Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Ashmeet Sidana, Engineering Capital was recorded in December 2015.
Ashmeet Sidana, Founder of Engineering Capital, a seed-stage venture fund focusing on infrastructure technology, had a lot of insights to offer, and delivered one particular piece of wisdom that is close to my heart. He says, “Funding is like candy. Don’t eat too much candy. Whole wheat bread and proteins are customers and revenues. That’s what you should focus on.” Brilliant analogy, don’t you think?
Sramana Mitra: You come from a very heavy-duty technology background. You made a stop in the traditional venture capital industry. What is your observation of the venture business today?
Ashmeet Sidana: The venture business is thriving. This has been a banner year for distributions this year. LPs are very happy. It’s been a banner year for fundraising. Lots of new capital is coming in. Most importantly, lots of new companies are being created. Innovation is active. Funding is active. Exits are active.
There are some underlying changes, which we can get into structurally. There are two that get talked about. One is the reduction in capital to start a company. The so-called lean startup movement. The fact that you can start very quickly and also the total amount of capital it takes to build a company to success and exit. We hear about $500 million and billion dollar rounds. These two trends which seemingly seem to contradict each other are reshaping the venture industry.
Sramana Mitra: Let’s double-click down on these two trends. Our audience is very familiar with both trends because we cover both trends extensively. Let’s analyze those. The lean startup movement is something that is very core to our world. We operate in the very early stages of the entrepreneurship life cycle. We propagate the message of lean startup and capital-efficient bootstrapped startup very aggressively. How does that impact the venture capital industry today?
Ashmeet Sidana: The biggest change lean startups have brought into the industry is the success and the creation of seed funds. I, myself, run a seed fund. Engineering Capital is focused on the seed stage. It takes a small amount of capital to get a company started to product-market fit. That is what the lean startup movement is about.
I’m proud to share with you that Steve Blank, who is one of the key thinkers in this, is an advisor and investor of Engineering Capital. We thought very carefully about the impact of lean startups and where it will go. This ability to start a company quickly, iterate quickly, get product-market fit is the heart of the lean startup movement. What is interesting about Engineering Capital, in particular, is that we are focused on the infrastructure side.
The lean startup movement got a lot of publicity and press on the consumer side. People talk about writing iPhone applications or perhaps even building Web 2.0 or mobile applications in the lean format. What is interesting that I’m seeing now is that on hardcore technology, we are seeing lean technologies getting applied.
Sramana Mitra: One trend that we see is that even angel investors these days expect that entrepreneurs are going to bootstrap ahead of time before they come to raise the seed capital. There is this whole pre-seed activity of validation and seeing product-market fit. Even the earlier stage investors are looking for businesses to invest in that have already achieved product market fit. Can you comment on that?
Ashmeet Sidana: This is actually a new trend. It has always been true that every investor wants to see as much progress as possible before they come in. Of course, the more the progress and the more ahead they are, the lower the risk in the investment. Investors have always wanted to see it. However, depending on the state of the market, you see people take more risk. When times are tough, you’ll see people take fewer risks and they’ll want to see more progress upfront. This is not a new trend. We’ve seen it before.