Puneet Agarwal: A Viewpoint on Venture Investing

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Puneet is a Partner at True Ventures, where he brings a strong mix of both operating and investing experience. He began his career as a product manager at CrossWorlds Software, an early integration software startup sold to IBM. He then spent some time in technology investment banking at J.P. Morgan and later in venture capital at the Mayfield Fund, where he invested in early stage technology companies. Starting in 2002, Puneet spent four years at BEA Systems in various product management and marketing roles and also conceived, initiated, and ran BEA’s RFID initiative. He then joined Geodesic Information Systems, a mobile messaging company. In 2006 as VP of Product Management, Puneet helped grow the company from $20M to over $80M in revenue. As part of his work, he moved to India for several months. He joined the True team in 2008.

Puneet holds a BS and MS in Industrial Engineering from Stanford University, where he was also a Mayfield Fellow. When he is not busy working with exciting entrepreneurs at True, you can find him navigating life with his wife and three children.

VINAJ: What are the areas of focus for True Ventures?

PUNEET: True is a little bit different. We play at the very early stages. You’ll find us in the very first round of $500k to three million in a company. We like and take big risk and embrace risk. We always talk about maximizing risk around market product. What that translates to is that we take a broad view in the areas we invest in. We don’t have a core sector focus for each partner. We tend to be more generalists although we all have passions especially since we’ve all started companies ourselves. We gravitate toward our interests, but we don’t have dedicated teams for specific areas. Our goal is to find great entrepreneurs and have them lead us into great markets. This ends up being pretty broad which means we have done several things in several spaces like government, space, robotics, deep science, crypto. We try to get ahead by being so early.

I have done more in the enterprise since coming to True ten years ago. Cloud was very new. We took the view that every layer of the infrastructure stack was being redefined. I had come from this world so I ended up doing a lot of investments in storage to dev ops to security and other parts of that world. I tend to spend more time in the enterprise.

VINAJ: What would you say has been the investment that has been the most fascinating/made you the most proud?

PUNEET: There are so many! But one that comes to mind is Duo Security, which just announced that Cisco is buying them for over $2 billion, a great outcome. We invested when it was just three people located in Ann Arbor, Michigan. What I am really proud of is it’s a real reflection of the way True works. We like to say we start small but don’t think small. We led a seed round, but there was a huge vision of the founders to democratize security. That’s what is exciting. You find something that has two or three people and no customers and just getting started and then they change the entire security industry. They brought security to the masses and embraced ease of use. Their tagline was “the most loved company in security” which was frankly a foreign concept to the industry. What also made it exciting was the Ann Arbor location. At the time people didn’t feel you could invest outside of Silicon Valley and then there were questions about whether someone could build a big independent company on security alone. Duo Security’s vision never wavered on being able to double down on ease of use. It took eight years almost from the day from when we invested to them announcing the sale to Cisco.

It was a great outcome although it’s not always about the outcome. Investing is about the process and how you can help build companies and the journey along the way. It’s much harder than it looks.

VINAJ: How has venture investing changed in the last 5 years?

PUNEET: Venture investing changed a lot in some ways and in some it really hasn’t. There is a lot more money in the system. When True started 12 years ago, there was about 200-300 million total dollars in whole seed ecosystem. Now there are seed funds everywhere. It’s the new normalcy to have billion dollar funds everywhere, and it’s incredible. As a result of more capital in the system, start-up companies are raising much more money. Now there’s a normalcy to raise 100m in a single round. This amount used to be a gargantuan or abnormal amount, and this has changed in less than five years or an even shorter time. It’s accelerated.

The level of innovation is incredibly high and continues to increase. Cloud itself was an incredible shifts, and we are still early in that shift. AI (artificial intelligence) is another shift along with blockchain and crypto. We haven’t had a lull period in the innovation. There is no time to look for the next wave because the waves keep coming.

This means more successful start-ups globally. For whatever prevailing reason, it used to be the companies had to built in Silicon Valley to get venture capital attention. That is shifting. Entrepreneurship is everywhere. In the U.S., companies are being built across the country. We are funding those, and we don’t hesitate because of location. It’s a great trend.

VINAJ: Speaking of expanded locations for innovation, what are other geographic hotbeds for venture investing in the world?

PUNEET: The obvious ones are China and Israel. They’ve had accelerated growth for many years. Europe is becoming very interesting to us. We are seeing a lot of companies get created in Europe. We also made our first investment in Africa recently. India is also increasing; and we are doing more in Canada, too. The growth is everywhere.

VINAJ: Growth is also occurring in corporate venture capital (CVC). What are your observations and perspective about this trend?

PUNEET: We’ve done a lot of investments with corporate investment arms and have been very successful at it actually. CVC makes sense; it’s a great way for corporations to have a foothold in the start-up ecosystem. It’s become more of the norm. The fears have dissipated. The fears, on the start-up side, were that you’d be locked into that corporation or aligned with the type of onerous burden that comes with corporate money. Sometimes there is a fear that you could be held captive. Corporate money could diminish your value as a start-up or you’d be locked into specific terms or a certain kind of agreement.

A lot of that fear has disappeared. I think corporations are putting the start-up companies’ best interests first and helping build value for those companies. I have had nothing but great experiences with it. Corporations are operating more in a venture capital mindset. The try to help companies succeed, and not just align the investment around the corporation’s interest. The corporations’ venture capital teams have become more innovative, have been moving faster, more aggressively. And I think there are new models emerging. You look at what Google has done with GV. It basically operates like a separate venture capital firm. Microsoft is trying to do that in a similar vein. I believe Cisco is trying to do some of that, too. You’re seeing a trend there where CVC is moving more to the venture capital type model. The lines are beginning to blur between what’s corporate venture capital and what’s venture capital.

VINAJ: What would you say the timeframe looks like now with corporate investing?

PUNEET: The timeline is where some of the fears have dissipated. The old fear was, “I’m going to spend months on this. I’m going to have to get a corporate sponsor on the business side to make this work.” I don’t see that any more. The more experienced corporations with an investment arm, the people who are doing it regularly, are doing it fast. They have their own process, which we respect; but it’s not onerous in any way. Often times, these corporate teams operate as independent decision making bodies, which I’m seeing as more as the norm. They don’t have to make a decision on one side then go to the business on the other side. They realized they can’t afford to do that time wise with start-ups.

VINAJ: For corporate VCs, what advice can you share?

PUNEET: Think about the start-up holistically. What’s best for the company vs. what’s best for the corporation? I think you have to understand your value proposition. What can you, the corporate, bring to the table? What can you add value to? First and foremost, a start-up is going to look for a great long-term partner, usually a venture capital partner. They may look to add additional corporate venture capital and make it part of a round. Why would an entrepreneur take your money? How can you add value without taking up huge amounts of cycle time? Give insight into what you are doing. Be a good partner. Do what’s right and not add friction to an entrepreneur’s life. I think that is what we are all there for: to add value for the entrepreneurs and help them succeed.

VINAJ: From an entrepreneur’s perspective, what tips do you have for seed stage investment preparation?

PUNEET: Seed stage is the earliest stage so really important to stay really creative. It’s the most creative moment in time in a start-up’s life. You really have freedom to try different things, test out different things and give yourself an opportunity to do that. With that seed money, we want to see if you can build team. Those critical first five hires will set the tone for the rest of the hires you will choose for your company.

Can you build product and get it in people’s hands and test it out? If you don’t get validation around product, it’s very difficult to get to the next stage. Getting paying customers adds a ton of value. At the seed stage, you’re at the early stages of establishing market product fit and your culture, your early foundation of the company. Work backwards. If you think you are going to get 18 months of funding, work backwards to figure out how to achieve all of these milestones to get to the next phase. These are typically the things we look for. Our average first check is two million dollars. With that amount of money, you can get so much data on a company on what I described earlier; and those are the things we look for. Market, product, revenue. Of course there is some variation within industry such as deep tech.

VINAJ: Any final thoughts?

PUNEET: I’m still very excited about the level of innovation. We are investing in a lot of exciting areas. It’s an exciting time to be an entrepreneur.