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CEO, Turned Venture Partner, Explains His Unique Approach to Startup Investment


In an incredible career which has taken him from engineering, to CEO, to Venture Capital, Umesh Padval knows first-hand the real-world challenges that startups face.

CEO, Turned Venture Partner, Explains His Unique Approach to Startup Investment


"I absolutely love working with motivated entrepreneurs, founders, and CEOs to build and grow companies that disrupt large markets. I enjoy partnering with them to help them achieve their dreams."
Umesh Padval, Venture Partner



The world of technology venture capital in Silicon Valley is highly competitive. The success or failure of startups is dependent upon not just finding a venture partner but, perhaps more importantly, finding the right venture partner. Yet very few of the people who work in VC have a technical background or have ever run a company themselves.

With a career path which has taken him from engineering, to CEO, to Venture Capital, Umesh Padval knows first-hand the real-world challenges startups face. In part 2 of a 3-part in depth interview series, we discuss his current work as Venture Partner at Thomvest Ventures, the technology platforms that are of special interest to him, the criteria he uses to assess potential investments, and how he combines his experience as both a CEO and engineer to help startups become successful.

 

Before you became interested in Venture Capital, you were a very successful CEO and were inundated with offers of other CEO positions. What made you want to become involved in the world of startups and Venture Capital instead?

I absolutely love working with motivated entrepreneurs, founders, and CEOs to build and grow companies that disrupt large markets. I enjoy partnering with them to help them achieve their dreams, as well as creating value for shareholders and employees.

I am a thesis-driven investor looking at macro trends, inflection points in the market, and opportunities. Based on these factors, I then decide which markets and sub-segments to invest in and pick the best teams and companies in that space.

Besides investing in private companies, I also sit on several public company boards. I sat on the board of IDT which was sold to Renesas for $6.7B in 2018, as well as the board of Mellanox Technologies, which was acquired by NVIDIA for close to $7.0B in 2020.

You’ve been with Thomvest Ventures for just over 4 years now, what have been the highlights so far?

After joining Thomvest Ventures, I developed a thesis to invest in cybersecurity. Over the past 4+ years, we have invested in 6 companies and we’re lucky to have 2 exits already: Skyhigh Networks, which was acquired by McAfee in 2017, and Lastline, which recently sold to VMware in early June.

A few years back, we decided to look at the cloud infrastructure market and invested in some amazing companies. One of which, ThousandEyes, was recently acquired in May by Cisco for close to $1B.

With your background, there are many areas of technology you could have focused on. What was it about cybersecurity and cloud infrastructure that interested you?

Based on 9 years of undergraduate and master’s education in engineering, I like to focus on companies that have differentiated technology platforms. Cybersecurity and cloud infrastructure provide massive market opportunity and are high-growth markets with visionary founders and innovative companies. The companies and CEOs have deep technological innovation which aligns well with my technology background. Also, being an engineer by training, I can relate to the founders and CEOs much more as we build the company. We share similarities that allow us to align on the vision and direction of the company to ensure success.

You’ve achieved an incredible amount at Thomvest Ventures in such a short space of time, what does a typical day look like for you?

A typical day is very exciting — every day is different! A lot of my time is focused on portfolio company board meetings and addressing issues. I’m constantly meeting new founders, entrepreneurs, and companies with disruptive ideas to change the world and deciding on which ones to invest in. I’m meeting with co-investors and professors at universities who have great ideas. I may be speaking on a panel with CISOs and CIOs and helping to recruit executives to portfolio companies.  

Helping entrepreneurs fulfil their dreams, creating jobs, and making better technology available to businesses and consumers all over the world is clearly something you are intensely passionate about. Can you tell me more about how you personally assess a startup when they approach you?

This is a great question. There are 4 critical areas I look at:

1.    Large market opportunity, which allows you to innovate, disrupt, and build a large company in that industry.

2.    A strong, innovative team that can attract great executive talent who can execute on that vision and grow the company.

3.    A differentiated technology platform that is better than competitors in the space.

4.    A market that is not overly crowded.

There are other secondary factors like go-to-market strategy and marketing strategy which are critical. But the most important factor is team, team, team! Success is all about people at the end of the day. 

Having been involved in so many successful companies, what do you consider to be the fundamental difference between those that succeed and those that fail?

Successful companies have great CEOs with complimentary skillsets on their executive teams. They are flexible, nimble, scrappy, and are execution machines. They have a never-give-up attitude. This persona eliminates fear, which allows for creativity, a burning desire to overachieve, empowers the team to believe that anything is possible, and allows them and their team to grow stronger together.

Successful companies are also in large markets that are primed for disruption, or in a new fast-growing market. There are no secrets to success. Be humble, be hungry, surround yourself with the best people and always be the hardest worker in the room. The overall goal is to contribute towards improving the business world and make it a better place than when you entered.

As a VC, you are approached by hundreds of companies all the time, yet your track record clearly shows that you have an exceptional ability to pick companies that go on to become billion-dollar successes. What’s your secret?

I’m totally lucky — I can’t take all the credit. I pick the right market and then invest in the best companies and the best people, that’s my mantra. Good things happen to good people — it’s all about people. I love teams and I do a lot of diligence on CEOs and founders, regardless of whether the company is late or early stage. I then look at the larger markets, the inflection points for an opportunity, and how differentiated the company’s technology platform is versus the competitors.

Are there occasions where you walk away from investments?

Yes, of course. Sometimes I just walk away, especially where the entrepreneurs are inexperienced, want to run everything themselves, and don’t want to listen to the investors as partners. There’s no point to invest if they don’t know what they don’t know and don’t want to learn. Many come to me years later and say, “Umesh, you were right.”

I’m very upfront if it’s not a match. You don’t have to go with me. If you value my background helping with strategy and operational issues, with recruiting and making introductions to customers, then I am the right partner for you. Successful investing sometimes means deciding what to pass up on more than what to actually invest in. Today, we face rapidly changing landscapes and success rates are low. Developing the right mindset of focus and patience is critical for success.

Unlike you, many people who work in technology VC don’t have a robust technical background which I imagine must make assessing the viability of tech startups very difficult indeed. How much do you think your background as an engineer has contributed to your success?

There are multiple benefits to having an engineering background. First of all, it enables you to analyze companies and ask the right questions. If you don’t have an engineering background, you can talk to a company and do all the due diligence on the teams and the markets. But at the end of the day, if the product platform is not differentiated enough, it won’t matter.

My first meeting with a company is initially about the team and for them to tell me why they think they are going to be successful. Then we go into the detailed architecture, platform, etc. My team and I go into technical details quickly for two reasons. Firstly, that’s the core value of the company, and secondly, because it builds respect with the entrepreneurs since few VCs have an engineering background or have run companies themselves. The first meeting is highly impactful and really changes the whole landscape after they see our background and success running companies.

I find that founders and CEOs relate to me because 80% of their company’s workforce are technologists. Speaking to them as a board member or investor provides instant credibility because they know I can understand their problems and can work with them to find solutions.

As you say, many VCs have never actually run a company themselves, how important a factor do you think that has been in your successes?

That is a large factor — my operational background is very important. Many people have come into the VC world via Ivy League education, but few have really worked in an industry actually running a company or experienced what it is like being a CEO and the challenges associated with that role. So it’s difficult to guide a CEO through a company’s downturn if you haven’t run a company yourself before.

The combination of both operational and technical knowledge, and years of experience serving on boards, really helps guide the startups. Frankly, I love it — I work 24/7. CEOs typically call me on the weekends because that’s the easiest time for them and I always make time to speak to them. It’s a passion of mine and I always enjoying working with them.

Is it challenging when you meet a company that has great elements but are weaker in other areas? For example, a company that has a great team but an unviable product or a company with a strong product but a weak team.

In the investment world, we meet 200 companies before we invest in one or two. Some have great teams. Some have great technology. Some have great marketing focus but they’re not executing — there are so many factors. The best founders are flexible and always open to help. I’m brutally honest with all my CEOs. I tell them the positives, but also tell them what I’m worried about and then ask them, “how do we fix this together?” I make them part of the solution. A lot of great CEOs, in reality, don’t have big egos if they’ve been in the industry before. So they are open to feedback. I complement them with my past experiences, so they don’t make the same mistakes and guide them to be successful and achieve their dreams.

 

From building microchips in the 1980's tech boom to becoming the CEO of multi-billion-dollar technology companies, there are not many people in the world who can claim to have as long and successful a career as Umesh Padval. Read part 1 of this 3 part interview here: The Inspiring Journey of One of Silicon Valley's Up-And-Coming Startup Investors

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