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The Coding VC with Leo Polovets
49 segments available
Visit our website https://softwaredaily.com The underlying cause of failure for many startups is that the founders are afraid of discomfort. An environment where everyone is comfortable is unlikely to be an environment where personal growth and value creation is occurring. When you are in a startup, calibrating the right amount of discomfort is often about calibrating risk. What are your risks? Can you quantify them? Can you enumerate them? Multiplying out the probability of surviving each of those risks, then multiplying that number times the sum of the discounted future cash flows of your business will give you the expected value of your business. Under the right circumstances, entrepreneurship has much higher expected value than a stable engineering job. The important difference is variance. Your business needs to be able to withstand the variance that bad luck can provide. And entrepreneurs themselves need to be able to withstand the variance implied by the fact that their business can completely fail and go to zero. Leo Polovets is a partner with Susa Ventures. He worked as an early engineer at Linkedin, Google, and Factual, and he blogs at Coding VC. In this episode we talked about the proper mindset for founding a company–how to think about risk, mistakes, discomfort, and finance. If you like this episode, we have done many other shows about venture capital, including interviews with Chris Dixon and Tomasz Tunguz. Download the Software Engineering Daily app for iOS to hear all of our old episodes, and easily discover new topics that might interest you. You can upvote the episodes you like and get recommendations based on your listening history. With 600 episodes, it is hard to find the episodes that appeal to you, and we hope the app helps with that. Show Notes Coding VC blog Sponsors Who do you use for log management? I want to tell you about Scalyr, the first purpose built log management tool on the market. Most tools on the market utilize text indexing search, which is great… for indexing a book. But if you want to search logs, at scale, fast… it breaks down. Scalyr built their own database from scratch: the system is fast. Most searches take less than 1 second. In fact, 99% of their queries execute in 1 second. Companies like OKCupid, Giphy and CareerBuilder use Scalyr. It was built by one of the founders of Writely (aka Google Docs). Scalyr has consumer grade UI, that scales infinitely. You can monitor key metrics, trigger alerts, and integrate with PagerDuty. It’s easy to use and did we mention: lightning fast. Give it a try today. It’s free for 90 days at softwareengineeringdaily.com/scalyr. If you want to start a podcast, check out Podsheets. Podsheets is a product we built to create and manage podcasts. We are podcasters ourselves–and we understand the difficulties of getting started. Podsheets makes it easy to post your episodes and distribute them to iTunes and Google Play with a single click. If you are curious about podcasting, but have no idea where to start, Podsheets will guide you through the process. With Software Engineering Daily, we have been producing 5 shows a week for 2 years. We understand recording, we understand how to produce your show and we understand how to get advertisers. We want to help you with this process. Check out Podsheets today. We will give you everything you need to create and manage your podcast–and if you have any questions or you get confused, you can always contact us directly for help. Podcasting is as easy as blogging–let us show you how to podcast, with Podsheets. Toptal is the best place to find reasonably priced, extremely talented software engineers to build your projects from scratch or scale your workforce. Get a free pair of Apple Airpods when you use Toptal.com/sedaily to work with an engineer for at least 20 hours. Thanks to Symphono for sponsoring Software Engineering Daily. Symphono is a custom engineering shop where senior engine
Segments Timeline
Embracing Discomfort in Startups
Leo Polovets discusses the critical role of discomfort in the startup environment, emphasizing that founders often fail due to their fear of discomfort. He explains how calibrating the right amount of discomfort relates to managing risk and highlights the importance of understanding and quantifying risks to determine the expected value of a business.
"the underlying cause of failure for many startups is that the founders are afraid of discomfort an environment where everyone is comfortable is unlikely to be an environment where personal growth and ..."
The Value of Entrepreneurship
In this segment, Leo Polovets contrasts entrepreneurship with stable engineering jobs, noting that under the right circumstances, entrepreneurship can offer a much higher expected value. He discusses the variance in outcomes and how entrepreneurs must be prepared for the possibility of failure, which adds to the discomfort of the journey.
"is the source of so much discomfort leopoldo vets is a partner with Susa ventures he worked as an early engineer at LinkedIn Google and factual and he blogs at coding VC that's at coding VC comm in th..."
Lessons from LinkedIn and Factual
Leo shares his experiences working at LinkedIn and Factual, highlighting key lessons learned about work-life balance, the importance of rapid product launches, and the value of competitive moats. He emphasizes that startups can succeed with reasonable work hours and that understanding market needs is crucial for product development.
"with Lee opal Yvette's [Music] who do you use for log management I want to tell you about scaler the first purpose-built log management tool on the market most tools on the market utilize text indexin..."
Investment Strategies and Discomfort
In this segment, Leo discusses how his experiences influence his investment strategies as a VC. He explains the importance of providing startups with the right amount of funding to encourage urgency and innovation, drawing parallels to the Goldilocks principle in resource allocation.
"companies like OkCupid and giffy and Careerbuilder use scaler to build their log management systems you can try it today free for 90 days if you go to the promo URL which is software engineering daily..."
The Role of Discomfort in Growth
Leo elaborates on the necessity of discomfort for personal and professional growth, particularly in startups. He explains how discomfort can lead to better decision-making and innovation, urging founders and engineers to embrace challenges rather than shy away from them.
"new sponsor of software engineering daily the Apollo vets is a partner at Susa ventures Leo welcome to software engineering daily thanks Jeff it's great to be here we're gonna talk about a lot of diff..."
Setting Goals to Combat Complacency
Leo discusses how leaders can impose discomfort on their teams to prevent complacency. He shares insights on setting ambitious yet achievable goals, using the OKR framework from Google as an example of how to balance challenge and attainability in goal-setting.
"still exists in the technology startup landscape yeah so I I definitely agree with you I think the costs of them come down a lot over the last few years and as a result I think what's happened is ther..."
Personal Goal Setting and Discipline
In this segment, Leo reflects on his personal goal-setting practices and the challenges of maintaining discipline in a demanding VC role. He acknowledges the need for structured goal-setting to enhance productivity and effectiveness in his work.
"was kind of counterintuitive to me I didn't know anything about startups when I joined this is like back in 2003 I'd heard a lot about how startups have you know these crazy work weeks and I remember ..."
Navigating Discomfort in Venture Capital
Leo addresses the discomfort associated with venture capital, particularly the challenge of turning down funding requests. He shares insights on the emotional aspects of investment decisions and the importance of maintaining a clear vision for the fund.
"4x improvement mmm I would say the last thing I've learned all that kind of learned us since leaving there is the value of like a competitive moat is just really really high and you know competitive m..."
Setting Ambitious Goals
Leo Polovets discusses the importance of setting ambitious goals in a startup environment, drawing from his experience at Google with OKRs (Objectives and Key Results). He emphasizes that achieving 60-70% of your goals is a sign of ambition, while consistently hitting 100% indicates a lack of challenge. This segment highlights the balance between ambition and realism in goal-setting.
"know then that's just unrealistic you can make it three months then like you know people are not gonna they're gonna get complacent rather than uncomfortable so I think you want to set that aggressive..."
The Discomfort of Decision-Making
In this segment, Leo reflects on the discomfort that comes with making tough decisions in venture capital, particularly when it involves turning down passionate entrepreneurs. He shares insights on the lack of immediate feedback loops in venture capital, which can lead to second-guessing investment decisions over time. This highlights the emotional challenges faced by investors.
"was a really nice balance do you do that personally do you set your own goals in a way where you're gonna try to just accomplish 60 percent or 7 percent of them I wish I was that organized and discipl..."
Creating Discomfort for Growth
Leo discusses how discomfort can be a catalyst for growth within companies, referencing his experiences at Google and Amazon. He suggests that setting ambitious, 'big hairy audacious goals' can motivate employees to push beyond their comfort zones, fostering a culture of performance and innovation. This segment explores the role of discomfort in driving company success.
"been super like methodical about it and actually talking to you makes me feel like maybe maybe I should think about that some more so when I think about early-stage venture it sounds like the most dis..."
Navigating Team Dynamics
In this segment, Leo addresses the challenges of team dynamics as startups grow. He explains how early-stage employees may struggle to adapt to new roles as the company scales, leading to difficult decisions about personnel. This discussion sheds light on the interpersonal discomfort that can arise in rapidly changing environments.
"and wondering like I'm actually picking well I think a lot of investors have this this challenge as well and in terms of scaling up a company so you saw a scalable measurement of discomfort at Google ..."
Engineering Discomfort in Startups
Leo shares insights on the tension between quality and speed in engineering within startups. He argues that while high-quality code is important, launching quickly and iterating is often more critical for success. This segment emphasizes the discomfort engineers face when balancing these competing priorities.
"Amazon from its ability to scale that discomfort among its employees or at least that's one of the sources of power what are other ways that a large company let's say there's somebody who's a CTO at a..."
Healthy Discomfort in Company Culture
Leo contrasts the culture at PayPal, known for its heated debates, with other companies that prioritize civility and respect. He discusses the importance of open communication and how healthy disagreement can lead to better decision-making. This segment explores the dynamics of interpersonal discomfort in fostering a productive work environment.
"last few years but I think I think if the whole company feels like you know they're serving this do-or-die moment and they really have to perform I think that's a really good way to get people off the..."
Quantifying Startup Risks
In this segment, Leo delves into the mathematical approach to assessing risks in startups. He explains how to quantify various probabilities related to product development, market fit, and sales, emphasizing the importance of understanding these risks to improve decision-making. This discussion provides a framework for evaluating startup viability.
"yeah so I haven't seen this too much in the very early stages like when it's you know five or ten people I've definitely seen it more and more as the company grows because I think that's where the shi..."
Identifying Key Risks
Leo outlines the common risks that startups should focus on, including hiring, management, and industry-specific challenges. He stresses the need for founders to identify and address these risks early on to avoid pitfalls later. This segment highlights the proactive measures entrepreneurs can take to enhance their chances of success.
"find a replacement CEO and you know I think they just sort of they know what they like or they know what they're good at there's actually the second thing which is sometimes people like a certain phas..."
The Importance of Market Fit
In this segment, Leo discusses the critical nature of achieving product-market fit in the early stages of a startup. He explains how focusing on the right metrics and understanding customer needs can significantly impact a startup's success. This discussion underscores the importance of aligning product development with market demands.
"everyone else and so you know it might be that you're in this tough spot where you have a friend and you know you've worked with them for the last years and you don't end that you know the working rel..."
The Role of Technical Founders
Leo reflects on the unique challenges faced by technical founders in startups, particularly in hiring and managing non-technical roles. He highlights the difficulties of assessing candidates without technical expertise and the importance of building a balanced team. This segment provides insights into the dynamics of founder roles in early-stage companies.
"that stuff rarely matters compared to just launching something and iterating on it very quickly you know because in a seed round you might get you know 12 months 15 months of time to actually go launc..."
Evaluating Startup Potential
Leo explains how investors assess the potential of startups by analyzing various probabilities related to product development and market success. He emphasizes the significance of focusing on the most challenging aspects of a business to improve overall valuation. This segment offers a deeper understanding of the investment evaluation process.
"but the people really enjoyed the fact that there were so many arguments that they were heated do you find that that's is that a trend at companies where there is this level of interpersonal argumenta..."
Calculating Startup Risks
Leo Polovets explains how to evaluate the success potential of a startup by calculating the product of various probabilities associated with key stakeholders, such as doctors, insurers, and customers. He emphasizes the importance of quantifying risks to derive the expected value of an investment, illustrating how different probabilities can significantly impact valuation.
"podcast with pod Gees [Music] yeah so the mathematical expression for this that you have in the de-risking your startup talk is basically you know if you have let's say let's say you're an investor an..."
Understanding Expected Value
In this segment, Leo discusses why two companies targeting the same market can have different expected values. He uses a simple example to illustrate how focusing on harder challenges can lead to greater valuation impacts, highlighting the importance of technical leadership and execution in early-stage startups.
"expected value as a VC so for people who didn't understand that explanation describe why companies with let's say two companies are going after the same market explain why those two companies might ha..."
The Role of Founders in Investment Decisions
Leo shares insights on the significance of founders in venture capital investments. He contrasts his approach with that of Jason Calacanis, emphasizing the importance of evaluating a founder's capability to execute their vision while also considering market risks and execution risks.
"success than the other one and and I guess I would say like that's one difference that people sometimes don't think about which is in public markets like the stock market your valuations based on your..."
Evaluating Market and Execution Risks
Leo elaborates on the different types of execution risks that investors must consider, such as product-market fit and team dynamics. He stresses that these factors are often within the founder's control and can significantly influence a startup's success.
"this founder yeah so I would say I I agree with Jason on the part that founders are really important and so I think that's that's often you know the main criteria when we're deciding whether an invest..."
Focusing on Major Risks
In this segment, Leo discusses the importance of identifying and addressing the biggest risks in business and venture capital. He reflects on the challenges of picking the right companies and the long feedback loops that complicate investment decisions.
"that kind of game it seems like it would be it would be okay for you to even if you you know had a 50% chance with this person because they have four at-bats and they're gonna they're gonna brick on t..."
The Challenge of Picking Companies
Leo shares his perspective on the biggest challenges faced by VCs, particularly in selecting companies. He emphasizes the long-term nature of feedback loops in venture capital and the importance of making disciplined investment decisions based on thorough analysis.
"building a company that you know is a marketplace for I don't know like pets or something and I don't think it'll work for Easons a B and C and then first most people appreciate that kind of you know ..."
The Importance of Charisma and Market Knowledge
Leo discusses the qualities that make successful founders, including charisma and deep market knowledge. He explains how these traits can significantly impact a startup's potential for success and the importance of understanding the market before launching a product.
"insights that you're coming to for even though it's just been like it you haven't really gone through enough uh enough of a timeframe to get that feedback loop either are there any ants and such you'r..."
The Art of Reading People
In this segment, Leo discusses the importance of reading people in the startup environment. He acknowledges his struggle with this skill and expresses gratitude for his partners who excel in assessing founders' charisma, integrity, and work ethic. Understanding these traits can significantly impact investment decisions and team dynamics.
"don't know how to read people well and I'm really excited that my partners are good at it because I think if I was by myself I'd make a lot of mistakes but they're much better it's kind of stressing o..."
Common Fundraising Mistakes
Leo outlines two prevalent mistakes founders make during fundraising: underestimating the difficulty of raising a Series A after an easy seed round and prioritizing speed over selecting the right investors. He stresses the importance of building long-term relationships with investors who can provide meaningful support.
"summer 2017 are there any common mistakes that you're seeing founders make as you're evaluating companies as you're talking to engineers so I think a generic answer would be like the avoiding misc dis..."
The Importance of Asking the Right Questions
Leo reflects on how he overcame knowledge gaps in sales and marketing as a VC. He credits his partners for guiding him in asking the right questions during evaluations, which helped him avoid potential mistakes. This segment emphasizes the value of collaboration and learning from experienced colleagues.
"investors that usually doesn't really resonate so that's a more perennial mistake and I think a more recent one is there's been just a lot of angel funding you know more seed funds more angels more sy..."
Honesty in Fundraising
Discussing the balance between honesty and marketing in fundraising, Leo shares his belief that founders should always be truthful about their business challenges. He uses a dating analogy to illustrate the importance of building rapport before disclosing sensitive information, highlighting the need for transparency in investor relationships.
"a VC you had a tendency to ask founders questions about engineering stuff because you come from an engineering background and you sometimes may have had gaps in the knowledge of sales or marketing or ..."
The Fundraising Process: Timing and Strategy
Leo provides insights on the fundraising process, advocating for a strategic approach rather than rushing. He explains that while fundraising can be time-consuming, it doesn't require full-time dedication. Founders should balance fundraising efforts with product development and be prepared to pivot their strategy based on feedback.
"just to like take a lot of meetings with both of them and then just calibrate and so you know I would say like oh I really like the tech here and then you know it south would say well like well they h..."
Using AngelList for Fundraising
In this segment, Leo discusses how platforms like AngelList can facilitate fundraising for startups. He explains the syndicate model, where lead investors can leverage their networks to fill funding rounds, emphasizing the importance of early engagement with potential investors to secure favorable terms.
"something that they should be doing at this stage they should be personal you know presenting their business through rose-colored glasses so what degree should have founder be honest despite the the m..."
Contrarian Views in Venture Capital
Leo challenges the conventional wisdom that investors must have contrarian views to succeed in venture capital. He argues that while unique insights can be beneficial, many successful investments stem from recognizing strong founders and ideas that resonate with the market. This segment explores the nuances of investment strategy in the private sector.
"with that hmm so around fundraising you have given the advice that founders should not rush fundraising so I've heard a lot of different pieces of advice on this so some people say you should block ou..."
Evaluating Developer Tools
Leo discusses the challenges of evaluating developer tools and shares examples of successful investments in this space. He highlights the importance of timing and relationships in securing investments, illustrating how early engagement with promising startups can lead to successful outcomes.
"there's nothing really controversial about them I think one or two of these you might actually you know there might be good gas but like as an example there's a company called scalar SCAL Y R which do..."
Understanding Moats in Developer Tools
Leo Polovets elaborates on the concept of moats in the developer tools sector. He explains how developer communities and economies of scale contribute to a company's competitive advantage. The segment emphasizes the importance of having a strong moat to ensure long-term profitability and sustainability in a rapidly evolving market.
"also an investor in and what's appealing about those is it seems like they have really good unit economics cuz it's just a software business it's easy to scale and you know at once you want you like f..."
The Role of Content Marketing in Building Moats
Polovets discusses how developer tool companies can leverage content marketing to establish themselves as thought leaders in their space. He cites examples like Periscope Data, which creates valuable content for its target audience. This segment highlights the importance of community engagement and knowledge sharing in creating a sustainable competitive advantage.
"that the people who are using a developer tool today they're never gonna throw it out completely if you're a technology company that's doing really well and you're a periscope data customer periscope ..."
Defining Moats: Insights from Venture Capital
In this comprehensive segment, Leo Polovets defines what a moat means in the context of venture capital. He discusses the significance of having a sustainable competitive advantage and how it impacts long-term success. Polovets shares insights on how to identify potential moats when evaluating startups, emphasizing the need for a solid strategy to fend off competition.
"resonates with people every VC has an investment funnel and in order to succeed you need your investment funnel to at least have some interesting deals within it do you need differentiated deal flow o..."
Democratization of Entrepreneurship: A Global Perspective
Polovets reflects on the global trend of democratizing entrepreneurship, particularly in regions like China and Africa. He highlights the shift from imitation to innovation in these markets and discusses the potential of companies like Andela, which connects businesses with African developers. This segment provides a broader view of the evolving landscape of startups and investment opportunities worldwide.
"[Music] you have a software project that you want to build everybody does I love building products but I know more about how software fits together then how to actually write the code itself I don't s..."
Unique Business Models in Africa
In this segment, Leo discusses unique business models emerging in Africa, such as a PayPal-like network for electricity payments. He contrasts these models with those in the US, emphasizing how local startups address specific market needs. This highlights the importance of understanding regional contexts in entrepreneurship.
"democratization of technology startup capabilities does to the world I'm pretty bullish on kind of the value for the world I think basically just technology will accelerate and the quality of life wil..."
The Work Ethic of African Founders
Polovets reflects on the strong work ethic and willingness to embrace discomfort among African founders compared to their counterparts in Silicon Valley. He shares anecdotes about innovative young entrepreneurs and their relentless pursuit of success, suggesting that this mindset could lead to significant investment opportunities.
"know a market specific solution or market specific problem one thing I have observed talking to particularly so I've got a couple friends I made in Africa from interviewing them about these brothers t..."
Investing Beyond the US
Leo discusses the challenges and opportunities of investing in startups outside the United States, particularly in Africa. He notes the hesitance of investors to engage with these markets due to perceived risks and lack of familiarity, while expressing optimism about the potential for growth in these regions.
"where you know like I remember one founder I talked to this felt like three or four years ago she was building this product that was basically tried before us called lumoid let's try before you buy fo..."
Evaluating Cryptocurrency Investments
In this segment, Polovets shares his perspective on the cryptocurrency market, discussing the potential for both overvaluation and long-term value. He compares the current crypto landscape to the dot-com bubble, emphasizing the importance of timing and the risks associated with investing in ICOs and cryptocurrencies.
"you think it's because they're not looking or is it does it have to do with that used because what you said about that PayPal like business that's kind of balking potentially balkanized to or couldn't..."
Long-Term Strategies for Crypto Investment
Polovets offers advice on investing in cryptocurrencies, suggesting a dollar-cost averaging strategy for those looking to enter the market. He discusses the unique risks and rewards associated with crypto investments compared to traditional stocks, advocating for a cautious yet optimistic approach to this emerging asset class.
"an overhyped base or not I definitely feel like it's overhyped and then I think the challenge for me and a bunch of other people is knowing whether you know it's overhyped in the short term and the qu..."
Decision-Making in Venture Capital
Polovets outlines how Susa Ventures approaches investment decisions, emphasizing the need for majority agreement among partners and the importance of having at least one partner passionate about an investment. He reflects on the dynamics of venture capital decision-making and the impact of individual preferences.
"with a little bit about soos and just how venture firms work from the inside so different firms have different ways of deciding to do a deal so some firms require consensus all the partners have to ag..."
The Importance of Asymmetric Returns
Leo discusses the nature of venture capital investments, where a few successful investments can significantly outweigh many failures. He shares insights on the challenges of veto votes in decision-making and the psychological aspects of investment choices within a venture firm.
"investment we used to have veto votes that never got used and this is you know I talked about like the asymmetric returns for cryptocurrencies it's the same in venture capital where you know a typical..."
Scaling a Venture Capital Firm
In this segment, Polovets talks about strategies for scaling Susa Ventures, including expanding the team and increasing service offerings. He highlights the importance of diverse perspectives and the potential benefits of hiring professionals from different backgrounds.
"VC firm you can get into you can start more funds you can start verticalized funds you can make bigger funds you can get into later and later stage financing you can build out a services firm like And..."
The Transition from Founder to VC
Polovets reflects on his journey from being a founder to becoming a venture capitalist. He shares his initial desire to start a company and how his experiences in VC have shaped his career, emphasizing the enjoyment he finds in engaging with founders and their ideas.
"our first investment team member a couple weeks ago her name's Natalie she comes from a different background and the three partners so she comes more from the finance world she worked a CV for a while..."
Engineering Mindset in Venture Capital
Leo discusses how he applies an engineering perspective to venture capital, focusing on quantifying investment theses and decision-making processes. He draws parallels between venture capital and poker, emphasizing the importance of data-driven strategies.
"so as the fun girls the check sizes grow - do you miss founding companies or running companies and well I guess Sue's is obviously a company engineering do you miss writing code or building systems ye..."
The Future of Venture Capital
In the closing segment, Polovets shares his thoughts on the evolution of venture capital and the importance of adapting to new challenges. He expresses a desire to continue exploring innovative approaches within the industry and the value of ongoing discussions with fellow investors.
"part of it I think at some point when I first got into VC I actually I wanted to be a founder I'd been at a couple of this age companies worth you know there were a dozen people when I joined but I di..."