Executing as a Best-In-Class Firm: Operational Excellence From The Inside of Over 50 VC Firms with Kristen Ostro of Strut Consulting

0:00Hey, everybody. This is Ben Kesnoka, co-founder and partner at Village Global, a network-driven venture firm. And this is our podcast, where we go deep on all things business and technology with world-leading experts.

0:21Welcome to VC Mastermind. Today, we have an incredible interviewee. Kristen Ostro is the founder and CEO of Strut Consulting. I'm going to let her explain a lot of that because she has the depth of experience in the back offices and operation centers of Silicon Valley. I've had the opportunity of knowing, Kristen, gosh, I think for maybe a decade and a half or so, we worked together out of the homebrew office. And so it's just been amazing to be able to know you for this long and get to see how you've been helping dozens of venture capital firms across Silicon Valley. So thank you for being here.

0:57It's my pleasure. And it's so fun to be able to do this with you all this time later as well. Totally. Amazing. Well, again, I kept my interview or my introduction of you short because I would love for you to kind of tell your story and how you got to be working with so many VC firms because I think it's really special. So do you mind, Sherry? Sure, of course. I landed in a venture by accident, as so many people do, I feel. I applied to a job on Craigslist, LOL, glad to date myself, and ended up on Sandhill at NEA, New Enterprise Associates, for those who are maybe not acronym-friendly. And I joke, I earned my Sandhill Road stripe.

1:41I was there doing a combination of administrative work and ops, and then marketing and events. So probably would have been a lifer had I not gotten in so young. And when the emerging manager flywheel started to really pick up, or initially pick up in 2013, 12 range, I was very fortunate to get an in with the guys at Homebrew. It's all about who you know and who you have access to here. so I got the opportunity to join them right as they were getting Fund One off the ground and be in an office with you and and them and a handful of other really fun companies and friends of the firm and help them build their their massive machine now it's just the two of them but it is like a powerhouse little machine I guess and yeah from there I worked with a variety of other emerging funds.

2:43My NEA ties brought me back to helping spin up a firm that they had seeded with Polaris and Excel on the emerging side. And all those experiences led to sort of a critical moment in mid-2016, where I wanted to continue working with managers, but was interested in doing it in a more dynamic way. And that's when I started Strut. And my goal was to provide a lot of expertise and muscle and lift to all of these GPs who are leaving big firms to start their own shops. Athletes turn VCs, operators turn VCs, and all of these new archetypes that we're getting into this space. And what we do today is very much the core of what I've always done, back office operations.

3:28So working with all the core service providers, you know, legal, fund admin, tax and audit, banking, being that sort of block and tackle on all the mundane, on sexy things that need to get Donna to fund on a weekly, monthly, quarterly, and annual basis. And then I also have a lot of high touch on the LP side, so helping with fundraisers on the investor relations side and helping with annual meetings and all that kind of fun stuff. And that's sort of the core of what Strut is now. We offer fractional operations, investor relations, and also fractional finance to emerging funds and established emerging funds.

4:09and we also offer a little bit of event support for established clients. We don't have to get into those weeds today. Amazing. Amazing. Well, we have another episode, DC Mastermind episode with Vienna Poe is your colleague, talking to a lot of the operational and kind of expectation setting for fundraising into the future. If you're listening to this, definitely tune into that episode as well. But today, Kristen, So what we're going to talk about is really setting up the firm, a venture capital firm for long-term success in the long haul. And I think you have a framework of how you think about really building a strong foundation upon which GPs can really kind of count as ground zero and then scale from there.

4:54And so, you know, do you want to start to introduce that? Like, what are some of those pillars that we'll continue to talk through? Absolutely. And just for listener reference, this is all rooted in me sitting back and supporting and watching hundreds of firms evolve and grow over time, good, bad, and otherwise. I would say when I was solo doing Strut from 2016 to 2020, I was working with three to five funds at a time. And then also working with First Republic Bank and Silicon Valley Bank's emerging manager teams supporting their clients. May they all rest in peace, the banks on anyway. Yeah. Yeah.

5:30Those former teams. Crazy days. Yeah, they were all wonderful. As I decided to start scaling Strut in 2020, you know, main in large part to more business coming in need from emerging funds than one person could handle is how we started growing. Adding Vienna, who Jacob mentioned about a couple of years ago to help lead our investor relations team. And so all of this thoughts that I have on this particular topic are rooted in, you know, all of that time. And I'm plus the new era of Strut from 2020 till now, which is working with, you know, 50 plus venture clients, all shapes and sizes. I work with, you know, micro funds of five million proof of concept, hyper focused thesis, all the way up to, you know, a billion in AUM, multi fund firm, solo GPs, small teams, big teams.

6:20And then I've obviously been at big shops, medium and everything in between. So this is definitely what I see as a recipe for success when you're building your firm, whether you're doing it from day one or my opinion is there's never the wrong time to start doing this. So if it's something that you haven't done and we want to get into, we can definitely get into those pieces too. But this is all rooted in doing a mission, vision, values exercise. We ask our portfolio companies to be best in class and certainly probably ask our founders, the companies that funds invest in to do this work. And my attitude is, why shouldn't we also eat our own breakfast?

6:59This stuff is so important for a variety of reasons as funds start to grow and mature. Mission, obviously, providing clarity of purpose. And vision, giving future direction and aspiration and alignment. And then values definitely are the cultural foundation of your firm. you know how you want to be perceived and how you want to attract talent internally and as well as you know also the founders and lps that you want to work with having a good cultural foundation with yourself helps with the alignment as well um and i i think the tragic thing is i see so many firms who just sort of skip this step in in the process which is totally natural because getting a first fund off the ground is completely overwhelming.

7:45No one prepares you for all the lift, not only from a fundraising capacity, which, you know, in this competitive market is very challenging and, you know, it's taking funds infinitely longer to raise than, you know, in previous cycles. But, you know, from the operational foundation setting, you know, getting all of your service providers in place, you know, getting the deck just right, even all of the fantastic programs that are now out there for emerging managers to get, you know, some support in this and kind of help demystify the process. They don't really go deep on the operational burden of running the fund like a business and how much that pulls on GPs, taking them away from, you know, why they got on this to begin with, which is invest in categories and founders that, you know, they love.

8:31So, and it's what's natural to skip this piece because who has the time? But I couldn't recommend it more. And there are a lot of reasons why. And I'm going to get into some anecdotal examples, but let's start at the top. Doing this exercise, it provides all of your sort of strategic vision and focus, which when you're in the iterative stage of putting your pitch deck together and from defining what you want to focus on from your investment thesis and the firm you want to pitch to your LPs, doing a mission, vision, and values exercise, or MVV, as I'll call it to keep the jargons easy, can really be a clarifying and foundationally important piece of your firm building and supports that thesis and your pitch deck and gives a really clear path forward that you can communicate not only when you're talking about your firm to LPs and key stakeholders, but generally, it can be a really helpful tool to do some initial one year, three year and five year planning, goal setting and give you some guardrails for firm building.

9:37And of course, these things are going to evolve and change over time as your firm evolves and changes over time. But it gives you a sense of a roadmap, a clear path for the future to get really get going and help you decide who you want to be as a firm as you're growing up. Part two in this is, you know, it helps you differentiate in the marketplace, which given this insanely competitive fundraising landscape, having a compelling mission and vision can serve to distinguish you from your peers, help you resonate more strongly with prospective LPs, founders that are, you know, are competing or you're competing with, you know, and with other firms in your category to win term sheets on and and other key stakeholders in your space and in the ecosystem, having that can be very powerful and give you a real true no star, which I think is super important.

10:31Would you consider that brand, like the brand of the firm, or is this kind of a component that has it going to? Yeah, I would say it certainly can feed your brand, and I think we'll go a little bit deeper on that for sure because I think there's some definite things to think about when it comes to how you want to brand your firm and the kind of marketing presence, social presence you want to have. So doing this MVV exercise definitely feeds that and reinforces your approach there. And I'm going to kind of talk through three little case examples of how. Great. But yeah. And then obviously, we kind of hit on this already.

11:06Defining your firm's culture, doing a mission, vision, values exercise can certainly set the tone for your firm's culture and will influence how you and the people you hire work together, treat each other, speak and represent the brand, et cetera, which is, again, incredibly important. The thing I like the most about MVV is it, from my perspective, provides a clear decision-making framework for all of the things you're going to be faced with making significant and small decisions on as your firm evolves and grows. I think having a really strong mission, vision, values gives you this alignment on your firm's core identity and can basically become a filter and a litmus test for all big and small decisions you need to make.

11:53And I'm going to give some cool examples about that in a sec. And then the final thing, when you have strong mission, vision, and values, you're able to attract the best talent. You can communicate these things to prospective hires. And, you know, Everyone here wants the best and everyone also in this world wants to be inventor, it feels like. And knowing GPs as I know them, they want the very best in their firms. Mediocrity is not the bar. And I think you can really win the best talent when your employees know who you are and what you're about and can resonate with that and feel inspired by your bigger purpose and get involved in a firm because they believe in it.

12:36and they believe in your vision and your mission. And we can talk, we're going to go a little bit deeper on that too in a sec. Amazing. Yeah. I mean, that's such a great high level perspective on the MVV framework, you know, to look at the polar opposite. Like what happens if firms do not properly do this from the beginning? What are some of the things you've seen go awry? Yeah. I think there's like three sort of case examples or archetypes of firms who don't have this really locked in, whether they've done a formal exercise or it's not a fundamental part of the founder or the founding team. My first one I call is chasing the dragon.

13:16We see firms who are struggling because they have no individual GP or firm conviction about who they are, who they want to be when they grow up and how they want to show up in the world and even within the ecosystem. So I see them spending endless amounts of time worrying about what their peers are doing, copying their peers, chasing their peers, chasing the ecosystem fads. And my personal belief is don't do things just because everyone else is doing it. And I think like a case example is, you know, seeing the rise of platform and portfolio service in the last 10, 15 years and a lot of firms trying to activate in this category.

13:58and obviously it's got wonderful benefits for your portfolio. It can be incredibly helpful to founders at the early stage especially, but a lot of firms lack a crystal clear vision on what their unique value proposition is and how to effectively deliver that to founders. And they start with what I see as a kind of a kitchen sink approach, like, well, this competitive firm is offering talent. We should do that too. You need to build out a resource database. And if you have mission, vision, values, it truly becomes this litmus test or filtering method for, is this aligned with our greater purpose?

14:35Is this in alignment with our values? And is this alignment with our mission? And how are we going? If all of those are in alignment, then let's move forward with X. And the other thing I'll add here is, regardless of whether it is or isn't aligned, My other hot take is don't do anything in this category without having clear metrics for how you're going to measure it and how you're going to track success because you just get lost in the sauce, which brings me to number two, being constantly lost in the sauce. firms without mission vision values are constantly struggling with shifting priorities shifting job scopes during an active hiring process stop starting on initiatives spending on things wildly without again metrics and kpis or you know qualitative you know how we're going to measure success here on things like marketing and events or office space or hires without any true plan to measure ROI or firm value.

15:36And again, you know, running through that exercise, like does this move feed this bigger purpose, really quiets the noise on how to proceed. And I would say when it comes to spend, my pro tip is work with a VC experience finance or ops expert, whether you bring it in-house or you use a fractional resource, like a, you know, CFO adjacent or fractional CFO who can help you with things like, I've got to be your A, your accountability coach on, here's your mission, vision, values. Is this big spend in alignment with that? And also, of course, help you work on long-term budget and cash management, ensuring institutional best practices for good financial hygiene are being applied.

16:24And that can also help kind of navigate the lost in the sauce problem. And then the third one is this lack of a filtering process or an approach to big decision making about what's important and how to execute on it. And this is again, like this mission, vision, values filter, this is like the ultimate best recommendation and where this comes into play. With every major and minor decision a firm needs to make. If you ask yourself, is it aligned with my mission? Does it embody my values? And does it feed my bigger vision? And if all of those three are a yes, then you know where to allocate your time, your money, your resources.

17:04But if there's a no, like then we hit pause, right? Like let's dig deeper. Let's do some more research. Let's bring in somebody, you know, your trusted advisors, you know, whoever you trust, you know, and your circle, your team, your peers. My attitude is if you can't get to a yes on MVV for big and small decisions, the answer is a no. And don't waste money. Don't waste time. Don't waste resource. Your GP time is incredibly precious. And having this as a little gut check at all times and also having people you trust to help you gut check is a huge lift. that's that's that's my big my big kaboom on that it makes a ton of sense i mean i've seen so many examples of firms i've been involved with but also friends and colleagues and you know the main thing i'm hearing you say is like let's make sure that the leadership of the firm is totally aligned whether that is one person or whether that's multiple kind of co-gp partners um but make sure everybody's aligned so we know where we're spending money where we're spending time where we're looking to hire.

18:16Because I've seen examples where firms can have some pretty big issues when people are not aligned on all of those investment areas. Investment of money, but more importantly, time and attention. Absolutely. And I think a really good little antidote is real estate is less than it probably used to be, maybe in the Bay Area, but on the corporate side. But, you know, spending big bucks on a fancy office from, you know, Sand Hill Road price per square foot or even doing a, you know, expansive build out. I mean, you know, the cost is immense and you can go back to, you know, your values. And is having FaceTime fundamentally aligned with our core values?

19:04Does it serve them? Does it feed them? That can be, you know, or are we awesome remote and we save our real estate bucks and our, you know, our tenant improvement dollars to go and have a really awesome retreat two or three times a year where we get that in-person connection that we need to feed our culture and our values. So a lot of that, again, is like a perfect filter for MVV. Yeah, makes sense. And I imagine that a number of folks listening now who maybe they've started their firms, but they haven't set this, you know, spent time thinking through this. Is it too late? Or, you know, what would you counsel them?

19:42Yeah, never too late. Because, you know, and I see this so much with firms that we work with, especially when we get in pretty early. What's happening in, you know, year one and two, it looks so much different in year three, four, five, six and beyond. And your mission, mission, values isn't locked in stone, you know, forever thing in the sense of it should evolve and change as your firm evolves and evolves and changes. And you should be going back regularly to check in with it and evolve it and iterate on it. And I think the thing you really hit the nail on the head with is doing it as a team, as at the leadership level, you have to have alignment and you should be doing this together always and make it fun.

20:30You know, make it a team retreat, make it a tradition, a ritual that's special to you and your firm. And, and yeah, it is so much a part of, of the true, you know, partnership alignment and long-term stability. and if you guys can all agree on on these core things you know you're really setting a strong foundation for success yeah and so you're saying it's also how often should you revisit i mean is every six months too tight you know is it on a front cycle basis i mean this is your this is your you know your foundation so you don't need to you know kick the cement too much yeah you know and i think you know again your firm is unique to you so if checking in on them as a part of your annual strategic planning feels good amazing i would say my recommendation would be probably every new true fun cycle um as part of like kind of the pre-marketing exercises like just do a gut check on them do they need updating are they still relevant to us today and maybe the answer is yes and onward we go and maybe you know you tweak a thing or two but i think probably every fun cycle is a good, good cadence.

21:41And if you want to be more aggressive, then good on you. But, you know, they're feeding things like authenticity, integrity, and personal reputation. And those things probably aren't very malleable. So no need to go back to the well too often. Yeah, makes sense. Amazing. Let's shift gears a little bit and talk about how this relates to hiring and team building. Certainly, that's kind of the most important part of any venture team are the people that are on it and their ability to execute. So how would you align or explain, you know, kind of the MVV values into that hiring process or experience?

22:18I think it absolutely should be a part of the experience. I think it's something you should share in your JD or I think it's something you could put on your website if you felt so emboldened. But I definitely think if not on the JD, within the first interview process, like it should be put in front of candidates. I think you'll immediately weed out people who are not in alignment with you. And of course, like being in a venture firm, whether you're partner level or not, I mean, it's a, typically these are small teams. It's a very intimate working environment. It feels, I think at the partner level, like a marriage and at the team level, like a family.

22:53And, you know, you want people who are aligned with you, who are excited to show up and bust their hump to be there and give you their all. And I think getting your mission, vision, values incorporated into your hiring process is an awesome way to ensure that people coming to your firm are attracted to you for the right reasons and stay in your pipeline because they, you know, they buy into what you believe in. And I think, you know, employees, especially whether they're on the, you know, investing side or their backup house, you know, there's so much training and institutional knowledge that's required to, you know, really have an impact when you come into a firm for the first time.

23:35I would say like most back office folks take a year to fully wrap their brain around the role and get up to speed on institutional knowledge. So, you know, that's a significant investment before, you know, they can really activate and into the role. And on the investing side, you know, it's, you know, we can debate how long it takes for someone to become a great investor, but, you know, maybe you have a mission, vision, values, that's a two-year and out associate program, but maybe you want to hire more for the long-term or you're trying to cultivate uh future partners and leaders of the firm um you know getting this aligned day one is you know game changer and making sure that you're bringing the right people on the door and building building the firm with the right kind of humans and i think people feel like you're going to invest in them too when you when you lead with what you believe in and it is an investment and hopefully they'll be inclined to stay longer because you know they love it too yeah and the expectation is set of timing and expectation.

24:34And misfires are expensive. And your time is valuable. So let's not waste it. It's precious, right? Yeah, totally. And you've seen so many of these years, you know, thinking through, I mean, hiring, yes. And then the other flip side of that is like succession planning, right? As GPs start to think about moving on and passing the torch to the next generation for true leadership. You know, can you share some some learnings of MDV values or MBV there as well? Yeah, I've had the pleasure and I guess, non direct pain of seeing some pretty significant legacy firms pass leadership across. And then small firms kind of struggling to figure out how to compose the right team.

25:21And I think finally, the LP landscape is shifting enough that I think in the last decade, there was a lot of pressure that LPs put on GPs to hire or bring, not start a fund solo, bring in somebody else. And I think that, unfortunately, in certain situations forced a lot of marriages that weren't the right fit. I think they're finally softening on that, which I'm overdue. But, you know, all of this is to say that legacy planning is not called a legacy for nothing. It takes a long time to not only design a firm transition plan, but also pull the pieces together. And even when you start to execute on it, it takes many, many more years for all of those pieces to come together and align and truly transfer, you know, the baton to, you know, the next crew that's coming in or how you envision your firm being led or legacied.

26:22legacied my humble opinion and based on all the wild things that I have seen. Hiring a new partner, the courtship, minimum six months, unless you have a pre-existing relationship up to a year. I think you really need, like it is a marriage, you really need to get to know somebody. You need to do very detailed background checks on each other in terms of, you know, talking to former founders, talking to former colleagues, spending time, genuine time with each other. I always, I think there's a joke, you know, get on, get on a six hour or more flight with somebody, sit next to them and see if you still like them when you get off the plane.

27:02It's funny, but it's, it's, you know, that's the kind of person you want to, you want to, you know, really build a firm with and finding those relationships if you don't already have them in your, you know, in your network and in your prior experience takes time. And, and then beyond that, you know, if we're talking multiple GP led firms, you know, adding headcount means adding complexity from how you want to run your shop, um, how you make decisions, how you, you know, from voting on deals to, to, to bigger, to bigger and smaller things. And, and, you know, really making sure to your point, you know, that you have alignment as a team and adding more leadership to the pool, it makes things complicated and can kind of unsettle whatever was the normal before.

27:54So allowing for those types of transitions and not making knee-jerk hires and really creating a transition plan, ideally in between fund cycles, you know, doing wild partner swaps in the middle of a fundraise is, you know, typically not a good signal unless it's a special circumstance. And then when you do make those changes, giving a couple years for them to fully settle in and adjust and then make the decision about what's next. And now we're talking, you know, a decade long process. And I really push firms to think about, you know, especially if they've got senior leadership, any type of leadership that's, you know, we can all argue about what retirement age is, but, you know, who are, you know, on the cusp or even looking onto the horizon of what that is, you know, that's a 10-year timeline to get ready to transition.

28:43And having these conversations now is so important. So you have the timeline to start planning for them. You know, again, going back to like hiring, you know, junior investors, you know, associate principal level, you know, they take a decade or more to hone their skills and deploy capital and become GP partner ready. That's a huge investment and needs to be obviously very well thought out and plotted against the larger timeline. And then of course, you know, where I love to chime, you know, building a solid back office team that whether it's fractional or in house or a combination of the two that can really support the firm effectively and, you know, give you that lift that you need.

29:24And, you know, it takes years to fully formulate and, you know, and so and train up and really, you know, impart your institutional knowledge onto and the more fun cycles they go through, the stronger they become. So again, we're talking, you know, years that become decades. So, you know, I think your firm or legacy legacy plan should be as, you know, built into as long as fund cycles last. If you've got, you know, three vehicles actively deploying or, you know, your layered management fees and you're looking at to raise another, I mean, we're talking rough, what, 10-year average cycle, you know, it's 40 years of care that your fund needs.

30:04And what's your plan for that, both short and long? And what's your thinking about bigger picture, you know, that 40-year timeline is an example. What is the legacy that you want to leave with your firm and who are the people, again, going back to mission, vision, values, who believe the things you believe to be true and can embody that and that you want to impart, you know, this thing that you've built onto and ensure that it, you know, it trends in the right direction, right? And then also, you know, part of legacy planning is unfortunately Murphy's Law, planning for the unexpected, you know, what can go wrong, will go wrong.