A little bit about Ryan Floyd
Ryan Floyd is a Founding Managing Director of Storm Ventures based in Silicon Valley but investing globally. He focuses on early-stage enterprise SaaS and has a true love for applications and cloud/infrastructure related companies.
Ryan is dedicated to making VC more accessible and is doing important work on this via his YouTube channel Ask A VC. In this conversation, we put the spotlight on how to think about startup advisors and strategies for breaking into VC.
Things you’ll learn from Ryan Floyd:
- The role of advisors and how founders and VCs can get the best out of them to build successful companies.
- How to think about compensation for advisors.
- What skills are most important in a venture investor and how to build and prove them
- Strategies for breaking into venture, including shadow portfolios and angel investing.
- How Storm Ventures think about go-to-market strategies for early-stage companies.
If you’d like to listen to more of these meetings with European VC champions, follow the EUVC Podcast.
Advisors are integral in building most successful businesses.
Ryan believes nobody builds a successful company by themselves. A dedicated team is crucial to building something of value, and in that team, there will be some advisors. Advisors can have different roles, according to the background and experience of the founders, to help them become successful. Advisors often have had success before and want to help others in the same way they were helped to reach success.
As an advisor, you need to approach the relationship as someone who has something to give, not something to take. That doesn’t mean the advisor’s work and effort gets nothing in return, but it’s not consultancy – which is defined by projects, deliverables and has some sort of payment involved. Advisors tend to be more plastic, shift and change over time to adapt to the company’s needs, and need to take into account the advisor’s characteristics and the situations in which he or she can add value.
Advisors need to appreciate that founders should be cautious not to get caught in the noise of all the people surrounding them, and understand that it includes their advice as well. Advisors who get too operationally involved blur the difference between an advisor and a consultant. Founders need help to build the team around them, but if an advisory role is to be formalized, that effort should be driven by the founder – that’s not up to the advisors, Ryan believes.
Generally, unless the advisor is terrible, Ryan encourages founders to keep using advisors throughout their journey and as such he welcomes them warmly in the investments he makes.
The job of an investor is not to invest.
The job of an investor is not to invest, but to generate a return for the Limited Partners (LPs), so advice is not per se the main part of the job description. It only is to the extent that it helps an investor drive a return, Ryan believes. The responsibility to drive returns to LPs, who in turn are stewards of someone else’s money (think pension funds) is tremendous.
The fiduciary duty’s responsibilities and the skillset needed to rise up to them.
Confidence that you’ll be able to generate a return. There are no guarantees, but at Storm Ventures, all funds have been profitable and have returned 3x net or better. The key is to continue to work at it, to make sure to continue to follow a strategy that you’re confident can deliver returns.
There are lots of investors that are not up to steward for other people’s money and invest from their own account. That allows them to do lots of different and risky things because they’re using their own dollars, so they’re only accountable to themselves. Being a steward for other people’s capital comes first, but being able to contribute to the success of a business is part of the skillset to be a successful investor. Other things are important, such as being able to generate great opportunities, the ability to pick which opportunities to invest in, and that’s equally important to being able to contribute with value add after the investment.
Paths to break into venture for those who can’t go the Angel route
There are lots of different ways for advisors to break into venture, but the first question should be whether someone has capital or not, says Ryan. That doesn’t mean it has to be huge sums of money, you can start from 5k to 10k. Look at the people you know, create opportunities there and build a portfolio to get a sense of what it means to be an investor by having some of your money at stake.
Ryan shared with us that one of the best ways to position yourself to break into VC is by creating a shadow portfolio of companies that you would want to become an investor in if you had the capital to do so. And in doing so, you should develop your investment thesis of each company to demonstrate the logic of your decision.
Ryan is less interested in whether people have actually invested in companies and more focused on their thought process. Being able to think through an investment, spot opportunities in new areas, that’s the kind of thing that catches a VC’s eye.
As such, he recommends looking at companies and thinking of what drives the success of those businesses, and then write or putout content explaining your interest in one business over another. You need to put yourself out there and share your thoughts – all these things help you get positioned as a great potential investor as those are all part of the foundation of any investment.
To summarize if you want to break into Venture retain these key tips from Ryan:
- Build a coherent investment thesis
- Build a shadow portfolio based on that thesis.
- Elaborate on the thesis behind each of the investments
- And make sure to put out there the way you think by producing relevant content
Turning Operators into Investors vs Advisors into Investors.
Most people will tell you their route is the best to be a successful venture investor – from former operators to people who went to business school – because people are biased to what they know. There are lots of successful people from a lot of very different backgrounds and no background is a guarantee of success. Ryan thinks it’s less about what you did and more about the skill set that you bring with you. He also reminds us that while your background can be useful, it must also be kept in check, in order to be a tool and not something that hinders your judgement when looking at companies and trying to help founders.
But to Ryan, it’s clear that one dimension of any aspiring VC trumps all:
Go-to-Market (GTM)– Survival to thrival.
The framework is very good at bringing everyone together in seeing the company as a whole and act in a coherent and aligned way, like an orchestra. Looking at what worked in each circumstance can teach you valuable lessons to approach the next step and make it work appropriately. A company is a step function, you can’t go from zero to 60 in one day, and a lot of people think that money will solve that problem. Rather, Ryan stated, you need to respect the process and the time necessary to make things happen and grow. Resources matter but you must keep in mind that they can give you a lot of false signals that hide that you haven’t built things in a scalable way. You need to look for sustainable success and think through all the processes to get there.
Companies follow a lot of patterns that aren’t obvious when developing a product and thinking about the GTM motion in terms of what works. Breaking down the elements of what could work in a GTM environment for your specific product is the key – it’s not some kind of mysterious magic.
The book was written for others to take advantage of the learnings of a documented journey. It’s a framework to build on what’s been working over time and, if you do that, you’ll eventually end up in a successful spot.
What do you strongly believe that most people around you disagree with?
“I’m more bullish on tech today than I’ve ever been in twenty years!” Ryan said.
What’s common advice that you hear advisors giving to founders that you strongly disagree with?
“Don’t trust your Venture Investors!” It drives Ryan crazy to hear it. VC has a lot of guardrails built into it to make sure VCs do the right thing. The strongest of course being that founders can reference VCs any time, and if one is a bad actor, no one is going to want to work with them.
We believe that genius is global, and we hate that opportunity isn’t. How can VCs help?
Doing this, Ryan says. Talking to get to a broader audience and spreading the word. Storm Ventures will invest anywhere in the world and have even closed lots of deals over zoom, so it’s easy to reach out to them. But knowing who you are reaching out to and why is critical. Ryan thinks that VCs should focus more on getting out to a global audience, because great ideas come from all over the world.