Interview Transcript, Aaron Anderson, Principal at Impact Venture Capital:
Alan Olsen: Aaron, in addition to having a very strong educational background, Harvard MBA and you’re working in venture capital. Can you tell us how you started off with your schooling?
Aaron Anderson: I was a double major at Brigham Young University studying political science and economics. I was what you call your classic, don’t know what I’m going to do with my life undergrad. I was really interested in economic development, I had this grand goal of solving poverty- that’s what I wanted to do. My father was a military man, big into public service, as was my mother. And, and I knew I wanted to do that and be like them solve big problems, I didn’t have the eyesight to fly planes like my dad did so I tried my hand at economic development.
Alan Olsen: And so you jump there from economic development, political science and into getting an MBA was it right out of school?
Aaron Anderson: No, there’s a bit of a gap. So in the spirit of trying to solve poverty, and be an economic developer, my first foray into the working world was actually with the State Department. In 2007, I went out to Washington, DC, and it was on the Near Eastern Affairs desk, during President Bush’s- during the big surge in Iraq after the war had been not going as well. So my job at the State Department was to help find ways to convince businesses to set up shop there and in northern Iraq. And I had this wonderful experience in DC traveling around from the Pentagon and Capitol Hill, but didn’t quite love the bureaucracy of it all. And so right as I was graduating, I finished up this internship and got married, and my wife and I, a couple months after getting married, moved out to South Africa. I worked for Habitat for Humanity for a couple of years out there. So that was my kind of in between undergrad and graduate school. Again, in the spirit of trying to solve big problems. I had this great nonprofit experience. But, came to the conclusion pretty quickly that if I really wanted to help solve poverty, if I really wanted to be a part of economic development, I needed to learn how businesses worked and as much as I love my political science degree, it did not teach me that. So that’s how I ended up at Harvard, after kind of a big epiphany moment. I went and got my MBA. And so I showed up at Harvard day one, not knowing what a balance sheet was. But I also like to think that I got the most of my money in terms of education, I learned something there, you know, business education was real for me.
Alan Olsen: How did you transition into the venture capital community?
Aaron Anderson: Harvard, for me, for these two years in Boston was all about figuring out, am I going to continue to pursue this economic development path or was this time for a major career pivot, while trying to wrestle with that I was connected with the mayor’s office in Sacramento. Kevin Johnson was the mayor at the time, the former NBA All Star. His office, connected with me, recruited me out there to come back to Sacramento. So Davis, California is my home, that’s where I finished high school, you know, 15 miles west of town. And, you know, it was this awesome opportunity to come back home work on economic development in Sacramento, and do it in the place that was really close to me, personally, physically and in all ways. So in my time in the mayor’s office, I spent a lot of time working with startups and other businesses trying to recruit them to the region. And it became this natural transition working with young companies in Sacramento and the mayor’s office to, working with them from the investment side. So I got connected with my current firm impact venture capital and Jack Crawford right, as I was transitioning out it’s all been a blast ever since.
Alan Olsen: So what is the state of the venture capital?
Aaron Anderson: I’m really excited about the venture capital world right now, there are a lot of things going on that I think that are truly exciting. But when I look at VC I see a couple things. I see a tech lash that we have to be a little concerned about and make sure that we are solving real and major problems, but I also see untold opportunities. So I also happen to teach a class at UC Davis now about entrepreneurship. And the thing I love to tell my undergrads is it’s pretty simple, that there are huge problems in the world today. Problems like hunger, clean energy, you know, feeding a billion more people or transporting them around the world, big problems- we want to move fast and break things like we always have. But we also have to navigate the world in a slightly, slightly different way. And that’s why I’m excited to be with where I am in Northern California, because I think the big problems that we’re going to solve now are ones that will require a little more navigation than just software coding. So when I think about industries like agriculture, or health care or transportation, I also realized that these are industries that are regulated that an entrepreneur that wants to solve problems in these industries needs to know how to navigate both the policy world and the business world. So being in Northern California where I’m a stone’s throw from the capital of the state. And just to stone’s throw us here from the Silicon Valley. That’s what I see. It’s an opportunity to solve bigger problems. So not just another dating app, but feeding a billion people.
Alan Olsen: How did you come up with the name or what does impact mean?
Aaron Anderson: A lot of people confuse us for, you know, an impact, fund, double bottom line trying to make a difference in the world. And while all those things are sort of true, and that we truly want to invest in companies that are game changing and make big differences and positive impact in the world. We are truly a returns focused fund. So we hope to have impact by investing in phenomenal entrepreneurs that really want to make a difference in the world, but are driven by building real sustainable businesses that are, you know, that are going to grow be the next unicorns. That’s the goal, like every other great venture capitalist. So we tried to have impact in a few different ways. Our firm like many is very much excited about the rise of artificial intelligence machine learning the ways in which that’s going to change the world. And a lot of ways it feels like venture capital in the 90s, where you were pitching a company that didn’t have the internet behind it. You know, it just wasn’t interesting. We feel the same way about AI today. But our team and our partners have a few interesting assets that we hope to bring to the fore. Eric ball and jack Crawford Hoover GPS, the you know, they’re Kauffman fellow alums met that way, and have done a lot of really interesting work on the corporate venture side. It has been fascinating to me to see the rise of corporate venture capital in the last few years, the number of deals that the corporates are involved in is skyrocketed. And we love to co invest alongside corporates, because they make phenomenal strategic partners. They have great market insight that maybe we couldn’t get to otherwise, co investing capital, as companies get a little larger than then we’re comfortable investing in they can be great follow on investors and ultimately maybe even acquirers so it’s a big piece of how we try to have impact with the companies we work with is, is connecting them, you know, beyond our own strengths to other great partners alongside of us.
Alan Olsen: How do you decide what company you want to work with? I mean, there’s always lots of opportunities, maybe 300. opportunities coming your box, but what’s the differentiating factor of I want to be with this one because?
Aaron Anderson: So I’m a sucker, I see a million deals and I get excited about each one of them. So you really do have to have a strong filter and frankly, it breaks my heart, sometimes some of the companies we have to turn away. But I am always looking for phenomenal founders and teams, you know, I want I want to a founder that has great experience in the venture world before I’d love to see a founder that’s founded before, I hope they’ve made a million mistakes already. Obviously, technology and the ability to protect that technology is key. But we also want to make sure you know that we’re able to use our own unique strengths to the benefit of the companies we work with. And so this corporate piece actually becomes really important. If we don’t think we can add value by connecting a startup to some of our other partners and networks, then then we might hesitate on investing in a deal. I mean, obviously you never pass one up that just gets you know, too excited to bear. But that’s what we’re looking forward to the team the technology the market, like any other good VC, but can we connect them also to these corporate partnerships that we’ve built out and our network in that way?
Alan Olsen: There’s certain industries that you focused in on your fund?
Aaron Anderson: Yeah, so we are pretty industry agnostic, we’ve invested in everything from agriculture, to government, cyber security, and you know, anything and everything in between. It’s the technology and the team that we really care about. And we are seed stage investors and will bleed into the series A so what we’re really looking for is team tech and early stage. So industry we’re less concerned about we’ve built a great network of venture partners and other allies that can help us in that industry if we aren’t, you know, the world’s experts in it. But we feel really comfortable with our ability to connect them with these partners and do great work that way.
Alan Olsen: We see the valuations that some of these companies are given WeWork is one I think $48 billion valuation for company losing billions of dollars a year. We recently had another IPO with Lyft. And I think 80 cents of every dollar goes to the driver. So 20 cents, and they think they came out to valuation somewhere in the high 20 billion. And I think that scale down to about 15. billionaire, so like that after the IPO, but what’s going on out there. How did we get to where we are today?
Aaron Anderson: So the venture world’s always a little zany, I suppose. You know, I don’t want to speak for everybody, but I have a few thoughts and shoot, I’d love you to tell me where I’m wrong yourself, Alan. So I’m thrilled that at impact that we are seed stage investors for a few different reasons. But one of the really important ones is being able to add value, build out companies at this early stage where valuations are not insane. Because in my mind, the valuation at an early stage is often just dictated by the negotiation. You know, what kind of capital are we able to give? And what kind of equity percentage do we need in return and, and how many other offers does the startup that we’re talking to have? But you’re seeing today, I think a world in which there’s just a lot of capital, especially in the later stage venture just hundreds of millions and billions of dollars floating around? And I think there’s a problem with that in a few ways. So first off, that allows these, you know, what were startups, I don’t even know if you can come startups anymore to continue to raise capital later on. And it therefore doesn’t necessarily demand the discipline that a public company is required to have. So you know, you talked about We Work in some of the disaster there with the with the CEO and some of the mismanagement. When you still control the company internally, as opposed to being you know, or as opposed to the scrutiny of the public markets, some of that can happen. But when you also have so much money to invest, and you still expect to return, of course, that’s going to inflate valuations, if I’m putting half a billion dollars into a company, I, I still need to get an equity percentage back. And I need an exit commensurate with that kind of kind of investment. And I think that’s why I’ve seen some of these valuations just inflate is because we have money, we need to put it to work somehow, we want to do it in the venture world. And that props up and pushes up valuations to crazy, crazy heights. But it’s why I think the really early stage investing is exciting and vitally important, because that’s where we see hundreds of deals and opportunities. We try to build up these companies early on, give them the discipline they need and, and still be able to get an exit without necessarily having to be a unicorn 10 times over.
Alan Olsen: There is a lot of statistics out there that say in the first couple of years there are more companies failing than succeeding that are getting funded. In your opinion, why do some companies succeed while others fail?
Aaron Anderson: There’s a million reasons and each deal is going to be different. But a few thoughts come to mind. I mean, we deliberately build a portfolio of investments because it’s really hard to pick who the winner is going to be. It’s easy to separate a good company from a bad one. But it can be really hard to separate a good one from a great one. And so we build portfolios deliberately, with that idea in mind, we don’t know who of our portfolio is going to be the superstar, but we know one of them will be. That’s just smart investing. But there’s a few problems I often see with the startups we work with, and one is product market fit. At the very earliest stages of investing, you know, the startup you’re investing in, in many ways is a hypothesis, and they’re trying to test it, you know, we’ve identified a problem, we’re building a solution, we need to prove to us into the world that, that our customers want the product we’re building, and sometimes they’re just unable to do it. Oftentimes, it’s because you think you know what the customer wants, without actually listening to them. That’s a huge problem. but sometimes it just doesn’t work. team dynamics also become huge. A professor of mine, a mentor at Harvard named Noam Wasserman wrote a book called Founder’s Dilemmas. And I love the different examples he gives of some of the conflicts founders face and these teams. In investment, a startup is not that often compared to marriage, you know, and sometimes, frankly, those investments last longer than marriages do. You know, God forbid, but the point being that, you know, if you’re going to be getting into bed with somebody like this, you need to be able to work well together and get through the highs and the lows, and the good and the bad. And sometimes teams just don’t have the ability to do that. So that’s why team is so important to me as an investment consideration is because everything else can look good. But the team can blow up the whole effort.
Alan Olsen: What advice would you give to an aspiring entrepreneur that wants to develop an idea into a company?
Aaron Anderson: So first off, I would advise any aspiring entrepreneur not to start with an idea, but instead to start with a problem. What I want my entrepreneurs to identify is a huge pain point that somebody has and somebody’s willing to pay for. So if you’ve started with an idea, my advice is you need to backup because you’re probably going to on the wrong path, you’re going to look for people to validate your good idea, as opposed to customers to validate your problem. The second thing I would say that I have learned the hard way is how important a strong network is. I think part of the big problem we face as a venture industry in terms of underrepresentation with women and minorities is the fact that we have to rely so heavily on our networks but we fail to broaden our networks that people that think and look differently than we do. So I advise my interested entrepreneurs, you get to any event you can attend you go talk to everybody and anybody who will listen and you go out of your comfort zone 1000 times over to build that network because you never know who’s going to open the right door for you. But the odds of you being able to open the right door for yourself are slim.
Alan Olsen: Okay, so we’re out of time but quickly for person who wants to reach you, how do they go about do that?
Aaron Anderson: Yeah, I’m on LinkedIn. You can look me up Aaron Mondell Anderson. Easy to find me there. My email addresses is open and public. It’s Aaron@impactvc.com. Anyone’s welcome to shoot me a note and I’m happy to take any and all comers So thank you, Alan.
Edited for Concision and Clarity
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