Ep. 329: Navin Chaddha is the Managing Director @ Mayfield who just last month announced $750M in new funds split across their core and select funds. As for Navin, under his leadership Mayfield has raised over $2.2Bn in new funds and he has backed some of the best of the last decade including Poshmark, Lyft, Hashicorp, CloudGenix and more. During his career Navin has invested in 50 companies, 17 have gone public, 20 have been acquired. Prior to VC, Navin was an entrepreneur where he co-founded or led 3 startups, all of which had successful exits with one being acquired by Microsoft.
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In Today’s Episode We Discuss:
* How did Navin make his way into the world of venture from successfully founding and exiting 3 businesses? What made him take the jump into investing full-time from being an EiR?
* How does Navin expect the B2B landscape to be impacted by COVID-19? How does Navin advise B2B founders to think about how renewals will be impacted? How does Navin advise founders to think through how to approach the topic of discounting with their customers? In what situations does Navin agree to provide discounts to customers?
* How does Navin foresee the B2C landscape to be impacted? How does Navin advise founders to think through the level of aggression with which they pursue traditional marketing channels, now with much lower CACs? Will these CACs remain low priced? How does Navin expect company pricing to change over the next few months?
* How has Navin seen himself evolve and change as a board member over the last decade? What have been his major moments of learning? What advice would he give to new board members joining their first boards? What can board members do to build a relationship of trust and intimacy with their founders? What works? What does not?
Ep. 330: The true test of marketers. Are you a revenue driver or a cost center? You cannot afford to be the latter. Marketing leaders must focus their teams on the areas that will drive revenue while they cut costs – the biggest impact for the business. Join TripActions CMO Meagen Eisenberg at SaaStr Summit as she highlights her approach to ensuring Marketing delivers on its mission-critical role even in times of uncertainty or crisis.
This episode is sponsored by TaxJar.
SaaStr’s Founder’s Favorites Series features one of SaaStr’s best of the best sessions that you might have missed.
This podcast is an excerpt from Megan’s session at SaaStr Summit.
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Below, we’ve shared the transcript of Harry’s interview with Navin.
Harry Stebbings: Welcome back to the official SaaStr podcast with me, Harry Stebbings, and it would be great to hear your thoughts and feedback on the show. You can do that on Instagram at hstebbings1996 with two Bs.
Harry Stebbings: However, to the show today, and it’s been far too long since we crossed the side of the table to the world of venture, and I’m thrilled to be joined by an individual who’s been on the Forbes Midas list no less than 12 times. Navin Chaddha, managing director at Mayfield, who just last month announced $750 million in new funds, split across their core and select funds.
Harry Stebbings: As for Navin, under his leadership Mayfield has raised over $2.2 billion in new funds, and he’s backed some of the best of the last decade, including Lyft, Poshmark, HashiCorp, CloudGenix and more. During his career Navin has invested in 50 companies, 17 of which have gone public, and 20 have been acquired, an incredible record there.
Harry Stebbings: And prior to VC, Navin was an entrepreneur where he co-founded or led three startups, all of which had successful exits and one of which was acquired by Microsoft.
Harry Stebbings: I do also want to say a huge thank you both to Tim Chang and Rishi Gaga at Mayfield for some fantastic question suggestions today. I really do appreciate that, chaps.
Harry Stebbings: However, that’s quite enough from me. So now, I’m very, very excited. Hand over to Navin Chaddha, managing director at Mayfield.
Harry Stebbings: Navin, it is such a pleasure to have you on the show today. I’ve heard so many great things from your wonderful partners, Tim and Rishi, so thank you so much for joining me today, Navin.
Navin Chaddha: Harry, it’s a pleasure to be here with you.
Harry Stebbings: It’s very kind of you, but I would love to start with a little bit of context. So tell me, how did you make your way into the very wonderful world of venture and come to be an MD today at Mayfield?
Navin Chaddha: Yeah, I’m a serial entrepreneur turned venture capitalist. I started my first company in 1995 while I was an engineering graduate student at Stanford University. In my early twenties I founded three companies between 1995 to 2004 which all had successful exits, including an acquisition by Microsoft and an IPO.
Navin Chaddha: I joined the venture capital business as an entrepreneur in residence in 2004 to work on my fourth company and one thing led to the other and I became a venture capitalist. As far as Mayfield is concerned, I’ve been leading Mayfield as its managing director since 2008 and it’s been an incredible decade of learning for the firm and me personally.
Harry Stebbings: Absolutely. It’s been an incredible decade for the firm and once you go into VC you never go back. So that’s very interesting to hear. I do want to start there, Navin, on a bit of a more macro perspective and where we’re at today in the environment.
Harry Stebbings: It’s a greater time of uncertainty than ever before, virtually the whole economy is down as Howard Marks actually said on the show. So if we start by taking it maybe by vertical, when looking at the B2B landscape today, what can we expect from the current economic landscape, in your mind?
Navin Chaddha: So Harry, I’m an eternal optimist and believe company building is a marathon, not a sprint. And crisis is only an opportunity for the bold. While we are in challenging times, I do believe that some iconic companies will be created and strengthened during this downturn.
Navin Chaddha: Two of my rules for the road for building iconic companies are that you have to sell painkillers, not vitamins, and that startups die of indigestion, not starvation. Companies that are crisply able to articulate their value proposition is a must-have and are hyper focused on a handful of priorities will do extremely well.
Navin Chaddha: Specifically, I think areas such as privacy and security, cloud native companies, future of work, as it relates to distributed and deskless workers, next generation training, knowledge sharing within the enterprise, and sales engagement companies will do extremely well.
Navin Chaddha: At the same time, B2B companies will have to figure out how to build market and sell virtually in this remote-first world, and here one of our companies, HashiCorp is doing an excellent job as a remote-first company, as they grew out of the open source roots and were set up as a distributed company from day one.
Navin Chaddha: At the same time capital-intensive companies will have a struggle with fundraising and companies which require an onsite visit to customers or a physical installation in person will be the most impacted.
Harry Stebbings: I mean, I absolutely agree with you there. I’m picking up on one string that you said, and sorry, going off schedule but I’m too intrigued. You said there about indigestion, not starvation, and I do agree with you normally. I guess my question is, how do you advise companies that you work with and sit on the boards of today when it comes to capital allocation and specifically burn preservation? How are you advising them today?
Navin Chaddha: So first and foremost we are telling companies, come up with your top three priorities. Secondly, make sure the current cash you have lasts you for another two years, and third, just make sure you have rational growth and just don’t focus on top line growth, also look at profitability. So I think those are the three things I would say we are advising our companies right now.
Harry Stebbings: Speaking of that kind of growth there, I am intrigued because a lot of companies that I work with say, “So far, we haven’t been impacted from a revenue standpoint.”, and I guess specifically for SaaS companies, Mark Souster said about the where, because it’s renewals and it’s discounts that will really be effective. Do you agree with Mark, in terms of really focusing on the renewals and the discounting, and the delayed impact of them?, And I guess to what extent do you think they will be hit as two significant factors?
Navin Chaddha: Yeah. The best place for companies in this environment, whether SaaS or not SaaS, is to invest in building deeper relationships with their existing customers. As they do focus on renewals and upsells, I expect most customers will bring up discounts and it will end up being a negotiation on a case-by-case basis.
Navin Chaddha: The first quarter of this year was just the beginning. Companies and customers are still adjusting to the new norm. So I think in the second quarter and third quarter we’re going to see a lot of these requests come from customers.
Harry Stebbings: Can I ask, in terms of those requests, how do you advise founders who are faced with them? Because we’ve seen in likes of Stewart Butterfield at Slack offer heavy discounting and sometimes free use of the tool, but that’s not always available to start ups in the earliest stages when capital is much more precious. How do you advise founders when faced with heavy discounting discussions? Stay strong or be a little bit more flexible.
Navin Chaddha: So I would say my feeling always is it’s about creating a win-win among the different constituents. So I would advise founders to not take a hard stance but really understand what the customer pain is and work together with them to find the best solution.
Harry Stebbings: Absolutely. And I think there’s also many ways that you can make it as a win. Offer the discount, but then you also heavy case studies, referrals and really make that win-win and give-take scenario. So totally agree with you there.
Harry Stebbings: I guess my question is, you’ve also banned some of the most iconic consumer companies in the last decade from Poshmark to Lyft. And so, if we switch hats a little bit, what does the current economic cycle do to the B2C landscape, in your mind?
Navin Chaddha: So first and foremost, consumer confidence is an all time low and staying healthy for all of us is the number one priority. With the loss of jobs, whether it’s 25 million today or as expected to be 40 to 50 million, definitely there will be reduced consumer spending.
Navin Chaddha: At the same time, we are seeing resurgence of spending on secondhand goods, so sharing economy. Companies like Poshmark, which you mentioned, are thriving. We have sustainable e-commerce companies like Growth Collaborative, and at the same time, on-demand delivery companies like Instacart and DoorDash are doing really well.
Navin Chaddha: I see some new areas of opportunity emerging to cater to the needs of millennials who want to rent things versus owning them, and that urge is only going to go up in today’s environment. At the same time, there are new technologies emerging which will change the way we work, live and play in this new remote-first world.
Harry Stebbings: You said that about the reduction in consumer spending. Every VC is talking about the reduction in pricing that we’re expecting to see. Having said that, there’s so much dry powder sitting on the sidelines and there’s so many people willing and active to engage in this environment. Do you think we will see this reduction in pricing, and how are you thinking about that specifically?
Navin Chaddha: So my feeling is, right, in this new norm there will be an adjustment on pricing and terms. And again, to what I said earlier, what is important is both the founders and venture capitalists look at the situation and take a long-term view to make sure it’s a win-win for everyone involved and not take advantage of the situations founders might be finding themselves today.
Harry Stebbings: No, I totally agree. Especially in terms of not taking advantage of them. Going back, you mentioned some of the companies that are doing very well. CACs, for the first time in a long time, are looking a lot more reasonable. I guess my question to you is here, how do you advise founding teams on how to think through the level of aggression with which they test this new environment for much more reasonable CACs? What’s your thoughts on this?
Navin Chaddha: So CACs are coming down as marketing budgets are being cut drastically by companies. However, I would caution that this could be short-lived. I’m a firm believer in playing the long game, ensuring you have rational growth and keep an eye on metrics like CAC payback, gross margin, and LTV.
Navin Chaddha: Bottom line in my mind is just the revenue growth is not enough as you need to keep an eye on profitability. So I would say, take a long view, take a balanced view, and do things accordingly.
Navin Chaddha: At the same time, rather than just spending on marketing, I think it’s a good time to double down on your investment in content marketing and social to build deeper relationships with customers where personalization is key and trust is your only currency.
Harry Stebbings: Can I ask, when you look back at your portfolio, as we said, you’ve worked with some of the best, who do you think exemplifies this most, and what do you think that they did so well?
Navin Chaddha: I would say Lyft is a good example doing this. Poshmark is doing the same. In fact, Poshmark, with most companies going down in revenue, in this environment they actually cut back on their marketing spend and are profitable and making money. So one has to continuously adjust their growth with sites to profitability and adjust the knobs accordingly.
Harry Stebbings: I’m so interested, sorry. You mentioned the knobs there of growth and profitability. Do you think that they are paradoxical? Do you think that they’re opposing or do you think that there is a balance that can be struck where they’re in unison? Because often people say, you lean towards profitability and growth declines, or you lean towards growth and profitability declines. Do you think that they are in contrast?
Navin Chaddha: My feeling is there is a rule of 40 eventually that Wall Street is going to look at, where your revenue growth plus free cash flow has to be greater than 40. So one has to find the balance on how much growth do you focus on and what is your free cash flow? And if the sum total of those is greater than 40 you’re doing extremely well. So that’s where my feeling always is. Take the long view, see what that metric for your business is, which is revenue growth plus free cashflow and converge towards that long-term model.
Harry Stebbings: I do have to ask, we spoke about pricing now on the VC side, investing in companies and as the times move, many are suggesting we’ll see the return of maybe more dubious VC behavior, akin to that, maybe many decades ago. Do you think this is fair about the suspicion of the return of dubious behavior and what do you think we can do to prevent this?
Navin Chaddha: I am a strong believer in sticking to your values and demonstrating leadership in both good and bad times. I can’t comment on what other VCs are doing, but at Mayfield we are always focused on creating a win-win situation for everyone and treating founders with respect and being fair and equitable and not proposing onerous terms, even in today’s environment.
Navin Chaddha: I believe alignment with founders is the most important thing in our business because people make products, people build companies, and it’s not the other way around. My advice to founders would be too careful about giving these nonstandard terms as they will stay forever and they’ll come into play in future rounds as well.
Harry Stebbings: In terms of those onerous terms, if we think about first time founders who aren’t maybe so aware of the intricacies and nuances of term sheets, are there specific terms that one should watch out for?
Navin Chaddha: So there are a couple. The first one would be the liquidation preference. We are seeing some resurgence of participating preferred, where preferred investor are supposed to get their money, and then they participate like common shareholders.
Navin Chaddha: At the same time we are seeing terms like two X senior [inaudible 00:14:34] pref come in, and I would say these are just not worthwhile and there is not an alignment with the founders because if you are running a marathon and not a sprint along with the founders, why come up with such terms, and at the same time founders should be really careful about giving blocking terms to VCs. Both those stones are going to show up in this environment.
Harry Stebbings: Yeah, no, they absolutely will. When I was chatting with Mark Suster the other day at Upfront, he said, “We’ve already seen the return of pay to play.”, and he said actually, it eliminates that free rider problem of someone not reinvesting in the new round, obviously. And maybe it being fair in some respects. I guess, how do you think about the pay to play element and how do you see that evolving over the next few months?
Navin Chaddha: So we are beginning to see this already. Personally, I feel mixed about this, as new investors who are proposing this are concerned about existing investors not participating and hence moving them to common stock. So my advice is let’s be careful in dealing with this on a case-by-case basis.
Navin Chaddha: First I want to understand what the concern is, and then discuss it with the existing board and management team to see if we can come up with a solution to treat everyone fairly and create a win-win for everyone.
Navin Chaddha: But if some side has the money and is still not playing, then it’s fair for the pay to play to happen. But if they really don’t have money as an investor and are still supportive and doing everything they can to help the company, then let’s be accommodative and do this in a fair and equitable manner.
Harry Stebbings: Yeah, no, listen, I agree. Especially on the case-by-case basis. I think it’s very nuanced. Post the terms that we discussed that are being agreed, often that the VC tastes a seat on the board and we mentioned some of the companies that you’ve invested in. You’ve also sat on the boards of some of the most meaningful companies of the last decade.
Harry Stebbings: I guess my first question, and I love this one, is how have you seen yourself evolve and change as a board member over the last decade, Navin?
Navin Chaddha: So I’m continuously evolving because my belief is, right, like dinosaurs never survive in any business. So you are in a continuous process of learning and improving. So having come into the business as a serial entrepreneur, the most important growth area for me as a board member was holding back on the urge to jump in to solve problems versus acting as a coach rather than being a player myself. So that’s what my struggle was for the first three, four years. How do I act as a coach rather than jumping in and start playing?
Harry Stebbings: How did you prevent yourself? Because it is such a challenge for more operational minds. How did you prevent yourself from jumping in and play more of an advisory role in those early days?
Navin Chaddha: I would say it was very similar to parenthood where you don’t do the homework of your kids. And when that triggered in my head, all kinds of bells went on. And then, at Mayfield we do believe in continuous learning and continuous assessment. And that was showing up in my 360s as an area where I could improve and do better. So that’s how it happened. It happened based on feedback and certain realizations of what the role for good board member is.
Harry Stebbings: Speaking of the role of a good board member, there is a new generation of VCs and senior VCs who are very young. When you think about advising new board members, what advice would you give someone early in their venture career when it comes to joining their first few boards?
Navin Chaddha: So the most important thing in my mind is trust with the founders to make sure you’re able to build that relationship early with these founders. You need to go beyond the board meeting interactions to understand their mental models and motivation and build personal relationships so that you’re in their zone of trust. Once you have that, just great things are going to happen in that relationship between the founder and you as a board member.
Harry Stebbings: Yeah, no, I do agree with you. I mean, speaking of that relationship of trust, how do you create an environment of trust and safety for the founder at the board level? It can be such an intimidating environment, especially for first time founders who maybe aren’t used to it. How do you create that environment of trust and safety for the founder?
Navin Chaddha: So this is what I try to do. I spend a lot of time with founders before we make an investment in really understanding their mission, vision, and values. Once we have alignment on those and common rules of engagement, the journey ends up becoming a lot of fun and I always watch the founders back and I’m there for them first, in both good and bad times. So those are some of the things which have worked well for me in over 50 board seats I’ve held in my venture career over the last 17 years.
Harry Stebbings: I mean, it’s amazing, almost 50 board seats. I do have to ask before the quick fire, you mentioned there about really spending the time on the mission, vision, and values. We’ve seen a compression in fundraising timelines incredibly over the last few years to very, very short. I think Josh Kaufman, the average time sheet for them is nine days from first meeting down from something like 100 five to seven years ago. How do you feel about the compression in fundraising timelines?
Navin Chaddha: I would say it’s a problem because decisions are being made very, very quickly without people understanding if they’re even aligned on values. So my feeling is in this new norm, hopefully you at least get three to four weeks on both sides to make informed decisions because at the end of the day venture and company building is running a marathon, not a sprint,
Harry Stebbings: I do want to, though, move into my favorite, Navin, which is the quickfire round. So I say a short statement, and then you hit me with your immediate thoughts. Are you ready to dive in?
Navin Chaddha: Absolutely. Always.
Harry Stebbings: Okay. So what do you know now that you wish you’d known when you entered venture as that EIR in 2004?
Navin Chaddha: I wish I knew how long it takes to become successful in this business.
Harry Stebbings: Yeah, no, I absolutely agree with you. What’s the hardest element of your role with Mayfield today?
Navin Chaddha: It’s balancing my role as an investor where I’m a player against managing and leading the firm where my role is that of a coach and switching back and forth between these roles is not easy.
Harry Stebbings: No, it’s not at all actually, and I don’t think many people fully comprehend and understand the fund management perspective as well as the investing perspective, and the challenges of doing both at the same time. So I do totally agree with you.
Harry Stebbings: Tell me, what motto or quotes do you most frequently revert to?
Navin Chaddha: It’s all about people because people make products, products don’t make people.
Harry Stebbings: Tell me, the most recent publicly announced investment, and why did you say yes and get so excited, Navin?
Navin Chaddha: The most recent announced investment is Nuvia where we saw a renaissance of silicon coming. Being people-first investors, we made a bet on founders who were responsible for building the microprocessors for iPhone for the past decade and now have a [bee hag 00:21:03] about building a new processor for the server cloud market to take on Intel.
Harry Stebbings: I mean, that’s phenomenally exciting and, as I said, it’s been an incredible last decade for Mayfield. Navin, I’ve wanted to do this one for a long time, so thank you so much for joining me today and this has been a lot of fun.
Navin Chaddha: Yeah. Thank you for including me in this wonderful podcast series, which is helping the founder community and is a must listen, according to me.
Harry Stebbings: Fantastic to have Navin on the show there, and as I said, it’s been an incredible decade for Mayfield, and if you’d like to see more from Navin, you can find him on Twitter at navinchaddha. Likewise, it’d be great to welcome you behind the scenes here. You can do so on Instagram at hstebbings1996 with two Bs. It would be great to see you there.
Harry Stebbings: As always, I so appreciate all your support and I can’t wait to bring you a fantastic episode next week.