Erik Rannala — Mucker

Wednesday, May 25, 2022

We got a chance to catch up with Erik about Honey’s $4B exit, his new partner Omar, his decision-making process and all things Mucker ($100k – $1.5M checks and a lot of elbow grease).


View More Transcript

All right. Hey today David and I are here at Mucker labs with Eric Rannalla.

Eric is the Co-Founder Managing Partner Here at Mucker and its Mucker labs and Mucker capital. You’re gonna have to explain the difference. I might have got that wrong.

It’s both. We just now call it Mucker for short. I think. It encompasses all lab, capital and whatever else.

Great. Well we’re gonna get back to it and you can explain the what you’ve got going on here but let’s see.

Mucker has invested in some of the most iconic successful companies in L.A. which is exciting not just in L.A.. Trunk Club Surf Air Service Titan and honey are four billion dollar favorite here. And recently added a new partner O’Mara’s. I’m excited to hear more about that. And before that you had a successful long product career up in the Bay Area where you were early at eBay and VBA products at TripAdvisor.

So anyways a lot to talk about. Thanks for having us. Yeah. Thanks for. Thanks for having me on. Great.

So I’ll start by just making sure that we get some of the basics of micro. So go back to what you were saying. Tell me about macro labs micro capital. Are they the same or are they different to what is Mucker today.

Yeah it’s all one big macro hodgepodge. No I mean they are they are sort of different in the sense that macro lab is you know technically our accelerator program and is one of the things that we started with when we first started doing this here in L.A. about eight years ago eight plus years ago. And we all work on everything across kind of lab you know the accelerator program and our seed investments and kind of post seed investments but. But yeah lab is sort of distinct in the sense that we do run what is ostensibly an accelerator program we do it a little bit differently where we work with a very concentrated number of companies and do it over the course of a year or year plus.

So typically companies will work out of our office for a year a year plus.

And with that cohort of companies that kind of role you know come in and leave on a rolling basis. We work really closely with them at the kind of very early stages of the company building process.

So with that comes some investment that the Mucker labs companies are getting. And then Makar capital is a separate source of capital that is like your follow on capital for them or explain how the money flows.

Yeah yeah the money flows. I mean both of them are investments the accelerator investments are just a little bit smaller. So typical accelerator in the sense that it’s you know X dollars for Y percent equity. So you know typically that’s somewhere between 100 and 200 K usually and then so that element of it is typical accelerator in that sense. And then when companies do progress I mean we do invest more out of you know macro capital quote unquote.

But you know there’s not any formal like distinction.

It’s all the same pool of capital and Honey was in fun to respond to. Yeah. You think we had one nomenklatura out you know fund too which was really our first proper institutional fund.

So so tell us more about honey. Obviously top of the news right now. And very very exciting exit for all of us in L.A..

When did you all the more exciting for the people who are in honey. Yeah well we’ll talk after about that. But but tell us about the history of the company with with Mucker and how you met them and how you decided to make that investment.

Yeah. So we. We were lucky to be the first investor in honey. Aside from you I think like some of his blood relatives some of the founders blood relatives but so they were they went through our accelerated program and then we invested in a bunch of the follow on rounds as well. You know we first met them in the context of they were raising some money and we talked to them about the accelerator program and got to know them and eventually ended up working with them via the accelerator program. And you know they did a great job even the founders are incredible product and go to market execute ers and thinkers and give us the basics though because not everyone totally invites I sort of know what hunger is.

I’m not sure I could accurately describe it because you use it.

Yeah. Their first product. I mean really they’re kind of flabby flagship product was a browser extension that automatically would apply discounts and promotions for consumers who were shopping. And you know prior to that there were no coupon sites that had evolved and you could find the reply hundreds and hundreds of coupon sites so you’d have to if you wanted to get a discount while you were shopping you’d have to go find a coupon code go to these sites test it out. It was kind of this hunting pack back and forth looking at all these Web sites.

Trial and error which wasn’t a great customer experience. And and they created the really like a very elegant product that just automated all of that so that while you were in the checkout flow honey you would kind of kick into action and automatically test and apply discount code so you got the best discounts. And and I guess incidentally I mean the way I always viewed honey really is that they were they were focused on. E-commerce innovation right. I mean there there hadn’t been a lot of innovation on the consumer experience for e-commerce in a long time and there still hasn’t been in my opinion you know to be honest and then that’s one of the things that Honey has been working on or several things on he’s been working on.

You know in addition to that. Core product that they that they have that’s been sort of their flagship product they started creating a bunch of other products now that they have you know millions and millions of users. They they started to roll out other products but it was all focused on e-commerce innovation and really creating you know innovating on more the consumer or customer experience side. There has been a bunch of innovation on the kind of merchant side of e-commerce. Amazon obviously you know driving a lot of that and a lot of it centered around Amazon but Shopify you know so on that side of it there has been a fair amount of innovation but it hasn’t been that much on the consumer side.

And we always thought that was a really interesting and fruitful opportunity and they did a great job executing on that.

They did have to cop to having. I also saw them in 2013 2014. Around the time that you looked at it maybe a little bit before one of the things that. That’s striking is how similar their current product is to what they were doing back then. Yeah and how I mean really a lot of companies sort of went their way to their final product. But if I look at Honey today at honey in 2014 the the core product it’s a lot better but it was it was very very similar and they were on a pretty great trajectory back then I think.

I think when I met them they had 700000 installs which is which is a lot for a toolbar.

Yeah absolutely I mean and the product is sort of similar. I mean again fundamentally I think it’s about saving customers money you know and taking this what was a consumer pain point and something you know who doesn’t like to save money you know and making it into a really elegant product that just worked really well. And you know they’re were doing something that’s good for consumers and merchants liked it as well you know. So it drove you know if anything that merchants perceived you know to drive conversion they like.

So yeah I think at the time in the early days and you saw this whereas others didn’t. Is that I think some people fear that merchants wouldn’t like them because there were you know there were already in the shopping cart. So the merchant had got them into the cart and they were applying discount. So I remember. Someone who I won’t name saying well the merchants are just going to get sick of them and kick them out. Obviously things played out differently. What do you what happened there.

Yeah no I mean I think when it comes down to it merchants do want anything or really anything that’s going to drive conversion from merchants they like and cart abandonment cart abandonment is a huge problem for e-commerce. So so if they can you know if they can move the needle even slightly on on that metric that can that can be material for you know for revenue but you invested so you kept investing you invest in you you glad you accelerated your work you kept going.

But my understanding is that they didn’t raise a lot of outside capital it didn’t have great success raising from there which is all the better for you and the L.A. ecosystem. What do you think why did you decide to invest when others weren’t. Why did others not invest. Yeah.

No we did we did invest pretty consistently all the way through. I mean and and they did have trouble in some of those early rounds in the sense that it just wasn’t a you know it wasn’t sort of an on trend product at that at whatever time they were raising and and for whatever reason it it it wasn’t you know this hotly contested company early on. But you know we.

I think we found it attractive as an investment for a bunch of reasons. I mean we love the founders and they were great operators and great. Product thinkers great go to market thinkers and and executed really well. And they were super committed. You know at one point you know I don’t think this is a secret. You know one of the founders had you know gone and been doing other work to try to support his way through continuing on working on the project like they just never gave up and I think that’s so critical.

And we liked what they were doing what we thought it was a really clever product. They were good at cutting customer acquisition which I think is a huge factor that a lot of founders underestimate frankly and under invest in what were they doing there.

They were really creative about customer acquisition strategies and really disciplined it’s really tempting when you find a tactic that’s working to keep dumping money into it even if the cost keeps going up you know things like that I think are a bit of a trap or can be a trap.

It was a business that made money I mean it’s a profitable. It’s no secret anymore. It’s a very profitable business and you’re generating hundreds of millions in revenue and very you know throwing off cash and very profitable so that kind of discipline too was you know it’s kind of everything we love and entrepreneurs.

Did they have any oh shit moments that you can share after that first. Well I think there are always lots of oh several minutes with every start up. I think every you know most startups probably you know when they get cease and desist or you know people coming after them with lawyers take that as a badge of honor. So there’s always you know stuff like that but. So they had you know I think they had plenty of oh shit moments along the way.

And again not the least of which was around fundraising. I think some investors you know would dismiss as all of us just a browser extension you know even now. I mean I think with some of the after the news of the acquisition came out people are like you know four billion dollars for a browser extension.

You know I think it’s easy to dismiss dismiss ideas or products on the surface and not look deeply into it. I think it’s a great lesson of being contrary and right. Yes. And we do try to look for non obvious opportunities and something that is a genuine unique insight. And that’s what gets us really excited frankly is when a founder has really a truly unique insight when they’re connecting dots that nobody else is connecting and see something that often in retrospect just seems super obvious like Oh that’s so simple. That’s obvious. Yes.

When you explain it and retrospectively or in hindsight it seems super obvious but no one had connected those dots yet or recognized that opportunity or had software enabled that particular workflow in an enterprise or whatever it is that I think can be super interesting non obvious and may seem obvious you know in hindsight or even too obvious right. Like oh it’s just a browser extension coupons but.

Like when we when we’re meeting with the founder. And the light bulb goes off for us it’s obviously gone off for them previously right. But then when that moment when we get to that moment that aha moment where we get it and see that insight or recognize that insight that they already you know have have seen. That’s I mean super fun for us and exciting and that’s when we just get excited and want to jump in and kind of work side by side with those founders.

Great. I actually want to ask you a little bit more about your process. Will has said with this typical understatement to me before that that you know you can’t really pick at the early stage and then that but instead he trust the process that you go through.

So I think just it’s it is demonstrably true that it is hard to pick it at the earliest stages and even you know especially when very early when it’s pre product or pre revenue or or both. You know it a lot of it’s a lot of hypotheses that haven’t been validated yet. Right. And and sometimes they go the way you think they’re going to go and sometimes they don’t. And that’s that is the process I think. I think when we’ll talk about the process or it’s part of the process which is you know start ups especially super early on are a series of experiments you know to validate these hypotheses and then ideally doing those in like rapid succession and doing lots of them.

And you know invalidating and invalidating hypotheses and making sure that you’re not drawing the wrong conclusion right and making the you know that type 2 error I guess it is where you’re drawing you know the the wrong conclusion basically. So. So and we love we like that process it’s fun for us. I mean it it’s also you know for founders it can be a stressful process. You know the clock is sort of ticking and you have to figure stuff out. But but we we like going through that process with companies.

But yet you do pick right. You have many many applications I imagine to MCR. Yeah.. So what do you have processes around that. No I mean I’d say it’s a process with a lowercase P.. You know we don’t have actually very rigid regimented protracted processes for picking or for diligence or for you know for for how we make decisions necessarily. 

I think it does come down a lot to founders. All will and I and Omar have been doing since you know kind of late 90s is internet stuff software stuff in various capacities. We all have technical backgrounds and you know have you have written software written code.

We’ve been product and focused most of our viewers on product and go to market and so I think it comes down to just like you know judgment and and really the founders and the markets and ideas are going after and some soup of that decision making.

It’s well-documented that the loss rate and venture are like that you know company number of companies that actually just plain go out of business is you know around half and then and then the rest that survive you know survive with mixed success.

So it’s important no one has I think figured out the formula to perfectly or precisely you know judge a lot of this stuff. We just try to get to know founders they’re certainly easier ways to make money than starting a company or even investing in startups frankly.

You know it’s not the easiest way to necessarily you know make a living but for some people it’s a lot of fun in the sense that for some people that rejection and failure is like devastating and debilitating and for some people it’s like oh this is fun I’ll try it again.

And you know and you have to be of that mindset to some extent and think that that failure or that process of failing over and over again is not failure it’s just I mean Thomas Edison said this week there’s so many great Edison quotes and our brand is sort of like tied Edison but he you know I’m paraphrasing but said you know I haven’t failed a thousand times I just I just found a thousand ways that don’t work. 

I told someone that I’d rather be unhappy than bored.

They think you’d be a great founder but you get more specific on investments. We’ve been doing all these interviews and they’ve been fantastic and I’ve learned some investors say look I won’t take the risk of competition like if there’s a lot of competition I don’t want to have to sift through that. Other people say if there’s no competition I won’t do the investment because I don’t think it’s an interesting you know market to go after. So my question to you is not necessarily about competition but do you think there’s risk that you feel like you will take 

I think frankly is there is no formula right. Oh just find markets that where there’s no competition and go to those markets or find markets where there is competition and be better faster cheaper.

And you know neither of those always works but both of them sometimes work. 

Do you have any heuristics around founders and teams. For example I’m. You know there are any absolutes but I become very reluctant to invest and so the founders. Part of that is born from experience some of which we had together.

Yeah yeah I think again I think those are all things we consider but I don’t think we have any absolutes. You know we’ve invested in solar founders we’ve invested in like four founder teams and like so too few founders too many founders we’ve invested in husband and wife teams. You know another kind of third rail of you know of founding company said it’s okay if they’re married but not if they’re dating.

He said that’s sweet. That’s OK yeah. I don’t want any breakup risk. Yeah.

Minimize breakup risk. Yeah I think that you know I think this breakup risk no matter what. With founders I think that’s just one of the inherent risks and so you know so we haven’t found I mean this is sort of like the serial founder thing we have seen no data that indicate that serial founders are any more or less successful than first time founders. There have been studies that have done on this and all of the data or all of their results are inconclusive. So you know. So it’s if all the data are inconclusive on this it’s it’s sort of mythology right that oh a serial founders are the best founders or Oh first time founders of the best of founders because they’re hungry.

 I will say though that people like El PS like some differentiation like to know that you have this strong thesis around monopolies or whatever. I would say that you to some degree are known for really rolling up your sleeves and helping with go to market product market fit that sort of work.

 Do you have a secret go to market playbook that you know could share with our listeners that our secret playbook.

Yes you know I. We do spend a lot of time on product and go to market and probably even more on go to market frankly because I think a lot of times founders are already predisposed to think a lot about product and and a lot of times are coming at the business from a very product centric perspective. So we think a lot about go to market and distribution and and you know and growth. I don’t think we do have a playbook per say.

 And I think that’s the part of it to some extent the mindset we come out this with is hey let’s try a bunch stuff and measure it and see what works and see what’s not working and keep trying to make it better and optimize it and figure out what’s going to work and what’s not going to work you know from a product and go to market perspective and be very data driven about it and and try a bunch of different stuff and see what works.

We work with a lot of product founders who come out of the product side and often the technical side is there a resource or a for people who aren’t.

Part of your portfolio.

Yeah. Well we internally we do have some you know quote unquote playbooks and things like that and then we have a secret place.

And then we we also have a network of kind of mentors and advisors that work with our portfolio companies. So they they come at it from a lot of different directions sometimes it might be customer acquisition you know or sometimes it might be you know enterprise sales and helping to refine enterprise sales process. Or sometimes it might be technical coming in and evaluating you know the the engineering work that’s being done and saying oh gosh like this this is a disaster or oh no this is great.

So we try to make those matches and then and then our portfolio companies kind of have access to you know sort of internal database of folks who who are in that network that they can reach out to whom they can reach out to directly.

But I mean back to your original question I think there there is so much content online now and I don’t I don’t have one go to resource necessarily on each topic but on a lot of these topics you know on enterprise sales for example you can find so much information online about enterprise sales metrics and dashboards and processes. It’s just it’s literally just waiting out there for people to find it so if people go out there and and you know you can you can go out read a bunch of stuff and put together a great enterprise sales strategy and metrics KPI dashboard just by going out and finding you know maybe reading 10 different articles right.

What are the main axes of going to market. 

Yeah I mean it depends on the type of company too. Price is certainly some of it.

And that’s one lever you know that companies haven’t it’s a super powerful lever. I think. You know that companies can play with some of it is more distribution focused. So you know in like an enterprise software company that’s sometimes that’s sales you know and having a sales team and process or you know depending on the type of software it is sometimes it’s more direct distribution you know if it’s more like SMB or something like that. You know the economics and the price point have to work for different. No you know go to market or distribution tactics right.

Because if it’s a you know it’s if it’s 999 a month you can’t really put a sales force out there selling it you know nine dollars and nine I said to my I mean if it’s nine hundred ninety nine dollars a month then yeah yeah. 

Unless I mean I will get off to get to market and just stay on MAKO I guess for that which is we did have Will on this show. So we’ve talked to well but Omar as your new partner. So yeah what does Omar bring. 

He’s got a really fantastic background both as a founder you know he’s been spent many many years across many companies as a founder and one of them was a kind of spectacular exit. A company called Ad mob that was acquired by Google and then most recently was a partner to cross and ad mob was a square portfolio company and then he ended up after the Google acquisition back at Sequoia as a partner on the early stage U.S. early stage team.

And he’ll be focused on I mean really the same stuff we’re doing I mean slightly more on kind of post seed opportunities. So you know not not kind of you know the 10 on 40 series A but you know some sort of those.

You know not not seed kind of million dollar check or under but.

That that that space in between really kind of those posted earlier opportunities.

We believe that there’s a lot of a lot of good stuff in that area.

Oh there’s great stuff. You know our portfolio companies included where they’re not quite ready to go out and raise 10 million dollars.

You know but they would certainly put you know two or three million dollars to great use and that would help catapult them to the 10 on 40 or even beyond. So. So those you know we again we view what we do as seed and there is a now a broad spectrum of seed. When I started doing seed quote unquote seed stage venture like 10 ish years ago seed rounds this was in San Francisco like seed rounds we were doing you know like 500 k unlike you know 3 pre or whatever that that’s much different than it is now.

What are your ambitions for Smucker do you think you’ll ever become a full multi-stage fund.

I don’t see us being a multi-stage fund and raising a growth fund and this fund and that fund and a China fund and an India fund and you know that’s not our ambition at all. I think this this to us is like a massive expansion if that puts it in context just you know adding a third partner.

So before we wrap up kind of sticking with that topic of ambitions in DC Is there any other thoughts you have on the DC ecosystem generally and you know their conventional wisdom you disagree with things do you unique insight into into Veasey.

Gosh yeah I think there are a lot of conventional there’s a lot of conventional wisdom or a lot of mythology. You know in V.C and some of the mythology really is even core to how we got started. You know we started doing this in L.A. eight plus years ago when honestly nobody really cared about L.A.. We had LAPD literally say to like my face when we were fundraising why would I invest in a fund anyway. I would just invest in a fund in San Francisco.

I met some of those people. They said he did it.

And I was like fair enough I guess this meeting is over but you know over time what’s happened is that information technology is gone from being like a vertical industry to now being like a horizontal enablement layer in the economy right like what economists would call a general purpose technology like electricity or steam you know.

And as that shift has happened it’s just gonna happen everywhere.

The way that companies started to use electricity all over the United States it wasn’t just in like New York Also by the way it’s like 70 degrees 75 outside 80 degrees outside we’re in the middle of winter and you’re three blocks from beach. Oh yeah.

Well that I mean and even on the L.A. topic you know L.A. has a technical labor force that’s basically the same same size as Silicon Valley. So you’ve got a massive technical labor force it’s a massive economy. You’ve got a great place to live. That’s I mean it’s not the most affordable place but it’s more affordable than San Francisco.

It feels like a good time to be in L.A..

Let’s let’s wrap up and say things it’s got outside beautiful L.A. winter here.

A bunch of phone calls. Yeah yeah exactly. Pace around the block and do phone calls. Totally.