Scott has invested in Uber, Facebook, Slack, Square, Robinhood and others… there was probably more than 30 mins worth of stuff I could have learned.
Very excited to have Scott Stanford from Acme on the show today. Before starting Acme, Scott was the co-founder of Sherpa Capital. Scott has made investments in companies that you have heard of, Uber, Facebook, LinkedIn, Square, Slack, Robinhood, Palantir. It’s a crazy amazing list. Check out his website, Acme.vc. Before starting Sherpa, Scott was head of global Internet investment banking at Goldman Sachs. Scott is another great example of all the best people moving to L.A..
Scott, thanks for coming on the show today. Thanks for having me.
Excited to be here on the show and frankly, excited to be in L.A..
Maybe you could start with just telling me a little of about Acme and kind of the basics of sort of the evolution from Sherpa to Acme.
Yeah, sure. It’s all based on a similar premise, and that is finding opportunities to part with to sorry, partner with incredible founders. Everything we look for kind of has disruption at the core. We we thrive on disruptive business models. We thrive on disruptive technology. And when the two overlap, that’s even more exciting. We’re all kind of technologists, geeks at heart. When you look at our individual backgrounds, we’ve all been doing something in tech for pretty much as long as we’ve been doing so.
We’re doing this out of passion. And when we find founders doing something really exciting and disruptive, we get excited. If you look at our website, you mentioned the Acme.vc. We put something up there recently that had really been just more of an internal thing we used with an investment committee, and that is this “dare” to challenge where we would dare each other to get up in front of investment committee and say, OK, dare to imagine X, dare to imagine turning the this segment of the health industry on its head.
Dare to imagine putting it two hundred fifty three hundred pound models on the runway in lingerie. I dare to imagine taking a critical technology and infrastructure and one hundred x the efficiency and reducing the cost in an equivalent way. And that’s when we kind of sit up and get excited. If someone’s coming to me and saying, you know, dare to imagine a cloud optimization software that will shave off three basis points and sure. Lots of money for enterprise servers. It’s a big yawn.
And that’s not because those aren’t great businesses. It’s just we don’t have that DNA. We don’t have that experience. We don’t we we we don’t even know how to listen to that pitch.
So with that dare to imagine, do you think that you sort of take more risks or how do you think about the risk that you will take or won’t take when looking at an investment? That’s a great question, and we are early stage investors and by definition, we are taking more risk than than a growth investor. However, we’ve been through this, our 10th fund, if you look at it collectively between Hany and my experience, we found this kind of place, this calibration point where we’re not we’re not investing in science projects.
You can never derisk a series of investment. By definition, half of our investments are going to fail if if fewer than half fail or fewer than 40 percent fail.
We’re not doing our job right because we’re not taking enough risk, because the way early stage venture works is you have one or two successes in the portfolio and that makes the success of the fund and your and you’re generally coming in series A.
So think of it this way. A three to eight million dollar check gets us ideally approaching kind of double digit percent ownership depending on the stage. But we underwrite a little bit less on ownership and a little bit less on stage and more on return profile.
So we’re really trying to see a pretty believable path to a 10x return. Plus, and being an independent company, we don’t play the M&A game frankly, that takes us out of a lot of interesting opportunities there. Here in L.A., I see all kinds of really cool early stage startups.
But not surprisingly, given the DNA, the the the LA is to do with branding like kind of a corner brand, the next fill in the blank–drink, nutrition supplement, whatever, and you can make a lot of money investing in those things. Hard to see the next GNC being built, hard to see the next Coca-Cola being built. Of course there are the breakouts, but oftentimes the exits for those companies, if there is an exit, will be an M&A a couple hundred million dollars a minute.
And that’s not going to do that’s not going to do what we need to do for the economics of our fund.
So do you think like, um, do you think that lends you to investing in people who are a little I want to say crazier. That sounds unfair to your founders but like. Frankly, we’re crazy. So it’s the pot calling the kettle black. Like if you look at what we do on our weekends and our free time, it’s what we do during the workday. Like we are obsessed with technology or coding.
We’re reading. My partner loves Dungeons and Dragons. Like that’s just what we do. And so when we find founders that have that genuine passion, we get really excited.
And is this the same as what you were doing at Sherpa?
Yeah, very similar. We have friends that we have the entire team, but we’ve added a bunch of people, added three new partners. But it’s the kind of core operating team, the back office, everybody is still intact. So from a culture perspective, a team dynamics perspective, it’s it’s all the same. We we’ve definitely refined things and focus them. As I mentioned, we had a growth fund in our second vintage. We don’t have a growth fund.
So what’s the tradeoff there? Why did you decide to go that route versus a growth fund?
Well, I mean, it’s a virtue out of necessity in so much as we were raising the first Acme Fund. And it’s a little hard to go to market saying, hey, everyone, we want to raise a couple hundred million dollar venture fund and a half a billion dollar growth fund. And they said, well, maybe we should date first a fair point. But the reality is, I’m not sure we will like the the the the drawback of not having a growth fund is you can’t just write checks.
Right. We still have to then we have to go around and work with our LPs educate them on the companies. Now it requires more work on our part. But when you look at our LP base now versus when when I started, we have some incredible institutions, endowments, sovereign funds, pension funds, and these guys are really sophisticated and not all of them do co-invest, but the quite a few do.
We’re registered investment advisor. We took that extra step, which most venture capital firms don’t date.
Most VC firms operate as ERAs exempt reporting advisors. We are regulated by the SEC. So we’ve got these guys in suits that come in every year and take a look around and I don’t know, ask our CEO questions. And and that allows us to be a little more nimble with doing the investments and working with our ops, because we can do work in secondary, well, let me stay on that for a second, which is is this Acme fund one size? Oh, jeez, don’t get me started. When we went out fundraising, we’re like, OK, well, actually we first call it Acme X, which we thought was clever because it’s a variable X and technically it’s our tenth fund. Our LPs looked at us like, what are you talking about? You know, we have no idea what you mean.
So we said, OK, it’s not really Acme I because we have all of the legacy portfolio from Fund I and Fund II. We have all those portfolio companies and all the partners have have interests have cash in those funds. So it’s really our third fund. We just changed the name, you know, so it’s like a name change. So it’s technically Acme three is is the fund we’re under. OK, I thought it was a simple question.
OK, so but you still have the chance. Where I was going with this question is you had a chance to sort of rebrand, rethink about things. And so, you know, when you’re looking at the VC landscape, did you think about there are specific things I want to do different or carve out certain differentiation for this fund the most important thing is culture and team. Like, if you don’t get that right, I don’t care how smart you are, how good your strategy is, the wheels are going to come off. And so the big decision that I had to make is do I go it alone or do I find. Co-founder and, you know, I thought about it for like two seconds and the answer was, I absolutely want a co-founder.
If I could find somebody that had the following 10 things. And, you know, as I went out and talked to people, I was lucky to find two or three. And and the challenge with VC firms is you have these golden handcuffs. And so much as your carry is 10 years out and you’ve got like 10 year vesting and you could have there are people that are, in essence, trapped in venture firms that don’t have very good cultures.
They’re good people for their cultures aren’t great. And they would they would leave if they could. I don’t want to suggest it’s an epidemic, but there are examples of that. And so some of the people that I thought would be great to partner with just weren’t available. And and then it was actually a founder who’s like, hey, have you talked to Hany? And I was like, God, Hany, I’ve known Hany for, whatever, 10, 15 years.
I knew him back when he was a Glu mobile and I was at Goldman Sachs and I was like, no, he’s at GGV, he built GGV. He was a co-founder of GGV. Like, the guy’s a legend. And he personally was responsible for returning a third of GGV realizations to date. And that number has gone up with with draft kings, obviously. So anyway, long story short, and I connected and and it was so fun, like like we we got through the hard stuff and about I remember we scheduled this like five hour session.
We were in Copenhagen together. We scheduled like a five hour hike where we were going to do culture, economics, you know, all the tough stuff that you wring your hands on. And I don’t think we had gotten to the trailhead. We’d figure it all out. And so we spent the next five hours, like just eating food and kicking around like. So I knew right away that there was an amazing partner and he didn’t know yet because he was still kind of finding his way exiting GGV.
And so I brought him in. He sat in on investment committee meeting one of our associates, now a principal like she was going toe to toe with me, disagreeing with my opinion. And he was like, this is unbelievable. I love this. This is this is what it’s really about, a flat culture where everybody’s sitting around a literally a round table and and it is just a pure meritocracy and intellectual debate. There’s no hierarchy. There’s no you know, I’m the partner, you’re the whatever.
None of that.
Well, I feel like I should ask you about investments. I could ask you a lot about culture, but let me ask you some about, you know, some of the investments maybe that you saw early. There are a bunch of examples like early days I spent with Reed Hoffman, early days at Facebook, like seeing that, oh, my God, there’s something massive here.
And if you go back and look at my notes, I used to call Facebook data sponge like this was, you know, whatever, ten. A long time ago, I didn’t want to think about how many years ago, where everyone is talking about it as a photo sharing platform, like, no, this is this data, especially once they started doing Facebook Connect. So it’s those sorts of early insights that I get super excited about. I’ll tell you, one of the traps, though, that I’ve learned is you can’t finish the founder’s sentences.
So when a founder is pitching you, it’s so tempting to be like, oh, my God, you’re right. And if you do that, you can do this, this and then this and then pull a 180 and then do this and turn that corner. And the founder goes and then you walk out of a meeting being like this, this founder’s amazing. She’s going to crush it. And then, you know, a few quarters later, a year later, you’re like, what happened to all those other turns?
And so it’s really got to come from the founder. And it’s a long way of saying, I don’t take credit for these ideas at all. I’m lucky enough to partner with them. And one of the fun stories is, is the Uber story, because actually they’re a bunch of fun stories about how you meet founders. In Uber case, I met Travis at a pub in Ireland where we were like eating Irish food, meat pies or something and.
And I was there with a group of founders that I knew well, but I had never met Travis and Travis happened to be sitting to my right and I was like, what do you do? And and he gave me some pithy line about how he was taking down the taxi industry. And I was like, thank God somebody needs to. And that led to several beers and then a run in the park and the run in the park was pretty amusing because I had gone running.
And then he came out to run with me and he didn’t stop running and we kept going around. And, you know, it’s not a big park, thank goodness. But we just kept going around and around and around around. I was like, oh, my God, this guy’s got a lot of stamina. And and we hit it off. And I talked about the things, my view of what he was doing. And and we made the investment in the Series B and didn’t know who any other investors were and just thought the company was super interesting.
I remember the investment committee discussions at Goldman were not straightforward at all. There was absolutely a difference of opinion. But frankly, some of the best investments that I’ve ever been a part of and that Hany’s ever been a part of are the ones that are the most contentious.
So anyway, the Uber one’s a fun story there. You can look in our current portfolio and see some other stories like that of like how I got to know Marcello at Ipsy, how we got to other guys. Cue How I got to know David Khalaji. So yeah.
Let me jump. Like how did you get to know the Cue team. That came through a tech whatever it’s called, an incubation program. And they were doing it today. And we had gotten a heads up from our friend who ran the program, and he said, hey, this thing’s kind of interesting. And it was two guys who had taken apart a glucose meter, you know, in their apartment and said, OK, interesting.
You know, there’s there’s some things that we could do with this. And their vision was to basically take Quest labs and put it into this little thing. And we quickly kind of grabbed them off stage and had a term sheet signed very quickly and been with the company since its formation.
We were the first capital in and we brought in Johnson and Johnson. So we introduced JNJ to the company. They led the Series B along with us. We brought in basically BARDA, which is a US government agency like the Department of Defense. But for health, that’s part of what we do is just bringing a lot of other people to the party, so to speak. And so that was a fun story of them kind of coming out of the incubator.
And and there were other people sitting in the audience, the other venture capitalists who are still waiting for those guys to come off stage so they can have their meeting. That’s amazing. But, you know, Cue was just in the news recently. They got a four hundred and eighty one million dollar order from the US government. So that business went from zero revenue, spending a lot of money on science for seven years, six years to all of a sudden having over half a billion of revenue.
When you say you get it done fast, how fast do you do you usually move on until do like.
I mean, it depends. We can move extremely fast. We need two partners to make a decision. So if if two partners are advocating for an investment, the investment will get done even if two other partners hate it.
And so we rarely I don’t think we’ve ever had that situation where two partners hate it because we feel like it’s incumbent upon us to at least get the other partners to a neutral position, because if they hate it, it means they don’t understand it or we don’t understand it. One of the two, if they’re neutral, at least they’re saying, OK, I hear you and I believe you. So and answer your question, we could have a term sheet out in the night if we needed to, because we could scramble.
Now, the good news is we don’t usually need to because we get the opportunity to spend time with the company, get to know them, kind of work through their process. But I don’t I don’t think there’s been a situation where we’ve in earnest gone after an investment that we haven’t succeeded except where valuation runs away. Hmm. And frankly, those are mistakes,valuation shouldn’t be the key determinant of investment in this series A. Yeah. If you’re off by a little bit and you’re Series A, it doesn’t matter.
Yeah. So you alluded to this a little with Cue I want to ask kind of what’s your style like? You’ve seen all sorts of great investors and I think one thing you said with Cue is you bring in a lot of people around the table. I mean, I don’t want to embarrass you, but the Wall Street Journal article said something like, Yuri Milner calls you for introductions. It was something awesome. But how do you think about your style once, once you’ve made the investment?
It was very kind of Yuri to say that my mom had never heard of Yuri Milner, but she was really happy to see that article. So although it was pretty embarrassing article. Look, you’re just on the Yuri point. He and I go way back. I met him when I was in Moscow chasing the Yandex IPO, and I was like, well, where’s the rest of the Internet? And they’re like, oh, this guy named Yuri Milner has bought some Internet assets.
So I went over and knocked on his door and said, Hey, Mr. Milner, I’m I’m Scott. That led to me saying, well, you’ve got a great business. Here was a holding company he called DST Digital Sky Technologies, and he’d assembled some assets. And so I invested I got Goldman to invest in his firm. And then we became quite close. Goldman, we ultimately took took DST public, but then I introduced them to Zuckerberg and introduced them to Facebook.
And that’s where he met Marc and really built his franchise. And so he’s very kind to say that he I call him for advice, to be clear. So, look, we have something that we call IVA. It stands for impact value add. Everyone talks about value add and oh, we have this network or we’ll give you advice in your board meeting. Whatever. We we kind of took it to a different level and we said, no, we we would love for the founders to talk about us.
This is our goal. It’s a very heady goal to talk about as positively in their memoirs. So so we know these companies are not ours. They’re not our ideas. We don’t take credit for the execution. But if we can help plow the road ahead of them and bring them things like David Bonderman to to Uber, then then we know we’re really doing our job because.
If we’re asking a founder, what can we do, then we’re not doing our job.
And so, you know, it’s easy to get caught up in the moment and be overwhelmed by all the activity we’ve got, I think five or six companies that could be public next year. That alone is just a tremendous amount of work.
And and yeah. So that’s what we call IVA. And we actually have KPIs and we judge ourselves, we rank you. We have a system that says, have you added value this month?
And if you haven’t, it turns yellow. And if it goes for two months, it turns red.
So how do you think about how you spend your time? I mean, if you’ve got five or six companies that might go public and you’re trying to always be I envy and saying how much of your time do you spend with your portfolio versus looking at new investments versus other things?
I mean, luckily, I have a very understanding wife and and two daughters, because I think, like most people, you know, I’m constantly working. And the good news is this is this is my hobby as well as my profession. So I don’t mind working for hours on the weekends on this stuff because it’s fun. But, the true north for us is making sure that our portfolio companies are thriving. But you don’t want to do is is ignore your portfolio to go fundraise or ignore your portfolio to go chase the next shiny object, so tired of your current portfolio, maybe some more. I want to make sure I save a little time to do that so we can talk about L.A. Let’s talk about L.A.. Sure. And there’s so many things I want to talk about, actually. Let’s talk about L.A. for sure. Clear.
I’m loving L.A. I’m like, put me on a billboard. I’m a huge fan of L.A. And this is after 14 years in San Francisco. I grew up in Indiana. I spent my undergrad and graduate education on the East Coast. My first job was in New York. So I don’t know if I’m ever leaving. And the beauty about L.A. is I can do this job and I can live the life I want to live. Like, I I have nothing to do with Hollywood. I have nothing to do with what agent is pitching, what deal or whatever. And so talk about luxury. You know, when you’re when you’re in San Francisco, you can’t help but be surrounded by hearing about what you’re missing out on. And you’re, like, worried here. I don’t care if I’m missing out on the next, you know, Star Wars, Batman, Superman film, whatever doesn’t matter.
And so that gives you some some kind of clarity. But but to be clear, there’s a great kind of emerging ecosystem, but it’s emerging. And I get asked this question a lot like when I’ve in spoken in different countries and different cities of like how can fill in the blank be more like Silicon Valley? And, you know, it’s it’s you hear different versions of the same story, and that is it’s it’s like a coral reef, it’s like a forest, it’s like any other ecosystem.
You need a bunch of ingredients and and then you need time. And so I do think L.A. has all the key ingredients, and I do think L.A. is absolutely trending up.
But we’ve got to be patient and we’ve got to stay on course and the biggest thing that scares me is politics.
Look, California has so much going for it. We all know the stats. I mean, it’s the fifth largest country. If it were a country in the world, you know, trillions, even SoCal alone has over a trillion of GDP.
There’s there’s a lot of, you know, consumers. So you can test things locally, which is really important. That’s one of Israel’s hardest challenges, is they’ve got brilliant founders, they’ve got brilliant universities. They don’t have a market. It’s a tiny, tiny little market. And so we’ve got a ton going for us. The thing that makes me nervous is regulatory.
And Joe Lonsdale published a really thoughtful piece in The Wall Street Journal where he basically said, I’m out, thanks, California. It’s been real, but I’m out. I’m moving my entire firm to Austin.
There are a lot of people moving out of California, not just the Bay Area, because they see the handwriting on the wall or they’re worried and this kind of vilification of success and additional taxes. And it’s just a problem. And we just have to ask ourselves, like, do we want to go down that path? We California can make up our own mind of who we want to be in the relationship we want to have with innovation and with business.
And I’m not suggesting it’s easy. I’m not suggesting that everyone doesn’t have to make some sacrifices, but we got to get that right. So, OK, so there’s a very tactical piece, which is taxes.
But then how do you think about the role of that vilification? He’s like because you said this to me, you’re like, I want to be anonymous. And I was like, well, could you come on my podcast?
Look, I think. I think. Politicians or organized government can do more than just taxes, right? There’s opportunity zones where you can you can actually create incentives and downtown LA like was one and maybe still is one. And those are great. That’s very positive housing. Like, you know, there are there’s this there’s this weird thing in San Francisco where everyone complains there’s enough housing and then there are these crazy zoning laws that allow you to only have something 12 feet high or something like that.
So you can’t put any high rises up. And then you have this antiquated tax regime on on real estate taxes that never change until people sell their house. And so. So, look, it was a joke about anonymity. It’s more just kind of who I am, like I personally love to be.
You know, the guy taking the picture. I love to. I find it’s the opposite of schadenfreude. I find pleasure and others pleasure and other success like that makes me happy to make other people succeed. Is there a word for that? It’s a good there should be.
But if you leave it up to the Germans, they’ll only you know, maybe we need to go to like the Spaniards, the Spaniards. Probably word for that because they’re happy. So, look, that’s that’s kind of my just my who I am, my disposition I think we all need to make compromises, all of us, everyone around the table. And I am more than willing to make compromises. And I think everyone needs to and I think we can. And I do think we’ve got really solid leadership in California.
OK, how do you think things are evolving, are going to evolve or like I mean, this has been a huge, crazy year.
So much has changed, you know, what have you changed your mind on or has your view of how things are going changed? We honestly like this is this has been a great opportunity for those that are in innovation, because there’s this adoption phenomenon. We call it five and five, five years of adoption in five months. So we’re investors in doctors on demand that companies struggled for a while because people were like, well, that’s this is weird.
How can I trust just a set of pixels? You know, I of course, I’ll go sit in a waiting room for half an hour to go see someone for five minutes. Like that’s just the way it’s done. I don’t think we’re going back to that. Right. I don’t think anyone’s excited to go sit in a waiting room and read Boys Life magazine. Like, that’s not how we want to be spending our time.
Now we’re like, oh, wait, all this stuff we’ve been waiting for happen. Now, as a venture capitalist, we’ve got to cast out another five years and say, well, what’s that going to look like? Yeah, now we have some catching up to do, obviously. And so, you know, we have a little bit of time in terms of adoption. But look, the rate of innovation. If you ever read like Kurzweil books about Singularity, he’s got a great graph in there about exponential change of innovation and it is literally a wall like, you know, it was like a nice bloke with a cotton gin and the printing press and all these cute little mechanization of labor things.
But then when you look at the rate of innovation in the last hundred years, it is ramp’s like this. And in the next hundred years, it’s like the collapse down on top of us, basically, because when we automate thinking, which is AI, it’s a complete game changer, a complete game changer. And that’s why we’ve started making investments in companies that focus on like quantum computing.
And so I think you’re going to hear more about that company, you know, as time progresses here. It’s called IonA And so, look, our job is to get out in front. Our job is to cast forward.
And it’s been made harder by the rapid acceleration. But at the same time, our portfolio companies for the most part are thriving.
I really haven’t thought about it that way, which is your job is to see five years out, but five years out. We all are seeing it right now.
That’s right. And what about that?
Anything else about Acme or the stuff you’ve been chewing on for your your vision of things that are going to be big in the next five years that you want to share with us?
I mean, look, I think we’ve covered a lot. I think we are going through an interesting phase as humans with technology right now. I mentioned singularity, which we don’t need to go there.
The ultimate merger of technology in humans, which I’m a deep believer in. But that’s we’ll talk about that in another podcast. What I think is happening right now is I’ve been using this term enlightened tech or enlightenment, which is like people are realizing that initially tech work for us and we now are working for tech. And is there a way to kind of find that balance? Like if you haven’t seen the social dilemma, it’s worth watching? It’s very thoughtful.
And I totally agree with with what they’ve highlighted. I think there’s an opportunity here to for us to really harness technology to to make. Our lives better to to free us from the chains of labor, so to speak, as opposed to just replacing us. And that’s like a pretty existential challenge and opportunity for society.
We’re right now going through some real growing pains with technology where we haven’t seen anything yet, like there’s so much coming that’s going to be highly disruptive. And so I I really would love to find ways for the innovation discussion to move out of the lab and out of the venture capitalist term sheets and investment memos and into the broader dialogue not to encourage regulation because it’s going to happen like saying stop is not going to work.
It’s more like, OK, this is coming. We have to deal with it more endemic, like there are some people that deny the pandemic. And there are some people that said, I wish I could deny it, but I have to deal with this and we have to have the same view towards technology. And we’re not prepared as a society to have that conversation yet. We’re still fearing A.I. and vilifying the big bad tech companies that are destroying whatever.
That’s probably not the most healthy approach because all it’s going to do is drive innovation offshore, because just because we vilify it here doesn’t mean it’s going to be vilified in China or this can be vilified in Taiwan or in Russia or elsewhere. And so we need to embrace it and own it as opposed to vilify it.
I mean, it’s innovation is kind of a bright spot of our country right now. So you’re saying this needs to go outside of, you know, the venture capitalist medium posts into need to bring we need to bring politicians and thought leaders into that dialogue?And so we’ve got to find a way to bridge that. And I’m not smart enough to figure that out. And so, you know, I put my head down and I write more term sheets and I find new founders disrupting more big industries and onward we push forward. But, you know, I’d welcome that dialogue.
Yeah, well, it’s great.
I know we’re running out of time, so I want to be respectful there. But I think it’s an interesting note to kind of end on and think about. And I’m glad you are continuing to write term sheets and helping your founders. And I’m really glad you’re here in L.A. I think it’s a big win for L.A. to have you here. So. Well, thanks for thanks for coming on the show. Thanks so much for taking time out. And I couldn’t be happier being here in L.A. and I definitely look forward to finding more ways to be more integrated with the community.