Lessons Building Five Unicorns + Building Pathlight Ventures | Charley Ma & Mahdi Raza
Sep 27, 2024
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Charley Ma and Mahdi Raza, co-founders of Pathlight Ventures and early employees at unicorns like Plaid and Robinhood, share invaluable insights from their journeys. They discuss the challenges of gaining initial customers, the significance of networking, and the importance of choosing between early and late-stage startups. The duo emphasizes the need for adaptability, discusses equity compensation intricacies, and reflects on their experiences conquering fears and uncertainties to build a successful venture fund in a tough economic landscape.
Charley Ma and Mahdi Raza discuss their early roles at five unicorns, emphasizing the importance of foundational experiences in startups.
They highlight the transition from operational roles to angel investing, showcasing how previous experiences shaped their venture capital strategies.
The importance of building strong partnerships between investors and founders is underscored, focusing on genuine support and clear communication.
They advocate for a disciplined investment approach, prioritizing fintech and AI sectors while emphasizing the value of case studies and tailored advice.
The founders express their long-term vision for their fund, aiming to positively impact startups while navigating changing market dynamics and driving sustainable growth.
Deep dives
Plaid's Initial Challenges and Market Impact
During its early stages, Plaid faced skepticism, particularly from investors and banking executives like Jamie Dimon. The company was perceived as a threat to traditional banking relationships, exemplified by its connection to Venmo, which disrupted how users interacted with their banks. Despite these challenges, Plaid successfully enabled users to link bank accounts through apps like Venmo, demonstrating its value in the evolving fintech landscape. As Plaid matured, it transformed the way financial services operated, paving the way for a new generation of fintech solutions.
Navigating Early Startup Roles
The podcast emphasizes the significance of early startup experiences, particularly for those not in technical roles. Starting as a Sales Development Representative (SDR) is touted as one of the best paths for non-engineers to understand the business side of startups and develop essential skills in selling and customer relations. This role ensures individuals gain practical insights into market demands and customer needs, setting the foundation for a successful career in startups. The conversation reflects on personal journeys, highlighting the learning curves that come with entering dynamic environments like startups.
The Transition from Employee to Investor
The founders discuss their transition from operating roles at startups to becoming angel investors before starting their own fund. They highlight how their experiences at companies like Plaid and Robinhood shaped their understanding of what makes a startup successful. Investing in early-stage companies allowed them to identify strong founders and promising markets, cultivating their desire to support entrepreneurs. This unique blend of operational and investment experience provides a solid foundation for their approach to venture capital.
Building Valuable Partnerships
The importance of building strong partnerships between investors and founders is emphasized, with a clear focus on providing genuine support. Founders who felt prioritized and supported were more likely to view their investors as valuable allies. The podcast discusses how transparency and effective communication form the backbone of successful investor-founder relationships, ensuring alignment on goals. By maintaining close ties and investing time in the companies they support, investors can significantly contribute to the success of the startups in which they've invested.
The Evolution of Fund Structures
As the conversation shifts to the structure of their venture fund, it delves into the desire for a more concentrated, impact-focused investment strategy. The founders reevaluate their angel investing experiences and recognize the need for a formalized fund to enhance their impact on portfolio companies. Fund II marked a transition to a larger size and a more institutional backing, yet retained a concentrated approach to investing to ensure meaningful contributions. This evolution sets the stage for a more systematic exploration of founder-led companies, maximizing their ability to drive significant outcomes.
Decoding Market Trends and Challenges
The discussion touches on current market dynamics and the founders' perspectives on potential volatility ahead. They identify short-term challenges attributed to economic conditions and upcoming elections but express optimism about long-term growth driven by technology and innovation. The need to balance public market trends and private market investments underscores the founders' strategic focus in navigating their investment decisions. Analyzing macroeconomic indicators and the effects of AI on productivity serves as critical components in understanding market resilience.
Sector-Specific Investment Strategies
The founders express their interest in investing in specific sectors, notably fintech and AI, where they see ripe conditions for growth. They emphasize the importance of having clear case studies and the ability to provide value advice to their portfolio companies. Their approach focuses on gaining practical insights from effective partnerships instead of merely following popular trends and consensus decisions. This disciplined method elevates their confidence when investing in companies that align with their overarching strategy of supporting sustainable growth.
Positioning Against Larger Funds
The episode discusses how the founders distinguish themselves from larger venture funds by honing in on personal connections and tailored support. Unlike many large funds that rely on a broad market strategy, they prefer selective partnerships with companies that align with their values and goals. They suggest that larger funds often view investments as merely another element of a vast portfolio, lacking the depth of engagement that can forge lasting relationships. By prioritizing time with founders, they can drive growth in a way that mass-market investors cannot.
The Role of Pricing in Venture Investing
The founders elaborate on their pricing strategies for investments, emphasizing the balance between competitive market rates and the intrinsic value of the startups. They argue that while lower entry prices can offer advantages, the overall confidence in the business's potential for growth and sustainability holds more weight. With a critical perspective, they encourage fair evaluation over arbitrary pricing based solely on market sentiment. Their approach underscores the belief that startup success stems from understanding the businesses deeply rather than simply appeasing market whims.
Future Aspirations and Market Outlook
Towards the end of the conversation, the founders reflect on their aspirational goals for their venture fund and its impact on the startups they support. They aim not only for financial returns but also to contribute positively to their partners' long-term successes and broader societal betterment. Their vision for future-market conditions underscores the importance of ongoing assessments of emerging opportunities and challenges faced by startups. Ultimately, their commitment to helping founders achieve their visions aligns well with industry trends and shifts, shaping a brighter entrepreneurial landscape.
Charley Ma and Mahdi Raza are the Co-founders of Pathlight Ventures, and were early employees at five unicorns, Plaid, Ramp, Alloy, Robinhood, and Stytch.
They share tactical advice for early stage startup employees, lessons getting Plaid and Ramp their first customers, and deciding to build Pathlight together.
Timestamps (00:00) Intro (02:30) Growing up in basements (05:15) Charley’s journey to first biz hire at Plaid (15:01) Advice on being a good startup employee (19:34) Mahdi’s path to Robinhood (26:33) Deciding between joining an early or late stage startup (32:39) Why Charley joined Plaid despite VCs telling him not to (38:52) Benefits of case studies in hiring (39:58) Why every hyper growth company is a shit show (44:24) Startup comp: equity, QSBS, early exercise, vesting (49:59) Joining Ramp as the first Head of Growth (58:35) How Ramp got its first customers (01:02:06) Advice and common traps on early GTM strategies (01:05:04) Why $1M ARR does not mean you have PMF (01:06:51) Meeting when Robinhood bought, churned, then returned to Plaid (01:09:54) Deciding to build Pathlight together (01:23:06) Raising Fund 1 in 2021 and how bad timing almost killed it (01:29:55) Reasons founders work with Pathlight (01:32:04) Why most investors add no value and give bad advice (01:36:44) Founders Pathlight invests in + Artie case study (01:44:44) Competing with incumbent funds (01:53:57) Raising a $75m Fund 2 in 2023 (02:02:22) Are Seed extensions good investments? (02:07:45) Discussing startup valuations (02:09:09) Mahdi’s 10-minute market outlook (as of 8/8/24)
