The first one relates to management. Does the candidate firm have a product-centric team that can continue to build on the differentiation of the product? Primarily sales-driven teams in companies that are going to need to iterate on their product a ton means there may be a disconnect.

Aspart of our series about “5 Things I Need To See Before Making A VC Investment” I had the pleasure of interviewing Woody Marshall.

Woody Marshall is a Partner at growth equity firm TCV. He focuses on investments in the FinTech, internet, online travel, and digital media and entertainment industries. He serves on the boards of directors including Built, GoFundMe, Nerdy, Newsela, Payoneer, Sojern, and Spotify. His other active investments include Airbnb, Hotmart, Netflix, Nubank, and Peloton.

Thank you so much for joining us in this interview series! Before we dig in our readers would like to get to know you a bit. Can you please share with us the “backstory” behind what brought you to this specific career path?

Iwas a math and economics major. So, when I got out of college, I knew… hardly anything about business! But by happenstance and an introduction from somebody at the school I went to, I got into a corporate finance training program. One of the things I was attracted to, was the idea of growing businesses and that led me to go to graduate school, where I got introduced to a start-up investment firm in technology services and in software.

This was in 1995 when the internet was just being commercialized. I figured this was a great way for me to see companies that that could be interesting to join. I was at this firm for 12 years before one of my very good friends asked me to come over to TCV. I’ve been here for 14 years now.

Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

I really liked The Boys in the Boat for various reasons. It is about the 1936 US Olympics gold medal winning heavyweight rowing crew team. Rowing is perceived as the sport of fancy school regattas, but the crew team for Berlin was from the University of Washington. At that time, the West was still the frontier, and a lot of these kids came from logging towns, farms and little fishing villages so it’s a great account about perseverance, grit, and determination. It’s a wonderful story, and it has a great life lesson that we always face adversity and self-doubt.

Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?

I’m a bit of a sports guy and think there are a lot of parallels between sport and business. One quote I’ve been thinking about a lot lately is from Wayne Gretzky: “You miss one hundred percent of the shots you don’t take.” Companies should be bold and try new things. Investors should also think about the positives and upsides of opportunities as opposed to being paralyzed about what can go wrong.

How do you define “Leadership”? Can you explain what you mean or give an example?

Leadership is not just about the person in front hollering about encouragement. A leader understands that they can’t do everything on their own. Good leaders empower people around them to help them be their best by having a healthy sense of empathy. If you create a culture like that then you’ve created the team or the band that everybody wants to join.

Whether you look at Daniel Ek at Spotify, Brian Chesky at Airbnb or John Foley at Peloton, what strikes me as most powerful is the empowerment, the empathy, the conscience they have for their position in the world. They are not pounding their chest, talking about all of their accomplishments.

When you think about what happens when the world gets choppy, people want to follow authentic leaders that they believe in. These businesses have been growing, partly because of the business model, but I believe a lot of it is also about the kind of leaders they are.

How have you used your success to bring goodness to the world?

There are certain things I feel passionate about. The environment is one. My wife and I invest in solutions that will have long-term benefits. We’re involved in a number of local environmental organizations focused on building sustainability. We’re trying to invest in solutions where you give money to farmers to do something different, risk sharing with them to have them try new things that over time can be sustainable with all shareholders.

Ok thank you for that. Let’s now jump to the main part of our discussion. The United States is currently facing a very important self-reckoning about race diversity equality and inclusion. This is of course a huge topic. But briefly can you share a few things that need to be done on a broader societal level to expand VC opportunities for women minorities and people of color?

DEI is a big priority for us — inside our firm, within our portfolio, and across our industry. There is still a lot of progress to be had. Recently our portfolio company Rent the Runway went public with a female CEO, CFO and COO — and there just are far too few of these types of stories. We already know that the best performing companies are those that have the most diverse teams and boards. The scariest thing is that without diversity, you don’t know what you are missing. You need to have many points of view at the table. We have to get way more creative about creating access to our industry for women and people of color and, frankly, to retire the accepted cultures and environments that do not support inclusion.

Can you share a story with us about your most successful Angel or VC investment? What was its lesson?

In the investing business, the home runs are from the non-consensus bets that you make. When we invested in Netflix in November 2011, pundits were surprised and perhaps a little dismayed: the company was charging for both DVD delivery as well as streaming, which looked like a massive price increase. In that case, a lot of our success was about having history with great leaders. Netflix’s Reed Hastings has singularity of focus, purity of vision, and he believed that the streaming business was important and that DVDs could be replaced in the long run… As in that case, a lot of times growth in tech is around the uniqueness of a founder, the team and the culture that they’ve been able to build.

We’ve been lucky to have partnered with great founders and great teams, for sure. But it’s also about encapsulating a customer-centric approach to building a unique product, and then figuring out how to scale that globally. What was the initial thing that got the consumer excited? And how do you take something that worked in a focus group of one or two or three and get to 400 million users world-wide?

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

Technology moves so fast: just because you’re king today doesn’t mean you’re king tomorrow. You have to continue to deliver. If you don’t focus on creating and maintaining unique and magical value for everybody involved, your success can be very fleeting. Sometimes, in order to stay on top of what the market wants, you may have to cannibalize or significantly disrupt your existing business. For a lot of CEOs, that can be really hard to do.

When I think about things that didn’t work out, there were some exogenous factors that happened with markets — but a lot of times, there were companies that lost the pace of execution for providing a unique solution and value to their end user.

Can you share a story with us about a problem that one of your portfolio companies encountered and how you helped to correct the problem? We’d love to hear the details and what its lesson was.

As you scale a business into new countries, especially emerging companies with first-time CEOs, you’re going to run into situations that you’ve never encountered before. I think the responsibility is to help someone make a better decision faster, as opposed to solving the problem. But when you run into, say, the challenge of scaling internationally, relevant specific experience is going to be remarkably valuable.

Obviously, some investments have not reached the heights that we had wanted them to. But we learn from experience, and we have developed some pattern recognition over more than two decades to support businesses in playing the long game.

Is there a company that you turned down but now regret? Can you share the story? What lesson did you learn from that story?

There are some that we initially didn’t get comfortable with that we eventually got comfortable with. We flailed around a little bit early on with Peloton and Airbnb; eventually, we made the investments which is great, but we certainly could have been earlier.

Super. Here is the main question of this interview. What are your “5 things I need to see before making a VC investment” and why. Please share a story or example for each.

The first one relates to management. Does the candidate firm have a product-centric team that can continue to build on the differentiation of the product? Primarily sales-driven teams in companies that are going to need to iterate on their product a ton means there may be a disconnect.

Secondly, is it an attractive market? I think this is where people get things wrong all the time. This was the concern Peloton kept hearing in its early days: “It’s a bike, it’s expensive, it’s a really small market.” One of the first analysts that wrote an investment report on Netflix thought that they would be lucky to get to 500,000 paying subs. They have over 200 million globally today.

Thirdly, is it already a compelling product or service? We don’t invest before commercial acceptance, so we talk to customers. It’s fundamental to find out what is the value that is being created. Is it durable? How differentiated do you think the business is?

The fourth thing I look for is culture. There must be an in-house culture here that fosters innovation and collaboration and allows for failure on the way to success.

Finally, for me, is the expression “is the race worth running?” Can you create something globally? Our investors are looking for solid returns. There are a lot of businesses that have grown that have never proven they can create any margin — profitless prosperity. Or is there an economic outcome that that could be very attractive?

At TCV, we’re always going to invest in things like product and technology and sales and marketing. But you want to believe that, over time, if you’re successful, there’s a compelling outcome that should drive the returns that your investors are looking for.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people what would that be? You never know what your idea can trigger. 🙂

I believe education is one of the things that can drive mobility and collapse some of the inequities in the world. There are remarkable stories about students who were struggling who built a special relationship with someone that took the time to help, and the end result is a story of success. I love those stories.

But it is a personalized experience, and the way you scale that personalization so more learners can benefit is with educational technology. It is a really big idea and opportunity. That’s a daunting task and there are lots of things that stand in the way, but I do think that over the long term tech-enabled personalization and so more societal good, is going to be hard to stop.

We are very blessed that some of the biggest names in Business VC funding Sports and Entertainment read this column. Is there a person in the world or in the US whom you would love to have a private breakfast or lunch with and why? He or she might see this. 🙂

As a sports fan, I’d have to put Sir Alex Ferguson at the top of the list. I’d love to hear his thoughts on management and leadership, but more importantly his views on what we can do to get Manchester United back to the top of the Premier League!

This was really meaningful! Thank you so much for your time.