Lessons from a VC on Series A and More

Intro 00:01
Welcome to Startup Success, the podcast for startup founders and investors. Here, you’ll find stories of success from others in the trenches as they work to scale some of the fastest growing startups in the world, stories that will help you in your own journey. Startup Success starts now.

Kate 00:19
Welcome to Startup Success. Today we have Manish Patel in studio, who is a founding partner and an investor at Nava Ventures. Welcome Manish.

Manish
Thanks, Kate. Glad to be here. Excited to chat.

Kate
I am as well. It’s going to be a good conversation. I want to get into your fund and everything you’re doing. But first, I want to set the stage. Your background is super interesting. If you could kind of give us an overview of your background, and then that’ll help you know, to hear what inspired the founding of Nava Ventures.

Manish 00:54
Yeah, absolutely. You know, I’m definitely the accidental venture capitalist. (Oh, I haven’t heard that.) Yeah, if you asked me when I was like, 18 or 20, years old, would you ever want to be a VC? I would have said, Absolutely not. I’m not interested in finance. That is not my thing. You know, I grew up in rural Kentucky, of all places. I moved to Silicon Valley, like almost 20-25 years ago now. My freshman year at Stanford was 1999. I was lucky enough to get a full ride to go there. Changed my life. You know, ‘99 was a cool time to be in Silicon Valley, right after the bust. And I was like, Oh my gosh, what is this thing called like, software and technology and like, what this company, Yahoo? It’s like two guys in a garage can build this thing like, I was like, you know, Sign me up. This is exciting, right? The palm trees and the Pacific Ocean, you know, also didn’t hurt, you know, much better than, like, tobacco fields in rural Kentucky. So, yeah, but I studied engineering at Stanford and economics, and then after school, I got very lucky. My entry point in tech was, I joined this fast growing startup, and that was Google. Changed my life in many ways. I think in the book of life, I always think it’s better to be lucky than good, because I don’t think anybody thought Google was going to be Google, you know, 20, 25, years ago. And so I was lucky enough to be there, part of that company’s hyper growth story. I was an early product manager, so I built out the early versions of the Google advertising system. Started the Google TV team with a good friend of mine, who’s also now a venture capitalist. Built out a lot of the core components of Google Maps. It was pretty fun. I was 26, 27. I bought a couple 100 airplanes to map the world, which is, you know, which is like a weird job I wouldn’t have expected to have. I was fortunate to also worked with the original CEO and co-founder of Google, Larry Page for a number of years, in the early days, when we were running Google’s OKR process, which is now kind of infamous in the valley as a goal setting process, I think is often misrepresented. But for me, I was in the room as Google is becoming Google, so I got this great top down view of the company, and then just being kind of a Line Product Manager building stuff, you had this bottoms up view. So just amazing set of learnings, this hyper compressed period in this, most of my 20s, like this is incredible. And in my late 20s, Google got very big by then, so I was thinking, Okay, what do I want to do next? I’m a big believer in Google’s core strengths for building infrastructure, and we can talk more about that of like, you know, I think it’s really important for companies to recognize where their strengths are and who they are. Google started doing all these other different types of projects, and I was thinking, Oh, maybe now’s a good time for me to start a company. And, you know, TechCrunch and the world tells me you start a company by raising venture capital, so I was like, Okay, let me go learn about that. Randomly started talking to venture capitalists. I was not strategic at all. A couple of firms were like, Hey, you seem like a clever guy. Why don’t you come hang out here? And I was like, Well, let me learn the dark arts of venture. You know? I ended up joining a firm called Highland Capital. Thought I’d be there for about a year, and then I thought, Okay, now I’m gonna go start a company. And now I’m a little bit smarter for it. I knew the playbook. Just fell in love with working with entrepreneurs. As you know, it’s just amazing. It’s so addictive. It’s so humbling. It is such a privilege, and I love it. So one year became close to 10, I put some great points on the board on my old firm. It was called Highland Capital, and the rest is history. And then in 2021 thinking about, what do I want to do next? I kind of entered VC younger in my life. I was the youngest GP at the firm. Done well. I was thinking, Well, what’s next for me, you know? And then a good friend of mine was also to Highland, Freddie Martignetti, and we ended up spinning out to start Nava. And it was really about taking the good, leaving the bad, so to speak, lessons learned how to make the firm like a more modern approach for some entrepreneurs. I don’t think we’re reinventing venture capital by any stretch. We don’t have magic algorithms that tell us this is a deal to do or not to do, but I do think we take a unique approach, and it’s been awesome to start the firm at Nava. The other thing maybe I’ll highlight about myself is. I’ve been fortunate to, you know, be in the Valley for so long. About 10 years ago, I got invited back to my alma mater, Stanford. I joined the faculty there in 2015. I teach in the School of Engineering, which is awesome. I forget that I get older every year, even though the students still stay the same. And so you know that’s been fun. You know, hopefully I can continue to do that, but it’s just, it’s just so much fun to give back to Stanford. I’ve gotten so much from that university.

Kate 05:24
Wow. What a full circle trajectory that you had. I mean, first of all, your experience at Google sounds so interesting. I mean, you were literally there right at the prime time of innovation. That’s so cool. So I want to get into Stanford a little later, because that sounds super fascinating to be working with the next generation, but tell us a little bit more about Nava. Like to break off from a VC and start your own fund is a huge undertaking, right? It’s risky. It’s pretty brave. So walk us through that and kind of your investment thesis and whatnot.

Manish 06:05
Yeah, very kind of you to say. Before I started Nava, I had a full head of hair, and now I think it’s a lot more work than I could have ever imagined, but I love it, you know, to be in a position in life to do this like I hit the lottery so many times, and I’m so grateful for the opportunity. You know, with Nava, what we do is stage-focused, thesis-driven investing. The stage is Series A. That is all we do. I think series A is a pretty magical point in a company’s life. And we can talk more about that. The thesis driven part is that really having strong points of view. I think there are a lot of different ways to win in venture capital. There’s kind of the spray and pray model on one end, right? We’re probably on the other end of that spectrum, where it’s like really having strong points of view, having theses, picking our spots, really having a deep conviction about what’s going to happen in the market. How do we see this market developing over time? And then, you know, our approach, I always think about, you know, show me a fund size, and I’ll show you a strategy, right? And so I think our fund size, which is just under a couple 100 million, really forces us to have a concentrated, high conviction bets when we do series A’s and really be disciplined. We think a lot about that, about when we invest, can you get good ownership? Can you really then put your resources, not just capital, but your time and reputation, et cetera, behind founders? Because really, time is your greater resource. There are many deep pools of capital in the world, but that’s not what makes companies great. It’s about that partnership and working with entrepreneurs. And so that’s why we do this. That’s in part why we take this approach. Right size fund, really focused, lets us go deep and then work on particular areas where we have strong points of view.

Kate
Okay, what are those areas?

Manish
Yeah, so we’re a generalist fund by nature, but we’re always working four to six different theses. Some are the ones that we’ve done a lot of investing in. I’ve been on the Enterprise side of AI, data and how we think about the future of data, digital, healthcare, infrastructure, FinTech, verticalized FinTech, developer tooling, you know, these are areas where, when we develop these theses, we talk to a lot of people in our network, really getting a deep understanding of, not just, you know, where our budgets, but where’s the future. What are the real pain points? Because oftentimes, you know, when you’re investing in an early stage company, it’s not going to be perfect. It’s rarely a feature complete company. (right) I love investing in companies where it’s like an A plus market and even a B plus product that gets pulled into the market, because the pain point is so high. That’s why we spend a lot of time thinking about, okay, where’s the real pain here? Because you’re not going to have a Ferrari out of the gate, right? It’s not going to be this amazing machine. It’s probably going to work kind of okay, but it’s like, Oh my gosh, if you don’t have this product, the pain is so high without it, right? So I love to invest in companies that operate like that. And then, you know, over that company’s life cycle, they’ll get better and better and better. (right) Our hope is anyway. And then we’re always experimenting with new theses. Back to your question. You know, those are some of the ones we’re doing active deployment in now, but we’re always trying out new ones. You know, some we might do one or two bets in just to, like, better explore an area. Some we are just, we just think will keep giving for a long time. Like data, for example. I mean, that’s going to be an area we’ll continue to batch. We provide great companies there. So I think it’s a balance. And I think the best venture capitalists, at least, in my view, adapt to the moment, adapt to the market. I think specialization is important in the sense of knowing what you’re talking about. But I do think if you look at the legends in the industry, they evolve to like what the market is, and they kind of see a little bit ahead of like, Hey, where are those opportunities? Where are those entrepreneurs? And it’s not less about hey, I only do cybersecurity all day long. I only do FinTech all day long.

Kate 09:38
So true. And I like how you talked about pain points, because I hear that a lot on this show. Those ones that really focused in on the pain points, right and and trying to find solutions around it. Let’s talk about series A because I just recently had someone on the show that said it’s the hardest round to raise. And. it’s where VCs, and you might disagree with this, are the most kind of stringent, and really double down on due diligence, because it’s such an important round. I mean, do you agree with that?

Manish 10:15
Every round is the hardest round already. Like, as an entrepreneur, I think it’s always hard, right? What is fundraising? It’s like, you’re selling a dream of, like, what could you help, right? And so, you know, even if you’re raising a series D, it’s like, well, tell me how you’re gonna become like, a $50 billion company. SoI have a lot of empathy for the entrepreneur. It is hard. Fundraising is very hard. It is very weird. A lot of art, a lot of science, a lot of just, you know, it’s so random. It’s weird when you look at these companies, I think, unfortunately, in Silicon Valley, there are these narratives of like seven year overnight success, right? I think everybody thinks, Oh, it was so easy, it just works. Like, no, those guys have been working on that thing for like, five years, and, like, everybody said no to them and thought they were crazy. (Right, right.) So I think it’s really tough. I think series A is a magical point, though, in a company’s life cycle. I think in the, you know, the seed and pre seed ecosystem is so rich and so robust, which I think is wonderful. You know, I think you can raise capital, not relatively easily, but like, there’s like an ecosystem compared to like 10 years ago, with only a couple firms, right?

Kate 11:23
Right? It’s huge now. Yes.

Manish 11:27
It’s huge, which I think is good in the sense of, it lets people prototype and build ideas quickly, right? (That’s a good point.) Series A I think what I love about it is, now, when we’re looking at companies, there’s more data to evaluate, right? You’re always selling the dream. But hey, what have you built now that you’ve raised 5 million bucks, 6 million bucks? In some cases if you raised 12 million bucks, my expectations are pretty high, about like, Okay, I hope you did something pretty cool, getting closer to Ferrari territory and away from sort of Yugo territory, you know. So at the series A the way we look at things, at our firm, we always say we look for founder-market-fit. Then, you know, on the founder side, I say founders tell me a secret. If I know more than you about a market, I’m definitely not investing. You spend 1000s of hours thinking about this thing, right, all your time on this. And if I can ask you like questions, you can say, I don’t know, but if I just know more about the market dynamics, that’s not a good sign, you know. On the market side. This goes back to that earlier point of we love investing in markets that over time can support hundreds of billions of dollars in value. It could be small markets today. In fact, that’s actually fine. We look for those companies that can maybe even dominate a small market, but that small market needs to be big over time. And I think that’s one of the things that’s dangerous about venture capital is that, you know, if you get on the venture capital train, you have to be shooting for those like large outcomes, because that’s the nature of the industry. Oftentimes you have misalignment with folks where it’s the capitalization doesn’t meet the exact right incentives of sort of the founders, where a $200 million outcome could be amazing for a founder, that could be life changing, generational wealth, you know, for their families. But that’s not really a great outcome for most firms, you know, unless you have a small fund. And that’s the danger, right? And I think that venture capital, I don’t know, talking about cars a little bit. I love cars, and so, you know, extending that analogy, I think it’s almost like nitrous oxide. You have your engine, you’ve built your engine in a car. Gasoline is the fuel. Some are sort of recyclable, like a dry cleaning business makes its own cash, or you’re profitable, right? I think venture capital is like nitrous in your car. It makes you go super fast, a little bit out of control. Some engines blow up because they’re not built for venture, some just go better and faster. You know, like a Google or a Facebook, those companies were built to absorb venture capital, and what it does, right? I think other businesses are great businesses. You know, you could have a great $50 million $100 million year business. You should never, ever take venture capital, right? It just, that’s just not, you’re not built for it. And I think that’s the danger with this proliferation. Also, there’s a good side is like there’s funding out there. The downside is that sometimes, I think young folks, even some of my students at Stanford, think that raising venture capital is the way – it’s a thing to celebrate. It’s like a milestone.

Kate 14:11
Or like the only way, the only way that’s that’s what you’re getting at, too, I think, right? And especially where we’re located in Silicon Valley. It’s just like people think it’s the only way you must go that route.

Manish 14:25
Absolutely. And I often tell founders, like, more recently now, in the last few years, of like, you know, you realize this is the most expensive way to build your company. You’re giving up the most precious thing, equity in your company, in exchange for dollars, relatively low dollars if you think it’s gonna be a big company. I mean, you know what? Ten million if you think you’re gonna build a ten billion company, right. It’s a very expensive trade. So you better really be aware enough of, like, the type of company you’re building, and it’s the type of trade where, you know, I think founders rush into taking venture capital, like, oh, you know, I meet you on Monday. I’m closing on Friday, let’s go in or out. I’m like, gosh, you spend more time interviewing an employee that you can fire. You can’t fire your investors, or at least, very hard to right? You’re kind of stuck with these folks on your CAP table, and they own pretty meaningful chunks of your company. So take the time to get to know people.

Kate 15:15
That’s a really good point. I mean, do you kind of appreciate it when potential founders that you’re going to invest in interview you and kind of put you through a process too?

Manish 15:30
100%. I think the best founders do it. I love investing with founders that take the time to get to know you, your values, kind of what motivates you. I think it is dangerous when some founders only select on brand, you know. And that’s fine, obviously, Sequoia is a great firm, and, etc, great brands. But you really get to know that partner, right? Who is she? Who is he? What are they about? What are they like in that partnership? Where are they in their career? Oftentimes too, right? Because, you know, a lot of these large venture firms are employing lots of people, and it’s not always about the returns if you’re a junior partner at a firm, it’s about getting to the next level – the senior partner. The dynamic incentives are always not aligned with the company, right? Just going in with open eyes, I think, is really important, right? Like, is there true alignment with the capital partners you pick?

Kate 16:24
And so, you know, you’re evaluating these firms at that stage, and they’re, you know, evaluating you. And I hear a lot on the pre-seed and seed level that these investors are helping a lot with their founders. Right? How much are you doing of that at the series A stage, right?

Manish 16:44
Yeah, a lot. We like to spend a lot of time and help founders. I also think there’s danger where there’s this model that’s emerged (and Andreesen Horowitz is a great firm, love them) of like, hey, we have all the services you can ever want, recruiting, marketing, PR, etc, etc. That’s wonderful stuff. I mean, that’s great stuff. But at the end of the day, I always ask founders, look, if you don’t like your the recruiting person, who do they answer to? Do they answer to you know, Mark Andreessen and Ben Horowitz, or the answer to you, right? And so, like, who’s writing the paycheck for them to, like, pay their rent, right? And I think that, like the best founders, you have to bring these capabilities in house, right? Because they have to know the culture of the organization, of your company, not the venture firm of your company. You have to know the culture of, like, what you’re building. When a CEO and management team says, We really need a head of sales, what are they really after that fits with this company, right? I think that’s really critical at the early stage. And for us, we do help a lot with companies. But I think, look, everybody’s got a Rolodex in venture capital, right? If you don’t, you probably shouldn’t get it. But it’s really about bringing the right network, the right people to bear on that problem. And our point of view is very much helping those people, helping the founders and management teams build the capability in house, right? If you’re not doing that, it’s not going to scale, right? You know, it’s like, it’s kind of like a band aid, but you’re still probably not solving the core problem.

Kate 18:12
Absolutely. I mean, just selfishly, Burkland, that’s our whole thing. We consider it a good outcome when a client fires us because they’ve scaled enough to build their finance function in house. That’s where you want to get to.

Manish 18:24
100%, right? Because they try to learn with you guys. This is what best in class feels like, right? Like, how do I bring that internally?

Kate 18:32
Of course, that’s where you have to go. So there must be, like, certain milestones. I don’t know how much you can get into this, or what you look for for your companies to accomplish during that seed stage by the time they get to you. I mean, can you…

Manish 18:50
Yeah, you know, I think, you know, a lot of people, and you can Google for these things, they have all these benchmark data, right? Oh, if you have a million in ARR, if you have this, if you have that. I don’t like that actually. We don’t like to do that. We think it’s dangerous to do that. You know, because all revenue is not equal, you know, you have to really think about like some revenue is very like, you could get a million dollar contract from Walmart, or you could have a million dollar contract from like, 20 little startups, right? Like, really understanding, like, what does it mean for each of these companies? What we do hear about – so we don’t really have those artificial metrics. We don’t think it actually is useful. What we think is useful, though, is looking at the unit economics of a company, right? Some of our companies, by the way, are not even monetizing, and we’re very comfortable with that, right? But what we will look for is like, hey, is this a high gross margin business? One of the things we often say around our little venture firm is that revenue is for ego and gross margin is for intellect. Like, you know, I could juice my revenue by selling a billion iPhones for a $1, right? I lose a lot of money, but my top line is awesome. But gross margin is like, Oh, that’s interesting, right? If you’re really a high gross margin business, like, Okay, well, let’s talk about how you scale that, right? And I also think there’s this great, unfortunate myth that founders repeat, which is like, well, our gross margins are really bad today. They’re like 20% you know, but then we can scale, we’re gonna get to like this, like software 80% gross margin. And I rarely, I mean, I’d be curious in your practice, but I rarely seen a company really improve gross margins, like in a massive way as they scale, usually the other way.

Kate 20:26
Yes, absolutely, yes. Okay, so that’s helpful that you’re not looking because we see a lot of founders come in and they’re so focused on these metrics they’ve heard about right? So it’s nice to hear an investor, yeah, kind of mirror what we think.

Manish 20:42
Some firms do by the way. But then yeah, that is not how we operate.

Kate 20:48
How are you all thinking about 2025? I mean, 2024 was odd. So are you feeling optimistic?

Manish 20:58
I am very excited. You know, I think the last few years in the startup world has just been odd, right? And I think that 2025, I’m very excited about, very bullish on, you know, and I think good, like, from my vantage point, like, why is that? Right? Like, as an early stage investor, I think innovation is agnostic to market cycles. You know, if you look at, like 20 what was it after the great financial crisis? 2007, 2008 around then, right? Amazing companies were built, WhatsApp, Airbnb, in like, pretty dire times. I mean, even Silicon Valley, we go back even further. HP, I believe, was founded during the Great Depression, right? Like, Oh my gosh, during these weird times, innovations happen, right? And obviously during bull periods as well, like Google started kind of at the tail end of the.com bust, but it was an exciting moment. So I think innovation is always happening. When I think about 2025 the thing that I’m most excited about is, I think we spend a lot of time talking about AI. It’s a thing where it is AI, right? I think we’re in this moment of AI being very enterprise oriented, infrastructure oriented, kind of the foreign stuff, but it makes money, and it’s important, right? It’s important. What I’m excited about is the pendulum starting to swing back to more of the consumer offerings, where you don’t have to be a PhD genius out of some fancy Lab at Stanford to deploy AI. You can be, you know, an undergrad out of a maybe pseudo technical that can start to build apps and things through AI, which touch the world. And I’m excited for that, because that’s the real interesting thing about all this tooling. It lets folks that aren’t very technical do pretty amazing, powerful things. And what I’m hoping for, I think 2025, people talk about agents a lot, it’ll be this agentic year, whatever, right? I think that’s fine, but I think the more interesting thing is, like, I think we’re gonna start to see a glimpse of true AI first companies. And I don’t even know exactly what that means, right? I think it’s like, you know what’s a mobile first company? What does that really mean if you go back right or so ago, right? But I think young folks and creative people are going to start to do these things that we wouldn’t have expected, you know, and that’s what’s going to be really exciting.

Kate 23:16
I think you’re spot on just seeing the pre seed and seed stage companies coming into our firm, that’s exactly where they’re focused. It’s pretty exciting.

Manish 23:27
Yeah, I’m very excited. I’m also excited from an innovation lens, I think we’re going to start to see companies that are run by five, six people that reach hundreds of millions in revenue, because the tooling is there for them to do that. You’re not going to have to hire armies of people. And I think that AI is part of it. But I also think, like with the cloud and all these things like, it’s just so easy now to spin up a service. And if you have a good idea, the distribution mechanisms are also there. The Facebook’s of the world, social media, Tiktok, you can, you have a good idea in a weekend, you could, in theory, reach hundreds of millions, if not a billion people by the end of the weekend. That’s pretty exciting.

Kate 24:09
Yeah, it is exciting. Like some of the marketing platforms out there are so plug and play now you can quickly, like you said, spin it all up yourself with a small core. Yes, absolutely. This kind of, I can’t believe we’re at 25 minutes already. So this kind of, like, I want to hear just a little bit about what you’re doing at Stanford and how you’re, you’re feeling about that, and then maybe we can segue to wrap up into some just advice you have for founders listening, but tell us about being back at Stanford. That must be so exciting.

Manish 24:43
Oh, I love it. I love it. I think Stanford is a magical place, it holds a special place in my heart. I gained so much from that, from that experience there in college. And so what I teach there is the introduction to design thinking. So design thinking is this kind of problem solving process, let’s call it. There’s a class that’s been taught now, I don’t know, 40, 50, years, by one of my mentors, David Kelly, who’s the founder of IDEO. I started the Stanford school of design thinking. So David’s amazing. I’ve been fortunate to have him in my life since I was, I don’t know, 17,18 years old. And I was invited back to co-teach the class with him and some other wonderful people. And what I love about it is that it shows how messy it is to build products. It’s a problem solving approach. And I think, you know, as an engineer, you’re taught thermo and, like, statics or whatever, and it’s, everything is all elegant, right? But, when you start to build stuff in the real world, you’re like, oh my gosh, this is super messy. Like, this is not elegant at all. And, I think what makes great products and, like, how do you think about that? That’s what we spend a lot of time in our class talking about. There’s frameworks we use to talk about that and how to really evaluate it, because it’s not just a subjective thing. There’s some objectivity there. How do you really create things that are not just me too so, so I love it because it’s at an early moment in young people’s journey. You know, it’s like, I know enough now to be dangerous. So how do I start to, like, build the right foundation, to have a good criteria and process for building valuable things?

Kate 26:11
Wow, that sounds so fascinating. You must get into some really good discussions.

Manish 26:17
I love it. I love it. Yeah, I also love it because young folks come in with a true curious mind, you know, not necessarily the baggage of, you know, right?

Kate 26:26
They’re not jaded yet.

Manish 26:30
Yeah, time for you, you know.

Kate 26:32
Right. That’s great. And for the startup founders listening. I mean, especially, we have a lot of founders that are getting ready to raise the series A that listen, any advice you can share, yeah, would be appreciated,

Manish 26:46
Yeah. I mean, I’d say, do your diligence, right? Like, really understand particular people at firms. You know, get to know them. The best way to get in front of partners at firms, or your people, or even young people at firms, is referrals. Right? Get, you know, I think just about every single investor in Silicon Valley will take a meeting if one of their CEOs says, like, Hey, I just met Kate. She’s awesome. You should meet her. Like, they will take that meeting. That’s what I would spend my time on. You know, cold emailing is fine, and there’s all these different techniques, but if you really want to get to know somebody, get to know their portfolio, because my CEOs, whenever they tell me, like, Hey, this is interesting, or take this seriously, what have you like, I’m 100% focused on – my attention is all in, like, okay, tell me more.

Kate 27:31
That’s such good advice. I have never heard that on the show before. It makes perfect sense. Where can those people listening go to find more information about your fund.

Manish 27:42
Yeah, thanks for asking. So you can go to our website, which is www dot Nava dot v c www.nava.vc, and then can reach out to me directly. My email is Manish, M, a, n, i, s, h @nava.vc.

Kate 27:54
Wow. You shared so much, really helpful information today. Thank you so much. It was really fun just to chat with you. Thank you for being here.

Manish
Well, thanks for having me. Kate, this was a lot of fun. Thank you.

Intro 28:07
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