Matt McCall — Pritzker Group

Posted on Wednesday, October 13, 2021
Matt McCall catches us up on venture investing for the Pritzker group where he’s doing a lot of seed deals and using those to fuel his Series A investing.
 
We also discuss wearing life like a loose sweater and other ways to thrive on the entrepreneurial journey.
 

View Transcript

Today I have Matt McCall with me. Matt is well known to the LA venture community as a partner at the Pritzker Group, running their venture investing.

He has a great track record of investing in consumer companies like Coinbase, Dollar Shave Club, and Cameo, as well as great enterprise companies like Matchbox, Project 44, and SMS Assist. Matt, thank you for coming on the podcast today.

Thank you for having me.

So, I started by saying you’re well-known to the LA venture community. I think you started the Pritzker LA office about a decade ago now, so let’s catch up where’s your focus today?

So our focus is seeds and series A. The way that we’ve approached the businesses, we have an active seed program where we’ll do quite a few number of seed deals each year between 250 and a million dollars. And the idea is for that to kind of build out kind of our farm system and then probably half of our deals come out of our seed deals and then the other half come through traditional means,

Got it. And yeah are you in LA who’s in LA or, or how sort of is the how the operation set up?

 I am splitting my time between Denver and Los Angeles

Okay, great. and you know, I mentioned some of the amazing consumer companies, some of the enterprise companies, you know, are there particular things you’re focused on right now?

So, historically I’ve done, I’ve been in the business about 26 years now?

So I’ve done about 70 deals, something like that. seven unicorns in counting at this point and it’s been across the board and of enterprise and consumer,

So I can do, uh, you know, I’m very deep in next-gen commerce. I’ve got a lot of experience, in crypto. I’ve also got a lot of experience in B2B enterprise and marketplace stuff.

 Do you want to talk a little, like next-gen commerce? What excites you about that space?

Sure. So what’s nice about commerce is every 2, 3, 4 years it ago through a revolution or an evolution I should say. And that could be the advent of Facebook and then you have the advent of Instagram and like right now, the innovations are starting to current voice interfaces.

Each time that happens, you get a whole new wave of companies coming through. And you know, another bite at the apple is I always say, when we miss a really big deal, I don’t worry that the next wave will come through in 18 months.

Hmm.

Our key themes have been, in next gen commerce. Uh, one is vertically aligned brands. That’s where dollar shave club and Ana. and that that’s the corollary to our second theme, which is powering others to compete with Walmart and Amazon. The reason why we’ve focused on vertically integrated brands is, you have [00:03:00] the best shot of avoiding getting cracked between the two of them coming together.

 If all you’re doing is reselling product, Amazon is going to crush you.

So is the vertical integration, is that because they are owning their distribution or have a closer relationship with their customers or what piece of that avoids the, being smashed by Amazon piece?

So when you get more margin, because you’re able to produce the product yourself, that also frees up your ability to go direct retail. if you have to do a wholesale pricing, you have to have at least. 50, 60% margin at the end of the day. And that’s impossible to do if it’s not your own product.

more importantly kind of like apple, you control the whole experience from beginning to end. And then the other thing we look for is, every commerce deal that we’ve done the last 20 years, they’ve owned a channel. There has been one channel that they’re exceptional at, and that could be 50% of their revenue, 60% of the revenue, and then it tails off.

And so we always ask, what is that channel with this play? and what do the numbers look like and how does it scale?

So does that mean you’re not like [00:04:00] omni-channel is not what you’re looking for. You really think they need to own one too.

So, Omni channel is really interesting because like, if I think about our companies like interior to find, which has been on a tear, when we drop a guide. In a city, our conversion rate online goes up three, four X,

uh, honest company did the same thing, right. They started doing pop-up trips. So I think that you have to have both,

Hmm.And so fair to say that consumer is really your sweet spot

So we’re, pretty deep in consumer. For example, the head of our operating platform is a guy named Carter cast Carter was on the founding team at blue Nile, built blue Nile shame of eBay, and then took walmart.com. from zero to 5 billion, so we’ve, got the ability to really understand what’s going on in the channels, but I would say that. start with your heart, moved your head. so if it doesn’t move you, if the narrative, the origin story, doesn’t move you, then it’s not going to move the consumer and it’s not gonna move other investors.

No one will want to buy you, et cetera, but you don’t [00:05:00] want to fall in love with a concept only to have the numbers not work So we have a database with about 400 e-commerce companies with just a sea of, metrics. And it allows us to say, okay, payback period, under this period of time is up record tile, CAC, LTV ratios, retention rates, all of that kind of stuff.

and any rules of thumb that you can share on that. You know, I think the good news is that it’s not revolutionaryyou know, if I think about kind of the LTV to CAC ratio, which is what everyone drills down on, right? we’ve looked at all of the different levers Um, obviously having a high margin helps a strong contribution margin, but the retention rate in organic is really, really critical if your retention rates high and organic is high over 50%, that says you figured out the value proposition with your customer. In fact, I think it was Daniel or someone was saying, talking about our known Mike Jones.

Mike Jones talked about this.

Yeah.

He’s like, if you’ve got bad retention, you just throw it away and start your model again,[00:06:00]

Yeah.

And that’s why like blue apron ran into trouble, right? Because they were at like a 10%, 12 month retention rate. You have to acquire your entire customer base and then grow each year. But none of that’s overly revolutionary.

I think for us, it’s more along the lines of the tactical stuff.

and the tactical stuff is owning a channel.

It’s owning an acquisition channel. at the end of the day is critical. I’ll give you an example. So, honest company, we would honest, start with the heart, move to the head. Yeah,

we’ve heard all kinds of baby plays. you know, it’s usually a bunch of dudes from like Harvard or Stanford.

There’s no soul to it. And then Jessica comes in and says, so I’m in the delivery room and they draw my blood cord 66 toxins. I’ve just poisoned my child. How did this happen? I vowed that day. Oh my God. It was coming in through my hands. It was, you’re like, it’s like a murder mystery, right?

she’s an actress.

And delivered by an actress.

But then in terms of channels, you know, a lot of the initial growth came off of Jessica with that narrative [00:07:00] story calling up the mommy bloggers who had seven, 8 million followers and saying, you want to join the cause.

Let’s move on to another theme of yours. I think you mentioned decentralized models, blockchain valuations right now. We’re crazy. How are you approaching things? yeah, there’s a lot of fluff and a lot of promotion going on and obviously the valuation models are way out of whack right now, But, you know, the reality is that you’re going to start to see a decentralized competitor to every centralized model, just like there was an online competitor to every retail, offline player.

And, you know, it’s just a, it’s a different model, which is just as a, Hey instead of a company raising the money, building the product, spending on marketing and whatever.

And then they accrue all profit. they have the community do it, and then the community participates and so there are situations where that does make sense, but as I always say, when we look at decentralized model, the first thing I say is this is the blank of decentralized.

This is the, uh, this is in now, you know who the competitors are. Right.[00:08:00] And then the second question is, is it better, cheaper, faster? it breaks the pick usually on that second question.

right. often not better or cheaper or faster yet.

yet.

but it’s heading in the right direction.

And do you think there’s certain areas of verticals that lend themselves best to being the blink of de-centralized? So I think that, any situate, like an example of, one of our, you know, we have a company that is going after TransUnion,

which ironically transients now involved with, so good for them. but it was, we had an investment in a company called avant, in Avanse one of the larger you know, next gen, finance platforms.

And they said, Hey, you know, why are all of us GMAC? And all of us giving our credit data to TransUnion and we have to buy it back when we do underwriting, why don’t we create basic consortium? Everyone puts their data in together. And then we get chits that we can then use to pull it back out. and so I think in those models where there’s community or a lot of nodes, you’re going to see a logical [00:09:00] opportunity for this to happen

Sure. So having a network and community ownership makes a lot of sense in this case.

And can you tell me more about. The Pritzker group, I sort of associate Pritzker with the Hyatt, but I know there’s a lot of industrial ties as well.

Sure. So the family in total, before it got split up was about 35 billion. And, that included, Hyatt Royal Caribbean TransUnion, and I think called Marmon group, which eventually Warren buffet bought that was 160 different industrial company.

Got it. And what about you and your career and your perspective on where we are today? you know, I think, you know, as well as I do, because we’ve both been around for bet, I’ve been through four market crashes now. my first month on wall street was September, 1987

a month later, the market dropped 23% in one day. Okay.

Uh, and then 2000 was interesting. 2008 was not so much of an issue. that was more, if you were in real estate, it wasn’t fun, but it wasn’t focused on tech. you know, I look at each [00:10:00] of those and what ends up happening is that things get more and more extreme. The, the analogy I use is like a, a baby crawling away from mom. It crawls a little bit, and then it looks over its shoulder. Is it okay? Okay. And then it crawls a little further and it looks over mom’s is okay. And then at some point, mom grabs a kid

Yeah.

that’s what’s going on now. And defining factor will be the public markets, which if they’re trading at 25 times revenue, which they are,

Right.

then people are just going to come in.

You pay more and more, more for deals. We did. We just had a one company finance at. 90 times revenue.

Wow. Yeah. And how has this phenomenon effected how you invest And what is your attitude towards the $30 million valuation? Pre-seed.

yeah, I mean, this is why we do seed series a and that BCD, but just like you guys And I think the advantage of that if you have the DNA to do the diligence, like you have really deep per sample data chops. Um, and so you can assess things earlier than [00:11:00] most other firms could.

and if you get in at a low price You’re in a good space. If on the other hand, you just paid 50 times revenue for a late stage deal.

you know, that’s no bueno.

right. And so, man, I feel like I didn’t do justice in my introduction because I didn’t talk about you as a coach. You as a blogger, I didn’t mention forge capitals. So maybe we transitioning. Tell me more all the other work that you’re doing right now. And maybe we start with Ford capital.

Sure. So, forge is just my own personal vehicle and the idea behind forge is excellence and personal development are forged in the fires of entrepreneurship. and the flip side of that is, for 25 years I’ve watched entrepreneurs survive entrepreneurship. you know, as, as I do, the only way that you grow is through, challenge. But what happens is, you very quickly end up in a world of scarcity and that in turn pulls you what the, as they say at CLG below the line, you go more fear-based and [00:12:00] so where there were a couple of things I think about my journey.

the first was, as I got into my forties, I had the happiness formula. Everyone else does, which is the next dopamine dog biscuit. Where’s my blue ribbon. Go to the best college, and go to the top business school and work@bcgatoneofthetopconsultingfirmsandthenbecomeatopvcdot.dot.

And what you realize is you’re not doing it for the sake of the thing or for you, or a bigger theme, you’re doing it to get the dopamine hit, which means you immediately now are chasing after your next deal. And you’ve taken control of your happiness. It’s still X say, and you put it external to yourself.

Hm.

And the other challenge with that is that just like anything else you need bigger and bigger dopamine hits,

and the next dopamine hit gets exponentially harder. It’s one thing, if you’re one of 3 million soccer players to get a participation ribbon, it’s another thing if you’re like, trying to get on the Midas list.

And so how do you. Well, I guess it’s mostly entrepreneurs you’re working with. How do you help them then thrive through their [00:13:00] journey?

 Um, so the way that I’ve done that is I’m trained in four different coaching modalities.

And I’d become a bit of a wisdom junkie. So whether it’s Marcus really so that, you know, in the Stoics or Aristotle or Emerson or Thoreau or Buddhism, or you name it hundreds and hundreds and hundreds of books, and the good news is the wisdom hasn’t changed for 5,000 years.

different skins.

and I would argue at the heart of it is all around managing ego and fear. If you think about when we get into trouble, it’s when we start telling ourselves stories on a Sunday night.

I just, I mean, I will just put in a plug for your blog. I got lost in reading about pain and suffering and then to stop and think for myself about pain. You can’t avoid the pain, but I can avoid suffering. I

Yeah.

in this loop of trying to think about where I’m getting stuck in my own life,

But that’s it. it’s not the pain, pain is really just [00:14:00] disappointment. I expected a, I got beat. I expected to close the sale with a customer and it didn’t happen. Right. But then what happens? We put a story on top of it. the story is, oh my God, our sales engine’s broken. going to go under and we don’t usually stop there, do we?

No, we go, if I go under my wife’s going to leave, may if my wife leaves me, my dad’s going to tell me that I was never going to amount to anything anyways. And no one at the country club will ever talk to me. and you look at and go, Yeah.

that’s one takeaway. Or it’s the fact that in their pipeline, you’ve got 199 other customers you could sell to.

Um, what’s the story you want to tell yourself? And that’s where suffering happens. but how do I change the narrative in my head when I’m beating myself up?

So there are a couple of things. One is, just be aware of the beliefs and the story you’re telling and realize that it’s just a story. but I would say even before that, the first is usually your fundamentals go in the crapper,

[00:15:00] sleep, your exercise, you don’t eat well.

More importantly, you don’t spend quality time with people that energize you. you actually start to pull back and start isolating yourself. you don’t want to be vulnerable. So I’d say at a minimum, protect your sleep, the second then is, like there’s one thing you get CBT cognitive behavior therapy. There’s a simple version of it, Byron Katie’s the work. and you know, it’s one of my favorite books of all time, which is loving what is,

and what I’ll tell my entrepreneurs.

In fact, I was just telling my daughter this the other day, when she missed her flight, Byron Katie has this great quote. She says, how do you know the wind’s blowing? And, you know, get, you can get in your head. Is the wind blowing? Is it not like it’s fucking blowing? Like it’s blowing into the story.

Like, how do you know you missed your flight? You missed your flight. Like it took off. How did you know you lost a sale? You lost the sale. And so what she says is, first question. Okay. What’s the story that is probably causing some issues with me. How [00:16:00] do I know it’s true.

And you write it out and you say, no, no, no. How do I know? It’s really true.

 um, how’s the opposite. True.

Hm.

And that’s what she calls the turn. oh actually the question right.

before that is how would I be?

Who would I be without this thought?

Would I be better? Whatever you worse, whatever. And by the time you’re done with this, you’re like, okay, this is a bullshit belief, a horrible story. And I would be so much better off if I didn’t have it.

And the flipping the opposite is like, for example, you get fired from a job.

The opposite would be I’ve been unhappy in this job for years, and I actually set this up to be fired. And are you working with portfolio company founders on this, or what is your process?

so it’s usually a pretty straightforward process, which is there one of two questions at the very beginning. the first is just checking in and saying, Hey, how are you doing? What’s going on? And then CLG has a that’s. One of my modalities is [00:17:00] CLG conscious leadership group, which is probably, I would argue the most popular of the coaching groups in the valley right now.

And, the first question is, are you above or below the line? above the line is, uh, coming from a place with abundance and forward progress and positivity and optimism. And below the line is fear and scarcity and Mimi, and et cetera. And that 95% of the time it’s 97% was below the line.

really?

And you

said, this is big in Silicon valley right now is what you said with the founder community

yeah, they’ve been involved with like Coinbase. I mean, there’s a whole Genentech literally has this, these triangles in the carpeting. Um, we surveyed our CEOs and, uh, those that were using coaching, a third of them were, were the CLG

have a book.

They always do this. Plus the opposite. curiosity versus being right.

Hm. So explain that distinction to me.

So when someone’s talking to you, are you curious about what they’re [00:18:00] saying and wanting to learn more about it or are you determined because of your ego of being Right. And you will die on the cross if you have to

 two part

question for you, Matt, on the meaning of yourself coaching. I think I heard you, I reading you say that it’s important to slow down. Maybe you could help me with this one because what if I don’t want to slow down and I just would prefer everyone else to speed up.

so a couple of things, I think that when you start getting into that reactive go, go go mode. by the way, this is not to say, therefore, go out, meditate and hug a tree.

Okay.

being intentional about life is what it’s all about. How many times have you had a week where you just got to the end of the week and you look back you go, what did I do?

Oh, every week. Yes.

 if you’re intentional, it means you say, these are the things that are important to me.

This is how I want to live my life.

I create non-negotiables I create protection. Does if you don’t, the world will come in over the top [00:19:00] and take your time and then you’ll just be reactive. And all you become is the culmination of the desires of everyone around you.

Hmm. How do you avoid? I mean, in my, the reality of my life is, an email day lose. I would call it. do you avoid just being reactive to everyone, sending you requests for your time?

 so I would argue that we tend to take on everyone else’s responsibility. No, not my job. I’m very crystal clear about what is my job and what is your job? And it’s, therefore I can see you a very quick response to say that, Hey, that’s really important or really interesting.

 I think that’s your responsibility or Susan’s responsibility or whatever.

And are you looking for coachability when you are making the investment? Or can you tell me more about what lens you’re using when you’re evaluating founders? So, a bunch of us got together and said, okay, over the last 25 years, let’s look at every entrepreneur we’ve been involved with,[00:20:00] where did it work? Where didn’t it not work. And we laid out, you know, here are the 10 principles, like what we look for. interestingly enough, the two of them that were very, very high on the list.

Uh, the first one. coachable? Do they listen? So when you’re talking, I mean, how many times have you talked to someone? Many where you’re like, oh my God, I could do this in my sleep. And they haven’t and you point something out and they’re like, no, no, you’re wrong. Here’s why. Right. You know how we talk about curiosity versus being right?

They’re so wrapped up in being right and looking smart that they don’t listen. Whereas the really good entrepreneurs, like there’s a, uh, one of our, to Vala David Raby is like a sponge. And what he will do is he’ll listen to you and if it resonates with them, he will literally go back, do a micro test really quickly on it and then come back and say, uh, that was awesome.

[00:21:00] Or didn’t work.

Hm.

 More importantly, not more importantly, but, another yes. And associate with that though is the majority of the deals that we lose. We lose because of blind spots

we lose because the entrepreneur refuses to examine something for whatever, you know, neural patterning probably going back to like when they were six and. They pile drive the company into the ground. and so if you do this right, your entrepreneurs get better. They’re more aware of their blind spots. And Carter always says your success is dictated by the size of your blind spot.

 there any way to help people see their blind spots?

Yeah.

So it’s like anything, right? It’s how you ask the question.

Um, And so there are a whole variety of different ways to do that. Uh, one is you just play it out, you play out the scenario all the way to the end and then have them go, well, that’s not good.

Yeah.

Right. Um, or if there is a trusted source, someone that they really trust and [00:22:00] so it’s what a clinic, acute test, you point something out.

 and they have to embrace it themselves. you, as a VC or as a coach, you can’t make anyone do anything. They don’t grow up

I feel like so much comes back to asking good questions. Let’s shift gears. You’ve been in venture a while. Talk to me about VC and the venture ecosystem today. we actually interviewed a hundred entrepreneurs

and we asked them one question. How do you want your VC to show up?

Hmm.

which you’re a product person

like that’s, what’s surreal about venture. We don’t survey our customers.

Right.

Like we started doing at Pritzker. We all kinds of stuff. and what do you think? Number one and number two, were we heard back?

Um, we want support or something

Yeah. it was so, so some of them were like, you know, helped me get customers, helped me with my tech stack But when you really go ahead and authentic discussion with them, number one was, this is so hard.[00:23:00] Make me a superhero was the quote.

need to be the highest version of myself because this is really difficult.

Yeah,

I would argue that I think the biggest issue is when something happens to the company, you need to put the mask on yourself first, it’s your own fear that needs to be managed as a VC.

Hm.

and so I think first of all, VCs just need to be aware of themselves. because when the entrepreneur says, I just missed sales by 50%, you know, as I do that, they’ve been panicking for a week. And my telling them, you realize you’ve missed numbers. You realize that if you don’t get these numbers up, we are going to go under. Do you realize we won’t be able to raise our funds? First of all? Yeah.

he’s a hundred percent or she’s a hundred percent aware of that.

Whereas What is this entrepreneur going through? Is the question you should be asking

Yeah,

 assuming that we’re gonna run out of time, So it’s not nearly as deep as a lot of sort of the narratives that we’ve been talking about. But one of my current favorite questions is [00:24:00] asking people what’s going on in their head when they’re playing sports.

And I noticed that you played for the U S national squash team.

so I played, in college and then I played on the team.

that won the, five man national. And so I’ve had a career a little slower than I used to be, but

Okay. But you’ve played a lot of competitive squash in your life, What are some of the narratives that go on in your head you know, what are you telling yourself?

Um, so I had an interesting career in that when I was younger, I grew up in LA Jolla and Southern California, and I did the tournament circuit and in high junior high and high school, I wanted to go pro and played five hours a day and have my ball machine.

Like you name it right. 10,000 hours. And by junior year I was smashing rackets and I’m a nice guy. Like I don’t, this is not me. I was smashing rackets on the fence posts And I began to realize I’m just not enjoying this anymore.

and so I think whether it’s entrepreneurship or competition, the, why are you [00:25:00] doing it And if you’re doing it so that you’re feeling better about yourself and others respect you, then you’re just one bad match away from feeling horrible about yourself.

Right.

 so that the issue that most entrepreneurs have in terms of letting go of their fear is, Jerry Colonna said this.

If I lose my fear, do I lose my drive?

Is it only the anxious and paranoid survive? And Denver had the best answer I’ve ever heard. He said there are five levels of motivation. There’s the amygdala fight or flight. There’s external validation, blue ribbon. And people liking me. There’s internal. Like what’s my purpose.

And that was really hard because who knows what their purpose is, but you know, you get there the fourth one, initially he set it on like you lost playfulness playfulness. So when something happens, instead of going down the rabbit hole, oh my God, the company’s going under my wife’s going to leave me all of that kind of stuff.

You’re like, huh? Isn’t that a hoot? We lost that. My God. After two weeks we lost that account. Huh? I’m curious what happened.

 And the last one is love, which is,[00:26:00] are you doing it?

Because it brings, you know, it, it energizes you

and I think it’s the same thing with entrepreneurship, which is if Cardone says where life like a loose one,

if you’re like tense and everything, everything has to go, right. You’re going to snap.

And if you wear like a loose sweater, if you’re literally like waiting for the return of serve and you’re like, oh, I am so looking forward to bring it, bring on your best, that.

playfulness is going to, first of all, you’ll play better.

You’ll go into the zone. And second of all, you’ll actually enjoy being there. Even when you have setbacks and pain.

In, in, by the way, how do you know the winds blowing the wind’s blowing,

right.

Yeah.

 man. I love it. I love your approach to life. I could talk to you for hours. I love this notion of wearing life like a loose sweater. and I restate having you on the podcast today and I look forward to doing some deals together.

That would be a lot of fun. and by the way, one last thing I’d throw in here, which is, Clayton Christianson wrote a great book on how to measure your life is what it was called. And at the end of the day, [00:27:00] it was very simple, which was given your scope of activity. how many people’s lives have you improved for the better

Hmm.I would argue that it’s a step at a time, which is every person you come into the counter with. Did you leave the campground cleaner than when you arrived?

Fantastic. Thanks so much, Matt,

Thank you very much. This has been fun.