Petra Griffith — Wedbush Ventures

One of my new favorite LA investors, Petra Griffith, joins to discuss Wedbush Ventures. 

Petra talks about starting a new fund, how she’s seen venture debt work well as non-dilutive funding, and lessons on the content business from Netflix and Yahoo.

View Transcript

I am excited to be catching up with Petra Griffith today. She built and launched Wedbush Ventures earlier this year after a stellar career in a variety of operating roles at Yahoo!, Netflix, GrandPoint Bank. Petra and Wedbush have really burst onto the scene in L.A. and we have been looking at a lot of great companies together lately. Petra, I feel like I’m getting to know your tastes.

Would you say seed, sometimes precede and and how L.A. focused are you?

Yeah, great question. Yeah. Pre-seed, seed. And I like L.A. I have a preference for L.A. but if I look at the companies that I’ve invested in so far, about half of an L.A. and half are not in L.A. you have this is why we’re so compatible.

We’re exactly the same seed, precede half in L.A.. OK, so start me with a little bit of your background.

Maybe maybe take us back. You’re a product manager at Yahoo! Yeah. Yahoo’s changing CEO’s faster than we can remember.

What were you up to? When I joined Yahoo! In twenty six, kind of in the heyday of Yahoo! Actually joined on the team that came out of Idealab, Overture team that was acquired by Yahoo! I joined after the acquisition.

Spent six years at Yahoo! Really learned and really got deeply embedded in ad tech and spent a lot of time and really got passionate about how do you make advertising a good experience for a consumer and for an advertiser. 

Search marketing is great because it’s a great user experience and a great advertiser experience display advertising less so and so we did a lot of work on on. How do you make display advertising a better consumer experience, native ad social ads, its ability to share an ad, does that make it any more worthwhile? And it really doesn’t left. So, yeah, late last year at Yahoo! In twenty twenty through five CEOs, I was on a they called it a skunkworks project.

We didn’t fit into any of the silos at Yahoo! And every CEO, so we were directly funded by the CEO’s office.

Every CEO that came in was like, stop, what are you doing, how are we spending money on this? And we had our little pitch deck and we’d go out and we present to them and say, Oh, this is great, keep on going, keep on going. And so, like, literally took a month to ship an alpha and it was painful. And, you know, Marissa Mayer came in at that point. I was just emotionally done.

But it was really, I’d been in LA since two thousand and three wanted to stay in L.A. 

And having spent so much time in the Bay Area and seeing just how you have these alumni that leave tech companies and then start the next one and invest in their friends, you were starting to see that happen here in L.A. and that got me really excited. And I joined Grandpoint Bank to set up their venture banking division.

So you join Grandpoint ventures, joint venture bank Grandpoint bank, right? No, no, that’s important. And and doing venture banking, but I don’t even really know what that is. So maybe you could give me sort of one on one.

I didn’t know what that was either. When I started I started Grandpoint Bank was a bank, was private equity backed. The founders had started, I think, two previous banks. Before then sold those and so they’re banking entrepreneurs and they’d raise money and in the 2008 downturn to buy up banks that were good banks but put them together and get efficiencies of scale, they had banked legalzoom and their previous company and legal zoom had there were an angel investors and legalzoom and legalzoom had become the largest deposit holder in their previous bank.

And they’re like, Oh, these startups are great. You know, tech startups help us bank more startups. And and I kind of went into that and realized quickly that with startups, one is not checking accounts, but they want capital. And so set up a venture debt product at GrandPoint Bank and GrandPoint Bank, just to be clear, was very much a community bank, a regional bank. They were about five billion in assets when I left.

Did your traditional banking as a community bank. So what I was doing was a kind of a square peg in a round hole, so to speak.

So maybe you could tell me more about, you know, what startups need to know about venture debt. Yeah, absolutely.

So I think, first of all, it’s a very different animal. And I learned that when I was at Grandpoint Bank, traditional underwriting really looks at the cash flow. Does the business throw up enough, enough cash to repay the loan? And then also you always looking for two sources of repayment. And so there’s a lot of personal guarantees involved. You’re looking at the global cash flow, venture debt as a is it just fundamentally different kind of animal through the venture debt that I did?

A couple of different flavors of it is is your fund is your term loan. And so we typically would help startups with their series’s. If you reraised, you know, a five million dollar series, a venture debt would put on another two to three million on top of your series A and when it works really well, it is not as though there’s some dilution with the warrant coverage, but it’s it’s non dilutive capital for the company. It is.

There are you know, it’s not convertible note. It’s not a convertible debt where your interest rate then, you know, just become something that you repay and it converts into equity, doesn’t convert.

That’s what most founders are surprised about. A lot of times they’re like six to 12 month delays. And when interest has to be paid back and then when that happens, they’re like, oh, we weren’t expecting this. And it’s like, right when, you know, your cash flow is tied and you didn’t hit your metrics, I really think about who your partners.

And that’s one thing I really learned is that traditional banks have a really hard time with venture debt because it is such a different way of thinking. You’re not looking at cash flow, you’re not looking at the regular metrics. Instead, you’re looking at who’s backing this company and will this company be able to raise money in the future. And so I really, as a I would recommend for founders to really look at who is giving you this loan and have they been doing this for a while?

What covenants do you have?

Can you tell me a little bit more? Educate me a little bit more on covenants and warrants? Yeah.

So covenants will be I mean, basically covenants are there so that the underwriter can has it has a check in or forces a check in, because as an underwriter you want to make sure that you’re going to get repaid. And so covenants are basically triggers and sometimes they trigger a default and sometimes it just kind of trigger a conversation. And, you know, when you’re once you’re in default, like that’s the language. You should also look really look at, because if you’re in default, somebody they can call the entire loan companies, you can be in default just if you’re a couple of days late on your on your payment.

And sometimes you can be in default just because you didn’t hit your projection by a thousand dollars. I mean, it’s just it really depends on on what those those covenants are. And again, there’s like financial covenants and the. Or covenant’s like key person covenants like the CEO can’t leave, and so just really look at those covenants make sure you can meet those and then the warrants are it just warrant coverage and they’re usually tied to some sort of exit event.

The thing that I think a lot of people realize is that it’s not the Warren coverage that makes the economics for a bank necessarily, but it’s the deposits. And so these these companies bring large deposits. And that’s why it’s so attractive for banks, because, you know, you’re getting you know, you just flush with cash.

You just got a five million dollar raise that’s now sitting in a bank account. And so venture banks are banks that do venture lending will often require you to move your bank account over to that bank. It’s also like checking to that, like, do they have the right system to can they do the wires the way you want to? Like, that’s another pain point. Hmm.

I feel like a lot of the VCs I know aren’t really keen on having their startups raise a lot of venture debt or raise it early.

But we see a lot more companies as they raise their series A. They get those offers of debt. What what do you recommend?

Yeah, I think that series A it makes a ton of sense if the company is hit product market fit and it’s really just growth capital. I, I’ve seen it be very successful because you can kind of increase your overall raise by 50 percent, which gives you more cash to get to the next level and show more growth. 

OK, so you did that for a long time, but but you moved on from there, so I did. So what next?

Yeah, after Grandpoint Bank, you know, I got it’s a very banking is a very regulated industry and I actually think about that a lot as an investor takes like what it takes to innovate in that kind of environment. I really missed the unregulated world of media and had an opportunity to join Netflix, they were hiring their first product team here in L.A., focusing on originals and really thinking through what is the implications of original content.

And, you know, the culture of Netflix also really intrigued me. So I made that jump.

So so both of those are interesting about the product side and the culture side. But kind of on the product side, you know, what did you learn about making originals and distributing that content and how the product evolves?

Yeah, I mean, I think one thing you there’s a couple of things. I think one is original content. Is marketed often differently, so obviously, like the big shows across, all of the streaming players are marketed offline, but a lot of shows are like especially shows that are generated outside of the U.S. They’re on Netflix that you haven’t seen them out in the real world. And so how do you communicate that this is something worth watching?

If you’ve never seen any of the actors you’ve never liked? The title doesn’t mean anything to you. The communication of that is really interesting. And you really learn that a lot of our decision as a consumer, whether or not to watch something, is one trust in the platform. But to also like what? Emote like what? What is the emotional state that I want to be in for the next hour or two and just winning that trust over and over again?

So it’s like both the like how do you how do you how do you convey different elements of what the show or movie is about quickly to somebody, but also how do you gain their trust in the long term so that they’re willing to try something out new. So spend a lot of time on that and spend a lot of time on international content as well. And just how do you introduce people to content that is not in their language?

Hmmm, really interesting. I’m going to ask you more about content as an investor with your investor hat on. But but just the culture and what did you find in terms of moving from a bank to, you know, content production?

How is that culture changed?

Yeah, I mean, I think Netflix is is a jump from anywhere, but kind of going from from Yahoo to the bank and then from the bank to Netflix was definitely a I remember the first week just being like, whoa, drinking from the fire hose. You know, I just say, like, one thing that’s amazing about Netflix is just, you know, they treat you as an adult and they expect you to perform, but they also give you the freedom to perform.

And that’s it’s super liberating. And that’s the very positive thing about Netflix. I think the the thing that, you know, is hard for a lot of people is is just a constant feedback. Culture and feedback is not always you know, oftentimes the feedback is a positive and you get feedback from everywhere. And so how do you you know, especially as a sensitive person or someone who, like, really internalize this feedback, like, how do you work through that?

And how do you how do you figure out what feedback you want to take and which feedback you want to ignore? And how do you how do you work on that?

One of the people who I really love, Francis Frei, she was Harvard Business School professor who worked at Uber and talked about the culture. And she said feedback should be like five to one, positive to negative.

Hmm. Interesting. She’s like when you train a child or a dog, it’s positive feedback. How do you you know what what lessons do you take from that when you’re working with startups now about how they can build their feedback culture in the right way? I think transparency is really important. So the bank, you have to be you know, you’re dealing with other people’s money and so you have to be very strict about what’s allowed, what’s not allowed, how you train someone.

And so it’s just a little bit about being regulated industry. I grew up in Germany, and the vast overgeneralization, but if you talk to a customer service person in Germany, like they’re problem solvers and they’re like, try to understand what your problem is and then they figure it out.

And in the US, as a general rule, here’s like here’s my script and I will now read to you what I’m allowed to say. And so I always try to think about how do you create a culture that’s transparent, that’s about problem solving, that is not afraid to raise issues and not afraid to probe. And that’s the one thing I have to say that I really admired about Netflix is like you’re constantly probing, you’re constantly debating, you’re pushing each other, you’re questioning the status quo.

And then if you come up with information that proves otherwise, the whole organization will really, truly move around that.

And that’s the thing that I always try to talk to founders about is like, how do you know that? Like, can you prove that? Can you be open to the can are you open to to other data points that might prove or make sure that you’re not on the right path?

Hmm. And what about just one more question? What about sort of going from a bank to a very creative environment where you’re working on originals and there’s, you know, actors and producers and directors all involved?

Was that a big difference just lately? Yeah.

Okay, so you decide to be a VC for these services, always take on linear paths. Yes.

I think if you asked 20 VCs how they became a VC, you get 20 different answers.

OK, so but I do think that’s really interesting. How did you decide, OK, I’m at Netflix now.

How how did you go about forming this fund? Because you started it on your own, right? I mean, you are the only partner at Wedbush.

That’s that’s right.

Yeah. I mean, I think I think also to explain a little bit more like one thing I really enjoyed when I was in banking is that I came to banking with a tech background. And so I was able to really translate banking to to the tech world. And when I looked at what Netflix is going through and here you are, like this tech company who’s trying to innovate in a in an entertainment, which is a, you know, older industry and more established industry.

And so what really intrigued me there is like, you know, being able to to translate and build that bridge between two very different stakeholders, attitudes, cultures and being able to learn both. I hadn’t thought about this.

So I always think I don’t I think of Hollywood as sort of some dynamic, mysterious place that I never visit, but full of creative people. I don’t really think of it as sort of an older, established, almost more old school industry. But I guess, you know, traditionally really has been. Yeah, and there’s a certain way of doing things in Hollywood, like just for example, like marketing, it’s all about or not even marketing, but like all movies are made by demographics.

And what demographic are you going to target?

And and here’s how you’re going to finance it. And and and so Netflix coming in with this different model and also the whole production process of like we’re going to shoot a pilot first. And then if that pilot is going to stop this pilot around and the pilot gets acquired, that doesn’t actually even mean that you’re going to be show out of it. And Netflix just looked at it and said, no, we’re just going to buy the whole show and we’re going to put the whole show on at the same time.

So it was really threatening, I think, initially and still is.

Fascinating. And then you’re like, and now I’ll be a VC.

If it wasn’t quite a it wasn’t quite that transition.

But, you know, I think if you’re in an environment where you look I loved learning about entertainment, but I also realized it was not it was not what drove me. And your conversation with Z in the last podcast was super interesting, like this passion and curiosity question.

And I think I just kind of came to the conclusion that what I get really passionate about is helping people kind of take their idea and grow it. And I really miss the venture days of like finding people who who, like, just astounded me and would come with this insight that I had never thought of and and that needed capital and resources. And and I just I just love the energy of, like, take enabling ideas to actually come to fruition.

And I was not getting that, you know, in the role that I was at at Netflix. And so, you know, I left there with this idea of like, I want to get onto the capital side. I want to get into the early stage side. Didn’t quite know. I actually initially thought I was going to do a debt fund. And so debt is great, but that’s not like that’s not the right that is not the right stage for this. So what I really want to do is equity in like early stage, see, investing. And it’s like coming to that realization as one and then to like verbalising it is another.

And and so I remember it was like August of last year and I just had this realization and I was like, well. It’s a hard industry to break into, you know, how do I go about doing it? And I just remember just having one conversation with a friend and just saying, hey, this is what I’m thinking about doing.

And it was like, oh, OK, now I know how to help you. I was like, oh, OK.

And it’s like, you don’t think of it that way.

Like, you just think about like, oh, they’re going to make fun of me. I’m going to sound foolish or and instead it just enable people to open doors that they were willing to open for me.

Hmm. I mean, is it total aside, I think of mentorship, one of the big roles I think of mentorship is helping people admit what they want to be doing is admit things to themselves. Sort of. But that’s great.

So you sort of started talking about it and and then people could help you. And and how did that evolve into to Wedbush Ventures Fund one?

So I when I was a Grandpoint, being a Grandpoint, had acquired what had a commercial bank at that time and and Grandpoint Bank had acquired that commercial bank. And I had help with that, I had heard that they were interested in an early stage venture fund.

They had that previously set up a private equity fund and a hedge fund SBIC fund. And they own my own brokerage. And essentially they’re looking at what a different asset classes in which they can make investments or sponsor funds. And so, you know, had a great initial conversation with them. 

It also happened really, you know, amazingly quickly, like I had anticipated for all of us to take quite a while. And, you know, I put a just like when, you know, when you you think about something for a long time and then you have an opportunity to present it and it just kind of sat down one night and put my like, here’s my ideal venture fund would look like I put that on paper and the next day presented it to the Wedbush team and they said, this sounds great, let’s do it.

And the rest is history.

Fantastic. And so they are more like an anchor LP, like you’re you’re an independent fund. You just happened to sort of have their name.

Yeah. Have their name there. An LP. They do my back office and they also provide me their platform, I’ll say, I’ve been able to meet the investment banking team and the analysts and and that’s been actually really helpful for my portfolio companies and something that I probably didn’t wasn’t really thinking about when we were putting this fund together.

Yeah, fantastic. And now, you know, in terms of deals and things you’re interested in, you know, I keep sending you things that seem, you know, I keep enjoying looking at deals together.

So I look for things that I feel like I know.

And I also, you know, I’m a one person fund. And so, you know, due diligence is a lot easier if you know the industry and the space. They just naturally gravitate to things that I know. And so the. Yeah, so regulated industries is one thing I always think about or I always just having the experience of coming from a kind of a tech background such as Silicon Valley tech background and then coming into a bank.

And just like how do you you know, how do you think big picture, but still.

Work through like think big picture, but still work with with the regulation and figure out which regulations you can bend, but like build relationships to change and which regulations can’t change. And there’s usually a reason why they can’t change. And how do you work with them that and how do you really build partnerships with people who are already in the industry? I think that’s the biggest thing I saw in banking in particular, is like some of the early stage fintech companies just said, oh, we’re going to disrupt banking, we’re to get rid of banking and like those usually don’t work out.

If you need a bank as your back to build your business, you know, you need to what you need to find a bank that will will think creatively and not just see big risk factor, but you also need to be able to talk their language and get them bought into like that. You thought through the risks and because I mean the one thing I learned in making is that people aren’t you know, they’ve seen a lot of things go wrong.

And so when they ask questions, it’s not to be annoying.

It’s not to be, you know, but it’s just it’s actually very much because I’ve seen it before.

And so so I actually really listen and listen to their question and listen to what’s behind their questions, I think is important.

Yeah, interesting.

So, OK, so your background at at GrandPoint didn’t scare you away from FinTech at all?

How about how about content and your experiences in Yahoo! And at Netflix?

Yes, on the one hand you have like it’s a lot easier to be a content creator now. And there are all these platforms that make it very easy to be a content creator and authenticity like tik tock I think is amazing.

But I, I also just think about all these new subscription services that are coming about and and, you know, there’s a school of thought that says, OK, well, you know, if I have this niche audience, but it’s a you know, like if I can just find enough people that will pay me twenty dollars a month, that’s a nice business.

But I just think, I think about what’s the model after subscription or how do we build these subscription models that enable us to really pick and choose what we want, because I just don’t think it’s scalable for us to have like we’re going to run this whole cable model all over again where we are spending two hundred dollars a month on all these different things. And and it’s just not sustainable. And we’re going to get to a reckoning point where we’re not going to be able to, you know, pay the ten dollars for my my powder sports and my yoga and my, you know, like so I think a lot about what is the new wave of monetization.

And I also think about what’s the next platform, because everyone always talks about like, oh, I have this many followers on Instagram and so I can monetize those followers.

But nine times out of ten, when you try to take those followers off of Instagram and somewhere else, they don’t follow necessarily like they follow you on Instagram because Instagram is fun and they like to see you on Instagram, but it’s not like they like you enough to then go to the next platform that you’re on. And so I think a lot about like that. Like what is it again? Like you need to build it. So it works for both.

And we’ve thought a lot about the content creators that we haven’t really thought about. What’s the next thing that we as consumers are looking for?

When you’re thinking about the next platform, how how are you thinking about what that might look like?

Yeah, I think a lot so I think podcasting is super interesting, as do my podcasts right here. And the reason I say that is it’s a it’s something that that one it’s relatively new.

But audio itself is is something you can consume and so many more situations than you can video content.

And for podcast content, like how can you create, like, the Netflix of podcasts, for example.

And then in terms of like, you know, everybody says social is dead and I don’t know what it is, but I think there’s something there’s a next tick tock coming and it’s something around video. And just being able to communicate more closely with the person behind the video is my guess.

Right. So it’s it’s engagement or it’s it’s interactivity or something. Yeah. 

And you think that because it’s more authentic and more likely to give money because I feel connected to you. Yeah.

And I think this is something similar music.

Great music went from not making a ton of money off of the CD itself, but more of the events and concerts and merchandise. And so what’s what’s that equivalent? I think I think the willingness to pay for content will hit a wall soon.

And so I think about other ways in which people are willing or finding value in what this person is creating. And I think it’s around community, I think is around being proud of being in a community and being proud of what the community stands for. Totally.

Yeah. And I think it’s interesting, the community where you and I are talking about this, like my friend who’s been working on erectile dysfunction and hair loss e-commerce, and she was like, it’s hard to build community there.

Right.

Yeah, it was you and me, the private joy and public joy.

And I think a lot about this. Like, I think I think about these like small communities where everyone says, oh, you know, you don’t need a whole lot of people to monetize the community. And that’s true. But I think it depends on the community.

And I think there’s some communities where like like erectile dysfunction, you’re not going to have like a T-shirt saying merchandising stuff.

There are some interesting communities, though, that are very passionate and also very connected. And I think kind of programming towards those communities is interesting. I need to like Wedbush Ventures a little bit more in terms of, you know, what size check writing and how do you like to engage with your portfolio. 

Yep, so given that picked stage check sizes 50 to 100 K as a first check in with the intent of continuing to support the company, I like to get you know, as I said, I like to get involved with my companies going back to our Netflix stuff?

You know, can you coach people on on that sort of softer side, softer skills?

Yeah, actually, that’s one question I was going to ask you, because it’s something I think about all the time, like in the deck, if I get a deck and I don’t understand what the problem statement is and what the solution is in a deck. It’s like, OK, well, does is that just an innocent no or is that something I don’t know. What do you think?

Anything else in terms of advice, you’re giving a lot to founders or even advice you’ve been given.

I think focus is so cliche, but it’s something that I think a lot about also for myself as a one person fund and also her founder, like it’s just so easy to get. It’s just so easy to get wrapped up in and the next shiny object and the opportunity that falls into your lap.

And so just really being clear to yourself about what’s your success metric like. That’s one thing I learned from a mentor of mine, just like being just very clear about like, what is the one or two thing that the most to thing that you really want to knock it out of the park with and make sure you knock it out of the park and then the rest will just kind of go away?

Well, this is a great transition into my miscellaneous personal question section. So, Petra, what do you think about your success metrics for yourself in your life?

Who in my life?

Wow. I mean, ultimately just being able to look back and be.

All right, I’m going to give you two, because family is super important to me, relationships around me are super important to me and I always prioritize those. But I also I want to have no regrets and I want to embrace everything that comes in front of me.

Hmm. Do you have any good strategies for not having regrets?

My strategy is, and it’s not always effective, is just thinking about myself in the future. And is this something that I wish I had spent time on or not? And the other thing I always think about is like, is this going to be an emotionally happy is going to give me energy or is it going to take energy out? And if it takes energy out, then it needs to be quick no.

And also always making time for yourself.

I think that’s the biggest thing for me is exercise. It’s it’s my thing. Also, there’s a chemical impact on your body from exercise. For me personally, I was always I was a competitive athlete all through all through school.

Did I know this that you what did you play in college? I swim. I was a swimmer. Oh I was going to ask you, like, where do you get your confidence from? This was a question I wanted to ask, because I think it takes it’s it’s hard and it takes some guts to start your own venture fund. But do you think it relates at all to playing sports your whole life? I do I also think it’s cliche, but I do and I also think. As a swimmer, you just you learn to put your head down and just push through, and that’s something I learn.

You know, I started swimming competitively when I was nine, I think. And so it’s just like starts to become ingrained in you. And we talked about, like work life balance. And, you know, like I have twins and an older son and they’re now older and it’s a lot easier.

But I remember when they were the age of your kids and and everyone’s like, oh, my God, how do you do it? And it’s like when you’re in it, it’s just like, how do you minimize the drama? Do you just take a few deep breaths and and and just put your head down and move forward.

That’s great.

I love it. Well, I’m really excited to get to know you better. I’m really excited that we get to co-invest and be part of this ecosystem. And thanks for coming on the show.

Thanks for having me. It was fun. Yeah.