Investor at Techstars
Ahmed is an investor at Techstars Los Angeles and Space accelerator, with a background in the financial industry and experience founding startups.
I bumped around in a lot of different places in my career. I kind of became an accidental venture capitalist. I never intended to become a VC. I didn't come out of a large fund or anything. I was really drawn to early stage. That's where my specialty and career for a large part of it has been and that's what drew me to my current phase.
I grew up on the East Coast, went to NYU and went into finance. I was an investment banker for a number of years, started my career at Merrill Lynch, and then went to a boutique investment bank, executed a bunch of M&A deals. But it didn't really speak to me. I grew up in a household of small business owners. I was always very accustomed to being in front of customers, talking to people, and putting on multiple hats.
And I found my banking job to be very kind of singularly focused. I became the Excel and PowerPoint jockey, and I didn't enjoy that as much. And then I launched my first startup and it didn't go as well. Crashed and burned, learned a great deal, and figured that that's where I wanted to be. Had this crazy idea of moving out to LA, went to business school, and then built another company called Blueprint Software. Had a soft landing with that at Aventure Studio, and then I became an entrepreneur in residence. I built seven companies in the span of three years, everything from robotics, automation, HR software, to CPG companies direct to consumer. That fortuitously led me to Techstars. I connected with the managing director here and he was gearing up to go to four programs a year. At that time, he was just doing one program a year and we just got along really well and that's how I became an accidental investor.
Being exposed to so many different industries and products and categories gave me a real appreciation and sense for the operational challenges that exist, or what are the specific failure points in each of those industries.
So for let's say, deep technology, hard technology. A lot of it is based on the people that you recruit, the initial outlay of the technology. For software based companies, a lot of the failure points are in distribution. You can set up a company pretty quickly. You can build the software, but how do you actually go out and execute and get to your target market? That becomes increasingly hard for consumer companies. How do you even get the attention of your consumer? What is the brand story?
In the position I'm in today, I look at all of those failure points and try to assess the risk for each of those categories as I interview and talk to companies.
I've been in the venture studio space, since 2020. So, formally an investor for just over two years. Being a founder, I've always been very hands on with everything. I want to take ownership of it. I want to run with it and I want to put out the best foot forward or best product in the marketplace. And what you realize as an investor is there's only so much you can control, right? It's not your company. You're working with founders, you can guide them and coach them, but you don't know the answer, right? My answer or advice is only as good as their ability to execute. Instead of giving them a definitive answer and be like, Hey, look, these are the considerations because this is what I've seen from other companies at your stage. That's the transition that you have to make as a founder. You have to be really cognizant of not giving answers, but really providing good feedback and mentorship that founders can grow into over time.
I'm seeing deals being priced at a proper range and things coming back to kind of normal. The biggest change I've seen is the initial round of capital. So that pre-seed round being perhaps the most difficult round of capital to raise. The reason why it's become the most difficult fundraiser, if you go back a decade ago, you had typically seed rounds being that initial round of capital by which a startup would fundraise and then use that capital to grow. What happened then around 2015, you had this new round come in called pre seed. And the reason why pre seed started was because seed stage venture capital firms moved up market. They had initially raised a very small fund of let's say, 10, 15, 20 million, and they had allocated that and had some success and then the next fund that they fundraised was now 50, a hundred million dollars.
And in order to make that profitable for VC, they had to naturally move up because they needed more allocation in the companies. They wanted to write larger checks. And because they wrote larger checks, then you had pre seed come in. And that filled the original seed. What I'm seeing today is that same transition happen. Those pre-seed funds have now had a few exits. They've allocated their capital and they're moving up market and thereby decreasing the amount of capital available to very early stage companies. And that's why pre-seed and that initial round has become really, really difficult. And I think we're going to go through a transition here.
I don't know if we're going to have a pre pre-seed round. We'll probably have something of a more formal super angel or a more formal bridge between friends and family and pre-seed, because that is the gap that I'm seeing. And that's why I think it's the most difficult round of capital to raise.
Luckily at Techstars, we have a pretty distinguishable brand name. We're one of the top accelerators in the world. Every selection cycle, we get anywhere from 1000 to 1500 applications for our LA accelerator alone. And that means that we have to go through these companies. And make sense of them and understand whether or not, they can accelerate, whether they're in the position to be accelerated and whether we can help them along that way. I like so many founders and companies that it gets hard to turn down companies and say, Hey, we don't think you're ready or, Hey, we don't think we can help you.
And it's not necessarily a dig on the company, It's more so a dig on us, right? A lot of venture capital, especially at the accelerator stage is based on our personal networks, our personal brand, and how well connected we are to different ecosystems. And the whole purpose of an accelerator is to help you accelerate your growth.
That presumes that you have some sort of steady state revenue customers. The product is in market and that you want to grow this to a larger base. That's what accelerators are really good at. Accelerators cannot take you at the idea stage and then accelerate you because that's not really a good use of an accelerator.
You're better off bootstrapping until you get to that stage and then go ahead and consider to accelerate the company fundraise. It's always really difficult to say no, and I think what we're good at is business development and growing your company, but that presumes you have something to grow.
Proximity to LA -- not necessarily. For the program, it's 13 weeks over, and we require that for periods of time within those 13 weeks that you'd be based in La. In particular, the 1st month and the last few weeks of the program, as we get ready for demo day. After that, you're free to do whatever you want. If you want to go back to, let's say your company is founded in New York. It's founded in London, wherever, you can go back a lot of times, companies and founders, tend to relocate to LA just given that LA is now becoming a very large and vast startup ecosystem. That's one thing. No proximity required to LA.
The cheap answer is team, team, team, especially at the stage that we're investing in. Pre seed is all based on the founders. Do we believe in who they are? Do they have credibility? Do they have some sort of what's known as founder market fit, right? Have they replicated this problem elsewhere and validated it? And now they're going all in on building this company?
Are they in the right place to take coaching and mentorship? I actually joke that sometimes I feel like I'm a therapist at work because founders come to me and talk to me about very intimate subjects, right? So relating to relationships, relating to their mental and physical health, relating to other personal issues that they deal with on a day to day basis. And for me, it's just talking them through all of those aspects. A lot of times there are founders that we love their company. We love their expertise, but they're not in a place to take coaching and mentorship. Perhaps they have a chip on their shoulder. Perhaps there's some other element. There've been multiple times where we haven't invested in a company. So for us, team is paramount. We look at all the other factors after the fact.
I'd say most investors will say you need two or three founders. And I think that is generally accepted advice. Two founders for the journey. There's a lot you have to do as a founder. You have to build the product, you have to sell the product, you have to talk to customers, you have to continue validating what you're building. The reality is a single founder is likely a red flag. The only instance where I've seen it not be a red flag is let's say you're a serial entrepreneur and you've exited a company. And you are now building another company, but you've hired an executive team that you surround yourself with. And they may not necessarily be co founders in the business, but they're along for the ride to help you build that company.
For me personally, I actually I think there's multiple flavors. You can be a single founder, you can have two founders, you can have three founders, you can have five founders. You have to be certain on what you're looking for and what you're looking to build as a company and not rely so much on investors and their preferences. You need to just be sure on what you're doing and go forward with it. There have been many successful companies that are public today that were founded by one single individual. You just need to have the confidence of getting the right resources, accessing the right points and leveraging that talent.
We had a company by the name of Diagon Technologies. Two founders came from a typical seller builder kind of dynamic. You had someone that was building the product and someone that was selling it. They were building in supply chain and trying to iron out procurement processes for hard machinery. If you think of how EVs are constructed, there's a lot of robots that actually put the vehicle together and the procurement process for how Tesla actually purchases the machines, the robots to actually put those cars together, is a very disjointed and fragmented process.
The reason we knew this is because the founder of that company, Will, he came from Tesla. He had years of experience of being a buyer at Tesla. And he said, Hey, everything is done through either a spreadsheet, through email, through a lot of loose conversations that happen back and forth and nothing is really documented in a concrete way. And that's why we want to build this company so that people have visibility. You can interact with purchasers, buyers and get everyone on the same page. Just given the movement around deep technology, the tailwinds in the marketplace around a resurgence of manufacturing in the US and bringing it on shore that this was a good place to be.
And their dynamic was really great, right? Will was responsible for sales and business development. Shri, the CTO, was responsible for building and doing customer development and really understanding what the pain points were. They just really tag teamed really well. They went on to fundraise a 5 million round earlier this year. And I think other investors were very keen on that sort of dynamic between the two, just having a really good solid team that had knowledge on what they were building.
Old advice from years ago was raise as much money as possible from whomever, investors are just there to give you money. And I think that adage is not true, especially at the earliest stages. You want to find investors that are partners. You want to find investors that really believe in what you're building, the vision of your company. But more than that, they believe in you, right? They believe in you as people. They believe in you as being the right person for this company.
Founders get asked the question, why now, and I always coach founders that why now really means three different questions. It's why this company with this team at this time, right? So you need to cover those three things. Similarly, if you're a founder that receives that term sheet, you should put that back to the investor and be like, why now for this investor? Why this investor at this time with this amount of capital.
I think too many founders get lost in the, Oh, we received a term sheet. Let's sign it. Let's get it done. So we can signal to other investors that we have money and close the round. And that's not a successful way to build a company. Building a company is a 7-10 year project. That requires for you to build a following of people that will look out for you, that will be close confidants, that will give you good, unadulterated advice in the moment you need it. And there aren't too many people like that. So I always say shop around. Don't take the 1st term sheet. You should look to other investors and really learn from what the market is saying.
I'd be remiss to say AI, AI, AI. Because I feel like every company labels themselves as an AI company. AI is a mega trend. I think this will transform many different industries, automate a lot of the manual work, in particular, knowledge workers are doing, and I think it's transformational to the extent that the Excel spreadsheet and these base level productivity applications provided a step change in how we work.
AI is going to provide another step change, probably in a magnitude of more than just one step, enabling and really providing more leverage to knowledge workers so that they're not manually going through a spreadsheet, they're not manually going through a documents, things of that sort.
Other emerging trends. Just generally speaking, if you look at the 2010s, we went through a period of disaggregation. So everyone built sort of a super app. If you look at business and productivity applications, we went from Microsoft word to Google docs, we went from Excel to air table. We went from PowerPoint to Canva, and we had a lot of fragmentation. So we went through all of this disaggregation. I think now people are sort of fed up with all the disaggregation. it is very confusing. The workflows are all kind of mixed up. Everyone's using 20 different things to execute one project. I think what we're going to enter as a mega trend over the next 10 years is a period of aggregation. I think some apps are going to come together, especially when it comes to productivity and business applications. People want simplicity. I'm seeing is a big tilt towards aggregation over the next 10 years.
And then, just to touch on emerging markets, I think one of the 2 emerging markets that I'm seeing a lot of lately is the APAC in particular Singapore region is growing like a wheat. There's a lot of capital that's pouring into that part of the world and a lot of startups now are coming to rise out of there. The other region is the MENA region. So Middle East and North Africa, seeing a lot of very strong technology companies come out of there as well and a lot of capital allocation being driven.
A lot of emerging market companies do look toward the US as a place to grow eventually just because the US is such a large market. And the reason is because the US generally has mature buyers, right? So companies that have very large problems at a mature stage, it's a large population, right? So we're 330 million people and growing, and we have perhaps the largest number of companies in a small concentrated area, and that increases sales velocity that a lot of startups are looking for.
I see a lot of startups that are working on an interesting company, you have the right team, but if your deal is mispriced, an investor will just walk away and say, no, thanks, we have other companies that we can look at.
That's the thing that founders always have to be mindful of. You want to increase the valuation of your company. And I get it, I've been in your shoes. It's a milestone to get some sort of valuation for your company. But what I often advise startups, especially in our programs, is your goal is to not optimize valuation right now. You want to optimize valuation down the road when you're getting closer to an exit. I understand of course, ownership and dilution all take precedents and you have to look out for those things, but I think there's a way to walk in step and not turn off an investor because you priced your company too high and also kind of reserve shares and ownership to you.
Two other issues regarding term sheets, I'm seeing a lot of requirements from VCs around ratchet clauses and liquidation preferences and other filler items, but I think for early stage founders, it's things that they should work with an attorney on and really push back and get more preferential treatment. Seeing 3X liquidation preference at a pre seed round is something founders should stay away from generally.
Go where your curiosity takes you. Be open to different ideas, but really focus on real problems. The popular public advice is follow your passion. And I personally think that's a bunch of BS. I sincerely apologize, but passion will run out, right? You're passionate for as long as you're humanly and physically able to be passionate about something and then eventually it dissipates. I think what's more important is your curiosity about a problem and really trying to innately understand what that problem is and all of the inputs and outputs of a problem. If you can understand that and you find something that's problematic and you can get deep on it, I think that may be a place where you should focus in and kind of zone in for building a company or some startup project in.
Be known for something. I coach and mentor a lot of aspiring VCs as well. There's a lot of smart people out there. There's a lot of people that offer value. You need to have some sort of keen insight, be known for something. Know your superpower and embody it. That's where a lot of aspiring VCs perhaps are missing the mark. Similarly, think about if you're a venture investor, you're investing in the potential for an outsized return. That framework then transpires down when they're hiring a team, right? They want to hire people that can change the direction of their firm. So be known for something, embody it.
For me, I will say my specialty is storytelling, communications, and pitch decks. I've at this point viewed over probably 15, 000 decks. I've built 2, 500 of them from the ground up. And I've studied visual communications as part of my master's thesis. I built a company in this space previously. So I'm innately cued into storytelling and what works and what doesn't work. And that's sort of what brought me into the venture studio world. And then eventually the venture investing world. That was what I was known for is how do you tell a good compelling narrative that gets people to latch on? That's the same advice I would give you all is really have that superpower and play to that strength.
A lot of AI companies that I'm seeing are more or less wrappers or layers on top of foundational AI models and LLMs. Are you really building a deep foundational model? And if you are building a foundational LLM, then you probably likely need to partner with someone that has deep domain expertise to actually build out some elements of that technology. Obviously you're not going to build out the whole LLM. I get it, but there are bits and pieces that you can build that you can showcase to customers, to investors, and other people to get some sort of following. And based on that following and that initial traction, you should be able to leverage that into fundraising down the line. But I think that's the path I would take is really understand: are you building a wrapper on top of something? Are you just connecting the dots or are you building the actual sheet on which the dots and the lines are going to go on? I don't think too many startups are asking that question.
Don't invest in anything you don't understand. It doesn't mean that you have to understand it fully and all the ins and outs of it. But you should be able to outline how the technology works, how the business works, how they're going to make money, and how they're going to get to their customer.
If you don't understand those three parts of it, it's probably not a worthwhile investment. You wouldn't be the best suited to make that investment. You could get lucky, right? Maybe it turns into a unicorn or decacorn, but chances are, if you don't understand it, you're going to not be able to provide a lot of value to the founders. You'll have a tough time introducing them to customers or other people in the industry because you don't have that knowledge or network. In all likelihood, it'll probably just not end up as a successful markup for a startup investment. So that's probably the most valuable thing I've learned.
Don't miss a single AMA. We'll send weekly digest to your inbox. No spam. Unsubscribe at any time.