Hamet Watt — Share Ventures

We had a chance to hear about Hamet’s newly launched venture foundry, Share Ventures, focused on human performance.  We talk about brain health, Hamet’s role at Upfront, and insights on early stage innovation.

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Hamet Watt is an all around L.A. innovation all star.  Hamet just announced his new venture foundry Share Ventures. Hamet has been a board partner at Upfront since Upfront was called GRP. He’s also a co-founder and former chairman of MoviePass and co-founder and former chairman of bLife, a wellness innovation company that sounds like it has some similarities to what he’ll be doing at Share. Hamet, thank you so much for coming on the show today.

Thank you so much for having me. So congratulations on your ventures. Thank you. Thank you. It’s been in the works for a little while. It’s the whole venture studio model has been of interest to me for a long time. So I’m really, really feeling good and excited about where we are. Cool. Great to see it happening, so yeah, so tell me about what it is. Yes, so I’ll give you the back story, I’ve always been sort of curious about being able to do more than one company at a time, and that pushed me into studying, you know, firms like Idealab and GoogleX and Pioneer Square Labs and others that are in the space in this venture studio space.

And so I met with as many people as I could in the world of venture studios and to some extent incubator that I say sometimes incubators are similar to the studios, sometimes are very different. But I think in this day and age, I felt like actually this was pre-Covid, but I felt like with the number of tools that we have to discover product market fit on new ideas and the speed that we can actually develop products, it kind of necessitates a new way of thinking about company building.

And I got really excited about just the timing being right to do this. And I was fortunate enough to be working with some folks that believed the time was right as well. And so we’ve been able to raise some capital, grateful to the Upfront ventures team, had just a great experience working with them and their early investors in Share along with Alpha Edison and several others. So, yeah, we’re off and running. We’re we’re focused on what we call human performance, which is a kind of a fancy way of talking about health and wellness.

I guess we’re looking at some big problems in how we live or trying to solve some big problems in how we live and how we work. And so things like sleep and mental health and nutrition are all super interesting to us on the future of living and then on the future of working. We’re thinking about teaming and culture and lots of things that we think will need to change in the way that we work. Well, it’s so so just pausing on a second on the studio model, the studio in foundry, I mean, obviously I know, but for my listeners who don’t know our studios and foundries kind of the same thing, you know what we start off with?

We like the word foundry. We like the word lab. But you know what? The term of art, I think is now like venture studio. I think most people refer to company building companies as studios. So I actually don’t know how to distinguish between a foundry and a theater, kind of the same kind of thing. But we’re definitely different than accelerators or what I guess people might think of as traditional incubators where you just have space and you invite, you know, companies to come in and they pay you a little bit of rent and you help them with a little bit of legal or finance.

That’s not our our model. We’re actually planning on staying with our company for a bit longer than many others. Some will experiment and and then, you know, immediately hire on a CEO and raise outside capital, I think. And, you know, we’re flexible in this. But I think so far we’re going to spend a little bit more time using the machinery that we’ve built to ideate and validate and launch. And we’re going to spend more time in that process before we’re then building out entire management teams.

And, you know, our goal is that we are de-risking these ventures a lot more and getting a much clearer line of sight, if you will, on product market fit. 

Tell me more about why human wellness.

I guess it’s a human performance. Is that what it when you’re calling, you know, is that not a good term? You know, you’re not the only one that here’s the connotation.

Here’s the tiny connotation. Like, I like to go on a run and maybe this just makes me old.

I don’t really like to know how far I went. I don’t want to know what my heart rate is. I don’t want to be maximized. But so tell me the goal of of the human performance focus.

Yeah. So human performance in in our definition goes definitely just beyond like quantified self. Certainly some quantified self things are very interesting, but we’re really looking at so many of the things that we do in our daily lives to make ourselves better that need to be reimagined. And so that’s I mean, there’s some big areas that we’re looking at. We really think a lot about brain health and. Yes, and being intentional and calling it brain health instead of mental health, because I think there’s going to be some some sort of nomenclature changes that hopefully address some of the stigma.

We know how big the problem is. We know how necessary it is for all of us in our daily lives. And so being able to think about that space in a new, well branded, design driven way is really interesting to me. Can I just go back there? Yeah, I want to learn about brain health. Do you think are there certain things in brain health that we should be doing today or what are the components?

I guess sleep is a big one, obviously.

How do you think is what we should be? We should be. Yeah. Yeah, I want some tips. That’s what I’m saying. Yeah.

You know what I think? Yes. The short answer is yes, especially in this day and age. And I know you are super healthy and thoughtful, so I’m sure you’re doing a lot of these things. But many of us need reminders and I think there’s so much there’s so much incredible opportunity to democratize some of the things that that that many have at their disposal, like therapy or executive coaching or even certain types of training. And I think there’s an incredible opportunity to use technology to democratize some of those things so that lots of people can can can do that.

You know, hundreds of millions of people one day will have. In our opinion, and so there those are the kind of opportunities that we’re talking about. We’ve also been looking at a lot about what’s happening in work. And, of course, all of us are looking at the future work. But you know what would happen to me when I was spending more time on the pure venture side is I would say, well, hey, how come no one’s doing, you know, blank for this company was doing something in this space.

It seems like there could be a really big market. I always have that feeling. And, you know, sometimes I find a team and they were great and they’d want like five hundred pre for their very early stage business or something. Or sometimes they just maybe they didn’t feel like they were taking the right approach on the product. And so that’s actually one of the reasons why I got so excited about the studio model. We feel like there’s something that needs to be done, we’ll do a very deep investigation into it, and we’ll look at all the players that are playing in the space.

And if we still don’t see something that is, you know, exists in the market in the way that it should exist, we’ll start that company.

That’s great. It’s kind of a dream, actually. I kind of want to start 100 things, maybe, you know, how many things would you start at once or by the way, because it’s the dream and it’s also the danger, right?

Yeah. Very careful on, you know, how many things we can do and do. Well. And so we have invested in some tools and some people on the team that are really focused on getting the infrastructure right at the studio so that we know what I’m putting in air quotes. The capacity of our plant needs to look like how many things we can do well at once. And one time we think right now it’s around two to four new ventures a year and it will take us a while to get towards the top end of that range.

We’re still building out our team now, and so that’s a big part of it to get to those two to four. We’re doing lots of experiments on many others. And, you know, we’re we’re choosing to take an approach. And it’s part of our value system and culture to be extremely optimistic about the future, but also extremely pragmatic in how we execute and how we do things.

No, I feel like you’re always very thoughtful, like you’ve sort of studied innovation a lot more than than most have.

In fact, did you tell me what is your podcast going to be on? You’re going to start a podcast, a rival podcast, right?

Yeah. And that arrival is synergistic. Yeah. Yeah, of course. Yeah. So we’ve been playing around and we have a number of neuroscientists that are advisors, have been mentors of mine or advisors over the years that really get into behavior change. And I would love to geek out on behavior change. And I always find myself calling on some of these folks. That is a guy named Bob Builder, who is the head of the neuroscience research lab at UCLA.

And he he has done some really cool research. And even when we were dealing with the George Floyd murder and and riots and all this stuff like I called him that like I want to understand the psychology of how people react to things.

But we want to talk about the psychology of shit that’s like. Psychology of stuff, the psychology of hiring, the psychology of firing, the psychology of innovation. So we’re calling Your Brain On, but it’d be like your brain on whatever. And most of the topics will be entrepreneurial topics and company building topics. But maybe we’ll delve into some other things every once in a while, too.

Very cool. Yeah, I mean, I’m super curious on how you get people to change. I know that’s a big question, but like just in my lifetime, the consumer norms of behavior, like, you know, I have this great photo of my mom smoking a cigarette nine months pregnant at the doctor’s office.

Right.

And you should think you should put a put a picture that at different times, different times, you know, like everyone wears, you know, helmets now or seatbelts or, you know, diet sodas are like not cool to drink anymore.

So, like, a lot has changed. I’m like, how do you have those changes that are the big changes for the better? Like, how can we move society towards towards more of those?

You know what a global pandemic doesn’t hurt to change? Yeah, it is. Obviously, there’s a lot of really bad things that are happening, needless to say, with this. But, you know, you think about the last crisis and the behavior change that that triggered and then what new opportunities emerged from that. And so I think that those kind of things that are happening now, we’re already seeing it.

Remember when it used to be like, I don’t know if you go to a partner meeting and the team would present and they say, oh, yeah, we’re all distributed. And then there was someone that was kind of like, oh, no one in the same room. And used to be a little bit like it used to be a very much a mark on a company. I don’t know that that’s going to be the case anymore. Like maybe we’ve changed our behavior for life on that.

I don’t know. Or just I mean, you know, I still am hearing, but I think we’ll get there. I’m still hearing people say, oh, we can’t fund a company that we haven’t met in person.

Maybe some might say that we’ll say we’ve just funded our first company that we never get. Like it’s happening now. Like we were experimenting with that.

Yeah, yeah. No, I think that’s that’s exciting.

And have you I mean you guys don’t a yet where you haven’t met the team in person.

Totally. But like I’m, I’m all I’ve done a lot of hiring actually.

I’ve hired people who I’ve never met in person and it’s gone really well. So yeah. No, I think we’re all going to get there. We just have to grumble about it a little bit more.

Yeah, yeah. Yeah. Well, the thing is, like forced behavior change is always a good way to behave because when you like, you try and you’re like, you know what, it’s just not as bad as I thought it was.

Yes. Let’s keep let’s keep doing this. Yeah.

Are there any other things coming out of this crisis that you think have been like, oh, that was a really good for his behavior change for us all?

Yeah. I mean, it’s pretty amazing to see what’s happening in the digital fitness space as well. I mean, I think, you know, there’s some studies that were released. I think I want to say that MindBody did a study on just fitness and fitness behaviors, gym going behaviors. And the stat I remember is fifty six percent of everyone that has a gym membership is planning on canceling it because they have found digital alternatives that are more than sufficient for their fitness needs.

So that just as one example, another behavior change that is happening at that scale. But yeah, I think even things like the way we the way we think about teaming and the way we think about hiring and the way we think about what it takes to do that, I think all those behaviors are changing. The way we think about building our cultures for our companies is changing. When you can’t rely on ping pong tables and foosball and water coolers and nights out on the town, you know, you have to think about new ways possibly that are more deep around getting aligned on mission and purpose to really get at what’s important when we work and work together and we’re happy about.

Our work, that’s really interesting, I feel like I feel like I’ve seen people kind of take the old model and try to put it via in kind of the way you’d see like, oh, we you have theaters like performances now. We have movies so we can so but it hasn’t caught up yet. Like it still feels like you’re taking the old model and just putting it on zoom. But it’ll be interesting to see how that innoculation, that culture stuff happens online.

Yeah, it will be I think another area and I think you and I have talked about this before, but gosh, I hope that education has this is the catalyst that changes the way that education gets done. Right. Because it always bugged me that it felt like the online learning was just like trying to take a classroom setting, which most of the time was kind of messed up anyway and wasn’t as thoughtful as it could be and just putting it to a screen.

And now maybe we hopefully can get at, you know, more personalized approach to learning now that we’ve had this forced behavior change for online learning. Now, maybe we able to go to the next level of what that means.

Yeah, I also think I mean, it’s been interesting to watch learning change so much towards social emotional development. Like these things seem kind of linked human behavior and education, you know, in our education institutions.

Let’s talk about work for another second.

I kind of feel like and this is a I kind of feel like jobs increasingly are making people stressed out rather than, like, making them feel fulfilled or something.

You mean the whole zoom zoom daily? I mean, it more broadly unfolds. I just mean, like, work is not. Well, maybe it’s changed. I don’t know.

Tell me more about the future of work is a better question, you know, but I think you’re on to something about this. The stress. It wouldn’t tell me what you mean more about like this.

The way that I think it’s maybe the always honest like I sometimes like just like, oh, if only I were a dentist and I would come home and at six o’clock I wouldn’t have any more work to do.

Right. Right. Yeah. No, I guess I don’t know. I’m honestly I’m struggling with that as well. We have a couple of behavioral psychologists and organizational psychologists that are trying to help us think through all these spaces and the future work. And we that that’s one thing we’ll have to crack, which is how do you put a you know, put a line because everyone can intellectualize it and say, OK, you know, at a certain time, you know, it’s time to shut down and and not be accessible what have you.

But damn it’s hard. I mean, I don’t think this is what the science says or what doctors would say, but I tend to be. I really get immersed in the work that we’re doing. I have so much fun doing it. I just try to treat it like I try to treat it like a sport.

But I think the goal is just to make sure that there are other things that I really love spending time with my family. So I think just as I really love working, I, I need to when I’m spending time with my family, I just really enjoy that and immerse myself in that world. 

You’ve been innovative multiple times. You’re starting a studio to be innovative, you know, where do you think that? And you say you still love it. So. So where does that where does that come from for you or more broadly? Yeah, you know, I’ll talk I’ll talk more broadly, first of all, I also am a senior adviser over at BCG who does a whole lot of innovation, really innovation, work with big corporates.

And it’s fun to see them do it, too. So I’m sending it from many perspectives. And I do think that it starts with just being a curious person in general and being curious and oftentimes frustrated with the status quo, and sometimes that frustration drives you to frustration combined with that, curiosity drives you to say, well, why the hell isn’t anyone trying to design something for this? And I also asked, I think, about so many things that took forever to come to reality, that weren’t necessarily technologically break technological breakthroughs sometimes of just design breakthroughs that happen.

And so since I don’t code, it actually is inspiring to see some of these things, maybe design driven and it just requires the right kind of thought and experimentation to solve a problem. One example I would point to, and I’d love for someone, maybe one of your listeners has done some research on this, but it’s crazy. This is a silly thing. OK, the wheel has been around forever, right? The box that we carry, it has been around forever.

It took forever for someone to think about putting on a suitcase, having a wheeled suitcase, you remember before back in the day when you didn’t have the wheel suitcase you set to carry it, if your never used to have, like, a suitcase, just hold. Right. Someone put wheels on it. And then it took another 20 years for them to put four wheels on it so that you actually just had that roller and you don’t need to prop it up.

And I just use that as an example for so many things. That may seem obvious, but it took years for designers or product people to actually pull all together. So I still think there’s some of those innovation opportunities hiding in plain sight that that a lot of a lot of folks can go after. You know, one of our advisers, again, the same adviser I mentioned in this neuroscientist he got commissioned by this hedge fund guy to study the most innovative people in the world, the most innovative and creative people in the world, and to study their brains and their behavior.

So he looked at their journals and their diaries and their calendars, as well as putting them under an fMRI and looking at their brains. And so after he did, that sounds like Bob. What what what what is the secret? What’s what is it about the most innovative people in the world? And he said and he broke it down and he said some of the things were really obvious and some of the things were really not so obvious. The obvious things were things like the volume of work.

Right. So Picasso had, I think fifty thousand paintings or something like that, like this. The volume of work, the sheer volume allows you to pick out things that were innovative amidst all that work that you did. And then the other thing that was a little less obvious was the ability for people to combine seemingly disparate worlds to come up with something new. And so the example I like to use a little bit more simple, but it’s like fusion food, right?

You combine one cuisine with the next and all of a sudden it’s actually tasty or it’s a new flavor or new new a new sort of culinary innovation. And so he said that he saw that the pattern suggested that people, I guess, longer term memory for these disparate, disparate, seemingly disparate concepts, but they could pull them together in efficient ways to consistently develop innovative or creative works. And so I saw that as one that was really I think that’s a framework that I think about often when I think about innovation, I really like that.

I think it’s interesting. The prolific. Yeah, if you’re prolific, you know, it’s not about percent hits. It’s it’s absolute number. You know, you’re bound to do something innovative and it’s a muscle. Right. And I think I just had DA Wallach on the show. He talks about like musical creators, musicians, that’s what they’re called.

They listen to tons of music all day. And so, you know, you’re you’re you’re building that muscle by being innovative.

It’s interesting the curiosity thing, too.

You I mean, I think people have curiosity directed in different directions. Right. And you have a curiosity also around like business models or businesses. And design. I think I design I’m not a designer, but we have a lot of designers that are bringing we’re bringing in our firm and that in our ecosystem. And I just I have always found myself, you know, when I’m looking through an investor lens, being very attracted to design driven products and designer led companies.

And so that’s part of our our thinking and framework. 

OK, so scale of one to ten. How mentally fit are you? Oh, wow. On a scale of one to 10, how many I just thrown it out there.

You know what, I think if I break down what mentally fit is, I think a big biggest part of being mentally fit is being resilient and only we know how resilient we are. Which, by the way, was another one of Bob’s secrets to the most innovative people. They are more resilient. They have that stick to it even if they keep going and they don’t let themselves get taken out of their game. And so I’m a pretty resilient person and I think it’s because intentional about it.

I talk to myself when I when I’m when I’m being hard on myself. I talk to myself. I try to coach myself, do the right direction. So I would I still don’t think I’m I still think I’m in for some reason, seven point seventy five comes up really well.

That’s good. That’s good there. I would I would absolutely like to be nine and I think I’m working towards that.

But I still beat myself up sometimes too much. And I don’t know where that’s from.

I don’t know, you know, just, you know, being in industries where, you know, folks are tough or, you know, my dad is pretty tough. So I think when I do and we all beat ourselves up to some extent. But what I do do myself up. I just want to make sure it’s it’s the net outcomes are net positive out of that. And I think oftentimes when we beat ourselves up, the outcomes suffer because you’re not you’re not fully in the game.

And so that’s that’s really that’s really where I’m working.

Yeah. Yeah. It can be motivating to beat yourself up a little bit to to drive yourself harder. It was interesting. OK, so you interviewed Ice Cube on stage. I saw it. It was awesome.

And do you remember like I think it was one of your first questions was has gotten any easier and you know what he said?

What do you say?

He said, no, no, that would surprise me.

I mean, you know, you look at what he’s all the different things he’s done. You’d think you think he’s sort of at a pinnacle of success.

You think. But you know what? He’s he he like like others, I shouldn’t say like others because it’s not that bad. He would do what he does, which is just trying new shit is trying something that’s totally out of his comfort zone, like his you know, he’s, you know, jumped, made a few jumps and he started as a as a rapper. And then he said, I’ll try my hand at being a producer. And then he was I’ll try my hand at being a an actor and then I’ll try my hand at being an entrepreneur and then I’ll try my hand at being a sportsman.

It’s like all those things are new muscles that you have to build. Because you’re inevitably not going to be perfect when you’re starting something new.

You’re not going to maybe not even be good when you start something. So somebody is going to talk shit about you and say, what are you doing, dude? You’re not good at this. You have to be strong enough to be able to come back and say, you know what, I’m going to be better on the next one before you know it. They’re resilient, resilient muscles and stronger than could ever be.

I mean, that was that was a related question, which is like, why do you think people don’t bet on themselves.

I think it’s that it is that that that self talk that this was all a mind game. Right? Yeah, all the mind game. And so if you’re in your own head and you’re worried and your your your you’ve got too much negative self talk and you’re beating yourself up and not realizing that it’s making you less capable or less likely to perform and whatever you’re doing, or even worse, maybe you have that negative self talk and you’re not even fully honest with yourself.

And so you might have that negative self talk, but project a much different, more, more confident attitude than you actually are. And that creates the whole thing that you have to live up to. And then you won’t try new things because you’re worried about perception and that gets into a suit that’s not as fun to play in. And so, you know, I think that I think that’s a big part of it. Yeah, I also think I think there’s also like your friends can be can talk you out of things to like I feel like I’m very sensitive sometimes to someone saying like, oh, why are you doing that?

Like, yeah, maybe I shouldn’t do it.

One hundred percent. I completely agree. I should. That’s right. It should be. It’s either it’s either yourself or you’re someone next to you. And that’s unlikely to be a loved one. Right. I think even as I go through this this journey with Share and we’ve got all these new ventures that we’re working on. In some cases, they’re science driven. In some cases they’re design driven. We’re careful with who we talk about these new babies, if you will.

These new companies, they’re sensitive, they’re sensitive. You know, whatever you want to call your baby ugly at the wrong time, because it might it might it might impact how things go. And it’s just part of the journey. It’s not to say that, you know, these early things. Of course, there’s a time where you want someone to pick out all of the flaws and that you want those things to be the things that you laser focus on the floor.

But when you’re just getting going and I think this is relevant for anyone starting a company, when you’re just getting going, I think you have to be thoughtful on who you talk to and when. And people could be very well-meaning and say, oh, well, that’s because of X, Y and Z and. That might be helpful right here at the right time, but it also may not be helpful because you need to be in the right mind space to push past all those flaws. It’s kind of empowering, I like it, I have nervousness for me sometimes doing a podcast, like just putting your voice out there.

So OK, so but let’s stick with the entrepreneur journey, not me like.

So are you still affiliated with Upfront or. But you were you were Upfront for many years as a board partner or a venture partner as a venture partner.

Then I transition to a board partner and I’m still a board partner at an Upfront. And I have a couple of boards that I sit on for them. So part time. And, you know, really we’re upfront and and I are very aligned because they’re also invested in share. And so really all of my energy is going into share and the company that we’re creating. Then I also have very proud to be on a couple boards of companies that Upfront is invested in.

I couldn’t start a firm that was just a version, you know, a different version of I want to do something very different. And many people will hate on what we’re doing. And they’ll say it’s stupid for X, Y and reason or whatever, and that’s fine. We’ll embrace that. We have deep conviction that not only is the model that we’re focused on. Right.

But the location, the idea that our model can also unlock black and other underrepresented entrepreneurs, scientists, executives, designers, many folks that may not be as likely to participate in the innovation ecosystem or as able to participate from an equity standpoint in this world will now be able to do more of that.

I mean, I sometimes forget that this is an audio podcast and you’re black. I’m very white, you know.

Do you think we should just I think people can tell by the by the voice and maybe maybe maybe you’re black and I’m white.

I don’t know. I don’t think so.

I think they can tell. I think they have that. But, you know, I mean, we’re we’re clearly in a in a historic moment right now. I mean, hopefully historic moment right now. I also here’s a question.

Do you think more people notice or something that you’re black or care or like it’s a bigger thing? Like it’s changed a lot for me, just being female in tech and in business. Oh, hell, yeah.

I mean, I think and honestly, I’m surprised by it. Like I mean, if you would have asked me why, because the problem, like the problem that we see, the social justice problems have been front and center, obviously, for all my life. Right. I’ve always felt it and seen it and experienced it as a 6’2″ to African-Americans to to to an African-American person from Washington, DC. I’ve had a glock in my face more than one time, right?

Mistaken identity every time. I thought we obviously experienced that.

Yeah, this is an experience that everyone has had some very direct experience. So it’s not new. But if you would have asked me that one day, there would be kids in Japan protesting for Black Lives Matter. I would never have believed you ever, ever, ever. So the fact that we’re seeing that level of support feels great. It really does feel great. And I think I’m seeing it also with institutions that are tackling this head on. And so, yeah, I think there are many more conversations that that that we’re able to have now than ever before.

And frankly, when we do have those conversations, I believe that people are significantly more present than they were before as well.

You’ve left me very inspired by this whole conversation and just sort of.

Thank you. Up.

Yeah, it’s been really nice. I kind of think that’s a great note to end on unless we missed some big things on Share.

Now, it’s great, I enjoyed the conversation, as I always do with you, so I appreciate your inviting me on and let’s do this together. Maybe you can come on Your Brain On.

Great. Well thank you so much, Hamet.

Virginia Schmitt — B Capital

Virginia Schmitt is a partner and CFO at B Capital.  B Capital is a leading growth-venture firm and one of the largest with an LA office, investing $10-60M in series B-D companies. Virginia shares insights from being a CFO investing out of over $1B AUM.

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Virginia is a partner at B Capital. B Capital recently announced their second fund of $820M. B Capital is known for investing into Series B venture rounds with investments in Bird, Evidation Health, Icertis, Atomwise, Ninja Van and more. Virginia is a partner and also the CFO. And before this, Virginia was at Open Gate Capital, a global private equity firm.

Virginia, thanks so much for coming on.

L.A. Venture, thanks so much, Minnie. I’m excited to be here. Cool.

Well, first off, congratulations on this huge second round of funding. It’s you guys have grown a huge amount.

Yes. We’re really excited to have fun to finally closed. And, you know, especially in this environment, it’s nice to be sitting on capital so we can get back in and do our day jobs of investing in great companies and and partnering with them to help them scale.

Yeah, absolutely. And fund run one was one hundred and seventy million. $360 million.

I have no idea why I got 70. Sure. Why not today. Yeah, I could possibly the first close.

I think it got picked up and there was some publications around that which was around 170. Got it.

But still it’s a big jump from your first round, from your first fund to your second fund, but primarily the same strategy.

I mean, we’re we’re a single global investing firm focusing on growth stage, B2B companies and founders. We we’re now, you know, a billion dollars under management. And, you know, we’re looking at tech sizes between 25 and 60 million. We could write earlier, right. For our techs, for and for specific situations or larger tech for it. You know, very specific situations as well.

So does that 25 to 60 million dollar check size.

I said, I mean, your name is B Capital, but does that put you in the series B or I mean, I guess names aside, but sometimes that might be more like a series C type rounds.

Exactly. So we’re looking at that. You know, typically what I’m seeing come across the investment team is the series B through D, you know, D getting on the later side for us. But really, it’s those growth stage companies that are ready to really accelerate I mean, it’s so fun. It’s so fun to see so much capital in L.A. is what I was gonna say you.

But at the same time, you know, capital right now, it’s not a differentiator. Right. You have to have more than that. And so that’s you know what? I think B Capital is in a really good job of growing our team and providing a value add and making sure that, you know, we we’ve we’ve grown the team very strategically and very thoughtfully. And that’s, you know, to the credit of the co-founders. And, you know, we’ve started with the investment team when we were small four years ago, when when I started to kind of help with the back office.

And then as we got more portfolio, companies started adding the platform team to work directly with portfolio companies.

No, I totally agree with you on the need for differentiation. And I’d love to hear more about. I think you said there are 70 people on the team now at B Capital.

Close to 70. Yes. Yes. We’ve scaled quite, quite significantly.

Wow. Yeah, I guess I didn’t think I do. I don’t think of later stage investors. Maybe it’s wrong of me as leaning in as much and really still helping their portfolio companies.

That’s that’s the differentiation, right. That’s that’s exactly the firm that we were looking to build. As you know, a group that’s different in that can really lean in. That’s great.

And actually, you reference a little bit the fact that you’ve got this team. You’ve obviously got a big team in L.A. and a big team in Southeast in Singapore. Singapore correct. Then we have offices in San Francisco and New York as well. Who which office has the most people? So I think Singapore and L.A. right now are probably neck and neck.

Just give me kind of the basics also of B capital. And I know Raj and Eduardo came together or, you know, frame it up for me a little bit of the history. Correct. So they were both at Harvard at the same time Raj was getting his MBA. Eduardo was there for undergrad and I believe they may have, you know, passed in some similar circles at the time, but really got started in the venture world when and when Raj was doing some some other activities, investing in venture companies with Eduardo as an LP.

And I think they got to know each other over that period and decided, you know, that it was that the market was ripe for something like B Capital. So the BCG infection came in where, you know, partnering with a more established consulting firm that has access to all of these industry experts and also is able to to partner with a venture firm who can see, you know, what the new trends are, what what innovation is being created.

And, you know, these these venture stage companies that can also help them be on the forefront of technology. So it made sense. And, you know, we didn’t see anyone or they didn’t see anyone else that was really doing this. And Howard came in early as an LP and it has transitioned to chairman of the firm. So it was always also, you know, very closely involved from the from the beginning and is seen as a co-founder as well Howard is Howard Morgan.

Howard Morgan is he’s the he’s the founder of First Round Capital.

And then also the founder of Renaissance Renaissance.

Correct. Renaissance technologies.

Great. Which is it? A hedge fund. Correct.

And so Raj and Eduardo and this is Eduardo. I think a lot of people recognize his name.

Saverin.

Correct. He is a co-founder of Facebook.

Got it. So tell me a little bit about the series, the investing or Series B, C, D, I guess.

I think each opportunity is different and has its own story. We’re looking for companies that can be the product leader. There’s a market leader in their space.

And, you know, we’re, of course, looking for that that rockstar team and that entrepreneur that that has, you know, that standout quality. But also we’re looking for companies that that want to partner with us and that can take advantage of all the resources that we have built. You know, those are the companies that that we really want to get involved with and help them scale to the next level.

Sure. And, you know, a Series B round, someone might be raising 30 million, have a valuation of one hundred million. Two hundred million. Something in that range. Come on, tell me more about being a CFO. I’m super interested in like what you do as a CFO, especially at a larger fund. Now, a billion dollar AUM fund. Definitely. I see my role as, you know, having having two sides, the first.

I think, you know, I’ve mentioned it’s really about the nuts and bolts.

On the LP and fund side, you know, we have we have a level of service that that we have promised to our LPs and that I hold myself accountable to and my entire team accountable to in terms of, you know, making sure that we get quarterly reporting out, K-1s need to get done. There’s just a lot of administrative aspects that I do cover that. But like I said, just need to happen seamlessly.

On the other side, there’s the strategic side of the CFO where I’m helping that and the other partners, investment partners, as well as the co-founders, to, you know, determine the strategy of not just the funds, but then the firm in general. So at the fund level, you know, how are we looking at portfolio construction? What’s the right size checks? What what are we looking at in terms of reserves and how should we be allocating reserves?

There are different industries. Are we a concentrated of one industry over the other? Do we have geography concentration that we should be rebalancing our FX exposure? And then on the firm side, you know, when should we be raising the next fund? What should the next fund be? You know, in terms of size, stage, etc., it’s super interesting.

And so I could pick on any of those. But let’s pick on the reserve strategy. You know, has that changed a lot? Have you had to get a lot more sophisticated as you now have raised as much larger second fund? Absolutely, and that’s something that Howard Morgan has really helped me with. He’s been an excellent just mentor to the firm and as chairman, I think he’s really helped us institutionalize a lot of our processes. And that’s one that he leaned in in the very beginning and very heavily and worked closely with me on.

And, you know, initially it was a very manual Excel, simple spreadsheet, you know, a couple of calculations to get to investable capital, some recycling assumptions and, you know, plotting out the portfolio and making a lot of manual adjustments. And since then, we’ve really standardize and formalize the process. So now we have, you know, that the fees and expenses pulling in directly from our financials. We’re really forecasting out that the fund life line by line in terms of our investable capital and reserves and recycling assumptions.

And we we right now, we’re looking at each individual company in terms of, you know, when they’re raising the next round, how much capital they’re going to need and where we want to be in that in that ownership percentage. It’s dynamic. So we’re able to now look at it every quarter and, you know, review with the partners that everyone’s aware of where we stand in the fund life. Right now, it’s, you know, a low, medium, sorry, low, high base case that we’re looking at.

But eventually we want to get to more of a Monte Carlo scenario. And that’s, you know, just to Howard’s credit and his stats and everything. I think that’s that’s where we’re going. And we’re really excited to roll that out.

So I would love for you to be able to just share what we should be doing is so interesting.

And like recycling assumptions. I mean, just ask about that.

Maybe you could just start with the basics of what is recycling and then how do you think about recycling assumptions?

Yeah, so so if you’re looking at any funds, you know, say you’re starting with 100 million dollar fund size and there’s going to be fees and expenses taken out of that. So say you get down to, you know, eighty five million dollars to invest now once fees and expenses are taken out. If you recycle capital so, you know, you invest in something and that money comes back, you can actually reinvested depending on LP is, of course, and provisions.

But you could reinvest it and ultimately get that invested capital amount from eighty five back up to potentially the entire fund size or in some cases even more than the fund size. And you know, we think that it’s in the best interest of our LPs because, you know, you want to make back those fees and expenses for them and you want to make sure that they’re able to, you know, get higher returns on the same amount of money at it.

So do you recommend do you think it does require liquidity events? Right. It requires liquidity event. So, you know, that’s the timing in the markets, you know, off to be very thoughtfully planned out.

Have you evolved? You’re thinking like, do you guys aim to have 100 percent recycling? Is that the right way of talking about it?

You know what I’m thinking? The market is most, most CFO that I’ve spoken to are targeting more of that, 90 to 95 percent invested into the capital, invested it into investments.

Is that because they can’t get to 100 or don’t want to or. I mean, I guess you can.

I think it’s a lot of it’s just driven by the market. And can you have liquidity events that can support that? You know, also you want to be. You want to be giving returns back to your LPs, it’s a matter of timing, you know, distributions and and making sure that liquidity events happen because you’re managing IRR as well as MOIC.

I see it. How about other things with with managing LP is like how do you if you can share.

How do you do capital calls? How do you think about those that sort of communication? Definitely, that’s that’s something also that’s evolved over time. When I started with the capital, you know, we were we were doing a lot of deals in the beginning and we didn’t have a line of credit in place. So we were calling capital and deal by deal basis. And as you know, these deals, you know, move quickly. And so in some cases, they were capital calls, you know, twice a quarter, three times a quarter and potentially weeks apart, because these deals just move very, very quickly.

And so one of the first things I did was get a capital call of credit in place. And what we try to do is basically draw on that line of credit line, line of credit over the quarter and then issue quarterly capital calls. It just allows for more seamless planning on the LP part. They know that they’re going to get a quarterly call versus, you know, deal by deal. And it just for us, it’s smoother because we can make sure that we’re hitting funding deadlines.

And, you know, we always get back to kind of the seamless processes. I want to make sure that our investments are funded. And that’s just an easy process to it for the investment team. There’s considerations that you need to have in place where we fall under the venture capital exemption. So we cannot have that outstanding for longer than 120 days. So that that quarter quarterly call is really, you know, that the max that we stretch it and it’s you know, it’s working well sometimes depending on the activity.

You might not have a quarterly call on that board. Only three times a year. But we try to do more than four times a year.

Yeah, no, I’m very interested in you know, you talked about talking to other CFO or talking to Howard Morgan. Are there other interesting best practice type things that that either Howard Morgan has brought to be B Capital or that that you’ve learned over the course of managing this fund?

I mean, there’s so many things, I think that the venture community, especially coming from private equity, but the venture community especially, I think is a really nice, tight knit community that’s looking to build each other up. So in terms of networking groups, you know, I’m involved in something called PE/CFO, which is it’s run by Citizens Bank. I’m actually on the board of the L.A. chapter there. And that’s been been a super helpful, you know, connection.

And they had a forum up until a couple weeks ago that they sort of revised. But that was a way for a CFO to really connect and share best practices and thoughts. Our banks that we work with are also excellent at bringing people together and and, you know, sharing in those ideas. What else was there? Those are the main ones. And also just people are more willing in venture to speak to each other honestly. It’s a very friendly environment.

So over those koban period of time, you know, I’ve made a point to do just reach out to, you know, certain colleagues that I’ve met along the way to check in and see what they’re doing and see what else they can share.

Yeah. So we’re going to come back to that PE versus venture because I’m super interested.

But like the PE/CFO group that you’re part of, what have been some of the meatier discussions or like what are the areas that people really have that sort of agenda, topics that come up a lot there? It’s a lot on valuations. You know, it’s always this question of the quarter. You know, in terms of valuations, you’re going to be looking at those. That’s also something that Howard’s been super helpful on because he’s just seen so many different funds and, you know, been involved in and in that process at many different firms 

So that would be like, are valuations at a series B coming down in a post-Covid world or is it like how you’re carrying your portfolio? Or neither.

How you’re carrying the portfolio. Exactly. It’s that that fund gap, you know, as the 20 and how we’re how we’re actually valuing the portfolio in our financial statements.

Maybe you could give a little bit of best practices there around how you carry your portfolio. Let’s say if there hasn’t been a markup recently, when do you mark down? When do you mark up? How do you think about that? Definitely. So we’re looking at the quarter or at the portfolio on a quarterly basis. We do. About two years ago we brought in. And now on an annual at least once a year, every portfolio company is valued by an external valuation firm.

So that’s just, you know, checking against ah ah ah internal figures and making sure that we are consistent with the market. And those experts have know provided their analysis as well. And, you know, there’s there’s different there’s different inputs that go into our valuation. So, of course, the most visible input would be if there’s another financing round. And even then, you know, you need to determine how the value is allocated. Right. As it comes your equivalent method, or is it then allocated based on OPM?

You know, we are audited by Big four. So I think, though, the conservative approach is typically unless it’s a company at a certain stage and milestones to do the OPM. And so that’s what we’ve typically seen for for our companies that are not, you know, close to an imminent exit. It’s more based on the OPM model.

As the CFO, you’re also sitting on the investment committee, if I understand things correctly.

Correct. So as far as partners, we all join the investment committee meetings and you know, I vote and everyone who joins the investment committee and we do have, you know, more than just the investment team that sits in on those. If you attend, then you need to vote. As Howard Morgan was also very helpful in setting up our our voting system in the early days. And it was his input that that led to us and implementing a blind voting system.

So everyone log of their votes and independently while we’re going through the IC and I can log any questions or comments. And then those votes are flashed up on the screen and we can discuss any of the comments. And what that does is it allows everyone to really put down their real questions and thoughts about the company without being biased by, you know what, Raj or Eduardo are voting. And it’s led to some really, you know, really thoughtful and and, you know, intellectually honest conversations around our deals.

And so I think it’s been, you know, another differentiator that’s really gone a long way to make us and, you know, to guide our investment decisions and my vote doesn’t count. So it doesn’t go to the total of that, you know, the IC quorum. But it’s it’s nice to be part of that process and to feel, you know, engage.

At the very beginning of that, I see a very beginning of the investment process before it becomes a portfolio company that it is that that vote usually happens at the end of year of a whole diligence process that you guys go through. We do a preliminary IC and then a final IC. Interesting, interesting. Yeah, because I was going to ask that question, which is, don’t you know if you’re posting your questions, then questions must come out of that.

And then you you do further diligence and then. And where does the company does the company always come and sort of present to the partnership and does the vote? I’m interested in the process where we’re thinking about her. Yes.

Absolutely. So we do a preliminary IC.  Thats where we’re initially pitching the company. And from that, you’ll have the follow up questions. And from that vote, a lot of. I mean, every time that the vote and the questions are discussed, you know, at the end of the IC to it’s not like they’re just washed up and you don’t have discussion around them. So it’s very clear the deal team knows what the next steps are in terms of the diligence process.

And typically, depending depending on on the timeline of the deal, because some deals are very accelerated, as we know right now. But typically, sometime between the prelim and final, I see we’ll have a management presentation where the management team actually presents two to the partners and that the investment committee. And then from there, it’s finalized. Okay.

And and so tell me also about the companies that you guys are looking at in terms of the sectors that are most of interests and yet sort of, you know, are they inbound or outbound?

I know you guys do some fintech, insurTech. What are you guys looking at? Yeah, I mean, what we’re seeing is really the last two decades were about the rise of the consumer Internet. And we feel like the next two decades are going to be more about the digital transformation of traditional industries like healthcare, banking, insurance and industrials. And so that’s what we’re really looking at, is what’s transforming these traditional industries and how can we partner with those those companies entrepreneurs.

Got it. OK.

That makes a lot of sense because I know you’ve got industrial transportation fintech and those are all what I would call.

Yeah, the the the big legacy industries. Do a lot of those companies still come inbound to you? Are you, you know, mining upstream investors for deals to give a sense of how the deal flow comes?

I would say we’re we’re we’re really focused on our deals in being hunters. So I think, you know, it’s it’s definitely on us externally sourcing. You know, we of course, we love it when they come to us. That’s that’s amazing. And but I think we’ve we really have at work to create an investment team that is outsourcing and finding great entrepreneurs.

Great. And most of them have done a series A before, like their own sort of more traditional venture path as like a PE typically.

Correct?

Right. And so actually, maybe that’s an interesting maybe you can compare a little bit to the to the PE world, since that was your world beforehand, where I imagine a lot of the companies you were looking at there had not grown up through a venture financing.

They were more organic. Correct.

I mean, the space that I was in was it was more carveout, you know, complete buyout and leveraged buyout M&A, 100 percent ownership and corporate divestitures. So, you know, legacy industries that were looking to carve out a section of of a business and we would come in and purchase it, make a standalone and definitely not typically one that we saw that had come up in the venture type funding. These were companies that were more turnaround. And so, you know, there was always an element of growth that we were looking to start the company achieve.

But really, it was more about operational improvements, you know, margin improvements as well as just anything that we can do to drive a better one.

Okay. And so and to your then, did you see having a controlling interest or buying or owning the whole company? The first that I was at that we did 100 percent control for, I would say 90 percent of our 95 percent of our investments.

I was thinking that I was like, it’s kind of like you were taking a controlling interest or just owning the company in businesses usually probably with strong fundamentals.

And now you’re taking a minority interest in companies with weaker fundamentals. So maybe that’s a yes.

It’s different. It’s a little bit different. I’m telling you, when I see these models, you know, and I’m so ingrained. But like, EDITDA, cash is king. And so I see this venture model of mine just like I don’t get it right. But that’s you know, that’s that’s why I’m not on the investment team. And that’s why I’m on the internal team. But it’s yeah, it’s it’s a different face. And, you know, I think that luckily the investment team that we have, you know, knows what they’re doing.

And they see that they see that at the end of the road. And we’re we’re going to go with them.

So why did you say. I thought it was engine. The culture between private equity and venture capital really is quite different. And yet they have some similarities as an asset class.

It is right. Or both asset managers, but it’s just that I see kind of venture as the more like rosy and, you know, kind of friendly. It’s the friendly environment. Right. Whereas you even just if I look at getting information from portfolio companies and it’s when I was in private equity, the general theme that I felt was more of a management by fear style because, you know, not that we were mean people. I consider myself a pretty nice person for, you know, for the most part, I think I worked with nice people.

But, you know, you own the company. So if you’re asking for something, there is that element of I need to give it to you because you own the entire company and you’re in control. Whereas in venture, you know, you own of course, you have the proper governance. You’re on boards. But you you are ultimately a minority investor. And so in order to to you know, you have to prove yourself a little bit more.

You have to proof of value that you can provide the portfolio companies and entrepreneurs and so that they really want to give you this information and so that they want to partner with you and see how you can help them. Right.

I think venture has changed, though, to become nicer or something because it’s become more competitive and some of these can’t have a bad reputation.

Well, I mean, exactly, it came back to what we were saying before, that, you know, capitalism is somewhat of a commodity. And so it’s there. And you need to have you need to have something different in order for it for companies to want to work with you as well.

Yeah, I also think the private equity it used to be I think that when you you’d go into ibanking. But then you’d go into ibanking for a few years with the goal of going into private equity.

I agree. But I think also now you go into ibanking with potentially the goal going to venture capital, we’re seeing a lot of us, you know, especially analyst roles, trying to switch into the venture.

Right. That would make sense, I think, at the at this sort of earlier stages as and maybe going from banking to a later stage fund.

Look, I don’t the companies I invest in don’t have enough financials, unfortunately, to really dig in and model it in sophisticated, it’s often simple, fair.

And so, yeah, I’d love to hear. Yeah. A little bit about we’re a lot of people in private equity.

Did they have banking backgrounds.

They the people you were working with. They did. I think it was banking for the most part. Or, you know, other asset managers in a similar space.

But you came from a different path. Tell me more about you. I did, yes. And my path. I mean, I started my career in public accounting. So, you know, traditional went straight from school into into the audit world and actually got selected for a program my first year where I was doing half transaction support and half audit. So I got a taste of the, you know, the buyout. I was actually working with several private equity clients on and on just quality of earnings reports for their targets.

It’s it was two thousand eight. So there were a lot of starts and stops. And I think my I was lucky enough to be mentored by people who would just say, oh, put them first year. Those deals going to die anyway. And so I got to see a ton. And I was working pretty hard at that, decided, you know, that I didn’t want to go to consulting me anymore. And I wanted to be in-house at the asset managers and really, you know, doing the deals and deciding what to do with the companies after they were purchased.

So I was lucky enough to meet up with the Open Gate founders and got brought on board there in the very early stages. They were they were prefund. I didn’t know somebody. I didn’t know that they were prefund at the time. I was just like, I’m private equity, great. And I got there and I didn’t realize it.

But, you know, we we made it work and it ended up being, you know, super, super fun and rewarding to build the open gate portfolio. And they did end up, you know, raising institutional funds and then that I was very close to that fundraising process. 

Yeah. Has anything surprised you about Venture? I mean, everything. So if they learn something new every day, it’s high. It’s an exciting place to be. I really enjoyed, you know, my my three plus years here now. And it’s what surprises me the most, they think, is that difference between them. You know, I’ve been I’ve spent by my fear versus management by love style. And just, you know, it also just that the communal approach that, you know, like I mentioned with other groups, how willing to willing and open the other firms are to want to partner together.

We’re going to co-investors in deals. Right. That’s you have to really partner with good firms. It’s not like, of course, it’s competitive and where know we’re all vying for for the same deals, but there’s room for for everyone versus private equity where, you know, there’s room for one right now.

That’s interesting, I think, because more of my career has been as a founder. Now that I’m a VC, I’m amazed by how much the VCR, like, put the founders on a pedestal.

Like there’s a little light sometimes. And I only I was like tiptoeing around this like, I don’t know. And how much I think venture capital is like a services business.

Right. You’re serving your your your founders is interesting. OK. So going back even more in, you went to USC. Yes. Were you a good start? Were you? Yeah. Fight on. Say, I forget my whole family are all Trojans. I was not.

Were you serious student? How did you you know, it sounds like you’ve had a great career. Do you study hard? I think I’ll just be honest. I hope this doesn’t come out, you know, sounding pompous, a school  came fairly easy to me. You know, from from an early start, like high school, you know, I did well. I got a scholarship and academic scholarship to USC. It did come, you know, relatively smoothly and easy.

And I had a good time at the same time I was in a sorority. I really you know, I was there during the Lyonheart days. So it was it was a great time to be a see, we kept winning all these national championships. And so it was you know, it was a very it was a traditional college experience. I would say I had a good time. I studied, you know, and I did well. I found myself, you know, really excelling in the accounting classes.

And that’s where it’s you know, I was like, everyone hates these classes and I love them and I don’t know why. So I should probably keep going with this because the the other classes, you know, that were were more challenging for me that, you know, people were more the major or the I talked to say a lot of my friends were going more into the investment banking route and that to me it was a harder to get into.

I didn’t have the connections like my parents were going to make certain things to get me in.

And so I it was just it was a natural path to go to accounting. And I’m so glad I did because it worked out well.

There definitely still is a bit of that. Like parents connection type. Yeah, I didn’t know the difference between. I mean, I still barely know what hedge funds do. But but that whole world was very opaque.

Do you think there was any advice?

Is one of my favorite questions, which is the sort of advice that you’ve been given that has resonated with you, has changed your path at all?

Yeah, there’s there’s one thing that kind of keeps me going. But the someone told only right when I started at B capital and this is a good friend and mentor. He actually was a lender at the open gate portfolio companies. And I got to know him very well over my time next week. Thanks a lot of our deals. And he came out to visit and I was in the very early stages at B Capital, was somewhat overwhelmed. You know, what have I done?

I was in a good place. And now here I am. I have so much work to do. It’s so much responsibility. And he said. You know, you wake up each morning and you get your shit done and you can’t lose sleep over it because tomorrow’s going to come and you can do it or you can die. And, you know, he told me he’s like, you’re Virginia, you’re going to do it. So that’s that’s all you need to know.

And so I kind of just say to myself over again, like, just get this shit done and tomorrow’s going to come. There’s nothing there’s nothing we can do about that. So there’s no point in stressing anymore. And just to do what you have to do. I love that. I love that.

Minds chop wood, carry water. Same concept. I like it. Awesome. Virginia, it’s so good to get to know you better. And it was great to learn more about B Capital and congratulations. And I hope we get to cross paths more. Well, thank you so much for having me. This was fun.

D.A. Wallach — Time BioVentures

One of LA’s most fascinating investors, DA Wallach, tells us about touring with Blink 182, making a song with with Diddy, becoming an investor with Ron Burkle, and his current life science focus at Time BioVentures.

 

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David and I are here today with D.A. Wallach. D.A. is an extremely thoughtful life science and health care investor and the co-founder of Inevitable Ventures and Time BioVentures. He’s backed some impressive companies like Spotify, Space X, Ripple, Doctor on Demand and Beam. D.A., thank you so much for joining us today.

 

Yeah, thanks for having me. It’s so great to see you. Likewise. Good to meet you. Yeah.

 

Good to meet you. Well, you know, David and I are super interested in hearing about your health tech investing, but I’m going to be super remiss if I don’t start with a little bit about Chester French and getting discovered by Kanye, touring with Lady Gaga. You know, it’s hard to skip over those exciting events.

 

Yeah. So what you’re alluding to is that I had another career before I became an investor and just started right after college. It actually started during college my freshman year. This is in 2003. Feels so long ago. But I started a rock band with some of my classmates. And then right before we finished college, we met Kanye and Pharrell and we got a record deal. And so I moved out to L.A. not to be a venture capitalist, but to to work my rock band.

 

And so we spent about four years making records and touring. And that was, you know, as you mentioned when we toured with Lady Gaga and Blink 182 and Weezer and all these awesome acts. And and it was via my music career that I found my way into investing. And Spotify was that first real investment that that got me hooked. So was it glamorous, you know, in a way, I mean, I think it was kind of surreal.

 

We were 21 when we got the record deal and it was kind of, you know, it was the dream, right. Like, we had started this band. We’d worked really hard for a few years with the ambition of doing it professionally. And, you know, and then a year later, we were like playing in stadiums with artists that we had grown up being huge fans of. So, yeah, it was amazing. I think the unglamorous part of it was the reality of living in a tour bus with eight guys, you know, which is it’s a very specific lifestyle.

 

So it wasn’t the right one for me. It wasn’t something I kind of looked into my future and thought. Do I want to be doing this when I’m 50? And the answer was definitely not. So I kind of over time, music became a hobby. And that’s what it is today. I mean, as you see, I’ve got a bunch of music crap all over here, and I still do a lot of fun making music. So would you tour a particular country and just hop in a bus and drive across the country?

 

Is that what was going. Yeah.

 

I mean, you know, at first. At first you’re in a van. So, you know, when you get a record label, it’s like a little company that gets a seed round. You know, you don’t you don’t start out in the big office with the fancy conference room. You’re driving around in a van. And so it was it was me and six other guys in a in a Sprinter van, you know, driving across the country over and over to and shows every night.

 

And then ultimately, sort of as we were a little more successful, we’d get a bus. And that’s sort of the the big breakthrough, because now you’re not driving. You know, you’re sleeping. Well, you go to the next city and it’s a part of what makes the lifestyle weird is you you sleep at night. I mean, obviously sleep at night, but you sleep well. You’re getting to the next city. So you kind of wake up in a parking lot somewhere, hang out all day, do a rock show, go to sleep in your boss, and you wake up in a different city.

 

And that’s that’s the life.

 

Wow. OK. When you put it that way. But I still think that a lot of kids who are, you know, whatever, 18 years old that is still their dream is to get in that sprinter van.

 

How did you how did each step of that how can someone recreate some of that success?

 

Like what were the big breaks that that let you get there?

 

Well, I mean, the big break was was when Kanye made a bet on us. I mean, he didn’t he didn’t sign us, but he tried to give us a record deal first. And so he was kind of like the big break. And again, you know, because of the topic of this conversation, it’s it is kind of a good analogy to start ups. It’s like, you know, you’re some little startup. No one’s heard of it than Sequoia comes in and does your series or something or TenOneTen.

 

So it’s you know, you need that kind of validation now.

 

We were coming out at this interesting moment of transition where the industry was going from one that was very gatekeeper driven to now one that’s much less that way. And so, you know, today the artists that get big tend to kind of get big organically on the Internet. We were part of the first wave of that. A lot of our early credibility came from building a fan base on MySpace and Facebook and then Twitter. So

 

That’s that’s how it works now. It’s a great segue  over to your you know, how you got into venture and through Spotify. How did you go from being a performing musician to being an investor or being connected with Spotify? Sure.

 

So, you know, I’d always been interested in technology. Making music involves a lot of computer. And in high school, I had done web design to make a little extra money and that sort of thing. I was also an engineer in in the recording studio.

 

And then obviously through my music career, I really came to understand how the music industry worked. And people had tried to do streaming music several times before. But the big enabler was broadband, mobile Internet.

And so to me, when that moment occurred where you could stream any song ever instantly to your mobile device, I thought, OK, now this can happen. And there were, I think, four companies that I looked at at the time that were trying to do this, Spotify being the one ultimately that I that I chose to work with.

 

But it was like Spotify Rdio, la la, which Apple bought. There are like four of them, Pandora.

 

I went in Pandora. Well, Pandora was already public Pandora’s public.

 

And it was kind of they’d built a great business around this, quote unquote, lean back experience. That was kind of like if you weren’t if you weren’t a super music fan, you’d get Pandora. And you’re just one of those people who’s kind of like, yeah, I like everything, has put it on in the background while I’m at work. But if you were a collector of music, you were still in a file based, a download based behavior.

 

And so anyways, I met all these companies. I concluded Spotify was the most tenacious and the people were the smartest. And they had a big advantage coming out of Sweden because for historical reasons, the Swedish music industry was much more amenable to doing licensing deals with them. And so they were able to build a pretty huge footprint in Sweden and basically prove out this model in one constrained market. And then they used that example to convince the rest of the world that this was an OK thing to try.

 

That that was the hard part of Spotify was getting the record labels to do these deals.

 

And my view is kind of like whoever has the stomach to get that done will be the winner.

 

But now you’re you’re really full time investing in inhealth tech. Is that true?

 

That’s right. And I would sort of distinguish between healthcare and life sciences and more in the life sciences side. But I’ve I’ve done a bunch of both.

 

You know, normal early 20s rock stars don’t look at find a company and figure out how to get their money into it. How did you do that? You know it. It wasn’t obvious to me at all what to do. It was it was kind of like. You know, I think I had always had this almost aesthetic intuition about certain artists or fashion brands or products where I’d like discover something really early.

 

And I’d be like, man, this is gonna be huge. And historically, I just I’d never had any way of acting on it. And so when I had that feeling about Spotify. Then then, to your question, it was a tactical matter of like, what do I do? So what I did was I met Daniel, who had started the company. He introduced me to Sean Parker, who had just invested in it. Sean was still at Founders Fund.

 

Sean kind of saw this as the unfinished business of Napster. And so he’d been kind of dying to make this happen for 20 years. And and then I just kind of convinced them that. Basically, they they needed me to act as a translator to artists. I think, you know, that that was all I had to offer was was basically, I understand in a very sober way how this business works and how your model works. But I also am an artist and I also know other artists and they’re very emotional.

 

And, you know, to their credit, they bought that.

 

And then as I met more people in the technology world and then people in Hollywood who were sort of dabbling in Silicon Valley, like Ashton Kutcher became a really good friend and, you know, just sort of realized, oh, there’s this interesting kind of merging happening now between the worlds of technology and the worlds of media and entertainment.

 

And then, you know, that led to me learning about and having access to other companies. And I would just start asking them, like, hey, can I put some money in or can I get some sweat equity or some options or whatever it is? There was no strategy at first. It was just when I think something’s gonna be big, I just want to be a part of it somehow.

 

And now that’s all I do. So anyone listening who’s not in those areas, I’m irrelevant to the four areas that I invest in are drugs, diagnostics, research tools. And then sometimes health care, I.T. or health care services, businesses.

 

And so those are the four things I do. We generally make investments between two and six million dollars and we try to invest very early, which can vary depending on how big a company is going to get. Maybe, but, you know, as a general frame, it’s like seed through Series B tends to be where I’ll invest.  And Inevitable Ventures.

 

You started with Ron Burkle, who also was he an investor in Ashton cultures or he was one of the co-founders of Ashton Kutcher Catches First Things. It was that kind of the the bridge. Can you tell us more about how you got to know Ron and how you guys started that?

 

Yes. So the connection with Ryan, interestingly, was also kind of via music and in very unexpected. I had years ago become friends with Diddy, Puff Daddy, and we had made a song together and a music video ours.

 

So this is you know, this is like 2009 or whatever. And so when I started working on Spotify, I called Puff and I said, hey, you should really invest in this. And I raised a bunch of money for the company from artists, friends of mine like him. And then that same year, I guess this is 2011. He took me to the Clive Davis Grammy party that he was hosting, which is like I’ve only been that one time.

 

It’s like the best party. Ray Davies from The Kinks was performing it. Was it memorably it was the night that Whitney Houston died and she was meant to perform at that party. And so it’s kind of morbid. But she was. Her body was still in the Beverly Hilton Hotel as we were in the ballroom having this party. And that kind of put this weird shadow over the evening. But nonetheless, I went with Puff Daddy and he and Ron had been business partners for a long time.

 

He had done some clothing companies like Sean John, and maybe just give us the background.

 

I doubt those listeners probably know who Puff is or dead. I’m not sure. But but regardless, Ron Burkle, Maybe you could give us some color there, too.

 

So Ron’s just a great and he’s one of the great L.A. investors. So he grew up in Yucaipa, which is, you know, 100 miles east of here, and started as a bag boy, I think, in the state or brother’s grocery store and, you know, ended up owning the whole grocery chain and then buying more.

 

And Ralph’s was a business of his a sort of became the most important grocery entrepreneur in the country and made a bunch of money earlier in his career and then has since then owned a series of operating businesses and just been a great deal maker and Rons really a terrific value investor, an operator. Among the things in his portfolio have been a mirror. Cold is a large cold storage business on the more glam side. He owns Soho House, which has been a very interesting story in the world of hospitality over the past decade or two.

 

And then Ron has. Along the way actually had a lot of success in technology investing. But he’s largely done that through other people and backing younger investors who he’s met. So as you pointed out, he had been the partner in A grade, which was Ashton Kutcher and Gug Oceare and Ron. And I mean, they were just phenomenally successful. I mean, SBN be Uber, Spotify, Warby Parker. They made some amazing investments. And then at a certain point, Ashton and Guy spun out and they now run a firm called Sound Ventures.

 

It’s also great. And Ron and I. By that time had become friends. And he approached me about kind of creating a successor to a grade. So that’s what we did. And that’s what Inevitable Ventures has been. It’s just me and Ron. And and now Time BioVentures is this new fund that I’ve created and Ron as a partner of ours and that as well. Got it. And so time biosensors, if I’m an entrepreneur approaching you, I’m kind of approaching you about time BioVentures.

 

That’s right. Doing those those four areas that you talked about. Yes. Tell us more about about what you’re doing at time, I guess.

 

Who are the entrepreneurs you’re usually meeting? I imagine it’s not exactly the, you know, MBA student who’s coming up with a new drug discovery or something.

 

Yeah. So, you know, you’re getting at a key attribute of our model, which is that we invest in very technical companies, companies with generally a lot of intellectual property at their core. So oftentimes these originate in academia.

There are some investors who go out and they kind of look for this intellectual property and then they try to build companies and they do the spin out. We like to invest once. That’s kind of already happened. So we’d like there to be amazing technology that’s really protected and defensible legally through patents paired up with a really great entrepreneurial talent. 

 

And so we spend most of our time looking for new drugs that we think can be game changing for patients. And then I talk about kov. It is a really good kind of window into what we do because it highlights how those four areas are all connected.

 

So if you think about this crisis, everyone who’s been watching the news will appreciate that you need innovations in all four of the areas I talked about to put a dent in it. So we hear a lot about vaccines, antibodies and other therapeutics. Those are the drugs that are ultimately going to treat patients or prevent infection. So that’s the first box. Second is diagnostics. And we’ve all heard about the antibody test or the active infection tests. So those are diagnostics.

 

The third area is research tools. Those would include rapid DNA sequencing technologies. And it’s that kind of tool that enabled us to very rapidly understand the structure of the corona virus. And it was within weeks that we actually knew the genetic sequence of the virus. And that has opened up all of the abilities to both diagnose and treat it. And then the fourth area that I talked about, his health care I.T., the example in this instance would be things like contact tracing.

 

So and maybe Covid is a good example, but what’s the relationship with, like Big Pharma in these cases? Like. When is it the right thing for a startup? When is it the incumbents?

 

Well, Big Pharma is kind of like a record label. So just like really very similar. What?

 

So what I described earlier was that kind of before our time as as a band. But even while we were getting started, the goal was when you’re a little new artist, you want a big record label to pick you up and make you a star. And what it’s now become as a result of the Internet is you kind of got to make yourself a star first on online and then they’ll just come buy you and you’ll get a record deal. But they’re going to give you a lot of money.

 

They’re just effectively buying the profits that are sort of a sure thing. So in the pharmaceutical industry, what’s happened in the past couple decades that’s very similar to this is that a lot of the 

 

big new drug is used to be invented at the pharmaceutical companies, and now they have shifted to this model of buying startups. So the big pharma companies, which are generally big public, multi hundred billion dollar megaliths, their business model is to let the venture capital market develop new inventions, get those drugs to a certain point where they’ve been de-risked, and then Big Pharma comes and pays a lot of money to buy them. So when we’re looking at investing in drugs, there’s actually no shame in our intention that if they work, a big pharma company is going to come and buy it.

 

And that’s basically what what you want to happen. That’s how most companies exit. And I think there’s an amazing stat that I don’t remember about how much each year farming companies are spending, but it’s a lot.

 

Yeah, they’re buying, I think, 15 to 20 billion dollars worth of start ups a year for the past few years.

 

That’s huge. Do you think that’s a good thing, that that you sort of need those billions of dollars to put a drug out to market and the system right now can’t really work it a different way? Good, bad, indifferent. Yeah, well, you compare it to the old model I described, and in the old model you had these huge companies effectively trying to do startup stuff. And as you can imagine, because they’re big companies, that was very inefficient.

 

So in a certain way, this evolution, I think, is a good thing for for the whole system, because now they’re they’re sort of banks there, like investor. They’re like basically late stage investors who bet on things once they’re de-risked and then they have the capital to do the very expensive clinical trials that you often have to do.

 

So it depends what kind of drug we’re talking about. But say you had a great drug for hypertension, which, you know, if you wanted to to deploy that drug at scale to get it approved by regulators, you might need to do a clinical trial that costs over a billion dollars.

 

The tenacity of those big multinationals comes from their control of distribution still. And so, you know, you’re talking about a company in L.A. that’s involved in drug distribution. You know, most drugs today still get sold through a doctor prescribing them. And that doctors typically being called on by a sales force that works for the big companies. So you got, you know, tens of thousands of these sales people still running around in the physical world, talking to doctors and teaching them about the new drugs.

 

Let’s take on distribution in the sense of, you know, right now hospitals are these huge forces in how we all get service

 

I think hospitals are very dated, 19th century model.

 

You know, that the kind of two big unconquered institutions are at least two of them that stand out are schools and hospitals. And they both are products of essentially the industrial revolution. So, you know, we used to have one room schoolhouses where kids of multiple ages co-mingled and it was much more kind of organic. The industrialization movement led to this idea of schools as factories. You move kids through them at the same pace in these defined cohorts.

 

And similarly, in health care, you know, we had these sort of the doctor who does house calls and knows you for 30 years and really knows your family and all the context. And instead, we changed that into this, you know, huge factory model of hospitals that, you know, in theory give you some kind of economy of scale, but in practice don’t actually seem to do that. They just create huge amounts of inefficiency all around.

 

where do you see things changing on the delivery side, I guess?

 

Well, what you I mean, the the big goal on the delivery side should be it should be a global goal. But let’s start with the U.S. and the goal should be that every patient receives the best care that human knowledge and technology can deliver. So at a minimum, we should all be aspiring towards essentially standardization. You want to bring the quality of everyone’s care up to the highest possible level. And the only way you do that is by making it much less local.

 

I guess what I mean by that is right now there’s huge variance in what kind of care you receive if you are rich and you go to a Memorial Sloan Kettering or Cedars Sinai. And if you’re poor and you go to some E.R. every time you get a cold, which is what poor people do, they just go to the emergency room. They don’t have a doctor. No one knows what’s going on with them

 

I was that asked how you sort of square the idea of a standard of care in a standardized care with innovation and the need for, you know, some fluidity. And you’re talking about maybe a model of how we look at things is broken. Yeah, that’s that’s a great question. It’s in some ways that is like the question that I think about the most just consistently that issue is at the core. So for listeners who aren’t aware of this, there’s this concept in medicine that you raised the quote unquote, standard of care.

 

And what that means in practice is that when a patient comes into the doctor or the hospital and they’re diagnosed with some condition, the standard of care is what the physician is supposed to do. And that is meant to be informed by the collected evidence that exists. And generally, the standard of care is defined by medical societies that are particular to each specialty. So, as I said, the head and neck cancer doctors will have a national society. The I don’t know what there is is, but it will be the American Society of head and neck cancer doctors and they’ll have an annual meeting.

 

And at that meeting, all the gurus will get in a room and they’ll compare notes and they’ll basically put out what are called guidelines. And those guidelines will specify what the standard of care is. Now, just with that example, you can begin to see how it’s inefficient because the refresh rate on the standard of care will be. However, frequently that society has their meeting, which might be once a year, it might be every other year when the physicians, these gurus get in a room and they talk about this, you know, in principle, the choices they’re making are related to what’s the newest evidence.

 

But they also are informed by, you know, assessment of risk. So some guru in that room is going to go, yeah. You know, there is some evidence that doing this procedure instead of the old one will be more effective, but it may also invite more malpractice risk. Or did you think about that? It may also be, you know, so it’s an imperfect process, updating the standard of care. And then the final issue is effectively around the the implementation of that standard of care and how quickly it’s implemented everywhere.

 

So its ability to be put into practice is contingent upon the physician at the local hospital having read up on on the new standard of care. So, you know, there are I would say fundamentally two types of medical cases in one case. What should happen to the patient could essentially be turned into an algorithm and there would be so little ambiguity about what the physician should do, that it should almost be a computer program that just takes in all the patient data, all the diagnostic test results, and then spits out what should be done.

 

And that that could probably drive care decisions for, you know, I’m being arbitrary.

 

But 70 percent of patients then the other segment of cases are, to put it simply, cases where if you’re the patient, what you really need is for a doctor to think.

 

And, you know, that’s why they’ve been you know, that’s why they’ve gone through eight years of schooling and rad to read all this stuff and memorize all this stuff, because what you want them to do is integrate all the information. But, you know I think what we want is more technology for the first cases, the 70 percent and probably less technology in some ways back to how it used to be for the 30 percent.

 

Let’s talk about investing for a second. Are there certain things that you’re getting pitched all the time that you’re just like. This is not in my area of interest? Like, can you help guide entrepreneurs a little bit better?

 

Yeah. You know, I mean, the one thing I’ll throw out there. Because I assume a lot of listeners are kind of more tech startup oriented software people. There’s a very pervasive naivete when people from the world of software and computers go into the world of biology and the world of health care. And the the two. Kind of flavors of this naivete are on the health care side. They think that the health care industry, the delivery industry, hospitals, insurance companies, the government, all that they think it’s about to be disrupted, just like everything else has been OK.

 

And in fact, not everything else has been. you know, there’s a reason that it’s been slow to change.

 

You’ve got real monopolies. It’s heavily regulated. So public policy is really important. So it’s like that’s the first naive thing is thinking like, oh, we’re just going to come in and, you know, we were two guys at Google, so we’re just going to show the health care industry how it’s done. And like, that’s almost always stupid. The second is the equivalent in biotech, which is software people essentially thinking that drug development is easy and that A.I. or whatever software they have is about to, you know, upend the global pharma system.

 

And, you know, you see I see these kind of pitches from people who just don’t know what they’re talking about all the time.

 

But how did you become knowledgeable, uncomfortable investing?

 

I just through making mistakes, you know, I mean, I kind of I, I say all this not I don’t know, I’m not speaking from on high about this. Like, I had to get the scar tissue and I wish I wish I could have skipped that step.

 

But, you know, one thing I would say is that, the user experience can can definitely be improved. That’s just like build good software. And so there’s a lot of stuff that dies in health care tech, not because the product isn’t good. Very few things die because the product sucks. They almost all die because it’s impossible to get customer traction. So, like, I can’t tell you how many awesome things I’ve seen.

 

Smart software people build that hospitals should all use. But then they go to each hospital and it’s like, oh, what to do? Let’s do a six month pilot unpaid. And then you do it there at Cedars Sinai. And then you go to UCLA and they go. It’s great that it worked at Cedars, but let’s do a six month unpaid pilot. And we by the way, we need a bunch of customization. And, you know, now the company is at a series A.

 

. It’s got no paying customers. It’s got two pilots. And it’s totally unclear how much of a clinical impact it’s having. They’re not making any money. It’s hard to raise more money.

 

So the thing to mind is the business model. That’s the that’s usually the rub with these healthcare software stuff. Well, in the interest of time, I think we need to like, not endlessly talk about health tech investing and move into talking more about you, D.A., the person one of the big questions I have is, is sort of around how you remain creative.

 

Yeah, I don’t. I don’t know. I mean, I think it’s. Know suspicion of authority mixed with like curiosity, open mindedness.

 

I think, you know, just kind of. And exploring, like, you know, like I was talking my friend yesterday when my best friend and we were we were talking about how. There’s there’s not much question for either of us that reading is the most valuable thing we do. But like we always are struggling to have enough time for it and discipline to actually do it. And the reason I think it’s so important is it’s like the. I think we have this assumption that creativity comes out of thin air.

 

But like, it doesn’t really. I think it comes out of, like, constant consumption of ideas. And then they do they stew up in your brain and you maybe get some weird ones. And so, you know, if I think about the artists that I’m friends with, musical artists or whatever, I mean, they’re endlessly listening to other music. So for me, you know, like. Both to have you as an investigating, both to have an information advantage and to get new ideas.

 

It starts with just ingesting tons of information, talking to lots of people, reading lots of stuff, and and then just kind of randomly, you know, new ideas pop out.

 

Yeah, it’s unfortunate. I’m really not very literate. So I, I, I’m not. So I appreciate that perspective.

 

My equivalent might be surrounding myself with really interesting people, because if you’re around those people with interesting creative ideas and you’ve had this chance to rub elbows with all sorts of people.

 

So like, Kanye just announce he’s running for president?

 

Yeah. Very creative idea.

 

Good answer. Good answer. Oh, my gosh. Well DA, I don’t have a I don’t have a lot more probing personal questions.

 

You do have exclamation points in your name, do you not? Just on just on email. I didn’t, you know, came out of music. I did years ago. One of our big early kind of mentors was Travis Barker, who is the drummer from Blink 182. And Travis is just like the coolest, nicest dude. And he kind of took us under his wing when he got to L.A. And he used to have like in his email name, not the e-mail address, but like the, you know, the display name.

 

It was like Travis Barker. But like the A was a star. And like, every letter was the coolest alternative symbol that you could recognize. And I loved getting e-mails from him because it just like spiced up my inbox. And so. So years ago, yeah. I just I just made mine D.A., but instead of periods, I did exclamation marks. And I don’t know if it’s fun for people to receive, it’s great.

 

I love it. I got your e-mail and it’s a deal. It’s got these were A. S Lezley like coming to you. Fantastic.

 

I appreciate that. Keep it up and see where he’s having you on the show today.

 

Yeah, it’s fun talking to you guys. Thanks for having me.

Rachel Springate — Muse Capital

Great connecting with Rachel Springate about her path into VC, raising consumer-focused Muse Fund II, her partnership with Assia, and diversity in venture.

 

 

View Transcript

Today I have Rachel Springate partner and one of the founding partners at Muse Capital. Muse is a seed fund investing in the consumer space. Currently investing out of Fund II. Congratulations. With companies like Motherly, Maven, Beekeepers, Clarity Money and many more.

We were gonna have Assia with us, but we cut her. We gave her the boots. She had Internet problems, unfortunately. Anyways, Rachel, thank you so much for joining me.

Thank you for having me. 

Well, let’s let’s talk about Muse and what you’re building and who you are. Maybe you could start there with. Give me a little bit more about your background and how you came to Muse. So I’m originally from the UK.

If you couldn’t tell from my accent, my my dad’s a Brit and my mom’s actually from the Philippines, but I grew up and went to school in the UK. And I started my career in brand research of all things. And so that was how I got to build relationships with marketing directors of Fortune 500. You know, everybody from an Apple to a Coca-Cola to an IBM. And then from that job, I was headhunted into a completely different world, which was the world of luxury lifestyle management.

And I joined a group called Quintessentially. And if you don’t know what Quintessentially is, it’s a very high end concierge service for high net worth individuals.

So if you think of a Richard Branson in his hometown of London, he would know everyone and everything lifestyle related. But if he went to Tokyo or to Rio, there were basically people on the ground who who knew the city’s inside out and they would help those networks navigate whatever they needed.

And actually, that role was fascinating because it’s how I built my influence.

The network, it’s how I built my relationships with athletes and sports teams, obviously just solidified my brand network. And after four years of doing that, I came back and realised that corporate accounts for 80 percent of the revenue of the company. And I just thought to myself, I don’t think I’m going to go any further here and there’s got to be something better I can do with this network and then make a lot of money for these guys. And so in 2012, I left and was doing some consultancy work in Asia, and I met a guy who changed my life.

A guy who we all know in the L.A. ecosystem called Troy Carter. And this is 2012 when he was Lady Gaga’s manager. And she was probably the biggest pop star in the world at the time. And I remember meeting him and sitting with him and say, you know what’s exciting to you? And he said, technology and early stage investing. And I said, you know, I was expecting you to talk about new artists.

And he said, no. He said, I’ve been spending a lot of time in Silicon Valley. I’ve just written an angel tech into this great company. You should know about called Uber. And I was like, wow, like what is even more importantly, what I letting you know why you’re investing. And he said, oh, you know, I let I use my network to help these companies grow. Right. So it’s a really important part of our future.

There’s very few people like us that have the network and the relationships that we do. So you should spend more time there. And, you know, he’s the one I open my eyes school to all of it and a really close with his team. And I think we’ve we’ve done like four deals together now at this point.

And so and so you started doing helping out these early stage companies and how did you end up connecting with Assia and forming Muse Capital Fund one, I guess. Well, one of my clients is actually in the music text banks, actually in the deejay space at the time because I was a big rock stars. Calvin, Calvin, Dead Mouse. Yes, I all these guys. But most importantly, it was helping them get their technology integrated into Spotify and Apple.

And when I was doing the deal with Spotify, the person that I was connected to was Assia and I’ll never forget it.

She did that meeting and she looked at me and she was like, this is great. You know, I am super interested in technology, but who are you? And, you know, for those that don’t know Assia and maybe I can give a little background on her about how we met. But Assia is really extraordinary, non-linear background also. So she’s originally Italian, came to the States when she was nine and went to Barnard College here and then went back to Europe and actually ended up running TV radio and a for a big music company in the U.K. called Ministry of Sound. And all the things that she’d done in her career. She she actually ended up putting one of the first ever music channels onto YouTube, which is how she met Chad Hurley, which was Ministry of Sound and through that was just networked, obviously, into the digital space and was becoming this leader in a time when no one really knew how to navigate that.

And through that, she ended up meeting Daniel Ek Spotify when he was very early in the development. They’ve just proven out that this was working in Sweden. And he asked you said, look, I need help expanding this internationally. 

So she actually came to help open the L.A. office, which is crazy. Think about Spotify didn’t have a presence five years ago. But, you know, alongside doing that. So she was working with Daniel, but also had met the Aneli family and the Aneli family, a very prestigious Italian family.

They own like Fiat and Ferrari. And you Juventus football club. And she’d been again advising them and their family office on media and tech investments. And actually through that. One of the any family became the chairman of Juventes football club. If you don’t know what you meant to say. It’s one of the biggest sports teams in the world. It’s a publicly listed company on the Italian Stock Exchange. And she actually ended up becoming the first female and youngest board member of Juventes football club.

And she’s still on the board today. So nine years later and has certainly seen a lot in the last nine years. And they signed Rinaldo in the last two years, the biggest soccer player in the world. And so when it comes to kind of sports, media, entertainment, Assia’s networks, this is so vast. And then as well as that, she ended up joining the board. Of Northtown Ventures. And no sign if you don’t know.

It was one of the first institutional money into Spotify. I need to ask some about Muse, what you invest in to tell me some about. You know, right now you’re investing out of Fund II. What sort of you know, are they all seed companies? They’re on the consumer space. What are you looking for when you’re investing?

Our idea at Muse is to be one of the most helpful investors on the cap table and actually bring something very different to be invested, because along with our check comes this 30 year combined network of access to these decision makers.

And so with Muse, what we look at, we we are a broad consumer fund. So we say products, platforms, marketplaces. So long as it touches the consumer at some point. We like to take a look. And, you know, fund one was more of a proof of concept fund where we were just proving out the model and seeing if this would work. And it actually went really well. 

And it’s really interesting because. Pre Covid, you know, we weren’t we were already very interested in sectors that are just being accelerated by by this.

So we were already investing in areas like telehealth and women’s health and online education. We we don’t do. We don’t typically do CPG unless, you know, if the founder is trying to change the entire category.

How you can kind of assess that potential to go from sort of an initial like products into more of a developing the brand and developing up a platform, say. Yes, so it’s interesting. I think a really good example of that in our portfolio is a company called Motherly. So if you look at Motherly, it started out as a platform for millennial mothers.

And they built this. They bootstrapped it. And, you know, it was resonating with the audience. So much so that they had, you know, incredible engagement.

Right. And now they reach 30 million millennial mothers a month.

And so Motherly is a great example of a existing platform that can now expand into a marketplace. Right. So they’ve already built that trust with the audience and they kind of know what they like, what they don’t like. 

And I think I think it was Connie Chan over Andreasen who talks about super apps.

Right. And how they. People are less likely to download new apps and focus on those that already out there and already have engaged audiences and build on top. And that’s why I think. Motherly being a platform to marketplace, then doing so much more with that existing audiences. They are the kind of company that we would focus on.

Got it. And, you know, I know there’s never a rule of thumb exactly. But when you’re investing into these companies, you’re you’re leading or participating in a seed round. What sort of traction do they often have that will make you think it’s like the right time for for you to invest?

Yeah, I think we’re unique in that we typically will not do your kind of pre product, pre pre revenue, to be honest, because if you look at all content. Our value add, it’s to supercharge a company. Right. So typically we want to see the product, a company in market with some traction. Because if we’re then going to take that into major brands, major corporations, they are going to want to see it working before they going to consider a partnership.

So when you’re doing that business development, are there lessons that other people can learn, like other ways of doing business development? You know, if I don’t know all the top to your talent other than working with Muse.

Yes. So I think it’s really important, you know, to get because business development sounds so vague. Right. And it can and it can cover many, many aspects. And, you know, it’s very easy for people to think because we’re based in L.A.. All this is it. I mean, obviously, we get me in front of celebrities influence, and that’s actually not what you know. That’s just one tiny part of what we can do.

And, of course, it’s important. But, you know, we’re just as likely to look to do a partnership view with a Fortune 500.

And actually, a good piece of advice here is talking about elephant hunting. Right. And you always want to try and go for that big deal. But to be a really good business development person, you have to have a balance.

So you need to have both the low hanging fruit. Right. So those smaller deals that are going to bring you revenue, bring you distribution when you customers, but then also have, you know, the elephant, the one that is going to be the deal that will define your company. And so I feel that entrepreneurs often overlooked that. 

And it’s so, you know, looking at examples of successful case studies, I guess that already out there. And then, you know, quoting that and then pitching it to the company as well.

Did you see this? We can do this for you. I think that’s actually really powerful, too. Yeah.

That makes a lot of sense. Great. So in this one, too, I meant to ask sort of what is your target check size, that sort of thing.

Our average check is 250 to half a million into the seed round of a company. So, yeah.

And just for use, sort of more personally, like you’ve gotten into VC now, you’ve been doing this for a number of years.

Do you advise for people who want to maybe follow your path? Like, is there a path there to follow or are there different ways in?

For sure. And I think that, you know, Assia and I over the last three years have been just doing it right, heads down working, not really telling our story, but we actually think it’s really important because especially today. Right. I think that given the current environment and what’s happened with Covid and what’s happened with Black Lives Matter, I think now it’s more important than ever that we have diverse emerging managers. Right. And diverse, diverse managers who can write a check.

This been the hardest thing I’ve ever done in my entire career.

By the way, going out and raising that first fund without the right background necessarily or a different background, I should say, by the way, while pregnant and having a baby. Just when you thought it couldn’t be harder, you know, it was definitely really tough. And I think for Assia.

And I you know, we really came to kind of share our story and some of the mistakes that were made and how we can make that easier for other emerging managers to follow the path.

But we believe in diversity. I’ll give you an example of this. So when Assia and I went out to create news, we actually didn’t have a mandate that we had to invest in our only female or only like minority entrepreneurs. Yeah, when we when we look at our portfolio, just naturally, why?

Because we are we look at the world differently. Fifty percent of our portfolio is minority or diverse. And we were really proud of that.

Do you have any tips, things that you might have done differently other than realizing that it’s incredibly hard, I think one of to pass on advice would be, hey, guys, this is how it works.

These are the people you really shouldn’t be talking to yet. And here are the people that you should and why.

I assume that most endowment’s institutional investors are just looking to invest much larger sums of money into later stage funds.

Exactly. And, you know, it’s tricky cause, you know, there seems to be this movement that more investors do want to invest in female and minority emerging managers. But when you actually peel back the hood and you look under it and you’re like, you know, what does that actually mean? It’s like, oh, you know, you have to be raising at least one hundred million. And then you’re like, OK.

And then, yeah, in terms of the fund raising process, I mean, it took us 18 months. And I know that that’s kind of normal. But for us, it was like, wow, this is you know, this is not for the faint of heart.

Yeah. And we’re in such a moment of time right now. I mean, we are in the midst of Black Lives Matter right now.

And I think everyone’s getting more exposed and having harder conversations about white privilege, about our societal structures.

Now, are you maybe it’s a more personal question, but, you know, are are you guys getting involved?

How have you been experiencing this this moment in history? We are definitely getting involved.

And honestly, I’m all kudos to my Assia. You know, she’s very passionate about this.

Assia is a co-chair of L.A. All Raise. And, you know, taking those resources and sharing that with always and making sure that we’re doing that.

I mean, you know, hats off to Assia. She’s she’s niche. I don’t think she slept for the last four days.

Yeah, I was going to ask about sort of what is your maybe not this week, but, you know, normally, you know, how much. How are you able to lead your life with. I know you have. Is it a 10 month old baby?

I you I mean, my question, I think, you know, that’s the beauty of partnership, right? I feel that I honestly don’t know. You know, when I look at solo founders, I’m just like, you know, how do you do this? Because we we definitely couldn’t do it with our each other.

Right.

And yet it is I mean, it is a position of power. You’re you’re it. You are a capital allocator.

I remember saying to Assia the day that our CFO called us during this fundraiser and said, hey, guys, congratulations. You got to a point in the fund, right? Well, you know, you’re here to stay. And this is real. And, you know, so many emerging managers don’t even get to this point.

I literally was crying because. Wow. We’ve given everything to this. And honestly, it’s because. We truly believe the, you know, being diverse. As an emerging manager, having the ability and the power to write a check understanding is more important now than ever. And we’re really passionate about about about that and making sure that the world changes.

Fantastic. I think if we’re gonna have to wrap up.

But I really appreciate talking with you today. It’s been fun getting to know you better.

Now, you, too. And now I’m sorry Assia had technical difficulties, but hopefully I did. And then. All right.

Of course, we’ll get her next time.

Clinton Foy — Crosscut Ventures

Really fun talking with Clinton Foy about the gaming industry, founding Immortals, living in the metaverse, and who his favorite Crosscut partner is.

 

View Transcript

Today I am with Clinton Foy. Clinton is one of the four managing partners at Crosscut. Crosscut is one of LA’s largest early stage funds and one of the most established.  Before Crosscut Clinton was COO at multi-billion dollars. Square Enix, a Japanese video game publisher known for Final Fantasy and other big name franchises. Clinton, thanks so much for joining me on the L.A. venture today.

Thanks so much for having me.

So I was learning more about your background, and I would say that must’ve been quite a transition going from Square Enix, from a multibillion dollar public company to joining the guys at Crosscut.

It was a shock. I was driving into the office today and, you know, we’re in the midst of Covid right now just as a snapshot. So no one’s in the office. And I’m going from a 300 person office and a 3000 person company at Square Enix, where I had two executive assistants to book everything that I wanted to fund that I think was investing out of a 15 million dollar fund. And I was an unpaid venture partner.

I had zero salary for the first year, year and a half. It was quite a shock. It was a lot of kind of re learning and learning to hustle again and learning to just network my ass off.

No, I mean, I think a lot of people don’t realize how much venture is just like being at a startup. You know, it is especially when you’re at a seed stage v.c like we are. 

But you guys are still a early stage venture fund right now, if you can share. Like what? Right now, what is your typical valuations or valuation ranges that you might be investing into.

Sure. So. I forgot who said it. But somebody said, is smarter than me. Your fun size is your strategy, and I think that makes a lot of sense. So we’re investing out of one hundred twenty five million dollar fund.

So that puts us squarely in the seed, mature seed investment categories that we invest anywhere from one and a half million to two and a half or three and a half million. And we flex down and we flex up. 

We’ll lead or co-lead. and them.

And the valuation that you guys are doing. Has that changed much?

So it’s a great question. We’ve seen it definitely flex up over the last six, seven years since I’ve been at Crosscut. You know, we still see, you know, a decent number of first time founders come in. We call it five million dollar valuations post. It seems like more common. A seed round looks more like a ten million dollar post right now, raising two or two and a half million. And then we have, you know, Silicon Valley style deals where there know, a 15 million dollar post or 20 million dollar post in the first round funding.

And of those, how much are you personally and still focused on gaming and eSports? Because that’s get such a strong background there in L.A. is such a natural fit for that?

Yeah, I would say initially the first company that I invested in it was called Super Evil Megacorp and I love it.

Yeah, it was it was a gaming company and a game platform with its own proprietary game engine and the natural flow was. I started seeing other game companies like glitzy sports or stream labs.

And, you know, those were also game platforms and game companies. And then I co-founded the Immortals game company, the Immortal’s eSports Team. I didn’t want to be pigeonholed and just doing that.

I also wanted to do broadly more consumer stuff broadly, more streaming broadly, more mobile, and also look at new platforms and emerging platforms. And so that’s what I’ve been doing over the last two to three years as well, is continuing to look at games, eSports, but also branching out into other records.

And so I think it’s a really robust, interesting ecosystem, but it’s also in some ways insular. And you kind of have to know who the players are, what you’re doing. And it’s hard to be kind of a tourist investor in that space. How do if I’m if I’m building a game? Do I always do that? Do they all become eSports? Like, do people compete in? I mean, some are obviously like I don’t think there’s like a SIM City free for league or something.

But do they all become leagues? Do they aspire to.

No. I mean that the gaming ecosystem is really call it a hundred fifty to two hundred billion dollar a year business. And that’s, you know, the Microsoft and the Sonys and the Amazons and all the publishers, all the developers that within itself there’s all of these different genres. You know, there are console games, there are p.c games, there are mobile games. And a sub genre within games is eSports. And eSports is one of the fastest growing year over year categories within games.

And it’s you know, it’s grown from zero 10 years ago to call it, you know, two to three billion dollar a year business. But it’s probably, you know, in terms of compound annual growth, the fastest growing category within games, one of those. And it’s one that’s captured the imagination, because I think when people think, what is the future of sports like, what is the future of entertainment look like? What is a post Covid world look like?

People say, oh, well, eSports makes a lot of sense. You know, baseball, football, soccer. Ah, you know, one hundred years old, plus 50 years old or 60. And, you know, those professional leagues are things that have been around for a while. But what is the next iteration of that look like? And a lot of people are saying, well, eSports could be that.

And I actually don’t even have regular sports work. But some some of these, you know, in the NBA or something, there are franchise teams and Immortals is a team that competes in one of these leagues, whereas like tennis, as I understand it, just has like tournaments. And so Immortals. Tell me more about Immortals.

Sure. So in 2015, I met a young gentleman named Noah Winston. I say young because he was 19 years old and he was considering dropping out of Northwestern to start a professional eSports team. That’s a fucking crazy idea. I love it. I’ve always wanted to have a sports team since I saw the first one of the first League of Legends championships back in 2000. Ten, 12, 13 and 13, 2013. It was at the Staples Center. And I just thought, that’s an amazing, amazing kind of new industry where you can watch people play games.

You can fill out Staples Center with twenty thousand screaming fans from around the world and it’ll sell out. And then, you know, 20 million, 40 million people will watch it from around the world. And when I met Noah in 2015, young, talented, super smart genius, I thought, but really raw as as an entrepreneur and as a founder. I got to know him and over the course of three or four months said, listen, let’s let’s do this.

Let’s start in a eSports team together. I don’t know if Noah could have raised the money on his own or started it on his own. He might have, but I knew that by helping him out, we have exponentially better chances together doing it. And now it really became the face and the CEO that I was, the executive chairman

And so since then, you know, Sequoyah Founders Fund and Bessemer have all invested in sports teams and there’s been a rising tide of eSports.

And that’s a really good. Wow. I hadn’t really thought about the fact that, like Immortals backed by Crosscut could be competing with whoever else backed by Sequoia.

Well, I don’t want to take responsibility for that. It was more like we spotted a trend early and we jumped on it. 

And how does the money flow in it for, like Immortals or for one of these teams? Like, do you win prize money and do you have to pay? Is it like a franchise team in the league where you have to pay to be in the league?

Yeah. So you do have to pay franchise fees for the established franchises. So League of Legends has a franchise fee. You know, overwatch as a franchise fee. Call of duty as a franchise fee when tolerant, eventually franchises. It’ll likely have a franchise fee. And so there’s there’s a there’s a cost to doing that business. Part of why we raise money back in 2015 was to buy in to buying another team that was already in League of Legends.

And that’s a cost to doing business. But I think the more interesting thing is, are those franchise fees going up? Where where does the value go to and wh I think you said 150 billion. Two billion. Few billion. Here. There. That money. Is that coming from game sales or is that the the skins? I don’t play games. Clinton said I’m just new to the skins.

I just, you know, so virtual items and skins selling of skins is something that’s been around for a while back. Even when I was at Square Enix and COO over there, you know, we had a game called Final Fantasy Eleven and people sold skins or they sold virtual characters or virtual items on third party sites within those games to get up a virtual sword that was worth, you know, ten dollars over one hundred dollars. Or the character could be worth a few thousand dollars.

And she built it up. And so that’s a component of the business that’s not actually really tracked that much within that 150. And I said two hundred billion dollars. There’s a whole gray market area that isn’t, I think, captured.

And what what that that hundred fifty billion dollar market really is his hardware sales, Microsoft X boxes and consoles. It’s it’s mobile app sales. So, you know, on the App Store with Apple, we all have phones and we all have app stores, either Google Play or Apple. The majority of the revenue on those app stores are games and they’re virtual items in those games or they are games themselves or their subscriptions within those games. And I think Apple and Google and I think Amazon are are really realizing that.

And it’s a strategic component of their growth as well. It’s it’s some of their biggest growing areas within their businesses.

Are you following. I have not really been following the BaseCamp, just blew up on, you know, on fighting Apple about their 30 percent fever in app purchases and. Do you think that gaming will go? You know, how do you think the gaming ecosystem will will evolve?

It’s a great question. I mean, for a while, in some ways, Apple really had a monopoly on mobile games. And then Google Play has come along. And, you know, Google Play also also is is pay to play in some ways where if you have something on their platform, you’re paying 30 percent. And I think that, you know, maybe that 30 percent is something that’s a holdover from traditional publishers, traditional developers. And it’s something that Steve Jobs thought up in his had quite a while ago.

And I think that’s changing. I would suspect that that comes down as more competitors come in as platforms within the ecosystem and you see Discord or you see Amazon having its own platform.

It’ll be interesting to see.

And I want to talk about maybe one other startup that I think is really interesting called Play VS, which is a platform founded by DeLay and Parnell, who’s one of our CEOs who we backed early in the first round of financing expense, raised about ninety six million dollars based here in Santa Monica. Domain’s the super dynamic black entrepreneur and sole founder from inner city Detroit.

He really has a mission. Wanted to elevate eSports as well. He played sports and he sports all throughout high school and college. And he said, why isn’t there a high school sports league like the is for football? Why isn’t there you know, you’re able to play for eSports State Championship. And it meant so much to him that he said, I want to do this and I want to create this myself. And, you know, we’re lucky to get in the first round of financing.

And it’s you can play now for state championship alongside and get that glory for your school and for yourself, and then put your self or set yourself up for scholarships for college, which is also what Play versus is getting into now.

Yeah, I saw him speak and he is so powerful. Yeah, I think I saw some statistic.

There’s like two and a half billion people in the world are playing mobile games is something mind blowing to me. So it’s it’s certainly an interesting area. OK. So you and I, we both just briefly talking about Brian Garrett’s episode on L.A. Venture, and he talks about how he shared the Enneagrams for all of you, including one of you memory. He called you an investigator. Yeah. And he said that that means that you have all these deep thoughts, but you don’t always share them with him or something like that.

I think I think Brian was also the challenger, which isn’t surprising if you know Brian. He is very competitive.

And the investigator Enneagram is it it it’s it’s one where it shares the same personality types and probably saved too much with Einstein.

That’s good. That’s good. That’s right.

Right. I forgot what Brian shares this thing with, but it’s it’s someone who thinks deeply and looks at looks at trends, reads a lot, internalizes a lot and thinks about, you know, the future or thinks about the past or thinks about what could be.

But is also another one who shares that space. That’s great. Like it makes a Budda Einstein. Yeah. So I don’t think it was that bad. And according to our coaches who helped us out with this evolution, they also said the prototypical D.C. is actually an investigator. So what one who would fit that Enneagram type is also Peter to respond. Great, great.

Keep going.

But you also have a tendency to internalize too much and not to communicate with your co-workers or with your colleagues. And in your very best, you could be an Einstein or you could be a food at your very worst. You could be a raving psychopath who is very paranoid and doesn’t want to share any of those things. So, you know, you have positives and you have negatives. And I think the key is to understand your own personality, to understand your communication style, your investigative style, your investing style, and then figure out what your teammates are and then be able to work together and be able to work together as a team to get the best results you want.

And I’m grateful that. We’re all very different at Crosscut. Brian Garrett is really the heart and soul of Crosscut, super empathetic, you know, went through some childhood trauma and is very vocal about that and understands, you know, it really pushes us to communicate better as a team. You know, Rick Smith is he’s an achiever type and also, I think is really considered in some ways the godfather of L.A. VC. I mean, he was investing in L.A., ABC as one of the first investors and back some of the original voices in L.A. and Silicon Valley as well.

And Brett Brewer is in many ways an iconic entrepreneur and founder. Within L.A. and in, you know, founded Intermix MySpace and sold it to Fox for 750 million dollars. And and in probably one of the most enthusiastic spokespeople for Crosscut and very gregarious and, you know, is always out there in the community talking. And he should be on your podcast. He does a great job of telling the Crosscut story. 

Well, you know, I was going to ask you who your favorite is.

You know, it it varies. It honestly varies week to week and day by day.but Rick made time to meet with me and was the first person who brought me in and kind of mentored me and said, hey, Clinton, if you want to get into VC and you’re interested in going from Square Enix to D.C., you know, we need a games person who understands interactive and mobile and streaming.

Once you just come to our partners meetings and just start looking at pitches and bring some deal flow and we’ll send you some deal flow and we’ll see what happens. And that’s always been super, I think, impactful to me. And, you know, models for me, the kind of behavior that I want as well in all VCs, which is the open to it, you know, be welcoming, you know, think about, you know, giving those people a chance who, you know, are knocking on the door and let them up.

And in many ways, I have to say that, you know, Brian and Brett are like brothers and Rick is kind of like that father figure of Crosscut in some ways. He doesn’t want to be seen as like that older guy, at Crosscut.

But in some ways, he is. And he helps to hold it together. So it’s it’s hard to say where that is. By the way, we’re actively recruiting for a sister figure as well.

I would love to bring on a great female partner.

I mean, the women, we have a little secret network. So you kind of need you need some more women in your partnership for sure. So you tap into our secret networks.

But let’s talk about we’re still, you know, really, I think all of L.A., all of the world right now, it’s talking about Black Lives Matter.

You know, do you have any thoughts on how else L.A. and L.A. venture can build a more equitable ecosystem here the three guys who founded Crosscut Brian, Brett and Rick thought about as well as, hey, we are three white guys and, you know, let’s bring some diversity, this partnership. Let’s bring some some different thought leadership to this partnership. And I was grateful. It was it was me. Yeah.

I mean, and also we’re only audio, but you are not white. Right. I think you’re right. I am Chinese American. And my kids are growing up speaking Chinese. Thanks to my wife, I don’t really speak Chinese that much, but I spend a lot of time in Asia as well. And I, I also really, I think, have thought hard about who to invest in. You know, we see 4000 deals a year and opportunities to invest in amazing entrepreneurs here.

And I’ve maybe led 12 investments or so over the last six years or so. And I just went through the stats earlier this morning. And 10 of those twelve teams have had people of color or black founders or members. And of those 10, you know, three have had African-American black founders. And I can do better than that. I know I could do better than that. And I want to do better than that. I mean, but those have been great teams and they’ve, I think, been financially successful and good investments for Crosscut.

And it was just the lands that I was looking at was we these are the best teams that we can find. I feel comfortable with these teams. I want to invest into these people because I believe in them. And it’s going to create a great outcome.

I also think I mean, I wonder if games is a field that has more diversity. I tried to hire women into my used car startup and it was pretty tough, actually.

But I think some of these investors and founders, I also think industry, some industries letting them selves to more diversity. In many ways, I think games and eSports are an ultimate meritocracy. And I think. You can have an online persona or you can have eSports persona that you developed yourself and you can choose, you know, in many ways to show as much or as little as you want of yourself. I mean, there are people who play online who are, you know, might self identify as a male, but play as a female with a female avatar or on on twitch.

They might cross dress as as a male or a female. And in many ways, I think the online community, while it does have its bullying, it does have its kind of white male, you know, perhaps racist, small minority.

The color of their skin doesn’t matter of language. It matters. You know how well they play matters how well they play with others. It matters the persona that they have. And I think that’s pretty inspiring. I think that’s what we want.

Absolutely. I hadn’t really thought a lot about it.

I really hadn’t thought about how race changes online, especially in games.

I didn’t mean to totally pigeon hole you, though, only talking about games and ease for it’s when I started this question about any grammes.

I’ll tell you what I was really going to ask you was if you’re the thinker and spent a lifetime reading and generating theses, I was going to ask if there’s other areas that you’re really diving into. Have you been looking at VR? Have you been looking at the future of advertising? You know, what’s what’s on your mind lately? What have you been reading?

I do think a lot about the future. And I read a decent amount of sci fi. I’ve read some sites I had recently that I think is really interesting. And I’m just rereading Snow Crash by Neal Stephenson, which is an epic sci fi kind of canik canonical novel about a future dystopian world that has a metaverse in it. And I’ve been thinking, what is the future? What is the metaverse look like? You know, what do virtual beings look like in that metaverse?

You know, what are the startups that are going to be, you know, the core technology, the powers that metaverse? I think that’s interesting. And in many ways, games is a part of that. EA Sports is a part of that. Your virtual persona, your virtual character and avatar. So part of that. So that’s something that’s a thesis that that I’ve been looking at and diving into. Personally, I love to run and I love health and I love yoga.

And so I’ve been looking at also, you know, health tech startups or startups that help people get addicted to exercising in the same way that you can be addicted to games. And so we invested in the first round in a company called FitOn its Fit on app. And it’s the fastest growing mobile fitness app on the App Store. And it’s just surpassed peloton, just surpassed Nike. And the founder is amazing.

It seems like a lot of these different pieces of our regular universe are colliding online. I think that’s right. And I think. You know that. Who knows what the future is going to look like 20 to 40 years from now? I mean, things have changed so massively in the last 20 years. I feel like in another 40 years, you know, we we could be living in a world where, you know, we do work and live and, you know, go to school all online, all through some kind of virtual interface.

And we have these virtual personas. We have a true metaverse. But, you know, with different platforms. We have one for education. We have one for entertainment. We have one for social. And we’re starting to see that now. We’re starting to see that in what we’re doing right now through Zoom or through Google Hangouts or in an Epic’s case to a fortnight. And those are all in their own ways. Little better verses of this is how people interact with each other through this business environment, how people play and see concerts through their play environment.

But will that all join together? Will that be stitched together? You know, I’m interested in that startup that stitches all those together and makes it seamless in some way, and that allows you to have a persona in all of those. That’s super interesting to me. I don’t know when that world is going to exist, but in some ways I think to myself, well, maybe it’s time to make that startup again or to do that stuff, to make that future that I want to see.

I pulled a quote from from the Web site that you read and write it down on the Crosscut Web site. It said, if you don’t prioritize your life, then someone else will. Clinton.

So if you’re gonna build this startup, I’m all for it. We’ll fund you. We’ll give you some money. Clinton, thank you.

I appreciate that. I think Crosscut might have first dibs, but we would love to co-invest with you on that Minnie. Well, thanks so much for coming on the show.

It’s been great to chat with you today. Thank you.

Eric Manlunas — Wavemaker Partners

Eric Manlunas joins us to explain all the different things that Wavemaker is doing–starting with $250-500k seed checks, anchoring other funds like Wavemaker 360 and Thin Line and even building companies at Wavemaker Labs with Buck Jordan.

 

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Eric Manlunas is the founder and managing partner of Wavemaker Partners. Wavemaker is an early stage venture fund that’s dual headquartered in Los Angeles and Singapore. Eric has invested in over 300, 350 early stage companies so truly one of the pioneers of L.A. entrepreneurship. Before Wavemaker Eric was investing out of Frontera and was twice a founder himself. Eric, thank you so much for coming on the L.A. Venture podcast.

Thanks for having me. Great. Well, it’s a treat. I think you’ve got such a unique structure of all the things you’re doing at Wavemaker. So I’m hoping I get to have one interview where I ask you about like four or five different things.

Sure, sure. Happy to talk about. Yeah, we’re a little different that way, but happy to talk about the entire the entire Wavemaker story and how we’ve evolved to where we are today.

Yeah. Great. I mean, I think it’s a good place to start, which is just there are different components. You’re seeing startups, you’re seeding funds, you’re running a studio while you tell me about a high level, all the different activities.

Sure. So as you mentioned in your intro, we’re a bit multifaceted. We’re not only dual headquartered in Singapore, but we’re doing a bunch of different things in terms of the early stage ecosystem. So our main focus has been early stage for the last 17 and a half years. But we’re a bit we’re a bit horizontally integrated in that space. What that really means is we invest, we build. And most recently, we started advising and working with family offices and small corporates.

We both invest in the US and in Southeast Asia. We have dedicated funds. And on each side of the market, on the on the venture building start side, we have a company called we have a division called Wavemaker Labs, which is essentially of interest video that primarily focuses on robotics and autonomous concepts.

So we’re building about four companies right now along the lines of autonomous lawnmower, a robotic pizza maker, a a commercial kitchen helper, that kind of stuff. And then we have we also have a small constellation of specific sector venture funds that we are joint venture partners with. And these are in healthcare. I believe you had Jay Goss as a guest at some point called Wavemaker 360. And we also have something in the sustainable energy side called Thin Line, powered by Wavemaker.

We hope to expand that constellation to about four or five, possibly six sector funds. And I can explain a little bit more why we like doing those things. So we’re not a fund of funds per se, but we have a different way of joint venturing with these guys and how we help them help them stand up that practice. And last but not the least is the most recent practice that we had, which is we’re just internally calling the venture strategies a practice for now.

And what that is, is we’re we’re working with a bunch of family offices who are interested in standing up their own venture practices within their family offices and within their organizations and helping them stand that up. We co-manage it with them and which means that we get performance fees from them. And at the same time, advise them on strategic nature of early stage investments. So for now, we’re horizontal, horizontally integrated at some point. There’s some aspirations to vertically integrate that.

But happy to discuss those as well. Got it. Well, we’ll have to come back to the robotic lawnmower assembly. But OK, so within all those pieces, I could just as I send the questions about each one of those, then maybe we start with the early stage venture fund that’s here in L.A. that you are running.

Yeah. So in the upside of our early stage practice, we’re investing out of our fourth fourth US fund. Our model is we’ll invest anywhere from a quarter million dollars up to two and a half million dollars per company throughout multiple funding cycles.

But we typically calibrate that with an initial bite size of anywhere from 250 to half a million dollars, depending on the stage, the size and the pricing at around our average initial bite size have been hovering in the four hundred thousand dollar range and we’d like to buy anywhere from five to eight percent of a company. At the outset. And we will protect that position for as long as a thesis is pointing in the right direction. And as I mentioned, we’ll invest up to two and a half million dollars or a percentage of that existing fund.

We don’t want to invest more than three percent, four percent in any single name. I know you’ll also do SPV, right?

Yes. So we’ve we’ve utilized the SPV as more of a strategic tool for us. We would invest in SBB. If No. One, we’ve outstripped our own funding capability or we go off thesis and we like something that’s not necessarily early stage. We’ve done that many times as well. But so I’d say half. I’d say about a third of the SPV that we’ve done the last eight, nine years have been to continue to support existing companies within the fund.

And those are for the most part, those will be the same piece within the fund. And they’re just going to go through the SPV. All that means is we’ve we’ve outstripped our own funding capabilities or we’ve bumped into our limits, internal limits within the fund. And then the last two thirds of that have been have been off theses stuff such as relativity space, which is completely not early stage. But we’d like it a lot. So we would get involved in something like that to kind of give your audience context, the SPV, the size of the SPV is a ranged anywhere from as little as 750000, as much as nine million dollars across multiple companies.

And just to help explain how how SPV is usually work, if you’re in the seat of sort of a venture capital fund. And will you raise a new SPV for a particular investment or do you have some that sort of stay open, say, if you’ve got some LPs who who want to do any growth round that’s coming out of your fund or something?

So the answer is yes or no, which which is a very cliche answer, but it is the truth. So we do have what we consider a master SPV.

All that means it’s it’s a series L.L.C. that we’ve established a while back and we would just fire off one new series of stock for each different name. So we don’t we we don’t commingle the names, but they remain and they remain and recited one master vehicle. So whenever there’s an opportunity that comes up that requires us or we decide to do an SPV on, then we will light up a new series and then shop that across our LP base. OK.

No, I ask because I think that you have uniquely done a lot of interesting things about deploying capital in different sorts of vehicles, which I think it’s interesting, mostly necessity, because we started off very, very small and we’ve grown over time.

We’ve raised over 400 million across multiple funds. But across across those 17 and a half years, we’ve had to figure out AUM hacks here and there to be able to really get the luxury and flexibility to be able to continue to invest in the companies that we really like. 

But a lot of people wouldn’t be. Well, I guess a lot of people raise opportunity and where I was going. And this is a similar twist on that and that same concept.

It is. It is. We do have aspirations of raising growth from a growth fund and opportunity fund and perhaps even all kinds of different funds within the early stage aspect of it. That’s a bit of a distinction for Wavemaker is the fact that because we’ve we we we practice in both sides of the world.

We’ve had we’ve been around a little longer than most. We’ve been able to accumulate and develop a lot of LP relationships. We have over two hundred twenty five LP relationships across our universe of limited partners. And a lot of those guys are more comfortable writing bigger checks than smaller checks.

Interesting. And now you said this venture strategies sort of bleeding into a different part of your practice here. Is this venture strategies work where you’re helping family offices invest directly?

Is that what you’re doing? Yes. So what we’ve learned the last several years is a lot of the family offices, if they can if they can help it, they don’t really want to become LPs. They’d like to make direct investments themselves. Because there’s just the allure, the glamour.

Or whatever, whatever the reason is. So what we found is rather than not have the opportunity to work with these guys, why not try to figure out if we can be helpful to them? So that’s how it all came about. So it becomes AUM at some point because you have performance fees and you have some service fees along the way. But it’s also a great way for us to expand our our universe of potential investors. At the same time, we’re able to help them because we’re able to show them unique access that ordinarily they wouldn’t necessarily have.

Is that the main thing that they are wanting? Do you teach them things when, you know, you called venture strategies a teaching things? Or is it really a lot about the deal flow?

It’s there’s some there’s some there’s some teachings in there, such as, you know, talking about everybody has different portfolio construction philosophies. We we we preach our own whether they take it or not. It’s up to them. But we do believe in optionality given given where we invest. We’re not big believers in high concentration models. And that’s at this stage. and has has a lot changed in the past few months with kov it in terms of the family offices in particular and what they’re looking to invest or are they looking to slow down their deployment of capital?

Things have slowed down quite a bit. People have people have really tried to protect their their liquid resources in the hopes that they can get a better definition of how this thing will pan out. It’s still very uncertain. Obviously. And how do you have all this great network at family offices? I mean, some of it is you’ve been doing it a long time. Do you have.

Is it sort of that it’s that it builds on itself like family offices introduce you to their friends. Yes.

So, again, one of the other distinctions that we have is most of our capital comes from Southeast Asia. A large chunk of it, at least, I’d say on a percentage basis in terms in terms of nominal terms, probably about 75 percent of them come from Southeast Asia. So it’s a great advantage for me not to be able to compete or not having to compete with guys like yourselves in in in the same ecosystem. Right.

You do tend to meet folks that are interested in making direct investments and are not necessarily interested in becoming LPs. And you do tend to develop those types of relationship. So, you know, it’s just it’s just the value of being around a long time, I guess.

Okay. Now, again, thank you for sharing. And so maybe switching gears entirely and going from Southeast Asian family offices to can we talk about robotic lawnmowers and what you’re doing?

And we don’t have to go too deep on the lawnmowers.

But just tell me more about the venture studio. I believe it’s Buck Jordan who I’ve heard his name a lot. I don’t think I know him. Tell me more about what you guys are building there.

Yeah, Buck definitely runs that Thain’s that a great job doing it. 

So the whole premise there is to identify a pain point. Typically, you know, preferably a big one, as most investors like to get involved in and then try to validate that pain point with an actual industry practitioner, i.e. corporate, corporate or a an industry player that is experiencing that pain point in that particular example with with the autonomous lawnmower. We thought that commercial landscaping had a big gap wherein there is a shortage of labor. I mean, these are very mundane things that most people don’t really want to do unless they have to.

So there’s a shortage of labor and a good chunk of their PnL really runs in that labor. And so so those services are not that high margin. I’m talking about servicing golf courses, servicing college campuses and commercial landscape. The biggest high the highest margin products are from the specialized services, such as such as cutting trees, you know, designing the gardens and all that, but not on the mundane stuff. So the whole premise there is if this if this is really a true pain point, can we build an autonomous vehicle or autonomous product that could serve it?

Is this automatically without any labor? And will this appeal to the corporate or to the commercial lines, landscapers that are doing this? So we approached two commercial landscapers.

What we need is validation from you that not only is the problem real, but you would actually be a potential customer if we can deliver the product. So that’s what we mean by getting corporate validations. And in this particular case, it’s a company called Graze. It has preorders to the tune of about 20 million dollars from these two commercial landscaping companies.

And then, of course, the first one that Buck did was Miso robotic, which is a commercial kitchen helper that’s taking a life of its own. And it’s had its own 30 boys raise over 50 million bucks.

So we want to be able to replicate those types of successes. And and it’s fun. It’s a it’s a I really get engaged with it. And one of the things that we utilize a lot is crowd funding. And that is to that is to enhance consumer awareness. And it’s become a really, really viable source of early stage funding for us. Not to mention it gets that early marketing buzz that helps you market the product when it’s all said and done once you’ve delivered it.

And so tell me more about crowd funding I’m interested in. I don’t know it very well. There’s different regulations and crowdfunding. The first the first layer where the masses are allowed to invest.

Limits your ability to raise it up to a million dollars. And you have 90 days to do that. And for the most part, most of our companies have done that well. And so aside from the brand awareness of it, it’s a bonafide source of capital. And I’m a big fan. And anything that democratizes capital formation, I find it hard to believe that, you know, the government and all these regulators will allow people to gamble their life away and prohibit them from investing in something that actually has socially utility.

So we we’re big fans of it. We realize that not everybody is a big fan of it. But I think it’s gotten better two guys that we’ve worked with quite a bit repetitively, and it’s worked out well for us.

There’s two people you’ve worked with as an. Are they two platforms you’ve worked with? Are the agencies OK? Platforms you’ve got.

So we’ve worked with Start Engine locally here and we work we’ve also worked with Seed Invest. OK. You’re gonna open to working with other platforms as well, because a lot of these guys are really getting their processes much better than I am.

And do you usually work with, like an agency or someone who’s an expert on helping manage the campaigns on these crowdfunding platforms? Now we manage it internally.

So we. Once you get to know us, we’re a little bit over indexed with people. There’s 40 of us across all our different practices. So Wavemaker labs itself has about 13 people, plus another four or five interns. So we do have we do have a fair amount of people that we can manage all those things internally.

Wow. I didn’t know we’d make it. Labs had 13 people because I was gonna be another question, which is, does do you recruit outside CEOs or is that part of those 13 people? You’ve got sort of people who become who are who are running these projects with their CEO and title or otherwise?

No, we do recruit outside CEO. So when I when I when I when I mentioned our personnel count, that number does not include all the CEOs that lead these companies.

So if I am a I don’t know, there’s there’s probably not a scenario in which I have a great idea and I come to venture studio. I would come to your venture fund.

We’re not. We’re not an incubator. We don’t take outside ideas. And a lot of the companies that we’ve built so far are internal ideas that we validated with corporate.

Do you think there’s something that you’ve learned? Hopefully you’ve learned something, but you think there’s something you’ve learned about how to make a venture studio work? Is it kind of seems like the dream.

Like I want to work on five different projects that involve robotic lawnmowers, etc., you know, but I’ve I think that making the structure work is is sort of a challenge.

Yeah, well, you know, I would never I would never claim that we figured it out. But for the most part, I think a venture studio is really it really should be geared and should be designed to the to the founders personalities, in my opinion.

You know, their Science, which we’re also an investor in, I think they’ve done a great job trying to figure that out, mostly consumer facing stuff. 

So I’m not sure we’ve figured it out, but we don’t have a lot of shared services. We do, actually. We do and we don’t. We do have the shared services in terms of the finance team that, you know, we we we handled the financing. We we we seed every single one of them. But we’ve kept it small.

We we stabilized the capital for. Aspect of it, we’re in, we race permanent capital and we’ll see. Let’s have a conversation seven years from now. We’re actually successful at it.

So tell me. OK. So you’re an investor in Science, but then you know, I am familiar with Jay and his model reasonably well and then thin line capital.

Why is that? So tell me more about what you’re doing with these affiliate funds, if you will.

Sure. Their affiliate funds loosely called affiliate funds only because we’re their largest Alby’s. And these are both. Jay was an existing relationship when Jay was CEO of our Rx manage. I backed them and we developed a nice rapport. We were fellow parents in school. So there is there is a lot of affinity there that we develop a good friendship. And when he told me that he wanted to cross over to the venture side of things, he was asking for my advice with certain things.

And one thing led to another. And this came about. There is there is some value in what we’re doing because first time funds are hard. But even if you’re a good entrepreneur, first time funds are really hard because, number one, it’s rare that you’ll be able to go to an institution to back you unless you have a longstanding relationship with them. So you kind of have to rely on us and a network of family offices and high net worth individuals to get that done.

So we’re, Wavemaker’s a generalist fund for the most part. Leave me health care in general is something that I don’t believe you can just hack your way into. You have to have a lot of relevant domain knowledge and experience to be able to be good at that.

We’re not doing it because we want to do it ourselves down the road. We really believe there’s a value to having a constellation of affiliate funds or joint venture funds across across our network.

Sustainable energy was also similar to our interest in health care, and it’s also something that we don’t think we can hack our way into. So we needed somebody with deep domain knowledge and experience to do that. That’s how the whole arem thing came about.

The way I would say the way I would put that is it’s all about the people, right? I mean, you know, Aaron, right there is a nice mix of nice mix of, you know, nerdy ness and real world ness, if you will.

Yeah. So it’s a it’s a. I figured you’d be a good investor over a period of time. So there are certain certainly sectors that we will want to explore further. Food tech would be one of them. FinTech obviously is know it powers the entire world. So that’s something I definitely would like to learn about, although there’s some funds locally here that do focus on that.

Cannabis. Probably some really into. But we would anchor that. And as I mentioned, we would anchor them on people if if it if it’s not if there’s no fit on the people aspect of it, it’s it’s unlikely that we’ll be able to get comfortable. 

I just feel like every aspiring and thesea operator today, you know, aspiring VC, is going to reach out to you and want your help. What do you as an anchor in their in their new fund into when you’re the anchor? I assume that’s, you know. Can you tell me more about how that relationship works?

Sure. So we define anchor as at least 20 percent of the fund. That’s that’s our definition of an anchor. Anything less than that? You know, they they may probably not consider it as an anchor. We do have ownership on the GP level and we sit on the Investor Investor Committee side of things. We don’t do the Day-To-Day heavy lifting that we leave that up to the professionals to do. 

Yeah. I think it sounds like a great thing. And both both Thin Line Wavemaker health are both in Pasadena. I’m a particular fan of that. Yeah.

By by coincidence, I don’t know how that happens, but at least at least that we’ve serve Pasadena.

Well, Eric, you’re welcome to start a couple more. That’s a great place.

Tell me more about your personal investing and maybe how your coaching founders now what you’re looking for. You know, I’ve heard you talk about your looking for capital efficient businesses. Tell me, you know what? What does that mean to you? What are you looking for when you’re evaluating opportunities? Sure.

So the fundamental premise we believe in as a group is we believe that businesses of all shapes and sizes need to adopt the best technologies for them to remain competitive or to be competitive. Period. We believe those anchors ought to be in the automation side, the data side and the intelligence side. I think if you have those three elements that you’ll have a nice operating system, if you will, within your business for you to be able to become competitive.

So in other words, we’re constantly looking for those type of opportunities anchored by automation technologies that eventually lead data in intelligence gathering.

That’s really the high level of what we’re looking at. However, because we live in L.A., we do we do tend to look at a lot of digital media stuff as well. I also also the consumer facing side. But two thirds to three quarters of our investments, the last two to three years have been have been anchored by enterprise facing businesses.

Are you exclusively focused? I should know this year.

No. No, we’re not. We are located in L.A.. I’ve lived in L.A. since 1991. I’d say about two thirds, half to two thirds of our investments are within Southern California, broadly defined as Santa Barbara to San Diego. 

Do you find that you’re able to have your state fresh as a v.c? And I mean, VC is incredibly intellectually stimulating, but you’re not as fresh on the operating side?

Or do you feel like you’re able to stay fresh? A great question, I think. I have never thought of it from that perspective, but I guess when subliminal way for us to have stayed fresh was the fact that we’ve experiment in different models within the early stage side.

We consider ourselves a startup as ourselves.

We have 40 people, including the partners that we have to deal with on a regular basis.

I am a big fan of staying close. We are entrepreneurs thing. You know, staying friends with them. You kind of have to live vicariously through them to me to remain fresh. It’s, I think, the best way to remain fresh. Otherwise, operating and operating businesses and deploying capital or capital allocators are two different businesses. Right. So you kind of just have to pick your poison and make sure that you can relate to both sides.

But having having an operating background has helped me relate to the to the pains and sufferings that all our founders are going through.

I really like that. I didn’t mean it as it sounded more accusatory than I meant it. I really did.

Staying close to your founders. And I realized that I’ve been trying for a long time that I would love to hear some of that story of you building your business. I think we kind of missed the you your story as a founder.

Maybe your first business. Sure.

Sure. I was a bit of a misfit. And the reason I the reason I don’t were the reason I didn’t start with a startup was because I had bills to pay. And I thought that I could learn from big corporate. So I worked for I worked for big corporate for a little bit close to five years. I was with Arthur Andersen’s retail consulting division here in downtown L.A. for a little bit. But I’ve always known that I wanted to do my own thing.

So I left at nineteen ninety five. And I think I think I just got lucky with timing. Nineteen ninety five was around the same around the time when the first first commercialization of the web was happening.

 So I figured out what I wanted to do or what I could do.

I built an e-commerce startup special focusing on specialty foods, and I’m talking about specialty movies. I’m talking about are sort of northern European cuisines that are rare, that are rare here in the US. So that’s the way I got started. Got lucky, had plenty of false starts, but figured out the supply chain eventually and built it up to a nice, decent business where he got sold to a strategic. In the summer of nineteen ninety nine. And I wanted to continue the momentum of that.

I’ve always been entrepreneurial. I’ve always been interested in business in general ever since I was growing up. So I wanted to continue the momentum. So I got involved with another co-founder to start an ISP, the simple ISP. We. Our product was a simple narrowband connectivity. So think of your modems back then, those funky sounds. So that was a little bit more mercenary in our approach. We wanted to identify and underserved market and build it up to certain subscriber base with the thought that if we can do that, the national providers at that time, EarthLink, United Online, etc.

Would be interested. So we successfully sold it at the end of 2002.

Even when I first started my first venture fund, I never really considered myself as a traditional venture capitalist. I thought that this was this was going to be a nice pit stop. I anchored that first fund with my own personal capital.

So and then all of. All my office then or were friends. So I had a lot of flexibility to be able to go back and forth. And the reason for that big gap was because I thought there was gonna be a third idea.

And little did I know that there was not going to be a third eye.

But I guess this was the third startup that I was I was reserving myself for. This took me a while to realize it. And what do you think of.

Now, you can’t deny that you are 100 percent of v.c now. Well, you’ve got a lot of things going.

What do you think of the v.C world? You know, I like it a lot. I think there is an actual in the risk of romanticizing it. I think there is an actual social utility to it. That’s much better than our, you know, our cohorts from the P, e and the hedge fund world. I know some people. They are they’re much, much bigger, faster. Culture makes a lot creates a lot more a lot more wealth much faster.

But I don’t. I just don’t see that social utility in that aspect of it. I like about it because as you say, as you mentioned earlier, it’s intellectually stimulating. And so it’s perfect for curious folks like myself. I like the social utility of it. I’m one of my one of my gifts is I’ve been I’ve I’ve been gifted to be very comfortable being uncomfortable. And I think it’s a perfect it’s a perfect venue for early stage venture is a perfect venue for that.

What do you mean about being uncomfortable?

I’m really interested. I think I’m uncomfortable being uncomfortable and I want to learn how to be more comfortable.

I may have said that incorrectly. I meant was I’m comfortable being uncomfortable. It’s what I do.

But how did you get to be comfortable being uncomfortable or in what circumstances? Well, you know what?

I probably attribute this to my my opening experience for seven years. There’s a lot of lot of moments where, you know, you were two weeks away from running out of cash. You were, you know, a month away from going out of business, that type of thing. And you kind of just have to train yourself to to react to those things. Well, great. I it was fun to get to know you a little bit better.

And get it thinking. Yeah. And great to have you on the show and learn a lot more about what what you’re building. Wavemaker.

Great. Thanks for having me. It’s been a lot of fun. Thanks, Eric.

Tom McInerney — TGM Ventures

Tom McInerney is a full-time angel investor with 120 angel investments.  He shares how he gets into rounds like Clubhouse, Tala, Segment, his view of investing during Covid, and why he spends time hanging out in Clubhouse.

 

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Tom McInerney is one of the most prolific angels in L.A. with something like a hundred and twenty angel investments. Tom is an investor in Notion, Segment, Bird, Tala, and recently in a very hot Clubhouse round.  Before doing angel investing full time, Tom was an engineer at Apple and then at Sony. Tom, David, thank you both so much for joining us. Thank you. It’s great to be here.

So, Tom, did I.

Was that a fair characterization of your background and of your angel investing? And do you want to share a little bit more? Sure. So I moved to L.A. about 12 years ago. 

I’d come from the Bay Area. And I invest both in the Bay Area and in Los Angeles and occasionally in other markets, but really try to concentrate on those two. But it’s been kind of amazing to see the evolution of of LA tech. Very cool. And there was a thread on I guess there’s a Twitter thread that said like name. Who’s a really who’s the best angel investor in L.A.?

And everyone said, Tom McInerney is so glad to have you on here.

Tell us more about the the the investing that you’re doing. How are you usually coming in into seed rounds?

Is it pre-seed, will you do later stage?

It’s often the first money, maybe not the first check, though, sometimes the first check. But, you know, in the first rounds that that come together for subsequent rounds, they occasionally will invest in the A’s and B’s, but generally try to come in early and and develop a relationship with the founders in the beginning.

And just to be clear, this is your money. This isn’t a fund of some sort. Correct? Yep, my money.

I tried to, you know, take risks and make early bets. It’s typically 50 or 100 thousand. Sometimes twenty five. And. Yes. How did you get started on this path?

I’ve been an entrepreneur and it was pretty exhausting. And I wanted to be engaged and involved. And so I just started doing it. I just started meeting people and and taking pitches.

I think, David, I shared with you and Minnie as well. The second angel deal I saw was airBnB. And I thought, well, I should probably look at a bunch of these before I pull the trigger, which is a big regret for me. But yeah, it’s just you just kind of wade into it. What were your first couple? Let’s see, Segment was relatively early, cause it was I remember it was right when Y Combinator hit.

Was this the early days of Y Combinator? And I remember going to YC and so different now, by the way, you go in there. Last time I went to Y C, I just I didn’t even get in the building. The line was so long, I gave up. There were just I think felt like thousands of people, but obviously pre Koven. But back in the day, Y Y Combinator was six cement metal folding chairs, maybe 30 metal folding chairs, and Paul Graham and his wife, Jessica.

And, you know, I’d say like, OK, everybody settle down, sit down. And then the entrepreneurs would get started.

I happened to catch Segment and they were doing something totally different and they ended up going through two pivots. They were doing something back in the day called Class Metric, where in class students could have their laptops open and if they didn’t understand something during a lecture, they would push a button.

And the professor then would become alerted to the fact that, you know, like 20 out of the 30 people in the class weren’t weren’t understanding what was going on. And he could even have or she could even have a graph of the understanding over time in the lecture and things like that. And it turns out when they gave her laptops in class and spent time on Facebook and had them work, and then they pivoted and tried to make a they pivoted and tried to make an analytics tool.

But in order to make the analytics tool, they created Segment to make it so it was easy to implement the the analytics tool that everyone’s like, we don’t want your tool. We want we want segment. We want the ability to store data and use lots of different tools. This is kind of funny how things evolve.

Yeah. So many great companies, infinite. It’s a long way from doing a couple angel investments and in those early days it yrc to becoming a full time angel investor. And it is your full time job, right?

It is. Yes, it is. And how long you’ve been doing it sort of at that level?

I think about eleven years. I mean, from when I got started and this is one of these things where it really is, there’s an expression that’s the get get rich slow business.

Do you think you’ve gotten better at it? I mean, hopefully you’ve gotten better at it. And can you share some of the things you maybe used to look for, used to do that, you know, you’ve learned from?

That’s a great question, I’ve asked myself that question, I me any better at this than I was standing because it’s it’s full of surprises.

And we’ve talked about this. You know, it’s full of surprises. As soon as you think there’s a rule or a or a, you know, kind of a perspective or something, you get surprised. And for example, with clubhouse, you mentioned that one, I, I very nearly didn’t do that. We covered had just begun. And and then the team there were focused on consumer and social and, you know, looking from the outside, it definitely had a lot of headwinds.

It then a whole lot going for it. And I almost said no, but I was so impressed with Paul Davison. He was the person I interacted with most. And I decide to invest because he is clearly super sharp.

But I think your gut gets a little more fine tuned over time and you’re probably maybe better at coming up with quick nose or or or maybe estimating a market size. 

Can you tell me more about clubhouse? So I’m curious. So, number one, I still don’t have my invitation. And I know David hangs out. Thank you. David hangs out there.

What makes it so special? For the most of our listeners who are not yet on clubhouse, what do you think is a secret there? Yeah, yeah. I think in the end, they have pretty good timing with Koven where people weren’t able to go out and socialize. So it’s a pretty social place. You go into a clubhouse to start the app and you can either join a room or start a room. And then within the room you have the kind of the microphone when you start a room and you can invite people up to speak and then you have an audience and they can raise their hand if they want to, if they have something to add.

But it’s incredibly simple. It’s only audio. And we just talked about that at the beginning in this call. The video adds an extra kind of cognitive load. So it’s audio. So you can be a, you know, in your bathrobe or your underwear. And just having a conversation or in bed or something with someone. And there are people that join from lots of different time zones, for example. And it’s dead simple to use and it allows people to connect.

And I think they also did a nice job with the initial community that they’ve curated. So, you know, it’s it’s there been some kind of knocks on it for being invitation only or whatever. But I think what that’s allowed them to do is control the community so that they just have a good energy to start in. That kind of sets the tempo for the for any kind of social network. I think your initial community kind of sets the feeling and the vibe, and that’s important.

I’ve been I’ve been various very curious about how it’s going to scale from here me too.

That’s the that’s really I mean, it’s the first minute of the first quarter for this business. It’s it’s really the hard work in terms of scaling it and making it work. Well, I’ve heard Paul say that, you know, they’re really super focused on making it so speakers or people that are talking have a secure environment and a good experience so that if they attract good speakers, they feel like the audiences will follow. And I think that’s probably true.

OK, I’m going to work on my invite there. And so so clubhouse was a hot round, as I understand. I wasn’t part of it. But, you know, multiple VCs wanted to lead that.

How did you get involved? Like, does an entrepreneur seek you out to use names, say, oh, this is a company I really want to be a part of? Well, this one, I got lucky I was involved before it got hot, and then incredibly a month later it got hot, which is and it was like a, you know, a 10 X on paper in like might might be one of my best hours ever. But the way I do it. The way I get involved in cool companies is just to have a network of people that are close that I check in with.

And oftentimes, you know, the things come through that. And so I think having a network of good founders and it was another founder that made the introduction originally. It’s kind of an interesting company of our time, too, as you said, like it probably benefited from the fact that we are all locked in our houses right now.

You know, what do you think about the current times we’re in and how that will affect your investing?

I had a thesis going into Covid and now a different pretty significantly different thesis. You know, in the past, you know, months later, the initial thesis was like, oh, my goodness, this is like the Lehman Brothers shock. Or then, you know, the the 2009 financial crisis or or the Great Depression. I was very pessimistic. Singh thought people would be locked in their homes and businesses would be shot. And the federal government has done a good job, I think, with stimulus.

And and then I I sort of modified my thesis when tech stocks start going up and sort of we saw that instead of instead of a withdrawal from markets, there was more of a shifting and the shifting went from airlines and casinos and commercial real estate and industrial companies and probably minerals and other other things into tech companies, things like Docusign and Twilio and DataDog. And so they’re there. In the end, there wasn’t necessarily an outflow in the markets, but rather a shift into tech.

And so my new thesis is this is the this is the comment that killed the dinosaurs. And it is accelerating a lot of the secular trends that were already happening. For example, you know, watching movies at home and streaming and remote work, you know, things like DocuSign, where you just do electronic signatures instead of go in and see a notary and sign sign a bunch of paper. So more and more, my feeling is that this is going to accelerate things that were already happening.

And so it’s it’s made me. Initially, I was very conservative, but but now I’m actually more and more bullish on tech. So it’s it’s probably going to accelerate my angel investing. Yes. I think we’re generally with you, like there’s a lot of. As slow moving industries that are all of a sudden having to be faster moving in. Mm hmm. Exactly. That’s right. And and don’t. And it’s forcing them, you know, they were able to sort of kick the can down the road on digital, take a company like Disney.

They make a lot of money from movie releases. They make a lot of money from theme parks. They make a lot of money from selling toys. But when all that stuff goes away, it makes them really concentrate on Disney plus and digital and digital initiatives. So I think I think, yes, that that this actually forces a lot of companies to accelerate the move to the shift to pure digital. How do you think it affects our lives? So that’s a good perspective from what you might invest in.

But if we’re now doing a lot more digital and we’re we’re not going into the office nine to five, five days a week.

You know, how do we how do our lives change? 

We are inherently social and I think we need to be social. I think one thing I’ve noticed with a lot of friends is this, myself included. There’s kind of a reconnection with nature as well and an appreciation of nature. 

As we talked about a bit of an environmentalist and. But I mean, I think some of the challenges are for people whose jobs were lost or lost in.

This has been very hard on a number of different industries. And I think it can potentially accelerate the gap in income inequality in a number of other issues.

And I’d like to see Tech addressed that if we can. And yeah, I was overall initially pretty impressed with how people came together.

And then in the end, there was sort of there were sort of, you know, the riots and. And then, you know, there was also I think I think Kovik kind of pressurized society.

I mean, let’s let’s talk some about Black Lives Matter, because I’d love to know, you know, some about the conversations that you’re having.

I think a lot of these things that were happening and not being recorded, a police brutality and so forth are now being recorded such that, you know, that that’s a good thing. Right. We want we citizens are being abused by officials, then that needs to be stopped. And that needs first we need to know it’s even happening. And so, you know, you take something that would have been a he said she said and then also and you have it on video and it’s clear as day but happened then that does change the game.

So it’s a it’s a democratizing factor. Yes. You said something, you said tech can help, and I think you were talking some more about the situation with kov IT and unemployment. But I’d be curious to dieser on where you see the tech help beyond just the fact we all have have cameras on our cell phones.

Yeah, it’s it’s I like this idea of distributed work. I like this idea. Imagine, you know, in the future, some period in time you wake up and you just kind of morphed into the future and you have you know, you could walk up to a vending machine by a cell phone and you didn’t know anyone but you you know, with that cell phone, you could start doing work, whether it’s classification stuff for artificial intelligence or image classification or, you know, different Mechanical Turk stuff or or gig economy work.

I like the idea of the of the phone empowering, you know, distributed work. And you asked me a question or e-mail about a gig work. And I’m a fan of gig work because I I think ultimately it provides a lot of flexibility. And I’ve spoken to gig workers. So I think there it can make for an a more elastic employment situation where it can maybe democratize opportunity if it’s done well.

Yeah, I mean, I think I saw that you posted something about eighty five, the the California’s push for gay workers to be felt to be classified as full time employees.

How do you I mean, it’s a it’s a tricky one, right? Because I agree with you. Good work can be very empowering. But how do you still protect workers to make sure that they, you know, aren’t working 40, 50 hours a week and still not able to support themselves? Right. And I guess one simple answer is, if they if there was a better job, they’d be choosing that other job. So if your gig working, like it or not, your alternative is unemployment.

Right. The better job would be the one they’d be doing otherwise. And the worst and the worst thing down from that could be unemployment. So I’d say it’s better than unemployment. And my my concern would be that if you if I mean, I’ve Binish Uber shareholder, I ended up I’m no longer an Uber shareholder. But if they’re losing money, so I don’t see that they necessarily can start to afford to pay benefits and things like that. 

There is a devil’s advocate argument that, you know, that if everybody is subject to the same regulation, then then maybe those companies can charge more. And yes, consumers can decide whether they can still afford it and pay more or not.

And I would agree with you on that. I think that consumers could pay more and and perhaps those companies have been too obsessed with gross, for example. So perhaps they modulate their growth. They charge more and they pay workers more fairly. Yeah, I’m open to that as an alternative. 

So I don’t want to get too into the political stuff. I just I was kind of hung up on this, like, future whereby I’m walking like I wake up in the morning and I just like walk over to a vending machine and it like it dispenses my job for the day. 

For sure. Yeah. You can go to the App Store and choose what you want and what you like. And that would be something I’d love to see tech enable.

Maybe choosing sort of other things that you commonly invest in. I know you’ve done a lot in in AI/ML recently.

Yeah. Yeah. There’s actually one that just very similar to what we talked about. It was kind of an example. I use a machine learning classification system that’s an X, a space X team, former space X team that is building a system where people can do image classification. That’s that’s basically training for training for machine learning and classily classification to help build neural nets for A.I.. And you and you get paid to do it. And actually, I like that the founder founder is an example.

He said you you get in line at the grocery store with no money in your wallet and you start working at this. And then by the time you’re at the front of the line, you have enough money to buy a sandwich or something. That’s probably a little bit exaggerated, but I think there’s there’s some neat stuff like that. And I’ve looked at recently a company doing synthetic data, which is generating like data that is used to train neural networks.

That’s synthetic. Which is helpful because for privacy reasons, you sometimes don’t want to be using real data. And so I think there’s a lot of promise. There is still definitely early days, though. You know, it’s interesting to see which industries are really going to adopt. And again, it’s all about having their proprietary data sets that create really. It’s either having that proprietary does it or creating it, as you say.

I was going to ask you sort of back to investing. You know, you talked there are some investors who who, you know, really like I would call us this kind of investor who really look for markets that have tailwinds in them. And yet, you know, you invest in clubhouse, which you said had had big headwinds.

Yeah, I would say that. I almost don’t look for tailfins, I look for the weird stuff or things that are different in strange things that are, I don’t know, things that are out of favor. I was doing a lot of clean tech investing over the last many years. And and there were, you know, at least five years ago, I’d say clean tech was pretty out of favor. Three years ago. And it’s getting more in favor now.

But it’s hard to even get sandhill species to look at clean tech. So I tried to. It is tempting now, for example, just to continue to do SAS companies like Notion or Segment because they just work when they work, they do work really well. But I try to find the next sort of strange thing that that becomes important. I mean, I’ve had friends that were buying Bitcoin when it was it seemed very strange. And so I think you’re for me, I sort of challenge myself to think of of stuff that’s a little more off the beaten path.

Why can’t we all just invest in clean tech? Why? Just because we always care about David’s also often nature right now.

You know, an end to the problem is I care so much about it.

But where do you think the interesting opportunities to invest in clean tech or just in the environment are?

Yeah, I think I think carbon there will be eventually markets for carbon. And so I think that’s going to be one that’s ultimately big and important.

I think a lot about materials. For example, you know, it is hard to live your life without using plastic, especially now, in fact, with Cauvin, it seems to have gone up.

But, you know, the one time these plastics are frustrating to me to think, well, I just took a bottle of water and this this thing’s gonna be around for like two hundred years in a landfill or it’s going to break down into micro plastics and end up in seafood or the, you know, the water with trains and things. So I think the the consumables and the waste stream, there’s a ton of opportunity to do innovation there.

So let’s let’s sort of move into our final step, which is just like more about Tom’s section here. Tom, I’m really interested in this aspect that you are a full time angel investor. I just don’t meet many people who are doing that. When you think about your your days and your time, how do you are there are there activities that you feel like you spend too much of your time on?

And kind of the converse of that is. Are there things you don’t spend enough time on? And how do you really hold yourself accountable? That’s a great question. I, I, I feel like I spend sometimes too much time on the little things in life. During Covin, I followed those kids constantly doing dishes, three meals a day, basically. But I’d like to spend more time just thinking, just really purely thinking about ideas. And and I find when I take walks, it’s very helpful to think.

But I’d love to be having more great conversations like these over the phone. So I think. Yeah. It’s it’s I think that there’s just a certain amount of overhead to keep your life, keep all those plates spinning in your life that you you spend time on.

So. I love a little more thinking and writing time perhaps, and a little less time doing dishes.

Great. And need anything else from you or tell me anything else you think and would be really useful to cover. Now, it’s just been a real pleasure. Thank you. It’s been fun to see the evolution of ballet and and so great. Grateful to have you guys in the eco system. And thanks for having me on the show. Oh, great.

No, I mean, you’re doing so much for the eco system and you’ve been doing it for a long time and it’s great to get the chance to sit down with you.

Adam Lilling — Plus Capital

Adam Lilling probably has the coolest job.  He’s the founder and managing partner at Plus Capital, where he works with celebrities like Ellen and Portia who want to invest in growing companies (post-seed) that align with their values.

 

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Adam Lilling is with me.  He’s the founder and managing partner at Plus Capital, where he works with celebrities who want to invest in growing companies. Adam is one of the original L.A. startup people previously starting Launchpad L.A. with Mark Suster and Peter Lee. He was the founder of Pazanga and Pentagon CDs, which is one of the first Internet sites to sell CDs and tapes online.   Supercool. 

Adam, thank you for joining me.

Thank you for having me. So just to set context here. We are a couple weeks in from George Floyds Killing. And I just wanted to start by saying, how are you doing? Where’s your head at today? 

I was at a protest with my wife and two daughters over the weekend. And, you know, your heart goes out to everybody that has been fighting this fight so long. I mean, it’s it’s we at Plus Capital put out a statement. It’s hard to it’s not hard to know what to say. 

It’s hard to because you’re just not in someone’s shoes, like I feel like I’m somebody with a lot of empathy. I think people that know me know I really care about other people. But in this situation, it’s amazing to see the momentum building across the world. I mean, it’s there’s been flashpoints so many times and just nothing happens. And people say, well, you shouldn’t protest. We shouldn’t do anything. But it makes a difference. So I’m just hoping that change comes.  That’s it. 

But my wife was saying this to me the other day, like, you have to be vocal. And I’m not. I’m more of an action and vocal person. But when I’ve listened to a lot in the last week especially or two weeks, I just think you have to be vocal and you can’t be quiet. And that’s not my nature. But I’m doing a lot more talking and a lot more statements and a lot more standing up.

Yeah, absolutely. I mean, yeah, it’s just opening up every day, opening at Twitter and watching what’s going on on the streets with police and protesters. It’s hard not to feel angry.

You know, last night was the you know, a lot of things have gotten to me and shook me up. But last night I put it I tweeted about it last night I retweeted somebody else, baby names dot com, which I used to name my kid, my both my kids. I just sat there and looked at names and they put on their home page all the names of not all but dozens and dozens of names of black men and women that got killed by police and and just saying that these were somebodies baby, too.

And I still get my hair. And when I saw that, just thinking of that, because it’s just so real, it’s like as a parent, you know, it’s important to think of everybody else as you would like your child like they matter. Yeah.

Yeah. That is tingly.

And here we are talking about venture capital, by the way, which, you know, has terrible statistics for black venture capitalists and black founders, both male and female, in terms of dollars that go against it. And even the things that we’re seeing seem a little tokenized right now. Like, I really believe it’s an ethos. You have to have each firm, even at our firm. The female founders side, I think forty two percent of the founders or co-founders at that are backed by an artist or an athlete.

Plus’s is female. I’m a big believer that there should be balance. And I think you just have to do it. I mean, and then the statistics will change. It’s just hard to keep talking about it. I think you have to you have to have it in your ethos.

Absolutely. But I started by saying a little bit about Plus. But help me characterize what you’re doing when you’re backing these founders and connecting them with celebrities.

Well, you know, it was about 2012. Marc Suster had started Launchpad L.A. in 09 and brought me in as a co-founder of around the mentorship program with him. And then we brought in Sam Teller to run and co-found the accelerator. I was lucky to invest in 40 or 50 companies with him and Mark and Peter Lee and Jim Andelman and the team of investment team that was backing Launchpad companies.

I I was trying to figure out what I was going to do with my next 20 years. And I was mentor chief at a Launchpad. I mentor the startup. So I always used to say, you need a mission and a minimum viable product. And then you’ll figure out the business. And I had been a founder since 1995, and it was always the business. To sir the mission. So I just stopped and I and one day I was waiting.

This is the real story. One day I was waiting at a friend’s movie premiere. I wasn’t a Hollywood guy. I just have to have a couple friends in Hollywood. And an infamous person walked out of the bathroom as I was waiting for my wife. And I said, well, she can do more to effect change in the world in a day than most people can in a lifetime.

So if we could combine the amplification of people who can effect that change and tie it back to the best operators and entrepreneurs.

I just thought that was my mission. I thought I could move the world forward faster by teaming up with the people who could speak where I was not. I wasn’t blogging or posting like the Marks of the world. I just that’s not who I am. I just wanted to say, you have a voice. You have a passion. Let me help you get behind. Know the person who is the better operator than me, too. I was never the best operator.

I never had the biggest voice. But I really felt like those two needed to come together at it.

And so by bringing them together, I don’t really understand the basics of sort of how a celebrity in this case, they’re actually investing money in exchange for equity, but they’re also lending their their brand name or their.

You’re actually asking us capital do. And I just gave it the mission, but not because it actually started as a small fund where we then we had limited partners that were artists and athletes and their business managers and their entertainment attorneys. And we started to just test the thesis of how this worked. The product that we have today really falls under investing your financial capital and or your sweat equity into a great venture backed companies. We also have a second part, which is we advise celebrities on all things startup.

So we advise Ellen DeGeneres on it by Ellen or Portia, her wife, Portia de Rossi, on her company, General Public, which is the art that’s behind here that unlike you can’t see because it’s audio. But from the video, there’s a art on my wall and it’s sold in R.H. would be say, with Zoe Saldana. We have like eight or nine companies where we advise celebrities on them being founder. But 50 plus companies, we usually have the artists or athlete invest in a top quartile, venture backed company post product market fit where they can be more gas on the fire, helping with customer acquisition, business development, press, things that once you’ve got the product now we will have an artist or an athlete invest all the way through to precede or seed.

But typically, like the sweet spot for what we do is we figure out how to construct the involvement of an artist or an athlete in a venture backed company, because there’s a lotta you know, there’s a lot of intricacies to use of name, use of time, use of social platforms, all the things that go along with their money.

And that’s what we specialize.

And so is that a company that’s raising around that financing and the artist, it being investment becomes, you know, on the cap table during a round of financing, or it might be at any point getting involved.

It’s at any point in time. Sometimes it’s in during a round.

Usually, look, there’s a power to having an artist or an athlete on the cap table in the right way. There’s no power if you do it in the wrong way. 

The one thing that I think we do differently than it used to be in the past when I started actually one people, Google Ventures. This is probably 2012. So we did a study and it looks like celebrities have no effect on their success or failure of a business.

And so I dug in a little bit with them. I go, what stage you’re talking about? Like 70 percent of companies are going to have a pivot, you’re never your first products are never gonna be your long term product. You’re going to fight.

You’ve got to wait for product market fit. So it’s hard to say. I love this product.

OK. Now I love it now. So show.

So there’s this moment in time for for for a venture backed company that could be series A, B, C, G.

It depends.

But you’re finding that product market fit. And then all of a sudden, it feels like magic. And you’re like, I need everybody behind me that I can. And so our job is to find who is authentically a believer in what this person is doing, who has the right engagement and audience to bring that message worldwide. And how do you then set it up so that they can help use the infrastructure? They use their voice tied to their existing initiatives, like if it’s just a social pose.

It’s not going to go anywhere. If there’s a marketing spend, then all of a sudden celebrity is a growth hack, as we like to call it. All of a sudden it makes sense or you’re trying to get into that really big retailer or that big partner. You know, having a big name celebrity, say, I’d like to take a meeting with you, CEO of that company. You want to drive an enterprise deal? Let me tell you, we have athletes that can sit in a room and we have artists that can sit in a room and close a seven or eight figure SAS contract.

So like the artist or athlete, we’ll actually take a meeting. We’ll show up and be there. We got it at it. Interesting.

We really focus on at the highest level things that are better for the planet and the beings that are on it. We don’t call ourselves an impact fund, but we just want to know. Here’s the line in the sand. We always want to be on this side and on the on the right side of it.

But it usually translates into five key areas for us. The future of work. The future of education. The conscious consumer. Health and wellness as a general category and sustainability as a general category, those are the five pillars that we know across the board, whether it’s veganism for Ellen and Portia who have or plant based protein with Ellen Portia, because it’s part of their Very Good Ventures that we help them invest in or, you know. Shaun White doing better sleep and better eating nutrition for what he’s doing.

And so these celebrities have already sort of had to go through this process of deciding on the causes that they care about.

I ask that and it sounds obvious, but sometimes like at a company, we go through these value discovery exercises.

And it’s just not obvious.

Well, yes and no, I mean, there are people who have pillars that they walk in the door with. 

But many times we’ll go through an exercise like when we kick off with an artist or an athlete, we’ll spend an hour to three hours just talking about what their hobbies are, what what they do at eleven o’clock at night when no one’s paying them and they would be paying they’re using their own money for it or, you know, what are the brands that they love, whether or not they’re endorsing them or not.

Like in the world we live in, it’s all about authenticity. So it doesn’t matter. Like the world is like we just caught a wave. The world in social media, it’s shifted from you can get, you know, five, 10 million dollars a year from a brand, whether you like it or not. Now, you’ve got to go on social media and talk about it and it’s got to be authentic to you. So, you know, we come along and say, hey, I know you don’t really love that company.

We’ll make you in the long run more if you just throw yourself money wise and sweat into the company love. So it’s a lot of the beginning is just figuring out what are they, why they love, what they love and why they care about, what they care about.

And then us figuring out how to connect the dots back to why companies need scale partners or amplification partners.

And like when you’re talking about scale partners, I don’t know the world of celebrity or influencers very well. What sort of scale are you talking about and how much influence are they expected to bring and how many how much reach are they expected to have?

By the way, it’s not a silver bullet. It’s nowhere near it. It’s part of a larger plan. Right. If you’re going to spend this year, 10, 20, 30 million dollars in customer acquisition, marketing and you’re looking at a CAC of 50 bucks, you can a celebrity or an artist or an athlete help you bring the cash down to 30 bucks or thirty five bucks for half a million people that you’re gonna go reach out to, like maybe a lot of times.

Yes. If you do it correctly. It’s not the organic post. It’s not that, hey, I’m going to show up at this event and shake hands. It’s not the traditional endorsement stuff. 

It’s taking the audience. It’s taking the awareness. It’s taking the trust. It’s taking those building blocks and putting that in to what the company’s plans are in the right way at it.

And I’m interested to ask more about celebrity, but may stick on just like technical stuff here. And so you then as Plus Capital will often then sort of co-invest at the same time.

Yeah. So first, we’re always in this world knows a lot of people that have no plan. Both sides. Right. They’ll work with the brand and they work with an artist. We have a mission that’s about artists first. Right. Or an art athlete first. So the first thing we think about is what’s best for the artists to the athlete. What is the right company? How do how do we get them involved in it? And if it fits a certain criteria?

For us, it’s usually like Series B or later top decile venture firm, you know, where the the artist or athlete is accessing a company that a traditional venture capitalist would never be able to access on their own, because this is a unique situation. We then have a set of capital to invest alongside our artists and athletes. And in the beginning, we just asked, hey, do you mind if we write a check next to you? And they were like, oh, my God, we don’t know.

You liked it so much. Of course. And then we called a company and they were like, well, I thought they were going to write a much bigger check. So we allocated more money. So then we started doing it and we realized, you know, I think we’re pretty good venture capitalists, too, like we helped sell downstream. We we we we put our sweat into it with a much smaller check. And the lead investor, I think dollar for dollar is pretty helpful.

So we’ve gotten into this pattern where when it fits, our mandate will we’ll invest alongside our artists and athletes, but it always starts with them first. We’ll never invest in a company if it’s not made for an artist or an athlete. If someone just invites plus into a deal when I already check it.

So I’m new to L.A. and it’s very striking. The tech world in L.A. has more celebrity involvement. It’s fun. But I haven’t yet sorted out who’s who. So there’s business managers and there’s lawyers who work with these celebrities and and advisers of different forms. Can you tell me that? Do you resemble an investment adviser or who do you interact with? Like, is it always directly with the celebrity? So we have a deal plus that we will not work on a celebrity without having direct relationship with them.

So just answer your question. Typically there is an agent. There is a manager is a business manager. There’s an entertainment attorney is a publicist.

There’s a lot of people in there life.  The main people that fee off them as a back end participation are the four that I first said, art agent, manager, business manager and entertainment attorney. We started with entertainment attorneys and business managers because business managers like the CFO, entertainment attorneys are like the general counsel.

Managers are like the head of business development. Agents are legally allowed to close deals for them. So they are the infrastructure for their sales. You know, they’re they’re they’re they’re head of sales managers are more, you know, understand the brand. Right. And and then than anything else versus a business manager which is handling the money. That’s their infrastructure that’s there. That’s the management team. We started by going to business managers and entertainment attorneys. Then we started to do more sweat equity deals.

So we had to work closer with the managers.

But we just handle it like we are there. We actually have an investment bank, a broker dealer that we set up last year because we believe that these are securities. The S.E.C. and FINRA believe that if you’re going to negotiate securities on behalf of someone and get compensated on it, you need to be registered broker dealer. So we went through all of that 

We do have a lot of celebrities that introduce us to their friends now because we have that kind of relationship.

But that’s that’s the industry. That was a long winded way of taking you through the industry.

So now celebrities introduce you to their celebrity friends. So you have got the coolest job around.

I have Amanda, Ryan, Jordan, all of us. We think we have the coolest job.

I mean, it’s not a job. It’s the comparison. Before this, though, you were really deep in the startup world, right? You were in tech. You were building an online store for tapes and CDs, which I found funny.

Do you think there’s a lot of similarities in the culture. A lot of differences. Now that you’re kind of bridging both both sides of the Hollywood in tech, the culture is to me completely different.

You know, no one or two in the dot com crash came. A lot of people went back to big companies like when we started doing Launchpad. Like, you could count the people that were in the startup community on a couple hands. Like, I mean, it was like when we threw our dinners at Launchpad. It started with 30, 40 people, maybe got to 50, 60, 70 people like like you.

We could we. I know that. Yeah.

I know a lot of the people get put.

And you’ll see a lot of those people around town that are just revered in terms of them being mentors in this community. 

It’s funny. But when I was growing up, everyone had a screenplay and then I moved to San Francisco, where everyone has a business plan they want you to read.

Do you think, like, there’s better ways of building bridges between the two communities? Should other people be doing more of what you’re doing? Yes and no. Like when when I think of Hollywood and I think or I think of the artist community, I think of technology. I always call that the imagination economy. Right. In Hollywood, you can take a script that says, here’s these bloop people on a planet. And it becomes Avatar. And here’s, you know, Evan saying, here’s disappearing photos and it becomes Snapchat.

These are both imaginations. These are ideas that need a different kind of execution to get to scale. But I don’t think from a business perspective, like do digital media companies and startups have to do more together?

I actually don’t think there’s a lot of venture capital backable media like we’re seeing it a lot. It’s hard to do media as a venture capital, bankable business, just like music, is a tough venture capital, bankable business. So I would say aerospace. Yes. Right. There’s a lot of industries that are L.A. dominant industries like aerospace that I would I would prioritize over Hollywood to be more ingrained in the tech community right now. It’s a looking thing.

Right. You have a lot of celebrities wanting to get involved in tech and not necessarily for the right reasons. And we actually avoid having someone write a check into a company just as it’s cool, like we want them to do it because they it’s something they’re passionate about, because just like what happened with Covid, like all of a sudden valuations are changing and oh, my God, there’s going to be a pay to play. And you have people freaking out when it’s about money, but when it’s about the passion or the mission, you’re like, well, what do we do to fix this?

But but backing entrepreneurs became cool right in the locker room. And everybody starts talking about what companies they’re invested in at the parties. Everyone’s saying, but I’m invested in that company. I’m a backer of that company because it’s cool and cool fades. So it’s got to be about more than cool.

Yeah, actually, that was that was one question I did want to ask. I see some similarity. I just did. Deb Benton. Do you know her. She was the president CEO of NastyGal. Yeah.

And shoot as with Kim Kardashian and says, you know, we were taught we were talking about how people can really get beat up in the media. And we and obviously Kim Kardashian and Sophia Amarosa are our big celebrities in their own right. But, you know, we always talk about our startup founders needing to build grit. What do you see working with celebrity celebrities get totally beat up at times. Do you think there’s either lessons learned there or things you’ve seen with with the media turning on people that we can learn from?

That’s a good question. It’s a tough question. I mean, look, I’m biased, but I think Ellen DeGeneres has done more for this world in her lifetime than most human beings. And she’s getting beat up right now. Right. And I know she’s got an incredibly compassionate heart. And I know she just loves to do good for others. She’s lived through enough in her lifetime that she is not going to complain and she’s not going to even sit there and go, oh, woe is me, she’s just going to like she did this week, she’s going apologize and do better because she’s all about the mission.

I think that that lesson goes to entrepreneurs, which is like you’re not used to it. If you were like just like artists and athletes are not used to the things that you’ve been beaten down like this. My third Black Swan event in my lifetime, I got lost everything in the dot com crash. I lost so much in the 08, 09 financial crash. And I feel guilty about it. But we’re having the time. Know everybody in the world wants to work with us right now because they’re home and they are passionate about changing the world.

So I’m having like I I’m working every minute of every day, including weekends. So, like, you just have to live through these moments to understand them. So I think the lessons that you can translate between artist and athlete and entrepreneur is if you haven’t gone through it many times before, you’re not going to be great at it. You’re not going to understand it fully. You’re just have to be more of a study of history and other people in their shoes than having to always learn through your own experiences.

I think you made two different points that I think your first point was some of and maybe I got I, I that I always forget.

I know, but I’m not sure I got this right. But there was something about it. Your if you as your celebrity grows, you’re more media figures. Some people love you, some people hate you. Get used to that fact that you’re not always a darling or something.

Correct. Whereas to be taken down by somebody. Right. And whereas this started, CEOs sometimes go really do become media darlings overnight and get crapped on the next day.

And they’re just not used. They’re not used to it. Right. And so you just go through it. But I guess my point is, can you really just study history and learn that, or do you just have to go through and you get better at being resilient by getting crapped on on some days?

Yeah, I think that’s. I find that there are some people that are calm under pressure and our studies of history and they’ve figured out a path and they have a plan.

I’m not one of them, by the way. I mean, I am very emotional. I have to go through something and my team will tell you I’m terrible at planning show and process. So I just look at those people and I think, you know, you asked yourself, how did Brian Chesky just get through what he just got through at being beat and did this incredible, like, severance package and let like he put great people around him. He learned from others.

He took advice, like he didn’t have experience in that. I mean, I think that sometimes when I talk about so-and-so is really smart, what I really mean is they’re able to absorb that information now from it.

Exactly. So, OK, so you’ve done a lot of mentorship, as you were saying. Were you the mentorship in chief or something like that at launch? A mentor in chief.

All of it. What do you find? What sort of advice do you find yourself giving nowadays? More.

You know. I loved being the first check and I love being there when people were first getting a product launch. I mean, it’s a personal passion of mine. I probably manifests in my ability or my time that I put in with artists that are launching their own brands or their own companies as founders, because I get to do that with them. But really, my time is spent advising people on structure, my mentorship comes in the form of helping people find that fit, find resolution on that fit, find scale through that fit. And honestly, I get just as much, if not more joy out of it, because the tangible results are so quick. When you see, like, it’s funny, I’ll I’ll see. I’ll be sitting and watching TV with my kids and five brands will show up in the course of an hour that I talked to that founder in the last week, I had worked on something really cool that made that happen.

I was always the early stage guy. So now working on this is just a new fun chapter for me. So that’s my aunt. Do you think I mean, it is a hard question how you live your life this way. But do you think about things that you wish you were spending more time on the things I wish I spent more time on.

Yes. Years and years ago, but I’ve corrected that. Like, the only thing I wish I spent more time on is my family. And I’m trying really hard in this new chapter of my life to do it as a startup founder. I spent three hundred sixty three sixty 365 days working and it was stupid. It was the wrong balance. Like it mentally mistake. Like you think I have to. If I’m not working right now, I’m failing.

Again, things you didn’t get mentorship for more learn from other people. That was one of my mistakes. But now the only thing I look at is, am I am I am giving up an hour of my time that I could be with my kids and my wife. But when you love what you do, it’s not a job. When you have a mission, whether it’s a job, a nonprofit, a hobby, whatever it is, when you get to spend time on something you love.

It doesn’t feel like work. And when you get to do it at the highest level. I got lucky, right? I mean, again, timing tied to luck. One of the first artists, if not me, first artist I got to work with directly through this model was Ellen, and so, you know, getting the next one being blank was was the question from the business manager, the manager or the entertainment attorney or the agent was, well, who do you work with? And it took me a year before I even asked, is it okay if I use your money like I did in the agency world? You may not even work on that person, but if they’re a client of the agency, you’re calling and going, I represent Ellen DeGeneres.

I never used it because I came from startup. You don’t open your mouth and you think you got something there. And so I said they said, well, I can’t say everybody, but I work with Ellen DeGeneres. And they said, Can I call business manager Harvey Newman or can I call her lawyer? Given your. And I said, you’re here, give him a call. And I put him on an email and then I got the next client and the next day.

And so I got lucky. I got to start at scale with people who can change the world.

And where do you think and where do you think you want to be in in five years? You want to just be doing the same.

Do you have a vision for how this evolves?

I do have a vision for how it evolves, but it’s more on the same mission, like everything that we do is around. How do you Bakry? How do you put the great AMPA, the great founders and great operators, together with the great amplification artists and the great artists and athletes that have that amplification, and that can be us growing more around the world. That could be growing into more categories, that can grow into more stages. We’re working on something with a public company right now.

So you’ve seen the power that these celebrities have. Do you ever yourself, does celebrity appeal to you or would the closer to you? Does it appeal to you?

More or less. I never came from Hollywood. I’m not the person who goes and hangs out with celebrities because they’re celebrities. To me, it’s it’s they’re just people. We care about what they can accomplish. And to me, that’s what I care about celebrity. It’s really the social capital and trust that they have. Well, it’s great.

And it seems like a very natural fit to be building this in the L.A. market. So it’s great to have you on the L.A. Venture podcast. I could keep asking you questions for hours, but I think I’ll I’ll let you go back to your regular life here.

Oh, thank you. I’m big fans of 10 110, so thanks.

Deb Benton — Willow

Today we chat with Deb Benton about her new fund, Willow, that she founded with Amanda Schutzbank.  Deb is on the board of Carbon38, TomboyX, The Leaf Group and she has all sorts of insight on how to do consumer investing well and what sort of metrics to look for.

 

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I am thrilled today to be chatting with Deb Benton of Willow. Deb is an expert in early stage consumer branded companies. She was the president and COO at NastyGal. And before that, at ShoeDazzle, COO at ShoeDazzle. She’s a board director at the Bouqs, Carbon38, and public company, the Leaf Group. She’s a really impressive track record. Pre Willow investing in Tapcart, Skylar, Thankful. And now she has her first fund Willow.

Congratulations, Deb. Thanks for being on the show here.

Thank you so much. It is such a pleasure to be here.

Yeah. It’s really exciting to see you raising your fund. Tell me some more about Willow.

Yeah. So I had been I’ve been investing for the past six years, basically with the thesis that consumer brands, early stage consumer brands need to be assessed, valued, capitalized and scaled in a way that is unique to them as a category. Different, different than a SAAS company, different than a software company. So I started investing about six years ago. Angel investing check sizes, generally anywhere from $50 to 200 into these seed stage rounds, and had a strong belief that the founders and the companies not only needed capital, but also needed operational and strategic support where I could provide help.

So I took a lot of advisory seats. I took board seats and I have 15 companies in my personal portfolio. And then about a year ago, I decided that it was time to institutionalize because what I was finding was that for these early stage rounds that I was doing.

There really wasn’t an institutional source of capital with this particular thesis. And so I decided to institutionalize exactly the same way that I had been investing for the past six years. I really wanted to do it with another woman.

And I’d known Amanda Schutzbank for many years. We’ve invested together. Amanda was at Amplify, which is a fantastic early stage preseed fund here in Los Angeles. We did a first close on May 1st, and we just finished our first deal last week.

Congratulations. And so will you be leading you’ll still be focused on seed investments. And we have be. Yes. Leading those rounds.

Will you be co investing some of both. Yeah. Probably a little bit of both. Ideally, we’d like to lead as many as we can in the consumer brand space and within consumer brands. We are more focused on self care. Personal care, which includes beauty, colour, skin care, hair care, anything to do with personal grooming. Health and wellness is another big category that we’re really focused on. And I’d say the intersection between those two is really growing.

I really like apparel and accessories. However, I’d say the lens that we look at those opportunities, it needs to we’re very values, like we have a very values led investment thesis around consumer brands. So with those companies, you know, they need to have something that’s highly differentiated. It could be around sustainability. It could be around supply chain transparency. It could be around production or fabrication. But they there needs to be something that is incredibly unique.

It’s a very tough category. And I think to really stand out, you need to have something that’s very highly differentiated. I also really liked food and bev. I don’t know that category as well. So in that area, I would probably tend to participate with a strong lead that knows that just the sales and distribution is very different than what I’m used to. So but I really like the category again, particularly as it intersects with health and wellness.

We have carved out a small portion of the fund for what we’re calling consumer tech enablement, and similar to Thankful and Tapcart that I have in my personal portfolio. Those companies support the brand or support the consumer’s experience of the brand through technology. I like that as well. So we’ve carved off a section of our fund that will be dedicated to that, those deals. We will participate in. We won’t leave those. There’s much better funds that are very tech oriented that can make those.

Got it.

And so maybe you’ve answered my first question, which was going to be about how do you assess these companies?

I would say broad table state criteria for revenue states. We’re looking at one to five million in run rate revenue. The categories that we’re really interested in and specifically the companies really interested and have very strong product margin profiles. E-commerce is e-commerce has its own set of challenges. In some ways it’s easier than physical retail. But when you look at things like distribution and outbound shipping and returns, you know that that’s an added cost, that that is substantially more than physical retail.

So, you know, the PNL is a little bit different. You really need to have a pretty robust product margin profile to be able to succeed. I think online, unless you’re going to be a massive volume play like an Amazon Target or a Wal-Mart, and that’s not an area that we plan. They do that very, very well. I have I feel no need to compete with them. We’re kind of at the very other end of the spectrum focusing on very emotional connected brands like what line items?

Are you really looking at to understand whether it’s a healthy business? Yeah. So the first line item that I would look at is what I what I call product margin. And that’s that’s simply your product revenue minus your direct product costs landed to get to your warehouse. So before any kind of variable costs run your warehouse, it’s simply your landed product costs. It varies by by category. I’d say for personal care, I’m really looking for seventy point plus in product margin.

At least scaling to that. Some of these categories can be over 80 as well. That’s fantastic. It also happens to be that those categories, which makes them even more attractive, the return rates on those categories tend to be low. So accessories tend to have a very high product margin. They tend not because there’s not a fit involved. They except for footwear, they tend not to have high returns, beauty, skin care, personal care, grooming products.

They tend to have a much lower return rate as well, and they tend to be seventy three or above in their what I call initial markup or their their product margin with apparel. And again, this is why we probably have an even tighter set of criteria around apparel. It’s hard. Returns tend to be much higher, particularly in categories like dresses. Returns can be anywhere from 35 to 50 percent, which is crazy. And it really, really upsets the income statement when we have those kinds of returns.

It also affects LTV and repeat purchasing because you tend to have more dissatisfaction on the consumer side. So there’s secondary effects of having a higher return outside of just the financial implications. I would say for for apparel, there’s a there’s a couple of different ways that you can tackle apparel if it’s a pure vertical integration. I would I would really want to see 70 points and above again, or at least scaling to get there with them with volume. Some of these companies are taking what’s called a hybrid approach, and they are, in essence, outsourcing some of the internal design and production costs.

And they’re doing it with a partner. So that is a that’s a blended model. I would want to see probably sixty three to sixty five percent on the product margin there, because you’re in essence eliminating some of your internal costs, which usually reside below the line.

Anything below that. It starts to get really hard because the next line item that I would look at is gross margin. And for me that. Product margin minus your net shipping costs, minus your your credit card merchant discount fee and minus your packaging fees. That gets to gross margin.

Anything below 50 percent on a gross margin for me is really, really tough unless there’s a recurring revenue component to it. So that’s subscription. I can entertain that because I can. I can have a safer assumption of LTV than I can around the one I’m purchasing.

How do most of these companies because you said you’re investing when they already have a one to five million run rate.

How how did most how do you. Most of them grow up. Most of the companies that you’re meeting, you know, do they do a preseed or did they maybe are they new to venture when you meet them? Yeah.

The vast majority have raised somewhere between 250 and five hundred thousand by the time they get to me. Some of them have crowdfunded. They use that really effectively. And that’s a really interesting more than much more than I think.

Tech companies, these these types of companies tend to bootstrap because think about it. But these days, you know, I’ve been in this world for so long. Twenty years ago, you needed to build everything and helps. Right. There was no Shopify. There was no social media. There were no 3p ls right. All of these costs that have come down precipitously have allows companies to scale or at least get somewhat product market fit before they really go in and take a lot of capital.

That didn’t used to be the case.

One other thing that you said to me, because I was asking you about a particular investment opportunity. You said, look, you don’t like investing when there’s a product. If there isn’t a brand, a platform, something more there. How do you know when something can be a platform? Like what does that mean to you? I guess, yeah, it’s a great question.

And I should. Say it doesn’t mean that that that single product companies can’t be remarkably successful because they can. They absolutely can. Look, look, look, look around. Anywhere you look, especially in homes, you can certainly have companies that have done extraordinarily well with one product. And maybe they go on to have a couple of others. But it’s really a product focused company. It’s just not what I’m particularly interested in. I, I really get behind and get excited by companies that are built on values.

I think today’s consumer, particularly the younger consumers. But I think we’re all kind of getting there now. We want to use our wallet to shop with brands that support what we think is right. This younger consumer is far more interested in things like sustainability and impact on the earth.

You know, the type of labor that’s being used to supply chain far more than than consumers in the past to them. And I I think it’s fantastic. I think it’s great because I think capitalist power and consumers are exerting the power that they have and should have.

Got it. OK. So that’s some about what you’re looking for.

I could ask a lot more questions.

Let’s talk about how you’re actually helping these companies as they go through scaling. And, you know, I’m specifically very interested in what sort of the playbook is and where you think that playbook is going.

I think team and recruiting is is something that I am particularly interested in coming from my days of operating. Saw how much leverage you can get out of having the right people in the right seats. So I think that’s probably the first thing. The second thing that I’m particularly interested in and I think these companies need support on is just an a fanatical obsession around the consumer and exceeding consumer expectations. Today’s consumer is so savvy and has they have so many options as they should.

They can pick and choose. So really understanding. And the great thing with digital brands is you get access to a ton of very rich data around around your consumers and you can see things that physical only brands really can’t see. 

There’s certain things there around knowing their customers that are non obvious or that you see some companies doing really well, that other companies aren’t doing as well.

You know, you’d be surprised at how many companies don’t just actually talk to their consumers. You know, I it’s probably one of the first questions that I ask. We’ll be in debate after debate about what’s going on. And, you know, my question will be, have you randomly selected 50 customers and just called them literally just just called them?

It’s the greatest source of information. And many don’t do that. You know, you don’t have to go out and spend a fortune on consumer insights and all of these different databases of, you know, prescribed information about your consumers. I think having that one on one connection with them and just randomly having the conversation can be incredibly informative.

I also think putting a a a framework around how your consumer makes their purchase decision and how your consumer values, your brand, what problem it is, is that are you solving for your consumer really getting deep in on that? Often I think we have our own ideas around what problem solving. And then you talk to the customer and it’s actually quite different. And so I think that that adjusts kind of the hierarchy of messaging, of how you build your brand.

I’ve heard people say, well, the reason, one reason to open an online presence. Is because it gives you the chance to know your consumer better. I never totally understood that because online I have so much more data at my fingertips. But maybe that’s why do people go off line?

What do you coach people now about when they should go off line and why?

Yeah, I think it depends. There’s no one said answer. I think it depends on the category. I think it depends on the environment. I think it depends on the opportunity. I think it depends on how much capital is going to be required. I think it depends on strategy, what you’re what you’re trying to achieve. I do think that you that the most successful brands are aware that consumer is the consumer doesn’t get up in the morning and think, oh, today I’m going to be an offline shopper and tomorrow I’m going to be an online.

You know what I mean? Like Batel there, we need those terms for our own, you know, our own internal structure and how we think about it and how we how we allocate resources. But the consumer doesn’t think that way. The consumer just wants you to be wherever she is.

So, again, I think it comes down to knowing your consumer what she will value, where she shopped, what brands are aligned, where where do you want to be and what you’re hoping to get out of it. I’ve seen strategies that some brands simply are looking at and looking at it as a marketing expense.

And as long as it breaks, even they’re fine with that because they believe that the brand halo or in fact is sufficient and they can justify that expense. They don’t want to lose money, but they’re fine if it breaks even. I think that that’s interesting. And I think that that’s good for some of these brands. Others, which are more highly dependent on physical distribution, need them to be moneymakers. So that would be a decision, a different set of criteria and decisions that those brands would go through versus, you know, a brand that is ninety five percent online and simply wants to flagship stores, one in New York and one L.A., one in L.A. for marketing purposes.

It seems like it’s getting more and more expensive online. So maybe that’s your point. Do you know where your customers are? First and foremost, yeah. Yeah. I mean, the paid acquisition has never had the consumers that you acquire through nonpaid have always been more valuable.

Think about as you’ve got these concentric circles going broader and broader, you’re right in the center. You know, your first few circles, they’re going to hear about you because you happen to live in their sphere very directly and you’re catering exactly to them. And they can become your ambassadors, right? They become your evangelists. They’re the ones that you want to figure out how to make so happy.

And they go out and tell the world. And so they’re there. They’re, in essence, an extension of your brand. There’s not like there’s not a billion of those people right there. They’re very limited. So then you have to then you have to figure out what’s what’s your second degree? How do you attract them? And it could be through these evangelists. It certainly can be through paid 

My concern with, you know, like a Facebook, the Facebook advertising or Instagram. I’m just not actually sure how effective it is. I see it’s very expensive. And the way that Facebook likes to attribute it, it gives them very, very, very considerable attribution.

Like, I think 30, 60 day windows, which is a little bit ridiculous. But I do think Facebook today, I see it acting very in a very similar way that TV of 10 years ago acted. It tends to lift all channels. So, you know, I can’t say with complete conviction from a data perspective that that’s that is that’s happening. I believe that to be happening and I’ve seen enough of my company is kind of lower and increase their Facebook spend and kind of corresponding effects on all channels.

So I do think it’s acting as as as as kind of this enhancer of other channels. That being said, not everybody’s on Facebook. You know, GenZE is probably not hanging out on Facebook. My new obsession is tick tock, like I’m obsessed. So I’m trying to figure out, you know, and it has a different nuance to it than Facebook or Instagram again.

Do do a lot of your companies work with influencers? Is that do you coach them on that? Some of them take best advantage of that.

Yeah. Again, I think it depends. I mean, don’t forget, I was with Brian when he launched ShoeDazzle with Kim Kardassian, who isn’t? You know, I would say it’s probably like the Oji influencer. That was back in 2008 and Brian did a phenomenal job with that. I mean, that was just that was extraordinary. Kim’s brand, I think, was very highly aligned with the shoot as a brand and her and it was something that her customers really want.

I’ve seen disasters, you know, in other situations where, you know, companies are just trying to throw talent or influencers at a brand and it doesn’t make sense whatsoever. And there’s like this cognitive dissonance with the. Consumer goes and says, wait a minute, why is this individual ripping that branded complete? Doesn’t make sense. It backfires and it’s a waste of money. I’ve seen the trend has been, I would say, in the last few years to move more towards micro influencers.

There is a general trend happening now, and I can talk about this because I’ve spent far too much time on tick tock. Tick tock is really a platform for the people. And so, you know, if you can think of Instagram, is that perfectly picture polished view of everything’s perfect, whether you’re an influence or even a person like everybody’s life is perfect. I mean, it’s it’s it’s it’s so deceiving. Tick tock. On the other hand, it really is built around, I think, to the everyday person.

And I think we have moved from a trend wise to that. I not sure the celebrity culture is going to be what it was beforehand. I shouldn’t say that because I work with a lot of talent.

If someone’s at one to five million when you invest run rate, how what’s the next stage? How are you? How do you think about the stages after that? Not just from a funding point of view, but grow?

It’s not that it’s exactly this, but in general, you know, brands that are doing it’s going to be more more frequently kind of one, two, three, one, two, four.

They raise a seed. The seed could be anywhere from a million and a half to three. That’s a typical seed valuation is going to be anywhere from, say, five to 10 roughly. We are trying to stay super disciplined around being sub 10 for us the next round. They’re probably going to raise in general five to seven. My guess it’s going to be they’ll be doing eight to 10 in revenue and they might raise anywhere from, let’s say, 20 to 30 pretty money valuation.

That’s kind of roughly where I see it. And then after that, many of these brands, you know, I I want to push these folks to get to profitability sooner rather than later, at least on a on an order basis and ideally, you know, contribution level. So, you know, getting them getting them to that point, they can either if some of these brands are selling at that point in an M&A, they get to 30, 40 million dollars revenue and they’re either break even or slightly positive.

And the acquirer knows that with scale their margins, their operating margins are going to be more they could sell for a very nice multiple. And in the M&A market at that point, or they could take in a growth round from private equity, from a strategic sometimes even a family office.

Are there other any other big things that changed between the way a company looks when it’s a one to four million dollar company and the way it looks when it’s a 10 million dollar company? 

You’re going to see margin improvements across the board as you scale just because you’re going to have the volume of goods.

So you can negotiate better rates for your product margin. You can negotiate better shipping rates for your grip that goes into your gross margin. You’re a three people. You’re going to have greater volume. You’re going to figure that out. Your data is going to be better. It’s going to decrease their their work requirements. So you should be able to negotiate better rates there. So there’s a you know, it’s an ongoing process, always trying to bring your costs down as you scale.

That never ends. 

I’ve been dying to ask you about what we’re seeing today with some of the sort of darlings of the e commerce world, the online e-commerce people, and, I don’t know, brand lists maybe out of voices like what are you taking?

What are you seeing when you look at these companies?

Well, let me first say it’s very easy to be an armchair critic because I know I’ve been on the other side of it and I know it always you know, it’s so easy to be on the outside looking in saying, oh, my goodness, like they did this wrong. They did this wrong.

I think, for a lot of it comes back to my personal thesis around how this category of company, these consumer brands, digitally native consumer brands, how they should be valued and how and how they should be capitalized, meaning how much capital they should be bringing in and and really much more quickly they should get to profitability.

We should be backing into the valuation. Really like, you know, where do we think that this company is going to end up? We know from the data that a successful exit, the vast mass majority, are going to happen in a day.

Right. Two hundred to five hundred would be a fantastic. So if that’s the case, you know, any venture investor going in with, you know, where the three hundred million dollar pre money valuation? Well, they’re not going to be super happy with that exit. So they would have to really believe that that is going to be a billion dollar enterprise value when they exit. That’s possible. It does happen. We do see it. You know, we do see some of these companies going public.

It’s just not the norm. So when you think about a portfolio construction model for a v.c, they they they’re counting on a couple of their exits being this billion dollar exit.

So I completely understand that. But we can’t force that thinking into what we know, these how these consumer brands scale and naturally exit. Right. We can’t we can’t say, oh, no, we need that. So we’ve got to figure out how to make you that. And, ah, that’s not going to happen. Right.

So you’re saying the model is a company that’s maybe doing 40 million in revenue, that’s looking at a couple hundred million in as an exit in an M&A sort of situation?

That could be an option or it could be that it raises. Right. It could raise it, do it big growth round. But then but then whoever comes in that that investor and it’s if it’s a consumer brand, it’s probably going to be a private equity investor. Not always. But probably they’re going to want at least a three to five times return. That’s what they’re going to model out. And I think consumer brands.

I think they’re just very different. I think they they grow in scale very differently than assess company. And it’s not logical to me that we assess them and have the same sort of expectations when they’re fundamentally very different companies.

Yeah, well, that leads me to one of my I’m super interested in some of the stories of how you grew in scale, either NastyGal or ShoeDazzle, but maybe like NastyGal, you took it to 100 million in revenue company right when you were there.

What? Yeah. Well, what what what were the good parts? Were the the tougher parts?

Well, I joined Sophia. She and Sofia Amoroso was the founder of NastyGal, and she had built this really beautiful brand. And I credit Sophia with bringing this aesthetic and this brand online where nobody had done it yet. 

For a long time. She wasn’t even producing NastyGal. I was even producing their own brand. It was you know, they were just curating other. It was really a retail play. But because she did it all online and she did it under the brand of NastyGal, she was one of the first, I think, to be able to create a brand around, ostensibly a retail play.

And that was you know, I really credit her and her early employees.

And that company just took off beautifully. I think the challenge, the challenge came in. You know, we raised at a pretty high valuation. I would say over the years the competitive environment changed.

So, you know, there was a lot of focus on NastyGal, Ellen lot being written. And when a lot about the success of it. And so that welcomed a ton of competitors. I would say that, you know, we probably welcomed in 10, 15 and 20 competitors and a lot of the time they were selling exactly what we were selling and simply undercutting us by 50 cents. 

We invested a lot in trying to build our own brand. And that cost a lot of money. I’d say operationally we spent too much. And I you know, I take full responsibility for that. I think we had raised a really big round. We spent too much. We’ve probably spent it in the wrong ways. We weren’t focused on nearly as much on profitability.

Is that today to do it again? I would certainly be focused on. But, you know, there’s a lot has been said about NastyGal. Everybody wants to come up with this. It was this. It was this. It wasn’t. It was. It was. There was a whole bunch of things going on. Things are changing all the time. That’s the world of early stage.

Yeah. And, you know, in addition to that, not just did the business struggle, but Sophia got so beat up in the media.

Oh, my goodness. I mean, it’s still it’s so trapped. I mean, it’s just it’s just tragic. It’s quite upsetting. It’s quite upsetting. Yeah. I mean. Well, yeah. Go ahead. I’m sure. Is your perspective on that. Yeah.

Look, it’s I think it’s super unfair. There was so much speculation. I think I think we live in a weird society where we want to, you know, we want to put people on pedestals and everything’s great and everything’s great. And then there’s a misstep when we want to pull people down. You know, so, so strongly.

And, you know, frankly, I think women get it harder. I really do. And I think it’s completely unfair. And it got deeply personal. You know, it used to break my heart just reading the articles that were being read and the words that were being read. I mean, they were vindictive and mean and personal and completely unprofessional. I have no issue at all about talking about or even speculating about what went wrong or, you know, what decisions, because we can all learn from that.

But, you know, and she was often eviscerated. 

But then when you’re investing in companies that are built on values and this is some of what you’re looking for, sometimes that gets very infused with the founders themselves. Right.

I mean, it’s an interesting question. I would say at ShoeDazzle, we frequently had the conversation around the need to separate the shoe dazzle brand from Kim’s brand that that the company had to stand on its own. And I would argue that we were successful. I mean, the company is still around today. And Kim’s not involved.

And I’ve heard Gwyneth talk about Goop and how she really wants some Goop to stand on its own. And to be honest. I think she’s actually done a really good job about that. I think Goop’s brand is powerful. And it does stand on its own. And whether or not you’re a fan of Gwyneth, it is almost it doesn’t really matter.

You can still be a fan of Goop. I think that’s the place to be.

And and on the on on your front.

Who do you go to for advice? Like where how are you navigating your own career?

Oh, my. Gandules here. What a great question. I have a lot of friends and lot of colleagues. I have for our very first close, we were very fortunate to have extraordinary LPS you know, some fund managers, some really well known fund managers have joined us. Individual M l PS They are an extraordinary source of mentorship questions sometimes as just questions around fun mechanics and they’re very helpful there. So those folks I have great female friends and colleagues like yourself.

I mean, I’ll be calling you for sure that especially in the investing world. You know, there’s not too many of us. And I think that the more that we build our own community and reach out to each other and support each other, that’s very that’s very helpful. Again, you know, a lot of these are uncharted territory.

So I think the more that we kind of get together, band together, create community support, one other, we we can encourage other women to come. It’s hard.

Absolutely. That’s why I’m really excited about Willow. I would say that mentorship is great. But actually, when you can have women who can make investments with capital behind them, that’s huge. It’s. It’s game changing. Well, great. Thank you for coming on the show. And I’m. I’m so excited for Willow to be part of the L.A. ecosystem. And congratulations.

Thank you so much. I love it. Happy to be due to show anytime. It’s a lot of fun.

Don & David — Global Founders Capital (GFC)

Don Stalter and David Resnekov are colleagues at GFC (Global Founders Capital), a $1.2B fund that will invest pre-product all the way through later growth rounds and will even lead multiple rounds for a company.  Interesting, entrepreneurial approach to VC.

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Today’s show is going to be twice as good because we have twice as many guests. We have David Resnekov and Don Stalter from GFC here. David is our local GFC colleague in L.A. and Don Stalter is the U.S. partner for GFC responsible for all U.S. investments, as I understand it.  GFC is Global Founders Capital, which is a $1.2 billion dollar fund, but they write seed and pre-seed checks and then continue to invest in later rounds. David and Don, thanks for joining me.

So let’s start with David, I’d love to hear from you some of the basics of GFC. What size checks you guys write? How many investments per year are you doing? And a little bit more about your follow on investing strategy.

Of course. So I intend to check size. I mean, you know, we will write checks anywhere and precede around from hundred K all the way through multi-million dollar checks. You know, as rounds progressed. So the idea is for us to back is really, really strong entrepreneurs on right when they’re getting started with the idea of investing around after that, you know, all the way through IPO, M&A.

But you. We have no problem in, you know, leading multiple rounds in a row. I think that’s one of the big things that’s going to separate us from our other funds. And yeah, I mean, past that, you know, just so just pausing on that.

Supposin that’s a most people. I mean, there are other lifecycle investors, but usually if they do the A, if they lead the way, they won’t lead to B. And that’s why you’re different.

Unlike other funds, we don’t have strict ownership targets for our initial investor. You know, we don’t need to grab the 15, 20 percent, you know, whatever the whatever the target is upfront. You know, our idea is to really build with the company, you know, and we partner with a debt fund as well.

So we really think of ourselves like the one stop shop for startups when they want to work with us. And, you know, we’d like to have a very much a working relationship with the company flew back around their capital needs. So just want to always have an open dialogue around, like, hey, look, like, you know, if we get this many dollars invested and get us to the next step in the lifecycle, you know, that’s really the conversation we want to have entrepreneurs.

Got it. 

So it’s like when we were talking with Greycroft, Greycroft says that for under a million dollar check, they don’t need to go to their investment committee, which I thought was interesting.

Do you guys have. So, David, if you get excited about a deal, do you immediately rope in Don? Do you guys rope in other people at GFC or how does your sort of how does the process work? If I’m an entrepreneur approaching you for a an early, early round. Yeah.

You I think one of the unique things about GFC is just the level, just how entrepreneurial entrepreneurial we are as a fund. 

And I think, you know, very much that’s just empowering everybody to really pursue the deals that they capture to them.

So I guess a typical process would be, you know, if I if I meet an entrepreneur, you’ll have to have conversations with them, especially in the early stage. You know, we like to have multiple people from our team. So you’ve got a potential investment. You know, assuming, you know, everything is checking out, then. Then we’ll loop and we’ll loop Don, you know, other members of the organization at large.

Can I get anybody together on a on a final call and then we’ll come to a final decision. Yeah, dad. I can kind of elaborate a little bit like I would say, if the deal is kind of very vertical specific, if it’s like a health care opportunity, for example, we have a health care head now, Sean, based in San Francisco, or it’s a deal’s got an orientation towards France, for example, you know, with members of our French team or Germany, for example, if it’s a cross-border deal we have now, we have Israel partner.

So we have, you know, geographical as well as vertical expertise. and how many people then Don are part of your team?

Yeah. So on my team here in the US, we have five folks. We also have a roster of really awesome interns.

I don’t really know how many partners are at GFC?

Yes. Globally, we have more than 10 partners. And we have partners across Europe. We have partners across Asia. We have partners in Latin America, Canada. You know, the businesses is growing and it’s really, really exciting. And I think, you know, the ambition is to be able to look at a deal kind of in every every corner of the galaxy. That’s how I see it. Pretty exciting.

That’s great. That’s great. And so if you’re leading a deal, let’s say in L.A., for example, does someone have to pitch to all of the partners or does it go to you? And as David said, you’re entrepreneurial. You get to be empowered to lead the deals in the U.S. You want to lead. And are you responsible for all the US? I said that there was no that was so.

The way that it’s set up is, you know, our partners or partner in Israel, for example, if he finds an exciting opportunity in the US, you know, maybe it’s something that we’ll collaborate on. But effectively, like he’ll, you know, take a board seat. You know, folks from our French team or German teams or teams like all over the world, like they can do deals kind of anywhere, which is very, very empowering.

That’s cool. And do you guys all come together or does does is it Oliver Samwar or does he run into you? How do you all stay coordinated, I guess? How do you do collaborate?

We collaborate on almost a daily basis. We also have the opportunity to collaborate with our debt fund on a daily basis. We can bring anyone we want into kind of the IC.

You know, I think it’s it’s something where if we want to be strategic, we want to be thoughtful about making sure that the founder really understands us and the value that we can provide.

Then we’ll we’ll host them with the people who can support the business.

That’s that’s really it. And I think, you know, all over and, you know, the. Samwars. They make themselves available sort of at any point in time, which is absolutely incredible. I’m super intrigued. I mean, I. They are sort of larger than life characters in my brain at least. 

I think, like, you know, while we’re an institutional fund, we very much actually can entrepreneurial fund where, you know, instead of being, you know, financial engineering oriented organization, although we’re capable of that, you know, we’re not you know, we’re not necessarily trying to kind of squeeze out a return or, you know, trying to optimize.

Instead, we’re trying to really support the founder every which way.

And so if I’m looking to raise my early-stage money, you guys will come in. Product at times, right? Absolutely. Yeah. That’s great. There aren’t that many people who say that.

And then the idea is that they do you think about your reserves strategy in the same way that someone else would?

I mean, I think the opportunity to provide additional capital to a company, you know, in in the cases, you know, need or in the case of, you know, additional acceleration, is is there. we just want to be able to support our companies and back up the truck when it when it needs to be the case

And how many companies do you have in your portfolio now? And also, is this are you investing right now at a fund I or Fund II.

I’ve forgotten that you might have a lot of companies eyes were wrestling out of one fund. And we’ve invested in I want to say, I don’t know, David, maybe one hundred and twenty companies. I haven’t really double clicked on that for a little while. We’ve been so busy.

But I think we’re up to about 120 in the U.S. at this point. Wow. 120 and that’s in this one fund. Mm hmm. Mm hmm. And is and maybe you explain it to me before but is your one fund. Is it? It’s all one pool of capital.

The one point something billion is one pool of capital that the Israeli people, you know, all around the world.

But the hundred twenty companies are sort of in your within your pool sort of pocket.

I mean, a sensible way to think about it is like we’re managing them. You know, we’re it’s we know you bite off more than you can chew if you don’t have kind of the right focused team for a particular kind of portfolio. And and I think we’d be very, very overwhelmed if we didn’t have, you know, the team that we have in place to manage this portfolio.

Yeah. I mean, I think I told you that my impression of David. Sorry, David, but is that you’re always on the go. You’re always moving.

And I think if you’ve got a hundred and twenty companies, your portfolio.

 

Explain it. Do you have any, like, words of wisdom for other VC funds that are trying to manage huge portfolios?

Because you guys must you know, you have a large portfolio for a not huge team.

I mean, one thing I would say and David, you know. Let us know what you think. But you got to really, really, really love what you do. You know, that’s true. Yeah.

That’s good. Totally. I was just talking with someone about burnout and I was saying burnout does not happen by working really hard. Burnout happens when you’re working really hard and not loving what you’re doing and getting frustrated. Yeah.

I think luckily we back some pretty awesome people, but it was really like a ton of fun to work with. So, I mean, it’s just fun at this point. I mean, you know, as we as your portfolio matures, it’s been it’s been very rewarding. You’re saying that companies grow along with. That’s great. I’m so in L.A., David, you’re now in L.A.. But I think you moved from the Bay Area. Is that a true statement?

Yeah, yeah, absolutely. So when I first joined GFC, I was in the Bay Area with Don and then I’ll be back in May last year, something around like somewhere on that move down to LA.

Got it. Great. And so you guys have a fairly GFC has a fairly heavy LA presence, it feels like, because Sarra is also in L.A.. You know, are there are there for a large global fund?

Why spend so much time in L.A.? Yeah.

Oh, so one L.A. is just an amazing place to be

But do I think, you know, we’re we’re very much making a bet on L.A. as an ecosystem.

And then also it’s just very exciting to be able just to backs companies that have a competitive advantage because they our based in LA. I mean, if you look at our portfolio, you know, something like the Skills, which is like an e-learning platform both times. Vladek knows that every contact leads to that. You know, it’s a business that very much should be built a way Mothership, which we’re really excited about. You know, last mile logistics very much should be in L.A.

Prema that as a lifestyle brand deathwish be in L.A., Italic also there should be in L.A..

So so you’re somebody there is there are you know, L.A. has one of the what, the largest port in the U.S. So a huge need for logistics. Amazing media presence. So there’s some companies meant to be in L.A..

Do you think? And yet if you look at like absolute number of dollars or number of companies, L.A. is dwarfed still by the Bay Area. Do you think there’s certain things that need to get going in L.A.?

Where would you say the lever, the biggest levers are to really catalyze the L.A. ecosystem? I think we’re going to see it more and more. Given the amount of exits that have happened recently, large exits from L.A. companies, but I think just really giving that sort of underworld of angel and precede financing really established is going to help a lot. I mean, if you if you spend time in the bay, you know, you’re just inundated with just everybody is an angel investor.

Everybody’s investing in their friends. Yeah. Many I’m sure you saw coming out of Google, you know, somebody leaves Google and goes and starts something. You know, they get their friends and Google to invest in it, get them off the ground.

You know, at least I haven’t found out that’s happened in L.A. It leads to the greed to the degree it’s happening in San Francisco yet.

And so as that starts to change and it is changing and as tech becomes much, much more a part of it, I think we’ll start to see that transition.

Maybe I’ll just turn this to Don. Don, your background, you came in contact very early with the Samwar brothers. 

Tell me tell me about the history there. Yeah.

Like, OK. So I was working with the Growth Equity Fund in London. I moved I was in college in Berlin during what I was at the University of Chicago. And I learned German. I loved Europe.

Through one of our managing partners met the Samwar Brothers in London and it turned out that they were building a variety of different businesses. Those are early days. I don’t even. Not entirely sure it was Rocket Internet. It was just more scrappy entrepreneurs building these businesses and was brought in to help build a company called CityDeal, which we started in London and in Berlin.

And, you know, effectively it was a daily deal website, but there were a ton of those kind of at the time off the back of the success of Groupon and LivingSocial in the US. But even if you came to you, us at that same time, like there probably 20 or 30 other similar businesses across California, New York, the Midwest, kind of everywhere. And so, you know, it was very, very opportunistic and very smart in terms of the timing.

I kind of enjoyed the buy side, but literally this was right off the back of the financial crisis in 2008. And our pace of investing was not fast. And I wanted something fast. And so know I was in my mid 20s and I wanted to just do something, not something out of a park type story. And it was just like invigorating to work with such great operators.

And we you know, and this was you and one of the Samwar brothers. We’re starting out in the early days. Yes.

And Chris Moore, who started AutoOne, which is like a large used car marketplace in Europe. Don, don’t don’t forget, I know a lot about used car.

You. So you do. I know you is an amazing guy.

And it was just like a roster of like amazing people. And you know, what we ended up doing was you can see all the news and Republican race where we actually use roll-up. You worked with Groupon and then you know their businesses across Europe and Italy and Spain, in Eastern Europe and then in Asia where, you know, it was like, come in, let’s figure out if it’s the perfect fit.

You know, let’s streamline the business and let’s turn this into a global sort of behemoths. And then at the same time, again, all you know, in Business Insider etc, LivingSocial was nipping at our heels to put it lightly. Erin Battalion, the CTO at the time, was sort of constructing strategic angles on taking over the universe with LivingSocial. And so it was it was almost like a fairy tale. It’s kind of amazing. It was a totally amazing experience.

That’s that’s my reputation of rocket area, and I think you’re saying this is a little pretty Rocket days, but that they have this amazing ability to execute an amazing operators who just turn these businesses, you know, into these huge growth engines.

Well, it was a lot of that strategy. Well, a lot of those businesses roll up plays or where they operationally intensive. And did you get any operational ball, you know, playbook handed to you?

Absolutely both. I think the thinking process that is sort of I subscribe to sort of the playbook that I subscribe to is around just really tracking metrics.

And KPI is from the very second that you start something, the very second that you spin up an internal or external function, meaning like you’ll have time series data or you’ll have data to make key decisions within the first month, two months, three months that you’re iterating on a business and you’re making smarter decisions. 

And in KPI is aren’t just GMV and net revenue and they’re not just PNL. You can be creative around your KPI as you can be creative around your OKRs.

RS I mean, you were at Google Minnie, so I mean, like you’ve seen this. It’s it’s that you can create a lot of ways to measure things. How did you get that wheel spinning enough to actually have the metric to measure?

Yeah, I mean, we were super creative. One of the kind of funny stories back in the day and, you know, Chris couldn’t corroborate this is you know, we when we stood up the Web site, we wanted to drive traffic to the Web site. And I remember going out and taking ten thousand pounds out of the bank and your British pounds GBP and buying Starbucks gift cards and then listing them on the website for a fraction of the price that I actually paid.

Chalk it up to marketing budget. But, you know, we acquired a lot of traffic and we managed to sell quite a few vouchers.

So just saying, oh, we’ve got a deal at Starbucks today, had that good strategy.

I think we did. We accidentally did some of that Shift selling, you know, ten thousand dollar cars for nine thousand dollars.

But we’re giving people a discount, you know. Got it. OK. So you you really got to know you got to know the Samwars really closely then. And how related is GFC to rocket Internet? Like it’s got I still it still has. Oliver is still running GFC, right.

Well, it’s separate, but I would say, you know, if you look at, you know, rocket Internet to a public company that owns your variety of e-commerce businesses and portions of those businesses, et cetera. I think you were a private capital fund and you were exclusively focused on investing. You know, that said, like we have the resources of a Rocket Internet to help support the growth of businesses, 

There’s no like rhyme or reason, I would say, to like a conveyor belt out of business necessarily. Like we believe that everything should be done in a customized, curated, you know, ad hoc fashion. 

I think I’m just like incredibly proud and excited to be part of this amazing team. And I think, like, we’re a global family. And I think, you know, our goal is to be a genuinely supportive and help people succeed, because that’s the most fun thing that we possibly do. 

And so, David, let me bring you back into this. Like, how did you get it? How did you end up at GFC? What was your process like? How did you guys meet? Yeah.

I said it’s a very, you know, San Francisco Tech scene story, I guess. But as I was in a different fund for a couple of years called Green Beiser Capital, I said early stage contact find in San Francisco. And you just through sort of the San Francisco Tech network, actually met Don at a happy hour one day.

And I think, you know, it must have been probably six months that I know we just ended up being on the same networking events, dinner parties, all those sorts of good things. And we got to the point and I really enjoyed working with him. I mean, I think the GFC way of investing and now you get an opportunity to look at just about any type of deal you can ever imagine, ever, you know you know, you don’t any geo you can imagine.

It was very cool. And then so. And the upkeep presented itself hopped over.

That’s great. And do you think, like for you personally, do you do it with their learning curve from where you were in terms of our things done differently? You know, are you looking at a different stage, companies, anything like that?

Yeah, actually.

So, you know, I guess one of the big learning curves, I think there’s just times with time is because we are so generalist, just kind of get, you know, internal benchmarks in my head.

And I like if I’m looking at an Ecom company vs. fintech company vs. a SAAS company, whatever, the case may be, just kind of getting up to speed very quickly on what is a right sort of company for GFC. 

Can you share more on that? Because I think that is a challenge for entrepreneurs. Then also to know, yeah, if I’m an e-commerce company, what are the nuances that that make it more of a GFC sort of company?

So my feeling is if we feel like we could work with the founder operationally day to day, then that’s business that we would probably want to invest in.

And that sounds. Cookie cutter, potentially, but that’s genuinely how we feel. Yeah, I have the same feeling, but but the feeling of who you want to work with, like I notice at TenOneTen, we really like working with nerdy people or I do at least when you say people you like to work with.

Do you have certain types? You’re like. Yeah. This is a consistently good. Type. Like Ben Savage at ClockTower. I was like. He likes investing in associates from VCs firms who’ve left to start companies like that’s a that’s a persona he likes.

Do you have any of those? I thought, partner. I mean, I think like for us, it’s just about it’s about alignment. Like, do we feel like it’s someone that we could spend time with that we would enjoy working with? I think nerdy founders. I think absolutely. I think, you know, super friendly founders. Absolutely.

Like, you know. Can you sell? Can you sell? Do you have charisma? You know, like quantitative metrics driven founders, you know, it gets us very excited. I think the one thing that I think is really important, especially in these sort of oddball times, is these tough times is just resilience. And I think that’s something that we sort of try to really attribute to the founders that we’re looking for right now.

How do you help build resilience, if you will, because you said that was a key characteristic.

And maybe some of it is talking and listening.

I think it kind of is. I think it kind of. Yeah, I really like talk listen, because we’re we’re out in the world of investors all day long. And then, you know, entrepreneurs are hunkered down, focused and, you know, so we can we can share information. We can create a certain level of transparency, predictability. And and we can I think we can help build, you know, if not if not resilience, a certain level of like transparency and confidence around what’s going on.

Yeah. Yeah, it’s a it’s been a mix, though, talking to people about whether they’re. You guys are still investing right now through the crisis, you haven’t sort of had to set down things. Everything about valuations differently.

Yeah, we’re probably a little bit more thoughtful. I think. And one of the things is it’s harder to do diligence when you’re not able to visit an office. And you know, when you’re not, you’re not able to. It’s it’s hard to extract raw data analysis and times because it’s a business that services restaurants or whatever those restaurants might not it provide the data. And so, you know, there’s a whole variety of different kind of challenges. But we’re still we’re still we’re still active and we’re very excited.

Great. So as far as just onfor, there is an L. It sounds like you’re still open for business. Is there any distinction about what you guys focus on versus like? Sarra is also in L.A.. How do we know? Doesn’t often or know if they have a certain sort of company. It’s it’s a to go in this direction versus that direction.

I think we’re all working together and like looking at different things together. But I think it’s more like, how do we how do you manage and how do we manage the pipelines? How do you manage the portfolios? 

You know, it’s a software business. You know, maybe Kendrick out of San Francisco, for example, is a good supporter. It’s an open source business. You know, in particular, if it’s a healthcare business and maybe it’s Traum. So I think it really has to do it’s like, you know, just the ability to help manage and support that portfolio. It until I didn’t really get too much of your guys’s backgrounds. I don’t want to miss out on that.

I don’t know where you from. As I was asked, what are your parents do? How do your friends describe you do?

Give me a David on the spot.

Yeah. So I’m from Chicago originally. So my mom is a public defender. And my dad runs he runs his own business. He has for as long as I can remember. So I stayed in the Midwest for college. And in college in Ohio. And then immediately went out to San Francisco. And now you are investing. So I was going to ask the how do your friends describe? Because I love that question. But really, I should ask Don, how do you describe David?

David, how do you describe Don?

You start do it or should I call it? I mean, scrappier is Hosler, I know. That’s why I keep saying I’m crazy all done. How do you find all these good deals?

Yeah. I feel you’ve got to be pretty scrappy hustler in this business. It’s actually surprised me how much it is. A scrappy hustle sales business.

And Don, you’re also Midwest, right? Your Minnesota. I’m from Minnesota. So cute, efficient. And.

I mean, does that make you nice? Are you nice? It’s just like being from Canada.

I think so. I try to be nice. You know, I try my best, you know.

Well, where? Tell me more about your background.

Well, we like in high school was I like I was I played a lot of videogames. I love online games. I sold enough in the way of virtual items on eBay from a game called Ultima Online to buy my first car. 

David, I see you around a lot, Don. I see you in L.A. a fair amount, too, which is exciting to have such such a good presence from GFC. But so I’ll just wrap up and say thank you guys for coming on the podcast.

Thanks so much, Minnie. This is awesome. It’s so much fun.