Podcast

Jason Schoettler — Calibrate Ventures

Jason Schoettler started Calibrate Ventures where he invests in advanced automation (usually Series A).  

He and long-time partner Kevin Dunlap have made some really good investments (Ring, Dollar Shave Club) and some newer pretty cool looking ones (check out the Moxie video).  
 
We talk about why he feels comfortable investing in hardware (when there’s a subscription), how to be a good board member, and much more.



View Transcript

And we are on Zoom with special guest Jason Schoettler from Calibrate Ventures.  Calibrate is an $80 million dollar fund writing checks in the three to six million dollar range, meaning that Series A is probably the sweet spot there. Jason, David, how are you both?

Great. Great. Lovely to be here with you guys. As Jason says, it’s Covid day 46. Jason did I get the basics of Calibrate right in that introduction, mostly focused on b2b.

Yeah, we are we’re series A venture capital firm that invests in advanced automation and typically invest in companies when they’ve got signs of early commercial success and view our job as one to help them scale through 20 through 20 million in revenue and through hundreds of millions if we’re doing our our jobs right and work with the right folks. So it’s it’s it’s a great place. We think in all time, but especially right now, to be investing in that in that space.

And my understanding is that you have a pretty concentrated portfolio, is that correct? Yeah, we we founded Calibrate with the belief that we it’s small funds typically outperform. And also the concentration is a way to generate outsized returns. And so we designed our first fund with eighty million dollars to invest in 12 to 15 companies and really lean into our winners. And so we do run a typically more concentrated portfolio than other some other funds of the same size.

Got it. And how do you I mean, that’s that’s. That’s not that many shots on goal. We’ve been very lucky to have some you know, some great some great exits as a result of concentration and really leading into our winners couple here in Southern California. I like Ring a dollar shave club, which were both outstanding. And so, you know, we’ve also had situations where we’ve lost stuff that we’ve been able to pick some good winners and have been disciplined in our follow on capital, which is where where it really matters.

With concentration. And do you then have seed funds were that are like good feeders for you?

Like, should you know, should we be sending you all our advanced automation company?

Absolutely. We’ve been building our network for for 17 years.

One of the things that makes us an attractive partner to both seed managers and the founders is that investing out of a small fund with relatively small capital, you know, we’re not investing in 30 million dollars to Series A round.

We’re investing in rounds that are five to fifteen million generally. And we’re trying not to overwhelm either the cap table or or the boardroom in that regard. So we’ve had a lot of success doing a lot of repeat business with some seed funds and are always looking to build out new relationships. So someone is raising 5 to 15 million usually. What is a series A valuation, typically pre Covid and what do you think you’ll be post Covid?

I mean, we it there is a range. I think we’ve seen everything from the kind as low teens to you know, we’ve seen deep this is what we’ve seen in your low teens, up to upwards of, you know, 50, 60, 70. And I think it will be lower as we get into Covid. In general, I don’t.

I just think I think there’s going to be less capital. And I think the supply and demand means that, you know, you’ll end up with a little bit lower valuations in the in the period ahead.

Yeah, I’ve been thinking about this a lot and discussing it with other VCs. There’s there’s a question in my mind of how long it takes to get that valuation reset, because there’s that there’s money in the system that’s waiting to be deployed. A lot of it’s going to depend on how how long we’re in this period of sheltering in place and how long it takes for for founders to get a read on what the path out of this looks like. And I think until we have a real good handle on that, it’s I think we’ll see less capital flowing in just because there’s going to be a little more uncertainty.

Also, you what you said at the beginning was you tend to invest in advanced automation.But advanced automation, I would think, is also something that people will need more of, if not rather do less of in a post world.

Yeah, we we tend to think that lots of executives and business leaders and technologists are rethinking how they operate, how they run their businesses and from their homes, right from their garages, their living rooms or dining rooms or bedrooms as a as they have really an opportunity to pause and think about business post-Soviet.

And we think that automation is going to play a key role. And for us, there’s two two aspects of automation. Software makes everything go. And there’s a there’s kind of physical automation. And then there’s also digital automation. We think they are both going to play a key role and be accelerated through this as as as executives and managers look to do more with less. There’s a whole host of really good things that happen when you when you can turn routine tasks and workflows over to two machines to do better.

Whether it’s a computer system or software system or or a robotic system. Is that a change from from your point of view from officials? Because something like ring, for example. Jamie’s approach was was always to build a ring of security around the home and then around neighborhood and around in the community.

And I think that, you know, a lot of what he was able to do was to bring bring our front door to our pockets, right to our phones. We’ve done well in consumer with a host of investments, but I think we’ve seen the opportunity and more B to B and the B to B to see opportunities, particularly for the advanced automation stuff.

And I think the reasons, the reasons why we see. I mean, just to be real specific about it. Advanced automation. It it solves a labor shortage problem. It certainly solves labour mobility problem that we’re facing today. It increases and always has productivity and reduces operating costs. And we think actually promotes safer operations for employees. And that’s I think if we look at some of our portfolio companies today, we have some in construction and some in agriculture.

Whereas kind of human labor was a cost and availability issue. It’s also now health and safety issue for many industries as well. And we think that’s going to continue in the decade ahead. Why? Yeah, it sounds like I think you said you do invest in hardware, but everyone says don’t invest in hardware unless you really know what you’re doing.

Well, we think we’re pretty good at it. We’ve got a good track record of investing in hardware. And I think I think you need to know what you’re doing when you’re investing in hardware. I think we don’t invest in hardware businesses that don’t have a subscription component to the revenue, for example. It’s one of many rules of thumb that we have. I think you also need to be very cognizant of the, you know, inventory issues and supply chain issues.

And you need to work with great teams that know what they’re doing because it can be a very challenging place to to to invest. But we’re we’re quite enthusiastic about how kind of that’s the way software gets into the real world in some cases. Right. And that’s really exciting for us to be part of that. And so hardware that still has some substance, you’re not selling something that doesn’t have a subscription, although I will say, geez, I just watched this video of this robot.

What’s its name? Moxie is you.

Did you check out. Yes. Yes. Does it have a subscription?

It does. It does. OK.

What’s a Moxie robot? I don’t know. You got to watch the video.

You’ll have to post it on your notes.

But it was announced yesterday. So we’ve in the last 10 years or so, we’ve made four investments in that way. We’ve invested Ring, Dollar Shave Club, Evolution Robotics, which was started by the guy by the name of Paolo Pirjanian. And that company was acquired by iRobot and would Paolo. It became CTO at iRobot for a number of years. And then he left about four years ago to start Embodied and Embodied there’s about it’s A.I. and software and robotics platform platform for care and wellness.

And they just announced yesterday. So we’re really excited about, after all these years, the getting Moxie out into the wild. And it’s an actual cute little robot companion, animal companion. Yep, it’s awesome. Thank you. Didn’t my dad get it wrong there?

You you talked some about like automation for new industries versus old industries. And how much. How do you think about investing in big old legacy industries that don’t have much tech vs., you know, flying cars and people?

And I think I think a good way to do or a good way to to address that for us is, you know, we’ve not we’ve been very interested in autonomous vehicles, but we have not invested in anything that is related to like consumer automobiles that carry people. The way that we have thought about how to play.

That has been more around ways to.

And by the way, there’s tons of money that has been made. It will be made in autonomous vehicles for the road. But we’ve taken an approach to say, look, where are some industries where machines can do repetitive tasks and add a tremendous amount of value because we’re taking we can do it cheaper or faster or safer than can be done otherwise. And a couple of examples for us with autonomous vehicles are in both heavy construction equipment. We have an investment in built robotics, as well as with a company called Farm Wise that is working in the agriculture space.

And the reason we we like some of these we’d like both of those bets enormously is because your operating vehicles on private land and you can control for a lot more of the variables and you can drive them down Market Street in San Francisco, for example. But at the same time, these industries are have labor shortages and challenges, both with the affordability of of labor. And they really have the because they’re not at the forefront in attracting a lot of attention from kind of tech generally.

There’s a real opportunity to help with some of the leading Delina operators in those spaces to help bring bring some automation there in a new way, the way that Silicon Valley has done well over the many decades of bringing automation to other industries. And I guess the last point that I would make is that when you look at. When you look at these industries, one of the big tipping points is the cost point for hardware and software. And that’s that’s another important reason why we’re comfortable investing in hardware.

Because the component costs and the ability to prototype and iterate in scale and the supply chain, those costs have all come down dramatically over the years. And I think they’re at a point where it makes a lot of sense to bring them into those industries.

And on this software side, what is I mean is the software side more traditional automation of sales processes, customer service, processing?

Yeah, we’ve done we’ve done stuff on on on the enterprise side that’s focused on sales automation, that’s focused on connecting customer, you know, stuff that drives revenue for businesses. So for us, it’s been around product tools, developer tools and soft sales force automation. We’ve looked at in and continue to look at lots of things in the in the A.I. space. And we’ll continue to do that as well.

So I want to loop back and ask you about how you work with companies with a smaller portfolio, you should have more time to spend with them. What is the relationship and how do you see an optimal way to work with companies?

We we we lead about three quarters of time and we take a board seat when we lead. One of the lessons that we learned early in our careers and that I hold very dearly to me is that it’s all about people and the value of putting people first and realizing that that sometimes it can be a lonely walk as a founder. I mean, we were founders ourselves.

We really do place a premium on working with the CEOs, with the founders and being there for them when they have issues. I think a lot of the hard work that the best board members do is off line and in bringing to bear their their operating grants and sharing, you know, tricks of the trade or perspectives that they have off-line and not necessarily. I think that’s one distinction that’s appreciated by my founders.

And I think the you know, there are other board members that are very technical in and we find it that those those folks are really instrumental at the early stages of investing.

And then there’s, you know, as you move as companies get grow and mature and scale, certainly the profile of investor changes is growth. Investors enter the mix. You typically take a more financial orientation, which is perfectly appropriate as companies grow in scale.

This may be obvious to both of you guys, but when you join a board, how many people are on the board? And when do you roll off? And how many people are on the board when you roll off?

When we get involved is Spike Lee anywhere from three to five directors. Usually there’s a founder or two and maybe a seed investor or two who are on the board.

And at the time that we’re investing, it typically grows to somewhere between five and seven. And and as the company has progressed through their companies, progressed through their later financings, we typically roll off as as the boards grow. But I’d say it’s usually in a three to five range. When we get involved, then that’s how we exit somewhere in the five seven. If it gets larger than that, it gets unwieldy. That is my experience. I mean, the future, if you are the better.

Interesting. I was going to ask you that, which is like what really what’s a dysfunctional board look like? How can a board really screw things up for a company?

You know, that’s a good question, and that’s probably there’s a whole podcast series you can you can do on that bad boy gone wrong.

But, you know. For me, the one of the things that I have noticed in my career is when when a board. Either because because a founder has some some certainty or some lack of clarity about what to do. And and goes to the board for advice to help set strategy. Right. And and really leans on the board to help provide guidance and framework and direction. It.

That’s typically been a cause of concern. We love founders to be bold and to have a point of view and to debate it and listen. But if there’s a lot of uncertainty around what to do, that can be a that can be a problem because it invites the board to get involved in more management issues and more executive issues.

And we’ve seen that that play out badly. And I would say that’s kind of that that can be an that can be a challenge with the founder. The other side of that coin is where boards have a very strong point of view and kind of enforce themselves, enforce themselves or assert themselves in the process, which is kind of the same dynamic. But I’ve been on some boards where, you know, the boards have a particular point of view and want to go charge that hill as opposed to some other hill.

And that makes for four rough dynamics as well.

I find that a really tricky needle to thread, so because I was always sold when coming to my board, don’t just come with an update. Don’t just come with like you’re the numbers.

Like they can read that. So bring the real issues that you’re, like, actively debating. But I think what you’re saying is bring the real issues. But don’t look to us for guidance. Just share.

Well, I think yeah, I think I think that is it is tricky.

But I think I do think that the best board meetings I’m in are when you get through like the second slide and then you spend two and a half hours working two or three major issues with with the couple. Those are very productive. I feel productive when I’m leaving those board meetings. And I know the CEOs feel the same way. 

You’ve been shook up to those times that you’ve been doing this for a really long time. And I know that you were at a different fund prior to Calibrate.  Calibrate’s.

Pretty new, right? Yeah. Kevin and I, my partner founded Calibrate and 20. Middle of twenty. Seventeen. And and we talk a little bit about Shae Venturers and what used to be for sure.

And maybe if I go, you know, go all the way back just to connect the dots. I mean, I’ve I’ve been in tech all my career. I started as a as a management consultant for Ernst and Young in Silicon Valley, where I was working for HP and Agilent for a couple of years in the dot com kind of late 90s period.

And then I was recruited to join a product in a product management role, a startup out of JPL and Cal Tech that was commercializing software that was used in the Mars Pathfinder mission. And then Shea Ventures, which was the largest investor in that startup. We recruited me to be the first investment professional. And then Shea ventures a family office that was one of the pioneering venture capital investors going back to the late. Late 1960s, and that was just a tremendous, tremendous opportunity, we invested off of the balance sheet for a number of years and then we ran a couple of funds that included outside investors most recently.

So it was a wonderful, wonderful place to learn to learn how to be an investor. Does do companies if if there’s companies like companies that are looking for investment, which just a lot of them do, they would they go directly to Shea ventures? 

I suspect that the predominant investments they’re making now are are probably later stage and and into funds.

But they do they do do some core investing alongside some of their managers as well. They’re one of our tailpiece. So we know that know pretty well. What has changed? How have you changed the most as an investor? I’ve learned a couple of things in my career. I’ve learned that it’s it’s all about people. We’ve talked about that.

I’d say being intellectually honest is another big lesson. I think that’s something that that both Kevin and I try to remind each other, that the value is that we’ve both been really good at sleeping on things and not holding so tightly to two preconceived notions and being being open data, I think is really important part of being an investor. And then I’d say that it’s good if it gets to your your last question like it’s OK to make mistakes, like as long as you’re learning from them.

Right.

And as long as you’re you’re able to, you know, fold the learnings to the next the best, because we are going to have we are going to make mistakes. Are our founders going to make mistakes and we’re going to lose money along the way. But that’s part of the business of investing in startups. Maybe I was. I was going to I was looking at your Web site. It said something like, our decisions are guided by our founding values, not herd mentality.

I think what we what we mean by that is, is not feeling as though you’re you’re missing out on on something and feeling like you need to invest in X, Y, Z sector or a company that is pursuing X, Y, Z, technology or market because everybody else’s. So I think we try to be really independent in our thinking. And and and I wouldn’t say we’re always contrarian, but there have been times when when we’ve invested in things that weren’t obvious, that it turned out to be great, you know, great investments.

I know both.

I know the ring know Jamie is definitely had some dark periods of trying to raise capital. And, you know, we invested he was doing about three million in revenue and it was a great investment. It rang a lot of people invested in that early on and a lot of people passed at the time that we were looking to that we invested. And I think we feel really good about not being persuaded by other people saying no, no investment or saying yes to investment.

What is it? Give us some guys. They give us dirt on Kevin. What is Kevin? Why do you talk about being intellectually honest? Like one of the things. What are his hot buttons? You know, where do you guys agree or disagree? Do you push each other on?

Well, he he’s a mechanical engineer by training and practice. And I’m I’m a liberal arts person by training.

And and I think I think we work really well together because I think I think there’s a quantitative and there’s a quantitative and no B.S. kind of analysis that Kevin brings to the table. And I think he would agree with that. You have to ask can’t get him on the show and ask him. And I think there’s there’s there’s a bit more of a softer side of things that I sometimes come to come to the table with. And my kids are a little older and his verdel younger.

And so there’s he’s feeling a little more under siege at home in quarantine than I am right now.

So that’s maybe a hot button.

But I think we’re very different personalities.

We’re very different people, but we’re very close friends. And we’re we’re four we’ve been business partners for four or fifteen years. And it’s it’s there’s no one I’d rather be in business with. Street. Is that as you in cabinet, obviously, you guys are, you know, BMF is about as did the other has the rest of your team.

So we’ve got you know, we’ve got a great team of operational support here in Southern California and financial support. And then we we recently added Dan Murray and Amy Lifer as venture partners, which was a big move for us. We added them in January after looking at lots of folks, and we couldn’t be happier with the fact that they’ve joined us. So I get asked a lot about how do I get into it’s a common question. So for you, these venture partners, are they full time? Are they not full time? How do they. I mean, because it’s sort of a path for people who want to be more full time and adventure.

So I think that’s one that’s one way is to become a venture partner. I think, you know, for us, a venture partner means, you know, we’ve got some tremendous athletes. They have full time, full time gigs already. And they have about what we expect to get about 20 percent of their time over the course of the year.  They’re part of our partner meeting every Tuesday and they work with us, kind of like diligence and and other calls as well. Got it. And and is Kevin also in Pasadena? So you guys are your offices in Pasadena, which is one of the things I like best.

We we love Pasadena. Yeah. So. So Calibrate intergalactic headquarters. Is it in Pasadena? And and it’s been here for since we founded the company.And where are you from? I was born and raised in Fresno, California.

Up in the Central Valley.

What do your parents. What are your parents do? How do you end up in Fresno?

Well, I was born there. That’s how I ended up there. My parents, my my.

My mom was a who was a schoolteacher when I was growing up. And she’s now a children’s author. And by my dad has been in the in the mortgage banking and real estate business, his career. So it’s been it’s been a fun run.

David, do you got anything else? No. It’s been great. Yeah. Thanks for playing along. Well, Jason, thank you so much. And we look forward to going over all of our advanced automation companies with you in the near future.

It’s great to be on with you guys. Thank you. And I know what you’re gonna. Yeah, good. And you’re gonna see me zoom, zoom on our strategy. We can’t wait. Yeah. Big time. Very exciting. All right. Thanks, guys. OK, see you. Bye bye.

Dovi Frances — Group11

Dovi Frances is the founder of Group 11 VC, one of the nation’s top decile performing FinTech funds. Group11 has led fintech investments into category defining companies such as Tipalti, Sunbit, TripActions and next insurance to name a few. (Series A sweet spot).

Dovi is a bold thinker who isn’t afraid to throw jabs at other venture capitalists for hosting too many lavish parties and yoga sessions. This one is a fun listen.


View Transcript

Dovi Frances is the founding partner of group11, formerly as SGVC. group11 is an L.A. based venture fund. Investing in fintech, Dovi has led investments into companies like TripActions, Tipalti, Sunbit, Home Light, Next Insurance. Before becoming an investor Dovi worked for a decade in the financial services industry, but I was going to add Dovi. I’m super excited because I happen to know that you’re married to a world class surfer, you are a shark on the Israeli version of Shark Tank and you’re super bold.

I’ve been reading. I’ve been reading and listening to you. You’re really bold in what you say and write. And I think that you make a good conversation.

I sure hope so. Yeah, I hope so too. But first up today, did I just get the basics of group11?

It sounds fine. I mean, we can talk more about that as we as we dive deeper into their phases. And what makes us tick.

Yeah. Well, please do tell me some about your thesis. What makes you tick? As I understand it, your sweet spot is a series A investment into a fintech company.

Yeah. You know, when I was reading the questions for this interview, I thought to myself, how interesting that we’re trying to put all of us into some kind of like, you know, I understand we’re doing it for the audience and there are many entrepreneurs listening to your podcasts. And by the way, congratulations. I looked at the numbers. They’re pretty staggering. It looks like, given the very nice saw the next 10x improvement over time. Who the with the podcast and the newsletter.

So really, congratulations. You are doing a great job. And actually, the content is interesting. But I was trying to say that it’s it’s for me, I feel when I speak with prospective limited partners that it’s kind of tough to put to put us into one specific box 

But in general, we invest in financial technology companies first and foremost. That’s my sandbox. I don’t get out of the sandbox.

I feel like I could spend many more lifetimes before I can master the art of being a really good financial technology investor. And that’s my aim. My aim is to be, you know, if you ask me above it all. My aim is for group11 to be the nation’s best financial technology investor in terms of performance and performance is tangible, right. In our industry. Everybody, like in the real estate, in the real estate brokerage industry, everybody talks a big game.

It’s quantifiable, right? Participate in capital distribution, debating capital IRR.

So I really want to kind of like master my craft. Right. So, anyway, fintech number one. Number two, software as a service. I’m far more intrigued than interested in companies that help disrupt mundane human intensive processes.

So I consider it like men-machine symbiosis in financial services.That’s secondly, companies that are led by seasoned entrepreneurs. It’s typically not their first rodeo. I prefer to put significant checks behind founders that have done it before, succeeded or failed.

But at least have the muscle memory of how it is to scale a company from zero to one.I prefer to invest in California. It’s easier for me to take a board seat, to travel, to add value, to meet with the executive team and so on and so forth.

And lastly, which is interesting, about 60 to 70 percent of our portfolio is led by people like myself, people who left Israel about 10, 15 years ago and are now here. And I guess it’s kind of like a it’s a it just happens naturally. Right. I’m Israeli and I tend to gravitate toward those people and I guess vice versa. I also understand them. Right.

That’s what I was going to ask is, is it your pipeline or do you think it’s a personality fit? And if it’s a personality, sort of fit. What is it about that entrepreneur that resonates with you? Yeah, I feel like, you know, pipeline is not necessarily disjointed from personality fit sharing. If you think about it, our companies are kind of like in our founders are kind of the same people that we would like to hang out.

We then have a beer. Right. So. So that’s that. And definitely it’s a cult. I think it’s a cultural thing. You know, I spent four and half years in the army in my last well, I was a company commander in Officer Academy. So. I tend to resonate with other people who were officers as well. And and many of my founders were officers and special forces or intelligence units and so on and so forth. So there was something about that insight.

And the second thing is that the Israelis is a fairly poor country, maybe with good PR, but fairly good. The PR around tech. Right. Not around human rights, but a fairly poor country with not too many natural resources, if any, maybe apart from the Dead Sea Salt. Right. So. So I feel like many of the founders that we invest in and have maybe R&D centers and these are also the cost is actually lower than the costs here for engineers, but also have that time type of like grit.

Nimbleness that I think characterizes so many of our portfolio companies. So that’s that.

Yeah. And then going backward, one thought on. Well, I guess one question is, what if I’m not Israeli like it?

The next the sort of 40 percent. OK, ok. Fair enough. Yeah.

I do not discriminate between Israelis, non-Israelis. I still happen to have statistically invested more in people like myself who left Israel, moved to the states and started the company. And I think that’s just kind of like how the pipeline also works. Yeah.

And the SAAS focus is that. Have you changed as over the course of your investing to have more of a SAAS focus? Yeah, I mean, look, when I when I started investing in tech, I was still running a family office out of Santa Barbara. And. It was kind of like an escalation of commitment, like over time. I just fell in love with it and decided to turn it into my full time profession. It took me about five years to get there. So I left the family office May of 2015 to focus 100% percent of my time on venture capital investing.

So it took me some time to to kind of like figure out what my sandbox is like and what where I feel more comfortable. And the answer is that I feel much more comfortable predicting the future where I can see a path that is a consistent path off of value of value add and and MRR, ARR appreciation, and that typically calls with software as a service. Right. Yeah.

Well, then what? I mean, you it sort of sounds like you put yourself in a box more than I mean, I called you a fintech investor. It sounds like you’ve actually narrowed your focus. I was actually alluding to the questions that you sent me, like, what is the average check like? And, you know, I like I think they’re we kind of differ. I will do things from super early before there is any proof of concept. It’s uncommon, but I’ll do that to investing in series B if I feel like there is still a 10x potential for the company. So 10x potential mean that the enterprise value can grow 10x from where we invested.

So that’s that’s what I meant. But in terms of kind of like the areas of interest, we have limited hours in the day. Right. But I prefer just to choose areas that are enterprise software, for example, accounts payable, accounts receivable, invoice automation, financial reporting, a payroll, global payroll processing, and the list goes on and on.

I think in one of our descriptions of TenOneTen, we said yes. The less sexy, the better.

So, yeah, I want to say I wanted to say boring. But then somebody told me recently from my team that I use the word boring too often. And I decided not to use it in the description. But you’re absolutely right. Boring is the new sexy guy.

And group11. As the brand group11.

You guys used to be SGVC. Right.

So there’s kind of a new new fund name at least. Yeah.

You know, we rebranded about a year ago. I wanted to rebrand. Years ago when I left the family office, the family office name was S.G.. And that’s how the name SGVC was born. It’s the initials of the principal. And when I left in May of 2015, I really wanted to rebrand. But it didn’t have the money. I was I was really busy. There’s like an infinite list of things that you can do around branding and marketing. Most of. Most of it cannot is not tangible. Hard to know how it is as a fund manager is very, very difficult to do. To a certain what really adds value or not. Like I see a bunch of VCs here, like doing yoga sessions on, on, on their balconies and so on and so forth.

Like I couldn’t care less about this bullshit. For me, I wanted to change the name to a name that reflects and encompasses what we are about. Right. And because we focus on fintech, I thought to myself, okay, what will be a really cool name to choose that? That kind of flex speaks to what we’re doing in group11. Obviously from the elements chart are basically all the precious metals. So it’s gold, silver and copper and another one that is not a real but a real metal.

So that’s that’s why we chose the name. OK.

But I have to go back because I think you just, you know, call it something like the touchy feely bullshit that, you know, the yoga sessions, which I guess might push back.

They are a little bit if it is pushed back, is that, you know, mental health is super important. I agree.

And what does it have to do? What does that have to do with my profession? Go to betterhelp.com or talk space or see a shrink. Right.

Right. So you think not the role of the venture capital is to be leading the yoga sessions for their founders?

You know, I think with time there is a very blurry line between venture capitalism. I’ve seen a bunch of venture capitalists. I won’t name names, but, you know. That I think lost a little bit of direction between what matters and what adds value to your limited partners and your and your companies and your overall community and what does not. And I see I definitely see us as a part of our overall greater community. My responsibility is first and foremost.

I have two customers buy two types of customers. I have my limited partners on one hand. And I have my portfolio companies on the other hand. That includes the founder, C suite level executives and their employees. Rightthe greater community. So I just don’t think that there is a good bank for the buck and me hosting any events, doing any type of press, paying a PR agency to promote my brand and so on and so forth. I just don’t see value in it. I don’t think there is a good bang for the buck in it for me.

I think that our story needs to be told and carried forward by our portfolio companies, employees and investors. And as long as I service those two communities properly, I think that we will build an excellent brand name over time. And of course, we need to also succeed and deliver results. But that’s kind of like how I want to play the venture capital game. I think I think it cannot be that there is such cohesiveness among so many of our peers.

If everybody is deploying capital on lavish events and yoga with minimal clothes on the balcony in a nice office in Venice, then, you know, I probably should not play that game. I should be contrarian if I want to win. Yeah. Yes. And yet, you know, you could say that a a seed stage or a series, an early stage entrepreneur benefits a lot by having a big brand name investor on their cap table. And so establishing your name helps them.

It helps gives them some stamp of approval. Let me tell you.

I think. Let me. May I. May I give you a contrarian?

Yeah. Absolutely.

OK, so what is the importance of a brand name today? Like in the end, it’s a question that I kind of like asked myself as well. What do I forgive me for putting the sunglasses on? It’s not that it’s not the tour. Because we’re in Venice or Los Angeles. It’s really because my hair is getting too long and I cannot hold it any other way. You know, back in the days. You ask your parents or mine about Goldman Sachs or Deutsche Bank or Wells Fargo or Citi.

or any of those like large insurgents.

They would absolutely only bank with the big ones. Right. I mean, that’s basically it. Right. And I think what you’re seeing nowadays, you know, you’re seeing neo banks like M26, you know, Chime for the time is a great example. Chime is onboarding on a monthly basis. More clients in Wells Fargo right now and Citi retail clients. And they have you know, I think Wells Fargo has more than two hundred thousand employees and Chime has a few hundreds.

Right. So brand is a big is a big word, but I think the importance of a brand name is changed as well. Like, I don’t know, today. If if you ask any of my entrepreneurs, and I’m like, yes, entrepreneurs in general, you know, I think, yeah, it would be nice to take money from Sequoia or Andreessen. And I think they’re great. They’re great investors, eh? But, you know, the delta like the distance between it two one investor and a two to investor like like ourselves, and allow me to put us as a to invest investor for the time being.

A is not that the distance is not that long. Right. So a so, so I am trying to make a couple of arguments. Number one, I don’t think branding matters as much as as much as you think. And if, if, if and if he does matter. It matters around. Two things, subject matter expertise and value creation by and I. Sorry. I’m sorry, I just don’t consider many of the events that we’re seeing in the marketplace around brand recognition.

Like yoga sessions or many other stuff. I just don’t don’t consider them as any any sort of value creation to the community. I just don’t. Yeah, yeah.

Well, but what I think about is I’ve spent my whole career in product management. And so we’re we’re told to think, what does the user need? What is the user need? Right. And the user in this case being the founders.

And I tried to think about some what do founders need today and what are they going to need in three to five years that they’re not getting?

Yeah, I think you’re asking such a great question. I think that entrepreneurs. Need three things in general from a venture capitalist. I’ll break it down for you. I would say above that, though, you know how many voices we have in the US now? About 1816. Something like that. As of the end of last year. OK. And how many do we have globally? About three thousand twenty nine hundred seventy three.

It’s too it’s too many pieces. So I think what entrepreneurs need first and foremost is less of us.

I’m not sure I agree because of the number of entrepreneurs is growing so rapidly. I just feel this amazing. I think it’s the huge bright spot of our country and of Israel and some of the other very innovative countries is that you’re getting such so many. So much more entrepreneurship growing out of, you know, universities in the area.

Of course, as long as there is enough of it. Look, it depends on which subsectors and where, you know, where innovation can take place. Right. So we’ll see. I’m sure. Continuous continuous innovation around biotech, sure, culture, technology, financial technology. These are areas where I consider, you know, we’ll continue. You know, the European renaissance lasted like almost 100 years. There is no there is no reason why our renaissance here, which has only just begun, will not continue for decades to come, I think what we have seen over the past couple of years, which might explain, by the way, why prices went went up so significantly, is too much money, too much money in the system and not enough not enough good and good entrepreneurs. So I think we’ll see some some consolidation amongst venture capitalists, and that’s that’s number one. But to your question and by the way, I hope that’s the case because that would allow us to differentiate ourselves and to build some kind of a legacy.

It’s you know, when everything is going up and everybody looks good in terms of total value to paid in and and and and distribution debate and capital and their execs are on companies that shouldn’t have been being sold from the get go. Because it’s kind of like the hay days. It’s one thing. But when everything is brought back into some kind of normality, which I consider the current, you know, the current I consider post Covid 19 to be that over the next few months.

Then when you when you win it, it is warranted. Anyways, going back to value creation, there are three things that I think matter to the entrepreneur. One is that to get they get money from you, but from other deep pocketed investors. And to the extent as a venture capital is that you can bring other venture capitalists with you into a deal as your partners just to make sure that we have enough enough money around the table in future rounds.

I think that’s that’s very important. The second thing is helping with securing customers, because many of our companies are a software service companies.

I think it’s really important to help them win new customers. And this is I consider I consider each one of far. I take big pride in our value creation efforts. Lian Kimia, whom you have Matthews’s leading leading that effort on our behalf. But, you know, I work in tandem with her and so are other members of our team. We take our portfolio companies, we meet with the S.R.O., we meet, we do some of the executives in the sales team and we ask them some fundamental questions like what are your top 100 accounts that you would like to win?

Give us us give us the names of the accounts. Give us some background on where you feilding painting them. And let’s see if we can help you. And too much, to my surprise. Not too many VCs are focusing on that. And I guess I guess it’s a shame because it’s we have learned and you know, if I can inspire anybody who is watching this podcast has to go through or venture companies and demand that they will do it for them, it’s very effective.

When when when when an investor reaches us, reaches out. To a CFO of a company, for example, that’s a target customer. A foolish thing, and just endorses their portfolio company and say, hey, you know, so and so, I you know, I would like I would like to share with you why we’re excited about the Tipalti or TripActions. I would like to offer my endorsement. And I’m happy to facilitate the call with ourselves. And because I think they can add military organization, as simple as it may sound. What I just described doing it at scale. By the way, it’s quite complicated. It’s it’s demanding because once you do it and you do it for a bunch of companies, you also need to follow up.

And you also need to you also need to send a reminder once you send the first message and so on and so forth. But it has been very, very effective. The third thing. He’s helping the company retain top management, so c suite level executives and I feel like we’ve done we’ve done a good job there as well. So these are kind of the three things that we’re trying trying to do.

Yeah. So you you said some about having big parties and yoga sessions and summit, some might not be your thing, but you are doing a fair amount.

I think I just saw you guys tweeting about was it office hours or webinars? See, you are doing some convening and bringing people together.

Yeah, I mean, I, I never hosted the never hosted a party as a venture capitalist in my life. But what we are doing is, is always around a certain theme. So for example, I hosted free office hours since the crisis has begun to anybody in the community. It’s a first come, first serve. It’s always like five to seven people in the room right in the Zoom chat room. We’re doing it for about an hour. Everybody’s presenting a question.

Then we I try to answer. Other members tried to answer it. We just have an open conversation there that has been really nice. I really enjoyed that initiative. And it allows. It just allows us to be connected with the community, with whomever it is wants to communicate with. I force I write my medium post every time I want to. To vent. Oh my gosh.

You write some bold medium posts. Yeah, I know many of my Democratic friends are not happy about it.

Some of what you wrote was things like send everyone back to work. You wrote that early in the in the in the pandemic lockdown here. But you also wrote. You wrote something to Sequoia when Sequoia you said she was great. Like I’m gonna direct everyone back to your medium post. Yeah. Yeah. I appreciate them. They’re kind of funny.

Yeah. They are kind of funny. They’re good actually. I do. But I think in response to basically you said something like, you know, yes, there’s a virus out there. I was. Fundraising’s gonna get no shit. Thanks to you. Yeah.

Yeah. You know.

So do you like VCs? My question is, do you dislike VCs?

I don’t know if I dislike or like VCs. I think all of us in our society, everybody serves a function. And I don’t hate people for serving their function. I hate people for having too much ego when it comes to their profession. And I hate people or not hate people. I hate I I dislike I don’t appreciate people who don’t understand what is the function that they serve. We are conduits of capital. We’re not the end all. Be all.

It’s not about us at all. It’s about our founders. It’s about our portfolio companies. And it’s about the value the day to society. And as long as whomever I work with understands that. And and, you know, carrying that role. Their role with that. With that in mind, with the humidity in mind, I’m I’m down for collaborating with them forever. But the moment it turns into, like all these yogas, parties and all this bullshit. I just don’t I just think it’s crap. And and it maybe it comes to bolster one’s ego. And I just doesn’t resonate well with me. More importantly, the thing I do care about, which I don’t know whether you and I agree on this one, but is what you just alluded to, which is the sort of the value that your portfolio companies are adding to society or to the community. And how do you think about the sort of role of business is a big question. How do you think about the role of business in like capitalism in our society? And, you know, is it is it, you know, maximizing shareholder value or is there something more there?

Well, what a tough question, right? Because many of the companies that we back help eliminate redundancies. So in essence, they also help eliminate employees that are doing today manual labor. Yeah. So. You know, and I think that nothing can stop human progress. And whatever was meant to be will be. So, for example, you know, back in the days, my grandfather was a bus driver. OK. And back then in Israel, being a bus driver was a big thing, like to be a bus driver in Agard, which was the National Transportation Company, was a big thing.

You would get one share. You will buy it with real money, hard earned money. And my grandfather was a Holocaust survivor, borrowed money from the bank to buy that share. And then he became a bus driver. And it was you know, he took great pride in these in his work to retire a, you know, fast-Forward today. You know, being a bus driver, it’s a great job. You know, nobody looks at it as if it was as if you were a banker at Goldman Sachs.

And by the way, when I graduated from business school in 2008, being a banker at Goldman Sachs was a big thing. Well, I think today today being an entrepreneur is the next big thing. Right. So when things evolve I guess I just see businesses playing a bigger role in society than they used to play. And maybe government becoming less effective.

Perhaps that’s particularly true in our country. So I feel like someone has to. Someone is making bigger. A lot of businesses are making bigger decisions than they used to be that affect our lives. So, yeah.

No, I, I. I agree with you, actually. Yeah, it’s interesting what he said, what he said about politicians. 

I mean, I think it’s enough to look, Gavin Newsom is a press release from like two days ago when he’s putting his Thirty Seven Steps program to open California over the next 10 years. Businesspeople?

Yeah, you’re pretty you’re pretty adamant about getting back to work, aren’t you?

We have to. There is not a way around it. This economy was not this society was not built to stay at home scared. We need to look at the odds and we need to open the economy. And the price that needs to be paid is the price that needs to be paid. But mind you, you know, people work through people work for wars. Right? Definitely in Israel. But, you know, look at the World War two as well.

People worked through wars. People worked through bombers flying above their above their homes. The reason for the way around it. We got too spoiled. We have to provide for our families. And we have to get back to work. And by the way, really, the sooner the better, because the second bounce of the ball is coming. And it’s coming to commercial real estate. It’s coming to commercial loans. It’s coming. We have to get back to work.

The price will be unbearable if we don’t.

Yeah. Yeah. Yeah. I’m scared about. I feel like we also have a lot of B2B I feel like the B2C stuff has felt the hits that a lot of our companies are.

I think it’s still going to be a bloodbath later this year, which is scary.

Yeah, I’m not even you know, I’m not even talking about my own portfolio companies.

I’m more worried about the average American that doesn’t have a thousand dollars to her name, that has a family of two or three mouths to feed. They don’t live in a single family residence that living in the apartment building. I worried about those people. And I am as a capitalist, as somebody you know. A came from. I don’t want to say a poor family, but a family that had average. Average means. I know how it feels to be under significant financial pressure.

I know how it affects the household. And I can relate to it just because I remember how it was. And I know that many families are being squashed right now and where we’re not. I’m telling you, we’re not feeding it. I’ve had too many friends that argued with me over Facebook, around my comments. Know, I get back to work. Comments. And they’re all for staying at home, but they have the financial luxury to stay home.

And most people just don’t. Why? Why are you bolder than some? I don’t know what my question is, but that’s what I want to ask a.

Because, look, this is a very short simulation for all of us. A short life. And if I don’t speak my mind, then I just play the game like everybody else, then then, you know, then what the hell? In fact, I feel like I’m not bold enough and I’m not doing enough. So who knows? Maybe I’ll go to politics one day.

I think that’s why I don’t think you will. Because you write to me. Maybe. Maybe because our politicians nowadays are more authentic or something. Yeah, maybe.

And I just I don’t know how to be bolder, I think. Like you, I would like to be bolder.

But I don’t quite know. I’m not.

My head is as well. It sounds like you’re very clear on your direction.

Well, you know, I might be mistaken as well. I mean, I’m very I’m trying it’s very difficult to navigate life. Right? Because because, you know, back in the days I remember as a kid, you know, we had one channel on TV and that was the truth, finding out.

Now, you know, you open CNN. The war has ended. You opened FOX. Nothing has happened. And the truth is somewhere in between. Yeah.

And we all have to kind of like have our own northern northern star. I’m just trying to have mine and that, you know, and I might be wrong or I might be right, but yeah, that’s the name.

So, staying on it a little bit. Is your background’s fascinating. And I probably could have a whole podcast. By the way, I listen to a podcast that you’re on. And it was so good. And I loved it so much. One is huge. See, what was it called?

Say forward.

Say it forward. Yeah. You know what? No, but not too many people. It’s amazing that you found it.You know, I came I came to the book just not even knowing what they’re going to ask me about. There was no preparation in advance. And we ended up talking about interesting things like depression, family, the army.

It was it was great. It was very interesting. Yes.

So, yeah, I’m an add a link. I’ll add a link to it because he was great. You know, I, I ended up liking you more after listening to.

I also was depressed and dropped out of college actually. And I counted as one of the best things that happened to me like was like wham!

Was there anything else.

There’s a whole you have such a rich personal side of things. So are you still on the Israeli shark tank?

I just had to ask. I did two seasons. I think that’s enough for me. I mean, I really enjoyed both seasons and they had great rating actually.

I think on average were anywhere between 14 to 16 percent of all households in Israel was good. It really helped me build a good brand name in Israel, which was to the benefit of the fun because, you know, because we get an amazing pipeline of full opportunities from Israeli to the Americans. Right. The Israeli entrepreneurs leave Israel, come to the Americas, and now they feel like they know you. So that was good.

But this is what we were talking about before, which is there is some value in having a brand name that people know and are attracted to.

 just don’t believe in parties because nobody gets to engage. It’s all about having fun, self-indulgence for that. I don’t need to host the party. I can participate in one. And if I do, it’s definitely not going to be one hosted by NBC. OK.

Thank you. My. I just don’t get it. I just cannot get on anyone’s guest list.

They might invite me just as a contrarian. You know. I guess so.

Yeah. How. Give that guy the mike. No yoga. No yoga. But let me make sure.

Did I miss though. Talking more about the entrepreneurs who should approach you. You’ve got this great portfolio. You’re actively investing. You know other ways that people should best get to know you.

You don’t know. Coming AIDS. We have a good Web site. I think it’s group11. We see where five members in the team. 

Everybody’s approachable. And that’s the spirit of the firm. We’re not that it’s not that difficult to find us. I would just say that, you know, if not a fintech startup, don’t butter. Right? If it’s not a thing. It’s not a bone butter. Just just because we’re laser focused on this on the sector.

Well, we will. We will send our our seed companies that are in the fintech space your way for sure.

I would love that. Great.

Great. Well, I’ll get to wrap this up and say thank you so much for coming on the show. This is great.

Thanks for tolerating me. Oh, no. Here. You’re so much fun.

Ernst & Vaughn — Blue Bear Capital

BlueBear Capital invests in technologies for the energy sector ($1-4M first check).  We talk with Ernst and Vaughn about the energy supply chain, the growth of renewables and what Ernst calls BroPEC.



View Transcript

If you think that the $30 trillion dollar energy sector is important, then you’re gonna like today’s show. I’m zooming with Ernst and Vaughn from BlueBear Capital. BlueBear invests in technology for the energy sector.

But they’re looking at the full energy supply chains. It was a pretty broad scope of investments, as I understand it. Not a lot in your guy’s portfolio. It’s really like on the consumer side of energy. But you guys can tell me about that. Ernst and Vaughn and I are all here in L.A., but we’re on Zoom for this one. So thank you both for zooming with me. Yeah, thanks for having us. Thanks for having us.

I think you were literally our last in person meeting and in the first or second week of March before we all went into lockdown. Remember, we did the elbow bump in your office.

Yeah, I should’ve about my microphone’s had I know Vaughn.

So when I when I start with you, I’ll put you on the spot and just give me some the basics of blue air, what you guys invest in, what’s our attraction, what size checks, all that stuff.

Yeah, absolutely. So BlueBear Capital focuses on investing in data driven technologies that optimize, enable or protect energy assets and the energy supply chain in terms of stage where we’re less focused on the sort of alphabet declination of seeds or is a series B and more focused on companies have demonstrated early customer traction VIER revenue with Enterpriser industrial scale. So once the companies reach that milestone, that’s when we start getting interested. And we are our range of check sizes about $1 to 4 million usually during and around $2.5 million on average for our first check and we intend to follow on.

We save about 2 to 1 in terms of capital for reserves in our versus our initial investment. That’s great. And did I I sort of tried to characterize it as being more this energy supply chain rather than consumer. Do you have certain you know, do you focus on renewables or do you have certain themes within that?Yes, we do. So we really focused on the the industrial activities and the supply chain complexity that are required to get energy from production all the way through to market.

We’re less likely to invest in, let’s say, a smart home thermostat or because a scooter because that’s last mile transportation. We’re more interested in software like operational A.I. or industrial communications and connectivity that’s deployed in a large scale wind farms, solar park, refinery transportation network grid infrastructure. So most of that trillions of dollars of year spent in the energy industry is actually in those complex industrial operations. And that’s where we found the least penetration of software.

So the greatest investment need and opportunity.

And from what you just said, you used wind turbines, solar farms. Do you have a renewables focus or is it more traditional oil and gas?

So I hesitate to say that we don’t touch oil and gas because actually a lot of the world’s largest oil and gas operators are aggressively pivoting towards building wind and solar and grid infrastructure. So sometimes our portfolio companies, customers, maybe a Chevron or a BP or Shell, but actually they’re redirecting a lot of that engineering, procurement and construction talent towards more sustainable resources. And that’s really where the bulk of our Fund one exposure and investment is. And also what we see the outlook and for Fund II.

Interesting. So did you say like so like an Exxon or someone they’re putting more of their they’re putting resources towards the new renewables.

They have historically been a bit of an exception, but even they have now deployed solar and I think even now some wind to power some of the electricity needs on their oil and gas fields. And they’ve been also an early and aggressive investor in things like biofuels, algae. So, yeah, there’s there’s very few players left in the traditional energy industry who aren’t at least hedging, if not more aggressively pushing renewable sources.

I think I think I need to go take a selfie. Buy a solar panel on an oil field.

Somehow that’s too good Ernst.

Sticking with you for a second because you started BlueBear and have deep background in this sector. Maybe start us off by your background. The first energy energy technology investment project I was involved in was actually a hydrogen fuel cell business, and I remember at the time the company was excited that Hillary Clinton was touring the plant. And this is not when she was a presidential candidate or secretary of state, she was actually still a governor of New York.

So it feels like several lifetimes ago. And since then, I spent a few years and energy M&A and then ended up joining a private equity firm that specializes exclusively in energy. So a company that has $40 billion of assets under management and invested in over one hundred and fifty energy company.

And that’s really where I developed the original starting point of what’s now BlueBear’s network of peers of ours. So a lot of people from places like Blackstone, KKR, Apollo, TVG, a lot of the private equity firms that quietly. Direct about 40 percent of all energy spending in the US. So you may think of Chevron and Exxon and BP, but actually a lot of those private equity backed companies are doing a very high proportion of wind solar and traditional energy development.

And we found that they did not have good access to Silicon Valley and to digital tech in general. So that was a big catalyst for making the transition and partnering up with Vaughn.

OK, so tell me more about that, so 40 percent of the energy spent is done is directed by or sort of.

In these companies is done by these companies that are owned by PE firms, is that what you’re saying?

So if I’m a portfolio company of yours and I want to get a contract with one of these, do I go through the PE firm or do I go to the more the operating company?

Yeah, it’s a good question. It’s really more to the operating company and. We’ll talking in a minute about our, ah, close engagement with the founders and BlueBear’s portfolio, but typically if you’re the, let’s say, industrial IOT connectivity provider or the predictive maintenance A.I. and air quotes provider, you’re trying to get the actual operating company to use your software or use your your your technology solution. So you probably have a relationship with the asset manager, the head of operations that are field services, the head of I.T.

And they may be interested, but they don’t necessarily have board approval. A lot of these boards have been pretty cynical about Silicon Valley technologies or things that A.I. is just buzzwords, not a real thing. And that’s one area where BlueBear tends to directly support the sales process and the customer landing and expanding process.

We provide air cover by having the personal relationships at that board and ownership level to reinforce what the field and the asset level people already see as valuable that may not have the authority or the budget to to deploy.  Air cover as a service in any way.

Because because you’re leveraging those PE fund relationships, among others.

Yet we also have pretty close links with a lot of the corporates themselves. But the PE part is is usually the most opaque and inaccessible to tech company founders. Yes, I find the whole PE industry, it’s fairly opaque. And and so at Riverstone, you know, we’re there. Tell me a little bit about Riverstone just in terms of what were you guys doing with with your investing?

The firm would basically find a management team with some exceptional insight and provide a line of capital to build and grow a business. So it’s much more of a venture capital type mindset than more the LBO focused and financial engineering focused firms out there. In this case, the main difference is check size.

Those lines of equity instead of five or 10 million would be two hundred or five hundred million because the capital is going into building expensive infrastructure, whether it’s wind farms or oil and gas facilities.

But I sort of thought in PE, that the idea was to flip it, but not to own it either, not to be the majority owner.

And so I’m surprised that 40 percent of the energy industry is controlled by T if it’s meant to be sort of a more short term relationship. Sure.

A lot of the development spending happens earlier in the cycle. So if you’re building a commissioning or preparing to build, let’s say, a utility scale solar plant, you are securing the land. Your organizing, the engineering, procurement, the construction, the commissioning the grid interconnection. So there’s just a lot of relatively complex industrial activity you have to take care of. And that’s fairly expensive and that’s funded through a combination of debt and equity, like many things.

And then once the business has gone into operations, the private equity investors may have sold out or stepped off the board, but they still maintain close relationships with the management team and the companies activity. So they’re easy for us to get connected to through that network. OK. I mean, I. It’s it’s all very interesting, but I’ll I’ll go back to BlueBear and what you guys are doing here.

Do you as do you do this because, you know, out as a do you have like an environmental focus? And and what do you see kind of today in in the energy sector maybe as it relates to the growth of renewables?

Yeah. I undoubtedly joined BlueBear to be, I guess, to have a front row seat and at least contribute in a small way to the energy transition, which I think is, you know, the defining event of our lifetime. The way that, you know. There are, I guess, two trends that we feel very strongly about and I think are essentially irrefutable. And that’s one increasing digitisation of industry writ large. More data, more digital, more software cetera, and the shift from sort of conventional fossil fuels to a more renewable and distributed energy future.

And even if, you know, there there has been exposure to what’s seen as, you know, a more typical hydrocarbon based generation process, the investments that we’re making are specifically made to reduce the environmental impact that those businesses might might be providing.

Where are we in that transition? Just broad strokes globally, which is similar to in the US. Still between 80 to 85 percent of the energy needs are coming from conventional sources. That’s much lower in certain regions. There was a day recently when I believe California power more than 70 percent of the grid through renewables.

So how when demand is a little bit lower and baseline production from sunny days and good infrastructure is relatively higher, you can get a really high percentage penetration from renewables. And then actually what starts to become challenging is the market structure and some of the infrastructure. So we see the bottlenecks and challenges evolving in each one of those as an investment opportunity set of its own. Exactly. The curtailment in storage. You’re probably next step in terms of major secular shifts with renewables becoming more economical to produce.

Obviously times they can even exceed capacity. And with the excess capacity, you’re kind of stuck in a position where you need to figure out a way to actually store. So storage I think is going to be one of the next emerging game changers.

There’s a little irony because a lot of the oil and gas community has pointed at storage as being the Achilles heel of renewables. Right. You can only really produce wind and solar when the sun is shining or the wind is blowing. 

And the irony is that we’re we’re recording this here on a day where the price of oil dropped to one point to nearly negative $30. Yeah.

And that is because you. If you haven’t been checking out the you know, the the wires today, there is such a. A glut of production coming online compared to the demand as coronavirus and long term other things slow down demand for oil that there literally are not enough places to store the oil coming out of the wellhead. And so storage is suddenly being much better addressed by technology innovations over the last couple of decades.

And wind and solar development and the basic technologies like tanks and and depleted reservoirs are suddenly not sufficient for an industry that’s been operating for 100 hundred years.

Right. I mean, I think of storage when you say storage, I’m thinking of battery technology for renewables.

But yeah, I mean, I’m super interested in your perspective on what’s going on today in the world in terms of the Saudis and the Russians were there.

Do you know? I don’t know.

Having a standoff and have been shipping their oil over towards us.

I haven’t really been following it, but yeah, we will. We like to call it Broke Peck. So there’s this era of complete, complete free for all. And then Overpeck was formed and then more recently, OPEC plus or the Russians were more engaged.

But then over the last about 18 months, there’s been this series of basically playtest interviews, supply global energy supply policy by tweet where m.b.a.s and Putin and the US president basically make promises to each other and and organize how they’re going to communicate that.

And that’s that’s fine. That’s probably a necessary component of of directing such strategically important industries. But you just cannot enforce tens of thousands of independent producers in the US and dozens of countries that are fundamentally having to meet budget demands and fund things like health care and education through energy sales. So to not expect there to be rampant, let’s say, non-compliance with OPEC policies even among OPEC members, let alone a bunch of drillers in West Texas, it seems very naive.

So we’re not surprised that there is a bit of disarray, of course. Nobody expected the economic shut down the corona viruses led to the reason that the contracts fell through the floor today is because they expire today. So, you know, usually folks are trading these contracts and it’s going from, you know, holder to holder to holder. But when the contract expires, there’s actually delivery required. So today, whoever’s holding those contracts is actually going to have to receive delivery of a thousand barrels of oil for every every contract sale.

How much did consumption drop off? About Covid? About 20 million barrels, which is roughly 20 percent. And OPEC has been able or OPEC plus. We called broke back again because it’s really three individuals who’ve got an outsized affect right now.

They they’ve been able to cut something like 10 percent or at least claim to agree to cut something like 10 percent. If you really imagine a lot of these producers, whether they’re governments or private companies, taking one on the chin for the rest of the world, we’ll see what actually comes through.

Well, but until bringing this back to BlueBear a little bit, which is where are you guys, where do you see the tech applied to this situation or, you know, broadly to the market.  Well, part of the part of the origin of this strategy was. In our energy private equity days, we would be sitting at board meetings of major wind developers or offshore oil and gas producers, and you would actually have a 30 foot blade fall off a turbine or an offshore power supply get cut off and nobody would know exactly why or how long it would take to fix or to where to get replacement parts in a very timely manner.

And these are sophisticated operators, so they know it as well as anybody in the industry can possibly know it. That just wasn’t a very high standard. At the meantime, you’d come out of those meetings and you’d order your Uber and it would pick you up on demand. You’d be able to check the temperature in your bedroom from a smartphone app. You’d be able to order whatever you want for the next days or weeks trip on Amazon. So really be the bulk of our investment is in taking. Proven technology concepts enabled by software engineering and data science and deploying them in a very tailored, thoughtful way to these large critical use cases.

There’s something that’s called a great career change going on right now where basically all of the man in the management class is approaching retirement age.

And there is a basically an entire generation left the energy industry during the crash of of the oil crash in the 80s. So there’s this massive generational gap between management of two to five years ago and what management will look like look like tomorrow. So, one, there’s a massive opportunity for this industry to digitize. We have digital natives sort of running running the show. But to there’s a significant amount of knowledge transfer that could put that maybe even three to five years ago would have been lost.

But sort of enabling some of these, I guess, quote unquote, frontier technologies that enable that knowledge transfer, whether it’s immersive computing, whether it’s voice, whether it’s a car, whether it’s AML and LP, but sort of gathering, processing, validating, communicating and transferring that knowledge from the older the older generation to the newer generation is something that it’s really exciting, something that I try and try and take advantage of in terms of investment opportunities.

What does that mean? I mean, I don’t think you mean, you know, digital photo albums or something like. What does that mean to codify that knowledge transfer?

Sure. So one example is a deal that we’re just actually closing on today in the middle of the the. Coronavirus shut down, we’re still seeing both from our team and and some of our favorite co-investors, great continued engagement in the v.c. Funding landscape. But this is a business that basically deploys a voice interface to allow workers to go through any kind of maintenance and operations activities without having to constantly either pick out a tablet or a phone or walk over to a shared workstation and type things in. So it’s an example where we’re using existant technologies to capture industrial operations data and not just do that task faster. It’s like 80 percent faster task completion times that the company Darch has has registered.

But in the course of. Processing all of that information through a voice layer. You’re actually extracting a lot of the. A lot of the knowledge, the context awareness and the background knowledge that these teams have by by taking in exactly what they’re thinking while they’re doing something as opposed to what they want to write down in 10 seconds at the end of a busy day. 

Got it. And so in in that example or in a lot of these examples, you guys said at the beginning that you’re looking for someone who has at least one. I think you said industrial contract ago.

Yeah, so typically we engage once the businesses where we can engage much earlier, but we might invest once a business has demonstrated six figure. Revenue run rate potential or actual revenue run rate. And that’s because we like to see a scale of enterprise deployment that we can multiply through our network. So if you’ve sold your enterprise software to a couple of independent when sold or related service companies, we can take those case studies and present them to dozens or some cases over 100 operators that are quietly owned by the private equity universe again.

I’m going to turn this over to Vaughn, which is fun before this. Well, you should give me the quick version of your background as well. But before this, you were doing Frontier Tech Investing. And so I am curious about your perspective on the on energy investing now.

Yeah, for sure. So, yeah. Prior to BlueBear there I ran that or I guess technically still run a solo general partnership called Autochrome Ventures. It is usually precedes or series a fund where the thesis that I developed was called it Applied Frontier.

So the industrial enterprise application of Frontier Technologies that fund I guess invests in about twenty five companies, everything from immersive computing to human computer interaction, space tech, synthetic biology and AML narrowly applied. I’d say the the most frontier aspects of energy are a little bit more binary. Nowadays, you know, these are things that are usually material science based or, you know, battery chemistry that those sorts of those sorts of deals that are.

Very far out in terms of understanding whether or not they can sort of hit the ground, hit the ground running and promise to return.

I think they’re extremely attractive from a technological standpoint. I understand why, especially a lot of, you know, friends of mine that still invest purely through the lens of sort of deep tech, you know, try and back those companies. There’s just going to be a significant attrition rate around or around a portfolio construct in that capacity. What I’m seeing now is, again, some certainty, some of the technologies that three to five years ago might have been seen as particularly cutting edge a-r, for example, having just extremely intuitive and impactful applications with within within the industrial space.

I mean, you know, everybody’s seen the the old McKinsey or Gartner projection of the size of the VR market and everybody’s going to be sitting in their houses with with Occupy on it. It turns out that that, you know, the most, I guess sort of initial and effective and again, impactful application is our screens for industrial workers to help them with things like compliance management and workflow management. It might be helpful to run through a few quick case studies, I can probably do it in under a minute.

Great, so just giving you a quick tour. Our first investment was in a company called Mineral Soft. There’s really just a ERP system for mineral rights and royalties owner. So a lot of the farmers and ranchers who have energy asset passive income that was exited pretty quickly and successfully to a strategic business called Midian that does remote monitoring diagnostics for rooftop solar. They have over two hundred thousand rooftop solar assets that they manage with with remote monitoring software and extremely efficient and timely missions.

Secure provides industrial cybersecurity, making sure your your tank farms and and gas plants and shipping assets aren’t being hacked into or at the extreme blown-up. Shoreline provides simulation and optimization software for offshore wind development and operations and management. Raptor maps as is really digitizing the entire process of building an operating utility scale. Solar farms free wired does electric vehicle infrastructure, software and components ever activies battery free industrial sensor technology taking just ambient lighting and tiny temperature differentials to power IAPT sensors. Copper manages demand data for power, electricity and water, gas, electricity and water.

Transect is digitizing and automating the ability to run all kinds of environmental impact assessments. If you’re trying to build a transmission line or any kind of energy asset, you have to get permits, identify endangered species, cultural heritage sites, right of ways. All that can be can be done much more automatically and digitally through through their analytics and cloud software.

So. Each of these are technologies that you can map to some other business use case, but they just have not been well developed for managing large complex again, often cases multi-billion dollar assets in the energy supply chain. 

So staying on BlueBear, you guys are both in L.A., Koray, L.A. How many people total are on the team?

Because you have a few. You have some presence in other cities.

Yeah, I can run through the team overview briefly, and that’s, of course, are our greatest asset, our greatest strength. So three of us are full time in L.A. on myself and our GC and C.O.O. Hank, who is a former Latham and Watkins attorney. Then we have Carolyn Funk, who’s in the Bay Area. She’s a p._h._d. Who who supported the German Energy Agency and then worked in the Venture Partnership and Development Team at Siemens for several years before becoming CEO of two different energy storage companies and helping them get from from seed to series.

We also have our CTO was a computer science p_h_d_ and really our expert on software risk assessment and software development acceleration, Rob McGinness and and very importantly, a couple of our most most effective and supportive advisors and investors, people like Tim Kopra, who is a former NASA astronaut and longtime military veteran who’s based in Houston. He was really Hands-On and fun one. And as a leader and kind of our team development and Fund II. And Lord Browne, the former chairman and CEO of BP, was also on the boards of Intel and Goldman Sachs and many other firms.

Again, tremendous perspective, a network in the energy industry and someone I worked for directly for many years. He has a great team. I am I think I told you I heard you on the oil and gas podcast. Good podcast.

Surprisingly good podcasts, actually.

Yeah, they need to rename it because it’s really energy, everybody. And oil gas is re-branding to energy.

Interesting. Interesting. And yes, Tim, your, you know, former astronaut colleague was on that one, but I was glad that I got Vaughn. I just got to say, I said I don’t want him.

I want mine for sure. Great. Great. Well, I’ve really been enjoying getting to know you guys. So on the personal side of things. So Vaughn, I had I had Noramay Cadena on the podcast and she said that she and Carmen and they’re the two g._p._s, they’re two of the jobs at MiLA Capital. She said that they are 10 percent of all Latina general partners in the US.

Is that crazy? Yeah, it’s pretty unfortunate, but it’s not particularly. I’m not I’m not surprised, unfortunately.

Well, I mean, I was going to ask you, like, how many black GPs are there in L.A.? Like it’s got be. I bet you know, the mall is my guess. Yeah.

far be it for me to speak for anyone else. And I think the experience is many splendored. For every black, we see it just like it is for every black person in America. But, you know, I think that it’s definitely a problem that needs to be addressed. I think that, you know, diverse perspectives drive. You know, higher returns. So, you know, you can see the sort of one of the things that I really appreciate.

Actually about about BlueBear is that all of our backgrounds are remarkably different.

So, yeah, I mean, I’ve tried to do a lot from, you know, quietly investing in the funds. As an LP and the funds of a diverse fund managers as well as, you know, supporting on the angel side a fair amount of entrepreneurs. And that’s the only way that I think the problem is going to change is, you know, having capital in those hands. Absolutely, absolutely, 100 percent sometimes. I mean, I’m part of a lot of the women’s network, said the female founder networks.

And, you know, it’s great to have mentorship, but actually capital means.

Yeah, yes. Oh, that’s got to have both.

Yeah, that’s it’s pretty, pretty important factor in this game. Yeah.

And we’re absolutely we’re asked a lot about our ESG footing and as investors in technologies that improve how the energy in and as as is now called climate tech businesses work.

That’s the central set of principles for us. We also believe the S and the G deserve just as much focus. And we we try to have ESG and health and safety and diversity be the top agenda item in every single board meeting of all companies. And then we, of course, have to live that ourselves as a as an investor. That’s great. But I really appreciate getting to know BlueBear better and I feel like I learned a lot today. So thank you guys for making the time.

Thanks a lot. Thank you, Minnie. 

Aditi Maliwal — Upfront Ventures

One of the newest partners at Upfront, Aditi Maliwal, tells us about her path to partner, her investments in Chime, BetterUp, and her time in Google corp dev.


View Transcript

Great. Hey, Aditi. Hey. So we’re here with Aditi Maliwal. You’re one of the newest partners at Upfront and before Upfront you were at Google both in Corp Dev and as a product manager. And prior to Google, you were at CrossLink Capital and you led the investments in Chime and BetterUp. Well done.

Those were exciting. Yeah. Still are very exciting. Yeah. So, you know, we had Kara on the podcast and we talked about some of the basics about Upfront being a $400 million dollar fund. So to three to five million dollars sweetspot for a check size. But I’m super curious. You’ve had these great successes, great experience. Great experience. How did you choose Upfront?

That’s actually a very fun question for me to answer. So Kara, as I like to say, was on my personal board of directors before I even was thinking about coming back into venture. So when I was at CrossLink, I met Kara at South by Southwest. And so over time, I’d come to Kara to talk to her about a variety of things from job opportunities I was looking at or investments I was looking at, or friends who were starting companies that I wanted to send her way.

And it was actually spending time looking at a couple of ideas in the women’s health space. And Kara said to me, you know, I’ve spent quite a bit of time in that ecosystem looking at a couple different companies. Are you if you are interested, instead of having instead of building a company in the space, like why don’t you come and join upfront and potentially think of funding some of these companies?

And she was like, why do you come down to L.A. and spend some time with Mark, spend some time with the broader team, came down, spend time with Mark, spend time with Greg, Kobe, Kevin, Eve and Michael. And then ultimately there were a couple of key things that sort of got me hooked onto the the front story here.

I think the team is truly very transparent in the way that they work and the way that they do things to play up to the pun. We are very upfront.

Upfront. I mean, but transparent sometimes is code word for like direct or correct. The firm is very direct.

And, you know, people are not sort of hiding behind v.c lingo or people don’t expect and the firm very much functions in that we are truly a find that works together because we’re not afraid of being direct with each other and whether it’s positive, whether it’s something that’s like providing critical feedback, whatever it may be. And so that was something I learned through the process. I mean, the second thing, which is kind of a strange way to think about venture, but I talked to a bunch of venture funds and I went through a process.

And venture funds aren’t actually that innovative. We invest in innovation, but they aren’t actually quite as innovative. And Mark and Kara, Greg, Eve, Kobe, Michael, Kevin are all really part of this like very innovative story here where, for example, like, you know, partner meetings you to run a certain way and ran a certain way for 12 years. And a couple of people push back and like, this is really not the way that is most effective.

We should be spending more time doing some of looking at pipeline and we should spend less time on pipeline, more time on problem trials or whatever it may be. And we’ve iterated on what our partner meeting looks like a whole bunch of times. And then we’ve also iterated on a variety of different processes internally, which I think was something that I learned and saw through the process, which was just incredibly different from every fund that I spend time with. And I think that’s truly led by Mark.

How is your process easier process for decision making on where to put your investments changed?

So I would say that the way. We even go through the process, as we will tell an entrepreneur right in the beginning, kind of where our heads at when I used to work in Menger, I think I was also in a position where I sort of take a meeting and then be like, great, I’ll come back to you. You know, after we’ve sync it up as a team now and I’ve seen this sort of with some of our other partners is people will be a lot more open to giving feedback in the meeting itself and sort of having a real conversation around, hey, these are the areas that I’m kind of stuck on.

Or these are the areas I know my partnership is not going to get excited about. And then kind of walking them through what our process even looks like as a firm.  I’m going to walk you through my steps today in this meeting as to what I’m going to do and then come to a decision by this date, which I think is something laying that out well in advance is, I would assume, helpful for an entrepreneur.

Yeah. Being able to say we’ll come to a decision by a date is. Yeah. Is a strong statement.

Yeah. And unusual. Yeah. I’m curious about this question of innovation because. Well, working even at our fund I feel like it’s the it’s the least tech company I’ve worked at. What do you think lies ahead in terms of innovation for Risi, is it? Is there something you can see that would be it’s like a step function change or is it changes like how you run your meeting and how the processes handled?

Yeah.

I mean, having worked at Google, I’ll tell you, I mean, people talk about GV a lot, obviously, and people talk about a lot of funds now starting to use data science for things like sourcing and then, you know, hiring an entire engineering team and having like people mining or scraping the Internet for signals that are then going to tell you where people are performing. I mean, that’s obviously like one side of it. And there are folks who are investing in that.

I think other areas of innovation that lie within venture is I mean, this is a people run business.

We’re not going to see the same prototypical successful investor with the exact same background. And I see that see this a lot at upfront in that all of us, I think, have had some have spent some time operating. And obviously we have a few partners who are founders, but we also have some partners who’ve only ever invested. And that’s, I think, the appreciation that people can come from different backgrounds.

So that’s where I believe venture capital has to spend a lot of time thinking about.

And right now, you guys are an eight person fund. Yes. Or a partner. A partner. So that’s what I meant. And so for for finding those pockets of innovation, I think that was really well said. Do you do need one person to be the champion? Can you share more about how that works?

Yeah. So I think the so the way that we actually go about some of our decisions is every partner at upfront. All eight of us are empowered to make our own decisions, which is very much if I got very, very excited about it, one particular deal I would run point on sort of making sure I understand my company that I’m excited about. I understand the thesis.

I’ve potentially built some muscle in terms of understanding that market. And then in a way, I’m coming into the partnership, educating my partnership. I think traditional funds are kind of like, you know, stacked in a way. It’s like you have your associate, your principal, your partner, your managing director, and then you go to icey.

That’s really not the way we work. We have to associates it upfront and they kind of have the opportunity if they want to jump in on a deal or if there’s something that I think Josh or Alice might be particularly well-suited to all say, like, hey, I’d love to bring Josh into this. And if Josh is interested, Josh can decide. And then oftentimes Josh will bring opportunities to me as well. And so we get to work together there.

It’s nice also that upfront has promoted a couple of its principles to partner, which is this is pretty you don’t see it all the time.

We’re not at every firm, but also only to associates. And eight partners. Yeah. I hadn’t thought about it that clearly. Totally. It’s the it’s the upside down pyramid. And I think and the way to think about it is that we’re not.

Your traditional venture fund in that, you know, every partner has an associate dedicated to them. I was an associate. Not that long ago.

And I also have run my own deals before, and the expectation is I get this experience to run my deal.

And so I think that inverted pyramid is sort of functionally empowering you, but also reminding you like you’re responsible.

Yeah, you’re on it. Responsible, you’re leading this. Can we go back a little bit?

And before that, you’re the only person I’ve ever met who has a personal board of directors. Can you talk about that for a second?

Yeah. So I don’t think people don’t officially formalize it. And so I’ve probably been one of the very few people who’ve decide who’s decided to formalize it. My personal board of directors includes Kara, And then there are two others were on my personal board of directors. And they were one is obviously a family member, my father. 

He’s also actually an investor. He runs a private equity fund in India. And the other person is actually someone who’s a close mentor and has nothing to do with my professional world and is somebody that I go to for sort of seeking guidance on the transitions especially.

I think the transitions are always times when we are a lot more introspective. I think when we’re in it, it’s we’re doing the job. It’s harder to be as introspective when it’s going well.

Yeah, it’s not going well. There’s a time for introspection.

Well, can I ask a little bit about how how your previous experience has informed your current themes you’re looking at in your current work.

Yeah, absolutely. when I was at CrossLink investing earlier on, I invested in Better Up and chime amongst a couple other companies and that sort of got me pretty excited, I think in the categories of fintech and people call it future of work.

But I think of it around employee engagement, employee retention and thinking stronger around like how to make somebody in the workplace a better worker or empower them to be more efficient.

And so I do spend time in those categories. Those are interesting to me today. And actually carrying those on. I when I went into Google, I ended up actually spending within Corb Dev and then in product spending time on payments specifically as well. That was definitely to Cat. That was a category that sort of translated through.

And so tell me just what you were doing at Korp, Dev. So yeah, mostly corp dev is doing acquisitions. Yes.

So the way Corp Dev works is it was mostly doing acquisitions. We have yet to do an M. We mostly do ways. And we do have we do uniquely make a few strategic investments off balance sheet. So this is different to GV Capital G. And I got to work on actually some of those when I was there as well. And so what Kaup Dev was doing and what I specifically was doing is sort of being the eyes and ears. Spending a lot of time outward, facing finding new three new themes, new opportunities, investment areas, either product investment or us acquiring a company in the space.

So, you know, we looked at things like what is the future of news?

Whereas a-r going, how do we think more about social, you know, social, something Google didn’t necessarily focus on and Corp Dev would be having these thoughts about what’s the future of news.

Yes. And then bringing it back to the executive team or. Yeah.

Most executives obviously see a variety of different companies that will come through their product managers as product managers spend a lot of time thinking about what the competition looks like in the ecosystem.

But when you have corp dev, which is usually eyes and ears for the company out there kind of meeting with folks, you also get an indication of how these businesses are doing, which I think is differentiated. But also at the same time, oftentimes, I don’t know, podcast became very interesting in 2016 like that sort of kind of exploded in 2016.

It’s so interesting. You’re so low in 2016 when it did explode. Google didn’t have a Google podcast app and we. And then we had a team that actually ended up building that and they spent time thinking about it. But we thought we went out and met with sort of every podcast company and got to know just a lot about how did these businesses work and like where did Google have an opportunity to play? Like, again, do we play that role of aggregation?

Do we play the role of building our own series? We were production content studio, whatever it may be.

And then how did you interact with, like Google Ventures? The nice thing is we’re all in Mountain View. We do have everyone Corb Dev, G.B. and Capital G.

The nice thing. Yeah, depending on where you live. Yeah. Really? So everyone had a space in Mountain View. We personally. The way that Google Corp Dev interacted is we had really good relationships with g.d and capital G. Capital G is run by David Laue, who was formerly the head of Corp Dev at Google and so has a very strong relationship with the with the actual team itself.

And then in addition to that, you know, I think that GV in Capital G make decisions and make investment choices very independently. They function as sort of standalone funds, from my understanding, and corp dev functions very much as we to your point, get through to a stakeholder, buy in and spend a lot of time with internal management to make our decision. We don’t have our decisions are sort of made as the business less as us as an individual entity.

How did you decide between those two paths between investing in M&A?

to be clear, we did not do very many investments. Our predominant business was are predominantly we spend time acquiring businesses and a lot of talent, too, obviously. But I think the decision really came to is this business that we are looking to potentially acquire, invest, direct.

Would it be directly beneficial to a specific product area? Is it enhancing a product area or taking us into a different line that that product area might be exploring in the future?

And just for practical advice. How do you get to APM at Google? Good question. 

I think most people are pretty open on LinkedIn. I mean, I still view LinkedIn as like one of the best resources. And then I would say a lot of PMS are actually also angel investors and have Ángeles profiles. 

Also does e-mail me and I will usually I can find it in to some different product area. Great, great.

OK, so you were at Corb Dev. You doing the A’s? And what why did you move to be APM?

I just felt you spend a lot of time being the eyes and ears of the business. But I wasn’t spending time in the business. 

And actually, I’m from Singapore, so I grew up in Southeast Asia.

I grew up between India, Hong Kong and Singapore.

Originally from India. But spent my most formative years in Singapore.

And so there was a there is a team within Google called the Next Billion Users Team. And so I joined to be a product manager on the next billion users team.

So are what we call the next billion user markets were India, Brazil, China, Indonesia, amongst others. So to have the opportunity one to spend more time in the ecosystem that I grew up in and then building a product for them, I just thought was incredibly unique. And I got to be really part of the core working business. And so that was why I wanted to be APM. Did you run this past the board?

I did. I actually did run it past the board, the virtual world of China. I actually did run it past the board and a few board members not naming which ones pushed back and said, you know, do you really want to be a product manager? You’re not going to spend any more time talking to, you know, startups and spending time with founders. You’re actually going to spend a lot of time talking to users and spending a ton of time sort of.

What was the best part about being a p_m_ was sort of running the user research trips and like getting to go into the market and see testing features with users and kind of getting a very immediate sense of feedback, which, by the way, is such a different feeling from venture capital when. You could kind of not see feedback on businesses that you invest in for a long time because these feedback loops are so much longer. 

Yeah. And like before I move off Google.

You have talked some about how Google has really informed your current investment thesis or one of your theses of sort of things being built by Google being things you want invest in. Tell me more about how Google plays in. Yeah.

So I think of Google as this incredible ecosystem. It’s obviously over a hundred thousand person company now, but they have physical space. They own land. We have our cafeterias and all their things. But Google itself is actually a builder of incredible software that is built for Googlers. So Googlers will spend a lot of time using internal tools to sort of make their days more efficient or make their or to find things, whether it’s internal search, whether it’s obviously we have hangouts and a variety of other products like that.

I have been thinking more about the internal I sort of made a list of every single internal tool that I used when I was at Google and then kind of broke it down into which category of the user’s workflow it falls into and whether there are interesting businesses in each of those categories. So sort of like I would say, breaking apart. What I think was a very cohesive machine in2 if they ever thought about selling any of that product to other companies or other businesses, they could actually be very profitable standalone companies.

But that’s not what Google does. And Google builds a lot for the hundred thousand person company.

Got it. So this is more like companies that are addressing this need. Google’s too proud, too likes to build everything itself. But if there were a company, they were building better. MOMA is the Google internal search to share some yowling something like that? Yeah.

So those are sort of. So those are kind of categories and that kind of goes into this like broader thesis of, as we call it, future of work.

Yeah. Yeah. I mean Google had thousands and thousands of people in just in like their H.R. people obst about.

Exactly. Yeah. Like more than 5000 people and just the people.

I just think that’s incredible. Yeah. More than 5000 people in people up. Yeah. They have.

I mean I don’t remember the exact number, but people people at Google is a very large team. Just because people are at the core of the business like that is one thing I will give Google a lot of credit for is the way that I just think employees are so empowered at the company.

And I think like you see this a lot today, especially like obviously Google is like in the media a lot.

And people are talking about what’s happened. And not to say everything is. I mean, there have been many not so positive things that are going on there. But I think Google is one of those companies that gives employees an opportunity to speak.

I think there have been I think I can think of many, many large organizations around the world where as an employee, you just aren’t given a plot or you aren’t given a voice.

You get fired or you. Exactly. Exactly. Not to say not to be so blunt, but that’s like very much the case.

I’d love to hear a little bit. FinTech has had a really good week this week and whenever this airs, credit karma just got bought for $7 billion and you had some fintech focus. Yes. Tell us about your investment in China and how you thought about that and where that might have moved to today.

Yeah, I mean, chime was an incredible opportunity. Very, very. It was a very early company.

When we looked at it, we at CrossLink, I worked very closely with the partner, Jim voie, and we led their series A.

And at the time, Neil Banks weren’t a thing. People were not talking about Neil Banks, the term neo bank, I don’t even think existed. And you just. And, you know, we spent a lot of time thinking about. I remember Jim and I being spending time in a conference room talking about how miserable my Bank of America OP experience was and how withdrawing cash was sort of the easiest thing that I could do with them. And really, that was very not very much all that was created on the product itself.

And you know, nothing against Bank of America because the app has definitely increased, increasingly improved since then. But I think we’ve done a lot of time talking about that. And in turn, we spend a lot of time thinking about customer acquisition. We spent a lot of time thinking about how China would go out and build their consumer base. And funnily enough, when China was starting off.

They were obviously they were focusing on this on a similar millennial demographic. But one of China’s early investors also gave them access to Dr. Phil. And so they were spending a lot of time advertising. They spent some marketing dollars on advertising with Dr. Phil. And so that gave them access to a different audience. And so, you know, for a while, China kind of had these two very different groups, target user groups. And when we were making the investment, I remember Jim and I talking a lot about like moms in the Midwest and how they could potentially be chime like real times, Digg users.

What ended up happening and I think about this a lot as then I went on to think about this when I was being a p_m_ is that oftentimes like free channels of marketing are ones that you sort of need to really think about whether you take them. And sometimes they can kind of lead you down a path which doesn’t necessarily end up being quite so fruitful, or in some cases you just realize it’s not the right demographic for your product. So anyway, we ended up making that investment in time then, and Jim and I worked very closely with Chris and Ryan on that.

And, the most interesting thing I think about Chime is I don’t know. I like to do this well, go on Glassdoor and sort of look at employee reviews of some of the companies that are invested in better upping one and China being the other. And China has some of the most positive employee reviews and they have such incredible employee engagement and retention. And Pete, there are almost no negative reviews online on Glassdoor on time. And I just think that just gives me so much happiness in the business and the culture.

You’ve done some great investments, like what are those tools looking on Glassdoor, I think is a great one.

But like, how do you just do better? Almost like basic analysts work.

So I actually love using App Annie, for example, like I think App Annie truly gives me some incredibly helpful data in terms of traffic. And I think traffic can be. So I’ll give you an example. Wish dot com. So wish dot com. Their app was not growing very fast.

It was from about twenty fourteen to twenty sixteen mid-2017 stayed relatively stagnant. Twenty seventeen in the app. In app. And you suddenly see this uptick and it’s kind of crazy that like what’s going on suddenly app anay is like showing me that this company is starting to do like really really well. They are getting they’ve then gone on to like go and reduce their shipping time. They’ve also maybe hit their stride on a user demographic like you’re starting to think like, hey, who was wished all com actually built for.

And it turned out that women between the age of 15 and 18 turned out to be a very profitable demographic for them. And that’s how they focus. So I use a lot.

I spent a lot of time on basic analytic tools. So like I do use app and it’s very traditional. I use similar web. Sounds weird, but I do use them. I also use Alexa like Alexa, the web analytics product. And then the other thing, Glassdoor is great. Like Glassdoor is sort of your hacky way to figure out, are people happy there if people aren’t happy?

You probably have a bigger fundamental issue than like I can’t raise 10 million dollars in my series A and then I think that you can also go on. Funnily enough, some companies have Yelp reviews, so they actually have like Yelp listings and then you can go look at those things. So I look at a lot of inside voices like I really want to hear the voice of the person in there. And then I’m not not at all shame. I’m very shameless.

I’ll put it this way. And we’ll LinkedIn message employees all the time and just be like, hey, I’d love to chat with you here.

If you manage to say, as I’m reviewing the company and just saying. So you talked about about getting to know a space we’re investing in. We all know how fun that is to climb the steep learning curve. How do you figure out where do you start and how do you figure out? For example, the competitive landscape, which can sometimes have hidden things all around it?

So if I start very simply, keyword search is pretty phenomenal.

Thank God for that.

It’s true how many times people not mentioned the predator that appears at the top of the stack.

Exactly. So keyword search really does work. You know, it’s interesting. Twitter has recently been in a very interesting source for competitive analysis.

So I’ve been spending time looking at enterprise banking. For example, banks or sort of infrastructure products that are building for enterprises. And I.

Started doing a search on Twitter for this, and you will find that there are people who are talking about it and you can spend time reaching out to them and everyone by the way, everybody does think of themselves as an expert on Twitter, apparently.

How about like better up better app is a is interesting to me because right now it feels very crap like there’s actually I don’t totally know it better. It’s sort of coaching. Yeah. Coaching for employees. Right. That that space seems so crowded. Yeah. I know you’re focused on on employees. What did you call it. Engaging you have.

Yeah. Yeah. Great. So how how now do you sort out the the many different people in this space.

Yeah. So I think of better up really as like one of the I do think of them as sort of the first mover in the space.

They kind of like people have always had L.A. departments, like large organizations have had l.a.’s Cup business units. And I think better up especially and like Alexia Netty spent a lot of time realizing that audience, but now each time realizing they just saw it pretty much right there, which was this is not actually enabled by technology. And like we need to find a way to truly enable this and also increase accessibility.

So I think a lot of times learning and development was very much spent on for the high performer or the executive team. But when in reality at larger businesses, you have people who are growing up the ranks and you want to empower them the right way. So I think better up really did create a category that didn’t necessarily was not tech enabled at the time. That being said, I think, yes, you’re right.

There are a lot of people trying to go after that one. Do you see the success of one company? You’re kind of like, you know, if I were a founder, I would say, like, hey, that seem like an interesting category. There’s not necessarily going to be a winner takes all. Like, why don’t I try to build something similar? So I think, like the way for me now to sort of sort of find the signal to noise is.

I think I think of the employee as the center of every business. Are there ways that you incentivize them through perks? Are there ways that you sort of make processes in their lives more efficient? Like, are they shipping code constantly if their shipping code? Can they do it faster? Can they do it? Are there better communication tools? So there are many. I think of even future of work and I think of even like the employee as the center as like this broader theme by every day and every part of my working day has different ways by which it can be made more efficient.

has your your personal board or your actual, you know, parents or anything? What are some what is Kerry told you? What it was Ben’s advice that really stood out for you.

So it’s interesting, actually, Mark and Greg to my other partners actually gave me this advice right when I joined, which was go-slow.

I think there’s a tendency right when you get back into or get into venture or go get back into venture, which is guns blazing.

I have no boards like I have a lot of space. I’ve a lot of time. I’m gonna write 17 checks in the next seven years or whatever. Not even like in the next five years may get crazier.

I don’t know. They’ve sort of said to me.

They both gave me advice from a different perspective and kind of both came to the conclusion that like going slow helps you build that muscle, which is the filter muscle.And so that was like a piece of advice that truly stuck out to me. And then something actually even said to me,

was like, go with your gut. Like, you can only trust the only thing you can trust is yourself in this process. And like, obviously, we’ve taken a bet on you in the same way that you will take a bet on the founders. You go going back. But he was like, your gut instinct has led you to some good investments and has led you to some mediocre investments.

However, there have been the thing, the only thing that you had and those moments were your gut instinct. Obviously, information, let’s not forget that.

Those are two things that I still think about every single day as I’m evaluating a company, whether I’m like, okay, is this somebody I want to spend time with? 

I like it. One more just before we wrap up. I have no data on this. I said anecdotally in L.A., the women in venture have this disproportionate like have played had been badass athletes. And you were the captain of your squash team, D1 Stanford squash team, right?

Yeah. I mean, being an athlete is only made me better and I think like more focused on my job. I don’t know what it’s like not to be an athlete. So let me put it in context that I have always had schedules, I’ve always had routines, I’ve always had discipline in terms of like there is a goal and there we’re working towards the goal. I think the one thing about being an athlete is we always knew like we want to go to nationals and make sure we win at Nationals.

And we don’t like certain positions that we wanted to play or certain like positions we wanted to end that. I think the big thing that the or one of the big takeaways from being an athlete there is actually creating mini goals is incredibly important in the journey and like these mini milestones and then celebrating them. I think those are two things that like we’ve that I really like learned from being an athlete. And that’s like what I in-court in corporate in my daily life today.

Oh, that’s lovely. Do any mini goals right now to share? Well, one mini goal that I’m always that has sort of like come up recently is finding I think there is.

We’re establishing our office in San Francisco and we’re sort of establishing our presence up there. That’s I kind of set up the office a few a couple months ago. And so one of the many goals is making sure that people know that we have a presence there, kind of getting that out there in the ecosystem and making sure that entrepreneurs have a place to come and work out of two that are within our ecosystem or sort of extensions of. And so if your founders want to come work in our space like more than welcome to it’s just me up there right now.

I love it. L.A. is expanding to San Francisco. Take that long. S.F. lat long. L.A., S.F..

All right. All right. Thank you so much. This has been terrific. Thank you. Thanks to D.C.. Great to have you. Thank you.

Ben Savage — Clocktower Ventures

Ben Savage tells us about Clocktower Ventures.  They are fintech specialists who invest stage-agnostically into financial services innovation ($250k – $2.5m).
 
Clocktower never leads rounds and Ben suggests that VCs often dont make for the best board members anyhow.  
 
Clocktower Ventures:
 
Pasadena VC/founder event:
 



View Transcript

Today I’m here with Ben Savage from Clocktower Ventures. Clocktower does early-stage fintech investing with a portfolio that includes Chime, CircleUp, Tala and many more.  Based in the beautiful Clocktower building in Santa Monica and often host to lovely gatherings, but of course not today. We are on video. Ben, thanks for joining me.

Yeah, it’s a pleasure to be here and thanks me. Yeah, it was so. So where physically are you and how are things looking from where you are?

I’m in the guest bedroom and my and my house just off Mulholland Drive here in L.A.. You know, it’s it’s been an interesting couple weeks and I think everyone is still, you know, got their head spinning, trying to make sense of what’s happening in the world and what’s happening with their families and what’s happening in their professional lives.

You know, I think it’s it’s difficult to do anything other than kind of watch with sadness what’s happening not just in our country, but in other countries, and to have, you know, a pretty profound sense of loss for all of the millions of Americans, literally millions of Americans who are instantaneously unemployed and struggling through this kind of event.

Yeah.

And I think, like you said, like the venture world and tech is is reasonably well suited to a work from home sort of thing.

But I think Alpha Edison wrote a thought piece just recently about how we’re all changing our habits. And and there’s gonna be this massive upheaval of us all rethinking some of the things we took for granted What I can tell you that we have a significant presence in China at Clocktower Group and we have a China research effort. We invest in Chinese markets. We have an office in Shanghai. And one of things we’ve been staying on top of since the coronavirus crisis really started in the middle of January is what’s going on in China. What’s interesting today, if you look at the behavior of Chinese and it’s national, it’s not just in Wuhan where they really were under extraordinary quarantine.

It’s the whole country. People are buying large back to a somewhat normal set of experiences during the work. But on the weekends, nobody goes out. They all are staying home to seeing a much smaller orbit of family and friends. And you can see it in like traffic statistics and in the kinds of things that like just the activities that people do on weekends. Like they’re not going back to malls, they’re not driving around and doing things. It’s still a recent experience, like there hasn’t been that much time that it starts to feel normal.

And obviously the virus is still going even in China, where there’s no cases like they see the news of what’s happening around the world. But my my instinct from from watching what’s happening in China is that, yes, I think there will be some real behavioral shifts that will endure. And some of it is a simple yena not to tie everything to financial services. But, you know, my my favorite behavioral shift is, is anybody who I think has had a credit card that’s got the the near-field communication in it where you can just tap on a credit card machine at a convenient store.

Once you do that, you want to do that all the time. It’s better, right. But like, you might have had one of those cards and not even realize that your credit card did that. And then suddenly, like one day you just happened to discover it, however you did it or you discovered that you can tap and pay with your phone and then you just never go back. And I think there’s a lot of things that have happened just over the past couple of weeks where people have suddenly discovered just how much they can do online, not just in financial services, but in almost every domain of their life.

And telemedicine, telehealth like tell a banking, tell a trading like whatever it is, all the stuff that young people and people in the venture industry have kind of taken for granted is like of course, like you do other things on the Internet. You forget that actually there are a lot of Americans that didn’t do those things on the Internet. And all of a sudden everyone’s doing it on the Internet. And I think these these trends that have taken literally 20 years to build like an e-commerce taking out physical retail is as good an example as any.

I mean, we’re 20 years into it and e-commerce is still, what, like fifteen percent of of retail sales in lots of categories. I think in apparel, it’s actually way less than that. Still, like how fast did it suddenly evolve now? Like, does apparel just go to 30 percent online almost overnight and stay there? Right. Yeah. No. Certainly crazy times, so you alluded to. Did you see a presence in China?

And that, I believe is Clocktower Group. Is that true? That’s right. Isn’t Clocktower Ventures? So just give me again the basics of Clocktower Groups, Clocktower ventures and how those relate to each other.

Sure. So we have three businesses across our group. Clocktower Ventures is our financial innovation venture capital practice, where I spend essentially all of my time. Our two other practices are related to liquid markets. We have a hedge fund feeding platform that about once a year helps launch a new global macro focused hedge fund. And we’ve been doing that for about eight years. And then we have a more recent effort in in China where we participate in in local onshore capital markets in China by investing in and partnering with hedge funds, again, on behalf of large institutional clients.

Traditional traditional investors, just like we have in our venture fund as well. And the thing that sort of stitches these three seemingly disparate businesses together is, is really, I think, a couple of things that we would characterize ourselves as being differentially good at. One of them is taking a global macro economic point of view. All three of these businesses, we think about what we’re doing through kind of a macro perspective. The second thing is we think we’re a little bit better than the average bear at building communities and leveraging the power of relationships for insight, for access to opportunities, for ideas and ultimately for sort of mutual benefit.

Then I think the third thing that we would characterize ourselves as maybe being of a little bit more focused on is the evaluation and assessment of human capital. 

And so this dovetails very much with the relationship idea. It makes sense that if we’re very focused on building relationships that matter, we are also, we think, a little more intentional about the assessment and selection of human capital. But those two things work with this idea of being a macro thinker, an investor that kind of unites three platforms.

I get asked about all of those. It’s interesting. But just again, that that evaluation of humans. You said you’re more intentional. I mean, I would say that I also am in the business of evaluating humans. But I do have certain frameworks. 

You know, I think they range from having a philosophy and an approach to like I think you shouldn’t have to start with what are kind of your first principles about how you think the world works as an investor. And so for us, they range from having some conviction around what we think the characteristics of, you know, great seed stage entrepreneurs and founders look like. And it’s not, by the way, monotonic. It’s like it’s almost you can imagine clusters and profiles that we talk about and we talk about them both in terms of attributes, but also in terms of skill and in terms of values.

And we’ve mapped what that looks like and we’ve mapped some of those clusters. And then we have heuristics that we look for in founders where we might, you know, say like, I’ll give you an interesting. We actually really like backing as a seed stage founders, former venture capital associates. Right. And like, well, why do we like that? Couple of reasons. One, generally being a v.c associate, kind of a tough job to get.

So there’s sort of some quality that kicks in that if you treated that as a filter to the experience of being a mid-level or junior person in a venture fund, you just see a ton of companies. And so you very quickly build frameworks in your own mind about what works and what doesn’t. Especially if they’re good and and breed like you’re trained to be a skeptic, like in many ways, like if you’re a true believer, like if you want to invest in everything you see, like you kind of don’t, it doesn’t work.

Like these, these are almost by nature forced to be kind of like. It’s not going to work. That’s like the essence of venture. So if you find a V.C. associate who’s like decided they really believe in something, you know, the other it’s like kind of an OK idea. And so we like that.

So what we do, we do, I think, spend a fair bit of time thinking about these things and trying to be data driven in the way we do it.

Some VCs I mean, tell me it’s all just gut driven, you know. I mean, there’s an irreducible amount of human judgment in the judging, in judgment, like you can’t build a robot to pick to pick people. And there are also just like social limits on what you could get away with. Right. Like, I’ve often wondered, why haven’t venture firms gone down the path of, like, asking founders to take personality assessments and like, you know, there’s a lot of tech startups now that if you want to interview to be like an engineer at Company X, there’s a tremendous amount of automation that might kick in before you ever get to a human being.

There’s probably some subset of founders that would really be into it, actually, until we’ve actually thought about it. And then and then, you know, people talk me out of trying to implement things like that.

Yeah. I have the same about what I can ask my podcast guest. I’d like to ask people what their parents did when they were growing up. But I worry that sometimes it’s too personal and it will only make them right.

Yeah, well, it’ll come up in my personal questions for Ben Savage at the end of this. I’m giving them six more about Clocktower Ventures just in terms of what size check you writing, what sort of deals are you investing into? What are you looking for?

Sure. So, you know, we invest stage agonostically in financial services innovation, which we defined very, very broadly. For us, it ends up being somewhere between 17 and 20 percent of GDP that we’re addressing, which includes everything in payments, insurance, capital markets, banking, lending, credit, personal finance, enterprise, financial functions like treasury tax AP/AR are and real estate to the extent it is a financial asset rather than a physical assets. It’s a very large footprint, actually.

We have a very unusual model, I think relative to most venture firms, which is that we never want to lead a deal. We never want to take a board seat. We never want to call our founders and ask them what their KPI is, are and what’s keeping them up at night.

We rely on partnerships with other investors to do all those kinds of things and try to hold founders accountable. We actually tell our founders we want to be cheerleader’s more than shareholders and try to really get out of the way and let them run their business, let them execute. And all we’re trying to do is bring to bear this really interesting relationship network that I mentioned earlier in ways that we think can kind of help our founders. We sometimes, like, use this silly metaphor.

As you know, if you’re a founder, you’re in your kitchen, you’re like baking a cake, you’re looking for ingredients. We want to be your neighbor that like rings your doorbell, right when you need a cup of sugar, that’s kind of more like what we’re trying to be. And so what that means is we write, you know, relatively small checks relative to round sizes. At the seed stage, we invest $250 thousand dollars and then it flexes up to something like two and a half million in a series B or C, which, you know, tends to be somewhere between like 10 and 15 percent of a fund raise of any given round.

And that doesn’t always work, but that’s roughly how it works out. Since we started doing this five and a half years ago, we’ve been privileged to invest in 71 fantastic companies backing great entrepreneurs on their journeys. And, you know, so, so far, so good.

And why don’t you lead rounds? Our view is that to the extent you’re going to have venture capitalists as board members, which is itself a topic of some controversy in my mind, you should probably have a lifecycle investors as much as you can, people who are going to back your business over four rounds of capital if they can and have experience doing that kind of thing.

And that’s very much not our strategy. Like we try to write for the initial track and we have some ability to follow on. But we’re we’re explicitly not a lifecycle investor. And there are people who are the slightly longer answer without getting too deep into it, is that I would say to a first approximation, number one, it’s really hard for a board member to have that much value in the first place to startups like if you go paying a bunch of founders who’ve like exited and you say, give me the five things that mattered most to your success, I have literally never once heard a founder say it was one of my board membersSo like my almost like, humble proposal for the venture industry would be like this. You should just never sit on boards and you should just pick like like executives and people who are specialists in taking board seats to do it on your behalf.

Like if every venture firm just hired professionals to sit on sit on boards for them, I think it would probably lead to happier outcomes across the whole like the whole ecosystem. When you hear a startup say their board tended to add value, it’s usually because somebody made an introduction that mattered a lot. You can do that without being on a board.Do you still get access to deals like that? I do feel like we do.

There’s a lot of times once someone has a term sheet that it becomes very competitive to get into the deal. And yet a lot of startups are looking for the lead. 

So far we have not really had a problem accessing the opportunities we want to access. Like when we compete in transactions. Our experience has been that we we win. Some of that is a function. The fact that, you know, as I said, we’re we’re ten or fifteen percent of around. We’re not trying to be thirty or forty, which makes it easier. Somebody that we’re specialists in a particular domain. All we do is financial services.

And one of the interesting things for us, having now done whatever 70 odd fintech deals is, you know, we’ve we’ve invested with something like 450 institutional counterparties across the that those deals these are all institutions that have decided to do fintech.

And we spend a tremendous amount of time understanding all of our counterparties and trying to get to know them and building a map of like who invests in fintech at what stages. What themes are they interested? What are they like? Because we want to get that phone call from them when they have something interesting to say, hey, you know, there’s Clocktower guys. They’re doing something and go out there doing something interesting. They’re fintech specialists. They’re not competing with me.

They’re never gonna try to, like, lead a deal that I want to lead. They’re not going to try to preempt me. They just want to put a portion of capital into the transaction like that tends to work work pretty well.

And so you although you are specialized, you’re also sort of broad within your specialization, if you will.

Yeah. You were telling me, you know, it’s everything from personal banking to payments to insurance, etc.. Do you have certain it seems easy that you’re particularly excited about right now?

We want to be able to give our full attention and our full mindshare to any given entrepreneur who’s talking to us about their business and their thesis about the corner of financial services that they’re going after. And so we want to be unbiased in that way. Having said that. I mean, there are clearly some big trends and big ideas in financial services that we think are really interesting. And we’re far from the only people that think this. But one big idea we spent a lot of time talking about with our our investors is the kind of digitalization of assets, not in the sense of of cryptocurrency and digital assets, but the digitalization really of securitization, of saying there are risks that people trade.

That is the essence of capital markets is it is a risk transfer of some sort. And what technology lets us do is trade progressively smaller and smaller units of risk. At at more efficient scale. And so whether that is like might let the clearest example of this is like AirBnB because everybody knows how our BMB works. Everybody at some fundamental level says you own a house. I’m going to let you transact in a portion of that house. I’m gonna take your your guest bedroom that I’m sitting in right now and turn that into a tradable asset.

You you can take your guest bedroom, you can listed on this platform and you can rent it out in some sense. So most people don’t think of that as like like taking something and making it tradable. But that’s functionally what’s what’s happened.

This kind of idea I think is going to happen progressively more and more over the next decade because technology allows us to sort of look at the world in higher resolution from from a point of view of securitizing assets that can trade. And you see it with something like stockX, which, you know, we’re not investors in. But I think it’s like an unbelievable idea. We’re like, you know, they have IP for sneakers. Right. As a collectible that trades.

And there’s a bunch of businesses that are doing this, like we actually don’t really have any that many investments that kind of work along Mr. Mastec. I think we’re still very early in it. But this is a pretty profound change in the way markets are going to function over the next hundred years. And we’re very, very early in that. So that’s one area of financial services that we’re pretty excited about. It dovetails with what I would characterize as a second big horizontal theme that works across almost all the things we look at, which is the power of data to help us price risk better.

So if one thing technology does it, it sort of surfaces and exposes and makes legible to investors a set of transactional risks that previously were invisible, whether it’s your sneaker collection or your guest bedroom or what AngelList does. Right. It’s it’s tech startups. The other thing technology does is that it lets us price those risks in a much better and more effective way than we ever would have been able to do before. And so, you know, over the past call it 40 years, there’s been a tremendous amount of technology deployed to help people price public stocks, publicly traded stocks.

Tremendous amount of data, tremendous amount of algorithms like an enormous investment. But all of that data that has been created, all those tools are now very quickly being applied to a whole host of other risks.

Whether it’s a credit risk, whether it’s an insurance risk, whether it’s a fraud risk of a transaction. All of these kinds of opportunities and ideas are being deployed through data and through technology to help us more accurately know the value of something. you can actually group people together more finely, if you will. 

That’s that’s the essence of insurance. Right. 

And so the the more tightly you can figure that out. The better off you can be, and auto insurance is actually one of the areas where data is going to make it way easier to price like the actual risk of you getting into an accident because there are so many things that you can learn when you have good data like it turns out. If you’re commuting path takes you through certain intersections, you’re just much riskier even if you’re an identical driver to somebody else.

Like it has nothing to do with you. It has to do with like where you go. That makes you a different risk. And by the way, if you know that in theory, you could charge differentially for that. What’s even more interesting is once you get to like autonomous vehicles, you can change the rooting right to make sure that you avoid the high risk intersections or even you avoid the high risk day parts for getting into accidents. And you actually take on the ability through technology to change the actual underlying risk, which further changes the pricing of it.

And I’d argue that that seems like only good over the long run for consumers ultimately it is good for the consumer. As long as we don’t end up in sort of scary data situations.

I mean, just look at China. I mean, they have a name in China called called Social Credit, where essentially your credit rating picks up things like, you know, you have trashed two tickets for like littering on the street. Right. And and they’ve pushed it pretty far. I mean, there there are stories in China that, like people with bad social credit, aren’t allowed to buy train tickets in the first class cabin kind of stuff. And so, like you can get to some fairly freaky dystopian places if you go far enough and like we actually have.

I mean, interestingly enough, we have a portfolio company that is a lender and they have a tremendous amount of data that they’re able to get and they get it legally in the US and they get with your consent. And it’s all good. You know, on a panel, the founders said something that’s always stuck with me was like, you know, we can kind of look at you and our algorithms could effectively make a prediction of like whether your what your risk is of of getting a divorce wrangle over the next six months based on like purchase habits.

And like you can imagine how somebody held like a robot can make that prediction. He’s like, we don’t do it because we would be legally prohibited from using that information in the US. But in China, they can do it. They do do it. And they use it for making credit decisions because it’s actually an adverse credit affect. Credit impact. Right. If you’re gonna get a divorce and you sort of go right. Like you actually want a degree of limit.

But it gets really squishy with those limits are.

And it gets especially squishy in a time like this when there’s suddenly this real interest in like tracking people who are infected using their phones. And it runs it runs into these like intuitions we have about civil liberty and what’s good for our society. But the one thing I know is just that society’s views of this are going to change over the next 20 years. 30 have changed enormously over the past 20 and they’ll change again over the next 20. And very hard to predict how that will play out.

Yeah.

Anything else about Clocktower ventures that I should make sure to cover? Maybe your team? Who else is part of Clocktower Ventures?

How big are you guys? How do you operate? Yes, great question. So were were, in one sense, a very small kind of tight knit team and another, I think for a firm of our size, a platform of our size, we’re actually fairly, fairly robust team. There are kind of eight of us in our investment practice around Clocktower Ventures. Seven here in Los Angeles. And then one colleague in London. We invest in North America, in Europe and actually now also in Latin America as well.

And Europe is looked after by my colleague David, who’s based over there. We have kind of an unusual, I think unusual relative to other firms investment, investment practice in the sense that we’re actually a very flat construct and all of our deals are unanimous. Everyone on the team has to want to do the deal. We don’t have any kind of attribution of like, oh, that’s been the other David deal or NEDD deal or whoever it is. We all contribute to all of our deals.

And everybody on the team, in theory is supposed to meet, you know, every management team that we’re engaging with and we formally vote and requires unanimity to get a deal done internally, we have spent a tremendous amount of time, energy thinking through how we’re going to structure, ah ah, our judgment. The thing we’re talking about before of human capital and like the hope I have is that the experience that entrepreneurs get interacting with me or with anybody else in our organization fundamentally feels the same. It feels like you’re talking to somebody from a similar culture. Can have similar values. Think similarly, offer similar questions and points of advice and and try to give you a kind of customer service experience that would feel feel very similar.

And you know that that flows out of a collective decision that we’ve made to operate in a certain way. Got it. And I mean, I didn’t hear any. I didn’t ask I forgot to ask about your background before this, but how did you tell me about your journey to get here?

Yeah. So, you know, for me, doing venture is kind of a funny thing to find myself doing at this point my life. I started doing venture capital in 1999 when I graduated from college. I joined an investment bank called Wasserstein Perella. And ended up actually in the venture capital group and the firm’s merchant bank. And the inmates were truly running the asylum in those days. And I spent the first, you know, six years of my career doing venture investing, and then decided, hey, if I’m if I’m gonna go be a venture investor, I should go learn what at the time I thought was like the secret handshake in the industry. So I went to business school at Stanford to get ready to go build a career in venture. But when I got to business school, I started thinking more more broadly about being an investor and decided to look at liquid markets and shifted to just focusing on on that.

Joined a large systematic hedge fund on the back end of business school called Bridgewater Associates that in two thousand seven nobody had heard of and lost. People have heard of today, 13 years later, and had a tremendous, you know, a couple of years there through the teeth of the financial crisis. You know, really learned a ton about culture, for one thing, but also how to how to invest systematically and how to be more of a macro thinker.

And then started a company after Bridgewater that raised venture money from from great firms and continues to thrive. My former partner runs that thing now and then moved to L.A. for personal reasons. And I guess 2013 is maybe 2012. I lose track. My wife is in the entertainment business and that made sense for us to be here and met my my partner Steve Drobny, who had the seeds of the business that has now become Clocktower group and with our other partners started and started launching investment management businesses.

Fast forward to today.

Got it, great. And I guess because I brought it up at the beginning, I’m going to circle back and maybe close by asking you, so where did you grow up? What’s your what did your folks do to influence you?

Yeah. Yeah. I mean, of course, of course. Our parents. And so it’s us. I don’t know if professionally like there’s that much influence over maybe. I grew up in Atlanta. My dad worked for IBM and then actually his whole life really been in the computer industry.

Yeah. You know, he like from from the really beginnings of the computer industry. He actually was a coder on like the Apollo Project’s back way back in the day. My mom had started her career in the fashion industry.

I grew up in a a very solidly kind of middle class. Bringing in suburban Atlanta, which led to some sort of interesting eye opening experiences when I went went away to college and met people from very different backgrounds.

But I had an awesome, awesome upbringing in the sense that I went to a very big public high school with a real trom a real degree of socio economic and racial diversity. And so, you know, it’s actually one of things we try to look for when we’re building our team as we look for people who by who they are kind of are a somewhat heterogeneous team.

Like, we like having sort of oddballs and misfits if we can if we can help.

I love that. I love it. And I love the. You’re in L.A. now. And what what Clocktower Ventures is doing is great. And it’s great to be sort of joining as part of this ecosystem. I mean, as you started by saying feel really lucky to be in L.A. at this crazy time. So anyways, Ben, I’m going to wrap up by just saying thank you so much for coming on the show. Yeah, it’s our treasure.

I mean, we. Thanks. Thanks so much for putting this together. We are huge believers in the L.A. ecosystem. You know, we tell everybody we can there’s no better place in the country right now to start a company than Los Angeles. 

Steph Janson — OCV

Steph Janson joins to tell us about OCV, a $260M LA fund investing into companies that have $5M+ ARR.  He also shares some great stories about Israel’s startup ecosystem and his time at OurCrowd.


View Transcript

OK, today I have Steph Janson from OCV with me. OCV is a $260 million fund in L.A. They write checks up to $20 million dollars into companies that have $1 to 5 million in ARR.

And before OCV, Steph was at OurCrowd, Israel’s most active VC fund. Steph, thanks so much for chatting with me today. Such a pleasure. Many thanks. You know, just to start like $260 million dollar fund in L.A..

That wasn’t totally on my radar before.

Before I learned more about it, I guess, as things as things go.

Yes. Just give me the basics of OCV, I guess. Yeah.

So, you know, when when I joined Stevie and I find fairly recently, so October of last year, I kind of started looking around for who are the big players in L.A. ecosystem. I was new in town. And it very quickly became apparent to me, you know, this is a nascent ecosystem. And I didn’t know that coming in. But it became apparent to me that OCV was one of the biggest fish in the pond over here. And, you know, I mean, here in L.A., so we have fifth wall. We think it’s bigger than us and UpFront and Greylock, but but not many others. Right. And so it’s I think we have a better job to do in terms of getting our name out there and letting people know, hey, we’re here, this is what we’re doing. And I remember when you first came to meet us in our offices, we said in this beautiful private equity fund, who’s our our sister company and the chairman of our company is also the chairman of this private equity fund.

So you walk in and there’s these beautiful marble hallways and conference rooms everywhere. And, you know, the first thing people often ask this is who the hell are you guys and how come you’ve never heard it? So, yeah, absolutely. We. This is one of the reasons why I’m out there doing podcasts and looking looking forward to getting a good message out there.

Well, it’s Fund One right now. Right? Yes.

Yeah. So we closed end of 2017 on a tender and $260 million fund. As you said, we have about 50 percent fund cycling. So we could go up to about 300 and we’ve deployed just under a third of it. So we’re two thirds deployed, sitting on a lot of dry powder, which in the post age of Covid valuations are plummeting everywhere. It’s a good place to be. You talk a little bit more about that later if you want.

But we’re very much active looking for great investments. And yeah, we’re here to play. Awesome.

So, I mean, both of those are interesting. Is is series B is sort of your sweetspot entry point or is it a series A company?

I don’t really know what Teresina Series B mean anymore. But as we define it, yes, we’re looking for revenue generating companies around kind of the $1 to 5 million in our range.

That’s what we call a series B. So there’s product market fit some validation and there’s a little bit of growth that we can extrapolate on and try to figure out how the company is going to going to perform in the future. And then we we also we’ll go earlier. So when we have a lot of confidence, we’ll do it every day.

And and as you reference, we are on video conference today. We’re both in our houses. Well, how are you guys feeling towards Covid? I mean, how is your investing being affected?

Yeah, yeah. Our existing investments, some of them are going to benefit. Some of them are going to have some hard months ahead. And we have to now, as VCs, start earning our management fees by doing some smart portfolio management and and some some good business development to try to help them get through this.

On the other hand, valuations are plummeting. Right. So there’s gonna be good deals everywhere. And a lot of the deals that we’re seeing now are recaps or down rounds. And I think valuations have been just insane for the last two years. So I think now is really a time to be in. And historically, when you look at vintages, VC vintages that came following a global financial crisis, some of the biggest companies in the world were built around these times.

So BNP was a 2008 company founding. I think Dropbox was founded one year before and right as the global financial crisis was kind of coming to a head.

You know, Scott Galloway, who hosts another podcast, so I really love him. Say my podcast. You’re right. I guess so. The NYU professor who is always putting his foot in his mouth.

But I love him. He makes this great point that, you know, these crises they give manageress cloud cover to to make a big moves.

I think it’s telling that Zoom is now worth more than all airlines combined. So we’re talking and zoom over here. And just to think that I mean, that’s that’s the crazy world that we live in right now. Wow, I’ve heard that. So, yeah. Right. So Kogut is gonna gonna affect the ecosystem up and down. You know, its Silicon Valley Bank had a webinar last week where they made the point that in the last global financial crisis valuations our investments dropped twice as much as valuations.

Right. And the reason that happens is because alky start to bail. So if you have you know, if you’re sitting on A, B, C funds, you’re Opie’s are gonna start calling you and saying, listen, don’t make a capital call because Pleasent put us in a senior position or rehab to say no to you. We can’t actually go through with what we promised you. So, you know, there’s v.c funds now who have dry powder on paper.

And then there’s v.c funds now that can actually move the money and make investments right now. Unfortunately, we find ourselves in a position where our fees are pretty recession. So and by the way, that’s also true for private equity funds and corporate development teams. And those are the big dry powder are going to be making moves. The ones with strong balance sheets are going to be doing a lot of M&A. Right. So it’s going to be interesting landscape shifts in terms of how startups exit.

So, yeah, kohver is changing everything. And it’s it’s hard to know where it’s all going. Right.

So you efron’s a little bit your LP.

He’s you guys are you’re investing at a fund one two hundred sixty million dollars. That’s a lot to raise for a, you know, emerging managers.

So tell me more about who who who is part of OCV.

Yeah. So our largest LP is a group called J2 Global, which is a public listed company based here in L.A.. And that comes from one of our founding partners, Hemi Zucker, who is really the co-founder and the eventual CEO of J2 Global and J2 Global is pre-code of it. I think it was five billion dollar market cap, about a billion and a half in revenue, half a billion in profits. Right. So big cash cow. That is very resilient.

And it certainly is. Yeah. To turn the light. Sweet, it’s.

What do you say? A $5 billion market cap. Yeah.

Yeah. What it was like right before covered. I’m not sure where it’s at today. But but yeah, its largest tech companies in L.A. then.

Yeah. Yeah. And so there’s there’s a registry of companies. Most companies that you think of as being based in L.A. like Disney are actually registered, not in L.A. County proper. And I think in L.A. County proper j2 I think is a tough time to get listed companies. So, yeah, it’s it’s it’s a large company over here. And what is J2 do? Yeah. So J2 is a company that holds the five digital media solutions and cloud services and a range of different solutions.

But probably the product they’re best known for is effects. So one of those you know, the first of the first solutions that let you basically get facts in your email. Right, or send fax from your email to J2 bought them and then scaled the company up and they bought something while Hemi, our partner, was CEO of the company. He grew the company by buying something like 160 different companies. Today that’s over two hundred and basically merging all their all their customers list and merging all their overhead.

Okay. So that makes me do a large range of things.

Yeah, that makes more sense than eFax being a $5billion. Yeah.

Yeah, yeah. Yeah, yeah, yeah. So so they they do a lot of things and then this also ties in to kind of our value add offer for entrepreneurs. We are you know when we’ll try to I’ll go our way into competitive deal, we’ll set entrepreneurs. Listen there’s this company J2, they’re our largest LP. They’ve made over 200 acquisitions. There’s probably a customer somewhere inside J2. So it was probably one of those acquisitions. One of those companies and subject SJT that could be a customer.

That could be a distributor, that could be a partner or that could be an eventual acquirer for you. And so we use that very much as leverage to get ourselves into into hard to get into deals. Got in.

Hemi, who was the founder CEO, is now partner at OCV.

Yes. And is now a partner and SUV runs the team over here, runs the the tech team in which I’m OVP. And that’s about two thirds of our fund is dedicated towards making investments in technology and prop tech. And then the remaining start of the fund is dedicated to making investments in life sciences, biotech, a bit of pharma, things like that.

Area number two, where we can be smart money, anything to do with PopTech. And yes, this ties in. Our sister company, which is a large 30 billion dollars real estate focused private equity fund. Their assets include solar parks. Empty land. Commercial real estate. Car parks, multiple hotels, several data centers. And so when we look to make an investment in PopTech. The first question we have is how can our sister company add value?

Can we roll this technology out through their portfolio in order to give our startup some kind of unfair advantage? So, for example, that could be and we use the term profiting very liberally here. Right. So that could be, for example, a sensor for a smart building that could be, you know, 3D printing for construction. It could be new construction materials.

But if our sister company could be a user, then we can do something really cool. We can on day one say, hey, listen, give us a sweetheart valuation because we can arrange this amazing. SYDELL And then on day two, we can immediately mentally markup the valuation that we assign to the startup because we know that the startup is going to hit all of its milestones for its next two financing rounds because we’re going to be the customer. Right.

So that lets us kind of play very aggressively in that area so that there is two or three go. And that that.

What did you just say, $30 billion or PE fund? Are they based in L.A. as well? And that’s our headquarters that I’ve been to. Yeah, yeah.

They’ve until and that was their headquarters and as OCV, how do you have a philosophy about your your geographic focus?

So we are, I think, about 50 percent deployed in L.A. and 50 percent deployed outside of L.A. We tend to focus on U.S. only companies, although a few of us at OCV, myself included, are Israeli. So because we know that market very well.

We we feel very comfortable investing in Israeli companies who are kind of offshoring to the US and setting up offices here. But that’s just a little bit of a quirk that comes from who we are. So anyway, just to finish your your previous question.

Area 3 is around anything to Lifesciences that comes back to one of our partners who’s a very experienced life science such partner, who is the co-founder.

You know, you’re you’re of the right age to remember those I fell in. I can’t get up life alert ads, infomercials. Said, yeah. So he was the co-founder and managing director at LifeAlert. And I asked the CEO and board member of multiple public companies. And so we’ve hired a team that brings a lot of that knowledge in-house.

So we have to p_h_d_ on the team, one neuro pharmacologist and one a biochemist who are helping us to do prospecting and in life science tools for a biotech and pharma and some digital health as well. Got it. OK. So those are the three years of focus. But then your Web site says OCV invest in, owns and operates. I forget to differentiate companies with differentiated technology.

And so that is actually fairly different phrasing than most v.p.’s would talk about their funds. Can you explain that difference?

Yeah. So we are you know, we have the three areas where we feel like we can be smart money. But we’re also kind of first and foremost, opportunistic. Right. So when when we see the opportunity to go outside of those three areas. Right. And invest, you know, like I said, not necessarily be able to it when we see the opportunity to make an investment through venture debt will do it. Right. And in one case, you know, we saw a gap in the market and we incubated at a company internally and we own 80 percent of it right to where we are a majority owner in this company.

And so, yeah, by definition, we own and operate that company. So, yes, in many ways we’ll also break the VC rule book when when we feel like it makes sense to do that. So that’s kind of something that’s a little a little unique to our phone call.

How did you know you were at our crowd in Israel before this? How did you end up at our crowd and OurCrowd?

OK. Some crazy story. So I was I was traveling home on a flight from Israel to New Zealand. So I was born in Israel, am Israeli. But my parents moved to New Zealand when I was 12. Long story. You know, we all collected five passports, passports along the way. You know, we all speak multiple languages. My parents back five and six languages. And. Yeah. And so I know where I was flying home to to visit my parents.

And I am sitting on the plane next to this guy who we get talking.

And he always said to me, listen, if you’re ever in Israel, look me up and I’d love to grab some lunch. So we stayed connected over the years. And a few years later, I find myself in Israel. And he says to me, listen, you know, I would love to introduce you. You have this interest in startups right above to introduce you to my friend Alan. And so I’m making an appointment for you. Just be at this address at this time.

Right. And go meet Alan. And so I shop at this house. But but, you know, this house was like this mansion in downtown in the middle of Jerusalem in a very expensive neighborhood. So straight away, you know, like some some and this guy is someone and big walls and cameras around the house.

And he opens a door for me. And as I’m walking and I get a call from a friend from the plaintiff, says, listen, I can’t be there. Meet this guy. It’s gonna be fine. It’s going to lead me into his office, which has a few stories underground. And I’m walking downstairs, you know, behind this tall wall. I started wondering myself, how well do I know this guy? I went on a plane and he like this isn’t really a harvest, the organs like that.

Thank you. And anyway, he he asked my yeswe what’s what’s your name?

It’s. And he says to me, it’s Exton. I know that name from somewhere.

We were the only other Jewish family on the same street in Johannesburg, South Africa. And he goes and he names my aunts because they went to high school together. Being religious kind of takes it as a religious sign and says, OK, you know, it’s it’s gonna help us get out. Unbeknownst to me, he was the latest LP in OurCrowd. And he picks up the phone to the CEO of our crowd, John Medved, and says, you’ve got to interview this kid.

That’s how I got the interview. That’s amazing.

It’s a sign. It was a sign, a great story. I ask a lot of people this question.

Most people have, you know, they started investing in syndicates or something far more mundane.

That’s awesome. OK. So OurCrowd is the largest, most active in the investor in Israel. Tell me a little bit about our crowd.

Yeah. So, I mean, it wasn’t when I joined. I guess I should say, you know. So when I joined, we were a scrappy little team under 30 people. But over the time that I was there, you know, it grew to about 1.5 billion dollars deployed today.

I should take a step back and explain how this was called equity crowdfunding platform, which means that there is a website where you go to sign up as an investor, you have to be what’s called an accredited investors.

You have to prove a million dollars in liquid like liquid assets and then you want to join that list. You know, you can go into the backroom and see all the deals that accredits. Currently raising for Alcoa puts up about 5 percent of the value of the deal from the money of the partners who create the fund and then they crowdfund the remaining. Ninety five percent sort of similar to enlist.

Yes. Similar to AngelList. The big difference between AngelList and OurCrowd is that Ángeles is, um, curated. So anyone can go onto AngelList and say, you know, this is who I am. Here’s the deal.

So our crowd the big differentiator is that it’s a curated equity crowdfunding platform. What that means is that there’s a team over there of investment professionals. They do institutional great diligence. And so that’s something that an individual who syndicating a deal in Angeles would struggle to do. They have a team of in-house lawyers who can legal diligence in a way that it would be very difficult for a single person to do as well.

I should say also that today our credit is no longer solely in equity crowdfunding platforms. So today our credit also has got traditional funds, which it raises. Richard raised the fund with specific management team and has a beginning and an end date. The deployment period and all that. And then had also at some point started seeding other VC funds.

And there’s been a lot of, I don’t know, people trying to sort of study Israel to understand what has made it, such as startup’s success story.

Yeah, for sure. So maybe just to give your listeners some data points for people who are kind of not familiar with it.

It has almost twice the Vichy doctors per capita than the US. Right. And has. Yeah. And has more R&D per capita, higher highest per capita, non-military R&D per capita in the world, actually. So these are both VC funded companies and other companies, R&D departments. When you add that all up, highest number of patents per capita in the world. And then when you look at Nicaea Nasdaq listings. Right. This was true a few years ago.

I dunno if it’s still true today, but the U.S. tops the list, which makes sense in the largest economy in the world, followed by China, which is large population in the world. Then comes Canada, which punches above its weight. But then in fourth place is Israel. Britain, which is insane because this is in absolute terms, right? That the most number up nice in Nasdaq listings, in absolute terms is this tiny country with just over 8 million people in the middle of the Middle East.

Right.

What attributes to all of that success? I’ve heard people say things like the Israeli mandatory military service, but I don’t necessarily understand the tie between mandatory military service and why you have so much success in all of those different industries.

Yeah. Yeah. So let me see if I can if I can tie it make make that tie for you. So what is the military right? vis-a-vis investments at least. Right. And vis-a-vis innovation. Well, the military is an organization that can make. Extremely long term investments in research with no ROIC considerations, right? Not not beholden to any LP, so they can they can say, listen, we want to make an investment in nanotech right over the next twenty five years.

And we don’t and we don’t really it doesn’t really matter to us whether it’s gonna be profitable or not. We’re doing this for strategic reasons. Right. So that definitely helps kickstarts industries. Right. Then the industry is also very it plays a big role in in in talent. Prince of the Swan phrase that gets thrown around is that in the Israeli military, you’re trained to work in teams to accomplish mission critical objectives while adapting to unknowns. So let’s break it down.

Each of those things. Right. Okay. So you’re trained. You to the military. You’re a 19 year old and you’re trained to hack into Syrian computer. Right. That turns out to be quite useful when you then later go on to found a cyber security company. Right. You’re trained to work in teams. Why is teams relevant? Because, as it turns out, many startups. Right. 500 research to 500 startups did this research that showed that many startups fail because of founder infighting.

Right. But if you’re founding a startup with someone who you served in the Army. Right. There are no one entity there already. Someone you know, you’ve already been through a lot with this person. You probably already know what annoys you about them. It’s a known risk. Right. So so your chance of of just kind of like discovering something about this person that makes it intolerable to work with them is much lower at that point. And then that last bit adapting to unknowns that transfers very well to startups where everything is chaos time.

Right. And that’s true, by the way, even if you are not military. Right. So if you’re an Israeli population, every few years, you come under fire. There’s like there’s like rocket attacks that happen in Israel. And so by comparison, the idea of failing in business seems a little, I guess, trivial compared it to living in that reality. And yeah, and you know, my whenever I go down this line with people, by the way, I always kind of feel responsible to sort of plug Israel and put things in perspective.

So, you know, the risk of terrorism in Israel is negligible compared to the risk of getting on in your car on the road here in L.A.. But so that’s just kind of worth throwing in there as well. And then you go back to kind of the military. So necessity absolutely breeds, you know, some some innovation. Right. So using the satellite industry I was talking about before, the satellites are typically launched from west to east. Right.

And the reason is because the earth rotates in that direction about a thousand miles per hour. And when you launch satellites with the rotation of the earth, you give them that boost. Right. But in Israel, if you launch a satellite west, you’ve hit a problem because that satellite is going to fly over Iraq and they’re running Syria. And there was a fear that they would shoot this extremely expensive piece of equipment down. So what was the innovation as Seattle?

What if we can miniaturize this to the point where we can actually launch it westwards? Right. We can launch it against the rotation of the earth. And the whole CubeSat industry basically came out of that. And now you can actually launch a satellite news-wall for about a hundred thousand dollars. That’s less than the cost of developing an app. Right.

And that’s true in non-military situations, too. Right. So Israel is a place with water security issues. So it’s huge innovation in, for example, water dissemination and in Israel or in water recycling in Israel. Right. Like Israel recycles over 80 percent of their water, then it’s the highest in the world and the next highest country in the world. In terms of recycling, I think is Spain with something like eleven percent.

I think today also when you look at Israel, it’s easier to explain why. Right. So today there’s fewer drives from Tel Aviv up to Haifa. Right. You see parts and parts of, you know, tech parks.

So Google, Yahoo, Intel, they all have huge R&D offices over there and all those who are producing great talented engineering workforces for the startup nation. And then the presence of those large companies that we talked about is also very important for for the creation of startups, because there is this.

Cycle that I like to talk about. I used to I used to lecture at the Technion in Israel as a guest lecturer. Which is kind of the Israeli tech Caltech. Right. Or am I? And, you know, I used to make this point that the what happens in these large companies is you join us, an engineer. They train you one man. One day you see a problem which you you really want to solve. You go to your boss.

Your boss says, no, no way. I can’t. I can’t help you with this. You know, you have your own KPIs and I need you to meet these timelines. So then you as a as a budding entrepreneur abutting engineer, an entrepreneur. So can then leave and do this myself. So the company is needed. The large company is needed to train you. The bureaucracy of large company is needed to frustrate you into leaving. And then once you’ve created your own startup, the presence of a large company is necessary to be your eventual acquirer.

And then the last element of that is cultural. Right. So culturally speaking, Israelis are notoriously informal and disrespectful of authority and and hierarchy.

And then I would say culturally, you know, also openness to immigrants. Right. So Israel in the 90s absorbed something like 1 million Russians, which to put that in perspective for it for the listeners.

That would be as if the US absorbed the entire population of France. Right. I mean, that’s that’s just inconceivable in the US today.

And the last thing I’ll say is that being a small country often means that you have to think global from day one.

Pretty much from day one, you have to start asking yourself, how do I move to the U.S.? Right. And so that orated just kind of it’s it’s part of the machine over there which makes you think big before you even get started. What do you notice?

So you have lived in a variety of different places.

What do you notice about L.A. culture, sort of in contrast to the Israeli culture?

Yeah. You know, I’ve been very pleasantly surprised with the L.A. culture. And, you know, L.A. has I guess there’s like stereotype for outsiders, right? l.a.’s mostly associated with Hollywood as opposed to being associated with tech and venture and investments. And so I think, you know, it’s like I fell into that trap of judging a book by its cover, but I thought most people in L.A. would be kind of like very vain and very, you know.

Yeah, but but I am very pleasantly surprised to find that the L.A. startup ecosystem, in my opinion, actually resembles what I would imagine the Israeli ecosystem looked like in the 80s and 90s, and that it’s kind of like it’s a little grungy. It’s got like this big brother up in San Francisco that gives the kids a bit of a bit of a nogi every now and then. But I think but I think that I think that L.A.. Right.

If I look in the long term. Right. There’s nothing. al-Ain If I look at the fundamentals, read Lessing’s very well set up to become huge. I mean, if you believe demographics are destiny, right, the population now is much bigger than the population of San Fran, right.

I think in the next few decades, I think I think this is a great place to be in. I’m excited to be here. While it’s early so that I can grow in this ecosystem. Right.

Anything else on the personal side? Sounds. I’d like to ask people for like a piece of advice that they’ve been given that that has touched them, stuck with them. Yeah.

Well, you know, so for me, I like to tell people, if you want to be in venture capital, one of the things kind of that’s important to realize is that venture capital is this really weird place where people people’s career is just kind of getting rocket ships and take off for example, you know, you fund these entrepreneurs back when they’re these, you know, little scrappy kind of jeans wearing. I have a dream kind of people, but then they sell their company for half a billion dollars. And suddenly this person who, you know, is there a hundred million dollars, right? Yeah.

And, you know, you work with these extremely capable people. Right. So if, for example, as I mentioned to one of the partners at our fund created a five billion dollar company. Yeah. One of the other partners at our fund is a billionaire. Right. So you have to absolutely know how to manage your ego so that, you know, you don’t kind of get drowned out by all of this like challenge around here. So I would say that’s kind of one piece of advice that I give people who are are trying to get into venture.

Yeah. All right. Well, it’s really good to get to know you and gets no OVC better. As I said, I will I will be sending you all our companies as they they grow into into their series A, series B.

Absolutely. Great. Well, Steph, thanks so much for chatting with me today.

That’s a pleasure.

Jesse Draper — Halogen Ventures

Halogen Ventures invests ($250k – $1M) in consumer tech companies led by women (The Skimm, Carbon38). Jesse Draper shares her perspective of growing up 4th gen VC, how she learned to be fearless, and much more.

Must see TV:
 
Jesse and Adam Draper podcast:
 

View Transcript

Today I’m zooming with Jesse Draper from Halogen Ventures. Halogen is an early stage venture fund here in L.A. investing in consumer technology companies led by women. Halogen has made over 50 investments in companies like The Skimm, Carbon38, Flex, HopSkipDrive. And Jesse is also a fourth generation venture capitalist, which is incredible. Who can say that? It’s awesome.

So, Jesse, where are you? Where you holed up right now? And and, you know, does this situation change your investing at all?

Oh, yes. First of all, I am holed up in Los Angeles. Probably like you and I feel like just every day I feel like a crazier person like this is one of those things you kind of dream that you never think is going to actually happen. And just the things I’m telling my kids right now, I’m like, we’re gonna go for a walk around the block. But you can’t touch any one. So if you see your friends, don’t hug them.

We can’t play with them. And I’m like, I’m gonna. I messed up my kids for life already. Like, they’re just gonna be these crazy germaphobes. I mean, what a weird world right now. But, yes. What was your second question? Well, I lied about investing.

And you guys are you’re in fund two, right now. Right.

We are working out of a fund two. Yes. And we. It is. I mean, yes, of course, I had to change my investment strategy. I also just felt super depressed about the whole thing or I was like, oh, my God, so many people are going to lose their jobs. This is week one. We already have companies laying off anywhere from one to 60 people.

And the thing that’s really brought me out of this funk is I now have seen companies transform their entire businesses, put businesses that were not online, online in a matter of days, launch new product lines. And like you realize, you bet on these entrepreneurs for a reason. And that has been the most inspiring thing I’ve ever experienced.

Yeah, I love that.

I agree with you. You’re betting on these teams and you don’t know you can’t foresee these pandemics. How about like investing? I’ll just say, like, I found it really hard to continue investing without meeting people face to face.

Yeah. I mean, we very quickly pressed pause on all new investments because we wanted to have one on ones with all 60 plus of our companies just to be like, hey, how’s it going? And I mean, to be completely frank, I art our whole strategy, our investment criteria. Everything ended up coming down to three things. And it was like, do I believe in this founder? Can they execute? Do they have enough runway to get through the next year?

And are they coded sustainable because it’s no longer like are they recession proof? It’s like, are they? It’s a whole different. Like, everything is different now.

You know, companies that were recession proof that the government as a customer or like drive kids to school like those people are going to school.

That’s not supposed to be a recession proof business, you know. And so that’s been fascinating to watch. And just it’s. Yeah. So we had to flip it on its head and were really focused on our current portfolio. And we’ve just press pause. And I feel it’s like excruciating to do that because you know, as well as I did, we were in the middle of leading three deals and I just said, hey, guys, I’m so sorry.

And it’s very different. To all the sudden get working out of your homes as well. Oh, it’s horrible. So much quality family time.

Do you find that there’s certain advice that you’re giving a lot.

Oh, I love this question. I. Yeah, and I also feel like you always want to be friendly with your founders. I’ve done my best to be friendly and you know, but sometimes, like when you sit on the board, you have a closer relationship with that company because you have a larger checking and or whatever it is you you know, you really are in charge of showing them the mirror and saying, hey, look, here’s what’s really happening.

And so we did a Zoom call with like all 60 of our companies. And I I’m usually like on the edge of it’s gonna be great, like you guys get through with it.

And I was like, you know what? I actually need to kind of terrify them right now. And so, yeah, I feel like I’m over and over. I’m saying you will not get outside investment, period. And they’re like, oh, but we had these great conversations going on and I’m like communist. We can tell me they’re still going on. And they’re like, you’re right. They pulled out. I’m like, yeah, the only like you’re gonna have is probably raising internal rounds.

And I just want you to be realistic about that. There’s a few founders. We’re going to be fine. It’s just the next couple of months. So actually, we’re recommending 12 to 24 months of runway as our most venture capitalists in this industry.And then I love the founders that are coming to me saying, but, Jesse, we’re still going to hit our numbers. Our numbers are going to be great. And I’m like, no one gives like no one cares about your numbers. I don’t know if I can swear on this podcast. Guess no one cares about your numbers right now.

It’s literally about survival. So you just survive right now through the new year and you will be doing fine. I feel so grateful that we are in direct to consumer because this is just the moment where. Retail is transitioning to direct to consumer, like all of the traditional retailers, we all knew this moment was going to happen, but all the traditional retailers are pulling their orders and like they’re figuring out what to do. And so if you are in a direct to consumer business, like you’re very, very lucky right now because people are living in their homes.

So actually, tell me a little bit about what you invest in. Good question, too.

I mean, because I know it’s consumer tech, but I don’t know where you draw the line.

So we invest in a couple different categories, but we. Yeah. So I say direct to consumer. There has to be a female in the founding team of five. We don’t define that by any type of equity. I want to make sure there is a female in the leadership position. We have about 60 plus portfolio companies. We have three male CEOs, which I like to highlight because people seem to think you hate men. And when you invest in women and I’m like, no, we actually really like men.

We just want to make sure there’s women in leadership positions. And so when I say direct to consumer, to me, that’s something touching the consumer. So we have everything from social media to, you know, actual physical CPG type products to a couple of the verticals we invest heavily in in our fashion transportation. We do do some work from home products that would probably fall under more where you invest in in terms of like V to be data analytics.

We tried to also invest in companies that facilitate the consumer experience in some way because we have all of these incredible products. And so we were betting on like how consumers behave in the future. And so yeah, you mentioned a few of our companies in the beginning. Carbon38, The Skim. You know, we’re infestors in that company called Squad. That’s doing great right now. It’s like a new social media app that is sort of like if SNAP Chat and Zoom had a baby and teenagers are just sitting at home playing on it. 

And so, Jesse, do you have when you’re betting on how consumers behave in the future, do you have some ideas yourself going into this? Like do you have some things, some big trends you think are like the really exciting things that we’re all going to behave in the future?

Yeah, I mean, we were. Yeah, I mean, we have a company called Shipsi see, for example, that we invested in. That solves same day delivery. We know her for everyone who is not Amazon and Link, obviously people are just like clawing her door down right now. Every small business in America is like, wait.

So you talk to us and we were thinking about it, but now we’d like to go. We’re ready like we would like to deliver.

So if we are all working from home and getting everything delivered and we schedule our Uber pick up and it feels like we’re never going to just hang out in the town square anymore. 

I have thought a lot about that. And I think I always think like food is always going to be where we gather, which is why I think you’re seeing more things sold on shelves when you walk into restaurants and things like that, you know? So that’s where we always gather because people come together for food and beverage. But yeah, we’ll see how. For years I believed in kind of the pop up shop model in general because it is such a cost for a startup to launch a store.

Are you leading these rounds?We do lead rounds.

Sometimes we’re like the first institutional money and we rate 250 thousand to a million dollar checks and for initial investment. And then we follow on as well for about a third of our companies.

And what makes it really exciting, like I think I listen to you only. I listened to you the funniest podcast I’ve ever heard. I saw you on your brother’s podcast.

Oh, no. We need to do that. I was so I don’t know. We were just like fighting or something. I don’t even remember it. I need to listen to it. But I know a couple people that brought this up to me and I’m like it was probably like a brother sister wore the whole time.

No, it was good. It made me like you both. I was like, oh, I like them out of that. That was good sibling dynamic. But where was I going with this?

I actually don’t know where I started that conversation. Yeah. I have no idea where I was going with that. 

Maybe I’ll just ask a little bit about your background, because we have really covered that. So. Tell me about yourself and the team here. So I mean, fourth generation venture capitalists like super interested in how your upbringing. Your father is a legend in investing. How that influenced you.

Yeah, I mean, we our family is really close and still is very close. We currently have four funds amongst our family. My dad has a fund, my brother Adam has a fund. My brother Billy has a fund. I have a fund. And that’s just our biological family. And my grandfather does social enterprise. He’s still working and, you know, in his nineties. But we are just our family is really close. I think growing up, I was definitely exposed to many incredible startups and founders.

And that was really this world. I knew very well through my dad and he was so generous with his time and he would like bring me to conferences and I would teamspeak and all these other people speak. And so I do feel like I’ve been in this business for a very long time. æsthetic then went to UCLA for college. And I I felt like but there weren’t any women in this business. So like, what do I do? And as a young girl growing up, my mom took care of four children, which is like the hardest job in the world.

And I appreciated 10 times more right now. And I don’t know how she did that. I’m like I literally, you know, I went into this family situation and like, I would have like four kids. I have two and I’m like, I’m done. But, um. But my aunt was an actress and she was a very successful actress in the eighties. Your name was Polly Draper. And so as a young girl, I was like, oh, that’s what women do.

And and so I always sort of idolized her and was like, OK, I’m going to get a traditional job as a woman. But it’s true. Like, you want to be what you can see and as they say. And so I went into acting. I was on a Nickelodeon show. I did a bunch of movies, and I quickly realized that my time could be much better spent. I would like go to these cattle calls and everyone would look just like me and were probably just as talented and usually more.

And so I had I would be on this Nickelodeon show for six months at a time and then I’d have a six month hiatus where I’d go audition. And so I started this text talk show out of my parents garage. It was called The Valley Girl Show is hilarious.

Let me just say it’s hilarious. I got sucked into the black hole of teen years. So it’s it’s so excruciating. I haven’t watched old episodes for maybe 10 years.

Oh, no, Jesse, I made a fabulous cut for you. And I was like, oh, I’m going to make a fabulous cup. I get it. Jesse laughs. Billy is one sitting over it. Oh, good.

I cannot wait. I. Oh, my God. I can’t even. The bobcat we used to call a fluff cup and we found out that was a porn term. And so it was like, no, no, we’re not calling it the fluff cup. We can’t call the fluff cup. And I’m like, oh, sorry, I didn’t know that. But I’m so quickly transformed into the bad cup. But we. And for those of you out there who are not listening, we.

It was a you know, it’s just like a fun game. We played on our show called the Cab Cup, not a fluff cup. To be clear, but it was called the Valley Girl Show. I had no idea what I was doing, but I I started I had my brothers help me film the first episode. And we got incredible guests from Silicon Valley that now you would know. Well, it was like, you know, first season I had like Eric Schmidt, who at the time was the CEO of Google.

And I know we were the first tech talk show because no one cared. No one cared that I had Eric Schmidt on my show. They’re like, yeah, yeah, whatever. And you can Google. This was so early days was like 0 8 0 7 0 8. And I’m. We did it for a long time. I did. I did. And then we we took it. I worked with everyone from like Forbes and Mashable. It was like early days of digital distribution, took it to TV.

We were nominated for an Emmy. And I’m so through that, though. I just also media is just the Wild West. I mean, I have so many just like it’s just still very broken. We’re seeing a lot transform right now, which is interesting. But having been and now every element of media, it’s just it’s just broken. Like we were barely breaking even on the show I ended up getting blackmailed by my producer. It was just like a crazy time. And so I decided through the show I had made this initiative to interview 50 percent women in tech and they came. You know, I was one of the first people to interview Sheryl Sandberg before her book came out. And that changed my life like dramatically, I want to say in every single interview I ever have, because like her coming on my show made it OK for women in tech in general to come on my show.

And I’m forever grateful to her. But so through that, women came and I said, a nose. Sometimes you’re a little too early for the show. Love what you’re doing. Can I write you a Penney’s check? They didn’t have a lot of money at the time. I mean, I was writing like one to five thousand dollar checks, whatever I could afford. Sometimes I’d like negotiate sweat equity and be like, I’ll be an advisor, I’ll get you media exposure.

And some of those deals ended up doing really well for me when I sold on the secondary market for a twenty five X return in less than 18 months. One was carbon38 like one was. So like they’ve done great. So I use that to raise fund one. And now, as you mentioned, we’re on fund to. So many questions about it. It’s really your episodes are really amazing. Do you think there’s certain gas that you got that that’s sort of the public perceives incorrectly right now?

You know, it’s interesting. I. I I’ve been thinking about the show so much recently because I started it in 0 8 0 7 0 8. And as a venture investor, I have been studying those companies and like how they came out of it. And I had like Drew from Dropbox on my show when it ended up on the cover of The New York Times style section. And then they went public and I had like Eventbrite on and they went public.

And it was like I found these companies so early, like they just started. And so I’ve been thinking a lot about that. And obviously things change. I mean, in terms of commenting on how they’re perceived by you know, I think there’s always there’s like such a political answer. I think there is always ten to one hundred sides to every story. You know, it’s like if you were in their position, I bet you would see things differently, too.

Do you find that you’ve got some really interesting answers or like you learned something about your guests? Yeah, I mean, I always tried to find new things about them, so like I broke the news that Sheryl Sandberg had formerly been an 80s aerobics instructor, and then I was like, is that what is like?

Yeah. I mean, I guess so. We were quoted like three times in The Wall Street Journal, which I still think is just hilarious. It was like according to the Valley Girl shows your Uber use. But so I would dig and dig and dig because otherwise, you know, every interview is the same. 

And then you interview the people from like CEOs of corporations and things. And they would be much more teeth pulling interviews because they’re very I would call it like PR ified. And so you can’t you. I’d be like, how do I get them out of their box? Like what? So then I would throw these crazy questions out and be like, do you like horses? They’re like, why are you asking me if I like horses? Like, I don’t know.

I don’t I don’t ride horses. I’m like, no, I’m not asking if you’re ride horses. And then they would sometimes roll with it. 

I tried. I asked Ashley, I was like, give me some dirt on Jesse.

She. She did. She was good. She was like, well, we just went on like a we had like a management retreat or something, a team team outing. And we all had to have words for each other. And she said, I think your words were colorful and fearless were two words that she gave me, you know, and that was what I was going with.

Like, how did you become number one? How did you become fearless? Like, how do you help people become fearless? I think you just can’t let that something you know, I think my dad definitely has inspired me to be like he has no problem being the opposing view to anything. And you’re never gonna be everyone’s favorite person. I’m sure like any female, especially like you go through, you’re like like me, like me, like me, like me, like every everyone wants to be like know.

And I think at a certain point, you just have to realize, like, not everyone is going to like you. And that is okay because you don’t want me to be friends with everyone, you know, be the best person you can be. But I try really hard not to get. Not to sweat the small stuff and just. And also being in the media. I have like the worst. Oh, my God. Like this. Today’s media is like, yay, women empowering women.

I was trying to do that in like 0 7 0 8. And so was Sheryl Sandberg. And I was trying so hard and I was screaming for these like role models. And women did not want to support other women at all. They were horrible to be horrible. And I mean, I was like in my 20s is wearing little pink dresses to like, you know, business conferences. I was like one of like three women in the room.

And I’m sure, like, I look back and I’m like, I get it. Like, maybe they just didn’t like me. I was like, screaming for attention somehow.

But they I think I went through so much in the media that no media really affects me now. So like Valleywag would write these horrible articles about me without having interviewed me. And then like seven years later when I actually was relaunching the show, they wrote the same article. I was so excited, like a new press and like it’s like a rebrand. And you’re saying, did you learn through all these questions and shows you did like, yeah, I was ready to relaunch the show.

And then Valleywag basically like reposting the old article that they’d written from seven years ago without doing any research or realizing like we were now on a network. And, you know, it was like they were horrible, horrible to me. And so we got I got so much bad press from that show in the beginning that I was just like, I don’t care anymore. You just mean, no, whatever.

Well, I’m sorry to hear it first off.

But I also kind of think, like when you say you made you so much stronger than late. Yeah. Like I one day I’m going to bump into the Valleywag guy. I mean, he’s hiding from the world, you know? Yeah. I’m actually really good friends with actually using me somehow. I’m going to talk about this. I’m really good friends with Brian Goldberg from Bussel. And he I mean, they tore him apart, too. And he was so excited.

He’s just them. And he’s like the moment he bought them. I bought Gawker.

Yeah.

Well, I mean, but that’s kind of my advice for people when they are fearful and like this and they are sweating the small stuff. It’s like go get beat up some more and like you can go get beat up in big ways. And then the small stuff doesn’t seem all that important or something. Right. Good.

Yeah. Yeah. But also like you grow and like all those experiences are so positive. Like when I look back and I’m like, yeah. You know, maybe I needed like a big, you know, like hit to the ego. I was so clueless. Like, I had no idea. You know, you look back and it’s like that made me stronger. I’ve learned so much. I learn how to run multiple businesses. Like I mean, I think you would probably, you know, like you’ve probably learned so much, you know, in that amount of time to like everybody has.

Yeah. Well, I think also kind of bringing it back to business here. But like especially women, I think need some of these fearlessness lessons. And so, you know, I was fascinated by your business because you work with all women. A lot of.

Right. But those are guys. That’s kind of daunting to me. I’ve always been in the tech world. It’s old men. I’m used to it. Tell me some about this focus on women.

Do you think you give different advice to women? 

Yeah, in terms of women. I mean, yes, I definitely give different advice to women because we’ll have you know, we do these demo days and we’ll have pitch days. They’re like cold pitches every two weeks. We’ve like ten fifteen companies come in and usually it’s women. We have a few men come in and pitch, but they come in. They pitch in. So you really do have. We have some good case studies on like the rapid repetitive behavior of these women.

You know, we saw like five thousand deals last year. I’m not saying I have every single one come in, but we see a lot of women pitch and they’re all missing. It’s like they try to convince you more often than not. They try to convince you why not to invest as opposed to why to invest. And I now I’m so upfront, I would just say to them, like, hey, I love this company. Your numbers are like out of control.

Like this is you’re doing so much better than all of your competitors. And for some reason, you’ve told me all the reasons I should not invest. Instead of why I should so, like, go figure out that confidence thing and come back to me. But that said, women have so many positives like in this world of non-profitable public companies. People ask us about our portfolio and I’m like, oh, that that’s not an issue. Like our companies are profitable or like they will be profitable in a matter of months.

You know, they have it all mapped out. And, you know, we have a company that raised one point two million dollars in the first year and a half, was doing 20 million and like may never have to raise again. 

But so we’re more our companies are more profitable. I think also male versus female ego. I’m definitely not the smartest person in the room.

I’m sure you know, everyone listening is smarter than me in some way. And I think that’s women think that way. And I think that’s a really positive thing to be able to hear lots of feedback and really put it together in a thoughtful way. But, you know, we’re more reasonable. We like tune in. We have the E Q and going on. Yeah.

Go get some cash then. Anyways, I love men too little boys.

So I really love men. What is what is good traction, though?

I mean, just so women know, like if they’re coming to you and they’re doing ten thousand dollars a month. Is that good traction or what are you guys. I know it totally varies.

We say, you know, some kind of traction. Like it depends. Yeah. Depends what the industry. But like some examples, I would give us like a million in revenue. You know, if you are pre products like show me some proof that like there is a need one hundred thousand users or even like fifty thousand users.Got it.

Anything else on Halogen?

And just kind of pausing, thinking I do have a fabulous cap that we babka value. Oh, let’s do it. I’m so excited. You ready for the babka? I am ready for the babka.

I actually didn’t get it in a cup because I had to go downstairs. OK. Here’s the address. Me number one. Jesse Draper’s stilettos.

Oh, my God. I’m six foot tall and I wear a six inch heels and I used to get where it’s supposed be quick. I’m even better at this game I use. People used to give me a hard time about being too tall, a talk show host. And unlike Conan’s tall, he’s still taller than me when I wear. OK, great. Thank you. Next up next up, these especially fast, Jesse Gamel. This one says mentorship.

So important. If you don’t have mentors, go find them. Sometimes they look like friends. That’s good. That was fast this one says the Drapers.

Wild, crazy, kooky performers. Interesting. Like, what was it, dinnertime conversation? It’s all business or it’s a performance or an art project that’s got a lot of talent shows.

We have our annual art contest where we have like a legit gallery show where we’ve all drawn some sort of picture or sculpture of my grandfather. And it happens on his birthday. So I have like 30 years of. Grandfather Art under bedtime. That’s awesome. We all draw pictures of my mother’s stove, which is weird, but you’re OK.

I wish I had like a new muse to be on it because I was not a whole lot more I can do.

Well, I’ll give you ideas. He can be a Christmas tree ornament. He can be so many things. Gingerbread houses of your grandmother. Yeah. Okay. I love it.

Next up, feminism. We need men involved. Agreed. And I think they’re getting there. This one has something on both sides of the paper. We’re going. What I read for a Sandhill Road is the last one.

I grew up around there and I still don’t understand why it’s like being so Hollywood, I guess because it was a pretty quiet place and still is. Interesting. But when it’s there, when you’re there, you think you’re the center of the universe. I did not think that it was really boring. We would go ice cubing on the weekends. If you don’t know what that is, it’s because you’ve never been that bored.

And what about L.A.? How do you like L.A.? I love L.A. I’ve been here for about 15 years and I love the Bay Area. I mean, it’s what it was such a great place to grow up. But I like that there’s always something new. Like I know every corner in Menlo Park, you know?

Yeah. But L.A. tech scene. It feels it feels sort of happier here to me.

Yes, it’s. It has a balance. We work just as hard, but like there is a balance, too. I mean, you can go to the beach for a meeting.

Yeah. Yeah. And it’s growing, which is fun. It’s fun to meet all the other v._c._r.s in L.A.. Anything else I missed about Halogen? And that’s really important.

You’ll probably be, you know, back in business in a little bit and and going back to investing in women. Yes, we are, we are. We’re just sort of getting through this moment and we probably still will through this, but we. I’d say just if you guys need to, you know, cut your coffee addiction, you should go buy some tea drops direct to Consumer Tea Company. You drop it in water. It’s bagless tea and it’s it’ll mix up your coffee habits.

Great. And I can order it online. I’m shameless plug. Yes, I love it. No, it’s great. I’ve seen them. I know the T drugs. Great. I actually I was trying to research doing the research last night.

I ended up buying. You know, I was at carbon38. I was like, what is Carbon38?

Yeah. But some like snake print legging. Leggings. Yes. Yes. Those are so cute.

Which ones did you get? They’re white with snake with the gold snake print.

Oh, yeah. Yes. So those are so great.

Yeah. If you need some leggings while you’re hanging at home and up carbon. Totally. OK. Great.

I think this is all my questions that I’ve only got it. Thank you. I don’t even know where I went on this interview.

Matt Kozlov — Techstars Space

Our guest Matt Kozlov is the managing director of Techstars Space and ran Techstars Health for 3 years before that.  

We chat about launching toaster sized objects into space for a couple million bucks, getting non-dilutive grant money, and of course Techstars ($120k and a great program)! 

View Transcript

Today Matt Koslov and I are on a zoom video connection.

Matt is the managing director for TechStars Space. And before that, he was three time managing director for TechStars Health. Also here in L.A., he had a few jobs before jumping over to TechStars. Yahoo! Mobile gaming, enterprise security. Looks like a lot of expertise in corp dev. But we’ve got to start by just acknowledging what’s going on today, which is we’re in the middle of Covid-19. We’re all sheltering in place at home. Matt and I both, I think, have kids who might bust in on us at any time.


So it’s kind of an anything goes podcast day. Matt, thanks for joining. Thanks. I’m hiding in my bedroom where hopefully my two small children will not interrupt and this is the closest thing I have to quiet space, but we don’t have a desk in this room, so I am in fact lying in bed doing this podcast. I must be your first podcast guest doing this from from their bed. Is that true?


That’s entirely true. I wasn’t. I was not sure whether to call it out. 


We are in the middle of a world health crisis. So I think it’s a little bit looser standards here.


So, you know, you were the managing director for for a health tech accelerator for the past three years.


Do you have thoughts on what’s going on right now in the world? What I’m seeing on the health care front with a lot of my startups and I I’m hesitant to call this a, you know, an opportunity, because I think that could potentially sound callous. But it is highlighting the need for certain technologies in health care and things like telehealth and things like digital tools to improve doctor efficiency and tools to speed clinical trials, tools to find drugs to more easily and to enforce adherence and to make to make the health system work more efficiently.


Health systems that have made the investment to integrate technologies and focus on innovation to make their operating environments more efficient, everything from patient communications to patient intake to billing to, you know, nurse staffing and to to care pathway optimizations, it’s all paying off for them.


I don’t think anybody was prepared for this, but I think the hospitals and health systems that did start integrating technologies sooner are probably better equipped for this. And startups who are offering tools for hope for those types of applications are in wild demand right now. I’m seeing startups, you know, onboarding thousands of doctors a day and be rolled out statewide across the entire health system.


Sometimes it’s actually sort of hard for me to sort out who’s going to be the winner and how to how to sort of think about sorting things out in, let’s say, telehealth right now.


Yeah, well, I think starting at the triage level if I’m sick.


Now, what do I do? Do I try to go to the doctor’s office? I try to go to an urgent care facility. Do I got. Do I go to the E.R.? The answer is, well, first you gotta triage that and create some kind of tool that points you in the right direction. And maybe the answer is you just need antibiotics that a nurse practitioner can actually prescribe to you virtually without even seeing you face to face.


I think the irony is a lot of people are not aware that their plans even necessarily cover that and prefer to talk to their primary care physician. I also struggle to know sometimes whether I’m getting someone who can actually diagnose or prescribe for me or for my children more often versus someone who can kind of just tell me you’ve got to go to urgent care.


You don’t. Yeah, and that’s a part where technology, I think is going to play an increasing role, too, in putting some of the sensors and equipment into the home for remote care touchpoints, you know, making sure you have a connected digital thermometer connected, digital scale connected, you know, blood pressure, cough, glucose monitor for diabetic patients, but trying to create as much of a bridge between the data that you as a doctor would get from your patient in person versus when they’re at home.


What do you think? As you know, ten when ten we tend to focus on data is a big focus of ours. What do you think about this, the status of data and being able to share data and actually make use of our health data right now? I think there’s a lot of different ways you could unpack that question. I mean, from a public health epidemiology perspective right now, data is going to be essential. You know, contact tracing and figuring out the nodes and how this is traveling and how to get our handle on it is going to be really important trying to this probably information about, you know, what what limits this virus and what accelerates this virus in the data, whether it’s humidity or temperature data, whether it’s wind or animals, there’s probably data around the spreading transmission of this that is out there, just isn’t being captured and analyzed in the right way.


When it comes to personal health data. I think, you know, HIPA compliance is still the rule of the land. And, you know, we’re very careful as technologists and health systems to make sure that patients data stays anonymous.


But I think part of HIPA is keeping it anonymous and part of it is actually you’re going to have to keep me honest here. But part of it is also the data is meant to be able to be extracted from your health records and that you’re supposed to have some ability to sort of own your data. Maybe that’s entirely part of it. I know it’s true.


A sense for portability, not privacy. And in HIPAA, however, it’s there for the patient to be able to port it, not for the hospital.


You know, if you want to bring your data from one provider to another, that is your right. That said, it is very difficult in today’s data architecture to do that because the data lives in these electronic health records. The EHRs and the health records are generally built to try and keep the data as locked in as possible. And so there is this tension between what is right for the patient and what is probably right for the hospital systems and what the EHR companies are doing just the way they design their products to make it difficult.


So there are a lot of work arounds. But I mean, if you look at what Epic has done there, what they’re trying to lobby the government to prevent, you know, looser data portability standards. So, you know, there is a there is a tension there.


So, you know, I had to I had to ask some about our current situation. But I try to always get some of the basics. 


So give us a little bit more about Techstars Space. As far as I understand, the there’s usually sort of corporate sponsors, maybe in this case it’s not corporate. Because I think there’s some U.S. government to your sponsorship. But give us a little bit of the basics of TechStars space.


Yeah. So when I ran the healthcare program with Cedars Sinai, that program was with with one partner. And it was a very deep, integrated partnership between ourselves and Cedar Sinai for this program. Given the nature of the space industry, there’s commercial, there’s civil, there’s military. Now, what we wanted to do for this program was to bring together a consortium where we would have different viewpoints from each of those three legs of the space industry, commercial, civil and military represented in the consortium. 


So this program is sponsored by the United States Air Force, NASA’s Jet Propulsion Lab here in Pasadena, Lockheed Martin, Maxar,  technologies mixer is a publicly traded commercial satellite company, SAIC, which is a very large government systems integrator, and Israel Aerospace Industries, which is actually the government owned aerospace Prime Defense Company out of Israel. But they also have a presence here in the United States, North America.


So does that help? Like, if I’m a company and I want to win a government contract and you’ve got the U.S. Air Force. Is that something that you can help people and just generally do you have advice for startups? Like, if I want to have a government contract, should I give up all hope or is there hope for doing that, and how do you advise people on approaching that?


Yeah, great question. So our program is actually the second of three programs that we now run with the American Department and U.S. Department of Defense. Our first program is a program that we set up in Boston with the United States Air Force, which is very generally focused on solving problems at the Air Force.


Needs help with the original vision behind that program was that there are a lot of amazing technologies being developed for commercial markets in the United States that are foregoing working with the Department of Defense, because the perception is it’s going to be a long haul. It’s going to be a lot of paperwork. The people who win those contracts are all the government primes who are equipped and know how to work with the government.


And so the Air Force and TechStars started this program in Boston to try and break down those walls and to increase the mentorship and to make it easier for startups to work with the Department of Defense. And they actually wound up changing their approach to two grants. Now, you can apply for a grant with the Air Force, and these are non-dilutive sources of capital where you can apply, you can fill out a relatively simple form.


And hear within 30 days, what whether you want to phase one and if you want to phase one, that basically gives you access in two different customers within the military. And if you find one that says, yes, we would be interested in purchasing your product, then you can be eligible for it. And we have companies who have actually received 1.5 million dollars or more in government grants as part of Phase II, they’re called SBIRs. And what we’re seeing is that companies are getting that access to to mentorship as well as customers and government grant funding with really very little experience having done this before.


And what we’re seeing is that that affirmation and confirmation of interest from the Department of Defense often makes it a lot easier for our companies to raise venture funding because they see that there is actually a potentially big, reliable customer.


My understanding of SBIRs is they’re sponsored by different government agencies. So like the Air Force might give you an SBIR Grant But then NASA might also give SBIRs.


And is that usually a good entry point? Are there other entry points? Is that is that a good place to start? If I’m a startup looking for non-dilutive money or just or a relationship. Yeah, I think it’s a fantastic way to start.


And you know, each of those SBIR are administered from different pools of of capital and how they can be deployed changes from department to department. The department that I’ve seen sort of speed line the process as quickly as possible is the Air Force. And so I would encourage companies to specifically look at the Air Force’s SBIR process administered through AFRL Works or AFRL of the Air Force research lab.


That’s the one. And the. They have something called an open topic, which is show me what you got. They just say, you know, tell us what you have and we’ll tell you if it’s interesting to us as opposed to putting out a very specific request for a very specific technology. 


And so know, I would definitely recommend starting with with the Air Force open topics and an SBIR as Navy and Army NASA, the Department of Energy has a as a SBIR process. I think the FAA has started issuing grants as well. You know, certainly the NSF also has. I mean, you should. Any startup that thinks they might have a technology that could be applicable to the government should be looking at that as a way of bringing in capital.


And it usually starts off small like $50 to 70k, but it can be in the seven figures as you go towards second phases.


And then I think it’s it’s related to one of my questions about TechStars space.


They also relate to just the U.S. Air Force is sort of how broad, how broadly or how narrowly do you define the companies that you’ll take into TechStars Space.


We try and cast a pretty broad net and we definitely invest in companies that are obviously space companies. We had one company in our last cohort that’s building propellant depots in space, so that satellites going to refuel and build build longer lasting missions. Had another company that’s doing a lecture say that’s like gas stations in space.


Having have gas stations in space. Yeah, that’s a cool orbit fab. And we had another company that’s doing electric propulsion systems using tiny little thrusters that can be assembled on your satellite to allow small satellites to move nimbly through space for for for very, very long time.


So these are obvious space companies, but we also have companies in our in our program that are applicable to space as well as many other industries. We had a company in our last cohort that’s building a nuclear power source for stable, long lasting energy. 


And we have also companies that are doing aerial imagery analysis from either satellites or drones that can be used for farmers to optimize their crops and irrigation can be used for oil and gas companies to detect leaks or problems in their equipment. But it can also be used for for surveillance of enemy or other countries, military bases.


So, you know, a lot of the companies that we like to invest in would be called dual use where they have a commercial application, but they also might have a mission based application.

So TechStars decided to launch TechStars Space. It didn’t exist before.


I think you were doing this in the last last year, I guess, you know, kind of the the I’m turning into a veazey. Oh, my gosh. Why now?


Matt? 


So I don’t think five years ago we could have run this program. I think that there have been a number of disruptions that have enabled this program to run now and to be as compelling a category for venture capital.


The first is access to space has been fundamentally disrupted by companies like SpaceX, Blue Origin and Rocket Labs. They have made it significantly less expensive to get a satellite into orbit. And what that means is you can go for $2M dollars or less. You can build a satellite, get it into space, start generating valuable data or connectivity from that satellite. And if you’re a startup, space is now. A viable option, whereas five years ago you couldn’t you couldn’t get that satellite into orbit for anything near the price per kilogram you are now.


So if I wanted to put you know, I don’t know the terms very well, but like CubeSats some I’m always hearing about how how much investment, how do I what are the steps day to day contact with to actually get that into space? If I wanted to do that.


Yeah. Well, you know, assuming you’ve already built your satellite, you know, you could and you know, universities now have have programs where they’re building CubeSats and getting them into orbit.


How big are they actually? I’m like waving my hands around here. Yeah. The typical measurement is they they designate by use. So like one unit to unit six units, usually most CubeSats are between one and six U. That’s the. And they’re about like this is about a 1. You take a toaster.


Yeah. Yeah, yeah. It’s like a toaster. Yeah. A big ten. Yeah. And then once you start getting into the small sat those can start looking like small refrigerators.


And then when you’re looking at the massive satellites they are the size of buses. But you know these small SATs and that’s another big disruption which is the miniaturization and standardization and beginning just people are starting to standardize around these smaller satellite functions. And you can build really powerful computers that can work. You know, the components are increasingly off the shelf. So we call them cots commercial off the shelf equipment that are not necessarily meant to last for 30 years. It’s OK now because you can get access to space.


You can put up a satellite that’s maybe only meant to last three to five years and it will eventually degrade in the launch. New one, because it’s not that expensive to build and it’s not that expensive to get into orbit. And so a lot of these new constellations that you’re seeing from one Web and from Amazon and from some of these startups, like the TechStars company called Kepler, I don’t think anyone expects these satellites to last 30 years. But, you know, they’re launching Starlink.


Right. So the the the Space-X satellites, you know, they’re they’re again, they’re they’re meant to be temporary. They’re meant to try value in the short term. They’ll probably last longer. What we’ve been seeing is that they’re lasting longer than most people would expect. But, you know, that is that is a big disruption where you’re able to build them faster and cheaper and get them into orbit faster and cheaper to. I mean, it’s Szilard.


It’s so amazing to think I could build not that I could, but, you know, you can build one of these toaster things and send it into space. And then it could be in space. 


Before I go too far into this conversation, just the basics. I did an episode with Anta Barber about TechStars and now I’ve forgotten, but there’s something like it. I know that’s great, but I think there’s a $100k and there’s $20k and TechStars ends up taking common stock. But can you just hit me with the basics of TechStars for one second?


Sure. So every company accepted to our program is offered up one hundred twenty thousand dollars of financing. On day one of the program. So there’s no winning TechStars or anything like that. Once you’re in, we give you one hundred twenty thousand dollars and we do everything we can to help you grow your business as rapidly as possible and help you raise additional capital. One hundred twenty thousand dollars is is split into two components. One is that we give founders our program as well as thousand dollars to cover living expenses typically and miscellaneous costs.


And for that, we take 6 percent common stock. As you mentioned. And then we also offer every company a one hundred thousand dollar convertible note. And the note know the cap on that note by default is is three million dollars, but we are able to raise that up to five million. If a company is raised outside capital at a higher valuation, up to 5 million, and then the note is optional. Do other things take common stock?


That is a great question. I don’t. I don’t. Not traditional bases in general. But I wouldn’t be surprised if other accelerators did something similar. I mean, the idea is that VCA take preferred stock, which is kind of like what it sounds like, right? It’s you get set of preferences with your preferred stock. But I guess you’re more aligned if you’re taking common stock.


We yeah, we we want to be there with the founder. We want to dilute with them over time. We don’t take control. We don’t take a board seat. We really want to be at the same level as the founder and for the founder to see us as a as part of part of their team, an extension of their team.


And do you think TechStars space is very different than TechStars health? There are a lot of ways to answer that one thing, because I had no space experience prior to starting this program. Did you have health experience?


I also had no health experience.  Not to call you out.


Yeah. Well, OK, let me let me answer the first question and then I’ll answer the second. So there are a lot of similarities between healthcare and space.


Their hard problems to solve. I think that the generally accepted understanding is that health care sales cycles tend to be pretty long. The general guidance is that it usually takes 18 months to close a hospital as a contract. And often these are not, you know, 10, 20 million dollar contracts. They can be two hundred four hundred thousand dollars contract. So it’s not you know, it’s not an industry where you’re gonna have quick wins. And the same is true in space.


You know, founders who are trying to build products in space need to be in it for the long haul. They tend they tend to be there’s even fewer there. 5000 hospitals in the United States. There are. If you’re selling into hospitals, that’s your customer base. That’s a finite pool. There’s a much, much smaller pool of finite customers in space. Interesting. You know, military customers, aerospace primes and space agencies. That’s a finite number in the world.


And so you’re looking at big ticket items, smaller volume. But interestingly, another similarity between the two is that they’re highly regulated. You can’t get them wrong.


Its also putting billions of dollars of equipment and decades of time at risk. So when we put up the Mars 2020 rover, you can be very, very assured that every single component on that craft has been tested thoroughly. The design for that has been in the works for a decade. You know, these are very carefully calibrated and designed and tested before they actually get launched there. I don’t want to say overengineered, but they’re precisely engineered.


And so if you’re a startup trying to integrate a component or your product into a space mission, you similarly have to make sure things have been all the I’s have been dotted and all the T’s have been crossed. So it’s a careful industry.


Yeah. Do you feel like you end up coaching? Like if you’ve got a dozen p_h_d_ in your program, do you feel like you end up providing different coaching for those sorts of founders?


Yeah, we had a lot of p_h_d_ in our health care program too. And that actually goes back to another similarity where sometimes I miss I’m going to compare these two programs to health care and the Starbucks program with Anna’s L.A. program. Know I am getting companies that may have and, you know, very well funded. I know that electric propulsion company that I mentioned to you before, six p_h_d_ being it was being developed over the course of nine years out of the university.


And so maybe you didn’t necessarily have the experience raising capital selling, you know, rolling out a commercial product.


And so we spent a lot of time and our program surrounding them with mentors and business leaders who have done that. And, you know, teaching them how to fundraise and and helping them build those that muscle. I do think that, you know, you can turn. Not all p_h_d_, but a lot of p_h_d_ integrate entrepreneurs, some kids. PhDs, again, are too into their own technology and being in the lab and don’t want to actually run a company.


But there are a lot of amazing p_h_d_ who, you know, have built a great technology and can build a great business around it.


Great. So I mean, you alluded to Anna at TechStars L.A.. I’m kind of curious about TechStars, actually. And so I think there’s a lot of differences between the city programs and the what you call it, an industry program. What is yours?


Very we we call them, you know, corporate program and or an industry program. OK.


So so there’s some differences there. I’d love. I mean, you’ve been part of TechStars for a long time now. 


I’ve I’ve been at TechStars now longer than I’ve been at any company. I don’t know if that’s a good thing or it’s as much for me. I don’t know what it says. It says a lot about TechStars, though. And you know, my commitment and passion for the organization.


I’ve been an employee managing director with TechStars for four and a half years. And before that, I was a mentor. Cody Simms, who ran the TechStars Disney program, had actually been one of my bosses at Yahoo! 


I do think it’s an incredible mission. I mean, we’ve invested now in over 2000 startups since we started, I guess, about 15 years ago.


Each program has about 150 mentors, you know, at times 50. That’s a lot of really amazing people that we can plug our startups into. And we have over 80 corporate partners, including governments and Fortune 500 corporations across the globe. I think it’s an amazing network to be a part of.


But let me let me ask a different one. Hard to be a part of. Yeah. Yeah.


So I’m coming from San Francisco where I’ve been or the bay or the Silicon Valley for two decades now.


And there isn’t much techstars in the Bay Area. I think that’s MRO.


We don’t have a program there, but we have a lot of companies there. We have a lot of mentors there and a lot of our corporate partners are there. 


You know, historically, we’ve always tried to go into communities where there was a vibrant tech community, but it hadn’t necessarily been synthesized into an organization yet. And, you know, I remember that I we now run three programs in L.A. And I think there’s probably room for more.

How much it so TechStars HQ, if that’s a real word, is in Boulder, I believe.


Correct. How do you how do you interact with how much latitude you get as the managing director?


Quite a lot. I mean, there’s certain things that can’t change or won’t change, you know, will always be a 13 week program, will always unless 120K know, we generally will always have, you know, our mentor madness experience where we bring in our mentors in the first month, second month and we focus on execution and building business and third month that’s focused on fundraising. There are certain requirements around our logo. But, you know, we do have a lot of latitude around how we run the program.


We select our own companies. How we interact with those companies is up to us. 


And so where do you think you really are leaving your mark on TechStars or on L.A. as an ecosystem, or where do you want to be leaving your mark over the next decade? I should probably be thinking about that question more than I do. You also have small children at home and we are all so you are you’re given some latitude. But I am kind of curious.


I like what motivates you and and where you want to be going.


Yeah. I mean, at the end of the day, this goes back to what I said about helping really passionate founders who are really passionate about the problem they’re trying to solve and helping them to do it. To me, that’s what I love more than anything. I love being helpful. I love helping founders with big dreams who are solving big problems.


And if they can build a great business, that all makes us a little money. At the end of the day, that would be nice, but I don’t think I think about much more than that.


Cool. Cool. And where did you grow up and what were you like in high school? I grew up in suburban New York in a suburb called Scarsdale, which is part of Westchester County, about 30 minutes outside of Manhattan. What was I like in high school? I mean, I was definitely a nerd. I was I was a very good student. I got very good grades. I worked hard, probably worked harder in high school and college.


But I was also a musician. I played the saxophone. Still do, although not as often given two small kids.I had a great group of six friends and those are the main people I saw.


That’s great. And how do friends describe you? How would your friends today describe you?


My friends today would probably describe me as pretty cheerful, outgoing, extroverted, fun loving family guy.


Totally. I like that. Re-institute, that’s great. Oh, yeah. I have no more personal questions for you. This is great.


It was really interesting to learn more about both tech health and and, you know, I had fun.


Dinesh Moorjani — Comcast Ventures

Today’s episode is with Dinesh Moorjani, managing director of LA-based Comcast Ventures.  Comcast’s sweet spot is a Series A check ($3-20M) but they are flexible.  Dinesh explains how Comcast operates, tells us about the early days of Tinder, his experience of private equity, and much more.

View Transcript

Today we’re here with Dinesh Moorjani, managing partner at Comcast Ventures.

Hi nice to be with you. Thanks for being here.

Comcast Ventures I believe you guys are writing checks. I think you said between $3 and $20 million.

Yeah we do see checks all the way to growth checks. I think our sweet spot is really focused on product market fit which often is described as a series a check but we’ll invest before and after that as well.

Great. Great. So we’re definitely going to ask you a lot of questions about gas ventures. We’re here in your office. So we’re going to learn a lot more about what you’re doing here. I want to start actually have a super interesting background so you did many things that you also are known for being the founder and running labs which hatched tinder. So super interesting to know more about what you were doing and and some of the stories from that site.

Sure. So to maybe understand hatch it would be helpful to understand the origin story. I was running mobile at I see with my team and had told Barry Diller and the team that I had planned to resign to go focus on building a lab to incubate my own ventures. We were essentially running mobile for a number of companies inside IAC which operated as independent panels focused on on mobility. But I felt like there was an opportunity this is back in 2010 to build our own companies and I had built companies before and was missing the entrepreneurial endeavor to do that.

So we were in Berry’s office on his couch and I told him that I was gonna start a lab. And he said Well would you want to do it here and I said it’s probably not a good idea. We don’t have the incentive model of governance and having a large public company build these things might be a treacherous recipe. And he he said we’ll give it some thought and the next day he put me on the spot you know in our quarterly CEO meeting alongside Jack Wall she was an advisor to Berry at the time in our quarterly meetings and Jack asked me if I was going to do it and I said Well I’m giving it some thought and he pressed me to consider it.

And so after five months of negotiating the terms we formed a new company was a Delaware C corp called Hatch labs and IAC was an investor and I had had a requirement for an outside investor which was extreme labs. So we brought in two investors into the company and we were our own company to build our own new technology startups in the mobile space.

So we went off into funding starting from October. We started building companies from October 21st 2010 over the next couple of years and one of those companies we built in the early part of 2012 was Tinder is originally called matchbox.

So we were fortunate to get intro to Sean and at the time we were looking to hire my second employee in the West Coast office of our first employee was a senior engineer named Joe Munoz who was very talented and I got to know Sean over a period of time in really January 2012 and at the time we were focused on building something in local merchant loyalty think of a modern day belly or level up or ritual focused on rewarding behavior around local merchants in your area that patrons would go visit.

But at the time Sean was deciding what he wanted to work on and he liked the idea of doing something around local merchant loyalty. We hired him specifically for that venture and to answer your earlier question we specifically have theses and ideas around a particular consumer enterprise software product in the mobile space that we would fund so we would have our own ideas

Were there other companies or did Tinder eat the whole thing. 

I think Tinder ended up absorbing a lot of the resources in fact. For example in Los Angeles we had a really talented CTO and early employee at another company and we put him on the co founding team of Tinder as the CTO his named Ryan because Tinder needed more fuel in terms of talent to continue growing so it did end up absorbing a lot of the resources at least on the West Coast office.

I’ve been married too long to have used Tinder and it’s very hard to like check it out if you’re married. But I remember in really early on maybe to a 2012/2013 being at a party and a guy who was single was using Tinder and he said if I had to buy this phone and this brazen plan that I’m on and if all of that just did Tinder, no phone no text no other apps. I do it. I was I was thinking that’s that’s product market fit that’s really kind of something. When did you know it was gonna be that level of hit.

So we saw early signs of product market fit just with our own dog shooting when we were playing with the product in the summer and fall of 2012.

But just because you’re eating your own dog food and you think there’s a successful product it doesn’t mean it’s gonna be promising. So in the fall of 2012 after we’d had the product and market for a little bit of time so just to be clear we launch it in August 2012 into public beta. I’d moved to California to oversee the team to launch the product. And one of the things we observed about the metrics this was late September in October is that we had really high engagement.

So we didn’t have a large user base. I think it was only a couple thousand users if I remember the numbers. So the question to ask when we saw that level of engagement was is that engagement replicable across a larger user base. And we felt that social discovery was a problem that the world was dealing with it wasn’t just limited to this small segment of users that that we’d introduce the product to. And as a result if we knew we had this engagement with this segment of users we felt it could scale across a number of users through a high viral coefficient. So at that point we wouldn’t say it was successful but we had enough promising engagement metrics to justify continue investing in building the company.

What do you think drove that engagement. What was he saying. Because there are other dating apps out there. 

That’s right.  I think it was a it was a confluence of things. But I might distill it down to a couple things this product did well.

I think swiping certainly enhanced the usage because it was fun it was a gesture that was really fun and natural. But I maybe further refined it to the double blind introduction model as the primary driver behind why Tinder took off. And if you move away from the technology in the product and think about human behavior and the psychology of people if I walk into a restaurant or a bar and I happen to see someone across the way who I find attractive the idea if I’m single that I have the motivation or comfort in approaching that person that I don’t know and striking up a conversation at it it clearly demonstrates that a lot of people would not do that because they’re worried about their own risk the risk and then concern over rejection.

So if you had that same situation but a friend whispered into your ear that that person had expressed interest in you suddenly your confidence level might change and you might feel comfortable walking over to that person.

And so that double blind introduction model was a technology solution or programmatic solution to solving a human psyche or human behavioral challenge. Then the question is that works but can that scale the way software can and in the case of Tinder and that mobile application the answer was yes. So you had a double blind introduction model which I think helped demonstrate product market fit. And then you had the ability to scale that across a large number of people through software and distribution through a mobile app. And that was probably the secret sauce around Tinder.

Did you start charging right away. No. How long was it before you started charging.

We waited I think at least a couple of years before we started charging. There were some experiments around subscription that were being tested particularly in other countries. But in the beginning for a high end network effect driven product the goal was to help make sure that the problem Tinder was solving was being solved for large number of people. And we weren’t putting in paywalls or barriers to make that happen eventually. It’s still a product until it really begins to monetize. To become a sustainable enduring standalone company and we introduced that monetization in addition to ads eventually.

But we wanted to make sure that we were careful about how we introduced it in as well as the price points.

Yeah I’d love to know even a little bit more about how you think about that because we we have this conversation with founders all the time who don’t wanna put anything in front of scale but also want to start monetizing and there is inevitably a discussion about like when is a little bit of friction OK it’s a it’s a good question.

I think it’s a trial and experiment experimentation process just to be clear I had left Tinder I was no longer on the board by the time monetization had started and I had spent time and been a sounding board for the team on it but absolutely was not making operating decisions about rolling out monetization. However the tea leaves are pretty clear when you think about how to monetize a software product.

If I back up and and share the three ways that companies make money outside of generating money on the float or fiscal or monetary policy done by governments it’s essentially some form of advertising which could be legion advertising brokerage commission display ads whatever it might be some form of membership which is a form of a subscription you’re delivering annuity value for ongoing fees and payments and some form of a transaction essentially selling a product or service so that there’s actually a limited set of choices even though we see innovations in business models and go to market strategy.

You can mix and marry different ways of monetizing among those three buckets and all the subcategories of monetization within those three buckets with a product. And so all three in this case could’ve been tested out it could have been a freemium model it could’ve been a subscription model or an ad model. It turned out there was always a proven track with social discovery with a number of dating products that existed in version 1.0 of the web with Match.com and others that demonstrated that the value was so high to users and consumers that they’d be willing to pay an ongoing subscription fee for access to that application.

Back in the day before these resource companies these were application service providers ESPN and so we knew that you could deliver an ongoing source of value that people are willing to pay a monthly fee for because it was that important in their life. And if the advertising wasn’t disruptive to the user experience you could add on advertising. But as we know an advertising revenue model requires a law of large numbers.

Now luckily Tinder had that but many businesses don’t. And so if you can deliver enough value to charge a subscription fee it’s a much more reliable annuity revenue business.

Great.

So there you made the choice to leave Tinder

So we had we had closed operations for Hatch and all the resources were focused on on Tinder. I tried to take some time off. Candidly since we had moved to L.A. to to oversee the tinder team and my wife and I talked about staying here we should we should go back to New York and we decided to stay.

We had family in California as well.

And in my effort to take time off I was involved with another company called clever beast that I’d co-founded with a number of other folks and became the interim CEO of that company just to get it through its next stage of growth and we relaunched that company. I eventually sold my stake and again tried to take some time off but by that point in 2013 I was in conversations with Warburg Pincus. I got to know a couple of the partners there and was extremely impressed with the organization and the private equity firm so as it turned out I joined them as an executive in residence and began working with them officially in early 2014.

So no not really curious so I’m curious just what what was what were you doing.

Good good question. So a couple of things one is that Warburg Pincus was looking at investing in mobility and innovative mobile companies and I’d spent a lot of time in that space.

Most of my focus was taking companies from zero to one and not from one to 10. So the the stage of which we take a company public and continue growing it is a large market moving independent enduring business. So it was an opportunity to do that and at the same time they were pretty progressive and looking for innovative mobile companies that they could put their capital and resources behind to build larger businesses and create delivered harvest value. So I was fortunate to get to know their team they were doing a lot of growth equity investing when we shared some investment theses and began talking.

It seemed like a natural fit. They didn’t have an operating partner role. So instead there at the time they’re their best and closest fit was an executive in residence which is what they offered me. So I sat on boards for what we think is co-invest with them not just sourcing the deal and working with them to close investments but also co investing in the deal which I’d done on a couple of companies with them. And it’s worked out pretty well and frankly I think of the firm as family. It’s an incredible very courageous very talented very low key and high integrity firm that operates around the globe.

I think they’ve made you know eight hundred and nine hundred investments and deployed well over 80 billion dollars of capital into startups across 40 countries it’s usually start he is more like a venture backed business industry here.

I just have that you know.

I think if I roll the clock back 10 years my conventional uninformed view of private equity was probably similar to yours and I’m not.

No no I’m not suggesting you’re uninformed at all I actually quite quite the opposite. But I think there is an impression that is created by the media and also what we read about private equity and I think there is a lot of flavors of it.

And I think firms are drastically different both in terms of their reputation how they treat their employees how they work with their companies. I found Warburg Pincus to be exceptional at being empathetic to founders recognizing the value of companies that needed capital to grow. But at the same time we’re at a unique stage where they could become a force in the particular industry they were in. And Warburg was well suited to help shape what those companies look like as they grew. And it’s evidenced by the quality of talent at the firm.

If you took that take a look at the leadership I think it’s quite clear.

I think there is a heavy overlap so classic venture capital moves from product market fit to a capital expansion stage of the company and scaling and then reaching growth equity where a business is typically reach a certain scale and is starting to look at cultivating its options as it becomes a larger business to go through a financing event that can open it up to public market investors for example which would be an IPO or maybe set itself up for for acquisition by another company. The those lines are very blurred. When a company is going through those transitions and a lot of firms only play in one particular space i.e. elbows or roll ups others focus more on growth equity.

In the case of Warburg Pincus is I think their bread and butter was growth equity over a number of decades. They had built some of the most successful technology companies in their growth equity investing within TMT and they’ve done it across a number of other industry sectors but they had a wide palette and aperture for the types of growth equity and roll ups and buyouts that they could do.

But the strength of their TMT and growth equity practices what I was attracted to. Yeah I usually think of P as taking a majority ownership stake and control versus growth equity that doesn’t necessarily take a take that.  Is that fair or equally uninformed?

No I think I think many firms do take a control position but many also focus on growth equity in take minority positions and we’ve seen that with a number of firms.

And so I think the model for private equity is change where they’re doing essentially late stage venture capital growth equity in addition to elbows and majority control investing in you know if I started this start up and group B C I could be looking for Warburg could potentially be providing my lead around equally so to say thank you.

Yes.

I I’m I’m curious about you know the difference what you learned there about road and know mistakes do you see scale.

Well from the start of phases to the growth visas do you see common mistakes or for founders the founders that are really successful in the earliest stages tend to be very resourceful scrappy and hack their way to to an outcome. And the skills required to do that an early stage are very different than at a later stage. And there are a few entrepreneurs who can cross that proverbial chasm. But it’s it’s rare for early stage entrepreneurs. When we described them as resourceful they’re sort of embracing the definition of entrepreneurship which is you essentially have insufficient resources or fuel to get to your goal but you still managed to get there.

And that’s kind of a working definition if you will of entrepreneurship. Once the companies get gotten from zero to one and it’s beginning to scale the organization the skills required have to do with managing people and inspiration and complex financial engineering. Large commercial relationships managing risk dealing with lawsuits and and you know legal chess plays and all sorts of other skills that early stage entrepreneurs oftentimes don’t like to do let alone have the skills to go do comfortably which is why they often setup people around them that are really smart to help grow them as entrepreneurs either through a board of directors or their advisors through their own network and coaching.

That kind of brings us to comcast ventures which I guess is in some ways part of Congress in many ways it isnt. Can you explain how Comcast operates?

Sure. So we operate as a venture capital fund with a single LP relationship with Comcast. Comcast is a very supportive partner in helping to work with our companies when there is an appropriate commercial relationship channel partnership or other other connection to a portfolio company. But first and foremost we’re fiduciary as with our portfolio companies and we focus on delivering returns to our LP investor at Comcast. But we operate as an indefinite independent fund. And we’re motivated by the carrying economic incentives of an independent fund. And and I think or from a differentiation standpoint able to distinguish ourselves because we can help companies in ways both through Comcast as well as a program called Forecast labs that we have which can provide digital and TV marketing support for portfolio companies at at a cost basis and cost per acquisition that’s very competitive in the marketplace that we haven’t seen any other venture capital firm introduce. So it can severely advantage for example an e-commerce company that’s doing direct to consumer acquisition and we can do that because of our relationship with NBC Universal on the back end to have built this program. And of course we don’t charge anything for it. 

We generate our returns based on investing in companies not running a cost structure to to charge an allocation to a portfolio companies because it was clear to me that for what we have we do have vintage years yes that we use internally.

I don’t think we disclose them externally but we have an investment committee that is our investment partnership. Those are our managing directors inside Comcast Ventures. And if you look at our processes for making investment decisions our quarterly reporting to our LP and and the way we work with our companies if you were to talk to our CEOs I think you’d see a lot of similarities to how any venture firm operates.

The distinction is we’re not driven by purely strategic need to satisfy the growth opportunities for our LP. We’re focused on delivering financial returns.

But we have specific areas we look in and the stage at which we invest also shifts based on where our investment thesis lies in what stages that we’re multi-stage investors as I mentioned earlier we invest from early seed stage or will often lead a seed round all the way into growth. But our sweet spot is effectively the equivalent of a series where we have product market fit. If you took a sector like commerce marketplaces in a marketplace especially many to many marketplace you have two constituents on each side of the marketplace and you have to win both over and at the same time create enough supply and demand to create liquidity in the marketplace.

So doing those at the seed stage tends to be very high risk because it’s almost like you have to win to customers and create liquidity between both customers. So I’d call that a much higher risk investment and an early stage but once it reaches scale it’s very defensible because of the network effect.

So we have specific investment theses but the stage might affect what what entry point we come into a company with.

Do you personally in particular areas of focus you were saying are there some that are yours.

Yes there are. We work as a team with respect to the sectors we focus on but there are some areas that I spend the most time in. I’d say one of those investment areas is sustainability. Now sustainability is a very broad topic so it breaks down into a number of areas. It could be around food clean energy and clean energy buying transportation obviously. So if we look at what’s happened with transportation we’ve essentially created a society where we have rapidly increasing congestion pollution wasted time GDP loss modes of transportation that are unaffordable for the general population modes of transportation that don’t fit the use cases within Intercity or intercity travel.

Well when you talk about the mode doesn’t match the need I’m paraphraisng roughly. Do you mean that in terms of like a public transportation or just share or what do you think about there.

We need to we need an intelligent transportation network that works in conjunction with cities municipalities departments of transportation in addition to private companies operating vehicles and transportation that makes sense for different consumers so we’re investors in bird. We do believe that there is a different mode of transportation in a and short form transportation typically under three to five miles that aren’t as well suited for cars especially for single passengers or sometimes four for two passengers. It should be eco friendly essentially you know all of the new modes of transportation are built on EV platforms 

So there are other challenges with how our modes of transportation are evolving as a society. But the broader theme is we need better data sharing across private companies and better data sharing. Municipalities and departments of transportation so we can inject a networked transportation environment 

We need a comfort with sharing data in controlled and safe environments where it’s not releasing proprietary data to your competition but releasing it to better the region that you’re serving

Let me ask about corporate venture.

It seems like there are more and more corporate venture arms coming up every day and I think you have said that you really don’t think of Comcast Ventures so much as corporate venture.

So a lot of companies have introduced affiliate venture capital arms but they vary to a great degree. So I always encourage entrepreneurs to understand how their investor operates what are their incentives. our confidentiality and our fiduciary responsibilities are first and foremost to those to the CEOs we work with and to the founding teams and those companies that would distinguish itself from the other end of the spectrum where you have a corporate venture capital firm that is investing to advantage the strategic R and D needs of a large corporation.

And I think what you’ll find is Comcast Ventures pairs the best part of operations of an independent venture capital firm with a single LP so we’re not spending all our time fundraising we’re focused on building relationships with our portfolio companies and advancing the mission of those companies with some of the strategic advantages of a large technology and media conglomerate that can serve as a channel partner and customer to some of those particular companies.

We do. That’s correct. Great.

So that’s still active and people could reach out and say where’s the difference. Is someone else managing that.

Yeah they can reach out to any partner at our fund or any other investor at our fund. In fact we’re looking at a catalyst investment right now. And we have a team that that focuses on that and catalyst is still very active in fact it’s not just new investments that we’re looking at. We’re working with new investment rounds with our existing portfolio companies.

And as of now I’m actually helping one of those companies through a product pivot a catalyst fund raisers more presidency.

Typically it’s more precede in seed rounds. Yeah we’re very early with our investments and underrepresented founders and minorities.

That’s great.

Make sure that that exists and it exists nationally in fact globally so we look at companies overseas as well as across the U.S. for a catalyst.

Great. I want to just ask a tiny bit about you before we wrap up. It just seems like you had an amazing career and your degrees that you think you attribute that to some piece of your personality some of your talent.

So my childhood probably played a pretty instrumental role in the things that motivate me and why I’m doing what I’m doing. So if I roll the clock back I grew up in the suburbs of Houston from the age of four to eleven and growing up I was a very curious kid and had an insatiable wonder with lots of things particularly how things worked. And one of those areas I had directed a lot of that attention was how how planes fly

when I turned 16 I realized that I needed to earn enough money to have a car because you have to drive. Typically when you’re here especially back in the 90s and so I used to wash dishes for eight to twelve hours a day on weekends to help pay for some of my expenses and I even used to take fliers and put them on doors of houses and I’d canvass a neighborhood essentially the early days of guerrilla marketing. 

So if I take that curiosity that I had growing up and marry it with with the work ethic what I found was.  I applied as a chemical engineer to Northwestern and probably the two things you need to make sure you’re successful in that program is a really strong work ethic and a lot of curiosity and fortunately those were sort of the themes in my childhood and as a result of those two themes in my childhood I graduated as a chemical engineer in 1998.

And along the way realized that it wasn’t technology decisions that drove the commercialization of technology. And it certainly wasn’t engineering decisions. It was business decisions. So when I graduated I decided to focus where chemical engineers often focus which is the energy and chemical sector but do so as a business analyst so I did. I became a strategy analyst at a firm called Arthur D Little and then use that as a stepping stone to focus on strategy work. But in the technology industry. And that was my first entry point into real technology as it’s defined today and started building companies from that point onward.

Over the course of my career. hopefully the entrepreneurs get some value out of it and we create a vibrant ecosystem where everyone’s helping each other.

That’s great. I love it. Terrific.

Thank you. Thank you so much for coming on board today it was it was wonderful having you. Thank you so much for having me.

Minnie Ingersoll — TenOneTen

It was really hard to do a podcast about myself on my own podcast, but my dear friend Steph Hannon was kind enough to interview me.  I tried to give the basics of TenOneTen ($500-$1M into seed rounds), but mostly felt like we chatted about my background and this podcast 🙂
 
(get her a job in LA!)

View Transcript

OK, I’m here today with one of my best friends, Steph Hannon.  Steph is going to interview me today, which is a treat. And Steph really has been one of the best product managers in in the Bay Area as head of product at Strava most recently.

And before that, Hillary Clinton’s CTO and Google Local, which is not where we met because we actually went to Stanford together. Anyways. Steph recently moved to L.A. to be with me.

Prefect. So excited says that you’re spending time with baby. What a treat.

It’s such a treat. And I really wanted to interview you because listeners of your podcast don’t get the chance to hear enough about you and your background and how you came to venture capital

So why don’t we just start with why you’re in L.A.?  Full stop. I think you grew up in Pasadena. And you have a lot of deep roots here. So what brought you back?

Yeah. Many different things kind of kind of happened. So as you said, I’m from Pasadena and I had an amazing childhood. I called my glory years.

And it’s kind of sweet.

My my son is now at Poly where I went to school. And that’s all very, very cute. My dad’s a professor at Caltech. So that’s what why we were in Pasadena. Anyways, I graduated high school and then like, you know, I went to Stanford and study computer science and then kind of stayed in the Bay Area and had been thinking about moving to L.A. But I didn’t like Hollywood when I was growing up.

Like it made me self-conscious in ways about not being sort of Hollywood enough. Yeah. And that was very associated with L.A. Career wise. But now the L.A. tech ecosystem has really got grown into its own at the same time that the Bay Area tech ecosystem has sort of been having a lot more struggles. And so kind of those two things made it a good time to move back.

And now I live in the house that I grew up in, which is such a treat and not just you, but your husband and your three kids. And what’s it been like for them to come to your hometown?

Yeah, I know. When I said I moved back in with my parents, everyone always has. What what happened to change?

Your family is just so lovely. What was the question?

Yes, I was always so lovely as a shadow to James. So I love your family dearly. My biggest wish in life is to be an Ingersol. I think it’s your special and sort of how you grew up in an athletic family, a sport, a family, a tight knit family. Like how how was that and how did it influence you? Yeah I’ll just tell you, like, our thing is like we just spend a ton of time together hanging out and playing trades and whatnot. And we have I have four siblings and I have there’s 13 grandkids now.

It’s an amazing family. I think your uncle put me up in his attic when I moved to Brooklyn. I had forgotten that of the Hillary campaign. Yes. Made me feel even closer. I love it. Magical group. Okay.

Let’s talk about your background from our DNA is sort of similar. Stanford and Harvard Business School. And then you came to Google in the very earliest of days. What was your aka Google like? What products did you work on that you’re most proud of?

Yeah. So I went to Stanford, say Computer science became a product manager at a company that IPO in March of 2000. Then decide to go to business school because that kind of seemed like the thing to do.

And then and then I did it in 2002. No one was recruiting.

The staffers were coming to Harvard Business School to find MBA is. But so I moved back to the Bay Area without a job and joined Google.

And in 2002, when they were five hundred people and Google was doubling in size every six months. I don’t know how long that’s actually capable of doing, but, you know, for a little while.

And and, you know, those early days I worked on the billing system for the first four years I was there and that was Google was a multi-billion dollar company already, but in 20 cent increments.

And just trying to get all the logs collected and turn that into an invoice that Oracle could produce to send to the advertisers to close the books and be Sarbanes-Oxley compliant, which we were like just e-mailing each other spreadsheets. So that was a really fun first project. And how I kind of. That was my introduction to Google for the first number of years.

Anything you studied computer science so people would want to know if you were doing software engineering, product management or something. I was doing product management in those early days.

Yeah, I did use product management because I didn’t think I was gonna be a programmer. And it was still stayed with the engineering sort of culture that I’ve always been a part of.

And I I feel kindred towards being in sort of an engineering led culture and be around engineers where I feel comfortable.

Yeah. Me too. Yeah. Mm hmm. So from building then what you do next?

There was a little bit of here and there. But pretty quickly in 2006 I joined forces with Chris Sokka as part of the sort of our own initiative which became called the Access Team. But it started 2006. It was a Chris and I were both working on different things.

But we we’d been looking at muni Wi-Fi and and putting mesh networks on lampposts and got kind of excited about it and happened to be at a fundraiser for Gavin Newsom at Ron Conways Housing and got Gavin Newsom really excited.

And he announced that Samosa School was going gonna do it the next day. Yeah. And so then he announced and then that became a real project that someone had to work on. And I started working on it.

I worked really hard to try to get San Francisco to to take I think we had a few million dollars from Google dot org sort of money.

Yeah. And it got shot down by the city of San Francisco, even though we were doing it out of our philanthropic budget. And this was early days before there was a whole tech backlash.

And the reason it got shut down was because Aaron Peskin, who is the chair of the Board of Supervisors, didn’t want Gavin Newsom to have a political win. So anyways, I got very involved with how do you deploy access networks at and get more people online for faster speeds and lower prices?

Yeah. So if that was 2006, that was before Google X before Alphabet, like, why was Google willing to do this sort of infrastructure project that looks so different than what Google’s primary products were?

Yeah, well, we branched off into a variety of different things, so we worked a lot on the Arab Spring getting people access to information.

And the reason I brought the Arab Spring project was because was. Story then where we ended up going to Patrick Pichette, so we’d flown to Cairo and the Internet was getting shut down and satellite TV was getting shut down. We said, you know, I think the most impactful thing that Google could do would be to stream Al-Jazeera satellite news on on the Internet for people to access because the Internet had come back. And so we had to present this. It had a lot of costs to it, but not any revenues.

And Patrick said sort of a rousing speech to the executives at the time, which is we need to think of Google as half public company in and and half movement. And Patrick is the CFO at the time. Yeah, yeah.

Yeah, well, I know because I’m an avid listener of your podcast that you once said to us, the Google board for $5 billion. Yes. Yeah. Continued your work and access. What was that about?

It was an FCC spectrum auction bidding. And so the idea there was the waste spectrum is auctioned is a really interesting sort of process where you need to essentially decide how much you’re willing to bid.

In this case, it was five billion dollars, but then bid on different chunks of spectrum over the course of multiple rounds per day over multiple weeks. And it’s all blind bidding. You don’t really know who’s the leading winner. And so we got this war room that that only a couple of people could had access to. And we are placing these billion dollar bids on spectrum. And it was all very exciting, but we didn’t win.

I know. That’s Hensler. Great story. It was exciting. Okay. Many you’ve only given me two jobs to do and I failed at both.

I was supposed to start by asking you what size of checks. Oh, yeah, right. Ten measures. Sorry about that.

We can go backwards. What size checks do you rate it? Win 10 ventures? Yes, sir.

I always say I need to get the basics up.

Friends like half a million to a million dollar checks is kind of our sweet spot. Usually someone’s raising between one to three million dollars as part of the raise. So it’s an interesting place that we put ourselves in, which is we’re often writing a 700 K check and leading a two million dollar round. And we do like to lead, but we will also co-investor follow someone else’s lead. But that means that a lot of my guests on this podcast are all my co-investors, I bet that especially as your new year to the market here, that’s kind of a huge value add to co-invest with all these established players.

Yeah. And 10:01 10s actually been around since 2013.

So it’s but for me it’s a great way of entering a market and feeling so welcomed as a new partner and new to venture capital to to be able to build all these relationships with people who are we’re looking at deals together as opposed to competing for deals.

It makes a lot of sense. And what kind of things do you miss except for Todd? Jackson, you know, he just he just elbows me. I just elbowed me out of a deal.

I know. I know what I really want. I just know. Total jerk. Sorry, Todd, we love you. Yeah, we do. We’re happier in L.A., too. What kind of things you invest in?

Yes. So. Well, to go back to what we’re talking about at Google, which is, you know, I’m not I’m not the most technical person, like I’m not a deep infrastructure sort of person.

And yet I. So I wasn’t sure what I’d want to invest in. I like being around engineers. It is clearly where I feel the most comfortable. And so and I don’t mind if someone has to explain something and really get me up to speed. So we did an investment recently in a data encryption company, which is not my sweetspot necessarily, but I like working with engineers and 10:01 10 when I joined had that as its roots. Yeah.

Gill and David have been investing in sort of engineers turned entrepreneurs, but I wasn’t sure whether I would just want to, you know, have my own investment theses be, you know, around transportation in marketplaces, which is some of my background.

But it turns out that that definitely is where we all feel most comfortable. So we say sometimes we called engineers, Turn-On Partners. Sometimes we talk about having a software and data. As to what we invest in and then, as you say, look, businesses where there’s like 70 percent plus gross margins, those which are software and data businesses by labor intensive hardware products, not really our sweetspot.

OK, great. Now you just have to edit this to the front. Yes. And it does seem like I did my job. The second thing was not to do too much on background. And I’ve always been so much tied to Google because it’s exciting to talk about our shared history there.

Let’s talk about when you left Google. Oh, you made a brave move to co-found your own startup. Tell us about that yet.

So I started shift with my co-founder, George Arison, and we started that when I was actually on maternity leave from Google. So Google kind of incubated that. And I know what you supposed to come back to my team.

Oh, yeah. Short term memory loss. Yeah. I’m not I’m not a good. We’re gonna work together stuff. Yeah. Well.

So I went on maternity leave and got.

This was Georgias idea was to build this marketplace for used cars and to facilitate peer-to-peer sales.

And George just he tricked me. That was the problem. It wasn’t you. It was George. George tricked me.

One of the first things I did was I had Angel invested in shift when he was just a PowerPoint, like real angel investing. Yeah. And so then I was motivated to help him get get it going. Yeah. And and it started by just me showing up at his house every day at 10 a.m. and it was just me and George and Joel at the time was sleeping on his couch essentially.

So so I show up every day. I’d been away for like five hours at the time.

I jump at ten o’clock and and it was so intoxicating.

Lee exciting to be able to like draw some wireframes on a piece of paper and turn those into a Web site in like four weeks.

And also to be able to walk down the street with my baby and not drive to Mountainview.

So there are a few factors

And then, you know, and then we started raising friends and family money and like we did a true friends and family.

And I got a lot of my friends to give me twenty five K. Yeah.

And that was hard and it wasn’t hard. I mean it was hard to do, but then it became harder than later, which was, you know, two years into the journey I’m still thinking oh my God, I took you know, twenty five K of Matthew’s money of Miras money people you know.

And I know my money and your money. Exactly. Your money is not like blind support. Many anything you do, it’s great.

But then I felt very responsible for it. Yeah, of course. So you were in that role on the fund raiser? Yeah, I’m trying to raise money. What was that like? And and how did you find it as an entrepreneur?

Now, I think I just look back on how ignorant I was of it all.

Our our rule was like when we first started pitching was take the fun size and divide by 50 and just ask them for that much money. That was our simple sort of rule of thumb without knowing anything more than that.

I found it very hard like it did. It was not my strength. I’m going to pitch a roomful of investors and sort of think on my feet.

Its a different skill set than what product managers do traditionally.

Yeah. And I’m good at listening. And so if, you know, Mark Andreesen says, I think this sucks and will never work like I’m listening to that as opposed to like pushing back on that. Yeah.

And so so it was a really hard process and yet and yet it we raised a million guys lives there. So it wasn’t like, you know, cry me a river.

It wasn’t that bad.

But what what? Van v.c had the biggest influence on shift as a business and you as a leader there, probably our series A Investors.

So our our series A was Manish Patel, who, you know, love him.

And Emily Melton from DLJ. And there were many different things. But, you know, I learned a lot.

My my M.O. is just to execute, execute, execute, just do things. And that’s good for being on. Not because I’m good at doing things, but I’m not always good at going pointing in the right direction, so I’ll just get everyone to get all excited and run up a mountain. But then later realized that it was the wrong mountain.

And I got much better at using the board or the board helped me get better at it, at doing the strategic thinking that if I don’t schedule it and put it on my like board deliverable in three months, then I treat it like an operational task and I’m much better at that.

And they helped. They also helped me a lot on sort of the emotional roller coaster of it. And we did a riff at one point where we had to lay off a bunch of people and my board. Not that they were blasé about it, but once we once I talked to them about it, like it took all the edge off of it. Yeah. So anyways, I could go on and on, but they were extremely helpful. That’s wonderful.

Yeah. So we’re gonna switch over to the podcast. All right. I guess. Yeah. Yeah. In terms of balancing time. Yeah. This has been an epic journey for you. During one of these every week.

So tell us about the podcast, why you started it. What you’ve found most interesting about it.

Yeah, I. Well, what you’ll notice is my background is that there’s nothing about content creation.

And so there is a little bit of arrogance that is, oh, how hard can it be? I know how to talk to people and interview people.

And it’s been way harder than I thought to make good content, not to make content. I think that’s pretty easy.

And so I hate it because I’m the host, but I’m also the producer and the editor and.

And so then I have to listen to myself every week and then I listen to what my guests say. I think, oh, I wish I’d asked that.

I wish I miss that operated day Internet thing more.

And so I always like it when I ask this sort of harder personal questions or some of my most fun ones. For me, when I’m like Tina said, well, why don’t you reply to your email? Yeah. Or like Mark Mullen, like why you seem so intimidating and tough.

Like Peter Goldberg talked about like moving to L.A. because he was single and he wondered like meet more potential partners. And I wanted to be like. First thing I did is I checked whether he was wearing a ring, but I didn’t ask him. So I like I always like, oh, I missed these opportunities. And yet actually the other like great things.

I really learned what people invest in. Yeah.

And so some of the more interesting ones is when we talk about our processes at 10, 110, we refer back to the episodes or I’ll be like, oh, remember when Wil said that he decides on his milestones for his pro rata ahead of time and we should be doing more of that.

What do you have a favorite episode?

I mean, probably when I started, it was like the women in L.A. v.c, like Deena and Karen, even who I really wanted.

Look, I have friend crushes on these people. When I moved to L.A., I’m like, oh, I hope I get to know them and then I get to interview them on the podcast. Yeah.

Yeah. You. I don’t think the music the beginning. Oh, my gosh, yes. Do you need suggestions? Can we help you get us? the music I have to listen to every time like it gets done.

It really does bug me.

It’s really hard to find music that David and I agree on and it’s the way I want to start the podcast.

Having said this, anyone is like just with like a couple deep breaths and just have everyone breathe in, breathe out, collective breathing.

But I don’t know any other podcast that starts that way. And I think the reason you have music is it kind of helps to fade in and outs and stuff.

So you should try. We should have tried that today. No. We can do it at the end. Yeah, I want to share some trivia about the podcast. What were you initially going to name it?

Oh, I was gonna name it. Maybe I told you that I was gonna name the 21 minute Veazey, but maybe it should amend the 19 minute VCA.

Yeah, Anything? I didn’t ask you about the podcasts.

You want to share it? No. I like hearing that from guess about what they want to hear about because sometimes for me, it’s really interesting hearing about people’s backgrounds like Michael Stoppelman, hearing about the Yelp Google feud. Oh, my God. I was. I. She didn’t let me see that. It’s like, wait, I know I did to get in. But but so I’m interested in hearing about like I loved hearing Eric Schaeffer, whose tech host Angels.

He talks about scaling the 99 cents only stores from like 30 stores to 300 stores.

And how do you actually sell product to move product through retail? Like, I’m interested in that. But making my guest just want to be like, no, tell me, like, what sort of traction do you look for when you’re writing checks? What stands out in a pitch? And so sometimes I’m like, oh, I need to stick to that, because those are the basics.

So how should your listeners reach you? They want to tell you what they want. They should just hit me on LinkedIn. Actually, it’s Peli. Like, I mean, they can send an email mini at 10 onceand dot net.

Okay. They already send you then like email on the Daina episode. Oh no.

Dana doesn’t like email.  And so I’ve like I’ve been channeling that. Like I’m not an inbox zero person. I’m about ten thousand ten hundred thousand.

Yeah. So I’m telling people to email you doesn’t feel great. Okay, fine. Fair enough.

But I do. I read my email. I just don’t feel any obligation to read it all.

Okay, so here’s an email you

So let’s start talking about 10 1 10 to your personal journey again. I think people would want to know the decision to go from being an operator into investing. Yeah.

being a VC. It’s the best job. It’s been it’s exceeded all of my expectations. So, you know, as I said, we’re writing checks into someone who’s raising two million dollars. So what they’ve done previously is for us, like the zone that we’re playing in is they’ve raised a friends and family money. They’ve got a product in the market.

But to be able to take sort of an early stage thing and turn it into a real business with two million dollars, it’s in it’s incredibly wonderful thing journey to be a part of

Wait, so you’re talking about why you love it now that you’re here, which I think is awesome. Yeah. Help people understand how you made that decision. I bet a lot of operators would be listening to this and want to know like making that leap. Yeah. From one side to the other. How did you even know you would find such joy in it?

Yeah. I mean one of the things I did when I moved to L.A. was I just. I just started talking to the season in town and talking to the founders and the the startups in town and kind of figuring out where I fit in. And one of the things I did was I started going to partner meetings, did a few of those.

And and really I if I weren’t doing this, I would still be doing this, which is to say going around and talking with early stage companies, whether I’m looking to invest in them or join them as an a member of their team or invest in them as an angel investor.

It’s all of it is the people I know it is my world. And so I would.

It’s actually just a treat that I get to be paid for it and get to write checks that are bigger than my twenty five K that I could just sort of stretch to write.

So something you enjoy doing on your own even before you kind of move back down here. Yeah.

 And it’s quite similar to be an operator where you spend your time interviewing people like that’s what I said, Google is on this rocket ship.

Google had this huge like crack the whip. Jonathan Rosenberg was like, if you don’t get your interview feedback in 24 hours, the hammering sounds down. Yeah. So like that interviewing people. Like there’s a lot of similarities between hiring people onto a startup and and interviewing people to give them money like this.

There’s some similar muscle memory. I think Michael Stoppelman talked about that, too. About. Yeah. What made it possible for him to make good decisions with all his angel investing was how many people he interviewed over his career at Google and Yelp. So, yeah, I think and luckily for us, we’ve seen such top talent and amazing people. And then you get to see how they progressed inside of the company. Once you hire them, you you develop, like you said, muscle memory.

Yeah. Yeah. Okay. So I’m going to look at this. Yeah. How how’s the L.A. ecosystem different than the Bay Area?

I have no data on this, but it can’t be harder than being in the Bay Area to hire engineers.

Google has interviewed every engineer on the peninsula. Right.

And so it feels like there is there is good talent, especially on the engineering side of things.

I think there’s a little bit of product management is still really high demand.

So so one of my my red rover games right now is to get all the great product people like you to contact and hopefully work with our portfolio. Yeah and then also like the other big difference, huge difference is the the the feeling, the vibe in L.A., which is to say like a beautiful Friday afternoon where the sun is shining and everyone’s walking around high fiving like L.A.

Has that feel where San Francisco is?

Really it’s it’s just a little hard and sad and grumpy in different ways and different people, whether it’s the state of sort of the homelessness and the streets of San Francisco or whether it’s the saturation of tech.

But it’s, you know, my best up when I took the bus to Google from the mission, was it spray painted, go home Googlers and then the city clean it up. And then someone came right back and like that was where I stood on the sidewalk every day feeling like, gosh, I’m I I’m trying to do good in the world here and be right.

But but there’s definitely stuff that’s not working.

It was very apparent in the Bay Area.

Right? Well, it’s nice to I mean, the warmness, the welcome, this excitement here. How about the Hollywood and media angle? Like, has that been part of your journey here? Because its content and media is such a big part of. Yeah.

This area in different ways. It has. So if you want to create new things, Hollywood still has this huge draw. So there’s there’s a large creative energy.

And here on the much more flippant side of it all, there’s things like people who wear high heels here that are surprising to me because that’s not the Bay Area doesn’t have that sort of style to it. And so, you know, the fancy cars and the.

You know, I’m I’ve never seen people I know I went to my first women in business dinner or Pamela or something.

And it was a panel. And I was the only woman in tech.

And I had never it never occurred to me that the diversity.

And so people talk about diversity. But it’s it’s diverse in many different regards.

Right. So tell me more about 10:01 tenure. Who are your partners here? Who do you work with?

Yeah. Good. Good. These are the. These are basic that I need covered. Right. So David, my co-host is my partner who I’m like married at the hip with.

And David and I are different in a lot of what we’re very different like.

You meet us. We are very different. You exes, as Kara says about upfront, like we have very different I’m I’m loud and gregarious.

And David is he comes across as a little bit more introverted.

But I seldom say I’m very impatient and he’s very patient.

So it’s a good balance. So we’re a good balance for each other. But I think fundamentally, like David and Jill and I were the three main partners at 10, 110, we all have very similar sort of nerdy.

We all have technical backgrounds, love of the outdoors, family. We all have three kids.

Like there’s a we have a lot of sort of the basic fundamentals are actually quite similar.

And then we have an amazing principal, Eric pocker van, who’s part of our investment committee. So he plays a very important role.

And on Elbaz, who’s Gil’s brother, who’s a very active venture partner at 10:01 10, and he gets very involved with our portfolio companies.

He’s also part of our investment committee. And then we’ve got Todd Gitlin, who’s our talent partner, and he’s an executive recruiter at sapphira, a big executive recruiting firm in L.A., very prominent. And he’s been extremely helpful with our portfolio companies.

And is your group drawn to similar types of deals or do all of you have different interests and passions?

I mean, Gil, I believe he thinks partly in binary, like our fun name is 10:01 10.

And so, yeah, if you’re going to tell me you have a huge data set built over years and amalgamated from many different sources and yeah, I might send someone like that to Gilb, but at the same time it can come vmc to Guille and there’s no LeGrande ownership issues there.

I think, you know, it more comes out almost less than the deals and almost more how when we look at the deals, I still it’s a weakness and a strength of mine, which is I am very founder focused.

I really like people’s journeys and understanding who they are.

And you know how my favorite question which I need to start asking my podcast guess is what your parents do. I heard you ask that I like it.

And yet I’m always a feels like is that too weirdly personal? Yeah, but it gives me a good sense of who people are.

Yeah, well you better just. You already said your dad’s a Caltech professor. Yeah, but what does your mom do? My mom works at USC in neurology department. And she teaches.

Yes. Yes. She teaches also at USC. Yes.

Yeah, but but, you know, doing that sort of thing. But Gil’s always the big picture. So, Gil, really always I’m thinking about, you know, what is the one year forecast? And Gil has sort of one of the macro world cosmic forces, if you will.

So, yeah.

So tell me your very first investment that you made that Tim Winton. What was it and how did it feel?

I’ll tell you about strata contracts. Great strategy is they convert your your WordPress Web site to static pages and.

And but there’s other services that do that. But they’re sort of special sources that. They allow you to continue using WordPress as your front end. And so people who have, you know, whole marketing departments and these are not for your sort of small Web sites, but for your larger content sites to be able to continue to use WordPress as a front end. But at get all the speed security, you don’t need to do any maintenance with static pages, which is a huge trend.

And WordPress has gotten really bloated and lots of plugins anyways. Female founder familythe shows female founder total bad ass lover. It’s her second startup.

Get to know her dead and her name Will. No Miriam. OK. Sumerians. Fantastic. And get to know her. We’re already we very sign-in terms. But then we start. Just like catch like a little bit more of like the. Let’s catch up. She tells me seven children.

Oh, if I didn’t think she was a bad ass beforehand. Yeah. So just a fun. Just a fun fact.

And just for people like me who have never been a variable, is their moment where you actually write a check or do you push a button? And is there like a celebration?

Yeah, there’s. I should do more. Yeah. There should be like confetti or is no confetti comes out of a cannon.

You know, we there’s a lot of back and forth on just like the valuation, right. Yeah. Then you come to terms. Then you get into the terms. So then you’re pretty much you’re pretty close. OK, we’ve got the basics. Then you get the term sheet and it’s like all the things that I hadn’t quite thought about, which is like, do we need to reset the founder vesting schedules, those little things which can come up.

But actually, the founders been working on this for three years. You don’t want them to be three quarters of the way vested because then and actually you want them to reset their vesting at our stage. Otherwise, the series a investor will make you reset your vesting. And so if you anyways.

Yeah, there’s all those little things that you then do

And then David where’s the money.

I don’t really know how it works

Well, we’re going to do a speed round. Okay, great. I’m just gonna make it up. Yeah. It’s my own podcast.

Now that your listeners want to know, what is your favorite place to surf in L.A my favorite.

And it’s probably Sand and Overy with my dad. Old man’s break with my old man. Yeah, it is sweet. But usually we just surf the Venice Pier like right on Washington. It’s a total close out. I hate it, but I love it. I know.

But if you go to Minnie’s house, there’s like 400 surf bars and there’s 400 wetsuits. You have to get there early. Yeah. So wetsuits go fast that are in the right sizes. But if you want to surf with many, I know she’ll take you. What’s your favorite place to hike or run in L.A.?

My sister has a cabin in Chantry Flats and so we go there and I just went there last weekend. And I mean, it has no cell phone service, no electricity. She’s got some solar panels now, but that’s kind of on the DL. Yeah. Anyways, it’s great.

And I just we just went there is not allowed to know because they want to preserve the canyon is meant to not have anything. I see. And it’s got a phone now installed. So you can’t you don’t get cell phone service in you go there. Yeah. It’s got a phone. I’m like what is this. It’s a phone.

And you pick it up and it just it rings all the other cabins. So all the cabins figure out this is cabin eight. What’s going on in my cabin? Well, a screen.

And then it falls down to the pack station, which my sister almost bought

Oh, my gosh

Which of your three kids is your favorite?

Steph, that’s not a fair question. No, it’s completely unfair play. Steph is the godmother of my only daughter. Right. So she’s our favorite

that was a trick question. Gatto’s Hardman’s okay.

So I think we covered everything. I think you still want your listeners to rate this podcast.

Yeah. They don’t have to give reviews. I realize that with whatever I give it. Sighs I’m not gonna bother ask. Yes.

music and spelling. suggestions are welcome.

Yeah. Any suggestions are welcome? Yeah. Yeah. Thanks, Steph. It’s such a joy. You’re a joy to be here with you. Thanks.

Many thanks