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Oh, welcome to the consumer vie
see. I am your host, Mike
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Gelb, and on this podcast we
talk about consumer innovation and venture capital.
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Our guest today on this episode is
Nick Moran. He's a general partner of
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new stack ventures. New Stack's mission
is to invest in the outsiders. Nick
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is also the host of the full
ratchet podcast, which is one of my
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inspirations actually for starting the Consumer Vic. That was his introduction to venture capital
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when he's started creating syndicates and now
he has a fund. It's a really
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cool story that I'm excited to share. We discuss why he's bearished as well
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about web three short term, but
bullish long term, how he thinks about
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deploying capital in today's market and the
long term sustainability of the companies that he
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invests in. Without further ADO,
here's nick. Nick, thank you so
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much for joining me today. How
are you? I'm great, Mike.
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Always a pleasure, awesome. I
really appreciate you being here. So I
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would love to kind of learn the
origin story of how you started full ratchet
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and then, as well, new
stack ventures. Well, I left Corporate
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America and I started angel investing on
my own and I learned a bit about
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start up investing doing that and kind
of the importance of building a network,
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building deal flow, helping portfolio companies
and, uh, just had this discovery
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that nobody was doing audio right.
There was a lot of content online,
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a lot of people were blogging,
there was a couple of video blogs,
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but there was there were no audio
resources out there. Um, so I
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started a podcast and shortly thereafter,
you know, a few other folks did
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too, and I think it's really
changed. It's changed a lot of the
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environment. You know, there's a
lot more interesting venture there's a lot more
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early stage BCS, angels, even
startup founders now than there than there were
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when I started. You know,
a fun fact is when I started the
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show, in versus now there are
more startups today in the Midwest, or,
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sorry, more unicorns start ups today
in the midwestern there were when I
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started the show in the bay area
back in so in less than a decade
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the Midwest has has caught up in
in surpassed the bay area from the standpoint
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of of UNICORNS. So yeah,
so that's a fun fact. I started
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the podcast and then new stack came
shortly thereafter new stack was started, we
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did ten SPVS on the angelist platform
way back in the early days. You
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know, Um Neval, Tim Ferris, Jason, Calicanas, Gil Panchina,
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you know, just a handful of
syndicates and then that became a couple of
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funds a few years later. That's
awesome. Why? Um, I know
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one of the thesis towards new stack
ventures is investing in companies outside Silicon Valley.
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I know that you were, I
just said you were based in stelling,
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a valley. What made you move
to Chicago Leave The bay? Was
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it just opportunities that you were seeing
or kind of wanted to explore and maybe
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be closer to the action with investing
outside, to look a valley or like?
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What? What was kind of the
rationale there? Well, Chicago's home
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for myself and my wife and we
were not in the bay area. We
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were in Santa Barbara, so for
their south, and then went to Colorado
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for a couple of years and and
just kind of found our way back home.
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You know, when I got to
Chicago and started to start up investing,
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I realized the environment was quite different
than it was in California. Not
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Nearly as many investors and terms were
kind of all over the place, certainly
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not not just start up unfriendly,
but I would say VC unfriendly. You
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know, there are ways that you
can kind of screw a financing and a
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company up from the early stages by
utilizing more private equity type structures. So,
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yeah, I got back to Chicago
and and sort of developed this thesis
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over time of investing in outsiders.
You know, I would see folks that
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were not insiders. They didn't come
from Cilicon Valley, they didn't work in
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big tech and they didn't go to
Ivy League schools, but they were just
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incredible, exceptional professionals in building category
defining companies, just not on the coast.
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And so that's kind of where the
thesis came from, just finding more
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of those folks that were, you
know, severely undervalued assets. So what
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do you think? Obviously we've seen
like an explosion of as I mean,
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as you mentioned, UNICORNS coming from
the middle of the country between the coasts.
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What do you still think is maybe
a misconception about could be the Midwest,
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could be the south, could be, you know, the rockies?
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Where are we at now? How
has it changed over the past few years
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since you started, and what do
you still see maybe as like a misconception
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from investors that are on the coast. I think it's come a long way.
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Right like the pandemic had many unfortunate
that outcomes. One fortunate outcome for
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the startup ecosystem and for venture capital
is coastal investors started investing in the middle
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of the country startups, and that's
something we've been doing since the beginning.
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You know, in the first startup
we led with new stack ventures was based
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in D C and we never met
the founders in person. It was over
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zoom didn't exist. It was over
skype and traditional phone calls. And when
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the pandemic hit, all of a
sudden the series a and series B co
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investors, you know that would lead
later rounds for our startups, became much
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more active in the middle of the
country. So I had a lot of
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LPS that were calling me at the
time saying, you know, is has
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your edge been armed away? You
know, you guys were sort of the
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zoom video based. You'll invest in
Atlanta or Denver, Salt Lake City.
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Uh, is that going to go
away? And I think in many ways
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it's. It's actually been an accelerant
because the series A and B folks no
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longer have to attend board meetings in
person and now they can can act with
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founders all over the country in a
way that previously they couldn't or or just
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wouldn't, and so it's it's been
a great sort of amplifier to everything we're
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doing. So are you saying on
this series a and B side of things
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it's been an amplifier in they're more
comfortable as the companies progressed to that stage,
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then it's almost an easier pitch for
you to get those companies in front
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of Series A and B investors.
There was probably less than ten vcs that
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I was very friendly with that would
look at Midwest based deals, even very
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strong deals. Like Mike Evans,
is a good friend, were invested in
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his recent company. He was the
CO founder of Grub hub back in the
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day. You know grub hub.
Their series a was led by Bill Gurley
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at benchmark there. But that is
one of very, very few examples of
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Chicago based startups that were funded by
coastal investors. Um another one called belly
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was funded by by Andreeson. But
you can name, you know on one
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hand or two hands the number of
notable startups funded. Notable vcs on the
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coast completely changed right our last series
day round, I think I reached out
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to Fort vcs on the coast and
made forty two intros. So lots more
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interest in the middle of the country. We had an investor on this show,
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albeit this was right before covid happened. I think I interviewed him February
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twenties, so I'd love to kind
of back on and see what he what
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his house right now. But he
he had the line which I thought was
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interesting, where if you want to
start a technology company, it's fine to
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start it in a secondary or tertiary
market, maybe outside the big coast,
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what have you. But when you
think about scale and you think about growing
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the company, you need to go
where the talent is and that tends to
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be, you know, like the
bay area with like software engineers and New
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York. Maybe you put Chicago.
That makes but how do you think,
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especially when it comes to you know, secondary in tertiary markets, when you
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think about growing and scaling, you
know, technology companies? How do you
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think about placement? Obviously things have
changed because of Covid, but this placement
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now still mattered, or are you
seeing as well that companies that really you
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need to get good at being distributed, and that's kind of like the new
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normal always. It's a good question. It's a tough one to answer,
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but I can certainly give you,
know, my two cents. We've got
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forty portfolio companies now, so we've
seen it quite a few times. It
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seems like series B is kind of
the turning point. So at that point
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the company is sufficiently large in doing
enough hiring that they need experience. So
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there's a distinction between talent and experience. Right, talent is everywhere, but
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experience is not. And if you
need tech specific playbooks and experience, then
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often you can go to the bay
area and you can find more of that.
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Right, if you're an SMB SAS
company with a C V S in
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the K to twenty range and you're
running a product led growth model, you
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can find people that have done that
in more supply in the bay area than
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in any other region. It's not
really about talent, it's more about experience.
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Um, but I've seen those hires
go south more than they've gone north,
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quite frankly, and often it's because
sometimes you'll find somebody who has a
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playbook or experience and they're very smart
and they obviously have developed, you know,
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a strong set of best practices around, let's say, a marketing technique
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or a sales technique or or maybe
a tech stack. But everything changes right.
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Tech is one of the most rapidly
evolving places. So if you find
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somebody who has a mindset of always
figuring out the right strategies right, you're
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you're a consumer guy. This is
especially relevant when it comes to consumer customer
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acquisition. Right, whether it's S
C M or s e O or or
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now, you know, paid ads, with with advertising, or you're doing
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email marketing campaigns or other creative things
that the ground is constantly shifting underneath you.
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If you make the mistake as a
founder of hiring somebody who's got a
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playbook that worked five years ago,
whether it be on the development side or
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on the sales and marketing side,
that's different than finding somebody who has a
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mindset of trying to figure out what's
the newest, latest and greatest thing that
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we can do or, you know, come up with their own tactics and
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strategies, uh, that are gonna, you know, be innovative for the
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entire space. Well, I think
too. Like you, you touch on
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a really good point about talent and
about how you need you're obviously looking for
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people that are pretty agile because and
not just have like a set playbook per
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se, especially in the worlds of
you know, I know that you had
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your example of digital marketing, but
of course things change so rapidly. Of
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Digital Marketing, UM, as you
know, one place and you know,
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like another topic when it comes to
hiring that we talked on the show too,
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is, you know, it might
be great that a candidate is from,
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you know, one of the big
tech companies, you know, facebook,
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Google, what have you. But
what happens when they have a budget,
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you know, much smaller that they're
given a budget a lot smaller than
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they do working the big tech companies? How will they, you know,
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adjust? How will they survive?
Um, that's sort and so I also
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just think too, like on my
hiring talent side, it can be also
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tricky because on one hand you want
someone that obviously has that experience right and
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maybe knows how to do the job, but doing the job for a large
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company is very different than doing it
for a small company. Context is everything.
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There are builders and there are optimizers, and that exists within startups.
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It exists within venture capitals as well. If you want to build your own
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firm, recognize less than twenty percent
of your time is going to be investing.
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Right. If you wanna join an
early stage startup, recognize you're gonna
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be wearing a million hats and you're
gonna be innovating on a shoe string.
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Right. So that goes to your
point. is completely different than joining a
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large established venture capital firm or a
large established tech company, where you can
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go and you can optimize around something
very specific and and try and Um,
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you know, move the needle in
a much more focused way. That makes
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a lot of sense. Also,
like would love to kind of learn to.
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Obviously, you started off, you
know, as you said, Angel
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Investing, than producing syndicates on an
angelists. Why did you decide to go
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the fund route? What was the
reason there, instead of, for example,
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you know, joining another firm,
for example, which then maybe you
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spend a lot more time on the
deal flow side of things instead of,
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you know, kind of relationship managing
with with lps and what have you.
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But like what was kind of like
your mindset and how you wanted to progress
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per se? I think it's like
an evolution of pain points. I had
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land Um Naprier on the show sometime
ago. You should have him, he
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is a hoot from Bill Group.
But he talked about how product market fit
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is constantly changing. It's not something
that's fixed in time. So you find
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product market fit in one capacity and
then it changes because the customer sets change
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and you know, needs evolve.
You know, once you fill one set
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of needs, a whole new set
of pain points evolves, right, and
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so the same thing happened with us. We fill the need from the standpoint
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that we could now fund startups in
more of a lead capacity. At the
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time, you know, we could
do six figure checks instead of my little
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K or fifty k check with the
syndicate. But then once we started cutting
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checks on the syndicate, the pain
points evolved. Right. The pain points
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for me personally and for my firm
is I couldn't hire help because I had
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no management fees, whereas if I
had a blind pool a committed funds,
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all of a sudden there's a fee
stream, you can put some services and
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you can put some people around it
and then you can do much more across
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the firm. And then the pain
points of the founders. Mike, so
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you know when we would cut chets
checks via syndicate. I'm talking to founders
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and I'm saying, look, we'd
love to invest in your round. I
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think it's gonna be somewhere between a
hundred fifty thousand and three thousand. I
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don't know for sure, and it's
gonna take US probably two to three weeks,
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maybe four, to kind of launch
this thing on Angel List, you
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know, prep the materials. I
might ask you to do a Webinar this
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and that. Some founders are great
about all that, but some are gonna
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kind of look at you and say, wait a minute, you can't really
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you can't give me a firm yes
or no, and you can't me how
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much it's gonna be and you can't
tell me when I'm gonna get it.
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You know, that's a little it's
a little trickier. Right. So it's
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not a knock on syndicates, it's
it's a different type of funding vehicle.
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But those are some pain points for
the founders that are readily addressed with a
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fund. Talk to me a little
bit about how you're thinking about today's market.
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Obviously it's pretty different to last year. But we've seen, you know,
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valuations obviously in many categories come down
bridge rounds, down rounds and really
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kind of focusing a lot more on
like capital efficiency in companies and, you
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know, what's your burn, how
much revenue you're making, and kind of
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kind of balancing out those two aspects. Talk to me a little bit about
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outside Silicon Valley, like how has
valuations change, what you're seeing in the
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market that you cover? And also, like, was there already kind of
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an emphasis on capital efficiency with like
companies that are outside so like a valley,
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or has it really been like across
markets, like there's been, you
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know, quite a drassing valuation change? Boy, there's a lot in that
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question to address. Yeah, well, you know, first things first,
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we invest, as you've suggested,
in a different profile of company than than
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the coastal counterparts. Our valuations are
are lower in general because these are what
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we see as underpriced assets. Um, they don't have the bright shiny resumes,
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but we think, you know,
the talent, the mindset and the
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motor is just as strong, if
not stronger than than many of the counterparts
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as far as the market goes.
Mike, you know, I could cite
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all the cliches. Best companies are
built during recessions. You know be fearful
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when other are greedy. Fortunes are
made in the down markets and collected in
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the up markets. Right now is
that is an exceptional time to be a
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VC. If you have a committed
fund, you know, if you're going
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out and trying to raise capital,
a little more challenging. Uh. If
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you have a committed fund and you're
deploying capital, it's a wonderful time to
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be investing. I was on a
call with some institutional lps last week and
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one of the more prominent lps said
he believes this vintage is going to be
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the best of the decade. Assets
are under priced right now. Terms are
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more favorable for vcs. It's a
great time to end. You know,
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most of the talent that's risk averse, that's founding companies, is gonna go
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run to employment stability and a lot
of the talent that is risk seeking is
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gonna lean in. And then the
support talent in the system, you know,
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the people that will join startups.
The pricing is going to be lower
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and that talent is gonna be there's
gonna be a higher supply. We've seen
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the opposite right over the past probably
three to four years. So there's never
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been a better time to be a
VC. And for us, when it
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comes to our existing portfolio, you
talked a bit about this, but our
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existing portfolio is very strong. Right. They're built in a different way than
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many coastal startups are built. When
I talked to our our friends on the
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coast, you know you do a
lot of networking in this business, so
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you talked to ten to fifteen vcs
a week and, uh, everyone's writing
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companies down right. There's panic is
probably the appropriate word to use right now.
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We kind of use polite euphemisms like
triaging the portfolio and and things of
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that nature, but there's a lot
of narrative spin going on with vcs right
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now. There's a lot of panic. People are writing down companies significantly because
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what happens on the coast is when
you've got a great idea of fantastic team,
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fantastic resumes right and a killer pitch
deck, you can in some cases
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go out and raise at a hundred
million dollar valuation seed right, which is
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crazy. Right. That is what
we call a hype round, which often
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turns into a momentum momentum round,
meaning other people pile in, and then
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those are valuations that the startups need
to grow into. Right they're not there
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yet. It's gonna take some time
for them to grow in. Now that
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the markets collapsed, everyone's having to
write those down in in some case recap
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the companies. But that is the
antithesis of what we do at new stack.
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Right we're investing in outsiders. So
these, the companies were investing in,
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need to show more traction and progress
to get, you know, a
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comparably low valuation. And so none
of our startups have to be written down.
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I just wrote an uptake to our
LPS. We don't have to write
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down any of our startups. We
are not triaging the portfolio. Every valuation
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that they've raised. That has been
earned, not gifted. So we're in
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probably the strongest position we've ever been
in as a firm. I know that
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one sector, a category that's really
popular right now is web three and would
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love to kind of hear your thoughts, if you're investing in web three businesses,
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what your general thesis is around Web
three and if you're investing in it.
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We're not investing in web three.
Might not at the moment. You
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know, web three just went through
a massive hype cycle which turned. Now
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might be a better time to be
investing in web three because, you know,
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prices have come down. I think
Dan Primac just tweeted yesterday that block
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five is in talks to sell for
twenty million Um to f t X.
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I mean, that's crazy, right, because block five has raised over a
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billion in your capital, if you
read everything online. I don't. I
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don't think they'll sell for as low
as twenty five, but orders and orders
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of magnitude less than even what they've
raised in venture capital. Forget where they're
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priced at. So you know,
web three has fallen on hard times,
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which may make it a good candidate
for investment. Right now, we are
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still not investing in this space,
Mike. Part of that is because of
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sophistication. If you're gonna go after
something brand new, whether it's a type
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of technology or, you know,
a new category, you really have to
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develop some expertise around it. The
second reason is, you know, the
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killer APPs just really aren't there yet. A lot of web three is serving
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the pain points of venture capitalists and
I think that's why it's become this huge
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space. I can talk more about
that. But vcs are super infatuated and
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enthralled with web three because it's serving
more of their pain points. If you
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look at consumers, general consumers out
there, it typically is not addressing real
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pain points for consumers and that's why
we've seen a dearth of killer Apple Atians.
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I mean the one killer APP that
I think is working and can work
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well is store of value. I
think you know Crypto as a currency can
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be a much better store value than
gold, for instance. Outside of that,
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yes, there are some other applications
on the fringes and there's exchanges and
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there's some liquidity benefits, but a
lot of the promises that web three is
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making are not being delivered and customers
aren't really asking for things to be addressed
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that web three is promising. So
for us it's not a category of interest
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at this time. Will massive amounts
of money be made in the segment,
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Mike, yes. WILL MORE MONEY
BE LOST? Oh Heck yes, there
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is a lot of money to be
lost in this segment, and so we'll
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stick to what we know, stick
to our knitting B two B SAS it
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has comparable upside without the corresponding downside. So how do you make sure that,
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because I know that right now you
said you're not invest in web three,
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but long term it seems like you're, you know, quite bullish on
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on some of the applications within web
three. How do you make sure,
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when you're analyzing, you know,
a particular category or a segment that hey,
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like, this is the hype cycle, I'm not going to invest,
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but at the same time you also
don't want to miss the actual timing what
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it actually makes sense to actually to
invest. So how do you think about
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timing when you're actually analyzing different categories
you actually want to invest in? Well,
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I think you know, everyone needs
to decide as a VC, depending
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on how mature you are as a
firm or your fund structure, you need
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to have a thesis. You need
and it's more important what you're not doing
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as a part of your thesis even
than what you are doing. Right,
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you run a podcast the consumer VC. Right. Are you gonna go interview
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a bunch of enterprise, you know, deep tech founders? Probably not,
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is my assumption, because you've got
your own niche in your own angle and
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what that allows you to do is
become, at least from the interviews I've
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heard, heard a very effective and
sharp and informed interviewer in a set of
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consumer related categories and just venture in
general. Right. So you've got to
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decide what you are and what you're
not gonna do and uh, you've gotta
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be okay with missing on some things
that are gonna go well as long as
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you're pretty sure that the categories you
invest in are also going to be out
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performers. So do we think we
can deliver a ten x fund this Fund
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without web three? That's why we're
in business. We're not in business to
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be an also rand. We're in
business to be a top decile firm and
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to be the best, you know, between the coasts. And Uh,
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you know, we're convicted in that
and we believe we can drive that without
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chasing height. First of all,
thanks for the kind word. That's certainly
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certainly not true on on on my
side of the podcast, but I know
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that your bread and butter is kind
of B two B SAS right. But
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what in since it's obviously a a
consumer show, what about consumer makes it
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interesting to you? Like what maybe
categories within technology or or even consumer brands?
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What kind of has to go right
in your mind when you're when you're
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looking at a consumer company. That
makes you want to make the bet.
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You know, consumers is a tricky
category. I'm sure a lot of people
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have talked about this on the show. Um, you know, with with
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B two B says, you're still
dealing with people fundamentally, and people operate
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on emotions and trust and things that
are outside of just pragmatic logic. So
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yes, in the B Two B
Saas world you're always looking for either top
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line or bottom line optimization. Right, can you expand revenue? Can you
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reduce cost and expand margin? With
consumers, that's where you begin. But
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it's a longer sort of in Chris
Dixon's words, probably a longer idea,
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amazed unravel, because there's more to
it than that. Um, you may
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start with you till like solving a
real problem for consumers, but you need
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to deliver it in a way that
captures their imagination. Right. It starts
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firing these different dopamine and in different
hormones in a way that you know they're
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locked in and they're excited and they
develop brand affiliation and affinity Um and all
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these factors. And so in my
mind it's the ultimate experiment in psychology it
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can be a little scary sometimes because
I think big tech companies don't really know
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why consumers make all the decisions they
do, but they do have the data
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to substantiate what's happening Um and it's
our jobs, you know, as being
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early stage sort of assessors of this
market, to try and get into consumers
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heads, to try and reason and
into it the way that they think and
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then deploy our capital behind it Um
and hopefully we can use some data to
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substantiate that, you know, with
a lot of testing and a lot of
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iteration. So yes, I think
everything starts out with utility and usefulness,
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but consumer gets way more interesting because
you get into all these higher level concepts
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of psychology and and my wife happens
to be a psychologist and so, you
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know, she's been probably my biggest
support building a business and also trying to
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invest in in the right people in
businesses. That's really interesting and whenever I've
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spoken to other funds that are in
you know, that certainly are in the
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middle of the country, or even
funds that are on the coast and investment
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in the country, what they really
like about investing in companies that are located
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in especially like secondary and tertiary markets, is that it's probably a company that's
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going to be for much more geared
towards, you know, a lot of
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different types of people, not just
you know, coastal maybe like types per
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se, but rather for the US
so like, and so I'm always just
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kind of kind of fascinated by by
that part of it to just just create
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geographically. I know you briefly touched
on it with analyzing founders and, of
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course, building trust, since you
were one of the O G s remote
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investing people that did it, you
know, before covid. Any tips that
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you've seen in order to obviously build
trust with founders when you're not able to
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meet them in person, if that's
also part of how you invest as well?
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Right, like you the the ideas
maybe too. It's obviously in town.
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Sure, maybe them in person,
but what are things that that if
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you learned from remote investing? Well, I don't want to escape your question,
376
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but I think whether you're remote investing
or investing in town, I think
377
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you have a duty as a VC
to be a friend and a support and
378
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beyond call pretty much at any time. So, you know, I'll tell
379
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my founders if I'm not in a
meeting or with my son and you call,
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you know I always pick up the
phone and uh, you know,
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we have an expectation of our founders. I mean they need to have extraordinary
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mindset and motor right. They have
to have sort of very unique obsession and
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commitment to what they're working on and
have that motor, that high pace of
384
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repetition, to get after it.
And when we hold our founders to that
385
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expectation, we need to hold ourselves
to the same Um, which is to
386
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say, you know when when somebody's
trying to close around and get wires and
387
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everything, you better be on the
horn with them, you know, as
388
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many times as it's necessary and with
your fund administrator to get that freaking thing
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done and get it in first,
you know, before the other wires hit.
390
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And when a founder needs something,
you know you better be the first
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callback they get, you know,
with hopefully an answer or resource. I
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think building trust comes with actions.
Everyone in this industry has easy words.
393
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I'm sure you've heard many on your
show, because there's a lot of people
394
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that can spend a yarn and talk
Um, but a lot of people don't
395
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have follow through. If you've heard
what I've heard about a certain percentage of
396
00:27:51.440 --> 00:27:53.759
my guests. You know, they
don't necessarily act the same way in a
397
00:27:53.799 --> 00:27:57.079
board meeting as they do on a
podcast. And so, you know,
398
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actions speak UH louder than words.
And Uh, if you follow through with
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incredible actions with these people that are
just extraordinarily committed to what they're working on,
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you become the person they're referring all
their friends to. You become the
401
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person they want to work with.
You know, when they're interviewed on a
402
00:28:15.440 --> 00:28:18.480
podcast and they're asked, you know, what do you think of investors?
403
00:28:18.519 --> 00:28:23.240
You know, well, ship new
stack is awesome, you know. I
404
00:28:23.279 --> 00:28:27.160
mean that's what you want them to
say. And Uh, and you can
405
00:28:27.200 --> 00:28:33.079
achieve that very easily if you're sort
of in a philosophical alignment with your founders,
406
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which typically we are, because,
you know, we we expect a
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certain type of founder to be a
fit in our portfolio and that's the way
408
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that we kind of operate as well, and it builds trust rapidly. I
409
00:28:45.680 --> 00:28:51.039
think if you're not in philosophical alignment, think about, you know, your
410
00:28:51.079 --> 00:28:55.920
thesis. Maybe invest in consumer businesses
based in l a that you know have
411
00:28:56.240 --> 00:29:00.839
um strong digital marketing, customer acquisition
or something of that nature. Right,
412
00:29:00.400 --> 00:29:03.680
you can invest in great companies in
that space, but philosophically, you can
413
00:29:03.759 --> 00:29:07.119
invest in a bunch of founders that
like maybe you just don't quite see eye
414
00:29:07.160 --> 00:29:11.480
the eye on or at the end
of every call you're not quite sure you
415
00:29:11.559 --> 00:29:15.480
understood everything they said or exactly,
you know, what they're doing next or
416
00:29:15.519 --> 00:29:18.039
where they're going, or how are
they going to build pipeline or you know,
417
00:29:18.119 --> 00:29:22.599
there's there's something that's lost in communication. But when you have a great
418
00:29:22.680 --> 00:29:26.039
philosophical fit with a founder, it's
just, you know, it's like an
419
00:29:26.079 --> 00:29:32.480
old friend. It's like you both
know exactly who each other is from a
420
00:29:32.519 --> 00:29:36.720
professional standpoint and you have an expectation
of how they're going to operate. Yeah,
421
00:29:36.839 --> 00:29:38.000
no, you you touched upon a
good thread. I mean, of
422
00:29:38.039 --> 00:29:42.359
course we talked about expectations. We
talked about as well as about thesis alignment.
423
00:29:42.440 --> 00:29:47.119
I think a subtle point that you
brought up as well is can the
424
00:29:47.160 --> 00:29:49.640
founder kind of keep things simple in
terms of how they actually express what they
425
00:29:49.680 --> 00:29:53.200
actually want to achieve and actually what, you know, what are the different
426
00:29:53.240 --> 00:29:56.440
kind of stages that they see for
the company? The next you know,
427
00:29:56.799 --> 00:29:59.759
what they want to achieve to be
in six months or, you know,
428
00:30:00.000 --> 00:30:02.559
two years or what have you.
But can you say that in very simple
429
00:30:02.640 --> 00:30:04.799
terms where you and we don't leave
a call and you're like Oh, like,
430
00:30:06.160 --> 00:30:07.920
I don't really understand, like there's
so much jargon in there that I
431
00:30:07.960 --> 00:30:11.640
have no idea what we actually we're
talking about, and can you kind of
432
00:30:11.680 --> 00:30:15.680
express, you know, the problem
you're solving and and also your solution in
433
00:30:15.720 --> 00:30:19.000
quite simple terms that an investor can
kind of wrap their head around it or
434
00:30:19.079 --> 00:30:22.119
just really honestly, could anybody could
could wrap their head around it. So
435
00:30:22.119 --> 00:30:26.599
I think that's a that's a good
point. And Mike, I mean you
436
00:30:26.720 --> 00:30:30.720
take startup submissions right on your site
and I know that you know you try
437
00:30:30.720 --> 00:30:33.720
and connect with the right folks and
maybe you're doing some of your own investing.
438
00:30:33.759 --> 00:30:37.359
So I'd be curious to hear you
know, what you see in these
439
00:30:37.400 --> 00:30:41.680
founders and you know if you think
philosophical alignment is important. Yeah, I
440
00:30:41.720 --> 00:30:45.759
do. I certainly do think that
the philosophical alignments appointment is certainly important.
441
00:30:45.759 --> 00:30:51.519
I think really understanding like and picking
through like what problem that that they're solving
442
00:30:51.599 --> 00:30:55.680
and really trying to understand when I
founder. So I don't understand, you
443
00:30:55.720 --> 00:30:57.480
know, on my end, like
is this really that big of a problem,
444
00:30:57.640 --> 00:31:00.839
is it not? In trying to, you know, talk to customers
445
00:31:00.920 --> 00:31:03.440
or even just see their communities that
they've built, since it's all consumer online
446
00:31:03.440 --> 00:31:07.799
typically, that then kind of shows
to me that, or it can give
447
00:31:07.839 --> 00:31:10.400
me a kind of a feel if
this is like a real problem or not,
448
00:31:10.480 --> 00:31:11.519
because I think that we talked about
a lot on the show, but
449
00:31:11.599 --> 00:31:15.119
I think the one the one part
about consumer that I actually think we should
450
00:31:15.160 --> 00:31:18.759
take more of like an enterprise sass
approach per se, is that enterprise ass
451
00:31:18.839 --> 00:31:22.160
is like, you know point blank, you're not the customer. It's an
452
00:31:22.240 --> 00:31:26.240
enterprise that that's a customer. But
in consumer, because we're all consumers,
453
00:31:26.519 --> 00:31:30.319
it's easy to say like Oh,
I wouldn't buy this, this is not
454
00:31:30.319 --> 00:31:32.960
going to be successful, right,
and we need to kind of take that
455
00:31:33.000 --> 00:31:36.240
approach where it's like hey, like, I am not like the target demo
456
00:31:36.319 --> 00:31:37.359
for you, and it's actually,
in some ways, I think, better
457
00:31:37.559 --> 00:31:41.319
because it actually allows you to be
a lot more injective about the company if
458
00:31:41.319 --> 00:31:42.480
you're not, rather than be subjected
to be like, Oh, I love
459
00:31:42.480 --> 00:31:45.079
this brand, I think it's great
if it's for you, but he guess
460
00:31:45.079 --> 00:31:48.400
what, like you might be one
of the few people out there that it's
461
00:31:48.400 --> 00:31:49.720
actually for and that actually marketing may
not be big. So, like,
462
00:31:49.960 --> 00:31:52.079
I think that actually one of the
things that I've been kind of like,
463
00:31:52.519 --> 00:31:55.960
um saying. It's just if we
could take more of like an enterprise ass
464
00:31:56.000 --> 00:31:59.960
approach, where it's like accepting that, like, you are not the customer
465
00:32:00.119 --> 00:32:01.240
and a lot of in many of
the cases, like, I think that
466
00:32:01.279 --> 00:32:05.359
would be great. I mean,
it's a great insight, right, like
467
00:32:05.480 --> 00:32:08.799
I think there's probably a benefit to
doing some enterprise assassin investing if you're a
468
00:32:08.799 --> 00:32:14.119
consumer investor, because it kind of
helps you abstract your own experience from the
469
00:32:14.119 --> 00:32:17.680
consumer market. Definitely. My final
question to you, nick, is,
470
00:32:19.119 --> 00:32:22.759
what's one book that's inspired you personally? In one book that's inspired you professionally?
471
00:32:22.039 --> 00:32:25.200
Personal and professional? Kind of there's
not much separation in my life.
472
00:32:25.240 --> 00:32:30.880
Everything kind of is together, right, like I've I'm a founder more even
473
00:32:30.880 --> 00:32:34.039
more so than I'm an investor,
and what that means is it's kind of
474
00:32:34.079 --> 00:32:37.440
all all consuming and has been for
a long time. Unfortunately, my family
475
00:32:37.559 --> 00:32:42.599
is very supportive and very helpful and
and everything I do. Um, I
476
00:32:42.640 --> 00:32:46.480
think a personal book that I really
enjoyed. Recently I read uh can't hurt
477
00:32:46.519 --> 00:32:52.799
me by David Goggins. I think
it's a great testament to resilience and a
478
00:32:52.880 --> 00:32:58.200
guy that was a self described loser
becoming the world's toughest man, you know,
479
00:32:58.319 --> 00:33:01.599
or toughest guy, how where you
define that. It's just an incredible
480
00:33:01.920 --> 00:33:07.319
example of what mindset can do for
the human spirit. You know in life
481
00:33:07.519 --> 00:33:10.880
and if you really commit, you
can achieve just about anything. A professional
482
00:33:10.880 --> 00:33:16.279
book that I thought was fantastic and
very relevant for vcs is called. I
483
00:33:16.319 --> 00:33:21.039
think, who is Michael Ovits?
I hear that he's now a VC and
484
00:33:21.039 --> 00:33:23.599
he's now investing in the space and
investing in funds as well, but he
485
00:33:23.720 --> 00:33:31.000
was the founder and main agents for
the fantastic book and so many parallels and
486
00:33:31.079 --> 00:33:36.359
so many lessons. Uh, if
you're an investor in operating in this space.
487
00:33:36.920 --> 00:33:38.839
No, don't love those. Love
those, those are those are too
488
00:33:38.839 --> 00:33:42.599
great. Really excited at us to
the book list, Nick. This is
489
00:33:42.680 --> 00:33:44.759
so much fun. Thanks so much
for coming on the show, Mike.
490
00:33:44.920 --> 00:33:47.359
You're the best man, number one
podcaster in the space. You deserve it.
491
00:33:47.400 --> 00:33:51.440
No, hardly, Nick. I've
been such a full ratchet fan this
492
00:33:51.519 --> 00:33:52.680
is like such. This is a
basic is awesome, Mike. Thanks so
493
00:33:52.759 --> 00:33:54.640
much, man. I appreciate the
time. And then you have it.
494
00:33:54.640 --> 00:33:58.000
It was great chatting with Nick.
I hope you all enjoyed it. If
495
00:33:58.039 --> 00:34:00.680
you enjoyed this episode, I love
it if you'd write a review on the
496
00:34:00.720 --> 00:34:04.359
apple podcast. You're also welcome to
follow me your host, Mike, on
497
00:34:04.359 --> 00:34:07.599
twitter at Mike Gelb, and also
follow for episode announcements at Consumer VC.
498
00:34:07.960 --> 00:34:31.960
Thanks for listening, everyone. Oh, Oh, oh,
1
00:00:02.399 --> 00:00:15.400
Oh, welcome to the consumer vie
see. I am your host, Mike
2
00:00:15.480 --> 00:00:20.440
Gelb, and on this podcast we
talk about consumer innovation and venture capital.
3
00:00:20.960 --> 00:00:25.320
Our guest today on this episode is
Nick Moran. He's a general partner of
4
00:00:25.440 --> 00:00:30.280
new stack ventures. New Stack's mission
is to invest in the outsiders. Nick
5
00:00:30.359 --> 00:00:33.439
is also the host of the full
ratchet podcast, which is one of my
6
00:00:33.560 --> 00:00:39.640
inspirations actually for starting the Consumer Vic. That was his introduction to venture capital
7
00:00:39.719 --> 00:00:43.039
when he's started creating syndicates and now
he has a fund. It's a really
8
00:00:43.079 --> 00:00:47.159
cool story that I'm excited to share. We discuss why he's bearished as well
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00:00:47.200 --> 00:00:52.240
about web three short term, but
bullish long term, how he thinks about
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00:00:52.280 --> 00:00:57.119
deploying capital in today's market and the
long term sustainability of the companies that he
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00:00:57.240 --> 00:01:07.560
invests in. Without further ADO,
here's nick. Nick, thank you so
12
00:01:07.640 --> 00:01:10.120
much for joining me today. How
are you? I'm great, Mike.
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Always a pleasure, awesome. I
really appreciate you being here. So I
14
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would love to kind of learn the
origin story of how you started full ratchet
15
00:01:17.560 --> 00:01:21.000
and then, as well, new
stack ventures. Well, I left Corporate
16
00:01:21.000 --> 00:01:27.719
America and I started angel investing on
my own and I learned a bit about
17
00:01:29.079 --> 00:01:33.599
start up investing doing that and kind
of the importance of building a network,
18
00:01:34.120 --> 00:01:40.000
building deal flow, helping portfolio companies
and, uh, just had this discovery
19
00:01:40.200 --> 00:01:44.280
that nobody was doing audio right.
There was a lot of content online,
20
00:01:44.280 --> 00:01:47.040
a lot of people were blogging,
there was a couple of video blogs,
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00:01:47.480 --> 00:01:51.560
but there was there were no audio
resources out there. Um, so I
22
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started a podcast and shortly thereafter,
you know, a few other folks did
23
00:01:55.439 --> 00:01:59.920
too, and I think it's really
changed. It's changed a lot of the
24
00:02:00.079 --> 00:02:02.599
environment. You know, there's a
lot more interesting venture there's a lot more
25
00:02:02.599 --> 00:02:07.879
early stage BCS, angels, even
startup founders now than there than there were
26
00:02:07.879 --> 00:02:10.400
when I started. You know,
a fun fact is when I started the
27
00:02:10.400 --> 00:02:16.280
show, in versus now there are
more startups today in the Midwest, or,
28
00:02:16.319 --> 00:02:20.240
sorry, more unicorns start ups today
in the midwestern there were when I
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00:02:20.280 --> 00:02:23.879
started the show in the bay area
back in so in less than a decade
30
00:02:24.319 --> 00:02:29.719
the Midwest has has caught up in
in surpassed the bay area from the standpoint
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00:02:29.719 --> 00:02:31.719
of of UNICORNS. So yeah,
so that's a fun fact. I started
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00:02:31.719 --> 00:02:36.960
the podcast and then new stack came
shortly thereafter new stack was started, we
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00:02:37.039 --> 00:02:40.280
did ten SPVS on the angelist platform
way back in the early days. You
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00:02:40.319 --> 00:02:45.159
know, Um Neval, Tim Ferris, Jason, Calicanas, Gil Panchina,
35
00:02:45.199 --> 00:02:49.280
you know, just a handful of
syndicates and then that became a couple of
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00:02:49.280 --> 00:02:53.000
funds a few years later. That's
awesome. Why? Um, I know
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00:02:53.159 --> 00:02:59.840
one of the thesis towards new stack
ventures is investing in companies outside Silicon Valley.
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00:03:00.039 --> 00:03:01.439
I know that you were, I
just said you were based in stelling,
39
00:03:01.439 --> 00:03:06.560
a valley. What made you move
to Chicago Leave The bay? Was
40
00:03:06.599 --> 00:03:09.360
it just opportunities that you were seeing
or kind of wanted to explore and maybe
41
00:03:09.400 --> 00:03:13.439
be closer to the action with investing
outside, to look a valley or like?
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00:03:13.479 --> 00:03:15.159
What? What was kind of the
rationale there? Well, Chicago's home
43
00:03:15.240 --> 00:03:19.960
for myself and my wife and we
were not in the bay area. We
44
00:03:19.960 --> 00:03:23.800
were in Santa Barbara, so for
their south, and then went to Colorado
45
00:03:23.840 --> 00:03:27.639
for a couple of years and and
just kind of found our way back home.
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You know, when I got to
Chicago and started to start up investing,
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I realized the environment was quite different
than it was in California. Not
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Nearly as many investors and terms were
kind of all over the place, certainly
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not not just start up unfriendly,
but I would say VC unfriendly. You
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00:03:46.120 --> 00:03:51.439
know, there are ways that you
can kind of screw a financing and a
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company up from the early stages by
utilizing more private equity type structures. So,
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yeah, I got back to Chicago
and and sort of developed this thesis
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00:04:00.719 --> 00:04:04.840
over time of investing in outsiders.
You know, I would see folks that
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00:04:04.879 --> 00:04:10.080
were not insiders. They didn't come
from Cilicon Valley, they didn't work in
55
00:04:10.120 --> 00:04:13.479
big tech and they didn't go to
Ivy League schools, but they were just
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incredible, exceptional professionals in building category
defining companies, just not on the coast.
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And so that's kind of where the
thesis came from, just finding more
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of those folks that were, you
know, severely undervalued assets. So what
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00:04:28.839 --> 00:04:31.360
do you think? Obviously we've seen
like an explosion of as I mean,
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00:04:31.399 --> 00:04:36.639
as you mentioned, UNICORNS coming from
the middle of the country between the coasts.
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What do you still think is maybe
a misconception about could be the Midwest,
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00:04:41.920 --> 00:04:44.160
could be the south, could be, you know, the rockies?
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Where are we at now? How
has it changed over the past few years
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00:04:47.680 --> 00:04:51.279
since you started, and what do
you still see maybe as like a misconception
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00:04:51.319 --> 00:04:55.720
from investors that are on the coast. I think it's come a long way.
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00:04:56.079 --> 00:05:01.959
Right like the pandemic had many unfortunate
that outcomes. One fortunate outcome for
67
00:05:02.160 --> 00:05:09.560
the startup ecosystem and for venture capital
is coastal investors started investing in the middle
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00:05:09.600 --> 00:05:12.800
of the country startups, and that's
something we've been doing since the beginning.
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00:05:12.920 --> 00:05:16.600
You know, in the first startup
we led with new stack ventures was based
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00:05:16.600 --> 00:05:20.199
in D C and we never met
the founders in person. It was over
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00:05:20.680 --> 00:05:25.920
zoom didn't exist. It was over
skype and traditional phone calls. And when
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00:05:25.959 --> 00:05:29.160
the pandemic hit, all of a
sudden the series a and series B co
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00:05:29.360 --> 00:05:32.800
investors, you know that would lead
later rounds for our startups, became much
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00:05:32.839 --> 00:05:34.759
more active in the middle of the
country. So I had a lot of
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00:05:34.920 --> 00:05:39.040
LPS that were calling me at the
time saying, you know, is has
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00:05:39.079 --> 00:05:42.879
your edge been armed away? You
know, you guys were sort of the
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00:05:42.959 --> 00:05:46.720
zoom video based. You'll invest in
Atlanta or Denver, Salt Lake City.
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00:05:47.079 --> 00:05:49.959
Uh, is that going to go
away? And I think in many ways
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00:05:50.360 --> 00:05:55.439
it's. It's actually been an accelerant
because the series A and B folks no
80
00:05:55.519 --> 00:06:00.279
longer have to attend board meetings in
person and now they can can act with
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00:06:00.319 --> 00:06:04.040
founders all over the country in a
way that previously they couldn't or or just
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00:06:04.079 --> 00:06:09.680
wouldn't, and so it's it's been
a great sort of amplifier to everything we're
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00:06:09.720 --> 00:06:13.000
doing. So are you saying on
this series a and B side of things
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00:06:13.120 --> 00:06:18.040
it's been an amplifier in they're more
comfortable as the companies progressed to that stage,
85
00:06:18.319 --> 00:06:21.639
then it's almost an easier pitch for
you to get those companies in front
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00:06:21.639 --> 00:06:28.360
of Series A and B investors.
There was probably less than ten vcs that
87
00:06:28.399 --> 00:06:31.600
I was very friendly with that would
look at Midwest based deals, even very
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00:06:31.639 --> 00:06:35.560
strong deals. Like Mike Evans,
is a good friend, were invested in
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00:06:35.680 --> 00:06:39.800
his recent company. He was the
CO founder of Grub hub back in the
90
00:06:39.879 --> 00:06:43.199
day. You know grub hub.
Their series a was led by Bill Gurley
91
00:06:43.199 --> 00:06:46.800
at benchmark there. But that is
one of very, very few examples of
92
00:06:46.959 --> 00:06:51.600
Chicago based startups that were funded by
coastal investors. Um another one called belly
93
00:06:51.720 --> 00:06:56.759
was funded by by Andreeson. But
you can name, you know on one
94
00:06:56.800 --> 00:07:00.079
hand or two hands the number of
notable startups funded. Notable vcs on the
95
00:07:00.120 --> 00:07:05.319
coast completely changed right our last series
day round, I think I reached out
96
00:07:05.319 --> 00:07:11.800
to Fort vcs on the coast and
made forty two intros. So lots more
97
00:07:11.839 --> 00:07:14.720
interest in the middle of the country. We had an investor on this show,
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00:07:14.759 --> 00:07:18.680
albeit this was right before covid happened. I think I interviewed him February
99
00:07:18.759 --> 00:07:23.079
twenties, so I'd love to kind
of back on and see what he what
100
00:07:23.240 --> 00:07:25.800
his house right now. But he
he had the line which I thought was
101
00:07:25.839 --> 00:07:29.560
interesting, where if you want to
start a technology company, it's fine to
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00:07:29.639 --> 00:07:33.480
start it in a secondary or tertiary
market, maybe outside the big coast,
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00:07:33.680 --> 00:07:36.879
what have you. But when you
think about scale and you think about growing
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00:07:36.920 --> 00:07:41.000
the company, you need to go
where the talent is and that tends to
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00:07:41.079 --> 00:07:45.199
be, you know, like the
bay area with like software engineers and New
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00:07:45.279 --> 00:07:47.040
York. Maybe you put Chicago.
That makes but how do you think,
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00:07:47.120 --> 00:07:50.360
especially when it comes to you know, secondary in tertiary markets, when you
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00:07:50.360 --> 00:07:54.800
think about growing and scaling, you
know, technology companies? How do you
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00:07:54.839 --> 00:07:58.279
think about placement? Obviously things have
changed because of Covid, but this placement
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00:07:58.360 --> 00:08:03.879
now still mattered, or are you
seeing as well that companies that really you
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00:08:03.920 --> 00:08:05.759
need to get good at being distributed, and that's kind of like the new
112
00:08:05.800 --> 00:08:09.360
normal always. It's a good question. It's a tough one to answer,
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00:08:09.439 --> 00:08:13.519
but I can certainly give you,
know, my two cents. We've got
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forty portfolio companies now, so we've
seen it quite a few times. It
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seems like series B is kind of
the turning point. So at that point
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the company is sufficiently large in doing
enough hiring that they need experience. So
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there's a distinction between talent and experience. Right, talent is everywhere, but
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experience is not. And if you
need tech specific playbooks and experience, then
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often you can go to the bay
area and you can find more of that.
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Right, if you're an SMB SAS
company with a C V S in
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the K to twenty range and you're
running a product led growth model, you
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can find people that have done that
in more supply in the bay area than
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in any other region. It's not
really about talent, it's more about experience.
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Um, but I've seen those hires
go south more than they've gone north,
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quite frankly, and often it's because
sometimes you'll find somebody who has a
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playbook or experience and they're very smart
and they obviously have developed, you know,
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a strong set of best practices around, let's say, a marketing technique
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or a sales technique or or maybe
a tech stack. But everything changes right.
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Tech is one of the most rapidly
evolving places. So if you find
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somebody who has a mindset of always
figuring out the right strategies right, you're
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you're a consumer guy. This is
especially relevant when it comes to consumer customer
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acquisition. Right, whether it's S
C M or s e O or or
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now, you know, paid ads, with with advertising, or you're doing
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email marketing campaigns or other creative things
that the ground is constantly shifting underneath you.
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If you make the mistake as a
founder of hiring somebody who's got a
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playbook that worked five years ago,
whether it be on the development side or
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on the sales and marketing side,
that's different than finding somebody who has a
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mindset of trying to figure out what's
the newest, latest and greatest thing that
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we can do or, you know, come up with their own tactics and
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strategies, uh, that are gonna, you know, be innovative for the
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entire space. Well, I think
too. Like you, you touch on
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a really good point about talent and
about how you need you're obviously looking for
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people that are pretty agile because and
not just have like a set playbook per
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se, especially in the worlds of
you know, I know that you had
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your example of digital marketing, but
of course things change so rapidly. Of
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Digital Marketing, UM, as you
know, one place and you know,
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like another topic when it comes to
hiring that we talked on the show too,
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is, you know, it might
be great that a candidate is from,
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you know, one of the big
tech companies, you know, facebook,
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Google, what have you. But
what happens when they have a budget,
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you know, much smaller that they're
given a budget a lot smaller than
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they do working the big tech companies? How will they, you know,
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adjust? How will they survive?
Um, that's sort and so I also
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just think too, like on my
hiring talent side, it can be also
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tricky because on one hand you want
someone that obviously has that experience right and
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maybe knows how to do the job, but doing the job for a large
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company is very different than doing it
for a small company. Context is everything.
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There are builders and there are optimizers, and that exists within startups.
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It exists within venture capitals as well. If you want to build your own
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firm, recognize less than twenty percent
of your time is going to be investing.
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Right. If you wanna join an
early stage startup, recognize you're gonna
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be wearing a million hats and you're
gonna be innovating on a shoe string.
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Right. So that goes to your
point. is completely different than joining a
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large established venture capital firm or a
large established tech company, where you can
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go and you can optimize around something
very specific and and try and Um,
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you know, move the needle in
a much more focused way. That makes
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a lot of sense. Also,
like would love to kind of learn to.
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Obviously, you started off, you
know, as you said, Angel
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Investing, than producing syndicates on an
angelists. Why did you decide to go
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the fund route? What was the
reason there, instead of, for example,
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you know, joining another firm,
for example, which then maybe you
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spend a lot more time on the
deal flow side of things instead of,
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you know, kind of relationship managing
with with lps and what have you.
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But like what was kind of like
your mindset and how you wanted to progress
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per se? I think it's like
an evolution of pain points. I had
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land Um Naprier on the show sometime
ago. You should have him, he
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is a hoot from Bill Group.
But he talked about how product market fit
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is constantly changing. It's not something
that's fixed in time. So you find
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product market fit in one capacity and
then it changes because the customer sets change
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and you know, needs evolve.
You know, once you fill one set
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of needs, a whole new set
of pain points evolves, right, and
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so the same thing happened with us. We fill the need from the standpoint
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that we could now fund startups in
more of a lead capacity. At the
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time, you know, we could
do six figure checks instead of my little
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K or fifty k check with the
syndicate. But then once we started cutting
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checks on the syndicate, the pain
points evolved. Right. The pain points
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for me personally and for my firm
is I couldn't hire help because I had
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no management fees, whereas if I
had a blind pool a committed funds,
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all of a sudden there's a fee
stream, you can put some services and
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you can put some people around it
and then you can do much more across
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the firm. And then the pain
points of the founders. Mike, so
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you know when we would cut chets
checks via syndicate. I'm talking to founders
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and I'm saying, look, we'd
love to invest in your round. I
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think it's gonna be somewhere between a
hundred fifty thousand and three thousand. I
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don't know for sure, and it's
gonna take US probably two to three weeks,
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maybe four, to kind of launch
this thing on Angel List, you
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know, prep the materials. I
might ask you to do a Webinar this
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and that. Some founders are great
about all that, but some are gonna
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kind of look at you and say, wait a minute, you can't really
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you can't give me a firm yes
or no, and you can't me how
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much it's gonna be and you can't
tell me when I'm gonna get it.
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You know, that's a little it's
a little trickier. Right. So it's
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not a knock on syndicates, it's
it's a different type of funding vehicle.
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But those are some pain points for
the founders that are readily addressed with a
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fund. Talk to me a little
bit about how you're thinking about today's market.
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Obviously it's pretty different to last year. But we've seen, you know,
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valuations obviously in many categories come down
bridge rounds, down rounds and really
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kind of focusing a lot more on
like capital efficiency in companies and, you
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know, what's your burn, how
much revenue you're making, and kind of
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kind of balancing out those two aspects. Talk to me a little bit about
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outside Silicon Valley, like how has
valuations change, what you're seeing in the
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market that you cover? And also, like, was there already kind of
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an emphasis on capital efficiency with like
companies that are outside so like a valley,
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or has it really been like across
markets, like there's been, you
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know, quite a drassing valuation change? Boy, there's a lot in that
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question to address. Yeah, well, you know, first things first,
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we invest, as you've suggested,
in a different profile of company than than
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the coastal counterparts. Our valuations are
are lower in general because these are what
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we see as underpriced assets. Um, they don't have the bright shiny resumes,
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but we think, you know,
the talent, the mindset and the
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motor is just as strong, if
not stronger than than many of the counterparts
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as far as the market goes.
Mike, you know, I could cite
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all the cliches. Best companies are
built during recessions. You know be fearful
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when other are greedy. Fortunes are
made in the down markets and collected in
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the up markets. Right now is
that is an exceptional time to be a
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VC. If you have a committed
fund, you know, if you're going
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out and trying to raise capital,
a little more challenging. Uh. If
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you have a committed fund and you're
deploying capital, it's a wonderful time to
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be investing. I was on a
call with some institutional lps last week and
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one of the more prominent lps said
he believes this vintage is going to be
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the best of the decade. Assets
are under priced right now. Terms are
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more favorable for vcs. It's a
great time to end. You know,
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most of the talent that's risk averse, that's founding companies, is gonna go
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run to employment stability and a lot
of the talent that is risk seeking is
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gonna lean in. And then the
support talent in the system, you know,
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the people that will join startups.
The pricing is going to be lower
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and that talent is gonna be there's
gonna be a higher supply. We've seen
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the opposite right over the past probably
three to four years. So there's never
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been a better time to be a
VC. And for us, when it
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comes to our existing portfolio, you
talked a bit about this, but our
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existing portfolio is very strong. Right. They're built in a different way than
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many coastal startups are built. When
I talked to our our friends on the
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coast, you know you do a
lot of networking in this business, so
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you talked to ten to fifteen vcs
a week and, uh, everyone's writing
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companies down right. There's panic is
probably the appropriate word to use right now.
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We kind of use polite euphemisms like
triaging the portfolio and and things of
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that nature, but there's a lot
of narrative spin going on with vcs right
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now. There's a lot of panic. People are writing down companies significantly because
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what happens on the coast is when
you've got a great idea of fantastic team,
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fantastic resumes right and a killer pitch
deck, you can in some cases
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go out and raise at a hundred
million dollar valuation seed right, which is
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crazy. Right. That is what
we call a hype round, which often
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turns into a momentum momentum round,
meaning other people pile in, and then
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those are valuations that the startups need
to grow into. Right they're not there
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yet. It's gonna take some time
for them to grow in. Now that
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the markets collapsed, everyone's having to
write those down in in some case recap
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the companies. But that is the
antithesis of what we do at new stack.
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Right we're investing in outsiders. So
these, the companies were investing in,
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need to show more traction and progress
to get, you know, a
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comparably low valuation. And so none
of our startups have to be written down.
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I just wrote an uptake to our
LPS. We don't have to write
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down any of our startups. We
are not triaging the portfolio. Every valuation
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that they've raised. That has been
earned, not gifted. So we're in
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probably the strongest position we've ever been
in as a firm. I know that
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one sector, a category that's really
popular right now is web three and would
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love to kind of hear your thoughts, if you're investing in web three businesses,
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what your general thesis is around Web
three and if you're investing in it.
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We're not investing in web three.
Might not at the moment. You
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know, web three just went through
a massive hype cycle which turned. Now
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might be a better time to be
investing in web three because, you know,
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prices have come down. I think
Dan Primac just tweeted yesterday that block
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five is in talks to sell for
twenty million Um to f t X.
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I mean, that's crazy, right, because block five has raised over a
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billion in your capital, if you
read everything online. I don't. I
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don't think they'll sell for as low
as twenty five, but orders and orders
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of magnitude less than even what they've
raised in venture capital. Forget where they're
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priced at. So you know,
web three has fallen on hard times,
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which may make it a good candidate
for investment. Right now, we are
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still not investing in this space,
Mike. Part of that is because of
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sophistication. If you're gonna go after
something brand new, whether it's a type
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of technology or, you know,
a new category, you really have to
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develop some expertise around it. The
second reason is, you know, the
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killer APPs just really aren't there yet. A lot of web three is serving
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the pain points of venture capitalists and
I think that's why it's become this huge
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space. I can talk more about
that. But vcs are super infatuated and
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enthralled with web three because it's serving
more of their pain points. If you
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look at consumers, general consumers out
there, it typically is not addressing real
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pain points for consumers and that's why
we've seen a dearth of killer Apple Atians.
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I mean the one killer APP that
I think is working and can work
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well is store of value. I
think you know Crypto as a currency can
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be a much better store value than
gold, for instance. Outside of that,
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yes, there are some other applications
on the fringes and there's exchanges and
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there's some liquidity benefits, but a
lot of the promises that web three is
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making are not being delivered and customers
aren't really asking for things to be addressed
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that web three is promising. So
for us it's not a category of interest
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at this time. Will massive amounts
of money be made in the segment,
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Mike, yes. WILL MORE MONEY
BE LOST? Oh Heck yes, there
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is a lot of money to be
lost in this segment, and so we'll
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stick to what we know, stick
to our knitting B two B SAS it
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has comparable upside without the corresponding downside. So how do you make sure that,
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because I know that right now you
said you're not invest in web three,
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but long term it seems like you're, you know, quite bullish on
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on some of the applications within web
three. How do you make sure,
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when you're analyzing, you know,
a particular category or a segment that hey,
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like, this is the hype cycle, I'm not going to invest,
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but at the same time you also
don't want to miss the actual timing what
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it actually makes sense to actually to
invest. So how do you think about
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timing when you're actually analyzing different categories
you actually want to invest in? Well,
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I think you know, everyone needs
to decide as a VC, depending
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on how mature you are as a
firm or your fund structure, you need
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to have a thesis. You need
and it's more important what you're not doing
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as a part of your thesis even
than what you are doing. Right,
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you run a podcast the consumer VC. Right. Are you gonna go interview
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a bunch of enterprise, you know, deep tech founders? Probably not,
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is my assumption, because you've got
your own niche in your own angle and
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what that allows you to do is
become, at least from the interviews I've
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heard, heard a very effective and
sharp and informed interviewer in a set of
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consumer related categories and just venture in
general. Right. So you've got to
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decide what you are and what you're
not gonna do and uh, you've gotta
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be okay with missing on some things
that are gonna go well as long as
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you're pretty sure that the categories you
invest in are also going to be out
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performers. So do we think we
can deliver a ten x fund this Fund
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without web three? That's why we're
in business. We're not in business to
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be an also rand. We're in
business to be a top decile firm and
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to be the best, you know, between the coasts. And Uh,
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you know, we're convicted in that
and we believe we can drive that without
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chasing height. First of all,
thanks for the kind word. That's certainly
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certainly not true on on on my
side of the podcast, but I know
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that your bread and butter is kind
of B two B SAS right. But
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what in since it's obviously a a
consumer show, what about consumer makes it
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interesting to you? Like what maybe
categories within technology or or even consumer brands?
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What kind of has to go right
in your mind when you're when you're
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looking at a consumer company. That
makes you want to make the bet.
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You know, consumers is a tricky
category. I'm sure a lot of people
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have talked about this on the show. Um, you know, with with
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B two B says, you're still
dealing with people fundamentally, and people operate
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on emotions and trust and things that
are outside of just pragmatic logic. So
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yes, in the B Two B
Saas world you're always looking for either top
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line or bottom line optimization. Right, can you expand revenue? Can you
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reduce cost and expand margin? With
consumers, that's where you begin. But
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it's a longer sort of in Chris
Dixon's words, probably a longer idea,
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amazed unravel, because there's more to
it than that. Um, you may
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start with you till like solving a
real problem for consumers, but you need
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to deliver it in a way that
captures their imagination. Right. It starts
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firing these different dopamine and in different
hormones in a way that you know they're
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locked in and they're excited and they
develop brand affiliation and affinity Um and all
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these factors. And so in my
mind it's the ultimate experiment in psychology it
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can be a little scary sometimes because
I think big tech companies don't really know
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why consumers make all the decisions they
do, but they do have the data
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to substantiate what's happening Um and it's
our jobs, you know, as being
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early stage sort of assessors of this
market, to try and get into consumers
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heads, to try and reason and
into it the way that they think and
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then deploy our capital behind it Um
and hopefully we can use some data to
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substantiate that, you know, with
a lot of testing and a lot of
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iteration. So yes, I think
everything starts out with utility and usefulness,
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but consumer gets way more interesting because
you get into all these higher level concepts
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of psychology and and my wife happens
to be a psychologist and so, you
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know, she's been probably my biggest
support building a business and also trying to
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invest in in the right people in
businesses. That's really interesting and whenever I've
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spoken to other funds that are in
you know, that certainly are in the
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middle of the country, or even
funds that are on the coast and investment
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in the country, what they really
like about investing in companies that are located
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in especially like secondary and tertiary markets, is that it's probably a company that's
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going to be for much more geared
towards, you know, a lot of
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different types of people, not just
you know, coastal maybe like types per
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se, but rather for the US
so like, and so I'm always just
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kind of kind of fascinated by by
that part of it to just just create
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geographically. I know you briefly touched
on it with analyzing founders and, of
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course, building trust, since you
were one of the O G s remote
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investing people that did it, you
know, before covid. Any tips that
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you've seen in order to obviously build
trust with founders when you're not able to
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meet them in person, if that's
also part of how you invest as well?
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Right, like you the the ideas
maybe too. It's obviously in town.
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Sure, maybe them in person,
but what are things that that if
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you learned from remote investing? Well, I don't want to escape your question,
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but I think whether you're remote investing
or investing in town, I think
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you have a duty as a VC
to be a friend and a support and
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beyond call pretty much at any time. So, you know, I'll tell
379
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my founders if I'm not in a
meeting or with my son and you call,
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you know I always pick up the
phone and uh, you know,
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we have an expectation of our founders. I mean they need to have extraordinary
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mindset and motor right. They have
to have sort of very unique obsession and
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commitment to what they're working on and
have that motor, that high pace of
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00:27:04.279 --> 00:27:07.640
repetition, to get after it.
And when we hold our founders to that
385
00:27:07.720 --> 00:27:12.000
expectation, we need to hold ourselves
to the same Um, which is to
386
00:27:12.079 --> 00:27:17.000
say, you know when when somebody's
trying to close around and get wires and
387
00:27:17.079 --> 00:27:18.960
everything, you better be on the
horn with them, you know, as
388
00:27:19.000 --> 00:27:23.759
many times as it's necessary and with
your fund administrator to get that freaking thing
389
00:27:23.799 --> 00:27:27.000
done and get it in first,
you know, before the other wires hit.
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00:27:27.480 --> 00:27:30.440
And when a founder needs something,
you know you better be the first
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00:27:30.480 --> 00:27:36.119
callback they get, you know,
with hopefully an answer or resource. I
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00:27:36.160 --> 00:27:41.720
think building trust comes with actions.
Everyone in this industry has easy words.
393
00:27:41.759 --> 00:27:44.279
I'm sure you've heard many on your
show, because there's a lot of people
394
00:27:44.319 --> 00:27:47.440
that can spend a yarn and talk
Um, but a lot of people don't
395
00:27:47.440 --> 00:27:51.400
have follow through. If you've heard
what I've heard about a certain percentage of
396
00:27:51.440 --> 00:27:53.759
my guests. You know, they
don't necessarily act the same way in a
397
00:27:53.799 --> 00:27:57.079
board meeting as they do on a
podcast. And so, you know,
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00:27:57.119 --> 00:28:03.200
actions speak UH louder than words.
And Uh, if you follow through with
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00:28:03.359 --> 00:28:07.839
incredible actions with these people that are
just extraordinarily committed to what they're working on,
400
00:28:08.279 --> 00:28:12.119
you become the person they're referring all
their friends to. You become the
401
00:28:12.160 --> 00:28:15.400
person they want to work with.
You know, when they're interviewed on a
402
00:28:15.440 --> 00:28:18.480
podcast and they're asked, you know, what do you think of investors?
403
00:28:18.519 --> 00:28:23.240
You know, well, ship new
stack is awesome, you know. I
404
00:28:23.279 --> 00:28:27.160
mean that's what you want them to
say. And Uh, and you can
405
00:28:27.200 --> 00:28:33.079
achieve that very easily if you're sort
of in a philosophical alignment with your founders,
406
00:28:33.359 --> 00:28:37.400
which typically we are, because,
you know, we we expect a
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00:28:37.440 --> 00:28:41.160
certain type of founder to be a
fit in our portfolio and that's the way
408
00:28:41.200 --> 00:28:45.640
that we kind of operate as well, and it builds trust rapidly. I
409
00:28:45.680 --> 00:28:51.039
think if you're not in philosophical alignment, think about, you know, your
410
00:28:51.079 --> 00:28:55.920
thesis. Maybe invest in consumer businesses
based in l a that you know have
411
00:28:56.240 --> 00:29:00.839
um strong digital marketing, customer acquisition
or something of that nature. Right,
412
00:29:00.400 --> 00:29:03.680
you can invest in great companies in
that space, but philosophically, you can
413
00:29:03.759 --> 00:29:07.119
invest in a bunch of founders that
like maybe you just don't quite see eye
414
00:29:07.160 --> 00:29:11.480
the eye on or at the end
of every call you're not quite sure you
415
00:29:11.559 --> 00:29:15.480
understood everything they said or exactly,
you know, what they're doing next or
416
00:29:15.519 --> 00:29:18.039
where they're going, or how are
they going to build pipeline or you know,
417
00:29:18.119 --> 00:29:22.599
there's there's something that's lost in communication. But when you have a great
418
00:29:22.680 --> 00:29:26.039
philosophical fit with a founder, it's
just, you know, it's like an
419
00:29:26.079 --> 00:29:32.480
old friend. It's like you both
know exactly who each other is from a
420
00:29:32.519 --> 00:29:36.720
professional standpoint and you have an expectation
of how they're going to operate. Yeah,
421
00:29:36.839 --> 00:29:38.000
no, you you touched upon a
good thread. I mean, of
422
00:29:38.039 --> 00:29:42.359
course we talked about expectations. We
talked about as well as about thesis alignment.
423
00:29:42.440 --> 00:29:47.119
I think a subtle point that you
brought up as well is can the
424
00:29:47.160 --> 00:29:49.640
founder kind of keep things simple in
terms of how they actually express what they
425
00:29:49.680 --> 00:29:53.200
actually want to achieve and actually what, you know, what are the different
426
00:29:53.240 --> 00:29:56.440
kind of stages that they see for
the company? The next you know,
427
00:29:56.799 --> 00:29:59.759
what they want to achieve to be
in six months or, you know,
428
00:30:00.000 --> 00:30:02.559
two years or what have you.
But can you say that in very simple
429
00:30:02.640 --> 00:30:04.799
terms where you and we don't leave
a call and you're like Oh, like,
430
00:30:06.160 --> 00:30:07.920
I don't really understand, like there's
so much jargon in there that I
431
00:30:07.960 --> 00:30:11.640
have no idea what we actually we're
talking about, and can you kind of
432
00:30:11.680 --> 00:30:15.680
express, you know, the problem
you're solving and and also your solution in
433
00:30:15.720 --> 00:30:19.000
quite simple terms that an investor can
kind of wrap their head around it or
434
00:30:19.079 --> 00:30:22.119
just really honestly, could anybody could
could wrap their head around it. So
435
00:30:22.119 --> 00:30:26.599
I think that's a that's a good
point. And Mike, I mean you
436
00:30:26.720 --> 00:30:30.720
take startup submissions right on your site
and I know that you know you try
437
00:30:30.720 --> 00:30:33.720
and connect with the right folks and
maybe you're doing some of your own investing.
438
00:30:33.759 --> 00:30:37.359
So I'd be curious to hear you
know, what you see in these
439
00:30:37.400 --> 00:30:41.680
founders and you know if you think
philosophical alignment is important. Yeah, I
440
00:30:41.720 --> 00:30:45.759
do. I certainly do think that
the philosophical alignments appointment is certainly important.
441
00:30:45.759 --> 00:30:51.519
I think really understanding like and picking
through like what problem that that they're solving
442
00:30:51.599 --> 00:30:55.680
and really trying to understand when I
founder. So I don't understand, you
443
00:30:55.720 --> 00:30:57.480
know, on my end, like
is this really that big of a problem,
444
00:30:57.640 --> 00:31:00.839
is it not? In trying to, you know, talk to customers
445
00:31:00.920 --> 00:31:03.440
or even just see their communities that
they've built, since it's all consumer online
446
00:31:03.440 --> 00:31:07.799
typically, that then kind of shows
to me that, or it can give
447
00:31:07.839 --> 00:31:10.400
me a kind of a feel if
this is like a real problem or not,
448
00:31:10.480 --> 00:31:11.519
because I think that we talked about
a lot on the show, but
449
00:31:11.599 --> 00:31:15.119
I think the one the one part
about consumer that I actually think we should
450
00:31:15.160 --> 00:31:18.759
take more of like an enterprise sass
approach per se, is that enterprise ass
451
00:31:18.839 --> 00:31:22.160
is like, you know point blank, you're not the customer. It's an
452
00:31:22.240 --> 00:31:26.240
enterprise that that's a customer. But
in consumer, because we're all consumers,
453
00:31:26.519 --> 00:31:30.319
it's easy to say like Oh,
I wouldn't buy this, this is not
454
00:31:30.319 --> 00:31:32.960
going to be successful, right,
and we need to kind of take that
455
00:31:33.000 --> 00:31:36.240
approach where it's like hey, like, I am not like the target demo
456
00:31:36.319 --> 00:31:37.359
for you, and it's actually,
in some ways, I think, better
457
00:31:37.559 --> 00:31:41.319
because it actually allows you to be
a lot more injective about the company if
458
00:31:41.319 --> 00:31:42.480
you're not, rather than be subjected
to be like, Oh, I love
459
00:31:42.480 --> 00:31:45.079
this brand, I think it's great
if it's for you, but he guess
460
00:31:45.079 --> 00:31:48.400
what, like you might be one
of the few people out there that it's
461
00:31:48.400 --> 00:31:49.720
actually for and that actually marketing may
not be big. So, like,
462
00:31:49.960 --> 00:31:52.079
I think that actually one of the
things that I've been kind of like,
463
00:31:52.519 --> 00:31:55.960
um saying. It's just if we
could take more of like an enterprise ass
464
00:31:56.000 --> 00:31:59.960
approach, where it's like accepting that, like, you are not the customer
465
00:32:00.119 --> 00:32:01.240
and a lot of in many of
the cases, like, I think that
466
00:32:01.279 --> 00:32:05.359
would be great. I mean,
it's a great insight, right, like
467
00:32:05.480 --> 00:32:08.799
I think there's probably a benefit to
doing some enterprise assassin investing if you're a
468
00:32:08.799 --> 00:32:14.119
consumer investor, because it kind of
helps you abstract your own experience from the
469
00:32:14.119 --> 00:32:17.680
consumer market. Definitely. My final
question to you, nick, is,
470
00:32:19.119 --> 00:32:22.759
what's one book that's inspired you personally? In one book that's inspired you professionally?
471
00:32:22.039 --> 00:32:25.200
Personal and professional? Kind of there's
not much separation in my life.
472
00:32:25.240 --> 00:32:30.880
Everything kind of is together, right, like I've I'm a founder more even
473
00:32:30.880 --> 00:32:34.039
more so than I'm an investor,
and what that means is it's kind of
474
00:32:34.079 --> 00:32:37.440
all all consuming and has been for
a long time. Unfortunately, my family
475
00:32:37.559 --> 00:32:42.599
is very supportive and very helpful and
and everything I do. Um, I
476
00:32:42.640 --> 00:32:46.480
think a personal book that I really
enjoyed. Recently I read uh can't hurt
477
00:32:46.519 --> 00:32:52.799
me by David Goggins. I think
it's a great testament to resilience and a
478
00:32:52.880 --> 00:32:58.200
guy that was a self described loser
becoming the world's toughest man, you know,
479
00:32:58.319 --> 00:33:01.599
or toughest guy, how where you
define that. It's just an incredible
480
00:33:01.920 --> 00:33:07.319
example of what mindset can do for
the human spirit. You know in life
481
00:33:07.519 --> 00:33:10.880
and if you really commit, you
can achieve just about anything. A professional
482
00:33:10.880 --> 00:33:16.279
book that I thought was fantastic and
very relevant for vcs is called. I
483
00:33:16.319 --> 00:33:21.039
think, who is Michael Ovits?
I hear that he's now a VC and
484
00:33:21.039 --> 00:33:23.599
he's now investing in the space and
investing in funds as well, but he
485
00:33:23.720 --> 00:33:31.000
was the founder and main agents for
the fantastic book and so many parallels and
486
00:33:31.079 --> 00:33:36.359
so many lessons. Uh, if
you're an investor in operating in this space.
487
00:33:36.920 --> 00:33:38.839
No, don't love those. Love
those, those are those are too
488
00:33:38.839 --> 00:33:42.599
great. Really excited at us to
the book list, Nick. This is
489
00:33:42.680 --> 00:33:44.759
so much fun. Thanks so much
for coming on the show, Mike.
490
00:33:44.920 --> 00:33:47.359
You're the best man, number one
podcaster in the space. You deserve it.
491
00:33:47.400 --> 00:33:51.440
No, hardly, Nick. I've
been such a full ratchet fan this
492
00:33:51.519 --> 00:33:52.680
is like such. This is a
basic is awesome, Mike. Thanks so
493
00:33:52.759 --> 00:33:54.640
much, man. I appreciate the
time. And then you have it.
494
00:33:54.640 --> 00:33:58.000
It was great chatting with Nick.
I hope you all enjoyed it. If
495
00:33:58.039 --> 00:34:00.680
you enjoyed this episode, I love
it if you'd write a review on the
496
00:34:00.720 --> 00:34:04.359
apple podcast. You're also welcome to
follow me your host, Mike, on
497
00:34:04.359 --> 00:34:07.599
twitter at Mike Gelb, and also
follow for episode announcements at Consumer VC.
498
00:34:07.960 --> 00:34:31.960
Thanks for listening, everyone. Oh, Oh, oh,
