Kunal Mehta - Finding Genius: Venture Capital and the Future it is Betting on

FINDING GENIUS

Kunal Mehta

Copyright Kunal Mehta, 2019

All rights reserved.

ISBN 978-1-099-63824-4

www.kunalrmehta.com

For my nephews and my nieces, and to the entrepreneurs working hard to make this world a better place for this generation to live in.

Contents

Foreword ( Sutian Dong, Female Founders Fund )

Preface

SECTION 1: THE TRAIL-WISE SIDEKICKS

Chapter 1: Venture Capitalists: The Trail-Wise Sidekicks

Chapter 2: Raising a Venture Capital Fund: VCs as Entrepreneurs

Chapter 3: General Partners and The Job of a VC

Chapter 4: Investment Theses and Developing an Information Edge

SECTION 2: PATTERNS OF GENIUS

Chapter 5: In Pursuit of Genius

Chapter 6: Future Makers and Storytellers

Chapter 7: Execution: Genius and the Inevitable March of Technology

SECTION 3: THE VENTURE CAPITAL & ENTREPRENEUR PARTNERSHIP

Chapter 8: Alignment and Terms

Chapter 9: The Future of Venture Capital

Chapter 10: Looking Forward and Conclusion

SECTION 4: THE FUTURE VENTURE CAPITALISTS ARE BETTING ON

Building an AI Toolkit and Investing Through the Hype ( Rayfe Gaspar-Asaoka, Canaan Partners )

Optimizing Human Health and Wellness: Data, AI, and the Future of the Quantified Self ( Andrew Kangpan, Two Sigma Ventures )

Next Generation Transportation and Mobility ( Brian Yormak, Story Ventures )

The Future of Work ( Adriel Bercow, Flybridge Capital )

Web 3.0 Infrastructures: Blockchain ( Wendy Xiao Schadeck, Northzone )

The Future of Financial Technology ( Nitya Rajendran, Tribeca Venture Partners )

Consumer Trends and Investing ( Grace Chou, Felicis Ventures )

Investing in Media & Entertainment Technology Companies ( Michael Raab, Sinai Ventures )

Social Media: A Game of Status ( Laura Chau, Canaan Partners )

The Digital Health Revolution ( Shefali Bhardwaj, ZS Associates )

Contents

INTRODUCTION

FOREWORD

Sutian Dong, Female Founders Fund

Kunal and I met when he was writing his first book, Disruptors , and interviewing startup founders to unpack how passion and meaning have, against many odds, driven success on their entrepreneurial journeys. When Kunal told me he was writing Finding Genius , I knew there was no better person with the innate curiosity to tell other peoples stories than Kunal.

The funny truth about venture capital is that it is both an art and a science, and for decades has been an industry where expertise is built from apprenticeship. As a consequence, the industry behind almost all successful technology companies has, for too long, been insular and tribal, and the answers to the questions that strike many entrepreneurs What is venture capital? Why should I raise venture capital? How do I do it? have been hard to access in a single, easy way.

Its been a long time since Ive read a book that was this useful and actionable, and I suspect that is because there are only a few people in the world who excel at both research and practice. In Finding Genius , Kunal manages to walk us so much deeper and further into the practice of venture capital than books normally do. He uses his own experience as a VC to guide readers through the case studies and examples that explain how a fund operates, what types of businesses they invest in, and why the right alignment between a fund and a founder can create extraordinary returns for the company and the investors.

Reading Finding Genius is less like reading a how-to manual, but rather like participating in an exploration of the big questions that venture capitalists themselves are grappling with: What is genius, and how is it being redefined over time? How is venture capital as an industry evolving? And where do VCs push themselves, as their roles as financial stewards to their limited partners, and as thought partners to the founders they invest in continue to shift with the ever-changing needs of rapidly scaling startups?

Think about how much you retain when you hear stories instead of scripts of right versus wrong, or what to do versus what not to do. This book offers so much more than single-point answers by capturing a series of experiences from senior-level investors that shed light on the subtleties of identifying, investing in, and supporting the next generation of entrepreneurial talent.

While Finding Genius is built on scenarios and first-hand accounts, at the core it is a book concerned with sharing principles. Grasp these principles, and you will have an understanding of the frameworks with which the best venture capitalists operate, which will guide you whether you are an aspiring VC, a founder seeking capital, or a curious onlooker to the rapidly changing startup ecosystem.

Besides being a gifted and intuitive venture investor, Kunal is a natural storyteller. There is something compelling in the way Kunal shares these principles especially in his ability to break down the ephemeral nature of finding genius to actionable steps that, combined, can create the conditions for venture capitalists to invest in the next Pinterest, Rent the Runway, and Airbnb of the world.

In the end, Kunal believes that venture is a balance between an art and a science, the knowable and unknowable, which combined with hard work, good timing, and luck can create the circumstances that enable the next generation of genius to flourish. He has managed to bring both his intelligence and curiosity about venture capital to the page, and the result is a book that educates the reader while exploring the evolution of venture and the ways that the industry itself might be disrupted in the future.

I predict that this book will make its way onto the must-read lists of VCs new and old, aspiring investors, and entrepreneurs of all stripes who seek to understand the other side of the table. I hope you enjoy reading as much as I have.

PREFACE

Kunal Mehta

In the back of an empty classroom at Indiana Universitys Kelley School of Business, four students sit together with an ambitious dream to join the entrepreneurial ranks of individuals like Sara Blakely or Mark Zuckerberg. With napkin sketches and books written by former entrepreneurs spread across the table, this group has their heads together crafting a story. What story can they tell about themselves or their business idea that will resonate with an investor?

Brainstorm sessions like these have become a common after-school activity. These four students are like hundreds of thousands of upstarts across the country, weighing an entrepreneurial dream against a morbid corporate recruiting cycle. Every large university offers classes on entrepreneurship and in recent years, many have added seminars on venture capital to syllabi to meet growing demand. This motivated group of individuals remains hopeful that they can build things that solve real problems. To them, anything less radical would be old fashioned, narrow minded, and not a valuable use of their talent. They want to join the ranks of entrepreneurial geniuses who have forever changed the fabric of society.

It is the true hopefulness of these entrepreneurs that inspired me to write my first book, Disruptors , which tells the stories of 50 entrepreneurs and the failures they faced when they first pursued entrepreneurial stardom. What did the first six to 12 months of uncertainty look like? In the book, these founders, some of whom went on to start billion-dollar companies, offer candid accounts of bankruptcies, divorces, insurmountable credit card debt, investor and founder feuding, all while maintaining that entrepreneurship was a path worth pursuing, despite the risks. These men and women found satisfaction in their work and were excited to pursue meaningful causes. The stories within those pages revealed that entrepreneurship is an exciting and viable career path, but a founder should be aware of all that is entailed in the unstructured path for non-conformists with bold dreams. There is no such thing as an overnight success story. Disruptors was one of many proof points. As a venture capitalist who now invests in founders for a living, I have witnessed the trials and tribulations of founders firsthand.