最近7年，托切瓦一直在风投机构U.S. Venture Partners中从事网络安全和企业软件方面的投资。上周，她被公司提升为普通合伙人。最近，笔者对托切瓦进行了专访。
She grew up in Bulgaria (like me!) during a turbulent time of change when the country was struggling to emerge from communism. Although her parents were doctors, they each earned only $150 a month.
Toncheva spent summers with her grandparents on their tobacco farm where they would pick tobacco leaves and work the land. “As you can imagine, it was just very manual, labor-intensive, and unpleasant work,” she said.
But it was on that farm where her grandmother gave her advice that Toncheva would carry with her as she immigrated to the United States, graduated from both Harvard and Stanford, and entered the cutthroat world of venture investing. Her grandmother said, “If you don’t want to make a living with your hands, you need to invest in your brain.”
“Her advice ultimately help me grow into an independent, self-sufficient, and self-reliant adult,” Toncheva said. “And those are also the qualities I look for in the founders I back.”
Toncheva moved from Bulgaria to the United States in 1998 on a full scholarship to Harvard University. From there, she worked at Microsoft as a software engineer, went on to get an MBA from Stanford, and joined Venrock for her first job in venture capital. She became the first institutional investor in Cloudflare, a San Francisco-based network performance and cybersecurity firm that just went public.
Toncheva has spent the last seven years investing in cybersecurity and enterprise software companies at early-stage investment firm U.S. Venture Partners. Last week, she was promoted to general partner. I recently caught up with Toncheva about all of this and more.
Below is our conversation.
TERM SHEET: When you were 15 years old, you created a peanut business that generated more revenue than the combined income of your parents. Tell me about that.
TONCHEVA: I was born in a communist country, but my formative years were spent in a country that was trying to define itself, embrace capitalism, and open up to the world. It was a very turbulent time after [communism fell in] 1989 socially, politically, and economically.
There were entrepreneurial-minded people who tried to take advantage of the change by starting businesses. Many people around us were opening small mom-and-pop shops — except for my parents. They were doctors and they felt very limited by their careers. So I remember thinking, “It’s kind of unfair that my parents spent so much of their lives studying, investing in their careers, and being good at what they do, yet we’re still barely making ends meet.” I wanted to help, so I decided to try and start something on my own. What entrepreneurship started to mean to me was courage, expression of freedom, creativity, and growth. It had this very noble, very positive connotation in my mind.
So I started buying raw peanuts from local farms, and I began roasting them, packaging them, and selling them through wholesale retailers to restaurant chains. I created a real operation that was powered by me and my younger brother. With that very basic business, I made more money than my parents combined. That was the beginning of my self-sufficiency and independence that my grandmother always talked about. It was both exciting, but also disillusioning in some ways to know that I can make more money than my parents with a lot less education and experience.
Why did you decide to immigrate to the United States?
One of the things that was so defining for me in my childhood was that my parents valued education, ethics, persistence, and commitment to personal growth. My mother was an ENT (ears, nose, and throat) surgeon, and my father was a neurologist, yet they still barely made ends meet as a family. That was the reality of communism — where everyone was supposed to be equal — that made no sense to me. I knew I didn’t want my life to end up like that.
During that time of change in post-communist Bulgaria, many people of my generation saw the U.S. as the symbol of meritocracy and the victory of capitalism. It was a very natural place for me as a teenager who wanted to build a better life to end up, but getting to the U.S. was very difficult.
The person who opened my eyes to studying in the States was a young American volunteer who was teaching English in my hometown. Through him, I learned that I could apply to schools in the States, that they give financial aid to foreigners, and that it’s a real possibility. It was a long process, but I ended up contacting over 100 schools. I asked all of them to waive the application fee, and I applied for financial aid at every single school. I was very lucky to get into 12 schools on full scholarship.
So I moved here in 1998, started at Harvard, and studied computer science even though I had never owned a computer and was very clearly behind all of my classmates. I thought technology was a growing market, and there was a real need for software engineers. I worked the whole time while I was at Harvard as a teaching assistant, later did internships with Microsoft during the summers, and ultimately, ended up working for Microsoft as a software engineer in 2002.
You mentioned capitalism. There’s increasing backlash against capitalism with critics saying it needs a major overhaul to better serve society. Given your experience growing up in a country where you witnessed the effects of communism, do you think capitalism needs to be reformed?
I firmly believe that we live in the best place in the world, and I say that unapologetically. That being said, I also realize that we have some challenges we need to work through.
On the other hand, capitalism has left many people disillusioned. The equality gap is wide and widening, and it’s become a vicious, reinforcing cycle. I have to say I do appreciate the discussions going on especially by capitalists like Ray Dalio and Jamie Dimon who talk about ways to create more upward mobility. I think these are good discussions to be had, and it’s a way to evolve capitalism with the times.
How did you end up in venture capital?
I spent four years at Microsoft as an engineer and a product manager. There, I worked on security products and then decided to go to business school. I attended Stanford, and that’s how I ultimately ended up in venture capital. Toward the end of my second year, I was introduced to Venrock, where I was focused on helping the team source investment opportunities in enterprise software and cybersecurity.
While you were at Venrock, you led the first institutional investment round in Cloudflare, which just went public. What did you see in the company and the team that gave you the confidence to back them so early?
I invested in Cloudflare exactly 10 years ago. There were three things that stood out to me. They were going after a really painful problem, which was that 50% of traffic is not authentic. It could be malicious. They were going after a customer group which was completely ignored, which was the long tail of the web. They said they would build a service that cleans up traffic to web properties from the long tail of the web — and they would do it for free and find other ways to monetize the business. That was very counterintuitive to how most security companies think. Most security companies would build a product or service and try to sell it to the biggest customers — the ones that have the biggest budgets. It was very contrarian what they were trying to do, but at the same time, it made a lot of sense.
The team was thoughtful, persistent, and they had a clear vision around what they wanted to build. I just had a lot of faith in them that they would execute, and I’m really happy with how far they’ve come on this journey. Seeing them go public made me feel validated in my belief in them from Day 1 when they didn’t have anything — they didn’t have a single line of code.
For me, it starts with the founders and how clear and persistent they are in their vision. It really is a character judgment that’s very difficult to explain, but it’s one of the most important aspects of early-stage investing.
How do you tell if an entrepreneur is a true visionary or just completely delusional?
It’s really hard. I think the same person can be both, and probably many of them are both, so it’s very difficult to distinguish between the two. I think the ability to execute is so important, and that’s where the distinction lies. Successful founders stand out in their ability to perform and execute.
I also value transparency, honesty, respect for the facts, and self-awareness. I think a grasp for reality and pragmatism has to be there. If those things aren’t there, it’s almost impossible to work collaboratively with the team.
What sector or company are you most excited about right now?
I work on several areas at USVP focused on the enterprise tech space, but the one I feel most excited about is cybersecurity. I think security problems and security threats evolve faster than issues in almost any other industry. Security threats are aggressive, they evolve really fast, and their mutations are almost infinite. Because of those dynamics, cybersecurity is a very challenging problem to solve.
Technologies become obsolete very quickly, and innovation cycles have to be very rapid. Even in the worst of times when budgets get cut for everything else, cybersecurity budgets continue to grow 10% year over year. That makes it a very attractive market for me to continue investing in.
What do you think about emerging assets like Bitcoin and other cryptocurrencies? Have you invested in any blockchain companies?
We have not made any investments in Bitcoin or blockchain technology. It’s an area I’m following closely and studying, but I don’t feel prepared to make investments in it just yet. There are definitely opportunities in the infrastructure building in that ecosystem to make investments. But I also think as an industry, it’s still in Version 1. There will be more iterations and more opportunities for investors to play in that space in the future.
Do you think blockchain technology could have implications for cybersecurity?
For sure. I think blockchain as a technology could be quite interesting when applied to security, and also the other way around: Security is a very important consideration for the existence and acceptance for the growth of those assets. Security is a foundational layer and it has to be figured out before [crypto assets] become broadly adopted by the mainstream.
It’s been a little more than 10 years since you started in venture capital. How has the ecosystem changed since 2008 and 2009, and how important do you think capital efficiency is in a world of seemingly unlimited funding?
It’s incredible how much things have changed in 10 years. When I started, there were only a handful of seed funds, and now, there are hundreds of seed funds on one end of the spectrum. On the other end of the spectrum, the large funds have become even larger. The abundance of capital on the late-stage is just enormous. As a result, we’re seeing inflating late-stage company valuations, companies staying private longer, and massive IPOs by the time they go public.
In a time of abundant capital, capital efficiency has become even more important. I think capital efficiency is ultimately freedom. It gives you choices. It gives you options. It gives entrepreneurs the freedom to operate and not be imprisoned by their burn rate. Bigger funds talk a lot about growth at all costs and very rarely mention capital efficiency. I think efficient and responsible growth is way more important in the long-term. We’re starting to see some of that with companies going public that are wildly unprofitable. Public investors don’t seem to agree that the growth at all costs is the most important factor in determining whether a business is successful.
Speaking of going public, Snap CEO Evan Spiegel recently said that going public was a very challenging experience. One specific thing he said that’s made a big difference is being more transparent with investors by providing quarterly guidance. How do you see some of these private companies that are used to keeping things quiet adapt to the more transparent nature of the public markets?
Different companies have different boards with different expectations. It’s not as strict or clear cut as it is in the public markets. I have noticed that when a company is doing well and growing rapidly, private investors tend to forgive more. They tend to become less vigilant, while public investors are a lot more strict and much less forgiving.
It’s a different mindset, so it really depends on what type of private board a company has been accustomed to. There are private boards that are just as demanding and detail-oriented as public investors. But for some, being public may come as a complete shock when the CEO realizes there’s a whole new way of doing things now.