Lessons from Investing in 700+ Startups | Goodwater Capital, Eric Kim

Intro

00:00I think there is no one siiz fits all for an exceptional entrepreneur one of the key characteristics though that I often see in great Founders is they have this really strong sense of always doing what's best for the company in many ways can be sa self-sacrificial that they always put the company first and the mission first if you want to be famous this is not the place for you being famous versus being paid a lot versus being having an easy lifestyle all of which is not true hi my name is Eric Kim I'm the co-founder and managing partner of goodwater capital goodwater capital is a

00:36global Venture Capital firm that we founded in 2014 we're entirely focused on consumer Tech investing so today goodwater Capital has grown to over $3.3 billion in committed Capital we're in close to over 50 countries at this point through our Genesis portfolio which is over 700 seed portfolio companies and in our core portfolio companies that's for our early stage fund and our growth stage fund that's about 80 companies at this point in about 20 countries our thesis is that consumer technology is changing the world and there's an opportunity to use the internet and

01:05digital technology for good our mission is to empower exceptional entrepreneurs everywhere change the world for [Music]

Chapter 1. The Story of a Korean Dream in America

01:17good I'm so thankful to my parents my mother and father lived through the Korean War they came to the United States to seek a better life uh with one suitcase uh with the little money they had uh in their pockets uh but what they did have was an education that they were both trained as medical doctors at that time the United States had a severe shortage shortage of medical doctors and they were inviting overseas doctors to come even if they didn't speak English very well I think in my school we were the only Koreans and I remember distinctly one day my father calling me

01:51in to his room to his bedroom I was 12 years old old at the time that's the same age my as my oldest son at this point and my father just sat me and said hey Eric I need to have a talk with you at that time my father with these intense tears in his eyes told me Eric you're growing up now you're 12 years old you're about to become a teenager and life is going to be hard because you're an Asian American because you're Korean because of the color of your hair the color of your eyes the shape of your eyes the color of your skin life is going to be difficult you will

02:24immediately be discounted and I think part of this was my father's own experience in the workplace facing racism uh there or uh maybe some bias as well but he understood that for me as an Asian-American that it was important for me to understand that because of that discount he instilled into me that we really needed to be 12% 150% better so to speak to uh really compare with our our peers who didn't have this Asian face or this background or so and that really had a tremendous impact on my life in many ways I felt a sense of urgency that I had to perform that I had

03:03to just be better in many ways that was a really important lesson I think as I've grown up and as I've matured I realized that in many ways yes that bias exists and yes the Prejudice exists and and racism exists and yes education hard work all those elements were keys for me to be hopefully successful in life over time what I've realized as well is that I also need to embrace and not always just perform for the sake of trying to be better itself what if humility was a superpower what if as myself I could Embrace that and not be afraid of that that's something I'm really interested

03:41and excited about going forward too as an undergrad I had the opportunity when I was at Yale to also intern at McKenzie and Company during the summer so in 2002 I I graduated from undergrad and I was expected to start at McKenzie right away I eventually I went back to McKenzie and spent time there for 2 years as a business analyst and consultant I learned a lot I did a lot of global projects I spent over 6 months in China I spent time in Southeast Asia as well spent time all over Europe and so that really helped provide a Global Perspective which is something you see

04:14in goodw today as well then went to Stanford University in 2005 and that's where I met my co-founder chihua Chen who was class of 2006 so we overlapped for a year so in 2007 I had the opportunity to join Maverick Capital they were starting to build out their private investing practice and so myself and a gentleman named David singer we we work very closely together from 2007 to 2014 and during that time we invested all over the world and uh from early stage to late stage we were part of the YC y commentator Venture Capital Syndicate so we invested in every single

04:46y commentator company to really late stage companies as well pre-ipo companies too and that really gave me a sense of the Art and Science of investing and and really to adopt an investor mindset [Music] actually our first deal in Korea was coupon it was March of 2011 and then soon after that we invested in cacao in their series a yeah when we first invested in Kong they were the 28th social commerce company to launch in just South Korea itself we launched a survey in South Korea and we asked dozens of people asking them to compare Ticket Monster we make price coupon

05:22others your retail experience as well and over and over again for specifically women in their 20s 30s they loved coupon because of their customer service why was that so important was because it then created loyalty that if you had really really strong customer service consumers would come back to you because they knew that they would be treated well and that was a strong philosophy that kpong had from the first day was how do you wow your end your end customer if you are doing something that the market generally agrees with that is a really hard way to make a profitable

05:55investment because the the rest of the Market's already there you have to have some kind of contrarian or differentiated insight and usually that's through some kind of primary research that you've done that no one else has done itself and that was a key to making that investment back in 2011 caca is a really interesting story I'm I'm very thankful to Han Kim who's a very close mentor and friend of mine that helped introduce me to the company prior to that we had an overall thesis about mobile the the power of smartphones and this whole transition away from desktop to mobile Computing

06:28and how there opportunity for gaming for Commerce for communications to happen on mobile and we were looking for that killer out what prompted me to really become interested in caca and and to seek out the company was a really close friend of mine actually was visiting from South Korea at the time that person had a Samsung smartphone and I asked her why did you buy this Samsung smartphone and she said so I could use caca it actually saved her money at the time every time you sent a text message you were charged per text and cacao made that free buying a smartphone which was very expensive that

07:01upfront cost was an investment to save money over time because it provided this core utility to everyone to be able to communicate for free and that was an Insight that it really struck me is that people were willing to buy 300 400 $500 smartphones so they could just use caca because they were saving money on the other end of that that love that customer love was something we saw tremendous potential in so I remember approaching the CEO the founder the management team at k C once I got introduced I remember flying to South Korea and practicing the night before

07:35presenting in Korean and the next day actually when I I visited the the caca headquarters and there was only like 20 people I remember pitching in Korean to the to the the team there they w't pitching me I made this whole presentation about our thesis and the research we had done all the consumers we had talked to it was in Korean so I'm sure it was terrible and it was uh with a lot of stuttering they were maybe were impressed by that and uh they were willing to take our Capital early on but we really saw not from the outside in but through the consumer voice the love

08:09for the product I remember at the time there's a lot of people who thought that investment in caca was crazy maybe even some of the early team members weren't quite sure about the future but when we talk to Consumers when we talk to people who actually use the product they loved it so so much often times one of the things I love to do when I go to cities whether it's London or New York I just like to hang out in the subway you can see what apps they're using just the color the icons they're using and when you go to Korea a lot more people were starting to use this yellow icon cacao

08:42and then you would talk to them why did they use it I can save money I can communicate with my friends there's a group chat that becomes my community and so that was our key Insight is that you could scale this and create a powerful Network effect that as more people got on the platform it would benefit all the pre-existing users as well that's it's a really powerful phenomenon that increases retention that as more people get onto the product the product gets better how many of those can you name there are very very few companies that do that and so once we saw that Insight

09:12we felt a very strong Comm uh conviction to invest in the company they were both very early stage deals series a for the caca and kind of series a plus for kpong the returns were massive on kind of a venture scale kind of the 100x 300X type

Chapter 2. The Best Strategy for New VC

09:27scales I think most Venture Capital firms in my experience do great work but they don't necessarily have a strong sense of mission and that's what was important to us when we started goodw was to have a really clear mission statement again to empower exal MERS everywhere to change the world for good good water had a tremendous impact on the Venture Capital ecosystem because we changed the mindset to go from a Ecentric mindset where you have individual venture capitalist being celebrated for how much money they made shifting that there's nothing wrong with that but shifting it more to a mindset

10:04of how can we as a vendor Capital industry have positive impact itself if good water many many many years from now is known for that capital is a really really valuable resource that you have to Steward and that's why we're called good water we think water is similar to technology and capital water is the source of life for every living organism but the lack of water or too much water can lead to destruction it's itself and technology and capital is the exact same thing that you have to Steward it it can be the source for so much positive influence in the world but it can also

10:37be used for not so good things too that technology and capital isn't always the source of goodness in the world too so we want to be the good water in the Venture Capital ecosystem we also thought that the world didn't need another venture capital firm there are so many great Venture Capital firms out there sequoia Benchmark you know Excel Partners there there are so many great Venture Capital firms out there the world didn't need necessarily another venture capital firm but what if you could create a venture capital firm that was not only Mission oriented but

11:06focused on consumer internet consumer technology itself a lot of venture capital firms at the time and still today Diversified away from consumer Tech they went to Enterprise SAS or security or Hardware or climate Tech or biotech if you think about the best Venture Capital firms where they started was by investing in companies like Google like Amazon like eBay six out of the eight large companies in the world are all consumer tech companies like Facebook as well not only are there great Equity returns there but if you own that end cut customer relationship

11:39then you can create so much Innovation that backward integrates all the way into the Enterprise as well so we had this thesis that consumer technology consumer internet was incredibly powerful that owning those End customer relationships was very powerful that would span not just social networking not just e-commerce but that span also Financial Services Healthcare education all these big Industries would be increasingly consumerized because you could own those End customer relationships through digital technology that was our big thesis when we started the firm in 2014 at goodwi our

12:15philosophy is that investing is both an art and a science and so we leverage our technology and our software to get to the truth of the science part as quickly as possible of our 65 66 person team two-thirds of that team are actually data scientists product managers and engineers and since day one we've been building an infrastructure a software layer to enable us to look at consumer technology companies so we find so much value in looking at the data being able to have this infrastructure to see companies on a global basis we track over 10 million companies in real time

12:49so we have very very accessible reports consumer research analytics benchmarks that allow us to understand a company we think better than any other firm because we have so much data around it and we know how to apply it so when we see a new opportunity to invest in we're very quickly able to assess is this company Best in Class not only on growth but also retention customer love what's their differentiation all the hard science of investing we've really locked into a very strong process and a platform itself what's as important and it goes with it is the art part and

13:26that's really understanding the entrepreneur understanding that person's will and desire to win that person's desire to have impact Itself by taking all the science and being able to really get to truth as quickly as possible then you can spend a lot more time on spending time with the entrepreneur understanding their M motivations understanding what their long-term goal is their vision for the company so if you have seven days in the week in the old process it used to take six days in the week to do all the science and then you have one day to maybe understand the

13:56soft part or the art we've reversed that is that it takes one day to understand the science part of it the analytics all the components that you can have software and our data platform really understand very quickly and spend the other six days to really understand the entrepreneur can we partner with this person they have a similar philosophy around putting the company first are they open to feedback doing reference checks deeply those soft elements of what makes for a great entrepreneur we're able to spend the vast majority of time because of this dual approach

14:26between Art and Science and so that's been the harded soul of good water since day one and something we continue to innovate on

Chapter 3. Eric's Guidance for Aspiring VCs

14:36too we interview a lot Venture Capital Associates VPS principles and partners one of our screening criteria if you want to be famous this is not the place for you the goodw approach is one that is obsessed with finding generational companies that will have tremendous impact one firm that I admire greatly is seoa capital and they had this saying that they were just one away if they just missed one great deal then that would lead them to potentially being a mediocre firm and so they had this obsession with finding great companies if that is someone's singular purpose if

15:10that is their Obsession as well which is to find great companies and to invest in them that's what we look for in young Venture capitals and I think that's what young people who are looking to get into the Venture Capital should ask themselves is this something that I'm really obsessed with that I would go the ends of the Earth to I will fly over 200,000 plus miles going back and forth to countries to visit entrepreneurs it's a really hard lifestyle it's not glamorous but you do it because you love it that you are obsessed with finding that insight about a company that will

15:41lead to investment that no one else in the world might see and if that's something that young people really want to do and they're willing to put in the hard work to have the discipline it's like playing a sport you have to be like an athlete you have to be able to invest in your craft day in day out and get incrementally better every week and it's not something that will ever be handed to you maybe some venture capitalist just get lucky that's certainly possible but to sustain a franchise and to sustain a career over the long term it really takes a lot of discipline hard

16:12work and an intensity that is driven by a passion to find and invest in great companies and support them throughout the life cycle of growth I teach a class on this at various institutions but how do you have an investor mindset that is a able to see the big picture always having that big picture that home run Vision in your mind B understand what are the key components that allows that to come true what do you have to believe for that big Vision to come true C understand what are the key risks to those and being able to D then research those and underwrite those risks and

16:47ultimately e taking a leap of faith that allows you to put it all together to have conviction in your idea whether you're an investor or whether you're a Founder having those key components and being able to break it down I think having this mindset for the key decisions you need to make is something that we talk about internally we certainly teach it for our investors and also I think great CEOs also have this investor mindset too because they're doing Capital allocation and they're making decisions so how do you go through that framework and be able to

17:16follow it and then also know when not to follow it when do you know to break the rules too that's really where the Poetry comes up about that you can able to innovate and create new things when you're able to have exceptions but to do that you actually have to know the Frameworks and the rules first we preach both that the Frameworks are really helpful but also really importantly knowing when to break the rules too is really important too [Music]