Krishna Srinivasan [00:00:00] It was very easy to feel like, oh, man, these people changed the goalposts on me as to what it takes to get to the next financing round. That's the nature of the beast, people just need to be prepared for changing goalposts. 

Michael Hainsworth [00:00:14] Hello, I'm Michael Hainsworth. The CIBC Innovation Banking Podcast explores the world of startups, growth-stage companies and late-stage companies that have made a big splash in their industries around the world. In this episode, we have two remarkable guests. Krishna Srinivasan, the founding partner at LiveOak Venture Partners, and Jonathan Schupack, executive director and market lead for CIBC Innovation Banking in Texas. Together, they share their insights and experiences about the challenges and triumphs faced by startup entrepreneurs in the lone star state. Join us as we uncover the secrets of successful entrepreneurship. Drawing parallels between climbing mighty mountains and building ground breaking businesses. Discover the resilience, innovation and collaborative spirit that define the Texan startup scene.. We begin at the base camp of Mount Kilimanjaro, where Krishna found himself at age 50, staring up at the peak. He wasn't alone. His family was with him and a Sherpa guide to help him reach the summit of the highest single freestanding mountain in the world. He tells me there's a relationship between being a startup entrepreneur and setting such lofty goals. 

Krishna Srinivasan [00:01:34] If I can be a mountaineer, anybody can. We had to just simply start to take the first step onto the mountain, not be daunted by the whole journey ahead. And that simply is the first step to climbing a mountain as mighty as Kilimanjaro. 

Michael Hainsworth [00:01:54] And with that in mind, I could imagine you're at base camp. You look up and you just see what an incredible travel you've got ahead of you. I can imagine that's very similar when it comes to a startup entrepreneur that you're not just looking at the peak. You've got to break up any climb into manageable chunks so that you could wrap your head around what you have to do on a day to day basis. 

Krishna Srinivasan [00:02:19] That's right. The analogies are actually remarkably similar. What does it take to get to the first hill? And then you take the first hill, then you can see the second bigger hill behind it and the mighty, mighty mountain beyond it and so on. The world of startups are very similar. It's all about focusing on: what is the first key milestone that needs to get accomplished? And once you take the first milestone, what would be the next milestone? You get more clarity associated with that. So I talk to my founders a lot about taking that first hill is a really important sentiment. The second important sentiment is we learn pretty quickly to celebrate our little victories. It's important to celebrate the completion of day one. Some early founders need to take a step and say the first deal or finish a quarter hitting the first million dollars in revenues. These are all milestones as a part of the longer journey. It's really important to take a step back and celebrate the lovely victories along the way. And maybe the third one I would say is almost, you know, make each step, each day, to be better than the previous one. Study what worked, what did not work. What were some mental tricks to overcome boredom? What were some tricks to keep your body healthier, to make the next day better? So I think people need to obsess about being constant learners about the journey and make one day better than the previous day, one month better the previous month. Really reflect upon what worked, what did not work, and make the next one to be better is an important lesson here. 

Michael Hainsworth [00:04:01] Give us a sense as to what makes Texas startups stand out on the national stage, because they really do, don't they? 

Jonathan Schupack [00:04:08] I think there are a few reasons why Texas startups stand out. I think one is Texas is just a large, diverse economy. And when you have that many companies, you have a lot of innovation that takes place along with that diversity of companies. I think we lead the country in Fortune 500 companies in a state. Secondly, I think we have, in particular in Austin, a fabulous ecosystem to help founders grow. Companies like LiveOak that have done this over and over again, that help companies kind of start with great ideas and build great companies. So it's that, that infrastructure that Austin in particular, I think Texas in general, has going for it, it's just a really great collaborative ecosystem. It's easy to find good partners that will work together, and interested in helping others in that journey. 

Krishna Srinivasan [00:05:00] Those are all incredible strengths here with respect to why it's distinctive, right. We've got a tremendous number of Fortune 500 companies headquartered here, as Jonathan said. So a lot of businesses here end up being very vertically oriented, where there are people with incredible domain strengths in this market. And that domain strengths cross-pollinated with technology talent ends up being a bulk of very impressive activity in this market. This combination of deep industry knowledge that's available here, tremendous technology talent, the second largest number of engineers here out in the state, the UT system, then the number of STEM graduates, probably second in the country. Lots of things this state has to offer, which all really contributes to, how entrepreneurship and startup formation can keep accelerating this market. 

Michael Hainsworth [00:05:51] There's a combination of deep industry knowledge and technology talent that makes Texas a thriving hub for startups and innovation. But like any region, Texas is experiencing high inflation and a slowing economy. So why hasn't that deterred Krishna from investing? He's leaning on his more than 20 years experience riding the ups and downs. 

Michael Hainsworth [00:06:16] You became a VC in 2000 right before the dot-com bust. What lessons did you learn from that crisis that applies to today's world of high interest rates, low valuations, and that economic uncertainty? 

Krishna Srinivasan [00:06:28] Well, thanks for reminding me that I joined the business in 2000, Michael. When people these days introduce me as an OG of Texas venture investing, and I always remind people that O does not stand for old. Lessons to learn from those dates are incredibly relevant to how we think about sustained investment and sustained company development in this current time frame. In the land of plentiful capital, people forgot about building the notion of building sustainable businesses. Capital became a drug, which would cover up a lot of warts in the business. In the 1999-2000 time frame you could build businesses based on what we used to call eyeballs. Whether how many visitors showed up to website and not based on are you actually generating revenues and so on, right. And so we started to have a lot of businesses recently, were given plentiful capital available, which were growing uneconomically. Capital became the moat for a lot of these businesses as opposed to true fundamental product and innovation and how they were creating value and growing. 

Michael Hainsworth [00:07:30] So what are three key points you look for when deciding where to invest? 

Krishna Srinivasan [00:07:35] So number one is, well, we think of this as are you building a sustainable business, which is do you truly have product market fit? Do you truly have unit sales productivity first? And then of course, that becomes what does LTV and CAC  look like and so on. Number two is we think of business as being much more serial in nature. When you have plentiful capital even before you have product market fit, people start to invest in sales and marketing because they can, right, and start to sell into a variety of end markets, variety of applications with a lot of sales teams and so on. And what happens is maybe in the land of plenty, sales does happen. Obviously, you hire ten salespeople, they will all sell something. It's important to go back to basics about being serial or sequential in nature, always figure out how to- do you really have amazing product market for demand, before you expand and invest in sales and marketing. I think it just needs to be much more serial  in nature. And lastly, be prepared for changing goalposts. Entrepreneurs would feel like if I can get to these many millions of revenues, these many customers, you felt a financing would happen at a sudden attractive valuation. But unfortunately what has happened is the macro markets being more negative, suddenly people say, “Well, that's not good enough. It needs to be something else”. It’s very easy to feel like, you know, Oh man, these people changed the goalposts on me as to what it takes to get to a next financing round. That's the nature of the beast. People just need to be prepared for changing goalposts and need to, therefore, maybe, you know, think about accomplishing more and not be subject to only one particular end point is what you can build towards. And you just got to be much more flexible and adaptable to changing economic times here as part of raising capital for the next rounds of financing. 

Jonathan Schupack [00:09:28] I think we've seen overall VC funding kind of down a bit. I think the number of companies getting funded has gone down over the last 18 months or so. What we've seen is a digesting kind of the new economic reality. There's a bit of a bid-ask spread between what founders were seeking and what investors were willing to pay. That bid-ask spread is converging here over time as both parties kind of come to terms with the new reality. 

Michael Hainsworth [00:09:58] What does a bid-ask spread look like to you, Krishna? 

Krishna Srinivasan [00:10:01] Yeah. It's changing, right? In the sense that, look, you know, even we were actually quite disciplined even in ’19 ‘20 ‘21. And knew the party cannot last for a long time is what we knew then as well. Of course, you know, valuations have massively corrected. Public valuations have come down significantly. And not only that, there's a massive other change that's happened as a lot of businesses for a while had enterprise software valuations where you had real recurring revenues. But these are all transactional businesses, one time businesses. So those have corrected even more dramatically because those businesses simply are not as attractive as a traditional enterprise software business. The effect of that is slowly rippling through the ecosystem as people come to grips with what should be the new normal for that type of a business, which kind of a business should be valued based on GMV, which kind of business should be valued on revenue run rates. So we've just got to get back to the fundamentals of business specificity. What do valuations look like in the business? And there is just a lot more relearning that's needed here in line with current economic environments. 

Michael Hainsworth [00:11:09] So then compare and contrast for me the differences between what you're seeing in the startup scenes in Austin, Houston, Dallas, three very distinct environments. 

Krishna Srinivasan [00:11:19] All different markets. As the headlines indicate, Austin ends up being the deepest, the most active, most diversified. It's got the deepest bench strengths. You've got companies spanning enterprise software, infrastructure software, technical services, even e-commerce. You've got a variety of interesting consumer companies, all exist in Austin. Dallas, I would say, is the second largest. And it's aided by a tremendous amount of business services that you already have in Dallas. Large, large corporations in that ideal business services from retail and hospitality and health care and all exist there. And, , Dallas took a big beating in terms of entrepreneur activity, where it used to be extremely well known for hardware, telecom, optical type of markets in early 2000, 2002 time frame. And so we are finally seeing a nice rebirth, a nice reacceleration happening in the Dallas market. Houston continues to be the lightest. And I can't quite put my finger on why. Tremendous amount of talent, tremendous number of engineers. And maybe it's their focus and energy and people are, like to be in the energy industry and don't come out to be entrepreneurs. Houston does have a huge collection of Medtech, which we don't invest in. So it's possible that there is activity in the Medtech arena that we are not aware of, but it's one which there ought to be more happening there. And we are continuing to be hopeful that it will start to really move the needle in terms of number of companies that come to the market. 

Michael Hainsworth [00:12:53] Jonathan, what in Texas is missing in terms of funding companies through their life cycles? 

Jonathan Schupack [00:13:00] I think what we're seeing in general is that companies are getting funded through the life cycle, where I would say maybe we're missing here is a little bit of native later stage capital. I probably had ten recurring calls with later stage venture funds outside of the state that are actively monitoring the state. So there's, it has the eyeballs, it has the visibility, but it doesn't necessarily have the dollars yet of native funding sort of coming from in the state. 

Michael Hainsworth [00:13:30] I returned to the mountaineering metaphor and asked Krishna how being a VC in the Texas market requires him to be more than just a funding source. He also has to be a Sherpa himself. 

Krishna Srinivasan [00:13:45] It's actually a tremendous analogy, just as my lead guide on climbing Kilimanjaro is simply there to do whatever it takes to get us to the summit and back, not just the summit. We have the same mindset. I think the core ethos of the firm is around being all in on our founders, all in on Texas and all in the broader entrepreneur community. And that emphasis of being all in guides and drives all our actions. So for us, with respect to our founders, right, and our entrepreneurs, we recognize it's a pretty lonely job, especially to be CEO. You're their friend. You're their philosopher. You are their guide, you are their mentor. You are their therapist. You're there for the venting sessions and so on. And overall, I think the ethos, given what I talked about, is all about earning the right to be the first person they call for good news and bad news. And that's something that's simply earned. It's not demanded. You can't make people do those things. And tactically, of course, that means not simply just go to board meetings. We help a lot with recruiting, we help a lot with financing strategies, helping build decks. Whatever it takes to build a business. 

Michael Hainsworth [00:15:27] Jonathan, mentorship is a critical component to everything you do, is that right? 

Jonathan Schupack [00:15:12] It's important that founders choose good partners, good Sherpas, seasoned Sherpas on this path, and whether that's their equity capital or their debt, that it's partners that have experience kind of going through cycles and working through challenging and really robust and positive circumstances, those partners have enabled us to reach our goals. 

Michael Hainsworth [00:15:38] So, Krishna, if there's one takeaway for a founder considering Texas for their startup, what should it be? 

Krishna Srinivasan [00:15:48] The best founders who are a fit with Texas, embody the spirit of local living with global thinking. So local living meaning how do you truly benefit from and take advantage, leverage, all the strength of the local market and this entire spirit of collaboration that it clearly signifies what Texas is all about. But you're not trying to earn the badge of being best in Texas. You're trying to build a globally best company. You're trying to build globally dominant companies that can own a category, leveraging and, extracting all that Texas has to offer yet trying to build global companies of scale which are dominant in their own right in those respective categories. 

Michael Hainsworth [00:16:27] Clearly, you're putting your money where your mouth is. Congratulations on raising $230,000 for six charities in your region. 

Krishna Srinivasan [00:16:35] Oh, thank you so much. It's a program we're delighted with. But what my co-founder and I decided was, look, it's not enough to only support the profit making enterprise entrepreneurs, but there is a longer tail of folks in this community, and it's important to marshal the resources of our own resources, entrepreneurs’ resources in contributing to these folks, to these causes is really important. And that became the basis for us to kick off a more formal campaign, it’s almost a million dollars given out in the last four years. We are also very active individually on boards because all of this supporting the community at large is very much in the spirit of the rising tides, we ought to raise all ships, not simply people working in the tech entrepreneur community. And that's another incredibly important part of the LiveOak ethos. 

Michael Hainsworth [00:17:26] Drawing parallels between climbing Mount Kilimanjaro and the entrepreneurial journey, we learn the importance of taking that initial step, breaking down the ambitious venture into manageable milestones and celebrating every achievement along the way. Today's startup founder needs to focus on building sustainable businesses, product market fit before expansion and being prepared for changing market dynamics. The diverse startup landscape in Texas, with Austin standing out as a vibrant hub, needs more native later stage capital. For Krishna and Jonathan, their roles as mentors go beyond funding, reflecting the ethos of LiveOak Venture Partners and CIBC Innovation Banking, where support, guidance and community engagement play a central role. The key takeaway echoes the essence of local living intertwined with global thinking for Texas entrepreneurs, leveraging local resources while aspiring to create globally impactful companies. 

Michael Hainsworth [00:18:27] This has been the CIBC Innovation Banking Podcast, where we learn the secrets to innovation economy success from the entrepreneurs who are paving the way for the future. If you haven't already, subscribe on Apple Podcasts, rate the show and tell us what you think with a review. I'm Michael Hainsworth. Thanks for listening.