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The Founder Formula
The Founder Formula

Episode · 2 years ago

Cindy Padnos, Founder Illuminate Ventures - From Successful Tech Start-up Founder to Successful VC Founder

ABOUT THIS EPISODE

Cindy Padnos has not only done it twice, she's in a great position to advise those who only need to do it once. 

  

Cindy is unique in that she founded her own tech company that was purchased by Oracle. She then found her second company, one that funds entrepreneurs.  

  

Her advice? Focus on the things that matter - then go off and build a great business! 

  

Cindy believes she has founder genes in her DNA - always thought like a founder. She launched her first company Vivant because, as she put it, she had no more excuses. 

  

When describing starting a company: It was back breaking, gut wrenching work - and the most fun she’d ever had! 

  

What does she look for in a founder? Someone scrappy, resilient, who demonstrates the ability to attract talent and knows how to celebrate wins. 

  

If you take away fear and uncertainty and focus on building a solid business you’ll be the better for it. Focus on getting a few things right then when the uncertainty is lifted you’ll be in a much better position.

They should just focus on getting a few things right. Just focus on the things that matter and then go off and build a great business. The founder Formula Brings you in behind the curtains and inside the minds of today's brave executives at the most future leaning startups. Each interview will feature a transformative leader who's behind the wheel at a fast paced and innovative tech firm. They'll give you an insiders look at how companies are envisioned, created and scaled. We hope you're ready. Let's get into the show. Hey, everybody, welcome back to another episode of the founder Formula. My Name is Todd Galina, and with me is the chief innovation officer at trace three, Mark Campbell. Hey Mark, how's it going? Going really well. Good to be with you here today, todd. Of course, being with you here is kind of in air quotes, right, but yeah, doing well, doing well. How you do it? You know you always ask me that. I never asked you that. How are you doing? I'm doing pretty good. Working from home. It's lost its novelty. I will just say that. And so, yeah, I keep telling my wife and kids that they need to have a kind of it when they come out of this. They should have something to show for it. What I call the quote unquote, Covid nineteen project. So for me, I don't want to do anything related to being on a keyboard and looking at a unitor. As you know, I like to draw. What I do is I sit at the table and I do these marvel comics, recreations of covers, and I do them in black and white and then I make xerox copies of them and then I pretty much force everyone else in our house to color them with crayons or colored paints, whatever they want, and then that's going to go into a folder for some day we'll always remember how I tortured them during the coronavirus. Yeah, they'll be heirlooms. They passed down to their grandkids. What about you? Any projects that you're working on that you want to kind of memorialize covid nineteen time?...

Well, you're a much more well rounded and talented person than I wish I could say that. Yeah, I've been, you know, building a vaccine lab in the basement or something like that, but it's just not the case. I found out that I'm super good at doing dishes and and I maybe not so good at cooking. I do not half bad at eating, but for me it's kind of an inside joke here in the family. I had a time in when I was in college where I tried to get a summer job and I applied at a best western as a dishwasher and I felt pretty good about it. It was right over the back fence from the apartment I was living in, so that was nice and convenient. And I got a call and the manager, very nice gentleman, said, you know, they actually interview someone else that came in right after me, had a little bit more experience than they went and they went with him and I didn't get the position. And then it kind of dawned on me that I actually was not quite qualified enough to wash dishes at the best western. And you want to talk about a humbling moment. So, after too many years that I care to recount, I've actually earned my chops. Now I think I could turn pro as a dishwasher if I had to. So you know, it's been a journey, todd it's been a journey. It's you're like, I'll show them, I'm going to be the best Dang dishwasher in the world. It's it's something very proud of. There's something else I had to ask. So the guy that beat you out for that job where they like coming in with like four years of dishwasher experience? Right, I want to take my game from this small place to the best western like for me, this is big time for dishwashing. Yeah, exactly. By the way, apologies if you are a dishwasher at best western or part of the Best Western Corporation, Great Company and so forth, but it was yeah, I ponder that for several kind of thinking. You know, what kind of black belt dishwasher was this...

...guy? I mean he must have made good I didn't wash a dish, like I didn't show off in my interview. Maybe that's what he did. Maybe he was like, Oh yeah, see that pile, watch what I could do. Boam, and there was this tornado of activity, a flurry of soap suds and all these gleaming dishes. And See, I just didn't I didn't up an a game to bring like the Tasmanian Devil of Yeah, by the way, you don't need to apologize. The best questern we just basically told the whole world they have the cleanest dishes on the planet. Well, see, there you go. Exactly exactly. All Right, we've wasted everyone's time. Let's let's get to our best. What do you say? Let's do it. Okay, our guest is an innovator and an advocate for all things entrepreneurial. She's a founder of both the VC backtext startup and a VC firm. She's been working in or with enterprise text startups for more than twenty years. Currently, she is the founder and managing partner at the bay area base illuminate ventures. Please welcome Cindy padness. Welcome city. Thank you, it's great to be here. Yeah, I think there's going to be one of our best episodes ever. I've been looking forward to this for quite a while. That's going to be an awful lot of fun. Cydia, I just want to kind of kick things off. Tell us a little bit about illuminate and how it's a little bit different than the other DC firms that are out there. What really separates you from the pack? We're different because we're the best. But beyond that little bit of background, so illuminate is a seed stage fund. Maybe we are typically the first institutional round of investment for a startup. We typically come after the friends and family round and sometimes companies have bootstrapped, sometimes their spin out from other organizations. And we're operating out of our third fund. We invest in about fifteen companies in each portfolio and we have, I think, about eighteen active portfolio companies today. The...

...re main active. We've had numerous acquisitions and the Great Ipo of one of our companies that later went on to be acquired by one of the large private equity firms. But mostly I think that the things that make us different have to do with our own backgrounds and the kinds of entrepreneurs that we seek to invest in. So my partner, Jennifer savage, and I have known each other for twenty years. We worked together in a company. I founded a company called the vant that was a very early staff software company. We both have very long operating careers before going into venture. Jennifer led products in the product management kind of world at Docu, sign and smartsheet and just as a phenomenal track record as an operator and worked with me twice before this. So this is our third time together. We're investing out of our third fund. All of the companies we invest in our headquartered in North America, but they're across the country and actually into Canada as well, not just here in the bay area. So those are a few things that may us a little bit different and we're just so excited to be investing in entrepreneurs who are all about building products that changed the way people work. So, Sinny, previously you had started a company called Vivan, a tech startup, and you have now since launched illuminate ventures, which takes you to the other side of the table. What in your background has made you a two times founder? It's a great question and I mean I have, I believe you know, just founder jeans in my DNA. I come from a family owned business background, a business that my family still owned and operates now for over a hundred years, so in its fourth generation, and so I've always thought like a founder. I've always thought like an operator and I think even in founding the bond when...

I got to that stage, I think honestly I felt like I had no more excuses. I had been right out of Grad School and the largest corporation in America at the time and I just kept joining smaller and smaller companies until I had the opportunity to be CEO of a startup that I was recruited into. We solved that company to its largest distributor and then I decided it was time to found one. And when I moved on to the venture side and found it a firm, I really apprenticed myself in the industry before doing that as well, and I felt like I really earn the business from some of the best players there and then it was time for me to go and do it on my own. I love working with entrepreneurs and I think I can't honestly tell you what I think is more exciting, when I had the chance to build my own business and choose my own team at at the vant or now that we have the opportunity to choose, you know, dozens of entrepreneurs to work with and collaborate with. That they're both. They're very, very different, but they're both really exciting. Well, cy you mention something that I think it's a little bit of intriguing. So you had a ripping success with a Vaughan right yet a nice exit sold to, you know, one of the most respected names in tech at Oracle. You know, I think a lot of startups when they get that exit, you know, they kind of get that notch in the hill. They're always kind of looking too. How do I start another one? How do I do it again? Either that, or how do I drop out? And started Tekey, bar down and Tahiti? You, on the other hand, you kind of took a different direction. You got to said, look, I'm going to reapprentice myself in the black arts of the whole venture community. What made you decide on that and decide to kind of head off in that direction? Well, maybe, maybe, if I'm really honest, or several things happening at once. You know, right after my company was acquired, nine hundred and eleven happen and it was a hard question to decide whether or not to start another company at that point in time. I just put three years into building something from...

...the ground up. It was, you know, back breaking, gut wrenching, but the most fun I'd ever had had kind of work. And then, all of the sudden, and eleven happens. The world changed and I started getting phone called from every vc I knew who wanted me to come in and help them in one way or another. Either come in and be introm CEO and a company or help them do due diligence on a a company they were considering an investment in. So I will be really honest and say I didn't plan to become a VC. What what really happened is that I learned that the combination of skills that I built over the years, that the relationships I had on both the entrepreneurial and the bench or side, because raising money for your own company meet a lot of DC's, particularly if you're a woman back in the nineteen late s trying to raise capital as a founder CEO. But I also had all these skills that I've learned earlier in my career as a management consultants working in the IT sector. That really served me well. And maybe the third aspect of this is I've loved to learn. I always have. I get bored easily and you know, looking at a new challenge for me was exciting, not danting. I really love how you you said that you know in the startup to was a gut wrenching experience but one of the most fun you ever had. Now, of course, you find yourself on the other side of the bargaining table and valuating founders instead of being one yourself. So what are the key characteristics you look for when a founder walks in through the door outing that they've got the new slice bread? What are some of those intangible, ethereal qualities that you pick up on that kind of give you a clue that this may be worth rolling the dice on? Well, I think there's several things. You know, we have a similar criteria about the company, in the product and and the rest that that many other...

VC's have. But we're also very focused on looking for entrepreneurs who know how to be scrappy, who have shown resilience. It may not be in another start up at maybe in other aspects of their life, but really have demonstrated also their ability to attract really great people around them. Most founders I know who are great founders are also really strong leaders. They have a sense and intuitive capability about how to attract and retain and celebrate wins with with other people around them, and that's very hard to replicate or it's very hard to train. I could say that I don't or even coach. So those are the kinds of things we look and also for founders who, when you ask them about what they're passionate about, it can tell you a lot about not just the technology that they're building but the customer that they're serving. I think I mentioned that all of our investing is in the enterprise software fab world, and so, you know, business buyers. You need to understand, it's pretty good depth, not just what their needs are, but how are they going to go about cost justifying this product? How are they going to get budget? Why aren't they going to choose you over an incumbent product or a large competitor and be willing to, you know, to make a bat out of startup? Yeah, I think that's super, super interesting and of course not all it. People are extroverts, right. I mean it tends to attract rather introverted, introspective type of people, and so I can imagine that when someone's coming into pitching might be a little bit nervous, maybe not quite as polished. You know, this for them is kind of a make or break life moment. But how important is that first pitch when there when someone's really...

...trying to get their message across? How important is that? The polished as that market teas well, there's a very big difference between Polish and content. Okay, we are much more focused on the depth of understanding that an entrepreneur has about their market, their domain, experience, they're ability to communicate about the tens or even hundreds of potential customers they've spoken with. That doesn't have to be on a page, so that can be verbal. So it's not about a deck for us, but it is a lot about how deeply does this founder understand the market that they're targeting, customers that they're seeking and how whatever they're building really solves a real business problem and isn't just cool technology? That in by a way that there are different viecs and different perspectives out there. I I have great friends who are very successful ventory capital investors who invest in nothing but deep technology and really spend much more time focusing on tech. Tech, tech versus product, market fit and understanding of product. You know, market needs and customer requirements and all of that. We're different. Our experience set is in somewhat in the cloud infrastructure space, some of it in the platform space and some of it in the business application space. And if you combine those three, you know what we see. They have in common is that you can deliver rapid roy and and so we're typically looking for entrepreneurs at that also understand that and want to bring product to market in a way that, frankly, the that that success is almost demonstrated before they even, you know, release a product, that potential for success at least. Okay, so I realize that content is king, but it sounds like you might...

...have an idea about the potential for success before these guys even pitch to you. I wouldn't say so. No, I don't think that's true because again, before they walk in, what do you have? You, I mean typically what you have is a great referral from someone, and that's, I think, maybe an important comment to make. You know, we received more than a thousand pitch decks a year and we frequently find that if you do the ratio of how many of those entrepreneurs do we meet with, the ratio of those that were introduced by to us by someone we know is dramatically higher in terms of those we actually sit down and meet with. But even then we've frequently been surprised, both positively and negatively, in that first made it so that big's the question, which is kind of a timely question considering the whole covid nineteen thing. Are you guys accepting pitches? Virtually have they've been put on hold? I'm sure all of this has changed the opportunities for these guys to pitch to you. It's a great question. So you know, we are at very actively investing out of our third fund. It's again it's a seed stage enterprise software focused fun and we just closed one new investment last month. We have another in term sheet and we're actively evaluating three others. So I can't emphasize enough how, as an entrepreneur, you know, looking at covid and assuming that you know everything is on hold would, frankly, simply be wrong. There are many folks like us that are working hard to really not let this disrupt their process and identify great, you know businesses. I can tell you that for us, a couple of the most successful investments...

...in our portfolio are companies that we invested in in two thousand and eight, just before the financial crisis, and those are companies that today, a couple of them, are running it over a hundred million dollars inferring revenue, profitable, cash flow positive businesses that you know whether that storm and I think honestly, by doing that, just learned how to build a business in tough time. So when it was it was easy times. It was so easy for them. That was it was such smooth sailing. And and now as they both of these founders CEOS, are still running their businesses, as they go back into yet another crisis mode, they're just super well prepared for and I know they'll do fine. But we are doing all of our meetings virtually right now. So I don't think as an entrepreneur that should be the barrier. Doesn't sound like it's slowing them down or you guys down. Well, you know, if I'm, you know, to be super candid, I guess I would say I know there are many vcs that aren't thinking the same way, and I think that's particularly true at later stages where people in series be see the later stage round are very hesitant to put a price, to put a valuation on a company right now that might decline. And what I think that that's the hesitancy in part. So what would you say to potential founder of a new start up that walks in now? What kind of type of advice would you give them about what's going to have to change in their pitch in today's climate? Versus say, maybe back in January, where VC funding was, you know, maybe not free, but it was it was quite a bit more abundant than it is today. I think the pressures and the goals and the objectives and the risk is a little bit different than before. So what would you recommend that a founder change in their pitch now that they're heading into the wind versus having a tailwind? Good question. So I would...

...say some of the differences that that we would expect to see because of, you know, the uncertain future that lies ahead, is that an entrepreneur would really not be well, sir of to come in and say we're going to raise enough money for twelve months and then raise again and expect that an industor thinks that's a good idea, especially at seed stage. So, in other words, building in a cushion, a significant cushion, of what's being raised right now and what the time frame is that you allow yourself to meet some significant milestones that will in fact enable you to go raige your next round. Putting that cushion in there is extremely important and that is different. You know, it's not different for us. I mean it's funny, but I mean at illuminate. We've always believed that companies, especially at seed, should be raising enough capital for at least fifteen to eighteen months of runway. Now we might be looking at wanting them to have at least twenty four months of runway, and it's really simple. You don't want to send your founders out there to raise capital before they're really ready because it's honestly, it's just a waste of everyone's time. So that is a probably one of the biggest things. I'd also say that having a product where you can demonstrate that there is relatively fast time to value for your customer is also more important today than it probably was in January. I think everyone understands that every corporate I budget, every departmental budget, has, you know, come under severe scrutiny, if not having been reduced significantly, and so, as a result, if you're able to demonstrate that you have an offering that has a return on investment that's super fast, we're going to show value in six weeks, not six months,...

...to your end user, customer. I think that is definitely something that's a very strong point in a pitch today. Great Advice, Cindy. This is a male dominated field for sure. However, it should be noted gender doesn't play into any of your investment decisions at all, but I'm sure it does play into a lot of other things. Can you talk about gender and how it relates to the VC WORLD WITH OUR LISTENERS GENDER? Is that an issue? Sure, I'd be happy to so. Look, obviously we have a little bit different looking team than most venture capital firms. Jennifer, who's a brilliant undergraduate engineer with the masters in business, and myself with, you know, a focus in tech all of our careers. We're not any different in terms of our skill sets or mindsets are other things, than than many of our male colleagues, but we certainly look different and we don't really think that that is a barrier for us at all in any way. In fact, in some ways that it's been a unique advantage. However, I know for a fact, having having been a founder raising capital, that there are some really unique and interesting barriers for anyone who just doesn't either look like the norm or have the same network available to them that that other people might have. And so what we've done with eliminate from day one is we've built a set of infrastructure and a set of outreach capability that takes us well beyond the standard, as you say, mail dominated kinds of figures in the industry. So we built a Business Advisory Council that is made up of some of the most successful enterprise, tech entrepreneurs and corporate executives in the world and it is two thirds women. We have quite a few other minority folks are on that advisory board as well. We've never positioned ourselves or thought of ourselves as a diversity...

...fund or an ethnicity fund or a gender focused fond or any of those things, but we've wanted to create a level playing field. Our internship program is extremely diverse. Our own actual portfolio founders are incredibly diverse, including multiple Latino founders CEOS, and nearly half of our portfolio companies have at least one woman cofounder on the team as well. And the way that's come about, we believe, is that by championing diversity, by talking about it, by being very open about the need for it and the value of it, that we attract a broader set of entrepreneurs and then we simply choose the best opportunities. We don't use ethnicity or gender or anything else as part of our investing criteria. Yeah, I can imagine people feeling very comfortable coming to you guys looking for funding, and I heard a bit of a rumor that you may be the only barrier VC firm on the books who's actually invested in twins. Is that accurate? Identical twin sisters? Yes, it's the great companies called Alakay Theya, their located head put it up in Vancouver and the Marketing Spent Management Base and they've done super well. Yeah, for sure, that's that's certainly rather unique and you certainly have an interesting perspective on the market, not just because of your past and and being in the VC world now seeing the other side of the equation. But she related that when you were starting bavant you went through some growing pains and challenges all around the two thousand and one hundred and Elevencom crisis era. And now here we are again in a global crisis. It be interesting to get your insights on the new normal and and if you see any rays of hopes in a post pandemic world. You know,...

...what are some of the things that you're starting to see take shape and that maybe other people aren't talking about right. Yet well, you know, the markets are cyclical, the economy is cyclical. Many of us have been through these cycles before. This one is more disruptive and more uncertain than others because it's just unlike anything the world has ever experienced. And so I think if you step back and say, how long will this last, for example, no one knows. So literally, you know, planning scenarios that you might have run through in any other financial crisis can't be relied upon, and so I think the new normal, if you will, is much more capital conservative, you know, much more focused on delivering product and getting to market in perhaps shorter time frames. And I'm not sure, by the way, that such a good thing, because I think there is a role to be played not by R and D in in startups, but by DEC check being developed in startups. And if more of the capital is going into the super capital efficient companies that can get product out there in a very short time frame, I am a little concerned that, you know, we may miss the boat to some extent, or delay it at minimum, in really leading the way in you know deep text that that takes time and capital to develop and we don't have that happening anymore at the you know, be IBM labs or the atnt labs that that was there, you know, and years gone by. So it really is up to the startup world to do a lot of that and I hope that continues. I hope, I hope the new normal includes both, because it's super important to all of our futures. Well, I think you certainly hit the nail on the head, especially from talks that we've...

...had with with our customers when they're looking for new, new solutions to get them to a different plateau. Variably it comes from an emerging tech start up as opposed to someone comment that had Eureka moment in there are and D lab. So I think your spot on a cindy, this has been great, mark and I have had an absolute blast. Your insights have been incredible and I was just wondering if there was maybe anything that we didn't cover during this conversation that you'd like to share with our listeners. It would you know, as an entrepreneur myself, I know that there are a lot of obstacles that you face in and building a successful business and I think if you take away some of the fear and uncertainty of Covid and look more at the fear and uncertainty of building your own business, you're going to be in a better place, because all of this dynamic that we're experience in the market eventually goes away. And if I learned anything being a founder and tough times and investing in companies and similarly tough times, it was that those companies early stages, at minimum, they just had to make a few things work right to be successful. They didn't have to grow at three or four hundred percent, they didn't have to, you know, have every big name brand company as a customer. That they just had to get a few things right. And those companies that did that and then position themselves well to take advantage of the opportunity once, you know, some of the uncertainty lifted, did extremely well. And so I think there's just every opportunity today for entrepreneurs to feel like they should just focus on getting a few things right, just focus on the things that matter and then go off and build a great business. Credible advice, incredible.

I love it. That's a that's a sound bite if I've ever heard one. Mark, what do you think? Oh, you know it. I'm an old company. Let's go do it bigger. Out To do by web ex a companies hard enough. Yeah, that's so true, Sonny. This has been an amazing experience. Thank you so much for taking time out of your day to kind of pop on the podcast market myself. Thank you my pleasure yesterday. I can't thank you enough. I'm really looking forward to running into not only you and your firm, but also your portfolo companies out in the field with our customers. Thanks so much for coming on in. Thank you for the opportunity. Loved it. Trace three is hyper focused on helping it leaders deliver business outcomes by providing a wide variety of data center solutions and consulting services. If you're looking for emerging technology to solve tried and true business problems, trace three is here to help. We believe all possibilities live in technology. You can learn more at trace threecom podcast. That's trace, the number threecom podcast. You've been listening to. The founder formula, the podcast for all things start up, from Silicon Valley to innovators across the country. If you want to know what it takes to lead tomorrow's tech companies, subscribe to the show wherever you get your podcasts. Until next time,.

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