🎧🍌 Recruiting From Zero to One | Nakul Mandan, Audacious Ventures
Lessons from Frank Slootman, why large funds aren't helpful at early stage recruiting, how to build a sales team, common recruiting mistakes, and building a new venture firm from the ground up
Nakul Mandan is the founder of Audacious Ventures. Prior to Audacious, he was a partner at Lightspeed, joining from Battery, which he joined in ‘09 in the middle of the financial crisis while living in India.
This latest episode of The Peel explores his journey immigrating to Silicon Valley and building an early stage venture firm from the ground up.
We get into why most VCs aren’t helpful with recruiting at the zero to one stage, his thesis on starting an early stage venture firm to help founders hire A+ teams, a crash course on early stage recruiting, building a sales team, and how COVID hit right after he left Lightspeed to raise Audacious Fund 1.
Timestamps to jump in:
3:43 Evolution of VC platform teams
9:53 How Audacious runs in-house recruiting processes
15:16 The reason large firms can’t help with Seed stage recruiting
17:06 Immigrating from India to the US mid-financial crisis
21:59 Silicon Valley's secret weapon
25:59 The opportunity to start a recruiting-focused Seed firm
30:14 Raising Audacious $90m Fund 1 in April of 2020
36:58 The new guard of Seed firms
39:23 Why $50-75m is the minimum viable institutional fund size
41:48 How to work with the best founders
45:30 Navigating deal dynamics, term sheets, and valuations
52:24 The two hardest parts about starting a fund
54:32 Lessons applied raising Audacious $125m Fund 2 in 2023
58:46 Evolving from a PMF-first to Founder-first investor
1:02:09 Five traits of force of nature founders
1:07:05 How to build an A+ team
1:11:46 The importance of backchanneling
1:13:54 Why everyone thinks they’re a good people reader
1:14:35 Two most common mistakes in recruiting
1:20:59 Determining urgency of a customer’s problem
1:22:55 Hiring and scaling your first sales team
1:25:55 Why marketing is the hardest role to hire for
1:31:59 What good sales people look like
1:35:43 How to move up market + how to do pilots
1:43:40 Why Nakul admires Rafael Nadal
Referenced:
Find Nakul on X / Twitter and LinkedIn
👉 Find on Apple, Spotify, and YouTube
Transcript - (read on Rev)
Find transcripts of all prior episodes here.
Turner Novak:
Nakul, welcome to the show.
Nakul Mandan:
Happy to be here. Thank you for having me.
Turner Novak:
Really quick give us 30 seconds, what is Audacious, the fund that you started?
Nakul Mandan:
So Audacious is an enterprise-focused seed stage firm. We manage about $250 million. We lead or co-lead seed rounds. It could be as small as a $1 million pre-seed round, could be as large as a large $10 million seed round. We've done both spectrums. We feel like ultimately all of startup success comes down to A-plus teams attacking large markets. So we focus on two jobs, invest in force of nature founders, help them recruit an A-plus team. So half of our team is recruiters and a team of eight people. We've really fused a recruiting agency inside a venture firm. And where we are fundamentally different than any other talent team you'll hear about is that we run searches in-house on sales and engineering. We can invest into founders and help them hire their first seven engineers. And when they're ready for the first two STRs, the first two A's in the first head of sales all in-house. It's a pretty relentless effort to build A-plus teams.
Turner Novak:
And one question I have related to that is, does it actually work? Can you actually help with that? Because I think there's this back and forth of like do VCs actually help with recruiting? I know you have an opinion on that.
Nakul Mandan:
Like all things it's a spectrum of great, good, and a bunch of okay, right?
Turner Novak:
Right.
Nakul Mandan:
I have multiple angles, I'll come to it. The first is the most macro thing. Can VCs help at all? My take on this is, the best of the best founders they still need help they just are going ... They're forces of nature so they're going to find the help they will need to succeed. So they will succeed with or without this specific person in their life. In the absence of that person, they'll still find that other person who can help them.
Turner Novak:
Fair, yeah.
Nakul Mandan:
The question is, can you earn the right to help that person? Can you be in a position to help that person? So I do think the best founders still need help and they get that help regardless of who's in their life. It's a question of are you going to be one of those five, seven, eight people who are going to be those needle movers that they can seek help from, and get help from, leverage help from. So we want to be one of those partners who can actually be impactful on the cap table.
And then the next question is, where can you be helpful? What's the context with which you're coming to it? What's the system you've created to be able to be helpful there as a VC firm? In our case we chose recruiting partly because of my own experience as I grew at light speed as a board member, and dove in deeper to figure out what can be my value. What can be my partnership like with the founder? Can we see recruiting work? Just being the first iteration, the talent 1.0 offering of the last 10 years, it was really a reaction to ... And recent [inaudible 00:05:45] coming into the scene, right? It was pre and recent [inaudible 00:05:48]. The VC value add was I'm a board member I give advice which everybody knew.
Turner Novak:
Anyone can say that they do that.
Nakul Mandan:
It's not that impactful anyways other than ... Unless you're [inaudible 00:05:59] giving some very radical advice that very few people-
Turner Novak:
Yeah, I would buy that. I would listen to his advice.
Nakul Mandan:
Yeah, exactly.
Turner Novak:
[inaudible 00:06:06], yeah.
Nakul Mandan:
But then I recent showed up to the scene and they said, "Look, we want to create this platform where you plug into our platform and you get customer leads, and you get recruiting help, and this and that. And every other firm had to find a reaction to that, right? And so most of it was more a reaction rather than actual belief in the offering.
Turner Novak:
So we need to make sure we also check this box so let's hire a recruiter.
Nakul Mandan:
It was a check in the box. It was literally a check in the box, in my view, across the board. Exceptions exist.
Turner Novak:
Okay.
Nakul Mandan:
And we can go into what exceptions already are valued by founders. Those talent teams, and accordingly, inherited the DNA of giving advice. So where we see recruiting does not work is the typical scenario today. So you're a founder, you go to your VC firms talent partner and say, "I'm hiring my first head of sales." And they'll be like "Great, I'll connect you to" ... "I'll tell you who are the best recruiters for running an early stage head of sales search." Okay, that's useful but it doesn't impact the game, right? We all are working off the same Excel sheet of the search agencies who are good at that game. Then they become involved in helping close, helping run the process well. Again, useful but not impactful. They inherited the DNA of giving advice on the recruiting side, that's not that useful and doesn't change the game.
Turner Novak:
What did you do to actually make it work?
Nakul Mandan:
The exec hiring part, which is where most VC talent teams focus, comes after the series A and B. Your two founders, you just need five to seven amazing engineers. Often the best founders have the first three engineers identified. Through the extended network they'll find that. It is around the fourth, fifth engineer that they want to find that they would say, "I'd rather now go outside my network." So we've set up a team where we are running IC level searches. So if somebody comes to us and says, "I'm hiring an ML engineer, five years of experience, and in New York or NSF." We don't just send them the five people who are already in our network, We actually take that spec, help them refine that spec. But then our technical recruiters are reaching out to 150 engineers every week, converting that to 30 pre-screens for themselves. And over the next several weeks sending seven to 17 candidates who are specifically matched for that role.
Turner Novak:
Like the pre-screen recruiter, highly qualified, you'll have a good conversation.
Nakul Mandan:
Yes.
Turner Novak:
It's like it's closer to a close than just here's our LinkedIn profile.
Nakul Mandan:
When we send a write-up it's a lot of depth. It's not a LinkedIn profile. We don't say, "Hey, these are five people in our network let's send this." Why? Imagine, right, you're hiring your first sales rep, I send you five people that I've known over the last five years. Three of them are not even in market, two of them might be too senior. Maybe one out of the five, six people engages but not ... That's not-
Turner Novak:
Not really.
Nakul Mandan:
That's not helping. So then it doesn't yield results. So I think the one point of offering that mostly didn't go anywhere and got a bad rep for VC recruiting help failed for the right reasons. It was not really a belief driven, a solutions oriented offering.
Turner Novak:
More reactionary than offensive let's build a product that founders want to actually use and help.
Nakul Mandan:
Actually use. And it can be also prescriptive. So ultimately the founders in charge, the founders still accountable to build a great team. You can only be additive.
Turner Novak:
You say you're talking to 150 candidates. I forget if you said per week or per month or whatever the class file was.
Nakul Mandan:
The actual metrics are something like 150 reach-outs lead to about 25 to 30 meetings every week for our In-house recruiters.
Turner Novak:
And then are you saying like "Hey, I work at a venture fund we have X portfolio companies." And you're trying to match them where you're like "This specific one it's a FinTech, B2B, dev tool company and we think you're a fit." Do you take portfolio approach or individual company approach?
Nakul Mandan:
Often it is the individual company approach. I would say 70, 80% is the individual company because you want to reach out for a specific role in mind.
Turner Novak:
Okay.
Nakul Mandan:
But our recruiters are constantly thinking about multiple companies who might have a similar spec open.
Turner Novak:
So they might say no but you're like "But what about this one? This one might be a better fit actually."
Nakul Mandan:
Yeah. And we manage internal hot lists. Again, the effort is so high volume at our end, and so focused on high-quality people that if we find an amazing engineer or we find an amazing salesperson we want to find a home for them in our portfolio over the next three to six months. So we manage internal hot lists and stuff. The biggest thing I've learned is I probably took on more than I expected to when I started with this thesis.
Turner Novak:
Okay.
Nakul Mandan:
Right? This is a full-on operational effort.
Turner Novak:
You're running many recruiting processes all at once.
Nakul Mandan:
There is a lot of devil in the details, a lot more nuance than I probably expected to take on. The reason I'm continuing to take it on ... We believe that this is the place where we can have the maximum impact and then we get out of the way. We believe our advice is only useful if there's a force of nature found at the center of the company and if they can recruit an amazing team. If those two things are true maybe our advice might be 5% useful in the journey. If these two things are not true, God can give you advice it's not meant to happen. Without a A-plus team you're not going to get there.
Turner Novak:
And you could give anyone advice on anything.
Nakul Mandan:
Candidly, advice in today's world, in 2024 versus 2010, is available online. All the greatest advice is already available.
Turner Novak:
I mean, you're giving all your best insights in this podcast anyway. So if people want your advice just keep listening.
Nakul Mandan:
The world needs more doers. Probably that is the summary of why VC 1.0 of talent offering didn't work, that was advice. At Audacious we are doers on the team building side.
Turner Novak:
I know you actually told me the number. How many candidates have you placed so far across the portfolio?
Nakul Mandan:
It continues to evolve because remember we started four years ago. Four years ago we had zero portfolio companies. So it depends a little bit on how many companies you have. But now we've placed about 75. Maybe just shy of 75. 72, 75 candidates in our portfolio.
Turner Novak:
How many portfolio companies do you have?
Nakul Mandan:
Today it is about 24.
Turner Novak:
Okay. So roughly speaking, what's the current run rate then on a portfolio? You invest in a company, you're probably going to place three candidates roughly speaking.
Nakul Mandan:
We think of the purse ... The total number of people placed is a little bit of a vanity metric, right? Let's say somebody is running a search and we send them three finalists, people who actually became finalists, but there's a fourth person who comes through a different network. We've set the culture that our recruiters should sit in front of that founder and say authentically, "Hey, that fourth person is actually better, let us help you close that person."
Turner Novak:
Really?
Nakul Mandan:
That is a very tricky cultural trait to ... And even on the investment side, MZ and I, focus relentlessly in terms of culture. So then how many people you place becomes a little bit of a tricky metric. It's the same way as saying, "How many deals do you do on the investment side a year?" Well, are those good deals?
Turner Novak:
Anyone can do 100 deals a year.
Nakul Mandan:
It's similar to that. Now, of course, it's an output and hence you measure it. But to answer your question, on average I would say ... If a team of five, six engineers gets built over 12 months in our portfolio, it's not surprising if we've contributed to two of the six engineers coming in. And being very involved in the other four, closing even maybe ... They were finalists or interviewing. And then once they start hiring sales teams then I would say ... It's not surprising if 70% of the first initial sales hiring could be through us.
Turner Novak:
Interesting. Okay. Those are pretty good metrics I feel like.
Nakul Mandan:
Early metrics. I'll caveat that. It's an early portfolio still.
Turner Novak:
Some of the people that may be doing this really well, they're asset management firms, they're not really investing in inception stage and helping there. They're like "I want to do the B and the C. I want to deploy 500 million into this company over the course of the next whatever, 10 years." Helping in the beginning might not be worth it for them. So it seems like you maybe slide in where you can actually make a difference.
Nakul Mandan:
I think the Sequoias and reasons of the world have become too big to really be ... They're really asset managers at this scale. Yes, those are very, very good firms. They're good because they have great people in those teams. And those are actually partners that you would want on your journey. But their mandate no longer is to do the $5 million seed investment and actually spend time. Their mandate if you raise whatever, five to $10 million ... Billion dollars every two and a half years is to deploy that capital at some point.
Turner Novak:
If you were to do a $5 million investment, I mean, we're talking-
Nakul Mandan:
[inaudible 00:16:00].
Turner Novak:
You'd have to do a deal a day, multiple deals a day for multiple years to just get the capital out the door. And then supporting all those companies, I don't know. So the model is just bigger checks, later stage. So you're sliding into this spot where there's a need in the market really.
Nakul Mandan:
So our latest fund is 150 million. As I said, we lead or co-lead those rounds, right? My partner MZ he was a YC founder himself, was at Kleiner than Gradient. I was at Lightspeed, Battery. That you're getting that level of support at the seed stage with a full recruiting engine. And sometimes we'll co-lead it with my former employers or somebody else. And you can get the best of both. But during the zero to one phase, I feel pretty confident saying, no firm will be able to match that level of support simply because they don't have the time.
Turner Novak:
I really like your story. From India came to San Francisco. How did that come about, that whole ... That story, that journey?
Nakul Mandan:
So I think I shared with you earlier but it was completely by a stroke of luck. I grew up in India. The entrepreneurial bug in me was pretty early on. My dad has been ... He's retired now but has been an entrepreneur throughout his journey. Candidly, sort of a naive take of life as a teenager I thought I'll start a company, that's how careers are built. Didn't really know. And by the way, this is '80s and '90s in India. It wasn't like Silicon Valley then.
Turner Novak:
It wasn't cool to start a company.
Nakul Mandan:
Not even cool or not cool it was that the ... Silicon Valley has a certain way of looking at entrepreneurship. In the '80, '90s, even early 2000s entrepreneurship in India was starting a power plant or starting a manufacturing thing, or distribute a business. It's not like software companies. Grew up in India, studied there. The entrepreneurial bug in me was pretty early on. So I got into investing early on in my career. More thinking I'll do it for three, four years, learn how companies run, get exposure through the portfolio, and then start a company. So that was my life plan. My first stint was at a local India-only firm called Blue River Capital. And then this firm, Battery Ventures, hired me in Mumbai in May of 2009. And at that point my thinking was I'll just see it through the financial crisis, get to a point where things are a little more stabler, and then I'll start my own company.
Turner Novak:
SO May 2009, hit the "financial crisis." It was like-
Nakul Mandan:
Full on.
Turner Novak:
The middle of it full. We were like "Yeah, okay." You had a new job in that time. That's pretty impressive.
Nakul Mandan:
And I genuinely thought at the start that I found this Silicon Valley job in the middle of a crisis sitting in Mumbai. As luck would have had it, I'm not even exaggerating, I joined on the Monday, on Wednesday, day three of the job, the head of the firm calls me and says to me that, "Hey, we just parted ways with the guy who was leading India. And so we still want to do India but we can't have a Mumbai office without the senior most guy. So why don't you come here, focus on India from here for two, three years"-
Turner Novak:
In San Francisco?
Nakul Mandan:
In San Francisco,
Turner Novak:
Okay.
Nakul Mandan:
"And you learn our way of doing things. And then once you're more senior you go back and set up that office."
Turner Novak:
Interesting.
Nakul Mandan:
There was another colleague of mine who was more senior, and the bet was that he'll grow into a senior partner role, I'll grow from an associate to a senior. So that's how I first came to the US. I had no plans to be in the US. I'd never even visited the US. This was the first time I came here in September 09 on an H-1B visa.
Turner Novak:
Okay.
Nakul Mandan:
I quickly realized within the next three, four months that part, that practice was likely not going to work. So in the next six to nine months I just started volunteering for US partners at Battery. Initially with the idea that I'll just learn how Silicon Valley works. That when they formally shut down the practice they allowed me to transition to the US side.
Turner Novak:
So you saw the writing on the wall that we probably were not going to be able to keep investing in India from San Francisco.
Nakul Mandan:
Yeah, just felt like we were here, the market was dynamic and moving there. It was also a very different market in 2009. It wasn't really a software market and we wanted to find software companies.
Turner Novak:
Interesting. Okay. Yeah, Battery is a very software-focused firm, right?
Nakul Mandan:
Yeah, yeah, yeah.
Turner Novak:
Okay. You mentioned Lightspeed. So you ended up moving to Lightspeed at some point. How did that come about?
Nakul Mandan:
So had that transition in 2009. In '10 I found a way to transition to the US side of things which I'm very grateful for to Battery. Had a great run there, stayed there for four more years. And then in June 2014 this guy called Bipul Sinha who was leaving Lightspeed to start Rubrik ... So he's the founder and CEO of Rubrik.
Turner Novak:
Oh, yeah. They went public-
Nakul Mandan:
He was a partner at Lightspeed.
Turner Novak:
Recently, right?
Nakul Mandan:
Recently, yeah.
Turner Novak:
Nice.
Nakul Mandan:
So he had met me at a common friend, Semil Shah's, happy hour.
Turner Novak:
Oh, amazing.
Nakul Mandan:
Just randomly happenstance.
Turner Novak:
This is pre-Haystack, right? Or right around you starting Haystack.
Nakul Mandan:
No, no, Haystack had started. So I met Bipul in 2013, he started approaching me about ... That "Hey, I'm transitioning out but this would be a great thing for you because we are more infrastructure heavy and we'd like more application layer people. Why don't you come?" And that's how it started. And then I joined Lightspeed in June 2014 as a principal. And then had a good run there.
Turner Novak:
One interesting thing I think you said learning from India to the US ... I don't want to miss this. We don't look down on failure in the US in this ... Or specifically in Silicon Valley. Why do you think that is? And why is this so special just compared to entrepreneurship in other parts of the world?
Nakul Mandan:
I do think it's a very special thing. My US experience is a very limited experience. I straight away came to the Bay Area, I've been here for 15 years now.
Turner Novak:
You did the American dream basically. The most stereotypical, perfect version of it.
Nakul Mandan:
When I talk of America I realize that it's a very biased view of America living in SF. One of the quickest shifts you realize is that failure is not looked down upon here. Look, there are other places that are probably better at it than the rest of the world. But Silicon Valley especially, nobody even cares. People care more about what you're doing now and what you'll do ahead rather than what you did before. To answer your question, I think it's, at this point, so culturally deep-rooted. But it probably started as the startup culture was forming in maybe the '80s, and '90s, and 2000s where people started realizing that just because somebody failed at the startup before doesn't mean that they'll fail again.
So I think it has something to do with abundance of capital so that people can have second, third, fourth chances. If you don't have abundance of capital you're not going to ... Even if the culture is there you're not going to get a third chance. Just startups are so hard that even amazing person meeting the wrong market can be a mistake, but doesn't mean that that person is not amazing. And I think Silicon Valley somehow internalized this in the '90s or maybe even before that.
Turner Novak:
The four quadrant box of founder, market. Bad founder, bad market, good market, bad founder. Good market, good founder, whatever the rest of the thing. The perfect is amazing team, amazing ... Startup friendly, new company, friendly market.
Nakul Mandan:
Totally. I mean, I think Travis Kalanick is a great example, right? Before he had a company called Red Swoosh I think.
Turner Novak:
It was file sharing or something.
Nakul Mandan:
I don't remember exactly.
Turner Novak:
It was Napster kind of-ish, yeah.
Nakul Mandan:
Now, obviously, he's a legendary founder. I think they probably, at some point, became enough critical mass of stories that the culture became very deep-rooted.
Turner Novak:
We were talking before about a guy, Podjarny, at Snyk. He had has first company, I mean, it was a success. He exited and sold it to a publicly traded company and then worked there for a while. And then started a new one that was 10 ... 1,000 times more successful and bigger. It's all about what the people do next. What's the next thing that's coming? It's capitalism I guess.
Nakul Mandan:
It's a pretty unique culture actually. New York might have it too. New York probably has it too, yeah.
Turner Novak:
So you're at Lightspeed, you did a lot of, you said, app layer, enterprise investing.
Nakul Mandan:
Yeah.
Turner Novak:
Okay. And then you started your own fund. How did that all come about? When did you start thinking, maybe I want to do my own thing one of these years?
Nakul Mandan:
The candid answer to that is that I've always eventually wanted to do something entrepreneurial. And so if you had met me at 22, 29, whatever age, I'd probably have said one day I'll start my own company. And then what ended up happening is that I came here. Obviously, life was very good to me so I got better and better opportunities. But I was stuck on an H-1B visa for 10-plus years.
Turner Novak:
Really?
Nakul Mandan:
The candid answer to your question is, I got my green card and I resigned.
Turner Novak:
Oh, you didn't mention that to me but I actually didn't put those two and two together. Okay.
Nakul Mandan:
But by the time I got my green card I was a career VC. I have no other skill sets at this point. I have only skillset.
Turner Novak:
It's like I got to still be a VC.
Nakul Mandan:
So for the last couple of years I had internalized that my entrepreneurial journey will be under building a venture firm. And then I'd been thinking through all kinds of different ideas on where the gap is, where my strengths align.
Turner Novak:
Just when you looked at the landscape, what did you think was the opportunity set that was an open lane to build a new venture firm?
Nakul Mandan:
So I do think the venture market has become extremely crowded. During my stint here when I first arrived in 2009-
Turner Novak:
It was crowded you think?
Nakul Mandan:
It wasn't as crowded.
Turner Novak:
Oh, it wasn't. Okay.
Nakul Mandan:
There was a concept of being a top 20, top 25 firm, right? Now there's maybe five to seven top firms and then 500 other firms who are roughly equal-ish depending on the day and some relationships.
Turner Novak:
A funny story on that. There's a tweet that was going viral on Twitter and it was like VCs as DJs.
Nakul Mandan:
Yeah, yeah, I saw that, yeah.
Turner Novak:
VCs as-
Nakul Mandan:
Animals. Or no-
Turner Novak:
Rappers.
Nakul Mandan:
Trees.
Turner Novak:
Mine was VCs as trees. I was just like well, what's a stupid, funny thing I can say? It was VCs as trees. I literally just went to a list of VCs and picked names that were literally trees.
Nakul Mandan:
Trees, yeah.
Turner Novak:
And just that was the tree. I was just scrolling for 10 minutes, there's so many names. And it was like cool. Here's eight that are literally trees. And I just put the tweet out because it was just stupid. But there's so many on there and it just kept going. You're like when does this end? I didn't even get to the end of the list because there was ... My tweet is good now. So many people.
Nakul Mandan:
There's so many firms. There were a couple of thoughts that came together. So first was that there are these legendary firms we all look up to, right? Lightspeed is one of them. I'm grateful that I got to spend that much time there. But all the usual suspects, Sequoia and all of these firms.
But they all have become pretty big. And so as they became big and big, and we all say seed is the new A, but are they dedicated firms that are really bringing the platform DNA of moving the needles for the founder at seed when the company is the most fragile, when the founder probably needs the most leverage? They're not that many, and these big firms have just become too big to be able to support seed stage founders. And so I feel like these are legendary firms and they're great at what they do, but they're no longer apt for the seed stage. And then there weren't that many seed stage firms that truly had a platform DNA for-
Turner Novak:
For early stage. For smaller techs.
Nakul Mandan:
For seed stage. I think first round comes to mind as the one, but after that there was a steep drop on that front.
Turner Novak:
It kind of reminds me of like SMB scaling into enterprise; natural evolution of the market, but then there's just a hole in the bottom of the market again.
Nakul Mandan:
Very much so, yeah. So I felt like that was one gap. I think that was the gap that was, as I said at the beginning, on the foundational thesis of what Audacious was starting with. Okay, what can we do for the seed stage founder to truly move the needle so that there's a product we are offering, or an offering we have that is actually something that is needle-moving, rather than again checking the box. And as we thought through a lot of those things, ultimately the conclusion was that recruiting is the starting point of everything that follows. Before the product exists, it's the people. Now, all of the offering is completely useless if you are not good at earning the right to work with force of nature founders. You have to get in front of them, you have to win their hearts and minds to be able to work with them, then you have to have a relentless offering to be useful.
Turner Novak:
Yeah. There's a multi-step. You've got to figure a couple different pieces out, yeah.
Nakul Mandan:
So that was the thought process around building a firm with a platform DNA, but dedicated to seed.
Turner Novak:
And I remember, you said, "Okay, I'm going to raise this first fund." What happened?
Nakul Mandan:
Yeah. So the timing of it was pretty interesting. So I resigned around late 2019, and when you're senior enough, things take time. So we kind of decided that, okay, I'll be leaving around March 2020.
Turner Novak:
Just like a random date.
Nakul Mandan:
It was driven by some milestones and stuff, but high level, I resigned somewhere in Q3. At that time, there was no COVID. And then around second or third week of March, it was like, "Okay, you're free to go." And I was like, "Well, thanks, I guess," because COVID was just getting started, lockdowns was just getting started.
And people think that COVID ended up being fine for tech eventually, but in reality what happened is that the first few months of COVID, people were worried about their kids' schools, how will remote work work? People were worried about toilet paper and things like that, right? So nobody was really interested in talking to a new GP spinning out. And also, LPs were not used to making Zoom-based decisions at all. You've raised a fund yourself, so selling to institutional LPs can be a three to six month enterprise sales cycle over dinners and lunches and them getting to know you really deeply as a person.
So yeah, kicked off the fundraise in April 2020, and I thought that I'd screwed up my entire career based on one bad timing decision.
Turner Novak:
Really?
Nakul Mandan:
But ultimately it ended up being fine. It ended up being a much longer fundraise than I expected, candidly. In retrospect, I actually think that when you go through tough times and come out the other side, you actually feel like it was good for you to go through that test. But in that moment, it sucked. So it took a full year to raise, which is a little ego bruising and other things like that, because I'd done well for 10 plus years and I felt like I'm an immigrant, I became a GP at a firm like Lightspeed, I should go out, people should give me the money to invest. Life doesn't work that way.
Turner Novak:
It was probably like, okay, Lightspeed at the time, you're probably investing multi-billion dollar funds to then, "I can't even get the first check into this new thing that I'm doing."
Nakul Mandan:
So it wasn't as bad. It was just long in the sense that the first few LPs moved fast. And so we did get off to a strong start right off the bat.
Turner Novak:
Okay, cool.
Nakul Mandan:
I'd say the tactical mistakes, and this might become too tactical, so I don't know if-
Turner Novak:
Oh, definitely share all the tactics.
Nakul Mandan:
The tactical mistakes are ... so first is COVID slowed down at the start of the fundraise. So I still got Greenspring to anchor the fund within two months and stuff, and that was amazing, because that kind of set up the signaling of the firm's start.
Turner Novak:
They were acquired by StepStone?
Nakul Mandan:
Yeah, now StepStone. And there were a few others that came together, but because everything was moving slower than normal, very quickly it was August, and after August, fundraising really can slow down unless you've told LPs in advance, something called pre-marketing, where, "Hey, I'm coming in that quarter. Be ready for me." So second half of the year is pretty bad for fundraising because often LPs have calendar year allocations.
And so then in our case, what happened is COVID is already playing out. We start in April. So April to July, things are slow, but we got a first close down, moved fast, closed 35 million or something. Our target was 75, hard cap was 90. And then we hit August and everything really slowed down, but people were still engaging. They just were saying, "Hey, come back in January."
Turner Novak:
And you're like that, "I don't want to come back in January. I'm ready to go."
Nakul Mandan:
Exactly. And then what happens is you come back in January and it feels like, oh, it's been out for eight months, nine months, so it feels like it's still a fundraise. So there's a lot of rookie mistakes I'd say that I made in the first fundraise versus by the second fund, it went in three months. Arguably last year's environment is harder than 2020, but we got it done very fast. So I'd say some of those were just rookie mistakes, but in retrospect I feel it was good for us longterm, DNA-wise, to never take capital for granted.
Turner Novak:
Yeah. So how did you sell it to LPs, that first fund? Was it everything that we've talked about, or what was the messaging and how did you get them convinced that this is a good idea and they'll make a bunch of money if they give you money?
Nakul Mandan:
Yeah. So as I was getting started, I was also beginning to build a team, but the thesis was pretty much what we sell today is what we sold to LPs at that time. High level, it was you want to build a firm ground up in a way where you can attack the market like a machine. VC is no longer an artisanal business. There are 500 VC firms, 6000 entrepreneurs who raise a seed round. You need to attack all aspects of the business; sourcing, picking, winning, helping, like a machine. So that thesis has been consistent and we've constructed a team around that. Recruiting as a value prop was pretty consistent right from day zero. And then this idea that hey, the seed market doesn't have true institutional players, at least not many of them. There were obviously two or three names that we feel like are really like us, who are bringing that institutional layer intensity of operations as well as platform DNA.
So the messaging was pretty similar, but in the first one, a lot of it was just selling candidly in the background.
Turner Novak:
So it was kind of like showing your personal journey, tractioning your own slope, and it's going to continue.
Nakul Mandan:
I think some LPs have told me, and some smarter GPs would tell me even then, but I was probably too stubborn to listen to them, that, "You think that you are pitching this thing that you're building, but really what people are buying is you." And it's almost easier to sell you, but we all like to pitch a thesis of what we are building, because we are so passionate about it, but often it is the slope that they're buying.
Turner Novak:
Yeah, that's fair. Do you think that the ecosystem just around, you said there's not very many players institutionally, is the ecosystem kind of refreshing or renewing with a new wave, a new guard? Is that a fair assessment?
Nakul Mandan:
I think the new guard is rising. It does seem like that. I think the challenge for the new guard always is sustainability, because it's a high hustle job, right?
Turner Novak:
Yeah, for sure.
Nakul Mandan:
And when you don't have a big enough fund, you can burn out pretty quickly. So I think the challenge for people who are starting at the ... call it 10 million to 50 million fund size, the challenge is sustainability, because you need to get to a point where institutional LP can come in. So there are a few LPs to manage and all of that, fundraising gets a little easier with institutionals if you can get some repeatability there. But also, a certain level of fund size allows you to play in a better way. But as a solo GP, it's just a hard job, and at that scale you can't.
I do think there's a newer guard coming of seed firms like ours where they're raising somewhere between 125 to 225 right off the bat. So Jack Altman's fund, I think that is a new guard that could really put a dent in the market. But companies are IPOing later and later, so the prior guard, as long as they can continue executing, there's room for everyone. Venture just became much bigger as a market.
Turner Novak:
Yeah, that's true. And so if I were to say you have to make a new fund again, you have to start over, but you can't do what you're doing today, what ideas do you think are good or worth pursuing? Just a sense of standing out to founders, to LPs, but sustainable new lane to build something?
Nakul Mandan:
That's a really good question.
Turner Novak:
This is from Semmel, by the way. Semmel Shah. He planted that question strategically. I should have told you I-
Nakul Mandan:
Yeah, yeah, yeah.
Turner Novak:
Actually, it's a good question.
Nakul Mandan:
Yeah, it's a great question. Look, to come up with ideas of [inaudible 00:39:09] took me two years.
Turner Novak:
We'll ask you to come back in two years and answer it if you want.
Nakul Mandan:
Yeah, I could come back in two years to your podcast. But I think I mentioned this right before the pod without knowing this question, that for somebody who's credible enough to raise 50 to 75 and can stay there or has the desire to stay there, that is probably where the highest bang for the buck is, from ability to slot into the right kind of companies without having to be the largest check, but also have enough firepower in your fund size to actually make the economics work for yourself and for your LPs.
Turner Novak:
So it's like the perfect balance of the fund is big enough to support, live off of, make it a business, but it's small enough where you can actually drive meaningful, very high returns for LPs.
Nakul Mandan:
Yeah, the biggest thing I'm saying on that front is as a $50 to $75 million fund, you can slot in in rounds as the second largest check, or the third largest, and your economics can still work. Around 60 to 75 million, ownership becomes a much more important criteria for fund success, and below that, access to the right founders is more important. Probably there's no golden line there, there's no hard number there that becomes a magical crossover. So in that range, if you have access to the best founders and you can fit in as the second or third largest check, you could actually make a fund really work, but you then wouldn't be able to lead often the deals that you might want to. Not in every case, but often. And that might be not your ambition. I think for us it was important that we build a firm that can lead or co-lead most rounds that we are participating in and can be that first call for the founder. That's difficult at that $50 million scale.
Turner Novak:
I've heard one way to think about it; for an early stage fund, every 10 million is about 1% in ownership. So a 10 million fund, you need to get 1%. 50 million, you've got to get 5%. I don't know when that specifically breaks down, but that's the rough way of thinking.
Nakul Mandan:
Yeah, it probably breaks down somewhere. Yeah, yeah, yeah.
Turner Novak:
Well, to your point, $150 million fund, you've got to be the biggest check in the round.
Nakul Mandan:
Exactly. So winning becomes a bigger and bigger part of your job, winning the competitive deal. And what my point is is at the 50 to 75, you can reduce the pressure of that.
Turner Novak:
So then how do you sell this to founders? When you're in the trenches, you're trying to win their allocations, you've got big dogs coming in, you're trying to compete with them, and you're talking about the world's greatest founders, the most ambitious founders, and you convince them to take your money.
Nakul Mandan:
Yeah, yeah. Look, I think a lot goes into it. It's getting there ahead of time. So if you're competing with Sequoia in the same week that Sequoia is looking at it, of course you have a massive disadvantage of the kind that is difficult to overcome. But you're dedicated to seed, so you better get there first. That's goal number one. So getting there ahead of time. Winning starts before the first meeting. What you are doing to win that competitive deal by showing up early can be a big impact.
Then the second piece is having a clear and crisp pitch so that they start thinking of you in a very clean way, because just like VCs are doing a bunch of meetings, when the founder is fundraising, they're meeting 20, 30 people in a week. So at some point it all gets bleary-eyed for both sides. And so the people who stand out are people who can have a clean pitch and can create an emotional reaction. So our pitch is simple. We focus on two jobs; invest in forces of nature, help you build an A-plus team, then we get out of the way. And then we walk them through very specific examples of how we recruit. I think the most important thing in that is every VC firm claims to have a talent partner, and so it is incumbent on us to make it clear as you engage-
Turner Novak:
But you do a little bit better, or a lot better than that.
Nakul Mandan:
Yes. But then we have to showcase that, and then we go through real examples and we pull up many things like that on the specific examples; "This is what we did here and there, and that becomes a big part of it."
And then the last part is just the ability to build a relationship where the founder really wants to work with you, and they don't want to work with you just for personal reasons, because every VC is very good at charm and you're all salespeople. I think the best founders want to work with people who can increase the odds of success, and if you can't communicate that, then you are going to be at a disadvantage to somebody else who can communicate that.
Turner Novak:
Yeah. If somebody's just like, "I've got good vibes," versus, "I'm going to help you hire the first three people, and I'm going to introduce you to one person right when we get off this call that I already know is going to join the team," that's a-
Nakul Mandan:
Yeah. And actually the thing I forgot is the references need to validate everything you've pitched. The founder references. So it all matters, and I wish I could tell you it's this one thing and we do that well. Our competition is very smart and very driven, for both of us, right? And so you have to be at your A game, and then if you do everything, maybe you'll have a 70% chance of winning that competitive deal versus 40%, right?
Turner Novak:
Yeah. I mean, those are both pretty good numbers. Most people would probably say 40 to 70% on a super competitive, very good founder-
Nakul Mandan:
Yeah, maybe I should adjust those numbers, but the point I'm making is more that if you do everything well, you still have a meaningful percentage chance that you will not get it right. So you need to get there early, build the relationship, have a clean pitch, have a clean pitch for why I am a good enough person for you to work with, or why I can be a needle-move for you. And then actually the deal dynamics. You have to play those well.
Turner Novak:
What are the deal dynamics?
Nakul Mandan:
The very base level of that is just the pricing of it, valuation. Something the founder might want, is that consistent with what the market will give them? And you have to meet that. How fast? Do you want to be the first check or do you want to be the last term sheet?
Turner Novak:
I actually never thought of that. Is there strategy to that?
Nakul Mandan:
There is definitely sales dynamics to it.
Turner Novak:
Interesting. How should I think about that? I've never really actually thought much about that before.
Nakul Mandan:
I'd say it depends a little bit on ... if you think that there's literally going to be five to seven term sheets on this situation, then it is often better to come in towards the late end of it, because there's an emotional peak at the point at which the shaking of the hands happens. And you don't want to be that person who's made the bed on the deal, who's put in the offer, and at that point you've been selling for a week and you've peaked too early in the founder's mind. Because look, all of this is happening pretty fast over maybe a two-week period at seed deals. It's not longer than that. So you've been building a relationship and you made the offer, but you know that this process is going to play on for another week. You might peak too early in the founder's mind versus the person who slots in and is speaking at the right time. There is definitely a 48-hour period where the decision gets made in a two-week period, and you want to be in the right 48 hours.
Turner Novak:
Interesting. Okay. So is there a pricing dynamic too? Like you, me and seven other people. I say, "I'll give you two million bucks, 10 million post money," and the founder's like, "Oh, that's kind of a shitty deal." And then you say 18 million for the valuation. Like, "Man, that's a bad offer. That's kind of insulting." Is that an element of it as well?
Nakul Mandan:
Yeah, at least we don't take the approach of pricing things to perfection for ourselves. We have to meet the founder where they are, ultimately. At least our job is to find the amazing founder and be in business with them, not to price the deal perfectly. And I don't think I have that skill. I don't intend to learn that skill.
Turner Novak:
Really? It's just not important?
Nakul Mandan:
In fact, I would even say for me personally, I'll speak for myself, that I think I am more interested in learning the skill of knowing when to pay up. And that's where I continue to fine-tune myself.
So first of all, yeah, you have to get some signal from the founder, and most founders will give you some signal. Plus some element of it is just market dynamics. Somebody saying $4 million round, plus or minus, it'll be 20% if the round is successfully done. And then dilution wise, and then how much of that can you take? And then if it becomes competitive, it can be 15%, it could be 12%. So having some sense of that determines the prize. And then the question is then are you comfortable with that valuation? We tend to be more flexible on valuation because we feel like, in retrospect, we will not look back seven years from now that we got in at 27 post or 20 post. And I'm giving you a big range, right? Like 18 versus 16, if we lose a situation where it was literally coming down to that, then we were the idiots, for sure, is how I think of it. 20 versus 27 is a broader range, but I don't think we look back thinking that. We look back thinking, "Did we make the right decision of partnering with this founder or not?"
Turner Novak:
It does matter, you have to consider it, but you can invest in every portfolio company, one million post money valuation. That looks great on paper at the time, like, "Look at these super low entry points that we have across the portfolio." But if none of them ever become a material asset that gets a liquidity event and you give the money back to your LPs, it doesn't matter the entry point that you came in at. So it's like you've got to invest in good assets that-
Nakul Mandan:
Yes. Now the flip side of it, of course, if the rest of the market is at 15 post and we start bidding in things at 27, of course we are shooting ourselves in the foot and we are not good investors. So when I say that, I mean within the range of where the market will shake out and within the range where this will remain a valuation that the series A can support, right? Because you don't want to put the company in a bad place where the last round was so high that the series A becomes tougher. But yeah, so within that range, we are pretty flexible.
Turner Novak:
And that's generally when you're thinking about the seed to series A conversion or journey or whatever, and making sure the valuation that you come in at makes sense in between. Generally speaking, you're probably going to sell around 20% in the seed, you might sell around 20% in the series A, and you want to make sure that you might be ... So depending on what you're raising, back into 20%, so you're raising 10 million bucks, 40 million, 50 million post money evaluation, whatever. You need to make sure that the company, if you're raising it 50 million post money, you probably need to be doing a couple million in revenue, growing at probably double digits per month, probably more. I don't know, there's a lot of flexibility, market dynamics. Sometimes you don't need a product yet to do that, but you always need to be thinking about in a couple of years, or 10 years, whatever your timeframe is, the thing needs to actually be worth this amount.
Nakul Mandan:
Absolutely.
Turner Novak:
Someone needs to be willing to pay for it or you generate the cash flow to support this value of the company.
Nakul Mandan:
I 100% feel that there is definitely a valuation that is too high for your own good, as equity holders for us, but more importantly for the founder. But as a VC, you don't have many options other than saying yes or no.
Turner Novak:
Because it's hard to just shake a founder and be like, "This is unreasonable." It's easier to just say, "This is not for me."
Nakul Mandan:
Yeah. They'll be like, "Look, I hear you, I even like you and you're a smart person, but there are six other smart people who are saying a different thing. And I'm an expert at building this product and this company. If six people are saying, 'This is my valuation,' and it's better for me, then fine." So I think in that moment it's difficult for you to have anything else other than saying yes or no, and that's the tricky part.
Turner Novak:
Yeah. So I was going to ask you, what is the hardest part about starting managing a fund? Not just being an investor, maybe this is the same question, but what is actually the hardest part about running and raising a fund that people don't really grasp from the outside?
Nakul Mandan:
I'd say two things. Psyche management is one.
Turner Novak:
Psyche management. Okay.
Nakul Mandan:
You just get a lot of nos. LPs are saying no. Maybe this is coming from somebody like me who had a great career at two very big firms, and so the brands of the firms softened life for me. And suddenly you go to be your own firm and you don't have a brand, and so less founders are waking up and saying, "Hey, I should raise money from these guys."
Turner Novak:
"Audacious, I've never heard of that before."
Nakul Mandan:
Yeah, exactly.
Turner Novak:
"But I've heard of Lightspeed before."
Nakul Mandan:
So you get nos from potential LPs, potential founders, potential recruits. And so psyche management is probably one of the biggest thing of starting something new, as a VC firm, but I think broadly,
Turner Novak:
Yeah, sure.
Nakul Mandan:
The second, and this might be specific to being a VC, as in a GP, is time management. You just get spread thin across a lot of things; LPs, founders, new founders that you're trying to invest behind, existing portfolio companies. There's some fund admin and related stuff that's always going on. There's annual meeting and quarterly email updates to your LPs and fund two is coming up, or fund three is coming up and setting up that raise while continuing to help existing founders. So I think very quickly what happens in year three, four, five is you start getting spread thin. And so-
Turner Novak:
And you're around that time right now, right?
Nakul Mandan:
Yeah. So that's why it's real for me.
Turner Novak:
Fair. Speaking from experience. I think it's an interesting segue now to talk about fund two. So you went back and raised a second fund. How did you approach that? How did you know it was working, a good time to do it? Take us inside that.
Nakul Mandan:
Yeah. The timing of it was interesting. So when we got started with fund one deployment, we thought we wanted to be on a three-year deployment period. And at that time, most people were actually deploying in two years. The scary thing for us was we were getting started on deploying the capital in 2021. And so we were like, "Well, the bull run is definitely going to end at some point here."
Turner Novak:
You were in the middle of it. We were at the top of it.
Nakul Mandan:
We had no way to predict. And the worst case scenario would be we invest the full fund and then it crashes. Then we are rarely screwed. And so part of the thinking was, "Let's make sure we don't go fast on deploying," but we are still deploying from fund one. So basically we made it a four-year deployment period as it went. So it was a little dynamic in terms of fund two, because we kept thinking, "Hey, maybe we should be kicking off in early 2023 as an example," was the initial thought. But then as 2022 was ending, we were like, "We are not ready for actually calling capital in a year," and if you're not ready to call capital in a year, we shouldn't kick off the race. And so we kind of delayed. So the first plan was January '23, we delayed that. So timing itself was an interesting thing.
Probably the biggest thing, I’d say, which was change in tactics because other stuff that went well was simply all the storytelling we had done about recruiting. People were like, "Well, sounds cool, but who knows whether it'll work." We just had many more proof points.
Turner Novak:
Yeah. Did you get any of, "I don't really buy that's that different"? Did you get any of that?
Nakul Mandan:
A lot of that.
Turner Novak:
Okay.
Nakul Mandan:
In fund one, definitely. Fund two, I think because, again, we had a lot of proof points and the way we were working it was different. We were running searches and it had many things to show that this is a real engine. So a lot of that just came through because the story was exactly the same, we just had more to show in real flesh on what we are doing.
Turner Novak:
Yeah.
Nakul Mandan:
Our ownership in fund one has been pretty good for our size. So our average ownership is 10 and a half percent for a $90 million fund. Which [inaudible 00:56:58]-
Turner Novak:
Yeah. To our math, that's-
Nakul Mandan:
Slightly
Turner Novak:
... slightly better than what they say best practice is.
Nakul Mandan:
Yeah. Yeah.
Turner Novak:
Yeah.
Nakul Mandan:
So all of that played out. But candidly, the biggest tactical difference was we were mindful of the timing this time and we pre-baked that timing and we had built up relationships with LPs. The rookie mistake I made for fund one was that when I was at Lightspeed, I spent all my time with funders. So I didn't have any existing relationships. But fund two I had three years of relationships, right? And they had come to our annual meetings and met our senior team, MZ and Sam. So we were known commodities, but the tactic of that was more about keeping LPs proactively updated, forwarding your quarterly emails to prospective LPs that you want to stay in touch. And some of this I learned from people like Semmel and Satya and many of the people who came before me, right? As to how do you stay close to prospective LPs over the months so that when you actually are kicking off the fundraise, they are predisposed.
Turner Novak:
Mm-hmm. And people bought in a little bit more just in the general thesis of recruiting, "We can truly move the needle." And it's like a hole in the market that's not [inaudible 00:58:18].
Nakul Mandan:
That was a key part of it, but it's also like, "Hey, this whole thesis of building a firm more like a machine to attack all aspects of the game, including recruiting, and building a firm with a platform DNA at seed." And these guys can actually win deals with the ownership that they want. That whole thing came together.
Turner Novak:
So then over time, thinking more on the investing side, how have you changed as an investor? I know you told me a little bit about this before.
Nakul Mandan:
Yeah.
Turner Novak:
But can you just talk about that, your journey?
Nakul Mandan:
Yeah. Yeah. So I was a very product-market fit first investor when I got started at Lightspeed especially, because at Battery I was more an associate and then the VP. And then Lightspeed was where I became a check writer.
Turner Novak:
Lightspeed, were you a little bit later, like A and B and C or?
Nakul Mandan:
As and Bs mostly. But I would say I think 70% of what I did was seed and series A, because I knew that I wanted to be on the early state side. That has been where my personal passion has been and I knew that eventually I might start my own firm.
Turner Novak:
Company? Yeah.
Nakul Mandan:
Yeah. Yeah.
Turner Novak:
It's probably just more fun being, again, on the metal just when sausage is being made and it's like-
Nakul Mandan:
Yeah. Yeah. Yeah. Yeah. It's much more fun there and all of that. So I started Lightspeed more as a product-market fit first investor mostly because I think the folly of a smart-minded VC, I think, is to come up with the theses and think that they'll come up with all the right ideas or at least the right teams. And four years in, I think, and it takes time to internalize it, I wish somebody had just given me a crash course in one afternoon and I just converted.
Turner Novak:
Yeah.
Nakul Mandan:
But today I feel I'm a founder first investor. 80% of our decision on the investing side is about, "Is this the founder we want to back?"
Turner Novak:
So why did you change?
Nakul Mandan:
Yeah. Okay. So I'd say it came down to experience. So I started as a product-market first investor and then as I saw my portfolio evolve, I'd say the pivotal moment for me was this guy I invested, Oleg Rogynskyy from People.AI. And I met him and on that day that I first met him, if somebody had said, "Your next investment is going to be in the sales landscape," I'd be like, "Absolutely not." It's a crowded landscape. I don't like this and that.
Turner Novak:
Yeah.
Nakul Mandan:
But I met him and it was just this force of nature energy about him and I was like, "I have to partner with this guy." So then I let his seed round a few months later and then as I saw him evolve and as I saw other companies in my portfolio do well or not, my conclusion in those few years as I did more pattern matching was that I just need to find forces of nature. And so the why of it comes down to, I'd say, I realized company building is so fucking hard that you need a force of nature at the center of it. That thesis that you think of is available to the entire market.
There are fewer amazing founders who can will a great company into existence than amazing market opportunities. There are more interesting market opportunities in the world than founders who can take that and make it into a great company. And so that was my conclusion that this is the scarcest resource, let's go after that. Because if you can find the right market, but the wrong founder, ultimately somebody else will come and take that market opportunity. They'll just execute better over seven or eight years.
Turner Novak:
Yeah. Yeah. And we definitely see that happen-
Nakul Mandan:
Yeah.
Turner Novak:
... in startups all the time.
Nakul Mandan:
Totally.
Turner Novak:
So then that begs the question, you've actually talked quite a bit about force of nature founder. What is a force of nature founder? What makes a founder a force of nature?
Nakul Mandan:
Yeah.
Turner Novak:
Sounds great.
Nakul Mandan:
Yeah.
Turner Novak:
[inaudible 01:02:16]. Cool.
Nakul Mandan:
We all want one.
Turner Novak:
Let's do it.
Nakul Mandan:
Yeah. Yeah. Yeah. Yeah.
Turner Novak:
Let's invest in force of nature founders.
Nakul Mandan:
Yeah.
Turner Novak:
What is a force of nature founder?
Nakul Mandan:
Yeah. I blogged about this maybe two months ago. So look, the starting point of this, for me, is I have internalized for my thinking at least that startup success is an improbable outcome. So you need people capable of improbable outcomes. And that's the specific phrase I'm using because I feel like everybody's good, great, this and that. You do references, you get good things said about people. But if you evaluate everyone with the idea, of with the question of, "Is this person capable of improbable outcomes?" It's a pretty scrutinizing phrase to use and your references-
Turner Novak:
Most those people that you meet are probably not going to meet that bar.
Nakul Mandan:
Yes.
Turner Novak:
The average person on this planet.
Nakul Mandan:
Yes, who's even good.
Turner Novak:
Yeah.
Nakul Mandan:
Will not meet that bar, right? So suddenly you are now thinking in the right frame that, "Hey, this person will have to walk through all." So being good is just not good enough.
Turner Novak:
Yeah.
Nakul Mandan:
So one is that phrasing really helps me at least. And then, for me, it has come down to five factors, as I've put it in my framework, but essentially I'd say for me, high IQ. Company building is a multivariable problem. You need high intellectual horsepower to handle product-market fit, competitive landscape, fundraising, people leaving, people getting promoted, all kinds of things.
Turner Novak:
Yeah. It's pretty complicated just to balance all that. And yeah.
Nakul Mandan:
Just multivariable. Yeah. And most of the times you have amorphous data on all of those variables. So it's not even a simple yes or no, obvious decision, "Yeah. Let's promote this guy."
Turner Novak:
On a competitive landscape, it's like how much do you tilt the product-
Nakul Mandan:
Yeah.
Turner Novak:
... in certain directions?
Nakul Mandan:
Yeah.
Turner Novak:
In the order of operations of what you build and who you hire, all that stuff?
Nakul Mandan:
Totally.
Turner Novak:
Yeah.
Nakul Mandan:
Yeah. So high IQ. Extreme ambition. Some people are mission-driven, they just want to see something in the world, no amount of money can buy that mission out from them. Some people are just athletes, they like to win. Again, there's no number in their mind that they make $50 million and they'll be happy. I'm looking for people who have this extreme ambition where it's not about a number, they just want to win. And that could be mission-driven or because they're athletes, I'm okay either way. The third is ability to make people believe. And I specifically use that phrase, again, instead of communication skills. Because I feel like, again, if we ask people about communication skills, all of us have good communication skills.
Turner Novak:
Yeah. It's like one of those things on your resume. It's like what are your skills? Excel. Good communicator.
Nakul Mandan:
Yeah. Yeah.
Turner Novak:
Work hard.
Nakul Mandan:
But if you think about, a founder really needs to make people believe. Potential recruits, potential investors, potential customers. So that sets a higher bar on, is this person the kind of person where they walk out of the room and people say, "I don't know about that idea, but this guy or this gal, she will make it happen," right? That is the kind of communication skills you're looking for. Fourth is grit factor. No matter how good you are, you'll have some good days, some bad days. And on those bad days it'll feel really dark and you need the grit factor.
Turner Novak:
Yeah. To your point about COVID, kidding, raising a fund, could you have probably gone back to Lightspeed and just been like, "I'm actually going to stay."
Nakul Mandan:
I could have.
Turner Novak:
Yeah.
Nakul Mandan:
Yeah. Maybe they would've accepted back. But I think in that moment I just felt that, "Hey, if I have to build this for 30 years, there are going to be existential moments. The first one came on day zero, that's how I internalized it, right? And my point is similar. It's like you need the grid to say, "Hey, this is going to happen. This bad day is not an anomaly. This is part of our journey as startup builders, we need to make this happen." So you need people with that kind of a gritty mindset. And the fifth is urgency. And that is actually something I've internalized more recently the last four or five years. I would've just said the other four, but I feel like urgency is mission-critical in startup. Everything needs to move faster than what you're used to.
Turner Novak:
Yeah. I've definitely heard that a lot. I think one of my friends, he said he only invests in founders when he's doing the initial diligence on them. If they don't respond to him almost immediately-
Nakul Mandan:
Yeah.
Turner Novak:
... then loses interest. I'm like, "Whoa, that is-"
Nakul Mandan:
Yeah.
Turner Novak:
That's intense.
Nakul Mandan:
Yeah.
Turner Novak:
Because there might be other things going on.
Nakul Mandan:
Yeah. Yeah.
Turner Novak:
[inaudible 01:06:47].
Nakul Mandan:
So I don't look at that heuristic. It's more that is there a clear DNA of urgency in them?
Turner Novak:
Yeah.
Nakul Mandan:
And so when those five things come together, I start feeling-
Turner Novak:
That's the force of nature?
Nakul Mandan:
... "Hey, force of nature." For me, is that that this person will walk through walls and they will not take no for an answer just because that's the first answer they got on something.
Turner Novak:
Yeah. And so when you talk about you're helping the founders build an A plus team and recruiting.
Nakul Mandan:
Yeah.
Turner Novak:
Do you, quote unquote, hire force of natures? How do you think about building an A plus team, if I'm recruiting?
Nakul Mandan:
Yeah. So as an example, if you're hiring salespeople, you're looking for specific skill sets, right? You're looking for engineers, it's different. People's personalities might be different. And this is one of the things that even when we are investing in forces of nature, not every founder who's going to be amazing wears their ambition on their sleeve. Some people are quietly determined and it is on the investor to accordingly get in the story enough to know this person is quietly determined because they're an introvert versus this person is more capable of wearing that story on their sleeve. So you don't want to miss on that calm.
In fact, sometimes the calmly determined people are much better, they're often grittier. So same thing on recruiting. So it depends on the function. So when we are going about that, I would say the first thing is the intentionality from the founder side on the specific problem they're trying to solve with this hire. And second is then intentionality on their process to set up the pipeline of candidates well, meaning get in front of high quality candidates, understand the difference between good and great, not be too trigger-happy.
The other extreme of that is looking for the perfect candidate forever. But often I find that if you have not gone through a lot of hiring and firing, you end up feeling like good is fine, but good is the enemy of great in recruiting. And so just first piece is just setting up their process well and the intentionality well. And then after that, once you have figured out, "Okay. This is the problem I'm trying to solve with this person," then you go down into the specifics of... So as an example, if you're hiring for go-to market, are you solving a demand gen problem or a closing problem? Will the people who might be-
Turner Novak:
Totally different.
Nakul Mandan:
Are different.
Turner Novak:
Yeah. So then what do you feel, like if I'm hiring my third engineer.
Nakul Mandan:
Yeah.
Turner Novak:
Audacious just invested, you're helping me and I'm like, "Hey, I've got these two people from my network, but I need the next two." How should I approach it? What would you tell me to do?
Nakul Mandan:
I'd say, "Let's get to the spec well." So first piece is intentionality around how many years of experience, what are the skill sets you're looking for? What is the DNA? What are the core ingredients you're looking for on the skill set? And then cultural alignment. Next is setting up the pipeline. So okay. We all want great engineers, where is the pipeline?
Turner Novak:
Yeah.
Nakul Mandan:
So we often will set up the founder with multiple avenues for their pipeline build out. Audacious is one of the pipeline. This is why I said earlier that we don't think of closing the role, it's a vanity metric.
Turner Novak:
Yeah.
Nakul Mandan:
Audacious should be one of your pipeline, but you should be relentless of maximizing your extended network to get in front of A plus people.
Turner Novak:
Because you could, in theory, be their worst pipeline. And if you see success-
Nakul Mandan:
In theory you could be. Yeah.
Turner Novak:
... as closing your candidates-
Nakul Mandan:
Yes.
Turner Novak:
... that could actually be bad for the company.
Nakul Mandan:
Exactly. So the second piece that I would help them set up is just intentionality around pipeline generation of, "How am I going to get to at least 10 good to great candidates in this next six to eight weeks," right? And so do you need a contingency recruiter for that? Do you have your existing network for that? If you have an amazing network, you're Bay Area based for 10 plus years and you you're resourceful about using your extended network.
Turner Novak:
Yeah.
Nakul Mandan:
Great. Let's maximize that. Audacious will obviously understand that and then our technical recruiters will start reaching out to a bunch of people and pre-screen them and get you in front of those people. And then it comes down to the specs. The pre-screening comes down to understanding which engineering cultures have been great. How many years did this person spend at that company, right? So if you feel like Scale AI's engineering culture has been great, who were the first 20 engineers at Scale who might be more open to startup opportunities elsewhere? So there are certain great engineering cultures, there are certain great sales cultures. Having that insight allows you to source better, right? And then understanding what kind of questions can be pre-qualifying so that I can dig deeper and stuff. And then final thing I'll say is back channel references is mission-critical.
Turner Novak:
Interesting. How do you do that if you don't know... If I'm [inaudible 01:11:45]-
Nakul Mandan:
As many as possible.
Turner Novak:
So what's a good way to back channel reference someone, if I've never even thought about this before?
Nakul Mandan:
So back channel references basically means just to say it out loud is, if I provide you my references myself, of course those people are going to say good things.
Turner Novak:
They're all going to say good things.
Nakul Mandan:
And there's no point in doing that.
Turner Novak:
Yeah.
Nakul Mandan:
Might as well not do them.
Turner Novak:
Yeah.
Nakul Mandan:
So the idea is that can I reach out to five people who might know you in your prior companies? And yes, three of them might still give me... Because they're more friendly to you, they've worked with you. But one or two might actually give me the intel on something that I didn't know through the interview process. And that is giving me intel on where should I dig in further. We've definitely had situations where you uncover something. And sometimes it's often not even something that's truly bad, it helps you pick between two finalists.
Turner Novak:
Yeah. And actually one thing I've found is, this is more so on digging into founders.
Nakul Mandan:
Yeah.
Turner Novak:
Where it was like, "Damn, that was a really fucking good reference."
Nakul Mandan:
Yeah.
Turner Novak:
"Why are you not telling people to talk to this person?" That's a pretty good-
Nakul Mandan:
I'll give you an example, in investing where there was a situation we had where MZ and I had met a founder. We kind of liked the founder, but we were kind of iffy on the idea. And then we were like, "Let's at least kick off some back channel references since it's an easier..." And we got on a Zoom with a back channel reference and that guy said, "I'd invest in anything this guy..." And he gave such a positive reference that we ended up bidding on that deal, right? And so back channel references can be extremely positive or negative or somewhere in between. You just want more information. You're bringing this person from the next three to 10 years into your journey.
Turner Novak:
Yeah.
Nakul Mandan:
Why would you not want as much insight as possible?
Turner Novak:
Yeah.
Nakul Mandan:
I'll even go on to say, and I think it was Frank Slootman who first put this idea into my head, was interview is the most misleading indicator of a recruiting process.
Turner Novak:
Interesting.
Nakul Mandan:
Everyone in Silicon Valley thinks they're great people readers.
Turner Novak:
Yeah. Prob. I could see that. Yeah.
Nakul Mandan:
So we all think that we'll talk to each other.
Turner Novak:
Yeah.
Nakul Mandan:
And you like, "Yeah. This is A plus, this is A minus." No, I don't know.
Turner Novak:
Interesting. Yeah. Well, there's a whole industrial complex about getting a job at Google or getting a PM role in tech. It's like gaming the interview.
Nakul Mandan:
Yeah.
Turner Novak:
How do you get a job?
Nakul Mandan:
Yeah.
Turner Novak:
And for a lot of people that's success.
Nakul Mandan:
Yeah.
Turner Novak:
Is like, "I make 500 grand a year working at Google." That is a great destination for a lot of people.
Nakul Mandan:
Yeah. Yeah.
Turner Novak:
So yeah. To your point, I guess I could definitely see. Is there any places you feel, maybe one or multiple, just people seem to mess up in recruiting? Maybe it's bad interview reading. But is there a certain thing where it's like you see it's just not gone right or we've made bad hires or messed up? Is there any common patterns?
Nakul Mandan:
I'd say there are multiple in our experience. I think lack of intentionality right at the start of it. Feeling that, "Hey, yeah, let's get started. Just send me the good candidates." If you don't communicate exactly what you want to the people doing the sourcing for you, whether it's Audacious or a third party recruiter, you're going to get the generically good candidate. So having very high clarity is the first step.
Turner Novak:
So it's like ICP of your customer, take that mindset to ICP of your candidate.
Nakul Mandan:
[inaudible 01:15:24]. I would say we follow this framework, it's not the only one, but we follow this framework called mission, outcomes, competencies, which is what is the mission of this role? If this person is successful, what are the outcomes they would've achieved? What are the competencies they need to achieve those outcomes?
Turner Novak:
Okay.
Nakul Mandan:
That is a better than a JD because the JD is very generic, right?
Turner Novak:
Yeah.
Nakul Mandan:
We all have seen job descriptions, good culture fit, all of that.
Turner Novak:
Yeah.
Nakul Mandan:
Versus if you say, "Hey, these are the outcomes that this person needs to have achieved in this role in a year, they get to it a better way. So you want to be very intentional about the ICP equivalent of the person. So that's, I would say, some often the mistake number one I see. Second is not being calibrated, that good is the enemy of great. That's not a problem for always. In fact, the best founders are the best at this. So because the best founders have come from cultures where they've seen greatness before and so they're already calibrated. But if you're outside the Bay Area, you might not have seen enough greatness and might not be calibrated. And this could be a learning curve. And then the final is, which is probably the most common we see with even seasoned execs, they think closing is easy.
Turner Novak:
VCs think that?
Nakul Mandan:
Most seasoned execs think that closing easy.
Turner Novak:
Oh, closing a candidate?
Nakul Mandan:
Closing the candidate is easy.
Turner Novak:
Okay.
Nakul Mandan:
But the best people are the ones where they resign and their boss gives a counter offer. And by the way, two other people are already waiting. Those are the people who have the options and-
Turner Novak:
Yeah. Those are the people you want to hire.
Nakul Mandan:
Yeah.
Turner Novak:
Those are the people you [inaudible 01:17:03].
Nakul Mandan:
Exactly.
Turner Novak:
Yeah.
Nakul Mandan:
And so closing starts way before the offer letter.
Turner Novak:
Yeah.
Nakul Mandan:
You want to be selling along the way and selling the larger than life dream to that candidate.
Turner Novak:
Yeah. I have one friend who, incredible salesperson. Also, I really want to invest in her company. And a couple portfolio companies met her, talked to her and like, "Oh man, I really want to hire her." And I'm like, "You should hire her, but also I want to invest."
Nakul Mandan:
Yeah. Yeah. Yeah.
Turner Novak:
So it's also a conflict for me, I don't know what to do.
Nakul Mandan:
Terribly.
Turner Novak:
But also she should be a founder.
Nakul Mandan:
Yeah.
Turner Novak:
She's that good. And I'm like, "If you convince her to come work with you, incredible, great job."
Nakul Mandan:
Yeah.
Turner Novak:
But good luck because she doesn't want to go work at another job.
Nakul Mandan:
Totally.
Turner Novak:
She wants to start something. So, again, hardest people to close.
Nakul Mandan:
Yeah. So I think having a lot of, again, intentionality and relentlessness on closing the highest quality people and starting to sell right at the beginning of your process, right? So we often will say, for the people that we've already qualified for you, the first hour that the CEO meets the candidate is half buy and half sell. In fact, the more you are able to sell right at the beginning of the process, the more you earn the right to ask the hard questions during the interview process.
Turner Novak:
So what are the hard questions? Just digging in and understanding-
Nakul Mandan:
Digging in. What specifically happen, so if you're hiring for sales and it's a sales leader role. Okay. Can you talk to me exactly in a situation where you hired a few people and you had to fire a few sales reps, what went wrong there? Or the harder questions they'll dance around, but the more you've sold the company, they want to make it happen and they'll be more direct with you also.
Turner Novak:
They might just be like, "I'm not that into this. I'm not even really going to try to answer this question. I'm ready to get out of here."
Nakul Mandan:
Yeah.
Turner Novak:
Yeah. Okay.
Nakul Mandan:
Yeah.
Turner Novak:
Yeah.
Nakul Mandan:
But the harder questions are often about going deeper and detail oriented so that you get the full color of the situation. And often people will keep you above the detail.
Turner Novak:
Yeah. That's fair. Okay. Well so you mentioned hiring a sales team. If we talk about more selling and also how to build your go-to-market motion, I'm interested in that. And this first one is actually maybe more related to the investing side-
Nakul Mandan:
Yeah.
Turner Novak:
... when you're like, "Is this a worthy market to pursue?" But how do you figure out if a problem is even urgent enough to sell into and build a go-to-market motion around?
Nakul Mandan:
Yeah. So I think it's a tricky one because, look, a lot of founders who are very smart still end up with ideas that are not as urgently desired by the customer. And the reason is that the misleading indicators of interest from the customer side because of politeness simply, which is-
Turner Novak:
So this is like your friend saying, "This sounds cool, I'd buy it"?
Nakul Mandan:
Yeah. "I'd buy it."
Turner Novak:
But they don't actually pay you.
Nakul Mandan:
"This sounds quite interesting." The more qualified answer there would be that somebody says, "Yeah. This is actually a problem I have and I would like to solve it." And they are probably being truthful there, but does it meet the bar of the top problem that they want to solve tomorrow? Or will they say to you when you actually have built the product and you're selling, they'll say, "Hey, this quarter I'm solving this something else, next quarter I'll definitely buy a thing." That is a problem for you, right?
Turner Novak:
Yeah.
Nakul Mandan:
And that happens to a lot of companies.
Turner Novak:
Really? Okay.
Nakul Mandan:
Because why do many companies get to a million, two million, three million and not scale beyond? Is like you got the low-hanging fruit and then this is what is called a nice to have, not a need to have, right? In B2B world. And if you build something which is nice to have, the feedback you would've gotten three years ago was, "Yeah. This is a very interesting thing." So the best way I think is to get a sense of urgency because that will tell you this is a top problem for this person to solve. It signals, right, are they actively following up after the meeting, "Hey, are you actually going to build this? I'm actually pretty interested in it," right? Or people start asking you the timeline right away on when you're building it.
Turner Novak:
Because that's their indicating they would like to use it?
Nakul Mandan:
They would like to use it.
Turner Novak:
And they would like to know when they can.
Nakul Mandan:
Yeah. Yeah. And then once you actually built it and are starting to sell it, then it's a little bit of a clearer signal, right? Because the mock-up phase, again, it's very, very amorphous. But once you've built a product and you're actually trying to sell and people keep repeatedly telling you that, "Hey, I think it's interesting, but why don't we wait for one more quarter, let me address these other things." And then if that is a repeated message you're getting you've built something potentially nice to have, not a need to have.
Turner Novak:
So at that point, do you more features or is it new market, new problem to solve? How would you figure out what to do? And I don't know if there's an example because this is a little bit of a vague statement.
Nakul Mandan:
Yeah. Yeah. Yeah. Yeah. Look, every situation is different. I'd say it's definitely not more features is not done so often. It is, is there one specific feature that changes the game in the value prop? Yeah. Companies often win because of this one thing that they solved extremely well and then they can build the features around it to make it robust and completely something that people live off of. But if you have a nice to have product and you keep building more features, which are nice to, the collection of nice to have features doesn't make product-market fit.
Turner Novak:
Okay. So let's say you do have product-market fit. You've been doing some founder led sales. 20 customers, 10 customers, I don't know, six figures in revenue.
Nakul Mandan:
Yeah.
Turner Novak:
You're starting to think about the first hire on the sales side.
Nakul Mandan:
Yeah.
Turner Novak:
Is it usually a BDR to just help you with ramping up-
Nakul Mandan:
Yeah.
Turner Novak:
... outbound or outreach or first contact? Is that a good thing to...
Nakul Mandan:
I'd say this is where the devil is in the details.
Turner Novak:
Okay.
Nakul Mandan:
So it depends on three things. One is the founder themselves. Meaning how comfortable they are in selling. Are they looking for a thought partner on the sales side? And you're not going to get a perfect thought partner, but BDRs or SDRs are pretty junior. So if you are looking to learn from your first sales hire, don't hire SDRs, then go for an AE. But then also depends on, the AE can come and say, "Where is the pipeline?" And so the more enterprise deals you sell, AEs are more used to generating their own pipeline. If you're selling smaller deals, actually they depend on SDRs. So there's a lot of moving pieces here.
Turner Novak:
Okay.
Nakul Mandan:
And it's not a perfect answer for you, unfortunately. But yeah. A lot of times pipeline generation comes before closing and that's where the leverage for the founders time comes.
Turner Novak:
Okay. And generally speaking, sales teams are structured, at the bottom, there's STRs, which is pipeline generation, generally speaking, and there's probably multiple, or at least one, but maybe multiple STRs that work with an AE who's an account manager, they're closing the deals, and then typically above that, and you might hit this as you start to scale up more mature sales team, there's the head of sales that's basically managing the AEs.
Nakul Mandan:
Yep, yep.
Turner Novak:
And they're obviously above the STRs.
Nakul Mandan:
Yeah.
Turner Novak:
Okay. So then how do you know when is it time to incorporate different pieces of it? It's like founder skill, where the bottlenecks are. Is that a place to start?
Nakul Mandan:
No, I'd probably say it's a little bit of a function of where you feel like there's repeatability, and you can offload that to other people who are coming in and the founder can be at the cutting edge of problem solving. So where you can get more leverage of time because you've made it repeatable, so if it's pipeline generation, just give it to somebody. You're still managing them, but now there's leverage on your time versus you are still focusing on the closing problem because the closing has not become repeatable.
Turner Novak:
Okay. Okay.
Nakul Mandan:
You should hand off things that are becoming repeatable.
Turner Novak:
So it's almost like you have a playbook of here's the 18 different ways that we close these different personas and ICPs or something like that.
Nakul Mandan:
Yeah, basically I think the riskiest thing a founder can assume is, if I hire a salesperson, they'll solve the problem of product market fit or how to make my process repeatable. You're not going to get a person, for 1% of the company, to solve that problem at that earlier stage. And look, this is why it's hard, because founder selling is not easy.
Turner Novak:
Is that typically what the first AE, probably about 1% equity, is what you're giving up?
Nakul Mandan:
Yeah, plus, minus. Yeah, yeah.
Turner Novak:
[inaudible 01:25:59]. Yeah, okay. How then do you think about a marketing hire, and is this that much different from a BDR and AE? If I'm not familiar with this, is marketing a lot different from sales?
Nakul Mandan:
I would say it's the toughest hire to make because there's not enough signal on who's good at marketing versus not. Sales is actually very clear data from your prior track record. So you're an AE, you had a million dollar quota. Where you at 80% of that, or 120%, 60%?
Turner Novak:
So it's interesting, it's like, "Hey, tell me your quota numbers." If they don't share them, there's probably a reason they don't share them. But if they do, it's like, "Oh, that's pretty good."
Nakul Mandan:
Yeah. That's a red flag, not even a yellow flag.
Turner Novak:
Really? Okay.
Nakul Mandan:
Yeah. The best AEs wear it with pride, the best AEs put it on their LinkedIn.
Turner Novak:
Yeah, I've actually seen that. You go to someone's profile and it's like 120%, 150% quota attainment like eight quarters..
Nakul Mandan:
Yeah. If they have it repeatedly, they'll put it on their LinkedIn, and that is the person you want. And that is the person, again, whose difficult to close because they have many options. So I would say sales hiring is much easier than marketing hiring. Marketing is very, very tough, and that's probably universally accepted. Yeah, I'm pretty sure it's universally accepted in the B2B world.
Turner Novak:
So how do you know if someone is good at marketing? How would you assess that? If you're helping me hire [inaudible 01:27:16]-
Nakul Mandan:
This is where one is being specific. So the marketing and B2B breaks down into three disciplines high level, demand gen, product marketing, brand marketing, maybe there's a fourth, field marketing, but in the end comes back to demand gen. And so first is knowing the problem I'm looking to solve. Am I looking to solve an online demand gen problem, an offline-
Turner Novak:
Which is like pipeline, fill up the pipeline.
Nakul Mandan:
Yeah, exactly. Am I looking to solve a positioning problem when you need product marketing, or am I creating some air game around brand? People grow up in different disciplines. So first is your pipeline of candidates should be growing up in the discipline where you need the problem to be solved. Then of course, you start interviewing and that's where back channel reference... I would say in marketing, the back channel references are even probably more important.
Turner Novak:
Just to make sure you get a handle of what they actually worked on or were responsible for?
Nakul Mandan:
Yeah, because there's not going to be enough signal in terms of pure metrics through the interview process. So people who are good at interviewing could look like, "Oh, they were great," but also again comes back to which companies have you worked with? What outcomes were achieved there? Were you responsible for those outcomes, or were you the beneficiary of that company being successful and [inaudible 01:28:32] looking good?
Turner Novak:
Yeah. Let's say you were the first marketing hire at Ramp, I don't know. I'm assuming people listening to this have heard of Ramp like, "Oh, Ramp. Great product."
Nakul Mandan:
Exactly.
Turner Novak:
But it's like, was it the marketer that's the reason Ramp is successful?
Nakul Mandan:
Totally. Totally. So digging in, that's what I meant, digging in and understanding what exactly did you do. This is why we like the mission outcomes competencies, it informs the interview process itself as to what are the outcomes you drove in that company.
Turner Novak:
And generally speaking, how long does it generally take to ramp up a sales team or marketing team? If I'm a pre-seed founder, I'm like, "I've closed some deals, this is all great advice, I'm just going to do this next week." What's a realistic timeframe?
Nakul Mandan:
Yeah, yeah. I've written a post on this that sales engines don't get turned on overnight. So you say to us, let's say we are Audacious, we invest in the company, you are at 500K of ARR. Say, "Okay, I want a sales team now. Everything feels repeatable. I'm ready to scale this." Okay? Well, you kick the search off, it might take two to three months to hire the person, then they resign from their existing job, they'll take 30 days to join. So that could be three to four months now when they start, and then another two to three months before you get clear signals on whether they are actually going to be good or did you make a recruiting mistake.
Turner Novak:
So you're at six months right there.
Nakul Mandan:
Six months at least. At least.
Turner Novak:
This is the first hire, the first person.
Nakul Mandan:
This is first hire. The other piece that repeatedly we said, and you've heard this from elsewhere also, is if you're hiring sales reps, always make two sales reps. Why? Because let's say one comes in and they don't do well. Was it a hiring mistake or do you not have product market fit? But two, you have more signal on what could be working and what needs work versus where it was a pure hiring mistake. If one crushes it, one doesn't, it's not a product problem.
Turner Novak:
Yeah. And so do you recommend then two very different backgrounds? One person was in that industry and one person was similar motion, but different type of product?
Nakul Mandan:
Often people will experiment with that, and guidance might be different on this. My guidance is typically to focus on the core ingredients of being a great salesperson, but I think there's value in if the industry you're selling into has its own unique heuristics of selling or aspects, then maybe there's value in at least one salesperson in the early days coming from the industry. Yeah. But typically, I at least advise for going for core ingredients on being great salespeople, and often that shows in the track record of selling.
Turner Novak:
Okay. Yeah, I think a prior guest of the show, Michelle Valentine at Anrock, I don't know if you've ever come across them. They do compliance for sales tax, so sounds boring, but it's-
Nakul Mandan:
Oh, I've heard of Anrock. Yeah.
Turner Novak:
Yeah. So what she did was she hired someone with experience, it was at a big company selling tax software, and then the other AE was somebody who'd never done it before, but they'd been the first sales hire at a startup. And they both worked and they went off each other and they fed off each other, and that's also like, "Oh, shit, they both work. We definitely have product market fit."
Nakul Mandan:
Yeah, yeah.
Turner Novak:
So again, it's like there's no right or wrong way to do it as long as it's good at sales.
Nakul Mandan:
[inaudible 01:31:56]. Totally.
Turner Novak:
And then that begs the question, how do you be good at sales? What does a good salesperson look like?
Nakul Mandan:
The best AEs actually often will show up even in the interview process, like a sales process. They'll first try to understand what you're looking for. So that gives you a sense, when they are in front of customers, before they start pitching themselves, they'll understand what the customer is looking for and modifying their pitch for the customer. But ultimately, it all comes down to the metrics and which sales cultures they are coming from and who have they been trained under. Are they good at pipeline generation as much as closing, or do they hate pipeline generation? So I think pipeline generation, why I probably have mentioned it a couple of times, it's like eating carbs versus greens. Eating greens is equivalent to the pipeline generation. Everybody likes to close deals. The work that goes into closing deals is having a great pipeline, and that's cold calling people, cold emailing people. Nobody wants to do that.
So getting a sense of which sales cultures are they coming from, how much of their pipeline were they accountable for themselves, how relentless they are on that front, how do they handle sales calls. It's a little bit like you're making a qualitative assessment in the interview process itself. Doing back channel references and knowing the quota attainment numbers over multiple years. One of the things I'd say is they are absolutely unbelievable sales leaders who are great at training people and keeping people. So if you know that this company, I'll use AppDynamics as an example, AppDynamics had unbelievable sales culture, so if you know that this person was in this company for those years that it was amazing, then you have a lot more trust in their process and everything. So there are heuristics like that that you can know before the interview.
Turner Novak:
Interesting. Okay. Yeah, that makes sense. If I am not familiar with App Dynamics or insert a sales culture, are there easy ways to figure that out? Do I just probably need to get to know people who worked at the company?
Nakul Mandan:
So at least with our portfolio companies, what we do is even when they are beginning to do founder selling, we surround them with three to five people who we trust as amazing sales people who can also give tactical advice to our founders. So they'll go down to the level of giving feedback on the deck or how you handle sales call and all of that. So during the founder selling phase, you should continuously meet salespeople to A, get better at sales yourself, but also to start learning about how to assess sales reps and have some calibration on all of this.
Turner Novak:
Okay.
Nakul Mandan:
And then when you're kicking off your recruiting, hopefully Audacious is around you to give you this insight that, "Hey, that company had amazing sales culture versus this other company was very successful, but they were successful because of product or other things, not because the sales culture was a killer culture." So we've mapped out internally who are the great sales leaders we think have groomed amazing next level who we want in our companies as heads of sales. Because the great sales, also they are the CRO of a $200 million company, so you need the VP of [inaudible 01:35:16] to become the first VP of sales at your company in the early stages. So we've done a lot of that work internally to know which sales cultures we want to poach from.
Turner Novak:
Is that something you share publicly at all, or is that a close to the chest, confidential portfolio company?
Nakul Mandan:
I'd say it is 90% portfolio company and 10% one-on-one conversations I'm happy to share.
Turner Novak:
You mentioned AppDynamics.
Nakul Mandan:
Yeah, AppDynamics is a great name.
Turner Novak:
Okay, interesting.
Nakul Mandan:
But yeah.
Turner Novak:
Have you seen any examples of companies successfully scaling up market? Is that a pretty common thing to pull off? Is it difficult? How do you recommend approaching it?
Nakul Mandan:
Most companies start at a lower price point of selling and they want to grow into, and that they eventually do grow into if successful. So the successful ones often do this. So in my own portfolio, Gainsight started at 30 to 50K of ARR or maybe even 20 to 50K. Today, it's a $200 million revenue business, probably the average deal size is 200, 250, maybe more.
Turner Novak:
This is customer success software?
Nakul Mandan:
Customer success software. Yeah, yeah.
Turner Novak:
Okay.
Nakul Mandan:
People.ai, same thing. Started with even 10 to 25K. Today, the average deal size is 400 to 500K. Multiverse is another company in our portfolio. So I'd say most companies do grow it, it's not easy. Because as you grow it, the dynamics of salespeople that you hire change, the SMB sales rep is not used to selling mid-market, and the mid-market sales rep is definitely not used to selling enterprise deals. So your sales organization needs to evolve with deal sizes. And your product needs to evolve.
Turner Novak:
Are there any common mistakes, then, you see? If I'm trying to go SMB to enterprise, obviously super different, any ways you've seen people mess up or common traps of evolving the sales team? Is there a-
Nakul Mandan:
Yeah. I'd say on the sales side, it is more around expecting that the SMB sales rep who was super successful will continue to be super successful in the mid-market and enterprise.
Turner Novak:
So it's just not knowing and not understanding that it's probably different.
Nakul Mandan:
Also, the deal dynamics. So people who are used to selling in 20-day sales cycles are not patient enough to sell over three months. But three months is fine if you can get 130K out of that deal or 150 or 200K out of that deal. So it depends. Sales people could get impatient because they're used to 20-day sales cycles and they're like, "Hey, this deal is not moving. This pipeline is all useless. This thing is not working," when actually it is working, it just requires a different DNA of selling. So expecting the same sales team to evolve as you upgrade into other segments is a common mistake. But look, it's not the sales. The product has to evolve to enterprise needs.
So the product that might work... Most markets get divided by segments. So back in the day, I chose this company called Marketo for Battery, and at that time it was HubSpot, Marketo, and Eloqua. Eloqua was the enterprise marketing automation, Marketo was mid-market, and HubSpot was actually SMB. Over time, Eloqua got bought by Oracle, Marketo ended up being a $5 billion sale to Adobe, HubSpot ended up becoming a $10 billion or $20 billion company or something like that.
Turner Novak:
There was a rumored Google acquisition of $27 billion or $34 billion.
Nakul Mandan:
I don't even remember.
Turner Novak:
But big number. Yeah.
Nakul Mandan:
Yeah. And all three of those probably would today claim they are more... Maybe Marketo and Eloqua would both claim they are mid-market and enterprise. So it evolves over time, but many markets get divided between SMB, mid-market, and enterprise, not just because of sales execution, because the product is built [inaudible 01:39:11].
Turner Novak:
Is built for them. So one thing I hear mixed opinions on, are pilots a good idea? If I say, "Hey, three months for free or discounted pricing," is that smart maybe?
Nakul Mandan:
I think the pilots are a good idea in the beginning when you're just getting started, because some companies might want... Like design partners. Design partners is a different word for pilot in some ways.
Turner Novak:
It sounds way better.
Nakul Mandan:
Yeah, it sounds way better. So I think it's fine in the beginning. You want to get the customer to use it, you want to get the product feedback, all of that. Now, I think you are asking the question of once you are already $5 million of ARR, should we keep giving away pilots? I think-
Turner Novak:
Or even if we're trying to scale up. This could be a seven-figure ARR customer, should we give them a little bit of a sweetheart deal to land our first 10,000 seed?
Nakul Mandan:
Oh, that way. Yeah, yeah. Yeah, yeah. It's do things that don't scale a little bit. So yeah, you make a qualitative judgment. So I think it would be fine, it depends on the nature of the pilot. I'd encourage companies to do 30-day pilots, not 90-day, because 90 days just feels a long time. Is the customer fully engaged by then? But that again depends on will the customer see value in 30 days? If they don't, then you can do a 30-day pilot. So it depends on the situation a little bit, but I think it's fine.
Turner Novak:
So I think one thing just generally speaking, just summarize sales efficiency, whatever, it sounds like you want to pursue a high revenue per headcount sales motion just generally speaking. I guess there's probably nuances to that, but is that a good way to summarize how effective your sales org is or your sales team?
Nakul Mandan:
So yes. The reason to say that is, in general, people management is the biggest variable. The more people, the more you are bringing human variances to the machine. So you want to get the maximum output per employee anyways as a company, but in sales specifically, yeah, it takes the same amount of time to interview a sales rep who might do a million dollars and who might do a 500K quarter. And people want to move into enterprises more because there's higher scalability per sales rep on the enterprise side. That's the main reason people want to move up.
Turner Novak:
Interesting. Yeah, it does make sense. Who doesn't want to spend the same amount of time doing something and get paid 10 times more money? Sounds great.
Nakul Mandan:
The sales cycles are longer. It's more that there are fewer salespeople who can have bigger quotas and it's the same year.
Turner Novak:
So one thing that you mentioned earlier just in terms of hiring A+ talent, investing in force of nature founders, I know you also like studying just people who've accomplished great things.
Nakul Mandan:
Yeah.
Turner Novak:
Why do you like doing that? Any famous examples or people that you've really admired throughout history that we maybe might not know about?
Nakul Mandan:
Yeah, I think the background on that is that we all ask ourselves this question, "If I wasn't doing this thing that I'm doing right now, what else would I do?" and stuff. And I've concluded that my natural curiosity is at its highest about human journeys. The thing that fascinates me most in life is how two people can get born, both get good education, good IQ and all of that, and then one becomes an MD at D.E. Shaw, which is where Jeff Bezos was, and the other guy becomes Jeff Bezos. So this idea that just similar people on completely human journeys is the most fascinating thing for me personally, how some people just push the limits of what is possible. And I feel very grateful that way, that venture is a job that allows me to see it-
Turner Novak:
That's basically your job.
Nakul Mandan:
Yeah, yeah. So that way I feel like one of the luckiest people on earth that I get to do this and that is my... If I wasn't doing venture, I'd probably just go around interviewing people around the world, great athletes, great business people, and maybe write essays on each of them on what made them special. I'd do that for free, that would be very satisfying and rewarding for me. I'll end with the answer of, so for me, recently Rafael Nadal retired, but that's been a career I've admired a lot because I feel like of the top three, Federer is probably the most gifted of the three. Djokovic also did great at... All three are obviously very gifted. I would say that Nadal probably had to work the most on himself, in my mind, and hence in that way, that journey fascinates me the most where he had to overcome injuries and a lot of psyche management, probably, as he was bouncing back from injuries.
Turner Novak:
Interesting.
Nakul Mandan:
And feels like the other two might have had a slight edge naturally to him versus he was a sheer story of grit and determination.
Turner Novak:
Interesting. I don't really follow tennis. I'm not familiar at all. I have heard of all three of those before.
Nakul Mandan:
I've probably already pissed off some Nadal fans who would say, "Hey, he was more gifted than the other two." But that's how I've interpreted it, and I'm a much bigger admirer of his because I think there's human will involved in his journey more than the gift he got. So for me, that is the most fascinating thing. That gets my juices going.
Turner Novak:
Yeah, that makes sense. Well, that's a good way to end it. This was a lot of fun. Thanks for coming on the show.
Nakul Mandan:
Yeah. Thank you for having me. It was a lot of fun, too.
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