Zak MacRunnels has lived a mile from Sand Hill Road in Silicon Valley for almost twenty-five years. It’s a fitting location for this long-time technology entrepreneur who has steered a handful of companies to successful exits. As CEO of Reconstruct, he is helping Reconstruct become a leading technology for the construction and real estate industry. We sat down with Zak to get his advice on navigating the wonderful but complex world of venture. [Reconstruct is a member of Oracle’s global startup program.]
Q: First, congratulations on Reconstruct’s latest news, closing on your $7.7M Series A round with Cultivation Capital. What’s the strategy for the new funds?
A: In order to revolutionize the industry, our investors needed to understand real estate and construction. We get that with Cultivation Capital. Together we make it easy for construction firms and real estate developers to realize efficiencies and savings by integrating our technology into their operations. Reconstruct has roots in Silicon Valley and the Midwest, so we understand the challenges traditional industries face in adopting innovative technology. This capital allows the company to extend our lead in computer vision and machine learning and open offices in Texas, Chicago, NYC and Tokyo.
Q: You’ve had a front-row seat to the changing VC landscape for the past twenty-five years. What are the biggest changes today from 5 or 10 years ago?
First, there are so many more people today that call themselves “venture capitalists” that are really disguised bankers or angel investors. Today, nearly every investor thinks they are a VC. What I learned back in Stanford Business School from my professor Irv Grousbeck and John Doerr of Kleiner Perkins is that it takes more than just capital to become a venture capitalist. True venture capitalists are visionary and can see the future to solve something, not just check writers. The VC landscape is crowded and overrun with investors; navigating the sea of these “logo VCs” is more difficult today.
Second, getting seed money today is significantly easier than years back—and you can get more of it, by a 10X order of magnitude. In 1996, my first startup raised a seed fund of $250k. Two years ago, we raised $2.5M and that was considered seed. So, it’s much easier to get seed, but it’s very difficult to get to the next level—it’s a high bar to jump over to the series A level. There are a lot more good startups, and competition is making getting smart money at the Series A level much harder.
Q: How can startups navigate this increasingly crowded and complex VC landscape to find the right investment partners?
Focus on three things: speed dating to build your pipeline, find a shared vision, and make an emotional connection. It’s as much emotional as it is analytical. There’s so many analogies to everyday romantic relationships—finding the right one in a giant sea of options. You should think of it like speed dating in the beginning. In your first hour of discussion you need to have a “eureka” moment, a spark that demonstrates to you that this VC shares your vision and passion. If you don’t get that spark, move on.
Q: Any red flags that should make founders run for the hills?
When a VC says they like you and think you are great but you should change your business model...That’s a total red flag. A good partner recognizes that you had some success on which you need to build – not pivot.
Second, the classic procrastinating VC. Don’t be too patient. Run from the VC that keeps saying, ‘Let’s follow up in a month and see where we go from there.’ That is a death-trap of wasted time as they keep stringing you along—and you don’t want to play that game. Remember the more they talk with you, the more they learn about your industry and that is then a free benefit to them. It’s typically much more beneficial to them and less so for you. Don’t be this patient and create a deadline for your discussion when enough is enough.
In general, I like to think about it as the Goldilocks fit: Not too hot, not too cold. For example, if a VC is overly enthusiastic and says, ‘You should forecast $50M next year, not $20M,’ those expectations are too high and your chance of missing them creates huge problems for everyone because of the expected burn associated with hitting those inflated numbers. That’s too hot. Run.
And the flip side, an investor who is too cold might say, ‘We like you and will give you a little money this quarter… and if you do well, we will give you more next quarter.’ Run. Find someone in the middle, who also shares your vision and passion.
Q: Why was it important for Reconstruct to find an investor who understands the construction industry?
I feel strongly about this. Life is too short. You need to find a lead investor that either has experience in your immediate market or your adjacent target market. And I think this applies to every industry and space because, if not, you are going to spend more than half of your time educating them after the investment is made. That’s wasted time.
Q: What’s the biggest mistake you have made during the fundraising process and what did you learn from it?
I made the mistake of not getting a lead investor with our industry’s vertical experience. Consequently, I spent every board meeting educating them about the basics of the market – so we were looking backwards as opposed to revolutionizing the future.
Q: Let’s talk exit strategies. How should entrepreneurs approach IPO vs. M&A?
Really simple: build the business to last. Period. Whether it’s IPO or acquisition, it has to be a business that lasts. So, stay laser focused on building your business for the long haul, be tenacious about your mission. Also think about building your strategic partners early.
Most of the time, acquisitions don’t just come out of the blue; often they are part of your partnership network. Start those partnerships early in your growth. Build your business to last, and build your strategic partners along the way.
Q: We have been in a bull market since early 2009. Is that coming to an end soon? If so, how can entrepreneurs prepare for a recession?
I think we are still a good way away from it [recession]. I’ve been in Silicon Valley through three booms and two recessions; and the one thing that prevails in a recession is innovation and uniqueness to survive and thrive. So, from a startup perspective, it doesn’t bother me at all. Our metrics and many fundamentals are strong; I think we still have a lot of runway. When it comes, the weak copycats, and we have some of those now, won’t survive. We intend to thrive.
Q: Corporate startup programs have evolved to be more than just pure equity investment plays. Oracle’s startup program, for example, doesn’t take equity but provides startups access to Oracle technologies, global customers and marketing resources. As a member of Oracle’s startup program, what advice do you have for startups who are thinking about partnering with an enterprise like Oracle?
Oracle does it the right way. You have to have the shared vision right from the start, a win-win partnership. And the win is not always about getting funding. Oracle has all those other inherent values and deep resources. And I really think that’s the most important part. Oracle has been integral to Reconstruct’s growth trajectory through the startup program and the Construction and Engineering Units. Without the power of Oracle Cloud Infrastructure and Primavera P6 integration, we would not have seen such quick adoption.
Startups have to be willing to invest time, resources and staff to execute and live and breathe in that alliance with a corporate partner. You get out what you put into those relationships.
Q: It’s still a male-dominated VC world. What advice would you give to the female founders out there raising capital?
The same advice I’d give to anyone: Stand confident in your conviction and your mission. And do not let any biases of any kind from a few bigots stop you from achieving that mission. Here’s the irony: I’m a Caucasian male and I’ve had absurd biases from venture capitalists throughout my career. I’ve been told I was too young. Then I was told I was too old. One said I was too overweight! So, I would say write off these ridiculous biases and put your time and energies in finding those good, ethical investors. It goes back to the speed dating analogy, there are good ones out there. Accept the things you can’t change and embrace who you are—stand firm in your confidence and conviction and mission—your investor match is out there. Don’t settle.
Q: Where do you see Reconstruct in five years?
In five years, I want to be a verb – the gold standard in the industry. A verb that everyone understands. Just like with Google or Slack people say did you Google it or Slack it? I want people to say, ‘Did you Reconstruct it?’ I want our customers to use our name like a verb—and not think of doing it any other way other than using Reconstruct. That’s the vision and the dream.