 Live from Midtown Manhattan, it's theCUBE. Covering Big Data, New York City, 2017. Brought to you by SiliconANGLE Media and its ecosystem sponsors. Okay, welcome back everyone. We are here live, the CUBE in New York City for Big Data NYC. This is our fifth year doing our own event, not with O'Reilly or Cloudera at Strata Data, which was Hadoop World, Strata Conference, Strata Hadoop, now called Strata. Probably called Strata AI next year. We're theCUBE every year, bringing all the great data and what's going on, entrepreneurs, VCs, thought leaders. We interviewed them and bring that to you. I'm John Furrier with our next guest, Greg Sands, who's the managing director and founder of Costano Adventures in Palo Alto. Started out as an entrepreneur himself, the single shingle out there. Now he's a big VC firm on the third fund. On the third fund? Third fund, how much in that fund? 175 million dollar fund. So now you're a big firm now, congratulations. I'm really great to see your success. Thanks very much. I mean, we're still very much an early stage boutique, focus on companies that change the way the world does business, but it is the case that we have a bigger team and a bigger fund to go do the same thing. Well, you've been great to work with. I've been following you, knowing each other for a while. Watch you, left center hill, start Costano, but what's interesting is that I kind of joke and kid you as the VC inside joke about being a big firm, because I know you want to be small and like to be small help entrepreneurs, that's your thing, but it's really not a big firm. It's a few partners, but a lot of people helping companies, that's your ethos. That's what you're all about with your firm. Take a minute to just share the folks, the kinds of things you do and how you get involved in companies. Your hands on, you roll up your sleeves, you get out of the way at the right time, you help when you can, share your ethos. Yeah, absolutely. So the way we think of it is combining the craft of old school venture capital with a modern operating team. And so since most founders these days are product oriented, our job is to think like product people, not think like investors. So we think like product people, we do product level analysis, we do customer discovery, we do, we go right along on sales calls when we're making investment decisions. And then we do the things that great venture capitalists have done for years. And so for example, at Elation, who I know has been on the show today, we were able to incubate them in our office for a year. I had many conversations with Satyan after he'd sold the first two or three customers. Okay, who's the next person we hire? Who isn't a founder? Who's going to go out and sell? What does that person look like? Do you go straight to a VP or do you hire an individual contributor? Do you hire someone for domain or do you hire someone for talent? And that's the thing that we love doing. Now we've actually built out an operating team. So a marketing partner, Martina Lauchenko and Jim Wilson as a sales partner to really help turn that into a program so that we can take these founders who find product market fit and say, how do we help you build the right sales process and marketing process, sales team and marketing team for your company, your customer, your product? Well, it's interesting you mentioned old school venture capital, I'll get into some of the dynamics that are going on in Silicon Valley, but it's important to bring that forward because now with cloud, you can get the critical mass on the flywheel on economics. You can see the visibility faster now. So the game of the old school venture capital is all the same, how do you get to cruising altitude? Whatever metaphor you want to use, the key was getting there. And sometimes it took a couple of rounds, but now you can get these companies with five million, maybe 10 million dollar funding. They could have unit economics visibility, scales in sight, then the scale game comes in. So that seems to be the secret trick right now in venture is don't overspend, keep evaluation in a range that allows you to look for multiple exits potentially or growth. Talk about that dynamic because this is like, I call it the hourglass, you get through the hourglass, you know, everyone's down here, but when you can sneak through and get the visibility on the economics, then you grow quickly. Absolutely, and I mean, it's exactly right. And I haven't heard the hourglass metaphor before, but I like it. You want to basically get through the narrows of product market fit in the beginnings of scalable sales and marketing. You don't need to know all the answers, but you can do that in a capital efficient way, building really solid foundations for future explosive growth. Look, everybody loves fast growth and big markets and being grow into it, but the number of people who basically don't build those foundations and say, go bigger, go home, and they take a ton of money and they go spend all the money doing things that just fundamentally don't work and they blow themselves up. Well, this is the hourglass problem. You have, once you get through that unit economics, then you have true scale and value will increase. That's right. Everybody wins there. So it's about getting through that and you can get through it faster with good mentoring, but here's the challenge that entrepreneurs fall into the trap. I call it the, I think I made it trap. And what happens is they think they're on the other side of the hourglass, but they still haven't even gone through the straight and narrow yet and they don't know it. And what they do is they overfund and implode. That seems to be a major trap I see a lot of entrepreneurs fall into. Well, I got a 50 million pre on my B round or some monster valuation and they get way too much cash and they're behaving as if they're scaling and they haven't even nailed it yet. Well, I think that's right. So there are certainly, there are stages of product market fit. And so I think sometimes people hit that first stage and they say, oh, I've got it. And they try to explode out of the gates. And we, in fact, I know one good example of somebody said, hey, by the way, we're doing great in field sales and our investors want us to go really fast. So we are gonna go inside and my job was to hire 50 inside people without ever having tried it. And so we always preach crawl, walk, run, hire a couple, see how it works, right? In a new channel or a new category or an adjacent space. And I think that it's helpful to have an investor who has seen the whole picture to say, yeah, I know it looks like light at the end of the tunnel, but see how it's a relatively small dot. You still gotta go a little farther. And then the other thing I say is, look, don't build your company to feed your venture capitalist Sego, right? I mean, people do these big rounds at big valuations and the big dog investors say, go, go, go. But you're the CEO. Your job is to analyze the data and say, given what we know, how fast should we go? What's investments should we make? And you've got to own that. And I think sometimes our job is just to be the pulling guard and clear space for the CEO to make good decisions. So yeah, no, I'm a big fan. So my bias is pretty much out there. I love what you guys are doing. Tim Connors at the Pivot North is doing the same thing. Really adding value, getting down and dirty. But the question that entrepreneurs always ask me and talk privately, not about you, but in general, I don't want the VC to get in the way. I don't want them to preach to me. I don't want too many know-it-alls on my board. I want added value. But again, I don't want the preaching. I don't want them to get in the way because that's the fear. I'm not saying that's the same about the VC in general, but that's kind of the mentality of an entrepreneur. I want someone who's going to help me be in the boat with me, but not be in my way. How do you address that concern to the founders who think, not think like that, but might have a fear? Well, by the way, I think it's a legitimate fear. And I think it actually is uncorrelated with added value. I think the idea that the board has certain responsibilities and management has certain responsibilities is incredibly important. And I think, you know, I can speak for myself in saying I'm quite conscious of not crossing that line. I think you talk. You got to do it, you got to build a return. I mean, that's the other thing. No, but ultimately I'd say to an entrepreneur, I'd just say, hey, look, call references and by the way, hear 30 names and phone numbers and call any one of them. Because I think the people who are, so venture capital, know it all in the boardroom, telling CEOs what to do destroys value. It's sand in the gears, it's bad for the company. And so some of my, when I talk about being a pull and guard for the CEO, that's what I'm talking about, which is blocking people who are destructive. And rolling a block for a touchdown, kind of use the metaphor, adding value. That's the key then. That's why I wanted to get that out there because most guys don't get that nuance in the entrepreneur, especially the younger ones. So it's good and important. Okay, let's talk about culture. Obviously in Silicon Valley, I get reading this more in the Waymo guy and that writing it. That's the Silicon Valley. It's not crazy. There's a lot of great people in Silicon Valley. You're one of them. The culture, certainly in an innovative culture, there's been some things in the press. Inclusion and diversity obviously is super important. This whole programmer thing that's been kind of kicked around. How are you dealing with all that? Because this is a cultural shift, but I think it's being made out more than it really is. But there's still our core issues. Your thoughts on the whole inclusion and diversity and this whole programmer blowback thing. Yeah, well, so I think the, so first of all, really important issues. Glad we're talking about them and we all need to get better. And to me, the question for us has been, what world do we play? And because I would say it is a relatively small subset of the tech industry and the venture capital industry. At the same time, the behavior that has become public is appalling, right? It's appalling and totally unacceptable. And so then the question is, okay, how can we be a part of the standup part of the ecosystem? And some of which is calling things out when we see them though frankly we work with and hang out with people where we don't see them that often. And then part of it is, how do we find a couple of ways to contribute meaningfully? So for example, this summer we ran what we call the Coast to No Access Fellowship intentionally trying to provide first opportunity and venture capital for people who traditionally haven't had as much access. We created an event in the spring called Seat at the Table, really particularly around women in the tech industry and it went so well that we're running it in New York on October 19th. So if you're a woman in tech in New York, we'd love to see you then. And we're just trying to find a couple of places. You're doing it in an authentic way though. You're not really doing it from a promotional standpoint. No, we're just. It's legit. Yeah, we're just trying to do, pick off a couple of things that we can do so we can be on the side of the good guys. So I guess what you're saying is just high-five integrity and be part of the solution not the problem. That's right. And by the way, both of these initiatives were ones that were kicked off in late 2016. So it's not a reaction to things like binary capital and the problems at Uber, both of which are appalling, but. Stuff awareness is critical. Okay, let's get that to the nuts and both of the real reason why I wanted you to come on. To find out how much money you have to spend for the entrepreneurs that are watching. Give us the update on the last fund. So you got a new fund, you just closed. The new fund. Fund three, you got your other funds that are still out there that have some funds reserved. Which is only. So what's the number of them out? How much are you writing checks for? Give the whole thesis. Absolutely, so we're an early-stage investor so we lead Series A and seed financings in companies that change the way the world does business. So up and down the stack, a business-facing software, data-driven applications, machine learning and AI-driven applications. But the filter is changing the way the world works. Yes, but in particular the way the world does business. You can think of it as a business-facing software stack, right? We're not social media investors. It's not what we know, it's not what we're good at. And it includes security and management and the data stack. And it applies an emerging tech. That's right. And every crazy idea in between. That's right, absolutely. And so we'll participate in or lead seed financings, as most typically are half a million to maybe one and a quarter. And we'll lead Series A financing, small ones might be two or two and a half million dollars at the outer edge, just probably a six million dollar check. We're just opening up in the next couple of days, a thousand square feet of incubation space at World Headquarters in Palo Alto. Nice. So Elation, Acme Ticketing, and ZenIQ are companies that we invested in. What location is that gonna be at? That's near the Fills in downtown Palo Alto 164 staff. And those three companies are ones where we effectively invested at Formation and incubated them for a year. We love doing that. I have to hang out at Fills more and get the data. Absolutely. And so you got some funds. What else do you have going on? 175 million? Yeah, so fund one was a $100 million fund and then fund two was a $135 million fund. And the last investment of fund two, which we announced about three weeks ago, was called Roadster. So it's e-commerce enablement for the modern dealership. So Ani Channel and Mobile First infrastructure for auto dealers. We have already closed and had the first board meeting for the first new investment of fund three, which isn't yet announced, but in the land of computer vision and deep learning. So a couple of the subjects that we care deeply about and spent a lot of time thinking about it. And average check size for the A round against C to A. What do you normally do? The average for the C is half a million to one and a quarter and probably average for a series A is four, four or five. And you'll lead A's. And we will lead A's. Okay, great. What's the coolest thing you're working on right now that gets you excited? It doesn't have to be a portfolio company, but the research you're doing, think tires you're kicking in subjects or domains. You know, so honestly, one of the great benefits of the venture capital businesses that I get up and my neurons are firing right away every day. And I do think that, for example, one of the things that we love is all of the agile infrastructure. And so we've got our friends at VictorOps that are in the middle of that space and the thinking about how the modern programmer works, how everybody, people that talk about DevOps, security is very much on our radar. In fact, you know, we, someone who you should have on your shows is she's Gupta and Casey Ellis. So she's just joined Bug Crowd as the CEO and Casey moves over to CTO. And the word bug bounty was just entered into the Oxford Dictionary for the first time last week. So that to me is the ultimate in category creation. So security and DevOps tools are among the things that we really love. And bounties will become the norm as more and more decentralized apps hit the scene. Are you doing anything on decentralized applications? I'm not saying blockchain in particular, but blockchain like obviously distributed computing, you're well versed on. Blockchain will have an impact in your area. Blockchain will have an impact. And we just spent an hour talking about it in the context of our offsite at the Costa Nova Lodge in Pescadero. I felt like it was important that we go there and digging into it. I think actually the edge computing is actually more actionable for us right now. Given the things that we're interested in and we're doing and it is just fascinating how compute centralizes, then decentralizes, centralizes, then decentralizes again. And I do think that there are a set of things that are fascinating about what you process at the edge and what you send back to the core. As Pat Gelsinger said on the queue, if you're not out in front of that next wave, you drift with a lot of big waves coming in. You've seen a lot of waves, you're a part of one that changed the world, Netscape browser, wrote a business plan for that first product manager on that, congratulations. Now you're at a whole other generation. You ready? Absolutely, I'm totally ready. I'm ready to go. Greg Sands here in theCUBE in New York City, part of Big Data NYC, more live coverage with theCUBE after this short break. Thanks for watching.