What Did I Learn From the First VC Check I Ever Wrote?

Mark Suster
Both Sides of the Table
8 min readOct 17, 2019

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I became a VC 12 years ago in 2007 when the pace of deals was much slower. I had just left Salesforce.com where I was VP, Products, after they had acquired my second startup. As I was trying to figure out the role I wanted to play in the VC world I decided I wanted to focus on businesses that were building deeply technical products to solve problems for business users.

Just as I was getting the swing of things the world shifted beneath my feet and the stock market went into a free fall and venture capital all but shut down for nearly a year. It proved to be fortuitous because it allowed me the time & space I needed to get to know tons of founders and VCs and to hone my craft.

The first check I wrote was just over 10 years ago into a company called Invoca who just announced a new $56 million in funding led by Scott Hilleboe at HIG Growth Partners. I thought this was a good time to reflect on some lessons of the past 10 years.

1. VC is a long-term business

Some businesses are overnight successes but few of them really move immediately up and to the right. Invoca is now doing 10s of millions in recurring revenue and is growing > 75% year-over-year but it took the first 3 years to really build out the technology and acquire our initial enterprise clients. We now serve many large clients like Dish Networks, Dignity Health, and U.S. Bank as well as many startups like Gusto and MakeSpace and innumerable massive clients that weren’t on my approved list of clients I could disclose ;) but we partner with Google, Adobe, Salesforce and many others.

At Upfront, our partners have been fortunate enough to be part of 18 companies that have reached north of $1 billion and the average tenure of an investment that exits at this scale is more than 10 years. But like the company Kyriba, where we recently sold our position at above $1 billion, it took time until the revenue exceeded $100 million recurring and then the industry really competed to back this amazing company since it had scale, defensible technology and long-term, committed customers.

2. Ownership Matters

At Upfront we focus our energy on fewer companies where we take meaningful ownership and we continue to invest throughout the lifecycle of the company. We not only have our Series A funds that can write $500k — $15 million first checks but we also have three growth funds. The advantage is that in many of our best deals we now have $50+ million invested so we can really support entrepreneurs as their businesses scale. In the case of Invoca we led both the seed round and the A round and didn’t wait for somebody else to come and provide more capital. Accel led the B, Morgan Stanley the C and now HIG the D. We have invested in every round and as a result our ownership has actually gone up over time.

I have to admit that there is a weird dance with LPs until it’s time to send them actual cash money. If you invest early and then pull back in the next 3 rounds your multiples on cash invested are much higher than if you keep writing checks. VCs have different views and strategies on this. Some prefer to get in, buy cheap and show a big multiple. At Upfront when we know we have a winning hand we prefer to put more capital to work, which both helps the entrepreneurs succeed and drives more aggregate financial returns for our LPs. An example was that while we were in the seed round at Ring and followed in the A, B, C and D … we were also able to lean into the E round when Jamie really wanted to scale up his funding and the final check was still > 420% IRR!

3. Cash Money

Ultimately VCs are measured on sending cash back to the people who fund us and while our industry has done really well at paper markups, LPs ultimately want to see money.

I mentioned that we sold our position in Kyriba for > $1 billion but when we invested it had virtually no revenue. We followed it all the way up and continued to invest at the same stage as Invoca is today. When we exited our position in Kyriba we were able to return hundreds of millions and returned 2x one entire fund with just that one deal. I know you’ve never heard of Kyriba and many of you have never heard of Invoca. That’s ok, their customers adore them, their revenues speak volumes to this and we’re totally fine to back some of the plumbing that makes businesses online work more effectively.

Over the past 2.5 years we have generated $533 million in cash proceeds (more expected by year end) and that has come by having early conviction, following our winners, maintaining ownership and being patient, long-term capital partners.

4. Defensible IP

When I’m asked by newer, younger VC partners for advice on our sector, one of the things I always emphasize is looking for companies who have built defensible intellectual property (IP). Of course everything could be replicated if a massive juggernaut like Amazon or Google wanted to pour all of their resources into it but I’m talking about technology that is hard to replicate, takes years of know-how and once adopted is significantly valuable.

If I use Invoca as an example: we handle tens of millions of phone calls for customers who want to drive sales calls into call centers. Why does that matter? For start, there are many types of businesses that are large or complex “considered purchases” that have higher close rates over the phone than on a web form.

But here’s the big “aha.” When you think about what makes Google so valuable — it’s this. Users type a search query into their search bar and Google knows the “purchase intent” of the customer. If you type “baby stroller” into the search bar they’re able to statistically validate whether you’re likely to buy more baby products in part based on your search queries and in part based on the websites you visit (your clickstream). What Invoca allows the call center is even more power than that. We allow them to know whether you spent time on their website (or competitor’s websites) prior to the call and we allow them in real-time to know much more than the key words of a Google search because in real-time we evaluate the query in the call for the sales rep and use AI to help predict what your needs are or were (after the call). So if you called for a phone upgrade but didn’t close we help the phone company retarget you on Facebook or if you called with a product complaint we can feed you into the customer’s retention marketing program.

With 10 years of serving some of the largest enterprise customers in the US, our machine learning advantages actually get better with more data and more time and the value of our IP has been growing exponentially. We know that competitors can put “AI” on their websites but in benchmarks they can’t come close to us given the volume advantages we’ve built.

Defensible IP becomes insanely valuable — particularly as you achieve scale.

If you have any interest in hearing a bit about what Invoca does from one of our largest customers, Dish talks in this video about how they increased conversions 15x (no, that’s not a typo)

5. Some Teams Create, Others Scale (Some do both)

There is so much focus these days on founders and whether they should always remain in the CEO seat. Of course the media doesn’t do nuance well so this is an emotional topic.

What I’ve learned is that at times you need to have the dialogue with the Founder / CEOs and ask them to be participants in the conversation about whether they’re the right person to scale the company (and frankly whether they would enjoy it).

In the case of Invoca it was founded by Jason Spievak who is an amazing innovator and has been part of three very successful businesses that have scaled from startup to enormously valuable. After several years we had a discussion about whether he felt he was the right person to take Invoca to the next level and he reflected over a 6-month period and determined he wasn’t. He participated in the process of deciding “what next” and that allowed us to bring in Gregg Johnson as the CEO.

Jason went on to help Apeel Sciences get off the ground, helping the Founder & CEO raise all of his initial VC money and helping him build out the executive team and board. As a result that company is now as valuable as Invoca (last round raised >$70 million) so Jason ended up with two very valuable equity positions and has now raised an early-stage seed fund.

Gregg was a friend and colleague of mine as Salesforce.com where he worked in the group that build products for marketers so he knew this space incredibly well before joining.

Jason was a creator and saw a market opportunity that others didn’t. Gregg was built to scale large companies and build the processes and team to enable it.

And my friend and Invoca co-founder Colin Kelley has done both. He built all of the initial technology and telecoms infrastructure required to build a large, enterprise software company but he has remained the CTO of Invoca as we have achieved scale.

Some start, some scale, some can do both. It takes all types and helping people realize their best skills and interests is an incredibly important part of the job.

Summary

In the press we celebrate the “overnight successes” in the tech sector but the reality is that the largest successes were built over longer periods of times and with many ups but also many downs or lateral moves.

The reality is that defensible IP takes years to build, takes large teams of dedicated staff to develop and then market, sell and service clients.

In venture it’s very easy to want to chase yesterday’s trend by funding what you’re reading about in the press but what you’re reading about today if you haven’t already funded it’s likely too late.

As I tell our LPs,

“if I’m not making you slightly uncomfortable when I’m writing my first check I’m not doing my job. Since my job is to fund things that aren’t obvious and other people aren’t doing them today — almost be definition you should be scratching your head. I will get some wrong but venture is about the 3 you got very right, not the 7 that didn’t go as well as expected.”

Congrats to all of the hard working founders, executives and team members at Invoca. It’s been such a pleasure watching you grow over the past decade and I’d be thrilled to continue to be a shareholder many more years from now.

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2x entrepreneur. Sold both companies (last to salesforce.com). Turned VC looking to invest in passionate entrepreneurs — I’m on Twitter at @msuster