Kyle Lui -- Bling Capital

Kyle Lui — Bling Capital

Wednesday, August 10, 2022
Another great example of top Silicon Valley talent moving to LA!
 
Kyle Lui was a partner at multi-billion dollar DCM until he left to join Ben Ling at Bling Capital.  He shares thoughts on how a small fund can still build best in class playbooks and processes to support founders.

My friend, Kyle Lui is here today. Kyle just recently made the move to Bling Capital where he is a GP with Ben Ling. Before joining Bling, Kyle was a partner at DCM, a multi-billion dollar Sand Hill and Asia-based fund.

Kyle has invested in companies, including SoFi, Lime, Tempo, DocSend, and Shift of course, where we met. Kyle started in venture as the founder of Choicepass, acquired by Salesforce. And Kyle is from LA and we are happy to have him back in LA. Hi, Kyle.

Yeah. After all these years, I finally get to come on your podcast.

It’s a big time now. So this is a big move. So I want to talk about Bling. Like, why did you join Ben and join Bling?  Well, firstly, Ben and I have known each other for 15 plus years. He was my first angel investor. But even prior to that, we were friends, we’ve co-invested. And so, even when he was starting Bling capital three and a half years ago, I was early advisor and LP in every fund. 

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And so, I think that there’s been a long relationship there and I think that. With, , bling capital raising, fund three and it’s, it’s a larger fund.

It’s sort of made sense from the blame perspective and from the me perspective after seven and a half years at, DCM, which is incredible fund and grown up in venture there and it was. Difficult decision. But for me wanting to go earlier stage working with somebody that I know really well and also being at a firm that’s, you know, three and a half years old versus you know, DCM is like approaching three decades now.

 , how do you characterize blink? Like what, What do you say is the reputation of blink and actually DCM for that matter?

 Well, so blinged is uh, a pre-seed and seed focused fund . That is, you know, working with um, ambitious oftentimes um, first time, but not necessarily first time entrepreneurs to really help them find product market fit. Um, We care a lot about if there’s any sort of data we will slice and dice the data.

 There’s a certain type of a Blaine entrepreneur where this really resonates and some people self-select out. We typically, we have a reputation for being very I’d say like, efficient. Former operators that are, you know, really there to like help our portfolio companies.

 with DCM. Um, You know, the firms started in 96. I joined in 2014, initially just purely as a sand hill road firm focused on telecom, then started moving in. , Asia as a part of the strategy, and then now I’m being kind of truly across border. And I had a thesis that Asia was going to be a big part of deal-making in Silicon valley, which I largely kind of proven out to be, true over the past decade. But, , I think the current environment there is like this active kind of decoupling between the U S and China.

And wasn’t, I mean, DCM in my mind is also, you said you do it into that. Wasn’t that the fund that like $300 million became $10 billion.

Yeah.

I mean, I think it’s calmed down a little bit, just like the entire market, but like, if that was an incredible five again like this part of DCM during I think some of the most exciting years of history. So.

Yeah. Um, And was musically ticked off cause that was an investment. You led his attitude statement.

 didn’t need the deal as part of the diligence team. I mean, the deal was really led out of our China team, but given the cross-border nature of a number of folks and myself were involved with that deal. And I think that’s one of the things. DCM unique and Nadine have like the perspective from multiple geographies.

Um, the big winner in the 2014 fund actually is a Chinese company called , which is uh, the largest and a domestic player in the short form video space. And so it’s actually by dances, largest competitor, globally, or tectonics largest. Globally.

Wow. Well, let’s stick with bling a little bit and tell me, like, you know, it’s a very different platform for you now. Right? yeah, I mean, how do you experience that? Yeah. So I, I would say firstly, that.

one thing that I really admire about what Ben spilled at bling is like the consistency and the processes and playbooks from everything, from the way that we evaluate deals to the way that. we work with our portfolio companies. Um, Everything is kind of around playbooks and operationalizing things and also iterating do those processes better.

 and think the value in that and that being consistent in the way that we diligence um, You know, companies is that we’re able to then calibrate across, you know, all of the companies that, we, viewed as like, Hey, what are the very best opportunities that we’re seeing?

And obviously everybody wants to you know, continue to improve public knowledge, which I think is that we’re also thinking about as well. can you share some of, you know, without sharing all the secret sauce, can you share some of the. And how your diligence or some of the insights from those playbooks.

no, of course. I mean, I don’t think any of it’s rocket science, this is that it’s very authentic to us and so I would say on the diligence side , um, Uh, seven and a half years at decent. This is very common with series eight funds is that you’re seeing a lot of deals, but you’re, you’re doing just a handful of deals a year. And so when you’re creating the diligence plan, it’s pretty bespoke to the company, right?

Like when we were diligencing shifts, we were like, Hey, like what are the things that we really care about with figuring out how this becomes like largest used car auto marketplace, but at bling, because, you know, at seed things are moving really quickly.

We want to be very consistent about like, how are we rating, companies on these kind of five, six dimensions, the founder of the market, current traction differentiation. And I think that a lot of firms have a version of this, but we tend to be very maniacal about like our meeting notes need to be like consistent in this way.

Like you capture each of these areas that way, if somebody like goes and like reads it or like they pull it up later, like we have it in a very consistent format. And so when entrepreneurs go through our diligence process, outside of that, like we were asking the same questions around market sizing, the, ask it in a certain way, we ask, like, how do you build, you know, what does this team look like?

In 12 to 18 months, we ask them in a very consistent way. We asked for formatting in a very consistent way. We run cohorts if there’s cohorts and uh, If there’s data and for a lot of founders that they’ve never done that before. And so like, we’re also kind of, in some ways, like training them many on like how, like the types of questions they’ll probably get at series a and series B and for a lot of seed funded.

liked the founder. I did a quick check on the market and I’m in and like, that’s not us, but having said that, like one of our advantages is speed. And so like we asked for the data, but like we also move really quickly. So we don’t have a concept of a partner meeting, which I love because I you know, at my old fund that was like, we had partner meetings and you’ve been through this, like on the other side with us, but like, it’s like Monday evening.

It’s only at a certain time we never change it. There’s this a finite amount of time. And so, but I play, like, we can just like meet anytime as I’m sure it is with the two guys. And so like, love like the speed in which we’re able to move. .

Got it. , so founders will give you access to raw data. Essentially you, run the analysis.

 Yeah. Whatever they have, they provide to us. And we have ways to just like pull the data very quickly and then send it back to them and say, Hey, this is what’s working. What’s not working. And uh, In, in some ways it’s like a mini version of like what growth funds do.

Like when you have a lot of data and then we actually use kind of as part of our diligence process, use a lot of those materials to then create the playbook for them.

Um, On how to find product market fit and you get to like, these are the milestones you actually need to hit. And this is like what we’ve kind of discussed, you know? And So, like it isn’t like a um, now it’s a new process. Hey, you’re a blink company. Let’s start with, it’s like, Hey, we like all of this work that we’ve done together to figure out whether it was like a great investment for us.

And then now let’s like start to execute on those things together.

So, I mean, I bet it’s not rocket science stuff but still like, tell me a little bit about that product market fit playbook that you guys.

Yeah. So we have a bunch of playbooks that we kind of introduced to companies around how to, hire efficiently, how to negotiate. With um, you know, counterparties how to think about the founding team on business development, how to ask for even like things as simple as, like, , how do you efficiently ask for intros from your investors?

Right. Like we always do like a affordable email template that is. Consistent because it’s clear and it, like, it’s just more efficient for everybody. It’s like, we just have these different things that we start to train our entrepreneurs on. .

examples are like, . Rather than when you’re trying to fundraise to then come to us and say, Hey, do you have any funds that you recommend? Like we have a long standing and continuously updated list of a, you know, , bleeding from the. You guys are on there as well, but like basically they can just go on and they can see like, who are the partners that like we’ve worked with before that we know how do we know them?

, what are their average check sizes? And it’s just a doc that like all of our founders have access to. And so when they’re even starting to think about having conversations, we just point them there. And then if they’re like, oh, I like an intro to like these firms. Like they know The standard process of like getting an intro through us.

And it’s the same with our product council members, on the BD side, we’ve created like lists of folks of like, uh, you know,, BD folks that we know within our network. Like, uh, if you’re a consumer social company, it’s an underscore, there’s like folks on discord there. If you’re like interested in, you know, B2B, SAS, there’s like folks from, you know, large B2B SaaS companies.

And you can ask for an shows that way. And so, it’s more kind of like , pointing them to the resources.

And then, you know, when you think about. The brand of bling or just like seed funds in general, winning competitive deals and, you know, going up against like an a 16 Z. And how do you, think about.

I would say that like, we very rarely lose deals to the multi-stage funds. I think that they’re going after a slightly different type of opportunity. I would say that, our sweet spot is an entrepreneur wants to raise, like call it one to $3 million, maybe a little bit more in a pre-seed or seed round.

And they care a lot about specific partners specific fund that they’re working with. Almost always, not exclusively, but mostly looking for a seed fund to lead. find when entrepreneurs are raising like five to six or $7 million in like a very large seed they’re going into like Andreessen’s or Greylock city, of course.

And, And generally I think that those funds are backwards. Entrepreneurs that are already in, their network, right? let’s say like, you are like a director of product that like a Coinbase and like, you’re going to go to Andreessen and like raise your seed round and Andreessen and go, , we worked together the last few years.

I will give you like $5 million at the, you know, X terms. And like, those are not deals that we typically spend a lot of time on because it’s just not, um, those should just like, not like a blink deal. The bling deals are, we find founders that we find are like maybe a little bit like undiscovered, but like a very high potential and like highly coachable um, in terms of winning deals. We also have. , this um, product council, which is a hundred plus now have the CEO, COO CTOs, chief product officers at various technology companies.

 And they commit to doing three to ten first meeting. Uh, Entrepreneurs in our portfolio and um, all of the product council members are also LPs in the fund.

And so when we invest on they’re all investors, and what we found is that Rather than kind of giving them like Carrie or, or, um, incentivizing them in, various ways. Like just having them be a part of the fund and having them be part of this community is it’s mutually beneficial because for a lot of these folks, like we’re not targeting, you know, folks who are like CEOs of like already , duck, a corn publicly traded company.

So we’re looking for. uh, somebody who is maybe 10 to 15 years into their uh, tech journey. They maybe word marketing started other places like Amazon and now. CMO of a series C company.

And they’re starting to think about.

how do I join my first board? How do I start to angel invest because I have a bit more money. And like, we find those folks and we have them be part of council members. And like, so it’s been very mutually beneficial both sides because product council members also get access to our deal flow.

And so, um, they are not only the number one source of referring deals. There are a big part of helping us win deals. And it’s really kind of authentic to you know, bling you know, most of us being kind of from both entrepreneur and product, , backgrounds, like, I mean, you’ve been go way back from Google, but you know, like he was a force of nature at Google on the product side.

Yeah. So yeah, He still is.

 And you as well. I mean, you’re a founder and then product leader at Salesforce.Let’s talk a little about your product journey. Well, one of the reasons why ultimately we ended up at, Salesforce and so some of the business at Salesforce was because I really wanted to. Learn how , largest and in my mind, still one of the best SAS companies in the world does things. And Salesforce has always been a.

Sales and marketing driven culture. And so product really just under you know, Brett has become much more important in recent years, but when I was there, it was like sales and marketing was key. And like product is like, obviously really important, but like we thought about things in terms of like hyperscale.

And so, we weren’t like building kind of small features that only a small subset of users would use. And so what’s important about that is. Yeah.

I really learned about like how you trying to build products that will move the needle for, you know, like millions of users in an environment where monetization is very important.

Right. And so like, your product features can directly move revenue and also in an environment where um, sales and marketing is is, is key. And I actually think that as companies become more mature and larger, most of them look like that and they don’t look like Google.

Like there’s like very few companies where like, you can kind of really in a lot of ways, like separate like product from. Monetization from revenue. And so learning those best practices, learning how to like, work very closely with the sales and marketing team to kind of, craft a roadmap.

 especially on the B2B side, understanding like, well, what are the products I need to build that just like, because we’ve like promised these things, what are the products we need to build?

Because this is going to drive the next iteration of revenue and, frankly the most important part, which is like product and product features that you’re going to build that have a delightful user experience. and I think um, a lot of folks.

Loved to you know, like talk crap about the Salesforce user experience and like, Hey, it’s like not the most usable product. And , part of my job was actually to make it more usable and build in more engagement features. But in the end, like, you know, Salesforce is all about being the platform and like creating, you know, ways to kind of capture that ecosystem.

And. Salesforce never viewed themselves as like, Hey, we’re like trying to compete with like smaller up and coming startups. Like for a lot of those that where there is something different than acquiring them, but it was like, Hey, like we have a significantly better experience than like Microsoft or Oracle.

And so, um, how that translates is like, What I’m talking to early stage entrepreneurs, like have them also think about not just what you’re trying to do, like the zero to one, but like, what is the one to 10 and the 10 to a hundred look like? And because you know, both Ben and I have experience with like large companies building product, but also as like traditional like series a series B like kind of investors and how. You know, taking companies from like early stages up to like exit. which is um, been really helpful for early stage founders because sometimes they don’t even know what questions to ask. and what are some of those questions to ask, or how do you work together on things like product market fit? So firstly, we’d like to define what product market fit means for each individual companies. And that’s something that we go through an exercise with them on and we’re not defining it for them.

They’re defining it themselves. And then we’re iterating on it to kind of. You’re like, okay, well, like what does this mean? Like, how many customers, what’s the engagement model? , is it going to be revenue that drives it or like, engagement and, you know, Can you help them define it?

And then from that we can kind of draw like, okay, Leading actions you need to then figure out, like, what is your beta look like? What are the types of customers you’d actually want to go after And so, I think that’s pretty informative and how they like then think about prioritization.

Hmm. And is bling now B2B B2, C. And are there certain verticals that you’re focused on

yeah, I mean, like coming into DCM, my background was more on the B2B side, but while I was at decent odds person also really passionate about consumer. And so I’ve done a lot of deals in consider whether it was, you know, shifts, hens and hers tempo. uh, other kinds of consumer related companies.

And so I, I personally am like, pretty experienced with consumer as well, but I would say that in terms of how we’re thinking about portfolio construction, like the majority of the, bling fund will be, you know, touching me to be in, in some way, I’d say probably two thirds, one third.

And we also, in terms of like sector focus, like FinTech with given my involvement with companies like sofa and bullet con. And travel bank. And then also on the digital health side of, I’d say those are kind of the verticals that we’re, we generally know, like decently well, and we also try to have like product council members in these areas and right now with fund three the size check. And is it, do you describe it as pre-seed or seed.

It’s . Yeah, so, we haven’t like formally announced fund yet, but it’s a, it’s a healthy kind of step up from the last fund, but not like interiorly. So, you know, for two GPS and sweet spot is, you know, call it 500 K to one and a half million for roughly 10% ownership in this current environment.

And you know, that kid. Flex up to maybe, you know, two, two and a half million for um, exceptional founders and things like that. But that I’d say like the really sweet spot for us, probably like a million for 10% ownership. And we’re kind of seeing on average founders at the kind of seed stage dilute between you know, 17 and 25%. And so, um, that gives us opportunity to potentially co lead with.

you know, , another fund and, or . Have like a, our product council members be involved or strategic angels. Because you’ve done so many interesting investments in your career. Like I’d love to pick on some of them and like, can I accuse DocSend is one here’s my question on DocSend like, I would have thought a lot of people would think the Tam was small. I mean, tell me about what you saw there and what, what others didn’t see, I guess.

Well, I think that , there are two things that kind of consistently came up with DocSend. One was that nine out of 10 investors play, ask the question like, well, I can’t Google docs do this. Like, you know, Google docs is like pretty good. And most startups already use like, you know, Google for email and Google for work.

And so like, why don’t they just put This.

on. Google drive and some do, and Google could build up those product features, but toxin had already built it out and they have like years head start on building some of these features that are like purpose-built for a secure document sharing, right.

With fundraising being one key you know, news case. Um, And so I would say there’s one, which is like, you know, competitors and substitutes. And then there’s the second around 10. I think that would tan. My perspective on it was that it was a company that was like very capital efficient.

It was uh, doing a lot of kind of PLG before this term PLG really came out. Like people just discovered it. You know, just signed up for it. It was a very tangible use case. And my perspective was it can all expand from that because, you know, sharing like a pitch deck or something is just one part of like a longer, like larger transaction.

So you have like, e-signatures, you have like, you know, data room, job, all of these things that like docksin ultimately extended into. And I think that, and Russ would kind of, you know, publicly say this as well, but like, you know, I think we all kind of underestimate. How COVID and the current market environment accelerated DocSend’s business.

And so, as the company got larger and the brand got bigger, like all the metrics are like, Up into the right. And so some of the things that were challenges for them when they were at like five, no, they are actually weren’t challenges from them when they’re like 15. And like, as growth of the company as era was growing was actually accelerating.

And so that’s always really exciting to see.

 What about musically? I mean, that’s such or tic talk. I mean, it’s. Such a defining company. Do you still look at social networks? do you have reflections on sort of where

we’re going?

 I think you have to, like, I think like social networks because of the incredible network, that’s like, if it works, it ends up being like lightning in a bottle.

 I think the interesting thing with musically, so, you know, music is a billion dollar acquisition, which at the time was quite large. But you know, in the whole grand scheme of how large tick-tock has become, it’s actually not.

As material. And then um, it could have been um, for, for VC investors, that is

And so I almost view it a little bit, like the don’t know if you’re familiar with like the PayPal eBay kind of saga and like, , PayPal now is. You know, I don’t know, probably a hundred billion dollar mark had come to me more. But you know, it was a one and a half billion dollar acquisition by eBay, but like they kind of needed each other.

Like, it was sort of like you needed kind of E-bay for like PayPal to kind of survive some of those harder years. And I kind of viewed like could musically on its own have become Tik TOK without the capital distribution power of bite dances. It’s. Yeah.

So bite dance provided distribution power, but TikTok was pretty, fundamentally different in the sense that like Facebook and Snapchat, they’re really showing me like content from my friends and TikTok just bombarded me with all this really addictive content from anyone. I mean, how do you characterize it?

How do you think about what you would invest in, going forward? it’s all about there. They had such a large, and it was the same with, by show, by the way, which is the Chinese company that descent invested in uh, very early on, like really focusing on the algorithms and having a massive machine learning team to figure out what is the content that will most resonate.

And it’s really kind of content driven. And I think that would social networks. You have to be doing something fundamentally different than what is currently out there. Like it can’t be that incremental innovation and also has to almost kind of look like something that. the existing incumbent social networks maybe shouldn’t pay attention to because it looks like it’s like niche-y or like it’s like not as valuable or they feel like, Hey, we have such a massive advantage in this area.

Like, why care about This sort of like startup. And so when we look for the next generation of social networks, like there’s just a look a lot different than the current generation. So we’re, we’re excited today is. Around vertical social networks, like around kind of shared interest in some ways I’m like a very, maybe like you know, large enough niches, but can they eventually kind of expand into, into others?

And there’s a few of these in our portfolio, but they’re all like super early stage. And so we shall see but Yeah.

Definitely like when I was um, part of the team that kind of looked at um, musically, like I remember in our partner, because we, I think that the system potential to be the Instagram for video.

Right. And like, what does that look like? Like video is really not a big part of, of Instagram today. And you know, they’re going to focus on this demographic of you know, essentially kind of high school. Girls is uh, but the engagement was already crazy. And what we found was that people actually really liked creating the content and they, uh, friends of theirs really liked consuming the content.

And so then the content became more entertaining. Whereas previously it was more like this is more relevant content to your existing friend group or others that are similar to you.

And the content quality of like the music videos. personally didn’t think it was like super high, but like, it was like, because everybody was creating content. Um, They wanted to see what others were doing.

 Kyle investment we have to talk about would be shift Kelly. You were a huge part of the shift journey from the get go. Curious how you think about being a board member and supporting a company as it grows. And, you know, we had some rollercoaster times Oh, yeah. To say the least.

um, I mean, , I think that like, my philosophy has always been to be very like founder-driven and so finding the very best founders are mission. Mission-driven looking to build very large companies. Doing everything I can to support them But in the end also, like it’s in my mind, it’s important to know, like we’re not, while we you know, we’re friends now, but like, you know, it is a board member and founder relationship. And so that’s one that like where we uh, as board members need to hold. The founder accountable and be that voice of reason.

And so that was always my philosophy and you know, mentality going into board meetings, which is like, it’s not about just. sitting there just being like a cheerleader, like it’s about like, Hey, like let’s look at the things that are working and that are not working. And how do we kind of improve kind of collectively.

And I, I personally felt like the shift board was phenomenal. I mean, there are just like some great folks on, , there who personally I learned a lot from and So I thought it was a great board. Not, Not all boards are like that many as you’re probably aware. So

Yeah.

I just heard Emily Melton who was on the board. She said my role was to be a stress absorber, not as stress causer. I really liked that.

that’s great. And Emily is nothing. One of the, folks that I thought was like phenomenal And I think that.

um, The other Aspect of kind of, being a good board member I think is to always be available to your founders, obviously like within reason, but always try to.

Optimized for a founder’s time, like in terms of like, Hey, if they, can meet at this time, I’ll always try to make it work with their schedule rather than kind of have the chains around. And that’s one of the things that I’ve noticed uh, It seems like the bar is really low, but I have found that like certain VCs, like they just kind of optimize for their, their schedule.

And like for me, I mean, I’ve been a founder before. I think being a founder is probably like 10 X harder than being an investor. for sure my partner, David Waxman is like, one of the things we were always going to do is we’re going to be on time to every meeting.

Like, that’s a pretty simple thing. We’re just always going to be on time.

I totally agree. Like, and these are some things that like I, I feel. Were considered acceptable, like, 15 or 20 years ago, I’ve mentored just like not acceptable today. do you want to talk about any themes that you’re really excited about? I know we don’t have a ton of time or should I, did we already cover a lot of.

Well, I would say that, , just really quickly on the beam side, like I’m really excited about embedded finance and then kind of like the active, deep bundling of like certain.

I’d say like very, very large companies that have like multiple business lines and we’re that generally falls into like the vertical SaaS space. And so I continue to spend quite a bit of time in those two areas, but like just stepping back, like we tend to be very founder driven and so like, we’ll look at a lot.

Um, But talk to me for a second about an embedded finance and just, what does that look like for traditional software to add in payments? Like what are you seeing there?

I think it’s a huge opportunity when you’re already a trusted software vendor and they’re using then somebody else to handle some other aspect of financial services, whether it’s lending, whether it’s payments, whether it’s accounts, receivables these kinds of areas.

And so I think that. A big opportunity for startups to build best in class, essentially. They’re like, you know, API platforms that integrate with software providers to focus on specific verticals. Okay. A few more personal questions, Kyle, how are you and Ben similar or different?

Uh, I think that we have similar kind of work ethics, similar kind of perspective on reading founders. So I would say they would probably like 80% kind of similar in that way. I would say that Ben probably is a little bit more like how I described this. I found her is either like loved him or like, it’s just. Their cup of tea. And so like, and I think that those that like loved him or like absolutely loved him.

And those are not his cup of tea. It’s like, Yeah.

it’s probably not for me. Whereas I think that I’m a little bit like maybe not as much on that spectrum, ,

No, I think of you as like super smiley and sunny and a great fit for LA. I’m so glad you’re here.

Yeah. Me too. Let’s hang.

Yeah. Let’s hang in LA I’m I’m glad for the LA ecosystem that you’re here no, the LA ecosystem super exciting. And I think that like, there’s this more and more folks, whether It’s investors or founders or , unicorn employees like moving here. And so it’s an, it’s a very exciting place to be.

Cool. Well, Kyle, thanks for coming on the podcast.

Yeah. Thank you for having me. This has been great.