brad zions -- pitbull ventures

Brad Zions — Pitbull Ventures

Wednesday, September 28, 2022

Should we be pouring massive amounts of time and money into web3 or is it just technology looking for a use case? 

Pitbull Ventures founder Brad Zions is also the producer of Kissing Jessica Stein and the co-founder of Lemonade restaurants.  He tells us why movies and restaurants are bad investments and why, in his opinion, web3 is even worse. 

 
Pitbull is a generalist seed/pre-seed fund that targets 50+ portfolio companies per fund.

Today I get to chat with Brad Zions. Many people in LA know Brad as an active angel investor investing in companies like Clutter, Parachute Home, Harri, and many others, but today we’re gonna talk about his new fund Pitbull ventures and also his fascinating career that led him here. 

Before tech investing, Brad was the co-founder of Lemonade restaurants. He was the producer of Kissing Jessica Stein.  He was an investor in Ron Conway’s Fund I and II, and he was very early at AOL.

So I gave a little snapshot. And I thought maybe we could start with AOL in the mid nineties.

So it was, was a really interesting place to be. And also just being in Europe, which was, I would say, five to ten years behind where the internet was even in the US. People had absolutely no idea what being online was, what dialup was. It’s fascinating to me that this is like 1996 and people aren’t yet online,

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Yeah, no, they’re not. , and you know, AOL came in and, spent a lot of, customer acquisition dollars as they did in the us and became the market leader in, I believe in all the countries , for some period of time,

Any other just lessons, on. Web 1.0, as you’ve seen it go from web 1.0, to 2.0, and now we’re talking about web three and I know you’re an outspoken, , critic skeptic

I am a, I am a crypto skeptic. I’m a web three skeptic. Yes.

 I mean the I, I think the main point I would make, because I, I see a lot. Proponents of, crypto and web3 saying things like, you know, it’s early and, making the point that 99% of the internet startups, in the late nineties all went to zero, but you know, there was Amazon and there was, there were huge winners,

And my response to that is that, , back then it was very clear that there were going to.

be Numerous use cases. There were just patently obvious use cases. And I, just don’t think. We found a use case in crypto other than, you know, ransomware, gambling hacking, you know, naked speculation, , I don’t think we’ve found a legal use case that really, is 10x better than what exists today. And there’s a lot of friction to crypto it’s, you know, you have to have a wallet and all these arcane, you have to remember these seed phrases.

And I mean, the UI UX of crypto is, horrific. In

Yeah But maybe you could have said that, like the AOL dial up, you know, really slow connection had a lot of friction for people who’d never been online before.

definitely did, but there was this compelling use case. , you could send a message to somebody online.

anyone who was online anywhere in the world at the time, you could talk to, and, back then, you know, the, the long distance rates between the United States and Europe were extremely expensive.

Right. I believe you said that you see web three as a massive waste of time and money.

Well I, I have been thinking a lot about as the markets have, you know, crashed dramatically,

just imagine because there is tremendous energy in this space.

I think I, unfortunately, a lot of the energy is driven by just naked. Greed and like any kind of hot thing, it draws , a lot of people in this case, I think the majority of people for the wrong reasons, there are definitely people who are there probably for the right reasons. And maybe they will come up with a use case.

, again, I have yet to see one, there are. A lot of discussions going on, particularly on Twitter, between people like mark Andreesen and, uh, Zach Weinberg who’s become , a real, , proponent of the crypto

skeptics Uh, he’s a great follow on Twitter.

I mean, can we start with, uh, the director of vibes?

a director of vibes

I mean, that’s just this new, apparently this new, uh, job, , that a lot of, You know, crypto startups or big crypto companies have literally a director of vibe, somebody who, kind of can, you know, bring people in and make them feel good about all the really super risky, bad things that they’re doing with, their products.

Well, I think, okay, so a director of vibes is kind of a ridiculous title, but I think that a lot of companies it’s a director of community might be another way of saying it, right?

Um

But I guess your point is that if there were a very clear use case, then you wouldn’t need a, uh, director of vibes.

I mean, that’s a big point. Yes.

 Okay, so, so go on with this. can you take both sides of the argument at all with like the Andreesen versus one of these skeptics?

 What is mark Andreesen saying?

 He’s saying that it feels like he’s saying that there’s gonna be this unlock for communities who get involved with a particular project that is going to provide some service or some product, and that you know, he waves his hands a lot at this point and says, it’s gonna unlock micropayments and unlock.

New revenue streams for creators. I mean, one of the big, ways that, you know, Andreesen Harwood’s about a month ago or so just released their kind of, um, state of crypto

state

of web three, maybe it was called One of the, takeaways of that is, is kind of comparing take rates for creators A lot of, that reasoning or the way they framed it , was seriously mocked online because they were comparing the take rates of Facebook creators or Snapchat creators , the idea being that if you are putting content out on Facebook or. Any of the big social platforms, you know, , you’re not really generating a lot of, uh, return yourself, although the top creators on YouTube make millions and millions of dollars. So, they were doing it based on percentage , and so it, has more of an impact kind of in the mid to long tail creator.

But I just think that’s just such an apples and oranges, , comparison, because Facebook is not a creator. Product.

well I

think the, the other part of the argument is

some

of

this, then the secondary sale, you create something, you know, it gets sold again that still accrues back to the original creator. Right. Again, I hear that example all the time.

You know, I’ve collected contemporary art for many, many years, so I , I’m somewhat familiar with the way the business works and it’s an opaque, difficult thing to understand with different advisors and galleries and, and yes, when you, you buy a painting the artists.

Makes most of that sale, uh, with a, commission to whoever sold it. But then in the secondary market, , the artist doesn’t make anymore money, but that doesn’t mean that successful artists don’t get compensated because as they become more and more, valuable and, and known and their their next set of works, the price rises dramatically.

And they, they, and savvy ones also keep a lot of their own work. So that.

They start to hit it. They are able to sell, you know, paintings at 10 X, what they were selling. However, , it’s not necessarily a bad thing that you, you would build in a royalty upon every sale of a, piece of art.

, but to make the argument that all these artists out in the world are getting screwed because they’re not getting a piece of future sales. I just don’t think that really holds water.

 All right, well, uh, so web one, 1.0, and we’re back there. I mean, you were in, in the heyday of that, right? I think AOL was the, one of the hottest stocks of the nineties. It was

AOL.

AOL was I think the best performing stock on the NASDAQ in the nineties. It split eight times split eight times. Yeah. A AOL was kind of the, behemoth of that era. a selling nine figures worth of flowers, you know, in the nineties over AOL, I believe.

 Any other lessons of seeing that evolve? the the lesson might be that, if you look at today’s landscape through that lens, mm-hmm,

You look at the big five. Yeah. You know, Google, Facebook, Amazon, apple, and Microsoft. And, um, you know, of those five, I would worry about Facebook, you know, because, I think they’re losing market share to TikTok. I think Facebook is kind of a dying, social network. I think most of the value in Facebook right now is really Instagram.

And they’ve got much more competition and yet they can’t buy anything that there’s no way the government is gonna let Facebook buy anything so they can’t buy their way out of this. So they’re trying to pivot, and that’s why you’ve seen Facebook stock get cut in half , and still, I think is quite C.

 well, I’m gonna keep us going, but, so that was an amazing time to be at AOL. And that set you up nicely to be able to do things like, uh,

the investing career that you’ve had.

 Just paint a little bit of a picture. So it sets you up nicely. How do you end up. Getting invested with Ron Conway. How does the next chapter evolve?

So the next chapter evolves with me leaving AOL

And there’s certainly amount of little amount of luck, but I, I cashed out kind of at the peak in 99 And I, um, was old friends with mark Pincus and, So when I got to San Francisco in early 99, , I reached out to mark.

I said, you know, there people up in the bay area that I, I should meet. And one of those people was Ron Conway. I had no idea who Ron was or what he was doing. And I met him and he was raising capital for his very first angel fund. It was called angel investors one before it’s. Now, you know, he’s

now

calls SV angel and.

I loved what he was doing. He, the concept was get a bunch of kind of AOL and Yahoo and, and eBay and other kind of internet folks, let them be the LPs in this fund. And then they can also be advisors

it was brand new. There were not seed.

I mean, maybe there were a couple other,

but

I don’t think so. I mean, there was, definitely venture capital. There were multi-stage venture capital funds like Mayfield and, you know,

red pioneered this,

he really pioneered it. I invested in that one on the spot, you know, within a 20 minute meeting, put $200,000 into his first fund and.

Shortly thereafter within the six months or year they raised fund too. And I also invested in that one and in those first two funds, he got us into this little company called Google. Yeah. Which, and I know you worked for Google mini. Yeah. So, yeah. So

so this is circa 98 or something. Google’s just getting going 98 99.

He got in, in,end of 99 would be my guess, cuz I got in the fund before and he wasn’t

sure but it’s the IPO happened

in 2004. right So no, he was super early. Yeah, And I remember we would get these reports about each portfolio company , and of course Google was stealth the entire time. So I would see this Google. Yeah,

 and the buzz on the company was very, very strong. Ron was very excited about it. , he told everyone in the, this is gonna be a great, interesting company, but we really didn’t know much about it at all. So, one of the things I wanted to say, , with regard to kind of my, my investing both as an angel and now as a VC is I feel like I.

a lot from Ron and from being around that fund in the early days, , one of them would be just what a connector can do and how important a connector is. I got into the film business in, in the early two thousands. The first movie I made kissing Jessica Stein and.

Soon after that, Ron, for whatever reason, decided that I was the movie guy in his network, even though I made this little independent film that it did get bought by Fox Searchlight. but anytime Ron had someone or some business that had any kind of entertainment component, he introduced me at the time to the CEO of funny or die.

 So, Ron loved to go have breakfast at the peninsula hotel. So when he would come down , to LA, I would meet him for breakfast occasionally and catch up. And if I emailed him. Right now, , I know I would get a response and I’ve tried to be that way myself. I think that’s one of the best things I do for portfolio companies is, is make those kind of connections,

So, because I feel like I wanna ask about kiss and Jessica Stein, but I should ask about pit bull a little bit.

 what’s your target number of companies? Like, will it be a Ron Conway style? Like, I don’t know, 50 a hundred investments. Cindy, you have a huge number in each

Yeah, he did. I don’t know if it was up to a hundred, but yes. So yeah, I’ve done kind of the portfolio construction for the fund, , in a similar way, you know, I pit bulls, a $10 million Pree seed fund.

 we have 31 portfolio companies in the fund already and, , going toward 50 plus portfolio. Wow. Companies.

no, you’re a good person for founders to know cuz you’re gonna be you’re

Yes And I’m, I’m also, I am a non-thesis driven. Investor I’m a sector agnostic investor. So I, I’ll do almost anything except for web three or crypto. So I’m like, you know, give LPs a broad exposure to the market.

And that’s not to say that there’s a bunch of mini themes that I kind of, try to put a lot of bets down into, and we can, talk about those. Yeah. Let’s talk about a couple mini themes. so after I left AOL, we talked about the film stuff. I also started an apparel company called young fabulous and broke.

This was in the early two thousands. , and I learned a ton about building a brand, a consumer facing brand and really working. You know what we call influencers today? and, The market was such that we were able to go to these events in Los Angeles and give the stuff away and it would show up in us weekly and, and it would move sales dramatically.

 so I learned a lot about kind of building brands with a consumer product. And then a little bit later in oh nine, I partnered with Alan Jackson to co-found lemonade restaurant group, which is a fast casual concept. but so those are my kind of three areas of, uh, domain expertise,

um, restaurants. apparel and brands and, , film.

So I took those three areas and, and decided when I was, doing the angel stuff.

back then, , I thought direct to consumer was super interesting and, ended up investing in the precede round of parachute home.

 And then

20 12, 13, 14 was a, was the era of, What was maker studios called? It was a, uh an MCN.

no one says MCN anymore, but right.

Um, so I invested in a company called Jun media, which, uh, had a really great exit, And I invested in a company called donut media, Soinstead of having one overarching, theme where I try to. Shoehorn all my puppies into, I call them like mini themes.

And one of, the big themes in the current fund is, food tech, both software, but also robotics. That’s a huge theme. That’s going to take place over the next five or 10 years. You’re gonna see. , particularly in the QSR space, the quick serve restaurants, the McDonald’s of the world, they are going to automate the back of the house so that you’re gonna be able to run a four wall restaurant with very few people,

let me

ask about

restaurants. Wait, like lemonade. How does a restaurant usually get funding? I mean, it’s, you ended up being an investor or being a co-founder of lemonade.

 I was really, you know, kind of their, financial co-founder.

but how do restaurants do they usually get like an small business loan?

 yes. They often have SBA loans, especially if they have to buy a lot of equipment or things like that. , but in typically restaurants are funded by friends and family, uh, doctors and dentists, you know, people who have high incomes who are looking for cash flowing type.

So the deals are structured totally differently. A typical restaurant deal.

you know, you put your money into a particular one location

mm-hmm and if the location works, you get a preferred return, kind of like a dividend, I had also done a bunch of fine dining investing. Those deals are really bad for investors, because let’s say you invest in a new steakhouse And the steakhouse works really, really well, but you only have interest in that steakhouse.

And then they open location number two.

 They’ll go to you in say, Hey, you wanna put money into the new one? If you don’t pony up more capital, you get nothing so when I came into lemonade, I put most of the capital myself, but I had six other kind of LPs in a small group. And we bought a big percentage of lemonade, the umbrella company that owned everything. So we had a piece of

ah of multiple locations

then

potentially I

gotcha.

What about a movie? Can I also ask about kissing Jessica Stein? What are you looking for in terms of return? How do sort of the independent movies get made and how does the financing work?

It’s funny because, you know, I had friends in the movie business and also friends with the restaurant business telling me, you know, after I

had the success don’t, don’t both don’t ever, you know, when kissing Jessica Stein, was bought and we all made good money.

They were like, quit while you’re ahead, because you know, that almost never happens. And they were correct. Mm-hmm um, but, films and, restaurants raise money in a lot of the same way. it’s, you know, friends and family who believe in the people who are, you know, in, in the case of film, you know, struggling artists who are trying to get their, visions made and, and, and kissing, Jessica Stein is a great story of two women actresses who met at a, theater workshop and, wrote this one little scene that became a play.

That, , some executives from the film business saw and optioned and were trying to make a movie and got it, got caught up in what what’s called, development hell, where you just have you’re writing, scripts and notes, and it just never kind of, it just takes years and years and years.

And then when I met them, they were, , just trying to get the rights back. In what’s called turnaround where you can kind of buy the rights back from a studio that has decided that they’re no longer gonna make the project.

And, um, turnaround’s a funny thing because even when studios acquire material and decide that they’re not gonna make it, they often won’t relinquish the rights cause they don’t want someone else to make it and make them look bad.

but, , we ended.

Getting the rights back. it was actually not easy. We had to get signoffs from some very high powered people but we, we did get it back.

And, I ended up putting up more than half the $1 million budget. Again, my, one of my close friends, , here in LA who had, uh, he was a very senior executive at direct TV. So he knew the, media business. I remember having a drink with him telling him that I had, initially I was gonna do a hundred or 200 be an exec producer, but of course we couldn’t raise enough capital.

So I upped my commitment and became a full producer on the project and he was like, you’re crazy. Don’t do it.

Oh, so exec producers put in less money the distinction in, in film is that exec producers are often somebody who’s helping get the movie made, but not necessarily operationally involved in the creative or operational side of making the movie.

So exec producers are often the money. Yeah. That can also be kind of just an industry luminary who adds credibility to there. There there’s a lot of parallels between startups.

films, you know, like

Yeah

And then anything else that surprised you about making movies?

couple, couple things about the, about, , the film. you asked an earlier question.

 what was the return like? Yeah. And so the return to kissing Jessica Stein was a great return we’ve made, I don’t know, the budget was a million dollars. , we got close to three X that out, which way it works is studios. When they buy a film worldwide, like Fox. They give you, what’s called an mg, a minimum guarantee.

And that’s against future profits from, , essentially all the different revenue streams of a film that’s home video and theatrical domestic and foreign distribution.

And ultimately it’s a 50 50 deal. So. they take a distribution fee, they take some things off the top. They charge you interest on the minimum guarantee. , and that’s why the, the mg is so important because that’s the only money you’re gonna see until you get into profits. And most films notoriously never get into profits, but we actually did.

 And then it took years. I wanna say over 10 years before we, you know, we would get a statement every quarter, every year, and then we eventually got to break even, and now we’re getting material, checks from Fox, every year.

great.

That’s a but so what I, from a risk reward perspective, the risk reward is just not nearly as compelling as venture.

So I would say that the odds of you investing in a company that becomes a unicorn or becomes a huge business. Are probably similar to the odds that you put money into an independent film. and it gets into a film festival, wins all the awards like we did and then gets bought because, you know, hundred films a year get into Sundance and most of them don’t get distribution.

So, and it’s thousands apply to Sundance. We didn’t even get into Sundance. so the odds are similar and.

the return,

is like a, a three or four or five X versus a hundred X. Right. So, so I quickly realized that making movies is something that I absolutely love. And I love the film. I love film and, television.

And I, you know, I’ve made a few other films over the years, but it’s become more of a, of a sideline because it’s a very challenged business.

and then one, one other thing I, that I, I thought, Around the same time that I made and sold, kissing Jessica Stein to Fox search light.

David Sachs made a movie called thank you for smoking, which he also sold to Fox search light.

Yeah, you’ve crossed paths. , become friends with, uh, invested in people like Ron Conway, mark Pinus, David Sachs, like you’ve crossed paths, all these real luminaries and you yourself have had all this success.

I mean, do you think about like what makes some people so wildly successful or just some of these successful traits

I mean, that, I think that’s a great question. I mean, I, I, I think about that all the time. Maybe not as much in the context of me, I think about it in the context of

founders you know, and, and, um, I’m constantly like adjusting the lens because that’s, what’s so interesting about early stage venture where you make these bets

and it takes years to find out if it was a good bet. so you’re, you’re constantly kind of readjusting and one example that was kind of an intuitive, uh, conclusion of mine, was on the age of founders. You know, I, I, I found, especially when I got back into it in, you know, 10, 12 years ago, there seemed to be this big bias in investing in these kind.

Boy wonder early twenties, certainly male dominated, but also young mm-hmm

And, um, I ended up, not going in that I really invested in a lot of,

I don’t, I don’t older is, you know, older than that founders and subsequent to that, I I’ve. A number of articles about, that having been born out

And, and most founders are in their mid to late thirties into their forties. And sometimes, older. And I found that to. A competitive advantage because I I saw a lot of other investment trying to find these young people. And I was very open to in, backing, you know, somewhat older founders

when you’re working with old or young, , founders, do you feel like there’s certain advice perspective?

Where you tend to lean in

All the time Yeah.

 I, I try to help in the early days, both before I put capital in and, and say in the, within 12 months of investing, that’s when I feel like I can move the needle most, I don’t have a marketing department like Andrews and Harwoods that I can kind of just put there, but

I I director of vibe I don’t have a, well, that’s gonna be my first hire for sure. Uh,

one of the big ones is fundraising strategy because a lot of founders, even if they have a lot of business experience, they’ve never gone through that. And, and so there’s all the, , kind of learning curve of is, do I do it safe or should I do equity? yeah, let’s talk about one other portfolio company. you say Harry was gonna be really big, yes, Harry, uh, is an enterprise software company uh I met guy who knew Luke, who was a big restaurant investor, and I was raising capital for lemonade.

Mm

And, um, a couple years later when I was now actively invest. The same guy said to me, oh, you should meet Luke fryer. who’s launching this company at the time he was building, uh, a way for restaurants to hire people. Believe it or not. Even today, restaurants really use many of them use Craigslist.

Uh, it’s still, you know, if you wanna hire a bunch of line cooks and sous chefs and whatever, you just put an out on Craigslist, we’re opening a new restaurant and people show up.

So he thought there, might be a little bit of a better way. And he built, , a full blown applicant tracking system.

then he built another module that essentially onboards employees. Then he built a scheduling module. Then he built a team communication module and now cut to seven years later, eight years later, he’s got a massive platform, that started with kind of regional chains, like the meatball shop, and then started to get really, big deals with QSRs, like Buffalo, wild wings, and Jack in the box.

And now has. A worldwide deal with McDonald’s, they’re putting, McDonald’s putting their entire people infrastructure on the Harry platform. Um, the company’s become quite well known in the restaurant world, but in the VC tech world, it’s really not well known, partly because, , the founder is very much not of that world.

He’s based in New York. He hasn’t really taken any capital from the sequoias of the world and he’s taken some PE. And now, it’ll be interesting to see, because I think this is kind of a verticalized Workday. This is Workday for restaurant and hotel. It’s a, massive play and, and, uh, I’m really excited to, to see where it goes.

Yeah. It’s great. Um, I wanna make sure we don’t run out of time., I’d love to talk a little bit about you. how do your friends describe you?

I don’t know how my friends describe me.

Uh, how do you think they might describe you?

 I think they would describe me as, funny and smart and, Uh,

that’s a good start Funny

smart

is

good.

Yeah. Um,

 I mean I

think my friends would one of the, , good qualities. I, I, I think, they would describe me as fairly down to earth. You know, many when I’m getting to know them. I don’t lead with, you know, I went to Harvard, like they would find out that I went to Harvard and they would be very surprised maybe that’s cuz I don’t come across as very smart.

 I don’t know. but uh,

you come across as down to earth in the, In like our you

come across as down there Okay In in like our you know,

hour

I like it. Well, Brad, congratulations on pit bull.

Thank you so much.

Yeah.

And, and thanks for coming on the podcast today.

Thanks for having me. It was, it was fun.