In this episode with Ann Lai from Bullpen we talk about:
* The metrics that matter for fundraising
* How Bullpen invests in overlooked businesses
* And how Ann bounced back from her experience with Justin Caldbeck at Binary Capital
Ann Lai is a partner at Bullpen Capital. Bullpen is known for doing post-seed and pre-A investments.
Prior to Bullpen, Ann was at Binary and played a big role in stopping the horrible behavior that was going on there. Ann has a PhD in engineering from Harvard and is passionate about helping her companies leverage data.
Ann, let's start with something easy. Tell me about Bullpen. So, at Bullpen we invest in overlooked categories, underrepresented founders. So basically anything that is not mainstream over-hyped, that are real good businesses that have performing metrics, et cetera, but are maybe misunderstood in the moment.
Okay, so bullpen has always been at sort of this post seed stage. I mean the market has changed, has Bullpen changed? What fund is this? We're on fund six. So we finished raising this fund November last year. How big is it? $140M and change.
Okay. So we've been doing the same thing the whole time. Yeah. It hasn't really changed very much. At least from 4, 5, 6 it's more or less the same. The valuation kind of stays the same cuz even during the super frothy period when everyone is doing really over hype FinTech or just normal sass, B2B, sass, et cetera, those categories are really overpriced. But that also means when everyone's chasing those deals really aggressively and very quickly, there are even more buckets that are overlooked. So like an overlooked bucket is like doing consumer when everyone thinks consumer's bad, or right now, right now, , right? Right. Or looking at transactional based SaaS instead of recurring annual package sass. right? Everyone wants arr, but sometimes businesses are better as transactional cuts, right? So Stripe, for example, is not a R. And that's like my example. A lot of times when people are like, it has to be arr. That's right. Some businesses don't have to be in our huge businesses. Yeah. That's a really good example. Are there other really good examples where it's just like VC conventional wisdom is don't do hardware or don't do transactional or I mean, look, everyone for a while was like, we all got burned with marketplace. Let's never do marketplace. Mm-hmm. . But the reason that marketplaces were bad were not because marketplaces were bad, it was because the CAC for the D TOC part of the marketplace didn't make sense. Right. Or the business model was so legion that it makes the reason for existing, or the reason for the kind of like the professional or supplier side for using the platform goes away. So really the problem was that, the SAS that was being offered was not that good. So you reposition marketplaces, verticalized sas that has the marketplace component. It's actually really good business when done in the right order. It was just a lot of marketplaces that we were burnt by weren't done in the right order. But also that's because you could see from the metrics that it wasn't gonna play out. Right. Anyway. Similar with like B2B to C, that's now a thing. That's another version of consumer that's actually highly profitable, but is wrapped in this B2B go to market layer. Right. But it's end point as consumer. So that then became hot, but for a while it was viewed as consumer only as well. So let's double click on marketplaces. Yeah. So I think a lot of the early marketplaces were getting viral usership through these flywheel that people were talking about where, you know, businesses or SMBs would bring on their customers and then they can cross sell them and take a cut. But they never built the fundamental SaaS for the small businesses. So the small businesses were using them to juice a bunch of leg gen and then they're like, let me go to the other platform. So the really good marketplaces back then were anyone that actually built a really good verticalized SaaS product that causes SMB lockin. Cuz once you have lock-in, then the cascading marketplace effect actually makes a lot of sense and you can layer in things like b2b, to c, whatnot, and get all of the consumer layer. But if you can't keep your. professionals or suppliers or SMBs, then the marketplace won't make sense. But a lot of Easys then, were never focused on the SaaS part of the marketplace. But now it's evolved in calling it just verticalized SaaS, but a lot of marketplaces that worked were verticalized SaaS to speak begin with. So, do you have a good example? So for example, uh, I was in a lawn care company, right? So they had, so it was called Lawn Starter uh, bullpen actually did Long Love, which is very similar. This is like when I was at Binary But they basically was in like a marketplace for consumers to find professionals to take care of their launch. So either mowing, fertilizing, et cetera. Mm-hmm. . Mm-hmm. looks like a marketplace had a DDC component, but what. . long instructor hat that was really distinctive compared to others was they had a really good backend tool for lawn care providers. So you could see in their data that like, once the lawn care providers used it x many times their retention was like infinite. So that is a typical like verticalized SAS metric that we use Because if you could keep all your long term professionals, the consumer part is easy. comparatively, because then you can get B2B toc, you can get more clients from the professionals if they like using your services, et cetera. vertical the dig I think usually on something like that might be that lawn care professionals might churn. Well, so that's why the, re the number we looked at was Always retention. Because if you look at a lot of the marketplaces that churn mm-hmm. it's because they serve themselves as legion. .So they'll take like 20% for a new lead. They're just routing you customers. Once you have your book is full, you don't eat them. So that wasn't ever like a verticalized SaaS product, that was just like an advertising. But I mean even just like going out of business. Yeah, right, that's true. So basically it's like voluntary churn and involuntary term. We also separate so staying with bullpen when you're investing post seed, you know, approximately what's your sweet size check what's like a sweet spot valuation and what are sort of the metrics, you know, how much business do most of your customers already have? customers have? So, easy que answers first easy answer we do between three to 7 million rounds will usually do the majority of it. So at least 60 percent-ish. Uh, we liked 'em between 12 to 15%. So the harder question is much like our website, we don't have fixed So I know a lot of people are like, oh, we need a mill run rate, da, da, da, et cetera. So I hate those answers. So it's really about having enough product and market under right, the current business model that we can do analysis. So probably like 12 months in market. And then the traction is dependent on how it actually looks. Mm. So for example, I like to say this, right? If you have a subscription box that's $5 a million dollars in run rate, or annualized revenues, like amazing. If your contracts are like a hundred k a million is really worthless, to be honest, in my opinion. Because you have 10 clients. I don't know if they're gonna churn. I don't know if they're on annual cycles. It doesn't actually give. me enough data for it to matter. Huh? I might have thought that you'd say, I'm impressed you're able to close a hundred K contracts. Yeah. But we've seen a lot of deals where they close a hundred K contracts and then nobody uses them for the first like 10 months and they're definitely gonna turn. So rather than the actual contract value, I'd rather see like usage. in the field. Yeah. Okay. Yeah. But also, right, like 10 contracts than in a hundred K is a much smaller sample size of data than, you know, users at $5 Yeah, no, I think that you also, you were talking to me about, um, sort of juicing your, net revenue retention numbers. Oh yeah. That's the other one. Right. I think they're just a lot of these games that Yeah. Tell me more about is Like not super legit, Right? Like the reason for having annual contracts where everyone pays up front is that your n R R is guaranteed to look a lot better than if you went monthly. Right? And then that's also why people then pick like after 12 months, so after the annual renewal cycle, then a bunch of people gave out one month for free in the beginning. Now you're like, 12th month is really has to be the 13th month. Or it doesn't really like show the churn. So instead of using an. I mean, we also look at that, but we don't trust this as much. We'll look at the actual metric that's. relevant for that business. So for example, if I'm a CRM I care about like logins or like accounts in the book, et cetera. If you're like a loyalty membership collection platform, it's like how many members are you adding a month? For example, if you're a transactional volume one, then it's transaction volume retention. So the retention is really based on an activity. So we've done that a couple times with like net contact retention or like net transaction retention, et cetera, rather than the actual like contract value retention. Cuz also if all of those things retain, well, if a founder is not a savvy and didn't price right, they're NR will look like shit. And that potential is like, I fixed pricing with a lot of our companies. Interesting. Because a lot of companies that are not as, didn't come outta IC or had all the coaching about how how did you go to market and pricing in the first place? A lot of times they'll go to market, the pricing is messy. So part of it's understanding like, is that company actually good? but like it's just missing a little bit of tweaking. Right. So like I said, it's kind of like flipping it house. You wanna know that the like foundation is good and the location is great, but maybe the kitchen was like outdated. Yeah. Right. You just like update it and now it's like you flip it. Right? Like That's kind of what we try to understand with the metrics. So if you use cookie cutter metrics or like fix top line, you missed that? Mm. Right. Like, I think we've seen companies for example, that their ad targeting was really broad and they showed us their retention cohorts. So this is direct to consumer. So retention cohorts, which is everyone ever that's ever signed up. If you had gone through a program like yc, people would've told you to like cut your cohorts 10,000 ways, Now it's super clean. Look at my really high retention with 10% of my customers, which is rather useless, but by comparison in a deck. Their retention could have looked way worse. But when we went in and we were like, wait, you're counting all your non-target audience that literally just like hit the website, did the trial, and then like turned because you didn't even have what they were looking for. You counted them in the retention, why would you do that? You broke it out and it was like double the normal consumer retention. Right. So you're saying you play games and say like, oh we have extremely high retention with this small group of people, . Right. So a big part of what we do is like figuring out the rev metric and doing the resegmentation of the data so it's apples to apples. Gotcha. So it's like ICP versus icp. Mm-hmm. But like ICP has to be more than 50% of your population at least, or like Sizeably. Mm-hmm. . So it's not just like cherry picked. So a lot of it's like re-engineering the data to really understand like the story that tells whether a company is good or bad. And so you're just going in and saying, Hey, I want all your raw data so that I can slice sometimes, or they can pull it themselves, but we work with them because like both me and my senior analysts are ex data scientists So they kind of get just data scientists project for free Almost Mm-hmm. , And part of us looking at not super hype categories is that we also have the luxury of having the ability to work on this with the company. And that's because these are sort of companies that aren't the hot ones you're not trying to compete with all of the Sandhill Road necessarily. Right. Even though you are kind of Sandhill Road, in my opinion. kind of, but like not really. Most of our companies aren't in San Francisco anymore. Even. Yeah. how do you identify these sort of overlooked companies? So, I guess one good thing is that I feel like a lot of people at least know we look at weird things, whether they really understand our thesis or not, or the updated thesis, right? We do what we call pre consensus companies so overlooked, but has the potential to be eventually not overlooked. Yeah. So we call it pre consensus because it's not consensus yet, but it really should be, And it's just overlooked for one reason or another. how do you avoid just like, or is it okay to have a company that goes out to raise their 10 million series, a 12 million series A, whatever it is, gets overlooked by the traditional series A investors and then comes to you because they were not popular and now wants to raise the six. we love love that. You love that. And then they're pissy and they don't like the mainstream. Anyway, there's more. And then we're like, we'll get them next time, We'll get them next time. What does that mean? Meaning like, you know, they don't get you right now. They'll get you next time, they'll get you eventually. and you're gonna be hot. And you can tell that guy you don't want his money. Right, right. Or woman. but mostly guy. Most the guy. I gotcha. Okay. So then you're gonna be like, oh yeah. When your series B rolls I have a couple companies that like, nobody understood in the beginning. They raised very difficulty, very hard valuations. And then there was a moment and it turned and it was hot. And it was like everyone wanted to do a deal. And he was like, I remember you. None of you. Yeah. And you Know there's some, a bit of that where you're like, you didn't believe me, me early. Yeah. Gonna find someone who does. And now I'm in a growth round. I'm gonna find someone who's helpful. Like Yeah. You know, and I think that's more grit. Oh. Honestly, in this environment, they, a lot of our founders coming in with so much grit are kind of just like, oh, this is just another bad cycle as usual. Okay. A little bit worse, but Yeah. It's not like they've never seen difficult before. Right. But it's been difficult and they've been gritty and been like, yeah, whatever. I'm gonna make it happen. Yeah. And it's true also, sometimes the next round is not the mainstream round. So I'm very involved in all of our companies downstream financing in terms of like whom they're talking to, how do we tell the story? Like, what round, what does that mean kind of tactically in terms of you guys are investing in the next round? Is the next round ideally like a series B round? So our next round is always an A. Okay. Right. Because we're technically post c I mean a couple exceptions um, labeling exceptions. Right. But it's usually like an A. Okay. Right. And so really we just have a lot of, we have a pretty thorough CRM and approach to downstream fundraising. So before I came to. Bullpen. I was actually between binary and bullpen. I ran my own advisory practice helping with like product growth and then fundraising, So that's partly why I'm on the road right now all the time cuz we have seven companies doing some sort of round fundraisers. And then do you do anything special around your crm, as you say, in terms of keeping up to date on which funds and which partners are the right people to go to? Do you go to just the partners? Do you go to the associates ever? Like I mean, I think there's a mix, right? Um, Generally when it's for fundraising. We'll go partner. to partner Just because it's a little bit easier. So we try to cater the intros very carefully, whether it's to stage preference, you know, category deals they've done, whether they have a new fund, whether they're deploying. Like we try to have a relatively updated set of infos Because all, A lot of those, if they're not well targeted, especially we find for like, I would say underrepresented founders. There's just a lot of nos and nobody needs that. I didn't quite realize how underrepresented founder focused. Bullpen was, is that you or is that bullpen? So I think historically has always been overlooked founders or pre consensus. Pre consensus We coined When I joined, so I flipped it a little bit. It's no longer contrarian. It's pre consensus. I like that Right? Because contrarian may not ever become consensus. but pre consensus becomes consensus. I like that. I like that. Right. Which is the approach. Cause the goal is to get them into a mainstream route, right? Yeah. But I think it's just as we diversify the partnership the pre consensus also expands, right? Like, I think prior, a lot of our examples were like, oh, so-and-so who went to Chico State? which is also true. Like that is not mainstream or so and so from the middle of nowhere. But it's a different type of underrepresentation, Right. And obviously my background when I was doing advisor, I worked a lot with female founders. All of the stuff I've cared about is kind of women tech, diversity in tech, like, you know, , diversifying the troops. So it's not just this like white bro tech guys. I'm just gonna say it. Just gonna say it, right? Yeah. Other people say that that's, that's within Sayable. not like, it's not that. Right? So it's anything that's not that. which I think is a little bit different perspective for bullpen to be as vocal on. Comparatively Where does your passion for that come from? company Justice really like, does that mean it's like a fairness thing? It really, really infuriates me when things are not So when female founders or black founders and they have better metrics and everything is better and nobody will fund 'em because they're like, well I don't know if you can fundraise downstream. Yeah. No shit. Because you won't write the check. If you looked at it fairly and just like did it, then that wouldn't be a problem. And do you think that's sort. personal experience? I don't know. I think even when I was younger I was like that. So watching people be bullied, even if I, I was like a very tiny six year old. I totally got into fights. Over like, friends being bullied. I think that's just like how I've been and every time I hear these founders I'm like, this feels like you're being bullied. How am I gonna fix it? It like comes a little bit from that. I think. And I also do think it's like, the best businesses are not built by people thinking in a vacuum inside Stanford gsb. Yeah. So we talked a little bit about vertical sass. I mean, that's a very classic, or maybe you didn't call it vertical sas, but, but yes, I do do vertical sas. That is one bucket that I do. Yeah. . Do you think and that's clearly an example of like founders coming from industry, that sort of thing, not from from well, and also look, I much prefer vertical SaaS built for SMBs than there was a whole era. Similarly with lawn care, everyone where people found their own people and built their own lawn care companies and then called it sass. and you're like, no, you're a glorified lawn care company with way worse pricing and way higher wages. But you're also trying to kick all of these SMBs out of business, Like, no, like fundamentally, I also don't think. that Works business wise, Uhhuh .But in terms of vertical SaaS, you like SMB focus? I just had, uh, Patrick from Toba Capital on the Oh, yeah. So I like weird industries, like dirty industries, things that are like hard to digitize. Uh, SMBs fallen that bucket a lot of times. Yeah. But Yeah. Okay. So I've done like lawn care, roofing, interior design early on, And tell me about bullpen in terms of who are the other partners? Paul? I feel like he's a large personality. I, I don't know him super well. What's, Tell me about Paul vocal. Paul did was early in FanDuel and it has a big, strongly like gaming, gambling Preference in a lot of the companies that he looks at. what's his thing with gaming? Gambling, that's kind of a I mean, that's another joke that we have. Yeah. So we do overlooked in edgy and we are okay with doing vices. Okay. So we're, as a fun Okay. With doing vices. We did cannabis early. I think Duncan did a bunch of those. Uh, Paul does a lot of ganging, gambling, et cetera. Okay. And so there's Paul. Who else? Eric. Eric, uh, who does, Eric has more of a verticalized knowledge basis because those categories need, so, so he does a lot of our FinTech, PropTech, and then digital health. Also other things, Okay. And so reputation of full pen is sort of a little edgier. I don't know what is I don't know. I'm asking you. I, I'm actually, I think we're just very not mainstream. And we say things that we probably shouldn't say about the venture industry. I like it. So that's like, that's consistent. That's not just not just you. Yeah. Yeah. No, cuz Look, Duncan is also a partner. Uh, he's, a, I think he's emeritus now, now, but Duncan was just on CNBC and he's been on cmv, he called our SoftBank, early He was talking about the bank stuff, right? Like, everyone's very open to saying things. Mm-hmm. What are some of like the VC conventional wisdom, not just like on categories. What are some of the things that you guys say either out loud or internally? Oh, like we joke all the time right now that everyone all of a sudden cares about burn margins, As if that wasn't a thing the entire time. Right? Like the grow at all costs. Like we should be like five to 10 x burn everything you can burn. And we were like so dumb. Why are we doing that? And like if a company wasn't growing like that, it wasn't a good company. And now if you were one of those companies you can't raise. Right? Any other VC conventional wisdom things? So pretty much you guys are really not a Bay Area firm, not in Ethos. I mean, Eric lives there, and we have an office there. Okay. How do you characterize the, cuz you spend a lot of, as you said, you spend as much time in LA as maybe or something outside. Where else, how do you characterize the different ecosystems and specifically what do you think of la la I think LA is a lot more exciting now. Mm. I think there are edgier folks in LA and certainly more, Less conventional. Who's edgy in LA in l Vbc. Well, it's certainly less conventional and less like old Broy just because they aren't here. Right. So you have more room to be flexible. And. Like I think, you know, Like you had Joe, and Joe, Joe and I are friends. I think they're like interesting. I think Raya Ventures doing interesting things you guys are doing interesting? I think everyone has like an interesting pocket that's not just like old white bro money that's existed forever. Um, and I mean binary was, that was just one of those, I had no idea. I mean, Justin's behavior was crazy. I was just trying to read about it. Some . Yes. It's all in the article. Yeah. I mean there's your article, uh, and then, then there's the information article. There are many Yeah. . I mean that's some of the peak worseness of our industry. But I do think, from what I've heard over the years, in the spectrum It thinks, Yes, it was bad, but there are also a lot of bad things that may be worse that nobody Because even Les is able have been said or able Yeah. And I think a lot more people are sketchy, than we think? Well, and I mean, I mentioned this to you like Nian is a mutual friend of ours, right? Yeah. is that article I had been trying to get out since I quit for a year The article about like non-disparagement? No. Oh, the information article. Got it. when I quit, that information was already available. That information, that article that eventually became the information article was in the works for a year plus because nobody was, would go on record or could go because they had signed non-disparagement. they were, not going to put, Well, cuz they either signed something or they never took money. So a lot of journals thought. . It wasn't considered sexual harassment, so it wasn't legit enough to cover. come. Right. But that's the point I want to get out there is I think it was really hard. There was so much bad behavior. So many women wanted to say something. Yeah. And that was the era where you had, ex, you know Ellen P, which was super brave? And you just saw people spoke out and then they never worked again. and They were dragged and trolled. like I was told that exactly. When I quit, it was, you know, you will never work again. Yeah. you say anything, you'll never right. And so you don't really wanna say anything unless you're a really weird person, , or you had cushioned enough or comforted of, or you knew there was like solidarity coming. So like the lawsuit, my original lawsuit was filed right after the and that was It was coordinated. Because I couldn't go officially on record with their because I had a non-disparagement clause. Right. Even though all of that was in the background the entire time. Right. They needed somebody else, or enough other people to go on record to publish that article. Yeah. Right. So Nian was one of those, and then Susan and LA set. Yeah. Right. And so once they had a handful of people who were willing to go on record, then Reid was able to publish the article, but to really bolster the validity of rather than he said, she said, or like, oh, it's not really sexual harassment, quote unquote, et cetera. The lawsuit was filed like immediately after. Support that article. more or less. Yeah. Because Reid and I, you know, we had talked for a long time about Right. But that's, I guess my point is that it took a bunch of women coming together all together, some to go on record, some to have lawsuits, some to do background information. Right. Yeah. No, I think it takes a lot. And honestly, I remember being like, nobody's gonna care because every time nobody cares. And then I remember like Reid Hoffman says something and then everyone picked it up and I was God. Cuz that would've been awful for everyone else who had way less at stake cuz I was already blacklisted and not working. Right. And they weren't. Right. Right. So for me it was kind of like if my back is against wall, and I have nothing to lose. Like. extra don't care. . Right. But he was, I mean, the background was, Justin was like really coming on sleeping with, I don't know, women who were coming to him for funding. for fun. Yeah. And others, right, right. of course allegedly, et cetera, blah, blah, blah. But yes. Right. . But once you have multiple women saying, Hey, this happened to Yeah. And yet what you were most worried about, or one was that no one would care. And so Reid what did Reid say? I remember he was the first one who actually wrote something about this being like, unacceptable. Mm-hmm. ..And was a whole wave. I remember Mark Schuster also said something. Actually, and there were a couple of these early folks who said something that had enough umph in the industry and you knew people were then gonna write 10,000 pieces right. Then it Right. Became a thing.
And anything else on that particular topic that I mean, I think that that's one of the things that I hope is a little bit different. The only reason, so l did a coverage of like the entire incident. And for me, I'm not a big PR person, To be honest, I feel like that article was important because at that point I came back, I was a partner And that was very important to see that you can, like, when you say things, there are like regulation changes that could matter and that it doesn't always turn out badly. Like you can come out and still work again. And that is important. And I think since that article has come out, I've talked to a bunch of people like confidentially and tried to be helpful because I hopefully it shows that and inspires more people. to Be like brave enough or not be as afraid. Or somebody will have their back if they go say something. And I think that's where like women supporting women should be a lot more important. Right? Like during that time I will say that was not the case. because what I was blacklisted, there were a lot of women investors who I thought would be helpful that we're absolutely not. And if anything the opposite. And so like that I feel like is different sometimes
And I think that for the industry to get better, we also have to be way better at watching each other's backs instead of being like, oh, well I'm not gonna say anything. cuz it compromises my Yeah. But do you think, I mean, where do you think that comes from? Like, I think there's one thing that's like, oh, someone's difficult to work with and there's another that's like, dude, the guy was like, like, look, I think end of the day it's difficult, right? Cuz there aren't that many women in venture. And also there aren't that many women that have enough carry positions in venture firms to be able to say things or do things that are a little bit controversial. So Luckily at bullpen, I thought that was great. We're all equal gps. Right. I have equal carry. That's not true at all firms. And So having realized this in retrospect, it also makes sense because it's true. Like if they help me, they're gonna compromise their positions, then they may never make gp, full GP It's the same thing for like putting your neck out for a weird deal or another, or like a female founder deal you're not sure about. because they're not really Fully embedded equal partners themselves. Right. Wow. That is gonna Well, a lot of that isn't controversial though, is that I mean, I just had Patrick from Toba again on the show who talked about the difference between being an associate and being a partner is He doesn't feel like he has to like, prove something now that he's a partner. Um, So it gives him that latitude to make controversial decision. Yeah. And look, I think. honestly, like, I think this is in part a little bit because of the LPs as well. I think the LP started asking for diversity in the partnership. Yeah. And a lot of people placed. diversity looking partners, but didn't give them carry, which I think is like, or didn't give them enough carry. Yeah. And I think that's so bullshit. Right? But the LPs just do headcount If the LPs actually did their DNI stuff based on carry splits, yeah, they would see that too. So it's not just like performative DNI requirement. there's a lot of partner inflation, partner title inflation. Yeah. Just to hit the like check box to be able to Talk to this hospital in Texas or whatever, right? Yeah. But really like I don't understand if the LPs really cared, they should be like, Yes. Yeah. Let's see. Couple other questions. Where'd you go to high school Hathaway Brown. it's a girls school in Ohio. In Ohio. Wow. What did your parents do when you were a kid? Meaning like jobs wise? Yeah. My mom's a teacher. She taught math and Chinese. When we were in Taiwan, she taught like Chinese literature, but then we moved to the US and she changed. And then my dad has always been a professor at National Taiwan University in mechanical engineering. Okay. And how do friends describe you? I feel like blunt doesn't sleep, energetic, really loud, like all of those things. Oh Oh yeah. That's the way you, you come across as like, like, a fireball. Yeah, I like that. a Great. Um,
Well and you're so much fun. congrats on this role being a bullpen sounds amazing. Sounds like a great fit for you. Thanks for coming on the pod.
Join our newsletter
Sign up for latest news
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.