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Mr. JK, Mr. NWA, Mr. Comin'-Straight-Outta-Justin-TV, y'all better make way

A rare VC-to-VC interview with Y Combinator partner and Twitch.TV co-founder Justin Kan.

Sunny Dhillon

Justin Kan, a friend and co-investor in Cruise Automation, sat down the other day to talk with with me about venture capital. JK often waxes on startup advice for entrepreneurs on Snapchat and Twitter. But this time, I wanted to change tack and get some of his Gandalfian wisdom for VCs.

There’s a lot of money pouring into startups around Silicon Valley, LA, Chicago and New York. Family offices, fund of funds, wealth management shops, big company balance sheet investors, mutual funds, Angel List syndicates from ex-founders, etc. — it feels like venture capital is becoming an increasingly popular asset class these days. If you’re smart money, you’re smart money — it doesn’t matter which shingle you hang your hat at. But, just like Dre and Eminem spit bars with advice to a host of would-be criminals on the 1999 “Slim Shady” LP, let JK’s words offer similarly intervening advice for would-be VCs.

Branded investors

There are a ton of investors out there. Money is a commodity. How do you stand out from the crowd of $$$?

Investors have brands. Brands are powerful. Sometimes I come across founders who only want to raise from Andreessen or Sequoia – because these firms have built brands. You can build brand by having hits (i.e., the best way that correlates with you doing your job and getting returns for LPs), or you can write blogs, go to conferences and promote yourself. My favorite investor is SV Angel — they’ve invested in tons of hits, and beyond hits, they care about reputation and being the most helpful investors out there. They’re able to help you make connections and solve problems with corporate America and other big tech companies.

Be helpful — know thyself

So what are some of the best ways to be helpful and add value to your portfolio company CEOs?

Know what you’re good at and what you’re not good at: A lot of people think they’re the shit, and that they can be helpful in the day-to-day of running a portfolio company’s business.

Know what you can help with and know what you can’t help with. A lot of people think they’re the shit, and that they can be helpful in the day-to-day of running a portfolio company’s business. If you’ve never been an operator, know what you’re good at and what you’re not good at. For example, many investors have a lot of views on the product – but have never built one. My No. 1 message in life is “Know thyself.” There are a lot of things I’m not good at, and I strive to work with people who are strong in these areas. Similarly, there are plenty of things a non-operator investor can help with.

A lot of people think they have to be helpful everywhere – and that’s not the case. Here are some concrete examples of times when an investor can help a portfolio company CEO:

  • Times of crisis: Positive crises and negative crises. Positive crises are, “Oh shit, we’re growing so fast and we need to hire a VP Eng!” As an investor, maybe you know several terrific candidates – this is a good place to be helpful! Or perhaps your portfolio company CEO is trying to partner with a big company – certain investors out there can connect you at the top. Or perhaps a big company is causing your CEO some problems; as a well-connected investor, you can facilitate dialogue with the right point person at Big Co. to affect a helpful outcome. In the case of negative crises — for example, perhaps a CEO admits that his/her company is failing and they need to do an “acqhire.” As a helpful investor, help the CEO navigate that process.
  • Always be in the entrepreneur’s corner: A lot of investors (angels and VCs alike) focus on short-term greed versus long-term reputation building. Every industry on earth is a small industry. You have to work with the same people again and again. Don’t fuck over people in the short term. Or, if you do, you better make a shit-ton of money and never have to work with those people again!
  • Don’t have Yale arguments in the board room: Some investors love hearing the sound of their own voice. This used to happen back at Yale, and debating for the sake of debating is rarely helpful. It’s definitely bad for the board room.

Building your network as a VC

What’s the best way to build a stronger network in VC – especially if you’re a n00b in the Valley?

  • Be a good people connector — connecting people you know with other value-add people you know.
  • Coffee chats, social events, conferences, etc.
  • Build your Rolodex by asking people, “How can I be helpful to you?” and then figure out how to fulfill those needs.
  • Be helpful to your current investments and to people who you haven’t yet invested in. I believe in karma here.

Setting up a new venture fund

You hear of GPs at existing funds leaving to set up their own shingles fairly often these days. Or you’ve seen ex-founders setting up micro-VCs by the dozen. What is your advice to folks setting up new shops?

If I was gonna set up a VC fund, I’d like to have equal co-founders as partners. It’s a long journey, and having people who are in it as equals is important. I haven’t been a pro investor for long, but at YC, it’s an equal-carry partnership, and that works well. I wouldn’t partner with anybody who wasn’t my equal. I want to work with people who are smarter and more talented than me. As an entrepreneur, that was my goal; as an investor, that is my goal. When it comes to hiring junior associates, incentivizing people to feel part of the team from a compensation perspective is important — giving carry to juniors is a good idea.

Staying fresh with your investment views

What’s the best way to keep up to date and have a fresh perspective on investing?

Investors invest in a lot of things that support their world view and what they understand. Twitch is a great example. “People watching video games? That’s not a fucking business!” We heard that all the time.

Investors who invested in Snapchat had to overcome an initial hesitation in thinking, “Wait, this is an app for dick pics.” But they stepped outside of their own context.

It’s hard for you to step outside yourself and understand why somebody wants to use a product or buy a product that you don’t understand. It’s very hard as a human being to empathize with other demographics and individuals and what they give a shit about. Snapchat is another great example – investors who invested in Snapchat overcame an initial hesitation in thinking, “Wait, this is an app for dick pics.” But they stepped outside of their own context.

Thinking about something from looking at data can be another way to get over your own lack of immediate empathy.

The hustle is real

Any final advice, JK?

Yeah. You gotta hustle to find hits! That’s how you’ll succeed. Panels, thought leadership, etc. That’s all fine. But what you need to do is find some hits. The way you do that — hustle. You can try and give yourself an edge like some VCs I know who are building proprietary software to look for undervalued companies. That’s great, too. But no amount of brand-building works as well as finding hits. That’s the brand you want.

JK’s final thought

No amount of brand-building works as well as finding hits. That’s the brand you want.

As an entrepreneur, you gotta play the VCs like chess. It’s like selling anyone anything — they don’t know what they want. In retrospect, many VCs think to themselves, “I should have invested in Twitch” … but at the time, they said it was a shitty business. Understanding the tactics of how to raise money is important. As a VC, you should be aware of these tactics from the entrepreneur’s perspective as they pitch you.

People think, “VCs should invest in my business because it’s a good business — of course people should want to invest in it.” But without convincing investors, being a good seller and creating a process that induces people wanting to be a part of it — this is not always the case. It’s not a perfect information market. Your sales process – how you run it (effectively you’re selling stock in your company, so it is indeed a sales process) dictates what you’re going to get out of it (how much you raise, and how much value you’ll extract, etc.).

In a good world, all good ideas would get funded.

Sunny Dhillon is a principal and co-founder at Signia Venture Partners, an early-stage fund in Menlo Park and San Francisco. He invests in gaming, virtual reality, Esports and consumer mobile apps, and he’s a board observer with Signia’s investments in gaming companies Super Evil Megacorp and Artillery, in virtual-reality company 8i and in consumer mobile GIF company Riffsy. Reach him on Snapchat, Twitter and Medium @SunDhillon and @SigniaVC.

Follow Justin Kan on Snapchat here.

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