Marcos Gonzalez — Vamos Ventures

Marcos Gonzalez is the managing partner at Vamos Ventures, a seed-stage venture fund investing in Hispanic and diverse founders.  
 
Over half of LA county is Hispanic. Seems like a great time to be investing in this community! 

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Marcos Gonzalez is the founder and managing partner at Vamos Ventures. Based here in downtown L.A., Vamos Ventures is an early stage venture fund focused on tech companies led by Hispanic and diverse founders. Before this, Marcos was twice in private equity, once a founder, and he grew up here in L.A.. Marcos, nice to see you. And congratulations on building Vamos Ventures.

Great, thank you, many thank you for the introduction and the invitation to be on this podcast. Great. Now it’s been fun getting to know you, so maybe if we just start with the basics of, you know, how long has Vamos been around? And you know what? What are you doing?

Sure, sure. Absolutely, Minnie. So while this is a new fund, it’s a first time fund. The idea kind of came about in the year. Twenty, fifteen, twenty sixteen. So it’s something that I’ve been working on for, for a while as you said, we focused on diverse teams. So we have an emphasis on LatinX entrepreneurs. But really, it’s it’s it’s pretty broad. So we look at entrepreneurs who come from underrepresented areas, so African-American women, veterans, disabled, LGBTQ, etc.

So that’s where we are.

And you guys, you’re writing checks now. You’re actively investing.

We have started to invest.

So it’s one hundred or five hundred thousand dollar range. But I think we’ll be doing more on the two fifty side of things and then follow on investing. Check sizes will be half a million and above.

Great, great and super needed. I’m glad you’re here in L.A. Do you know what percent of L.A. is Hispanic?

Yeah, it’s certainly over fifty percent. Not that. Yeah. To me.

Yeah. And if you being good former business school students, you know, we look at the data in terms of like cohorts and we look at 65 and above 40 to 60 and so on, that number changes in. And certainly when you look at the older demographic cohort in this city, it’s a lot lower percentage. But when you look at eighteen and below, it’s it’s clearly over 50 percent. And if you look at, you know, five and below.

So kids and going into kindergarten, it’s probably something I would bet, probably something around 70, 75 percent. It’s a heavily, heavily Hispanic county. Certainly city. Yeah.

And, you know, I knew it was very high, but I know that high and and the U.S. as well. I mean, it’s not it’s not fifty percent, but it’s a huge percentage of the United States. I don’t know the number. Maybe you do.

Yeah. No, from a from a U.S. perspective, I do. It’s, it’s approximately eighteen, nineteen percent of the U.S. population. It’s the largest minority group in the country and it’s super high growth. One of the data points that we throw out from time to time is that, you know, every month eighty thousand Hispanics turn 18 for the first time ever in the U.S. system, system wide Hispanic students were the largest.

A group of students entering the UC system, so if you think about Asian, Caucasian, African-American, Hispanic, it’s never been the largest. It’s been creeping up. But this last year, the number of admitted students, the largest demographic group, was Hispanic students.

Well, good for us. I mean, good for good. I’m not Hispanic, but they are good for California, good for the Hispanic community.

I didn’t know that at all. So staying on this topic, it’s interesting to me as an investor, obviously, the young demographic, which is fantastic. Anything else that you think about when you sort of put your investor hat on in terms of, you know, consumer behavior or whatever?

Yeah, there’s there’s a number of points. You know, it’s kind of stepping back a little bit. Know Vamos Ventures is a, you know, early stage fund. Some might say micro fund. Right. Twenty five million dollars is where we’re at right now. We’re probably going to end up at about twenty seven million. But there’s plenty of funds like this.

And I always tell folks when we go through the data that this is why it’s an interesting area from an from an investor perspective. And it’s just a happy coincidence that we happen to be Hispanic and we happen to know it and have access to it.

And so there’s two of these points, right? One is from an investor perspective, one’s from from an impact. And I’m mentioning that because these are two categories that I’ll get to us now with with some data. And so on the investor side, not only is it young so twenty eight is the average age of Hispanics in the country. Forty two for non Hispanic. So that’s that’s a pretty dress. So you’re looking at runway, right?

You capture a customer at a young age, you’ve got you’ve got runway to work with. So it’s especially young in high growth. And I told you the eighty thousand a month number and that’s ninety two percent driven by domestic growth. This is not immigration, so it’s domestic driven. So that’s going to continue for good. While 60 percent of future growth in the United States is attributable or projected to be from the Hispanic demographic. So we’re looking at 18 percent, 19 percent of us, I suspect, today.

But in the next 20 to 30 years, we’ll be reaching something around twenty eight percent. That’s over a quarter of the country. 

So that’s huge. But but what’s more interesting is that from a consumer perspective, buying and brand loyalty is over indexed when it comes to Hispanic consumers. So the what we’re looking at is how do we identify opportunities that play to these demographic trends.

So one of the areas we’re looking at is consumer packaged goods and the whole CPG tech world is most of that population natively English speaking Spanish, speaking bilingual and and does the way that you reach them. Does it have dramatically different channels and cost of acquisition?

So really, really interesting. Good questions. So the breakdown in terms of language, I can give you the specific numbers, but roughly for anybody listening and it’s roughly a third, a third and a third. A third is English dominant. Very little Spanish. If any third is Spanish dominant, understands English, you can probably figure out some directions that they need to, but they’re Spanish dominant. And then a third is completely bilingual in consumer broadly. I think people always talk about how hard cost of acquisitions going up. And so, you know, is that the same in in the Hispanic community or different?

The way you reach them, some of the ways are very traditional ways that we would use on any consumer but the Hispanic demographic, which like the African-American, when it’s very tech savvy to the Facebook, you know, the Google ads, the social media channel, whether it’s SNAP or it’s it’s absolutely critical to reaching this consumer group. What are the data points I didn’t throw out is that every year the number of Hispanics receiving STEM related degrees is doubling.

A lot of these young folks with STEM degrees are going to be getting into the engineering world and innovation and entrepreneurial world, that’s a great indicator of future.

Yeah. Do you think, like for these brands, do you think it’s do you think it’s like developing a whole new brand for this market, or do you think it’s modifying messaging around existing products? Or how do you sort of think where do you think the breakouts will come from?

I think it’s going to be both, but I would rather not. I would rather focus on new brands or existing brands and giving them a makeover so for example, chips.

Right. So everybody knows tortilla chips. Right. And who doesn’t have tortilla chips right now in their house somewhere or the last month had them in their house. And so everybody does it. But but here’s the big company we saw the other day. And this company is focusing on formulation and they’re using cactus to develop their product. That’s much more healthy. It’s a different ingredient that’s better for you versus all the processing that goes to the whole corn base, MySpace future.

And in these guys are all young guys and gals who grew up either here with Mexican parents or in Mexico, know the community, know the consumer and have a reverence for the product. But also know that if you want to see kind of this, there’s opportunities for new growth of new product, you know, keeping the cultural side of it and I.

Justified in peppering you with all these questions, because my understanding is before this, you did private equity for a while focused on the U.S. Hispanic market. Tell me more about what were you doing?

Like what? What was the actual job? Look, were you acquiring companies? What is private equity?

Do I still don’t put you up to. So so for you mentioned I’m from Los Angeles, but I left at a young age and I did brown undergrad and then business school at HBS like you did. And after that I got to BCG and I worked at the Boston Consulting Group and did a lot of work in the US and Latin America. And I lived in Mexico for a while. I lived in Buenos Aires for a while and in the US for four years.

Of course, we looked at consumer packaged goods clients and I mentioned got into private equity and within private equity. One of my roles of the last war I had in the private equity world was looking at the US Hispanic consumer. And for us it was kind of a dual view of looking at companies that were established, brick and mortar businesses that were run by Hispanic entrepreneurs or any company with any ownership that was servicing the growing domestic emerging market in the U.S. market.

In the private equity world, as you know. I mean, even for folks that are listening, it’s it’s very similar to venture capital. There’s some major differences. Of course, some of the major differences are that you’re looking at companies that are a lot more established, have grown already, are more brick and mortar than they are technology and software driven.

But we got to know and I got to know the food and beverage world. And to be honest, this is not was not a priority area for for me in Vamos ventures. That’s not why I started Vamos Ventures. But it’s clear to me that that’s a meaningful opportunity for us in the venture world, because 15 years ago, 10 years ago and, you know, we didn’t have the kind of consumer targeting capabilities that we have today.

We didn’t have the broad outreach opportunities that we have today. It’s it’s really an interesting opportunity to focus on this area. And CPG, let me ask one question.

So I think a lot of people find v.C a little bit more inspiring or something like you’re you’re you’re creating something. You have a vision. But what do you think you can learn from private equity?

I think that one thing is that you have got to go not get carried away with with some ideas. And, you know, the private equity world, there’s a lot of tire kicking that goes on and you have plenty of tires you can kick. In the VC world you don’t have a lot of depending on what stage. And we’re talking about early stage. There aren’t a lot of tires you can kick, but certainly there are some, one of the things that we can learn there is that mature teams are are also good, thoughtful business analysis and strategy is worth something, kicking the tires and really kind of doing some diligence, not getting carried away with the latest fad. And the latest idea that’s coming out of Silicon Valley, I think is a good thing to to stay away from that and perhaps suspicious.

I I think that you are going a different direction than most of the VCs I talked to. And I’m not disagreeing with you, but like, I just had my since on the podcast. And he said that almost all of the deals they’re doing now were they’re writing a three to five million dollar check. They are pre revenue companies. And I think you actually, according to your website on your website, it says, we prefer companies with revenues.

Yeah, sure. And. Mark, obviously very successful here and not just here in Los Angeles, but successful investor, and that’s that’s great.

We will invest in companies that are, let’s say, CPG tech companies. And if you don’t have even five thousand dollars in revenue, then and we’re not maybe going to say no, but we’re going to absolutely create a different structure to invest it the fact that so many investors in the very early stage are basically safe agreement signers, that’s that’s fine.

But the world that I come from is that’s not what you’re paid for.

We’re investors and that means we do deals, we don’t sign agreements, we do deals. 

So going back to business ventures in the Velma’s venture story, when you go out to raise to start a fund and raise money for a strategy that, you know, four years ago was not that popular or well known, hey, we want to raise money to invest in diverse teams with a focus on Latin. People would look at me like I had two heads on my shoulder. What are you talking about? I don’t know. Founders and entrepreneurs, you know, is this a pipe dream?

And so I realized early on I’m going to have to do some deals and short pipeline so that we have access so that we can pick something, we can add value and that can be successful. And so I invest in about six companies.

You said something on a someone else’s podcast that I liked, but I want you to unpack it for me, which, as you said, there’s a difference between being a fund manager and an investor.

Yeah, for sure. So tell me what you mean by that. Well, you know, I’ll say that I received calls and emails, often from mostly younger men and women who aspire to be a venture capitalist, and that’s their words. And they’ll say, hey, Marcus, I’d love to talk to you. I’m so and so. And I want to I want to invest in a lot. Next entrepreneurs, for example. I’ll say, great.

Do you want to be an investor or a fund manager? And they’ll say, well, it’s the same thing. I said, Well, well, no, it’s not. I mean if you want to fund your now a fund manager and it’s it’s much more than it is writing a check than just writing a check. If you want to be an investor and you take out your own checkbook, you write a check.

You’re an investor now and that’s great. But if you want to raise money from other folks and third parties, you’re now a fiduciary and you’re a business owner and you’re an entrepreneur. And there are many parts to that business. And if you don’t have experience in it, it’s a it’s a it’s a tough business. Right. First of all, I don’t know anyone. I don’t know Minnie. Maybe you do. But if anyone’s come on your show and said it’s an easy business, I’d love to meet them.

But it’s a hard business. And I’ll tell you, I’ve seen a lot of things happen in my own experience in the private equity world that have blown up and how you deal with it. And I think if you haven’t seen some of this and spent 10, 15 years, doesn’t have to be that long. But for me, it was 10, 15 years of listening to your senior partners tell you, Marcus, don’t do that. Here’s why they want to do it like this.

Here’s why. Stuff you don’t read in the textbook. But I also sometimes counsel to spend a couple of years, you know, come work here or be a summer associate with us or do these things and and dig in and learn on somebody else’s dime, you know, even if it’s our time.

And so you can get out to market and do that.

And that’s great, because I think you just said, come work here and you can learn on my dime you are hiring, are you not? Do you want to say that on this show?

Yeah. Yeah, we are. We’re still building the team out and we’re looking for somebody right now who ideally comes from a different background is mid levels, had a few years out doing deals as part of a fund and coming in at a pretty senior level. That that’s great. And we’re also looking for somebody that’s very junior.

That’s great. I think you you’re setting up a lot of interesting sort of pipeline structures, which is great to see. Yeah, no, I agree with you completely. Like being a fund manager. It’s not it’s not all that sexy. The two and funding model, you know, with a twenty million dollar fund. Thirty million dollars and fifty million. I find it’s still not that much now.

Now anything else on on Vamos. I don’t want to leave the impression that you only do KPG, right? That’s right.

We don’t, we made a decision early on to say, look, we’re going to be pretty broad, but there’s a handful of areas that we really like, we have experience in and that we’re going to we see a lot in our pipeline, and that’s financial services, health and wellness, CPG, retail broadly and media.

And so Palladin is a company that I invested in some ago, the Chicago and New York based fund by two women. And they created a marketplace for lawyers that either must or want to do pro bono work. And on the demand side, families and individuals that need legal help can’t afford it. And it’s a great business. It’s it’s now raised three rounds of funding. We were part of the very first round and they’ve done a lot of great work.

And there’s a real value proposition there to law firms principally, which is how do you get your attorneys to do pro bono work that they have to do efficiently and save their time so that you can build them out at market rates. And number one and number two, you use this to attract lawyers because young lawyers say they want to be engaged, so tell like Vamos Ventures, you know, you had a cushy job. You know, private equity is usually larger funds.

You know, this is more this is a mission for you. I know you’re from L.A. So so maybe take me back to childhood and how that’s, you know, your journey to here.

I think there’s plenty of venture capital professionals out there that feel that it’s a mission because of the type of work that we do. It certainly is for me, for sure. And but I grew up here. I was born in El Sarino. I’m looking out the window right now and I see City Hall and it’s just beyond it.

And so I grew up there and born there. My my siblings were two and my parents are from Mexico. My parents immigrated to this country sixties. They met here in Los Angeles. But my brothers, my sister and I were all born in Los Angeles and then at a young age moved to Alhambra, which is just the very next community, the very next city outside of anybody listening to this knows L.A., you get to drive east and eventually you go right into Alhambra and then Pasadena.

But I went to Alhambra High and I’ve always been part of this. I’ve always felt part of the city in a weird way. The East Side, the real east side is very, very Mexican and have cousins, uncles, whatever. You know, over in East L.A., myself, you our family in El Serino and kind of really grew up in that environment, that Mexican house, Mexican neighborhood, et cetera. But when we got to all Hambro, I was a very different story in Alhambra.

We were probably one of the first Hispanic families on our block, hebra. And but in a matter of years, three, four years, it was all Hispanic. And it was really interesting to see in the high school that I went to Alhambra High Public School, very large. I was half Hispanic, half Asian. That was my world. Very, very different than the brown, for example. But, you know, I remember, you know, I grew up loving the city of Los Angeles.

And my my parents love the city ballet. So they would take us everywhere downtown to see, you know, and they built the Bonaventure Hotel. We would go up and down the elevators. That was our weekend event. And so but you know what? I got into Brown. They had an event on a Saturday or Sunday. Bel Air, and it was for admitted students, and I remember clearly my dad and I driving down Wilshire and his truck.

And I swear to you, when I was 18 and driving down Wilshire and looking around and thinking to myself, where are we? I have never been anywhere in this part of the city. It was possible to grow up then in those days and be very sheltered. The original point is that I grew up here.

I was born here. I love Los Angeles. But I would say that I love and identify with a particular part of Los Angeles that is not a very broad piece of it necessarily. Nothing against the West Side or the other valley. You know, I grew up in the San Gabriel Valley. I get it. We’re not San Fernando Valley. But but that’s the part that I definitely I completely agree.

I mean, I’m in the house that I grew up in right now. And I think it’s a big trend, actually, in L.A. versus San Francisco, San Francisco, everyone moved to San Francisco to do entrepreneurship. I don’t think you feel the same commitment to the community as you do when it’s the community that raised you.

And so.

And how did you see your parents immigrated here? It’s kind of the American dream. How did you end up, you know, going to Brown, where you were you were they, you know, were you just very academically focused?

And I was very motivated. I was very ambitious young kid. And I wanted to do the best and I wanted to be the best. And I thought, OK, where can I apply it?  But it was my parents, completely American dream, super hardworking, super entrepreneurial, resourceful, tenacious, smart, common sense, you know, stick to it, Omnes Froogle, everything you want and find.

And an entrepreneur, they have me. And and so that’s that’s part of the reason why Vamos Ventures, you know, it’s when somebody tells me, look, Marcus, I don’t think there’s a pipeline for this or I don’t think there’s any entrepreneurs out there that, like, I grew up around this. You cannot tell me that this doesn’t exist. I’ve seen it all my life. And, you know, Peter Thiel is very famous, saying in his book One Zero or one of his articles about one of the questions that he has zero one zero zero one zero zero to one.

Maybe I’ll come up with a one to zero. So maybe he’ll write one. But he asks the question right. Of what do you believe that others don’t believe or something that. Yes. And early on. This came up in a discussion and I said, yeah, I clearly I I don’t think most people believe that this community has amazing entrepreneurial talent, including in the tech world. And but I believe and I’m willing to bet on it. And I questioned myself many times, like, am I ruining my career and my life that no, no, I have you know, I had to follow my instinct on this one. And that’s that’s what drove it.

I mean, immigrating is an extremely daring, entrepreneurial endeavor.

You know, you say, oh, it’s scary to start a company. Well, changing moving countries is is a daring endeavor. Absolutely.

And so now I’ve heard you, as I said, I heard you talk about what you’re doing with with the entrepreneurs who come and pitch you. You can invest in all of them. But I think you’re doing a lot of giving back to the community. How do you think about those those ventures and what you want to be building there?

Yeah, you know, it’s it’s really hard. I think we’re all investors and we all have our number one priority is generating returns for our investors. And we’re very clear on that. If you start a fund, as I do, to to give energy and momentum to creative expression through entrepreneurship of entrepreneurs of color, if that’s your mission, then how do you reconcile that with having to say no to ninety five percent of the folks that reach out to you and they don’t just reach out to you.

They say things like, gosh, I’m so happy to see what you’re doing. Marcus, congratulations. Thank you for doing. This is amazing. Gosh, I’ve been telling you, by the way, I’m an entrepreneur. You what we’re doing and then what? Sorry. Not for us. Yeah. Oh, don’t reply.

Yeah, yeah, yeah. I mean, that’s devastating. And I’ll say we got four things to do.

One is we recognize everybody may not be the very day you email us. It may be a week or two later, but we’ll recognize everyone who reaches out. It’s not easy. It’s part of what we think adds value is that we see you and we recognize and number two, we we provide feedback. If you want it, we’ll give you feedback, honest feedback. Three, we’ll make connections. If we know anyone that could help you on your journey, we will make the connection and then for you will have an open door.

And if you want to come back, if you have other things you want to discuss or you have a new company in the future, whatever it might be, we’d love to hear from you again. This is not a no don’t ever bother us again situation. And we found that that’s all great, but it’s not enough. And so we developed a program called the Founders Roundtable and oh, no, no, sorry, it’s brand new. We’re actually launching this next week.

It’s it’s actually the founders roadmap, you know, zero one one zero what’s instead of the founders roadmap it’s a monthly video, fireside chat discussion with a founder and an investor. 

And so we’re going to talk about what works, what doesn’t work from a lens of a Latina entrepreneur that has started a couple of companies, has raised a couple of rounds in this company and what works, what doesn’t work for her. And then turns out, coincidentally, a Latino investor at a local financial clocktower ventures. So so a friend of Arizmendi actually at The Onion. And so this is a great, in my view, a really interesting opportunity to do several things.

One is to promote these two young women, an entrepreneur or an investor. And give them a platform to articulate their personal brands and then more kind of bricks and mortar or kind of brass tacks would be what what they look for as an investor. What’s what gets immediate no.

Here’s what I struggle with the most in terms of what gets an immediate no or yes. It’s the founders. Right. And the stage we’re investing in, it’s a lot about the founders. And I’m not great at giving feedback. Like if the reason I’m not investing is because. A view that’s a much harder thing than hiding behind sort of I’m not investing because I don’t believe in the tailwinds of the market.

How do you think about giving meaningful feedback when it’s, you know, it’s a more personal sort of feedback? You know, this this also comes up and there’s a particular example of a founder and we had gotten to know each other and had developed a relationship and so is fundraising. And he was frustrated and kind of expressed frustration. And I said, hey, can I can I be really honest? Sure. I said, well, and it was a very honest personal feedback on attitude, on behavior, on the way you’re dealing with the way you deal with folks.

And nobody, I think, disputes that. You’re a smart guy. It’s these other things. And honestly, people this is not just I’m going to write a check. It’s somebody’s thinking, do I really want to deal with this guy for five to 10 years?

Is there anything else I missed that you’d like to talk about otherwise? This is great.

Well, you know, I would like to say I know this is L.A. based podcast and we’re relatively new on the scene. But I would love to just develop relationships and get to know local funds and investors and collaborate, you know, over time and start the process of getting to know each other.

That’s great.

I’m excited for the enduring institution that you’re building and it’s it’s a very exciting time to be building what you’re doing. So it’s so great. Thanks for being on the show and thanks for doing your work.

You bet. Minnie thank you very much for having me. I appreciate it. And I look forward to being in touch with you.

Thanks, Marcus.

Arjan Schutte — Core Innovation Capital

Great discussion with Arjan Schutte about democratizing prosperity and running Core Innovation Capital, a finTech fund that measures its impact on society and has invested in Ripple, NerdWallet, Synapse, Fundera and more.

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Arjan Schutte is the founder and managing partner of Core Innovation Capital. Core invests in financial services companies that empower everyday Americans. Core is making seed and pre-seed investments out of its one hundred twenty five million dollars third fund. They have a great portfolio of companies like Ripple, Synapse, Opportun, NerdWallet and more. Arjan, welcome to the podcast.

Great to be with you. Great. I heard you say that you are your mission is something like to democratize prosperity. I really like that, me too. How’s that working for us?

Well, if it wasn’t obvious that we needed it before covid, it certainly is obvious today. And how’s it going? Well, mixed honestly, you know, worse, we’re a small fund, and it’s a big, gnarly, complicated problem that that needs more investments and is getting more investments but can’t only be investments. There needs to be a policy side to it as well, which on the side of my desk, I’m trying to figure out how to do a separate story.

But there there are so many ways in which the private sector can figure out this set of public sector problems. And it’s just fun to see the emergence of mission driven fintechs of so many shapes and flavors out there chipping away at this. Yeah.

What are the what are the big levers are where you focused? So we really started looking at the unknown under banked where we perceived there to be a boatload of people, shockingly so I had no idea how many people were on an underbanked and then be a complete absence of technology, like it’s kind of an old school world of like, you know, place based check cashers and such that serve that industry at significant scale. Consumers are spending like a hundred billion dollars on stuff that you and I get entirely for free.

Where where does that come from?

Yeah, it’s fees. So I want a cash this check, oh, that will cost you one to 10 percent of the of the of the face value of that check for me to assume that you didn’t Photoshop it and give you cash in return or its fees on payday loans or on title leases or, you know, a whole litany or on Western Union checks, Radware, or even just paying your bills like a shocking number of people walk into a physical location, 7-Eleven to pay their bills.

Right. Like we do this for free. I get I get miles for paying my bills. Like I’m actually making money, paying my bills. They walk into the 7-Eleven, I actually don’t really know the experience they’re having, not had to do it myself. And 7-Eleven charging fees to pay their bills. Yeah.

So you’re walking with with with your with your Comcast, you know, paper receipts and you say, I want to pay this. And they say, great, you know, do you want to do. How long do you want to take to, you know, typically like if you if you want to wait a week, it’s free or cheap. And if you need expedited today and that’s typically, you know, how long you’ve waited because you’ve got kids and you’re in you’re hanging onto your cash, you know, as long as possible to wait for what you needed for.

And then when you come at the 11th hour and you want to declare today, it’ll it’ll cost you up to 20 bucks per bill just to have it expedited in real time so that the power doesn’t go out.

So are you looking at, you know, solutions to eliminating those fees? How do you approach that? Yeah, so. By shifting from a cash based economy to a digital economy, you can eliminate a lot of this stuff. And so that starts at the payroll, right? Because how people end up with cash in their hand is because they get a paycheck and then they take that to a check casher and then they sort that out.

Right. They put some in their pocket use up to pay your bills. You pay your rent in a sense of home, wherever your home is. And, you know, and that’s kind of how you conduct your whole financial life there. And and it’s very fee extractives. If you can get direct deposit, which which is a very positive trend that has grown in the last 20 years, where a direct deposit started with something like eight percent of the population, and now it’s something like 93 percent of the population.

Very positive trend. And so then you can do a lot of these things digitally or more or less digitally, and you can chip away at all the middlemen basically who are who have got their hand in the middle of the transaction.

Hmm, play this out for me a couple of years? Sadly, it’ll look pretty similar for a couple of years yet because our infrastructure lags dramatically. So, for example, we’re like the only modern economy that doesn’t have a real time Federal Reserve system. So ACH, the automatic clearing house, which is like, you know, the way our techs used to run.

And now everything digitally runs from our bank accounts is not real time. And so consequently, all of these lags are still there. Those need to be eliminated. And check has been or cash has been eroding pretty consistently for decades. But what people don’t realize is that the amount of cash in circulation is so high that even if it continues to erode at the rate that it has for the last 20 or 30 years, it will be a prevalent form of payment for another two hundred years.

I had no idea. Nor I know and of course, you know, that won’t be a straight line and it’ll be an accelerating line in the punctuated line, but not. But the point is, you know, the bigger point is like where we’re going to have cash in our lives for much longer than most people presume. Hmm.

So but OK, so back to the infrastructure not being at a point where in this country, you know, our infrastructure needs get upgraded, I guess.

Will you invest in sort of the more infrastructure things and and why not why can’t we just copy other countries.

Yeah, great idea and, you know, the the benefits of being in a competitive free market economy are that we’re great innovators and the disadvantages are that there are no autocrats who will mandate a single standard.

And so the way banks are regulated is extremely complicated. And there’s not one prudential regulator, there’s four. And so there’s banks of every shape and flavor, and so then it’s just like an endless quagmire of political constituencies and bureaucracies that other modern economies can, you know, can just have a have a government mandate to say we’re doing this. Now, that is less the case here. And what was the other part of the question? Well, I’m just interested on that.

So we have four regulatory regulators, is what you said. Do you think the regulator. Do you think there’s regulation that is potentially feasible that could really move the needle here by any of any of our current regulators?

So the Federal Reserve Bank has had a real time payments task force for the last 10 years, have been on and off of it repeatedly, and nothing really has happened. We’re still having the same conversations. I mean, I got this I moved here from Holland and I moved here in the in the 80s. That’s a long time ago now. And in the 80s, I didn’t even know what a check was. A paper check. We still have paper checks, paper checks to our gardener, for heaven’s sake.

I’m sorry. It’s not funny. Yeah. OK.

And so, OK, so with your core your core innovation hat on here, you’re looking at these things and are you sort of looking at where you think the future will go with your realistic core innovation hat on and trying to back the entrepreneurs who are innovating on, you know, on these, you know, whether it’s real time payments or elimination of middlemen, I guess.

Yeah, we kind of have a technical, technological view of this Martin Luther King quote, I love, which is the mark, the arc of moral justice is long, but it ends. Oh, I forgot the end of it, but it ends positive somehow.

And basically, the way the way I see things technically is very similar. I feel like technology and and private markets, you know, in long form are are a are a are a march towards liberty and a march towards emancipation. And we’re placing bets against both the world that we wish the world that I want for my kids. And we’re placing simultaneously we’re placing bets on where we think the puck is going.

What are some great examples? Well, Ripple’s, a great example, along the infrastructure side, we have tens of millions of people move from poor countries to rich countries and send back every year tens of billions of dollars. And at a cost of somewhere between 10 and 20 percent, which is crazy when you think about it, the poorest people are paying such tolls and they’re working so hard and leaving. They’re like all these crazy. And we and we certainly see this in spades in L.A., like there are so many immigrants, something like half of Western Union’s domestic revenue is made in Los Angeles County, which is huge.

So. Ripple is basically just modernizing cross-currency settlement technology, right, like if you want to move money from here to there today, the probably Swift will be part of the story, whether you use it directly or whether Western Union or a third party uses it. And swift technology was literally written when the Apple two E came out, and we’re still using that today. And it’s moving 50 trillion dollars per year today. And it has a six hundred basis point error rate because someone fat fingers a number because it’s intended to number and someone has to physically type that in when you’re sending someone 300 bucks or 300 million bucks across the ocean.

Yeah. So keep going. So Ripple is building a modern tech stock that makes up real time and virtually free and secure and addresses a whole litany of issues that have kind of just gone by the wayside. Happen to you as a cryptocurrency, which is kind of a sideshow where the point is just as a modern tech stock for making cross-currency settlement as easy as sending an email is across borders.

How did you decide that this was actually going to be, you know, a startup disrupting this multi-decade old industry? How did you decide that this would actually work and be worth betting on? Well, as you know, right at its dumbest, we basically look at Team and Tim and so this was an incredible team. Chris Larsen is a serial visionary who founded eLoan and he called it. Right. He founded Prosper and called that right and has always been and in the scheme of things, not that many people who are right repeatedly.

And so there was a formidable founder who is a force of nature, and that’s an important part. And then there’s a TAM know, that’s like a trillion dollar tin, like the world spends two trillion dollars on fees for getting money from A to B..

But otherwise, honestly, when we invest it in, like, you know, mid 13, we had no clue that any bank would ever buy them, let alone be moving billions of dollars across borders with them today.

And we were willing to take a big bet very early, and I’m glad that we’ve done it, although there’s plenty of examples where we did it. You know, I rue the day.

Yeah.

And so. Right. So this is your third fund. You’ve been doing this for a while.

Also, just can you tell me the story of how how you came to be doing this?

Sure. Know very much by accident. So out of college, I fell into a startup. I hacked my way into college grading system, and that got me a job at a startup down the hill in Portland, Oregon. And so I was developing educational software and had a real B in my bonnet around, you know, making education better by by developing software for the Media Lab in MIT, which your firm has a connection to, and a couple other education startups.

And then someone gave me a book in 2002 about Muhammad Yunus and Grameen Bank and micro lending, which is all completely new to me. And I read that cover to cover over a weekend. And I was like, holy moly, that is awesome. I love everything that that it’s about, and I was just blown away how this is basically a Bangladeshi man who was a US trained economist and who learned about free markets. And he went back and he devised a system of lending which is economically empowering, which is incredibly efficient.

These are loans to the poorest people on the planet of Earth, and they have one to two percent default rates, which is insane. Jamie Diamond would kill for the thrill of a default rate from a prime customer. So anyway, I was just like, wow, this whole thing is so very cool. And so I was looking to start something like that in the US. I realized for a variety of reasons that microfinance isn’t going to work in the US.

And someone introduced me to a bunch of hippie bankers in the south side of Chicago who had started a financial institution called ShoreBank in the 60s when all the banks were getting a lot of shit for redlining and they were not making loans or black people lived. And these were a bunch of renegades who moved their bank into like the South Side black ghetto of Chicago and created a cottage industry around community economic development. And now there are hundreds of Shore banks around the United States.

And the other aha was, you know, they were 50 years into their journey and that whole cottage industry was serving one half of one percent of the population. And so I was like, well, this is great, but it doesn’t scale right, like half a century later, it’s just barely scratching the surface. They’re incredible.

Place based organizations are hyper local. Mm hmm.

And so how do you solve the problem at a national level? And so a woman called Jennifer Tushar and I started a think tank spun off from ShoreBank called the Center for Financial Services Innovation CFSI, now called the Financial Health Network, and started asking the question of how can technology basically. Creates economic empowerment, and I started making small investments off the side of my desk and one thing led to another as like this will be my next startup, so.

So many questions there. Can we can can I rewind and ask why microlending doesn’t work in the US? Yeah, totally. What makes microlending work is shame and shame is a is a. Is a deep cultural phenomenon, and the reason that the default rates are so low is because there is relatively little migration in poor communities in developing countries. You’re kind of grow up in the same tribe, in the same place, and so every week you pay, you make your payment against your loan and you get together with a handful of other people.

And if someone doesn’t have payment, then the other ones in the group have to pay for the person who couldn’t pay. And the shame is the red like it is just unconscionable to not make a payment, there’s just no fucking way that you’ll do it. And hence, it’s so people scramble and just make it work because they’re because they’re they don’t want to live in shame with their neighbors. And for a variety of reasons, good, bad or indifferent and not all bad, you know, we don’t quite have that cultural construct here and and poor communities are much more migratory here.

So you came from a think tank and now Core, you’re here in L.A. Kat, who I know a little bit. She’s in the Bay Area and you’re you’re investing in the US.

Across the US.

Yep. Fantastic. So let’s go back to kind of what you’re investing in.

We talked some about infrastructure and fees. You know, it seems like fees don’t matter if I’m not making any money. I mean, not don’t matter. But like how do you think about helping people have jobs, keep jobs, have jobs that pay more money, that sort of aspect?

Yeah, that’s a great question. Something I’ve been I’ve been much more mindful of lately, 10 years in. And we collect both our financial performance and we measure the externalities of our work. So what is our social impact? And our portfolio companies have in the aggregate created about forty five billion dollars of savings for twenty five million Americans. 80 percent of them are low moderate income. And that’s starting to really add up. And I’m really excited about that.

If our investors didn’t care about a return and thankfully all of them do, and thankfully all of them are happy we would have an incredible social return on investment. Right.

If they were all foundations and they gave this to a charity, it’s something like we’ve created six hundred dollars for every one dollar that has been invested in the core in terms of of measurable value to an end consumer, which is should be a wake up call to philanthropy, which can hardly deliver this kind of our why.

But all that you know, all that said, I’m cognizant of the fact that. Cheaper and better financial services are positive, but only mildly so. And what people, as you say, need much more than the cheaper alternative to a payday loan or a cheaper way to find an auto insurance or whatnot is they need more income, they need more steady income, and they need better protection from shocks because it shocks that send people down these rat holes that they can never come back out of.

So better, smarter insurance. And then on the income side, you know, we’ve we’ve looked for quite some time in small business finance, which is a big driver for income. We spend a lot of time looking in and around housing because for so many people, home ownership still is. There is the the main way to create some form of wealth. It’s basically forced savings regime across all of the positive and negative stories is net positive for most people.

And you’re measuring your social impact. I just didn’t don’t want to let that that that comment go away.

I don’t know a lot of VCx who measure their social impacts.

Yeah. I don’t either. More should I said read like we’re badgering our portfolio companies to measure everything, not just their financials. Read to read like we’re talking about OKRs and KPIs all day long and what are the right ones and what are our dashboards and all the stuff.

So we measure what we care about, right you know, like we have a bee in our bonnet about leaving the campsite a little bit better and I feel like, you know, being in this asset class, so many people do.

We’re like, we’re all doing this because we want the world to be a little bit better.

How how how do we know we’re doing? Well against that. We’re like we know how well we’re doing or not financially. And for almost all of us, that’s basically it. You know, we’ve measured it for a decade now and we found lots of opportunities to do a better job and to and to avoid this kind of business model, to seek out this kind of business model.

Do you have any specific it sounds specific recommendations.

Yeah, we basically measure three things skill, quality and alignment. And scale is like, are we reaching enough people because the reach five people, not interesting, we want to reach like the lion’s share of the US population. That’s the way you can make a dent. And then within within the scale is like reaching the right people. We’re like super wealthy people. They’re fine, the super wealthy. 

And then quality is like, you know, are are we advancing better quality products that are cheaper, that help in other ways? Read like by using this, your credit score can go up really good performance can actually be net positive in other ways or you’re better protected in case of a shock or, you know, et cetera, et cetera. 

And then alignment is kind of the adventure veteran. I’d like if we’re right, we’re not compromising returns. In favor of social benefits, if we’re right, then therefore investing in companies that create more value to consumers, they’ll be more valuable companies. And so we’re just mathematically measuring the correlation between the financial performance of our companies and the social performance of our companies. Mm hmm.

Mm hmm. One of the things you said was it’ll lead to improved credit scores or things.

Can you tell me some about where that’s headed and how does data factor into the future?

Yeah, and so many exciting ways. Great answer. Thanks.

Like we’ve we’ve had credit scores for a long time and credit scores have have basically taken very few inputs. Our performance on other credit instruments, those are the traditional trade lines. And we’re increasing nontraditional trade lines all the time. And it’s a it’s a fairly laggy process. I invested in two thousand seven in a company called RentBureau that we sold for not that much to Experian that collected rental bureau rental payment data so that you could report it and build a credit score.

Only now, how many years later, 15 years later, this. The FICO nine score contemplates rental data. And but that’s an accelerating curve of adoption in terms of non-traditional data, and then people use a credit score for more and more things, are the permissible use for credit scores is expanding, not contracting. And that’s just the official credit score in the official credit bureaus.

There’s a whole litany of of unofficial credit scores and another interesting trend of data that I’m super excited about is. You know, today it’s FAANG, the big tech companies have largely monetized our data exhaust.

Mm hmm. And I’m excited for that to shift. Mm hmm. And for us to be able to monetize more of our own data exhaust.

Mm hmm. To come back to an earlier question of like, you know, how do you make up for people’s income? I’d like since the 70s, the how we’re paid for our time has flattened well, our productivity has gone up.

So that’s that’s why people are basically, you know, dusted for inflation as poor, rich as they were, you know, 40 years ago, more or less. You know, we need to find more and different ways by which to bolster our net income. You wrote a great title. It was something like ten, nine, nine problems, but two eight one. That’s pretty good because there’s got to be a lot of different ways of bolstering, as you say, our income.

More people are making more of their income on form ten ninety nine versus form W-2. So as a contractor versus an employee and just as a secular matter, just for purely financially, that is to the consumers. Disinterest. Because our whole social safety net for four, however good or bad it is, I am a European, so it’s bad here.

Is is conceived through four two. Mm hmm. Right.

Are pre tax benefits are accessed for one in retirement health insurance. All the stuff is through a W-2 relationship, not a personal relationship. So that is a policy question, and I think.

The sad reality is like what made America’s middle class the richest middle class in the history of the planet. Was the labor union, hmm? And it was Labor who we love to hate today who fought tooth and nail, and it did ugly things in ugly ways and just pushed and pushed and pushed and pushed obscenely.

You know, in ways that is very distasteful to to us modern people, but got like a working class, a great income, and with labor mostly dead and in many cases I feel like. Rightfully so, random in so many so much meritocracy has been upside down but what will take its place, right, because.

Yeah, so we’ll see. Meanwhile, we’re writing checks against things that can just create financial efficiencies no matter where things go, but it is a real question. Yeah.

So I want to save time to ask you a couple of other questions. But in terms of where you’re writing checks, I think we kind of covered your your point of view of the world.

Anything else about Core to know? 

I can’t compete against the next guy or gal on finding a full stack developer. But where we can really help is like, you know, your chief risk officer, your chief capital markets person or, you know, that kind of thing. That’s easy for us. And then navigating all those all those relationships, how do you find a bank? How do you find an insurance carrier? How do you deal with the state regulators versus the OCC versus the FDIC versus the Fed?

All that stuff? We love that stuff.

It shows, that’s great. OK, first first random question. If you if you could start a company, what would you start?

What would it be solving?

I think I’d want to start a company that employed a lot of people and paid them a great living wage and built an ESOP in a world where ESOPs don’t really exist right in the startup world, everyone’s in ESOP. And that’s kind of part of the ethos here. That’s not true in most of the economy. And with no pensions, the lion’s share of people are just making their money on their hourly toil. And so so I’d like maybe like start a light industrial company and like, you know, make auto parts or plane parts or drone parts or something like that and and build a great ESOP so that people could really build, like, you know, intergenerational wealth as part of a normal working class gig.

Mm hmm. So having equity in the company that they are building, I like that.

Um, would you say, like, do you feel like you did a big career change in your life? Like, I was done with DA Wallach who was on tour with Lady Gaga before becoming a biotech investor. I of the.

Oh, he’s amazing. And but he was such a big career change. Like, do you feel like you did that?

Yeah, totally, yes, very much so. I feel like I’m an accidental v.c. I’ve I’ve always just followed my nose and my career. I have I’ve never made the, you know, the move to the like, learn a skill or look and use it later.

I’ve just always followed my nose right and realize that the best things that have come to me have been a function of serendipity and not volition.

I think this has been a great discussion. I don’t think I have a lot of other questions. I know I told you I was going to ask you about about how you evaluate founders, because I heard you say something great, which is actually negotiating the terms, yet a lot comes out.

Yeah. I always tell the team I wish we could negotiate the terms before we negotiate a term sheet. Right. Because everyone’s courting each other right before that point. We want to be the VC of choice. They want to be the entrepreneur of choice. And so it’s all best foot forward and everyone’s courting each other and it’s all good and it’s typically way too fast.

And you have no idea who the counterparty is, which, by the way, I think is a is a problematic phenomenon where we’re engaging in ten year relationships, literally ten years plus for successful outcomes and forcing on both sides, you know, forcing this into a you know, into a seven, 14 day decision process. Neither party knows who they’re dealing with–unless you do for better. For worse. We did an analysis for L.P meeting the other day or the other month.

To see how long we’ve known founders before we get a check on average at 17 months. Hmm, that isn’t to say that you need to run the 17 month series a process to get our dollars. Don’t. I’m not saying that.

But on the term sheet, you know, instead of you’re not courting each other anymore, you’re suddenly negotiating and there is such a diversity of how we negotiate. And there is so much useful signal for making an investment decision in how a founder negotiates, right, someone can be a product visionary but not be able to strike a deal if their life depends on it. And you kind of have to do all kinds of deals in order to make a company work.

Hmm.

And so, yeah, we found ourselves occasionally in situations where like, oh, my gosh, like we’re really doing this for like we’re. Yeah.

Well, I’m not going to ask you any more about negotiating term sheets, although I could instead just say thank you so much for coming on the podcast.

And, you know, I hope you I hope you can bring back the American dream.

Really. Well, it’s going to take a bunch of us, so thanks. I really enjoyed it. I so appreciate your your happy curiosity and enthusiasm for for your subjects.

Mark Suster — Upfront Ventures

Mark Suster from Upfront explains why the best time to talk to founders about fundraising is 3-4 months after their last fundraise.  
 
He was kind enough to share that framework and others this week on LAV.   #longla

View Transcript

Today I have Mark Suster with me. I was planning to say that Mark is the best known VC in L.A., but there was a big announcement earlier this week. Until recently, Mark was the co managing partner with Yves Sisteron at Upfront. But as of this week, he is the co managing partner with Kara Nortman as well.

Mark, I’m pretty sure that the Kara announcement doesn’t come as a big surprise to most people in L.A. Tech. But I will say it’s a big deal to women in VC, it’s a big deal for L.A. and I know it’s a big deal for Upfront. So congratulations. Thank you very much.

I appreciate it. If I could just say briefly Minnie, you know, my observation about the industry. We know that just a few years ago, only seven percent of VCs were female, so. Ninety three percent were men. And it’s an outrage that that lasted for so long and wasn’t questioned earlier. I tell the story publicly. I called an LP almost a decade ago, and when I was first trying to recruit Kara and I told them is no longer an LP, but not for this reason.

But I told them I was looking at recruiting Kara and its first response was, I hope you’re not hiring her just because she’s a woman. You didn’t even let me say what she did. And I said, OK, so Princeton undergrad, Stanford MBA, five years at Battery Ventures, credit card debt that IAC had an operating role where she helped run Citisearch. Now that I’ve told you she’s more qualified on paper than me, she’s more qualified on paper than Yves.

Can we just talk about, like, what she’s good at in my own recruiter. But that’s like the headwinds that we face. And then secondly, when you look at the great women of our industry, whether I look at Ailleen at Kleiner Perkins or even Mary Meeker. It seems somehow that women had their quit their firms and go raise their own funds in order to be in power.

And the model for our industry has got to be different. We’ve got to promote with them, because if you are in a fund that funds six, seven, eight, nine, 10, 11, 12, we’re like serious pools of capital are aggregated. You know, that’s where women need to step up and have leadership roles. And I think more people in our industry are going to just have to get out of the way and help make that happen.

Kara is not only more qualified on paper, she’s more talented than Yves I are.

And I just look, fifteen years from now when I look back and say, what did she achieve? I’m certain it will exceed anything we’ve done before.

Yeah, I also I feel like things have changed, like it feels for me. It feels substantively different. The the awareness and the people reaching out not to say anything has been solved. But I’m hopeful for the trajectory, so what does this mean for you? Are you then just going to be hobnobbing with Reese Witherspoon?

I would say Kara’s more likely to be hobnobbing with me than I am. I’m not really a celebrity, hob. No, I’m I’m sort of more of a book. Ish computer guy, but so so I mean, I’m still managing partner, right, so I’m still my primary duty’s investing. So nothing really changes. It’s really about apprenticeship. About power sharing, about inclusion/

How do you approach the apprenticeship? And I did ask four questions for you and one of your questions is really good. She said, how do you mentor people to still maintain cognitive diversity? 

So cognitive diversity matters a lot to me. And I’m going to give it to you in a story about Kevin Zhang, who’s a partner Upfront.

So Kevin came from a very nontraditional role, which is that he was an associate at upfront. We had never promoted ever an associate the partner.

He was a video gamer, somewhat introverted biology undergrad at Harvard, went to work at Boston Consulting Group in their health care practice. When he joined like quant, he ran circles around us. He was incredible. And like, he’s just an encyclopedia.

But he was an introvert, so he wasn’t a chess pounder and he wasn’t an arguer. And so I didn’t think he would even become a principal. I just thought what a great resource to do the work. But I started realizing over time that he was also very good at building his network.

So he was getting access to people that were more like him and the people that are like him, who are PhDs at MIT or Georgia Tech, that people like Kevin, a lot more of them are introverted and they’re not chess pounders. And I think humans are very tribal, and I can’t just have all chest pounding Jewish people.

Right like that.

Can’t be it can’t be that. And, you know, all loudmouths and and we have chest pounding, not Jewish people, too. But, you know, it can’t be that persona. And I started to realize Kevin was bringing something really important to the way that we thought about deals. And I started thinking about the puzzle pieces of how we bring together a team that all kind of have the same.

Let’s say ambition and competitiveness, like the same traits that you look for in a partner, hardworking, willing to do the work, you’re willing to do whatever it takes to help founders and being founder friendly like Seth Sternberg, once when I did a podcast a decade ago, he he said to me, short people hire short people and tall people hire tall people. And I laughed.

But but like short people should hire tall people, right? 

Right, and you hired or promoted Kevin, which is fantastic. And you hired most of the partners who are at Upfront now.

And give me a little of the history of you at Upfront.

OK, so let me let me first say one thing, which is the most recent partner we hired is Aditi Maliwal. She was on the podcast, she was great. She’s wonderful. She’s quite young and all the best ways. She’s an old soul. And Kara hired her. You know, we all hired her. But Kara led the process. I said to her, OK, I want to add a female partner. I didn’t say I want to add a partner. I want to add a female partner, and, you know, I don’t care if that sort of rubs a few men in the wrong way because, you know, for hundreds of years, men have had the 90 percent advantage.

And if we’re not going to fight hard to change the numbers, the numbers won’t change.

So you asked about me. I joined the firm in 2007. I was one of six partners when I joined. When I came in, I had already worked with Yves for seven years, almost eight, and I’ve said to me even before he hired me, that he thought I would be managing partner one day.

And we kind of had a 10 year plan and it only took four years, but that was like more circumstances than anything. And so in 2011, I became co managing partner and Yves was on my board of my first startup. 

He’s always nice. He’s always friendly. He’s always a gentleman. Right. And and he gets what he wants with sugar or honey, I guess, as they say. And, you know, watching someone, like, accomplish so much without ever having to be tough.

There’s a lot you can learn from that. Sure.

Sure. I don’t know if this is two questions or one, but it came from Kara. So it’s a good it’s a good one. She said, we all know you have big inspiring frameworks, which I actually didn’t know, but I like that and then explain your style debate.

So I’m not sure if that’s two or one. So roll with whichever one you like.

Well, I I think the single hardest thing for smart people, because almost everybody that we deal with in our worlds are pretty darn smart, right.

But I think it’s a thing that a lot of people struggle with is contextualizing knowledge and information.

And that’s something that I think as a skill that I’ve worked on for the last 20 years and being able to put ideas into a framework, into a box and contextualize them and be able to reference them and say, OK, now I have a decision framework and I can I can deviate from the framework. But I think a framework is a useful place to start from.

What’s a good example of contextualizing an idea and putting it into a framework? Well, for example, what should we be funding? What’s important to fund, you know, and and having like a compass of what fits in that box of what we should fund and when should we fund it? And, you know, I’m trying to develop frameworks for how we think about that. And how we thought about that in 2009 is very different than how we thought about it.

In twenty, twenty, twenty nine, we could sit on the sidelines for six months. We could take our time, we could ask them to hit milestones, we could look and see and we could write a two and a half million dollar cheque for twenty one percent of a company.

And they would be they would have customers. They would have references. We could do all those references. We had very few people like competing for the deals. And so our mindset was very different. Today, almost entirely, what we’re funding is pre revenue. Wow. Almost entirely. And why is that? OK, so here’s a framework for you is, you know, I look at the most expensive round of venture is the round in which they’re raising 10 to 12 million dollars at twenty five to forty or fifty, maybe up to 70 pre.

And maybe it’s 20 million dollars because they have enough early signs that they attract all the capital that wants to compete for those early signs and metrics, but not really the guaranteed success. So you’re paying right now if you have a billion dollar fund or a billion and a half dollars fund. But that’s the world you exist in. But our medium first check is three point five million dollars and our median ownership on first check is twenty one percent. And we know that.

But let’s take clubhouse. Right. The clubhouse could be a transformational company. Like, I’m not a hater at all. I applaud everything that they’re doing. But like clubhouse is like, let’s chuck it out there.

Let’s have some let’s have a great team of engineers working on a problem and like, iterate, iterate, iterate. But like from day one, it’s not like really solving a big world problem.

And it’s like having spent years building this thing. And the third thing that really matters a lot, Minnie is founder Upfront fit. Hmm. Yeah.

And we spent a lot of time thinking, is this someone who really wants to work with us and we’re willing to walk if we don’t think that’s the case. And so there’s a lot of attributes we look for to say, is this somebody that we truly want to work with for the next decade of our lives?

My related question is, it seems like if we’re all playing the differentiation game, like I’m more differentiated than, you know, the guy down the street, it seems like the wrong game to me. Like it seems like I’m adding no value if I’m giving you your eighth term sheets and filling. It doesn’t have to be me. It could be anyone. I’m not actually helping you any.

And I’m not sure I understood the premise,I think differentiation is everything. So let me say this.

Minnie, as you know, I always spend time saying if you look at investing, investing like VC is like a pimple on the butt of the whole world of investing, it’s such a tiny, tiny, tiny thing that we do here that we think is so self-important.

But the real money is like things like public markets and commodities and, you know, currency and all the big dollars.

And they always talk about edge like if you’re if you’re a public person and you’re investing against everyone else, you have to have edge. And I think this is don’t talk enough about edge know, they kind of do, but they don’t really.

And I would say, look, you have to know something or somebody that very few people know, and that’s something you’re not going to be the world’s expert on it and you’re not going to be the only person who knows that if you’re the only VC knows that you’re talking about the wrong market. But my goal is to make sure we’re not competing against eight hundred bucks. We might be competing against eighteen. And so I’ve asked everyone it up front to have a practice area.

And not to be scattergun. So, for example, Kara, when she joined, I’m like, you can take some time to figure out your practice area. So she did a few deals in different categories. And very quickly, I said, I think you would be great at cybersecurity. You have, like, amazing relationships. It’s a growth area. We don’t cover it as a practice today.

And people love you in that sector. You’re smart. You did it at Battery Ventures. You have like that history. And then, lo and behold, she’s gotten into great cybersecurity deals. And here’s the thing is great deals in a category like FleetSmith, which Apple bought, and she made a great return in two and a half years after investing.

But like success at Fleet Smith and Open Raven and bright like success begets more success in that category.

So let’s go through them, Aditi in our practice, focus on FinTech. And that said, she’s spending all her time on fintech. Greg has done marketplaces. He came from eBay like he knows marketplace is better than most people I know. But look at it. He did go, you goat is selling.

I can’t tell you the exact number, but I will tell you that probably in twenty twenty one it’ll pass two billion dollars with with a, B with a B like this is a real company.

Yeah. And Greg was at the idea of formation stage of goat. Right. Like it’s really like a lot of it was his idea. He doesn’t like to take any credit for a lot of it was his idea of threadup which is a marketplace. He hand-picked a company called Rally.

And I think Rally is going to be one of our great, great investments and Rally.

What they were doing, nobody was doing was they were creating fractional ownership with SEC approval to trade initially in cars, collectible cars, but now into collectible items like sports cars and memorabilia.

And it’s such an amazing marketplace model. But like that’s what happens when you do that, Yves, you may not know, but like he was the head of North American investment for Carrefour, for which for a period of time was the second largest retailer in the world behind Wal-Mart. This is pretty Amazon.

And he invested in some tiny companies called Starbucks and Office Depot and Costco and Dick’s Sporting Goods and PetSmart and Jamba Juice. And I could go on on behalf of Carrefour. That’s what led to the creation of Upfront Ventures. So he knows the grocery supply chain. So it’s no mistake that he’s focused on sustainability of food and supply chains and did appeal sciences, which is an amazing company now valued at north of a billion dollars, and Ynsect out of France, which we already talked about.

So that’s his practice area. I have Kobie Fuller, who sourced Exact Target when he was at Insight Partners, knows a lot about the software market and marketing automation. And I’m like, dude, lean into that. Like there’s a ton of great companies out there. So he funded like Bevy and Cordial and a number of players in that sector and he runs in those crowds.

And Scott does a great company called MetaCX, but that’s his practice area.

So my practice area. Sorry, Kevin, Kevin, Kevin.

He focuses on video games, his personal passion. So he had Seriously, which was bought and bought for hundreds of millions of dollars, by the way, which a great return for upfront. And he does applied biology, which is as undergrad at Harvard. And then he went on to do that, as I told you, at Boston consulting group.

And my practice areas is computer vision. And I’ve been spending a ton of time on computer vision companies, anything from Nanit the baby cam monitor, which we’ll do tens of millions of revenue this year, also next year, and density, which is using sensors to monitor how people move around office space, which is just like record growth and covid to Osmo, which is doing children’s games.

So we’ve all got our practice area because we’re looking for edge to know people that let fewer people know and topics that fewer people know.

So so that’s great and made me feel like I need to go find my practice areas a little bit better, but but, you know, it’s my ultimate goal is to serve the entrepreneur.

Right. And that’s kind of why we’re just not your ultimate goal is to make money. If if that’s your ultimate goal, you’re in the wrong business. Right. Like, note that. No, it’s your proximate goal, not your ultimate goal, your job. And this is what VCs don’t understand. Your job is to return capital. 

You need you need to be comfortable waking up in the morning with that idea because this is what VCs are confused about.

OK, that’s your job. Your job is to take someone else’s money, combine it with your money and give them more money than they gave to you. That’s your job. Now, what is your product? Your product is an entrepreneur.

And it’s true that people like me know anyone great who joins this industry joins it because we want to work with entrepreneurs and we want to help them on the journey. I get that right. And that’s where we spend a disproportionate amount of our time, you know, maybe call it 80 percent of our time. And that’s what excites us.

I get all that. But the reality is the job of a VC is to return capital. I hear you.

I don’t think they’re incompatible. Maybe I should have said my goal is to help these entrepreneurs. They can be incompatible.

Because if you if you define your passions wrong or your priorities wrong, you can chuck I can chuck half a million dollars into a whole bunch of passion projects with entrepreneurs I want to work with and feel great about it, but not return capital.

I hear your point. I still think that’s the way you return capital is by helping the entrepreneurs build great businesses. Of course I agree with that.

And of course I’m being controversial intentionally. It’s like a CEO, you know, who’s in love with their product, spends a ton of time on their product, but their job ultimately is to return money to shareholders right there. They have to understand that that their job is not to be a great product person.

Their job is to be a great CEO.

Yeah, I think I mean, it’s interesting. Look at Google. I was a product manager. Right. It was always what’s best for the user, what’s best for the user. And that will, in the long term, bring Google boatloads of cash.

And so I still kind of have that mentality to this, which is it’s a long term think if you’re fooling yourself.

If I could say so. Does Google do what’s best for the user bullshit, you know, shit. Hold on. Hold on. Yeah, let’s answer that question.

What Google does is they optimize ads so that you can’t find what you really want to find anymore. Or in SEO, you click on someone who’s nothing more than an aggregator for themselves to make money.

And I will tell you this story, which is like anything I go to find, any product I go to find, I go to find, you know, I want to find like nutrition products or I want to find, you know, what is the best biking shorts or I want to find that anything that I’m interested in and I click on it is some damn version of like someone who aggregates six other e-commerce sites and then has a click referral to that so they can make my I can’t find like it’s not a good user experience.

Google is not good honestly to the user at all. They’re optimized around how they make the most money for their shareholders and themselves. I love Google, but but you need to be honest about what it is.

Well, you know, my pushback there is I can’t speak to your bike shorts or really to the past, you know, decade go to find a hotel, go to find like a flight, go to find a doctor, go to go find any category and tell me if you really find it on Google.

But I sat in there for ten years and it has drinking the Kool-Aid, drinking the Kool-Aid and watching the decisions and pitching products. And saying to Patrick, who at the time was our CFO, and, you know, I haven’t been there since Ruths been there and I’ve heard things have changed. And but, you know, I pitch products to Patrick and I remember really well and this is not, you know, the e commerce, but it was the Arab Spring.

And during the Arab Spring, they had shut off access to satellite TV and they’d shut off access to the Internet. They restored access to the Internet, but no one could get their news from satellite TV. We were going to start streaming Al Jazeera, you know, on the Internet, which hadn’t really been done before. And Patrick, bless his heart, was just like, look, I was like, he’s got tons of costs, no revenues.

And he’s like, this company. You need to think of it as half movement, half public company. And like, I heard that over and over.

And like, I greatly admire Google. I greatly admire them as a company. And I think they have the best and brightest people out there. So you have no pushback from me. But to pretend that their goal is really to benefit the user I think is misguided. If you were the, you know, the king and waving your magic wand to mix metaphors, you know, would you just beef up our regulators?

It’s a really hard topic. I give people like Jack Dorsey a lot of credit where people are hating on Jack Dorsey. He has a really unenviable position and I think he really is finding a good way to balance a really tough situation. Sundar, I think the same like, you know, Google historically has been very progressive in how it thinks about China, for example, and not kowtowing to China.

So I have a lot I know it’ll sound like I don’t have a lot of admiration. I have a lot of admiration for them.

I have less admiration for Mark Zuckerberg and for what Facebook has done. I don’t know. I guess I would struggle to be an employee at Facebook. And I don’t understand how there’s not a bigger mass exodus. But Mark also has a really tough job. Right, because he probably has compass a lot better than it publicly appears to us. And he’s got to make really tough decisions and he’s trying to do that.

And but but to your question, I have a book recommendation that I’ve been telling a lot of people about called Americana. And it’s a four hundred year history of capitalism in the United States, and when you read about the fights of two hundred years ago, three hundred years ago, one hundred years ago, 80 years ago, you’ll realize that we pretend like these fights that we’re having, this is like, oh, my God, the world has become awful.

And we’re finally having these fights. These are like political fights that we’ve been having for hundreds of years. But but if you read about it, they talk a lot about the history of regulation and the emergence of the consumer economy in the United States, which was the first global place where you truly have consumerism, was a lot of hucksters pitching it to people that didn’t work and that were harmful.

And so people were using the mail and they were doing it via the mail. And then the government realized that if they didn’t step in and say, wait a second, like if you’re telling people to swallow this cocaine product, that’s going to be harmful to people and that’s going to impact our society, our economy, our ability to recruit for wars and other things that governments do.

And they realized they had to play a bigger role. And that’s where regulation came out. And regulation is both a pain in the ass. And the problem with regulation is it’s often legislated and lobbied for by people who have vested interests in setting it up to restrict competition. So I’m not like pro tons of regulation, but I’m not pro zero regulation either.

So I don’t know whether to go back to VC or just roll on global, no, we can go back to VC and we’ll go back to VC. But where was. Oh, so OK. So here is maybe where I need to change my mindset, according to you at least, which is where I was going with this was if I’m giving someone their eighth term sheets, I’m not really helping them in their journey all that much.

If we approached a deal that already had seven term sheets?

My advice to the partner, and as you know, it’s usually not seven, like we sometimes approach a deal that has two term sheets, and I will say to the partner, shame on us for not being there nine months earlier. It matters when you meet the people. Right. So, again, framework and I’ve drawn this all up, I have like the power keynote slide showing this, which is the best time to go out and hunt for a deal and play offense is right after they’ve they’re funded.

It’s probably like three or four months after they’re funded. So let me assume that someone raises angel seed money and let me assume that that’s going to last 12 to 15 months. If I get involved that month, 13, I’m an idiot. Why? Because it month 13, if they’re still talking to me like I’m probably the only one looking. Right.

So, like, if it’s like two months and you’re out of cash and it’s like it hasn’t gone well, I waited too late.

If I let’s again, with my 15 month framework in mind, let me say that I’m looking at month 11 when you really probably are actively talking to people. I’m also too late because now I’m one of eight and like I don’t really have a source of differentiation. If I think on the 15 month time frame and I’m talking to you in month one or month two even, I’m probably too early. Why am I too early?

Because you’re exhausted from having raised the last round and you’re just like, let me just do my job.

Right. So so the sweet spot is month three.

In this case, month three to maybe month nine, you have a six month window. And the earlier I’m talking to you in that process, the more likely I am to get to know you, the more likely I am to get to know the rest of your executive team, the more likely I am to be one of three, not one of twelve, the more likely I am to demonstrate value to you where you might say God, wouldn’t it be nice taking money from Minnie rather than even having to go out to market?

And if you’re in a competitive market, if you’re not there a month three like you’re too late. So when people come to me in month nine or month eleven or month thirteen and I come to me, I mean my partners and they’re like, we have to rush.

They already have two term sheets.

And I don’t know, maybe we fucked this one up and maybe we should just look for the next thing now.

Yeah, yeah, yeah. I mean, I was going to ask you some about the summit or like moments that stood out for you. But you interviewing Josh Kopelman, that’s who it was, I think, when he said his average like first meeting to term sheet has gone from ninety days to nine days.

That bloom like that made me rethink some things.

Well, but but neither you nor I are Josh Kopelman and in good ways and bad ways.

But but they they have the ability to do a nine day decision. And I guess we don’t add up front. We don’t. I mean we can we have. Yeah. But that’s not my best self. Yeah. And we write slightly larger checks, we take board seats and everything we do.

What they’ve done brilliantly is a diversified portfolio in which they do some board seats and some larger checks. But a lot of what they do is smaller checks, earlier stage. They have more diversity of deals and then they’re really good at downstream VC relationships. And so they’re like, OK, we wrote five hundred seven fifty K into this deal. We’re doing a lot of these. Do we trust the series A investor who’s going to take the board seat because they’re going to have to do all the work and they can refine everything for how they get more deals done.

Totally. And and they, like you, also have this big following. And so I guess one question for you is you’ve got, you know, a huge presence on social media and everywhere, you know, do you think that that’s a you know, how do you think about the value of that? And do you encourage that for for others?

The hardest thing to compete for in any market, but particularly in the market we exist. And you already talked about like how do you break out of being the eight term sheet? Right. The hardest thing to compete for a share of mind.

And how do you get your mind like you can only take so many one hour, one on one meetings or thirty minute zoom meetings before you tap out, but you can influence share of mind in entrepreneurs vs. corporates, anybody by getting an opinion out there. And if I spray and pray my opinions across a lot of things, again, it’s also not that useful, but if I write 10 blog posts on cybersecurity or 10 blog posts like Fred Wilson said, I don’t know, a decade ago or so, I was on a panel with them and he said, it’s like Venus flypaper.

I put out the flypaper and I say, I’m interested in crypto. I’m interested in computer vision. I’m interested in geriatrics, I’m interested in marketplaces. I’m interested in cyber. And I read a bunch of stuff about that. Well, everyone is in that sector starts to pay attention first of all, like putting ideas out and getting criticized for them is how you either strengthen your argument or realize your argument was wrong.

So there’s a lot of goodness that comes from that. But it’s really about share of mind.

Yeah, OK. So I know I’m over. I know I’m out of time. So do you like that though? Do you like being a fairly public person?

Like, I feel like a lot of people, you know, you can be a target if you if people disagree with you or don’t like what you’re putting out.

Oh, it’s a love hate relationship. I am a target. I do occasionally piss people off. I don’t enjoy that. I really don’t like making anybody upset. I’ve learned from it. You know, earlier in my career, I would just my opinion mattered more than anything. So I would come out and say something really controversial and mention a company by name.

Then you fast forward three or five years and those people, like, resent you. Oh, my God, what did I accomplish with that?

So I really try to counsel people, be positive. I hate all the people who are, like, hating on Quibi right now. I think they fucking know what went wrong with the analysis on Quibi. So stupid. And there’s people who are publicly doing it who drive me fucking nuts and I’m not going to mention them by name.

Do you have any surprising predictions for L.A. in the next few years. Not for L.A., I think, like the long term structural trends for L.A. are amazing.

I think the flight from San Francisco and I’m from NorCal, like, people don’t know that because I was born in Philly and I’m such a big Eagles fan.

But like I grew up in Northern California, I grew up a software coder, like I’m at my heart, like at Silicon Valley, like geek. But the flight is real and it’s going to persist.

And I think L.A. is going to continue to rise, but it’ll have its ups and downs like every market.

Yeah, yeah. Well, Mark, thank you so much for your time today. I really enjoyed I could chat for hours, but thanks for coming on the podcast and thanks so much for all that you’re doing for L.A. and the community.

I appreciate it.

And thank you for having me and thank you for doing a show it’s great

Petra Griffith — Wedbush Ventures

One of my new favorite LA investors, Petra Griffith, joins to discuss Wedbush Ventures. 

Petra talks about starting a new fund, how she’s seen venture debt work well as non-dilutive funding, and lessons on the content business from Netflix and Yahoo.

View Transcript

I am excited to be catching up with Petra Griffith today. She built and launched Wedbush Ventures earlier this year after a stellar career in a variety of operating roles at Yahoo!, Netflix, GrandPoint Bank. Petra and Wedbush have really burst onto the scene in L.A. and we have been looking at a lot of great companies together lately. Petra, I feel like I’m getting to know your tastes.

Would you say seed, sometimes precede and and how L.A. focused are you?

Yeah, great question. Yeah. Pre-seed, seed. And I like L.A. I have a preference for L.A. but if I look at the companies that I’ve invested in so far, about half of an L.A. and half are not in L.A. you have this is why we’re so compatible.

We’re exactly the same seed, precede half in L.A.. OK, so start me with a little bit of your background.

Maybe maybe take us back. You’re a product manager at Yahoo! Yeah. Yahoo’s changing CEO’s faster than we can remember.

What were you up to? When I joined Yahoo! In twenty six, kind of in the heyday of Yahoo! Actually joined on the team that came out of Idealab, Overture team that was acquired by Yahoo! I joined after the acquisition.

Spent six years at Yahoo! Really learned and really got deeply embedded in ad tech and spent a lot of time and really got passionate about how do you make advertising a good experience for a consumer and for an advertiser. 

Search marketing is great because it’s a great user experience and a great advertiser experience display advertising less so and so we did a lot of work on on. How do you make display advertising a better consumer experience, native ad social ads, its ability to share an ad, does that make it any more worthwhile? And it really doesn’t left. So, yeah, late last year at Yahoo! In twenty twenty through five CEOs, I was on a they called it a skunkworks project.

We didn’t fit into any of the silos at Yahoo! And every CEO, so we were directly funded by the CEO’s office.

Every CEO that came in was like, stop, what are you doing, how are we spending money on this? And we had our little pitch deck and we’d go out and we present to them and say, Oh, this is great, keep on going, keep on going. And so, like, literally took a month to ship an alpha and it was painful. And, you know, Marissa Mayer came in at that point. I was just emotionally done.

But it was really, I’d been in LA since two thousand and three wanted to stay in L.A. 

And having spent so much time in the Bay Area and seeing just how you have these alumni that leave tech companies and then start the next one and invest in their friends, you were starting to see that happen here in L.A. and that got me really excited. And I joined Grandpoint Bank to set up their venture banking division.

So you join Grandpoint ventures, joint venture bank Grandpoint bank, right? No, no, that’s important. And and doing venture banking, but I don’t even really know what that is. So maybe you could give me sort of one on one.

I didn’t know what that was either. When I started I started Grandpoint Bank was a bank, was private equity backed. The founders had started, I think, two previous banks. Before then sold those and so they’re banking entrepreneurs and they’d raise money and in the 2008 downturn to buy up banks that were good banks but put them together and get efficiencies of scale, they had banked legalzoom and their previous company and legal zoom had there were an angel investors and legalzoom and legalzoom had become the largest deposit holder in their previous bank.

And they’re like, Oh, these startups are great. You know, tech startups help us bank more startups. And and I kind of went into that and realized quickly that with startups, one is not checking accounts, but they want capital. And so set up a venture debt product at GrandPoint Bank and GrandPoint Bank, just to be clear, was very much a community bank, a regional bank. They were about five billion in assets when I left.

Did your traditional banking as a community bank. So what I was doing was a kind of a square peg in a round hole, so to speak.

So maybe you could tell me more about, you know, what startups need to know about venture debt. Yeah, absolutely.

So I think, first of all, it’s a very different animal. And I learned that when I was at Grandpoint Bank, traditional underwriting really looks at the cash flow. Does the business throw up enough, enough cash to repay the loan? And then also you always looking for two sources of repayment. And so there’s a lot of personal guarantees involved. You’re looking at the global cash flow, venture debt as a is it just fundamentally different kind of animal through the venture debt that I did?

A couple of different flavors of it is is your fund is your term loan. And so we typically would help startups with their series’s. If you reraised, you know, a five million dollar series, a venture debt would put on another two to three million on top of your series A and when it works really well, it is not as though there’s some dilution with the warrant coverage, but it’s it’s non dilutive capital for the company. It is.

There are you know, it’s not convertible note. It’s not a convertible debt where your interest rate then, you know, just become something that you repay and it converts into equity, doesn’t convert.

That’s what most founders are surprised about. A lot of times they’re like six to 12 month delays. And when interest has to be paid back and then when that happens, they’re like, oh, we weren’t expecting this. And it’s like, right when, you know, your cash flow is tied and you didn’t hit your metrics, I really think about who your partners.

And that’s one thing I really learned is that traditional banks have a really hard time with venture debt because it is such a different way of thinking. You’re not looking at cash flow, you’re not looking at the regular metrics. Instead, you’re looking at who’s backing this company and will this company be able to raise money in the future. And so I really, as a I would recommend for founders to really look at who is giving you this loan and have they been doing this for a while?

What covenants do you have?

Can you tell me a little bit more? Educate me a little bit more on covenants and warrants? Yeah.

So covenants will be I mean, basically covenants are there so that the underwriter can has it has a check in or forces a check in, because as an underwriter you want to make sure that you’re going to get repaid. And so covenants are basically triggers and sometimes they trigger a default and sometimes it just kind of trigger a conversation. And, you know, when you’re once you’re in default, like that’s the language. You should also look really look at, because if you’re in default, somebody they can call the entire loan companies, you can be in default just if you’re a couple of days late on your on your payment.

And sometimes you can be in default just because you didn’t hit your projection by a thousand dollars. I mean, it’s just it really depends on on what those those covenants are. And again, there’s like financial covenants and the. Or covenant’s like key person covenants like the CEO can’t leave, and so just really look at those covenants make sure you can meet those and then the warrants are it just warrant coverage and they’re usually tied to some sort of exit event.

The thing that I think a lot of people realize is that it’s not the Warren coverage that makes the economics for a bank necessarily, but it’s the deposits. And so these these companies bring large deposits. And that’s why it’s so attractive for banks, because, you know, you’re getting you know, you just flush with cash.

You just got a five million dollar raise that’s now sitting in a bank account. And so venture banks are banks that do venture lending will often require you to move your bank account over to that bank. It’s also like checking to that, like, do they have the right system to can they do the wires the way you want to? Like, that’s another pain point. Hmm.

I feel like a lot of the VCs I know aren’t really keen on having their startups raise a lot of venture debt or raise it early.

But we see a lot more companies as they raise their series A. They get those offers of debt. What what do you recommend?

Yeah, I think that series A it makes a ton of sense if the company is hit product market fit and it’s really just growth capital. I, I’ve seen it be very successful because you can kind of increase your overall raise by 50 percent, which gives you more cash to get to the next level and show more growth. 

OK, so you did that for a long time, but but you moved on from there, so I did. So what next?

Yeah, after Grandpoint Bank, you know, I got it’s a very banking is a very regulated industry and I actually think about that a lot as an investor takes like what it takes to innovate in that kind of environment. I really missed the unregulated world of media and had an opportunity to join Netflix, they were hiring their first product team here in L.A., focusing on originals and really thinking through what is the implications of original content.

And, you know, the culture of Netflix also really intrigued me. So I made that jump.

So so both of those are interesting about the product side and the culture side. But kind of on the product side, you know, what did you learn about making originals and distributing that content and how the product evolves?

Yeah, I mean, I think one thing you there’s a couple of things. I think one is original content. Is marketed often differently, so obviously, like the big shows across, all of the streaming players are marketed offline, but a lot of shows are like especially shows that are generated outside of the U.S. They’re on Netflix that you haven’t seen them out in the real world. And so how do you communicate that this is something worth watching?

If you’ve never seen any of the actors you’ve never liked? The title doesn’t mean anything to you. The communication of that is really interesting. And you really learn that a lot of our decision as a consumer, whether or not to watch something, is one trust in the platform. But to also like what? Emote like what? What is the emotional state that I want to be in for the next hour or two and just winning that trust over and over again?

So it’s like both the like how do you how do you how do you convey different elements of what the show or movie is about quickly to somebody, but also how do you gain their trust in the long term so that they’re willing to try something out new. So spend a lot of time on that and spend a lot of time on international content as well. And just how do you introduce people to content that is not in their language?

Hmmm, really interesting. I’m going to ask you more about content as an investor with your investor hat on. But but just the culture and what did you find in terms of moving from a bank to, you know, content production?

How is that culture changed?

Yeah, I mean, I think Netflix is is a jump from anywhere, but kind of going from from Yahoo to the bank and then from the bank to Netflix was definitely a I remember the first week just being like, whoa, drinking from the fire hose. You know, I just say, like, one thing that’s amazing about Netflix is just, you know, they treat you as an adult and they expect you to perform, but they also give you the freedom to perform.

And that’s it’s super liberating. And that’s the very positive thing about Netflix. I think the the thing that, you know, is hard for a lot of people is is just a constant feedback. Culture and feedback is not always you know, oftentimes the feedback is a positive and you get feedback from everywhere. And so how do you you know, especially as a sensitive person or someone who, like, really internalize this feedback, like, how do you work through that?

And how do you how do you figure out what feedback you want to take and which feedback you want to ignore? And how do you how do you work on that?

One of the people who I really love, Francis Frei, she was Harvard Business School professor who worked at Uber and talked about the culture. And she said feedback should be like five to one, positive to negative.

Hmm. Interesting. She’s like when you train a child or a dog, it’s positive feedback. How do you you know what what lessons do you take from that when you’re working with startups now about how they can build their feedback culture in the right way? I think transparency is really important. So the bank, you have to be you know, you’re dealing with other people’s money and so you have to be very strict about what’s allowed, what’s not allowed, how you train someone.

And so it’s just a little bit about being regulated industry. I grew up in Germany, and the vast overgeneralization, but if you talk to a customer service person in Germany, like they’re problem solvers and they’re like, try to understand what your problem is and then they figure it out.

And in the US, as a general rule, here’s like here’s my script and I will now read to you what I’m allowed to say. And so I always try to think about how do you create a culture that’s transparent, that’s about problem solving, that is not afraid to raise issues and not afraid to probe. And that’s the one thing I have to say that I really admired about Netflix is like you’re constantly probing, you’re constantly debating, you’re pushing each other, you’re questioning the status quo.

And then if you come up with information that proves otherwise, the whole organization will really, truly move around that.

And that’s the thing that I always try to talk to founders about is like, how do you know that? Like, can you prove that? Can you be open to the can are you open to to other data points that might prove or make sure that you’re not on the right path?

Hmm. And what about just one more question? What about sort of going from a bank to a very creative environment where you’re working on originals and there’s, you know, actors and producers and directors all involved?

Was that a big difference just lately? Yeah.

Okay, so you decide to be a VC for these services, always take on linear paths. Yes.

I think if you asked 20 VCs how they became a VC, you get 20 different answers.

OK, so but I do think that’s really interesting. How did you decide, OK, I’m at Netflix now.

How how did you go about forming this fund? Because you started it on your own, right? I mean, you are the only partner at Wedbush.

That’s that’s right.

Yeah. I mean, I think I think also to explain a little bit more like one thing I really enjoyed when I was in banking is that I came to banking with a tech background. And so I was able to really translate banking to to the tech world. And when I looked at what Netflix is going through and here you are, like this tech company who’s trying to innovate in a in an entertainment, which is a, you know, older industry and more established industry.

And so what really intrigued me there is like, you know, being able to to translate and build that bridge between two very different stakeholders, attitudes, cultures and being able to learn both. I hadn’t thought about this.

So I always think I don’t I think of Hollywood as sort of some dynamic, mysterious place that I never visit, but full of creative people. I don’t really think of it as sort of an older, established, almost more old school industry. But I guess, you know, traditionally really has been. Yeah, and there’s a certain way of doing things in Hollywood, like just for example, like marketing, it’s all about or not even marketing, but like all movies are made by demographics.

And what demographic are you going to target?

And and here’s how you’re going to finance it. And and and so Netflix coming in with this different model and also the whole production process of like we’re going to shoot a pilot first. And then if that pilot is going to stop this pilot around and the pilot gets acquired, that doesn’t actually even mean that you’re going to be show out of it. And Netflix just looked at it and said, no, we’re just going to buy the whole show and we’re going to put the whole show on at the same time.

So it was really threatening, I think, initially and still is.

Fascinating. And then you’re like, and now I’ll be a VC.

If it wasn’t quite a it wasn’t quite that transition.

But, you know, I think if you’re in an environment where you look I loved learning about entertainment, but I also realized it was not it was not what drove me. And your conversation with Z in the last podcast was super interesting, like this passion and curiosity question.

And I think I just kind of came to the conclusion that what I get really passionate about is helping people kind of take their idea and grow it. And I really miss the venture days of like finding people who who, like, just astounded me and would come with this insight that I had never thought of and and that needed capital and resources. And and I just I just love the energy of, like, take enabling ideas to actually come to fruition.

And I was not getting that, you know, in the role that I was at at Netflix. And so, you know, I left there with this idea of like, I want to get onto the capital side. I want to get into the early stage side. Didn’t quite know. I actually initially thought I was going to do a debt fund. And so debt is great, but that’s not like that’s not the right that is not the right stage for this. So what I really want to do is equity in like early stage, see, investing. And it’s like coming to that realization as one and then to like verbalising it is another.

And and so I remember it was like August of last year and I just had this realization and I was like, well. It’s a hard industry to break into, you know, how do I go about doing it? And I just remember just having one conversation with a friend and just saying, hey, this is what I’m thinking about doing.

And it was like, oh, OK, now I know how to help you. I was like, oh, OK.

And it’s like, you don’t think of it that way.

Like, you just think about like, oh, they’re going to make fun of me. I’m going to sound foolish or and instead it just enable people to open doors that they were willing to open for me.

Hmm. I mean, is it total aside, I think of mentorship, one of the big roles I think of mentorship is helping people admit what they want to be doing is admit things to themselves. Sort of. But that’s great.

So you sort of started talking about it and and then people could help you. And and how did that evolve into to Wedbush Ventures Fund one?

So I when I was a Grandpoint, being a Grandpoint, had acquired what had a commercial bank at that time and and Grandpoint Bank had acquired that commercial bank. And I had help with that, I had heard that they were interested in an early stage venture fund.

They had that previously set up a private equity fund and a hedge fund SBIC fund. And they own my own brokerage. And essentially they’re looking at what a different asset classes in which they can make investments or sponsor funds. And so, you know, had a great initial conversation with them. 

It also happened really, you know, amazingly quickly, like I had anticipated for all of us to take quite a while. And, you know, I put a just like when, you know, when you you think about something for a long time and then you have an opportunity to present it and it just kind of sat down one night and put my like, here’s my ideal venture fund would look like I put that on paper and the next day presented it to the Wedbush team and they said, this sounds great, let’s do it.

And the rest is history.

Fantastic. And so they are more like an anchor LP, like you’re you’re an independent fund. You just happened to sort of have their name.

Yeah. Have their name there. An LP. They do my back office and they also provide me their platform, I’ll say, I’ve been able to meet the investment banking team and the analysts and and that’s been actually really helpful for my portfolio companies and something that I probably didn’t wasn’t really thinking about when we were putting this fund together.

Yeah, fantastic. And now, you know, in terms of deals and things you’re interested in, you know, I keep sending you things that seem, you know, I keep enjoying looking at deals together.

So I look for things that I feel like I know.

And I also, you know, I’m a one person fund. And so, you know, due diligence is a lot easier if you know the industry and the space. They just naturally gravitate to things that I know. And so the. Yeah, so regulated industries is one thing I always think about or I always just having the experience of coming from a kind of a tech background such as Silicon Valley tech background and then coming into a bank.

And just like how do you you know, how do you think big picture, but still.

Work through like think big picture, but still work with with the regulation and figure out which regulations you can bend, but like build relationships to change and which regulations can’t change. And there’s usually a reason why they can’t change. And how do you work with them that and how do you really build partnerships with people who are already in the industry? I think that’s the biggest thing I saw in banking in particular, is like some of the early stage fintech companies just said, oh, we’re going to disrupt banking, we’re to get rid of banking and like those usually don’t work out.

If you need a bank as your back to build your business, you know, you need to what you need to find a bank that will will think creatively and not just see big risk factor, but you also need to be able to talk their language and get them bought into like that. You thought through the risks and because I mean the one thing I learned in making is that people aren’t you know, they’ve seen a lot of things go wrong.

And so when they ask questions, it’s not to be annoying.

It’s not to be, you know, but it’s just it’s actually very much because I’ve seen it before.

And so so I actually really listen and listen to their question and listen to what’s behind their questions, I think is important.

Yeah, interesting.

So, OK, so your background at at GrandPoint didn’t scare you away from FinTech at all?

How about how about content and your experiences in Yahoo! And at Netflix?

Yes, on the one hand you have like it’s a lot easier to be a content creator now. And there are all these platforms that make it very easy to be a content creator and authenticity like tik tock I think is amazing.

But I, I also just think about all these new subscription services that are coming about and and, you know, there’s a school of thought that says, OK, well, you know, if I have this niche audience, but it’s a you know, like if I can just find enough people that will pay me twenty dollars a month, that’s a nice business.

But I just think, I think about what’s the model after subscription or how do we build these subscription models that enable us to really pick and choose what we want, because I just don’t think it’s scalable for us to have like we’re going to run this whole cable model all over again where we are spending two hundred dollars a month on all these different things. And and it’s just not sustainable. And we’re going to get to a reckoning point where we’re not going to be able to, you know, pay the ten dollars for my my powder sports and my yoga and my, you know, like so I think a lot about what is the new wave of monetization.

And I also think about what’s the next platform, because everyone always talks about like, oh, I have this many followers on Instagram and so I can monetize those followers.

But nine times out of ten, when you try to take those followers off of Instagram and somewhere else, they don’t follow necessarily like they follow you on Instagram because Instagram is fun and they like to see you on Instagram, but it’s not like they like you enough to then go to the next platform that you’re on. And so I think a lot about like that. Like what is it again? Like you need to build it. So it works for both.

And we’ve thought a lot about the content creators that we haven’t really thought about. What’s the next thing that we as consumers are looking for?

When you’re thinking about the next platform, how how are you thinking about what that might look like?

Yeah, I think a lot so I think podcasting is super interesting, as do my podcasts right here. And the reason I say that is it’s a it’s something that that one it’s relatively new.

But audio itself is is something you can consume and so many more situations than you can video content.

And for podcast content, like how can you create, like, the Netflix of podcasts, for example.

And then in terms of like, you know, everybody says social is dead and I don’t know what it is, but I think there’s something there’s a next tick tock coming and it’s something around video. And just being able to communicate more closely with the person behind the video is my guess.

Right. So it’s it’s engagement or it’s it’s interactivity or something. Yeah. 

And you think that because it’s more authentic and more likely to give money because I feel connected to you. Yeah.

And I think this is something similar music.

Great music went from not making a ton of money off of the CD itself, but more of the events and concerts and merchandise. And so what’s what’s that equivalent? I think I think the willingness to pay for content will hit a wall soon.

And so I think about other ways in which people are willing or finding value in what this person is creating. And I think it’s around community, I think is around being proud of being in a community and being proud of what the community stands for. Totally.

Yeah. And I think it’s interesting, the community where you and I are talking about this, like my friend who’s been working on erectile dysfunction and hair loss e-commerce, and she was like, it’s hard to build community there.

Right.

Yeah, it was you and me, the private joy and public joy.

And I think a lot about this. Like, I think I think about these like small communities where everyone says, oh, you know, you don’t need a whole lot of people to monetize the community. And that’s true. But I think it depends on the community.

And I think there’s some communities where like like erectile dysfunction, you’re not going to have like a T-shirt saying merchandising stuff.

There are some interesting communities, though, that are very passionate and also very connected. And I think kind of programming towards those communities is interesting. I need to like Wedbush Ventures a little bit more in terms of, you know, what size check writing and how do you like to engage with your portfolio. 

Yep, so given that picked stage check sizes 50 to 100 K as a first check in with the intent of continuing to support the company, I like to get you know, as I said, I like to get involved with my companies going back to our Netflix stuff?

You know, can you coach people on on that sort of softer side, softer skills?

Yeah, actually, that’s one question I was going to ask you, because it’s something I think about all the time, like in the deck, if I get a deck and I don’t understand what the problem statement is and what the solution is in a deck. It’s like, OK, well, does is that just an innocent no or is that something I don’t know. What do you think?

Anything else in terms of advice, you’re giving a lot to founders or even advice you’ve been given.

I think focus is so cliche, but it’s something that I think a lot about also for myself as a one person fund and also her founder, like it’s just so easy to get. It’s just so easy to get wrapped up in and the next shiny object and the opportunity that falls into your lap.

And so just really being clear to yourself about what’s your success metric like. That’s one thing I learned from a mentor of mine, just like being just very clear about like, what is the one or two thing that the most to thing that you really want to knock it out of the park with and make sure you knock it out of the park and then the rest will just kind of go away?

Well, this is a great transition into my miscellaneous personal question section. So, Petra, what do you think about your success metrics for yourself in your life?

Who in my life?

Wow. I mean, ultimately just being able to look back and be.

All right, I’m going to give you two, because family is super important to me, relationships around me are super important to me and I always prioritize those. But I also I want to have no regrets and I want to embrace everything that comes in front of me.

Hmm. Do you have any good strategies for not having regrets?

My strategy is, and it’s not always effective, is just thinking about myself in the future. And is this something that I wish I had spent time on or not? And the other thing I always think about is like, is this going to be an emotionally happy is going to give me energy or is it going to take energy out? And if it takes energy out, then it needs to be quick no.

And also always making time for yourself.

I think that’s the biggest thing for me is exercise. It’s it’s my thing. Also, there’s a chemical impact on your body from exercise. For me personally, I was always I was a competitive athlete all through all through school.

Did I know this that you what did you play in college? I swim. I was a swimmer. Oh I was going to ask you, like, where do you get your confidence from? This was a question I wanted to ask, because I think it takes it’s it’s hard and it takes some guts to start your own venture fund. But do you think it relates at all to playing sports your whole life? I do I also think it’s cliche, but I do and I also think. As a swimmer, you just you learn to put your head down and just push through, and that’s something I learn.

You know, I started swimming competitively when I was nine, I think. And so it’s just like starts to become ingrained in you. And we talked about, like work life balance. And, you know, like I have twins and an older son and they’re now older and it’s a lot easier.

But I remember when they were the age of your kids and and everyone’s like, oh, my God, how do you do it? And it’s like when you’re in it, it’s just like, how do you minimize the drama? Do you just take a few deep breaths and and and just put your head down and move forward.

That’s great.

I love it. Well, I’m really excited to get to know you better. I’m really excited that we get to co-invest and be part of this ecosystem. And thanks for coming on the show.

Thanks for having me. It was fun. Yeah.

Bruce Hallett — Miramar Digital Ventures

Bruce’s new $100M fund, Miramar Digital Ventures II, invests early in software and data.  He explains why many VCs have gone back to preferring notes over SAFEs, and other insights on deal preferences and construction.

View Transcript

Bruce Hallett is a partner and one of the founders of Miramar Digital Ventures. Miramar is a seed and early stage venture fund focused on the future of data.

Miramar has about twenty five companies in their portfolio and about two thirds of those are Southern California based companies, many in L.A. But Miramar itself is based in Orange County. Bruce has been doing venture for a couple of decades and I am excited for what I’m going to learn from him today. Thanks for being on the show. Oh, it’s my pleasure.

Minnie. Great, well, I guess the first question is, did I get the introduction right? And can you share a little bit more about Miramar?

Yeah, I’d be glad to. We have a history kind of through two different series of venture funds. And I go back, we can talk about this later because that’s part of our connectivity with TenOneTen and Gil and Eytan Elbaz is that back in the late 90s when I was a lawyer at Brobeck, I was their counsel.

I was also running a venture investment fund with some other partners at Brobeck. So we were investors in Applied Semantics and a number of other companies. So that’s kind of how I got started in and really got the bug for investing. And then one of my other clients was Broadcom. I had taken them public and they almost wore me out doing lots of M&A nineteen ninety nine two thousand timeframe and then this decade partnered up with Sherman Atkinson, who had come out of his company, originally acquired by Buy.com, one of the early e-commerce companies based here in Orange County.

And then he went to L.A. to help with the turnaround at Intermix Media, which owned MySpace successfully did that and sold that to News Corp. 

So you went from from helping companies like applied semantics to kind of doing corporate venture in a sense at Broadcom. Right, right. Right. And then and then when was when did you when did Miramar come into existence?

Well, Miramar Digital Ventures, which Sherman, I, Sherman and I formed in kind of 2014 time frame we launched and that was about a twenty five million dollar fund and we were focused on data mobile data Iot. And then just earlier this year we closed on our second fund, Miramar Digital Ventures II, which is a good deal larger thankfully. And we hope to by the time we’re we’re done, have about one hundred million dollars under management in the second fund.

And so that enables us to invest not just at the seed stage in series, but to kind of keep up with some of the companies that have been successful in the portfolio, including crossover investments in companies where our first investments were in Miramar Digital one. But we’ve kind of reached our concentration limits, which you understand. That means it’s usually about 10 percent of your fund can go into a single company. And so in this case, with the larger fund, we’re able to continue into some of the same companies from Fund one and try to maintain some semblance of our original percentage in these companies.

So if so, with this larger fund, I imagine you’ll be will you be the leading seed rounds? Is that kind of a sweet spot?

As far as leading, we’re happy to co-lead, we’re happy to go in on convertible notes. We can do SAFEs if we have to. We can talk a little bit about that later. We kind of prefer convertible notes, but but, yeah, we’re we’re really looking for great teams who have high proficiency in AI and data science and are using it to transform existing industries.

Do you have certain trends that you’re following or on companies that are a good fit for you? Well, we first of all, there’s no such thing for us is too early. We are very happy to kind of go in even alongside angels and start out putting a couple of hundred thousand in maybe two hundred to five hundred as our sweet spot as far as the point of entry.

And then we have the capability of putting millions in in subsequent rounds. So we we love that.

And so how do entrepreneurs think about when they, you know, why go to Miramar versus someone else? I would say we’re we’re very quick, we’re very certain about what we do and don’t do, so we’re not there’s not a lot of mission creep with us where we go. We might do that. Let us spend some time and due diligence the nice thing about a bigger fund, is that we can expand the team and we’re looking to add some team members this time around. And and one of the areas we’ve added is Stuart McClure, who is the founder of Cylance, the cybersecurity company here in Orange County that was acquired by BlackBerry last year.

How do you think venture has changed and will change? 

Well, that’s a great question. It’s it has changed a lot. I mean, the big funds, you know, especially in the early 90s when I started working with, you know, Brentwood, Redpoint, Enterprise, Crosspoint, all those funds were sort of in the, you know, 50 to maybe one hundred million dollar size.

And that was pretty typical. There were a few funds and Silicon Valley that were bigger. But even the big funds in Silicon Valley might have been more like, you know, two hundred million.

And then, of course, the other factor is these just mega funds. I mean, these funds that are billion dollars billion plus and come in mid to late stage, but a lot of funds, a lot of those funds are going earlier.

It seems like I don’t know if Andriessen or who’s the best example, but a lot of them are now running their seed programs or something. And so I wonder what that what does that mean for for the for the those of us who are in the sub hundred million dollar category?

I think it means we better we better be there early and we better be there with conviction. And we also better be prepared that we’re going to have co-investors maybe from a series seed or series A who are mega funds and have that kind of tension or dynamic between, you know, we may, as smaller funds want to see more capital efficient. See, and hitting milestones and proof points and the bigger funds, if they’re starting to commit serious dollars, know part of their part of their model is to put as much money to work for serious ownership positions as possible.

A lot of times they’re not too sensitive on valuation. But sometimes, I mean, I’ve seen this. You probably have to where they they can kind of swamp a company with too much money and too high expectations. 

Yeah, no, I think it’s experience that, too. Oh yeah.

Unfortunately, a little like close to home for sure. Before being, before doing like I was a founder and we, we took it, we took a lot of money.

So I think, you know, from the venture point of view though, one question is, you know, in you’re a former lawyer who’s worked on deal structure. You know, are there things you can do on the deal structure to avoid getting smushed by the by the larger funds that can pour money in later? Well, there’s. Ultimately, the answer is probably no. But but but there are on the margin, there are ways maybe we could protect ourselves or steer things into what we think is a more prudent direction.

One of the way, there was kind of a mindset of early stage investors that there was a lot of times, you know, kind of an inclination to in addition to preferences on the preferred stock having participating preferred.

And so what that what that means is, you know, is that the preference just says, hey, you get your money back. You know, if there’s a if there’s a liquidity event before the common does, but the participation says you get your money back and then it’s like you convert to common and you participate with common. So in that situation, the investors with the participation get paid at least twice on their early investment. It’s kind of tantamount to at least a 2x preference instead of a 1x preference and sometimes can be much more.

So what what has happened is that as these rounds have gotten larger, like in the 90s, a company did an IPO or an acquisition at a two hundred to three hundred million dollar market cap. Well, now that’s just like a series B or C for most companies.

And if they hit that milestone, they’re on their way to being a unicorn. Mm hmm.

But the longer you can defer and maybe it’s permanently, perpetually you can defer having participation rights on the preferred stock the better, because as an early investor, you’re later going to get swamped by the big investors. If the company is successful, one of those big investors just have the same simple preference that you do, like a one X preference. It’s going to be a lot better for us and the founders not to have a huge stack of preferences that get paid and then participation again when the company goes public or gets.

So you’ve been doing this longer than I have and you have more background here.

So I just legitimately how often do you see the participating preferred and when does it come in that? I don’t feel like I would see it much at the seed stage right now. And I think liquidation multiples are usually come in later as well. But is that true and how common is it? I think it is.

I think it is true. And what I what I’m saying, though, is that in the 90s and even early, two thousands, VCs from the get go, the series seed or series A, investors would want the the preference and the participation. At this point, I think we’ve all figured it out as early stage investors. And the status quo is not to have a participation and just a one X preference, which means that if the company exits over that one X, everybody’s going to flip over and convert to common anyway.

Right. And everyone converts to common. I’m just learning this. You convert to common when you IPO and when you SPAC it turns out I believe that’s what I’m going through.

Yes. Yeah. That we haven’t had anybody that’s SPAC’d yet, but that is my understanding.

And what did you say at the beginning, I think you said you prefer notes over SAFEs. Did you say that? I did, yeah, I’m in safes, we’re kind of all the rage when they got launched out of the Combinator in twenty thirteen or so, the idea was that they were going to just sort of streamline the whole process by not having an interest rate, not being considered debt, going on the cap table instead of showing up as debt on the balance sheet.

And I think what’s happened over time is that, you know, from an investor standpoint, a lot of us have come back around and in. I have a preference for convertible notes, it’s not it’s not that we won’t do a SAFE, I mean, particularly if we’re the last investor in and everybody else did the safe and the terms are OK. I mean, one of the things the other things that got popular five or six years ago was not having any interest rate paid or discount rate or cap on safes and so on.

From an investor’s standpoint, it’s like, well, why not just wait until the company does a round of financing and get the same pricing, making a lot less risk? And the founders have to realize that for the risk your earliest investors take, there’s got to be some benefit. It shouldn’t be overreaching, but to have a 15 or 20 percent discount to the next round price is a good thing. Having some type of cap.

And then the other thing on a convertible note that we like is, you know, even if it’s a notional interest rate like five percent and we always want to convert that into the into the final, whatever the round is, it kind of gives you a little bump, a little benefit if it takes a while. So all those things contribute to our preference for a no versus safe.

And then the other thing is that and don’t hold me to this because I’m I’m not a tax lawyer or anything like that, but I believe there’s a benefit. If something goes off the rails, the company doesn’t work out. If it fails and you have a convertible note, you can deduct that as business debt versus a safe. I think you just it’s a capital a long term capital loss. 

Why is it sounds very basic, why do entrepreneurs still get in trouble with this in the sense of I sort of thought maybe you can tell me who are the best law firms? Aren’t there?

Doesn’t everyone sort of work with, like a Willson Sonsini, Gunderson or a Fenwick?

Or maybe I have the names wrong, but I’m curious, who do you who do you recommend entrepreneurs to work with? And shouldn’t that just cover them? I think for the most part, and all those firms are should be on the short list. I mean, Cooley, KNL Gates. There’s a lot of other ones to that and even smaller firms where there’s kind of spin offs from from the big firms and they’re very efficient. But yeah, it’s usually not a law firm thing.

It’s usually something where maybe the law firm isn’t even involved and the founder just got to a safe off the Internet and they just want to use that. And sometimes you’re kind of stuck with it because if they’ve raised too much money on the safe side, I mean, you’re not going to change it. So you just have to make the decision. Well, will I take the suboptimal document and go with it and be part of this round? Or do we need to reconsider the whole thing?

And of course, if we reconsider it and of course the company wants or would need to agree with this, we’d usually just sort of change the terms for everybody, you know, who signed the safe at the beginning. And we want to put something in place that is a little bit more formal and investor friendly.

Yeah, but I mean, it seems like we’re founders get in trouble. Also is is the layered notes right now as well, which is their thing.

Again, layered, layered notes from the standpoint of they’ll do one round round of notes for a two or three million dollars worth and then they’ll do another set that’s converts into the next round too. 

I was thinking, you know, I haven’t seen as much as you, but sort of a, oh we have a note with a three million cap and then a note with a five million cap and net with a seven million cap. And then the the round gets priced at eleven. And the person with the three million, you know, the founder doesn’t realize how much ownership they’ve given away.

Oh, yeah. Yeah. And and sometimes that’s not only, you know, kind of a showstopper from the founders standpoint, but if you’re a later investor, it is to or if you’re the person leading the round and you find out, oh, there’s a I’m leading around it 12 million dollars, but there’s a person with a three million dollar cap. I you know, I want the prior investors to be treated fairly for their risk, but I’m really betting on the founders and the founders aren’t going to end up with enough of the company that.

Mm hmm. And this is just the series seed array. So God knows what’s going to happen later. So you don’t want to see that happen.

And then how do you think about your own ownership getting diluted? That’s a great question. It’s probably going to be the end of the 10 year term before those deals see liquidity. But that’s also one of the reasons we’re in modeling this next fund.

We’re figuring that somewhere between 40 and 50 percent of the capital, this fund is going to get invested in later stage opportunities, most of which we developed in the first fund and are now in Series B, C, D and D. And so those are closer to liquidity. And we may even have some that are within 18 months or two years of liquidity, but they’re not going to be the, you know, fifteen to one hundred X that we’re hoping for and the winners at the seed stage.

But, you know, by getting some quick, you know, five X’s from the later stage deals that are dressed and closer to liquidity, it’ll kind of keep the keep the flywheel going as far as capital back to our investors and, you know, keeps everybody happy. Yeah.

And if you weren’t reinvesting into a round, like, how do you either for your fund or for your founders, tell them to think about the dilution they should expect in a series A, series B and and later rounds.

Yeah, I mean, it’s it it does hopefully stepped down as the valuation goes up, but there’s also a tendency to raise bigger rounds, so. It’s it’s the sort of thing where, you know, if a company’s had two billion dollar valuation and they decide, you know, they’re raising two hundred million, then it’s around a 10 percent dilution.

But, you know, it can be considerably more if they raise more money. And there’s a lot of there’s a lot of pressure to do that. And so, again, you know, it’s at that stage where it’s not venture debt, but company at that point where they’re you know, they’ve got the revenues to drive that kind of valuation. I think they ought to be looking at debt facilities and working with sophisticated lenders to use debt for acquisitions and other strategic initiatives versus necessarily just, you know, just kind of adding to big rounds of equity.

Yeah.

So before I get into the personal question section of this interview and tell me, is there other are there other things about Miramar or other thoughts you have for entrepreneurs that we should really cover?

I would just say that we’re we’re big fans of entrepreneurs. I mean, I think and and I would say this is true of most Southern California VCs, is that we see ourselves as supporting entrepreneurs, not telling them what to do. I’ve noticed that. In some parts of the country, there seems to be more of a mindset of, you know, we’re, you know, this fund, we’re masters of the universe. So when you get you get you know, we’ll give you instructions on how to run your company.

And I mean, some of them do real well with that. But I think we see ourselves and we love to converse with people who kind of see it as, look, it’s a journey we’re all taken together. 

OK, I really appreciate that. And first personal question is, is there a wetsuit hanging on the door behind you?

There is. And it’s it’s not mine, which probably makes it even more interesting. Sherman, who now spends most of his time in Park City, is a big surfer when he’s not skiing or doing VC So that’s Sherman’s wetsuit. And, you know, this is his.

So it’s basically just storing it in the office here. 

And do you have any advice that you really like either giving or advice you’ve received? Oh, boy, I guess, you know, it’s it’s just kind of fundamentally, you know, treat everyone with respect. I have appreciation for the job that everybody is doing, and I think people always, you know, show their best in that situation.

So that’s not a very articulate way of saying it. But that’s that’s what I believe. I believe that, too.

But it’s good to be reminded of these things. My mother says repetition doesn’t ruin the prayer. I like that. Well, thank you so much.

I think that’s all I’ve got for you today. And I really appreciate you coming on on the L.A. Venture podcast.

Oh, it’s it’s my pleasure.

Buck Jordan — WaveMaker Labs

Lots of insights on equity crowdfunding today from Buck Jordan.  He’s raising $50-100k/day (mostly on SeedInvest) for the cool robotics and food companies coming out of WaveMaker Labs.

He also has great insights on corporate innovation and how seed stage companies can take advantage of corporate partners.

View Transcript

Buck Jordan is the co-founder and managing partner at WaveMaker Labs. WaveMaker Labs incubates disruptive tech companies in partnership with corporate partners. They have a particular focus now on food and robotics. And I’m definitely going to ask Buck more about his experience as founder of Miso Robotics. And he’s also a partner at Wave Maker. But thanks for coming on the podcast today. Yeah, thanks for having me. Did I get the introduction correct? You got it right.

Yeah. We are innovating at the intersection of food and robotics, you know, for a bunch of bunch of reasons I’m sure we’ll cover later.

Right. I think I kind of called it food and robotics, which sound like they might be separate, but it’s really the intersection there. Yep. 

So something like Miso Robotics, where there’s a robot flipping my hamburger patties over.

Yeah. I mean, we we believe that the future of food is is changing pretty dramatically and it couldn’t change before essentially the past couple of years because because the price of robotics has been dropping to the floor. You know, you can now buy for like eight thousand bucks led in the US at volume of one, you can buy a six axis degree of freedom arm. And then for like two hundred bucks, you can buy Nantel real sense camera and tell an apple from an original pair and biometric data so it can grab things.

So now all of a sudden, really only in the past couple of years, the entire problem of automating low cost labor is is is relegated to more of a software problem and less of a of an expensive hardware problem. 

Something like a robotic arm is how much does it cost? I mean, so.

Well, I’ll give you like a timeline of rough, you know, like like twenty fifteen. A robotic arm might have cost like that, like a kind of a six axis robotic arm. It’s kind of like the size of a human robotic arm. The take would have cost somewhere between like sixty thousand bucks to one hundred thousand dollars before that, even even even larger. Right. When this all started in 2016, they were kind of running in the forties, give or take.

And then now, like I said, like there’s eight thousand dollar robotic arms, that volume of one. So, like, not even like volume pricing. So on land in the US, including shipping.

So got to ENSO and as six axis is what my arm does. No.

Well I guess wanted to, I mean it just needs a very articulate arm, needs like it means I can twist and turn in six different ways. Got it.

So you can just program that with software to do whatever you want.

Yeah. Pretty much. Pretty much like pick fruit, prepare food, cook anything, dispense anything. So it’s really neat really. Like when you work with the robotic arms you have have the ability to you’re mimicking how a human arm moves, not necessarily how to do a specific object like. So people look at Miso and then look at creator. Creator is a really cool company in in NorCal. They do they basically got something the size of a mainframe that prints burgers, you know.

And so Krater has taken this mechanical solution of like, you know, it makes a hell of a burger like kind of on the style burger because you’ve been in that restaurant, you know, but you don’t at but don’t ask it to make a chicken burger. Don’t ask. It’s to deep fry fries and a mixed salad. But but miso is a really flexible approach because it’s because we’re really mimicking how a human arm moves, because we use robotic arms.

And so the same piece of hardware can make a burger, can deep fry fries, can do prep, can do packaging, can do a whole lot of things.

So I find it super, super inspiring, super cool that I could just buy a a six degree, six axis robotic arm for a thousand dollars.

But tell me more about why why the intersection with food is particularly interesting to you. Well, because, I mean, you know, the best investments I think come from the really hard problems and I think that there’s there’s not a bigger problem right now or an industry that’s more under siege than the food industry. I mean, forget about covid for a second. Even before this industry was was scraping by on single digit EBITA multiples, you know, like the restaurants fail faster and more often than startups.

Right. So so this is an industry that’s under massive strain from from all areas. Like there’s there’s rising labor costs, there’s rising food costs. Real estate costs is going crazy. Delivery is introducing a whole new set of challenges. And most of those problems I mentioned are really well served by automation.

And then once you automate, that just kind of takes away the pain. But how do you elevate everything? You know, I mean, if you can automate all of a sudden the level of quality that you can reach can be so much higher, as well as the speed of service and consistency. You know, you can do things like adjust cook times based on the thickness of the meats and the heat at that at the at that particular point on the grill, because every grill is as different, heated, hot and cold points.

It’s really frustrating. And you can do things like coordinate things that coordinate all the food that’s happened in the kitchen.

It’s all very Jetson’s. And so with WaveMaker Labs, what I said at the beginning, which is you’re doing this in partnership with corporate partners. And so who are the typical corporate partners and how does that work when you’re starting these new endeavors?

Yeah, I mean, by and large, the corporations who are who are really well, it’s it’s all over the map because we’ve we’ve chosen to to focus in robotics and food because for a couple of reasons. One, robotics is a highly, highly specialized skill set that almost no corporation that that’s just generally in short supply in the world, but certainly the kind of corporations that we’re talking to, people who run large food organizations, they have no business and no ability to possibly have this kind of capability.

So so so we bring a really unique skill set to to an industry that is that doesn’t have any access to the skill set for the most part. And so the reason why we do this is because we’re not incredible idea faries.

What we’re really good at doing anything I wish, but what we’re really good at doing and what’s repeatable, more importantly, is that is that we can we can understand problems from corporations. And because we’ve got a really incredible, incredibly deep bench bench when it comes to technology and robotics, we can generally solve most of their problems through automation.

And then we and then we basically will go build it. We make sure that they supply a large letter of intent so that when when we have. Completed it, they buy it but like, for instance, we had a fifty million dollar, five zero LOI for our pizza concept, which isn’t called Maestro, please invest. And and that was from a store that had a pizza joint that had about 700 locations, so you’ve got like a fifty million dollar LOI from someone who says if you make these pizza vending machines, I’ll put them all over the place.

Yeah. And just imagine, like just just being a regular startup, like imagine. OK, like I think people are interested in these pizza vending machines. I’ve got zero proof. And when I go pitch another another investor, well, they’ve got to kind of take my word for it because of that, it’s got to be a really low valuation because a lot of risk know. But like but like what if you could start a company before you’ve written entire before you’ve written even a single line of code and you start out with a 50 million dollar LOI and superstrong conviction, you’re tackling a problem that actually matters.

Mm hmm. Yeah. And I’ve sometimes called those, like, development customers or something in the early stages where there are also hopefully, you know, they’re in it with you. And so they’re giving you feedback 

Exactly. How many companies have you invested in where they go six months down a rabbit hole of R&D? That means that is totally not applicable to the customer. Like probably like all of them is my guess.

Buck, I try to help my companies avoid that.

Yeah, but it’s really hard, you know, because, like, you got a conviction, but you don’t really have access like a big customer. You can truly tell you what’s going on. So, so, so we make sure they’re involved on at least a monthly basis with our product development.

I mean, it makes total sense. And I’m super interested in hearing more about Miso’s journey. But also, you know, on the flip side, sometimes we talk about strategic investors coming in and I think maybe it’s particularly in the later rounds where it can be more mixed.

You’re bringing up a point, you know, like how how do we WaveMaker labs, like, engage, you know, companies one hundred billion dollars of revenue a year, which is where we’re engaged one, for instance.

Right. How how about how do you engage them at like a super early incubation stage? Because those guys are serious d investors, if they’re investors at all, you know, and it’s all about the approach, you know, it’s like it’s very much like a partnership approach. If you make them feel like, no, you’re you’re the founders two and you’re going to own a big piece, this company of this things. And if you by nature, you’re just incredible customer weight or market reach, can kingmake this company, then you’re going to win, too, you know?

And so and so that’s that’s sort of how you get like get someone who’s really slow, stodgy, super late stage investor if investor at all, and to doing ground up incubation in some crazy robotics shop.

So they get to feel like a founder. Yeah. Interesting, and I guess why not sort of do it themselves?

Also, a couple of things. I mean, because because we WaveMaker Labs is really highly specialized. I mean, we’ve got our CTO, Martin Buehler. It’s so good to know what he’s doing with us, but he’s really, really good. So so he was director of robotics at Boston Dynamics for five years, built the walking dog from paper to Walking Dog, this guy’s been like number one. Number two engineer at any robotics company that’s mattered in history. And in my opinion and so, you know, and our team’s about twenty two engineers, like, they just don’t have this kind of talent. And they also don’t have the kind of talent to really innovate internally because these corporations, they don’t have the equity structure, they don’t have the incentives.

You know, we will we’ll create the company, we’ll find a CEO, we’ll get it capitalized. We’ll get the next round capitalized. And they just they just don’t have those skill sets internally.

And how do you make them feel like a founder as opposed to just a funder?

Well, we make them come up with the idea and we give them founders shares. It’s really a joint venture. And so, you know, typically we’ll start off with a discovery phase where we will really spend, like I want to say, it’s four to six weeks digging into their business and

We want to solve problems that are really important to them. So we have their attention. And so and so we really kind of like pull the answers from them over the over the course of time.

And so we make it think that we make them think it’s their idea.

Have you what have you learned about corporate innovation in the course of you doing this? So one like I speak to a lot of corporate innovation groups, and whenever I get into a group that is like the innovation group, I always know my job is to be a lot harder because and the reason why is because I think that it’s it’s incredibly challenging to make any progress that certainly it’s like seriously revolutionary or innovative when you’re inside a corporation and you have to deal with that structure did this come out of me robotics or, you know, you were doing this or just give me a full review of you and how you got here.

Yeah, I mean, so I prior to prior to joining Wavemaker, I founded my own venture fund called Canyon Creek Capital employed out there.

Let me just stop you on that. When I looked at your LinkedIn, it kind of looks like you went from business school to starting your own fund.

I did. I did. Nobody would do that.

I mean, it was it was really it was a really fun journey. So, like, I came out of business school around 2011 and and I just come off as starting a fintech company and successfully started it without funding and wound up without funding is is based on a government program.

And I started looking around like a sort of realizing, you know, I would like to make a couple of, like, seed investments just personally as an angel. And I didn’t like what is happening at Tech Coast Angels, but I was pretty, pretty poor and I got an angel.

Why did you not like the angel groups? 

Well, I mean, so so I did I didn’t like it, particularly because there’s a lot of voices in the room. And I think that I think that that a startup that is looking to get funded, you know, doesn’t want to talk to ten people, getting, you know, putting in ranges of like, you know, fifteen to fifty thousand dollars. You know, they don’t want talk to all those people.

They’d much prefer to talk to TenOneTen or Wavemaker or professional venture firm. And so, so, so I felt that like that because like I think venture is all about adverse selection. You know, the the best group of companies like they go initially to institutional venture capital and then they get to go to the angels or large super angels. Then they go to like individual angels, then they go, then they end up at like angel groups.

And so, like the best companies are being cherrypicked all along the way. And so by the time they finally end up at an angel group, everyone in town should have passed and passed on them. But by that point, because because nobody wants to go through the hassle of dealing with ten thousand investors, it’s just really challenging. If you have to if you have to have a personal relationship with them, which you don’t with the other crowdfunding prisons.

OK, I mean, here’s the thing. I agree with you. And yet I would like you know, I want a vibrant, vibrant angel ecosystem.

So so I’m curious on on on what you did. I interrupted. Go on.

Well, well, so, so, so, so, so before I started the fund, I tried to start a different version of an angel group where where really, you know, it’s highly, highly curated, essentially, like, you know, I would vet them or bet the companies myself and everyone would invest behind an LLC. And I wasn’t charging any imagine fee or carried interest or anything. And so it’s much more streamlined process for for startups.

And I felt like I wasn’t so subject to the adverse selection problem. Well, I did one deal and I quickly realized, jeez, that was a ton of work to not get paid for. And then so so I went back to my my group of investors, which is like literally just, you know, friends like chipping in like five or ten thousand dollars, like there’s no no whale in this story, you know.

And then it started start applying a little bit of management fee and it’s a carried interest, you know, so so it started out as a pledge fund and quickly deployed about six million dollars across eleven deals got and was lucky enough to get three really quick exits, you know, sold an ad to a company for basically kind of get your money back. Sold Bluebottle initially and then sold a company called Gyft GYFT, some wallet for gift cards to first data.

That’s extremely impressive. But you don’t I don’t want every MBA to go and think that they can just do this necessarily.

But tell me about just for our listeners, can you explain, like pledge fund versus like an SPV or rolling fund, all the other terms that we hear?

Yeah, I mean, pledge fund is is really just a group of people who are willing to potentially invest in your deals. And if there’s and if they do a deal, it’s basically like an SUV, then there is some margin structure on it. But but it’s a hell of a lot easier for early, early, early investors to start their career because like like when you start, you have no track record. And so I don’t have a track record either.

And so so I just started essentially like selling the deal. I was like, here’s here’s a specific deal and here’s how you how it could work and here’s my analysis of it and got together and that you can get behind.

But but and that’s different than an SPV or is it the same as basically the same for. And would you recommend to people who want to be doing some of this to to, you know, start up their SPVs themselves?

Absolutely. I mean I mean, it’s it’s there are some nice tools out there, like, you know, doing this to Angel. Angel, this is pretty good. You know, AngelList will take, you know, 25 percent of your carry, but it’s about to help. It’s a really easy way to do it.

OK, so that was that was out of business school. What we’re talking about this amazing six million that had bluebottle, gyft and everything else in it.

Yeah. Good for you. And then I’m not looking, I’m not sure I’m going in order here. But then what happened next.

Well so, so, so I sold gift and so sent a bunch of money back to my investors. And so at that point I started to raise a committed fund because investors because I’ll always ask for money from your investors when you’ve just given that give it to them because because you know they have it and then you know, right after an exit because they love you for that moment, but they might not love you in six months.

So Canyon Creek as a committed fund was about ten dollars million. But I kept I kept up my my pledge fund activities and so ended up deploying twenty million dollars alongside of the ten that I deployed out of committed funds. So what’s more impactful?

You know, I think pledge fund, SPVs, can certainly be more impactful than a regular committed fund rate because you get the carry on if you have one deal that knocks it out of the park.

That’s right, yeah. What are the winners? Winners are winners. Good, awesome. 

OK, So what did you do next.

Yeah. So lost my mind. Decided to go back in the startup world a little bit.

Right? I mean, not not exactly. So with with with the last check out of out of the committed fund, it Canyon Creek Capital. I decided to try something different and I was just let’s let’s incubate something, you know.

And so I was kind of I was looking at y why now that I’ve been a founder and Ben AVC, why did you decide you want to incubate something?

I’ve been asking myself that for a long time. It’s because.

Right so hard. It’s so hard. And then what I’m doing, at WaveMaker Labs is like incubating ten companies. So it’s like ten times harder. But like by the time I thought it was easy, it was starting. Companies is not easy. Investing, I think is a hell of a lot easier.

Because like when when when I was kind of when I was kind of just looking back and reflecting on what happened in Canyon Creek and what went well, what didn’t, all that stuff and what what type of companies performed well, I looked at Miso and so we incubated it.

So super low cost basis. And, you know, it was about 15 million dollars like the last round at this time. A couple of years ago, it was at, you know, ten million dollars and a 40 million post. And and at that point, I was basically almost exactly a 10x. And typically, if you’re a seed investor and someone tells it you’re at a 10x return, you should kind of like mentally think, well, that that that company is probably now like an 80 or 100 company, depending on a whole bunch of factors.

Right. But I was at 40 and so I was like, well, gee, is this kind of a magic number? Because, you know, something like eighty six percent of all, you know, exits happen at thirty five million dollars or below. And and yet, like almost all of us are chasing these 10 X plus hundred million dollar, you know, unicorn, God forbid, companies. Right. This this tiny, tiny, super long tail.

And so I thought, well, jeez, you know, if if there’s a way to create to incubate at scale, then I don’t need to sell these companies for a hundred million dollars. I can sell this company for 20, 30, 40 and be super, super, wildly happy.

So I tried to I’ve been trying to to recreate that ever since.

Well, I mean, we all just are watching Snowflake and just the amazing it’s not just their performance, but it’s also the amazing amount of ownership. That is it summit partners who incubated them. And so just looking at the ownership percent does make it tempting to go start more companies. You can see you can own more. Yeah, and and if you if you choose your corporate partners correctly, you’re probably building right towards an acquirer who doesn’t have any diligence to do on you because it’s calling you every month

What has changed about your approach to incubation? What have you learned?

A lot of the same lessons you learn as an investor, it’s all about the founder and the people,

And we also have a pretty unique approach to to financing, you know, we don’t go to traditional venture at all. We embrace crowdfunding almost exclusively.

OK, so tell me about this piece of equity crowdfunding and just give me sort of the 101, the really basic view.

So so with equity crowdfunding, you know, essentially you’re selling shares online. You’re allowed to advertise, which is huge. And it’s really to start you’ve got to have a compelling pitch. It’s a much more involved sale than a typical e-commerce thing. And I’m not like you might buy a shirt based on one advertisement, but if you bought for equity crowdfunding, typically you’ve got to catch them with advertising and then you’ve got to continually tell them a story over several months of your campaign.

And then and then they’ll they’ll hopefully invest. And there’s sort of like a reverse bell curve of like the if you if you’re running a campaign for nine for like six months, you get a bunch at the beginning. It’s kind of like the curve goes down until like kind of not a whole lot in the middle. And then like half your money you could erase the very last month. So it’s super nerve racking. You never know if you’re actually getting anywhere until the very end.

What would be like a typical you know, the person is raising a couple million or one of your companies is raising a couple million. How much are they raising and what size checks are they getting?

And just how does it all work? Yeah, it’s so Miso something. So, for instance, is raising thirty million dollars and eighty million pre we’re at about seven million dollars. Typical check size is like two thousand dollars, but there are people who are writing. So one of our other companies called Graze, it’s a commercial autonomous lawnmower, is just closed on four million dollars. All crowdfunding, one at one investor put in two hundred fifty thousand dollars without even speaking to us.

So it’s mostly the small checks, you know, single digit thousands, but it’s better. But there’s also really big dollars out there to be good to be gotten.

So you’re raising 30 million on an 80 pre. Yeah, on a crowdfunding platform. That’s right. SeedInvest.

I just think of it as smaller dollar stuff. OK, so SeedInvest. Tell me about equity. Crowdfunding is different than sort of a traditional like a Kickstarter. Is that true?

Yeah. I mean, you’re just getting shares instead of a product. OK, but why what are the misconceptions about equity crowdfunding? Why doesn’t everyone.

Because I had the misconception that you were raising, like, you know, a million now and we’re raising like 50 grand a day. If that makes makes it gives you an idea of the scale. And I mean I mean, think about it for a second.

So so the entire venture world is like, I’m oversimplifying here, but L.A., New York and SF. Right. Mostly SF. In terms of volume of dollars.

And I would say that that I would I would wager that technology and startups are like one of the most the public is fascinated by it, you know, and venture capital is the highest return asset class. But the general public has no access whatsoever to it. So it’s sort of a rich get richer story. But like, you know, you tell me like there are people who want to put a thousand bucks into Miso Robotics. There are people in Europe, in Asia, like I’m running a global a global fund raise.

Like if you’re a if you’re a traditional venture fund or a startup company in L.A., like you’re going to go do the circuit, you’re going to find a way are going to do it in one town. You’re going to meet all the people in town.

And how do I know it won’t be a sort of an adverse selection, kind of like what you were talking about with raising from from an angel group? Like if I’m an investor, how do I know I’m not the sucker at the poker table if I’m putting in my two thousand dollars?

I mean, you just have to use that to make your own judgment.

And and everyone in town and every venture investor and every professional investor like you say the word crowdfunding, they meet like wrinkle their nose, like, oh, really? You can get funded by anybody else, you know. But it’s like that’s not the case at all. I mean I mean, like, first of all, like it’s possible for startups to. Seed without the massive brain that is in the VC fund, like the book, but the book for myself.

So so you know, but but but the reason why it is that there’s this like mischaracterises terrorization or just like disdain for equity crowdfunding is because everybody kind of got burned. So the Jobs Act was passed in 2012 and a bunch of investors, including myself, invested in crowdfunding startups or something somewhere in or around that space. They all failed because the S.E.C. took four years until mid 2016 to actually approve the Jobs Act. Right.

And so then after four years of all this hype about that equity crowdfunding, everybody looks at looks at the at the at the crowdfunding market in mid sixteen and says, oh, see, like a like a drop in the bucket. I was like, no, volume is a brand new market, you know, and so I just took their eyes off it. But meanwhile, in the past couple of years, there’s been 10, 20, 50. There’s even been a single one hundred million dollar round get done through equity crowdfunding.

So this is really, I think, a revolution. And I don’t think people should be discounting it, but it is very hard to do.

And is seed investors, how do I know which are the the good ones and why? I’m just going to go back to Kickstarter. Indiegogo. Why are they still, if I understand correctly, set up to be funding in exchange for a product as opposed to for equity?

I mean, just because because I think that there’s different markets or different people, I think people really want alternative assets to be part of their of their their future and their finance, their finances. And and, you know, equity crowdfunding is the only avenue into the early stage venture world to get access to those kind of returns.

Hmm, great. And any other tips for doing it? Well. I mean, I mean, it’s so we’ve learned by failing here, but now we’re really, really good, like we’re launching for more crowdfunding campaigns before the end of the year.

Probably you’ve got to plan everything out. You’ve got you’ve got a plan update’s out for like your entire six month period. Like every week you have a new update to go talk to your your because you’re building an audience, you’re cultivating that audience, you’re convincing them to invest. And you’re talking about like the opportunity. And so it’s not as simple as like as like buying an advertisement on Facebook and having them click and then, boom, you got an investor.

It’s like, you know, you’ve got to really work at it. 

So I think that it’s it’s prudent to find people who’ve done this before and have them manage your campaign in a WaveMaker actually is starting to manage third party campaigns of people who we know just because we’re we’re good at it and scalable for us.

But but if you like an influencer, are you like it’s like a social media, like you’re going to build up your followers or something a little bit.

Yeah.

And we’ve we’ve we’ve also on that point, we’ve also kind of we’ve also embraced crowdfunding because we’re in a unique position to take advantage of it because because we’re a holding company structure that has as many portfolio companies underneath it. And so any time any one of our portfolio companies raises capital and they have like so Graze has almost three thousand investors, for instance, our lawn mower company, you know, those three thousand investors are now in the wavemaker ecosystem.

And we will market them, you know, Miso robotics, for instance. And so it’s like we’re actually capturing a high percentage of the investors who actually invest on seedinvest and startengine and all the platforms. And it’s pretty interesting because now we get to remarket to each of them.

Yeah, yeah. It makes it tennyson’s fascinating. Well I want to save a little time to ask you random personal questions. Anything else I really need to hit from, from wave maker. From WaveMaker no other than if you want to, you know, build cool, cool products and robotics and food, give us a call.

Do you care what geography people are in? You know, we want them to be in L.A. right now or the Philippines.

OK, got it. OK, random personal questions.

What motivates you?

I mean, just creating new jobs. I mean, creating new something. It’s never been there before. Like just because we do a ton of of wholesale creating comes of whole cloth. And it’s so fun to do that, especially when you know that it’s going to make an impact on a customer who is sitting right next to you.

And so so creating just creating value is super fun. I, I love creating, I love unfastening with robots and I like creating other platforms. So when I said that, I mean, we’re looking to do to create wavemaker labs and different verticals and industries and even geographies. And now we’re trying to copy and paste ourselves all over the world to really give ourselves this global perspective and global innovation.

That’s great. Do you have robotic arms in your house? No.

I wish no technical ability of my own, but I would have thought that maybe you just had robotic arm serving your breakfast or something.

Well, I mean, that is a company we’ve been toying around with starting.

That’s fantastic. Well, I look forward to seeing the future that you’re going to build, Buck it’s really been fun to chat with you.

Great. Likewise. Thank you.

Andrew Glazier — Defy Ventures

Pre-election must listen.  Andrew Glazier is the CEO of Defy Ventures and runs an incredible entrepreneurship program for incarcerated entrepreneurs. We talk about developing an entrepreneurial mindset and the need for criminal justice reform.

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Andrew Glazier is the CEO of Defy Ventures. Defy Ventures is a non-profit that works with incarcerated and formerly incarcerated entrepreneurs. They have an inspiring entrepreneurship program and also a new fund that helps fund entrepreneurs coming out of prison. Unlike many accelerators or venture funds, Defy goes really deep on the personal coaching and operates on the premise that being a successful entrepreneur is about building the right mindset of belief in oneself and courage. I’ve seen the program in action and I think they’re going to be a ton of lessons we can all learn from Andrew today.

Andrew, thank you so much for coming on the podcast and thank you for the great work that you’re doing. Thanks, thanks for having me. I’m excited to be here. Well, I love Defy ventures, as you know, but maybe you could just start with telling us more. It’s it’s not like a lot of the the VCs that I have on the show. So give me some of the basics of the program you’re running.

Yeah, absolutely. So we are a national nonprofit and we work with currently and formerly incarcerated adults. And we use entrepreneurship to change mindsets, to get people with criminal histories their best shot at a second chance. So, you know, when we start with people who are incarcerated, what we’re doing with them is we are hooking them in with this idea of starting a business to be a successful entrepreneur, you have to believe you have something to give the world, something to sell.

Once people come out, we continue that support for them initially with the reentry and career support. But then eventually, for those who do wish to pursue that business, we provide continued training and then we have an accelerator program where we really look to find some of what we call entrepreneurs in training or EITs, and we select them for the accelerator program. And then with the help of volunteers like you, we’re able to then work with them to launch a small business. Great, so many questions.

So just the program that you’re running inside the prisons, that’s, you know, I’ve forgotten now it’s a nine week course. People are spending 10 hours a week like it’s a pretty intensive program. Yeah.

Yeah, it’s actually about nine months. Oh, so, yeah, seven and nine months. Pretty bad, but. Yes, but is it is it 10 to 15 hours of work per week. It’s a twelve hundred page curriculum, and then at the end of it, we have a business pitch competition in prison and it’s kind of Shark Tank style, but that’s where we have volunteer judges that come in and these EITs pitch their business and we have a competition.

So when you talk about the mindset change, you said, OK, a lot of people in prison have a lot of the qualities. So I would say when I visited the people I met, they had a ton of hustle.

They had a lot of grit, and they were not they had a lot of entrepreneurship. Now, it may have been slightly you know, it was different entrepreneurship than I usually think about entrepreneurship.

But is that what you meant? And, you know, what do you what do you do when you coach the mindset change?

And. Yeah, so, yeah. So, you know, in the past, you talked about the fire as far as, like, transforming hustle. Right, a lot of it is about. Instilling some focus and putting some parameters around what it means to be an entrepreneur, right, to say, look, you’ve you’ve got skills, right?

I mean, most people in prison that are in our program have been. Business owners before it just wasn’t likely legal business, but as I say, in in prison, when I’m talking to folks, look at.

Just because the business you ran may have operated a difficult regulatory environment with questionable HR practices doesn’t mean it wasn’t a business right and those skills can be transferred to legal business and it’s a lot of it is about contextualizing things they may already know how to do and just saying, look, let’s put some different language on that. Let’s put some different frameworks around that. And now let’s talk about something you want to do that is going to make a positive difference in your community.

And that’s where that personal piece comes. It’s like, hey, where did you come from and who do you want to be? Hmm.

And we’ve got people we work in maximum security, the highest security prison in California, all the way down to moderate and a little bit of minimum security, but for the most part, working in modern maximum security facilities with men and women.

And now you were there at sort of the midpoint where they were really just forming their entrepreneurial ideas at that point.

That’s what we’re giving them some coaching on, how to focus some of that stuff.

Yeah, I was there for they were working on personal statements and their personal statements were incredibly impressive, but there’s also some self limiting beliefs.

Absolutely.

Yeah. I mean, the first thing we talk about when we start the class is this idea of self limiting beliefs. Right. What if you’re going to be an entrepreneur? Right. You need to be able to believe in yourself. Right. So let’s explore that. What is the stories that you tell yourself about what you can’t do?

And now let’s blow those things apart.

And so much about what we do in Defy is is about that that narrative change and taking accountability for their past, thinking about who they want to be and what they’re doing to transform and make creating a vision for their future. And and I think that is such a deeply human exercise.

And I think one of the reasons it’s so moving for volunteers when they come in is that they realize. They’ve got they’ve been on their own journey, right? We all have we’ve all made mistakes or we’ve all done things that we may regret and, you know, coming to terms with those things and not letting those things define us, even nobody else knows about them. Right. But how are you defining those things internally? And those self limiting beliefs are things that prevent all of us from achieving the things we want to achieve.

So can we talk a tiny bit about the steps of the line game? Because it is totally a powerful game and you have a question in there that has something to do with, you know, what’s the worst thing you’ve ever done? Right. Tell me about or tell our listeners, because I participated in some of the questions and how that works.

Yeah. So the step to the line exercise is one of the most it was the deepest one of the deepest exercises we do. And the way it works is we have our entrepreneurs in training our EITs line up on on one side, we have all of our volunteers lined up on the other side. And then we ask a series of questions that range from the kind of silly like who’s your who in the room loves Taylor Swift to, you know. Right.

And to, you know, except the line if your parents tucked you in every night until they loved you. Right.

And what we’re looking for, what we’re trying to achieve there is this moment of empathy where we start to see how we are more similar than we are different along the way, and also to recognize where there are important differences.

And certainly, you know, we’re exploring questions of privilege in there. But but I don’t think that’s the most powerful piece of I think the most powerful piece of it is this idea of we’re all humans and we can be empathetic with each other and and find that shared humanity and realize that we are more alike than we’re different. Yeah, yeah, well, some of those were you ask some questions or deep like who has struggled with addiction in their family or some of that stuff where the volunteers who are mostly, you know, the business community stands on the line as well as the EITs.

That’s right.

But then, you know, who got tucked in and felt loved when they went to bed? It was a very disproportionately one shared room.

Yes. Or who was arrested before the age of 15. Oh, right. Which which are are some of the heartbreaking questions in there that I think are so important to the you know, the recognition that we all we come from different realities in life and, you know, and. In many cases, but for where you were born, right, and what you had in the first 10 years of your life, your life path might have been very, very different.

One of the questions you asked that was a very shared humanity question was because you were leading the session when I was there, was who feels nervous to be here today?

Right. Right. Yeah. And, you know, I was in a men’s prison and it was you know, I was nervous, but so was a lot.

So was a lot of the room that was facing me. The you know.

Yeah, absolutely. I tell people. So we ride the bus in. Right. I think you came in on the bus with us, with me. And as we ride the bus in and I always say, like, hey, who’s nervous? And then, you know, people sort of put their hand up and I’m like this. However nervous you are, the folks we’re about to meet are more nervous. Right. And and because. In many cases, the volunteers to come in may be the first people who did not either live or work at that prison that those individuals have met in years, and that is nerve racking.

And they’re going to get in there and like start to share about themselves. And these are all not norms inside of prison. So it’s a it’s a big moment when we’re doing that for the EITs to have that opportunity to sit across from somebody not behind bars. Right. And have that human interaction and to start to be treated like somebody who is smart and as valued and and can be respected. And that’s a big deal.

Yeah. I mean, there are so many stories, but I’m I’m going to stick with your program for a second half of my visit.

Anything else about the entrepreneurship? You know, my audience is more entrepreneurs here. You know, when you’re talking about how to launch a business or some of the basics of entrepreneurship that did apply to all of us that you think have been really good parts of your program.

Yeah. So, you know, I think. A lot of times when I’m speaking with, you know, individuals in the VC community and I’ll talk about entrepreneurship, you know, I talk about all the parameters of the businesses. We support our. Less than twenty thousand dollars to start a capital cash flow positive within three months, you shouldn’t require a physical storefront and should be built on some experience you already have.

Right. And it always amuses me a little bit when I talk to folks in the community who are like, well, you can’t start a business for that.

That’s not possible. Right. And, you know, my feeling is, well, au contraire, you know, because I see it happen all the time. Right. You know, aren’t entrepreneurship in the small business world, the sort of neighborhood world, I think a lot of times can get lost, the basics are the same. Right. How do you come up with the idea that people want? How do you make more money than you’re spending. Right. You know, and then how do you how do you market it and get it out there?

But we’re doing it at the at this level of kind of micro neighborhood businesses. And and we see it happen that when folks come out, you know, not everybody who does the program comes out and necessarily decides to launch a business, which is which is fine.

What we want them to not do is go back to prison. So what we’re really hoping for is initially they get a job that will sustain them. And then for that percentage, you do want to pursue that business. And we see it over and over again, whether it’s the like the commercial cleaning business or the fitness business or the food business.

One of our volunteers is a great guy. Name is Mark Bowles. He’s a he’s a VC San Diego area. And he mentored one of our folks that came home and helped him launch commercial cleaning business.

And, you know, I remember sitting down with him. He’s like, you know what, Timothy? Who was the EIT? He is the hardest working, most talented entrepreneur I have ever met, because this guy will bust through any walls in front of them and work incredibly hard and it feels entitled to nothing. Right. And, you know, he’s like I just like that’s a guy I know is going to be successful. And, you know, Timothy is a guy we were able to to fund through Defy and Forrest with a seven thousand dollar initial investment.

This guy built a commercial cleaning business is Ian.

Do you have a fellow named Ian on your staff? Indeed, yes.

And Ian said something really powerful that stuck with me, which is the people in prison. I forget how long he was in prison, but it was 12 years.

12 years. Yeah.

And he said something like, there are people who come out of prison better and they make that choice and there are people who don’t come out better. But you make a choice. Absolutely, yeah.

I mean, look, agency is something we take for granted in the world, right? You know, you and I have a ton of agency like whether we agree, whether we choose to embrace our agency. Right. Whatever. Right. But I mean, we have a lot of free will. You know, we can decide what we’re going to do every day for the most part. Right. You know, when you’re in prison, you get to make ten decisions a day, right?

Ten. That’s it. Think about the decisions you make in the first hour of your waking moments. Right.

You know, but so we try to do in our program through entrepreneurship is restore a measure of agency to say, look, you’ve got some choices in front of you now. Right. And you know what? Let’s let’s talk about some of the smaller choices programmatically of like, do you want to do this business? Do you want to do that business? Right.

But then that grows into like, who do you want to be? Right. Because you’ve got some choices right now, even if you’re still going to be locked up for a while, even if you’re going to be locked up for the rest of your life.

And we have some of those. Right. You have some agency about what you choose to do with your time. And and that is what a lot of what Ian was talking about is finding agency inside a prison to start to make some choices about who you want to be so powerful.

One of the things you also asked on the steps of one game was who’s been in isolation?

Yeah, for more than a week, a month, a year, five years, 10 years or so.

And in five years, I don’t know, 10 years like people who are stepping to the line. It was really terrifying.

So maybe could we talk about just Defy ventures and what you’re trying to do and what is the overarching what is the state of sentencing and criminal justice, if you use that word? I don’t know. Sure. Yeah. Yes.

I think of our advocacy and a little bit of a subversive way most of the time, which is that when we bring people in, a lot of people think they’re coming in and then they come in with different motivations. Some people think like, oh, I want to go inside and see a prison, see that I’ve done that. You know, other people are coming in because they want to learn more about the justice system. The people are coming in because, you know, they want to, you know, do service.

But everybody walks out of that day, right, realizing that whatever they thought about the criminal justice system was wrong. Right. And who was inside it and that, you know, that the world is not what they thought it was when they walked in that morning. And what I hope to do with that is. Get people to vote, right, to start to think critically about what it means to vote for politicians who just want to lock people up and throw away the key and what and what it means to be an employer and to be in it, to be part of the solution as a member of the business community by employing people or investing in people.

Because employment I mean, I think employment is a huge driver of recidivism. If I.

Oh, number one. If you are unemployed, the number one factor most likely to send you back to prison. Right.

And so entrepreneurship seems more important than ever. Yeah.

Yeah. I mean, for us. Right. We our first hope is that somebody our first goal and people come out of prison is let us help you get settled, make sure you have access services and that’s helped get a job. Right. So one of the things we look for from our volunteer base is people who are willing to employ and have entry level jobs and are willing to say, I will be a Fairchild’s employer. And I always interview people who have finished the Defy program.

Great. The next piece for us is to say, OK, you have your job, you’re stable. Do you want to pursue entrepreneurship?

And to give them that opportunity and importantly, access to capital if they’re willing to work hard and get there. And that segues into this idea of this venture fund that we’re creating. It’s a philanthropic venture fund, but a venture fund nonetheless. And the idea behind that is to say, look, we have built out this selective accelerator program for, you know, we’re hoping we can push, you know, twenty five businesses through per year.

For those 25 people coming through, we want to give them high quality mentors, intensive coaching, a little bit more curriculum. But they don’t need that much more stuff like building a financial model, know how to incorporate their business, stuff like that, and then having enough money to be able to give them up to ten thousand dollars of a seed grant.

They don’t have to pay back.

And then they can employ other people who were formerly incarcerated. And so that’s where that circle starts to take off. So that’s that’s an opinion.

Let me put it another bit of a plug there. But, you know, you’re running a really lean organization, too.

And so people who want to give money to support your entrepreneurs, it’s going straight to those entrepreneurs. Oh, yeah.

For the fund for the venture fund in particular, 90 percent of that is granted directly. Right. So we’re I’m excited to say we just won a major federal grant to support the, you know, most of the operating costs of this program.

And we have this opportunity in front of us right now to invest, frankly, primarily with people of color, because that’s unfortunately who we incarcerate in this country at over indexed to black men six times the rate of white men. Right. And so when we’re talking about funding potential businesses and really focusing on racial justice, economic justice, social justice. This is where it’s at.

Mm hmm.

Well, I appreciate the work you’re doing, Andrew, so maybe changing gears a bit. Should we talk more about this amazing fund.

Let’s just talk about the experience of you show up in your program. And it’s a human tunnel, right? I mean, got for Randall or someone playing music, but it’s, you know.

Yeah. Coming in. Yeah. I mean, look, we try to make the event a really fun day, right. It’s deep, but we also try to make it a fun day that everybody’s going to remember, especially the folks inside who don’t get fund days very often. And so but when people get there. Right, I think for volunteer is the first thing they remember is walking through the big giant iron gates of clang shut behind them, because then, you know, it’s real.

Yeah, right. You’re inside and then you’re greeted by all these men or women, you know, in their prison blues who are super excited to see you. An when you are inside a prison, you have no choice but to be fully present.

It was so intense. I was chatting with someone. Oh, no, it was Emily Proctor who said that she didn’t know the difference being prison in jail. Yeah. Which I mean, it just emphasizes the stratification of our society. Plenty of people have no contact and plenty of people have way too much contact, 100 percent.

But, you know, I didn’t know all the sentencing guidelines, like a life sentence is far worse than twenty years to life or.

Well, so. So I think it’s interesting thing about life sentence is. A basic if somebody just gets life right. What that means is they will be in prison a minimum of seven years before they can go to the parole board to be considered for release. When you hear 20 to life, what you’re hearing is they have to do a minimum time, 20 years before they may be considered for parole and then they may be denied parole forever. Hmm.

Right. But they can go back to that parole board at a minimum every 10 years and be considered.

So but so I think one of the one of the one of the lies that people sort of feed themselves or think is that somebody gets life, are never coming home.

That’s not true. Ninety five percent of people in prison are going to return. Some people get what’s called life without parole or ELAC, which, you know is I’ve been I’ve heard of people call that civil death. Right, because you’re going to die in prison. Right.

But but that’s actually not that many people.

And, you know, I think the sentencing guidelines, you know, you see that the injustice of the sentencing guidelines, I think when you do this work because you meet people who were sentenced to crazy long sentences when they were juveniles. Right. Right. And when you meet somebody who is sentenced. At age 16, 17, 18, even twenty one, right? You know, the thing I wanted to ask in this exercise is who did something really stupid before the age of twenty three?

Right. And that’s nearly everybody in the room, if not everybody. Right. And, you know, that’s where I think I. Find so much tragedy in the system is when you meet these people who. Lived a difficult life as a child, right, and did something admittedly like real bad, right while they were children, and then the state 

That’s, I think, a really important takeaway. People coming in. It’s like, look. Our government is created around this stuff because we, the people, tell them to do this stuff, nobody ever got elected for being soft on crime. Right. And that I think that’s an important. Moment for folks to say, like, OK, what is my part in this? Mm hmm.

Do you have offices that we should all be paying attention to, like elected officials? Because we pay attention only to the top of the ticket sometimes?

Yeah, I would be I would be paying attention to your day races. Right. Right. These days are in his day in Los Angeles right now. That’s an important race. And this is. They step up criminal justice and sentencing and application justice is front and center in this race right now. OK, read up on it. Pay attention to it because it’s important.

OK, where’s where’s the where’s your vote right now?

I am not making an official organizational endorsement. This is my personal opinion. Right. Right. In my personal opinion on this is that I will be voting for Gascon  for a district attorney because he is not funded by police unions and he has a record of approaching justice differently.

Yep, yep. OK, Andrew, you grew up. Do you? You went to Harvard Westlake. You went to UCLA Business School. You’re from around here. You went to Pomona or somewhere on a college.

That’s right. L.A. County lifer. So I spend so much time talking about your program. But how did you go from that to here?

Yeah, but it said, well, my life is has never really moved in a straight line as far as career path, but, you know, went to Harvard Westlake had an amazingly privileged experience in school.

And then I graduated business school in 06. I end up working for his entrepreneurial firm, ostensibly to do finance, but I ended up running a construction site in that work, I met people on my job site and in talking to them, I met people with criminal histories that I was aware of for the first time. And I remember this guy. He was like he was a framer. And he was like, So how did you make this work?

Well, I didn’t wake up one day and think about I want to be a framer, you know? But I was a tweaker and I was high on meth and I stole a gun from a cop. And I was like, I didn’t kill him. And I ended up serving three years in prison. And this is what’s open to me. And I had to feel, given his realization of like, wow, if you have a felony on your background, a violent felony, like your opportunities are incredibly limited.

And that was really my when I first started to think about this idea of reentry cut to working at an education, get with city year, another education, great education nonprofit.

But you see this school to prison pipeline happening. Kids growing up in South L.A., East L.A., wherever it is, right, and they’re surrounded by generational poverty and violence and, you know, there’s a certain path of least resistance that exists in those neighborhoods.

You know, I remember the first time I went to prison was compensation for women. And we went into this room and we did the Stepto line exercise and everybody was lined up there and it just felt like I was in. One of the high school auditoriums that I’d worked at would sit here in the detention room and you look and you see all these faces and you’re like, I think I know some of these stories here.

Right, right. So now what are you are you the CEO?

Thats what they tell me. Yes, you. I didn’t I didn’t start here. Then I started as the executive director for Southern California.

OK, right. And it was a rapid rise to the top.

There was a battlefield promotion. Yes. Yes. Not only the promotion, but I mean, the reason I bring that up is because a lot of the founders that we work with, you know, they they’ve become founders without every qualification.

You know, it’s not like they run thousand person or or whatever they find themselves somehow into.

One thing we always hear is that it’s lonely at the top.It is lonely at the top. You know, I so. Defy story was a little fraught, you know, when I came in, we had a CEO and a who’s our founder. A lot of sort of classic founder’s syndrome stuff happened there and then. She left and then I found myself inheriting, which was essentially at that point a dumpster fire, and as a CEO and I went to my own junior cell phone and beliefs of like, what the hell am I doing here?

You know, I don’t feel like I have agency here. Right. I’m stuck, you know, and and and I’m not I’m not capable of doing this right. I’ve never raised money before in large amounts. And, you know, I have to figure out how to do this, turn around. And I feel like nobody is helping me.

And I want to I mean. Yeah. Who wants a dumpster fire? Well, right, exactly.

You know, somebody a coach said to me, there is a guy his name is Jason Jazz, that he runs a coaching firm called Novas Global. And he was on one of the trips at that time. He’s like, hey, man, I’m going to coach you. It’s like, OK, somebody else. He wants to coach me, right? He’s like, no, no, no, we’re going to do this. And so, know, I got on with him and he’s like, Hey, man, what are you doing here?

Why are you here? And I was like, oh, well, you know, I. You know, somebody’s got to do it and, you know, it’s like, you know, obligated and I don’t let people down, he’s like, Yeah, why are you really like? Well, I also hate losing. Right. He’s like, OK, I buy that, you know. And and and but what he helped me realize relatively quickly was, look, man, no one’s making you do this, so do it or don’t do it.

But stop complaining about it because you have a choice. And he’s like, look, as long as you live in this world of I’m stuck here and I can’t be successful, you are right. And when you’re the leader of the organization, you can’t sort of pull everybody together and be like.

Hey, everyone, I feel really bad right now and let me tell you how bad I’m feeling about this 

And that’s. I think that’s a lot of it, but also learning how to convey vision, right? I mean, ultimately, I never thought of myself as an entrepreneur. I thought of myself as a systems builder. That’s my sweet spot is like taking something that somebody else made and then making it great. 

Maybe being a systems builder was like a limiting belief. You know, maybe. I think you’re right. I think you’re right about that.

No, you’re absolutely right about that is like I put myself in this box and like, well, I’m a systems builder. That’s what I’m good at. I’m not good at, like, vision and and that kind of stuff. But in the end. Right. I mean, you can be. Yeah. I mean, I needed to be and I was and. OK, I have a philosophical question for you. So how here’s the question, how do people learn to forgive themselves?

Yeah, well, so I would add to that, how do people learn to forgive others and themselves? I think they’re both tough, right. I think it is easier to forgive others than it is to forgive oneself. And in some ways are in a lot of ways. I think you learn I think you learn to forgive yourself by practicing it. Hmm. I mean, you have to start by saying I mean, look, the whole operation, right?

I mean, you know, I remember Saturday Night Live and the guy would get me like I’m good enough, I’m smart enough. And gosh darn it, people like me. Right. You know, and we all sort of laugh at that sort of mode of affirmation and it sort of feels weird to do it. But in reality. Right. That self affirmation. It is hugely important because you are practicing. You’re you’re practicing yourself belief at that point, right, and I think forgiveness is the same thing, is that if you say, you know what?

I forgive myself for this, right? I am like, I know I messed up. I feel guilty about messing up, right? I feel bad about doing that, I certainly regret it. I don’t want to do that again. But I’m not going to live in that space and make that define me, and I think that’s a lot about what self forgiveness is, is to say. I am forgiving myself for doing that and recognizing that I that’s not the person that I am anymore.

And we tell it to our EITs all the time is like, look. When you do affirmation and we do those affirmations, you might be faking it till you make it there, right? But you’ve got to say it like you mean it.

And one day you will need it. And that’s how you change that belief about yourself. And I think forgiveness is the same thing. It’s good.

OK, Andrew, we’re going to have to wrap up so we end with some affirmative statements. Andrew, you are awesome.

This podcast was awesome. The work you are doing for the entrepreneurs in your program, each individual is so meaningful to them. And I appreciate what you’re doing. So thank you.

Thank you. And I would like to offer an affirmation to you, too, which is I think you’re awesome and I. I love it. You’re willing to talk about this stuff and and share it with your audience and be part of our program. And if I could just put a plug in for folks who are interested, check us out, www.Deftventures.Org. And if you want to get in touch, somebody wants to get in touch with me directly about supporting the program.

Andrew@Defyventures.org

Jim Andelman — Bonfire Ventures

We talk with Jim Andelman about Bonfire’s new $100M Fund II, the great team additions (Jennifer Richard, Tyler Churchill, Brett Queener), what good traction looks like nowadays and a couple great resources on tech.

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You may be able to hear a little bit of harp music in the background. She’s doing her harp lesson via zoom in the other room. When she was seven, when they were seven, we told them they were going to learn instruments and we said, what instrument do you want to play? And one of them said, drums. And we’re like, cool. And the other one said, harp. And I said, What’s your second choice?

OK, great. So we’re recording. I’m going to go ahead and read an introduction. Oh, my God, we’re recording.

OK, Jim Andelman is a pillar of the Southern California venture ecosystem, along with Mark Mullen. He is one of the founding partners of one of our favorite B2B funds, Bonfire Ventures. Before that, Jim was managing partner at Rincón Ventures. He has guided many startups through their early stages and a few early stage VC firms as well. My sometimes co-host, David, is here as well, and I know he would also express appreciation, Jim, for your pillar-like support of this ecosystem.

Thanks so much for having me.

You know what I would add to your pillar of support for me? I told many earlier that you were my VC whisperer because when I was just starting out, you had already been doing it for over 10 years. It’s great to see it’s great to see you evolve and your funds evolve. And I’m really excited about your new fund. Can you tell us about it?

Sure. Like the latest fund we just recently announced a Bonfire II, our second core fund under that brand. It is a hundred million dollar fund doing the same thing we’ve been always doing, which is leading seed rounds and B2B software startups. We do have an expanded team bonfire started with just Mark and me. As many mentioned, we added a venture partner who is now a full time equal partner named Brett Queener, who has wonderful operating experience. And we now have two additional members of the investment team, Tyler Churchill, who’s been with us over a year, as well as Jennifer Richard, who just joined us last week.

Mazel tov. Thank you very much. It is where we’re Empire Building. I never expected it. 

Do you think you really are empire building? I really like our. Stage and investment style, I like our playbook, I like our resume, whatever, whatever analogy you want to use, and there can be a tendency as you raise larger funds, right. To experience what’s called style drift.

Right. You either need to write larger checks or you need to do a lot more and follow on at later stages, or you need to do a lot more companies. Right. And and all of those things present challenges to to your way of doing it. So so, you know, while 60 to 100 seems like a big jump, we’ve also went from an investment team of two to five in that time frame.

So if you just think of the three partners, a good way to sort of evaluate a a fund and what it needs to deploy is capital per partner per fund, and Bonfire, even though it’s on Fund II it’s really a merger of the two predecessor funds I founded and ran Rincón Venture Partners, Mark founded and ran DoubleM we were two of the very small number of to B2B specialists at seed in Southern California. 

We do lead most of the rounds and which in which when we are entering the company, when we are making our initial investment.

Let me ask about that for a second, because we just had Mark Terbeek on the podcast and he actually used the word indifferent when describing whether they lead or don’t lead. Why?

And I think that Mark Mullen, when he was on our podcast, said that you guys lead 80 percent of the time, our pitch is sort of expertise, attentiveness, responsiveness, right, you can’t be a really high volume investor and have enough time to to deliver on that brand promise. And so relative to the universe of seed firms, we are a lower pace, lower volume, higher conviction, higher involvement investor

I had been told my back of the envelope was something like take the fund size and divide by 50 and that’s what size check the fund wants to write. This is when I was entrepreneur. It wasn’t very sophisticated formula. Does that apply for you guys?

It’s not far off the with think about one hundred million dollar fund. That means if we’re targeting twenty five companies, that means the average is four million per company. And our model for this fund is 40 percent initial check, 60 percent reserved for follow on. So that’s you know, for every dollar we invest initially we reserve a dollar fifty for for follow on. And so that suggests something like a one point seventy five million dollar initial check on average.

So you’re pretty darn close for the reserves, how much of that reserve do you think about is to just pour into your companies that are cranking versus to sort of help companies that need your support in the next round?

It’s a great question and there are different philosophies. it’s never automatic. It’s it’s pretty automatic. If you get a new outside lead, right. Then then we’re then we’re it’s very rare that we don’t do our pro rata, the the challenging parts. And the hardest part about this business, right. Is to is when you make the tough call to not provide more money to an existing portfolio company. And that’s in my opinion, that’s the hardest part of this job, and if no one else shows up with any money and the company needs money, and then it’s sort of life or death is in our hands, that’s a that’s a situation we hate to be in. But it is our job to deploy every dollar to its highest and best use.

Let’s talk about the other side of it, because I’m curious for a company that’s that’s sort of obviously on a good trajectory and the rounds, their rounds are getting quite expensive and your your million dollars is a lot less. And, you know, as a percentage of what you hold or maybe not hanging onto that much, when do you decide that it’s better to take a new shot on goal versus continuing to fund a company that’s doing great?

Yeah, it is a it is a great question. And there are powerful examples that are in direct conflict with one another. One of our greatest successes, Mark, invested in a company called The TradeDesk at Seed and now it is the last I checked. It was an 18 billion dollar public company. The the initial valuation, I think, was around twelve million. In retrospect, if every single dollar in that fund had we just used it for follow ons at TradeDesk, like that would have been a better deployment of every single one of those dollars.

But there’s no way, you know, that at the time. And that’s one of the things that I think that the idea of sort of lean into your winners is. You know, in my opinion, a little bit of revisionist history or false narrative, because every deal when it happens is a market deal.

And you can almost only tell in in retrospect because you’re absolutely right that incremental million dollars can get us an extra quarter of a percent in some company or it can get us another 10 percent in a new company.

Ventures, as we all know, ventures hard to scale because it’s much easier to add portfolio companies than it is to exit them. So you tend to accumulate them. And just because companies are pretty far along doesn’t mean they don’t need your time and attention. Right. And there is a model as well with seed funds to sort of pass the baton. Right. So you’re active until series A and then you drop off the board and then it’s like, call me when you need me.

That does happen with us usually around Series B, right.

Because there’s a logical limit to the number of VC that are helpful on a board and people can debate whether that number is greater than minus one, in this whole retrospect, it’s all twenty, twenty what have been some big surprises or sort of, as David would call them, the wild roller coasters that you’ve had?

Let’s see. Archer is a good example, so Archer started as a campus explorer. It was consumer destination for, you know, discovery around post-secondary education and really capable team business did really well. They I led, I think, a million and a half dollars seed round in 2007, and the company got profitable with that and and then did a series they wanted to continue to invest and then did a Series B, and early on, 90 percent of their business was was was at their owned and operated websites.

And they had a small little sort of powered by business where they would help other publishers monetize and, you know, sort of Google kind of declared jihad on that whole lead gen category, all the comparison shopping engines and businesses like this one. So this business managed to with no new capital.

Last time they raised capital was twenty thirteen, managed to continue to grow, despite the fact that 95 percent of their consumer facing business went away, so they they managed to very successfully transition to an entirely B2B business. And I give the team tremendous credit for foreseeing what was happening and and and putting themselves in the position to to make it happen and sticking with it when it was hard and and when there were you know, when there were a lot of other sort of ways they could have decided to spend the next five or 10 years of their careers.

And now it’s going to be a great outcome for everyone. So that’s one example I feel like we see sometimes in pitches.

And David, I feel like you particularly don’t like this where someone says, well, we’re doing X, but it’s going to let us build up our data moat or it’s going to let us build this other thing, this and and I think we’re always very skeptical when that’s part of the pitch. But I think you see it in the wild a lot more.

To be clear, this was not part of the pitch. But I agree with you there. If we if we all had a dollar for every startup that pitch us what we’re doing, but we’re going to make money on the data. Right. This is going to that’s going to be the main event that we wouldn’t actually have to invest.

We could just harvest those dollars.

One thing you said to me about your portfolio and how you’re sort of thinking of constructing this.

You talked something about like diamonds in the rough versus sort of your fairway investments. How do you how do you think about, you know, what’s in the is it fairway?

I don’t golf. I just made that up. But how do you think about what’s in the fairway versus what are the what are the more diamonds in the rough, whatever the the correct analogy is? You know, there is a.

You know, there’s there’s a typical founder profile in VC, right. There’s a whole universe of other founders, right, that don’t have that kind of background and the challenges that founder may be less good at raising money because they don’t know what the VC wants to hear.

But it doesn’t mean they aren’t building a venture scale business. I’m we are we get very involved in helping our companies raise series A. We have we have kind of productize that that form of value add and for founders who let us who want us to and it is most of them we kind of co project manage the series, a fundraise with them. We deliver to them a Google doc that is tailored to them, that has all of the the the B2B software series a lead investors and with named partners and responsibility from the bonfire team of who’s going to make that introduction.

And and and we use that as sort of the CRM through the process with those factors. Long winded way of saying, like, we’re on that, we’re on the fundraising side more often we’re onto we’re on the sell side of more often than we’re on the buy side, if you will, because our entry point into a company happens once and that company typically goes on to raise multiple follow on rounds. And so one of the things we hear about maybe these sort of less typical founders is, gosh, I’m not sure they’re building a venture scale business, which drives me nuts sometimes because it’s like, well, maybe they are building a venture scale business, but they just don’t talk about it the way that you want them to talk about it.

And some part of that is our job to help train that founder to top VC speak. Right. And avoid the the the negative triggers, if you will.

Can you go back a little bit to talk about this product position of financing? What do you how early does that start like know a lot of honestly goes into. 

Yeah. I mean, and I’ll give a lot of credit to to my partner, Brett Queener on this one. So Brett is a career SAAS operator. Twenty two years as an executive at software companies, more than a decade at Salesforce, reporting directly to Marc Benioff, really still maintains that operator’s lens and and has really helped us and pushed us to operationalize more of what we do. The and so it was a recurring thing where we were developing lists of firms that we wanted to introduce them to.

And it was a recurring thing. We would help a company with their operating plan.

It was a recurring thing that we would help a company with what should be in the data room. And so we just started taking taking ones that we thought were most generalizable and creating templates out of those.

So it’s not cookie cutter to every deck doesn’t look the same by any means. Part of a deck is not just. Checking all the boxes and including everything that A, that an investor wants to hear, but it’s crafting a narrative that highlights the unique strengths of that business and what makes it so compelling and why you should join us with conviction around the odds of this company’s success.

David said that you have strong opinions on sort of the governance side of things, but I’m not sure where that comes from, you know, whether that’s board governance or rights that investors should have when you’re writing term sheets.

There are a bunch of things that go into the broad category of governance and. The sometimes it’s it’s it’s around, you know, how decisions get made, how how certain decisions get made and and sometimes it’s just around oversight and making sure that that the company is getting the best guidance that’s available around the table. So part of that is what’s in financing docs. And part of that is more, more in practice, less, less mandated and more just the manner in which we work together.

What is the what is a board Cadenced? What’s with whom? Who attends board meetings? What’s what’s covered in a board meeting, that type of stuff.

Staying on, being a good v.c, I think you’ve been a VC for 20 years now, Jim.

I think yes, the seven. Yes, that’s what it said. I mean, how is your LinkedIn?

So I started I started I Lietzau for investing for Bay Area VC firm Private Capital Partners in nineteen ninety nine. And I’ve been pretty much since. Right. That’s awesome. So where do you think, you know, you were giving you were talking some about it, but where do you think newer VCs, what do you think people are getting wrong today?

In venture, what advice do you have for people who may be newer in their career and their venture career?

Yeah, it’s a great question, right? We are despite the fact that we’re in a pandemic and the recession might again as as as context, like I do B2B software. I don’t need to be software. I’m not. I’m as every day passes that I get more and more focused on software. I get less and less capable of talking about everything else. So in the world of B2B software, we are seeing all time highs on public market valuations.

Right. And like, oh, there was a five percent correction. Well, that means that these companies are only only trading at 19 times revenue instead of 20 or so most. It seems that most practicing these Ts have only been practicing BK’s in a bull market. And it’s really instructive. I love that Bessemer released some of their investment memos. You can go to BBB Memmo memo, I think it is. And you look at you look at one of them that’s near and dear to my heart is because it’s certainly one of my anti portfolio is a company, a mind body, which is a Southern California company, that they made a vertical software for yoga and Pilates studios Bessemer invested, I think in 2010 and their investment memo you can go and read and I think they invested it about four times ARR. Same thing.

Shopify about four times four and a half times ARR and like that is unheard of today. Right. And so we made an investment in the company just in December and they were doing about three hundred K in ARR and our valuation was 10 million pre money valuation. And which is sort of in the range of where things are these days, I worry, right, that there are that there are so many participants at the seed stage that people that don’t have historical context, that that is good for founders, I guess maybe bad for founders. If they have valuations that then it’s hard for them to support in subsequent rounds. And I’ve seen that happen certainly as well. But I do it is a it is a I think, an ongoing question for those who have been in this business as long as we have like what is a fair price and what is the right price based and based on today’s realities.

I think it’s also been easy for.

Seed round participants who are not lead investors to not have to pay attention and have and there have been no negative consequences to it. And again, when there are market corrections, it’s much harder to to know what’s going on and know what the right decisions to make are when you when you haven’t been paying attention all along the way.

So playing that backwards even more or upstream even more so, you know, everyone’s raising a seed fund, or everyone in every you know, in undergrad wants to be an entrepreneur, you know, what do you think about that? Like, would you coach your daughters to be entrepreneurs?

So two very different things. Should I coach them? Do I coach someone? Should they be a VC or do I coach someone should they enter the startup ecosystem? On the on the latter question? My answer is hell, yeah. I mean, like, I don’t think that the trade off used to be, well, you could go to a more established company, you could be a banker or a consultant or work for a Fortune 500 company, or you can take a lot more risk with your career and get paid less and do a startup.

And like now that’s sort of that trade off doesn’t really exist. Like those those those traditional more traditional careers aren’t necessarily more stable. And those startup careers don’t necessarily pay less. And so why wouldn’t you want to work in a more dynamic environment? Why wouldn’t you want to work in an environment where you have so much more opportunity to learn? Why wouldn’t you want to work in an environment where there’s that equity component but then shouldn’t there be all these new VCs to support those entrepreneurs since this are we just at the start of the flywheel going totally maybe.

Right. So that’s that’s one of that’s that’s the flip side to these increasing valuations.

You look at that, those investment memos for MindBody and Shopify and they had exit scenarios in there. And like the high of the exit value scenario, like the the moon shot over the moon, success, success, case for mind body. It was a four hundred million dollar exit and it exited for one point nine billion. Be over the moon success case for Shopify was one billion and it’s currently worth one hundred and thirteen billion.

So if the exit values are one hundred x, what we thought they were going to be, well, gosh, maybe it’s OK to pay five x what we what we think is a fair price or three X or two X, what we think is a fair price at seed. So what we’re doing today, right from a dollar perspective is simple, is is seed is typically like a three million dollar round.

But from a business progress perspective, not even 10 years ago, the majority of Series A financings were pre revenue. And so that is a that is a fundamental shift, right? There’s a firm called Wing VC that is X, mostly ex-Accel and Sequoia Partners that that published are really some really good data around the the shift in the series, a landscape. And they looked at all companies that had ever received money from one of 22 VC firms that they deemed top top tier.

And that’s not just three. That’s not just, you know, Sequoia, Accel, Benchmark and Andreesen. And they found that, you know. The average series A from firms of companies that have taken money from those types of firms is right now sitting at 15 million raised, not valuation raised, and that’s up from five.

And so the average round size gone up from five to 15. The average amount of capital that has gone into one of those companies before series A has gone up from one point eight to four point six. And I may not be getting these numbers exactly right, but they’re in the ballpark.

So they’ve raised four point six before they do their series, before they do their series.

So there’s a there’s a convertible, there’s another convertible, and there’s a serious side. And then maybe there’s a series seed one, or SIPRI and on average or about four financing events before series. Some of it is nice that in prior era when the venture when the venture community was smaller, you know, you didn’t have the luxury of raising a two million dollar runway and or with a new investor that was just didn’t exist. Right. If you weren’t ready for for Trinity or Mayfield to give you or CRV or any of those firms that are on there, or NEA that are in Roman numeral ten plus, if you weren’t ready for their next check, you were like shit out of luck.

The flip the flip side of the very same coin. Right. That you can do more with less and that and that that that startup formation and launch and growth in the early stages has requires less capital is that there are so many more competitors in every market that’s worth pursuing and more and more enterprise value is being concentrated as smaller and smaller number of winners in each category.

So the implication there, though, is that you’re not looking at it with the lens of is this a good idea?

You’re saying, is this going to be the category winner? I mean, you the VC has to think that.

We the VC speak for us. We, the V.C., have to believe that the business that we are choosing to invest in that seed has a credible shot at category leadership.

OK, Jim.

So you can’t be a VC now and you have to go start a new endeavor. What would you go and start?

And if you can’t tell me exactly like, where would you focus?

So one of the things I really like about VC is there is like the Benchmark style where you don’t have a pyramid, right? You have very you have zero to very few junior members of your investment team and you know, your job. You’re the doer. Like, you know, I like the, you know, running the fingers through the dirt and doing my own analysis. And also, I’m a shitty delegator.

I know that about myself, which is why I this is a good fit for me and maybe an operating role. Building a startup wouldn’t be as good of it for me. And so back to your earlier question, like around advice, I think if you have the capability to be a startup founder or a startup operator, that might be a more rewarding job than being a VC where you are a coach, not a player. Right. You’re not you’re not out on the field.

You’re you’re on the sidelines giving advice and suggesting plays. And I think that, you know, when you’re a startup operator, that the lows are lower, but the highs are higher. You live a life more brightly, perhaps burning more brightly to to extend our bonfire analogy here. And that’s a little muted as a VC. And you two have both lived that, both sides. laugh at that. And VC fund founders who say, oh, I’m a startup founder just like you because you’re not you’re never living paycheck to paycheck as a VC.

We’re also we’re small businesses, right? I may have a few people. Your revenues are measured in small business kind of numbers. Yeah, different things. We’re not VC scale. Right. So I didn’t answer your question.

I think I have been enticed once or twice by a really phenomenal teams that I’ve worked with that I just like look forward to seeing their caller ID or like getting an email from them and and with the folks that I have been in the trenches with, if you will, working through specific issues, mostly around M&A and financing. And I have been enticed to think about switching to an operating role.

Well, I’m not trying to talk you out of doing what you’re doing. You’re doing a great job at Bonfire.

We appreciate having this ecosystem, the and when market, my partner, you know, it was very consciously like, you know, these are these are harder partnerships to disentangle yourself from than a marriage.

Yeah, that’s great.

You’re married to to Mark and Brett Queener. Congratulations. Congratulations on that.

Was totally my business wives. They are indeed. That’s great.

Well, congratulations on that. Congratulations to you all on this new fund. And thanks for coming on the show today.

Thanks so much for having me.

Z Holly — Good Growth Capital

Super interesting guest (and person), Z Holly talks about university innovation, LA manufacturing, gracious professionalism and the LA River (see Rio Reveals).
 

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Z Holly is an investor at Good Growth Capital, but her LinkedIn would tell you that she’s an instigator. Good growth just raised a hundred million dollar Fund III to invest in deep tech and transformative science. Z knows a lot about deep tech and transformative science from her roles at MIT and USC, where she was vice provost for innovation. Z, instigator is such a perfect word.

I was going to call you a builder, but instigator is really good.

You created the first TedX. You built a non-profit to support Los Angeles manufacturing. And I just listen to someone describe your life as a Mountain Dew commercial.

Yeah, I have so many things I want to talk to you about. And you created a podcast. Yes. Love podcasting. Yeah. No, I want to talk to you about podcasting, too, but maybe I will start with Good Growth Capital.

Yeah. Yeah. I’m really excited to have just formally joined the firm. I’ve been working with them for a while now and they’re just amazing, rockstar, venture firm based on the East Coast that folks on the West Coast really haven’t heard of before.

A lot of them. But we’re really well known for our ability to evaluate and support and invest in early stage transformative science and engineering companies. A lot of stuff’s spinning out of universities.

And what I especially love is our ability to kind of tap this amazing network across the country, so across disciplines, across industries, and really support the companies at a very early stage which a lot of these deep tech startups really need that kind of hands on attention.

What’s a typical sort of tech startup for you guys, like typical space areas?

So we do a lot of medtech, we do a lot of materials and sustainability and data science across. You know, that’s the very much a crosscutting theme across them.

But, you know, anything from like plastics that can be programmed to biodegrade on a certain timeframe or fuel stations and space or battery technology, you know, or like new devices for medicine. So that’s the kind of stuff that we do.

Got it. And so you guys will be the seed, series A investors supporting these these technology, transformative tech companies. Yeah, we have to fund families, actually.

So, in general fund does seed, series A. And then we also have this other fund family called the Infinite Corridor Fund. And that’s more of like a feeder sourcing fund precede seed. That is more like one hundred to $300k check size. Sometimes we will even go down to ten, twenty thousand if it’s just for a patent, you know, you know, really, really early stage with with a heavy emphasis on MIT startups.

But anything that’s really transformative science very early.

It’s so perfect for your background. So make sure I got this right. You were the founding executive director at USC Stevens Institute for Innovation and the founding executive director for the MIT Deshpande Center for Innovation.

Yes, yes. And I was recruited by USC from M.I.T. to be the vice provost for innovation back in 2006. And so, among other things, oversaw to transfer and developed a bunch of different programs for student entrepreneurs, faculty, entrepreneurs, innovation across all disciplines. That’s the thing that I was probably most proud of, is to rethink what university innovation looks like, because I think a lot of people think of it as like just commercializing lab technology. And one example of that was working with the TED conference to create the first ever TED event, because it was really a way of like, how do you know, ideas?

You know, how do you were spreading? So how do you take an idea and how to make a broad impact with that idea?

Oh, that’s a fascinating. OK, so let’s stay on that for a second. You’re known for being the person who created the first Ted X.

Mm hmm. So tell me, how did that idea come about? And was the idea similar to what I now think of as Ted?

Yeah, but I think it scaled beyond our wildest imagination. I mean, it’s just, you know, and I think it’s a great example of what I call crowd scaling. The idea is that you not crowdsourcing, but you have an idea and you you design it in such a way that you give enough degrees of freedom for, you know, people to run with it and at the same time be true to your brand and what you believe in. So we approached TED with this idea.

I’m sure that we weren’t the first to approach TED, to say, hey, we want to do our own TED.

But we we said that we wanted to create something that was replicable. So they really like the idea and especially the fact that I oversaw the tech transfer office, too.

So we really understood licensing. So we helped work through the licensing model for something like that. And yeah, it was March 23, 2009, the first ever TEDX event.

And I’ll never forget when those but the the curtains were drawn and it started. And so that first Ted X was a USC. It’s sort of it was at USC tactlessly. Yeah. Most people don’t realize that TEDX started in L.A.. Got it.

No, I had no idea. 

So one thing I think about is sort of what are the fundamental structures, levers that hold back university innovation?

And I’m curious your thoughts on it.

One of mine is just sort of the incentive structure for professors is to publish more than it is to innovate, I guess.

I think that some of the fundamental things that need to change are more the role models, and I think that it’s already been changing and sometimes it’s changing to the negative. So it’s a little bit of a nuanced answer. Right. But there have been studies that looked at what cause faculty to commercialize their innovation. And across all of the different parameters, like like nothing made a difference, like just nothing except for one thing. It was actually it. Sorry, I shouldn’t say commercializing patenting.

So that’s a first step when it comes to technological commercialization. Right. The one thing that made a big difference was whether the dean or the department head had patents.

Hmm. So it sends a signal, right, that this is something that’s not only OK, but it’s something that’s really worthwhile doing and then that sort of flows down into the culture of the of the organization. The other thing that I think a lot of people miss, and maybe this is too wonky, but I’ll mention it is really strong conflict of interest policies because I’m a I’m a big believer in academia. I love academia. And I really feel like it needs to be.

The reputation of academia needs to be protected, and some people think that you can’t commercialize without creating a conflict of interest. And really what happens is the conflict of interest needs to be managed because you don’t want is you don’t want to have a professor, for example, who developed this new drug, you know, candidate or some, you know, concept that they want to commercialize. And then they’re the ones that are doing the clinical trials, because obviously then even if they don’t mean to, there’s at least a perception of conflict of interest that you want the clinical trials to say that this is working because there’s a lot of money on the line.

So whether or not there is a conflict of interest, a perception of conflict of interest is just as bad.

So having really strong conflict of interest policies make it possible to push against them. And when I first came to USC, there weren’t strong conflict of interest policies. So by but pulling it up into the forefront and go like, this is what you can do and this is what happens if you have a startup you want to do, you have to bring it to the conflict of interest committee and you have to make sure that that policy is clear and streamlined.

Interesting. I mean, is there anything else waving your magic wand that you think the universities could be doing in the L.A. to to just be more integrated with the Southern California innovation community?

Well, I’m really thrilled that the Alliance for Social Innovation has taken on FirstLook because the idea is that you you do it as a community, that that you celebrate as opposed to compete. People would say like, wait a minute, you’re at USC, aren’t you competing against UCLA? And of course, I came from Boston. So for me, like I’m coming to L.A., I love L.A. It’s my hometown. Like for me, the competition is not UCLA, it’s Stanford or it’s other places.

Right. So, I mean, I don’t even want to be competitive that way. But that was the big thing is create that ecosystem so we can support. And I think in particular, there is so much research happening in Southern California, like over three billion dollars worth of research happening in the top research universities alone, let alone in the hospitals, et cetera. That and a large part of that is in biotech. And unfortunately, L.A. is seen as a flyover city when it comes to biotech.

So San Diego and the Bay Area are really strong.

But the truth is that we we actually in in Southern California, we create more patents. The universities create as many patents as Boston, the Boston area, and way more than the Bay Area.

There’s so much going on here. We need that. We need a lot of like the wet lab space and a lot of support around, especially biotech, because I think that’s a super untapped opportunity.

OK, changing a little bit. But you taught did you teach innovation or entrepreneurship or something like that at USC?

Did you come up with your own curriculum? Yeah.

Not only were students appreciated my curriculum, but I what will what were the things where you’re like, I want you to walk away with these two ideas.

What was some of the the ones that did work?

Wel I wanted to impress upon the students that innovation is not about creating ideas like that’s like the one percent of the innovation process. What you need to do is you need to beyond the inspiration, the idea, ideation. You’ve got to iterate, iterate, and then you need to figure out how to make that impact.

So kind of prepare society for your idea.

So it’s. I like to think of it as like innovation is the process of turning the crazy into the inevitable.

And I wanted them to feel it. So I wanted them to feel so instead of like coming up with a business plan. I said, let’s come up with simpler ideas. So they may have been social experiments, for example, but we wanted them to iterate on that social experiment. We wanted them to create social change, some sort of a change. 

I think Bill Gross, Arnav from Idealab, he said that if he renamed it I mean, maybe tongue in cheek, he said he’d rename it Iterate Lab.

I’m curious about your ideas for what stands in people’s way from actually being innovative. Well, that’s a big question mark. 

I think that people’s mistake is to focus on passion rather than curiosity. So I think that passion is what you know, and curiosity is what you don’t know. And innovation happens when you focus on what you don’t know, because if you know it, everyone else probably knows it, too. 

I don’t think that innovation and entrepreneurship are concentric circles.

Right. I think that there are overlapping circles. So entrepreneurship is one way to innovate and innovation is one form of entrepreneurship. I mean, you could have you could start a. You could start a dry cleaning business, perfectly great business, not innovative at all, and that’s fine.

So, yeah, well, yeah, OK, so I agree with that and I’m actually OK, so I feel like I don’t know you super well, but I feel like a lot of your motivation comes from OK here.

I know. I know.

But now super we’re getting into the psychoanalysis.

But I feel like a lot of it comes from you do want to effect that change in the world, like you want to take what you’re an instigator.

Right. And do you want to see this change in the world? But then why? What’s your relationship with venture capital. I think that one of the greatest things about being in venture capital is having capital to deploy. So I think that the and I don’t want it to be the only thing I do. It is the majority of my time right now. But I but I think that the. The way I bring the most value to what I do as a VC is by doing other things too, so by doing some consulting and advising and right now working on a crazy project for the L.A. River, which we can talk about if you want.

And I’d love to. And, you know, just doing doing the podcast, for example, and, you know, having worked in government and I was an adviser for, you know, the Obama administration and for the World Economic Forum. And through that, you develop these incredible networks. And so I think that. Following your. Follow your curiosity, I like to like find things that are at the edges and at the intersections, you know, and I think that through that I have perspectives that I can bring to the investing.

Now, the question is like how you capture that value is harder when you’re in the flow rather than like the old way of thinking about things is people own IP, like they own the ideas. And it’s very like you build these walls. That is not the way innovation happens today anymore. Very dynamic. And there’s this flow of talent, flow of ideas, and it’s harder to capture that that flow.

But that’s where it’s important to be as an innovator is in the flow, not owning, but being in the flow. 

So Hamet Watt was on the podcast? Yeah.

He said that, you know, there have been a number of studies on what makes someone like prolifically innovative or what makes them an innovative. And there are two main things were being prolific and and that intersectionality, for lack of a better word. Yeah. Combining different fields. And so you’re saying it’s important to to follow those threads?

Yeah, absolutely. And I think that I really I think a lot of what he said, I heard that episode and I and a lot of what he said really resonated with me. And I think that he talked about curiosity, too. And he also talked about resilience. Right. And I think those are really resilience is another incredibly important part.

There’s so many so many paradoxes in entrepreneurship. I mean, one of them is the curiosity, will you need to focus when you are an entrepreneur? Right. So that’s a difference between. Being an entrepreneur and being like starting a company and then being between gigs as an entrepreneur and a friend of mine once described this to me as. Entrepreneurs are like like wildcats, like tigers in the wild, because, like most of the time, they’re just hanging around kind of sleeping there.

They’re like storing up the energy to do their next kill.

And so it’s OK during that time between the kill, which is at the startup, is to be thinking about the next thing and making those connections. And, you know, when I was driving cross-country, I was thinking last month I was thinking about like all the rows of corn versus the beans.

It’s like rotating your crops, like between the actually growing the corn, like you need to to put the nitrogen back in the soil and just start thinking.

And that’s where the connections happen.

But make sure that once you’re doing the startup, you got to be 100 percent focused.

OK, so resilience being part of this. Yeah. Um.

I know that your parachute did not deploy once and that you still kept skydiving after that.

Well, there you go. You said the punchline. Yeah. No, no, no, no, I totally didn’t.

There’s so much more. I know what happens when your parachute doesn’t deploy.

Yeah, so technically, what happens? Like, what are you asking, what do you do know? So.

So everyone has a so everyone has a reserve. So what happens is that you practice over and over again so that if your parachute does not deploy and you have to do two things, one of you have to cut away the old parachute because it’s just not because it may be like in my case, I just was spinning like crazy. And I just like what’s going on for the longest.

Ten seconds of my life, 10 seconds really in seconds.

And I know it’s ten seconds because my instructor had to happen to look up with a GoPro because she’s not she’s like she’s still falling. And then she deploys her parachute. So she looks up and looks at me and she’s like, You hear her go, huh?

Oh, as she sees my parachute get cut away and just sort of drift away and then she’s waiting and then boom, this like the green one goes away and then boom, the red reserve just opens up and she’s like, oh, thank God.

So, OK, so you have to deploy your second parachute while you’re free, falling and cutting away this other parachute.

Like like you literally have another maybe ten seconds. Like you do not have a lot of time.

Yeah, but. And does that build resilience or. Well yeah.

So I think that that, that taught me something really interesting because I think I think we have failure all wrong. Right. I think that sure. Like you can learn from mistakes.

I think you can also learn from other people’s mistakes, like better. You don’t have to have that experience to learn how to deal with it. I mean, you do a lot of practice before you actually have a reserve ride. And what happened was so because my instructor, you know, falls faster and then gets down like everyone at the drop zone had heard what happened by the time I kind of like real up in the truck and everyone’s coming up to me going, oh, my God, you’re so lucky.

I heard you had a reserve ride and you’re I’m lucky.

What are you talking about? I almost died. It was quite thrilling. But at that point, I was like, ready to throw up. I look so sick to my stomach.

And they said, oh, my God. Several people said, I’ve had a thousand jumps and I have not had a malfunction and I do not know if I could survive. So you now know you can survive.

So I think part of the key to resilience is having been through some rocky times and it’s not the failure, it’s the getting back up that gives you that resilience and that confidence.

Mm hmm. Mm hmm. Yeah, I know. Because, you know you know, so many times you’re sick to your stomach.

You’re like, I don’t want to do this thing. I had to fire people. They scared the shit out of me. And then you’re like, oh, I know. I’ve done I’ve gone to a RIF before. I’ve done that sort of thing. But that means that the way you build resilience is just by having this horrible, horrible, depressing, whatever. Sad.

I know. Well, hopefully, hopefully you do it smaller. And that’s the whole idea of iteration, right. Is that you you know, like imagine being in Apollo, an engineer on Apollo and you don’t really know if it’s going to work for ten years, you know, or right now the James Webb Space Telescope, which is being assembled right now in Southern California, and it’s like this multi, multi, multi billion dollar project that has delays, you know, budget increases.

All eyes are on them. They’ve had to testify before Congress about it. I actually had them on my podcast and we talked about how do you iterate on something that’s so complicated? And there are ways. There are ways.

OK, Z and I both ran off to do other things, but now we’re back.

So I’d love to talk about a couple of these other endeavors of yours that are hopefully feeding your brain or have fed your brain disease. You ran a nonprofit focused on manufacturing in L.A..

I did. Why did you do that?

Mayor Garcetti had reached out and asked, you know, it’s like I’d like to start something kind of along the lines of what you’ve done at MIT, USC.

You know, how do we have better interface between government and the entrepreneurial community. And so he had this idea of an EIR program, which, of course, in venture that’s pretty common. You know, you have year EIRs come in and and kind of keep their eyes open for things and and opportunities.

And I said, yes, I would do that, but only if I could focus on an area that was untapped. Well, it turns out most people don’t know this, but manufacturing is L.A. is the largest manufacturing center in the country. 

I had Eric Pakravan on the show and his dad is a button manufacturer or was a button manufacturer.

Is it mostly apparel or what?

What can you tell me about manufacturing and how what it looks like in L.A.? It’s incredibly diverse. So, yes, apparel is huge and so is aerospace and there’s a lot of advanced manufacturing innovations.

I mean, obviously things like. And plus, of course, the large companies here are the established defense contractors.

And so L.A. has been the center for that. So there’s that there’s there’s chemicals, there’s food and beverage is huge. And also just industrial transportation is big Hyperloop. I mean, there just a lot of really cool stuff.

Can you give me maybe a little bit of a tangent, but if I want to start a food and beverage company. 

In food specifically, it’s called a Copac. So you would work with a company that specializes and they have the facilities to do that. And they’re very specialized facilities and equipment for different kinds of food, beverage, et cetera. Then, of course, the packaging, all that. And then, you know, basically you put your brand on it and it’s it’s actually I’m not an expert in this, but I, I learn a lot in the process.

So because we have this program where we were supporting these startups that were which had this grant to help help startups, we had 16 startups and our program was like an accelerator and many of them were food, beverage.

And it’s really hard to develop a recipe that scales.

It’s it’s so that was something that I learned. Yeah. So like, for sure, if you’re I mean, in the same way that if you’re designing a something like a a box, like there’s the low scale way of doing it where you just like you could three print it, for example, you know, everyone talks about 3D printing. Well, you’re not going to just 3D print four million. So once you get to the next level in food, same thing.

There’s different ways that you have to formulate stuff.

Total tangent. If I wanted to go visit some cool manufacturing, is there anything is there a good field trip that I should know about? We actually created this thing called Maker Walk, which was these makers and manufacturers and startups, everything from they open their doors, you know, for tours. And so it’s kind of like an art walk. But it’s Maker Wall. And it was in the arts district with everything from custom furniture company to a lumber mill.

So we love this. So it’s so it’s like open studios.

Exactly. For manufacturers and mirrors. Oh, that is so cool when it comes back.

And was this an actual did you create a 501c3 three for this.

Yeah, it’s called Make It in L.A. So you’re going to L.A. dot org and sort of had you know, it’s primarily we created all these resources to put on the Web sites, all the stuff we’ve learned through helping entrepreneurs, et cetera.

Lots of videos on how do you how do you start a business where you make things? It’s not as easy as just kind of using AWS and your code and your ready to go. Right.

And you have this amazing podcast. It’s another great resource, the Art of Manufacturing podcast. Right?

Yeah. So that was a lot of fun.

Your podcast is really good.

It actually made me like, oh man, I need to do more with mine. Did your style change a lot from season one to season three?

I don’t think so. I think that I just got into a swing. So it’s just you have a system for finding the folks. I have to say to like I I’m a bit of a perfectionist. So it was hard to release the first episodes, right. Like that. My whole identity and my whole ego was wrapped up in it.

And you’re just like, OK, I hope people like it. And then you start getting tweets, you start getting some messages.

No, I mean, I totally agree. And I it I always feel bad if I don’t do my guests justice or something. Do you feel like it’s driven a lot by you, whether it comes out as like an interesting episode, or do you think it’s a lot about just whether your guest tells good stories? Oh, yeah.

I mean. Each episode is so different and each one is such a journey, and I think that I’ve had a few that were kind of snoozers and it was like, oh, man, what do I do with this? And so

And I tend to find that when there’s two people, it actually kind of clicks better generally.

And I also I find a way harder when David co-hosts.

Do you think you’ve gotten better at asking good questions? Uh, I hope so. I think. Yeah, I don’t know, I think a lot of it the most important thing is not the questions, but it’s the listening. Oh, it’s so hard.

I mean, it is really true to have good questions, but I think the key is not to have them all scripted out in advance.

Yeah. Oh, that’s so true.

OK, so I will I will move on into other things. OK, so manufacturing was kind of of the past, as you said a year ago. And now the L.A. River has been a big focus of yours recently. I know.

Just give me the basics of the L.A. River. OK, so there’s the L.A. River, which a lot of folks. You know, when I first started working on the L.A. River, people like L.A. has a river.

And so I’ve been involved in an organization called the River L.A. and the River L.A. The whole goal is to integrate design and infrastructure, to connect the communities and the people and the environment along the river.

So it’s really meant to tap into all the different opportunities for the community around the river.

If you think about one, a quarter of all Californians live within an hour drive of the L.A. River. It’s it’s incredible.

And so we how are we supposed to connect with the river? Please tell me.

Yeah, well, we just literally today launched Rio Reveals.

So basically, we’re hiring these amazing artists from across all the different cultures in L.A. to create these both in-person and online experiences like adventures I would encourage anyone that’s interested to go to Rio, reveals Dotcom.

That’s OK if I do a little plug. But like on an ordinary basis, like, can you go hang out at the river or have a picnic by the river?

Well, yeah, so a lot of people don’t realize that there are certain parts of it that have natural bottom. So like Atwater Village area and kind Frogtown, that area, and then also by Balboa Park in the Valley. So those have some natural bottom areas. You can do kayaking like honestly, like if you kayaking along, you would not realize that you’re in the middle of a city. So Los Angeles manufacturing, the L.A. River, Rio reveals you said.

So tell me about L.A. I mean, you and I both grew up in L.A., so I know it’s kind of weird to be back.

And then I love the diversity, just the arts, the culture.

I mean, we can never do anything.

I could have never done anything like Rio reveals in Boston, right, like it would not happen. So I just love living at the intersections of things. I mean I went to a private school in Bel Air.

I was a Westlake before all girls school, before it was Harvard Westlake which dates me. But and yeah, I did not fit in at all. And I, I was I had my friends but they were not kind of the I didn’t fit into this typical. I don’t know. How about you. Like who did you hang out with in high school.

No, I mean I was the same thing, private school here in Pasadena, but I just was very sheltered from it all.

But I just was like, I want to get out of L.A. because I was afraid I’d be to wasn’t like blonde and cheerleader enough for L.A.

OK. So before I wrap up, anything else, is good growth capital? Do you guys call yourselves GGC? No good. No, I don’t. I don’t like acronyms, but that’s my thing. I think that they’re what?

Well, of course you have some strong opinion about acronyms. Well, I think I do, because I. Let me let me take a moment. Please.

Please do. Well, first of all, like, it’s a very insular thing.

It’s like to think that I do it sometimes when I hate myself or because it’s like nobody else knows what that is like on this year, IBM or the IRS, like, you know.

Right. What is that?

And it doesn’t really you don’t you don’t capture sort of the essence of who you are. You work really hard on that branding. And the other thing is it’s jargon. Any kind of jargon, I think, puts up walls between you and the other. So it creates this kind of tribalism in a bad way that I think I just I think I do have a strong opinion.

You know, you have a strong opinion about a lot of things.

I will I would have instead then by saying anything else about good growth, capital tech entrepreneurs should come and approach you, especially awesome people who are going to change the world through science.

Yeah, they should come find you. Yeah, absolutely. You can do me on on Twitter or on LinkedIn. You know, Kristzina Hollywood that weirdly in the middle of it. So.

Yeah. Right. So OK so then great. So we don’t need to do anything. Exasperated. Yeah that’s OK. Enough of that GGC out the door. OK, here’s what I wanted to, to wrap up those.

You said something at the beginning and I wasn’t listening hard enough, but something about mentorship and deep mentoring, something like that. But you and I were at the beach on Sunday and I asked you about a mentor of yours and what you learned from him.

And you said to do everything with Grace. And I was like, oh, I’ve been thinking about that since. Yeah. What does that journalism. Yep. Greece. And what does that mean to you.

So, yeah, Woody Flowers. He was amazing.

And he was here with Dean Kamen, founded First Robotics and he was my undergraduate mentor to MIT and he was also the professor for the class which was called, which is 270 everything at MIT numbers.

Speaking of like it’s worse than acronyms, um he just passed away this winter and actually no it’s like the October 11th will be the one year anniversary.

So he had made such an impact on me. He was one of my mentors.

I’m lucky to have had many really amazing mentors and I think mentors of the kind of people who really will they believe in you. They will stick their neck out for you. They will make connections for you. They will see where you fit in in the world and help open doors for you.

And they really do put their kind of reputation on the line for you. And he did that. He also just filled my brain with all sorts of amazing things. So the first one is gracious professionalism. That’s probably the thing he’s the most well known for. And it’s just the philosophy behind first robotics. And the idea is like. You don’t have to win, but you should definitely, you know, whatever you do, make sure you do it with grace.

And that was really important.

I I’ve been thinking about it a ton. I struggle. Here’s where I struggle. Sometimes it’s advocating for myself. Feels like it’s not graceful or something for me.

And it feels like I’m being pushy. Mm hmm. And maybe this is just my.

No, I know exactly what you mean.

And you know what I think part of the challenge this is like going now we’re getting deeper into the L.A. thing, but there’s different cultures in different cities and in different subcultures within cities. Right. And I think I lived for 20 years in Boston and in New England you never to your own horn, you kind of wait for other people to recognize you and you know, and they do, because that’s the way it works.

And in L.A., it’s a very different culture. And so that’s probably one of the things I’d say that and the very transactional nature of a lot of folks, especially Hollywood, like it’s driven in the Hollywood sector, everything’s transactional. And so I think those are things that we have to get past in L.A. in order to really be truly a great community.

It’s a great thought to to leave on and sort of reflect on.

So I wish you a lot endless gracious professionalism in your future endeavors. Thanks so much for coming on the show.

Thanks. It was so much fun.

I mean, what I did say also was like when I first was like, hey, I start a podcast. You were the first person I called, remember? Like, I remember where I was when I was talking to you about it.

I remember where I was when you were talking to me about it. I was parked outside the L.A. Clippers, I think. I don’t know why I remember that.

Mark Terbeek — Greycroft

Mark is a leading B2B investor and on the board of Scopely, Icertis and more.  He shares his current investment theses and explains how Greycroft operates as a seed to growth stage venture fund.

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Mark Terbeek is a partner at Greycroft and one of the leading LA B2B investors. He’s on the board of Scopely, Icertis, Botkeeper and many others. Mark joined Greycroft in 2013 after a decade in venture at MK Capital. He has a reputation for being extraordinarily nice. Mark we’re thrilled to have you on the pod today.

Thanks. I appreciate that. Excited to be here.

Great. I also have my partner and sometimes co-host David Waxman. Hi there. Great. So, yeah, it’s great to be with you, Mark. I remember when you joined Greycroft and I think at the time was Dana the only partner here in L.A.? Yeah.

Yeah, correct. Yeah. We we the firm at the time and it’s funny, it’s been about seven and a half years, you know, sometimes it feels like a year and sometimes it feels like 20 and sometimes on the same day. But yeah Dana, Allen, and Ian started the firm in roughly two thousand six. And they were just in the process of starting to raise Fund Three when Dana had reached out and mentioned, you know, we’re starting to scale, you know, I could use some help in L.A. It was just here in L.A. and then Allen and Ian in New York.

So we had known each other for a long time. We had co-investor a few times and so that was in the early part of 2013 when I officially came on board. And it’s been great. It’s been a terrific fit for me and hopefully for the firm.

I assume if it wasn’t a good fit for them, they would have figured out how to get. I hope so. Yeah, exactly. So yeah, it’s been nice. And you were already in L.A., right. Correct. Yeah, I, my wife is a documentary filmmaker so we moved down. So after I left Stanford in ninety seven, I started an early SaaS infrastructure software company, and then my wife was kind of waiting patiently for me. She wanted to come down to L.A. to pursue her career. That was in 200 I called you the the leading one of the leading B2B investors in L.A. is that is that do you think of yourself as a B2B investor?

I mean, and then I said, you’re sitting on the board of Scopely, right? So, yeah.

Yeah, it’s funny. So I’d say I, I try to spend about 80 percent of my time looking in kind of enterprise software and then a little a little bit in the infrastructure software area too, which is kind of my background as a founder. And because of my history in L.A., the early days, I’ve also done some media investing over the years. And certainly gaming being the largest category of entertainment. That said, generally most of the consumer investing at our firm, you know, runs through Dana and then one of our partners in New York, Ellie Wheeler.

I tend to take the what I think are the sexy companies, but normally be thought of as the sexy B2B software, the sexy enterprise that’s got it.

So well, I want to hear about that, but I can’t leave that the gaming stuff go. I mean. Sure. Where do you think we’re all going to be in like five years with gaming? Are we all going to be, you know, running our lives through games or.

You know what? Yeah, it’s really fascinating. So, I mean, the first mega mega trend, right, is as I mentioned, it’s already way bigger as a category inside entertainment than all the other categories combined. Filmed entertainment, television, you know, any sort of radio, podcasting, whatever, all those combined aren’t even as big as gaming. Right. So and it’s growing way faster. So I think there’s a couple of reasons. Right.

One is the technology of games has gotten so good and so realistic and so similar to real world and real life kind of stuff. The second is there the interactivity of the games, especially player to player, both ability to play against somebody, but also to communicate and build relationships with people.

One of the one of the really interesting things about Scopely to me is that they you know, they saw this new platform in Mobile and just swarmed all the you know, they went all over mobile. And they’re really, I think, the dominant player in casual mobile.

What do you think the next platform is? And it’s sort of a leading question. I’m curious about about VR in particular. And they are. Yeah. Yeah.

So it’s interesting. When trying to figure out what the new platforms are going to be, we would always study where gaming and music because that those were the two categories that younger, let’s call them kids. But whatever they could be, teenagers, teenagers, young adults, whatever, they they tend to have time and not as much money.

And so they’re incredibly aggressive about adopting new technologies particularly gaming and music, because that that’s kind of where you get a sense of where the world’s going. And usually once they start going in that direction, they stay going in that direction for a long time. 

You know, there’s so much upside even from when it becomes obvious what the winner is to where it finally goes is an amazing so like even for public stocks and stuff, I think about that all the time of, you know, there’s still so much upside because the laggards in that are later adopters. The market’s so huge. 

While we’re talking about, Scopely, what do you you know, this is about you, but where do you lean in as a board member or, you know, what have been some of the things that have come to the board level

Yeah. No, because so so I guess like first, you know, for me philosophically, kind of when I join a board, I kind of and having been a founder, I kind of appreciate what the founders are trying to do in terms of setting the culture and creating kind of a model that is in their image and, you know, that resonates and is authentic. And so I try to figure out both the culture of the company as well as the relationship with the core management team and founders, like what do they need?

And then how can I fit in to their model? Right. So I try of course, I try to bring myself in my own authentic way to that. But I also try to be respectful of the way the culture is working and the roles and the personalities of the key founders, in terms of specifically on Scopely, I mean, they have such a thing I probably respect the most about that company of a lot of things is they are the single best company I’ve ever worked with at recruiting talent.

So they don’t they don’t just do a search and then look for somebody. They’re searching for that role way before they even need it. And they’re specifically looking for what they consider to be the five best people in the world that do that role. And they start building relationships with those specific people sometimes years before that person’s ready to come up. In an ideal world, they’d get them right away. But oftentimes it’s not the right time for that person to leave yet.

Or maybe it’s not even Scopely’s not even quite ready for the level of what that person is. But but they’re growing into that. But they’ll start a dialogue and effectively a recruiting process. That’s a relationship building effort that literally I’ve been involved with some of them that have gone on for years before that person has finally decided to come.

You know, I was able to kind of spend time as they got deep in the cycles with candidates to not only interview them, to provide my perspective to the team, but also to help the candidates understand a broader board perspective, investment perspective on Scopely.

How many people are who will you interact with at at a company like Scopely?

Like, will you well, a lot of your interactions be with the CEO or will it be a much broader set of interactions?

Yeah, good. Really good question. That I think also kind of depends culturally a little bit on the company. You know, Scopely has a very collegial approach, especially at the senior management team. So I spend I probably spend the most time with Walter, but I spend a fair amount of time with Javier who’s the co-CEO and really runs all of the games. So he operates all the games and is an incredible executive. And then also Tim O’Brien, who is their CRO and kind of does all their big licensing and partnership deals.

And then also Roxanne Lucas, who is their chief people officer. OK, bring it back to just Greycroft. General, I want to make sure I cover the basics. How do entrepreneurs approach you best? Like I called you a B2B investor, you know, did someone come directly to you? I feel like Brentt works a lot with you. Yeah, well, it’s on the team. What are the best entry points?

How does someone know who to talk to if they’re looking to raise money from Greycroft?

Yeah. Yeah. So so the best way is obviously, if you know one of us or if you know someone that knows us well is just to kind of, you know, get an email intro really to any one of us. Anyone will can receive the email and can get it to the right person.

Right. And so we don’t expect entrepreneurs and everybody to know exactly what areas we’re all working on. We internally understandable kind of route it the right way, but roughly the way we organize weekly inside Greycroft. We have kind of half our team roughly is kind of focused on the enterprise team. So in L.A., that’s that’s primarily me and Brentt. And then and then also we also include our New York team, which is like Will and John and.

We kind of together kind of review all the enterprise stuff every week, and then we also have a consumer team, which is primarily Dana and Ellie and Elena, and they’ll they’ll work kind of through that funnel. But if something comes in to me that’s obviously like more appropriate for them all, forded it off to them and say, hey, this can refer referred looks pretty interesting, but why don’t you guys take a look? And I’d say one other thing is we were also quite thematic in terms of how we operate. So each investor on the whole team has a handful of themes that they’re most excited about and believe are going to be big trends over the next 10 years, 15 years.

And so each one of us does research and and and kind of lays out kind of a handful of investment theses. And then we all share those across the firm. So if Brentt’s particularly excited about, you know, network security or something like that, you know, when something comes in.

Yeah. When something comes in, you know, everybody knows, OK, Brentt will probably have a point of view on this. And we try to spend roughly 80 percent of our time outbound looking and doing sector work and looking for companies in those areas.

You mentioned a couple of things. What are all your things I’d like to know?

So for me personally, the three that I’m spending time on right now, so I would call it future of work, but it’s not as broad as what that might, I guess, generally connote what I’m looking for, specifically are business processes that up until a year ago were primarily human to human in person interactions were necessary to really make that business process work. And now obviously those are going to be much more difficult to have happen. And so we’re looking for software platforms that can, you know, come in with certain workflows and either augment or fully replace the need for those people who have done it, kind of swivel chair management style.

You know, that’s that’s one area that we’re that we’re looking at.

Second would be kind of modern supply chain, so much more dynamic network orientation to how businesses manage their vendors and suppliers and how they’re going to basically not only try to be less single threaded on any one particular vendor, particularly if it’s in a country perhaps that’s going to have political challenges or just they want to have a better kind of way to manage a more dynamic nature.

So we’re looking at lots of things around that all the way from contracting, kind of like Icertis through procurement, down into even how they manage their individual vendors. We just backed actually a deal that that Brentt led for us called craft.io, which is basically a modern version of Dun and Bradstreet. So they have an ability to effectively understand and score vendors based on a ton of both public and some of their own data that tries to get at. Is this company healthy?

And then finally, like what I call the modern CFO stack in the world where, you know, there’s an explosion of data APIs, accessible third party, first party data that’s that’s exploding now.

Is there a way for the CFO office to better understand all of that data and therefore make better decisions to drive the business as opposed to being more backwards, looking on compliance and general ledger and accounting and stuff like that? I consider those all very sexy, how do entrepreneurs know that those are your themes.

I mean, like each of us, Brentt has two or three games, got two or three. Ian’s got two or three. So there’s probably a total, what I don’t know, 30 ish. And so we wouldn’t want an entrepreneur not to just because they heard my three to say, well, I don’t really fit in there. I would think Greycroft, because it’s quite likely somebody is working on a theme that was related. I would just probably, you know, know that right away and hand it off to that person, introduce them, I love to talk to you for a second about stage. I think when we were interviewing Dana, we called you a Series A firm and she recoiled in horror. Yes.

So but I still do kind of think of you as a series A firm. So, so correct me again.

So so we believe the way we think of Greycroft as a seed to growth stage venture fund. You know, we’re ideally finding companies, you know, first institutional round these days. That’s often called the seed round or whatever it is. But, you know, ideally we’ll get involved whether we lead that round or a co-lead or even just a piece of that round in those rounds are pretty collegial and syndicated around how they form were fired up to get involved as early as that level and start helping.

Certainly the series A we want to be aggressive in and follow into that round or if we missed that seed round, that’s certainly also a natural starting point for us. Is the series a round. And then we’ll typically, with our early stage fund, still follow through into the B round, kind of with the early stage fund. We then separately have a growth fund that’s, investing minimally. Twenty million and probably as much as 40 million single check. So in a perfect scenario, would be like a Scopely or an Icertis where we start in the original round and then we’re an investor in every single round of the company afterwards

But, you know, Dana’s reaction kind of to the A round is we think of ourselves as wanting to kind of be a part of the business as early as we can and as long as we can in the history of the company. Maybe it’s an obvious question, but do you just from the fund that you’re investing on? I think it’s a 250 million dollar fund, so not counting the growth, the the growth fund. Does your ownership grow or shrink over time?

I mean, when it exits?

Yeah, it’s a good question because so the way we’ve set up our fund strategy is. We’re trying to get in early and then the the growth fund will come into B rounds when they’re really scaling typically as a like as a rough rule, the company’s got around 10 million of ARR.

You know, as a B2B company, you know, it’s kind of definitely in the range of the growth fund. Typically that rounds going to be 15 to 50 million that they’re going to raise. So if you look at, for example, like a Scopely, so we were investors in the early stage fund with that and then a big investment of the growth fund. 

If you look at the company, like our ownership across the two funds, has actually gone up. What’s your relationship with this sort of Sand Hill Road?

Yeah, so so we you know, so historically, the firm has always been very collaborative and syndicate friendly, the firm has a view of when we invest in a company, you know, we always think of ourselves as a possible lead candidate for a we’re. You know, we have our own perspective, we don’t care what other people think or don’t think, we can be contrarian, we’re focused on our own view of the market

So at the end of the day, when the round is finishes and is selected by the team, you know, ideally we hope we win and prevail as the lead. But we’re also indifferent in the sense that if we’re the co-lead or even if we’re a smaller investor, as long as we think we can earn a huge rate of return on that capital and we can really be helpful to the management team in the syndicate, we’re fine even if we don’t end up kind of leading it, we’ll get going because we know we’ve got the growth fund and other instruments. And when the next round comes, we can lead that next round. 

And I think generally we’re well regarded because of our flexibility and because, frankly, our perspective on our network tends to be really complementary to a lot of the Silicon Valley funds because of our L.A. and our New York bases know we’re able to bring customer relationships, partner relationships and talent relationships in those markets.

Do you set expectations for subsequent rounds or do you just kind of decide ad hoc, like, yeah, what I tell them is, listen, you’re going to execute.

Your plans are aggressive, probably even more aggressive than we think you’re going to achieve. That’s probably why there was a bid/ask spread, at least in the negotiation. Right. And at our perspective on it is, look, you think you’re going to be growing even faster and that would make nobody other than you and us with that would be amazing. Right. If that’s the case, expect that we’re going to be aggressive and try to lead subsequent rounds or at least try to be a major player in those subsequent rounds.

That said, I’m not asking for you upfront to accept any offer that I’m going to give you. I’m going to compete just as. As any other new firm to kind of win your business, kind of about the next time,that said, other great firms are inevitably going to be trying to preempt you or competing in the same kind of round that we’re competing on. And you should absolutely do the best thing that’s for the company right in the board, you know, minus me, because I’ll be conflicted, will make a decision on kind of what the right thing to do is. And I want you to always know I’m 100 percent behind whatever the best. I guess hopefully I’ll convince you that our offer is the best.

But I also get you’re a great company. You’re going to have 10 other offers and you’re going to do the best thing for you. 

One thing David and I talk about is should we be doing more to build out our operating partners, board partners, mentor networks?

How what have you seen work really well and what have you done and where you going? Yeah.

So so this is this is one area that I’m super excited and proud of, kind of the evolution of the firm over the last really five years. When we talk to entrepreneurs about the flexibility I mentioned before of we can lead, we can be a co-lead, the other area of flexibility that we philosophically, fundamentally believe in is we want companies to build the best board.

They can build it. Right. It might make sense if I’m leading the deal and trying to break off that I would be the guy. But also, you don’t have to just take Mark because Mark’s leading the deal.

If there’s someone that’s better internally for whatever reason, that’s totally fine. We don’t have any ego. We don’t have any economics around the way we structure our firm. We want the company to be the best company it can be.We’re also happy to step off the board and just be a board observer and bring on someone else that they can recruit on and use some collateral to capital to kind of get them out there.

And we philosophically believe that companies have the best boards. We’ll get the best outcomes. So that’s on the investing side. Right.

We also then have built this platform team. That really fundamentally today we have three people that spend most of their time on that team, so we have Alison Lange Engel, who was the former CMO stripe and at LinkedIn prior to that. 

We have Stewart Easterby, who similarly comes from a sales and sales ops and kind of an H.R. manager operating background. So he helps companies kind of as they’re scaling all those aspects of geek out with like compensation models for the sales teams, whatever they need help with.

And then also how to Hannah Shore who runs our BD team. So she spends a lot of time outbound with large platform companies, big enterprise customers, CPG companies, relationships with, like, you know, Accenture and Deloitte and firms like that.Ddo you take board seats in your earliest investments like you’re leading and see, do we can we typically don’t in the seed stage only just because most boards are still forming, the entrepreneurs are still figuring out kind of what they want and need on a board. But if they have a strong perspective and say, hey, we feel this is the time to form the word, we’d like you to do it, then we’re definitely open to it.

You know for sure, by the time the company is at the series, a stage.So even if we’re start on the board and then turn into a board observer, there’s there’s zero difference in kind of how we work with the companies.

I think we’re going to have to move to the random personal question section of this right now looking at it, but it really, what sort of documentaries does your wife make?

So primarily she’s focused on on animal documentaries. She did a series of short documentaries for National Geographic on the Big Cat initiative. So she did some on the tiger or the lions and she did some kind of saving and endangered animals. And then the last two feature length documentary she did, the first one was called Black Beauty Breed, which was a deep kind of profile on the Rottweiler, which is a dog that we ended up rescuing and didn’t know anything about, rescued and fell in love with. He passed away a few years ago of osteosarcoma.

And so she did a documentary on on canine cancer and kind of all the new therapies that are out and ways to treat this, ways to prevent it. Not surprisingly, it’s a lot like humans where obviously food and a lot of the things that dogs eat and they’re they’re kind of exercise a lot of different things you can do to kind of help, you know, elongate their lives and prevent cancer.

Well, this is fantastic, it’s been fun to get to know you better and it’s fun to collaborate with you in the L.A. ecosystem.

So, yeah, I really appreciate you guys doing this. And we love working with you guys. And and hopefully we can find a bunch of great ones together in the meantime. And thanks for having me on.