Q&A with Xfund’s Patrick Chung and Brandon Farwell – Part II
Brandon and Patrick share more about the challenges and privileges of working in venture, what they look for in prospective investments, and what’s next for Xfund as universities begin to reopen for in-person classes in the fall.
What’s been the most challenging aspect of your work?
Brandon: Given the stage we invest in, it’s predominantly investing in people and markets, and our ability to predict that a particular founding team has what it takes to go against the odds, be under-resourced for a while, and get market share.
It’s also challenging to separate the emotional belief and ties you have with that founding team from the actual performance of the business and their ability to hit KPIs and be on plan. You have to separate the emotional, interpersonal relationship you have with your founders from the business decision of, should we actually reinvest in this business, is it doing well enough to warrant that? That’s hard to do.
Patrick: Most VCs are impatient people in a society that offers omnipresent immediate gratification. Venture is hard because the average time from the first investment to any type of result, be it IPO or bankruptcy, is almost a decade. 8.3 years is the last statistic I saw. We invest so much time and energy with every company we work with, and we invest it on such a long scale. And sometimes it’s spectacular, it blossoms, and it’s this huge success—we’ve had some really great ones. And other times, it’s disappointing, and you only ever find out after putting a decade of your life into it.
This job demands a great deal of patience, perseverance, and ultimately belief in the teams and ideas that we’ve backed. It’s not like we’re a hedge fund company where we can buy stock today and if we hate it tomorrow, we’ll just sell it. We live for almost a decade with that original decision.
So what keeps you going?
Patrick: We both love it.
Brandon: It’s a very privileged position to be in where your job is to empower people who are super passionate about an industry they want to disrupt. You’re along for the ride; they build everything, for the most part. If you ask Patrick and I to build a product, run for the hills. We’re there with the money and relationship capital to help them succeed, but it’s a phenomenal feeling when you were first, when no one else was there or believed in a founding team, and all of a sudden, they build the next Google-like outcome or company.
Patrick and I have been in the business long enough to be in a privileged position like that, where we’ve seen a company go from 0 to multi-billion in enterprise value. It’s great to be able to reminisce with the founder about what it was like on Day 1 and we were actually selling X, but now we’re selling Y, and where we are now. It’s an exhilarating feeling knowing that we are part of a journey that went from a kernel of an idea to a multi-billion dollar enterprise.
Of course, there are a lot of bumps along the road. It’s not always obvious from Day 1. At Series A, they could completely change course, launch a new product, and change everything about their go-to-market, and all of a sudden, we’re back to square one. But the next idea could be super successful. With all the bumps along the road, you have to be able to course-correct, be dynamic, and believe in the team’s ability to engage and not lose focus or passion.
Patrick: Like Brandon said, this job really is a privilege. We wander through Silicon Valley, Cambridge, Massachusetts, the East Coast, the West Coast, and everywhere in between; we’ve gone to Canada and to the UK. We get to meet some of the most intelligent, inventive, hardworking, visionary people, try to understand what they’re doing, try to see if we can help them with the resources we’ve brought together under the Xfund umbrella, and ultimately try to help them make their dream come true.
We’re not just part of one story—we get to do this with multiple stories, which is a real treat. Obviously, a downside is that we’re not fully spending all of our time with a single team, which is also a good feeling, to be part of building something over a long period of time. But Brandon and I are building Xfund over a long period of time; Xfund is our startup.
What is it like working with your limited partners?
Patrick: We are so privileged to work with the group of institutional investors we have, which includes university endowments, the endowments of hospital systems and healthcare systems, large land trusts, and large charitable foundations. It feels extra good to work hard to produce returns that eventually land in the hands of institutions whose missions we really believe in, especially those educational endowments that we serve at Xfund. It’s a way of coming full circle for us.
What’s your advice for founders? What do you look for as investors?
Brandon: Having a very well-thought-out, clear answer to “Why now?” is really important to us. As someone who looks at a lot of deeper tech, whether it’s robotics or VR or alternative food, I try to understand the timing of an investment: why 2021 vs 2025 vs “Actually, you probably should have done this in 2015.”
So, have a clear rationale why going to market with your solution today makes sense. Be able to explain how you are meeting the prevailing tailwinds that are in play today, and how that positions you extremely well to see that hockey stick growth in enterprise value.
To dovetail with that, “Why you?” in the wake of “Why now?” Why are you the best positioned, with a unique advantage in the DNA and experience of your founding team, to be successful? “Why now?” and “Why you?” are the questions I ask as I consider, is this a team that we should feel conviction on, and what are the prevailing tailwinds behind this particular proposition that make sense for huge growth, fast?
To Patrick’s point earlier, yes, it’s an 8-10 year marriage, but I would rather hit meaningful growth soon and find something that works fast, versus wander in the forest for a while until we stumble upon something that was our third or fourth go of it.
Patrick: We just don’t know what a person is going to be capable of, especially when they’re first-time founders. That’s part of the thesis of the fund: to have a higher batting average, we target the world’s great meritocratic universities, where no matter what your background was, if you were good enough to get one into them, they made sure you could come.
The piece of advice I’d give first-time founders is just to be yourself. There’s no need to pretend to be someone else or pretend to be a young Steve Jobs or Anne Wojcicki to fit into a mold. If you’re yourself, a good investor will be able to see how good you are, no matter how you self-present.
Brandon: Don’t exaggerate what you have, especially on the traction or product front. We’ll do our jobs; we’ll validate claims. We will talk to end customers. If you say you have a pilot program with XYZ company, we will talk to them. Don’t exaggerate, because if you’re wrong or if it comes across as X but it’s actually Y, credibility is out the door.
What new technologies or industry categories are particularly exciting to you right now?
Brandon: We’re pretty much enterprise-consumer-digital health in focus, but I continue to be super excited about commercial applications of artificial intelligence across computer vision, natural language processing, and deep learning.
I’m also very interested in applications of robotics across industries like agriculture, manufacturing, and hospitality. Obviously, enterprise software and productivity will continue to be first and foremost of interest. I think there are certain industries and categories where we individually have our own interests and passions. Patrick, as he mentioned, does a lot of ecommerce and obviously digital health and mobile, which he’s super good at. We’re continuing to hunt in those fields.
But we’re also very interested in whatever comes next—because university campuses are hotbeds of research and discovery. We’re excited to see what that looks like when we’re finally able to crawl through the university halls in person again.
What are you looking forward to? What’s next for Xfund?
Patrick: We’ve spent a whole year totally apart from our campuses, so we’re excited, just like Brandon said, to get back on to campus. Most of our universities have announced that they’ll be back full-time in September. We’re excited to re-engage with all our faculty, staff, students, and alums.
We’ve done extensive programming through this pandemic, but it’s all been virtual. For example, we did a Stanford-Harvard startup ethics course. We would never have been able to run a course with both Stanford and Harvard students, on opposite coasts in person, but because everyone’s on Zoom, we could do that. I think we have made full use of the pandemic, but we’re excited to be back in person.
Brandon: Absolutely. Getting back to our on-campus work, meeting student founders in person—finally! That’s the big hit. We’re in a position where we have a fresh pool of capital in Xfund 3 that we announced last year. Going into 2021 with a full slate of capital to invest in founders is super exciting for us. Our coffers are full and we’re ready to support more amazing founders!