2 April, Year of Happy Recaps

Whoa, hey! Welcome to Capital Call! This newsletter is your monthly digest of news and views distilled from my interviews with venture capitalists and angel investors. Each month I’ll mine the interviews I conduct for pearls of wisdom, provocative opinions, and baseless hot takes — some by the investors themselves, others by yours truly. 

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As for now, to the interviews!


Sumeet Shah, Principal @ Brand Foundry Ventures

CPG disruption — who’s next? We've seen the Dollar Shave Clubs take on the Gillettes of this world. It's a theme I heard in numerous interviews: today's customers (driven by millennials, but increasingly other demos as well) demand more than a transaction, they want an experience. Wherever impersonal behemoths (Unilever, P&G) roam, disruption won't be too far off (and if the sweetgreens of the world have anything to say about it, it won't be limited to CPG, either). As customer expectations evolve, so too must the KPIs businesses focus on. From the a-picture-is-worth-a-thousand-words department, a side-by-side of KPIs used by Gillette vs. Dollar Shave Club would tell a hell of a story. 

TechStars > Y Combinator? Don’t @ me. So sez Sumeet — why? Corporate partnerships + global footprint. After going to my first (the shame, the shame) demo day last month, TechStars' IoT Demo Day, what struck me was less the announcements of new funding, but more the “and today, we’re thrilled to announce our new partnership with…” Virtually every company in the cohort had some of partnership to crow about. It's powerful. In the early days the thing that really gets investors interested is traction (for more on that, see Frank Rimalovski below). 

Oliver Mitchell, Founding Partner @ Autonomy Ventures

2017 is *so* 1989. What does 2017 have in common with 1989? In Oliver's estimation, then as now, we were / are about 6 years before the release of the transcendent product that would bring a transformative new tech to the masses. Back then it was Windows 95 bringing personal computers to every desk in the enterprise. What is the autonomous revolution’s (or “robolution,” as Oliver calls it) Windows 95 moment? No answers here, sorry to say... our princess is in another castle... but 2023 will be here before you know it.

Rise of the "gray collar" worker. Had you heard this term before? I hadn’t. "Gray collar" jobs is a new class of jobs created by robotics — namely, they’re the people controlling the robots. These are the jobs today's young blue collar workers will need to transition into as existing manual jobs are displaced. Old blue collar workers? That'll be up to a latter-day Trump, I suppose. 

Trends Oliver's watching. Connected / autonomous cars. Voice-enabled devices. Cashier-less stores. 

Frank Rimalovski, Managing Director @ NYU Innovation Venture Fund

What founders can learn from The Social Network, Shark Tank & Silicon Valley. As Frank notes, for too many founders the thought process run something like: “I have an idea! OK, step 1: raise VC dollars." Investors want traction, or some form of validation (for more thoughts on this, see Jeffrey Finkle, below). In The Social Network, Zuck raised money after he launched in X number of colleges and had Y engaged users. On Shark Tank, the Sharks get interested when an entrepreneur says they have revenue. Ideas are cheap, it's execution that counts. 

Spinouts vs. Startups. According to Frank, you get the same level of portfolio risk with early stage spinouts that you would get with early stage startups. The risks may differ, though. You might have better IP or tech, and you might have more market input, but you also have the challenge of turning corporate types into entrepreneurs. 

Biggest challenge in NYC. Inexperienced capital. This comes up routinely in these interviews. Inexperienced capital (a nicer turn of phrase than "dumb money," wouldn’t you agree?) can lead to poor valuations/caps (too high or too low), bad terms, overly complex deal docs etc. Tread carefully. 

Kristopher Brown, Partner @ Dechert LLP (Angel)

Requiem for DoubleClick. Long-tenured NYC investors remember Google’s DoubleClick acquisition as the transition point that wasn’t. The DoubleClick acquisition was meant to create a generation of angel investors and serial entrepreneurs who would lead the NYC tech scene to Silicon Valley-level heights. Only it didn’t, and no one can quite say why. That non-event is cited repeatedly as an answer to why NYC has not, and may not ever, overtake the Valley in the entrepreneurial pecking order. 

Interim tech vs. Disruptive tech. In the face of disruption, incumbents naturally become very defensive. For Kris, that makes investing in "interim tech" (i.e., a transition technology that leads to that future-with-the-frontier-tech solution, but lacks the disruptiveness of the latter). It sounded to me like a recipe for singles and doubles, but Kris argued his strategy led to more home runs — precisely because the incumbents, in a lather about the disruptive tech, would spend (overspend?) on the interim tech. 

Kris’ run-in with the CIA. Heck of a story about how Kris became a lawyer based on a run-in with the CIA at Brown University. Worth the price of admission alone. 

Hadley Harris, Founding General Partner @ Eniac Ventures

Brains & braun. According to Hadley there's two particularly exciting themes in IoT: 1, seamless computing (i.e., natural interactions with machines rather than ones that require us all to stare at our phones compulsively as we go about our day-to-days) and, 2, automation (with AI being the brain of automation, and robotics being the muscle).

Social implications of AI. A favorite topic of mine. Hadley’s take? China and Mexico taking jobs is water under the bridge; machines taking jobs is the flood. It seems staggeringly unlikely in this age of Trump that we’re going to talk about AI taking jobs rather than China or Mexico, but I do agree technologists have a responsibility to bang the drum about changes that are coming sooner than people think. Will it do any good? Call me a cynic, but it seems far more likely it’ll be climate change 2.0. 

Picks & shovels. I felt pretty dumb for not knowing what Hadley was talking about with the picks and shovels reference. It’s the enablers, stupid — the people in a gold rush who get rich selling, well, picks and shovels rather than digging for gold. In this day and age that means the people building the tools that will be used by companies who someday bring VR, AR and other emerging technologies to the masses. 

Alicia Syrett, Founder & CEO @ Pantegrion Capital (Angel)

Exit slide advocacy. Is there any one aspect of the early stage pitch deck as controversial as the inclusion of a slide on exit strategy? TL;DR, there’s no right answer here. Do your homework, see what the investor wants and go with god. 

Steve Blank: open book. Before I started this interview series, a friend and I discussed the idea of a podcast focused on startup failure. The problem? No one wants to talk about their failures until they’ve really broken through. So if you’re Steve Blank, yea, you can talk about that business that never hockey-sticked, or worse yet, went down in flames. The rest of us? You gotta look like money to make money... or something. I remember in my Tiggly days I’d talk to other tech toy entrepreneurs who would tell me how they were crushing it in one channel or another, which I knew to be false. I get it, sometimes you need to cover up the warts — but not all the time. And if you just get real with people you can actually learn something. 

Joshua Siegel, General Partner @ Rubicon Venture Capital

70% winners, 10% failure rate? Can the model for VC returns be flipped on its head? Instead of 70% failure rates, 20% zombies, and 10% winners, can we have 70% winners instead? Joshua says you can. It seems like a big lift, but you do have to appreciate the sort of person who looks at inherited wisdom, at this-is-how-it-works-ism, and believes it must not always be that way. 

esports: bigger than the NFL? The hottest take of the month or an inevitability? I don’t know. I mean, on the one hand, the NFL is the biggest professional sports league in the world, with >$13bn in 2016 revenue. On the other, it’s very US-centric. The point Joshua made, and certainly others have noted the same, is that professional videogaming faces no such geographical (political?) boundaries.. My personal belief: esports is going to be huge even though I’m fairly sure I will never, ever watch it. That said, and as Joshua suggested, unless the burnout rates of esports gamers changes (which could well happen as the leagues become better able to pay their superstars), esports needs to cultivate a team-sport identity rather than an individual-sport identity in order to reach the heights of the NFL.  

Why NYC cannot overtake the Valley in 10 years’ time. So much of entrepreneurship requires faith and optimism and fake-it-’til-you-make-it. The problem in New York, to Joshua's mind? We call bullshit. Fair enough. The other aspect to my way of thinking is that SF is a company town — you’re either doing a startup or, like, why? In New York, "tech and entrepreneurship will always be the fifth or sixth most interesting game in town." On balance it’s probably a good thing. 

How many more >$100m funds does NYC need? 6-8, sez Joshua. What say you?

Trends Joshua's watching. AI/machine learning, fintech (enterprise software, not payments), drone management, esports.

Jeffrey Finkle, Chairman of the Evaluation Committee, ARC Angel Fund (Angel)

A litmus test for Seed-readiness. Build a product, get it out there, see how it performs relative to your success metrics, and find evidence you can iterate to product-market fit. That’s when you’re ready for Seed. 

Legal cannabis: 7 sub-sectors. As Jeffrey notes, the legal cannabis industry is about much more than cultivation. It’s also about agtech, dispensary, infused products, ancillary services, biotech, and data. Add it all together, and the legal cannabis industry can grow substantially larger than the $40bn black market value of today. 

Legal weed in the age of Trump. As Jeffrey notes, AG Jeff Sessions isn’t a fan of the industry, but the GOP's states’ rights-ism plus the aforementioned economic benefits should be enough to safeguard the industry in the age of Trump. 

Trends Jeffrey's watching. AI, AR/VR, legal cannabis.

Jake Yormak, Managing Partner @ Story Ventures

Convertible debt vs. priced rounds. When to do which? Jake’s rule of thumb: <$1m raise = convertible notes. Use a cookie cutter note or a SAFE.

But about those priced rounds… Pay attention to who’s on your board. As Jake says, “voting thresholds matter" and can have significant implications for your ability to run your business as you wish. 

Trends Jake's watching. Computer vision; voice as an interface. 

Adam Quinton, Founder @ Lucas Point Ventures

Worse about diversity: early stage finance or investment banking? Early stage finance, if you ask Adam. Why? “Bro-grammer” culture, homogeneity of VC partners (“like likes like”), and the paradox of meritocracy (give Emilio Castilla MIT a google / tl;dr: the more meritocratic a person says they are, the less meritocratic they actually are).

Lessons from Warren Buffett. The Oracle of Omaha typically invests in things other people don’t understand the potential for. If only 2.5% of VC dollars are going to female-founded companies, Adam reasons, the potential of these companies is being wildly undervalued. 

Tennis, anyone? The top 100 players on the ATP tour are all pretty damn good, and yet tournament after tournament, there goes Serena and Novak/Andy/Roger/Rafa hoisting another trophy. In Adam’s estimation, each of them has a little something extra, something exceptional about them that carries them through… and the same is true for the best founders. 

There is one last thing.

We're just getting warmed up. We have a huge lineup of interviews in store for April, including:

  • Harry Stebbings, Atomico, The Twenty Minute VC, My VC interview icon
  • Zack Schildhorn, Lux Capital
  • Joanne Wilson, Gotham Gal
  • David Rose, Gust, New York Angels (Founder)
  • And many more
Until next time!

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