Paul Martino of Bullpen Capital joins Nick to discuss the emergence of the Post-Seed round. In this episode, we cover:

  • Why Paul passed on joining Mike Maples at Floodgate in order to start Bullpen
  • The product/market fit algorithm he developed for Mike
  • If the stages of funding are moving out or if there are just more of them
  • How Bullpen is differentiated
  • The metrics they require to engage with startups
  • How his quant background has helped make this subjective discipline more objective
  • The hardest aspect of developing new, young VCs
  • We discuss lack of innovation in the asset class
  • Why herd mentality is pervasive
  • Other contrarian principles he and Bullpen embrace
  • If it's harder to get A or B round funding for the non-traditional founders or industries that he invests in
  • How Private Equity is impacting exits the differences in sourcing at post-seed and we wrap up w/ Paul's thoughts on how branding and investment focus helps drive opportunity for Bullpen
United States


00:00:00this episode up TFR is brought you by scalable path a technical staffing company with over 4,000 developers worldwide scale will path help startups and Enterprise clients create web and mobile applications in this episode of Tia far is brought you by Square One Bank square one is a leading provider of venture debt and banking services to startups growth stage companies and their investors learn more at Square One bank.com
00:00:32welcome to the podcast about investing in startups where existing investors can learn how to get the best deal possible and those that have never before invest in startups can learn the keys to success from The Venture expert your host is Nick Moran and this is the full ratchet
00:00:51welcome back to UTF are the pioneer of the pussy Brown Paul Martino joins us today on the program is from Bullpen Capital saw a distinct opportunity to fun healthy growing company that had graduated pass seed but could not yet attract a series a stage with the bar for investment seems to go up by the day on this episode we discuss why Paul passed on joining Mike maples at Floodgate in order to start I asked him about the product Market fit algorithm that he developed for Mike we discuss if the stages of funding are moving out or if they're just more of them how open is differentiated the metrics they required to engage with startups how his background has helped him make this subject of discipline more objective the hardest part about developing new Young VC's we just got to lack of innovation in the asset class why herd mentality is pervasive other contrarian principals key and Bullpen Embrace if it's harder to get a or b round fund
00:01:51for the non-traditional Founders or industries that he invests in a private Equity is impacting exits the differences in sourcing at Posey thoughts on how branding and investment Focus helps Drive opportunity for Bullpen share a portfolio company hologram with Bullpen I've heard really great things about fall over the years and had a lot of fun with the discussion today thank you too Joe shittin for suggesting him here's the interview with Paul Martino
00:02:27call Martino join us today from Philadelphia always General partner at Bullpen capital in 2010 and is let several Investments including hero classy and air map started out as an Angel Investing in the first round of Zynga to mobile and you to me and has multiple exit Paul Wall come to the show Nick I appreciate that I'm glad to be here absolutely well first and foremost congrats to your Eagles on winning the Super Bowl be in our lifetime so it was a real pleasure I was at the game with my eighty-year-old dad you know that's something you'll never forget right what a game that's the first one for the Eagles right that's it first one awesome keep it. Sticking around as a quarterback are they going to go back to whence
00:03:17don't go back to whence but they'd be crazy to trade Foles in my opinion but boy we're going to have a whole fun offseason the talking about that for 6 months and it's early years it was hard to see but man he's got a good ball now good problem to have it is it is all right so just to kick off the interview here can can we start off can you talk about some of the the early years as an entrepreneur I started for companies as you made reference to an a quick intro in the first one I saw it was a little computer game company when I was in high school back in the bulletin board days for those old enough on this podcast to know what in the world those things are but way back then before the internet we had multiplayer games you just had dial in one of the time to the bulletin boards and I pioneered six or eight games back then and a lot of those gaming Mechanix wear them later used by games like Zynga when you get could actually have players on at the same time but I things like figuring out how to make the currency work inside of the games and figuring out how to attack other players all that kind of fun stuff I would
00:04:17checks and shareware registrations to my house and I was 14 years old my mom was like wow this is pretty cool and so it was my that was my first taste of it and you know it was great I I paid a lot of bills by having that income stream come in and then when I was in grad school in the in the mid-90s I started my second company which is a security company related to research work I was doing when I was a PhD student at Princeton I ended up dropping out of my PhD starting company moved to Silicon Valley and a company got acquired by Inner trust in the first bubble and that was a first Bubble Eyes first level of my lifetime not certainly not the first bubble in the Silicon Valley but the big one in 99-2000 is that was exciting got to participate in the IPO and all the crazy stuff that happened in her dress it's also where I met my partner Duncan Davidson West are the fun with those are mine it was my first two I've ended tried with a Mark Pincus Val sign and Chris law on 2002 that was a six
00:05:17muscle failure we were in the right place right time got the right credentials didn't win but it set us up for a lot of other things Mark for Zynga me to be an angel investor and then ultimately Chris law and I to go start aggregate knowledge which then got bought by new star a couple years later so it was a fun ride is an entrepreneur doing all four of those startups so why didn't you win the right pain we new social networking we'd be big we we we knew that this was the next big thing that a great company like a Facebook would get formed by week we made I think two critical errors at at try one was we didn't pay attention to the target audience try was very much a very alternative Burning Man lifestyle oriented site and then therefore was very difficult to cross over and be successful in the mainstream compare that and contrast that with Zuckerberg get it at at Facebook where he started with a very desirable Harvard demographic went to exclusive schools before you opened it up wide by the time we were opened up why
00:06:17if you want someone who like to look at people posting pictures of themselves naked then you probably weren't going to be someone wanted to be on fried and as a result we could never become a mainstream success in the same thing was we tried to take on Craigslist by doing socially Network classified and it turns out people don't all go hang out in the social networks they can do classifieds together so we kind of made two big blunders but that's why you play the game right interesting I had an Oscar or suggest me the other day the book Crossing the chasm I'd rather quite a few times but the market to market yes very difficult when and why why'd you start Bolton
00:06:58who painted Starry it really is a math problem so my PhD work was was insecurity high performance Computing predictive modeling all the stuff that aggregate knowledge was aggregate knowledge was a DM. Data management platform for the big advertisers that's really kind of what my bread-and-butter classical training is in and so Mike Maples called me up as I was stepping down as chairman he said pull up there pretty good angel investor why don't you come join me over here at Floodgate I like Mike I'm going to go start my FIT start up I don't want to be an adventure person that's like I don't know if you know sell out this fast I mean I'm ready to go to my next thing I need to put on your analytic at the whole Venture Industries being restructured right now what your buddy compliment figured out it first round is led to a complete change in the way the industry works I'm one of the early LPS in first round capital and I was like yeah I guess that's right the front end of the funnels getting taken over by you super angels and it will what's that mean and so this led me to do 6 months of brainstorming with two buddies Rich Melman who started Electronic Arts back and
00:07:58me too and Duncan Davidson why work with a dinner for us to start a Coolpad back in 95 and we sat around Rich's office for about 6 months just just BS in about what would it mean if there's a lot of seed buns there were like 20 30 Super Angel funds at the time does now 500 really what happens if there becomes a hundred of them and what happens if the series 8 buns get bigger and we go into another bubble and so after 6 months of kind of brainstorming we realize that my FIT startup was going to be to figure out how to make money on the Venture restructuring that might Maples clue me in on Mike came back and he kind of got the ultimate laugh on me like I'm glad you figured this out I wish you'd join me here in blood gate but the joke's on you the only way you're going to make any money off this week and go start your own fund and that's how it happened and so my entrepreneurial Endeavor was to start a venture fund which was really not what I was planning on doing that was 2010 Christmas time it's a really neat we made our first investment they are like the 28th of December so it's really 2011 but We snuck
00:08:58depending on each an exercise you went through a little bit about that Mark Pincus first we were again swimming in the right pain just like with try we new social networking is going to be big we knew that playing the structural inefficiency of explosion of seed buns was right but that doesn't mean anyone gives you a road map on how the hell you do it was the same problem a tribe we knew we were in the right pain but no one gives you swimming instruction and so so we're sitting there like we know that some great thing is going to happen you're how the hell do we figure it out you know we experiment at the first two years 2011 and 12 is a lot of experiments what does a posi deal look like what does a what does a second seed look like what does a seat extension look like which ones are good to do which ones are not and I say about 18 months and we figured it out you want the seed money to have gotten too early product Market fit and you want your next dollar to go into the early scaling of the company
00:09:58it so bad about Midway through 2012 we figured out what the formula was and then we were Off to the Races the second half of fun one all the way into Fun 2 and 3 we got very systematic about quit the good markers of a posting deal work and now going into fun for we we pretty much out of town to a science which kinds of companies do we need to look at which kind of companies we need to spend time with and it is exciting because we did figure out how to swim this time unlike that the prior time being in the right prom and it was partially a lack of supply-side Capital then at that sort of thing is is that is that part of it and then also sort of enough enough traction enough meat on the bone that the the major risks are alleviated absolutely hundred seed funds doing awesome things so the space of company formation was as we predicted it would be massive it was the whole front end of the funnel would get democratize people from different geographies of non-traditional background
00:10:58become Founders and so that great Cambrian explosion of startup happen which was the seat Auto required for a model to work now that that was the part we predicted year was the part where we got lucky The Parlor we got lucky he is the series a funds went from 400 million to 800 million they went from 800 million to 1.2 billion and when I happened it meant that the milestones and sizes of checks that they needed to write got bigger and bigger so on the way a few of an explosion of of companies to play the postseason game with and on the right you have ever-increasing Milestones ever bigger check sizes making the gap for posting bigger than we ever imagined that was the lucky break we didn't know that the series 8 buns would get so dang big over the same time
00:11:39so is this just the stages moving out or are there more interim phases in Gates you know in the in sort of the capital stack and the capital fundraising deployment life cycle in many ways it's at the stages don't even exist anymore we tweet we frequently tell her our Founders and we wrote an article about this about seed is a process it is a set of rolling close is a couple cap notes followed by around we're in a lot of companies in the post seed round it erase call it three to five million dollars it's the fourth close its V clothes and if you think about that this is a company that's Race 3 4 million dollars over 2 years and we come in and put another 3 to 4 million bucks in and it's technically the fourth institutional round of funding in the company because the some extent the smart entrepreneurs are realizing take a little money hit the next Milestone take a little money at the next Milestone, don't give away too much of your company and we're seeing that the really smart entrepreneurs almost game the system and eliminate
00:12:39the notion of around pretty much until you get that 20 million dollar big quote series a check that's the funniest part of the series a check is the 7th close in the company but will call a series at
00:12:50it gets a little tricky I will you guys do notes if it's you know all the notes up to do your sage in the ashburner wants to do a note or safe prefer to actually going price the round and quote clean up the notes that you know we got 3 3 Note rounds in front of us with different tabs kind of Italy formed board but a good product Market fit let's go price it let's go to set the company up for success excetera to most of the time we do that but we're also not religious about that it makes sense we're doing somebody else's Syndicate in the notes are there in an easy thing to do we won't be religious about it even though we were preference for pricing around because we find our role was the kind of position that company for the next round of growth and it being a price round is one of those elements of positioning for the next round. It was more about how you guys are different at bullpen
00:13:41two different in many many ways we are we are very unusual in and how we look at companies how we think of the world and how we execute our strategy so they give you an example we basically say we're looking for a company with product Market fit that the rest of the industry's not paying attention to how do you find the rest of the industry's not paying attention to it about it turns out that the house nobody's paying attention to are either one in a geography that they don't like think Edinboro Scotland for FanDuel to they've got a Founder who has a non-traditional background thank Michelle Phan starting Ipsy a YouTube celebrity from Florida not exactly your standard Stanford Ph.D Dropout right out of favor thank Grove collaborative and in our fun 3 work we're still was from Central Casting lives in San Francisco but was just dumb enough to start an e-commerce company when don't you know everybody is going to get killed by Amazon
00:14:39who's got a damn good business. No one wanted to take the meeting with him because the Zeitgeist said it's all over for e-commerce sure if you're going to play the biases of the industry you got to basically rebuild the taxonomy so are you in and out of favor geography are you an out of favorite category of a non-traditional background and so we say hey I'll take all comers I'll take a cold email off my website I'll take a LinkedIn email from you send me your operating plan let me spend 10 minutes with it let me see if your post product Market fit have meat numbers and you know what if you got need numbers and no one else has taken the meeting I'll bet on the guys going to take the meeting and many of our best deals came in without even referral because it was someone that some CEO hurt me on a podcast like this say are you frustrated no one's taking you seriously but you're making a million bucks and revenue come see me and that leads to a very different kind of fun we do much more traditional PR and marketing as opposed to sourcing the way other other firms do and we have a much more analytic front of the funnel it means I spend my day in a very different way
00:15:39I'm not meeting first time Founders when they're thinking about leaving to start a company so I can get in the seat around I'm only taking a meeting after the company's already got a product with Revenue traction and they can send me the Excel spreadsheet so we look really different than other firms in the way that we execute our strategy so tell me more about metric requirements for you to invest is it is it a million bucks in a r r / what sort of sort of absolute values as well as growth metrics are you looking for in Reverse or objective is to get you 12 to 18 months of money so that the end of our round you're going to be able to walk into the quote Series II investors and be able to go do your 10 15 20 25 million dollar check that means that you probably need to be somewhere at about 5 million dollar annual run right so play the game backwards where do you need to be 18 months prior to being able to bring down a 20 million dollar check for 5 million dollar Revenue company
00:16:39it means you probably got to be doing about a million to 2 million in Revenue grow in 3 to 4 x year-over-year it means you probably raise 3 to 5 million box Norborne in no more than $200,000 a month
00:16:52and so that's my first level of the screen have you raise no more than 5 are you burning no more than 200 a month are you the one to two million ARR did you Grocery and get 5x year-over-year I'm going to take the meeting I don't care if you're selling socks the kittens right I mean literally Bruin wag which is we joked Uber for dogs we joked about the existence of this company before it existed as a buddy and I'll be damned if we didn't only invest in it but we we actually help the company get formed because it is a failed former company in our fun 1/4 folio culture me that the Venture Brothers did we were complicit actually at the formation stage of the company and and now it's a company that just raised 300 million bucks from SoftBank and so you sit there and you go as long as you got the numbers I don't care what you're doing because you know what the rest of the Venture ecosystem care who you are where you're from how cool you are who you know I don't care about any of that I'll ask all those questions at the end but the way that I find the fan tools in the Ipsy
00:17:52the name leaves in the classes classes in San Diego name is an HR company in New York started by an ad Tech exec the way we find these things is by saying send us your operating plan show us your numbers and then I'll ask myself if this is a business I want to be in not the other way around I was just reading the newsletter from about wag and I don't remember how long ago was 4 years ago but everyone everyone was kind of the butt of a bunch of jokes. Walking now and it's a great company and it's it's it's incredible operating metrics are among the best of any company we've invested in and soap so I won't I won't say anything more than that but some of the key statistics about repeat usage for that app or mind-boggling on the Rival Uber in terms of repeat usage monetization peruse excetera because you know what when you're stuck in you give your dog
00:18:52how can you eat your dog walk and it almost becomes a daily habit for some people they have customers who use the app 10 times a week and so so you sit there and you think about this wow this is actually a pretty awesome business you the chance to build one of the great Pet Brands but without having to build a store or ship their shipped 40 lb bags of food to somebody this is awesome turns out they stumbled into one of the great businesses of of I think maybe the decade and like I said it it started like you said as a bit of a joke who's going to do over for dogs well they did it and it turns out the hell of a business believable picky customers you know super high retention and I feel like sometimes I can squat over and in the gross stories but them operational plan science background in your algorithmic approach to things how do you bring that sort of sentiment to your review as an investor
00:19:50so it's two-fold first the simple metrics High alkaline is a couple more detailed ones that are beyond the scope of a call like this to go into any analyst with a with a couple months of experience could look at an Excel spreadsheet from the CEO and in 10 minutes be able to say is this a company Bullpen used to speak to I mean you need essentially no professional training for that that's what's so cool I can systematize is an outsourced we don't do it this way but we can take a set of people in and pick pick your favorite Outsource country and we can have our whole final go through it because it's that easy to describe the fundamental front of the phone so that makes my use of time awesome because now I'm only engaging with a company that is going through the operational screen so now in the CEO comes in hey where you from why did you start the company I can spend all my time getting to know a CEO that I know I have a chance to invest in and oh by the way the thing that's very unusual when you come in and Pitch Bullpen I don't want to see a product demo I don't want to sit up and see your product
00:20:50road map. You know I don't need to know what's in version 5 your numbers in your operating plan tell me that your product works not your product demo I want you to stand up there and go through in defense ld7 on the plan for the next 30 minutes early what are diligence meaning feels like that as opposed to tell me your vision of the universe tell me why your product will change the way you know kids consume blank and but none out show me how you're going to go from 1.2 million to 3.8 million over the next 12 month CD 27 I don't agree with that tell me why that's what it is so there's something very blue collar operational about what we do as opposed to highfalutin kind of you know Pie in the Sky pink me a big picture you know what that got dearest by the Sea around investor in front of us I might Maples and Josh copperman adjust Lobby they already validated this markets interesting that's why they wrote the
00:21:50now guess what you got you got for operating Partners you started 14 companies between them going to come in there and see if you know how to run your company and that's why our process it feels very different I think to a lot of entrepreneurs as well you're making it a very subjective discipline you making it very objective
00:22:12about what we do
00:22:14don't get me wrong I don't want to overstate it this is not a machine that you plug in inputs to and outcomes the answer this is just a more efficient way to spend our time because there is real art in the way that you spend your type but if you're spending too much of your time on deals that you'll never do and you can't engage in the art enough but by having the systematic framework of knowing what to engage in me and Eric and Duncan and James we can spend our time in the art with only people who have made it through the operational screen we just think that's a way better use of everybody's time Lovett time is just incredibly hard to manage in this business but you did mention bringing and how you can have them apply your pre screener your your operational screen based on sort of these these these you don't fix lines that that you've drawn I've been curious what are some of the harder things you found to teach young Talent young VC's that you brought in in in
00:23:14when did develop
00:23:17a feel for
00:23:20is this a company you want to have an investment in there's a certain kind of error of fun like Bullpen can make check all the boxes CEO of Mastery the numbers check check check and you get to the bottom of the chart new go with cheese that's a business I have no desire to be in we had two companies like that in the last quarter one was in a sporting good space and one was in a home goods space broadly speaking in you just at the end of the day you said yourself wow
00:23:48damn great numbers but I can't possibly see how Bat Company will turn into a massive company now we're not trying to predict what segments will turn it in, but every once in a while you're going to sit there and go look at their operating plan a year from now they're going to be in 5 million in revenue and that'll be it because that's how big the market is that is the harder part 2 train because that's the art of the business is supposed to be science which is what we put on the front end most Venture firms with the art on the front end in the science and the backend we put the science in the front end in the art on the back end and that's why I think our fund really he's got a chance to really do some amazing things so play Devil's Advocate on that you know I can bring in NBA is from town from base in Chicago so I can bring an NBA's for Northwestern Chicago and another train did Mackenzie Urbane or BCG Etc in
00:24:48just describing DTR in the ability to predict if a markets going to be interesting and if if a company can be large cyst from Goose there in Chicago so you really I mean you really are picking on me there y'all help get you to do things early days of Hyde Park Ventures Etc so you know a good friend of the Chicago ecosystem and we're very glad to have them but you're right I mean example there is a judgement piece of this business but no matter how smart you are I just think you need to you need to admit enough companies to be able to get a sense of it and I don't say this I don't say this lightly because remember I am a classically-trained computer science hardcore number crunching person and soap for me to say that there is an art piece to our business
00:25:48it just requires enough sample size Real World Experience that's not a conclusion that I'm natively Fonda right there's a part of me that doesn't want it to be that way but I'm now been in this business long enough is both an angel and I will venture fund almost 15 years between the two to say that there is a piece of this and even watching went over the last year-and-a-half when he's being the fun get a better sense of what kind of company we do a deal with you if you see him learn it because it really is part of the process and it's not just about the numbers yeah I couldn't agree more I've been thinking about this a lot myself as you know it's been difficult to train the talent Pipeline and I can go through a million whiteboard sessions but it just doesn't really help and I had this Epiphany yesterday I was telling one of my analyst I'm like you need to take 50 calls without Spinners but you got to do it you got to begin speaking with I get a sense for how this all how all this works in
00:26:48where the real opportunities are and you know what makes for some of those real special personalities from the founding teams
00:26:56I I occasionally sit in on Angel meetings around the country just friends of mine people who have sent us deals I'll go in and ask the acetone in the angel meeting and it's really interesting to sit down with the Angels wearing that thing and say look I'm a Silicon Valley guy I've been in companies that have gone to billions of dollars the three companies that came in here none of them are ever going to do that and I'm not saying that cuz I am trying to be mean or or throw water on it and then oh by the way there's this one company that you didn't even take a screening meeting with that's the one you need to be spending the time with and and you see that a little bit of Nanjing in that direction can really help a group out because they just maybe haven't seen the template because they're investing in Nebraska and they've never seen a Silicon Valley company come through the door this is what it looks like rights right talk more about a lack of innovation in the ass of class I know that you found in principles and
00:27:56you could have found a stage where others when operating what are some of the other areas where you think practitioners in the asset class have not evolved in and knock out and better and highlight some of those gaps that you've seen that maybe you guys are feeling it be open this is a topic near and dear to my heart I think that most people who turn CEO in the Venture fund Runner I want to be the 87th Venture fund focused on blank and blank if they were that undifferentiated the CEO they fire themselves and so it kills me that there's this complete utter lack of innovation and our asset class with so many me to copycats you would have never done that if you were sent you but somehow now that you're a fun manager you think that behavior is okay and in the big scheme of things there are only a dozen maybe two dozen Innovative Venture funds out there I mean you've got a groups like data collected and lots of doing the real hardcore science that no one does anymore your groups like grapes
00:28:56it took a very different model to how they sindicate excetera you got your outliers like that and those of the company that we really try and me groups like Founders fun who go after truly contrarian deal but you know what you get past a list of 20 to 25 you then realize that the other 400 to 500 funds are completely undifferentiated other than their brand and who the individual partners are that to me is amazing and at some point I think that needs to get rationalized so when we said we're going to do something different we would have never started the company turns out the company was a venture firm unless we were comfortable that we would be able to stand up and say we are different for these reasons not we are better than blank blank and blank cuz I'm better looking at them in better deals that's a branding exercise or model is different and I would have never started the van if I didn't feel like I had true differentiation why do you think everyone's doing the same thing
00:29:47it's because most people who go into Venture do it for reasons other than the ones I just described it's my turn to get back I've been at good angel investor it's my if my expertise and Sass that makes me going to be a good investor and I can help my entrepreneurs so much and I want to have the lifestyle being Adventure person and pontificating on panels and and tell you these things so I think there's a self selection process of people who want to be in Venture who basically say I want to be better looking than the person next to me and that's okay because you know what I am better looking than the person next to me and as a result the almost kind of legal reasons that you going to the asset class make it such that an operational reason what you going to that class which is what we do becomes a few and far between we have a good adviser to the Fonda a very famous Venture person who who who teaches at Stanford some of the time and kind of poses Bullpen is it as a model to to the student sometimes and basically says it like this you know what if I had this model that was
00:30:47screen and I went into the funding Gap and with the contrarian companies and you know what you think about if you what you know this is to a student whose thinking they want to go to venture invariably to answer from that student is what doesn't sound like Venture that's why I want to do with my life and so so so went when you pose a model like Bullpen that's why I say I say this very seriously very blue collar there's something oh my God why would I do that like no I want to go preach on high about why self-driving cars in 25 years will revolutionize the world we don't do that sell d-27 tell me why that's what it is and I think that's where the mismatch happens it's a cell selection of the people who want to be in Venture and they self select away from this kind of creativity contrarian this an operational focus and therefore we end up with a ton of me choose
00:31:37it's an interesting point you know I have had the same issue, in a different context but I am just really really appreciate it and I'll be recruiting talent in a lot of people will you know wow they're their chops in Excel PCS in Ry season when they find out that you know my stage is a very people-centric sage and it's it's just really about getting to know people and front fender fit it's it's kind of confusing isn't this about it it's not right and that's exactly right and so are our good friend Samuel Shaw who runs Haystack he invested the similar staging he's out there meaning college kids before they start the company's because he's doing that kind of network building and I think that's a very hard very labor-intensive job God bless you guys for doing it because without you doing it I don't get the fodder to do my later say
00:32:37operational play with
00:32:42ecosystem this conversation with Josh Kaufman years ago in like Josh you know you figure it out this this whole model of of the seed model and you got a lot of copycats and there's tons of seed money how come no one's asked what comes after this and it's funny he's like yeah that's right everybody's like how do I go be a better first round in first round which by the way you can because there's only one of them and he's won The Branding War but but everyone ask that question and you're the first person I kind of asked the right next question which is what is The Logical conclusion of what first round figured out Bullpen is The Logical conclusion a basically playing the hand you're dealt I think if you use the poker analogy too many people in Venture want to control the cards that they get they think I'm going to get dealt two Aces here because I got this. Around a i and I'm going to be the only person that you know what to do sometimes you get dealt you know the 9 7 off soup you make a straight on the board that's way the way more that we think
00:33:42what was the hand we were dealt a massive explosion of seed meant something else had to happen they are for what company do I start to be successful and and for whatever reason I don't think enough people going to venture with that point of view of what hand am I doubt how do I play at the best as opposed to I want to control my fate by predicting the future
00:34:02you play cards with investors other investors just every once in awhile there's the best in the valley I don't think I'm comfortable answering that particular question but there are there are there are quite a few good players and you go look at our portfolio where in where in companies like Jack pocket and watery Derby jackpot in horse racing we're in FanDuel and fantasy sports so needless to say the people who have an affinity or games of skill of these kinds of your weight are all this more often than not awesome awesome hologram together so you guys and you guys are feeling this Gap that's a few others have let's take a quick break to hear from our sponsors this episode of TFR is brought you by scalable path scaling up your development team doesn't have to be hard scalable path will hand-select
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00:35:57any other elements to your strategy that's contrarian that we haven't touched on I think I think we had it I mean it's it's a contrarian stage and a compare and kind of company and I'll say this the upshot of what we do is very rewarding for the following reason I know I got to ask a question in advance about this about me and were some of your anti portfolios and I get that question sometimes I go for foglio's can almost talk to describe because if we don't do the deal with company goes out of business more times than not so Matt match rats who started namely was at our annual meeting two years ago and he basically stood up and said thank God Bullpen invest in my company when I was 7 people because you know what I was an ad Tech exact doing an HR software company in New York and no one wanted to take me seriously because I was an ad Tech exact and Sass was never something you could do in New York City and you know the bullpen guys took me up and they lied that round and no one else wanted to do it and they help recruit the co-investor to come in and do the round with them and you know it
00:36:57if they didn't do that I probably went out of business and so there's something very very satisfying about CEOs who stand up at your your annual meeting and say things like that because by being contrarian we're actually doing a real service for the ecosystem we're funding companies that deserve to be funded with with companies in spaces and found her backgrounds that are different and if we're not the ones able to write the check he might not exist and you know I I hope you don't see namely get public one day and in and sit there and be able to contact complete the story because you know that that's just an exciting thing to know your in a business that helps find these false negatives and promote entrepreneurship in places where would otherwise be missed
00:37:41we've also funded some non-traditional Founders at at earlier stages and remarkably they've turned out to be some of our better performers but do you find it's harder to find Capital providers later so if you're working with Sears a foreign series B firms does it become tricky even if the metrics are looking good going up to the right does it become tricky because your funding these non-traditional Founders and the establishment might not have the same Comfort level
00:38:13yes and no first off if you get to a high enough number level that the downstream investors might not be Benchmark and and and Greylock they might actually be tcv and insight example we invest in spothero right there in Chicago that's right we were in Stuart Larkins round from Chicago Venture is he was a direct investor in aggregate knowledge we've known each other for years he's like I got this great CEO doing awesome things here in Chicago and you know what Mark was going into a space that everyone thought so we can Valley would win you know these fancy Dancy on demand valet is Luxembourg Scott started they raise the whole bunch of money what why would the why would the Midwest kid who talks to garage operators ever win what is very rewarding by the way to see the spot Heroes on the top of the Heap now and I actually really really beat a lot of those other competitors who had the Silicon Valley pedigree what was the round after us Mark and generated so much revenues
00:39:13what the inside Venture partners for the next round right he almost skip the entire Venture ecosystem because his Revenue traction and numbers were such that a later stage more like private Equity Firm did that that's what happened with FanDuel Shamrock comes in and KKR comes in so a lot of our company's actually buy get into a fine of Revenue level can go to either the growth funds inside of the Venture ecosystem or directly to the private-equity players this is why I think it's kind of cool I don't need you to crossover and become a category everybody at Greylock loves that does happen by the way we have plenty of company that a year later the category comes cool like happened with Grove eCommerce became great Mayfield and then Norwest came into the next two rounds and everyone was happy about that but you know what
00:40:02going to go on over to Insight Venture partners and the KKK are directly as well because he had enough numbers to justify that raise and so that. That's exciting that are companies have two ways to win three ways to win any more money cuz I got profitable let me write you a check and one things going to happen you can get profitable you can become a traditional Venture company and go right to private Equity of course you can fail to I mean that does happen don't get me wrong but I like it there so many ways that are round can turn into a good outcome for LPS is there a wide range of private exits from like micro cap small-cap mid-cap or is there kind of a a group of private Equity investors that play within a certain exit range
00:40:50you know I'm not the right guy really answer that question you know I I dealt with some of them I've been on board now with a couple of them I think I'll say this I don't know that dichotomy your outlining is correct anymore in the same way that the economy 4C doesn't exist anymore stage pre-seed pre product Market the same things going on in that part of the industry to you got so many Hybrid models and you've got companies that do big secondaries and you still have your position into them and I think that there's a lot of continuous this a product offering over there as opposed to discreteness of product offering so that that taxonomy might be changing the same way it didn't the seed ecosystem but you'd have to talk to her later stage investor than meeting really get more detail on that question yep yep yeah I'm kicking myself on spothero cuz I think we had we had Troy henikoff on the program who used to run techstars accelerator here in town and he talk
00:41:50Best Buy here about three and a half years ago and I'm kicking myself that I didn't invest then because they've gone on to the good things great things that's in the same portfolio is wag I mean so the dog walking guys from LA and and the parking kid from Chicago or two of our biggest value drivers and fun to win and there's something very satisfying about that being the sentence I get to tell you about it you talk about sorting a little bit before do you feel like sourcing is different at the post seed stage or at least you know that the sourcing strategy did that you guys employ
00:42:28when you're one of the only people out there doing something your sourcing strategy is to just get your message out it's no longer to actually have to you know go to the Y combinator demo days which by the way we never really get a lot of that anyway I want my message to be as loud and clear as possible I want to be on forums like this talking about are you are you a Founder was doing a million in Revenue no one's paying attention to if I get that message out to everybody including the 500 seed buns in front of me what else do I need to do I don't think I need to be cold calling anybody I don't think I need to be introspectively looking at portfolios guessing who's going to show up 9 months now I just need to go pick up my favorite seed buns every once in awhile hey remember me send me some cool stuff and make sure that the CEOs out there know that I exist my partner recent Likens it's a Silicon Valley Bank in what percent of people who get Venture debt go see Silicon Valley Bank will they answer is probably close to a hundred percent because they're one of the only people who do it so if you need posting financing what percent of all possi deals does
00:43:28open c o probably a pretty similar percent that Silicon Valley Bank does a venture debt deals and I just been a lucky break that so few people decided to engage in this particular segment of the business if you the only game in town then you're going to see most of the deal flow that's right and by the way has been remarkably difficult to convince help ease up we tell LPS tell me how you tell me if there's one thing I lose no sleep about my phone that's how I saw yours and you must not know much a year for entrepreneur you must not know much about your out running adventure fun sourcing proprietary deal flow that's the only way you live I'm like yeah two decades ago maybe a differentiated strategy in a new ecosystem is what we're doing and it works really good but I got to tell you that a lot of LPS ago know who are you friends with Corey or proprietary dealsource is I might know it doesn't work that way and if that conversation in many cases we can't get past that conversation because I'll be so like what your model can't possibly work then I might
00:44:28I guess we're done now but I can't speak for other Venture firms but I've had a number of entrepreneurs portfolio companies and otherwise come to be with certain metrics and I've said have you talked to both even though the two of us is the first time we've spoken I mean you guys have to bring your the Posey player that warms my heart because Nick that's what we try to do you know we actually as former CEOs Took The Branding exercise the way of Corporation would take the breathing exercises opposed to the way Adventure Fernwood and I think this is really paid dividends if we could cover any topic here on the program you should be dressed and who would you like your speak about it well since you already hit those Super Bowl champion Eagles I'm not I'm not quite sure maybe we could get on some some some Boston people there if you'll feel a little disappointed about about how that how that game went last week. You're terrible
00:45:28to see more people on on the program talk about what they're doing different and Innovative is that there aren't enough people highlighting the Innovative things are doing and by the way you can't hear yours the cheat sheet for trying to escape tell me about something Innovative you're doing well let me tell you about the school company invested in no no is not what you're doing Innovative I'll ask you again what is the cooling Innovative thing you're doing let me tell you about this new CEO I met and so so not only what I love to see how some people on the program don't let them get away with that as their answer I guess few weeks ago and they asked me similar question and I said you got to be able to say why you're the best in the world at what you do why are you the best if you can't answer that question then you probably shouldn't be in the business I couldn't agree more what investor has influenced you most and why
00:46:20definitely the most influential investor has been a taco he has been my kind of investor meant to wear for for many many years and not now runs a successful firm call data Collective Matt and I met my first night in Silicon Valley when I dropped out of of of Princeton and and we've been friends ever since and it is been just a tremendous experience to learn the business from someone who is done so many interesting things that has been as Innovative as he has and so I would say he's been my number one coach along the years is being an investor coach awesome and just wrap up here what's the best way for listeners to connect with you
00:47:03send me a email Paul at Bullpen cap I'm quite serious when I say I don't care if I've never heard of your business and I don't know who your investors are you doing a million in revenue and no one's paying attention to you you send me an email to Paul Apple pen cap I will personally be taking a look at it my analyst went so make sure you look through the operating plan and please don't be insulted if I don't want to see your product demo we reach out if you have the metrics and let him know that you heard about it on the full ratchet Paul thanks so much for doing this today and look forward to meeting you in person when you're in Chicago
00:47:40that will wrap up today's episode thanks for joining us here on the show and if you'd like to get involved further you can join our Investment Group for free on AngelList head over to Angel. Co and search for new stack Ventures there you can back The Syndicate to see our deal we'll see how we choose startups to invest in and read our thesis on investment in each startup we choose as always show notes and links for the interview are at full ratchet. Net and until next time remember to overpay choose carefully and invest confidently thanks for joining us

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