Jason Schoettler started Calibrate Ventures where he invests in advanced automation (usually Series A).
And we are on Zoom with special guest Jason Schoettler from Calibrate Ventures. Calibrate is an $80 million dollar fund writing checks in the three to six million dollar range, meaning that Series A is probably the sweet spot there. Jason, David, how are you both?
Great. Great. Lovely to be here with you guys. As Jason says, it’s Covid day 46. Jason did I get the basics of Calibrate right in that introduction, mostly focused on b2b.
Yeah, we are we’re series A venture capital firm that invests in advanced automation and typically invest in companies when they’ve got signs of early commercial success and view our job as one to help them scale through 20 through 20 million in revenue and through hundreds of millions if we’re doing our our jobs right and work with the right folks. So it’s it’s it’s a great place. We think in all time, but especially right now, to be investing in that in that space.
And my understanding is that you have a pretty concentrated portfolio, is that correct? Yeah, we we founded Calibrate with the belief that we it’s small funds typically outperform. And also the concentration is a way to generate outsized returns. And so we designed our first fund with eighty million dollars to invest in 12 to 15 companies and really lean into our winners. And so we do run a typically more concentrated portfolio than other some other funds of the same size.
Got it. And how do you I mean, that’s that’s. That’s not that many shots on goal. We’ve been very lucky to have some you know, some great some great exits as a result of concentration and really leading into our winners couple here in Southern California. I like Ring a dollar shave club, which were both outstanding. And so, you know, we’ve also had situations where we’ve lost stuff that we’ve been able to pick some good winners and have been disciplined in our follow on capital, which is where where it really matters.
With concentration. And do you then have seed funds were that are like good feeders for you?
Like, should you know, should we be sending you all our advanced automation company?
Absolutely. We’ve been building our network for for 17 years.
One of the things that makes us an attractive partner to both seed managers and the founders is that investing out of a small fund with relatively small capital, you know, we’re not investing in 30 million dollars to Series A round.
We’re investing in rounds that are five to fifteen million generally. And we’re trying not to overwhelm either the cap table or or the boardroom in that regard. So we’ve had a lot of success doing a lot of repeat business with some seed funds and are always looking to build out new relationships. So someone is raising 5 to 15 million usually. What is a series A valuation, typically pre Covid and what do you think you’ll be post Covid?
I mean, we it there is a range. I think we’ve seen everything from the kind as low teens to you know, we’ve seen deep this is what we’ve seen in your low teens, up to upwards of, you know, 50, 60, 70. And I think it will be lower as we get into Covid. In general, I don’t.
I just think I think there’s going to be less capital. And I think the supply and demand means that, you know, you’ll end up with a little bit lower valuations in the in the period ahead.
Yeah, I’ve been thinking about this a lot and discussing it with other VCs. There’s there’s a question in my mind of how long it takes to get that valuation reset, because there’s that there’s money in the system that’s waiting to be deployed. A lot of it’s going to depend on how how long we’re in this period of sheltering in place and how long it takes for for founders to get a read on what the path out of this looks like. And I think until we have a real good handle on that, it’s I think we’ll see less capital flowing in just because there’s going to be a little more uncertainty.
Also, you what you said at the beginning was you tend to invest in advanced automation.But advanced automation, I would think, is also something that people will need more of, if not rather do less of in a post world.
Yeah, we we tend to think that lots of executives and business leaders and technologists are rethinking how they operate, how they run their businesses and from their homes, right from their garages, their living rooms or dining rooms or bedrooms as a as they have really an opportunity to pause and think about business post-Soviet.
And we think that automation is going to play a key role. And for us, there’s two two aspects of automation. Software makes everything go. And there’s a there’s kind of physical automation. And then there’s also digital automation. We think they are both going to play a key role and be accelerated through this as as as executives and managers look to do more with less. There’s a whole host of really good things that happen when you when you can turn routine tasks and workflows over to two machines to do better.
Whether it’s a computer system or software system or or a robotic system. Is that a change from from your point of view from officials? Because something like ring, for example. Jamie’s approach was was always to build a ring of security around the home and then around neighborhood and around in the community.
And I think that, you know, a lot of what he was able to do was to bring bring our front door to our pockets, right to our phones. We’ve done well in consumer with a host of investments, but I think we’ve seen the opportunity and more B to B and the B to B to see opportunities, particularly for the advanced automation stuff.
And I think the reasons, the reasons why we see. I mean, just to be real specific about it. Advanced automation. It it solves a labor shortage problem. It certainly solves labour mobility problem that we’re facing today. It increases and always has productivity and reduces operating costs. And we think actually promotes safer operations for employees. And that’s I think if we look at some of our portfolio companies today, we have some in construction and some in agriculture.
Whereas kind of human labor was a cost and availability issue. It’s also now health and safety issue for many industries as well. And we think that’s going to continue in the decade ahead. Why? Yeah, it sounds like I think you said you do invest in hardware, but everyone says don’t invest in hardware unless you really know what you’re doing.
Well, we think we’re pretty good at it. We’ve got a good track record of investing in hardware. And I think I think you need to know what you’re doing when you’re investing in hardware. I think we don’t invest in hardware businesses that don’t have a subscription component to the revenue, for example. It’s one of many rules of thumb that we have. I think you also need to be very cognizant of the, you know, inventory issues and supply chain issues.
And you need to work with great teams that know what they’re doing because it can be a very challenging place to to to invest. But we’re we’re quite enthusiastic about how kind of that’s the way software gets into the real world in some cases. Right. And that’s really exciting for us to be part of that. And so hardware that still has some substance, you’re not selling something that doesn’t have a subscription, although I will say, geez, I just watched this video of this robot.
What’s its name? Moxie is you.
Did you check out. Yes. Yes. Does it have a subscription?
It does. It does. OK.
What’s a Moxie robot? I don’t know. You got to watch the video.
You’ll have to post it on your notes.
But it was announced yesterday. So we’ve in the last 10 years or so, we’ve made four investments in that way. We’ve invested Ring, Dollar Shave Club, Evolution Robotics, which was started by the guy by the name of Paolo Pirjanian. And that company was acquired by iRobot and would Paolo. It became CTO at iRobot for a number of years. And then he left about four years ago to start Embodied and Embodied there’s about it’s A.I. and software and robotics platform platform for care and wellness.
And they just announced yesterday. So we’re really excited about, after all these years, the getting Moxie out into the wild. And it’s an actual cute little robot companion, animal companion. Yep, it’s awesome. Thank you. Didn’t my dad get it wrong there?
You you talked some about like automation for new industries versus old industries. And how much. How do you think about investing in big old legacy industries that don’t have much tech vs., you know, flying cars and people?
And I think I think a good way to do or a good way to to address that for us is, you know, we’ve not we’ve been very interested in autonomous vehicles, but we have not invested in anything that is related to like consumer automobiles that carry people. The way that we have thought about how to play.
That has been more around ways to.
And by the way, there’s tons of money that has been made. It will be made in autonomous vehicles for the road. But we’ve taken an approach to say, look, where are some industries where machines can do repetitive tasks and add a tremendous amount of value because we’re taking we can do it cheaper or faster or safer than can be done otherwise. And a couple of examples for us with autonomous vehicles are in both heavy construction equipment. We have an investment in built robotics, as well as with a company called Farm Wise that is working in the agriculture space.
And the reason we we like some of these we’d like both of those bets enormously is because your operating vehicles on private land and you can control for a lot more of the variables and you can drive them down Market Street in San Francisco, for example. But at the same time, these industries are have labor shortages and challenges, both with the affordability of of labor. And they really have the because they’re not at the forefront in attracting a lot of attention from kind of tech generally.
There’s a real opportunity to help with some of the leading Delina operators in those spaces to help bring bring some automation there in a new way, the way that Silicon Valley has done well over the many decades of bringing automation to other industries. And I guess the last point that I would make is that when you look at. When you look at these industries, one of the big tipping points is the cost point for hardware and software. And that’s that’s another important reason why we’re comfortable investing in hardware.
Because the component costs and the ability to prototype and iterate in scale and the supply chain, those costs have all come down dramatically over the years. And I think they’re at a point where it makes a lot of sense to bring them into those industries.
And on this software side, what is I mean is the software side more traditional automation of sales processes, customer service, processing?
Yeah, we’ve done we’ve done stuff on on on the enterprise side that’s focused on sales automation, that’s focused on connecting customer, you know, stuff that drives revenue for businesses. So for us, it’s been around product tools, developer tools and soft sales force automation. We’ve looked at in and continue to look at lots of things in the in the A.I. space. And we’ll continue to do that as well.
So I want to loop back and ask you about how you work with companies with a smaller portfolio, you should have more time to spend with them. What is the relationship and how do you see an optimal way to work with companies?
We we we lead about three quarters of time and we take a board seat when we lead. One of the lessons that we learned early in our careers and that I hold very dearly to me is that it’s all about people and the value of putting people first and realizing that that sometimes it can be a lonely walk as a founder. I mean, we were founders ourselves.
We really do place a premium on working with the CEOs, with the founders and being there for them when they have issues. I think a lot of the hard work that the best board members do is off line and in bringing to bear their their operating grants and sharing, you know, tricks of the trade or perspectives that they have off-line and not necessarily. I think that’s one distinction that’s appreciated by my founders.
And I think the you know, there are other board members that are very technical in and we find it that those those folks are really instrumental at the early stages of investing.
And then there’s, you know, as you move as companies get grow and mature and scale, certainly the profile of investor changes is growth. Investors enter the mix. You typically take a more financial orientation, which is perfectly appropriate as companies grow in scale.
This may be obvious to both of you guys, but when you join a board, how many people are on the board? And when do you roll off? And how many people are on the board when you roll off?
When we get involved is Spike Lee anywhere from three to five directors. Usually there’s a founder or two and maybe a seed investor or two who are on the board.
And at the time that we’re investing, it typically grows to somewhere between five and seven. And and as the company has progressed through their companies, progressed through their later financings, we typically roll off as as the boards grow. But I’d say it’s usually in a three to five range. When we get involved, then that’s how we exit somewhere in the five seven. If it gets larger than that, it gets unwieldy. That is my experience. I mean, the future, if you are the better.
Interesting. I was going to ask you that, which is like what really what’s a dysfunctional board look like? How can a board really screw things up for a company?
You know, that’s a good question, and that’s probably there’s a whole podcast series you can you can do on that bad boy gone wrong.
But, you know. For me, the one of the things that I have noticed in my career is when when a board. Either because because a founder has some some certainty or some lack of clarity about what to do. And and goes to the board for advice to help set strategy. Right. And and really leans on the board to help provide guidance and framework and direction. It.
That’s typically been a cause of concern. We love founders to be bold and to have a point of view and to debate it and listen. But if there’s a lot of uncertainty around what to do, that can be a that can be a problem because it invites the board to get involved in more management issues and more executive issues.
And we’ve seen that that play out badly. And I would say that’s kind of that that can be an that can be a challenge with the founder. The other side of that coin is where boards have a very strong point of view and kind of enforce themselves, enforce themselves or assert themselves in the process, which is kind of the same dynamic. But I’ve been on some boards where, you know, the boards have a particular point of view and want to go charge that hill as opposed to some other hill.
And that makes for four rough dynamics as well.
I find that a really tricky needle to thread, so because I was always sold when coming to my board, don’t just come with an update. Don’t just come with like you’re the numbers.
Like they can read that. So bring the real issues that you’re, like, actively debating. But I think what you’re saying is bring the real issues. But don’t look to us for guidance. Just share.
Well, I think yeah, I think I think that is it is tricky.
But I think I do think that the best board meetings I’m in are when you get through like the second slide and then you spend two and a half hours working two or three major issues with with the couple. Those are very productive. I feel productive when I’m leaving those board meetings. And I know the CEOs feel the same way.
You’ve been shook up to those times that you’ve been doing this for a really long time. And I know that you were at a different fund prior to Calibrate. Calibrate’s.
Pretty new, right? Yeah. Kevin and I, my partner founded Calibrate and 20. Middle of twenty. Seventeen. And and we talk a little bit about Shae Venturers and what used to be for sure.
And maybe if I go, you know, go all the way back just to connect the dots. I mean, I’ve I’ve been in tech all my career. I started as a as a management consultant for Ernst and Young in Silicon Valley, where I was working for HP and Agilent for a couple of years in the dot com kind of late 90s period.
And then I was recruited to join a product in a product management role, a startup out of JPL and Cal Tech that was commercializing software that was used in the Mars Pathfinder mission. And then Shea Ventures, which was the largest investor in that startup. We recruited me to be the first investment professional. And then Shea ventures a family office that was one of the pioneering venture capital investors going back to the late. Late 1960s, and that was just a tremendous, tremendous opportunity, we invested off of the balance sheet for a number of years and then we ran a couple of funds that included outside investors most recently.
So it was a wonderful, wonderful place to learn to learn how to be an investor. Does do companies if if there’s companies like companies that are looking for investment, which just a lot of them do, they would they go directly to Shea ventures?
I suspect that the predominant investments they’re making now are are probably later stage and and into funds.
But they do they do do some core investing alongside some of their managers as well. They’re one of our tailpiece. So we know that know pretty well. What has changed? How have you changed the most as an investor? I’ve learned a couple of things in my career. I’ve learned that it’s it’s all about people. We’ve talked about that.
I’d say being intellectually honest is another big lesson. I think that’s something that that both Kevin and I try to remind each other, that the value is that we’ve both been really good at sleeping on things and not holding so tightly to two preconceived notions and being being open data, I think is really important part of being an investor. And then I’d say that it’s good if it gets to your your last question like it’s OK to make mistakes, like as long as you’re learning from them.
And as long as you’re you’re able to, you know, fold the learnings to the next the best, because we are going to have we are going to make mistakes. Are our founders going to make mistakes and we’re going to lose money along the way. But that’s part of the business of investing in startups. Maybe I was. I was going to I was looking at your Web site. It said something like, our decisions are guided by our founding values, not herd mentality.
I think what we what we mean by that is, is not feeling as though you’re you’re missing out on on something and feeling like you need to invest in X, Y, Z sector or a company that is pursuing X, Y, Z, technology or market because everybody else’s. So I think we try to be really independent in our thinking. And and and I wouldn’t say we’re always contrarian, but there have been times when when we’ve invested in things that weren’t obvious, that it turned out to be great, you know, great investments.
I know both.
I know the ring know Jamie is definitely had some dark periods of trying to raise capital. And, you know, we invested he was doing about three million in revenue and it was a great investment. It rang a lot of people invested in that early on and a lot of people passed at the time that we were looking to that we invested. And I think we feel really good about not being persuaded by other people saying no, no investment or saying yes to investment.
What is it? Give us some guys. They give us dirt on Kevin. What is Kevin? Why do you talk about being intellectually honest? Like one of the things. What are his hot buttons? You know, where do you guys agree or disagree? Do you push each other on?
Well, he he’s a mechanical engineer by training and practice. And I’m I’m a liberal arts person by training.
And and I think I think we work really well together because I think I think there’s a quantitative and there’s a quantitative and no B.S. kind of analysis that Kevin brings to the table. And I think he would agree with that. You have to ask can’t get him on the show and ask him. And I think there’s there’s there’s a bit more of a softer side of things that I sometimes come to come to the table with. And my kids are a little older and his verdel younger.
And so there’s he’s feeling a little more under siege at home in quarantine than I am right now.
So that’s maybe a hot button.
But I think we’re very different personalities.
We’re very different people, but we’re very close friends. And we’re we’re four we’ve been business partners for four or fifteen years. And it’s it’s there’s no one I’d rather be in business with. Street. Is that as you in cabinet, obviously, you guys are, you know, BMF is about as did the other has the rest of your team.
So we’ve got you know, we’ve got a great team of operational support here in Southern California and financial support. And then we we recently added Dan Murray and Amy Lifer as venture partners, which was a big move for us. We added them in January after looking at lots of folks, and we couldn’t be happier with the fact that they’ve joined us. So I get asked a lot about how do I get into it’s a common question. So for you, these venture partners, are they full time? Are they not full time? How do they. I mean, because it’s sort of a path for people who want to be more full time and adventure.
So I think that’s one that’s one way is to become a venture partner. I think, you know, for us, a venture partner means, you know, we’ve got some tremendous athletes. They have full time, full time gigs already. And they have about what we expect to get about 20 percent of their time over the course of the year. They’re part of our partner meeting every Tuesday and they work with us, kind of like diligence and and other calls as well. Got it. And and is Kevin also in Pasadena? So you guys are your offices in Pasadena, which is one of the things I like best.
We we love Pasadena. Yeah. So. So Calibrate intergalactic headquarters. Is it in Pasadena? And and it’s been here for since we founded the company.And where are you from? I was born and raised in Fresno, California.
Up in the Central Valley.
What do your parents. What are your parents do? How do you end up in Fresno?
Well, I was born there. That’s how I ended up there. My parents, my my.
My mom was a who was a schoolteacher when I was growing up. And she’s now a children’s author. And by my dad has been in the in the mortgage banking and real estate business, his career. So it’s been it’s been a fun run.
David, do you got anything else? No. It’s been great. Yeah. Thanks for playing along. Well, Jason, thank you so much. And we look forward to going over all of our advanced automation companies with you in the near future.
It’s great to be on with you guys. Thank you. And I know what you’re gonna. Yeah, good. And you’re gonna see me zoom, zoom on our strategy. We can’t wait. Yeah. Big time. Very exciting. All right. Thanks, guys. OK, see you. Bye bye.