Alex Gurevich — Javelin Venture Partners

Javelin’s Alex Gurevich talks with us about investing in Masterclass, Thumbtack, Mythical Games and more.  Alex also tells us why VCs should be getting performance reviews from their founders.

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Alex Gurevich is the LA based partner at Javelin Ventures where he’s focused on Series A investments. He’s invested in some great companies like MasterClass Thumbtack, Mythical Games, Hit Record and Stensul, among others. He’s from L.A. and lives in L.A., but he was in the Bay Area for many years prior. Alex, thanks so much for joining the L.A. Venture podcast.

Yeah, thank you for having me. I really appreciate it. It’s great to be here.

Yeah, fun to learn more about you and Javelin. And so maybe we start with that, which is tell us more about you and Javelin. Yeah.

Yeah, sure. Yes. The Javelin we’ve been around since 2009. At this point we’re on our fifth fund, primarily focus on post-Seed, and early series A, which to us just means, you know, check sizes between five to six million, really focusing on rounds of four to six million or we leave those type of rounds. But the real the real story behind Javelin is a fund that was started by entrepreneurs for entrepreneurs. Every partner at the firm has built a company or several companies in the past.

Did you start Javelin? I joined in 2010 and it was started in 2009 by my partners Noah and Judd.

Noah Doyle, one of the partners. He was a co-founder of Keyhole, which was acquired by Google and became Google Earth. And then my partner, Jed Katz, was a co-founder of Move Dotcom, which was a large exit. And myself, you know, as you mentioned, I grew up in L.A. I moved up to Stanford for undergrad. And that’s kind of where I got sort of exposed to Silicon Valley for the first time.

I was lucky enough to do an awesome work study program there called the Mayfield Fellowship Program. And that kind of sucked into the Silicon Valley scene. And the first company I got involved with, I was pretty much the first employee was called Ooma, which is a consumer electronics voice over IP company. So I spent three or four years building that out. The company eventually went public, so it had a big hand in kind of building the foundation of that business.

Yeah.

What did you learn from from your time being that what did you say, first or second employee there?

I mean, I think, you know, one of the big lessons there that was a hardware company. So as I mentioned earlier, Javelin, we don’t invest in hardware. So I think that was the big lesson away from capital intensive businesses.

I feel like a lot of VCs don’t invest in, like, the thing that they used to be doing.

Yeah, yeah, yeah. I think when you learn the lessons the hard way, you know what is really into. You kind of want to stay away. So what is it about the hardware that makes it so hard? Yeah, I think the biggest part, and I think it’s changed a little bit over the years has become a lot more nimble and flexible. But back then and I think to some extent still true, you don’t it’s like software.

You can’t iterate your way to a great product. You sort of have to make that initial investment. You hope it’s the right one and you don’t have that many shots on goal. So if you don’t if it doesn’t kind of hit the product market fit from day one, it’s very expensive to to keep iterating on it. So we do invest in some hardware. Javelin, but it has to be really kind of inexpensive, sort of inexpensive hardware where there’s a big software component to it or doesn’t.

It’s not going to take, like, you know, 20, 30 million dollars. Just see if this thing has product market fit. That’s just not our profile. And that was kind of an issue that we saw at Ooma was, you know, we have to iterate our way through it and we have to raise a lot of dilutive capital along the way. So that was a big lesson.

But then one of our investors at Ooma, was Draper Fisher Jurvetson, now called Threshold Ventures. And I had a great relationship with them and they were starting a venture fund in Eastern Europe.

So I was actually born in the Ukraine, speak Russian. I’ve always had a fascination with economic development in that part of the world. And this is like in the 07 08 timeframe. And so they asked me, do I want to build a venture fund from scratch in Eastern Europe? And I just thought that was just a crazy experience that sort of tapped into one of my interests, which was international development, economic development and technology and entrepreneurship.

Yeah. I had forgotten that you set up DFJ in Russia.

So right now, do you invest internationally or where does Javelin do? How much of your portfolio is Bay Area? How long have you been in L.A.? Yeah.

So well, I mean, I grew up in L.A., but to the Bay Area, I was there for 18 years and I was always looking for a way to to get to get back to SoCal. At Javelin we invest in, you know, in the US primarily, I would say about fifty percent of our portfolio is in the Bay Area. 

I do have a very bullish kind of thesis on L.A. over the next 10 to to 20 years.

So I think, you know, I know you moved here as well around the same time after a long stint in the Bay Area. I think we’re a bit ahead of the curve there in terms of I agree.

We are kind of thought leaders. I like that. What is it about L.A. that makes you so bullish? Yeah, you know, I think in the past, LA has had a lot of buzz and excitement, you know, Snapchat, Silicon Beach, these kind of things, I never thought those were real, real moments for me. The real moment for L.A. is when a lot of these larger tech companies I’m talking about, like Apple, Netflix, Google, Amazon started setting up large operations here, opening up big offices, investing in some of these SVOD services that they’re offering.

What the what to me, what that does, it not only brings tens of billions of dollars of investment to the L.A. ecosystem, but it creates massive amount of job opportunities for for technologists. And these are these are people that are constantly going in and out of the startup ecosystem. Right. So in the Bay Area, it’s like you go start a company at any point. If it doesn’t work out, you know, you could always go get a job at Google, right?

So that whole ecosystem, I think, is longer lasting. To me, it feels like a decade plus type of a bet that’s been made in L.A. And that’s that’s one of the reasons I’m super bullish on what’s going on here. What about so the competitive competitiveness of deals? And do you think, you know, L.A. seed companies or series companies are more likely to work with series investors who are here? What do you think? They’ll just, you know, keep going back up to where like they’ve done?

Yeah, well, I think the seed ecosystem is super robust. I think on the Series A fronts, I think there’s still this bias towards Silicon Valley 

One thing that I found interesting in my last year and a half is by saying that I am a partner or a managing director at a Silicon Valley firm, but I happen to live in L.A. It’s actually been the best of all worlds for a long, long entrepreneurs.

They kind of love that like, oh, it’s and it’s a Bay Area fund. You have Bay Area, Bay Area network, Bay Area partners, but you happen to be here. So I can see you face to face at any time and have that access without having to fly up there. That’s great. That’s ideal. So that’s worked out well for for us, at Javelin. And I do wonder if that’s going to happen more with other firms where they’re still going to be based in Silicon Valley.

But you’re going to have a partner or principal or someone down and based in L.A. and more accessible to the entrepreneurs.

And and I guess it’s it’s sort of even a broader question, which is regardless of, you know, even when you were back up in the Bay Area, how do you position yourselves Javelin? Like, how do you win against a Sequoia, Benchmark, whoever else is also looking at deals or do you look at them sooner or do you build a relationship? How does that work?

Yeah, if we’re competing against the those firms, we’re not doing our job. Right. OK, that’s it. Yeah. I mean, we’re we’re positioned at this, as I mentioned earlier, between seed and series A, so we’re we’re ideally coming in earlier than the Sequoia or an NEA. So that means we’re taking on more risk. And frankly, that’s the stage that works the best for us. You know, we get excited on that stage where there’s still a lot of questions to be figured out on product and distribution strategy, business model.

So we’re comfortable with that risk. In fact, it’s the one way that we sort of fool ourselves as former entrepreneurs that it’s OK to be doing venture capital totally by doing it at that stage where it feels like you’re you still have a hand in company in sort of the foundational work, but it’s something that I’ve really taken to heart and sort of Kuret-su type approach. Kuret-su is a Japanese term for, you know, kind of a small, intimate network of people that know you and know what you like.

And I thought it was like a complicated, odd business structure that was hard to unravel in Japanese businesses. But maybe it’s more what you said.

Yeah, that’s right. That’s that’s that’s what I thought of it. But okay, great. Well, what was your definition of go with that one.

So yeah. So just like a more sort of less quality, more sort of quality and, and depth of connections. And these are other entrepreneurs we’ve invested with before, other investors, investors we’ve invested with before, who just to get really understand the kind of the kind of opportunities that we’re attracted to and vice versa.

So we prefer that approach versus, you know, kind of a a broader you know, let’s create a lot of content. Let’s, you know, blog a bunch of Twitter.

But we don’t we don’t really do that.

It’s not authentic to to our style, which means we’re probably we’re probably missing some of the hotter deals, but we shouldn’t be honestly in those hot deal conversations anyway because we’re not we’re just not going to win against Sequoia or Benchmark.

So like a Thumbtack or a Masterclass, which you mentioned, do you think that you saw something early in those companies that I mean, other investors must have also looked?

What do you think you saw that other people missed? Yeah, yeah.

We got really lucky on both, but so with a Thumbtack. Yeah. There’s a sort of famous story with that team where they went out and pitched everybody in the valley and they got like forty five no’s and they talk about it all the time.

We were the forty six and we, we did say yes, but there was a caveat there.

They were raising more money and they were raising like 10 million and they adjusted and they raised, they started raising at five, a five million round which is more in our sweet spot. So we were fortunate to see them at that point. But they didn’t have a business model. They had a marketplace that was sort of working and some basic liquidity dynamics that were there. But you also just explain what they do.

I think that’s sort of them. But go ahead.

The problem there, marketplace for consumers and service providers. So if you wanted to book a plumber or a roofer or a tutor, you know, a clown for your kid’s birthday party, you would go on Thumbtack kind of a new YellowPages, you know, to compete with home advisor Angie’s List. So now, you know, it’s a company that’s been backed by by Sequoia and Tiger Global and Google Capital, you know, north of 100 million revenue company with close to two billion dollars valuation.

So pretty, pretty large scale. We saw that when they had zero revenue.

And, yeah, they had you know, they had a little bit of a marketplace working, but no business model, no revenue. What we saw was that they were extremely methodical in how they measured everything.

They built their own internal dashboard. So we knew that they could test a lot of different hypotheses and get to the right answer eventually after thousands of little optimizations. The other thing that they had, which sort of fits our model of investing in, you know, capital efficient businesses with high leverage as they were masters at SEO so they could get to large scale without spending a lot of money on marketing. So that was extremely appealing to us as well.

So we didn’t hesitate and pulled the trigger pretty quickly.

And I think they have so much data, as you say, and I guess you saw that early. But like, I feel like I know them also because they publish interesting things sometimes that say, like there’s too many clowns or there’s too many plummers. You know, if you you know, California has too many yoga instructors, go be a yoga instructor in Wisconsin, you’ll do much better or something.

They do like a small business survey, actually, where they have local data for how service providers are performing and working in those local areas.

And so they they create this really useful tool that is great for small business owners, but it’s also great for just consumers in those local areas. The other side benefit of it is it’s great for their SEO. So that actually helps build their their linking strategy.

So, yeah, I think it has the very creative over there.

Were there any interesting things we can learn from, you know, that you saw them do when they were early stages and they were iterating and optimizing things that, you know, stories you remember you can share. Yeah, I mean, I think they’re the company I think of most when I think of, you know, scrappiness at the start and that kind of a scrappy spark. I think one of the best things that they did was how do you build supply and demand at the same time.

And so, you know, the early days they would go and essentially manufacture demand by creating these SEO pages and asking consumers, hey, who wants a plumber in San Francisco? And somebody would respond to the ad saying, hey, I’m looking for a plumber. Then they would take that ad and they would, you know, that response that lead and go to a plumber and say, hey, here’s some money for you. Do you want to sign up for a thumbtack?

Right. So I thought that was extremely clever. And, you know, in a marketplace, you have to figure out kind of that that that scrappy way to get the supply and demand flygirl going. And that team had it in spades. So I remember that vividly.

Do you have any view on review sites generally?

I think that for thumbtack, reviews are important. But what they really excelled at is giving consumers choice and quality of match. Right. That’s what they’ve invested a lot of time and energy into the product and honing that part of it.

So whenever you have a request for a job, you’re going to get three or four quality response responses from different pros. And you can you can decide which one you want. And you’re more likely to have a positive experience and leave a good review if you were matched with the right type of pro. So the matching engine is really where they stand out. And they’re their match rate is something crazy, like 80, 90 percent in terms of successful matchmaking.

Yeah, very cool. How about masterclass? Have you taken any masterclasses? Oh, yeah, yeah, yeah.

I’ve been lucky enough to go to a few recordings and in the early days, so that was so I got to see it live as it was happening, which was really, really a treat. But yeah, no, I’ve taken many classes including I think the last one I took was the er Franklin barbecue class. That was my goal of the summer was to become a master of barbecue. So, so I did that. But yeah, the story of a master class in terms of how we got involved was founded by David Rogier, who was my good friend and classmate from the GSB.

And I remember when he he always wanted to start a company and when he started kind of ideating through different concepts, Michael during Harison Metal, gave him some money to do that.

He came to me maybe like a year and a half into that process. We had we had lunch or dinner. And he told me the idea. He said, hey, I want to create this online learning platform that will allow people to take classes from the best minds in the world, the geniuses in their categories. And my initial reaction was, well, that’s that’s a nice, nice idea. I’m sure lots of people have that idea. How are you actually going to do this?

And he slides a piece of paper over with like ten names on it. And these are like amazing maverick like James Panio.

James Patterson’s on there, Serena Williams and many others, Wayne Gretzky. And he’s like, see these names? They’ve already said yes to me, already in.

And I’m like, how how did you do that? Like, you don’t have a brand. You don’t have any funding, you don’t have any revenue. Nobody knows where you are. And you got these amazing people to say yes to you.

To me. I mean, that was an unbelievable kind of testament to his ability to get this thing going. 

So for us, you know, it was a bet on David, it was a bet on the market. It was a huge market opportunity. And then it was a bet on a very capital efficient approach because we felt like each instructor they would bring on would bring their audiences, would generate a lot of earned media and press. And so that would effectively lower the customer acquisition cost of each subsequent subscriber.

So to us, it also fit sort of the business fundamental bucket. So we we made the investment nine months before they launched. It was a free revenue pre launch about October 2014, and then they launched in May 2015. And that’s that’s gone pretty well since then.

Wow. I feel like now there’s a lot of you know, there used to be Uber. Hey, I’m Uber for X, I’m Uber for Y it seems like there’s a lot of masterclass for education, masterclass for youth sports.

Or where do you think where do you think the world is going with with the masterclass for X or where do you think masterclass is going.

I guess. Yeah.

No, I think we see ourselves as sort of a combo company of between entertainment and education. We don’t want to be all the way in the education bucket. We want it to be entertaining enough that you’re taking these classes, not because necessarily you want to become an expert in that field. Maybe some some folks will take it for that reason, but maybe you just want to get inspired or maybe you’re just curious, you know, more kind of like TED style of what is that career subject area all about, so so those are some great examples of what you invest in. And I think at the start of the show, you said that you’re a generalist. Do you think things have changed?

I’m very interested. Like, are there things where you’re like, oh, yeah, I used to invest in something and then I learned that I’ll never invest in that again. Or, you know, has your thesis evolve?

Yeah, I mean, I think well, I mentioned hardware was the big one for me.

Yeah. That area trying to stay away from that said, you know, you’re always finding exceptions like, you know, we have our sort of Peleton horror story or because of that rule we missed out on Pilton. So I think the one rule I think that we have is keep an open mind.

And one thing that we are not a job where we’re not sort of like ivory tower, you know, pontificators that are thinking about here’s where the future is going. We don’t think that’s our job. We think our job is to respond to entrepreneurs who are the real visionaries or the people are setting the course for the future.

Yeah.

So I was chatting with someone else who his point was that if you play out venture capital in 10 years or something, everyone’s going to have a specific the we’re going to be more thematic or we’re going to be more focused and you’re going to have to develop yourself as you are the go to expert on marketplaces or whatever.

And there won’t be the generalist funds. You know, you’re not allowed to keep an open mind in his in his vision of the future. You have to be more close minded.

I’ve heard that. I mean, I’ve heard a lot of that. You hear that from LPs a lot, too. And there’s certainly merit to that strategy. But you have to go really, really deep and I think also depends on the stage that you invest in. So I think it’s easier to have that if you’re multi-stage or later stage. I think at our stage you have to keep the peripheral vision open because a great opportunity and an outlier could come from from, you know, from any direction.

You know, I don’t know. I got some great advice of the job, actually, from one of my mentors, Peter Lendell. I don’t know if you I know the name, but he’s he was a founder of Sierra Venture, the founder of Sierra Ventures. He teaches a GSB entrepreneurship. And, of course and he his advice was, don’t take yourself too seriously as an investor. Yeah, that’s good to be ready to you know, there’s a lot of power and self deprecation.

Right. So I’ve always taken that to heart. And I think that goes along with the sort of idea that, like, you know, our job is to be a service provider to entrepreneurs and help them build those companies. So, again, I just don’t kind of believe in the you have to be a specialist in one particular area. I think it kind of happens over time anyways, like you have certain companies that you invest in more often.

So we’ve done a number of marketplace businesses. Yeah, for sure. We have more data points. More. Some marketplaces, but I’m a little bit shy about waving the flag, about being just a marketplace expert, because I think we have other stuff to bring to other companies.

So I told you, I definitely wanted to talk about you as a board member and working with your portfolio because you have this amazing medium post up about getting feedback from your founders.

So I thought I’d ask you about you getting feedback, which is a very unusual, but I’d love to hear about that.

Yeah, no, I appreciate you asking about that. It’s definitely a topic I’m very, very passionate about. Yeah.

It sort of arose from the fact that it always bothered me that feedback flowed one way.

And most board settings, you know, usually from VC to the entrepreneur, it’s sort of the perceived job of the board member to give that constant feedback. And it’s accepted. Everybody accepts it. And which is fine. Let’s that’s that comes with the territory of of being a fiduciary and investing money into an entrepreneur, into a venture.

But I didn’t understand why the feedback that also flowed back to the board member and especially in those early stages. I mean, I you know, I truly believe that you have as a as an early stage investors, a seed series A investor, you have a lot of impact on how that company is built on the foundation that’s that’s that’s put in place.

Why isn’t there feedback flowing back to help you be better at your job? And I, I want to be the best board member I can possibly be. I want that feedback. I’m hungry for that feedback.

And it wasn’t coming to me and for good reason because of the board dynamics. A lot is not going to just give you unsolicited feedback because, you know, who knows how you’re going to react to it. So I actually think it’s the job of the board member to proactively go out and ask for that feedback. And entrepreneurs will be more than happy to give you that feedback. I guarantee that they’re going to be excited by the ask itself. And that’s what I found out.

You know, I did the survey, which is part of the medium post basic question, very basic survey of strengths, weaknesses and how I could tangibly be helping more where I’m doing things that are bad for them and not not helpful that I don’t maybe not be aware of. I had such a positive reaction from all my entrepreneurs, like their minds were blown that I would even ask for feedback. Like this is the first time anyone’s asked for feedback as a board member.

So really positive reaction. And then I learned a whole bunch about myself. You know, things that I was doing that was that was that was good. And then things that I was completely oblivious to that maybe we’re not so good and help me course correct those those points. And then I kind of tied it back to, you know, a few experiences that I’ve had as a as a as a board member, where I’ve had companies that were in a privileged position to receive multiple term sheets and multiple offers and roughly same economics and all that.

So kind of it comes down to the references. And, you know, this particular company I’m thinking about, you know, ask for those references. And they got a lot of firsthand references from the VCs. Like here are my references of the entrepreneurs that should tell you good things about me. We called those up and we got negative after negative piece of feedback, like, no, I would never work with this person again.

Or like, this person’s done really something really bad.

And I was blown away.

I was like this. These are the references that you thought were good and they were actually negative. And you just you never asked around. If you had asked, you would have known that maybe you need to work on that relationship or maybe you just something and they would have helped you in that deal.

So I started playing out to myself thinking like maybe I’m oblivious to something. And I was so so I was really I was really grateful. I’m really happy that I did that. And it’s something I want to do on a continuous basis once every year or two.

What’s with all my entrepreneurs just to kind of like get that, you know, VC investor board member NPS score, right?

Yeah, yeah, yeah. Exactly, exactly.

To see if I’m doing my job and if it’s if I’m truly helpful or if there are areas where I could be better.

That’s pretty ridiculous. Yeah.

When you give out your names and you give out your name and references, they come back. Yeah.

Some people not self-aware. Yeah. Well OK, so staying on that without being personal, not like. So what exactly did people say you weren’t doing. Well not asking that but like how have you evolved maybe. And learned what, what makes a really useful board member or investor. Yeah.

No, I mean like I think I got a lot of positive feedback too. I like to think but I got to highlight the negative, like one negative thing that I think I actually think of board members are guilty of this. You don’t understand. The impact of some of your asks and requests to come right, you might have like a random question that comes up and like, oh, well, you know, what was the you know, what was the product decision behind?

That’s right. Why did you guys decide to do this? And it’s just like a haphazard question that you asked. You don’t then think about the workflow that you set off of that company because of your request that then ends up wasting a ton of time because they’re going to jump on it like they jump on it. The CEO will ask the product manager. The product manager was there. People don’t like do a bunch of stuff to get you this answer that wasn’t really even that maybe important to you.

I mean, if it’s important, great, do it. But you just have to be more conscious of, you know, some of those asks, some of those requests, making sure that there truly are important versus just like a random like, hey, I had a I had a thought.

So I have I totally understand that from being on the other end of things. I’m like, oh, like send the. Here’s my draft email. I’m going to have five people read my draft email or whatever.

But you’re not leading a Series B like you’ve been the series investor. Do you actually have the power dynamic is weird because it sort of doesn’t exist, right? Like, why do they care what you think? Sort of, yeah.

Well, I mean, I think it’s part of the dynamic. You’re still I mean, you’re still a board member, right? Yeah.

Is there anything else with Javelin and what you’re doing now? Like big things that we didn’t cover fundamental to who you are. Alex, we should highlight on this podcast.

Yeah, I mean, look, I think probably the one of the biggest things is sort of the type of companies, the thematic thematically, the kind of companies that we love investing in. And entrepreneurs with that mission driven approach is investing in. We love investing in companies where the product and technology ends up helping and working for people instead of against them. I think that’s like a fundamental theme for for us across across the board. And I think if you look at some of the investments like Thumbtack or Masterclass or Hit Record carbon health, they they have that profile where those companies are building technology to help small business owners, to help educate people, to help bring digital health to the masses at an affordable, affordable way to us.

By definition, if you’re working on products and companies that are again helping helping people and having technology improve their lives, it’s by definition a mass market product not as excited about the whole, you know, automating jobs away kind of thing. We do those. But, you know, there’s I think it’s a higher bar for for us to get excited about that. So my personal preference is to invest in, you know, the kind of companies that are more mass market and have have the same goal that they’re really helping people.

Yeah, I remember you said once something like, I don’t like investing in EHI or something. It was a pretty strong statement considering every other investor I know loves to invest.

And I know I like I like investing. I if it serves that goal. Right. So yeah.

If they’re using like some stock using AI to help in the matching algorithm to help small business owners. I love that, I don’t like the look we’re going to have and it’s going to eliminate fifty jobs like that’s not like this much stuff.

OK, so one more random personal question I read maybe on your LinkedIn. Are you avid sci fi reader? Yeah, I love sci fi.

What it’s what some cool concepts, things that have made you see the world differently. Oh, man. I mean, I just remember as a kid, just the power of it or the power of sci fi to help predict the future. I actually think sci fi writers are amazing at envisioning the future.

And not only that, it’s sort of a bit of a self-fulfilling prophecy because a lot of our technologists and engineers and product people, they read those books as kids and as adults, and it actually helps them figure out what film they want to build, what they read it about.

So I remember reading like the Orson Scott Card, Ender’s Game series. And, you know, I remember reading that 20, 30 years ago. And to me, I’m looking at like life now.

And other than the cosmic travel, like they were using iPads, they were you know, they were doing VR.

I mean, it’s just amazing to me how accurate was. And of course, you have the the new batch of sci fi writers like Romney’s name with Nexus and, you know, the three body problem, which I think is one of the best trilogies ever made. 

Very cool.

Alex, I will end there and say thank you so much for coming on this L.A. venture podcast today. Thank you Minnie.

This is great. I really enjoyed it. It was really fun to talk to you. 

Eric Pakravan — TenOneTen

Eric and I work together at TenOneTen!  We talk about our partners, Lava Lab, AmplifyLA, Scopely, marketplaces and the sort of companies that thrive in LA.

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Eric Pakravan knows everything about every startup and every investor in LA. He’s a principal at TenOneTen. And before joining us, he was seven years at AmplifyLA. six or seven years, something like that.

Before Amplify, Eric was the founder of USC’s Lava Lab and one of the earliest employees at Scopely.

Eric, what’s up? Hey, happy to be here.

Yes, so give me give me kind of the short version of your background. 

Yes, so I went to USC the most interesting thing I did was interning as an intern there when it was still about 20 people, I grew to like 50 people by the time I left, but I didn’t know what a startup was before that. And I went in and I was blown away. I mean, I’ve always been a tech, but just at the company side of it was something I never really dealt with before.

And Scopely actually had on their mobile game publishers that the right summary.

Yeah, I think the grand vision of this at the time was to almost be the Warner Brother of gaming, where they’re going to work with a bunch of different studios from the studios own, you know, in part of the games. But just to own all the distribution and gaming works differently than movies. It’s not exactly apples to apples, but. That generally worked. Now they own more of their titles and it’s a lot more of, from what I’ve seen from the outside, partnerships, so partnerships with people that own IP and turning that IP into games versus just really, really clever small indie game studios and broadcasting them less of that, more of the you know, let’s bring Scrabble to the masses on mobile and be the distribution arm and monetization arm for, you know, mobile Scrabble.

Hmm.

And that must have been sort of seven years ago or something that you were there when it was 20 people. And now what is it?

It’s probably valued at a billion plus.

We have to ask Eytan is that I think it’s about two billion but Eytan would know.

Right? Well, I know. I just I mean, it’s it’s got to be one of the more successful and interesting startups in L.A., especially to us.

And we have connections there.

And tell me about Lava Lab and maybe you could also put it in.

Well, tell me about Lava Lab, but I will ask you also if you can explain USC and the different you know, the there’s the launch, the Blackstone launch pad and the different entrepreneurship endeavors that go on, because I’m always trying to sort out which ones, which and which one, you know, to get to know better.

Well, USC is ever changing. And there’s all there’s the way that US is set up is that there is, I want to say, 14 different schools. I think more. And each school basically doesn’t like to share. And so almost every school has their own little entrepreneur, at least not the time to develop. But almost every single school now has its own little entrepreneurial division. So the business school has one of the engineers who has a lot of communications, who has on the film school has one, some have multiple, and then there are student driven initiatives.

And then there’s hybrid’s of student driven initiatives and stuff, and then there’s university driven initiative. So it’s all over the board. But what that means is that there’s just a lot of resources on campus everywhere you look for students, and that’s just been growing over the last ten years. And so Lava Lab, I just wanted to fill a void that I saw on campus, which is why I was I, you know, a couple of years into school and not even having a discussion about a startup, even though I was in the engineering program and and the the business school and the business school, we didn’t talk about startups.

The engineering school is where we need to go to Microsoft. And and what I thought was the most impactful thing on campus was some of these new organizations that were mimicking what it’s like. So let’s say be a consultant, but you’re just a consultant for the community.

So the whole premise is, you know, we pick students from all across the University of Business, engineering, design, film wherever, put them in teams of four with the goal of just. Giving students the opportunity to try getting something off the ground, working with others, see what type of people they want to work with, and then also seeing that it’s not scary to start something, the company doesn’t need to go anywhere. I mean, there are companies that have gone on and joined a science incubator and Y Combinator and some have raised several million in funding.

That’s not the point. Most don’t really go anywhere. The point is to learn in a sandbox, so to speak, so that you’re not afraid to start things. And then there’s also a lot of Lava alums in in the industry. So here in L.A. is an avalanche, is not a great craft.

Ibos and lobola. She’s not Wunder Ventures. I feel like I’m forgetting a few people, but this is why I say, you know, everyone in every startup in L.A., it’s awesome.

And then you’re going to Amplify and we had Paul Bricault on the L.A. Venture podcast.

He said that it’s sort of morphed over time from being an accelerator to preseed with benefits, which I still find amusing.

But yeah, maybe you can tell me a little bit about what you guys were offering when you were an accelerator and sort of how Amplify has evolved going back to 2011, L.A. was was not what it is today. Again, you could be Scopely and raise a seed round. And you’re one of the most well-known companies in L.A. because there weren’t really companies raising multimillion dollar rounds just happened. But it was it was a little bit more rare. So, again, the goal is to catalyze LA tech, be a bridge between, you know, capital from outside the city, talent inside the city, advisers in the city and just this hub and I think I was was largely successful, so successful to the point that it’s outgrown the need to necessarily write a 50 K check just to bring someone to the market.

I think you’ve told me that Amplify was doing 250 K for 10 percent was kind of like a standard term. Maybe this is a number of years ago.

Yeah, I kept it. It always gradually changed just to respond to the market. The first first check. I remember like 50k for five percent, you know, that was like twenty thirteen timeframe and and now the amplifiers leading a million and a half, sometimes two million all around.

Interesting and then on top of that, you also housed all of our earliest stage companies. So, yeah, they’re also building things. They’re all collaborating with each other. My favorite moment was whenever you saw one Amplify CEO and another CEO in a breakout room whiteboarding together. There was a lot of collaboration there, and now you’re at 10 one ten, which is fantastic. But it’s interesting I said this to you on email the other day. I was sending you a pitch deck saying, what do you think of this one? And then you said, yeah, it looks interesting. I said, I can never predict what you’re going to find interesting.

So I’m still struggling with that.

But can you tell me now where you see your areas of focus or what you do find him? Can you explain this in here? I’m not even sure I will say that. About 50, 60 percent of the time when I when I see a deck, yeah, I’ll start getting excited because, you know, they’re explaining the point and I’m like, yeah, like I think I know where they’re going.

And then they’ll go in a totally different direction, know. And then I’ll lose interest. But when when the pain point and the solution align, I get really excited because I’m like, OK, I believe there’s an opportunity here.

OK, when you read a deck, I usually just flip through like I skipped the first like five slides. Like I skip most of the pain point. Usually the I’ve learn not to do that. I used to do that. I used to do that. I used to just skip to the end, see the good part and then come back to the beginning if I’m interested and try to read through it. But, founders spend so much, though not all founders.

Hopefully it’s got a lot of time on their deck and and they want to guide you through a story, and I will often realize that I’ve misinterpreted what they’re trying to tell me if I go out. Hmm, yeah, I do often.

Yep, I do that, um. Well, let me rephrase my question.

What are the areas that you think you are most articulate about that would be interesting for us to discuss on this podcast, for us to discuss in the podcast?

Well, the ones that I think I’ve spent a lot of time really trying to understand the mechanics and why they succeed and not are our marketplaces commerce and SaaS just because I feel like their bread and butter industries that you just see a lot of. And, you know, I want to be opinionated there. What am I.

Let’s talk about those. Tell me about Marketplaces part of why I’m more excited about marketplaces is I just feel like if you’re going to build a. A marketplace, especially a consumer facing marketplace. L.A. is a city to launch them. There are only so many cities that look like Manhattan and downtown San Francisco. Most other cities, at least domestically, look like L.A. and L.A. is the biggest version of it where it’s just, you know, wide, expansive city with maybe a small corner. And, you know, how can you build a consumer facing marketplace with that sort of density?

You know, I just feel like you build the playbook in L.A. and then you can take it anywhere.

And would you say that consumer marketplaces are still interesting to you, even though, as you said, they’re it’s they’re so sort of prominent. You see so many of them right now?

Yeah, I think they’re interesting. And I think they’re interesting because the way I see it, it’s like commerce to some extent, is this idea of taking consumer products that have always existed and now selling those products via the Internet. And in many ways, a lot of these marketplaces that are in my mind are getting funded, are really taking and what our services that you might otherwise be buying in an analog world and figuring out a way to deliver them more efficiently using the Internet.

Yeah, OK.

Right. And so for these services marketplaces, there’s often is this a true statement?

There’s often sort of a SAAS component or you get a lot of lock in because the person who’s providing the supply side often will have a SaaS component in addition to to sort of having the the marketplace.

Actually, Crexi in our portfolio was a good example of that.

Yeah. And I think in many ways you’re starting to actually see a blurring of the lines to some extent between SAAS and the marketplaces. It’s odd, but they kind of meet in the middle of something of like a managed marketplace. More on the consumer side or vertical source, more on the south side, WeeCare is is a great example of another company that’s a marketplace or vertical SAAS, depending on how you want to define it.

They’re giving software to daycares, but they’re also, you know, have a front facing side that deals with the the daycare customers, parents or something because they care and want to be able to interact with the day care and all that sort of stuff and pay.

So, yeah, now you’re often educating me on like, oh, that looks more like what did you say the other day, like SAAS with lead gen as opposed to SAAS with the marketplace. Right. There’s a lot of subtleties there I mean, you have a lot of thoughts on marketplaces, why they should be in L.A., you know, is the same apply to all other types of businesses there are very few companies that you can’t build in L.A. and they’re actually in many ways, there are very few companies you can’t build anywhere. Yeah, it’s going to be a little bit harder in one place or another. But, I mean, you can be an e-commerce company today without a CTO because you’re using Shopify and every other software that’s selling into e-commerce that enables you to essentially, in many ways deliver a product, you know, and act like a technology company without actually building your own technology.

And I think that you’re starting to see that paradigm go deeper and deeper and deeper and deeper. So e-commerce is first, but then it’s starting to move in some marketplaces. You can start to build the services business with with mostly off the shelf technology, maybe some orchestration tech. And I think that’ll just that trend will continue to move on. And L.A. is perfect because you have the largest industry in L.A., only eight percent of the economy. That’s entertainment.

Entertainment, only eight percent of the L.A. economy, is that what you just said?

That’s not surprising to me, actually, still. You just said something else that was interesting to me.

Was it orchestrated?

I didn’t actually know what that was. What is orchestration tech? Maybe it’s a term I made up in my own, but I’ve seen it with companies, which is I like there’s a there’s a company that delivers physical service to to the home and they’re covered by insurance. And it’s a great, great marketplace.

They don’t they’ve built some tech. Most of their tech is off the shelf, but they’ve just built technology that allows this off the shelf, you know, tech to work with itself. And so I called arbitrage tech. Maybe it’s a term, maybe it’s not.

I can make a blog post and then it’ll be a thing. Here’s the piece that I actually that I meant to pick up on it. Here’s the piece that I that I think is still most missing, maybe in L.A. or that I notice, I think senior product people who build products to sell into enterprise customers.

I think that actually requires you can’t just cobble together the Shopify and the other pieces together.

Yeah, there’s a few areas that I think San Francisco, by a wide margin, still still is is has the edge. One of them is that they’re on they’re all related to enterprise type companies or one of them is just, you know, enterprise product people. The other one is enterprise marketing people. And then the other one is, is senior level enterprise sales leaders know you have the, you know, ex Oracle, ex Salesforce and then X every other company.

Then what? They’re after people in the area with their Rolodexes and and, you know, and it it it’s so much easier to hire for an enterprise company in the Bay Area. That’s not to say that it can’t be done in a LA, FlowCast is a great company. Blackline is their biggest competitor. They’re both in Sherman Oaks and the of the Valley. And, you know, Black Line is public for billions of dollars. And I saw on a list somewhere that flow cost is a soonicorn soon for the unicorn.

Oh,no, I’ve actually been surprised that the engineering talent almost feels slightly more accessible, hireable in L.A. but that but yeah, those enterprise functions, I think might be a little harder.

Do you think that e commerce benefits from a lot of the Hollywood I don’t want to just call it Hollywood, but sort of the the DNA around connecting with consumers, building brands, building engagement, or do you think it’s there’s less to that?

Well, it certainly benefits from it. 

Obviously the networks here. And so it’s easy to do. But I do think that that’s a smaller part of a much bigger reason as to why L.A. is better. I don’t think it’s the only reason. I mean, one of them is just like manufacturing is here. So if you’re in apparel company, it’s a lot easier to do in L.A. than the most of the cities in the country.

Shipping, same thing.

Yeah, I am actually realized that most a lot of cities don’t really have manufacturing capabilities. Is that a true statement?

Well, specifically in apparel, that’s an area where L.A. just historically has always had, you know, manufacturing base far less now than the 80s, like NAFTA after a lot of that has just just just moved overseas, particularly China.

Your dad your father is in is an apparel manufacturing, is that right? Buttons buttons. Did I remember this correctly? Yes.

My dad had a factory called the Button Depot and I was a kid and it was a ton of fun. I used to go there and it was like City of Industry, Vernon area and he had a full warehouse full of like button makers and just basically buttons and and a lot of that has moved to China.

So now you have just a lot of import exporters using the same warehouse space, maybe not manufacturing as much because it’s not economically viable. But they’re there historically has been a lot of that in L.A. and a lot of the infrastructure around that still exists. I remember a while ago talking to a company called Lumi that just packaging. And, you know, when I was on the phone with the founder, she was literally sitting there in a warehouse in the city of industry.

And she’s like, we are here and this is where we’re shipping everything out of. And this is where we have all of our inventory. And all the e-commerce companies like me is the client. And and I feel like that’s only something you would really see in L.A.. Yeah.

And also because we’ve got all the shipping, right. I mean, so I guess you go from the button warehouse down to the port, right?

I mean, you can not only import everything to the port of Long Beach is, I believe, the largest port by container volume in North America. And then the second largest is the port of L.A. and functionally the same port. They’re just on opposite sides of the city line. So together they’re just a mega port. And and it’s just a lot easier to to ship internationally, to source internationally, you know, maybe do some assembly here, some light repackaging and then sell it or else.

Well, sometime we should take a field trip. That sounds very interesting.

Maybe what else in L.A.. So do you still follow gaming?

So obviously you were early at Scopely, which is how you know Eytan, our partner, you know. Do you think gaming is just are we all going to live in our metaverse? Is in the future? Why bother go outside when we can just live online all the time?

Or what do you follow in gaming? I hope not.

I hope that’s not our future. But I do see a future where there is a little bit of a hybrid and you’re starting to see that already. I mean, our social media personas are different than us. They’re connected to us. They’re different from us. And I think that that trend will continue and they’re just going to be new ways to express ourselves. New new mediums, new new. It’s kind of just Instagram this week. Introducing all the Tik-Tok features is just another way to express yourself inside of Instagram is just basically in my mind, I’m adopting kind of the new language of how a new generation is speaking and connecting online.

So here’s here’s what I’ll say about gaming. Gaming is this weird hybrid between a media content business and a startup. It’s it’s driven, but it’s also your brain. You know, there’s a lot of engineering that goes into a game. You know, you need teams. You know, the kind of the a lot of the work behind the scenes looks like building a software company. But the actual final product has a lot of in common with a film in that one game might totally flop, but the next game becomes fortnight.

And you don’t know exactly, you know, after millions of dollars of investment into a game, you don’t really know necessarily. But this one is going to be a fortnight and this one is just totally going to be a forgotten game that never going to get traction. And so I think it makes it’s always a tricky one for VC because, you know, like this U.S. will never fund the movie. And so thinking about the type of gaming company that if you see my investment is always tricky.

And in my mind, there’s there’s really one answer that at least I would consider. And it’s is there are some new emerging platform.

And can you be one of the winners on that platform early in a way where you’re kind of betting on gaming existing on that platform and just kind of building up distribution, maybe getting a distribution player versus investing in a single title and, you know, and then and so few great examples are obviously mobile. There’s an explosion. So, you know, it’s going to be in Zynga or some of the winners in that in that world. There’s a company called Volly that does it for voice.

And they were like early to the to the platform. Little ABB’s attempted to do that for for the watch. I don’t think people are playing that many games on the watch. But but the the largest gaming platform on the Apple Watch there is another company I met a long time ago called called Game Cake that was hoping to be that for the Apple TV. And it’s kind of unclear if and when there’s going to be another platform. I think you could probably make the case that VR is a winning platform for just going to ask.

We just did a VR investment. I mean, we kind of just invested in a game, did we not? Well, we invested in a company that wants to build a bunch of fitness driven games for a new and emerging platform like boxing is is their first title.

And yet here you are at tenoneten. And I would say that the thing that you have sort of pushed us on many things, but actually I think you’ve pushed us to be nerdier what I love about TenOneTen is that our team, again, your you started a company. You have a technical background. David started three companies with a technical background. Gill has started two companies with a technical background. I I’m trying to think of another fund in L.A. where the whole team just has a technical background and is able to relate and resonate with both the engineering team, but also the management operations CEO type team person. And even more so when that person is a single person.

And I think that that gives us a very unique edge.

Yeah, I, I didn’t tell you I was going to ask you this. What surprised you about David Waxman? A lot of things surprised me about this. Me, too. He says he’s a quirky dude. No, he’s not as OK. Once you get to know him, you realize how quirky he isn’t.

That that was what surprised me the most, because because you meet him at a big social event and I think in a very short time frame, he gives off a quirky vibe. But the minute you sit down for a longer conversation, the quirkiness disappears.

He’s kind of like a family guy. Three kids goes on to three kids. Super professional.

Yeah. And and that’s the opposite of what you get when you meet up for two minutes. I love it. I’m keeping that in there. How about I’m on a roll?

How about Gil? Gil? Gil.

So I’ve known Eytan obviously since 2012 because he was a co-founder of Scopely and I in a weird way thought that Eytan would be exactly like Gil would be exactly like Eytan and he’s not, he’s totally different.

Who else in the ecosystem who are some other people in the ecosystem that you think are our real pillars of of the community here or thought leaders you look up to?

I think there’s a growing number. I mean, I’m a very like I admire Paul Bricault greatly, partially because he’s been my mentor and my introduction to the L.A. tech scene more than anyone else. And and I think, you know, just just the virtue side of yes, he’s started, you know, Amplify, you know, as a business. But also he’s extremely mission driven and has figured out a way to do both. And so so I like that.

Right. Who else in L.A. do I do?

I mean, I admire a lot of people in L.A.

Are there any, like news sources or people you follow who you, you know, may or may not actually know, but, you know, you read the StrictlyVC newsletter or whatever.

It’s kind of a boring one. I was devastated that day. Marc Andreessen deleted all his tweets.

Not only not only was he a great tweeter because he’s he’s reading books and articles and finding the most interesting facts and then knows what’s actually interesting and tweeted and sharing those.

He started tweeting again, although it’s gone and the saying so I’m sad that that’s not there anymore.

Who do I this one’s not really related.

It’s all related. But I check Urbanize L.A. every morning and I’ve been reading it since it was a blog spot on blogger called Building L.A., I think like ten years ago. And, you know, if you’re curious to see how the city is physically shaping, you know, they are surfacing every new potential and ongoing development architecturally in the city. And actually, a lot more of that has become tech related. They keep covering the new Netflix studio or Scopely’s new building in Century City.

There’s I think I think you can tell that the L.A. startup scene and the L.A. tech scene is really here because now it’s, you know, tech companies that are getting the coverage in real estate news.

I actually thought one of our more interesting podcasts, we had all the podcasts. I loved them equally, but I thought Brandon Wallace was pretty interesting on just how he’s built Fifth Wall from zero to whatever. He said one point something billion in three years. He and team any other. You listen to not all of the podcasts.

You listen to some of the podcasts, any any guest that stood out or things you learned there.

Just to ask about my own podcast, one of the first ones I listened to was Michael Palank and ah hearing his thoughts on where consumer tech is headed was really interesting because he had opinions that I’ve never heard anyone say before. And and and in ways that I thought were actually. Surprising, but also on point, so I would highly recommend listening to Mike. I mean, I find that about you, actually, which is not only do you have opinions that no one else has, you come up with, like orchestration tech, you come up with terms.

I don’t no one else knows.

I don’t know if I made that up. I use OK, I might have heard it somewhere.

What are some other opinions? What’s an opinion you have that no one else knows has?

Oh no. Here’s another here’s another term that I made up. So productize content. I’m pretty sure I made that one up.

And I and I kind of use it to bucket all the companies that are somewhat of a hybrid between selling you content, but also kind of giving it to you in a product form. So like Headspace and Calm, but also Pro Guides, which is is like a master class for eSports learning. And then there’s there’s videos. But there is you can collaborate with other, you know, players and learn from them. You know, the same thing is true with Activ.

It’s a workout app. And I just I see the world as all being related to each other without a name. Maybe there is a name if someone is curious.

No, I like that because, I mean, it’s kind of what you were talking about, which is you don’t want to bet on the writer or some group of two writers or something who are people who are producing the content. You want to bet on the productize content. OK, one more personal question about you, Eric.

How do you describe yourself? How do I describe myself? I don’t know. How do your friends describe you? I’m definitely quirky, I’m the quickest one of all my friend groups, I think, which is part of why I think we should lean into being the nerdy fund in L.A. And I like that we’re all kind of nerdy and quirky in our way.

A lot of people describe me as a walking encyclopedia. I just was going to say get intellectual game facts. Yep. Yeah, you do.

You do. You’re kind of intellectual, too. You read books, do you? I read books, yes.

That makes you intellectual. I have a low bar for intellectual ism.

I don’t read the tech books though, which is. Yeah, I’m constantly talking to other friends I have in tech industry and they’re reading like every other book that every other person is reading. 

What’s a good one? I recently finished reading this book called Generations, that was written 1990, and it just talks about kind of how different generations collaborated and how that affected. It basically is a generation, my generation history book of the United States since the 1500s. I’m really glad I wasn’t sure I’d be able to have you on the podcast and have it sound authentic, but I. I always really enjoyed our conversation. So anyways, thanks for sort of agreeing to do this.

Thanks for having me. And it’s been there and I haven’t seen you in five months, but it’s been a blast working together.

And I just my like, my fear is. I’m like being an ambassador, I guess, for four. I think it’s spoke well, yeah, I know.

You mean I know the problem was it’s a little it’s a little unnatural for me to ask too much of like, tell me why you joined 10, 110 and why were so great, you know what I mean? Like, it just it’s a little.

But anyways, I think there might be some stuff in the amplified part that I can cut out that just makes it a little shorter. Yeah, it just became more concise is the thing I was thinking.

Yeah. Cool.

I thought it was actually I mean not that I’m surprised, but I actually think it was really good.

I mean that like oh I’m kind of surprised now. OK, here’s the bad part. I feel good about it now. Right. And I hate hearing my own voice. And so just the list. I have to listen to it.

Yeah, no, it’s hard to have to listen to it. But the good news is it’s not so bad to listen to yourself when you actually sound really smart like it. It’s harder when it’s like when it’s a worse interview or whatever, like oh that one. I said some stupid things.

Let me wrap up again because I didn’t like my my ending was too silly.

Eric, it’s great chatting with you today. Thanks so much for coming on. I’ll venture. Now, whatever, it doesn’t matter, I’m not eating, that is what I think.

Yeah, no, you can take my text from last time I thought what I said last time was good. It’s just your voice is timeless. Yeah, I thought it was great. I think we covered a lot of interesting. You just have a lot of facts in there which is good.

Or opinions or opinion. Facts. Yes. Cool.

Well, that was been talking about a lot of consumer, which is bizarre because, like, we don’t really do much consumer.

But I you know, I never can exactly script these things. And maybe I should have just, like, picked up on the SARS thing and asked me about SARS that.

But I actually do have more consumer opinions because. We talked about Marketplace SACE combo stuff. Yeah, hopefully you get more vertical fast companies. Yeah, yeah, exactly. And now we just need to convince David to come on. Yeah. Oh my gosh.

Actually, your stuff about David and Gil was pretty good. I kind of liked your comments there.

I just I hope I didn’t offend them.

That’s my only I think I was offensive, but I don’t think so.

I know I feel like at this point. I know David really well, like, really well, because I just spend so much and he’s kind of what you said, which is he’s I think you said sort of like he’s professional or something. He’s unflappable to like he’s fully adult in all ways, like small little things like, you know, he doesn’t he doesn’t get slapped by the small stuff. So, like, there’s no way you could say something like what you said and he’d have any take any offense at it.

Gil, I just don’t know as well.

Yeah, me neither. And I was like when I said opposite, I was like but like I was just so complimentary.

I can always like I’ll listen to the transcript and see how it all sounds. And just please, President, because I will I’m going to yeah.

What I’ll do is I’ll get the one I get because you’re part of ten minutes is easy.

When I get the rough cut back from Michael, we can both listen to it and then decide, you know, if it sounds good, but it’s easy. Michael’s fully he’s we’ve gone in a good rhythm, so it’s really easy when I get the rough cut back to just request changes if we want anything like that. Sounds good.

Dan Abrams — Cobalt Capital

Dan Abrams is a partner at Cobalt Capital. Prior to Cobalt, Dan (and the entire Cobalt team) was at CAA-affiliated Evolution Media. Cobalt leads Series B rounds, but likes to get to know founders earlier in their journey.

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I have Dan Abrams with me today. Dan, let me see if I get this right. Dan, is a partner at Cobalt Capital, Cobalt is a new fund made up of the former Evolution Media team. The Evolution Media team spun out of TPG growth where they were affiliated with CAA as Evolution Media. The team invested in some great companies like Calm, Tonal, The Athletic, Masterclass.

They led the Series A of Scopely, so really strong investing team now at Cobalt Capital, investing in venture, mostly Series B companies. Dan, it’s great. I’m so glad you’re here. Glad we get to connect.

Thanks for having me. Super excited to chat.

Yeah, well, it’s it’s a special treat because I feel like you guys are kind of new on the scene even though you’re not really new.

So tell me if I got kind of the the. You nailed it. You did great. Perfectly done. Well, you know, I practice we practice a little bit. Right. Fair. No, that’s true.

No, that’s right. We were the fund that no one’s really heard of. And and we didn’t make that easier by re-changing our name just now. So but we were for so long investing out of TPG and originally in partnership with CAA, like you said. And then we spun out and were an independent fund underneath TPG growth and then just recently spun out again at the end of last year to create Cobalt Capital. And so we for so long never really had to market ourselves.

We every time we we needed capital, we we would be we would call TPG and, you know, we were they had enough capital for us every time they’d raise a growth fund that we would be a part of it. So, you know, we we haven’t done all these things where we’ve been making a name for ourselves until now. So I’m excited to be here and chat with you.

Well, you know, being someone who has to do fundraising, it seems like a great set up. And yeah, that sounds awesome. So. So you’re affiliated with TPG and TPG owned CAA, correct?

Yeah. TPG Capital did. Yeah, right.

OK, and TPG Capital is different in TPG growth. And you were affiliated. You said just TPG growth would raise money and then give you some portion of that.

Yeah exactly. So right. So a lot of different facets in terms of TPG. Their capital is their buyout group and one of their buyout transactions buying CAA and their growth arm. Does the growth later stage growth and then we invest in and we were the early stage part of TPG growth. So the pool capital that we were using was part of the growth program at TPG.

And were you doing were you still doing sort of entering at the same stage when you were Evolution Media like series A, series B?

Yeah, definitely. And I think what we’ve learned along the way of making almost 40 transactions in our history is that there’s a sweet spot. L.A. is a little bit earlier market than than other parts of the country. And I think that part of our DNA is investing, you know, on the earlier side then TPG, I mean, TPG sort of it was a continuum, right? They were looking at a later stage businesses. We were looking at the earlier stage part of it.

It worked really well.

And so so we we sort of learned and grew a niche for ourselves, focusing on early stage companies that are growing out of predominately L.A., but also San Francisco, New York at it.

And the other part that I find confusing is Evolution Media Capital is different than Evolution Media.

Yes. So I’ll give you the whole story. So that started as evolution media capital insights here. Originally an investment bank that was built to advise clients on transactions and trends and media and entertainment and technology. And so that deal flow was an immense amount of deal flow that we were part of. Originally, I wasn’t there, but at the time it was an investment bank. And then when TPG bought the they set up a separate fund, also called Evolution Media Evolution, Media Capital also just.

Called that Evolution Media that invested along out of TPG, just like we were talking about, you know, and having access to deal flow that originated out of CAA.

So first Evolution media Capital then came Evolution media and then came Cobalt Capital. 

And so were you leading rounds before when you were Evolution media, and will you be leading the rounds when you’re Cobalt?

Yes, for sure. I mean, we were. Let’s go. Let’s go. Serious. We mentioned that in the opener. We we’ve let Abdelal at Epic Books, which is a kid’s. It’s like Netflix for kids books. Forty thousand library titles of children’s books. We’ve led a few. We led a business called Mux that’s an API for four streaming video. 

So we’re happy to lead. In fact, we we love to lead and take a board seat and be active because we don’t make as many investments as several as many of the other venture funds. We want to make fewer concentrated and then develop deeper ties and see how we can be helpful. And we’re talking about oftentimes we’re talking to CEOs and and founders every other week, every week, you know, not just the cadence of a typical board calendar, but just as often as possible to see how we can be helpful.

And so before I get to just the basics of of Cobalt, then sort of what size checks you say you prefer leading deals.

I said my own or I think it’s mostly Series B is your sweet spot.

You know, give me a little bit more about about the shape of those. Yeah. I think our our preferred check size would be somewhere from five to 10 on the smaller end and we can go up to twenty or twenty five on the larger end. That’s sort of there’s an exception to every rule. Obviously we’re comfortable going earlier and so what we want to do is develop those relationships early and start talking to founders, develop really friendships really. And then when they come time to want to raise capital, we want to be a part of that conversation. And if we can lead, then we’re thrilled to do it.

I know that’s really good to know because that means that people who maybe have raised their series or still early in their journey, they can come to you, you’ll give them advice, you’ll tell them, hey, look, this is what we want to see in order to to lead your B.

So it’s my favorite part of of honestly of doing this is that we get to talk to people and learn about their businesses so early on in their journey, do you have sort of ownership thresholds and are you often co investing with other investors or is it like gobble it all up?

Because that’s the reputation that I have of Series B investors.

Maybe we got to do better about changing that perspective. But I think I think there’s a lot to that. And I think that at the Series B, oftentimes maybe the book’s written and it’s a success already and to the early success and and then investors want to pour as much money into that business at that stage as possible because it’s been somewhat de-risked and they want to be part of that growth curve. And that’s not a bad strategy at all. It’s a great strategy, especially for a capital deployment strategy.

How much can you put behind your winners you want to continue to follow on? And for earlier investors, the B is the follow on round. But for us it’s the entry point. You know, we sort of like if we made friends with and build connections and done well sourcing by building relationships early. We’ve heard about the journey, but we haven’t been a part of the journey yet. We haven’t been on the coffee table yet. And so for us, the entry point is, is the B, and so we’re trying to take that same approach that everyone had in the seed and A stage.

And then the B is like. They’ve already known it’s there for us. We’re trying to figure out that’s working at the B and then we’re going to pour more money at the C and the D. 

And who are the best sorts of entrepreneurs to for you to be building that friendship with?

I understand what stage they are, but, you know, are they how do you characterize them?

So I think maybe the best way to say that is kind of talk about where we like to spend our time and we like to invest. And I think our history has been at the early stages. It was in digital content and media. I mean, the name was, you know, Evolution Media, but that we didn’t only invest media, we also invested consumer and technology businesses. But a lot of them were were predominantly on the content side.

And so today sort of, pardon the pun,  the evolution of that thesis is that we know we know that we’ve seen so many digital content businesses that content businesses that that make use of and benefit from technology can be incredibly powerful at transforming the way they connect with an audience. And so I think I use The Athletic as a as an example of that, where we if the digital content publisher of sports content. Right. Long form journalism, that’s done really, really well.

We were early backers of The Athletic. We we know that using that technology, they’ve been able to unlock what would otherwise have been journalism that was stuck behind many newspaper paywalls. And so that democratization of content using technology is really transformative. And so we really like spending time there. We know so much about that. Calm is another great example Masterclass is another great example, some of these digital content investments that rely on technology to really increase access for as wide an audience as possible and make the user experience better.

And so we started with that. That’s sort of our history. And then from there, we learned a lot about a lot of different things. We learned on the front end of that about how the users engage in that content and when it’s really successful, how it can be transformative. And so we started making more front end experience investments, sort of like how it touched the consumer, some more consumer experience, focus and testing. And then we also learned sort of the back end of that, some of the infrastructure investments that enable that content.

Mux, is a great example that I already mentioned, where it’s it’s digital video and it’s the infrastructure to allow better streaming video on the Internet. So we kind of look at the world in that way. And so if we’re kind of looking at the back end, we’re looking at the picks and shovels approach. We look at the front end, we’re looking at a consumer experience approach. But in every single one, kind of like I was mentioning, in every single example where we’ve made an investment or built a relationship and learned about a business, it’s informed us and how we can be better investors along that continuum.

And so we actually do make just consumer experience investment investing that’s on companies that are not content related. We’re happy to do that. In fact, we’re looking for those. It’s just that I think what our DNA has proved us is that the content is a great way because it’s iterable and you can learn how consumers are consuming it live in real time.

How do you know if it’s a trend and how do you sort of steady those trends?

Yeah, it’s a great question. And we I think the hardest time we have around the table and investment committee is are we investing in a good piece of content that’s well written and are you taking like are taking content risk or are you taking a hit risk like is this somebody is writing a good story or really good at producing content and are you backing them? And then at the end of the day, that’s not the type of risk that we want to take.

And I think the way that Masterclass and athletic and calm have done so well is that they’re not relying on one or two or ten people to write really good content. Athletic’s are pretty simple. It’s just it’s not the content that’s winning. It’s the technology and experience consuming that content. And it’s really hard because it’s it’s a really gray area. But we spent a lot of time parsing through and we are investing in a platform that allows the distribution of a better distribution content or we invest in the content itself.

And for us, that makes the biggest difference. And we try really hard to to invest in the platform and the technology rather than the content itself. And I think Epic books, which is a business that we’re in that’s done also really well. Since the dislocation. We all worked from Zoom at home and our kids went to school and had to have remote learning and we and so epic has done really well.

It’s, it’s, it’s forty thousand kids books in a library, a digital library. So and teachers were assigning books, reading over Epic during the pandemic and that’s worked out amazingly well. 

Do you end up buying a library for your children when your young children. And do you want to do that or is it easier to have like a renting digital rental library where you can read as much as you want and that just makes much more sense.

And you’re not investing in the content itself. You’re investing in how they distribute that content, which is novel. So that’s a good example of there’s actually a technology that’s enabling the the preference shift, the consumer behavior, but there must be.

But it’s you know, consumer preferences change all the time, not only driven by technology.

Right. And so, you know, you do think about that as well. And do you have some theses around how to understand changing consumer behavior and changing norms and or is it always like a tech component as well?

It’s a great question. It’s a really good question and I think that. We’re students of culture and we’re students of technology and we’re students of these these areas, we’re really passionate about certain areas and we spend a ton of time there because we talked to a number of founders and friends and relationships to try to learn, you know, up and down whether it’s content, where where you’re consuming the content, you consuming it in home, out of home.

What are trends for consumption of content at home, like a Pelton or Tonal or out of home? And a good example. Our first investment of Cobalt is basically Feather, and they are a subscription rental furniture business. So catering towards millennials. And what the trend that we’re looking for there was a sort of millennialism is sort of defined by finding freedom, a freedom and flexibility solution for many different products.

You think about cars, there’s Uber, Lyft. You don’t need to own a car anymore. Think about homes you have Airbnb.  Music, you have Spotify.  Clothing, you rent the runway. There are all these different. The trend of millennialism is that you don’t need to own the product. You can rent it and you can decentralise where it’s coming from. And so we look at that trend. That’s not that’s not a quick trend. That’s one that’s been building over the last decade.

And we thought, what are other ways where, you know, that millennials, for example, are are changing the way that we as a society kind of have an interaction with goods. And we thought another trend that we have, which we know and we’re aware of, is that millennials are moving more and more often than any other generation previously, or they’re more they’re changing jobs more often and they’re more mobile across the country. And so when you move so often and you don’t need to own things, your relationship with furniture changes.

And so Feather is a great example of a consumer experience investment on our side that relies on technology that allows you to take advantage of that trend where millennials don’t need to own furniture, they can rent it.

Well, I’m glad it’s a good example, it was also the only example, the public example of an investment because you guys are still new enough. It’s your only public investment, right?

Yeah, we’ve we’ve just closed on another one that’s going to release announced in a day or so. So I want to keep a lid on that one. We’re really excited about it, Cobalt. But that is the we have to one that’s public. 

So I don’t know if this is a fair question because I don’t quite understand how CAA affiliated or affiliated with sort of the Hollywood world.

But I feel like Hollywood does this great job of sort of building brands of understanding consumer preferences.

And I wasn’t sure that there was stuff that we could in in the tech investing world sort of take from a Hollywood, if you will, about how they understand what’s going to resonate with a consumer, what’s going to be a big hit.

Do you think that I mean, it’s great. I mean, you did a way better job of explaining what I was trying to explain in, like five minutes about how our relationship at CAA. I mean.

There are people who really understand consumer talent and consumer behavior, and that interaction with with an audience is really powerful. And when you understand your audience, you can sell a product, you can sell content, you can sell a movie better than anyone, the next guy. And that’s what there’s a whole industry of marketers who are doing really well at that. And we’re trying to emulate the. That’s the best we can.

I sort of missed asking you about who else is at Cobalt. I’m going backwards. A whole. Should you see I’m going back, read the whole section. So who else is at Cobalt’s with. So there.

Yeah, there are eight of us on the team. We it’s the same entire same team at Evolution. My partner Rick Hess started evolution within CAA and and he and I run the firm here and we have a great group of people that that are just, you know, really excited and hungry and love the space and and have been studying it for all these years. And and now it’s the same team. So it’s really great to be able to do this together.

And what role do you play? Like, are you the pragmatist or you like the crazy one or what’s your, Gosh.

We need interview everybody else to find out because I don’t know if I’m qualified to answer that question, but

I think I really like I really like to study and understand the nitty gritty of of a space. I’m, like, fascinated by it. And so if we’re going to make an investment in the furniture subscription space I like, I dive headfirst in and I learn everything there is to know about it. And and I love that part. And I go very deep in each segment that we that we invest in because I think that’s again, that’s my favorite part.

And so how did you end up. I mean, so you did the JD MBA. I have one of those two guys.

How did you end up, you know, making the jump over to being a full time investor? I think it’s always been my passion and I think, you know, I’ve been I was doing deal work on the structuring side as a lawyer, and then I did it as a as an on investing team. And then more and more, I you know, I just got really interested in in how these businesses work, understanding their spaces, understanding the levers are they make them grow and what the levers are that don’t make them grow and try to avoid those and try to avoid pitfalls that I’ve seen. Do you think there’s any pitfalls that really stand out these you still see a lot of and just want to help people avoid those pitfalls?

So many founders don’t pay attention to the small stuff and they’ll have an investor who wants to give them money and they’ll gloss over a lot of the different nuances and they’ll give themselves a problem in setting up for future success and either limiting or structuring their deal in a way that limits their ability to attract additional capital.

And hopefully they’ve been coached otherwise. But I think, you know, and it’s not it’s clearly like founders, like, oh, I’ll just. Figure that stuff out later, we’ll have a better have a good problem solved if I’m so successful and I think I think the well run businesses are ones that I’ve thought about the big picture and the small picture enough.

So that’s like a liquidation preferences or things like that.

So actually you’re talking about. Exactly, yeah. I mean, that’s one example I can go on and on, but I think that’s one example of where I. Yeah. Like where I’ve seen, where we’ve seen problems where you know, they, they’ve given away the house, the farm on to early, early rights that are given away just because they were so happy to get capital.

Yeah, I always say you need a good lawyer. Right, exactly. Got it.

So so, you know, doing being a full time VC is still relatively new for you to be 100 percent on this side. Do you think I mean, coming from the PE world, do you think there’s things that have surprised you in the VC versus PE, do you characterize them fairly differently?

You know, at the heart of PE is buying a good business, and I think you’re buying in just a later and the maturity scale. And so, you know, it’s not that the discipline isn’t the same. I think it is the same that the discipline that is required to buy a whole business is the same is to invest in the business at the early stage. You’re doing it right. You have more information at the later stage and do like tax diligence and, you know, figure out insurance plans and you can figure out all the read all the material contracts that they have and you can get your arms around a lot more information has a buyer of a business.

And that’s sometimes comforting, but sometimes also misleading to think like just because I’ve read all the stuff in the data room that I can understand this business. And so I really think, like, you really need both skills to be able to understand what’s going to help this business grow. And also, what do I need to know about this business that might pose risk? I mean, I think the later stage buyout companies are looking at how how can how can I lose money as a business matures and overgeneralizing, obviously.

But then on the earlier side, you’re thinking, how can I help this business grow? And so to know both is actually I think, you know, really helpful.

Mhm. Yeah. I’m glad I’m not having all the ability to do all the tax diligence and I know I would want to do that either.

This is kind of an oddball question.

So let’s see.

But, you know, being in sitting in CAA and being, you know, working with influencers, some, you know, on digital media, is any of that still seem exciting?

Like is there any glamour?

Still were like occasionally you go home and, you know, you call your mom or whoever, you know, your partner and say, guess who I saw today?

You know, of course. I mean, you’d be crazy not to say that. I think that it’s such a different world than the world that you and I live in all day long that it’s just and people that you see in other contexts when they come into your world, it’s like, you know, it’s so bizarre and it’s exciting, obviously. And I think that when you have when you can. OK, let’s just use the influence or one example, because it’s a great one.

It’s an easy one. But if you have influence or they could come and lend their name to one of your businesses and all of a sudden bring millions of followers like that, that’s really powerful. And it’s not often that you we’re confronted with someone with that sort of reach. And I think that you can not could you become starstruck, but you can just be like it’s a ton of admiration and respect for people who can can bring a lot of big audience to to and be influential with so many people as influencers.

They can be they can be so influential, influential with so many different people from all different walks of life. And it’s an incredible power when they have that. And when you bring it to bear in a really meaningful way, it’s it’s great.

One of my favorite questions is good advice you’ve been given. Wow, um. Make sure that you’re you’re doing doing the right thing, doing. Well, by doing good and and I think that that has a lot of different meanings to not just charitable, but be honorable, do the right thing and a situation, do right by a founder, do right my colleague, do right by a peer investor.

And I think that that’s served us really well, served me really well. It’s worth I like to live by. And, you know, there’s that sort of it’s always in short supply. You can never have too much people trying to look out for each other.

Well, that’s a great note to end on. But I forgot to ask one question, OK, which is how L.A. focused are you guys? We’re very LA folks. I mean, I think that L.A. focus is so much of our thesis. I mean, it’s so much of our history. It would be remiss to say it wasn’t you know, we didn’t look at the world because we sit in L.A., we look at the world in a certain way because we sit in L.A., I should say.

And I think, you know, we love we love the L.A. community. We’re so personally invested in it. We’re so passionate about it. And we want it back as many L.A. businesses as we possibly can to to create a vibrant L.A. venture scene, which I know you’re passionate about, which I’m thrilled about. And I think, you know, so, so much about, at least in the content thesis, is about how you reach an audience. And that’s what L.A. does best as the, you know, so much of the industry here as an exporter of content.

And so I think that it informs what we do and how we invest every day. And we think it’s a special power that we have that we’re in L.A. and we love that and we look at the world differently.

That’s great. Well, makes you a great guest for the L.A. Venture podcast, but really, it’s it’s really great to have Cobalt here in L.A. Thank you so much that we’re excited to be here and be part of the community.

Hamet Watt — Share Ventures

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

View Transcript

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

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

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

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

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

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

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

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

Tell me more about why human wellness.

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

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

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

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

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

I guess sleep is a big one, obviously.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let’s talk about work for another second.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It’s interesting the curiosity thing, too.

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

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

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

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

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

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

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

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

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

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

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

What do you say?

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

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

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

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

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

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

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

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

Like, yeah, maybe I shouldn’t do it.

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

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

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

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

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

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

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

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

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

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

I don’t know. I don’t think so.

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

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

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

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

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

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

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

Thank you. Up.

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

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

Great. Well thank you so much, Hamet.

Virginia Schmitt — B Capital

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

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

Virginia, thanks so much for coming on.

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

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

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

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

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

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

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

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

So does that 25 to 60 million dollar check size.

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

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

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

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

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

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

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

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

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

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

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

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

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

And then also the founder of Renaissance Renaissance.

Correct. Renaissance technologies.

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

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

Saverin.

Correct. He is a co-founder of Facebook.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Got it. OK.

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

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

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

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

Correct?

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

They were more organic. Correct.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Did they have banking backgrounds.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do you think there was any advice?

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

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

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

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

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

D.A. Wallach — Time BioVentures

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Is that what was going. Yeah.

 

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

 

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

 

And that’s that’s the life.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

But how did you become knowledgeable, uncomfortable investing?

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Yeah. Very creative idea.

 

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

 

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

 

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

 

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

 

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

 

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

Rachel Springate — Muse Capital

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

 

 

View Transcript

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

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

Thank you for having me. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Right.

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

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

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

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

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

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

Of course, we’ll get her next time.

Clinton Foy — Crosscut Ventures

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

 

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

Thanks so much for having me.

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

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

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

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

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

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

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

We’ll lead or co-lead. and them.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It’ll be interesting to see.

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

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

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

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

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

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

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

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

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

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

Keep going.

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

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

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

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

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

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

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

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

I would love to bring on a great female partner.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Eric Manlunas — Wavemaker Partners

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are you exclusively focused? I should know this year.

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

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

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

We consider ourselves a startup as ourselves.

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

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

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

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

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

Maybe your first business. Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

What do you mean about being uncomfortable?

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

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

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

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

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

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

Tom McInerney — TGM Ventures

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

 

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

So, Tom, did I.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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