1Mby1M Virtual Accelerator Investor Forum: With Julien Pham, 3CC Third Culture Capital (Part 7)

Sramana Mitra: You must have seen in the media how we’ve advocated very, very seriously bootstrapped startups. As a forum, we have legitimized bootstrapped startups. So today bootstrap startups take a lot of pride. Ten years ago, the bootstrapped startups used to apologize for being bootstrapped startups. Today, they don’t.

Julien Pham: Yes, but even if you talk about bootstrapped startup, you’re still talking about startups that are VC backable, at least that’s the implication.

Sramana Mitra: Bootstrapped startups don’t have to be VC backable at all.

Julien Pham: Sure. So, I have to explain to a lot of these first-time founders that in my job as a VC, when I started investing my LP’s capital, the clock started ticking. You need to exit within 10-12 years. Otherwise it’s not a success for my fund and my ability to select.

We have to select companies that are going to have a liquidity event within a certain period of time. In order to achieve that, you need to show rapid growth and be VC backable. People don’t realize that in my job as a VC, in order for me to do my job, I have to raise capital myself.

Sramana Mitra: Yes.

Julien Pham: And so who do I go to? Sure, I go to pension funds etc., but I also go to family offices and guess what? How did some of these family offices make the money that they made? Not because they were a VC backable startup, it’s because they were making light bulbs etc., and have grown extremely well. They are the antithesis of a startup or a VC backable startup, yet they are the ones funding the venture capitalists of the future to invest in this company.

There’s no shame in building a business if it’s going to be successful. But you have to know that in order for 3CC to invest in your company, you need to fit in with certain criteria, be a VC backable and achieve that escape velocity that you described so well.

Sramana Mitra: But I think the reality is that because there’s so much venture capital and so many funds now and so many accelerators and incubators, a very large number of companies are being put on this acceleration trajectory of trying to grow really fast. Once you bring this outside capital into the process, there’s pressure to grow.

Entrepreneurs are pressured to grow fast – a quarter million companies with that kind of pressure to grow fast. So my question is, what’s happening in your portfolio of 15 companies? Are they all growing fast? What kinds of challenges are they facing? How are you advising those companies?

Julien Pham: So this is how you have to kind of be able to visualize a little bit of the job of a VC. The way I like to describe it is to have a normal curve on top of a normal curve. The big normal curve is all the businesses out there, and I have to pick the ones that are truly VC backable. Within that portfolio, within that kind of denominator, there is a normal curve there as well, right?

So out of my portfolio companies, there are some companies that are almost within the first year incredible. One of our breakthrough companies already got an offer for an acquisition, and they declined it because they think that with the money that they just raised, they can get to something larger. That company, if they get to that number, is returning a fund. That’s just one company.

Sramana Mitra: That’s how Venture capital operates. One investment returns the portfolio and the rest are kind of incidental.

Julien Pham: The rest is bonus. So if I can identify two or three of these portfolio companies that can achieve something like that within a five to ten year period. That’d be fantastic.

But then there’s a normal curve within what I do too. I mean, that’s the whole idea, right? You have the 15 companies and any statistician or anybody who knows what the normal curve is will go and look at those 15, and they will create a normal curve around that.

So there are winners within the winners that we pick, and there will be companies that won’t perform as well. The question is, how do we allocate the right amount of capital? How do we put fuel in the fire for the companies that are successful? To address your point about all of these companies in the accelerators, one needs to be careful.

Especially as a VC, I have fiduciary responsibility to deploy my LP’s capital into companies that are going to be successful and are going to exit. So the question is how do we make sure that we continue to back the right companies at the right stage so that they can achieve something. It doesn’t mean that we’re not helping the companies that are struggling. There are multiple anecdotes of companies that took ten years in order to reach escape velocity, but when they did, they became unicorns. So every trajectory is a little bit different.

Sramana Mitra: Nvidia almost went out of business at one point.

Julien Pham: Which one?

Sramana Mitra: Nvidia. It’s the most valuable company in the world right now.

Julien Pham: Yes. We would be missing on an Nvidia. I’m not in semiconductor or anything, but what I’m saying is that because I’m a VC and I have a tenure, we would not have invested in Nvidia. And so you miss out on these things.

Sramana Mitra: Okay, well, Julien, let’s catch up offline and continue the conversation. It was a pleasure having you here.

This segment is part 7 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Julien Pham, 3CC Third Culture Capital
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