PODCAST 73: What do Venture Capitalists Want w/ Semil Shah

This week on the Sales Hacker podcast, we speak with Semil Shah, General Partner at Haystack and Venture Partner at Lightspeed.

Semil has made a name for himself as an “observational leader”; someone who shares what he sees on the ground and passes it on for people to respond to, benefit or learn from. He’s also one of the most well known and well respected writers on venture capital and early stage investing.

If you missed episode 72, check it out here: PODCAST 72: How to Break Down Sales Stereotypes and Hire Better SDRs w/ Rahim Fazal

What You’ll Learn

  • Who is Semil Shah
  • How to determine a good founder
  • The attributes of VC investors
  • What determines a VC company’s scalability

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Show Agenda and Timestamps

  1. Show Introduction [00:09]
  2. About Semil Shah [02:09]
  3. The Passion That Drives VC [10:55]
  4. Finding a Founder Worth Backing [14:40]
  5. Taking Your Venture to Scale [29:48]
  6. Ask the Right Questions During a Down Round [32:40]
  7. Sam’s Corner [43:48]

Show Introduction

Sam Jacobs: Hey, everybody. It’s Sam Jacobs. Welcome to the Sales Hacker Podcast. Today we’ve got a very special guest, Semil Shah, who runs Haystack Ventures, is a venture partner at Lightspeed, and has made a name for himself as an “observation leader.”

Through his writings and his observations, particularly in the Bay Area, around seed financings, he’s become very well known.

First, we want to thank our sponsors. We’ve got Lucidchart Sales Solutions. Lucidchart is the leading account planning platform for modern sales orgs. With Lucidchart, you can visually map out key contacts and crucial account data to uncover critical insights that will allow you to close bigger deals faster.

Our second sponsor is Outreach, the leading sales engagement platform that enables sales reps to humanize their communications at scale, from automating the soul-sucking manual work that eats up selling time to providing action-oriented tips on what communications are working best. Outreach has your back.

Now, without further ado, let’s listen to this interview with Semil Shah.

About Semil Shah

Sam Jacobs: Hey, everybody. Welcome back to the Sales Hacker Podcast. Today we are incredibly excited to have Semil Shah on the show. He’s a thought leader in the venture capital space and one of the more well known and well respected writers on venture capital and early stage investing.

He’s a general partner at Haystack, which is the fund he started, as well as a venture partner at Lightspeed. Haystack is a proud early investor in Instacart, DoorDash, Hired, HashiCorp, eShares, Giphy, Open Door, Chariot, Managed By Q, and many, many other companies.

Welcome to the show.

Semil Shah: Thank you, Sam.

Sam Jacobs: Semil, a lot of the folks that are listening are sales people and operators that may not be as in tune with what’s happening in the VC/thought-leadership space as maybe they should be.

First of all, tell us what is Haystack?

Semil Shah: Haystack is a seed fund. We invest primarily in the Bay Area with a sprinkling in New York and LA, Seattle.

The entrepreneur might raise $2 million to $3 million as they start out. Being a part of those smaller rounds, those earlier rounds, that’s a stage that we like to work with companies and feel like we have some success and we don’t need to apply a lot of capital to that.

The Passion That Drives VC

Sam Jacobs: When you say you love doing this, what is it that you love specifically? I’m sure there’s a lot of folks out there that are thinking, “Maybe I want to get into VC” and they have to do some introspection and figure out if they do have the skills. What are the skills and what are the passions that really light you up?

Semil Shah: You have to have some kind of network or reason that people want to seek you out, especially in a world of abundant capital. Just saying you want to be an investor without having a network or deal flow is really difficult because people now have options of where to go. You almost have to be selected or invited to participate. That’s just how the market is.

When you invest, you can put a marker down and say, “Hey, I believe in this potential outcome” and you can stand behind it, whether it works or not.

I like the betting nature of that. I also just like the game of discovering things early, especially when it’s a crowded environment and you can pick from the flow and then other people who see your deals later say, “How did you find that? How did you see that?”

It’s like a rush of dopamine. To feel like people are valuing your judgment.

Finding a Founder Worth Backing

Sam Jacobs: Because seed is such an early stage, and the outcomes of the company are so potential, so variable, what are the heuristics you’ve developed to find that founder you want to back?

Semil Shah:

1. What’s the founder pattern or prototype?

I describe this like, if you’re playing a video game and your character has a life meter of 100 at the start of the game, the founders I’m looking for have a life meter made up of some combination of industrial, technical insight and acumen plus evidence of entrepreneurial behaviors, attributes, tenacity, grit, things like that.

It’s very hard to find someone whose got equal parts, 50/50. It’s really easy to find people who have none of those things.

A lot of it is getting to know the entrepreneur personally and behaviorally and then testing their own insights and depths of insights.

2. How do you control for a chaotic environment?

What I try to do is control what I can control, which is “who do I choose to work with? How do I choose to price things or the discipline to say no to things that I think are mispriced or not have enough upside?”

RELATED: 5 Indicators that Get Venture Capitalists Excited

Taking Your Venture to Scale

Sam Jacobs: What are the common themes when it comes to the way that these companies are able to achieve an outcome that differentiates them from those that aren’t? What do you think, if anything, determines how these companies actually end up getting to scale?

Semil Shah: One thing I would say is that there haven’t really been outcomes per se yet. Haystack has been fortunate to have invested in companies that have grown to the point where people recognize them, but there aren’t real outcomes yet.

If I look back on what has differentiated that group of folks who have been able to break out into growth rounds and build these larger companies, I would say the founder attribute is a very clear, structured thinker. That would be number one. That’s kind of a personal profile.

A more personal comment is all of these people, on Saturday and Sunday, are working. Not because they feel like they have to work. They just wouldn’t know what else to do. They have a life, yes. Their main activity is not kayaking or going to music festivals–it’s work.

Ask the Right Questions During a Down Round

Sam Jacobs: When you think about companies that have stalled out, are there common pitfalls? Things that either founders or employees should be on the lookout for?

Semil Shah: I think asking that question from the point of view of an employee at one of those companies is super smart.

Let’s take the case of a company that just starts to plateau in their financing. I would want to know, as an executive in the company, why were the rounds flat or why was there a down round?

Sometimes entrepreneurs, because it’s such a touchy thing, they won’t level up with their team and tell them what’s going on.

Some founders end up raising capital at higher prices just to sow internal momentum, which I don’t think is healthy but I do think it’s incumbent upon leaders at these companies to ask those questions. To say, “Oh, hey, a round came together. Can you just sit down with the team and explain to us how the round went? Where was it priced? What does that mean for us?” It’s probably smart to do.

Sam’s Corner

Sam Jacobs: Hey, everybody. It’s Sam’s Corner. That was a really interesting interview with Semil Shah. I think it’s always important to learn where and how investors view the world and what their perspectives are.

It’s always interesting to conceptualize who are the key players at the table as these companies are being formed and are beginning to grow. Oftentimes, we, as employees, don’t have a voice directly at that table so we need to understand and empathize with where the investment community is coming from and how they think about business construction and how they think or don’t think about issues that impact us personally as operators and common shareholders within the organization.

I hope you took away some insights about what are the qualities that you should look for when you’re looking to hire your CEO or your founder because inevitably those qualities are going to be very similar to the ones that Semil looks for as a venture capitalist.

What We Learned

  • Who is Semil Shah
  • How to determine a good founder
  • The attributes of VC investors
  • What determines a VC company’s scalability

Don’t miss episode 74

Before we go, let’s thank our sponsors. Outreach, the leading sales engagement platform and Lucidchart Sales Solution, which is the leading account planning platform for modern sales orgs.

If you want to reach out to me with feedback, you can reach me on LinkedIn. If you haven’t rated the show, please give us five stars on the iTunes rating system so that we can remain in business and continue to bring you this show.

As always, thanks so much for listening, I’ll talk to you next time.

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