Brian Schwartz — Canaan scout

Brian Schwartz is a hub of LA startup deals, a scout for Canaan Partners, the founder of SIZE advisors, SIZE capital, and an advisor to unicorn startup goPuff.

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Brian wears many different hats and is a hub of the L.A. venture community. Brian is a scout investor for Sandhill Road-based Canaan Partners. He’s the founder of SIZE advisory group and SIZE Capital. He has deep marketing and operational expertise from his time running global retail and marketing groups at DreamWorks and Expedia. Brian, is that a fair summary, did I get it right?

I think you got it 100 percent correct. Great.

So DreamWorks, Expedia. And now you’ve been you know, as I said, you’re really you really are a hub. You say that you send deals to everyone and I have seen that to be true. But start a little bit with your background.

Yes, so I’m an operator. I spent 10 years corporate roles, I lived in London for three and a half years and I went to school part time for my masters in finance while working a full time job for an early stage company.

They put me in a sales role overseeing kind of the UK PNL in less than a year totally transformed that market and they asked me to move to L.A.

I was there for about six months and then I joined DreamWorks Animation, was there for about six years. First three, I worked in marketing for the films internationally. And then the second three years, I work for a gentleman named Michael Francis. He was previously the chief marketing officer at Target.

Now, he worked very closely with Wal-Mart and he was our chief brand officer, moved over to retail consumer products, retail marketing, retail loyalty, merchandising, essentially owned the PnL for all DreamWorks branded consumer products and ultimately left when they got sold to Comcast and made the move up to Seattle and joined Expedia.

I was at Expedia for about a year and a half. I was vice president, global marketing there for the hotel group. So truly global had a team in 12 countries, oversaw seven functions of marketing from digital to brand creative operations, et cetera, but just wasn’t really happy in my job. I hired an executive coach between the two and I did it because DreamWorks was twenty five hundred people, two years, thirty thousand people and I thought I could use some help.

It’s always a joke. I paid a guy a lot of money tell me to quit my job and that’s what happened.

Can you take the experiences of running, you know, global marketing campaigns?

And when startups come to you, you know, what are you usually coaching them on? Yes.

If you would have asked me when I was at Expedia, I’d be like, no way. I think the biggest realization was that it’s shocking how much startups could learn from big enterprise and vice versa, how much big enterprise can learn from startups just in terms of nimbleness and getting stuff done.

So I learned very quickly a superpower I had I never knew I had, as I could sit with the founder for 30 minutes and completely dissect their business and figure out incremental revenue streams and incremental ways to be able to drive traffic or conversion.

The one thing I would say is when you’re not in a corporate role and you’re kind of on your own, it’s hard to learn, right? Like in a corporate role, you’re always learning and you’re always challenged with new things. So I used the challenge of meeting founders and entrepreneurs. Just learn about business. And I really stretch myself like all me, my sweet spots, consumer or B to B to C, but I’ll meet like gene technology companies or things that are like really outside of my wheelhouse just because I want to challenge myself to learn as much as possible.

So how how if people want to learn from your experience, like how do you sit with someone for for 30 minutes and then help them find new incremental revenue streams or something like what?

What sort of process? How can we create that? That’s a good question.

For some reason when they start talking about the business, just my brain works in a manner where I just start identifying ways for them to be able to transform their business and take it from kind of the current stage. It is to quote unquote that hockey stick growth.

And so if they’re trying to get to that hockey stick inflection points, you know, are you usually coaching them on growth marketing type initiatives?

They could they could follow. So I would say the answer should be yes, but the reality is it’s all people, right? So typically you get the best idea in the world, the best business in the world. But if you don’t have the right people on the right processes, you don’t have the right culture. That’s the stuff that I really start with. So, you know, taking my own experience of having an executive coach, one of the founders here definitely goes for our company.

We all know got a coach and I kept preaching to him, get a coach, get a coach, get a coach. A week later, he’s like, Brian, you just changed my life. And I’m like, yeah, how would you like? I had the experience myself. Like, it is life changing and a lot of the coaching for his basket is really and he said it perfectly. He he’s like, I have to go from a founder to a CEO.

And I’m like, that is the right statement. Because being a founder, you’re rolling up your sleeves, you’re doing a lot of stuff. But as you start to grow in scale, you’re being a CEO it’s just about how do you build a culture and how do you attract and retain the right talent to be successful going forward?

So I’ve I’ve gone through different, like culture exercises, I have a question for you, like how how do you help someone build the right culture or how do you help them dissect their culture even? I think it starts with you as an individual, first, you need to do a lot of self inflection. Again, I’m not I’m not, quote unquote a startup founder, but I kind of did the self reflection myself when I realized, like, what my personal values were and then what my what the work values or culture is already created.

So I think as a founder, your personal values, one hundred percent need to align with the culture you’re trying to build. Otherwise you’re not going to be a good fit for your own organization. And then from there, once you bring on the first employees and you know the guys that go off, which is a company, I advise they told me they got this advice from their investors that the Series B, which I thought was phenomenal, is the investors that take 30 days to do nothing with the business and just focus on the culture.

And a lot of it was a bottoms up assessment and survey of understanding all the people that are already there already on the team. Why do they come to work every day and what excites them? What do they feel is the mission?

Yeah.

So Go Puff is a great example because if I understand, go puff.

It started it was started by a founder, a couple of founders when they were in college and then, you know, has raised hundreds, hundreds and hundreds of millions of dollars maybe from Softbank.

They got a huge I don’t know whether there’s a Series B or what it was. What has been sort of your involvement there?

So just to backtrack, it’s probably at like the equivalent of like a series E who is the Softbank investment? So that was a seven hundred and fifty million dollar investment.  Funny enough and actually leaked wasn’t supposed to get out there. There was a whole article in the information. The great thing about Karpoff and I really admire these founders and they’re young to your point, they founded it and Drexel there was twenty eight and twenty nine years old. Business is going for six years is if you’d gone on their crunchbase prior to that announcement, like the last fundraise you would have seen was their seed round 

So, yeah, you know, in total, they’ve probably raised just under a billion dollars valuations, probably a couple billion dollars at this point.

Do they serve L.A., but not in L.A. and they’re not in New York. So part of it is those are two of the more complex markets. They started in college towns because if you have to think about their business model, their distribution centers. So that’s the courts, right. Bringing back and then having these independent contractors or in the state of Indiana, they’re full time employees who pick up and deliver super fast from the DC to the customer.

So New York is problematic because as you can imagine, bicycles, cars are really difficult to stop on the side of the road. It has its own issues. And L.A. is really difficult because you probably have to drive 30 distribution centers to deliver within 30 minutes, which is some college towns, typically within 15 minutes. But in major metros, they deliver within 30 minutes. So, you know, myself living in the valley, if their DC is in Venice and it’s rush hour, there’s no way I’m getting in 30 minutes.

So they’re going they are going to come down at some point. They use Dallas as the example. Dallas, I think they dropped thirteen distribution centers, which was the most they’ve ever done as kind of a case study to see how it will work out. And hopefully within the next year or two, L.A. will be on the road map as well. And so one thing you told me about your role as an adviser that I liked is he said sometimes you’ll say the things maybe that the VCs won’t or maybe the other board members won’t.

So what’s like what will you say that other people won’t? The truth.

So I think we talked about this before. And I and this is no disrespect to anyone. And I’m sure, you know, the reality is when you have a venture fund, your duty is to return to your LPs, that is the goal of a fund. So you could be sitting on a board in a conversation with a company, and it could be all about what is your goal and mission, and it might not necessarily align with the business.

So I think I tell you about this for there’s a business in town who had an offer from Wal-Mart to buy them for a lot of money, and the VC bought it because they said they could get a much larger valuation later on. And now the is insolvency. So it’s just a great example of like if I’m a founder and I put myself in the founder’s shoes, life is long, life is a journey.

So if you can get an exit and get a single or double, I take it and run and move on to the next thing. Right. You’re eventually going to get your home run, but you don’t need your home run immediately. You’re going to have three, four or five, seven different things that you’re going to do in your career that if Wal-Mart called the Wal-Mart like one of the largest companies in the US comes and is going to give you a cash and stock offer, I would take it and run all day long.

And obviously, a VC fund might feel differently.

Well, that brings me, I guess, a bit if we could talk a little bit about your scout investing. Sure, so I met Hrash, one of the partners at Canaan, probably like three years ago, pretty early in my journey, and we just became friends. And as I started to network and meet a lot of different folks and I started to come across a lot of different opportunities and I would send a bunch of their way.

And as you noted there, San Francisco, as well as New York based, didn’t really have a presence in L.A. And I was seeing just a bunch of really interesting opportunities in L.A., but also outside of L.A. and I kept sending it their way. So when they decided they were going to start their first scout fund because they haven’t done it before, he called me and said, would you be interested in doing this? Because obviously you’re sending a bunch of really interesting opportunities our way.

And I said, sure, absolutely. So fast forward a year later and 18 investments later, super active in the space. I have to be really clear with founders that the strategic value is not necessarily me, it’s Canaan as a VC, because the whole point of the scout fund is, you know, hopefully Canaan builds an early relationship with the portfolio company and then it leads to a potential lead investment in the series A. So I say, look, they’re going to bring you into their ecosystem.

You’re going to be like any other founder who’s part of the portfolio. You’re going to build a relationship with them. And I’ll be your liaison as well. But that’s the real value add, and most scout programs, as I understand them, you know, they’re giving you some allocation of their capital and you get to make sort of autonomous decisions about what companies to invest into. But then the idea is that Canaan would then lead the series A. Pretty much, I would say so far, every deal I’ve submitted has not been like they haven’t said no to, if there’s like a questionable one, like there was one that you know of that happens to be a UK entity, I send a note before I submit the deal memo to see if that’s something that we can do, I think it’s really interesting for companies to know. They know that you are a scout, know who is a scout, because I think that, you know, then you get all the infrastructure and support of of of someone like Canaan behind it, which is interesting.

Well, I would also add to I would also add to is, you know, a lot of times the best deals come from who you know, in the network. With that said, I recently put scout investor on my LinkedIn profile on the amount of outreach, cold outreach I get is pretty crazy. 

I noticed that. And it’s we had Mike Stoppelman on the show and he’s a scout, but he doesn’t talk about for whom. And so, you know, because there is this, as I understand it, for your checks, Canaan probably does not appear on the cap table. Right?

Correct. Yeah. So so it comes back to like they’re not on the cap table, but it’s really your call. You’re getting a name, right? You’re getting a leg up with the relationship with Canaan versus any other VC out there.

Right. But as you said, it’s not what is paying your bills. So so tell me more about SIZE Capital and SIZE Advisors.

Sure. So as I was kind of going on my journey post Expedia, the advice I was given by Neil Goldin, who was the former CMO at McDonald’s, was going to meet three hundred people and you’ll figure out what you want to do with your life. And I’m like, that’s pretty good advice. So I took it to heart. Past two years, I met just north of two thousand people. And as part of that journey, I started to meet a lot of people like me, you know, for some reason other.

They, too, were done with the corporate world. They were all former C Stewart acts who were advising, consulting for a multitude of high growth companies, but each one doing it in their functional lane. So finance is doing finance. Marketing is doing marketing is doing it. My whole thesis was why don’t we bring them together as the dream team where collectively we could add a lot more value to growth stage companies than we can individually.

But I would say per our conversation before most of the problems happen, when you get your largest injection of capital to date, which is typically the series B, so I like to say were quote unquote bringing some adults into the room.

So how it typically works, which we’ve learned works the best way as we go in and say, look, here’s where you’re at today from a valuation standpoint.

Here’s what you want to get to. It’s kind of like an a la carte menu. What are the one or two key functional areas to get you to the next? Capital raise a liquidity event at a larger valuation. So at the core size of the business, we’re not doing it for sweat equity. But that’s one size capital comes into the mix. So just when you were talking it it has some similar sounding characteristics to like an accelerator and not I feel like a lot of accelerators will talk about being able to bring in that sort of talent and help people get to the next stage of fundraising.

But they’re just doing that at the sort of seed or precede to series A stage.

Is that a fair comparison? I think it’s a I think it’s fair-ish comparison. I would say there’s probably two. So there’s private equity funds who have teams of operating partners because they have large AUM, and they can afford the level of talent on the management fee. And then there’s the other role.

There’s there’s accelerators that are like pre-seed and seed. But again, these companies can’t afford the fees. So the operators are not getting compensated what they would get if they were a private equity fund, for example.

And so SIZE capital, that’s where you’re actually getting. The equity side of things; SIZE advisors is just payment.

I always say I’m an operator at the core. So my partner, Jeff Kendig, who leads Size Capital, I mean, he’s an investor. He’s been in private equity and venture for 15 years. So he diligences is these companies just like any investor would?

And I keep using this term that everyone tells me I shouldn’t say. It’s like we’re essentially insider trading within a private company. I mean, like we’re inside the company. I shouldn’t say that. Right. I know. Right.

But I but I say when I say it anyways, because, like, we are inside the company, like typically the best engagements are we’re working with them for six to eight months before they raise capital. We can do any diligence calls with funds and family offices with them and give our point of view. And then, oh, by the way, typically we will invest in a warrant or a convertible note discount ahead of a much larger rate. So it’s not there isn’t necessarily a price round. It’s a note, as you say, or an SBB.

No, it’s a note or a warrant. I mean, what we’re doing right now is because we’re still early. So on this part of SIZE capital or doing SPVs right now in our companies, because it gets like our family office network ability to have choice as opposed to having like a committed, quote unquote, fund. We’re going to kind of play it by ear at some point, maybe in a year or two we might actually raise a fund around it.

I kind of like going it to my friend Adam Freed, who has the K fund where there are about a twenty five to fifty million dollar fine, but they have about seven or eight family offices that actually give them access to like two hundred and fifty million dollars in capital. Because you got to remember, like we may look to write like a one to three million dollar, check at like a Series C, but that’s going to be like a thirty five point fifty million dollar round.

So if we have our family office partners, in theory, they may pay us a fee on the one million bucks that they can write, a ten million dollar check with no fee and no carry directly in the company.

And so if you’re coming in and the companies at 10 million in revenue and you’re helping them create a strategy to 5x, that 10x that 5x, you know, how do you create a strategy?

I mean, maybe that’s a very basic question of like I went to business school and how do you think about the strategy components. There’s strategy and execution.

So, you know what what VCs do and I give them credit is they make intros. If you if you ask founders, hey, this VC sits on your board of this VC investor, what have they done?

They said, oh, they made an intro like once a month to this person or this person.

So I do that scale, but I end up but I join for all the meetings because typically these companies are retail technology, marketing, technology, restaurant, technology company, which is where my background and skill set is. So I get immersed into the business and actually help them on the execution side. So long story short, it’s not just about the strategy, but it’s actually being able to help them get the closure on deals. Got it. And one thing you said there was you said you went out, you know, you got the advice from the what?

McDonald’s, CMO, Tagami, you know, a few hundred people. You met 2000. Right.

And here this year, clearly this hub in the community, do you do you have tools to sort of productize, institutionalize, to actually make that work for you?

Like, do you have massive air tables of your friends, all classified in certain ways, or what are you doing?

So I’m going to give you my secret. Yes, please. There’s a few different things and you’re going to be like, you’re crazy. So I typically. So let me be really clear. I do everything I say to people. And that in itself, I feel like it’s an anomaly because and it’s sad because if you say you’re going to do something, you should do it. And a lot of people just don’t. So if I look at a week time, typically back to back meetings, calls all week, so on Friday evenings and luckily I don’t have kids, if I have quit when I have kids, this whole strategy is completely out the window, you know, Friday evenings and even Thursday evenings.

If I can get to it, I start doing all the follow up from every meeting and call I had the week before. So that’s number one.

So I make sure everything I said I’m going to do, if I’m going to connect with this person, I’m going to do this, this, this, everything’s done. Then what I do on Saturday morning is I go back to my inbox from the Saturday before and I go through every single email that was emailed to me for the week. And the ones that have like an action I like a lot of women just respond to if I hadn’t. But the ones that have an action item, I’ll open in a new tab to be able to address it on Sunday.

And then the second part of Saturday is I go through all my set mail because I typically send anywhere between two hundred and three hundred and fifty emails every Monday. So my schedule goes Monday and Tuesday are insane Wednesday gets better, Thursday is good. Friday is like amazing, right? Because it goes every single time. So I’m going back to on my set now for any follow up that I need to do. And then on Sunday, any action items, which is usually the things that just take a lot more time.

I do Sunday and I try and do it on the mornings, on both times and be done by noon so I can actually go enjoy my weekend.

Did we cover everything we need to cover about your investing and advising activities?

Well, I would just add on the size capital front. The other thing we’re looking to do, which I don’t think there’s a bunch of people out there doing it, is we’re looking at least to start to do one or two control investments for a venture backed companies that have gone kind of sideways somewhere along the way. I’d like to say probably like the bottom one third of a VC portfolio. You kind of mentioned it before. You know, once you’ve been in it for seven or eight years, on the cusp of profitability, just can’t can’t figure it out.

And there’s not really an exit that’s there in the VC is just kind of stop caring about it because they want to focus on the winners. Our thought is, could we find one or two gems in there, similar criteria to size, like real revenues, like ten million plus in revenues, but maybe the cost side, we just can’t figure it out and essentially take a controlling stake from the VC and deploy our advisory team onto the company to kind of help reimagine or rebuild it.

So this kind of comes back to the private equity approach, but taking it to growth stage venture, but having economics that are much more highly in favor of the operators, the folks doing the work, because as part of my journey, you know, I went down the route of potentially joining a private equity fund as an operating partner. And I love the fact that I’d be able to work with so many different diverse companies. I didn’t like the fact that I was going to do all the work and the investors were going to keep the majority of the money.

So I wanted to create a model where if you’re an operator, this is like the inverse of size. Like we are really doing it for sweat equity. There’s not going to be a lot of cash component. There might be minimal, but if you turn it around, you are really going to be compensated heavily for doing it. So we haven’t done one yet. We’ve been looking at a lot of different things, but we’re in in the market for that.

So being on this podcast is super helpful because it’s really good to get the word out. Once we formally launch, we’ll try and do it in a much better way to VCs to say, hey, you know, I’m sure there are some in your portfolio that you love for us to take a look at. Like take it to us, because there’s these shops out there that help, quote unquote, wind down companies and we want to see it before they go to those shops because we think we could still do something before they start selling them off for parts.

So onto the personal questions. And so so why do you do it like you’ve got all this hustle, like that’s that’s people describe you, you got so much hustle, you’re working on it Saturday and Sunday.

You know what?

What are your goals for yourself? Yes. This comes back to the executive coach is I figured out that my personal mission is to help others and give back. You know what I’ve become great at, which I’m not an executive recruiter is helping people get jobs.

I think there’s more because a marketplace in a business for someone to create and I just kind of do it for fun to actually represent talent like people, individuals, because all the executive search firms represent the companies and they don’t really look out for the best interests of the talent. And, you know, because I’m so connected, like I love helping people get jobs. So I think that help about 12 or 15 people get jobs in the past year. I’m still super help, like trying to help more people get jobs constantly.

Yeah. Now I’m in L.A. I’m new ish to L.A. and everyone’s got a manager and an agent and there’s, there’s a lot of individuals have that right.

Why can’t you have like if you’re a great talent and you’re a CEO or CMO or a CFO, why can’t you have an agent.

Yeah, me maybe that’s a coach. Well, Brian, it’s been great to get to know you better. I’m really glad that you are providing this sort of hub connection to all these the venture backed companies in L.A. And how can people find you?

You can find me on LinkedIn, BrightSource. You can email me at Brian at SIZE dot VC. Normally in a non covid environment, my office is our tavern in Brentwood and Montage in Beverly Hills. So you can normally find that’s great fun.

Great. Well, thank you so much for coming on the show. That’s perfect. Thank you so much for having me. Really appreciate it.