What a Seasoned VC Looks for in Early-Stage Startups

00:01
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Kate 00:18
Welcome to Startup Success. Today, we have Suzanne Fletcher in studio, who is a Founder and General Partner of Zelda Ventures. Welcome, Suzanne.

Suzanne Fletcher 00:29
Thank you so much, Kate, thrilled to be here.

Kate 00:31
We’re excited to have you. So I want to get into your background. But I actually want to start just by congratulating you, you raised and started Zelda Ventures last year in 2023, which was a difficult time and you closed with $33 million, is that correct? That is amazing. Congratulations.

Suzanne Fletcher 00:53
That is for my fund one. Thank you so much.

Kate 00:54
Thank you for being here with all of that going on. So walk us through your background and what led to this amazing accomplishment.

Suzanne Fletcher 01:03
Well, thank you, Kate. And just a lot of things, right, it was very much kind of building up to be in a place where I could do this from my career, which has now been about 25 years, I’ve spent 20 years of it as an investor. The first decade of that I spent on the secondary side, so similar to a funded funds, buying diverse portfolios of illiquid interests, including venture capital. So I saw a little bit of a lot of things and learned from phenomenal mentors, which I think has been a theme throughout my career in what I’ve done. And then the last decade in direct venture, so within early stage venture capital, two formative experiences working at StartX, the Stanford entrepreneur community, I’m happy to talk about more. And then at another fund that I joined very early on and got the privilege to kind of see it scale and work on lead style investing kind of before hanging my own shingle, right and jumping off the deep end on my own here.

Kate 01:56
That’s so great. I can see how those experiences could really build on each other. And you know, set you up for being really knowledgeable in this space. What motivated you now to go out and form Zelda Ventures like what was the catalyst for Zelda?

Suzanne Fletcher 02:13
It’s a great question. And so what Zelda does is we invest in the next companies of founders I’ve worked with in the past at pre-seed so I had the privilege at StartX to work with over 900 founders as kind of first degree connections, mostly on fundraising as they raised early stage capital, we invested on behalf of Stanford University and a vehicle that they had. And what I do now with Zelda Ventures is I look at that network’s next companies as founders start new endeavors, because that’s a population I inherently have good knowledge of good relationships with, and thus an advantage. And so what made me feel kind of ready to do it now in maybe an apocalyptic market fundraising conditions other than being you know, slightly crazy. It was really two beliefs, right? It was a belief in the market opportunity to back serial entrepreneurs in this particularly coveted kind of vein of deal flow. So it was the market opportunity. And then second, I would say, I kind of manifested enough belief in my own skill set over these years to feel like I could do it and to feel at least like 90% enough that I could do it that I was ready to kind of go and take the chance.

Kate 03:16
That’s exciting. So okay, your investment philosophy, the fact that you’re investing in founders that you’ve worked with before, at an earlier stage, walk us through that, because that’s something we haven’t heard on this show before.

Suzanne Fletcher 03:32
Yeah, I think it’s far from unique. I think the thought of we like to back serial entrepreneurs is something a lot of VCs say, and it’s very understandable why in terms of the experience that folks are bringing to a next endeavor that they pursue. In my particular case, that’s kind of all I’m doing. It’s the primary kind of lens in which we’re looking at things. And that’s because of a very kind of unique set of circumstances and seat that I sat in to be able to work with so many phenomenal entrepreneurs. So it’s not the most unique thesis, but it’s one where if you can execute it, due to your skill set, it’s particularly compelling, just given the success rates of serial entrepreneurs.

Kate 04:17
That’s interesting. The feeder though, is StartX, correct?

Suzanne Fletcher 04:23
Yeah, it’s really my 20 years in the investing industry, five of which was spent at StartX, but that’s where I did a considerable amount of investing and just have a very large network of entrepreneurs from.

Kate 04:34
Okay, so that makes sense. Okay, before we delve a little longer, maybe we should get into StartX a little bit more and what that experience was like and what they do.

Suzanne Fletcher 04:45
StartX is kind of one of the premier entrepreneur communities serving Stanford University serving their alumni, professors, students, startups. It was started almost 15 years ago by founder and chairman Cameron Teitelman. Seeing that opportunity for entrepreneurs to really accelerate their learning through a trusted community, right? And what that brings in terms of your ability to accelerate your own learnings and just what communities can do for entrepreneurs. So it is run as a nonprofit, extremely mission aligned with the goal of just helping entrepreneurs. And so a really vibrant community today, it’s run cohort style, but also very engaged with their 1500 or so alumni that are part of it.

Kate 05:27
How did you work with the organization? I love that they’re nonprofit.

Suzanne Fletcher 05:31
Yeah, very, very unusual, very unusual to staff and unusual in the venture world. I think it makes it pretty unique in terms of the mission alignment with entrepreneurs and the emotional reaction or connection that entrepreneurs have to the organization. I manage the co-invest vehicle that they had there for about five years. Participating in the rounds raised by those entrepreneurs, but also just helping them fundraise and navigate that process, often as a first time entrepreneur in something that was unfamiliar but something that as an organization, like StartX, we were able to kind of have a macro lens and see some of those market trends, different venture capital funds, participation, we were just a co investor in our vehicle. But just to help founders kind of navigate that process for the first time.

Kate 06:20
That’s great. Okay, I think everyone listening should check that out, for sure. So all those experiences led to Zelda Ventures. So how was your fundraising experience this past year? What did you learn?

Suzanne Fletcher 06:36
I’m very thankful for having been able to get it done. I think it’s always true, right? If it’s a difficult fundraising environment, it’s maybe a great environment for investing. And those two things are just naturally kind of counterbalances with each other. I think I have a very clear thesis in what I’m investing in. And then the ability to translate that to a competitive advantage of why I would be good at that, which is really what enabled me to raise the fund. But that said, it was still you know, a difficult process for you really have to put in the time and spend about a year raising the funds start to finish, I’ve got pretty broad support from a number of different family offices, some more established funds, GPs of other funds, and entrepreneurs, actually, a lot of the entrepreneurs from the StartX community came in as investors in my fund too, which was especially kind of meaningful to me.

Kate 07:28
Wow, that says a lot right there. Seriously, it’s really special capital. Well, congratulations again. So based on this, now that you’re investing in founders that you’ve worked with before, what types of things are you looking for?

Suzanne Fletcher 07:44
So I am an industry generalist. That kind of theme of seeing a little bit across a lot of things is held true across my entire career. And I’m also a believer that at the earliest stages, it is very much a person-driven business, and you’re investing in an entrepreneur. So my kind of framework or rubric, if you will, that that I use for making an early stage investment, it’s heavily informed by my time at Stanford StartX and we see 1000 Stanford affiliated startups a year we run them through a pretty rigorous interview process and that was enough over the course of five years, you know, now it’s been 10 years since almost since the beginning of that experience to see those cycles of why you make certain decisions and how it plays out the feedback cycle is so long and so it has really helped to have such a long period of experience to see why are these the criteria or what happens when you verify them when should you make an exception to them and so the four kind of as I think about it, and as as I’ve kind of been trained, is passion commitment, first. Team dynamics, second. Execution skills third, and then kind of idea and fundraise fourth, right? You put that idea in your idea picking ideas specific VC category and that’s not what I lead with. It’s really about the WHY a founder is working on something and can he or she convince me that that’s their passion, right? That’s their through line. Usually when you’ve known someone a while you see you can connect the dots. You understand why they’re doing something, what’s motivating them to do something new. It may be the through line of really caring about patient outcomes, really caring about cybersecurity, you know, there’s usually kind of connecting things that makes sense. Team dynamic, kind of the complementary skill set of those founders which I can talk more in terms of founder learnings I’ve seen. Execution just really strong execution skills on both business and tech. And then lastly the idea of big markets right? This is very much not niche ideas. It’s incredibly large markets folks are going after with kind of mega trend influences. And then the terms doing Pre-Seed investing kind of earliest money in often first money in and making sure that that’s aligned was setting the company up for success and my fund up for success too.

Kate 09:55
Thank you for walking us through that. I find that interesting that that’s your framework because one thing I hear over and over again on this show when I’m talking to VCs is that it’s so much driven by the founder, the success, right? And that founding team, it just goes back to that over and over again, kind of highlighted that in your framework.

Suzanne Fletcher 10:17
Yeah, it’s my single biggest belief, right? Is the tenacity and the connection to the problem that someone’s solving that drives them through really difficult times which there will be right there always are. But that’s what I’m backing in kind of an early Pre-Seed type investment.

Kate 10:33
It makes sense. And you talked about team dynamics and some of the learnings that you’ve had from your entrepreneurs founders. Can you share some of those here? I think that would be interesting.

Suzanne Fletcher 10:44
Yeah, I think it’s two categories of team dynamics. The first is, how do you know each other? And then the second is kind of what are your different skill sets? So the ‘how do you know each other’ piece, and usually teams have two to three co-founders. I’d say that’s the most common. Occasionally, you’ll see a solo entrepreneur, occasionally, you’ll see a larger team, but usually two or three. And the ‘how do they know each other’ – I am a fan of long term relationships that have been tested and where people have kind of frameworks for disagreement and disagreement without animus and the ability to move forward quickly. The highest and best relationship would obviously be prior co-founders that happens every now and then. But you know, beyond that, people that work together, people that were roommates, I love that relationship as well, in terms of just what it teaches you about another person and how well you know them, people that are starting a company that just met, I think that’s a trickier situation where if you haven’t navigated disagreeing on certain things, and how you work through that, who has the last say, on what it just takes time, it doesn’t mean it can’t work, I think it’s just, it takes a little bit more time. And then the second piece being how complementary is your skill set. I really want two different people on that founding team, not the same skill set. And the classic example of this would be when a number of PhDs spin out from a lab together to work on something, they’re usually crazy, smart and crazy driven, with the solution that they have, and a push that forward. But oftentimes, they come with a similar skill set. And what I would prefer to see is a diversity of skill set, because it is, you know, it’s the third or half of your co-founder equity, you really want to have people that contribute uniquely to that journey, and in a different way in terms of leading technical, leading business and being clear about which areas of responsibility that they own.

Kate 12:39
That makes a lot of sense, especially how having a long prior relationship, like you said, where you’ve had some disagreements, you’ve worked things out, even living together would make this stronger as you pursue building your own company together.

Suzanne Fletcher 12:57
And historically, you know, at StartX, as we’d meet founders we’d ask questions like, What have you disagreed on and why it was actually a red flag. If somebody said nothing ever, like or nothing yet, that was usually, you know, probably one of the poor responses that you could give like a clear disagreement with how you worked through it is something you really want to say,

Kate 13:17
Right? That makes perfect sense. And so what are some of the other things that you kind of look out for with these early stage investments,

Suzanne Fletcher 13:26
I would say kind of going back to my framework, some of the other pillars, right execution is a big pillar. And two things I’m really looking for there, it’s the technical prowess on the founding team to hit the next set of milestones, it doesn’t mean that you need to have an engineering team that’s so deep that you could be a billion dollar company with just the folks you have today. But it does mean that you need the technical talent on the founding team to drive to those Pre-Seed milestones, without having to spend six to nine months of the initial company formation just looking to hire. it’s a better market to hire engineering talent in than it has been. But it’s still very hard, time consuming, and expensive. So I love to see your my dream, right team is two founders that have worked together before one has a little bit more of a business hat, the other a little bit more of a technical hat, and they have four engineers ready to go from Apple, or Meta or whatnot with them. You know, that doesn’t always happen. But I think that technical ability and just understanding, you know, is this just a solo business founder kind of waiting for that other half right, or to meet that person or not, or to meet an engineering team? And companies like that succeed? Right? There’s definitely examples of that. But I lean toward, particularly with technical problems that are being solved pretty, at least one of the founders being pretty technical. And on the execution side. The second thing I’m looking for really is how much business development did you do before starting, you know, because I’m investing in serial entrepreneurs, they are usually not having to raise just a couple $100,000 to fund you know, food right, while they get going. They usually can kind of do that piece. And they’re doing a lot of what I call pre-work before they even get going. So I often get asked the question, well, this is just a drawing on a napkin, right and idea on a napkin. And while it varies, I’d say that’s largely not true. I’m pretty impressed by the amount of business development and fundamentally right, it’s pretty easy. Like, are you building something someone will pay you for? Right? It’s really honestly, the question we’re all just trying to answer at the end of the day, and they’re trying to answer it for themselves, because they know that this is a 6-10 year journey. You only have so many in your life, what you develop, what you put your life energy into really matters. And they’re spending a lot of time on, will there be a customer? Is this a viable business before incorporating, before taking people they know’s money into the company. And so I’m looking for that ‘How well do you know your potential customer’ Pre-Seed, right? You don’t have a customer yet, typically, but I want you to know who those early customers are going to be, and be able to tell me what they need to see to sign up as one of your customers. So that’s some of the things that I’m looking for on the execution side. And differences or evolutions, I guess, is maybe the better word evolutions of what I see founders doing a second or third or fourth company, kind of some of the perspective they bring to it.

Kate 16:26
That’s great. I like how you want them to get into that detail. And you’re and you’re looking for that kind of experience, because it’s so important. So you mentioned that Zelda Ventures, you’re a generalist, but is there anything right now that you’re kind of gravitating towards, or areas that have a lot of interest for you?

Suzanne Fletcher 16:45
Gosh, I really try to the extent it is possible, try to be very open minded about the idea. If I knew what the right idea was, maybe I would start a company. I like to have a founder that has a unique insight that’s slightly contrarian or slightly different than other people. And to know why they believe that. Some of the things that we’ve invested in so far, there’s certainly over the last 12 months and a strategy like this will always reflect kind of what are experienced entrepreneurs looking to start you know, there’s a lot of AI, but AI across a lot of different facets, right, everything from what you would consider a kind of infrastructure, DevOps, kind of hardcore, AI to, you know, administrative FinTech, medical billing, some really tangible, very clear, there’s a customer today, why now use cases, application layer use cases for that, about a third of my portfolio today has been healthcare related. So I do see a huge amount that’s across robotics, digital health. It’s not perhaps like biotech therapeutics, it’s not that that hardcore, but across a lot of kind of healthcare solutions, which is just reflects the impact, someone can have the big outcomes that can be driven. And just the interest, I think of repeat entrepreneurs.

Kate 18:05
That’s so interesting. And I agree. And I think everyone listening is the founders, they’re learning a lot about your investment philosophy and what you look for. So that’s been so helpful, we always wrap up the show, with just general advice that you have for founders to say that you’ve seen in your career.

Suzanne Fletcher 18:28
Oh, gosh,I mean, I feel like they’re really the ones giving me the advice in many ways. A lot of an investors job is to say no, which is kind of like the part of the job that really sucks and is unpleasant. But one of the things that I’ve learned from entrepreneurs is, they’re interested in understanding why and their curiosity, it doesn’t mean they agree with you, right? Like, they may strongly disagree. But at StartX, when we would interview teams, and many of them were not accepted at that point in time, we would do what we called feedback office hours, right? And you add the reasons, and you had to deliver those, and kind of what we would say is, look, this is either reality or its perception. But either way, that’s kind of powerful for you to understand, you know, what came across, so that you can adjust it if you choose to, but at least you know, it’s the perception. I do try if something’s not a fit for me to go back to kind of why that is and be pretty transparent about it. So I mean, that’s something really that founders have taught me, and continue to teach me about how to be a better investor and kind of partner in what they’re doing. Because, I mean, I would say having raised my own fund, right, and being an entrepreneur in that respect, you know, it is just a not yet. Right? It’s never really a no.

Kate 19:45
That’s a good way of looking at it. Yes, exactly. When you are raising and you’ve and you’ve seen all these founders raise as well. Do you have any advice like on the organization of your pitch? or anything like that, or something that you say should definitely be included?

Suzanne Fletcher 20:05
Yeah. I mean, first there’s like, how do you go about getting meetings, is warm intro needed? I really think you need to know what someone is interested in right to tailor it. I don’t think you should provided you have someone connecting you, I don’t think you necessarily should have to send the deck to get a meeting. I do personally find it helpful when someone sends a deck before the meeting, because I just come prepared with a lot of questions. What I want to see in a deck is, you know, the problem, the solution, the market, the unique team pretty much like the classic stuff that helps me answer those questions. So I can use a time on a video call or call for the highest impact in terms of my follow up questions with an entrepreneur.

Kate 20:48
That’s helpful. Okay. And I like how you summarized that. We think of those as the core attributes in the deck. But yeah, I think that was a helpful summary for those listening. So StartX, do you have to be affiliated with Stanford as the founder, just for those listening?

Suzanne Fletcher 21:07
Yeah, a lot of the companies will have kind of one of their three founders will have an affiliation, but there definitely is a sleeve of the program for folks that don’t have an affiliation and a great amount of companies have come from that too.

Kate 21:22
Okay, great. And Zelda Ventures, if somebody listening wants to learn more, where did they go?

Suzanne Fletcher 21:29
Yeah, you can check out the website zelda.vc. Or you can definitely shoot me an email at suzanne@zelda.vc.

Kate 21:38
Okay, and just before we let you go, I feel like there was a fun story on the name Zelda Ventures.

Suzanne Fletcher 21:44
It is definitely a nod to the video game. I played a lot of that back growing up in my family, And definitely the kind of, you know, badass female character associated with hunting for and finding treasure, which is very much what I aspire to do.

Kate 21:59
Yes. And you are doing that. So fitting, I love it. Well, thank you for being here. Suzanne, it was really helpful how you shared your perspective, not just what you look for, but also what you’ve learned from your entrepreneurs and how you’re taking that into Zelda Ventures. I think people listening could learn a lot from what you shared. So thank you.

Suzanne Fletcher 22:21
Thank you so much, Kate, I appreciate the opportunity.

Kate 22:24
Thank you.

22:25
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