David Waxman — TenOneTen

The one, the only, David Waxman!! 

David was the founder of three venture backed companies before he and Gil Elbaz started TenOneTen. David shares lessons learned from an IPO, a litigious board member and a couple decades in startups. 

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Today I’m interviewing the one, the only David Waxman.  David and I are partners at TenOneTen, where we write million dollar checks into seed stage companies.  David has been the founder of three companies.  He raised venture for all three, had one IPO, one acquisition, one crash and burn. And of course he is one of the founders of TenOneTen. There’s so much to get into. David, thank you for putting up with all this podcasting and coming on the show today.

Thank you so much for having me.

Well, you know, I like to start with the basics, so maybe you could, start me off by telling me how many pets do you have in your house right now?

That’s a hard question. I can, let me count them off. It’s two dogs, three cats, a leopard gecko, a snake, six chickens, two Guinea, pigs. I think that’s it.

That was good.

That’s excluding my worm bed. Cause I can’t count all of them.

Yeah. Oh, no, you’re not supposed to .  so, okay, so the branding of TenOneTen, um I think a bit we’ve we lean into this nice and nerdy brand. so tell me, how do you feel about that branding?

I feel like it’s well, it’s true. I think, I like to think I’m nice and I’m definitely nerdy  and I think we’re all that, you know we’ve all started companies, but we’ve all also had these technical educations and we  have hung out with other nerdy people and we, We can refer to star Trek episodes and all those things that nurture, supposed to be able to do

Okay, so you start at TenOneTen with Gil Elbaz. who’s nerdier.

Different. I think I’m more pop culture, nerdy. I think he’s more OG legit nerdy.

What does that mean? Like more Caltech nerd?

He’s more Caltech . you know, he can write SQL. I can’t write SQL

You could, it’s not that hard.

No, it’s not that hard, but but Gil used to do it for a living

Okay. Fair enough. , I won’t ask. Who’s nicer. You’re both very nice.

Quite different.

Oh, I agree.  How would you characterize the difference between you and Gill?

Oh, we’re so we’re, we, it’s weird because we have a lot of similarities of background and of taste and then just some parts where we’re really dissimilar. I, I would, I mean, I don’t know how to say it. Otherwise I’m much more emotional than he is, or at least on the surface, like. He doesn’t show a lot of emotion.

I’m not sure if you’ve noticed

He computes things.

He computes things more than I do, but, and actually, yeah, at some level we’re nothing alike because I’m more gut driven and he has gut driven, but his gut is actually a computer.

Okay. I’m going to try to be serious. Do you know what the average amount being raised into a round that we’re investing into and what the average valuation is?

I should know that. at least as well as I do, I think it’s, I think the rounds are like two, two and a half million. Range. We certainly have some threes and fours, and we also have some 500 to a million. We’re more flexible as a firm anywhere early

I wasn’t sure I was going to get the two on seven sounds good. Two or three now.

Don’t give people are our numbers.

Oh, why not?

I don’t know, cause maybe they’ll use them against us when we’re trying to get two out of five.

If they deserve it, Okay. So that’s some of the basics of 10, one 10, obviously we work together. So I asked you a lot of my questions, but  give me some of the basics of you. I said you’ve started three companies raise venture for all of them. Maybe start with Firefly.

Yeah, so I was I was at the MIT media lab. I was in my second year and I met a kid from Harvard business school the way you do.  And we met on an airplane and we literally just decided to start a company.  it wasn’t one of those. I’ve had a passion project for my entire life  that I expect from other people. But for me, it was just, I met this guy and the two of us really liked each other. We decided to start a company and we basically ate pizza and S and brainstorm brainstormed. both of us cut class for the next semester.

And and came up with this idea to recommend music based on this idea of collaborative filtering. So people like you also like this other stuff.  and I known about that technology because some other folks at the media lab were actually studying it and implementing it. And I quite naively walked into the office and said, Hey can you give us all your materials because we want to make a company. And they said we’re going to make a company. 

And so we joined forces and uh, had five founders in that company, Firefly. And we ended up doing a very popular music service. We also got into the questions of online privacy because we were collecting, personal information and preference information.

And ultimately Microsoft bought our company because they thought. That our product, that passport, which was a product to keep personal information in the data while it was really interesting. And they bought that and it became the Microsoft passport.

Okay. And now I’m going to ask one question about this. there are so many of these companies that we see nowadays that are monetize your own data exhausts sort of thing, did Firefly color, how you look at all those.

Well I see a lot of them because maybe because of the Firefly experience and the biggest issue in that space is distribution.

Like how do you get everybody to use your wallet and not some other wallet? And for us that meant selling to Microsoft because Microsoft had 200 million desktop computers out there and we could put them on every single OSTP.  so whenever I meet a company that’s in this space, I’m always, that’s the first, second and third questions.

How are you going to get this thing out there?

What about what goes into the wallet?

Well, I think there’s differing levels of PII that could go into a wallet. the way I envision a wallet that’s done well is that you have. All the PII that you need for whatever the use case is, and that you authorize that use case for that.

provider or that app for as long as they needed to provide the service back to you, that you’re asking for.

It’s kind of conflating the notion of a wallet with the sort of monetize your data exhaust

Yeah. I, I’m not a big believer in that. I just think that, The money is not, I mean, in aggregate it’s a ton of money, right? For a company like Facebook or Google to, you know, to take the aggregate of everybody’s data and then monetize it. I think for any one person it’s not a tremendous amount of money. And so it has to be really, really easy. And I think it makes you think about it, which you might not. You might not want to do it. If you start to think too hard about like, is this, do I really want to share this for nine bucks a year or whatever, you know, some smaller amount or even nine bucks a month is that really make sense?

Right, right. Well, Uh, let’s get back to you. The, the guy on the airplane who you started this company with was Nick founder of alpha Edison 

Yep.

Um, and then you guys decide to do another one.

And another one after that. Yeah. . It was Nick and a guy named max Metrol, who was our original CTO. And  the three of us decided to start another company.  it was called people PC. And the idea was to get people easy access to the internet in a time when it was a pain in the ass to get on the internet.

So getting an, a dial-up service and getting a computer and getting,  figuring out which one, we put it all into a bundle that people paid for on a monthly fee.

And , do people know it because you guys did a lot of consumer advertising

Yeah. And ended up getting a lot of consumer advertising behind it. So we were very lucky. We had actually a hit commercial, one that, that just everybody took to this, to the actor who did it  and then in 2003, when EarthLink bought our company, you know they ran it as a dial-up service.

And they poured a lot of acquisition dollars into it. And just so over the course of maybe 10 years, people saw a ton of people, PC ads, particularly on television.

and w did you guys, you IPO on the NASDAQ

Yeah.

anything else? Just about the mechanics of an IPO? Like my understanding is you issue new shares, kind of like a capital raise.

it’s exactly a capital raise. That’s that’s what it is. I mean, you convert all the  preferred to common, so you only have one class of stock typically, and then you just issue more common shares and sell them. Um, and there’s a couple of details in there, but that’s, that’s the basics of it. And the thing I remember most from our IPO.

Was the writing of the , which was a really interesting exercise that we didn’t have when we started, we had neither a CFO or a general counsel, which shows how young we were.

And I was sort of the guy because, uh, Nick, my partner was, was not the kind of person could sit in a room with a bunch of lawyers at right. Something that that’s not his thing, but, but, so I ended up being the guy to draft the S one. So I was in this room with like 15 lawyers from all different, you know, from the banks and from us and from various places.

And it was almost. Sometimes I describe it as Talmudic. Like we were kind of looking at the language and having long discussions, over words, like, can we really say it’s revolutionary while there wasn’t actual revolution here and does a revolution need guns? You know, that kind of thing.

And you’re writing this thing. And the whole process was like that, uh, which, which is really interesting for a short amount of time and then really, really boring after you do it for awhile.

Okay. Uh, that’s a great story. One. It blows me away that you didn’t have a CFO or a general counsel and that you were essentially that person

those people. I mean, we did get them on in that process,

yeah, yeah. Oh, wow. And a room with 15 lawyers.

And then spot runner.

Yeah. That’s what moved me down here to LA.

And spot runner was a rocket ship up and very hot until it stopped being hot and ended poorly yet we’re always meeting great spot runner, alumns and investing into their companies.

Yeah. spot runner was, it was unsuccessful as a commercial endeavor and uncut successful for investors. That doesn’t mean that we didn’t do a lot of things well, and get, have a lot of little successes.  it just means that the outcome wasn’t what we wanted it to be. So we built a fantastic team at a time that in LA to build a fantastic  technical team was really hard.

back then in the sort of mid two thousands, it was nearly impossible to get somebody to relocate from the Bay area. To LA

So how did you do it and what do you recommend to companies trying to build great tech teams now in LA?

Well it’s much, much better now y’all have it easy, no, I mean, we did a really good job , with PR and I think that helped a lot and 

One of the things I did was I already taught Gatlin is by far the best recruiter in LA I’ve ever worked with. And he, you know, he got some great people and as you know,

all engineering teams in particular, the quality of our people drew high quality people.  And those people were appealing to, to other great people.

And then we hired Todd Gatlin because he’s a great person and we only hire great people. So now he’s at ten one 10.

Exactly.

Gil also used him. So all of us have used him.

, so I, I found this question from Gill amusing because I asked Gill , and Eric, what questions to ask you on the podcast and Gill who started 10, one 10 with you?

What? Like seven, eight years ago?

seven. Yeah, almost eight.

He asked, what are your tips for staying friends with someone who you’ve started multiple businesses with.

uh, Nick and I I think he’s talking about Nick  cause I’ve only really started one thing with guilt. Nick and I just had, tremendous amount of respect for each other and we were very different. and we’re very complimentary in our skills. And I think we both really appreciated that the other guy had super powers.

that we’re different than their own

well, what’s your super power? What are his super powers?

Uh, Nick’s a great fundraiser and sales person and strategic thinker and, and, um, what am I super powers? I can get teams to do stuff

Okay. So maintaining respect for someone and the unique skills and superpowers they bring, but sometimes man, as you get to know people and see their flaws, that just it’s harder.

Well, I think that’s your issue. You’ve said that before that you respect people sometimes less after you get to know them. And I don’t know if that’s fully commonly true.

Okay. Hopefully not,  Um, with those three companies, before we move into 10, one 10 did you have VCs that were helpful?

Yeah, we did. We had a lot of great VCs. some of them have become really well known. So Brad Feld was on the board of people PC and our earliest investor there. back when he was with SoftBank , Spot runner, had Danny Rimer from index ventures who was excellent. Bob Pittman, who is an independent board member and small investor was excellent.  We’ve been fortunate. We’ve had one bad investor and that was part of spot runner’s demise. but, and so I know I’ve been bruised. I know what having a bat an investor could do but for the most part, we’ve had quite good investors.

you may not want to discuss it, but you said you had all these great board members except for one who really derailed things with spot runner

yeah. It wasn’t even a board member. It was important observer.

Hmm.

uh, yeah, we had a bad investor I think I can say their name. It’s public record that they sued us. it’s was WPP. And, the CEO at the time, Martin Sorrell was, uh, Litigious dude. And the person who I think still works there, who worked for him in Corp dev slash vesting.

This guy, Lance Morrow was a, I don’t know if I could say this out of pocket as a total Dick and you know, like when he thought things were going well, he used to go on TV and brag. This is Martin Sorrell about, you know, he basically exaggerated how much of our company he owned and like, take credit for things that he couldn’t, shouldn’t be taking credit for.

Then on the opposite side, when things weren’t going well, he said that it was all about that. We were somehow focused entirely on, deceiving him somehow. And when he was really never that big of a shareholder in the first place, and we certainly, Weren’t trying to deceive anybody.

ass. And then when they, they actually did Sue us, like things were already Rocky. It was 2008, 2009. We had some issues in the company and for them to then Sue us, it was basically a big kick in the gut while we were down.

talk about a board member becoming part of the problem. Like they, we suddenly had a lawsuit against the company and, and against us as board members and us as individuals. So it was hugely destructive.

wow.  There was something about the business model that wasn’t working. It was legitimate company, not working stuff. And then your investor sort of caked you while you were down.

Yeah, exactly. I think it was actually three steps. We had some issues with the business  And then we had a macro issue, which was the meltdown in 2008, which totally eviscerated the advertising market. And then while we were kind of dealing with.

The second compounding of the first and the investor came and kicked us out. And it just, that was the nail.

Hmm. Sucks.

Totally a sec.

Yeah. And that is startup life for you folks.

Yeah. And it also taught me like,  not everybody’s rational all the time. It didn’t make any sense.

And yet that action in it, and pretty much everything, every subsequent action that followed with them was value destroying, and it didn’t make any sense.

Yeah.

You are always telling founders to vet their VCs.

But now hearing this story, I understand what you’re saying. So for WPP, I could have found out with very, very little real diligence that they were super litigious. They had a web page on their site about the people that they’d sued and basically public apologies. We never gave a public apology, by the way, we didn’t have anything to apologize for, but, this was like part of their business practice

Okay. So after that experience, you decided you wanted to be a VC, or how did that come about for you. it’s something that I had thought of for years, , but it sort of happened by accident  , After spot runner. I was pretty sure I didn’t want to start another full on venture back company. And I started helping people and  making some angel investments and just being an advisor.

and that got me deeper in with other companies and I just kept wanting to do it. And then I met Gil and we started investing together and  the more I did it, the more, I didn’t want it to be a hobby. The more I wanted it to be my profession. And, uh  that’s what led us to today.

But so Gil had another job. So a lot of it fell on you like a lot of the actual, fund administration  or who did you go to? What resources did you have?

The LA ecosystem is, is a friendly one and  and a very collaborative one. And, back when I was starting out here and 2013 when we started 10, one 10, there were some,  locals who are still around, like Jim Andelman from bonfire and TX from what was then Carlin.

And now he is with FECA ventures and Peter Lee for Baroda and  just then the guys across cat, there was a whole crowd of. The season, but we were pretty small. It was so small that we often had lunch  to just talk shop and everybody made themselves really available to my questions.

And, I had met VCs of course, throughout my career, and pretty much everybody was stepped up and was willing to help and answer questions.

Great.  , what about mistakes that you made  in your investing or in the early days of 10, one 10 that you wouldn’t make again? let me go, let me, because I know you pretty well.

you don’t like solo founders. more so than anyone else in our team, you have a bit of a reaction there. Did that come from having bad solo founder experience or,

Yeah. first of all, I just think it’s really, it’s an incredibly hard thing to do with the team. And I know in my own experience how important the relationship with another person was and how, they could be up when I was down and I could be up when they were down  so it’s part of me is just incredulous that people can do it without that. and then we did have some investments that didn’t work out so well with solo founders and and actually there’s some data on it. It’s one of those few things that has data.

there was a, the startup genome did a little bit of data and it was about I think their conclusions were, and I’m going to Maul this, but that founders didn’t  pivot as quickly when they were so low. And that kind of makes sense. You don’t have that other person to push you off the bad idea.

and time to exit was longer. obviously there are counter examples, right? they’re spectacular counterexamples, but if you look at most of the iconic companies, even those companies that we think of. With a very iconic founder like Steve jobs or bill Gates, they had co-founders Yep. we can test this more when we come up with a solo founder who we really want to invest in.  how about maybe that’s a less fun question then. Just what’s an example of a company that you really have enjoyed nerding out on

So many just one of many that I’ve really enjoyed is second spectrum. there are local really hardcore tech company here in LA, and I like that.  I met them early on when they were professors at USC and they were studying basketball.

They were studying how you could turn the movements of players and the ball into a semantic understanding of the game of basketball. So not just this players here or this player is there, but this is a guy doing a slam dunk or a pick and roll. And the team is really fun. , the area that they’re in is really fun because I like sports and they’ve been doing really hardcore tech

Yeah, go go second spectrum. Uh, and not just doing it for basketball, but moving into taking that computer vision and semantic understanding and taking it to soccer now as well. Um, so you and I both know that all the computer vision companies that come into our pipeline get you very excited.

What is it about computer vision that gets you so excited?

I just think it’s one of those areas of AI. That’s living up to its hype, right? And there’s a lot of AI. That’s not,  he has a big umbrella and I’m a useless term, but there, there are a lot of promises about what AI can do. And a lot of them fall short.  computer vision is really.

Incredible. you can drive a freaking car down the street without human intervention in part because the car can see and you can,  you can find  faces out of a billion pictures these capabilities are really incredible and,  there are lots of applications for these capabilities.

Is it a lot of times a fairly off the shelf camera that can do it. And then it’s really a software challenge.

Well, the other thing about computer vision is moving really fast. what was really expensive yesterday is cheaper today and will be cheaper tomorrow. if you look at second spectrum  the setups they have for the NBA and the English premier league, they’re pretty expensive now, but the company can easily see how both the compute to do the work.

And the camera systems are going to get cheaper over time to the point where any game can be tracked.

, so your vision is one that I know I always send to you. Health tech is another one where I feel like I can get you to take meetings. , what do you see going on right now in health care? And how are we going to get out of this mess? That is sort of our healthcare system in this country.

I have mixed feelings about health tech, because it’s really big and it’s really important and it’s really hard.  and it’s, , it’s a slow sales cycle, particularly if you’re selling to hospitals. And for good reason, like hospitals aren’t necessarily great places  to move fast and break things.

But I think there, there are a couple trends that are macro trends that , that are unstoppable and really important. One is value-based care where people are no longer paying for the procedure, but paying for health.  actually there are three there’s consumer facing health care where consumers are really taking control of

of their own health and looking at data and doing, things that normally,  people use clinics to do like,  monitor their blood glucose.  and then Tele-health which has gotten a huge push , from COVID and, change legislations , which,  allowed doctors now to, operate across state lines, which is enormous.

so there’s a lot changing in healthcare and a lot of reasons to change it. And,  it’s a very exciting place.

So is that is that one of the main things that’s going on in telehealth right now, which is providers can operate across state lines?

it it, it creates venture scale possibilities.  If you can have a company that can do dermatology for the entire United States or prescriptions for the entire United States  or even broader than that but just the U S market, as opposed to having to do a state-by-state thing that really helps a lot.

And also just people’s comfort with seeing a doctor over a video call  is something that was coming. And I think. You know we’ve all been forced to do things that we didn’t really want to do during COVID. And, you know we’re realizing in a lot of cases that it’s not so bad.

you know, I throw it health tensor, which is a company that’s really bringing AI machine learning into the clinic and helping doctors make the right decisions.

And  and also just make their process of dealing with the medical record, much, much more efficient.

Health tensor is a great example of just automated decision support for doctors in the future. We’re going to look back on doctors, memorizing books and books of medical data, and think it’s like my mom who memorized everyone’s phone number because phones couldn’t store phone numbers.

And we just realized there is a better way of doing things

Yeah.  and I think it’s important to also say like there’s, there will always be room for doctors and  always be a very critical role for doctors to be the interface between,  any systems and. The patient, we both have family members who are doctors.

They can look at a person and say, ah, yeah, you probably need to get that checked. And that’s just, uh I think that intuition level ability  to see if someone’s,  needs help or not is not going anywhere.

Okay. So you just said it’s the move to value based care where payers pay for patient health rather than procedures done consumer control of their own health and telehealth.

Well, there’s just, there’s so much going on. I mean, we don’t do biotech. and sometimes I’m a little sad that we don’t do biotech because I think this period of history will be remembered as the combination of  compute and bio, and,  you know, just look at the vaccine efforts that have just happened and how fast they were able to do it.

Um, because they were able to model things. you know I don’t, we don’t do it because I feel it’s just too far out of my technical depth.  but it’s neat.

Yeah. It’s tempting. .

It would require a whole lot of study

Yeah. Or a different team

or a different team. 

Yeah, 

but where is 10, one 10 going. Do you think we’re aligned on that? hopefully so, but , um, maybe you can characterize your vision for where you want to be. with ten one 10.

I think we should spend the next several years really focused down on trying to get da Wallach to join our team.

I was hoping you were going to say building a podcast empire, but da walk would be fantastic.

I,  I would like to add, I think we will add capabilities to the team that we don’t have now. I think that’s part of what it’s going to mean and something that you say all the time I think is, has really become my guide for how we think about ten one 10, which is,   there’s this market of founders building great things, and we want to provide what they need right now. Like nice techie investors who will lead around in LA. that’s a hole in the market and founders really need that and we can give it to them. I think in the future, those needs might be different and, we’ll have different capabilities and they might have different needs and hopefully.

10, one 10 will be an enduring institution here at LA that will help founders make stuff real.

Oh, I like that. Help founders make stuff real. That’s great. Um, you know, a lot of funds have aspirations to grow their AUM and we get asked why aren’t you raising more money? But I would say that you and Gill and I all really liked the early stages.

I do like the early stages and I, think we’ll always do early stage.

Um, okay. So I saved up a couple of my specific questions because, you know, usually when we have one-on-ones I just ask you all my questions. So I was like, Oh, I’ll just do the same on the podcast. what do you have any preference on notes versus safes?

uh, I think the safes are a little bit cleaner, um, just because there’s less in there. And from the founder’s perspective, they don’t have this extra added dimension of debt, which, you know, it has its own rules, a safe kind of ignores all that.

Yeah.  uh, I know, I know that you do not like the uncapped convertible note. and I understand why, but, um, do you like the uncapped note at all, if  you were a founder, you just dislike it as a VC.

yeah, I dislike it as a VC. I’m sure. It’s, it’s, it’s very, it’s sweet financing terms for a founder, but I think it, it creates this misalignment, right? Where. if you’ve got an uncapped note,  you’re basically funding the company to get further, which will make the valuation go up, which is bad for the return on that uncap note, in some sense, if you don’t have any other investment.

Um, and so it fundamentally kind of misaligned with the founder. You should be both trying to get the next best valuation.

And so you’re saying then if it’s uncapped, I, the VC sort of prefer that the next valuation is not higher.

Assuming I have no other investment in the company. Yeah.

Yeah.

Which is why, you know, the case recently where we’ve done one it’s because we’re already shareholders in the company and,

makes sense Um what about buying secondary Like I did this podcast with Zach white and a huge part of their strategy is or two of the examples he highlighted are buying secondary  what do you think about it as a sort of later stage fund strategy

I mean I think it’s I think it’s fine especially if you’re already a preferred holder so you’re getting the information and you have other preferred rights for us we’ve used it I mean we bought secondary and a company when it was an ability for us to buy up I mean as you know we’d like to buy up where we see things going well  So it created an opportunity to buy up but it also can allow you to bring other investors into an oversubscribed round You know by creating a little bit more room on secondary So this there’s you know I think there’s lots of places where we would use it

got it So we if we have enough of the preferred from our earlier investment then we have sort of major investors status or something like that

Well the common is still  it doesn’t have the liquidation preference. It doesn’t, necessarily, Contribute to your pro rata rights. But, but if, you know, if you already have information rights, then you don’t need to get them again. If that’s what you care about.

I’m going to edit out the name later, but do you remember term sheet? Do you remember what it was that you didn’t like when you saw it?

I don’t remember for that particular one, but basically I don’t like to see anything that’s non-standard I don’t like to see a super pro-rata super providers can be really messy. I don’t like to see terms different in any way from the lead investor to any of the other investors in that same round.

I think that’s. That’s just janky.

You mean not just like major investors status or whatever, but.

right beyond major investor status, you know,  there’s a company that we didn’t invest in, in part out of principle. And maybe that will turn out to be a bad choice, but , , basically the lead investor was getting an effective, lower price than everybody else in the round, because I suppose it helped that they were going to do  Which to me is part of what you signed up for as a VC.

So you shouldn’t get paid extra for that.

how did they structure that?

they structured it as a simultaneous accelerator deal where they were getting some common shares  for the, for this work slash program that they were doing. But it wasn’t really a work program. It sounded like the kind of help that we would do for free.

Yeah.  Dennis. Sure. You want to put that in.

I, whatever. It’s interesting to me, anything else for our founders sort of advice you’ve been giving recently  no, I think that , the advice is super variable based on the founders. Like some founders go a little bit too deliberately and you want to push them to go faster, some go, a little bit crazy cakes and you want to hold them in.

did he say some fan? Who’s got a little crazy cakes.

I think I did. I think they did. Yeah.

Good. okay then let me circle back to you and talk more about you. are you competitive?

Yeah. I think you have to be like, no one is in this business is not competitive and no one starts companies. Who’s not a little bit competitive.

Yeah, but I’m always, I always try to remind myself what I want to be competing on.

I’m competitive with myself. Above all that’s what I’m always trying to beat is my standard and what I want, what I think I ought to be doing.  and that’s more set by me than external observations. Like I don’t need to clever so-and-so I need to collaborate my goal.

Yeah. What are your goals right now? like impact you want to have on the world with ten one 10 is your platform.

I want to invest in a bunch of companies that are incredibly successful and iconic names that, people look back on and say, wow, no, that’s part of the fabric of society.

Yeah. And you met them when they were two people and,  took a bet on them.

Yeah. And it’s so great that kind of retrospective look is so fun when you have started with a company and it’s, you remember when they were just maybe a couple founders coming to visit you and then you’re visiting them and you’re signing into a desk and the person doesn’t know you and 

it’s great to see that, that growth

That’s like it would meet, go to second spectrum and squat in their corner office and ask if we can drink some of their coffee.

Yeah, do you

an office.

I know I have no idea. I love my laundry room.  okay.

Final question, hiking trail. . Like give me one place. I could just show up with my family Saturday and go hiking with them.

you center, you can go up the tram halfway.

really,

Yeah. You go up the

a tram there

is a tram from Palm Springs to the top of sin. You could totally get to snow on the top of sending incentive from Palm Springs and then you can hike to the peak. I wouldn’t do it with kids, but you could totally. Like goof around in the snow up there.

It’s fun.

Oh, that sounds like a good activity. maybe it’s not a perfect COVID activity to hang out in a tramp, but,

Yeah. Maybe not

cool. Okay, great.

anything else you think we should make sure to cover?  Um  do you think you’re more like Gil or Eytan?

I don’t know if I’m more like you probably than either of those.

they’re fairly different. I feel, I thought you might find kinship in one direction or another.

Yeah, no, that’s those elbows they’re in a class by themselves.

Yeah. Um  I, I appreciate you coming on the podcast today, but really, I appreciate that you’re a great entrepreneur enabler and I came to you and said something like, , I really want to start this podcast. And you’re like, okay. And then I was like, , I really want to stay this spot here.

And you’re like, okay. I just went and bought you some microphones, essentially. you are an entrepreneur enablers. that’s what I like to be. It’s

know. I know.  thank you for coming on this podcast. and thanks for being a great partner.

Okay. Thank you, Minneola.

Megan Guy — King River Capital

Megan is one of the founders of King River Capital, an LA-based fund investing in Series A and later companies.  
 
They are investing out of a $100M Fund II. Megan shares how they are able to leverage their LPs for significant co-investment. 

View Transcript

Megan Guy is a partner and co-founder of King river capital  where she’s investing out of a hundred million dollar Fund II. Prior to starting King River Megan was at The Nature Conservancy and the Angelino group where she led venture and growth equity investments.  Prior to that, Megan was an investment banker at Goldman Sachs, where she launched the firm’s global environment markets group. 

Megan, thanks so much for joining me today.

It is a pleasure to be here. Thank you for inviting me.

Great. Did I get the introduction? Correct.

Perfect. It made me laugh a little bit. I just started watching Shit’s Creek there’s an episode where they’re filming a commercial for a winery and she gets drunker and drunker in the word slur.  Flashbacks.

Thanks. I’m doing well so far. Awesome. let’s, let’s start with King River rather than having me talk anymore. Just maybe you can give me the base or a little bit of the history

Yeah. Yeah, sure.  So we launched King River about two and a half years ago. It’s myself and I have two investing partners and co-founders, they are based actually in Sydney, but both are Californian by birth.

We got together because we saw an opportunity. Both, to really capitalize on an emerging entrepreneurship market and , uh, pretty exciting startup scene in Australia. Um, but also because obviously , uh, there’s just a fantastic venture community , um, in LA, in California and beyond in the U S.

Companies don’t sort of have to have a core thesis that touches on both Australia and the U S but obviously we can be particularly helpful to them , uh, in those two geographies. Um, so our first fund was about ,40 million and we did about 50 million of co-invest on top of that.

Uh, we invest in software businesses, series a through series C , um, and all kinds of different business models, really within that category.

Got it. And, and you’re at the start, have Fund II now.

Yes. Yes. We just had a first close on our second fund , uh, which is going to be a $100 million fund. Uh, we still have to do a lot of co-invest there. So I think, you know, we’ll probably end up when all is said and done having, you know, a a comparable amount , um, that’s directly being invested by our LPs alongside us into deals.

Um, and so that allows you to be investing in these, what you said, series ABC companies,

because you’re right. The larger techs. 

Yeah,  um, we’ve had a lot of flexibility and how we can do that to date , um, really because of the co-invest program. in, in our new fund , um, our average investment we want to make in a company over his life is probably 10 to 15 million out of our core funds. And then we could do, multiples of that in co-investment.

Um, so first check, probably 3 million on the low end, , and, and up to probably 10 , um, on the high end, but we don’t have any requirements around ownership, percentages, we can lead, we can follow, we can be pretty flexible.

That’s great.  And so tell me more about the companies that are sort of in your sweet spot.

Yeah. So I would say we’ve done a fair amount , um, in AI, not as much as you guys, but that’s been a pretty consistent and strong theme. Um we have a fair amount in FinTech. Um, um, and then healthcare, digital health And then I would say , uh,  we’ve gotten really excited about a number of companies that are sort of addressing , um, , the long tail of , uh, SMEs and SMBs , um, and helping scale up and provide services to them.

And I think that’s a segment that’s been overlooked 

 Do you sort of think about sort of minimum levels of traction or anything like that, that you’re looking for?

Yeah, I’d say we’re looking for post revenue generally. Um, and probably like a million plus in error, I would say is. The low end of our sweet spot. Um, but the big thing really is like, we want to see evidence of product market fit and starting to get traction and expansion with key customers. Um,  , uh, you know, we tend to get excited when we really start to see that evidence of, you know, the proverbial flywheel turning , um, and you know, growth both within a customer base.

And then, expanding the customer base as a whole too.

Great  , um, any fun ones from fund one?

Yeah, I mean, I I can mention one, um, , uh, there’s a business called Lark health , um, that we , uh, uh, led their series C round, but actually got to know the company , um, probably almost 12 months earlier. Um, and we, we basically did a bridge note , um, to put us in pole position to ultimately lead the C  LARC is a super exciting business.

Particularly at this moment in time , um, they provide a fully AI solution to help people living with chronic illnesses, manage those more effectively, more consistently. Um, and frankly, like more empathetically. I think, you know, you know, what got us really interested in the business was that the software and the technology they had built , um, was actually.

Helping patients to engage , uh, and stay engaged with the app  um, and so they’re serving several million patients at this point.  . Um, and we saw really strong evidence of them being able to go from sort of a small pilot to a larger pilot, to, you know, scaling up to population levels.

Um, that just got us very excited 

um, and so how, tell me more about what you said there about , um, leading a bridge note, which allowed you to lead the round. Um, 

yeah, we had gotten to know Julia for a while. Um, and actually it’s a sort of a good example where , um,  for me in working at King river versus my previous experience at , uh, Angelina group. Angelina is a great fund.

Um, has about a half a billion under management. But much bigger check sizes and a much more institutional LPV. So as a whole, I would say Our LPs for the most part are high net worth individuals. People who’ve often been entrepreneurs themselves. , and so actually one of our LPs is a guy named Dr.

Jonathan fielding , uh, being in LA, you may have heard about him. He’s fielding school of public health , uh, at UCLA is named after him. , and he’s , uh, Wonderful man. And , uh, you know, really , uh, incredible physician. And , um, he had gotten to know LARC alongside us.

He’d helped us with some of our diligence and actually ended up going on to so their advisory board . Um, 

 you know, we wanted to make sure that we were in the mix , um, and we’re able to get, you know, Pull position kind of , um, in helping lead the company’s next round 

So you’re now pull position. You’re leading the series C but you’re a $40 million fund and you’ve got this co-invest can you educate me on the mechanics there?

We kind of make it commitment. We tell the entrepreneur what we want to invest out of our core fund. Um, the fund always gets primacy. And then to the extent that there is more space in the round or the company is open to taking more capital  ,  we , can run a pretty, pretty tight process and in a couple of weeks kind of touch base with our LP base and figure out how much , um, demand and additional capital we can bring in. And, and that’s, that’s why, you know, $40 million fund is able to lead a series C round 

But the company isn’t getting all of your LPs as directly showing up on their cap table, right. It’s still  run through King river.

 Uh, it’s managed through King river. Um, , uh, yeah, the mechanics of that are a little bit different within the continents, geography and , um,  , uh, with this particular one, people were able to invest directly , but, but basically we manage , um, a lot of the rights and decisions around that.

So it doesn’t create additional burden for the entrepreneur or for the company to manage those shareholders. Um, they basically just worked through us

it’s reasonably similar to how an SPV works.

reasonably similar. Yes.

Uh , um, okay, great. 

Well, let’s count that as the basics of King river, and let’s go backwards and talk about your background. 

Yeah. So I think , um, the two things I’d say that sort of like defined me as an investor or one, I like, I just, I love really complicated and interdisciplinary problems. Um, which I think is what makes. Venture really fun for me. . and then the other thing I’d say that’s been a really common thread through my career is I’m very , uh, mission driven, I would say, as a person and an investor. Um, that was obviously a nature Conservancy, which, you for anyone that doesn’t know , um, is the law, the world’s largest global , um, conservation organization.

How big is it has a huge operating budget. Doesn’t it?

It’s huge. Yeah. You know, I don’t even know off the top of my head anymore, what it is, but like when I was there, you know, they ran a $5 billion capital campaign , um,  you know, this is a very large business, probably on the order, I would guess of, you know, a a billion dollars a year in top line revenue.

Um, and with operations across. You know, I’m going to get the number wrong again, but you know, 70 countries or something like that. Um, and just really, really top tier , um, scientists and thinkers kind of across, across the spectrum of what you need to ultimately succeed in, in the conservation world. Um, and so I joined them , uh, actually at the time the CEO was a guy I had worked with at Goldman , um, starting the environmental markets group there You know, he was very passionate about bringing more private capital into conservation because there’s just a huge gap between the philanthropic capital that that space receives and what we actually need to invest to address climate and all of the other ancillary environmental problems that flow from that and social problems.

Um, and so my role was really about trying to figure out how do we get companies engaged in this space? How do we create new , um, investment structures and products that , uh, enable them to, you know, think about them the same way that they would think about another capital investment or , um, you know, a project that they wanted to do and start to bring, you know, much more significant order of magnitude dollars into this space, not just to TNC, but to companies committing money off their own balance sheet , uh, you know, to improve their operations and , um, deliver climate results.

I was mostly focused on climate.

Two thoughts for you. One is there’s a thud when you hit the table sometimes.

Oh, sorry.

just if you can hit the table last, whatever, sorry,

I have to make my

I know you do occasionally you do make your point. Um, but no, this is all really interesting. Um, and so within that, so is, is TNC bringing in some expertise to sort of help the corporates , build out these programs.

Yeah, so TNC , um, again, I’ll get the exact numbers wrong, but when I was there, it was something like, you know, maybe there were 4,000 people in the organization and. Like almost half of them are PhD level scientists. So, you know, just really, really top tier , uh, thinkers that are able to build, you know, semester, like building a financial model.

It’s just an ecological model. So start, right. Whether you’re looking at , uh, the return on, you know, doing a big reforestation project and trying to understand what’s the value of the timber that you’ll generate or the jobs you create , um, as well as like the carbon that ultimately gets sequestered there.

Uh, those are the  some of the types of experiences and expertise that, that the nature Conservancy brings, plus that on the ground, expertise , um, which of course, you know, Any project you’re doing, I think in the environment space has to be supported and really led by local communities.

And so having those relationships , um, and being able, you know, not just to get input, but leadership , um, from those that are going to be most directly impacted.

, before TNC, you were at the Angelina group, you were an investor there.

Yep. Yep. Yep.

What are the interesting sort of sub sectors, I guess, in clean tech? Like if you were, you know, looking in the future, doing more investing, what do you think is, is most interesting?

Oh, good question. Um, I think there are a whole bunch of areas. So while I was at , uh, Angeleno, you know, one of the bigger areas people were missing was in the hardware space. Right. So whether it was. New better solar cell technologies so that we got more efficiency out of panels or new battery chemistries , um, to enable us to store more energy , uh, or do it more safely.

Um, there was a lot of that kind of innovation happening and that’s tough, right? It’s capital intensive. It’s very long. Um, timelines often , um, What is super exciting to me right now, I think about the energy space and the clean tech space is we’re now like ready for this whole awesome application layer and like consumer layer, frankly, to sit on top of all of that hardware that now , um, is out there, you know?

In the field and has been working , um, for many years. And so I think there are really cool innovations that we’re going to see. I mean, one is an example of a business called OhmConnect , um, that my friend, Cisco leads , uh, they have been able to help , um, individuals moderate their power usage , um, so that  on the days where we’ve got like, you know, the.

Crazy Santa Ana winds and I have to power down , um, or they’re worried about fires. Um, it’s enabled the load to actually stay below the points where we have to get triggered and have blackouts in the state. And they do that by gamifying it by, you know , um, educating people by doing a ton of outreach. And it’s actually also really neat cause it’s a lot of lower and middle income families , um, that are getting paid quite a bit of money in some cases.

Uh, to help help manage the grid. And they’ve been able to do it with enough predictability now , uh, that they can actually bid into the grid services market and it’s effectively a virtual power plant. Um, so I think, you know, there’s a lot of technologies there on the AI side, again, applying like consumer tech that we’ve seen on, you know, gaming or whatnot.

Like I think , uh, one of the founders of OhmConnect is a, an ex you know, one of the senior leaders at Zynga , um, And so it’s just, it’s awesome to see these really great minds. applying a lot of what we’ve seen work and the software space , uh, now to some of these big global problems, 

So you needed these like multi-billion dollar , uh, physical infrastructure type projects, and now you can have software solutions selling into them.

Yeah, exactly. I mean, we’re going to see we’ve got electric cars now, right? That , uh, we’re seeing huge uptake and electric trucks that are on the horizon. Uh, you know, I think Ravion’s supposed to go public, uh , uh, later this, this month as a rumor , um, edit that out. Cause that might not be right. Um, but anyway, you know, we’ve got ton of batteries now they’re starting to be out in the field.

So we had storage solutions. Uh, we’ve got solar on people’s roofs , uh, and there’s kind of a whole intelligence layer that I think we’re just at the beginning of overlaying on top of that. Um, and then the other space I’d mentioned, actually that I think doesn’t get a lot of attention, but to me is like every bit as exciting as.

Thinking about climate mitigation is , um, you know, what’s referred to as like climate adaptation. So what are the types of products and technologies that are going to help people adapt better to a changing climate? Um, 

Yeah, but when do you rather mitigate than adapt to floods and fires?

a hundred percent, a hundred percent. Uh it’s but it’s not an either or right. Like we’re, we’re living with it already. 

Oh, maybe we should all just be clean tech investors. Oh, boy. Yeah. Well, you had these experiences at TNC and Angelina group at Goldman 

And then you got together with Zeb and Chris and decided to start your own fund. How did that come together? 

 we came together at seven. I obviously had worked together , um, at Angelina and I

He’s one of he’s one of the founders of Angeleno

Yeah, he was one of the founders of Angeleno. Um, we met, I think actually when I was at Goldman , um

, uh, anyway, we reconnected down here when I got out of business school and have just really enjoyed working together. And, you know, he moved to Australia. Um, we had a couple of investments in Australia and we had both worked there on and off in our , um, earlier careers, um, and anyway, so he moved there probably. It must be like six or seven years ago now  um, but we always just said like, it would be really fun to work together again. I think we were very, we have very complimentary skill sets and mentalities as investors like.

Really different approaches, but I love that about working with him. Um, and Chris, he and Chris had ended up, I think, in as angel investors or seed investors in a couple of deals. Um, Chris was running a fund. Chris was ex Goldman , uh, ran Goldman’s financial institution group in Europe, and then , uh, had spun out and started his own venture fund , um, out of London.

And so he ends up, had gotten to know each other through a few deals. , And, and that was kind of how the three of us came together.  

I said, I love,  the interdisciplinary nature of this work and, and the mission piece. And I think we all really shared those values. You know, we’re not an impact fund, but I think we all tend to get excited about companies that we feel like are working on pretty meaningful,  significant problems, um, and , uh, we also all love, you know, Australia and California and the opportunity to be able to work really across those two geographies. Um, I think was pretty compelling for us. 

And,  we like having a really small partnership and team. Um, you know, we’re not kind of. I think ever going to be a firm that has a hundred people working here, you know, for different strategies. Like that’s, that’s great. And that works really well for some, but , um, we really like sort of more , like, like the benchmark model, right?

Where everyone like does their own work and it’s a pretty small, tight knit group. Um . So , um, we.

go ahead.

Um, no, I was just gonna say, I mean, I think all of us having been at much larger funds before,  well, well, you get, you know, you know, the benefit of being able to write a much larger check.

I think that can also be. Tough. Right. Like , um, cause it’s not always the best thing for a company to take $20 million or $30 million. Right. 

 Um, so you said you guys have different approaches, so where, where are you? Like, what’s your, you know, are you the cerebral one or the ,

no, no, I wouldn’t say that. Um, I think we just, we have different things that like, we get really excited about, you know , um, like I think Zev, I love about Zeb. He is like this eternal optimist and he just is able to see , uh, really like the big vision.

 Pretty early on. Um, and it takes me a lot longer to get there.

 Like, you know, you know, I was an investment banker before I became a venture capitalist. So I’m like in the weeds and the details. And , um, and I think like that combination for us has always worked really, really well. Um, Chris kind of straddles both worlds a little bit, but I think , uh, What’s great about him is he’s got a really rich network and sort of the AI and the FinTech space and a lot of experience there.

Um, and so, you know, as a whole, I think our partnership just, I wouldn’t say any of us get really excited about like the same businesses at first. Um, and so it’s a great test to kind of have like, have we done our diligence? If we get more than one of us to be like, wow , this, this is a really compelling, exciting opportunity.

 anything else coming from the investment banking world, that’s just been a, a big change in the, in the venture world  

Maybe it’s like a big organization to small organization thing. cause I think both. You know, Goldman and the nature Conservancy , um, Angelina to some degree, you know, it’s not a big team or anything like that, but it’s a lot of money and it’s definitely, um , uh, an institution at this point.

Right. Um, I think the biggest thing has just been like, We have to do everything ourselves like beginning, right? I mean, it was like when we first started the fund, unfortunately, both my partners had started funds before, so we weren’t completely flying blind, but you know, still, it was like, we were our own back office for a period of time until we found someone we could hire.

And, you know, we had to like, Find and test out different lawyers and tax people and , um, just, you know, everything has to get done by someone. And then when there’s only three of you, uh that’s that’s, that’s the path. And, um, I wouldn’t trade that actually for anything I learned so much in the last two years, you know, I had never really thought about starting my own fund before and now I’m like, Oh, I can do that.

We did that. Right? Like we’ve raised the second one now. and it’s given me. So much more empathy for entrepreneurs and just, you know, the ups and the downs, like, we had actually right before our last close on the fund one was when COVID hit and all the shutdowns basically. and so, you know, that was a roller coaster to experience like, fortunately we got it done, but , um, you know, I just think it, it made me a much more.

Empathetic investor 

Anything else adjusting from sort of the banker side to, you know, being an emerging manager.

Yeah. And the, I think the other thing I’ve really had to learn , uh, you’re really in sales as an emerging manager and like, You have to get very comfortable promoting yourself, promoting your fund, promoting your companies , um, and from being a banker like that was so unnatural to me, you know, I was very it’s like, you don’t say no forward looking statements.

Right. Uh, so you’re kind of strange to just be super, super disciplined about message and , um, you know, everything’s treated, this is the same in venture, but , um, You know, You know, it’s very confidential and like confidential, even, you know, when you talk across your team about the deals you’re working on as a banker.

 When you start a small fund , uh, for your first time funds, that’s kind of kind of the name of the game, right?

yeah, it’s the opposite of no forward looking statements. 

Yes. Exactly. Exactly. It’s all about the forward looking statements, 

one thing you told me that I was a little jealous of is , um, you’ve been part of the emerging manager group. I think you have a group , um, as part of all res

Yeah.

what have you learned there? What have been some of the interesting discussions? What am I missing?

well, you should join. Uh, always for listeners who maybe aren’t familiar is. Uh, you know, a Uh, you know, a nonprofit that was started a couple years ago by a bunch of top women in venture, trying to bring more women and people of color , um, into the investing and the founding community.

Um, and so it’s fantastic set of resources. Um, you know, I’m part of, there’s like an emerging managers, Slack channel. That’s been really helpful you know, people share like what’s market now and some of the terms as you’re bringing new LPs in, or thinking about raising a new fund  or , uh, just kind of lessons learned.

Um, and then I’m also part of a partner cohort ,  and it’s been really, I think, helpful for all of us to just sort of hear each other’s experiences , um, to share deals like we’re really trying to focus on how, how do we make this whole group successful 

Any good meaty discussions lately or specifically, how did you think about setting up your co-invest program?

Oh, good question. Um, Yeah. I mean, I mean, calling us is one that I actually talk with people about a lot. Like I was talking with a friend actually at a really big asset manager the other day, and he was asking about how we did co-invest and  

so , um, are there lessons learned on the co-invest side that, you know, if someone like me is thinking about, you know, bring my LPs in 

Um, I mean, I think I was chatting with my friend was actually having a, a credit line , uh, to fund co-invest. Has it, you know, we can do it pretty quickly on our end because we’re working with individuals. And, you know, as I said, like it’s, they’re able usually to rely pretty heavily on our diligence you know, my friend works more with institutions , um, and. That’s a really different and longer process. And so , uh, you know, for them, I think they’ve had a risk sometimes if they want to do a lot of co-invest, they may lose a deal , um, because they won’t be able to move as fast or there’s some uncertainty around that amount of capital and the allocation.

Um,

 How about, uh, any good insights on valuations or, for your investments in Australia? Is the Australian market at least a little more reasonable. 

I mean, , what I’d say that it’s funny is funny is not the right word, but, we’re seeing it in Australia too, , it’s, it’s not just a Silicon Valley problem. one thing we all struggle with is like valuations and just the nature of this industry at the moment is, is pretty crazy.

Um, You know, whether you’re at seed stage or your growth stage and, you know, talking to the specs, it’s like, I think everyone is kind of scratching their head a little bit, what it takes to get a deal done. 

 I think like we try and be pretty disciplined. Like we’re certainly not value investors, right. Where we’re nickeling and diming, like building really detailed models where it, we’re not on the private equity side, 

uh, did you talk about specs? Did you just mention specs and how that’s changing the later stage rounds? Or did I miss hear that?

I did, although I’m not super educated on it, frankly. So it’s probably not the best place for me to expound. Uh, I mean, I just, I know a lot and we’re hearing like inbound interest , um, with some of our companies, you know,

um, . Um, but, and I was curious to see how it starts to trickle down, cause all these things right. Always end up trickling down to earlier rounds. So just sort of like trying to get smarter now , um, 

Right, right. Um, another thing you said , uh, uh , uh, maybe on a panel I listened to, you said you really disliked the notion of that’s market

Oh,

tell me what you mean by that.

, I think that was in reference. Um, , Because we were talking about diversity maybe 

I know it was a Saster event. And I think at one point, yeah, we were talking about diversity and , um, and I think part of, for me, like solving that problem is also rethinking, not just the structures around how we hire, but like how do we pay people?

How do we compensate them for the knowledge or the experience they bring when it may look different from the experience I bring and. You know, for people who’ve come from a more traditional background. Um, ,  I feel like I’m just, I’m very tired of.

Being told something, shouldn’t be this way or can’t be done that way because it’s not like quote markets. Um, and the fact is market, but you know, has been set, basically play by a bunch of highly educated, like affluent white men for the most part. 

Well, well that’s market. when you think for yourself, what you want to build, what you want to be known for, what does that look like? 

, yeah. I mean, I want to be just known by the people I work with both as co-investors , uh, the founders and the employees of the companies as just like somebody who showed up for them. Right. Um, I am not, uh , Like, Like, I probably should focus more on building VC brands. Um, but like, to me, my brand is , uh, how I show up to your meetings and when you have a good day and when you have a bad day, like I want to be the first person that you call , um, And, you know, I’d love to build a firm, obviously, you know, I mentioned benchmark before just in kind of their structure and that’s obviously a firm that’s got a fantastic brand and history and they’ve had some huge successes.

And as I said, I’m mission driven. I want to be Solving important problems in the world and doing it in a way that, has really high integrity and ethics. And, I feel like you can be a really nice person and also be a good VC. That’s that’s my hope. 

what do you mean by , um, benchmark as an example? So I think of them as having a flat structure What do you think of when you look to them as an example,

I think the way that they have brought new partners in and transitioned the old ones out , uh, I don’t see others do  mean, there are a lot of firms where the people whose names are, for the door or whatnot, haven’t been active for a long time, but, you know, , they’re still taking a significant , um, Kind of the Kerry and they’re a really big piece of kind of influence and direction setting at the firm.

Um, and I just like really admire that they, you know, didn’t set out to build a firm that had people’s names on the door. They set out to build a firm that was going to be a great partner to companies . And , um, You know, I think it’s, it’s pretty impressive that they’ve been able to entirely turn over their partnerships several times and, that brand hasn’t.

um, okay, one more, couple more questions. Um, so what w when you’re not investing, when you’re not working, how do you spend your time?

Ooh, good question. Um, I. Have been a big runner. Uh, , um, he’s trying a couple of marathons a year. I have two dogs and one is a retired sled dog who actually like ran the, I did a road back in the day. So she is now , uh, retired to the beach and running much slower, shorter distances with me.

Um, so yeah , . Yeah, it’s been an awful lot of time with my dogs this year.

What beach do you bring your dog to?

Oh yeah. You go down to Huntington.

 It’s kind of a a hall. 

It is a hall, but it’s awesome. Like they are so happy there. It’s just, when you have a bad day, honestly, like I feel like Huntington dog beach with just all these dogs, frolicking in the waves and digging and like, they’re so happy.

It just makes everything feel very , uh, petty and small 

totally. Totally. Well, 

I usually ask people , um, how someone should get in touch with you if they want to get in touch, 

But instead today, I’m going to read from your LinkedIn. It says, if you are a founder raising a series a or later, then please send me a thoughtful DM. I really like that

Well, I mean, I mean, you would believe you get them too. I’m sure. But , uh, there are a lot of just like mass DMS that aren’t thoughtful at all. Like it takes two seconds to actually read my LinkedIn and see what it is I’m interested in and I invest in. So , um, yeah, I try and be really good about responding to that.

So I would love to hear from. LA based or, or other places , uh, founders that are working on cool problems that I might be able to help you solve.

Well, that’s great, Megan, it’s been great to get to know you and have you on the podcast and looking forward to more from you and King river.

Yes. Thank you so much for having me.

Jamie Montgomery — March Capital

Fantastic chance to get to know Jamie Montgomery.  Jamie shares how he’s built such strong relationships, delivered outsized returns for March Capital, his approach to philanthropy and his high school fire extinguisher business.

For more, tune in March 3rd and 4th to the 18th annual Montgomery Summit.

View Transcript

Jamie Montgomery is a co-founder and managing partner of March capital. Earlier this year, March announced a $450 million Fund III, congratulations. Prior to March, Jamie was the founder and CEO of Montgomery and co a well-known LA based investment bank. And of course he is the host of the Montgomery summit, which will be in its 18th year this year.

Jamie, thanks for coming on the show today.

Well, thank you.   

I feel like a lot of people in the venture world, the startup world know you as  the host of the Montgomery summit, but I would love to start with  the snapshot of Jamie Montgomery as a teenager.

For us as investors, we always want to have our entrepreneurs tell their story and it’s and you learn a lot about their motivations and interests.  My father was a Caltech PhD, a true rocket scientist, who was a executive in the aerospace industry and spent time in the Kennedy administration in charge of all the strategic nuclear weapons, came to Los Angeles as a young teenager as he joined a startup down here in the aerospace industry in the seventies. 

So I went to Palisades high school and which was a great change of pace from growing up in Seattle and, uh , Uh, stayed here through, um , uh, university of California, San Diego. Um, and you know, through that period of time, I was always interested in, in, in business and, um , um, interested in technology and that they, the aerospace defense industry was the large tech sector here.

Um , And, and, you know, interest in entrepreneurship. I always was a journalist. I always edited the paper, no matter what school I was at start a couple of businesses and high school. Century city just been built and this friend’s father came home and says, you know, they had this new law, California. It requires you to have a. fire extinguisher in your office.  Or houses before they sold, had to have a smoke detectors put in. So there was a wide open opportunity after this California legislation in 1976 or so.  To go in the fire systems business, . So we made a boatload of money one year and I still doing this. But what I didn’t realize is, or. The fire extinguishers need to be recharged after about six months or a year. And so of course I gave out my home phone number. So all these people were calling my mom asking her where’s Jamie 

and I had a living room warehouse full of fire extinguishers. I had this long tail maintenance issue where I guess everybody makes some money off of it, but I would. Go over once a week to East LA to Granger warehouse and pick these things up and go deliver them in century city. And, it was a heck of a business. Uh,

And this is when you were in high school still.

yeah, maybe something to write about it. My college apps, you know, I mean, I was always had to be busy playing sports and even the paper or doing this or that, Oh, it was fun though.  

Sounds like great fun so you went from selling fire extinguishers to starting an investment bank or a, or.

I went to university of California, San Diego graduated 1981. I spoke this year at graduation and I, I commented those. I was honored 40 years after being on academic probation to be there. Um, graduation speech. Sure. That’s fair.

Everyone thought that was just funny, but , uh, you know,  was a, it was a row, there was a real world, you know, it was a bell curve and grading. You did well. You did well.

You didn’t do well. You didn’t do well. You

Well, why are you? I’m on academic probation. If I may ask

You know, I started off being a physics major and it was sort of an unnatural act, you know? 

. But after four years there, I had the opportunity to go to Cambridge in the UK for graduate school.  You know , uh, then I finished graduate school at a young age of 23 and went in-house in the Pentagon. And that was an eye opener. And when I was there, I was given us one assignment that was see if a Naval operation says, ah, Jamie, it’s the Navy’s turn to host the , um, the joint chiefs, long range planning conference , um, w like it organize it? Yeah, yeah. Come up with a plan for it and come back and a week and give me your thoughts. I said, okay. So I go down to the Pentagon library and look at the proceedings of the previous several sessions. They just seem really boring, you know, they all talk about how they would plan and and all this nonsense.

 So I said, look, I got an idea of where to host it at Annapolis. and we’ll pick a common theme  and then we’ll use that as a basis for workshops and breakout sessions 

Well, it sounds interesting, you know, so what’s the theme is, I don’t know. I think of something and I’ll say. Come on. Give me another week. So anyway, I had a free ticket to go anywhere I wanted. And do you see basically working for him? So I owe the white house. Oh, the CIA. What? Wait, what do you got? And I really didn’t have much in eyes.

So president Reagan was president. I went to see national security council members. Huh? Yeah. Hi, something interesting. So I wonder, so I went over to NSA and we drive in and we go to see the.

Tenant general is three-star at the time. Now it’s a four-star bill head of NSA. And I go in and, you know, so w what do you got? You know, he’s expecting something a little more formal, you know, tell me what I got, you know, I got the collapse and fall of the Soviet union. I said, Oh , that’s, that’s good. Yeah.

? So he was pretty sure the study, he was going to fall his premise and laid it out. This is 1980, 83.  Know, not many people would have that point of view. He had it, the president at the time, Reagan felt that way and very few others did.

And so , uh, that became the premise of the morning session. and, you know, led to some real kind of discussion about what should your forest structure look like in a post-Soviet world? .

but that led to some very interesting discussions and that led to elevation of exposure of me. And then I ended up in the deputy secretary defense’s office and it turned out he was leaving to go run a merchant bank.

And , you thought, you know, the analysis is really interesting. And if I was right like that in the private sector, you can make a lot of money. , um, and I, I was trying to figure out a way to get out and go work on wall street anyway. So I thought , well, this sounds great. 

So.  And that firm became a predecessor to Carlisle group, and I got this, you know, Great opportunity in merchant banking and , uh, did that for like three years.

And then by that time, I was 26 years old, moved back to Los Angeles and I wanted to work in technology and finance and there’s really nowhere to work. So I started up my own firm. 

LA in 1986, you know, , largely aerospace and defense  trying to move out of aerospace defense and into consumer. I remember And then once the cold war was over , How do you want 92?

We, I said, no, I kind of done with all the defense stuff closed that chapter and which sorta close. You never quite leave that world entirely, but we move on and just focus on what we thought would be next, which was communications, which became the internet . And then we started to scale up the organization I eventually ended that Ron and sold off the banking. I kept the investment side of that and then use that and combined with some aunt and some others to form March capital and take that capital base that we had there.

But really I had 25 years of working with entrepreneurs to help them. Scale their businesses and, and, you know, know, be capitalized properly to look at their strategic options 

Do you think there are a lot of differences between the venture world and the investment banking world or do you think there’s a lot that the ventures should learn  

 I think 25 years ago, being on the , uh, sell side, being a banker , uh, doing deals, we just had incredible talent. You know, we’d go recruit up against, you know, the top firms.

You know, and now someone coming out of school wants to go work at a Google or an Amazon or something. And those days, you know, we were able to get the top grades and, and w we really had an information advantage, the internet, really level the playing field with data, you know, lots of data everywhere. 

, sometimes bankers will. often, and we were very careful not to do this, but really just sort of bend, their view of things to get a deal done and in compromise and, and and they’re, they’re focused on getting a deal done you know, and if you’re out on the principal’s side, people obviously have to put money to work, but yeah, that’s not really our first priority. Our first priority is , is, is to, is to , um, really just find the right opportunity and just be more selective. Both are very demanding. I think , um, there was incredible discipline in banking and how we looked at risk.

Um, And we’d always look at any opportunity and understand the risk associated with it and what the probability was around various outcomes. You know, a good bank  um, You’re always competing for capital allocation and a bank, and you really have to understand what the return on capital is from an activity.

And I think oftentimes a number of the , uh, the venture investors, particularly, you know, the later stage, what’s more important to growth investors. Don’t really have as much discipline there and capital allocation and, and , and, and that training of, of risk. And that’s something that we really focused on at March capital was that we’ll look at Annie investment and we’ll look at a risk curve around, you know, three different outcomes, you know,  know, the management case, the downside case and the upside case, and what would influence that and what our return profiles and assigned risks parameters around that. 

And you just made a bunch of hires do you look for that investment banking background when you were 

I hired seven individuals this last fall and 300 at the vice president level. And one was a young gentleman from New York who was a venture capital investor for several years, young partner at affirm.

Second one, she’s a lady who was just finishing up HBS. And I spent a couple of years working for a venture fund fund funds back East, doing directs and fund investments and been an entrepreneur before that. And the third was a gentleman who worked for me at Montgomery and then spent the last six years at Allen and co who was an incredible analysts and very personable.

And how do you think about what you want to keep for yourself versus handoff? When you’re calling your existing portfolio companies or or meeting new companies. 

I think those calls always have somebody with me. So they’re learning, they’re watching, you know, so you have, you have a half hour. You know, there’s a couple of minutes of personal check-in and , uh, you know, That always surprises my team. And I know the individuals well enough to ask about one of their kids or something that’s important to them 

 you know, somebody is on the board of a museum. You go look and see what the latest exhibit is on there and compliment them on it. And then you ask about their daughter and how’s her job going. And then. And by that time, they just they’ll do anything for you.

He was like, you can leave at a hard meeting, really easy. Right.

 I I’m, we’re doing it portfolio review right now and it’s very intense process and , uh,  know, you know, I was complimenting the team offices, you know, it looks great.

Um, and , uh, you know, I’m so happy that, you know, I’m not going to spend any time on it this weekend, you know, and it’s a very important thing for us to do, but they they’ve got a nail. They’ve got it. And so I think it’s a question of, you know, spending that time upfront. I spent two months onboarding our team has fall 

 It’s interesting. I talked to some of the younger team and, you know, yeah. A certain age group, they’re used to having a lot of feedback, weekly, three sixties affirmation.

And I said to him, look, you know, affirmation is what I. Give you something to do,

because I trust you, affirmations might take you to an important meeting because I trust you. Affirmation is when I  know, give you a responsibility.  And that’s affirmation. Right? Cause you’re, you’re giving them responsibility.

And, and I think once they figured that out, they’re like, wow, okay. That’s more powerful than some participation trophy. Right. I mean, it’s like the real thing. And, . And I think it’s important to step back and say, okay, this is what we’re trying to accomplish.

And probably over-communicate on the front end. some people just are too busy to be organized and I’m not that person.

I, I call time out a lot. I , Heather, we’re not going about this. Right. So let’s just figure out really how we want to do this, and then we can go do it. Let’s say, I don’t want to get in the butter churning competition here. Yeah. So, and that’s hard, right? 

The concept of calling time out is great. I like, I’m just saying, I need to apply that to my life a lot more 

Yeah. It’s hard. ,  the pandemic has cut down on our travel, right? Obviously, and it creates more challenges and more opportunities. And one of the opportunities that we should all look at is time management and how we spend our time.

You know, we have everyone, everyone has time and money, and some people spend far too much time thinking about their money and not enough time, thinking about their time. Right. Yeah. I, you know, how am I going to be worth X? And I’m like , well, whatever I want to figure out , how, how can I  you know, go play golf on Friday afternoon.

Yeah. Sometimes I don’t have time to go surfing. Why did you start

I had a lot of unfinished business at Montgomery and co we , uh, built a big firm and by Oh seven Oh eight and we had over a hundred people or. Incredibly, you know, fast growing and profitable, you know, like very profitable and one of the highest paying banks on wall street , uh, prestigious and we just got hammered.

Oh , Oh, Oh eight , well, late Oh eight Oh nine. And I think our business dropped by 85%. And it’s really hard to maintain a business that fall. It was that much,  I mean, it’s just really hard, right? It’s, it’s almost like this pandemic. Um, you know, and it was hard to reinvent ourselves and we, we sort of made it through and landed the ship,  but I really thought about it and said, you know, if I do this again, which I did is I want to.

Really invest in a platform that’s sustainable and, and , uh, that we can scale up that has a recurring revenue stream So we really turned March capital into real, a profit machine and,  um, that, can continue to scale and grow over time. And you know,

So, but , but, but that’s March, which is different than Montgomery, I mean, or do you see it as a little, I mean, continuing some of the work, like you’re still investing capital 

Capitol, we’re helping build these innovation economy.  you know, we probably think out three to five years of things we want to accomplish, but maybe execute on a plan over an 18 month period of time, and which is kind of a normal fund cycle. And  in our biggest constraint, like any other startup that we work with is leadership.

And so how do we develop that next cadre of leadership and.  Where you just feel like.  Well, Well, it’s just, we’ve got so many good people that, you know, there’s no way we’re not going to win.

Right. And that’s kind of what we’re at right now. Wait, we’re not going win. Right. I mean, if I was competing with us, I’d be scared. I was shit. I’d, you know, be going for second place, third place. Yeah. And that’s what we were at Montgomery at our peak. And that’s where we are now. We just got this momentum and it’s, but you had to build that over time.

Yeah. 

Sure. Sharing and. Let me make sure i just have the basics of march you’re investing 10, 20 million into the series. A B. 

Yeah, we’ll probably put in 20 to 25 and to a company on average.  The first fund we , , we vested $240 million and 30 companies. so the average was obviously 8 million. The median was probably quite a bit higher, but if you looked at what worked the early stage stuff didn’t really work.

And I mean, it works for some people. What , weren’t really great at that.  , uh, what worked were we’re helping companies that had a product market fit scale. And we had some really big returns. That’s probably a ,  three and a half  you know, X fund, which has been great.

We returned two times a fond already. And the final close was in 2016. So it’s not that long ago. Right? 

yeah, the headline was something like, how did March capital get a billion dollar return on one investment?

yeah , yeah, yeah. So that’s a good headline and it’s true. And,  and then, so the second fund, we invested $300 million in   a little under 20 companies. 

So we really put in most of 300 million into 14, 15 companies, about 20 each fund. Three we’ve either invested or committed to invest about 160 million in eight companies.

. I think fun, fun too is, is really exceptional. And we had CrowdStrike in there as well as , uh, by far our biggest investment.

We have at least probably seven or eight big winners in that fund. And

And can i pause and just ask about crowdstrike and when did you invest why did you invest how did you get into the round 

I went and visited , George Kurtz in the early nineties, uh , uh, down orange County, he had a company called Foundstone and most of them at our summit got to know him. Um,

This is the CEO of

yeah. Yeah. And then he sold it to McAfee, spent a few years there after McAfee.

He started a company and , um, Warburg wrote a check for him. Twenty-five million dollars for half the company upfront, you know, And try not to be the best investment Warburg ever made. They’ve made $7 billion. It was an investment. And then Excel led the M B. Right. And about that time we got in business in March Capitol.

So I went down to see George and I was preparing to lead the C round. And at that time it was , uh, you know, life intervened. Um, my wife was diagnosed with a cancer at that time. It was pretty serious. And so I said to George, George, look , um, I want to lead the round, but Annabel’s,  is sick and , uh, you know, I got to spend the next six months focused on getting her well and get her through this.

And, you know , so, you know, I’ll put a little bit of money in, but likely your next round, he said, fine. And I was sitting right in the desk where I’m sitting now and we had this conversation spring of 2015. , you know, after the round, I, every quarter I’d sit down with him and then he gets ready to do the.

D round, Google led that round. And, I put some money in, it turned out really well that round, but the next round was actually risk adjusted even better. So I talked to George and I said, you know,   You want to raise a hundred million. So I sent him a term sheet. I said, I’ll put it in 25 to lead it.

And he said, fine, we agreed on it. And that was the D round. And I showed it to Excel. Samira says , well, this is a great deal. You know , I, I want to lead this. I go, Samir, look, you take My amount, my terms, you know, everything you down here, you can lead it. You know? I mean, wow. I don’t care. Excel let it.

Right.  

Well, I really, what do I care? Right. Right. You know , and, and ,  so then the, he round comes around, you know, it’s Samira. And I go, let’s do this one together. And, Rounds coming together and well, you know, progress and a lot of interest in it.

So I wasn’t quite sure what was going on. And so I said, all right, George, you know, w w what do you want? And so I wrote it out in one piece of paper amount, you know, it was like $200 million at a 3.2 billion pre. 1% equity, 3% equity pool increase something or other it’s like four paragraphs, really simple Samira does the same thing.

And he’s so easy to work with Samir, I think world. And so that looks good. All right. So I smear, this is what he wants to do. He says, yeah. I said about, you know, you and I probably shouldn’t lead it. Good. We need someone new. Right. And so we sent it to GA and , uh, they put it on their letter and send it in and we did the deal monitoring IVP, and we brought them in as well.

Now everyone says GA let in. Right. VP said they let it. I don’t know. I’m pretty sure I wrote the email,

please.

a billion, a billion dollar return is billion dollar

Exactly. And everyone was like worrying about who led it, who did this or that? I , we, we have incredible relationships with firms that were not on the board of that we didn’t lead around and I find it. You just have to get to the point in life where people return your phone call and want to spend time with you and know you’re not, you know, you’re adding value.

And if that’s the case, you can. No, I think we got 17 times our pro-rata on that series E you know , and, and you get that because of the relationship. And then we did, we invested in the IPL on top of it, you know? I mean, so it’s like, it’s a complete parade, this one, I mean, it’s fantastic. And you know, we love it.

Right. And we bought 6.8 million shares for about $70 million. And, you know, those are worth about 1.5 billion today. So we really made much more than a billion dollars on this investment. Yeah.

that’s great.

There you go,

who cares? Who let it right. But I think the thing is, is George is extraordinary entrepreneur and, you know, he deserves all the credit.

He’s got an incredible team around him. There’s a half dozen members of his team who could all run public companies and , uh, it’s a great culture and he’s great. And it’s been an absolute pleasure to work with them. And, you know, I really just love, love George and the team there.  , and look, the thing is if, Any of these individuals at this firm or other firms have a, an issue or family problem or something, you know, I’ll drop everything I’m doing to go help them out. And they know that, and we’ve done , uh, many times and that’s much more important than anything else.

And know we have those sort of relationships. That’s what leads to these outsized returns, you know?  

Yeah.

and I, I hear you giving George full credit , um, for what he built, but you talk about working with your portfolio companies to help them scale up or there’s certain tactics, or there’s certain ways you lean in to help them scale?

Well, the first thing  you gotta do is, you know , is understand their style and cadence. You’re not getting in their way. and you know, we certainly are very careful about that, but I think the other day you know, there’s some advice that we can give them lessons learned. oftentimes it’s about building their organization, it’s coaching and mentoring, uh, helping with direct sales going on sales calls with them. I love going on sales calls with them. Right? Whenever we go visit cities, let’s go on sales calls. And yeah, that was fun. I mean, we just go see a, pick a city, go there, let’s go call some CEO’s and I mean, not many VCs do that right now, George, we’re going to be out.

So let’s go see some co I’ll meet you there. We’ll go see some people, you know, London or New York, or, you know, Wichita. I mean, you know, Atlanta, I mean, it was, we’d have fun, I mean , and, and , uh, sales calls. So it led to a lot of customers for them, you know, cause we have a big Rolodex and might as well use it.

, you know, being a sounding board, you know,  it is something that has to be taken care of.

George would call me up and ask for something and say, I need some help on this. And I’d say, alright, George, I got it. All right. I put it on a phone. I have no idea how I’m going to do this. Pour myself a drink, think about it for an hour. And then I go find out how to do it. I got it done. I mean, they were like amazing things.

Right. You know? And I said, George had got it, you know? Right. I got it.

Yeah. 

I mean, I don’t know how the hell I’m going to do it, but I got it. and, and you gotta do what you gotta do to help these companies and, your ego has to be subverted to there. Cause  ,  no one might ever know that we did it.

 And it’s not a lot of hot air, you know, people drop it, they enjoyed doing their shit. I was like, okay, very surgical, boom.

   So you’re kind of, you know, behind the scenes on some of this stuff. And yet the Montgomery summit is this huge stage and super important in the LA ecosystem. Um, maybe we could just talk a little bit about what’s coming up March 3rd and fourth this year.

And so the summit was really an opportunity for us at Montgomery, to convene our clients who are CEOs of companies with investors and corporate events, sex and things, you know, would come out later financings or M and a. 

Yeah. Yeah. You know, look, it’s , uh, it’s unfortunate, you know, I’d love, love having you at admitted but you know, it is what it is right now. And so we’re trying to figure out how to do it virtually in a way that is impactful 

and so we’ve come up with a revised format and the content should just be stellar. . And so whether you’ve got Eric. You know, from zoom, founder, zoom is going to have a conversation with John Chambers about, you know, why he had to leave Cisco to do this. And, you know, what were the key, Trade offs he had to make as he built the company. I mean, it should be a great conversation.

 Bill McDermott, who’s the third, well really the fourth after the founder CEO of service now, which is  one of the world’s most important technology companies . Just confirm CEO of Honeywell. Who’s probably the world’s leading industrial software company. Darrius Adam check. Who’s a friend as well.

I love that question for eric about why he had to leave cisco to start zoom uh are there any other really good questions you hope to ask this lineup of

of great  

, I’ve asked Carmen Desippio, who’s the CEO of E Y global business to interview bill sometimes. A peer to peer conversation goes a lot better.  , ,  I think you gotta find something that’s interesting and appealing to them. I think, for example, with. Honeywell is industrial world has been very slow to adopt technology, the OT world and the it role is really haven’t converged.

There’s been a lot of hope that would happen, but not much really has happened and kind of why is that? And,  and I think Daria is , well, give us some insights into that. I think if we go back in the tech world to the seventies, there was a closed stack. You had data general, IBM weighing . And, and they were closed systems.

And when you had a , um, onset of Oracle and open data, And then you can start building a tech stack with best of breeds. It kind of blew it all open and created this tremendous innovation and interoperability. I think you’re starting to have standards now in the OT role, the industrial world operation technology world that will enable that to happen.

So, yeah. You know, you’re kind of sitting there saying, God, you know what, this might’ve been a false positive, trying to work in the industrial world. It’s, you know, 30% of the GDP in many countries and still walking around with clipboards, you know? Or is it, Hey, are we on the Dawn of a big industrial 5.0 finally and, and enabled by AI and 5g.

And it’s really going to take off, or is it. Is it a head fake I mean, so I think you’ve got to have an authentic conversation, you know, why hasn’t it happened yet? You know what I mean? A lot of us have spent tens of millions of dollars trying to build industrial software company.

Isn’t it? I mean, to show for it, you know, and . And then 5g with Christiana. He wants me to interview him. I’m honored. I’m also shit. I let somebody else, I got to prepare for it, right? No , but, but it’s like, you know , what, what does 5g for the average person, you know , well, what does it mean for you corporation and, you know, w what am I going to do differently than I can’t do now?

and , uh, you know, what we’ve heard of sweat from China, how real is that? And, it’s a real conversation around that. Yeah.  So anyway, so we’ve got all the incredible lineup of top CEOs, and then we have like 20 companies that are kind of worth over a billion.

are they’re kind of pre IPO track. And then we have 16 tracks by sector, then we were doing a program on geographies with Silicon Valley bank, and then we have a growth track of companies that are looking to for expansion capital, another 15 companies there. I mean, so it’s quite a rich program.   

Yeah. Sounds like it’s going to be a great summit. Uh let me switch gears a little and talk more about being part of the community and building community i know philanthropy is important to you do you think that business has an obligation to do more

Yeah, no, I think it does absolutely , Canada should and must play a role and , uh, increasing the envelope of participation in the innovation economy and you know, people think that the government’s going to solve the problem, but in effect, the government is the problem.

you know, it’s blocking a lot of the reforms in the financial world. , you know, if you want to build low income housing in LA and the government gets in your way. I mean, so it’s not like. Yeah. I mean, it’s not like the government’s miss intended or anything. It’s just, it’s just doesn’t have the.

The flexibility and the competency to do it. Um,  and so, you know, we sort of pick and choose where we get involved, where we think we can get that right. Bridge 

 you know, or there’s my personal philanthropy, which is significant and there’s stuff we do at Marsh capital  ,  You know, the stuff we’re doing in March capital’s is very focused on community building, whether it’s, you know, Venice clinic or , uh, the people concerned addressing homelessness, community health , Yeah, that’s a then youth programs, youth training programs.

And I knew her personally. No, I have some other things that we do that might include, you know, youth programs , um, programs for women, a big they’re, their women’s health, just kind of woman in general, women’s health and women’s wellbeing.

And then. Faith-based organizations  ,  but it’s, it’s about finding a good entrepreneur in the,  the philanthropic world who approaches it the same way. you know, an entrepreneur mind in the, in,  the business world, an opportunity or a challenge, and they feel like they have a unique skillset and they can put together a service, offering a product to address that and that and the best ones are great storytellers too.

And they can rally people, 

Jamie you are a great storyteller  and i could ask you questions for hours but i imagine you have things to do and a summit to get ready for so let me just thank you so much for coming on the pod today 

Yeah, well, it’s a thank you for your time and good luck and, you know, I hope we can find ways to work together and thank you, Minnie.

Kerry Bennett — Upfront

Loved talking with Kerry about how startups should think about their marketing org and how that has changed.

Also fun to hear about Upfront’s brand and the brand of the partners at Upfront.

View Transcript

Hello and welcome to the LA venture podcast. This is Minnie Ingersoll host of the podcast and partner at TenOneTen. TenOneTen is a seed stage fund here in LA. All opinions expressed on this show by me and my guests are solely our own. 

Kerry Bennett is a passionate brand builder and head of marketing at Upfront.  Upfront is probably the fund in LA with the best known brand.  Before upfront, Kerry was SVP  of marketing at a variety of top startups, including DogVacay and HauteLook. I’m excited for her perspective on upfront her advice for startups and her thoughts on brand building for venture funds. Kerry, I’m so glad we’re doing this.

I’m so glad we’re doing this. Thank you for having me. 

Oh, it’s great. so I thought I would start by saying like, what’s your job? What is a head of marketing? Is it the same as head of platform? Anything you can share? 

It’s a great question. And there’s no one way to define that. So what I would say broadly speaking is it’s providing leverage and marketing support to the firm and sometimes to the portfolio.

So what is upfronts brand? What do you think upfronts brand is? 

I asked you first. 

Well, so I think Upfront’s brand really starts with the name it’s about. How you’re going to experience us and how we work with portfolios or LPs or other VCs. And so that’s something we all really value as partners being honest and not hiding behind any sort of niceties or, , hiding behind, uh, the mystery of VC.

Hmm. do you think of the upfront brand in relation to anything else, like in relation to other LA funds or in relation to sort of the venture ecosystem as a whole? 

That’s a great question. I mean, I certainly think of the upfront. Experience in relation to all of that. One of the things that upfront really values is community then.

So one of the things I really like about my job as head of marketing at upfront is obviously I want upfront to win. I care about upfront I’m team upfront, but I really do think about adding value to the community. And I assume that it will pay off to upfront in the long run.  

Yeah. Uh, when we were talking about fundraising, my partner, David Waxman was like, we should call Mark suster. And I was like, you think he’d help us out. And he’s like, yeah, he’s interested in helping the ecosystem.

And how do you think about lax brand? Just in general or for tech I’m ending more for tech, but you know, wherever you want to weigh in, 

I think there’s a real spirit of collaboration and support, like. I think everybody really still feels excited for everybody else to win. 

I really think everybody’s excited for everybody to be successful. I think everybody shares their information. What do you think, how do you think it’s changed over time? 

 Oh, I would echo what you said. And in the Bay area, being a BC is a negative thing. And in LA you say I’m a venture capitalist and people say, Oh, how cool.  And we need to be deliberate in maintaining that.

let me stick in LA and if I think about LA venture and think about the different firms and sort of put them on a continuum of, maybe bam or M 13 or over here on the consumer side and over on the other side, there’s embark or Lux capital on the frontier tech, uh, where would you say upfront fits in, in that sort of continuum?

You’re talking about categories then.

Yeah, I think we’re probably in the middle and it’s probably. I don’t know, less of a spectrum and more of a quadrant. And I would say we’re certainly category agnostic. , we’re deep in SAS. We’re deep in enterprise. We’re deep in commerce, both B2B and B2C. Certainly some of our more well-known investments are in the consumer space, whether that’s goat or parachute home or threat up or even bird.

But that’s often because consumer businesses are more well-known But. We have, ag tech investments. We were invested in,  a company called appeal sciences, , which is a big ag tech company where in future of work, we’re in FinTech. So we’re really across the board in terms of categories, 

Okay. What if you stay with my continuum for a second and put the partners from upfront on this continuum and sort of say who’s the most consumer focused and who’s the most tech focused 

oh, well, okay. First of all, I think I’m going to take issue with the fact that consumer isn’t tech. Right? I think that people think that a lot, , it’s the same way that everybody thinks marketing is not a technical thing, right? So I’ve been at up-front for almost five years and what’s been interesting to see is  that most partners have evolved the areas of focus that they are investing in, that they’re enthusiastic about.

And I think that just speaks to, you know, people learning and. Finding new things and finding new passion points and the industry evolving. ,  certainly Greg   is deep in commerce and experience. Prior to coming to upfront. He was the CMO at HauteLook where I worked with him. , and a lot of his portfolio has commerce , and I would say consumer elements to it.

So whether that’s goat, which is a  sneaker, resale marketplace, , and that is consumer facing, but also really about sort of fans and communities. But on the flip side, he’s also invested in companies like in via robotics, which is. Warehouse automation, that’s commerce related, but it’s not consumer or happy returns, which is enabling in-person returns or online purchases.

That’s kind of B to B to C. So nobody really has only consumer focus or only software focus. I think everybody really just. Is excited about different areas as they sort of grow and evolve as,  investors. 

Let me change gears a little bit off upfront and how you work with your portfolio. You know, I’m a seed stage company.

Do I need to start thinking about my brand?  How does that process  evolve? How do you coach people. 

 So the answer is you think about your brand starting from day one. , I’m sure maybe you find the same thing with startups is they’re really good at telling you what they do. They’re not as great as at telling you why that matters, who they do it for, what problem they’re solving and walking you through a narrative that if you’re not an expert in their space that you can’t understand.

Right. And so I think part of, , What a startup should be doing early on is really thinking about that narrative and that storytelling. Then down the line that turns into logos and brands and website and press releases and content and all of those things. And each startup has a different timeline as to when they do those different things. 

and are there exercises or like workshops you’ve seen that really help startups crystallize that narrative or, or, or define their culture?

 We’re rarely running into somebody who’s like starting from nothing. Right. And so part of it is just, how are you putting this, this raw material together in a way that is consistent, that articulates , how you want to be perceived and is an actionable thing.

 I’m sure. A lot of people listening have had brand experiences where you get, you know, you go through this brand exercise and then you have a 200 page brand book, and there’s a lot of mission statements and nobody ever uses it. But to just be really clear on what’s your two line elevator pitch that encompasses not only what you do, but who it’s for and why it matters.

It’s we all think we know, and then we start talking about it and you know, it’s really hard to articulate. 

Okay. So everyone needs a to line pitch. Everyone needs a two-line pitch. What are other actionable things I can get out of this exercise? Yeah, absolutely. I think, brand values is a really key one, one exercise.

I really like is we’re this not this, um, we’re playful. We don’t take ourselves too seriously. We are knowledgeable, but we’re not experts. Sometimes people like to do that exercise where they say, We’re fun. We’re not silly. And I’m like, well, nobody wants to be silly, but like, you know, what’s a, what’s a good thing.

You don’t want to be making those decisions about what aren’t you. And I think with startups, 80% of what you do and how you do it is pretty consistent because you have not that many people. And you’re, you know, you’re kind of all looking at the same stuff. And so it’s not that it’s going to go. So crazy, but it’s at 20% on the margins where you’re inconsistent  or it’s not, user-focused, that’s another thing that I think startups can really do is who is your user?

And I actually say, let me revise that to say, who is your customer? I think a lot of times startups think about who their user is. Who’s clicking, who’s buying, who’s using the software, . But , that’s a very company focused way to think about it. And that’s valuable. That’s one way to look at it.

But who are these people as humans? What else does their life look like? What other brands do they experience? What is the problem that you’re solving for them and how have they solved it to date? You know, are they, are there other buyers or influencers in the mix? What do they care about? And so really understanding that human, , with your company as part of their lives, but not at the center of their lives is a really valuable exercise.

Interesting. So that’s the consumer, not the user. Well, reframing it to 

rewrite could be the same person by the way. Yeah. But yeah, every, I think a lot of people think about users and like, how do I get this click to do this thing and drive this dollar? And that’s a very, how do I get you to do what I want versus what do you want and how do I give you something that will, that you many consumer wants?

Okay, that makes total sense to me, but that also sounds a lot like what product teams do. And so where do you define, what is marketing? What is product what’s brand? Where does this all fit into the organization? And when do I go out and hire specialized people for specialized functions? 

Uh, this is the million dollar question mini, how long do we have and let’s do it all right.

Get out the whiteboard, right?  no, we could get out the white board, but the, the spoiler is there’s no one right way to do this. That used to be, and I think , you’re landing on this. There was marketing and it encompassed all of those things. . And I think because marketing covers so many different verticals of expertise. It’s very hard to have one organization that does all of those things. And so by nature marketing started fragmenting off. Now I personally think marketing perhaps has fragmented a little bit too much because, you know, I think you see organizations that have product and they have sales and they have technology and they have a CEO and they have customer success.

And then at some point they hire marketing and they’re like, well, what do you think marketing is? You obviously think it’s. Ad campaigns or some sort of tactical thing versus a strategic piece of the business. But to get back to your question, I think certainly there are parts of business strategy that product can cover or marketing can cover.

And there’s no necessarily one right way to do that  probably the standard is that products thinking about. The user. 

Totally. So product has to think about the user and how the product and the user interact. But then I feel like marketing people very like growth marketing peoples sometimes are very funnel focused 

Very funnel focused, very funnel focused. You know, I think when you’re funnel focused, again, it’s very conversion focused. And so it tends to.

To be, how do I get this action that I want? And that’s the worst kind of growth person, right? The worst kind of product person is how do I get them to click this buttons? I’ll just make the button bigger. I’ll just put an interrupting page. I’ll just whatever. And the worst kind of brand people are the ones who are so precious about the fact that it needs to be this kind of brand that they don’t ever think about the business needs.

Right. Everybody can go down the wrong path.  But hopefully everybody’s keeping the user in mind. Hmm, the consumer in mind, even though I’m doing it. 

And so in your waving magic wand, you would have more sort of centralized marketing, CMO level leadership that, well I’m putting words in your mouth. 

Well, I’m a marketer, so I would say that, right.

Um, I do think that centralizing a little bit more. Ensures consistency and it, and it ensures everybody, it is working together, that there’s not sort of redundancies in what people are doing. And also that there’s not siloing, but four 50 person company having various teams, having the comms team and then the design team, and then contents in a different place with social and then SEO is product.

And then your product marketing over here. That’s I think you end up with a lot of different, Activities and no sort of centralized strategy, the difference. What is comms? What is it? A subset of marketing, 

as a great question, mini,  it can be, or it can not sometimes comms live separately from marketing because it’s, narrative storytelling, investor relations PR sometimes social goes into calm.

Sometimes it doesn’t, I think a lot of. Enterprise and B2B comms can be separate because it’s covering different things versus in a consumer business comms and marketing and campaigns, maybe tied together a little bit more again, there’s no one right way to do it, but you want to have it. 

Got it. Yeah. I think I knew that comms was more storytelling, when you’re working with portfolio companies, are you coaching them on their marketing? Um, what are you doing there? 

Definitely. And, you know, I would say all of our partners are terrific marketers.   Coby and Greg were both CMOs at DT was in product. And I think where, I’ve seen real success with startups, whether it’s ours, whether it’s how we interact or others is really thinking through when they’re, before they’re going to fundraise, what is the story?

What do people care about? How do I make this important and how do I tell it? You know, one of the things that I observe with startups is that as they grow, as they’re lucky enough to grow right, and raise a, B or a C and become a big company, They’re often still using the same stories and proof points and, and communication style that they did when they were just like the scrappy little, nobody.

Right. And that’s not helpful. That’s not representative of the business and that’s probably not helpful to the company. And so one of the things that founders really need to do as they go on that journey is think about how did they. Evolve as a, as a storyteller, how do they evolve as the face of this brand, if they are in fact, the face of the brand 

Do you have any good examples of that or, or can you explain it more?

 You still have the same pieces, um, who are you and why did the, how did you start the business and what do you do?

But, you know, I think early in the seed stage, the origin story and the Genesis of the pro of your discovery of the problem and your discovery of the solution. That’s basically the whole story. And as you get down the line, continuing to sell the vision without selling, without also explaining how you’ve built the business and what the business success metrics are and, what the team looks like.

And, and sort of how you’re building a market, not what it could be, and you’re going to solve this problem, but you’re building a market. You’re creating a movement. People love you, and the proof points to share that that’s different. And also, I think there’s a difference, you know, if you think of a founder over the course of say five years, When you’re nobody and you’re begging, you know, you’re not begging for money, but you’re, you’re convincing people to buy into this.

Sometimes harebrained scheme of yours, that’s a different way of speaking and presenting yourself than somebody who’s heading up a $500 million business,  you are a different kind of leader.  Are, you conveying the gravitas of, of somebody. Who is, might be an acquisition target for, you know, multi-billion dollar corporate organization.

Those are two different ways of communicating. 

Okay. So presumably that’s something the CMO could help coach them with or do startups even have CMOs anymore?

For awhile. I think the CMO is not something anyone wanted to be CRO chief growth officer. But nobody wanted to call themselves a marketer.

And I think that was a hangover of like CMOs of consumer packaged goods brands that were just like talking about advertising and didn’t understand data. And was not able to speak in any technical kind of way. And so I think all of that to say, I think marketers now, as they’re coming up in the world, do really need to think of, need to be at least burst  in the technical side of the business.

You need to understand where your data is. You need to understand how you’re tracking things that can’t just be handed off. And so I think that’s one trend of a sort of technically versed marketer. 

Okay. So the marketing team needs to be technically savvy, but why did the marketing org fragment so much? 

One of the reasons that I think. Marketing fragmented so much is because I actually think marketing unlike maybe any other discipline and a startup is very specialized.

You mentioned there are so many platforms. There are so many this, and it’s true. And you know, 10 years ago when I was working at an e-commerce business, um,  Facebook was still really exciting and new and you could innovate on it and you could come up with new things. There are no sort of big silver bullets right now.

Um, I, I think as soon as there is one, everybody figures it out. Everybody is quick to jump  on that  and mind that for results. And so. You have to be in the platform every day. You have to be really well versed in, I think that’s very hard for a smart, small marketing team. So a better way to say when I was, what I was trying to say is I think that marketing requires a lot of specialization.

If you’re an SEO specialist and then somebody is like, Hey, can you do this press release? You’re like, I don’t know what you know, or if you work in Facebook and somebody wants you to do events there, they’re very different categories. But also, I think people are going to become a handful more of generalists and pull in specialists that are outside, that are agencies, 

hmm.  just to be really tactical? When, , when does it make sense to hire an agency and what sorts of agencies have you seen work really well? 

It depends for everybody. That’s my answer for everything. It really depends on the organization. I think bringing in an agency can be really useful when a few things are in place.

One is you have somebody that can dedicate the time to manage an agency. I feel like you get the agency that you deserve both in terms of the process you went through and picking them. And how you manage them. And I think so often people think I’m going to hire an agency, so I never have to think about it.

And you’re like, well, that’s not going to work out well at all. I think when you’re testing things out, that’s a really valuable time to try an agency or, um, or you think there’s something there, but it’s a specialized skill that maybe you don’t have.  I’ve seen some really great growth agencies because they’re really specialized in Facebook and Instagram, and that’s what they specialize in.

And that’s what they do all day long. PR agencies as well. I think they get a bad rep, but I think having a PR partner, if that is not a core competency of whoever’s inside the organization, That’s something that I think people think, well, I, how hard can it be?  I can just email someone and they’ll cover my news.

And like, that almost never works. 

Okay. So I can’t just write a one pager on my seed round of financing and hope that tech crunch writes about it. Um, and then on the other extreme, you’ve got a 16 Z now has more news staff than tech crunch does. How do you think about VC funds becoming the content creators?

That’s a whole other podcast, I think for any kind of content creation, whether it’s in a VC firm or at a startup, what purpose is it going to serve? What are you trying to do? What can you dedicate the time to, and. Where’s your best focus. I mean, you know, you’re, you’re creating a podcast and that is a lot of work.

Yeah. But I enjoy it. Yeah. 

And that’s it. That’s a great place to, so I think a lot of people say, Oh, I want to blog. And I want to be really active on social. And I want to do all these things, but they don’t actually like writing. So why would you want to blog? But, you know, they want the end result of having this content and not the content creation.

And so I think that. Thinking about what are you trying to communicate? Who is the audience? And what can you commit to doing is the best place to start. 

Well, and I look at Mark sister and I’m in awe of his communication skills.

How do you think about his brand

1000%. He is an incredible content creator that the speed and clarity with which he can create content is amazing. And I think that’s a perfect example of, he loves to do it. He loves to write, he built a platform. It took time. Yeah. 

and Michael Carney was a reporter before becoming a partner right upfront,

Yeah. Yes,  , there is a trend in, journalists moving into VCs, which is so smart because journalists having. , the ability to synthesize think critically, gather information, tell a clear narrative. If no, if you take one thing out of this entire conversation, I hope it is figure out a clear narrative that tells civilian people what you do and why it matters.

I think journalists are really excellent at that. So I’m not at all surprised that we’re seeing more of them moving then to the VC space. It’s a 

great pipeline to mine. And it’s a diverse pipeline. Um, at least gender diverse pipeline, 

gender diverse. It’s often not like it’s not consultants 

usually. 

right? Not consultants. I actually don’t dislike consultants, but still staying with journalists. Uh, are there any really good shout outs recommendations you have for people we should follow on Twitter or newsletters?

We should be reading. 

Oh my gosh. 

Um, I’m a big fan of Webb Smith and TPM. I didn’t even know it. Great web Smith. Hold on. Pause, I’m sorry. I got the website wrong. So web Smith, 2:00 PM, Inc. I think he’s done such a great job of synthesizing trends in retail and commerce. And do you see, and brand, and growth and everything that goes into that.

So that’s a great one. Great. 

Any favorite Twitter accounts? Uh, podcasts you listened to? 

Oh, my gosh. I read a lot and I share a lot of book recommendations and my friends are always like, what business books should I read? And I’m like, I don’t, I don’t know. Life’s too short. I do. Hi. I spend all day in business.

I want to read novels and nonfiction. When I am not. Looking at my zoom. 

Well, maybe that’s a good transition from things we enjoy doing to conferences. We actually enjoy attending. 

Maybe just talk a little bit about the upfront summit. Okay. Um, because it’s, it’s incredible, Carrie, it’s a really incredible, uh, you know, I’ve been to a bazillion conferences, some fancy ones.

  I mean, just to set the stage, you’ve got John legend. You’ve got ice cube, but you’ve also got Josh Koppelman, , and Jeff Jordan. So, , uh, what’s my question are VCs easier to deal with than celebrities or harder.

Thank you so much for saying that it is absolutely a labor of love. And what was the question? 

Um, who’s been really hard to deal with with the question, but that’s a bad question. Have there been any great moments that have really, like, I know some speakers that I thought like melody, , Hobson, Hobson.

Oh my gosh. She 

was incredible. She was incredible. I thought the team at bad robot, uh, Katie McGrath and JJ Abrams, of course they’re going to be great. And they were, um, I thought Reese Witherspoon was fantastic. 

That one was awesome. And just funny, people should look up Reese Witherspoon and Marc Seuster. Uh, one thing I think a lot about is, is do you coach people to be better interviewers 

like I’m trying to learn to be a better interviewer. You’re a great interviewer. Well, thank you. But are there,  do you help people learn to be a good interviewer? 

This past year was the eighth upfront summit that we had. And so now we know. What the audience is and what they care about and what they’re going to respond to.

And so we can always provide that insight to the interviewer and interviewee to say, these are the things that people are really going to have on their mind. So let’s make sure that we talk about it, but yeah, I think a great interview is a conversation. , and we’ve been really lucky at the upfront summit or other,  events.

To have a lot of great conversations where, , some really nice nuggets come out and people really speak honestly about their experience. 

Okay. Quick.

Wrap-up I’m going to give you a name and you have to tell me their brand. I’ll start easy. Karen Norman.  

Who 

doesn’t love Karen Nortman.

Everyone loves Kara. If I had a dollar for everybody that I meet in my life that says they love Kara Norman, I would be starting my own fund too. Right. Best in Karen Norton. Um, yeah, I think Tara is. Super high IQ along with her super high IQ. I think she’s really all about making sure that we have a tech community that’s inclusive and representative all, and  such a joy to work with her sister.

How do you characterize him? 

He’s a visionary and he is an incredible leader. Um, he is an incredible leader of up-front and he’s an incredible leader of the tech committee. Unity. I think he’s a great advocate.  He says what he thinks. He’s up front. He absolutely is. I think it’s not a surprise that he’s been a face about front for so long.

I think the two are, really are mirrors of each other. . 

Okay, great. I’m going fast. Coby fuller. I don’t know. Coby at all. 

 You die, 

you should know Kobe, Kobe podcast mini. 

It takes some time once a week. 

Yeah, he’s been and, um, he’s been an operator. He was the CMO of revolve before. Um, Long before he joined upfront and he’s really focused on future tech and he was an early investor in Oculus.

He also invests in marketing technology and communities, and he’s really has his finger on the pulse of building community building event. Events, and how people use their community to build a bigger business. So 

Carrie what’s, what’s your brand? 

Oh my gosh. My personal brand, you know, it’s funny that you say I’ve been thinking about this a lot and it’s, it’s like, I don’t.

Ad agencies always have the worst brands because they’re like, , you know, the cobbler’s kids have no shoes. Right. It’s so much easier to do for somebody else. But what I will say is this, the thing that I love most about my job is that I get to just be. And advocate and support for portfolio for the firm.

Like I want everybody to win. I want everybody to succeed. 

. And Curie. I see that so much. And, , , so thank you for the role that you play in the community and,   and things would be on the podcast. 

Thank 

Zach White — Sinai Ventures

Great talk with Zach White about managing Sinai Venture’s $600M Fund II.
 
We talk about investing in Pinterest, buying secondary shares, and independent thinking in the venture business.

View Transcript

I’m excited to be talking with Zach white today. Zach is a partner at Sinai ventures. Sinai recently announced a $600 million Fund II, so they’re now one of LA’s largest funds, and I believe they’ll now be looking at more growth stage opportunities. Sinai has an amazing portfolio of investments, including Carta, Pinterest, Roman health, Hippo, Compass, and many more. Zach, thanks for coming on the show.

Thank you so much for having me. It’s an honor. 

I am super excited that you guys have raised so much capital. Um, I have a big fund to be investing and you’re based here in LA. Um, maybe you could , start with a little of the history of Sinai and, 

Sure. so we launched me and my business partner, Jordan launched Sinai ventures in 2017. And , um, it came as a function of Jordan at the time was , doing, investing for a large single family office out here in Los Angeles. And his primary focus was tech in, in the public markets. Um, and so. Through that lens.

We were able to build up quite a rapport with this family office and we’re able to make them quite a lot of money , uh, by having a perspective early on about , um, some of the larger names and  consumer technology that were beginning to really begin to find product market fit in the public markets.

 And from there , uh, thought it prudent and , um, A good value opportunity for the fund and or us personally, to go a little bit more downstream and begin to look at opportunities , uh, closer to the Genesis of the idea, as opposed to , um, when a lot of the value had already been realized.

And so , uh, off the back of that, we were able to raise a fund in 2017 from our single family office. Uh, it ended up totalling a hundred million dollars. Um, , we’ve , uh, done 85 investments out of that fund. And from there?

Well, 85. So you did 85 investments out of one fund.

yes.

Wow. I mean ,  we’re targeting 30 investments out of our fund.

Yes.  For us. Um, it was sort of a two fold appearance. One was a learning process of finding the things that we liked, finding the verticals that we found to be most interesting and 

and the other aspect of it was , um, I think that , one of our strengths as a fund is , um, Over-indexing for the things that we know and sort of under an indexing for the things that we don’t know. 

And so  , um, you know, I think the $600 million fund, while it is substantially more capital , uh, we’re going to be a lot more concentrated 

Okay. Okay. Of course. I want to talk about fun too, but before we get into fun too, you can’t raise a 600 million fund too. If you haven’t done something right in fund one. 

Yes. Yes.

So tell me a little bit more, or about these 85 investments. Maybe you could choose a couple to talk about.

yeah, I think , um, you know, probably our biggest winner and the company that most people would know is Pinterest , we were lucky enough to participate in the series E secondary, I believe. Um, so it was  quite late along the life cycle of Pinterest, at least in its private market iteration.

 Interestingly enough, when the company IPO code , uh, we were actually briefly underwater , uh, for a minute on that stock. And so, you know, that is , uh, you know, something that nobody can really prepare you for, especially as most people in this market have been conditioned to expect, you know, a large pop on IPO day.

Um, but you know, we experienced the opposite and , uh, over the last year and a half, since Pinterest has gone public, we’ve been lucky in the sense that , um, the public market has begun to appreciate the Pinterest business .

That’s so interesting. . Did you have the option to sell some of that?  Um, and did you have sort of the guts of steel to know to hold onto that?

I don’t think it was necessarily guts of steel , uh, more so than , um, you know,  I think we had a macro perspective on where public equities were going and , um, what the , uh, sort of proclivity of retail and institutional investors were moving towards.  I think that we really just believed in the company, believed in the founders and believed that the business was moving in the right direction. Um, as far as monetization and expansion overseas. And so , um, you know, from there, we were able to  , uh, provide a.

Perspective on it , um, that allowed our LP to be a little bit more comfortable holding longer they’re a very large LP with a lot of positions. And so , um, you know, we were able to convince them to hold on a little bit longer and , uh, it paid dividends for us.

Wow. Good for you. Good for you. So you said that  Pinterest was a secondary sale. Right?

Yes.

Tell me more about that. I, it surprises me sometimes that secondary sales aren’t more liquid. How did you come to that position and how do you think about buying secondary now 

, the secondary market right now is one that , uh, you know, it’s, it, there’s a lot of money to be made, but also a lot of money to be lost. Um, I think whenever you , um, operate in a. Marketplace that  , uh, is not opaque in, in the way that , uh, it functions. You run the risk of , um, sort of letting a lack of information, dictate , uh, you know, where you end up.

And so one thing that I do really appreciate about the secondary market is that, you , some companies that have been private for 10 plus years now, I’m sure that you have a couple on your books. Um, you know, employees have created quite a lot of value in a lot of those instances and. The renumeration for that , uh, you know, could be a bit lacking.

And so  , um, the way that we see secondary markets is that it’s a great way to , uh, you know, provide additional liquidity for employees, founders, things like that. Um, while also being able to participate in companies , uh, in a way outside of rounds and a little bit more flexible of an opportunity for us.

So you would still do , um, secondary , uh, infant too. Like you’d still be open to those opportunities . 

Absolutely. , um, you know, we’ve never been too specific on these other types of rounds that we like to do. These are the types of check sizes we like to do. I think , uh, being opportunists at heart , um, you know, wherever we see a good deal and wherever we see value to be created or captured, I think that we tend to pounce on it.

And , um, you know , uh, it’s the secondary market is a market that has been a lot less penetrated by. Um, you know, what you would, might call the prototypical VC? Uh, . And so  , uh, you know, I think that there’s still a ton of opportunity there.

Hmm. And how do you get connected best with those opportunities?

Yeah, I think , uh, I think, you know, um , it’s, it’s a sort of trite cliche at this point, but your network in this industry is everything. And so , uh, we really try to be as friendly as possible with everybody from the C-suite to. You know, an average engineer , and you know, we go into those conversations, always from the angle of education and understanding and looking to learn more.

 And. You are able to provide a little bit of context on who you are and what you do. I think you’d be extremely surprised with the results. And , um, I think liquidity , uh, in this day and age , uh, is something that a lot of people are looking for.

And so , uh, you know,, I, I think that, you know, there’s a lot of opportunity out there in that aspect.

 Um, how about one or two other stories? How about Roman health or Carta or some of your other big ones in fund one?

Yeah, I think Carta is , uh, an incredible company. We , uh, originally found Carta , um, as a function of actually using the platform. So Carter runs our fund administration , um, and off the back of that , uh, we realized that the product was just so. Needed , uh, in the venture community. And , um, there was this insane bifurcation that was happening between, you know, funds and , uh, the people that were acting as custodians of all of their records.

 And , uh, they’re launching a platform called Carta X, which will hopefully be the , um, standalone platform for some of the secondary transactions that we were talking about earlier.

. And now it’s  sort of amazing to see how they’ve transformed into  , um, an exchange of sorts that will , uh, really redefine the way that.

Private market companies are capitalized. 

It’s a big deal. Um, and how did you. how did you invest? You were using them. You saw the potential of the product where they raising around . 

Yeah, so we actually became very close with one of the , uh, C-suite members of , uh, Carta , uh, who was really early on in the company. And. , uh, he had been given quite a lot of allocation. He was over allocated and what we was, what he was able to , um, write a check into.

And so  , uh, we were able to fill the rest of that for him. And just again, that comes as a result of, you know, what we feel is being overly opportunistic. Uh, you know, a lot of funds would. Have not been able to participate in that way . 

Interesting. And so was that also a secondary purchase? That, is that what you said?

It wasn’t a secondary purchase, but it was , um,

we weren’t, we, yeah, it was common, but we weren’t the primary purchaser of it , um, 

 um, I should probably just talk a little bit about what you’re doing then in fun two,  , and,  where you’re, where you’re targeting, you know, what size checks and what , um, are the things that really resonate for you?

Yeah. So, I mean, I think that one of the general perspectives that we had, that we have had. For quite a while now. And it’s only been exacerbated by the Corona virus sort of pandemic is that there are cities in the country that , um, are woefully under equipped from a capital perspective, even though that there’s a fantastic amount of talent.

Um, and for us , uh, B both me and my partner, Jordan are from Los Angeles. You know, there are billion dollar businesses being built in our backyards. And I think that there is a. Sealing for a lot of entrepreneurs out here in the sense that once they reach a certain level of velocity , um, the funds out here are generally under equipped to continue to provide them , um, financing.

And so for us being LA natives and people who really care about this environment and sort of seeing the writing on the wall for two or three years now , um, we believed that. Positioning ourselves in Los Angeles. Whereas, you know, we used to be in Palo Alto in New York, et cetera, before really centralizing the firm in Los Angeles, gave us a great opportunity to , um, provide larger checks that we believe are much needed in this environment.

 I think I saw this ad that there’s like 10 to 15% of the funding of LA company comes from LA investors.

Exactly. Yeah. And that’s something that is, you know, for us, you know, that 85% Delta is just money being left on the table.  What we would like to do is that we would like to be LA based and really give preferential treatment and looks to companies that are being built in our backyards.

And then from there , um, you know, we’re going to continue investing globally. We have companies in all across the world and we’ll continue to look at, you know, good businesses wherever they might be. Um, but it’s also to have a more concentrated point of view and , um, really provide big bets 

that’s great. Uh, when I was raising money, I, you say, take the fund size, divide by 50, and that’s approximately the size check they want to write. Um, so for you guys, that’s a 10, 15 million, is that right?

 , uh, , we’re, we’re going to be comfortable is really the 10 to $25 million range. Um, some flexibility, you know, out of fund one, we wrote a $20 million check into Pinterest and you know, so we have, we, yeah. We have the sort of conviction to. Write large checks, even when our sort of AUM was substantially less.

and both fund one and fund two are single LP funds, right?

Correct.

I read a.la article on Sinai that said your LP is a reclusive German billionaire connected to Sinai through a personal trainer.

It was a little salacious. Um, but my question is, does your LP influence your investing or have certain goals for your investing? 

Yeah, I think we are lucky in the sense that , uh, we have a very hands-off LP. Um, he’s someone that’s put in an enormous amount of faith in us, in our ability to continue to find good businesses and , um, you know, leverage our networks in a we’re given pretty much free reign so long as , um, the ideas make sense and that we’re trying to vote with our dollars in a positive way and not a negative way.. And so , um, yeah, , you know , he’s, he’s an older gentleman who.

Again, reclusive is a good way to put it. ,  we obviously like every other fund in the world has an investment committee that he’s very hands-on in and pays a lot of attention to.

, we’re, 

that’s great. And does that lead to more consumer investing or more B2B type investing or are there certain areas.

Yeah. You know, touching back on what I was saying earlier , um, you know, we went through a process of investing in 85 companies to really figure out what we were good at and what we weren’t good at. Um, you know, some of the. Industries that we seem to have done quite well in are things like consumer technology.

Um, we did quite well in some of our healthcare bets , um, and we’ve done , um, you know, quite well in a lot of our B2B enterprise stuff. And so I think those three pillars , um, will continue to be our bread and butter moving forward. 

that’s great. Um, but a good sort of transition into who you are, because I think that probably influences what you’re, what, you know, what you’re excited by and what you’re looking at. Um, so maybe take us back , like, tell me about you Zach way, growing up in LA and you know, what were you like in high school?

That sort of thing.

totally. Yeah. So , um, I’m actually originally from New Zealand. Um, I got, I moved to Los Angeles at a, at a young age . Um, , for university, I ended up going to the East coast , um, NYU  , um, and was really sort of enthralled by.

Um, the atmosphere of New York, specifically finance, and , um, you know, if in going to New York, NYU , uh, specifically the business school, you don’t really have a lot of options, creative sort of , uh, options to , to, to pursue. And then, so I initially tried , um, the world of finance. Um, it wasn’t necessarily for me.

And , um, there was a lot of issues that I had with it. Outside of kind of the red tape and sort of maybe some of the more moral , uh, issues that I was facing. Um , uh, but from there I kind of left and came back to home to Los Angeles , um, where, you know, I was , uh, maybe a little bit dejected and , um, sort of had.

Um, my perspective on the world turned upside down a bit. And so I was kind of just floating around in LA and , uh, I was actually had a conversation with a good friend of mine. Um, Trapper skeet. Um, he’s a guy who Trevor McFedries is his real name, but he goes by skeet. He , uh, is the CEO of a company called , um, brewed out here in Los Angeles, which does , uh, artificial intelligence for digital influencers.

And so, you know, I was talking to him and I was kind of feeling dejected and a little bit lost. And he said , uh, you know , there’s, there’s a really interesting company. That’s actually quite hiring quite aggressively in Los Angeles called the Spotify. Um, and so, you know, um,  I went and had a  , um, interview process with Spotify. . I was woefully underqualified. Um, and so it didn’t end up getting the job, but  they said, Hey , like, , you’re obviously not right for this.

, but, you know, as you’re just floating around and kind of  , uh, if you’d like to just, you know, crash on a desk here and kind of just soaking in the environment, like feel free. And so, you know, for the next year I was able to watch them bill like Daniel and sort of the rest of that team builds.

What is now a $60 billion business , um, and sort of all of the challenges that they faced , uh,  and off the back of that. Uh, I was really lucky to be connected with a. Um, family office out of Southeast Asia and begin directly investing off their balance sheet. Uh,  into companies that were tangentially related to Spotify at first.

Um, but as time went on, the scope got broader and broader  , um, and ended up working for another fund out here in Los Angeles And then in 2017 , um, ended up , uh, coming to Sinai ventures and , and, and sort of building this platform here.

And so you and Jordan fudge are the two partners, right? So tell me a little bit more about Jordan and what roles did the two of you play. And what’s the dynamic.

 I mean, one thing that , um, I think maybe it was interesting context is , uh, venture funds are only one aspect of the management that we do for our family office. And so we have other funds as well , um, specifically one in the entertainment space , um, where we’re doing sort of content financing , uh, 

and so Jordan’s role is really to sit above all of the different funds that we run. And B , um, sort of the point of contact , uh, between our family office and  the different funds that we’re running. And for me specifically, I , um, look after the venture portfolio , um, and manage , uh, the.

Sort of day-to-day intricacies of that. And we also have another partner who works on our film financing side. And so , uh, you know, Jordan, I think , um, is able to take a super, super high level view at all of our different investments and , uh, provide, you know, context from our LP and just manage the, that interactive process.

Um, and you know, which is great because it allows me to kind of just, uh , Uh, you know, lock myself in my office and, and build perspectives on different companies and verticals, which is great.

Wow. It’s just, it’s big fund and you, you guys just don’t have a huge team under you, as I understand it. 

It’s just us two. Yeah.

Wow, you are going to have a busy year. That’s great. So there’s a hundred million that is for new slate ventures, the film production arm. So does that mean you’ve got 500 million then in, in your purview? 

yeah, so it’s actually 600 for the venture side specifically, and then , uh, an additional 100 for the film side. So 700.

Okay. Okay. 

So you’ve got the 600 million in the venture investment side of things. Um, and then let’s just touch briefly on the other a hundred million. I know that’s not directly under your purview, but that’s for producing films and TV and that sort of investment.

Yeah, I think the elevator pitch for that fund is that , um, the acquirers for content and this , um, sort of time or the same people who are buying technology businesses, they’re the apples Amazons Netflixes of the world. They’re fundamentally tech companies that are diversifying their income streams and look at the acquisition process of content much in the same way that they would.

Um, you know, a traditional tech business. And so, you know, in being from Los Angeles and having such an abundant amount of relationships in Hollywood, , we were able to realize that there’s this, the gap in the market, a for , uh, you know, people who have authentically diverse voices , um, and who have a good read on culture and B , um, that there was a much more.

Reliable , um, sort of distribution of outcomes for a film in general, you, by and large , uh, you know, you don’t have the long tails , uh, of the film industry that you would have in the past and more, and the distribution is much more centralized.

And so , uh, with that perspective, you know, we were able to , uh, create a platform around that to, to really capture. Um, what’s been changing in that industry.

Great. Well, a future episode, I want to talk about new slate ventures, but, uh, you also mentioned diverse voices, which I wanted to ask you about you and Jordan are both young black men in LA.

 How do you think about making sure that the LA tech community  

  becomes a representative community, a inclusive community?

Yeah. Um, , I think that, you know, , well, not always the case. My perspective on free market capitalism. Is that the best idea? Well, more, more often than not , uh, rise to the top.

And it’s about , um, us not having these internal biases to be able to recognize what are the best ideas and what is not. And so for us, you know, I don’t think that we’re taking the perspective of 50% black founders and 25% female founders , you know, like a lot of other funds do. I think what we’re trying to do is we’re trying to reduce our biases around the idea that the best founders have to be , uh, you know, young computer science majors for Stanford . And so for us diversity, isn’t, over-indexing a certain group or types of groups of people, but it is really sort of reducing our cognitive biases on what we deem to be an investible company.

And really start to hopefully look at things in a more  level playing field , uh, when we begin to, evaluate companies and , and, and that sort of thing.

, I do think there’s also though the aspect of sort of mentorship , um, and helping out the community, reaching into the community. What advice do you have, do you ever, you know, go talk to high schoolers who are at Santa Monica high school today, or do you have advice for aspiring entrepreneurs?

actually. Um, so we, we invested , uh, two years ago , uh, alongside, upfront , um, in a company based out of Los Angeles, California called valence. And what valence is, is they are trying to be. The social network for diverse entrepreneurs or diverse entrepreneurship. And so they’ve actually built a fantastic platform that operates part LinkedIn , um, part masterclass of sorts , um, where, you know, young , um, diverse founders and potential capital allocators are able to come onto this platform and, you know, have one-on-one discussions with , uh, you know, the people in the industries that they aspire to be in.

  You know, exactly what you said. Mentorship is extremely important and , uh, giving the next generation of entrepreneurs, the ability to.

Take a peek behind the curtain, is definitely a very important aspect of what we do.

Yeah. I agree on mentorship and just exposure. do you have any other thoughts on the sort of company that is the right sort of company to be approaching Sinai? 

Yeah. And I don’t know how to necessarily frame this without sounding extremely cliche. Um, but it is, it’s like, One pervasive sort of thought process that I’ve had throughout the, the time of raising this fund. And now starting to allocate it is that if you look at the public market, there’s approximately half the companies that there were , uh, you know, decades ago and of those companies, about 25% of them have R and D budgets.

And so if you, you know, take a step back and contextualize that, what that means is that innovation is woefully. Um, you know, Is woefully under indexed in , um, the public markets. And so where a lot of that innovation has to come in is private markets. And, you know, we can sort of go into the first and second order of second, third order effects of what coronavirus says has happened.

But one thing that , um, I think the pandemic has really been great in illustrating it in is that there are aspects of this society. Um, that are still extremely inefficient. Um, and , uh, you know, don’t equally, don’t sort of level the playing field equally for everybody. And so as we begin to think about sort of our theses for moving forward and allocating these larger checks, I think it, we really are beginning to start to think about what are fundamental problems that exist in society.

 Um, that we can vote with our dollars on , um, and that’s not to say the next photo sharing app or the next, you know, Twitter knockoff , um, is going to be also a creator of value. But I think our general perspective is that, when you’re writing checks of this size , um, it’s equally as important to fundamentally look for the compounding of social change as much as there is , uh, the compounding of your dollars.

And so, whereas we didn’t necessarily put too much emphasis on that in fund one, I think in fund two , um, that’s something that we’re going to continue to think about. Um,

Agreed. And you only live once and you only have so many shots on goal to do something worth doing. Um, I read that Sinai has the vision to be the city’s leading series a and series B fund.

When you think about being a leading fund, do you think of that with a dual lens of returns and impact

yeah, I think one sort of begets the other. I think that if you’re really, they trying to compound dollars at the most accelerated rates, your best bet is to invest in the companies , uh, with sort of the biggest ideas. And, you know, Tesla’s a great example of that, right? A lot of people can be easily fooled that the ambitions of Tex Tesla are to be the next great American car company.

But if you really peak under the hood, no pun intended. What they’re actually building is a distributed energy infrastructure.  And so I think we’re trying to look for both because we fundamentally believe that the people that are making the biggest social change. We’ll be rewarded by markets 

anything else tactical? Like, are you looking at companies that usually have a few million in revenue when they come talk to you?

 I think again , um, in sort of really just doubling, tripling down on the sort of opportunistic side. , the KPI that is most important to us is the direct channels that this capital is going to be used for.

And so if a company, you know, has $3 million in revenue , uh, but you know, they have a very clear path onto how an influx of capital will take that to 30, $50 million. I’m not so worried about the $3 million that exists currently. I’m more so worried about is this the right team? Is this the right product?

And is the market receptive enough for them to get to the $50 million? And so with that in mind, I think, and you know, public markets have also been doing this as well. Um, I think that we’re starting to price a lot more for the viability of future growth, as opposed to , uh, what’s happening in the here and now.

Interesting. Yeah, you do see that in the public markets. Uh, if I have time to sneak in one question about a portfolio company, it would be luminary.

I’d love to ask your opinion of what’s going to happen with podcasts. Do you think that all of the long tail podcasts are going to continue to exist?

Okay. Yeah, I think they are. And I think that , um, we’re going to start getting a lot more of them , I think. A good comp is , uh, maybe a YouTube where people  had the misconception that it was , uh, really just the barrier to entry, to being as successful.

YouTube channel was so high and you needed to have film equipment and understand the intricacies of editing. And, you know, you had to build an audience, et cetera. I think that we’re starting to see the democratization of podcasting in the form of. Uh, you know, Mike’s are whatever 30 bucks now, and to edit a podcast and put it on through anchor or whatever else is, is it, the bear is extremely low.

And it doesn’t become, there’s so much , like, I dunno, what’s the other analogy, like a blogger repeat where the top blogs became the top blogs and everyone else was like, no, one’s reading this and they stopped doing it.

 I think that the difference there is that , um, you know, blogs did an amazing thing and which is they democratize the access to people’s thought processes, which, you know, was a very difficult thing to achieve before the advent of blogs. But I think what podcast is really , um, what podcasts is really doing is.

Uh, democratizing the access to a wide variety of ideas. So, whereas a lot of blogs really just focused on the author and their perspective and point of view, what you see in podcasts is especially the most successful ones. Um, they have , uh, this innate ability to bring in thought leaders and different perspectives to create , um, interesting conversations.

And so I think that. What podcasts benefit from that blogs may not necessarily have benefited from is the sort of rotating door of different thoughts and perspectives that are anchored in a personality where, so where as blogs you have the personality anchor, but it was, it just stayed in that general lane until.

You know, you got tired of hearing that person think. And so , um, I think that , uh, what’s great about podcasts is they feel constantly fresh because you’re the best ones, at least , um, are giving you a slew of different ideas constantly. 

Great. Well, of course, I appreciate that answer.

Is there anything else in the venture industry where you’re questioning the assumptions about , the way things are done or trying to do things differently?

Yeah, , I think that there’s a fundamentally.  Pervasive issue in the, in the industry of venture capital, which is that, everybody is sort of competing for the same things. 

 And what I mean by same things is not necessarily , uh, the same ideas or the same entrepreneurs, but it’s actually competing for , um, almost an acceptance and industry level of acceptance.

And so, you know, if you’re a new and upcoming fund, if you’re investing in. These large ideas that are a little bit more esoteric and, you know, don’t have the sequoias and the Andreessens back into them. It’s actually kind of easy to convince yourself that you’re not doing a good job. Um I can’t say that I haven’t fallen privy to it before, but you know, new me new year, new 20, 21,  I’m trying to be more conscious of my cognitive biases towards the safety net that is provided when you invest alongside a Sequoia or in Excel or whatever else.

. I think that in having such a large fund and such a large amount of capital to put, to work, it gives us the ability to , uh, you know, be the people that everyone else aspires to be alongside. Um, and so I think I’m much more focused on that than, you know, traditional VCs, making sure that the cap tables they participate in , uh, have enough Goodwill in them that it makes it an easy pitch for their investment committees.

I’m more worried about big ideas than who I’m making money with.

Yeah. It’s also a self-confidence thing, which is if I go in to all of those big players and show them a deal that they all pass on,  you know, I questioned whether, whether they’re all seeing something that I’m not seeing.

Yeah. And it’s nothing to take away from those guys. They are where they are because they have been fantastic allocators of capital for. You know, decades and decades and decades, it’s nothing to take away. I think what the issue is is the people that try to be like them aspirationally without doing the things that Sequoia did Sequoia when Sequoia was investing, they weren’t investing in companies that another venture fund was doing.

And that’s what made them feel comfortable. They were really tackling some of the biggest challenges, ideas, and technological issues that the world has seen. And they were very handsomely rewarded for that. 

 True. True. Anything else we should talk about, about Sinai?

no, I mean, I think that just the one thing that , uh, you know, I’d like to touch on that we’ve sort of alluded to is, is that , um, you know, we really want to position ourselves as different. Um, I think that , um, Our age, our demographic, our interests is , um, orthogonal to a lot of the venture capitalists in the space.

Um, . You know, people who are looking for young thoughtful progressive investors , uh, you know , we, we’d always like to have a chat.

Well , um, LA certainly needs more series a series B investors. Um, so I’m really excited to see what comes next for you. And thanks for coming on the show.

Thank you so much, many. I really appreciate it.

Sean Harper — Westlake Village BioPartners

With their recently raised $500M, Westlake Village BioPartners is catalyzing the LA biotech ecosystem.

Sean Harper, former Head of R&D at Amgen, tells us about his focus on therapeutics to improve human lives and starting Westlake with Beth Seidenberg.

View Transcript

Hello and welcome to the LA venture podcast. This is Minnie Ingersoll host of the podcast and partner at TenOneTen. TenOneTen is a seed stage fund here in LA. All opinions expressed on this show by me and my guests are solely our own.    

Today’s episode of LA venture is sponsored by SaaSSoft offering customized software development for your startups needs. SaaSsoft is a group of top software developers all based here in Los Angeles. If you are looking to build a new product from scratch, or if you’re a founder that needs help accelerating product development, SaaSsoft can help.

With SaaSsoft, you’ll get the personal attention you need to make your product a reality. In 2021, head to SaaSsoft.com, S a a S S O F T for a free consultation. 

I’m excited for my discussion with Sean Harper today, Sean is a managing director at Westlake Village BioPartners. Westlake Bio recently raised a $500 million fund II, to continue their work funding transformative life science companies. Sean founded Westlake at the end of 2018 with Beth Seidenberg after leaving his role as head of R and D at Amgen.

Sean, thanks for coming on the show. 

Thanks for having me.

 Of course, I’d love to start with the basics. Uh, maybe you could tell me about Westlake bio and what sort of companies you’re funding and what stage those countries these are. 

Fundamentally we’re involved in company formation. So company incubations, if you will. We’re typically putting seed funds in just to get things rolling, you know, hire team, license assets out of it, universities, et cetera.

And then we often are the the lead on the series A investments  and then we try and move these companies through. Successive rounds of private funding , 

 when you’re doing that first investment, what size check are you usually writing as a first check and maybe a second check.

 Our seed funds, typically we start with a million. Sometimes we have to add a bit more before we can get to a series a on average.

It takes nine to 12 months for us to go from, , hiring in an entrepreneur or beginning to assess a technology at a university  , and getting to a series a and in that year, Typically the million dollar seeds adequate sometimes , a little bit more and then check sizes for the series.

A with respect to what Westlake puts in range from eight to 35 million, .

And just to clarify, those checks that you’re writing are always into companies who are working on new drugs. Is that right? 

Great question. So, yeah, we were very, single-mindedly focused on human therapeutics.  , we have a requirement that there’s at least product that is no more than three years from IMD from first-in-human testing.

So as opposed to some investors who will invest  , where the first product may not get into man for five or 10 years. We’re pretty focused on getting human therapeutics into the clinic, at least the lead program. And I would say that, , we focus on that because , it’s our expertise, right?

This is where we’ve all spent our time in the industry. So we don’t do devices or diagnostics or digital health. It’s all about, ,  getting medicines to patients 

so tell me a little bit more. I think what you said was three years from human testing, is that what you said?

Yeah. Yeah.  About three years. . That’s where, you know, the big value inflection occurs as well for us in, in life science, BC is when you take, , an idea that looks good in test tubes and mice, and actually managed to take it in the clinic and develop proof of concept that it actually can have.

Efficacy and safety parameters in here.

 So can you tell me more about the origins of the sorts of companies or entrepreneurs that you’re looking at? 

Yeah. So, as I said, there are really three basic models we use.  

 The first is licensing and academia. The second is licensing assets from biopharma, and that can be large or small biopharma. As you probably know many of the very successful drugs on the market are things that companies have deep prioritized strategically out-licensing to others. And then, you know, those have been successfully developed sometimes in the same indication that people had in mind, other times, different indications.

And the third model is what we call Denovo drug discovery, where we. Really invest in a team of experienced drug discovery, development professionals who want to pull together their team and, and begin to prosecute work  .  In academia. For example, we, we frequently encounter the situation where the founders believed that there. We’re just about to go on the clinic, but in fact they’re not.

And and we have to, we have to look at it and then we say, well, yeah, you’re, you’re really more like two years from the clinic, but that’s okay.  Because we in particularly Desmond Patty, our principal who’s focused in this translational space, his entire career for 30 years.

We’re pretty good at,  assessing that. And that determines the raise the size of the raise along with things like, you know, can you contract the manufacturing of whatever it is or do you have to build internal manufacturing process development manufacturing? Because it’s a, let’s say cell based therapy or a gene therapy where the contract manufacturing organizations just aren’t.

Developed enough to do it for you. And then obviously that will result in a bigger series, a raise, a bigger check from us, more likelihood that we bring in another investor to write a big check alongside us, that sort of thing.

 What mistakes are they making when they think that they’re  ready for clinical trials? And you say, no, you’re really two years out.

Well, I think, you know, that what we see often from the academic centers is tremendously strong  biology and early chemistry work like screening high throughput screening capabilities these days, and identifying if you will leads. And getting going through sort of hit to lead and identifying tool compounds that can be put into animal models.

And, and what often is missing is really a lot of the assessment of whether these molecules, . Are actually going to have the drug like properties, for example, their metabolic profiles have life in humans, all that sort of thing that would allow them to be clinical candidates that you would want to invest, you know, three, $4 million in GMP manufacturing, GLP toxicology studies, and a couple of species.

. And when you put that lens from our experience onto a lot of these programs, the biology is great. The ideas are gray. That chemistry is a starting point, , but they’re not as advanced  as is believed by, by, by the founders. And this is not surprising because most of them don’t have that deep industry experience of understanding how important things are like drug, drug, interaction, potential, , drug metabolism issues that can differ substantially, you know, mice.

Diverse from a 65 million years ago and in, in, in evolution and they’re not the model humans and, and these, you know, a lot of the people that work in academia,  they have their models and they’re very focused on them and they. Can sort of forget that there’s an awful lot of work that has to be done to go from these tool compound mouse experiments that they consider to be sort of proof of concept to showing proof of concept in humans.

 Do. Some universities do this better. Do some you know, do you wish that some of these labs were doing more of, of what you’re talking about?

Yeah. I think that, that the unit universities in general are beginning to recognize that grant funding from NIH and with a couple exceptions, there are some specialized grants that are designed to help entrepreneurs at academic centers, sort of spin out their work into small biotechs. And that can be very successful if they.

If they do it right, but I think there’s a, there’s a, a real understanding now evolving at the, , medical center type universities  that some seed funds. Within the university that can be dispersed to projects to get them a little bit further along and allow them to do things like pay us CRO to do these metabolic profiling experiments to get crystallography performed things of that sort.

There can be arcane rules. Regulations around how grant funds can be used. And we see this all the time. Like you can’t use a vendor outside the United States using NIH grant funding for some reason, for some of these grants. And so they haven’t work with the best CRO that does those Tarago free to Germany, whatever, you know 

, so these, these funds can, we’ve made available and we’ve seen a number of the universities we work with set up these funds , it’s often just a couple of hundred thousand dollars, but that’s real money at this stage that we’re talking about 

. , that makes a lot of sense. I have my siblings and my parents are all struggling to get NIH funding. So let me get into your background a little bit here. Um, I think it’s really relevant. You were running R and D at Amgen. How does Amgen think about early stage drug development and doing R and D versus acquisition?

Yeah, , I would say I’m gen , is no different than  what goes on across the industry in terms of large biopharma. In that there’s a clear acknowledgement that if you look at the, at the history of the industry and the and the trend line, More and more of the innovation  come from venture backed small company.

, and you can see this in terms of the proportion of the late stage visible pipeline at the companies that. Is derived from those sources has been steadily rising over the last 15 years.

The number of independent biotech companies that actually launch products into the marketplace themselves is steadily rising. So it less of the real earlier innovation is coming from the big biopharmas and part that’s because they’re consolidating and there’s less of them, but also they have to spend a lot of their money.

On late stage development and marketed products, support and safety surveillance, and setting up, you know, a new commercial operations with the appropriate R and D support and different drug geographies around the world to exploit the emerging marketplace that’s happening in places like China. And so all these things.

Compete for  early preclinical research dollars.  Take as an example, gene therapy or cell based therapies for cancer. I mean, these are the two. Most obvious to point to recent big breakthrough kind of technologies in our field. Right? You look at them and ask the question, how many of those, and they’re hundreds and hundreds of them.

Right? How many of them were developed in large biopharma? To my knowledge, the answer for both modalities is CRM.

Wow.

Okay. And if you think about that, what you realize is that dynamics that happen. In any boardroom in any of these companies is you go on and say, Hey, you know, gene therapies come into age. I want to build a gene therapy capability within the walls of, you know, Pfizer, Amgen, what you picked your company.

And why don’t you give me an extra like billion dollars. And over the next four years, I’ll build gene therapy capability. And everyone will slap you on the back. Say you’re a great head of R and D. I’m sure you can find a billion dollars in your budget , and you’ll get enough, right. So that, because they have to run a P and L and they have to make quarterly earnings and the reimbursement.

Agencies around the world , and the,  CVS and Optum and so on in the U S they’re all squeezing. These companies really hard and the profitability of new products. It’s just not what it was for old books. So they’re trying to manage all this and meanwhile, They’ve got these very healthy balance sheets.

And so then you come back to the board room three years later and you say, okay, look, we’re going to fall behind the rest of the industry. We have to have a gene therapy capability. I want to purchase this gene therapy company for $5 billion. , and this, this company will become, , Pfizer, , thousand Oaks and it’ll do our gene therapy.

And they have manufacturing and everything. , and everyone will say, great, where do I sign?

Hm.

But they’re generally acquiring that, that technology from venture backed companies.  , either pre or post the companies being public, you know, they can buy them before they go public or buy them after they go public. And it’s always been that way to an extent, but what you’re seeing is an enormous growth. , in that venture back component and, and less emphasis in large biopharma at most of them in, in really cutting edge innovation, because they kind of know they can buy it and it’s, it’s expensive to do. 

And that’s the dynamic that’s going on in the industry that makes it true. That some of the most exciting, innovative work is happening in venture based  companies.

And this was a large part of why I made the decision to move when I did . And I want to be really clear. I’m not putting a finger on Amgen here. When I described this, this is a universal phenomenon. 

Sure. Sure. Of course. Uh, and what have you seen for these early stage companies that might be eyeing an acquisition by Amgen? What have you seen work or, or maybe more importantly, what have you seen? Not  work? 

Yeah, great questions. 

. I think one of the other mistakes that we see sometimes is that there’s a decision made to hire a team. Now I know, of course there’s academic founders who can be valuable and they can serve on the board or on the scientific advisory board and be invaluable company.

I’m not talking about them, but what will happen sometimes is that  the university will incorporate, which is in and of itself, not a problem  but that company begins sometimes to get staffed with somebody. Who  somebody knows who has some kind of business. MBA type background or what have you. And they get plugged into this job as the CEO, as the CEO. . And they’re not the right person to run the company because it’s a science-based company and they just don’t have the background experience, whatever 

 Because again, remember. Very early companies where virtually every employee is going to be an R and D person.

Who’s trying to get something done. Right. And it’s very hard sometimes for people with like just the business development business, MBA type background. To even be able to relate , to the scientists or understand the science and to lead that effort, nor is it very easy for them to know where this is all kind of going.

So, yes, there are people who can transcend that, , but most of our CEOs have either, you know, a PhD MD or both. .

And of course, as you might imagine, those, those kind of individuals with that phenotype tend to gravitate to work with us because we all have that background ourselves.

wait and sorry. And I should just clarify who you all are. Obviously we’ve talked about you. You’re coming from  head of R and D at Amgen, and you started Westlake with Beth Seidenberg. who’s coming from Kleiner Perkins.

Yeah. So let me give a little history, cause it’s, it’s, it’s a bit different than the typical life science venture group. In this case? Yes, Beth worked in the industry at Merck BMS and Amgen. And we met at Merck more than 25 years ago. And we worked together there. We worked together at Amgen and then after she was global head of development at Amgen, and then she moved to client.

And that was about 15, 16 years ago. Now I stayed on damn Jen. And so did Desmond Patty, our principal . Beth went on and created. I think she’s now created 25 biotech companies and she was the lead investor at Kleiner Perkins.

She is a very similar background, you know, a physician scientist. 

And so we have  an unusual set of backgrounds in that we’re really operating executives from the industry who , really lean in very hard to the, to the projects, to the technology, the science, the medicine on the projects. 

Wow. And you just said that Beth has created 25 companies. And I imagine some of that is the work that Westlake bio has been doing to create companies. And some of that was when she was at Kleiner. 

Yes. And between Kleiner in here. So we, you know, in our first fund we’ve we built 11 companies and in the second fund, we’ve established three. So I that’s 14 and then I think she did, you know 10 or 11 or something in Kleiner. So it had, it’s roughly 25. I’m not sure if she even keep track anymore, but and most of those have been successful.

The vast preponderance of them have gone on to exits 

 Between the three of us, Desmond Beth and I together, most things we look at, we’ve had some prior experience working in the field.

And if we haven’t, we often want to invest because, you know, we want to work in areas where we can play to our strengths.

, can you double click on that a little bit? Which is like, I would say, Oh, another HR tech company I’ve seen so many of those are you, do you have the same thing where you’re like, Oh, prostate cancer, God, that’s so over.

Yeah, well, the whole field of, you know, immuno oncology and the particularly immuno-oncology that’s focused in hematologic malignancies has gotten a bit this way. I mean, you do get into things, situations where there’s like, There’s like 150 cell-based therapies directed at the same antigen, you know?

And it’s really like, we’re going to start up the 150 first. So there are patients where you say like, Oh, like I’m just not doing that. But , in many cases,  you say something like prostate cancer, Yes. I’ve worked on a lot of attempts , to help people with prostate cancer. But most of them haven’t really done enough and there’s still an enormous unmet medical need  you know, that’s, that’s the fundamentals along with people.

So there’s a timing issue for sure. , you know, you wouldn’t have wanted to do, be investing  , in gene therapy 10 years ago. And you’re probably not going to be wanting to do it 10 years from now. There are sort of times where the technologies, you know, ripe and then become tractable.

If there’s nothing more frustrating, practicing medicine than not having anything that you can do for patients. So you take an area like chronic pain.  You’ll very quickly exhaust your options in chronic pain and, you know, people can’t tolerate long term in and say they can’t, you can’t treat them chronically with opioids.

You know, you just run out of options really quickly. And if you, if you have an unmet need like that, that you know, is sort of. One of the main reasons people seek medical help and the doctors don’t have anything to offer. Well, you know, that may be a tough problem, but it’s more worth trying to solve. 

That makes a lot of sense. So are there companies that you’d like to be seeing a lot more of in your pipeline or more of, or less of.

.  Even in the areas where you look at you’d and say, okay, auto immune disorders, like rheumatoid arthritis and psoriasis and those kinds of things. So they’re well addressed.

Well, not really. I mean, yes, there’s, we’re a lot better off than we were when we were injecting gold into the people when I was in medical school. Right. But. You, you know, none of these drugs are just, they’re all municipal breasts and they’re all fraught with all kinds of issues because of that. And at some point it’s going to be possible to, you know, essentially reset the immune system.

So it no longer believes that self antigens are foreign. If somebody brings forward a technology like that, it’ll be transformative. . . Beth always says, you know, you have to be willing to sort of suspend disbelief and listen and think  because our job is to be thinking about.

, what’s going to be , , the therapeutic landscape, you know, five to 10 years from now because there’s a long life cycle here. And we’re open really to anything. And it can have a kind of, you know, I mean, people use these words all the time, transformative, disruptive, you know, it gets old, but that’s actually what we’re thinking about.

Right? , this is one of the things I say all the time is. This is incremental. It’s just not transformed. It’s nice. I like it, but it’s incremental and we don’t do that kind of stuff .

One of the big news stories out of biotech that hit my tech news was Google’s alpha fold and protein folding. Do you think that’s truly transformative? Is it living up to all the hype?

 And do you see a big role for tech in biology or. Or how do you see that role? 

Oh, yeah, absolutely. I mean, you know, you don’t want to, over-hype this kind of thing, because you know, it’ll, it’ll have a huge impact, you know, on. One of the things that, that that’s a barrier that holds us back that keeps us from being able to come up with, let’s say a small molecule to drug, you know, a, a protein target, because we now can understand.

The structure of that protein much more easily, or you know, there are the computational tools that allow you to see the motion that is that these molecules, you know, they’re not frozen in a crystal lattice the way we tend to think about them. They move, there’s all kinds of things. And, and I saw this working In the genetics area.

When,  we acquired decode, when I was at Amgen, I mean, the kind of work they’re able to do today, simply wasn’t possible until, you know, Illumina developed, , the kind of sequencing capabilities, sorry about the doorbell. The dog’s gonna start barking next. .

, so I think there’s absolutely no question. And the earlier you go into the drug discovery continuum, the more, this is true that these kinds of tech technologies, different ways of imaging different ways of analyzing storing vast amounts of data, robotics, all of that stuff they’d make a big difference.

And I often, when I give this kind of lecture, I give sometimes around the golden age of biotechnology. I mean, one of the things I really stress is that. A lot of the advances that are occurring that are making biology and more quantitative, more predictive science and more translatable into, , new therapies for people is the.

Introduction of these non biology technologies, whether it’s robotics or, or x-ray high throughput, x-ray crystallography, or, you know, these kinds of things have, have profound implications, but at the same time, , you can, over-hype the impact. Because we still deal with an enormous amount of uncertainty and things like choosing targets to pursue you can, work with all these tools in a very elegant manner on the wrong target.

Hmm. But you’ll invest in some of these tech platforms.

Well, no, generally not because it’s just not what we do. , I mean, I have a hard enough time doing what this, this work, where I’m supposedly, you know, like kind of a world expert. And I struggle every day to do the job because of the level of uncertainty. 

I mean Robert Rubin said that most people are, are more certain of everything than I am about anything. I, I subscribed to that camp. , but we’re, we love to see the impact. And when we see that, Hey, you know, it was possible to drug this undruggable target because we were able to simulate a cryptic pocket in a computer. And when we made a molecule and look, it actually works.

We’re like, okay, we’ll take it from here with you, 

That sounds great. Well, let me shift gears a little bit and talk about Los Angeles.

You’re here. Beth is here. Your, your team is here in Los Angeles. What are you seeing in? How, um, how are we going to catalyze things in Los Angeles from your point of view? 

Yeah. I mean, look, when Beth and I started talking about. Setting up West, like you know, she had been commuting to the Bay area for 14 years or something, but her primary home from Amgen days is still here and that’s how we’ve stayed so close. And , I told her about my experience where I had been asked by , these universities  to sit on these advisory committees about how can the university be more successful in commercializing their technology, right?

How do we create companies locally? Where are it creates job opportunities for our graduate students and our postdocs and all of that. And what I would tell them to their surprise often is . this area has tremendous academic institutions. I think it’s number three in NIH funding in terms of a region in the world in the United States 

so it’s, that’s not the problem. Lots of great people who could come in and be research scientists in the companies. We’ve got lots of industry experience people from places like our, again, you know, kite. Guillory ad now while of course, Sam, Jen, and what’s really missing. And the reason companies are not being built.

There’s no venture group. That focuses on, on cause many venture groups just invest in other people’s a and B rounds and things. That’s not going to help you. And I kept trying to say to them, you got to attract somehow, you know, Atlas ventures or the column group, or somebody to set up offices down here in like Pasadena or whatever.

And, and because it’s a local activity, they, this very hands-on to build these comments.

So when Beth and I started talking about the firm and she started telling me, well, you know how overheated. San Francisco and Boston have become how crowded they are with baby sees.

How, how the war for talent is resulting in constant turnover of people, including R and D staff, which is really bad, you know, to have high turnover in that, in that group. We just started. Talking about the fact that we thought there was a tremendous opportunity to build companies here that basically everything was here, grassroots support from the government.

I mean, you can imagine how helpful the city of thousand Oaks or LA County have been . And we didn’t know it at the time, but Alexandria Realty who are headquartered here in Pasadena. They’d been wanting for 20 years to do their magic in this area, building biotech, incubators, and that kind of thing.

But there just wasn’t enough company formation going on on the warranty. And now they’re doing that. We have five of them are companies right now in a first Alexandria facility here, . Close to the Amgen campus. And they’re going to build more and, , it’s really taking off.

, it’s the characteristics here are favorable as I think they were in places like Boston and San Francisco for a biotech hub. I mean, Beth and I both watched those ecosystems evolve. And you know, the one thing that happened in those places that was really seminal was. Big companies started buying small companies and establishing their presence.

So Gilly ad of course bought kite and Santa Monica, but what’ll happen. Next is a company. I don’t know a Tara or one of the companies that’s local here will get bought by, you know, Novartis or pick your big biotech, , and then there’ll be a Novartis sign here.  Our biggest challenge of doing the company formation work here was just ready, turn key available laboratory space. And now that’s been largely solved by Alexandria. 

That’s really exciting. So you’ve gone. Your first fund was at a 300 million, 320000001st fund. So now you’re working on this 500 mils. It’s really exciting for the ecosystem. Let me ask you maybe one or two final questions.  What’s different than you expected being a VC versus doing R and D.

Yeah. I think The first thing was just,  sort of how you actually go about doing all of the,  financial and  mechanical aspects of actually putting together a company, you know, licensing technology out of universities figuring out the cap table, all of this stuff. 

And  to figure that all out at 56 again, after I’d come from me, kind of, you know, the expert guy in what I was doing before, and now I’m completely clueless about what I, I don’t even know what, I don’t know that was uncomfortable. , but I never looked back because I knew in the long run, it would be great.

And it is, you know,  you can create one of these companies.

And two years later, you know, the company’s doing the major deal with the big biopharma. And before you know it, then they’re talking about becoming a public company it’s kind of magic. You know, it’s, it’s really quite amazing then that sort of zero to one. But, you know, you could read books about that, but to actually be involved in that value creation and employing all these great people and all that.

 I I’ve found that that’s been better than I imagined.

That’s fantastic. Well, I think your work and your mission is really inspiring. I appreciate what you guys are doing to catalyze the ecosystem here in LA. 

 Likewise you’re doing the same, of course. And it’s been a pleasure talking with you.

Gil Demeter — Pontifax AgTech

Great discussion about next gen robotics and next gen bioscience with Gil Demeter from Pontifax AgTech.  With over $465M in AUM, Pontifax is one of the largest food and agtech funds in the world.

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I’m talking today with Gil Demeter from Pontifax.  With a $300 million Fund II, Pontifax is now the largest food and agtech fund in the world. Before this, Gil was six and a half years at Qualcomm ventures and at Piper Jaffrey and Industry ventures before that.  Gil, welcome to the show. Thanks for being here.

Gil: Thank you so much for having me.

Our listeners don’t already know Pontifax. Why don’t you start by just giving us the basics.

Gil: You got it. Well, Pontifex is a growth stage,  investor in food and agriculture technology. So if you think about where we invest, it’s somewhere between late stage venture, early stage growth, private equity is probably the best way to define it. And our sweet spot is really seriously. We’ll go as early as series B in terms of investing.

Our check sizes, you know, match that same type of later stage growth. So we’re doing anywhere out of fund two from 15 to 25 million in initial capital, and typically twice that over the lifetime of the company. So, you know, for our $300 million fund II, we’ll probably end up having somewhere between 10 to 12 portfolio companies 

great. And what are the areas you’re investing into?

Gil:  

I like to bifurcate into two different area. That’s you’ve got life sciences on the one end. And you’ve got information technology on the other.

So in life sciences, you’ve got everything from biologicals to gene editing to new age ingredients on, you know, more of the. Really biology focused technologies. And on the other side of spectrum information technology that software, hardware, logistics, supply chain, things of that nature that requires, or data, or, you know, any type of mechanical operation.

And that piece rolls up under me upon effects ag tech I’ve historically led that area. Give them my back Brown, which as you had mentioned is in software hardware coming from, Qualcomm ventures down in San Diego.

Minnie: , so yeah, you’re coming from Qualcomm. So things like internet of things, sensors would make a lot of sense.

Gil: That’s right. That definitely falls within my purview. So, .  You’ve got SAS software, 

so you can be talking about an ERP platform, farmers to utilize to better manage the profit loss within their farm on an acre by acre basis. Ingredient by ingredient basis covers everything from harvest inventory too, , much more upstream. You know, we have another company in our portfolio called food logic, which is focused on traceability and transparency within the food supply chain.

And they’re catering to big CPG companies, big restaurants, but groceries.  Large guys looking for transparency and trying to mitigate any risks that they have with. Foodborne illness, health, and managing the big supplier networks that they have, 

so, you know, those are some of the areas under SAS and software. There’s also robotics. We’d invested in an RA ex exited a company in the robotic farming space. How many called blue river, which was acquired by John Deere couple of years ago. And they were basically identifying weeds in real-time on the front of our tractor and zapping them using artificial intelligence and robotic sprayers to do it millisecond by millisecond.

So the massive savings of.   Crop chemical inputs so that you didn’t have to spray across the entire field. You can just literally identify a small weed, a small encroaching plant and zap in real real-time numerous per millisecond. And you didn’t have to employ as many laborers, which, you know, in the United States, you’re not familiar with.

We have a huge labor problem. 

So, you know, that continues to be an interest area for us, robotics, then you’ve got, , sensors, as you said, right? So you can do that for, , irrigation. You can do it , within, uh, grocery stores.

Minnie: , I could ask questions at any of these. Let’s let me stick with sensors. , when you’re evaluating potential use of sensors or companies selling sensors, like,  what have you seen that works?

What have you seen with the deployment that maybe doesn’t work.

Gil: Yeah.  It’s a good question.  Over time.  In a good and bad way, sensors have become relatively commoditized and continue to do so. You know, when I was at Qualcomm ventures are a lot more expensive to put, , either a baseband or, or,  uh, 3g chip in any sort of situation or any sort of chip set where you want to deploy it.

these days you can put, you know, a much lower cost,   Peace into any area and deploy it. So again, on the one hand, you know, that’s, that’s beneficial from the standpoint of right. You can deploy these all across a farm, can deploy them in volume, across, you know, maybe indoor farming, but at the same time, it becomes less special because you know, there’s less technology on the chip.

I think for us, what we look for now, as opposed to, you know, there’s this unique chip set. Um, given that, you know, the costs are coming down and, you’re able to sell it for less effectively is what is the data network that you can build around that? So in the case of blue river, as a great example of something that we believe was successful was, you did, of course have, CPU, chips and GPU chips and.

And networking chips on these tractors, but there wasn’t in volume. Um, you know, you only needed a few to do the certain amount of processing that you need on that tractor, but it had, uh, a wide, wide applicability. So it’s not going to be necessarily a volume. You’re not selling the chips. If you sold that, you know, come out to, you know, a couple of hundred dollars in actual revenue.

Instead, what you’re selling is actually the machine learning component. So what we look for. Is that combination. What can you layer on top of those to build a platform? And what they built was the learning mechanism behind that, that they then deployed this machine learning aspect onto the tractor set, comply to all other machines that they utilize.

And basically they add.  This computer learning in the background, also powered by humans in many ways, um, to help these robotics learn what was a weed and what was a plant and identify in real time in milliseconds  , how to, you know, get rid of the approaching plant.

So it’s all about the network that you built behind it and whether that’s AI, whether it’s machine learning, 

Minnie: , what is the state of, farming and growing today and how sophisticated are these organizations in terms of having that data and having sort of the it staff to. Sort through all the data and what’s their appetite for new tech.

Gil: Yeah, that’s a great question. you’d be surprised. Farmers are actually pretty sophisticated  when it comes to new tech. I mean, you know, on average, they’re utilizing 20 plus different pieces of software already, and they run these more like organizations like a company, if you will, this is on the farm.

, growers, I would say don’t necessarily have the whole institution backed up to analyze this.

And that’s where a lot of startups come in. But what we’re finding is. Sometimes it’s just enough to be dangerous. They don’t need necessarily. And this is where, kind of a pitfall of a lot of the startups that are in this space. You know, they don’t need this big analytics piece in the background. It’s really all about ROI and what the grower thinks is good enough or not.

So if a startup could come in and provide that value from a data perspective, That’s fantastic. They really, really have to prove, you know, if you use this software, if you use this sensor paired with this software, as we describe it will equate to exactly. I don’t know, three to one return on your investment, but you’re finding that’s very blurry.

It’s hard to quantify that. And I think that’s where a lot of growers hesitate and there’s been a lot of guys who were coming in and saying, Hey, we can offer. 10% yield improvement, but it’s so hard to prove that. So that’s really the trick nowadays. they don’t necessarily have guys to process processes, but at the same time, they don’t necessarily want to buy it unless it’s immediately obvious.

Minnie: Hmm.   What percent of the market is sort of really big, uh, growers and, you know, what are their operations like?

Gil: Yeah. So, there’s, there’s a wide range of grower size, there’s over a million farms in the United States alone.  And the growers can range anywhere from, you know, a couple of hundred acres to, over a hundred thousand acres at a time.  If you’re talking about specialty crops, No vegetables, things of that nature in California, you know, Salinas Valley, et cetera, they’re smaller acreage, but higher value crops, which is also what they’re typically known as.

But if you’re talking about. Corn soy was known as what are known as row crops. Typically larger acreage, lower, more commoditized crops, but they make money on volume versus necessarily margin. So there’s a pretty wide range. And that also dictates it does dictate the sophisticated nature of the farmer.

It’s a small family operation where you’ve got a big grower operation, which can be very technologically advanced.

Minnie: is there better tech opportunity in the sort of row farms as you say?

Gil: I I’ve seen both. I’ve seen both. It’s definitely on both because you have that mix equivalent one is much higher volume that you get to work with. If you’re a startup, one is much higher value and guys are willing to pay for it because they can, they get afford it because they have the margin on a smaller amount of land.

It just depends on what you’re targeting and what the value prop of your tech is.

Minnie: And so do they, a lot of times  come out of, agriculture or are they more, you know, I’m building a satellite company and, Oh, it has applicability to farms.

Gil: You know, I’ve seen both, I would say predominantly it’s agriculture companies that are focused on that. That was the original. thought process when they created the company and other ones that try to pivot into it. I will say from my experience have much less success because agriculture is a unique area.

It’s difficult to understand, you know, growers buying habits, um, the different corporates in the space that utilize technology, et cetera. So you don’t have that expertise beforehand. You’re already coming from behind. I think, you know, there are definitely areas where guys try to move into the sector.

Like. You know, satellite and envision companies, you know, and try to make it applicable, but it is, it is once it start out with spoke to ag or an our ag tech companies from the start are typically what we have seen to be more successful.

Minnie: Hmm. Do you have any tips,  Maybe that’s hard to summarize in a short podcast. Um, but are there things that you’ve seen that people may be coming from inside? No. And people coming from the outside don’t know.

Gil: Yeah, sure. I think one thing that you’ll definitely see is the direct to grower approach is very difficult. And I think a lot of guys coming from the outside underestimate that in ag, you really need what we have seen at least over the last five years  is you really need a sophisticated channel approach from the start because it’s a lot less scalable when you’re trying to send a direct Salesforce out.

As say a SAS company, you know, it’s costly, it’s geographically expansive. If you’re approaching row crop guys, for instance, you’re sending them all across the U S and your costs, your operating costs, at least for something like a SAS company or any sales organization do, does incorporate travel. You know, it’s.

Relatively long sales cycles to break into it. You have to get to know the growers. There’s not like a central database of every grower. You can reach out to them. it’s definitely difficult to have a direct sales approach from what we have seen. You know, other things that we have seen is from an acquire standpoint, there’s not a massive amount of acquirers, but they’re, they’re definitely inquisitive.

Which is very good for our space and they’re becoming more and more acquisitive as they haven’t spent R and D dollars, you know, over the last couple of years, they’ve kind of waned on that and now they’re acquiring to make up for it. So you’re seeing a lot more acquisitions, a lot more space for innovation.

 I think that’s a very good thing, but you need to know which acquirers very specifically what they’re looking for, because. They can be very fickle. I’d say that’s another thing. So you definitely have to have knowledge of the space, the relationships for the different types of strategics around the area.

Minnie: Hmm.  What are the priorities now like, , is the labor shortage a big priority right now? And how do you see that playing out?

  Gil: Whenever you talk to a grower, the primary. Difficulties or distributor or other guys within the ecosystem of ag, , going up to, to restaurants, groceries, et cetera.  they always name labor and water as probably the two biggest issues facing them today.

, so it’s definitely bottlenecks, but I would say there have not been fantastic solutions to address this. Robotics is definitely getting there.

You’re seeing everything from robotic harvesters, drone harvesters. You’re seeing different guys for robotic pollination, all different types of areas on the farm, and then, you know, into a supply chain and then up to, you know, warehouses. .

. You just have to find the right value proposition and make sure.

The capital expenditure associated with that, which is a lot, it takes a lot to grow a robotics company, not cheap is worth it. That’s the big trade off. And so, you know, you have these jumps, it’s kind of like put a lot of money into R and D money into R and D there’s this gap in between then in commercial execution and then great.

  Is a little bit of a fine line. Do you invest before they get that? Do you invest after? And we continue to toe that line and look for the right amount of traction relative to funding to get them to what we feel is less R and D or of commercial growth.

Minnie: , so you’re coming from Qualcomm, you’ve got sensors and robotics and data. , you know, are there people who are more on  the,  life sciences, biotech side of, the shop?

Gil:  Look at our pipeline,  it’s a nice mix, 50, 50, maybe 40, 60, you know, it depends on everybody’s pipeline of life sciences to information technology right now, to give you a sense for that. You know, it was you’ll 11 portfolio companies in our fund one, which was a $100 million fund.

, we had close to, you know, half of our companies on one end and half on the other side. And, you know, I’d say the pipeline reflects that as well. So you’re definitely seeing a ton of stuff in life sciences to match the amount of stuff that you’re seeing in Infotech.

, gene editing is huge.  And trying to innovate on, natural, usually organic solutions  to spur growth in crops without having to put more inputs or war chemicals or more. expensive seed into it to yield a better result.

That’s basically the, the concept behind new innovative inputs that are happening within agriculture. And ingredients. So everything that’s supplying, you know, the beyond meets of the world possible foods, you know, they have to come up with non-meat ingredients, you know, how are they going to do that? At scale there’s companies that are building technology to build pea proteins, to build, you know, all types of stuff that are alternatives to a traditional, you know, areas that people are a little bit shying away from now on the consumer end.

Minnie: So my husband won’t let me eat apples unless they’re organic.  What’s the hype, what’s the reality 

um, what should I be thinking about.

Gil: You know, it’s a little bit of a marketing tool. I would say the closest comparable to saying something as organic is that it’s simply didn’t have chemicals sprayed on it on the field. You know, that’s not to say that there weren’t, I don’t know this or that preservative preservatives that came in later on, so on and so forth.

Um, and in a lot of cases, it’s what is. Generally an accepted amount, maybe that it didn’t reach a threshold such that they could say that is organic. So it’s a little bit of a misnomer it’s, it’s, that’s part of the issue in food and ag, right? There’s not as much transparency. I don’t think the normal consumer has any idea what really, really is the difference between this or that blueberry in terms of meaning organic or not.

Minnie: It just the sticker. You just look for the

sticker Gill,

Gil: sticker. And then you automatically pay more and that’s like

Minnie: That’s how it works.

Gil:  I definitely fall for that. Whatever. I see the two and I’m feeling I’m trying to be healthier, but I think. From from, from a genetically modified standpoint, that is maybe a little bit easier to explain, which is 

there is a difference between genetically modified, which means inserting a foreign gene and gene editing, which is removing . A gene that is dysfunctional or, you know, uh, is susceptible to disease. So, you know, an example might be genetically modified, might be something to increase the size or girth of a certain fruit, you know, and that’s to many people considered unnatural for gene editing.

It might be. You know, an example might be one of our companies called Tropic bio-science, which is focused on gene editing for tropical plants and the problem with one of their, their target areas, plants, uh, which has bananas is that the crop is actually technically going extinct. You know, this is readily available.

Not many people are cognizant of this, but the banana has is 99% of the. Strings of banana in the world. And that is a result of distribution out of genetic diversity. You know, in the early 19 hundreds, when they were trying to get rid of disease and left them with one strain of banana, basically throughout the world.

And as with anything, when there’s one strain, it’s extremely susceptible to different diseases and that’s a problem. So there’s different diseases now attacking those possess bananas that there is no natural. Protecting against example might be black sick Atoka, which is disease that affects it turns on black, you know, Tropic biocides is using gene editing and a form of CRISPR gene editing to edit out the gene that is susceptible to plaque sick Atoka and make it.

You know, perfectly normal. Otherwise there’s no way you would be able to tell different Sweden one or the other. Um, except that this one simply doesn’t have that gene, which could destroy the plant. So theoretically, there’s no difference between that. It just doesn’t happen to be, have a bad gene that exists from its genome in it.

, in many, many ways, Gene editing is improving upon life. It does have to take a careful approach. And this is something that is very, very, very highly regulated , these are types of things that are being worked on. Now

 Minnie:  What are the main complaint? Why does everyone freak out about, um, about this? 

Gil: It’s a branding standpoint. It’s very unnatural. I mean, you know, it’s the same thing as if you saw, you know, a nine foot human walking around, you know, , if somebody, inserted a genetically modified trait, all of a sudden make people giants, just like they do a, a tomato yeah.

You would do. Of course you’d be freaked out. Right. Um, it doesn’t necessarily mean it’s bad. , if you saw tomato, the size of your head, I, you know, you might be a little bit skeptical, they eat it.

, but really the only difference between genetically modified and what frankly we’ve already done through,  planting and diversifying traits over time is, is, is exactly that time.

One can be done on a very quick level and one takes,  , 30, 40 years to develop a giant tomato, but you’re ending up with the same result, . , 

Minnie: okay.  Let me just stay on Pontifex for a little bit. Can you tell me a little bit more  how you guys came together and then, , how you went from, uh, well, your first one was a hundred million to a $300 million fund.  

Gil: About six years ago. Now, a little bit more, the two partners with artifacts, ag tech came together.

One of them is named Phil Erlinger and one of them is named Ben Belldegrun to, invest in this space,  phil came from more of a traditional finance background, investment banking is that Lehman brothers, a senior executive for 25 plus years.

Ben ratchet ran a natural resource fund for Reverend Howard, the largest allocator in Europe. And they were both, you know, principal investors. And decided that this space, all the value capture was in the technology. You know, there was a ton of innovation coming out. It’s a huge market and ag, you know, have one of the top industries in the world, trillions of dollars there, and barely any of innovation puts a technology and just huge, huge gap in terms of capital.

They came together, created upon facts and I joined them to help build the franchise about five years ago. So the three of us set out to build a farm. We raised that first fund and it took some time, you know, the way that we did it was we built a portfolio of assets, portfolio of companies, five companies to start where, you know, we needed to fund it through.

At first, we had vehicles that we siloed these into to prove out the basis of, we think these can be successful. , so we had, we had five companies that we put together that we showed as a portfolio.  Here’s where we had a number of upper rounds. You know, we have very good traction, nice commercial success. And we were able to demonstrate these are early stage startups, you know, and that’s what these institutional investors were looking for, that we were fundraising from.

They want a growth capital investor in this space. So we carved out and said, look, we’re only focused on late stage. There’s a number of fantastic VC firms in this area that we collaborate with. But they’re more focused on the earlier say side sometimes. So go up upstream a little bit later, but they’re not deploying 20, 25 million per deal.

 And that’s what we became. So first we had that a hundred million, you know, first it was 50. Then we attracted more institutional capital by proving out, Hey, here’s the later stage growth portfolio.

We built the two 11 companies, boom, we had a hundred million. Then we use that on the success of our first bond.  To grow that to a fun, to and attract real solid institutional scalable capital. 300 million for fund two. And you aggregate that with fund one.

And we like to do co-investments with our fund to investors. That’s another thing a lot of these guys like to do big call investment dollars. They want you to lead it, that lean on you for the diligence and the expertise for this industry.   

Minnie: Is it  SPV before you’ve fully raised the fund

Gil: That’s exactly right. Or at least that’s how we started. we put those into five SPVs that were individually funded 

Minnie: . . And you guys are, you, you are based in,  Santa Monica 

Gil: that is correct.

Minnie: is the fund. Is everyone based in LA?

Gil: We’re all based in Los Angeles,

Minnie: Great. Let me just let me change topics entirely. Is 

qualcomm ventures?  I haven’t had anyone on the show to talk about Qualcomm , you know, what’s the right sort of company for Qualcomm.

Gil: Yeah. So, you know, when I was at Qualcomm ventures, it was, it was for, as you mentioned a little over six years. And when I came there, just to give you a sense where we were at iPhone two,   at that time apps didn’t exist.

You know, there was no ecosystem for apps. There were no apps. , but they were just, you know, on platform on device. 

. But at the time when I first came, it was very focused on hardware technologies, chip sets, things of that nature batteries that could really improve the mobile phone and then smart phones blew up, you know, and Qualcomm ventures invested in everything.

Within that space that touched the foam. And that could basically, the purview was, uh, accelerate the adoption of smartphones, accelerate the adoption of Qualcomm chip sets 

, but the purview’s still fairly wide there. So no, we invested in zoo we invested in Fitbit, we invested in. Ways, , they don’t like to think of themselves as a pure strategic we’re only going to invest in, you know, something that’s really that we can acquire later this and that part of the whole mantra behind Qualcomm ventures, why it was so unique.

And Y you know, number one investor in mobile over the last 20 years was because it took the position of we’re not going to be an invasive strategic, .

Minnie:  When I searched for your name on the internet, it said that you were teaching at general assembly. Is that true?

Gil: You know, I did a couple seminars. I wish I could say teaching. That sounds way cooler.

Minnie: did you do? I teach though? I’m always interested. Like, what were you trying to get across to your students?

Gil: Yeah. At th at that time , I was just trying to. Get people to understand , how to build a thesis in a specific area, and then execute on that. Especially if it’s not a core area that you would expect for venture capital firm.

Minnie: Yeah. I mean, I actually hadn’t thought about how much overlap there was with agriculture and tech. 

Gil: Neither had I.

Minnie: well now you’ve been doing it for the past. What five, six years.

Gil: Whoa, and that, you know what that’s, how,  my partners,  attracted me to the firm. I saw the opportunity in it. It was way larger than I ever expected.  And food tech in the last five years is absolutely blown up. Everyone’s focused on health tech. Now we overlap with, with food and diet, 

Minnie: hmm. That’s great. Well, anything else I missed today? Cause this was, I got a lot of great stuff.

Gil: No very wide reaching, but you know, if you, if you feel like, um, you know, contacting me, I actually recently set up a new Instagram account. That’s work-focused that’s, you know, for people who are entrepreneurs, people who are. You know, potential angel investors, people who want this, this advice in general, I’ve realized that it’s really hard to get exposure directly to a VC, . So I recently just started this apologies for being new and kind of weak sauce right now. But. If you want to contact me , feel free to contact me there.

The handle is at the young VC

Minnie: Awesome. I love it. Great. We’ll look for you on Instagram. I’ll share it in the show notes. Great. Well, Gil, thanks so much for answering all my questions today. It sounds like so much interesting overlap in agriculture and tech.   I look forward to staying in touch in the community.

Gil: Great. So do I

Shahin Farshchi — Lux Capital

Lux invests in emerging science and technology ventures at the outermost edges of what is possible.

Lux will write $10- 15M checks and they are not afraid to invest pre-product and sometimes pre-company.
 
Shahin has fascinating insight on automation, autonomous cars, AI and more.

View Transcript

Shahin Farshchi is a partner at Lux Capital. Lux is a top VC fund with approximately two and a half billion under management. Lux invests in emerging science and technology ventures at the outermost edges of what is possible. Shahin is an engineer with a Ph.D. in electrical engineering and believes in accelerating humanity towards a brighter future through feats of engineering. I love that. Shahin, thanks for coming on the show today. Great to be here. Thank you for inviting me.

Awesome. Well, I usually like to start with just the basics of Lux so our listeners kind of get oriented on your current fund, stage, that sort of thing.

Totally so Lux started life in the bottom com bust with the hypothesis that the next wave of great companies will be rooted in innovations in the sciences. And since then, we’ve grown to invest across health care and technology. So now we have a team of about 10 investment professionals with backgrounds ranging from stem cell biology to physical chemistry to material science, to myself having a background in electrical engineering. And a lot of what I’ve done at Lux has been on the technology side.

So everything from basic semiconductors and communications technologies all the way to robotics, automation and autonomous cars and software tools.

Is this fund six for you folks? This is fun.

Six. So we are currently investing out of two pools of capital. One is a venture fund and the other is a growth fund. The growth fund is dedicated to doubling down on the winners out of the venture fund.

And we have about 20 percent of that set aside for investing in entry point growth companies. So check sizes can be typically around 10 to 15 million dollars out of the venture fund and double that for the growth fund.

Interesting. So I thought in your venture fund, you still would call yourself entering at really early stages, right? I think you said sometimes there isn’t there aren’t even paying customers.

Is that true? Sometimes there is even a company. So on many occasions, in fact, two over the past couple of months, we’ve invested in companies or behind people who have the expectation to start companies. So we’ve committed to being the first dollars in as soon as they choose to incorporate. And those have been amazing experiences for us as a firm and obviously turned out to be very personally rewarding for us because we feel like if we have a role in the creation and hopefully the ultimate success in these companies by being part of them at their inception.

And so in those scenarios, the checks may be a little bit smaller. It may be five to 10 million dollars.

And so so you’re doing seed investing, maybe series A investing again out the venture fund. But this is really preseed and is that distinct from I mean, not to put labels on things, but is that distinct from sort of the incubation efforts that you mentioned?

You guys are also doing so in some occasions. We do ideate companies. We’ve done that several times and it’s something that we’re very excited about, but that is distinct from getting behind entrepreneurs before there is a company. So there is the incubation of a company where one of us comes up with an idea and we put some people to work and we ultimately find people who would take over these businesses where we recruit leaders to take over these businesses.

I would put that in the incubation category. And then there is building relationships with top entrepreneurs and executives who are aiming to start companies. And we basically line ourselves up or position ourselves to be first money into those companies along with those entrepreneurs.

Has that changed for you, as you’ve seen? I don’t know, deep to get more trendy or more people coming into the space. I guess that’s my first question.

So these companies have certainly become more capital intensive. So I think the the motivation of founders to partner up with investors early has increased, knowing that rather than having to raise maybe, you know, 30, 40, 50 million dollars to get to an exit, they’ll have to raise hundreds of millions of dollars. So having a deep pocketed partner committed to the company on day zero is something that is perhaps more attractive to the entrepreneurs today than it was maybe several years ago.

So because I don’t have a billion dollar fund, you know, often actually it’s attractive to me to look at companies that are fairly capital efficient.

Would you say that you almost have the opposite approach.

I think having to raise a lot of capital is necessary for a lot of these businesses. So, for example, if you’re building a autonomous car company or if you’re building a semiconductor company or if you’re building a communications company where there’s an infrastructure component, then you certainly need to raise a significant amount of money. 

And so I wouldn’t say that we we seek companies that are super capital intensive, but we’ve positioned ourselves to attract the very best people who are building these companies that are off the beaten path.

What do you think makes them most interested in in working with you?

So founders look for people who can complement them, who bring skill sets that complement theirs.

Just because the founder is doing something in semiconductors doesn’t mean they should be talking to me. It looks I have other partners at Lux that have seen these kinds of companies grow and probably would be better fit for those foundries based on their personalities.

Well, then I’m dying to know what your personality and your style is, because, yes, if I were building a semiconductor company, I would probably come to you. But maybe you can tell me more about your your style.

That’s a good question. And I think this is probably a better question for my founders.

 And I think it goes back down to the humanity or the human aspect of this business. If this business was all about just money and Rolodex and connections, then it could be it could be very much automated.

And so I am the outcome or the products of my 15 years at Lux, having invested in deep tech companies, having seen these companies succeed and fail for many different reasons.

And I think founders come to appreciate certain subsets of those experiences.

Do you think your style has changed? And do you think there’s certain investments or events that have been very seminal in sort of changing your outlook or your style?

Absolutely. So I entered the venture scene as a failed entrepreneur slash postdoctoral scholar, trying to pay his bills in Los Angeles, and I observed so many extremely talented scientists and engineers either struggled to raise money or succeed in raising money, but struggled to.

Generates an outcome that made money for their investors or for themselves, and I came to appreciate how technology in itself isn’t a value creator.

I entered venture at a time when there was a investment strategy or an arbitrage opportunity that was starting to go away back in the late 90s, early 2000s.

It feels like as if there was money to be made by simply licensing technology out of the university or out of a lab and wrapping it into a company. And there were buyers of that for something on the order of, let’s say, the low hundreds of millions of dollars.

That was a time when that technology was not as complex when taking a technology to a product didn’t cost as much and didn’t take as much time. And so there were far more willing buyers. 

Those times have changed. Right now, you have to cut a larger check to get modest ownership in a company that needs to raise a significant amount of money. And there won’t be an outcome that would be interesting for you unless it’s in the billions of dollars.

And so that has therefore changed the emphasis from technology to business and technology simply being a means to an end.

So what I spend a lot of time looking for is not just great assets, but thinking about how these assets, how these technologies can yield an unfair competitive advantage for a business that would then generate margin, that can be protected over time, that will grow and generate a great outcome for us. 

That’s a good articulation. Thank you.

Well, let me point out a couple of things in your background and maybe you can tell me more about it.

So you have a strong background in autonomous vehicles and you invested in Zook’s extremely early and they’ve been a lot in the news. And Amazon is about to launch something.

Can you tell me more about autonomy and what you know, what sort of services do you think are going to be built on top of autonomous vehicles and exciting things you think might might we might see in the next decade or so?

I view autonomy as a feature and as a component of different types of businesses and products. If you look at autonomy as a components or a feature in cars that people purchase at dealerships than it is a convenience feature, it makes the car as yet another luxury feature. And as you can see, with Tesla and GM Super Cruze, we’re already seeing some of that today. As it relates to ride sharing.

It has an impact on unit economics. So ridesharing companies live and die by dollars per passenger mile driven. And so if autonomy can reduce their cost as it relates to dollars per passenger mile driven and increased their margins, then it’s obviously very meaningful for them. So these are two very different ways of looking at autonomy. In the case of a automotive company, in the case of Ford, they’re trying to see how they can minimize what it costs to add a feature into their vehicle and maximize how much a consumer would pay for that feature in their vehicle.

That’s very different from how a Uber and Lyft would look at autonomy. And then there’s a question for the Amazons to Shopify as the door dashes the insect parts of the world who are currently using.

People, so, unfortunately, when people use the word autonomy, they they they imply it’s something monolithic. Whereas I view it as a feature. I view it as a capability that has very different implications and very different applications.

And the perspective varies widely for these different applications.

So in the case of of more the ride sharing type networks, do you think do you think that, you know, fast forward a number of years, do you think that we’ll see different services or sort of different ways of interacting with these companies? Because, you know, I’ll go to sleep in my autonomous car and wake up in Vegas or something, and they’ll just be different use cases. So I expect different use cases across different types of companies and there will be new companies.

So an Uber and Lyft today, they sell passenger miles their product to you as a passenger mile and is probably more amenable to a trip from, you know, your your apartment to the coffee shop for a one hour meeting and then a trip from that coffee shop to another coffee shop for another one hour meeting, which is primarily my use case for for ride sharing. Now that, of course, Uber and Lyft may also be able to offer the product where you go to sleep and you wake up in Las Vegas.

But that may not be as easy for an Uber and Lyft to offer than let’s say another company is a new startup to offer that specializes in that kind of experience, that kind of product, and going out for that kind of customer. So there’s going to be, to answer your question, a summary answer is that there’s going to be significant impact to existing companies that use autonomy as a as a tool.

And then there’s going to be new companies that are going to be made possible and created through these technologies that are now available.

I think a lot of what you’re investing in, you know, feats of engineering captures people’s imaginations in good ways and bad ways.

And I was a no, it does. I mean, like, I you know, I has a lot of potential, but it’s scary to a lot of people. And so, you know, how how do you address that sort of aspect when people say, look, you know, our jobs are going away because of automation and that sort of thing?

That’s a very good question. So my response to that specific question on AI and jobs is that if you look at economies that have not embraced automation, it turns out that those economies also suffer from the most unemployment. That’s just basic statistics, whereas economies and countries that have adopted have adopted automation also have the lowest unemployment. And so it’s my expectation that that trend will continue where more automation, yes, it does eliminate some jobs, but usually the jobs that are eliminated are jobs that are very difficult to build and it creates other jobs that are easier to fill and are more attractive.

And you end up with a net effect of more consumption because the unit economics of whatever you’re producing or whatever you’re offering goes down. And as you’ve seen, whenever costs goes down, refrigerators got cheaper. Guess what? People have two or three refrigerators in their house. TVs got cheaper. Well, before we used to sit in the living room and fight over the remote control. And now there is a TV in every room and pretty soon every bathroom.

So with the when the cost comes down, there’s going to be more consumption. And that goes back to the virtuous cycle conversation we’re having earlier, which leads to more jobs, more demand and then more jobs. So it’s my expectation that more automation will create more jobs. But there is a there is a catch to this. And the catch is that there needs to be education that’s broadly available so that the existing workforce will be positioned to take advantage of or to take on these new jobs.

And so I think the onus is on our educational institutions, our governments, to make sure that. These and our existing employers, by the way, so the employer who is adopting this technology, I think the buck stops with them for them to make sure that their existing workforce is going to be trained, to be able to have or take on these new jobs that are now available through automation, through technology. So a line worker, for example, who used to put life and limb at risk to put a piece of sheet metal and a 20 ton press is now operating a robot that does that well.

They should be educated to be able to operate and debug that robot in the event the robot fails.

What about a more vague fear but that, you know, artificial intelligence run wild and, you know, we’re going to be controlled by that sort of the singularity?

Is here any any pieces of that that that ring true to you are interesting to you?

Well, I hate to break it up, break it to you, but I feel like we’re already being controlled by A.I. I feel like a lot of us are already being controlled. Our happiness or our interests are very much controlled by the A.I. that serves up Facebook and Instagram feeds. I feel like a lot of our behavior, a lot of our choices are very much driven by the A.I. that results in the Google search results that we see. And so I feel like that that day has already come.

We are already controlled by AI. Now, at least today we feel like Zipora at liberty to control our own destiny and we don’t feel like we’re under the iron grip of killer robots.

Will that day come? I highly doubt it, but I am more concerned about where we’re going today with a guy with where A.I. is and the way it impacts us today. So I wouldn’t worry too much about the Armageddon, about Terminator is what is it?

What’s the word that that day, judgment day, I would be less concerned about judgment day in twenty thirty and more concerned about twenty twenty where A.I. has level of impact than it does on us.

I think a lot of it is in our control as to how we manage that and how we consume social media, how we consume the news and how we go about finding information and making choices interesting our own values.

So you’re saying a lot of that is on us, the individual consumer user, as opposed to it’s on us sort of structuring our society differently.

I think it’s still early, I think. It’s a combination of both. 

If there are systems in place where it becomes or there is a requirement that when you type in a search, there should be some way of of you being told how much of the search result is influenced by someone. For example, the fact that the search results, if I type in tires, tires for a BMW and the search in the first search results is Continental.

But I want to know, who was it that that that that had? How did that search result become and why? Why is Continental first? 

So I think a level of disclosure coupled with consumer education, I think will address a lot of these concerns.

Hmm.

The disclosure and we saw that, for example, with the markets back during the the Great Depression and with the advent of securities laws, you know, you can still to this day be duped into buying stocks, but it’s more difficult for someone to dupe you from a legal perspective. And people today are far more educated today than they were, for example, you know, versus those people that were buying railroad stocks in the late eighteen hundreds.

OK, so let me take this in the positive direction then, which is I think you talked about, you know, automation is necessary for us in a manufacturing sense to to stay competitive. What about much more on the the desk worker and how how does automation, you know, potentially improve our lives? I don’t know if you’ve heard Elon Musk talking about meat flaps and we’re all made out of meat, but like, how do we improve our own sort of intellectual?

How do you know what I’m talking about?

Yeah. So I’m just as excited about. Automation in factories and cars, as they have about automation for otherwise mundane desk or White-Collar tasks, and if you look at a lot of the great venture outcomes and the recent years, companies like snowflake companies like data breaks. These are very much automation companies. They call themselves data companies that are referred to as data companies. But they are reducing a lot of the work that someone has to sit down and and and manually do so.

And I expect them to be the first of many companies that we see that may be labeling themselves as something else, but they’re very much automating tasks. And that’s very much been the role of software from the advent of software. An algorithm is a sequence of steps that’s used to automate a process. And so.

Anywhere there’s software, there’s automation 

One of the reasons why I decided to become an entrepreneur and later go into venture as an electrical engineer was because I figured that my own job, which was sizing transistors and putting them together into a circuit to build an amplifier or to build a logic gate or to build a buffer or a filter that perform certain tasks, I thought to myself, man, this is going to get automated and I’ve seen it before, and other tasks of engineering and engineering.

There are people that walked around with slide rulers doing calculations that was completely obviated by software in the 80s and 90s. And so it’s my expectation that there going to be a more rapid pace of the automation of these types of technical jobs. And the onus, again, is on the educators and the employers to keep people educated so that they be ready for the next generation of jobs.

I think the system of universities taking you in for four years, charging you tens now hundreds of thousands of dollars and putting you out there for the rest of your life, I think is an anachronism. 

But why is it that our educational system can get away with you not getting a job or you’re not being able to pay your student debt that a few years after graduating? So it’s my expectation that’s going to be more there’s going to be more accountability on behalf of the educators and on behalf of the employers.

And that’s going to help our workforce be constantly ready for those new jobs that are being generated.

Your LinkedIn says San Francisco because Lux is actually based in Menlo. It says Bay Area. Right.

Have you always been in L.A. since you joined Lux?

The office is in Menlo Park before covid. I would be up there Monday through Thursday and some weekends and since covid, I doubt that back to every other week because obviously there aren’t as many in-person meetings going on. However, I do expect now that I’m married, I do expect to to spend more time in L.A. I have a couple of boards that I sit on down here.

The company is doing absolutely fantastic.

I think that there is no shortage of amazing talent in L.A. There’s no shortage of amazing leadership and entrepreneurial horsepower in L.A.. 

Anything else on Lux that I should make sure to take cover here? I feel like you covered it. Is there any other anything else that you’re curious about or you think your your listeners will be curious about? Yeah, I’m curious. If you were to start a company, what company would you start?

Good question. If I were to start a company. So there there’s a few areas that I’ve been tracking along the lines of. How it’s manufactured and the amount of automation and economies that are being brought to bear that would make it possible for a startup to compete in areas that until now have been dominated by large incumbents.

So there’s a couple that I’ve been thinking about in the semiconductor space and also in the in the in the manufacturing space. So it’s still early on. But again, those are the kind of motivators that would make me excited about about the next kind of Lux company.

Interesting. Is that the sort of thing that you would incubate yourself? So if I’m fortunate enough, my my preference is to find a person who would carry it, and in the case of subspace, for example, which is an L.A. company.

You can have a 50 gigabit per second connection cable at home, but still have an awful connection between, you know, Los Angeles and Austin, Texas. And I’m sure a lot of you have mean I’m sure you’ve experienced this with with video conferencing before covid. And it was it was an idea that was that was that was on my mind.

I met an amazing founder of Tofail who is in the process of selling his previous company, who had a track record of building companies in the networking and telecom space. And I was delighted to find him and to partner with him and for this to be his baby, his vision to carry forward.

So if I am fortunate enough to find a founder that is willing to take this on, that I have one hundred percent for partnering up with them. But if I’m less fortunate and can’t find someone, then it’s something that we as a firm would do in-house.

Well, thank you so much for for coming on the show today. And, you know, I wish you a lot of luck in accelerating humanity towards a brighter future. Keep doing that.

That’s the plan. Thank you. Minnie. 

I didn’t ask you about diversity in deep tech, which is something I think about. 

So I think the the the root of that is just not having about there not being as many females in a lot of these technical fields. 

I think some of it also has to do with demographics. What’s not just it’s not just gender, but it’s also demographics. So I feel like as if a lot of these deep technical fields, at least in the undergraduate realm, are or graduate are dominated by foreign students. And it just so happens that it’s more likely that a male would leave their country and come out to study abroad.

For example, when I was at Berkeley undergrad. The vast majority of my classmates were from Asia and South Asia. 

And so I think it’s not just gender, but it’s also just the demographic of the foreign students and then foreign students being predominantly male. Hmm. Yeah. And why is that? I mean, that goes back to the culture as the cultures of origin.

Tracy Gray — The 22 Fund

Tracy shares insights on manufacturing, why exports matter, industry 4.0, and the state of diversity in venture today.

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Tracy Gray is the founder and managing partner at the Twenty Two Fund, EIR at LACI, the Los Angeles Cleantech Incubator. And she first got into venture almost 20 years ago after getting an MBA from Columbia and Berkeley.

I’m not sure if that’s awesome.

The twenty two fund is growth venture capital for manufacturing companies to scale into international markets. Tracy, I’m super excited to talk about why the U.S. needs to build our export capacity and also to hear your perspective on the venture business.

Well, Minnie thanks for having me. I appreciate you wanting to hear from me. So what people a lot of people in the United States don’t understand trade and globalization and exports. Many times I’ve talked to people say, well, we focus on exports, import export. What part of exports did you not understand and really do not understand the difference? So most economies around the world, their economies are based on exports, and that means selling goods made in your country to another market outside the world.

And that is because it creates jobs and it’s a great economic development tool. And that is why most countries around the world do that. Now we are very domestic oriented. Internally, fate focused only one to three percent of our companies, small, medium and large export. We’re where Germany is like forty two percent of their economy is based on exports. And they and all the companies that made it to the last recession, Brazil. India, Russia.

Germany, France, when they made it, they made it through because they’re the foundation of their economies and exports, ours is consumerism and so we depend on each other buying from each other. And if we’re in a recession, who are we going to who’s going to have money to buy buy your products? No one. So exports is just business one to one. It diversifies your offering into different markets so that when one is down, you still have places to sell to.

And so why don’t they export? Well, I think it’s just culturally, America doesn’t think outside of our borders. Oh, yeah, that’s true. It’s a cultural thing. We don’t we just think we’re we think we just need to sell to each other. And there’s a big enough market. We’ve been the biggest, biggest market in the world for so long that we haven’t realized the rest of the world has moved ahead of us. And now, you know, the last administration was trying to close in close and close our economy even more.

And it just doesn’t work so that it’s more culturally how we are not sure that makes sense.

And like anything else, if you don’t see it happening in your neighbor, a neighboring company, you might not know it. But there must be other reasons, like if I’m if I’m making something because the twenty two fund is focused on manufacturers. Right. So if I’m making something, you know, I would think there’s regulatory environment. There’s other things that I need to navigate in order to export.

I worked with the Brookings Institute when I was an adviser to the former mayor, Antonio Villaraigosa, looking at why don’t we export, why don’t our companies export?

They started in L.A. to look at this and then they spread across the country to different market, different regions to try to get us to export more. And what happened was a lot of it was fear. Hmm. Was fear of being taken advantage, fear of not speaking the language, fear of not knowing the laws, fear, fear, fear. And then once you got past the fear, if you fixed all the fear within the value chain of exports, then there was no capital, the end of it, than you need, you need to know the regulations on this side of the pond and then regulations in the other market.

And that’s part of the fear you have to. And to do that, you have to have partners in the next market. So what we do is we try to mitigate all those risk and all those fear throughout the value chain of exporting through our strategy and through our partnerships. So fear is a big part of it. Hmm, OK. Once you export to one country, it’s easier to export to other countries because you take care of the regulations on our here in our country.

Duplicate that, you know how to do it. Then you can start going to other markets and just worry about the regulations in the initial markets.

So do you have any sort of playbook you would recommend in terms of, you know, start selling in Canada because they’re our neighbors and they’re an easy market? Or do you have anything like that?

Or just just you have to do the market analysis to see if they want your product.

Right. OK, and there’s plenty of services to do that. We just our companies don’t know it because they’re either non-profits or it’s government. So there’s no marketing to tell you how to do that. And people. So partly what we do on an advisory level with our fund is we help you connect. You connect all those dots to where you need to do go to understand what you have to do to export. And then, like I said, we have partners in every region around the world right now, I think for Australia, but we kind of do there and they help you enter.

They’ll do your market research to see if your product is right, who you should partner with, what regions within Europe is best for your product, what parts and China might be best for your product. All the things that you need can be there, services to do that. And our capital is used to pay for those services. Right.

OK, so tell me about your capital. What sort of companies are you looking at and what sort of capital needs are you talking about?

So we make sure that we meet the company where they are. So we invest equity, some debt with warrants and revenue, share whatever works for that company where they are.

There’s a lot of these companies aren’t, you know, white dudes on Silicon Beach or Silicon Valley who understand who are around the ecosystem investing and they understand what equity is. Some of these companies are like, you’re going to take my business that I’ve been growing for 20 years and you’re going to take a part of my company. They don’t want that. 

And I think that’s the way a lot of capital is going, especially capital from women and people of color, because we understand that we’re not we’re not all thinking that same way.

Can you just give me the the basics of what Industry 4.0 is.

I can give you the basics because it’s my partner who can give you the details of it. But it pretty much is using technology to make these processes more efficient and more profitable. It’s efficiency, right? So a lot of people are thinking, oh, A.I. and robotics, that’s going to make things more efficient, efficient, but it’s going to kill jobs. It just changing jobs. And that’s what 4.0 is going toward, is making us more competitive with the rest of the world who’s already on this.

And we’re we’re a huge manufacturing industry here and we don’t realize it, but we’re an old school manufacturing.

And so a lot of it part of what our capital also does is the advisory’s to help these companies. When I made up this term uptick, along with up skill, their workers, we uptick their processes data and frame this a little bit for me and sort of the macro world.

We’re living in covid. There’s a lot of a lot of jobs that are actually going away right now. What I mean is that just what people are saying are the jobs are changing? Well, I feel like it’s maybe it’s small businesses that are shutting down and that sort of stuff is what I worry about, I guess.

Yes. But we also have a two point four million open positions that can’t be filled because of lack of skills. Point four in the man just in the manufacturing sector. So this goes back to jobs are changing.

Small businesses are manufacturing and those are the ones that can grow and they’re usually in underserved communities also lack the capital because all they get is a bank or some kind of other predatory capital. So jobs are. Are changing. I want to get people to understand that it is changing jobs, not losing jobs, but have to we have to work with the workforce development organization so that they don’t do the old school kind of job training, but they need to be educated on where technology is going.

Mm hmm. Mm hmm. Interesting.

And and you and I talked briefly what I said something like, you know, do you consider yourself an impact fund at all and maybe feel free and feel free to correct me or tell me your thoughts on sort of impact nowadays?

Well, I can be people get mad at me because I think I, I grab onto words and correct people around words. But words do matter because they create a mindset. Right. So, I stopped calling myself an impact investor because a lot of the impact investors tend to silo themselves in one area.

Right. So you’ve got the climate change moment that the gender folks, you got the racial justice folks, you’ve got the economic development folks. But what people don’t understand for women and people of color, we’re hit in all of that. 

So I’ve been calling myself and our firm holistic investors, women and people of color, we’re not they always see us as the victims of some of this stuff. But we are the ones that are come up with the solutions. So we are the innovators behind this because we know what’s happening very closely in our communities.

Tell me how you sort of got to this in terms of you were working for Mayor Villaraigosa and what were you doing there? And how did how did you like working in government? Well, I was you know, I don’t want to say I was fortunate that I was very autonomous, so I was a senior adviser, advisor for international business and marketing. So I just was able to go around the world and do my job.

And my job was very externally facing. But if you have a job or you’re doing a lot of policy and it’s internally and it’s, you know, it’s like. Power corrupts, mm.

How do cities how does the government approach this international business angle?

Well, governments understand that first foreign direct investment needs to come here FDI. You’ll hear that term needs to come here where people are investing here and we need to export only now Art. And they understand that and a lot philosophical level. And it’s really important to most.

Governments from the state to local, but they don’t know. That you have to connect it to business, like you have to work with the businesses. And you can’t just tell them this is a policy we’re going to do because we think it’s right and expect business to say, yes, we’ll line up because that’s going to help us to be in partnership. So really has to be greater public private partnerships.

Mm hmm. Leverage both to get things done. And we tend to just get on our own side like businesses wants government to stay out and the government wants to tax business. We just have to look at it very differently. 

What is a good public private partnership? Like, I, I don’t that phrase doesn’t fill me with. Oh, that sounds like a functioning group.

Well, I mean, one example is the Los Angeles Clean Tech Incubator. That’s where I was going. Tell me about that. Great.

That came out of the it was birth out of a policy Antonio Villaraigosa office and grew from there. And it is paid for by so the the building itself, which is if you’ve never been to it, it is the one of the most beautiful places you’ll come to in the tech world in Los Angeles, if not in the country. Beautiful building. The Department of the DWP owns that building.

And then they have different private capital coming in to run the incubator, and then a bunch of different industries from transportation to energy. They’re all coming together, working on policies and working on policies that help the startups. And the startups can help government be more efficient. So that is what I mean. I don’t really know the programs that Laci works on. And I have not been to the building and I have been told is beautiful.

But, you know, is it is it incubation of startups? That’s what I’ve seen. But then also policies yes, it’s how you leverage policy to help the clean tech industry or whatever people are calling climate tech now and vice versa. How does innovation help cities and governments and how does it lead toward economic development?

Their goal is job creation or L.A. County. And so they’re coming. They come together and see that there’s policies you can pass to do that, that help these these innovators and vice versa the government has is picking winners and losers, whether we want to believe it or not, in the in the private sector.

They are doing that when when these venture funds get pension money, that’s all public money and the pension funds are choosing these certain look and feel to put their money into. Whereas most of the pensioners look like you and I, yeah, they’re giving their money and making rich white men richer. Right. So the government does make bets on winners and losers. They’re just not doing in a way that’s helpful for everybody. And I’ll get off my soapbox because that’s my thing.

No, I’m completely actually. Let’s stay on that soapbox for a second because, I mean, my lesson of life as I grow older is that you have to follow the money and follow the money. And then you get to what really moves me on. The big pension funds do move the needle and they are still traditionally just fighting for allocation in the top. You know, whatever names that you’ve heard of in Silicon Valley right now, 80 percent of their capital investment capital goes to white men.

Or more. I mean. Ninety five. It’s in the nine. Yeah, yeah, exactly, do you feel like I mean, so I said this in my introduction, you first started in this industry 20 years ago.

It hasn’t changed. When I started in venture capital, six percent of the venture capitalists were women. No, 10 percent. It’s now five I looked at recently. It’s five point nine percent are women. And how is that possible when we know how many more women want to come into this industry? Yeah, that possible. Yeah.

I mean, I think there’s some horrible statistic that you might know, but it’s like there’s like 50 black women who’ve raised more than a million dollars.

It’s something like like thirty seven. So black women get point zero zero six percent of venture capital. 

And that’s not statistically possible that the rates we are trying to come in without systemic sexism and racism and structural barriers, putting your most positive hat on this systemic problem? What where do you think are the big levers? What’s the sort of constructive feedback here that you think will really move the needle?

Well, the biggest problem is the due diligence process for a lot of institutional investors and LP’s. It is the bias is baked in, it’s baked in. I’ll give you an example so they’ll say, OK, you’re doing your first fund. We need a tribute, a track record to you, huh?

If there’s only one less than one percent of the venture capitalists are black and brown people power. And you can’t get into the funds to get that track record. How are you supposed to get that track record and start there? So then they say, OK, you might have the track record, but have you work together?

Well, if I can’t get in there to get the track record, how are two of us going to be able to get to work together? And then they’ll use words like, you have to be professionalized or institutionalized or investment ready. Well, that’s coded language. And what does that mean? What lens are you looking through? If I’m an outsider that never let in that ecosystem and I’ve been outside of all this time, I think I have some idea of what it looks like. But do I really? And you’re going to base your investment on the fact that I haven’t been in that industry and something that can be easily fixed, my back office and all my fund administrator and all that.

But you’re going to say, no, I’m not institutional ready? Now, if that’s what happens and I am our back off and let me clear, ours is ours is very sure.

And is Monica Monica? Is she your partner? One of my partners. Monica Doti. Yeah, because I listen to her on the Harvard Business School podcast.

Right? Yeah. You first woman. The first one that was Women Investing Women. Yeah. The Women’s Venture Capital Fund in the middle of the recession. She raised the.

Yeah. Now you guys are about as amazingly, you know what investible institutionalized. Right.

When do you feel like if something’s not working, when you put that on yourself and say, oh, you know what, this is valuable feedback, like I’m not looking institutional enough, like I should take that as feedback. And when you say, you know, fuck that, like it’s it’s something wrong with the system because I struggle sometimes, like, I want to hear the feedback.

I’m a Buddhist. I’m a Buddhist. And so I strive. I try to start with compassion and I try to put myself in their shoes. You know, they they don’t know what they don’t know and they’re so comfortable where they are. So if I have to show up in the rare suit I have now, if I have to show up in a suit and put my hair up because dreadlocks scare people, sometimes I’ll do that if I have to to raise my fun.

But I’m not. I have to be authentic. I think if you just start with just be authentic, you should be able to fit anywhere. Look, I started as an engineer on the space shuttle program, how nonblack woman with dreadlocks is that?

I know how to be in those rooms. And I did that a lot as a young woman because we all had to. But I just it’s exhausting and I just don’t want to I’ll show up who I am taking you take it or leave it.

No, like, leave it, I have to say.

OK, OK, I have a lot of people that’s funny.

Anything else, like you have a bazillion things on your background, like your trusty at Cal State Dominguez Hills. Oh yeah. Yeah. Because I really didn’t know anything about the hills until they asked me to be on their foundation board when I was a treasurer. But what I love about them is they are only there. Their mission is to serve the people in the community next to them and then 60 percent of their students are women, the majority are black and brown.

One of the things that that really got me there, Tony, how they work with the community. And they said we started with high schoolers and we bring them on to the campus and then we realize high school’s too late.

Let’s go to junior high. And then they were like junior high was too late. So they have programs all the way to kindergarten. All around them, then they then they said, well, these students have parents that are working multiple jobs they don’t have and they don’t have transportation to come to our campus, we need to go to them. And so they created these mobile fab labs with all this technology and they go to the different schools and the kids work on things.

And one of the schools is a home is the majority of kids are homeless and they are bringing technology. So they’re just doing things very different than any other campus, USC in the same neighborhood and USC walls themselves off right out of fear, right? Dominguez Hills campus is wide open.

When you go there and they’re in the same neighborhood, so it’s all your mindset. And so that’s what got me. And every time I go there and I see the work they’re doing, I literally end up crying every single time I’m in tears because and, you know, in a lot of their students are homeless themselves or living in their cars. Study of all the CSU system, it’s really criminal. But these kids are just like, I want an education.

So if I have to live in my car and I want to get food is and when I’m on campus, I’m going to do that. And so I’m like, why do they have to do that? I didn’t have to do that just to get an education. So I would help bring money and capital to them so that these students can get take that off their back and just learn so you can imagine what’s happening for them right now, you know, there in parking lots where they can get on to some kind of wi fi so they can do their homework.

Yeah. Well, anything else in your background, like there’s so much to cover. It’s great or anything else about the twenty two fund? Look, I’m so excited it exists and you’re leading the charge. Oh, you are.

You did ask about the type of companies I can tell you. Tell me about that. One of the companies that I love and I won’t say the name because we still haven’t made the investment, but it’s a hydrogen and electric trolley system, meaning they are they make trains without overhead wires. And you don’t have to dig into the ground and uproot the utilities so you can bring in these trains cheaper. It’s for those last mile destination. So example they’re doing that, the transportation for the World Cup, Qatar.

Oh, cool.

They are there about twenty, twenty five years old. It’s a lot. Next man start started it in Chatsworth. So it’s like it’s in the lower income community.

It’s a brown man, you know, it’s clean, which are really about if you ever go to the grove, you know, that little trolley that takes you around in the grove, you know, but I know of it.

That was their first version 20 years ago. Oh, awesome. Electric. Yeah. So that’s the kind of like we want sustainable, clean manufacturing companies that can grow jobs and they’re innovative and that’s what we invest in. But then, we’re industry agnostic. It’s just as long as you’re making something.

Yeah, that’s great. Well, I, I learned a lot and it’s like very convincing that we should be focused on our exports and not just consuming so much here.

Your investments, if you have any manufacturing investments and you want them to grow internationally, now you know where to go.

Fantastic. I’m so glad you’re here. I’m so glad you’re doing what you’re doing. And I appreciate getting to know you better. You too. Thanks.

I’m still humbled and honored for you wanting to speak to me.