Carter Reum — M13

Wednesday, May 25, 2022
We couldn’t be more excited for Carter Reum and M13’s newly announced $400M Fund III.  There are still only a few funds in LA that are true lead Series A investors.
 
Carter tells us how they have doubled in size from Fund I to Fund II and again from Fund II to Fund III (it helps to have 11(!) unicorns in Fund I) and how their thesis has continued to evolve as they’ve built the fund.

Carter Reum is a co-founder of M13, one of the fastest growing venture funds in LA having just announced their new $400 million Fund III. M13 is a consumer tech fund with investments in Ring, Rothy’s, Daily Harvest, Cue, and many others. I just learned they had 11 unicorns in Fund I. And, of course, Carter just got married to Paris Hilton. Carter – Congratulations.

Thank you so much. I feel like the luckiest guy on the planet.

As I told people back in August when I decided to get married and raise the fund at the same time in a planning meeting, it seemed like a good idea. In retrospect, maybe I should have, you know changed the timing of those two things a little bit. Maybe not the wedding, at least the fundraising.

I want to hear a little bit about how you went from, I think Fund I was $100 million dollar fund, to approximately $200 million Fund II, to $400 Fund III, but maybe start me with more of the vision. What is the vision of M13? What are you building?

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You know, the whole world is being disrupted and evolving. Uh, We think venture needs to evolve as well. And kind of what were the trends that led us to believe a new model was needed. And, you know, we invest in what we call the horizontal layer of consumer technology. So the way we describe it as technology used to be a vertical, and now it’s obviously a horizontal layer that sits across every industry.

We think the same thing could be said for consumer tech because more and more companies can effectively disintermediate traditional distribution model. And have that direct relationship with the consumer. And when we looked at kind of the changes and the evolution in venture, when we started the firm five years ago we kind of saw two trends that led us to believe a new model was needed.

The first was the democratization of the ability to launch new companies. Right. And so I think it’s pretty, well-documented now. Never been easier to start a company. You know, there’s no industry or ideas sector. We don’t look at where there’s not 10 or 15 companies all well, pedigreed, all well-funded going after the same thing.And so fundamentally we built the firm on this idea. In order to be successful in the decades to come.

There’s no longer about building?

a firm that was designed to pick winners, which is great entrepreneurs with great ideas, but that was going to become table stakes. And how do we build a venture firm that’s all around? How do we make winners, right? How do we work with entrepreneurs and help them execute better?

And basically what we set out to create was how do we create this institutionalized plan? to kind of fill in the gaps for those entrepreneurs? And hopefully just kind of get them to accelerate faster.

 and you’ve done a lot of these iconic names. I named a couple of ring Ralphie’s bird daily harvest, you know, were there any examples from any of those companies where you really saw like key inflection points in their.

 you know, when I look So many of the companies that we’ve been fortunate to be part of the journey and you look back and you say, what was it that allowed them to be successful? And one of our driving thesis is when we started in 13 was every great company.

Does two things. One is they make better day-to-day decisions where no single decision moves the needle, but a lot of decisions compounded over a lot of time. And then also secondary. At some point along the journey. And typically it’s multiple points around the journey. They had some event that created step change growth, whether that was a key hire or a big PR moment or something like that.

And so when we designed our propulsion platform, our tech and our data and our very large operating team, it’s all been driven by this thesis of how do we build this kind of platform that allows entrepreneurs, one to make better day-to-day decisions. And then two, how Do we equip them with unfair advantages that can create that kind of step change growth?

Do you have any thoughts on that? Better day-to-day decisions.

Yeah, it’s, it’s hard. we’ve built out this tech platform.

We bottled it after the fame, private equity firm, Vista equities with an idea for every entrepreneur. The final decision they make is not one size fits all, but the consideration set tends to be one size fits all. So whether they’re thinking. You know, what systems should I use for my tech stack or what channel expansion or this, that or the other.

And so we have obsessed since we started the firm with how do we institutionalize all of these things that we see our portfolio companies doing? You know, one of the things we’re proudest of is every. Single person at the firm is an operator by trade So our portfolio companies don’t have to recreate the wheel every time hopefully we save them time.

We help them make better decisions. And more importantly, in early stage tech is we help them avoid bad decisions. because the definition of entrepreneurship is being asked every single day to do something you’ve never done before.

So is that manifest like in resources for founders where it’s just like, Hey, this question keeps coming up. We’re going to this in our, , database of for founders.

Yeah, I think, when we started the firm five years ago with this vision of how do we create founder led firm that was all around helping other founders execute. What I always tell people is that was the core of our vision. Right. Whereas a lot of people are trying to take existing models and retrofit them.

 And so for us this has been kind of how we thought from day one. and so what we’ve done is. You know, when we launched fun to two and a half years ago, we raised $15 million of incremental capital to build out kind of this focus on operating resources. And so our management fees paid for our investing team, but then we’ve invested an incremental $15 million to build out this team and our tech platform at our data layer until we have built the firm now with 32 people offices in LA.

Well beyond where we should be at this moment in time, maybe we’re always building two or three years into the future Let me go back to this 11 unicorns in fun one. Cause that kind of blew me away.

Yeah. Well, I appreciate it. We’re better to be lucky than good as hell.

Is that right? Yeah, I guess that’s right. Great. So you were either lucky or good one or the other but you seeded seven unicorns and you did the series a and four unicorns.

Yup. you know, sometimes it’s just about being lucky. Sometimes it’s about being good. And I think in this case, We’ve just come across so many incredibly talented founders, whether that’s Rachel from daily harvest or the raw fees or Jamie seven off from bringing in so many.

And then I think it’s just having the pattern recognition, right? I think seed investing is all about pattern recognition. I kind of prescribed to Malcolm Gladwell and blink, which is you just kind of run the patterns in your head. And when you use gutted instincts, it’s really your subconscious telling you that you’re seeing a pattern that will lead to success.

You know, when you look at our track record now is showing across two funds. We can create a top decile five. We didn’t get lucky once or twice, we have shown a repeatability across a lot of great companies,

Totally. Where do you see? I guess going to ask, like, where is your gut? The strongest. But what sort of other patterns that you feel like you really key in.

Yeah, I think, you know, we live by a few mantras. One of the mantras is if we don’t know. We don’t do it. There’s a, from Billy Bean and Moneyball there’s an expression or a stat called wins above replacement and is basically saying like LeBron James the NBA, he accounts for the most wins compared to whoever his replacement would be.

 And we always ask ourselves. Does the founder have the largest wins above replacement our war to execute on that idea. Right? You have to be a great founder with a great idea. And there has to be a good fit there. And then are we, do we have the highest wins above replacement to be the investor in this particular company?

Right. And so one of the things is. We obsess about risk. And we think about risk a lot, which is a little bit atypical for a venture firm.

And too, we live by this mantra that if it’s not a hell Yeah. it’s a hell no. Which is one of the things we’ve found when we kind of audit our track record, looking back. Those ones that you’re a little torn about, or you don’t know where you’re debating, but you like the founder, but eh, if it’s not a hell, yeah, it’s gotta be a hell no.

And our biggest winners were always the ones that we just had a meeting, we just saw the pattern. There was something about that meeting you would just said, hell yeah, let’s do this.

. Yeah, I call those our bubble ones. Those are hard. Those ones that you really, really like.

Yeah.

, Fun one is on track to do about eight to 10 times our money. So a extremely well, and then I think what we’re proud of. We showed repeatability and fun to buy, you know, building another great track record because when you’re trying to build a firm, like we are, it’s all about repeatability, right?

It’s all about, can you do this at scale? And can you do this over a large period of time?

I actually meant something different, but it was good answer. Eight to 10 X is good,

Okay.

No, I actually meant, you know, was sort of a, how did you raise one,

Oh,

and how did you, you said like it’s, it’s meeting the right entrepreneurs, you know, how did you meet all of these ring, bird lift? You know, how did you get in those rooms in the first place?

 So fun one was basically like any first fund, right. You’ve got to kind of prove yourself while you’re fundraising. Right. So you’re kind of building the plane as you’re flying the plane. And so we had had some kind of early successes kind of angel investing in things like ring others like that, that are now, well known names.

And so we were able to kind of take a longer period of time to raise funds. While showing kind of proof points. I think for us, given our background as a founders, you know, we go to things like Goldman’s a hundred top entrepreneur conference and we go to things like summit series and my brother and I have taught at Harvard business school for the last decade, you know, just being around so many Great. entrepreneurs being in so many great rooms. We’ve just been fortunate that you come across other great entrepreneurs. Let’s talk a little bit about what themes you’re focused on.

 so a at a fun three, obviously we’ll be writing kind of eight to $15 million checks, primarily meeting kind of series a and series B. we invest across the four big buckets of FinTech healthcare, food, and real estate. So we obviously have kind of theses in all of those.

I think one of the theses, like everyone else. We’re focused on the horizontal layer of web 3.0 and so the way we think about it is web 3.0 web 2.0 or web 1.0, history will suggest if it’s a bad cop.

It doesn’t matter, which weapons part of right. And history would suggest if it’s a good company like Amazon, which is part of web one point out that it will succeed, regardless of which web it’s. So first we remind ourselves, is that just by being a web 3.0 company, that doesn’t mean it’s a good company, right?

So as to be a company but I think we’re living in an environment and web 3.0 NFTs. Crypto has exploded in a way. That has never been kind of seen before in history in terms of how quickly it’s gotten up to the adoption curve. And so the way we talk about it with founders is there is nobody that, has the luxury, not to be thinking about web 3.0 and the dynamics that are underpinning it.

Right. And so obviously we think about web 3.0, you think about community. You think about collective ownership. Um, You think about democratization both for on the creator side and the investing side of. There’s a lot of great companies and we say, just be thinking about how those things are going to affect your business.

Let me see in web three, , how do you see the creator economy evolving?

Yeah, I think I have really interesting perspective. Obviously, my wife is sometimes credited with being kind of the first of her con in the creator world. And, obviously as a global celebrity. So what’s been fun is I get to see the world through and thirteens eyes and I get to see the world through Paris’s eyes.

I think, you know, one of the reasons, that we started the firm in LA and why HQ is in LA is we. LA had a unique right to win. When you look at the trends that are now manifesting itself. And so when you think about consumer tech, those businesses, whether they’re in FinTech or healthcare or food or real estate, they need to understand media and content and brand and.

Those things are indigenous to LA. They grow like Palm trees here. Right. What are the reasons why my, my wife, Paris is so adamant talking about NFTs and talking about the Metta versus she realizes it gives the power back to her.

Right. And as successful as she’s been around the globe there’s always been gatekeepers, but now all of a sudden, She has the ability. To kind of control the economics. She also gets very excited about the idea that her fans can share in that economic upside. Right. And which is a fundamental shift or a democratization of where value is being created.

So it makes a lot of sense that sort of fans and creators, like their relationship is changing. You just said, like the fans can sort of participate in the success. Like how does that actually manifest? I actually don’t really know exactly what Paris is

doing. Right.

So you think about social tokens, I think is the, easiest example. Think about any of these NFT projects that have been successful. Right? So take board API club, 10,000 holders of those NFTs. all bought in inexpensively. all been the marketing machine for it.

 And so one of my driving thesis for 2022 is I think 20, 21 was the year the NFT. I think you’re going to see 20, 22 being the year of the collective ownership of the social token.

So imagine you know, a world where rather than using some of the web 2.0 technologies like Patriot and other. Paris launches a social token and people who are her super fans and people that are sharing things on Twitter because they hold the token. They’re incentivized to push, right. Whatever she’s doing. but by doing so, they’re going to get that economic upside.

Um, So I think it’s just a fundamental value shift in terms of how people are rewarded. Right. Because think about it right now. If I post about my Nike’s on. I’m getting nothing for that. Right. But in a web 3.0, version, those super-users, whether it’s in gaming or around creators or other things they’re going to share in the economic upside as well.

And also just be part of the collective community. Right.

It’s both community as well as economic upside.

I think that’s exactly right. And I think you’ll see it in entertainment, right? People that when a new movie launches, I imagine a world where there’ll be token holders in that movie.

Right. So if you go on rotten tomatoes and you give it five stars, if you tweet about it, if you post about it, you’re going to be incentivized and you’re going to be a token holder of that royalty sharing the economic upside.

, I think one of the things that’s interesting is there are people who approach and if, and web 3.0 as crypto and through. And then there are those that quite honestly, don’t come from that space who don’t even know they’re necessarily buying an empty. I think the reason why NFTs exploded so quickly over the last 14, 16 months is when dapper labs launched MBA top shop.

I bet you 80% of those people had no idea what an NFT is. I bet you 50% of those people still don’t know what an NFT is. What they know is they bought a digital collectible. They bought a dunk of LeBron James dunking over. and right now we’re focused on the technology. But I think what’s going to happen is we’re going to start talking about the use cases. Right.

And that’s when it will become more mainstream. Right. Because even me, like, I think a lot of people, I tell people don’t be daunted by. The intimidation of the tech that is underpinning web 3.0, it is very intimidating. You know, I talked to my team and I talked to our, some of our junior guys that they’re like this, that, that, and I’m like, oh my gosh, I’ve never been more humble.

It felt more dumb, but it’s okay. Right. Not. Everyone needs to understand the technical underpinnings of this fundamental shift. for example, where I play in this space, I tend to think.

about what are the use cases? You know, my wife did an NFT drop the other day and sold 25,000 in. 65% of those people do not have a connected wallet. They had never bought an NFT.

Right. And those are the exciting data points that get me excited when mainstream people are coming into the space. Yeah, I think, you know, again, I would not want to pretend like I could foresee the future because the future is going to be so innovative and so disruptive. Right. When I think. It was easier to see the future five years ago and things like D to C or the consumerization of healthcare, they were easier to imagine when you think about what’s happening right now in some of these web 3.0.

You would never imagined it 14 months ago, but we’re in there early, early, early, early, early, early innings of this. Right. I don’t think people can even imagine what it will look like three, five, certainly not 10 years from now. I think almost every industry. We’ll be challenged by the underpinnings of web 3.0. So you know, people always say, I guess, give you another example. Oh, I invest in, what do you look for in a founder?

And everyone says, great fat. And so I kinda try to evolve that right. And go, okay, what makes great what’s the definition of a great founder? There was a time, you know, when we were investing a lot in D to C five to seven years ago, I would’ve said somebody that can execute and somebody that understands growth marketing.

That’s what was great at that time, because that’s where we. Then the world started to move faster than ever before. And I would say, When I think about going forward, one of the things I’m looking for. Is big thinking and innovative because you cannot an icon naps. And nobody can imagine a world that if it’s disrupted as much as some people believe what it will look like in five years.

And so, you know, somebody that’s just really good at executing, I’m not sure they’re going to be that great. And went through that crazy friend you went to high school with and you’re like, man, he or she is so crazy. I might just back them for web 3.0. Because we need some crazy people out there imagining a world that nobody can imagine today.

You know, I kind of treat my brain like the Facebook algorithm, and I say that very humbly it’s way less sophisticated than the face profile. But the way I talk about it is I’m always just trying to take in as many data points as possible and looking for patterns. So I think so often people take a data point assume it’s the data point.

I don’t believe That’s actually the case. And so you know, my brain, the way it works is I don’t get stuck in. Really strong opinions. I try to iterate my viewpoints, literally hourly daily. I’ll probably learn something from you on this podcast and that will inform something else. And so for me, I don’t know if I have any really strongly held loosely beliefs that are totally contrary, but it’s just that constant iteration and constant and that kind of evolving.

And I think we live in a world. , the world’s moving so quickly. And so to me, you just have to build systems to take in as much data and just constantly be kind of evolving and iterating those beliefs.

I don’t think anyone’s ever accused me of being low energy.

That’s for sure.

I’m the same. I’m the same, but I mean, maybe there’s a high energy newness that you’re just able to absorb a ton all the time. Cause you’re just going fast at things.

Yeah. I think that’s, it’s probably a little bit of that, right? It’s the speed, right? That’s why nothing’s held that strongly because the speed of turnover is so fast. So, You know, I’ll have a strongly held belief on Friday. And I’ll wake up on Monday, having taken into board data points and the team will know that that might’ve evolved pretty quickly.

Right. And so my. Probably what you’re touching on is I try to make my feedback loops really small, right? And some investors have these long feedback loops. They work on a thesis over months and weeks or more months. Right. My feedback lives kinda constantly evolve. So what I’m thinking about this week, if I’m doing my job is probably different than what I was thinking about last week and probably thinking about it differently than last month or last year.

 Do you hit any thoughts? I’m just being a high energy person. And what you’ve sort of learned about yourself.

Yeah. I mean, I think what I tell people is people always ask kind of what motivates me and I tell people the ultimate luxury in life is getting to do what you want with who you want. have so much fun. You can hear my voice is a little raspy on, I’ve been on zoom since 6:00 AM today. I was in the cryo chamber at 5 45.

But I want to ask more about investing, but say, where are you in the cryo chamber at 5 45.

I was, yeah. I built out a wellness center. You don’t think this high energy is all natural? Do you

Oh,

I

want to know about.

It’s going to I have a four-person hyperbaric chamber. I have a cryo machine, facial lives I’ve, you know infrared sauna led lights. It’s kind of part of the Tony Robbins philosophy.

You got to take care of yourself before you can help others with their oxygen mask. You know?

No, that’s good. That’s good. But that’s also a lot more than, you know, than I have in my office laundry room.

Exactly.

Okay. Let’s get back to investing. So I don’t do much consumer I’ve always thought sort of consumer style investing is hard. Like you don’t get to retain consumers.

Like how do you broadly think about what makes you successful at it?

Yeah. And I think, you know, I always, reinforce that our definition of consumer tech is very different than consumer, So when you look at fund one, right, we were best in class, on seeding direct to consumer unicorn. When you look at fund two and fund. We have not done any DTC because fundamentally we think the environment makes it much harder to create venture scale returns from scaling D to C companies because of some of the things you’ve pointed out.

So we’ve shifted. We believe the layer to focus on is e-comm enablement. So that could be something like a portfolio company like passport, which is e-comm enablement for international shipping. but I would tend to agree, I think, pure play consumer businesses or how consumer tech businesses with. The previous five years doesn’t work as well for the next five years and beyond.

 And so that’s why webasically say, what are consumers going to be doing 10 years into the future?

How are they going to work? How are they going to eat? How are they going to live? How are they going to think about healthcare and then how do we invest behind the technologies that power, that change? I hadn’t quite realized it. So song that it really fun. One, two, and three have like completely different focuses. Is that true?

Uh, I would say our thesis is continue to evolve.

Just like how I talked about how my brain works. Right. We’re constantly just evolving within the vertical. Well focused on the horizontal layer of consumer tech. to be, you can hold thesises that long because the world is just changing so quickly.

Yeah, so, I’m 13. So obviously my, brother and I founded the firm five years ago at the time we were mainly really just LA based. You know, now we have offices between New York and LA 32 people, 10 partners. We’ll have probably another eight to 10 people by the end of the year.

So we continue to build the firm as it for two to three years in the future. And so of our 10 partners, five of those partners wake up every single day and try to find investible opportunities for the firm.

but we have five partners. That are what we call propulsion partners, that when they wake up every morning, they actually ask themselves, how do I help our portfolio companies execute better?

and it’s everyone’s responsibility to bring a propulsion partner. So everyone constantly is thinking about how do we help our companies execute better?

And the typical venture model is I give you money. And if you have a question you asked me, and then I asked my network at my firm, and then I asked my network beyond the, from, we actually don’t use that same hub and spokes model. Uh, We use a decentralized model. So we want every one of our entrepreneurs and every one of the founders that we back, we want them to be talking to every partner along the way, And so I think the thing that we’re proudest of as we’re closing this fund three.

Is before we would have to just talk about our model. and why we believed it would work. We do an MPS score with our founders. Obviously for those who know MPS, anything over 70 is considered world-class apple 67 Costco 74. Our NPS score on our last quarter was 91.

Yeah, I think what’s great about my brother and I is you know, we grew up playing competitive sports and so our relationship is always one of teammates versus one of younger brother, older brother, And when you think about working with someone like my brother obviously we trust ourselves inherently and we also have been communicating for a long time.

So of the reasons we’ve worked well as partners. My brother approaches his decision-making process. Top-down I approach a bottoms up.

So he’s always good about where the world is going and themes I’m like, but like, can you build the model, like even a cocktail napkin model? Like tell me how the numbers work. He’s like, oh no, no, no, I don’t do numbers. You know, obviously he does it and I always start with building out kind of a mental model in my head and things like that.

And so it’s been really fun and very special, but the thing for us is we built this firm to be bigger than the two of us. And we said from day one, we didn’t want this firm to be our firm.Have there been any big, you know, inflection points. I’m going back to the way you talked about company building and how little differences can make these huge compounding effects. Yeah.

I think that biggest decision that we made correctly that has allowed us that step change growth is when we started the firm five years ago with this thesis that we were going to build a next generation venture platform, all designed to add our core strategy B you know, by founders for founders and with all these kinds of operating capabilities.

We believe that everybody was going to start talking like that and starting to add kind of platform resources. And so we did a lot of thinking. Okay. How do you win in a world where you might be first mover, but others are going to do it.

And so if I think about when we are raising fun, too, people would say, well, I talked to somebody else earlier today. They said they have a few people on their team that help their companies. How do I know you’re going to be different? And I think the smartest thing we ever did was raise the $15 million of incremental capital at the firm.

And again, we’ve spent $5 million a year beyond our management. Building out this world-class team and the tech and the data that supports them. And so I think now I think it’s very clear that people see the differentiation in our model, but it’s because it has to be differentiated because we spent $15 million more than somebody else with the same AUM basically.

That’s great. On the personal side, I’m curious how you started dating Paris Hilton, and then like just being thrust into the spotlight, like, and what that’s been like for you.

I didn’t know we were going to go there and on this podcast, but yeah. Uh, Parents and I’ve known each other for 10 or 15 years in LA, but so much about relationships is kind of timing. And so we would see each other, you.

know, in LA or Coachella or things like that. And then I bumped into her and my sister’s in-law’s house and the Hamptons Thanksgiving.

And they were both in a place where we’re kind of like, oh yeah, maybe, you know, and, and the rest is history. it’s been incredible. , we kind of reconnected right before COVID so as I tell people, we will always be a COVID love story because since we met this won’t be sustainable, but we’ve been able to spend all, but I think three or four nights together, and two and a half years, And uh, you know, Paris respects and appreciates that.

Uh, I don’t want the spotlight. I would much rather her have her take the spotlight. And so I’ve only ever walked two red carpets with her in my life because I say, you know, as they said, tic-tac you go best friend, you do your thing. And let me kind of walk behind and I’ll meet you on the other. She respects that, , I obviously always want people to respect how hard I work and by professional kind of career.

And so she respects that I try to avoid the spotlight, but as you said, it’s a new thing. When I, the first time I showed up at the airport or we were going to the airport and she walked down wearing a sun dress, I knew something was going to be different. And I said, you look awfully dressed for the uh, lax JFK.

I said, let me guess I have to change my sweatpants. And she said, you know, at least where the nicer ones. And I knew immediately what she bent when there was paparazzi in the airport taking photos of us walking in or when things. So but Paris is also good when we go to the farmer’s market on Sunday, she wears a brunette wig, a COVID mass sunglasses, and a baseball cap.

So at the end of the day, we just want to be normal people. And so she’s a good sport about it.

Wow. Yeah. I just hadn’t thought about what that life entails. Well Just congratulations. So impressive. I hope you got a chance sometimes to sort of it and feel proud of all that you’ve done.

I appreciate it. Uh, You know, more than anything on this fund, we’re just so excited because it’s so representative of all the great founders, all the great people at end 13, but I also am just part of the long LA crew and, I think, you know, raising a fund of this caliber of this size backed by some of the best institutions.

Family office, entrepreneur, investors, the country. I think it’s just great for LA. And so really, I hope all of LA celebrates with us because it’s a rising tide that we can all contribute to.

It’s a huge deal. Congrats. Yeah.

you so much. And as always, I know you have your pick of your guests given how popular your podcast is, so appreciate you having me on.