Venture Capital Pros and Cons with Will McGivern-Smith

 Patrick Emmons  Oct 21, 2021 6:00:00 AM  0 Comments

Venture Capital Pros and Cons with Will McGivern-Smith

While eye-popping capital rounds make headlines, sometimes smaller is better when it comes to venture fundraising. Will McGivern-Smith, Chief Strategy Officer of TrueData joined Patrick and Shelli to discuss what questions to answer for your business when considering venture capital. Understanding the type of company you’re building, the problem you’re solving, and the total addressable market is a good place to start.

Listen in to get Will’s take on what factors to weigh when looking for the best fundraising partner, how to nail your pitch by keeping it simple, and what motivates different types of investors

Transcript

Pat: Welcome to the Innovation and the Digital Enterprise podcast where we interview successful visionaries and leaders, giving you an insight into how they drive and support innovation within their organizations. Today we’re welcoming Will McGivern-Smith to the show. Will is the Chief Strategy Officer at TrueData. He brings over 10 years of digital experience to TrueData with an emphasis on desktop and mobile activation, optimization, and analytics.

Prior to joining TrueData, Will worked at Nielsen Catalina Solutions for five years, shaping and growing a diverse set of functions including data science, product, business development, and sales. Will holds a BA in economics from Carleton College and an MS in predictive analytics and data sciences from Northwestern University here in Chicago.

Shelli: Welcome to the show, Will.

Will: Thank you Shelli and Patrick for having me.

Will’s Origins (01:13)

Shelli: Will, can you share with our listeners more about yourself and TrueData?

Will: Absolutely. I’m happy to dig into my origin story. I grew up in Madison, Wisconsin, so I was born and raised here in the Midwest. I went to Carleton College for my undergrad work. I specialized in a very quantitative sect of economics.

After graduating in 2009, during the mortgage crisis, it wasn’t a great time to be finding a job. I landed one at Starcom Mediavest, one of the big advertising agencies here in Chicago. I focused on TV research and looked at what types of populations and viewership were really engaging with which type of TV shows. I used that data and analysis to help brands and marketers plan and optimize their TV advertising spend.

During that timeframe, I remember a very formative article in The Economist, a front-page article, called The Data Deluge. And this was right during the time that the lexicon of big data, predictive analytics, and data science was becoming front and center.

I remember reading that and thinking, “this is really the kind of sect and area that I want to play in with a background in econ.” I really felt like we were at a tipping point in 2009. We had the infrastructure and the scale of data and could start to put those tools and data sets to work to make much smarter business decisions.

I realized that to do that I was going to need to graduate from my Excel skills and rudimentary statistical analyses to something that was much more large scale.

At that time, I found a new job at Nielsen Catalina Solutions, which is a joint venture between the Nielsen company and Catalina Marketing. At that point, Catalina Marketing had about 60 million US households’ loyalty card data. So what you were buying at Safeway, at Rite Aid, or at Walgreens and scanning a loyalty card for. They were using that purchase data to help drive more effective online ad targeting as well as measure those investments.

That was a great place for me to cut my data science teeth. There were lots of big datasets to play with. Simultaneously, I went back to school at Northwestern part-time and got a data science degree. That was a really great moment for me to have work projects that were very rich in terms of data and analytics while also learning new analytical techniques and methodologies to put to work at work.

After two and a half years at Nielsen Catalina, I moved from data science and leading a lot of our R&D efforts into a true product management role. I helped to commercialize and bring to market some of the newer products we had in the lab.

For my last two years at Nielsen Catalina, I looked after business development. That meant bringing our targeting and ad measurement products to new channels like Facebook, Pandora, or Twitter and helping to plug the capabilities we built into the digital advertising channels.

Along that BD arc, I met Elliott Easterling, our founder at TrueData. At that point, we were called Twine Data. I was in New York on a business trip. I got an intro from a colleague who said that Elliott watched one of our webinars. Long story short, he wanted to connect because he thinks that there’s an opportunity to help solve that problem for Nielsen Catalina.

We had coffee the next day. At that point, Elliott and Twine weren’t big enough for me to bring in front of the Nielsen privacy overlords. He had done an incredible job with three people at that point in terms of starting to build out his digital identity graft to connect people to devices.

We stayed in touch. About a year later, I had helped to do some consulting work to get his business to a point where we could raise a seed round and ultimately came onboard in 2015. At this point, it’s been about six and a half years of a lot of great results and definitely a lot of work at TrueData.

I started out in a business development role at TrueData then focused on getting us to the point where we could raise a true series A and really engage with the venture community. Since then, I’ve taken on product management. I was the Chief Product Officer for about three and a half or four years at TrueData. Recently, I’ve graduated to just focusing on strategy and corporate development.

Shelli: So interesting. I’m curious why it went from the name Twine Data to TrueData.

Will: It’s a great question. It was a hard change for me. I liked the name Twine and we had this great logo that I loved. TrueData was definitely a change. At the end of the day, the simple reason was that we needed our name to embody what we stood for.

As we were talking to the advertising community, it was a lot easier to go in with a name like TrueData and immediately have folks understand. Versus Twine which may require a little bit more of a discussion to help people understand the background there.

TrueData’s Start (08:02)

Pat: If you don’t mind, could you share a little bit of the origins of TrueData? When we spoke earlier it was a very interesting story and it’s an interesting time for that whole space.

Will: Absolutely. I’ll try not to go too deep into the advertising technology jargon. At a high level, Elliott founded the business in 2013. During that time, it was the rise of smartphones, and IOS and Android penetration. The Apple and Google operating systems released new identifiers to help advertisers recognize a device that might have seen an ad in a privacy-centric way.

It was also during a time where there was this huge pendulum swing towards being able to do more of what you’d call one-to-one targeting and having more precision with who you’re advertising to. 2010 to 2012 was really focused on communicating on a one-to-one basis based on what you might know about Shelli or what you might know about where a particular device has been or what a device is doing.

Mobile was becoming a more prominent channel during that time frame as well. You had a lot more engagement on mobile and there was a huge interest from advertisers and our advertising community on how to bring one-to-one communication and precision marketing into that mobile channel.

The initial thesis of the business was simple. Let’s create a privacy-centric and safe way to connect Shelli and her email address to her mobile phone to help folks really take advantage of their CRM data.

You think about a company like Kohls. They understand everything you buy on their site and everything you buy in their store. That data will help them with use cases such as re-targeting lapsed customers who used to spend hundreds of dollars per year at Kohls, but haven’t spent in the last six months. How can I use that past legacy data to help engage somebody online with messaging like, “Hey, we miss you. Here’s 10% off your- your next purchase.”

So we’re building a bridge from the offline people-based datasets and CRM datasets that brands want to leverage for their marketing work and making that actionable and available in the mobile ecosystem.

The Pros and Cons of Venture Capital (11:18)

Pat: Very cool. You’ve got a lot of experience when it comes to venture capital. One of the things that I’d really love for you to share is your background, your experience, and the pros and cons of different approaches.

Will: At the highest level, venture capital is a huge opportunity and asset that entrepreneurs can draw from. But it definitely comes with pros and cons. At the end of the day, I think it’s important for entrepreneurs to go into a venture and fundraising process with their eyes wide open and fully understand what they’re trying to get out of that process.

One way that I break down this problem is by thinking about what business problem you are solving and what kind of company you are building. From my experience, that has a huge bearing on how much money you need to raise and what type of venture partners you would want to support you.

In simple business terms, you’d start with the compelling, unmet need that you’re trying to solve within the world, whether that’s a personal need, or a consumer opportunity or a business opportunity. From there, you break that down into how many people or companies realistically have that problem? From there, you get into some of these venture concepts such as your total addressable market and serviceable addressable market, et cetera.

Those are important things to think about. What is it going to take to start to tackle that particular problem, and how big is the opportunity?

After that, the venture conversation really starts. What is the solution that you’re going to build to solve that very compelling problem? What does it really take to do that?

For a business like ours, we took the approach of bootstrapping, for the first couple of years. We had very small drip financing to go and penetrate a very specific market segment and iterate on that product more in that bootstrapped approach.

There are other types of markets where the amount of capital you would need to enter them is fundamentally different. For example, building an Airbnb competitor.

As you think about the problem you’re solving and what it will take to build that solution, a lot of it comes down to if you can bootstrap a solution to that problem slowly and organically. Or is this a market and a problem that is just so big, with some very entrenched competitors, that you need to go really fast and subsidize your way into a particular segment? You may need to start thinking about much larger check sizes and a strategy that’s very different.

Smaller Versus Larger Funds (14:39)

Will: One other way to think about the venture community is to break down the types of VCs that are out there. You have the flagship companies like Sequoia, Andreessen, and SoftBank, who have very large piles of dry powder and capital, and huge fund sizes.

In my mind, their investment thesis is that they want to make their living by finding the next grand slam, the next Facebook, the next Airbnb. They want to find investments that will provide a 10x return to the capital providers.

At the other end of the spectrum, you have the smaller VCs, like our lead partner at Aligned, who has a much smaller fund and writes much smaller check sizes. Ultimately, their thesis is that capital-efficient businesses can get to profitability and an exit with less than $10 million in total capital raised.

An Andreessen or a Sequoia creates a huge opportunity around the cache of those funds, the amount of capital that they can inject into your business, and the ability for those funds to go deep into your fundraising cycle - series A, series B, and series C.

But typically what that comes with is larger valuations and larger check sizes which means that you’re going to have more preference. At the end of the day, that means if you raise $100 million on a billion-dollar valuation, you’re going to need to sell your business for at least $100 million before you even have a chance to make anything.

These very large-scale unicorns who have perpetually gone through the fundraising cycle, haven’t necessarily built a profitable business and have lived on raising a round, and growing, just to raise another round. What that can create in some cases is a stranded unicorn moment. You’re so big from a revenue standpoint and technically so valuable on paper, but there are very few companies that can buy you for that needed price point.

For some companies, the public markets and going down an IPO route just isn’t a credible option. You know, there are some sectors where the IPO markets just- just don’t understand what those businesses and verticals are about.

And that can be very challenging if you get to a point where you’re a very large company but there aren’t big enough acquirers out there in the private space to take over your business at the right multiples. You can get into situations where you just can’t find liquidity for your business at a number that gets you over that preference stack.

The benefit of those large funds is cash. If you can get those large checks, you can hire way ahead of revenue, you can go incredibly fast, you can use those funds and VCs as ways to enter much more challenged markets in terms of those that have entrenched players and competitors. But it comes at the cost of a lot more preference and frankly a lot of control that that type of VC is going to want to exert on your business.

Versus, the lower end of the spectrum. With raising smaller rounds, you’re going to have a much smaller preference hurdle that you need to get over as an entrepreneur to ultimately realize an event once you’re at escape velocity. But, you’re going to have less money to play with and you’re going to have to be much more focused on getting to profitability quickly.

With those smaller funds, it can also create situations where you have raised a series A or a series B from one venture partner who just isn’t going to have the check size and the dry powder in their fund to go help you with a series C, for example.

Those situations can create some conflict around bringing in a new capital partner who can write those bigger, later stage checks, while also recapping out your earlier investors who probably have some serious control provisions over, when and how you can raise. Those things can create friction in those smaller funds.

Series A, B, and C Funding (19:59)

Pat: That’s awesome. I love all of that. There are a couple of things I want to dig in on. You mentioned series A, series B, and series C. Can you explain those to our listeners?

I think it’s a big challenge for people who haven’t been through it. If you could, please share that process, the mechanics, and how it gets started. When do you start looking for these? What are the events that cause these startups to go to a series C and seek a bigger check?

Will: It makes a lot of sense. It’s a great question. I’ll use our business as an anecdote but extrapolate from there. In 2014, we had two or three customers who were licensing our identity product.

We realized that we were onto something. We have revenue coming in the door, but we need to go hire a little bit ahead of revenue. We don’t have the cash flow right now to bring on the additional engineers that we want or another salesperson. So, we’re going to need some outside money to be able to move faster, hire ahead, and keep our growth rate in the area that we wanted it.

What that meant was raising a seed round. That was about $300,000 that we raised in 2014. That was from a network of very small angel investors in San Francisco called the Band of Angels, a group of very successful people who are certified investors that put money into early-stage companies together.

That was a hugely formative moment for us. At that point, $300,000 for the four of us meant that we could effectively double the team size, hire a couple more engineers, and hire a salesperson. In the early stage venture community, it’s very common to have these angel groups of high net worth individuals who do angel investing.

There are also smaller angel funds that are very focused on that extremely early stage high risk investing. But typically, the process there isn’t fundamentally dissimilar from the later stage of investing.

Often, you’re going to start by reaching out to a number of these smaller angel funds, as you might with some more large-scale VCs. You’re probably going to start by talking to an analyst. You’re going to have to tell them your high-level story. You might then move up to an association which is the next level of the gatekeeper at these venture firms.

Ultimately, your goal is to get a meeting with the partners or to be invited to an investment committee discussion for one of these smaller angel networks to pitch your business with a standard pitch deck. You can go online and look at lots of great examples of venture pitch decks.

This basically lays out the high-level problem that you’re trying to solve in the market, why it’s so important to solve, the solution that you’re providing, why it’s unique, and other key elements like how big the market is and the team you have in place.

In a lot of ways, it looks like a sales process. But at the same time, it’s one of the most complicated sales processes that you’ll go through. You have to have a very simple, elegant story that resonates in an elevator or to somebody who maybe really doesn’t understand your industry or your market.

It will also need to have many supporting details because you will run into that partner at your VC or at an angel fund that really does understand your market. You’ll have to be able to peel back the layers of the onion. Long story short, you need to make sure that you can go very deep into those nuances about your ability to execute on that vision and to get folks who do understand your space much more comfortable.

If the partners or firm like what you’re talking about, then you’d ultimately get a term sheet which is going to talk about the details, like their valuation of your company, their investment, and how much they believe your company will be worth after.

That term sheet will have some other very important elements in it around the control provisions that your investors are going to want - requirements for board meetings, when you can raise more money, if you need approvals to raise.

That term sheet is a very important vehicle to stipulate in clear English the terms of that investment that you’re getting. If you like the terms that someone is proposing, then you go into the contracting process in terms of really memorializing those investments.

So, that’s very similar to my experiences across the early stage and later stages of fundraising. The difference is that in the early stage, seed investors are typically very tolerant of large risks. They’re investing in small businesses with the expectation that it may not work, but if it does they’re buying into a company very early. If they’re successful, that has the opportunity to be very financially rewarding for those early-stage investors.

As you move from a seed investment and an angel investment into something like a series A, the expectation there is that your company is obviously growing, and there are going to be more requirements for revenue and profitability.

I would say series A, companies have some traction, they are showing that they have some level of customers, they have a product, and there’s clearly a path for them to become real businesses. But they’re probably still subscale. They don’t necessarily have an exact product-market fit. But, they have revenue and there’s a belief that with an injection of capital they’re going to be able to, make those last iterations, find that product-market fit, get their sales flywheel going, and really become a rocket ship.

Once you’re into the series B or series C stage, the expectation there is that you have that product-market fit. It’s very clear that there’s a customer who wants your product. They have a deep pain that creates that need. Your solution is differentiated. It is flying off the shelves, and you can see that sales flywheel going.

At the later stage, investors are going to look more like growth equity firms who are going to say, “This is really a place where you’ve proven that your mousetrap works. Now we have to help you build and sell a lot more mousetraps.”

Investor Focal Points (28:08)

Shelli: During that seed stage, what are some mistakes that you’ve made or you see people make in your space? With some of these investors that you’re in front of, do you have to know your audience and know what motivates them? Depending on your product, do you go to different types of investors?

Will: That’s a great point. I’ll take the second one first and then we can talk about all the mistakes that we’ve made. But I think you’re exactly right. These different investors definitely vary.

You’ll have some that maybe, in simple terms, are very focused on the team. Who is the group of people who are solving this problem? What track record do they have of taking on investment, building companies, and then paying back those investors through liquidity events? I think for a lot of investors that is a very important criterion. You’ll see firms that are very focused on the teams that they’re investing in.

Others will have very set focuses in terms of the sectors or the markets that they want to invest in. You may have a venture capital firm that understands the advertising market incredibly well. They have partners in their fund who come from that world so it’s a market they understand, and they have access to talent in that particular market. They put on conferences for that market.

So you have some venture partners and funds that will only focus on a few sectors. That’s a great set of questions, Shelli, to make sure that you’re researching on those firms’ websites and asking in those first discussions with an analyst or associate. What are the criteria for investment? Are you more of a people and team-focused fund? Are there certain sectors that you’re focused on?

Other key questions are, what is your average check size? That becomes incredibly important based on your strategy and how you need to capitalize that strategy as an entrepreneur to make sure that you’re not wasting time on folks who are only going to write a check that either you don’t need or that you don’t want because it’s going to come with certain amounts of control and certain amounts of preference that aren’t right for your business.

In terms of mistakes that we’ve made, we could spend probably three hours talking about them.

Pat: How about the biggest one?

K.I.S.S. (30:14)

Will: The biggest one in fundraising is, for lack of a better term, keep it simple stupid. You have to start at a 100,000-foot level. Make the problem about as clear as possible for anyone, from your grandmother to the person who most deeply understands whatever problem you’re solving. That problem statement needs to be incredibly clear and elegant and simple at the same time.

So generally the problem statement is very important. How you articulate the solution to your problem is also incredibly important. Ultimately, that simple mantra should really flow through the entirety of that pitch deck.

We’ve made the mistake too many times of getting way too deep into the weeds and into the rabbit hole about our market, how our product works, or all the great things that we do. I think this is a standard thing for entrepreneurs who are living and breathing a problem every minute of every day. It’s hard not to be a little infatuated with what you’re doing and wanting to go really deep.

That said, from a true, fundraising standpoint and the sales elements within that, it can be really counterproductive for that senior person who’s in the room that really is one of the key decision-makers on which companies get funded if you’re going deep into a rabbit hole that they don’t understand. If you’re not reading your room, that can very much derail your meetings, and your pitches, and your overall process.

Keep the body of that story to be really, really simple. Make sure that in your appendix you have all the proof points so that when somebody digs in and asks those hard-pointed questions you can clearly go to those deeper levels. But you can keep the story very high level, to the extent that that’s where the partners and the investor want to stay.

Pat: I totally get what you’re saying. As a person who does not have the skillset to create that succinct, concise, and elegant explanation, is there someone you reached out to for help to craft that message that made an impact? It’s about being simple, right? But we all know that simple isn’t easy.

I have a favorite story about a journalist who wrote a letter to Lincoln. They apologized. “Sorry, it’s so long. I didn’t have enough time to shorten it.” I think that’s really the whole point. A concise, punchy, impactful message - is that something somebody on your team was able to do? Is that something you worked with an organization for? How did you guys solve that problem?

Will: Great question. One of my mentors has a quote. “My price to write 1,000 words is $1,000. But if you want me to only write 500, that’s $2,000.”

Pat: That’s awesome.

Finding the Right Network of People (33:29)

Will: It takes just as long, if not more, to be succinct. To your point, a startup vehicle that I believe has been very helpful to us is the advisor approach.

This is a great one for entrepreneurs as you’re formulating your company, you have your pool of options set up, and you’re finding the right network of people. Maybe they aren’t part of your company from an employee standpoint, but they really understand your market and they are entrepreneurs, likely themselves, and folks that can really aid in this process.

At TrueData, we have a dozen-plus advisors, some of who are very focused on engineering and can help our engineering teams with contemporary methodologies, et cetera. We also have some that are very focused on CEOs who have successfully raised money and exited many businesses and who have been through this fundraising and storytelling process a number of times.

I would encourage any entrepreneur to think about your advisor network within your organization and how you can find somebody who has been through this fundraising process successfully a number of times. Get them onboard with some stock options, incentivize them and spend an hour a week or an hour a month really digging into that storytelling process.

So the first one is advisors. If you have them and can bring them onboard, it’s a huge opportunity. Other options that we’ve used in the past are companies that simply specialize in building pitch decks for fundraising.

One of the folks who invested in us in one of our last rounds put us in contact with a firm that they used. Their sole raison d’être is to understand your background, your market, and put that into a simple form. On staff, we have a group of great designers to build pretty visuals and decks, and a great group of former CEOs who understand the storytelling process and the fundraising arc.

Those aren’t necessarily cheap things but broadly speaking for something like $10,000 you can find some really amazing folks to build your fundraising decks for you if that’s something that’s available.

Being Vulnerable with Mentors (36:21)

Pat: That’s great. Something that Shelli always likes to bring up, and I think is a really important part if we’re going to develop as leaders, is who your mentors are. Who are some of the people in your life that really had an impact?

Will: Absolutely. Early on at Nielsen Catalina, there were a couple of folks who were really impactful. One of them was, at that point, our head of product who had followed a similar career trajectory as me. They started as a very quantitative data scientist, and then moved into a business development role, and then took over product.

Funny enough, he’s actually one who I caught up with once every three months or once every six months during my TrueData tenure once we had parted ways. He’s somebody that I actually reached out to just about six months ago to become one of our newest advisors at TrueData.

I think that relationship and having people that you trust is first and foremost. It’s also important to have people that have followed a path that you might want to follow and that have some of the serious skills that you believe the next step in your career requires.

Finding those people and nurturing those relationships and being vulnerable with those mentors, builds a really good relationship. Maintaining and investing in those is great.

If I haven’t necessarily caught up with a former mentor or coach in a long time and I’m feeling guilty, I’m always surprised by how nine or ten times out of ten, you write that person a note and they say, “Oh, it’s so good to hear from you. Definitely been too long. Let’s dig in.”

Long story short, I think it’s just a reminder to reach out, put yourself out there, and talk to those people who you respect and who you like. That is one of the best ways to learn.

Pat: Will, thanks so much. Amazing information, really great insight, and boots-on-the-ground experience. I love the focus on the different regions. I do think the way that venture capital is represented here in the Midwest is very different and is very much profit-centric. We can argue pluses, minuses around that.

I really just want to say thanks again. I really appreciate you coming on the show, sharing your wisdom, and sharing your experience. It’s been a blast. Congratulations on all the success. We’ll keep our eyes on you and wish you nothing but the best in the future.

Will: Really appreciate it, Patrick. Thanks so much, Shelli.

About Our Guest

Will McGivern-Smith is the Chief Strategy Officer of TrueData and brings an emphasis on desktop and mobile activation, optimization, and analytics. Prior to joining TrueData, Will worked at Nielsen Catalina Solutions for five years, shaping and growing a diverse set of functions including Data Science, Product, Business Development, and Sales. Will holds a BA in Economics from Carleton College and an MS in Predictive Analytics/Data Science from Northwestern University.

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