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With Scott Orn

A Startup Podcast by Kruze Consulting

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Scott Orn

Scott Orn, CFA

Q Motiwala of DNX Ventures, an early-stage VC firm focusing on B2B startups that are shaping industries and transforming the way we live and work

Posted on: 01/13/2021

Q Motiwala

Q Motiwala

Managing Director - DNX Ventures

Q Motiwala of DNX Ventures - Podcast Summary

Q Motiwala of DNX Ventures talks about partnering with entrepreneurs on their crazy startup journey. Learn how his early-stage VC firm focuses on B2B startups that are shaping industries and transforming the way we live and work.

Q Motiwala of DNX Ventures - Podcast Transcript

Scott: Hey, it’s Scott Orn at Kruze Consulting and welcome to another episode of Founders and Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new, cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely, but guess what? They did another thing, they integrate into your IT infrastructure. They make it really easy for when you hire someone to spin up all the web services in their computer, which sounds kind of like not a huge deal, but actually we did the study at Kruze. We spend $420 on average just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money and the dogs are eating the dog food. We see a lot of startups coming in to Kruze now using Rippling. So please check out Rippling, great service, we love it. I think we have a podcast with Parker Conrad, you can hear it from his own words, but we’re seeing them take market share, so shout out to Rippling. And now to another awesome podcast at Kruze Consulting’s Founders and Friends. Thanks.
Singer: So, when your troubles are mounting in tax or accounting, you go to Kruze from Founders and Friends. It’s Kruze Consulting. It’s Founders and Friends with your host Scotty Orn.
Scott: Welcome to Founders and Friends podcast with Scott Orn at Kruze Consulting and today my very special guest is Q Motiwala from DNX Ventures. Welcome Q.
Q Motiwala: Thank you, Scott, for having me. It’s great to be on a Friday evening with you.
Scott: It’s a pleasure. Yeah, what else would you want to be doing on a Friday evening, but talking to me?
Q Motiwala: Not holding my beer [inaudible] talking to you, yes.
Scott: Feel free to crack one open. Well, hey man, so you have a great background, we were just talking, do you mind just retracing your career a little bit and telling everyone how you made it to DNX and what came before that?
Q Motiwala: Absolutely. Well, I kind of landed on this dark side not having really planned on this. I’m really an operator, spent very early, about 11 years or so of my career after I came out of school at Qualcomm in the early ’90s. And I was there doing engineering, product management, business development, and deploying of 3G in Japan, South Korea, et cetera. And then two startups after that, both the startups actually failed, but probably the best lessons I’ve learned in life. And that’s when I met some of my partners and we co-founded DNX and they are very humble beginnings. When we started fundraising, that’s the day Lehman collapsed. And so, we-
Scott: Oh my God.
Q Motiwala: We thought to ourselves, that’s got to be the worst timing that you’ve had in raising a fund.
Scott: Was that like literally your kickoff or did you have like half of it raised or was it like-
Q Motiwala: We had some global commitments that basically said we had people who had committed $50 million up until that point and then Lehman crashed. I think we didn’t realize the severity or the seriousness of the situation because [inaudible] still like Cowboys. [inaudible] I think these people are going to still fund us. Oh, absolutely not. And so, it took us three years. We said, okay, well, I think we’re a good team. We can either blow this up and try to find some gigs so that we could keep the lights on at home or we can just figure out this is… In moments of crisis has been great firms are formed, great companies are formed and I think that’s a great lesson for startups as well that are forming either now or at that time. Anyway, so we stuck it out.
Scott: What did you do? How did you do that? Because that’s like a long time. Did you guys invest your own money while you’re doing it? Or were you doing consulting or how did you survive?
Q Motiwala: We did some consulting gigs. It was absolutely hilarious what all the things we had to do, but I think, I’ll tell you what, entrepreneurs that are farming companies today, they are doing something on the side, they’re not getting paid, they’ve got to figure out how to take some money home. So, I think it’s just hats off and kudos to all of those folks. Sometimes they tap into their mortgage lines of credit and just get the company going or max out their credit cards. Luckily, we didn’t have to do any of those crazy things. It took us about three years to get to a very, very modest $20 million. That was in 2011 and then kind of we then built layer on layer. We got some good successes. I think lady luck also shined a bit, a few good exits. And so now we’re onto our third fund and that’s $315 million. So that’s a story I never wanted to be a VC, but just fell into this dark side.
Scott: Well, I have a couple of things on that. First of all, because your origin story is like you had a challenging way of raising money, can you really relate to the entrepreneurs at a like a deep level? Like if I were you, I’d be telling that story every time I met with entrepreneurs because sometimes they think like VCs just like you just go to the bank and pick up [crosstalk] million dollars and you invest it. Raising it is equally hard for venture capitalists as it is for entrepreneurs.
Q Motiwala: Sometimes harder because there’s a lot more money chasing entrepreneurs, whereas in the case on the venture capital side, trying to go to [inaudible] as well, you’ve got another 40 funds that are waiting in line ahead of you trying to show their performance before you get in. So yeah, it’s sometimes difficult, but I think as a person who’s worked in product management and business development as an operator, as well as having seen those three years of extreme tough fundraising cycle, I do have a lot more empathy for the entrepreneurs. I can relate. And when I do say no, I try to not just say, oh no because your market is not big enough or your TAM was not big enough. I think that’s injustice. So, I try to give, if the entrepreneur has spent 55 minutes of their time pitching something to you, you ought to at take the last five minutes and give them the reasons why you’re going to say no, as opposed to, oh, send me an email two weeks later and then never respond and ghost them, a little bit more empathy for that side.
Scott: I really, I respect that, too, because it’s… And actually, I had done in between like before I joined Vanessa at Kruze, I had like a little FinTech thing I built and the single most impressive person I met, I actually kind of realized towards the end of the prototype it wasn’t going to work and the only venture capitalist that kind of identified the problem that I kind of knew was Josh Kopelman at First Round. We went to dinner, I gave him the pitch and he wrote me this super extensive email that like I couldn’t believe he actually pinpointed it. And from that day on, this was before like Uber became huge and everyone thought he was brilliant, like I saw it. And I think those kinds of things, like the fact that you’re doing that and providing that feedback, really bolsters your reputation and makes those entrepreneurs, even if you say no, wants them to refer their friends to you as well.
Q Motiwala: Right. And I’m not as smart as Josh, so I don’t know if my no’s have that same weight, but I think entrepreneurs really appreciate that. And I think you ought to say your no’s with humility, like, hey look, I’m just a sample point of one. I may be totally wrong. Go seek out the Josh’s of the world who might give you better feedback.
Scott: Well, also you mentioned earlier that you had a couple of companies that didn’t quite work out after Qualcomm, but that was such a learning experience for you. How do you convey some of those lessons? Because again, empathy is so important, like do you put your arm around their shoulder and say like, oh man, I made a similar mistake at my previous company or how do you convey that experience?
Q Motiwala: I don’t think you do not at least in your first meetings. I think it’s when they became a portfolio company and even there, I think the hard lessons I’ve had to learn is as an operator, you want to go jump on the ground and fix it. Whereas what you’ve got to realize when it’s your portfolio company, it’s the entrepreneur or the CEO that’s running it. I’ve had some really good CEOs much younger than me take me aside and say, “Q you have good intentions, but I’m the one that’s running this company.” So, what I learned very early on in the career that my job is then to really learn how to influence them in a very soft way, but not like a banging kind of way. And you have to learn how this entrepreneur is influenced the best. Sometimes it might be a hike. Sometimes it might be figuring out who’s the father figure for this entrepreneur, maybe he listens to this particular person. It might be another board member. You’ve got to really figure out how you are going to influence because at the end, the boards have to just manage CEO performance, quarter after quarter after quarter, and if it’s not going right, the only thing you can do is have an honest conversation, hey, we should bring someone else to execute this, but going and saying, oh, I’ve solved this problem. This is how I fixed it at my startup or this is how I fixed it at Qualcomm. That’s a really horrible way of doing it. You will hold on until you’re asked.
Scott: That’s a great point and I also like the father figure approach, whether you’re the father figure or someone else is the father or mother figure, too, like finding that point of influence is really smart. Do you want to spend just a few minutes talking about the categories that DNX invests in and what your favorite industries are?
Q Motiwala: Well, I think we went on the deep end talking about myself and a lot of this stuff and I didn’t say anything about DNX.
Scott: I like that. That’s what we’re here for.
Q Motiwala: So DNX is an early stage B2B firm. We are headquartered both in Tokyo as well as San Mateo, Silicon Valley. In terms of sectors, we do a lot of focus on enterprise and cloud, cybersecurity, deep tech. And we’ve also, be doing practices in things like retail tech and FinTech, but those are the big categories for us.
Scott: And we were talking before we turned on the mics, you want to tell people kind of what your goal is for the next year or the categories you’re really focused on?
Q Motiwala: Right, I think what we are doing is we are doubling down in the US on the enterprise and cloud practice, I think. And the reason for that is with whole pandemic situation, with remote work, what it has shown nobody’s coming into the office, which means that what firewall that used to protect you the office, well, now that’s got to also be at Starbucks and also be at your home. The user experience that you’re going to have at the edge has to equal that of when you were at the office or when you were closer to your cloud node. And so, edge and both in terms of storage, as well as the compute is going to have to deal with that. The rise of DevOps because of that, I think we’re going to have to address that. And then the whole movement towards trying to build apps without writing code, the no code, or basically having serverless or remote compute, distributed compute, all of this stuff is coming together. So, we felt like, for this particular fund, we want to definitely double down on this category.
Scott: That makes so much sense. It’s like Serverless is actually one of our clients and I’ve seen them grow over time and like that whole trend is amazing. I love the no code stuff because like you’re an engineer, you know what you’re doing, I’m not. I’m a business person and so having the ability to actually bring applications to life in the no code environment is like incredibly freeing. I just love it.
Q Motiwala: Right. But if you look underlying, you might think it’s [inaudible] that you’re just pulling here and there and then it’s all coming together. But the underlying stuff is, all the API calls that have to match and then how it’s going to spawn the compute and bear, it’s all happening. And by the way, I have lost all my coding skills long back. So, I’m actually worse than you. I’m very excited about that.
Scott: That’s incredible. And there’s also, I think, DNX has… Well, first of all, before we get into like kind of your geographical relationships, the thing I loved on your website was that it was something like DNX we want to fund your crazy idea, which I love. I feel that’s kind of freeing. Do you find that entrepreneurs like that or like that approach that like you want to do deep tech, you’re not just focused on like the next SaaS thing?
Q Motiwala: Yes, it definitely resonates. I think it could be in any industry, you don’t have to be in deep tech. I think each of those ideas are crazy. Being an entrepreneur is crazy. You know that your success rate is like less than 20%, maybe even less, but here you are jumping off the cliff and giving up your next possibly 8 to 10 years of your life to do that, so that is already great. So, I find that using that word crazy immediately connects with them because they are crazy.
Scott: Or their wife or husband is telling them they’re crazy while they’re doing it-
Q Motiwala: That’s true, yes.
Scott: Hey, it’s Scott Orn at Kruze Consulting and before we get back to the podcast, quick shout out to ChartHop. ChartHop is one of my favorite new SaaS tools on the market. And basically, what ChartHop does is it puts your org chart in the cloud. And I always like to say, it brings transparency to your organization and so everyone in your organization can see who they report to, they can see the full org chart of the company and how their group relates to other groups. It also has a lot of information on the individuals in the company and so you can click on the ChartHop profile and just get like where people live, their experience, Slack handles, all this kind of stuff and it’s just a really great tool. The other thing is ChartHop has started doing some cool stuff around compensation and budgeting planning. And so, you can actually start seeing like what the cost structure of the company look like [inaudible] certain kind of scenarios. So, I’m loving ChartHop, check it out, ChartHop.com. We use it at Kruze, really like it and I can’t recommend it enough. All right, back to the podcast. I think we should also talk about DNX’s stage. Where do you play in the life cycle of a startup? Where do you want to invest?
Q Motiwala: Right. For this new fund, what we found is the sweet spot for us is the [seed 00:00:14:15]-plus and series A categories. And so, you’d say, well, seed-plus, what is this new definition that are coming up? I think it’s basically companies that raise a small seed, but require that little bit more capital to get to between 1 to 3 million ARR and that’s the point at which you can raise a good series A. You could go raise $10 to $20 million-dollar series A sometimes with those kinds of [inaudible 00:14:41]. So that’s been a very good, seed-Plus and then series A, those are the two categories we’re focused on.
Scott: I totally agree with that seed-plus category. It’s a new category. It used to be either raise your seed fund and you’re successful and you raise an A or you’re out of business. Especially with like software-based businesses, the incremental progress is easy to track and you can see what’s happening and so it makes sense for the seed-plus. I think that’s super smart and I feel like that’s also like a slightly less competitive market right now, where like maybe not all venture capitalists have caught on to that trend. Do you see that?
Q Motiwala: Well, now by the time you publish your podcast, it’ll be all out, so yeah. I definitely feel that that’s a very sweet spot for the size of our fund that we have. [315 00:15:31], we’re going to invest 50% in the US, 50% in Japan and so for that, if you look at the US size investment, well, seed-plus is perfect. We can take a risk that’s a little bit earlier because the moment you get into A to B side, you have tremendous competition in the Valley. In Japan, I think it’s still fine with having across the gamut seed A, B I think we are the top dog in Japan, so that’s okay, but we have a lot of competition here in the Valley.
Scott: Well, let’s talk about Japan. I thought that was really interesting that you have this dual US/Silicon Valley and then you’re also have this really big presence in Japan. How did that come about?
Q Motiwala: Right from the start of the fund, that was always a very clear kind of value proposition that we want to connect these two, US and Japan. And what that means is essentially for the Japanese entrepreneurs, bringing in a lot of the good practices of, let’s say, US venture style investing. I’m not saying a total Western style investing, but essentially, the good things. Leave the bad things back in the US. Rolling up the sleeves and helping the Japanese startups in terms of recruiting, in terms of their strategy, in terms of, say, if you’re focused on SaaS, then understanding like, hey, this is what your [inaudible] ought to be. This is what things ought to be. In the US some of the trends that are happening on things like cloud and enterprise, Japan’s basically, it might be just two or three years away, you’ll see exactly the same trend. So, I think you’re bringing all of those good things onto the Japan side. From Japan, what we’re bringing to the US is US companies want to go expand into Japan. They want from Japan to expand in Asia. Japan has a very high IT spending. Japan has, again, a very good way of making sure your IP is protected, your contracts, and then you get paid on time. So, there are very good business factors. Now, it might take a little bit more time to get your deal done in Japan, but once it’s done and once it’s signed, nobody’s negotiating with you and people are investing in you for a long, longer time. So, startups really like entering into Asia through Japan.
Scott: That was the question I was going to ask. Are you seeing a lot of companies going through Japan? Are you seeing them go through China first or what’s that mix like?
Q Motiwala: We are living in a very interesting time with respect to China. I think the whole US-China situation, but it’s not just US-China, it’s Japan-China, it’s India-China. I think it’s China versus rest of the world. That dynamic plays in the favor, I would say, of where we stand. I think same thing with respect to the whole Hong Kong-China thing, where essentially that entire flow of capital that used to be in Hong Kong has got to move somewhere because people are not comfortable that that’s going to move to China. A couple of choices you’ve got is Singapore, Tokyo. I think Singapore is not big enough to maybe absorb all that capital flow. So, I think Tokyo is in the right place. So, I think a couple of those trends are working in Japan’s favor.
Scott: That’s super smart. And sometimes venture capital funds don’t want to disclose their LPs, but do you have a mix of LPs, like Japanese companies or pension funds and US-based pension funds or how DNX funded? Basically, the question I’m asking is like, do some of the LPs in Japan also open up doors even beyond what the partners of the DNX open up?
Q Motiwala: Right, I think that is one of our fundamental, value propositions we have for at least for US companies. For example, our mix of investors is the institutional investors, but in addition to that, we have 30 large corporations, they’re all global corporations, but they’re based in Japan and what these 30 companies then do is appoint one-person liaison that would work in as the business development window or customer development window for our portfolio companies. And so-
Scott: Wow, that’s cool.
Q Motiwala: We basically have a track record of having it’s 120 partnerships so far in the last decade, which some of them have gone on to become big revenue generators for the startup companies.
Scott: That’s an incredible pitch to a startup, especially like at series A, you’re trying to get to like $1 to $3 million in revenue to get your series A and if you, at DNX, can bring a customer that signs a million dollar check that all of a sudden the company’s like there, that’s a really nice value added, in addition to all the strategic advice you’re giving them. Does that resonate with the startup founders?
Q Motiwala: Absolutely it does. And sometimes they might already have [inaudible] customers and they’ll say, well, what if I could get a channel partnership with someone like a Hitachi, they’re an investor in our fund. And that might be very big for, let’s say, a jump up in valuation at series B or maybe from series B to series C. So, it’s not just the initial customers, but the channel is really important.
Scott: That makes so much sense. And we were talking about that you’re pretty focused on the cloud over the next year. You talked about some security stuff, are there any other segments that you’re super focused? If the seed stage founder listening to this that knows you’re doing seed-plus or series a, are there other verticals or other industries that you’re super excited about that they should be contacting you to pitch?
Q Motiwala: Look, I think when I say enterprise and cloud, I don’t want it to be too restrictive because you’re going to be building a lot of new services on top of this cloud and enterprise. And so, I think you can be building things like new ways of mortgage lending or it might be more document processing. So I don’t think anything is precluded, but we just want you to be cloud-first and we want you to be not just cloud-first, but also pick up a lot of the trends that are happening in that cloud domain [inaudible] Serverless, we discussed about no code, APIs, all of that stuff, if you could use that and actually build a service, I think that’s fine. In fact, a lot of our deals in Japan are exactly that, underlying thing is cloud, but actually it’s a service. It might be a digitization of, let’s say, construction workers. And so that’s one of the companies that has taken off really well in japan is people used to use WhatsApp and Line and other communication tools to say, this is the schedule, this is the shift of the workers who are the remodel of this home and this is the blueprint changes that are happening. And now it’s all using [inaudible] to essentially do the digitization. So, yes, I would say the larger theme of digitization with underlying cloud-native, that’s a really good sector.
Scott: Yeah and tech-enabled services, sounds like you really like. That’s really cool. Have you guys allocated, a certain amount of the $300 million fund to seed a certain amount of series A or is it pretty loose and it’s just when you find a good deal that you really want to invest in, you’re just going to have at it?
Q Motiwala: Well, in our modeling, we have something like, hey, 40% of the deals are going to be seed-plus and 40% of the deals are going to be series A and the other 20%, keep your mind open. So, we have that, but I think what we are finding is as we do more seed-plus, more seed-pluses are coming in.
Scott: I’m telling you, it’s a good space. That’s a really nice sweet spot. And again, I feel like the industries you’re investing in, those businesses can show very like a nice progression and it makes it a little easier for you to identify the future winners. It’s still very difficult, but like it’s doable. Were you going to say something?
Q Motiwala: No, I think definitely the category is also very interesting from another reason, which is entrepreneurs haven’t still made that cut to the [inaudible 00:23:37]. There’s a whole bunch of things that are in motion. They haven’t figured out maybe enterprise setting or if they figured out enterprise selling, they haven’t figured out director developer or they haven’t figured out channel. So, there’s all of that stuff going on. They haven’t put the players in place because they haven’t raised that much money. So, you don’t have a VP of sales yet. You may not even have your controller in place. So, there is a whole bunch of spots that are empty. Then what they’re looking for is to partner with a VC or VC firm that has a much higher level of empathy with what they’re going through. And for example, during this whole pandemic time, and it actually worked out quite positive because there is a lot of unstructured time now on the calendar there. Where when you were in the office, it was back to back meetings. So, when an entrepreneur came in at 50 minutes, you’re basically [inaudible] would bang on your door and say, “Hey, the next meeting is ready.” Well, now what you’re able to do is carve out two, two and a half hours with an entrepreneur that has passed at least [inaudible 00:24:36]. They’ll come in and be able to start off with a little discussion in my backyard on the patio, we’d be sitting, distance apart, but we’d be talking and then kind of it starts to make sense. And we would go for a hike around either the Foster City levy or around one of the parks in Belmont or San Mateo. That might be another one hour walk. We could have half an hour lunch. Now that unstructured time for that seed-plus entrepreneur has turned out to be actually a competitive advantage for us and for them.
Scott: I love it. You’re totally right. Normally VCs are so scheduled and it’s probably hard for you to like even clear your mind and think about the next meeting or think about the advice you’re giving in that moment. So, I really respect that. Good for you. Well, I’m so glad we talked and I really like where you’re going and I think the Japan-US connection is also really strong. Maybe you can just tell everyone how they can find you, how to reach out, through the website or through LinkedIn or how you prefer to be contacted.
Q Motiwala: Well, you can always go to dnx.vc and then all of us have our emails [inaudible] we even have a tab for you to submit your business plan and it’ll come to us. If you want to get even [inaudible] my name is Q and my email is Q@dnx.vc. All right, so it cannot get any simpler than that. All you got to remember is DNX because Q and VC are the prefix and suffix. So, I think the main takeaways out here are if you are an entrepreneur that’s doing B2B, early stage seed-plus series A and you want a VC that’s customer dev focused or channel development focused, send us an email.
Scott: Yeah, I love it. Well, hopefully we can send some of the Kruze clients over to you, too, and make it a little easier for you. Q, thank you so much, really appreciate your time. Pleasure. And now you’re free, hopefully, maybe not quite free, but to go do something on a Friday afternoon-
Q Motiwala: A beer?
Scott: Friday evening that more… Yes, virtual cheers. Bye, man. Thank you so much.
Q Motiwala: Thank you.
Singer: So, when your troubles are mounting in tax or accounting you go to Kruze from Founders and Friends. It’s Kruze Consulting. It’s Founders and Friends with your host Scotty Orn.

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