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Feb. 9, 2021

How to choose the right growth investor and difference between early and growth stages. By Mary D'Onofrio.

How to choose the right growth investor and difference between early and growth stages. By Mary D'Onofrio.

Mary D'Onofrio, Vice President at Bessemer Venture Partners (the oldest VC firm in the US) talks about choosing the right growth investor for your company and about the preparation to that stage (explaining how to get in touch with growth investors early). We also spoke about the major differences between fundraising on early and growth stages.

Mary's LinkedIn: https://www.linkedin.com/in/mary-d-onofrio-a125b2154/

Mary's Twitter: https://twitter.com/mcadonofrio?lang=en

Bessemer Venture Partners: https://www.bvp.com/

10 laws of the cloud, by Mary D'Onofrio: https://www.bvp.com/atlas/10-laws-of-cloud


All right, let's get started and today's a guest speaker. We have Mary vice president at Bessemer Venture Partners, and in this episode, we'll talk about slightly different topic than we usually discussed today. We'll talk about growth investors.

What happens with startups when they reach this grow stage, how to choose the proper growth investor and how growth investment is different from early stage investment. So, Mary, let's kick it off by. You're giving us some background on yourself and on Bessemer Venture Partners.

Yes, of course. And thank you so much for having me. And as you mentioned,
I'm married to no frio,
vice president at Bessemer Venture Partners,

which I joined in 2018 to start the firms growth,
practice on Bessemer were the oldest venture capital firm in the United States with a 100 year history, starting all the way back to Carnegie steel and we had 6B up.

Yeah, exactly. It's an old firm and we have 6B dollars under management and offices around the world, including in the Bay, New York, Israel, India, and soon Europe, and we invest into 4 primary segments.

I'd say software with investments. Twilio and pager duty,
healthcare with investments, hinge,

health and health,
consumer with historic investments,
Pinterest and Twitch and deep tech with investments rocket lab historically,
until I joined Bessemer head,
primarily been in early stage focus shop,
exclusively focusing,
mainly on seed Series A,
in some Series B,
in 3 years ago,
I was hired to start the growth practice primarily so that Bessemer could not only follow on later stage

during during companies,

but also start investing into net new companies at the growth stage.

And after about a year,

and a half here,

we raised the 525M dollar dedicated growth fund,

and had been off to the races since I personally spend almost all my time in SAS and cloud investing some in developer tools,

And I also spend a lot of my time thinking about cloud broadly.

I maintain the Bessemer NASDAQ emerging cloud index, which is a public benchmark for public cloud companies, and author, the cloud and state of the cloud. So that's a little bit about me and a little bit about Bessemer.

That's very, very, very, very, very impressive background. I love it. I honestly had no idea that best of our Venture Partners is so old. I had no clue. So thanks. Thanks for sharing that. So, my 1st, question is actually, what is your role as a vice person?

So you mentioned that you do.
A lot of stuff, including, uh, managing the index for clouds, uh, something that I already for.

But what else basically would includes your, uh, what goes into your daily activities do you review companies? Do you make the final decisions on the investment that you're making or what's what's your major role there?

Yeah, sure every day is different, which is 1 of the best things about being a growth investor and a venture investor broadly, but I generally break my job up into a few buckets.

1st of all is portfolio management I'm on the boards of hyper science contract book, get insured big ID reputation dot com and tile and in these roles,

I help my companies with everything from thinking through product strategy and additional geographic expansion opportunities to helping them recruit and interview talent to helping them with their fiscal year budgeting process processes.

So so it's absolutely anything that they need help with and as a board member and then just as an advisor as well.

2nd of all, I source companies, finding new companies and prospects, and as I was mentioning in my introduction for me, personally, those companies tend to fit into the cloud software bucket within cloud. Right now.

I'm spending a lot of time on the trends behind automation and scale, and the facilitating markets behind anl such as data labeling.

The 3rd bucket I would call out is deal diligence and making new investments.

I generally do 2 to 3 new deals every year, which in 2020 included hyper science.


as I mentioned,

the the company pioneering software defined management quarter,

which is a fraud prevention software company and contract book,

which does contract lifecycle management,

and as a member of the growth team,

I also help to evaluate our posture for follow on investments into our existing companies,

which last year included 0T toast and launched darkly.

The 4th bucket,

I'd say is networking getting to know other founders,

investors and company executives partly just to build my own scope of knowledge and in the markets that I invest in and operate in but,

but also,
you know,
helping with with sourcing and identifying a compelling new companies.

And then the last buckets, probably marketing and press, and I guess I'll throw in a little bit of miscellaneous stuff with there too. And for me, that's things like writing thought pieces, which I mentioned, like, the 10 lots of cloud or the state of the cloud.

And then that's where I also put my management of the V. P. NASDAQ emerging cloud index in that bucket as well. And kind of more of the public facing brand building aspects of my job.

Nice so I have 2 follow up questions here. 1st, is about networking. So, where do you usually find people to network with? Is it some particular apps such as clubhouse? Is it just LinkedIn is Twitter. Where do you find those people to connect with? Where do you.

When do you chat with them? Yeah, it's a great question. So 1st of all, it's all over, you know, even some of the alumni communities for the schools. I went to Princeton in jail. That's a network that I like to tap into the venture network.

Just reaching out to appear,

is that other VC firms and getting to know them but then I think the bucket that's also kind of iteratively building on itself is,

as I am making more investments and sitting on more boards, getting to know management teams at different companies.

Uh, and getting to know to plug into their networks and meeting them.

They're always incredibly helpful when, when evaluating the incremental company and oftentimes, you know, 1 of 1 of the companies launched darkly that that I ended up sourcing part of the reason why I was.

So, compelled by the company so early is by talking to the CEO of another company that said, hey, I'm using launch darkly. That's my favorite, new new developer product. You should check it out. So, sometimes it's also helpful with even helping with the sourcing process.

Right. That's very true. And as a 1, we see on my podcast. Okay. Is mainly VCs on my budget. I said best introductions come from other founders that you've invested in so that's very accurate. So, now, let's move on and talk about the major topic of discussion for, which is the growth investing.

So, 1st question is growth investing.

It's pretty self explanatory, it's on the growth stage where you're just trying to increase the number of your users and.

Just in gray sales so what else besides, you know, those 2 major factors that the growth investor helps to start with.

Yeah, sure.

So so growth stage companies, as you articulated, has a different, have a different set of challenges, and early stage companies and then the guidance you provide as an investor, and usually, as a board member is slightly different as well by the growth stage.

I'd say team tan and market are generally working and while growth investors will continue to help with things like product, roadmap and team building. The additional perspective they provide is whether or not a company can scale. Can we make this?

The market leader? Can the product become a platform, how will the company layer on different segments and user profiles and geography is especially in cloud software?

I'd say this often it comes with helping with go to market helping the higher strong go to market leaders from our networks,

providing customer introductions and advice on sales process and KPI eyes and I'd say helping companies ramp is 1 of the core value adds from growth investors,

especially in the cloud software ecosystem.

Another 1 is providing companies with guidance on putting together things, their budget and operational metrics as they mature.


this comes with leveraging experience with scale companies and being able to share back with earlier stage companies,

though they're still fit into the growth landscape how to think about their budgets and their operational metrics over time.

Nice so the next question is actually full up that I forgot to ask but, uh.

1 of the things that I saw, especially on the early, because I'm always in the realization of this cycle is that a lot of founders think too far ahead.

So they're like,


I'm I'm gonna do a lot of work here because on the growth stage,

when I get there is going to really help me and usually,

my answer is,

do you not do that do the cheapest way that you will fix later on so question is have you ever seen startups that screw up so badly in the beginning of their journey that's buy?

Groceries is just something that's unfixable.
Yeah, I definitely think so. And I think I invest primarily in cloud software and the, the.

The place where I see that happening, the most is in investing in a sales and marketing, and a go to market engine, that isn't scalable.

Yet, SAS, companies, they have a negative cash flow dynamic typically, because they pay upfront for customer acquisition, but then monetize them over time.

And if that, if if your, if your customer acquisition, economics aren't working, you're turning out customers.

You're not acquiring high enough value customers, considering your customer acquisition costs if that isn't working and you can't onboard sales and marketing leaders that are hitting their quotas, attaining their quotas and justifying the expense that their head count commands.

It makes it really difficult for these companies to grow. And what you see as an investor is they end up burning through a lot of their cash.

And it's difficult, I think, as a growth stage investor, to believe that, you know, a 10M error company can become a 100M error company. If you haven't seen.

The early signs of go to market efficiency and I think that to your point, that's 1 of the places where companies will.

Screw up early, and unless they identify it early and fix it and kind of reset the go to market engine in a scalable way before they acquire and onboard additional headcount.

It's really difficult to fix. Once you already have tens and dozens of employees that you're paying for. That's a that's a great answer. Absolutely. Love it.

So, let's talk a little more about more positive stuff hopefully, which is choosing the growth investors. So, once the company level, I assume, 1st of all, they should have some kind of connections to those grow stage investors. Question is.

When she'd start boundaries, try to start getting those connections to those later stage investors and secondly, what or Dimitri qualities that those startup founders should look in.

In those investors, so it should be operational experience should be investment banking experience. Should it be connections to the Wall Street people who will help them ideal or where those qualities

that are just must haves for growth stage investors.
on the 1st question of when to get in touch with gross stage investors, I'd say the earlier the better,

but as a growth investor at Bessemer,
I will start getting to know a company around the series B,

and the more and you can make Series C series the series E investments there after the more you get to know investors over a longer period of time.

I think the higher the likelihood that they will ultimately invest. It's easier to feel confident in the trajectory of accompany. You've seen hit or exceed. It's financial.

And operational KPI is over many quarters than 1 that you're seeing for the 1st time and in the private cloud software markets of late transactions have just gone so quickly from the start of the fundraising process to term


That that principle becomes more true.

Than ever you,

it's difficult to get conviction around a company in a week or 2 weeks,

which is oftentimes what I'm seeing is being the end to end fundraising process for high quality,

high growth cloud's software companies right now.

So getting to know people over a longer period of time is really helpful as a founder,

and then also,

as an investor and I also think that that's 1 of the things that's really nice about working for a multi stage fund is that some of the other partners that Bassam,

or had gotten to know companies at the Series A, and series.

B. so when I'm looking at the series C, we already have a longstanding relationship with the founder and also have a perspective on the company in the market as it's evolved over time.

In so far as the other question on the qualities that founder should look for while choosing a growth investor from a professional experience perspective.

I think it really depends on what the core obstacle is that a founder is looking to overcome in the next call at 12 to 18 months as we discussed. Oftentimes with cloud. This is help with, go to market and go to market scalability.

So finding growth investors who have relevant experience there, either pattern, matching with other cloud investments, or having scale to go to market org, themselves is really helpful.

But sometimes, it's things like corporate development, and you want someone who has helped other companies, build partnerships or or I've had that experience themselves.

I don't actually think that it's 1 size fits all on, on some of those things that you were mentioning investment banking experience.

But I do think that oftentimes when companies are coming to market, they have a particular problem that they're looking to solve in the given year. And that's what they tend to optimize for.

And but the other thing I would mention is that from a personal perspective,

it matters even more,

it comes down to fit and style,

and even though grow stage companies are farther along in their maturity than our early stage companies when you bring on an investor and a board member,

you're mutually agreeing to be partners together for 3 to 5 years and sometimes more.

So, I think more so, then, even some of the professional experience policies, obviously you want a fantastic adviser who can really help you scale and to grow.

But you also really want someone who you can trust and who will be with you to ride both the ups and even more importantly, the downs.

Right speaking of partnerships, by the way on the early stage, the major part of company, the start team, the team itself. So we usually like 9590% of the whole process.

You're saying how good 2 founders are how bout the later stage to own the gross each how much time do you spend researching the founders? Looking at their background? Seeing how much they've done together etc. Etc.

That's definitely still a major factor when evaluating grow stage companies, you know, it, it's, I think, you know, sometimes people.

Paint early stage is being far more product and team focused than than late stage. I think late stage is just as product and team focus. It's just, you also have to have some of the financial and operational down.

So, you know, having experience founders, founders, that reference well, founders, that you feel like, you can work with, from a personal perspective, and a personal relationship perspective is of utmost importance.

And the founders that I think that I've enjoyed working with the most have been sometimes the ones that they can just empathize with the problem that they're looking to fix. So, I talked about launch darkly a little bit. They were trying they actually had to.

Build a similar product and edit at a previous company before deciding that it was a pain point in that for them.

And for a lot of their other peers and other firms, such that they, they commercialize the feature flagging and feature management problem and become the foremost company in the space.

But I definitely think that digging into team feeling like, you have a connection, and they are the people to take this company to, to that 100M.

There are a threshold is of incredible importance and growth stage.

Absolutely, so here just a little more about getting in touch with investors that's 1 of the major problems. I see. Especially with the early stage founders how should it look like? So, for me, personally, I wouldn't be able to answer that question. So.

You know, I'm the founder on the series, a, who knows that hopefully, in 2 years I'll be on growth stage. So what should I do should I text you on LinkedIn saying like, hey, Here's what I do. I think in 2 years he might be interested in investing me or.

Should there be some other approach? Um, yeah, I mean, I think that that's.
I think that that's a perfectly viable way of getting in touch obviously,
you know,
as we were were talking about with founders being the best references for other companies, warm introductions and founders are are great introductions to other investors.

So, warm, warm intros are always, I think, probably the easiest path to get attention quickly, but, you know.

Uh, I I think that that.

I have taken meetings based on reach outs from LinkedIn, reached out from Twitter, cold emails and everything in between. So, while I'd say that warm interests are probably the path of least resistance.

For compelling company with good user traction and.

Good momentum. vc's will take the time to meet with you.

Absolutely 100% and I think we actually got in touch on LinkedIn right?

Yeah, exactly. So you, there you go this is a hold on sample 100%, but yeah, Twitter is actually way better than a LinkedIn because LinkedIn of investors is just.

Wave core blade, crowded and chaotic wheel those messages from founders. So if you have access to the we're definitely try to ping them there.

Um, so here we're coming down to the last question, I believe most likely I'll come up with another question, but for now, this 1 is the last 1 call to action. So Mary, what is the 1 thing that you want the listener to do? Right? After the episode is over.

Well, if you happen to be a founder of a cloud company at the growth stage, or coming up on the growth stage, I'd love for you to reach out to me. I met and know Freo at BVP dot com or MCA to know Freo on Twitter.

And otherwise, you know, even if you just have a tip on some some great cloud software company, that product you like to use or something, you even just thought was cool. Please please hit me up. I love it.

Perfect great call to action and I did not come up with another question. So we'll wrap the episode up here. I'll make sure to okay. 1st reminder for all the listeners. Most of you are early stage. I know that.

So be sure to remember that.
Mary invest on growth stage, which is way, way way down the road from the early stages.

So, before you reach out and make sure it's relevant and then reach out, I'll make sure to leave links to Mary's, Twitter and LinkedIn in the description of this episode. And also, if you're curious to read about the oldest VC firm in the U. S. A.

definitely checkout Bessemer Venture Partners, I'll make sure to leave a link to them in description as well. So, that's going to be my call to action, check out the links in the description of the episodes and.

Probably, I'll also leave a link to Mary's article about.
Cloud, I have a horrible memory. I cannot remember the title of the article 10 laws of cloud.

Is that right? Yeah, there are a few of them there's the timeline of the cloud, the state of the cloud, and then you can definitely check out the cloud index as well.

Nice so I'll ask Mary, which 1 of those is her favorite and I'll leave a link to that in the description this episode check out those links, and as usually have a gate.