days to go until the incredible sunrise conference by Blackbird Ventures.

Harry is promoting an upcoming conference, the Sunrise Conference by Blackbird Ventures.

They also have a real social impact mission and for every ten they sell, they give one to a shelter.

Harry is explaining the social impact mission of Lisa mattresses.

• Jenny Lefcourt's partnership at Freestyle and her history of founding companies.
• Her experience with raising funds from prominent investors.
• The story of how Jenny transitioned from entrepreneurship to venture capital.
• Jenny's relationship with her partners at Freestyle and the evolution of their professional interactions.
• The significance of the Freestyle brand in the entrepreneurial community.

I've known Josh for probably over 15 years.

Jenny discusses her long-term relationship with her partner at Freestyle, Josh Felster.

I really felt like I understood the freestyle brand a lot more after having that experience with them.

Jenny talks about gaining a deeper understanding of the Freestyle brand through her interactions with them.

So then my partner and I went on. We raised our $2 million.

Jenny recounts her experience raising funds for her third startup.

Six, eight months later, I became then a partner in fund three.

Jenny describes her progression to becoming a partner at Freestyle.

• Jenny discusses the contrasts between the roles of a founder and a venture capitalist.
• She highlights the intensity and focus required for entrepreneurship.
• The different emotional experiences associated with being a VC versus being a founder.
• The necessity for VCs to multitask and switch between various topics and companies.

That being an entrepreneur is so intense, it's amazing, but it is intense.

Jenny compares the intensity of entrepreneurship to the experience of being a VC.

As a founder, my various times being a founder, raising money from vcs, I had the luxury, I would say, of being maniacally focused.

Jenny reflects on the focused nature of being a founder.

A lot of vcs, I would argue, have add, and whether they were born with it or it got created because of the nature of our job, I do not know, but it's interesting.

Jenny comments on the prevalence of attention-deficit traits among venture capitalists.

• Jenny explains her daily approach to managing her VC portfolio.
• The challenges of aligning her calendar with her goals.
• The "Duck syndrome" analogy to describe the VC experience.

Every day I know exactly what my goals are for that day.

Jenny describes her goal-oriented approach to her daily work as a VC.

I guess I say that vcs have what I call Duck syndrome.

Jenny uses the "Duck syndrome" analogy to explain the outward calm and internal franticness of VCs.

• VCs provide multifaceted support to portfolio companies, scout for potential future investments, expand networks, and stay informed about market trends and directions.
• Balancing these responsibilities depends on the current phase and priorities of the VC firm.

"to our portfolio companies, to be meeting great entrepreneurs that we would consider investing in in the future, to network to help our portfolio companies build out great teams and then reading a crazy amount to not just understand where the market is today, but where it's headed."

The quote highlights the diverse roles of VCs, from supporting existing investments to seeking new opportunities and understanding market trajectories.

• Angel investing involves less due diligence, relying on trust in the lead investor or the entrepreneurs themselves.
• VC investing, especially when leading a round, requires thorough due diligence due to larger capital involvement and accountability to Limited Partners (LPs).

"I trusted that he probably did all the DD needed or I just trusted that he was leading it."

The quote reflects the reliance on lead investors' due diligence in angel investing, contrasting with the need for personal due diligence in VC investing.

• The decision-making process in angel investing is based on personal conviction and trust in the entrepreneur or lead investor.
• VC investing demands a more meticulous approach, including comprehensive due diligence, as it involves managing LPs' money and carrying the brand's reputation.

"I have to have checked all the boxes, right. I have to really feel that I've turned over every rock and have belief beyond, I would say, of what I needed as an angel investor because it's."

This quote emphasizes the heightened responsibility and rigorous due diligence required in VC investing compared to the more trust-based approach in angel investing.

• Recent changes in the market have led to more capital at the seed stage and lower costs to start a company.
• These changes necessitate a more deliberate investment pace, ensuring strong relationships with founders and comprehensive due diligence.

"Now, I would say that that pace has calmed down and we're probably all at that pace, meaning that you're not meeting a company and giving them a term sheet the next day."

The quote describes the current trend towards a slower, more thoughtful investment pace, contrasting with the previous rapid deal-making environment.

• Investment cadence among seed investors has remained consistent despite market fluctuations.
• Seed investors are conscious of the heightened criteria for Series A funding and ensure that startups have sufficient runway to weather market conditions.

"We haven't seen a change in our cadence. And speaking with other seed investors, I've not heard of a change in their cadence."

This quote indicates that despite market changes, the frequency of investing among seed investors has not significantly altered.

• The traditional 18-month runway recommendation may be extended to 24 months to accommodate uncertain market conditions.
• Time is a critical factor for startups to prove their value and progress, making a longer runway advantageous for future fundraising efforts.

"I've never met an entrepreneur who doesn't say, God, if I just had another six months, right. Because time is the thing that kind of bites you in the ass every single time."

The quote captures the importance of time for startups to achieve milestones and the potential benefit of extending the runway to strengthen their position for subsequent fundraising.

• The size of seed funding rounds has grown, with some seed rounds now comparable to what Series A rounds used to be.
• This shift may be more about the renaming of funding stages rather than a change in the actual amount of funding startups require.

"I actually believe that's just a change in names, right. In the past, if I go back 20 years ago, I raised my series A and it was a million dollars."

The quote suggests that the increase in seed round sizes reflects a rebranding of funding stages rather than a fundamental change in startup financing needs.

• The naming of funding rounds has evolved, with what used to be called Series A now often referred to as seed.
• Entrepreneurs may find the naming conventions confusing.
• The focus should be on the amount being raised and the milestones that will be achieved with that funding.
• Early-stage valuations are low, and companies may start by raising a small amount to prove their concept before seeking further financing.
• The specific name of the funding round (seed or Series A) can be flexible if the amount raised is significant, such as $5 million.

"I just think what used to be called series A is now called seed. And so people are calling it seed, seed, prime, low a, but it's all the same."

This quote highlights the shift in terminology for funding rounds and suggests that the specific label may not be as important as the substance of what the funding will accomplish.

• Companies should have clear objectives and key results (OKRs) that they focus on achieving.
• Growth should be targeted in these critical objectives, with the burn rate kept as low as possible.
• Achieving fewer objectives with excellence is preferable to mediocre performance across many objectives.
• The idea is to focus efforts and resources on what truly matters for the company's growth.

"What are the three critical things, critical objectives that you're going to work on in the next period of time? And you need to just be focused on those and you need serious growth in those."

This quote emphasizes the importance of having clear, focused objectives that a company needs to grow significantly, suggesting a targeted approach to resource allocation.

• Jenny Lefcourt does not impose a specific vertical focus at Freestyle because she believes great entrepreneurs understand their verticals better than she could.
• Her investment thesis is not driven by a specific theme but by the potential she sees in entrepreneurs and markets.
• She looks for investments in very big markets because they are more forgiving.
• Lefcourt seeks opportunities that may start small but have a clear path to tapping into much larger markets.
• The first investment she made at Freestyle was in a company with no existing market at the time.
• Lefcourt values a product or experience that is significantly better than the status quo, a "game changer" for the industry.
• She also considers whether the team has an unfair advantage, such as unique insights, experience, or networks that position them to succeed over others.

"I like a very big market. Really big. I find that big markets are much more forgiving."

This quote reflects Lefcourt's preference for investing in large markets, which offer more room for error and growth potential.

• There is no strict definition of what constitutes a "big market," but Lefcourt gets excited about markets that are large enough to be impactful.
• She considers both the current size of the market and the potential size it could reach with the company's long-term product roadmap.
• Lefcourt finds markets with a size of $3-4 billion to be smaller than she prefers, indicating a preference for markets potentially worth much more.
• She agrees with the concept of starting with a niche market and expanding, as long as there is a path to a larger market.

"It has to be something that I believe is either currently big or will be really big."

Lefcourt explains her investment approach, which requires a belief in the current or future size of the market, underscoring the importance of market potential in her decision-making process.

• A product that is ten times better than the current options is a key factor in Lefcourt's investment decisions.
• The team, especially the CEO, must be exceptional, with qualities such as leadership and evangelism.
• The concept of "unfair advantage" or founder-market fit is crucial, meaning the team has a distinct edge that makes them more likely to succeed.

"I like to look at the team. First and foremost, CEO has to be awesome CEO, right? Great leadership, evangelist, everything that you would expect in sort of great CEO."

This quote underscores the importance Lefcourt places on the quality of the leadership team and the CEO in particular, as a determinant of a company's potential success.

• The financial aspect of a product, such as being cheaper, may not always be a crucial factor in investment decisions.
• Lefcourt's focus differs from consumer-focused investments where cost savings might be more critical.
• The value proposition of a product in terms of its improvement over existing solutions is a significant consideration.

"It's not that I disagree with Sarah, because I read that piece and I thought it was excellent. But she's consumer facing or she's consumer focused when she writes that."

Lefcourt clarifies that while she respects the viewpoint that products should be significantly better and cheaper, her investment approach may differ based on whether the company is consumer-facing or operates in a different sector.

• Crexi is a commercial real estate transaction platform.
• The technology enhances efficiency and facilitates better buying and selling in the market.
• It addresses a market that previously lacked technological innovation.
• The value proposition is not about being cheaper but about improving the ecosystem for all participants.

And the experience technology is being applied to this huge market that has not had technology applied to it in a way where everyone in the ecosystem does better. They're more efficient, they can buy and sell better.

This quote emphasizes the impact of technology on the commercial real estate market, highlighting efficiency and improved transactions as the main benefits.

• Jenny Lefcourt had two significant mentors: Jim Willenborg and Jerry Held.
• Jim Willenborg supported her growth and remains a lifelong influence.
• Jerry Held has been a significant part of her career since their time at Kleiner Perkins.
• Mentorship included guidance on fundraising and career development.

One is Jim Willenborg, who was the founder of the software company that I was a part of when I first came out to the valley. And another one is Jerry Held.

This quote identifies Jenny Lefcourt's key mentors and their roles in her professional life, showcasing the long-term impact of their support and advice.

• Operational experience is crucial for venture capitalists, especially at the seed stage.
• Founding a company provides valuable insights for seed-stage investment.
• Learning from successful individuals in the industry is beneficial.

I would argue if you're going to be a seed stage investor, there's nothing like having founded a company, right?

This quote suggests that firsthand entrepreneurial experience is highly valuable for venture capitalists, particularly those focusing on early-stage investments.

• Jenny Lefcourt is an avid reader, with her favorite book being the one she is currently reading or has just finished.
• She recently read "Dreamland," a nonfiction book about America's opiate addiction.
• She listens to business books on Audible due to time constraints.
• Recommends using Blinkist for summarized versions of books.

My favorite book is always the book I'm either in or just finishing.

This quote reflects Jenny Lefcourt's passion for reading and how her current or most recent read is always her favorite, indicating a continuous quest for knowledge.

• Blinkist is suggested as a tool for consuming book summaries.
• Jenny Lefcourt finds the concept of providing cliff notes to CEOs useful.
• She appreciates the recommendation to use Blinkist for efficiency in learning.

I should almost do the cliff notes for these books. And you're telling me that's done, and.

The quote reveals Jenny Lefcourt's interest in concise book summaries for efficient knowledge sharing and her enthusiasm upon learning about Blinkist's service.

• Jenny Lefcourt's most recent investment is in Crexi, a commercial real estate platform.
• The decision to invest was based on the platform's potential to revolutionize an inefficient market.
• Crexi's team has a strong background, coming from auction.com and possessing top tech talent.

And I said yes because it fit my criteria. And then some. You're talking about a massive market.

This quote explains the rationale behind Jenny Lefcourt's investment in Crexi, highlighting the platform's alignment with her investment criteria and its potential to disrupt a large market.

• The Sunrise Conference is recommended as a must-attend event.
• Blackbird Ventures is hosting the conference, featuring influential operators.
• Lisa mattress is promoted for ensuring a good night's sleep.

This is the conference to go to. Brought to you by Blackbird Ventures on the 30 may really is going to be an exceptional event.

This quote serves as an endorsement for the Sunrise Conference, emphasizing its significance and the caliber of participants expected to attend.