20VC Lightspeed Partner, Merci Victoria Grace on The Future of Collaboration Tools, Bundling vs Unbundling, Synchronous vs Asynchronous & What It Means To Productise The S Out of Venture

In this episode of "20 Minutes VC," Harry Stebbings interviews Mercy Victoria Grace, partner at Lightspeed Venture Partners. Grace, previously head of growth at Slack, shares her journey from founding a gaming company to becoming a VC, emphasizing the importance of deeply understanding a sector to quickly build conviction in investments. She discusses the shift towards asynchronous work tools, the potential for a consolidation market in collaboration startups, and the significance of strong go-to-market strategies. Grace also highlights the necessity for diversity in VC, advocating for more women and people of color to have access to venture funding. The episode touches on the role of personal branding and Twitter in building a company's user base, the critical metric of revenue retention, and the trend of high-touch onboarding experiences for startups.

• Harry Stebbings introduces Mercy Victoria Grace, a partner at Lightspeed Venture Partners.
• Mercy has an impressive background including her time at Slack as head of growth and founding Women in Product.
• Harry also acknowledges the contributions of Jeremy Liu, Jana Meterschmidt, and Nicole Quinn for question suggestions.
• Harry briefly promotes Hello Sign, Zoom, and Cooley, companies that align with the venture capital and startup ecosystem.

"And I had heard so many great things about this guest from many different people in the industry. And so I'm delighted to welcome Mercy Victoria Grace, partner at Lightspeed Venture Partners."

This quote introduces Mercy Victoria Grace, highlighting her reputation in the industry and her role at a leading venture firm.

• Mercy's introduction to venture capital came from raising funds for a side project in college.
• She received a term sheet from a VC which boosted her career and opened up possibilities.
• Despite her gaming company going out of business post-recession, she transitioned to a successful career in product management and growth.
• Mercy's journey led her to Slack, where she significantly increased daily active users.
• After Slack, she was approached by investors to consider venture capital, and she joined Lightspeed, influenced by her husband's positive experience with the firm.

"It's such a huge vote of confidence to have someone invest in you, and it majorly opened the aperture of the world to me to show me what was possible."

Mercy reflects on how receiving venture capital was a pivotal moment in her career, demonstrating the impact of investment confidence.

• Mercy was surprised by the volume of ideas and concepts in institutional venture capital compared to angel investing.
• As an angel investor, deal flow is usually through personal networks, but institutional VCs have a broader and more competitive scope.

"And that really opened my eyes to just this absolute global scale of venture."

Mercy comments on the scale and breadth of venture capital, contrasting it with the more limited perspective of an angel investor.

• The biggest challenge for Mercy was focusing, as venture capital requires judicious time management.
• Unlike previous roles with teams and software leverage, venture capital demands selectivity in engagements due to limited personal time and busy partners.

"You have to be incredibly choosy with how you spend your time and what you look at."

Mercy discusses the need for strategic time management in venture capital due to the absence of the leverage she had in previous roles.

• Mercy discusses the core loop in startups: build, ship, and adapt, and parallels it with venture capital's evaluate, compete, and adapt.
• In venture, founders are the customers, and VCs must improve their market understanding, conviction, and value to founders.
• Deep knowledge in a space allows VCs to connect with founders and have early conviction, enabling quicker and more confident investment decisions.

"The product you're improving is really yourself and how you work with your firm."

Mercy explains how venture capitalists must continuously improve their skills and approach to effectively support founders and make successful investments.

• Mercy emphasizes the importance of deep industry knowledge to move quickly and with conviction during compressed fundraising timelines.
• She dedicates most of her time to productivity and collaboration, allowing her to focus on understanding the founders and their motivations.

"I spend the vast majority of my time just looking at productivity and collaboration because that's what I really deeply know."

This quote highlights Mercy's strategy of specializing in areas she knows well to evaluate startups efficiently, even with tighter timelines.

• Mercy finds Lightspeed's adaptive culture a good fit for her approach to venture.
• She discusses the importance of scaling oneself and creating venture methods around resilient systems and processes.

"So Lightspeed has been a really good fit for me, in part because of its resilient, highly adaptive culture."

Mercy appreciates Lightspeed's culture, which supports her methodology of integrating systems and processes to enhance venture capital practices.

• The venture capital deal process is highly collaborative and intense.
• Teams work alongside other partners, using tools that founders use in their companies.
• The core loop of the venture deal process includes: venture, evaluate, compete, and adapt.
• Evaluation involves quick learning, consolidating information, and making decisions with conviction.

So I've run this light deal process focused around that core loop of venture, evaluate, compete and adapt. And then evaluation is about learning really quickly, getting everything into a single doc so that people can collaborate and get feedback, get everyone up to speed really quickly so that we can move with conviction and make a decision.

The quote explains the structure of the deal process, emphasizing the importance of efficiency and collaboration in making investment decisions.

• The internal technical stack includes note-taking, documentation, and communication tools.
• Notes from initial meetings with founders are compiled into a Google Docs deal document.
• A dedicated Slack channel is created for each deal to facilitate team communication.
• Excel is preferred over Google Sheets for its advanced capabilities.

Then I create a channel in slack that know company XYZ series A. I drop the post in there, I pin it, I get the deal team together, we go through those docs. Depending on the stage, obviously we'll use Excel, less likely to use something like Google sheets just because Excel is so powerful.

This quote describes the practical methods used to organize and process deal information, highlighting the preference for Slack and Excel for their respective strengths in communication and data analysis.

• The investment decision-making process starts with creating a high-information environment.
• Educating partners on the market, competitors, and the venture's thesis is crucial.
• Focus shifts to the fundamentals of the company and the founder once the groundwork is laid.

Yeah, it really begins at the meta level, which is making sure you're always helping educate and shed light on the area that you're really knowledgeable about so that you're not spending time in the pursuit of this one deal.

The quote emphasizes the importance of educating partners about the investment space to streamline the decision-making process.

• Learning from failures is more insightful than from successes.
• Retrospectives involve feedback from founders, timelines of the deal process, and actionable lists of what to start, stop, and keep doing.
• The retrospective is shared internally for feedback and includes uncomfortable but necessary back-channel work.

But the best insights from creating the retrospective have come from the founders themselves. So even though they've passed oftentimes, you really do get to know people throughout this process.

This quote highlights the value of feedback from founders in understanding the reasons behind lost deals and improving future strategies.

• Building early relationships with founders is challenging but essential.
• Offering valuable operational experience and assistance can establish a strong foundation for future partnerships.
• Personal relationships with founders are important, even when the prevailing advice is to focus on product development.

So it's not just get to know me, because maybe you'll pitch me a year from now. It's like, hey, I can help you today. And hopefully that's a good start to a long term relationship.

The quote underscores the strategy of providing immediate value to founders as a means of building lasting relationships.

• Operational networks are currently important in winning deals.
• There's hope that venture funding becomes more democratized, and the importance of these networks diminishes.
• The goal is for more individuals to have access to venture funding, regardless of their connections.

That venture funding becomes less of a closed circle and actually that these networks become less important and that access to this life changing financial tool is democratized for many more people who didn't have the incredible luck that Jana and I have had in being able to work at places like Slack and Twitter and.

The quote reflects the desire for a more inclusive venture capital industry where success is not solely dependent on existing networks.

• The future of collaboration tools is uncertain, with shifts between bundled and unbundled approaches.
• The pandemic has accelerated remote work and may change business needs and services forever.
• Companies emerging in the next few years will address the needs of a "traumatized workforce."

A bundle is a perfect product for customers with a stable, predictable set of needs. But bundles are also brittle, and now every aspect of how we work and how businesses provide services to their customers is different, and it may be changed forever.

This quote discusses the pros and cons of bundled collaboration tools, suggesting that the changing work environment may favor more flexible and unbundled solutions.

• Asynchronous workflows allow for distributed decision-making and autonomous teams.
• Synchronous time is still necessary for social connection and empathy.
• The future of work leans towards asynchronicity, accommodating global and distributed teams.

I think the arc of the future of work bends toward asynchronicity. It enables people to work together across time zones and countries, and we're really a global workforce now.

The quote posits that asynchronous work will dominate the future, facilitating collaboration across diverse and widespread teams.

• The primary reason for the failure of collaboration startups is a poor go-to-market strategy, despite having a high-quality product.
• Founders often build products with minimal customer input and are surprised by market rejection.
• Another common mistake is targeting managers for sales instead of individual contributors, who are the actual end users.
• Managers may resist implementing new tools and processes, but they are motivated to keep their teams equipped with preferred tools.

"In my experience, the number one reason that collaboration companies fail is they have a poor go to market despite having a high quality product." This quote highlights the critical importance of a well-planned go-to-market strategy and the need for customer feedback during product development.

"But they have a lot of disincentives for rolling out new tooling and new processes. But they're highly incentive to keep their team happy and staffed with the tools that the team already knows that they love." This quote emphasizes the disconnect between the decision-makers (managers) and the end users (individual contributors), stressing the importance of focusing on the latter for successful adoption.

• The challenge arises when selling to managers who control budgets rather than to the actual users of the tools.
• Founders are advised to consider their own experiences with workplace tools to understand the importance of targeting end users.
• Personal work experiences can serve as a revelation for founders, highlighting the reluctance of individual contributors to adopt tools imposed by management.

"And so often when I'm having a conversation with the founder who pushes back on selling into managers instead of individual contributors, it is just by referencing their own experience at work that often light bulb goes off." This quote suggests using founders' personal experiences as a persuasive argument for focusing on the needs of individual contributors over managers.

• Successful collaboration startups need a strong, well-liked brand, akin to consumer companies.
• A Net Promoter Score (NPS) over 60 is indicative of a strong brand.
• Founders with a knack for public relations and generating earned media tend to excel.
• Expansion within existing customers is crucial for revenue growth.
• High user engagement and consistent paid use are key; for example, over 60% of monthly active users should be daily active users.
• Net Revenue Retention (NRR) over 140% is a hallmark of great companies in this space.

"The quantitative version of that is you need an NPS of over 60." This quote underscores the importance of customer satisfaction and its quantification through the Net Promoter Score as a measure of brand strength.

"Strong revenue growth in this sector really comes from expanding within customers." This quote highlights the strategy of focusing on existing customers for expansion and revenue growth, rather than solely relying on acquiring new customers.

• Revenue retention is considered the gold standard metric for collaboration and productivity companies.
• It is a lagging indicator that requires multiple quarters to assess and is more relevant for Series A or B companies than seed-stage startups.

"If I had to choose one metric for collaboration and productivity companies, it would be revenue retention, because that tells the entire story." This quote identifies revenue retention as the most comprehensive metric for evaluating the success and sustainability of a collaboration company.

• A cult following or a super user fan base is essential for organic growth.
• Founders need to be adept at using social media platforms like Twitter to cultivate such a following.
• Twitter is particularly influential in the technology sector and can significantly impact a product's adoption.

"And Twitter is where cult followings get developed." This quote points to the role of Twitter in building a dedicated user base and influencing market perception and adoption of collaboration tools.

• Being proficient on Twitter can be a competitive advantage for founders.
• Twitter serves as a platform for early adopters in technology to discuss and recommend tools, influencing organic growth.

"Yeah, being good at Twitter is a competitive advantage." This quote suggests that Twitter proficiency can significantly impact a startup's visibility and growth within the tech-savvy customer base.

• There was an expectation of a "graveyard" of collaboration tools due to market saturation.
• The Covid-19 pandemic has led to an unexpected countercyclical effect, boosting the adoption of collaboration tools due to the shift to remote work.
• The potential for consolidation in the market remains, as larger companies may acquire smaller startups and their technologies.

"But almost all of these collaboration companies are proving to be countercyclical with Covid-19 and so far, the mass adoption of remote work I think is really forestalling what you and I both thought would be a die off of the first big wave of collaboration companies." This quote reflects on the unexpected resilience and growth of collaboration startups in the face of the pandemic, which has delayed any anticipated decline.

• To evaluate the sustainability of a startup's growth, one should examine pre-Covid retention and engagement metrics.
• Sustainable growth is characterized by organic user acquisition and strong engagement.
• The future necessity of the tool post-Covid will determine the longevity of its growth.

"Ultimately, anything that grows organically and has strong engagement can grow sustainably." This quote suggests that organic growth and user engagement are reliable indicators of a startup's potential for long-term success, even after the pandemic.

• The pandemic has led to a shift in how knowledge workers operate, moving towards a remote setting for the default scenario.
• There is a growth opportunity for companies creating voice, video, and presence products due to the new remote work dynamic.

If knowledge workers have to remain physically separate from one another for the default going forward, and then we only sometimes meet up for offsites and things like that, then a huge number of the companies building, like voice, video and presence products can continue to grow sustainably.

This quote highlights the potential sustained growth for communication and collaboration tools in a future where remote work becomes the norm.

• High touch onboarding is seen as a category creation play, particularly in the context of Superhuman's approach to onboarding.
• This method is believed to develop a community of superfans, especially during the early stages of a company's growth.
• The effectiveness of high touch onboarding beyond early funding stages is uncertain.

Do you feel it is a category creation play in terms of how they really present their onboarding?

The question addresses whether the personalized onboarding process can be considered a new category in user experience and customer engagement strategies.

I think high touch onboarding experience, especially at Seed and series a, is a really great way to learn from and connect and actually develop a community of superfans.

This quote explains the value of personalized onboarding experiences in creating loyal and enthusiastic users.

• Human touch in customer service is an unsung competitive advantage.
• Companies like Slack and Superhuman provide high-quality, engaged customer service.
• Personal attention in customer interactions can significantly improve customer satisfaction and loyalty.

When you write into Slack or superhuman, you get a response from a real human being who's really read your email and oftentimes, and this is definitely the case internally at Slack, they've gone into the internal tool and looked at how you're using the product and they understand what your role is on the team.

This quote emphasizes the importance of personalized and attentive customer service in building strong customer relationships.

• The book "Never Split the Difference" is recommended for improving communication and relationships.
• Knife throwing is a unique skill learned during childhood.
• Personal mottos, such as "You can't stop the waves, but you can learn to surf," provide guidance and perspective in life.

So my favorite book is never split the difference. It's an incredible book on effectively communicating with other human beings and it's actually improved every relationship I have.

The quote suggests that the book has had a profound impact on the speaker's personal and professional relationships by teaching effective communication.

• Being too early or too excited to work with a founder is not possible in venture capital.
• There is a need for more diversity in venture capital to ensure a broader range of people have access to capital and the power to effect change.
• Competition and understanding between venture capitalists, especially when they are in a relationship, can be an interesting dynamic.
• The recent investment in a new communication tool reflects belief in the potential for innovation in remote work solutions.

You can never be too early or too excited to work with a founder.

This quote reflects the speaker's belief that enthusiasm and early engagement with founders are crucial in venture capital.

• Venture capital has a significant impact on wealth creation and societal change.
• There is a call for more women and people of color to become venture investors and entrepreneurs.
• Access to capital and power is essential for shaping the future of society.

It matters who has power. It matters who has access to capital, because those are the people who will change the world.

This quote underscores the importance of diversity in determining who gets to influence societal change through entrepreneurship and investment.

• Being married to another venture capitalist provides an understanding of the demands and nature of the work.
• Sharing a background as founders can enhance the relationship dynamic between partners in venture capital.

We are not only both vcs, but we're also both former founders.

This quote highlights the shared experiences and mutual understanding that can exist between partners who are both venture capitalists and former founders.

• The speaker believes in the potential of new communication tools and has recently invested in one.
• There is a conviction that the remote work trend will continue to create opportunities for innovation.

I recently backed this incredible team that I'm so excited to work with and they're building a new communication tool because I think that we can do better than what's currently out there.

This quote reveals the speaker's recent investment decision, motivated by the belief in improving existing communication tools for the evolving work environment.