insights by tech leaders on design in venture capital

1. How does a design perspective help in evaluating an investment decision, in obvious ways?
The obvious way that a design perspective helps to evaluate investments lies in the art of story telling. Consumers buy into great stories—stories that inspire them to live or work better—and investors make decisions based on the probability that entrepreneurs can relay such inspiration through their products. From the initial kindling of consumer adoption, real value can accrue, and so evaluating the story is like evaluating whether or not a new product company can obtain initial traction. A design perspective helps an investor think through the story being told—what has not been accounted for in terms of how someone will experience the product? What are the proverbial design flaws? Is this a compelling story for all or just a for a few? In early stage investing, in particular, the answers to these questions—moreso than the revenue model or a path to profitability—will determine success of a company.

2. How does a design perspective help in evaluating an investment decision, in non-obvious ways?
Investors, especially deeply technical investors, may jump over points of an investment presentation related to branding or understanding customer behavior. These investors tend to focus on product functionality and technical robustness—will the infrastructure work? Simultaneously, design-focused entrepreneurs who value the compelling nature of the product story may not think to explain why brand and personas are the lifeblood of a startup’s early success. Speaking the same language and placing the same emphasis on these tenants of a company are important parts of investor-entrepreneur alignment that can be overlooked or missed if both don’t have the same design-based approach. If you and an investor are speaking different languages, he/she is probably not a fit for you.

3. Where have you seen a designer’s perspective possibly harmful in the investment process?
Some of the most beautifully designed products fail because they are not solving a big problem for individuals. It’s the age old investment problem of evaluating whether a company provides a painkiller or a vitamin. A product may delightfully move with it’s consumer but simply not impact one’s day to day life in a meaningful way. Those products are vitamins and great design can make vitamins seem like painkillers. Sometimes we can be lured by beauty and forget that impact is everything. Impact happens when design brings out utility and this is an important tenant of design-focused investing.

4. What are three characteristics in a company’s structure/history that will likely lead to success in leveraging design?
— Focus on brand identification and user experience before product is released. I am so happy that the tech world is getting away from terms such as “product-market fit.” These misguided descriptions led some to simply rapidly iterate in product development until they found the right value prop. You have to know what you are building the basic product to do and who it is for before you get too far down the development path. Product-market fit tests should be to refine not to identify customers. There are a lot of products floating out there looking for a market because of misguided product market fit tests.
— Adequate designer:engineer ratio. In the most intensively design focused companies, I’ve seen this ratio at 1:1. Developing in engineer+designer teams or pods can be a really useful way to incorporate design thinking immediately.
— Outsourced design/branding projects to an agency. Don’t be afraid to do it. I’ve never had a company spend money on an outsourced design or branding agency that then says that was a waste of money. It’s always the opposite. At a minimum it brings clarity and alignment to your value proposition. At it’s best, you also end up with an impactful style, look and feel, and brand that you wouldn’t have arrived on on your own. Entrepreneurs have told me they wished they had done it sooner. That said, take your time and get lots of references before you pick an agency.

5. How do you best support CEOs with a purely technical and/or business background to leverage design in their startup?
At NEA, we have brought on Albert Lee as our Design Partner. He is focused—almost exclusively—on working with our portfolio companies to make sure they have proper emphasis on design early in a company’s life. We help CEOs embrace design but at the same time not burden them with the task of figuring it out on their own. Albert spends time with those who want to understand how to integrate design thinking at the earliest stages. Then, these companies can better plan and hire to fill out the necessary roles.

6. What are a few challenges you’ve seen in working with companies that have caught “the design bug” -- especially the CEO? I haven’t seen many challenges. It’s all apple pie once you embrace design! It’s important to remember that design is part of the hypothesis and product development are the tests of these hypothesis. So if the scientific method relies on hypothesizing + testing + iterating, product development manifests as designing + developing + tweaking design and development in concert. In any good experiment, one shouldn’t overweight planning/hypothesizing without testing and reconfiguring frequently. An overweighted design company may tend to always be designing the next product vs. focusing on what they have that is working and tweaking it just a bit to grow effectively and capital-efficiently.

7. Which three public companies out there do you admire for their approach to design?
— Tesla – Because once you’ve driven one, any other “dumb car” is—once and for all—disgustingly boring. I think they will commoditize cars more than Uber has. If you have to get in a car, your old 2015 one which may have Sirius XM and some fancy dials is now a third choice behind getting in someone else’s car for a cheap rate and driving a Tesla—a computer not in your hand but all around you. A powerful experience.
— Steelcase – They deliver great products. Sure they aren’t Herman Miller, but their products are the core of offices everywhere and still command a premium over alternatives. Moreover, they are embracing modern manufacturing from new CAD to smart, connected manufacturing. They ebb and flow with the whims of the stock market but they typically outperform the S&P. Indeed, they are part of an index of public companies that DMI put together showing that design driven public companies not only maintain premium pricing but have outperformed the S&P by 228% over the 10 years leading up to 2014.
— Starbucks – While the rest of the world is trying to figure out what mobile payments platform would work and has been caught up choosing a better POS System, Starbucks has been ploughing forward on their own. They tested the market first with preloaded cards and then quickly converted those adopters to their mobile payments app. They have continued to delight us with the Shake to Pay and Order Ahead feature. Delightful to their customers and protects their premium brand.

8. Which three startups in the CONSUMER space do you think embody design in their companies particularly well, and why?
— Wealthfront – Because the only thing protecting the financial advisory space for the masses is the lack of ease of use. Wealthfront has invested in design by creating roles such as VP of Design and hiring Kate Aronowitz from Facebook. They are taking the important task of managing your wealth and making it as easy as reading the web.
— Pinterest – Not a new one but becoming a classic. I hope to put them as an answer to the preceeding question one day! Notably, I think Pinterest will make it over the long run because they embody the same characteristics as the classic design focused public companies (Apple, P&G, Nike)—they don’t take brand or product changes lightly and they take time to appreciate the impact of small tweaks in their product. They listen to their customers’ actions and they are careful to not confuse them with new features.
— Casper – (disclosure: NEA is an investor). Casper nailed the consumer brand for mattresses. Who knew an age old product, only preceded by the wheel, could be reinvented so delightfully. They are a design and brand-forward company and they aren’t afraid to get help when they need it. After months of refining and nailing the brand with an outsourced agency, they launched to record sales across consumer startup products in month 1.

9. Which three startups in the ENTERPRISE space do you think embody design in their companies particularly well, and why?
— Onshape – (disclosure: I led NEA’s investment and am on the board). Onshape will be at the center of product design for the new generation of mechanical engineering and product design. CAD has been slow to move to the cloud and true collaboration, but it’s time that this critical product category get the religion of access-anywhere, sharing and storage in the cloud.
— SLACK – Enough said. They took what developers and now professionals everywhere were hacking by using gchat, hipchat, box and yammer and rolled it all into one. Thank you.
— Magic Leap – Yes, I know this company is mostly viewed as a consumer focused company, but they are advancing the use of Mixed Reality over Virtual Reality or Augmented reality. This means that they can leverage computer-generated objects in a pass through viewing experience—that is, in the world around you. This type of immersive technology stands the chance of broad adoption for everyday consumer usage (not just gaming/entertainment) and importantly, enterprise adoption where sitting in a totally immersive environment is not realistic or productive for every day mobile workers. Their advanced graphics and reportedly, seamless experience is exactly what we need to make immersive technology productive technology for the enterprise.

10. What are a few URLs of your favorite writings on design in the VC space (including your own)?
Liz Danzico: a great refreshing blog implicitly written about design of life and a profession done right.
Tomasz Tunguz: a 411 on startup metrics and models
DMI: a great macro perspective on the impact of design for public companies. If design can consistently impact the likes of Coca-Cola and IBM, it can certainly help startups.

Made in 2016 by John Maeda