A Guide to a Winning Investment Strategy
Zetta Venture Partners is named after the ‘zettabyte’ (a trillion gigabytes!) and we were founded to help usher in the intelligence era of computing. We are early-stage investors in AI-first startups with B2B business models, and we lead rounds between $1-$5 million. In many ways, we resemble the classic ‘Series A’ investor, leading and participating in priced rounds, holding reserves, and committing serious time and energy to each founder who chooses Zetta to partner with.
Outcomes matter in the short term; relationships matter in the long term
Despite the wide variety of options for startups raising seed capital, we find that Zetta is somewhat uniquely positioned between angels and micro VCs on one hand and the multi-stage firms on the other. Micro VC portfolio construction generally dictates a large volume of small investments to broadly spread risk, preventing the investor from spending too much time and energy with any one company. Large multi-stage firms may write 7 figure checks at the seed stage, but this represents a small bet relative to their fund size; they don’t really start to have skin in the game until the Series A. In contrast, Zetta writes seven-figure checks at the seed stage, and will make just 20-24 investments in total across 3 partners in this fund. Each startup we work with receives the hard work and close attention of our whole team, because our incentives are aligned. We view our founders as extended members of the Zetta family.
What We Look For
All investors are looking for great teams, large markets, and novel product insights. Zetta is specifically looking for those attributes in startups that apply AI to solve business problems. Generally speaking, those startups accumulate a proprietary dataset that powers an intelligent product. As the startup acquires more customers and more data, the product becomes more intelligent, delivering even more benefits to all customers. These data network effects operate like a virtuous spiral, helping startups deliver compounding value to customers, which makes it very hard for a latecomer to enter their market.
This strategy also informs the types of founders we back. Zetta seeks teams that blend both cutting-edge technical expertise and deep domain knowledge. All startups need to focus on solving real problems with technology. For data-centric startups, collecting, interpreting, and applying data successfully demands a deep understanding of the domain. It’s far too easy to fool yourself with data when you don’t deeply understand its context.
Zetta’s Model of Engagement
Zetta’s whole team works closely with founders, and we personalize the interactions based on the needs of the startup. Board meetings are the foundation of good hygiene and good governance, but day-to-day help comes in different forms depending on the stage and preferences of the founders. I might keep a standing 1:1 with a CEO or periodically join a management team meeting or sales pipeline review. Most CEOs appreciate a listening ear and the advice of someone who’s seen it before and can offer alternate perspectives.
Of course, most startups sooner or later need help filling a leadership position and in addition to referring candidates, we’re seasoned interviewers and love helping close candidates. Zetta’s rolodex also contains many enterprise buyers - if we can introduce a few early design partners, we can make a tremendous difference in the velocity of a seed-stage startup.
A Trusted Partner
Before joining Zetta, I spent my career as a technical leader. I worked for several startups, and founded one of my own, but some of my most valuable experiences came from joining two extraordinary companies in their high growth phases: VMware and Facebook. Scaling a business rapidly requires constant reinvention of every aspect of what you do, from sales to lead generation, to product delivery and hiring. I coach founders with advice that’s grounded in real world experiences and that seems to resonate.
I hope all of the founders I work with feel they can bring me their opportunities and challenges and get valuable perspective. They would probably say that I don’t always tell them what they want to hear, but I always tell them what they need to hear, and I’ll always support them. At the end of the day, partnership is what matters.
Advice for Budding Entrepreneurs
It’s practically a cliché to advise entrepreneurs to hire the right team. If you work with amazing people, everything else tends to fall into place. If you are working with the wrong people, that’s very hard to recover from.
Not as many people talk about the need to build strong relationships with those amazing people once you’ve found them. I teach a course on leadership through the Computer Science department at Stanford; my aim is to help technical students build the skills they need to be great collaborators and leaders in the working world.
The core tenet of the class is that outcomes matter in the short term; relationships matter in the long term, and the rest is details. Years later, your co-workers won’t remember the exact product features or the precise size of the deal. However, they will remember how they felt about that outcome and how you treated them. It’s short-sighted to focus on outcomes at the expense of relationships, and of course you can’t sacrifice outcomes just to be well-liked. Great leaders are passionate about achieving both.