Ashmeet Sidana, chief engineer and founder of Engineering Capital, invests in startups with technical risks. He gives authentic examples success and failure stories from his portfolio of 20 startups. Education transformed his life starting in a rural village in India to the Silicon Valley.
Ashmeet Sidana, chief engineer and founder of Engineering Capital, invests in startups with technical insights. He gives authentic examples success and failure stories from his portfolio of 20 startups. Education transformed his life starting in a rural village in India to the Silicon Valley.
So clearly it was a very large effort, which had tremendous promise in the eyes of many smart people. Unfortunately, that company failed. We were not able to build a sustainable business, even though we had significant revenues at one point. The competition was terrific. The competitive landscape was terrible.
And eventually the company got sold for nothing and I lost all my money.
[00:00:25] Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. Today's guest is Ashmeet Sidana, founding partner at Engineering Capital. He calls himself the Chief Engineer.
He's the only venture capital investor with that title. We talk about how he came from a rural village in India, from a farming community, and how his life has transformed through education. He now lives in the Silicon Valley and he invests very early in companies that have technical risk. He gives examples of startups that have worked really well when he worked with entrepreneurs to help them build a business with deep technical problems that they wanted to solve.
He also gives examples of companies that didn't work well and what he learned from that experience. We also talk about what needs to change in venture capital. To make it possible for everyone to enjoy the upside off startups that become big in the future. Ashmeet, welcome to The Sure Shot Entrepreneur.
[00:01:52] Ashmeet Sidana: Thank you, Gopi. It's a pleasure to be here
[00:01:54] Gopi Rangan: today.
Tell us about yourself, starting with your childhood and where you grew up.
[00:01:59] Ashmeet Sidana: Gopi, I work as a venture capitalist, but at heart, I'm an engineer. I grew up in India. My father was a farmer. We lived in a very rural part of India in a village, a very primitive existence.
And thanks to the magic of education, I live here in Silicon Valley now and get the privilege to work with some of the smartest people who really want to change the world, investing in some of the cutting edge technologies in the world. So that's the luxury that I'm privileged that I have now.
[00:02:29] Gopi Rangan: Where in India did you grow up?
[00:02:32] Ashmeet Sidana: My father was in Rajasthan, small village, very rural part of Rajasthan which is a relatively poor state in India itself. We were right in the desert, in District Ganganagar, Tehsil Anupkar, near station Kalyankot. Most people could not imagine something as rural and as distant from the modern India. Did
[00:02:55] Gopi Rangan: you ever imagine that you'd be in the Silicon Valley as an engineer and now as a venture capital investor running your own firm?
[00:03:03] Ashmeet Sidana: It was inconceivable for me. I had no conception of the world when I was a child of what it looked like. We would listen to shortwave radio and listen to the news from the BBC and Voice of America and Radio Moscow and just imagine what the world must be like outside while we were quite literally plowing our fields with camels, living in a mud house with no running water, no electricity, just a completely different concept of life.
The way I like to dramatize it sometimes is that I have seen 5, 000 years of human progress with my own eyes.
[00:03:40] Gopi Rangan: That's incredible. I can relate to some of this, but I can see that coming from a rural place with so much poverty around, this is a dramatically different world that you live in. It's a massive change for you.
[00:03:52] Ashmeet Sidana: Yes. And again, it was only enabled because I was very lucky. My parents were educated. And even though there was no education available near where we were, eventually I made my way to Delhi. From Delhi I came to the U S, I came to Silicon Valley, ended up at Stanford. And then have never left after that.
I've lived within a few miles of Stanford and really enjoyed the luxury and the privilege of being in this unique ecosystem that Silicon Valley is. It really is a very special place, and there's a reason that there is no other Silicon Valley in the world.
[00:04:24] Gopi Rangan: I see that you're a loyal Silicon Valley resident. But how did you start Engineering Capital and how is your investment philosophy different from other venture capital firms?
[00:04:34] Ashmeet Sidana: Be careful with that word loyal, because while I love Silicon Valley and I do believe it is a very special place in the world, this specialness doesn't last forever. Once upon a time, Detroit was the most innovative and interesting city in America. And before that, Pittsburgh was, and so these things change.
And there's no guarantee for the long term in terms of where it will be. And right now we are actually going through, I think, an existential crisis in Silicon Valley, but that's a broader story. In terms of my philosophy, as I described myself, I'm a very early stage investor, and I like to invest in software companies that are taking technical risk. Believe it or not, most technology companies don't take technical risk. My definition of technical risk is very simple. In other words, can it be built? So if the answer is "yes, of course it can be built", then by definition, there is no technical risk. I look for companies where the answer to the question, can it be built is "maybe, maybe not".
[00:05:35] Gopi Rangan: How does this translate in real life? Can you give us an example of a company that has that technical risk and it's scary for other investors?
[00:05:42] Ashmeet Sidana: Yes, several companies in my portfolio will demonstrate this. So let's take an example of a company, V Function, where I was very lucky to be the first investor working with an entrepreneur, Moti Rafalin, who wanted to solve the problem of large monolithic legacy programs running in the cloud.
The cloud has been a big trend, and the reality is 90 percent of the software which exists is not in the cloud. These are legacy programs which have been written over years and decades. And an enterprise can't just wholesale lift and shift it into the cloud. And even if it did, it wouldn't get any of the benefits of the cloud.
So the problem that Moti set out to solve was how can you take a large monolithic program Automatically break it up into small chunks such that you can containerize it, scale it, make it a cloud native architecture and get all the benefits of the cloud without having to do a manual lift and shift process.
And that is the technology that vFunction has built.
[00:06:47] Gopi Rangan: So when you meet entrepreneurs like that, how is the initial interaction? What do you look for? What questions do you ask?
[00:06:54] Ashmeet Sidana: Despite my focus on technology and technical risk and obviously working with mostly engineers, at the end of the day, companies are built by people.
Entrepreneurs who build successful companies are very special people. They have a special set of attributes. They are, of course, intelligent. They are, of course, hardworking. They are also risk takers. They are also creative thinkers. They are people who have a special knack for understanding where the market is.
And so for me, every meeting starts with getting to meet the person. Who is the person? Who is the leader who wants to go and take on this extreme challenge of building a company from scratch? I always say that, can you imagine an Apple without a Steve Jobs? Can you imagine a Microsoft without the Bill Gates or a Facebook without Mark Zuckerberg?
So, who is the person who can be like that, who thinks like that? And that's where the conversation for me always starts. Though, of course, eventually I'm looking for these amazing technologies.
[00:07:55] Gopi Rangan: This is very interesting. On one side, you're looking for some really deep technical problems to solve. And on the other side, you're also trying to connect with the entrepreneur at a human level.
How does the story of vFunction play out?
[00:08:09] Ashmeet Sidana: So when we started vFunction, most people we went and talked to said this was impossible. This is a very hard problem in computer science. Arguably, this is close to the halting problem, level of complexity, and it's not susceptible to the types of approaches that we were describing.
But Moti and his co founder, Amir, they did some very good brainstorming, came up with some approaches that I got comfortable had a high likelihood of success. Again, there's no guarantee that it would succeed, but there was a high likelihood of success. We started on that journey, and it took them two years of hard technical development, very frugal, didn't burn a lot of money.
They knew they were solving a hard problem. Today, I'm very proud to say that we have got it running in production. There are some very large financial institutions who are running us in production and getting the magic of digital transformation of being able to accelerate their journey from on premise legacy applications into the cloud by an order of 10 or even 50x in some cases. We've been able to demonstrate how quickly we can move.
[00:09:16] Gopi Rangan: Wow. A small company making a dent in the legacy world of financial services that this is a theme that we've seen that's growing really big in the past few years and great to see a success story here.
You also call yourself a chief engineer. You're the founding partner at Engineering Capital. You're a venture capital investor. Why do you call yourself chief engineer? I'm an engineer myself, so I'm really curious. That connects with how you engage with entrepreneurs and the kind of work that you do to help them.
Am I right?
[00:09:47] Ashmeet Sidana: That's exactly right. There's multiple reasons why I call myself chief engineer. One, of course, for exactly the reason that you described. Which is that most of my practice is working with people who are deeply technical, who are, by definition, engineers, not necessarily by qualification. In other words, they don't have to have a degree in engineering, but they have to think like an engineer.
They have to be problem solvers who are steeped in technology, who are intrigued by the capabilities of software. That's the kind of people who I think of as engineers. And I think of myself as one of them. So that's one reason. The second is a little bit of a joke, a little bit of a pun. The name of my phone is Engineering Capital.
I call it venture capital for engineers for the reasons that I just described. But also. Because as a venture capitalist, my job is to engineer capital. In other words, put a little bit of capital in and get a lot of capital out. And so it's a little bit of a pun on all of those and hence chief engineer.
[00:10:43] Gopi Rangan: I like that. You're engineering both technology to build products and also you're thinking like an engineer when you manage capital.
[00:10:51] Ashmeet Sidana: There are hundreds of Managing directors and general partners in Silicon Valley, but I believe I am the only chief engineer working as a venture capitalist in Silicon Valley.
[00:11:01] Gopi Rangan: I remember in the early days of my career in venture capital, when I met CTOs, they are so used to meeting business folks and investors, so they would dumb things down to a level where it's easy for those people to understand. I would have to tell them that, you know, I was an engineer and I've actually used some of the tools that you're describing and you can actually go a little deeper.
I often read the papers or patents that they've published, so it makes it easier. I found it a struggle. Every conversation, I had to literally convince them to, it's okay, you can go more technical on me. I realized what was preventing them from doing that was my dress code. I used to dress up like a businessman, and then I realized that that's preventing them.
So I used to dress down, you know, go in t shirts and jeans, and then it made it easier for them to relate to me. So there are some minor tweaks that we need to do to adjust to the entrepreneurs.
[00:11:55] Ashmeet Sidana: A great example of how subtle the venture capital business can be and how careful you have to be when you think about the nuances of, in this case, the interaction between a VC and an entrepreneur, but also in terms of how companies are built, how fragile and delicate an idea is when it starts before it becomes a mammoth organization within five, 10 years that can happen.
And so it can be very subtle. I'll give you another example from the engineering version of how you can interact as a VC with entrepreneurs. There's a famous saying that if you want to understand something, you can ask someone why; the seven why's. Like, if you ask them why they did something, then why, then why you get to the root cause of where something is coming from. The engineering version of that is the seven how's.
In other words, if you ask someone, "well, how are you going to build this? And then how will you do that of each of the sub pieces and then how, and how, very quickly you can get to the root of where the true technical innovation is. Is there something really special that is being done technically?
[00:12:58] Gopi Rangan: Give us, uh, about the example.
How was, uh, the initial discussion with the founders when you met them? What were the, hows, uh, you asked them?
[00:13:07] Ashmeet Sidana: Understanding how an entrepreneur wants to solve a problem can often lead to some special insights, both to me as a VC, as an investor, but also to an entrepreneur to understand what makes them special.
So let's take the example of Menlo security. This is a company that I'm proud to say I was the first investor in, and they have grown dramatically, very quickly. We recently announced a very large financing led by Vista, a hundred million dollar round that Menlo raised. So obviously it's a very large corporation today and very proud to be the investor there.
However, let's recognize that when the founder, Amir, came to me, he came with the observation that antivirus was broken. very much. Antivirus was really not solving the problem of how we access the internet. And he was like, I think I have a better alternative. He came up with this concept of web isolation.
The idea was that we would somehow isolate a computer from the web, yet allow people to see what is happening on the web, sort of like a TV. We never worry about catching a virus, I mean a computer virus. By watching a TV. Yet, we worry about catching a computer virus when we go on the web. Why? In both cases, we are just watching content.
Content is being delivered to us. And so how do we create this web isolation layer? He invented this idea. Menlo Security has very successfully implemented it. And now they have built a large business behind it. And that's how great companies are built from small ideas.
[00:14:41] Gopi Rangan: This is a great example. Looks like the company has been growing very quickly and has become huge.
What are some themes that you've seen across many of these companies you've invested in the past? Are there things that entrepreneurs do to make it easy for you to understand their vision and their story?
[00:14:58] Ashmeet Sidana: Not always. Great entrepreneurs are also great storytellers. Great entrepreneurs are able to take the problem that they're solving, the market opportunity they are seeing, the vision that they want to pursue, and are able to express this in ways that a lot of people can understand.
Steve Jobs famously had the reality distortion field around him. In other words, he was able to tell a story in such a nice way that people felt that they were seeing an alternative future when they were talking to him. So that is an amazing thing if you could do it, but let's face it. We are not all Steve Jobs.
We aspire to be like him in some cases, or at least certain aspects of him. So what I tell entrepreneurs is remember that's a learned skill. That's not something that Steve Jobs had on day one. You can go back and watch YouTube videos of Steve Jobs in 1980, 1984, 1985, the Mac is being launched, the original Apple has been launched. And you can see how he has grown as an executive who is able to articulate a technical vision to a broad audience.
So it's a very important skill. It's a learned skill. And what I'm looking for, because I'm such an early stage investor is an entrepreneur who has both the desire and the capability to learn that skill. They don't have to have it today. If they have it today, that's amazing. That's wonderful. And of course, I'd be even more excited to work with someone who has that.
But as long as they want to undertake that journey together, I'm interested in working with them.
[00:16:26] Gopi Rangan: Storytelling is a great skill to have. Typically engineers are not great storytellers, but that skill can be very powerful in the journey of an entrepreneur, especially if they come from an engineering background.
How many companies have you invested in so far through Engineering Capital and at what stages do you like to get involved?
[00:16:46] Ashmeet Sidana: My current portfolio at Engineering Capital is, is just over 20 companies. I'm very proud to say that I'm the first significant institutional investor in every single one of these companies.
In terms of stage, the way I like to describe it is, it is never too early for me. It is often too late. I'm happy to meet an entrepreneur even before they have an idea, even before they have locked down exactly what they're going to do. And I will help them craft that message, help them identify product market fit, put together an initial plan, and then write them the first check. That is the stage that I excel at, and that's what I really enjoy doing at Engineering Capital.
[00:17:25] Gopi Rangan: Yeah, meeting entrepreneurs at such early stages, it's really fulfilling because the small contributions that we make has a huge impact on the way they choose to build a company.
I like doing that as well. I'd like to meet entrepreneurs even when they are in their current jobs and they're still thinking about starting a business and they haven't jumped yet.
[00:17:45] Ashmeet Sidana: It's confusing to entrepreneurs because many people will describe themselves as early stage investors and yet the definition of what is early changes quite dramatically from firm to firm. Because most investors, and let's face it, most money is concentrated in Wall Street, in the public markets, hedge funds, even private equity. And for them, what is early stage is very different to an individual person who is thinking of starting a company. So a series B investor is early stage relative to a growth stage investor, a pre IPO investor who is early stage relative to a public markets investor. And so it's really important to distinguish between different types of early stages.
I am the earliest of the early stages, where the companies are literally many times incorporated with my checks. So multiple instances where companies were incorporated with my checks from me.
[00:18:41] Gopi Rangan: You're a true venture capital investor. This is the genesis of so many great stories to start. I'm also curious to hear among all of these success stories, do you have an example of a story that really didn't go the way you expected and what happened?
Do
[00:18:56] Ashmeet Sidana: I really have to do this, Gopi?
[00:18:58] Gopi Rangan: The stories are talked about very openly and people are always curious to hear.
[00:19:04] Ashmeet Sidana: No, I'm happy to share it because there are great lessons to be learned from success and also from failure. And one of my great failures in a previous fund that I used to work at was a company called PanoLogic. I was the first investor, very early stage, working with two terrific entrepreneurs who then hired an excellent CEO to build a product in a market that we thought was very large. They were building a product for the VDI market. Then I was joined by several good investors along the way, including Goldman Sachs, Mayfield, et cetera. All of them invested in the company raised over a hundred million dollars over its journey.
So clearly it was a very large effort which had tremendous promise in the eyes of many smart people. Unfortunately, That company failed. We were not able to build a sustainable business, even though we had significant revenues at one point. The competition was terrific, the competitive landscape was terrible, and eventually the company got sold for nothing and I lost all my money. So these types of failures are unfortunately a part of the journey of venture capital. Here's a company that failed despite the fact that we had excellent entrepreneurs, we had an excellent technology, and we were solving a real problem in the customer's needs.
And yet we were not able to build a sustainable business. Is there
[00:20:26] Gopi Rangan: anything you would do differently if you see a similar situation again?
[00:20:31] Ashmeet Sidana: I think with the benefit of hindsight, it's obvious that it was mission impossible. That company, I think, strategically the landscape was such that we could not have won.
Is that to say that if we had a different go to market, a different team, a different technology, a different timing, could it have worked? Maybe it could have worked. I mean, it's very hard to do this A/B type of test in a situation like this. But given the amount of effort and money and time that went into that, I think it was the wrong place at the wrong time for that opportunity.
[00:21:01] Gopi Rangan: In the world of venture capital, we face a lot of failures, more failures than success stories. We constantly learn from these experiences. We have to take the risk and we cannot be conservative with that, but that's what makes this line of work very, very exciting. What are some things that entrepreneurs do to make it easy for you to work with them?
[00:21:22] Ashmeet Sidana: Entrepreneurs come in all different flavors and I don't think it's their job to make it easy for me to work with them. Their job is to build a great company. My job is to make it easy for them to work with me. In other words, I'm in the service business. I am here to help an entrepreneur achieve their vision, build a great company, take the risks that we were just talking about earlier and modify those risks in a way that it reduces them. It increases the odds of their success. If that's difficult work for me, that's part for the course. Look, venture is not an easy business. Yes. It's glamorous.
Yes, it's famous. And it seems very attractive from the outside, but it has its downsides. It can be a tough business. There are failures as we were talking about earlier. It's hard work. Most VCs work much harder than entrepreneurs realize in terms of how much effort it actually takes to build a successful fund, to have successful outcomes in the face of all the risks that we take.
I don't believe that the burden belongs to the entrepreneur. The burden belongs to the venture capitalist to make them easier to work with for that entrepreneur who is himself or herself taking a very difficult journey, which is to bring this company.
[00:22:38] Gopi Rangan: Yeah. Some of the best VCs I've worked with have a similar approach.
They view venture capital as a service business with capital attached to it, but it's mainly a service business, just like any other industry is. Do you have pet peeves? Are there some things that you don't like when you hear a pitch or when too much marketing happens and they're trying to package a story really well.
[00:22:59] Ashmeet Sidana: I would say, I'm not sure if I would call it a pet peeve exactly. But one of the things which is a turnoff for any VC, including for myself, is when someone is not willing to share what is it that they are doing that is truly special? Now let's recognize great entrepreneurs may have great ideas. There's proprietary technology and you want to protect that as an entrepreneur.
But sometimes entrepreneurs are unnecessarily suspicious of the relationship with the VC. And the unfortunate truth is that in the past there have been incidents when VCs have abused this trust. And so entrepreneurs have to be careful. And I'm not. In any way, suggesting that entrepreneurs should not be careful when they think about what is proprietary, what is special, what makes them different.
But I think sometimes entrepreneurs overestimate how confidential they have to keep it and how to communicate what is special about them without giving away the crown jewels. That is possible. It can be done and with some careful thought, you can come prepared for that. So I would say that's a piece of advice to entrepreneurs is "think very carefully about how you are going to communicate what you are doing without giving away the crown jewels."
And especially at the early stages, especially engineers have often not thought through that. In terms of specific pet peeves, I mean, two minor things I can tell you. One is when entrepreneurs will not mail you a presentation. They sort of have this training that no, you've got to get into a meeting and do the pitch in person.
I can assure you, I read every single email I get myself. I don't have an assistant read my emails or sort emails or do anything like that. And if you send me a deck, I will read the deck. And I can oftentimes save both you and me a lot of time, if you give me a little bit more context on what stage you're at, what problem you're solving, what market you're in, who the team is.
So I would put that in the category of a pet peeve in the sort of 1 to 5 percent of the cases where people will hold back their deck and say, "no, I only want to do it in a meeting." And so then you are forced to make a judgment call just based on the little information you have on whether it's a good use of time on both sides.
[00:25:09] Gopi Rangan: Yes, I actually have a canned response waiting to send to entrepreneurs and they say, "well, I don't want to send a slide deck now. I will send it to you after the meeting." And what I try to tell them is, "look, you live and breathe this every day. So you're traveling at a hundred miles per hour on this idea."
And we're going to come into a meeting and I'm starting at zero. I want to be at least at 10 or 20 miles per hour. I may not even get to 60 miles per hour. By the end of the hour for me to be productive, it really helps if I can align my mind to know what to expect. And the slide deck helps.
[00:25:42] Ashmeet Sidana: That's a great suggestion, Gopi, and maybe I'll steal that and share it with some entrepreneurs in some cases.
My advice to entrepreneurs in this case is make a smaller deck, make a teaser deck, make a deck that you are comfortable sharing if you have a broader audience where you are not sharing the crown jewels of the company, but giving context. So the other person can make a decision about fit, not necessarily about quality, but fit.
Are you a match for the fund, for the strategy, for the stage that the firm is interested in? And you will do both of yourselves a good service.
[00:26:15] Gopi Rangan: If you were to change one thing in venture capital, what would it be?
[00:26:19] Ashmeet Sidana: Probably the biggest thing is a structural advantage to our asset class would be a more dynamic, public market at earlier stages.
What has happened in the U. S. unfortunately is that the public markets have become very far from where venture capital starts. It used to be that you could take a company public at about a hundred to two hundred million dollar valuation, and so the venture capital journey was relatively short and early.
Now, it is inconceivable to take a company at less than a billion or realistically even five or 10 billion valuation. And so that journey has become very long and all sorts of perverse and bad side effects have come in because of this. And so if there's one thing I could change, it would be a functional public market, which could work at earlier stages.
In other words, by the time 500 million, 100 million, 1 billion market cap, and not only at these extremely, extremely large market caps.
[00:27:19] Gopi Rangan: Yes, companies are staying private longer and the earlier stages is also getting stretched out. So access to liquidity will certainly help this asset class flourish much more.
[00:27:30] Ashmeet Sidana: Access to liquidity is one benefit, but also it is transparency. It is also the discipline of being public. It is also democratizing the gains that come from a public company. If you keep the companies private for very long, you are essentially concentrating all of that return into a small number of hands, people like you and me who are lucky enough to work in financial services and can invest in companies like this. If a company is public, then you are democratizing the gains of that company, then the growth that is going to come. Tesla went public at a $17 share price. Today, they are trading at a $600 share price.
All of those gains were enjoyed by people who participate in it freely, because it was a public company. And it's been a tough journey. It's been an interesting journey to watch Tesla. Same thing for Amazon. Same thing for Microsoft. These companies went public at relatively small market caps and have then grown their market cap by 10 or even 100x.
And all of that benefit was available to anyone who wanted to essentially trade shares for pennies in the public market. And that is the great benefit of taking these companies public earlier.
[00:28:43] Gopi Rangan: Very well said. That's true. The access to wealth creation through investments like this democratizes access to prosperity.
This is fascinating, Ashmeet. I really like the conversation. I want to switch to the last segment of this and ask you about your community involvement. Is there a non profit organization or a community activity that you are passionate about?
[00:29:06] Ashmeet Sidana: I am passionate about education because education has had a dramatic impact on my life.
My father helped start a school in the village next to our village. That school, I'm very proud to say is now recognized as a high school. So you can actually graduate from that and get the Rajasthan state board certificate if you go all the way. And we are changing lives with that school. It's in 12 GB, district Sri Ganganagar. If you want to track that school down, but education is my passion and I would teach people how to fish, not just give them a fish by supporting education.
[00:29:44] Gopi Rangan: Education is a great gift that keeps giving and I can attest to that. Education truly transformed my life and my family as well.
And so many others. And it's great to see that you highlight that as your passion.
[00:29:58] Ashmeet Sidana: It certainly changed my life.
[00:30:00] Gopi Rangan: Well, thank you very much. I look forward to spending more time with you and hopefully I have opportunities to co invest. We have already started co investing in a few companies. I hope we find more of those opportunities.
[00:30:11] Ashmeet Sidana: Absolutely, Gopi. I'm looking forward to that.
[00:30:16] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast.
I look forward to catching you at the next episode.