New Stack is a Chicago-based firm that invests in founders from the Midwest
Venture capital used to be a cottage industry, with very few investing in tomorrow’s products and services. Oh, how times have changed! While there are more startups than ever, there’s also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We’re highlighting key members of the community to find out.
Nick Moran is General Partner at New Stack Ventures.
Prior to New Stack, Moran worked for Danaher (NYSE: DHR) in M&A and Product Management. There he developed one of the most successful products in the company’s history — an analytical device for testing compounds in drinking water at nanoscale. In addition to investing, he founded the first Venture Capital podcast with over 90,000 active subscribers, The Full Ratchet.
VatorNews: Let’s start by giving me an overview of New Stack Ventures, the top line about what the firm is all about, what your philosophy is, where you fit into the venture ecosystem.
Nick Moran: We’re based in Chicago, we lead pre-seed and seed deals. The origin is, basically, I left corporate America just about 10 years ago, I was out west and moved back to Chicago, and the venture scene did not look in Chicago like it looked out west. I mean, it was a handful of angel investors and some legacy private equity style venture investors. When I began investing in the segment, I realized I needed to build proprietary deal flow, I needed to build networks to the coast, if we were ever going to get these compelling founders funding. And so, I launched the first venture capital podcast in 2014; Andreessen soon after launched one, and now it seems like there’s a podcast for every venture firm but, for a while there, we were the only ones that did it. The audience scaled much faster than we could have imagined, so that was really fortunate for us; that allowed us to build an LP base. So, the listener base on the show became an LP base for us. AngelList was spinning up something called syndicates at the time, so we actually had a process and a vehicle for directing these LPs to invest with us. And I’d gone from looking at maybe eight deals a month in Chicago to looking at about eight a day because, all of the sudden, they were flooding my inbox from Atlanta and St. Louis and Minneapolis and Salt Lake City, all these places that were just undercapitalized. The more I got to meet compelling entrepreneurs and look at their businesses, I realized that one does not need to be in San Francisco to be a visionary and to launch a great company. So, that’s where the firm was founded; I’m an outsider, I’m not some elite tech operator, and I didn’t work for Sequoia. I invest in outsiders, folks that don’t come from pedigree and aren’t based in the Bay Area. And that’s how we built this firm.
VN: Talk to me about the Chicago ecosystem. How has that changed in the last 10 years?
NM: It’s pretty amazing. On the venture side, when I started investing, there were five funds, less than $100 million, that were focused on seed investing in tech. I run a breakfast group for founding partners of venture firms in Chicago and that group is now 35. So, there are many people now with specific theses and dedicated mandates in different parts of the tech ecosystem that are focused on Chicago and are focused on the Midwest. So, that’s great, because every great ecosystem needs capital.
The volume of founders, and the quality of founders, is astonishing as well; when I started a New Stack, I would have said a venture capital fund could not focus exclusively on Chicago and build a top decile returning fund. I think that’s changed, I think one could do that now. The challenge will be there’s a lot more check writers in town, so you got to build proprietary sourcing, you got to be a better picker of selection, and you have to have some compelling reason for the entrepreneurs to choose you. So, you have to be able to win deals, sourcing selection and winning. If you can do that, you can build a great firm here in Chicago and there’s certainly enough founders building businesses that have outsize unicorn, decacorn potential.
VN: What do you like to invest in? What are your categories of interest?
NM: Our focus area is enterprise SaaS, and we spend most of our time on FinTech, supply chain, healthcare, e-commerce, and proptech. We consider ourselves generalists, so we’ve done some consumer investing, we’ve invested in marketplaces. We’ve invested in some stuff outside of those key areas, but we’ll spend about 80% of our time on enterprise SaaS in those sectors.
VN: We’re very healthcare focused at Vator, so it’s always great to hear that somebody’s investing in healthcare. Talk to me about that space, in particular. What do you see happening? What’s unique to Chicago about healthcare?
NM: I don’t know that I have a thesis around Chicago specifically for healthcare. We’ve done one investment in a healthcare company in Chicago, a telehealth company that’s now the largest telehealth provider for health institutions in the world, but most of our healthcare investments are outside of Chicago. So, we have one in San Diego, one in Minneapolis, one in the Research Triangle, and we’re looking at another right now in Pittsburgh. Again, I don’t think building a great company is location specific. Of course, there are some areas that have a consolidation of talent around a certain field, or sector; so, Minneapolis and the Research Triangle are great healthcare hubs, and there’s a lot of talent that’s spinning off of big health institutions, as well as healthtech companies. But, I mean, we see a lot of potential in healthcare; the US healthcare system is chronically underinnovated and problematic and full of friction and conflicting incentives across the board across many stakeholders. There’s a lot of room for innovation there, so there’s many different sub-segments within healthcare. I won’t go too deep on that, but we’re very bullish.
VN: If you had to define the macro trend of what you’re investing in, how would you define that?
NM: To some degree, every investor, regardless of asset class, should be looking for mispriced assets, meaning assets that are priced at levels lower than their true value. Our whole philosophy is emerging markets, finding founders where maybe their resume doesn’t scream, “hey, this is going to be the next Sergey Brin, or next huge Silicon Valley tech company,” and so we’re emerging markets investors. We invest in outsiders, and we define outsiders as folks that aren’t located in the Bay Area and don’t come from all that pedigree. They can also include people that have been marginalized for a variety of reasons, gender or race, and so by targeting folks that have not commanded the attention that they deserve, we can get in early, we can help them realize their professional dreams. And, in so doing, we benefit tremendously when those folks get to Series A and beyond, hopefully partnering with tier one investors on the coast at that point and that seems to be a formula that’s working really well for us. We’ll continue to pursue, quote unquote, outsiders, and that definition changes over time, but often they’re in emerging markets that are undercapitalized.
VN: As we’ve seen in healthcare with the rise of telehealth, and the work from home movement, with Zoom, it feels like you don’t need to be in the physical presence like you did pre-pandemic. That was already happening but now people have really gotten comfortable with the idea of meeting each other just over Zoom. Did the pandemic really democratize venture in a certain sense? Or did it help bring that along?
NM: 100% and it’s a bit of a blessing and a curse: interactions tend to feel a little more transactional but, overall, it’s been a huge net benefit for the industry. Our very first investment that we made as a firm at New Stack that we led was in Washington, DC, and the entire diligence process was done over video chat and traditional phone calls, if you remember those. So, we were doing Zoom investing quite a few years before it became the norm and now every firm is on that platform. So, in a way, we’ve lost some edge, and we’ve lost some of our ability to see trends before other people get to them, but it’s also been a huge advantage because now the Series A and Series B firms are much more likely to invest in our Phoenix-based startup or our Chicago-based startup, because they don’t have to attend board meetings in person and they can meet the founder over Zoom, which is a decent approximation of meeting someone in person. It’s not perfect, but it’s pretty good and so net-net it’s been a huge benefit to New Stack to founders everywhere and I’m glad that other people are now utilizing this tool to meet founders and from every walk of life and in every geography.
VN: You said that you invest in seed and pre-seed, so how much do you invest in terms of dollars? Both in initial checks and over the life of the company.
NM: Average check size at entry is $1 million; we’ve done checks as low as $200k, as high as $2 million, but the average is about $1 million. And then we have a very small set of reserves for special situations. So, we don’t do much in terms of reserves, but we’ll run SPVs, we’ve done over 50 SPVs, probably, since inception. If a company is doing a follow on round, a Series A or Series B or C, we just had our first Series D round, we will run a special purpose vehicle and allow our LPs to invest directly.
VN: What’s the size of your fund and how many investments do you make a year?
NM: The size is $42.6 million and we do about a deal a month. We’ll do 35 in total for the fund. We’re about a third of the way deployed.
VN: So since you are in a pretty early stage, I would imagine at that point traction is not going to be a factor or is it? Or does it depend on the sector? Do you actually want to see a certain number of customers, a certain amount of ARR, from those companies that want to invest? And, if so, do you have specific numbers?
NM: It depends on the situation. I mean, there can be cases where maybe it’s a proven entrepreneur or it’s a referral through a network, where the company is really at that conceptual stage, or maybe they’ve spoken with customers, and they have a robust pipeline, but they haven’t built their MVP yet. But that’s more the exception than the rule. Software is less challenging to build these days, and so many, many startups are going to build that first MVP, and at least get a couple pilot customers before they go out for venture funding. So, from a data standpoint, the easy thing is the rule of five: if you’ve got a transactional business, a $5k run rate per month; if you’ve got an enterprise SaaS business, about $5k of MRR per month; and if you’re running a consumer business, like a social business or an app-based business, it’s usually 5,000 daily active users is the minimum for us to engage in a real pre-seed round. The seed levels are a bit above that, but that’s an easy litmus test to just say, “Has this company actually gotten off the ground? Or is this still an ideal conceptual stage?”
VN: It sounds like you don’t invest pre-product.
NM: We will, but it’s more the exception than the rule. We’ve done that in some cases; it depends on how we know the entrepreneur, where the entrepreneur came from, what their background is. It can also be sector specific, or business type specific: we’ve done some deep tech and some hardtech and those are often pre-product when you invest. So, the phases and stages are different for deep tech versus enterprise SaaS.
VN: It’s interesting that you want to see traction that early and that seems like a shift that’s happened over the last few years. A pre-seed company already has to have a pipeline, they have to have a product, but if you look back maybe 10 or 15 years ago, I don’t think that that was really the case. So, that seems to be a shift in the expectations for these companies.
NM: Yeah, that’s fair. Every three to five years, the semantics of stages shift, so the pre-seed round today is really the seed round of like five years ago, and seed round today is really the Series A. Now we talk a lot about the angel round, or the friends and family round, and we will invest in that round, but that’s the pre-seed from five years ago. So, things tend to shift out and there’s reasons for that in the industry, but we’re not afraid to invest really early. I’ve been invested in a woman and a deck before because she was the right person with the right network, addressing the right problem. When everything comes together, we don’t need to see traction to invest.
VN: Talk to me about the team because I know how important that is, especially that early. You just said you invested in somebody who had an idea on a napkin, so what are the intangibles of that person, that entrepreneur, that co-founder, that you want to see to make you want to invest?
NM: We actually have this, “who, what, how” framework that we use at the firm. The “who” piece is the foundation of the pyramid, so to speak, and so if you have cracks in the foundation, it doesn’t really matter what’s above it because things tend to crumble when it gets tough. So, yeah, we think a lot about the intangibles: it’s the right question to ask, especially when you’re doing early stage investing, there’s not much there. And so, 80% of the decision is really based on the team.
We’ve boiled it down to six key factors that we rate on a 50th percentile scale, all the way up to 99th percentile. We look at the degree of tenacity, their resourcefulness, their storytelling and magnetism. We look at how obsessive and mission driven they are. We look at their attention to detail, that’s critical and important. And then, finally, we attempt to assess the degree to which they’re a serial builder, a serial entrepreneur, or a serial creator. So, one doesn’t have to have started a company before but, if you look at their education, or their previous experiences, if they’re starting things, if they’re launching things, if they’re creating things. Like, if you came and pitched us some new hot media tech startup, and you pointed back to, “Look, we created this brand new thing out of nothing called Meet the VC and this whole series,” that would give us some indication, “oh, this person is a creator,” and not just an idea mind, but they execute, they actually put in the work week in and week out to publish interviews and gain insights from the market. That’s the final factor that we look at.
Classically, the biggest mistake that many Valley VCs make is they’ll just invest in an engineer or developer that spins out from some huge tech company, but they don’t think, “Is this person a true entrepreneur? Or are they just a talented builder that came up with an interesting idea to solve a problem?” If you’re going to commit 10 plus years of your life to something and eat, sleep, and breathe it anytime you’re walking the dog, taking a shower, or driving to work, doing the dishes, you need to be wired like an entrepreneur.
VM: Those factors that you talked about, how do you do due diligence on those? How do you determine that somebody has those qualities?
NM: Some of it is intuition, of course, but we’ve also tried to find proxies for assessing these things. So, there’s all these little tricks and all these techniques that we use that aren’t a perfect approximation for tenacity, for instance, but they might be a decent proxy. Like, “here are three methods that we can use that are tactics that help us assess the degree to which someone is tenacious. Here are a few little tactics we use to assess whether they truly have the attention to detail that we’re looking for.” And so, during our diligence and our engagement, we’ll layer in some of these little tactics that we use, and it helps us get a sense for is this founder a 50th percentile founder on the resourcefulness scale, or are they a 99th percentile on their resourcefulness scale?
VN: Let’s talk about valuations a bit. Especially over the last couple of years, it’s been a very interesting time in venture. When the pandemic first hit, I saw a lot of articles about, “What’s going to happen, venture? Are they going to be able to deploy their capital?” That didn’t happen, and the last couple of years have actually been record years for venture and valuations have gone up at the same time. So, talk to me about what you’ve seen happening especially at the early stage. Do you still see them going up? Where do you think they’re going to go from here? What does that mean for the founders?
NM: They were going up, now they’re coming down. So, there was a time when we met and we had to consider, do we adjust our thesis? Our thesis is really centered on stage, and then the ownership amount that we get when we lead a deal. It’s paramount to focus on those things when you’re trying to raise institutional capital from limited partners, and we had to ask ourselves, do we change our thesis and our ownership requirements because of this bull market and inflating valuations? Fortunately, we did not change our thesis at the time, and now valuations, I don’t know if I’d say they’re plummeting, but they’re coming down significantly. I was talking to a healthcare founder three weeks ago, and when he was trying to raise at 15 to 20 post, for a company that has no traction yet, it just has pipeline. And now he’s looking at somewhere between eight and 12 post. We didn’t come up with that, that’s what he adjusted down to.
Every venture capitalist has to think about the ends when they’re investing and they have to underwrite the risk of an investment to a certain outcome. And when you look at the public markets, you can find comparable companies; let’s say it’s a telehealth publicly traded healthcare company that was trading at, let’s say, 10x forward 12 ARR, and now that’s strapped to 5.5x current ARR and not forward 12; that’s the multiple now that you’re working with. And so, you have to adjust down your valuation expectations all the way back to seed. Now, it takes a while for it to trickle all the way back to seed, so the growth market investors shut the tap off first, then it hit the Series B and the Series A investors. I’ve spoken with three prominent Series A investors just in the past week that are panicking because they’ve overpaid significantly for assets over the past 18 months, but it’s hitting the seed stage now. So, we’re seeing pre-seed and seed companies come back down to what I would consider reasonable levels and it could be an overreaction to a public market where it feels like the sky is falling if you were to read Twitter, but the tourist capital is going to be gone for a while, because interest rates have gone up. So, all the hedge funds, a lot of the angels, a lot of the family offices, are going to tighten the belt, and the hedge funds are probably 60% of capital in the market, in total, across all stages. As capital contracts, valuations are going to come down and, fortunately, we’ve got a blind pool, we’ve got committed capital under management, in the form of a venture fund, so that’s not going away. We’re going to do 20 more deals on this fund over the next 20 months, and so, now is a really good time to be a VC because things are a little more rational.
VN: Let’s say you invested in a company at a certain valuation, now valuations are coming down, they have to go raise their Series A, so what happens to that company? Do they have to maybe take a down round? And what does that mean for them?
NM: It could be down, it could be flat, it could be that they don’t get the offers that they otherwise would have gotten. So, it’s binary. It’s, are you going to get offers? And then it’s also on a spectrum of, where is that offer going to come in? But I’ve heard about some term sheets at Series A that were adjusted down from 80 posts to, I think one was doing a round on 35 post. We’ve got a growth stage company that looked like they were going to secure something at 750 or 800ish, and it looks like the round is going to be probably a third of that. So, things are all coming down significantly and would hope that founders are prudent. Many of these young founders haven’t really seen a bear market in tech, per se, and so they’re going to have to be cost effective, try and lengthen the runway and, hopefully, things recover when they go out for their next round in 12 to 18 months, depending on what their schedule is. But a lot of founders are going to have to take what they can get, and it’s just the state of the market.
VN: How does that affect your returns?
NM: Well, returns are a function of entry price and exit price. And, in the in between, you look at MoIC and TVPI, so that’s paper markup, your multiple. Entry price is going to look better for us over the next, I don’t know how long, I would guess maybe a year, maybe two. But, during that time, our TVPI, so our interim multiples, they’re not going to be as frothy, which is fine. To be honest, most of our startups are not hype; we’re not involved in momentum rounds, if you’re familiar with that term. A lot of the startups that have got an idea and an amazing team are raising seed rounds at $100 million dollar plus valuations, and then you get these pylon hype rounds, where they’ll do a seed round, and then a Series A closes within, like, three to five months. I mean, it’s bananas. That’s not our domain. I mean, we’re investing in non pedigree teams, and they’re unproven, and so our companies raise rounds when they achieve traction. Traction speaks and so it’s not really about the hype, it’s all about the results with our portfolio. So, the good news is that a company that drives real traction and real progress is going to be rewarded in the capital markets and we’re not relying on these overly inflated hype valuations that a company has to grow into. All of our companies are really doing more traction for the valuations that they are priced at, when you compare them to their peers in the Valley. So, I’m less concerned about our companies growing into their valuations, because they already have; the big concerns are on the coasts, where the valuations have far outrun the level of progress.
VN: Let’s talk about your differentiation as a firm. That was interesting, what you mentioned earlier about your LPs, and how you created a base of LPs from your listeners of your podcast. Can you talk about that? Because that’s a really interesting model for finding LPs.
NM: Building influence and building an audience is almost a necessity today in venture capital. Every firm needs to have differentiated sourcing selection and winning and a portion of that is to build some sort of brand, some sort of community, some sort of influence. Our podcast is now up to 100,000 subscribers, and so imagine that: every week, 100,000 people spend 45 minutes with me and one other person. It’s hard to replace that level of human connection, even though I’m not having a discussion with every listener, we’ve just had so many people that feel like they’ve gotten to know me, our firm, our philosophy, our thesis, a degree of thoughtfulness, our grit, our tenacity. I mean, we’ve been running the show for eight years, week in and week out. And so, we were able to build relationships, one to many, without having to do direct calls with everyone individually, like you and I are doing now. So, it’s been a very powerful medium for us. It’s no big secret that in the early days of AngelList, the three biggest syndicates were podcasters: Tim Ferriss, Jason Calacanis, and us. Now, it’s changed a little bit over time but those were the first three syndicates that were growing at really rapid rates and podcasting was a big part of that. So, it was great.
Then we treat the syndicate itself as top of the funnel. So, it’s a very low risk way of getting involved in a New Stack. “Hey, join our syndicate, then you can see the deals we’re investing in. If you really like a deal, you can invest in it and, if you don’t like a deal, it costs you nothing to pass.” If you think about it as a sales process, or a marketing process, the podcast was top of funnel, the syndicate was that first layer, and then, as people got to know us further, look at our deals, and see our level of diligence, they became LPS in the fund. Now, we’ve gotten to a stage where we have many LPS that have never even listened to the show, but everyone knows it now. I mean, it’s a thing; when I got to the Valley, people started calling me the “voice of venture” and people know of the show, and so they know of the impact, the reach, and the deal flow that it produces for us. I mean, the show alone does nine to 12 deals a day, which is a lot to process, but we’ve done seven or eight cold, inbound deals and three of our top four performing companies were all cold reach outs. Listeners to the podcast that reached out cold and are now our top performing companies in the portfolio, driving the most value. And so, it’s been a huge value add; I can’t even put a value on that asset. Not to mention the fact that our co-investors at Series A and Series B, their founding partners and general partners of the top tier one firms in the country. If you ask most VCs between the coasts, do you know people at Accell, Index and Benchmark? They’ll say, “yes,” and they probably know analysts and associates. Founders come to us because we’ve got founding partner and general partner access, like the decision makers. Those are the people we can reach out to on behalf of our founders and make an introduction. That’s why founders between the coasts keep seeking us out, because it’s almost unprecedented access for a founder building a startup in Indianapolis. “How do I get connected with Mamoon at Kleiner Perkins?” Well, go to New Stack and I know Mamoon because I interviewed him on the show, however many years ago, and Mamoon looks at our deals. So, it’s a huge value
VN: You just talked a little about what you offer to entrepreneurs. Is there anything else you wanted to add to that?
NM: Not getting in the entrepreneur’s way is really important as well. I sit on many boards now and a lot of VCs fancy themselves as the Chief Strategy Officer for these startups. That’s a very slippery slope and a dangerous perspective to have. The true innovators and the true value drivers are the entrepreneurs, not the venture capitalists. I mean, we can help on the margins with strategy and in some feedback, but if you’re doing too much coaching as a VC, you’re in the wrong business. You shouldn’t be investing in startups that require significant coaching, first of all, and second of all, if you’re doing that coaching, you’re not nearly as close to the ground and close to customers and aware of new technologies, as these young, hungry, brilliant innovators. So, we help a lot in a variety of different ways to startups but, one of the biggest things is, we know our lane and what we can really accelerate, which is the fundraising process in a way that no other firm can. We’re not going to get in the way of a truly brilliant founder that knows their segment better than any VC should.
VN: Talk to me about a few of those companies. Maybe highlight two or three of them. What was it about those companies, those founders, when they sat across from you that made you want to invest in them?
NM: Oh boy, you’re asking me to pick the favorites now!
Our most recent public deal in a company called Azalio in Washington, DC. It’s run by a brilliant woman, her name is Quratul-Ann Malik, and she’s got a family that has operated in the retail store industry for many years. She had super unique insights about effectively engaging hourly employees in that segment, and empowering them to perform at a much higher level. I just think she’s got much more unique insights on the space because she’s lived it and breathed it with her family members for many years, and the results are already showing. I mean, this software platform that tracks tasks,, clock in/clock out, as well as compliance for a convenience store, for example, it’s amazing how she can engage employees and reduce churn: the average churn rate is every 10 months somebody leaves an hourly job in the convenience space, and they potentially double that if you can get people to stick around for 20 plus months, and really feel like they’re a part of their workplace, instead of cursing their boss under their breath and just looking for the next best opportunity. She’s a brilliant woman, we’re super fortunate to partner with her, and we think she’s got a great chance of building a really impactful Future of Work startup.
We did another investment very recently, they just closed a Series A round, in a company called Equipifi. It’s based in Phoenix and the lead engineer on that was the lead architect for Zelle, which is the quick payment solution that you might use with your bank, and Equipifi is the embedded, buy now/pay later solution for your bank. So, imagine if you’re buying a Peloton or some other product, when you check out, there’s Klarna, there’s Affirm, there’s Afterpay, that allow you to spread those payments out over time, but there’s friction: you’ve got to sign up for this new service, you don’t really know if they’re going to honor this interest rate, like there’s all this fine print and all this garbage. Imagine that service was just built into your credit card or your bank card, so if you bought that Peloton, and you put it on your bank card, you log into your online bank and, just like you can click the Zelle button, you can now click that transaction and spread those payments out over 12 months or 24 months. Much more frictionless, much more integrated into your current workflow with vendors that you already use and trust. You don’t have to sign up for something different with a ton of fine print, and go through this entire workflow like with Klarna. Actually, Chase has this solution built in now; if you log into your JPMorgan Chase account, you can see, next to many of your transactions, “Do you want to pay this out over time?” What Equipifi is doing is bringing this embedded solution to the 80% of banks out there that are not the bulge bracket banks. So, there’s many medium sized banks, credit unions, and small banks all across the country that the majority of the consuming public use, that can’t build this technology internally. So, that’s an embedded payment solution that’s run by an incredible team that had these insights with Zelle and now they’re bringing a similar frictionless financing solution to consumers.
VN: What are some of the lessons that you’ve learned in your career as a VC?
NM: Don’t coach too much, which we already talked about. You have to understand what is coachable, and what’s not, when you’re working with people, and the majority of things are not. You’re not going to change people and your job, as an investor, isn’t to change a founder; your job is to empower them, and accelerate their strengths and their abilities and what they’re doing. If you’re trying to change too much, then you’re in the wrong business. So, I’ve talked about that a bit before. I’ll just leave it at that.
VN: That’s an interesting philosophy. A lot of VCs, they like to be that coach. So, that makes you a little bit different than some of the other ones I’ve talked to.
NM: I see so many VCs, especially at the early stages, pushing, pushing, pushing. “You need to do this,” or, “you need to drill more MRR, more sales, and this and that,” and you’ve got to let founders breathe, you’ve got to let them know where they’re at, and set their own milestones. If you’ve got a super early stage company that’s at the conceptual stage, or maybe they have some pilot customers, they don’t have product market fit, and they haven’t zeroed in on the killer app yet, we call it the wilderness, but they’re still in discovery, so you’ve got to let them breathe, and you got to let them figure out, what are the killer apps? Where is the product market fit? Once you make those decisions and find it, guess what? Then you can get velocity, because, “oh, here’s the killer app that every customer in the segment is going to want, and here’s how we sell it quickly. The sales cycle is short. And here’s the decision maker and their title at the firm that we need to target.” If you let them figure all those things out, velocity comes and the Series A comes after it. If you push too hard, “we need revenue now,” they’re going to sell to any buyer that’s got some application and some use for their technology. The problem with powerful technology is it can be used in so many ways by so many people, and it’s good to explore that and be in that discovery phase, but VCs push too hard for results too soon, instead of the right type of results that are going to result in tremendous velocity and growth. I’m belaboring the point, but you can tell this is one of my big pet peeves with some of my counterparts.
VN: What’s the part of the job that you really love? When you go to work every day as a venture capitalist, what really motivates you to do this?
NM: It’s a people business. We’re in financial services and, whether it’s my team developing the team, allowing them to feel empowered and make decisions, vetting a startup, or working with the startups, partnering with them, providing capital, empowering them, I have the best job in the world. I get to help these founders achieve their life’s greatest professional ambition. It doesn’t get much better than that. It’s the closest thing to professional self actualization out there.
I’ve got a young child; you sign the child up for coding class, or you sign them up for a sport or something. The child is excited, but you know this is going to be the hardest thing they’ve done yet, as a child, but it’s also going to be the most rewarding if they fight their way through it. As we get older and become adults, the challenges become greater and more complex, but these founders are going to go on a journey. Many are going to fail, but they’re all going to learn such valuable things along the way, and to be a part of that ride, and be a partner going through a very, very difficult professional experience together, and then see them achieving their greatest professional ambition in life, there’s nothing like it. It’s a true pleasure, and just to surround yourself with brilliant, brilliant people on my team, my core team, and then the founders we partner with. Imagine getting to choose all your colleagues; every colleague you’ve ever worked with, you get to choose who those people are, and then help them, and your whole job is just to empower them. It’s a true pleasure what we do.
VN: Is there anything else that you want me to know?
NM: We’ve got this thesis that we invest in outsiders and this is not a new thesis. This is a very old, tried and true philosophy that has been forgotten. VC used to be a collection of outsiders, rebels, challengers. If you hear the greats like Don Valentine or Vinod Khosla talk about revolutionary founders, they talk about outsiders; the best innovation comes from the outsider mentality. Unfortunately, tech has evolved into a mainstream industry and it’s got a very insider mentality now. Unfortunately, San Francisco is this large, self reinforcing echo chamber and it’s become this weird monoculture. When you go and visit San Francisco, you can see it and observe it, but if you get caught in that space for too long, everyone starts drinking the same Kool Aid and espousing the merits of Web 3, and how everything’s going to be different in a couple years, and it sounds very strange to a true outsider. The original founders of Silicon Valley were outsiders, they were rebels from Boston and so I am very much a proponent of finding folks that have original thoughts and are not caught up in this echo chamber and this philosophy and are breaking the old system of financing, this closed network, Ivory Tower, walled garden system. I mean, even if you go to some of the best venture firms’ websites today, it’s the internet equivalent of a wall: it’s just a name. You can’t reach out to those people, you can’t access them, you need to know their friends to get in. It’s such a shame, obviously they’re doing well, but they’re going to lose out on the next generation of great founders, I think, because the next generation is about open networks. It’s about accessibility, it’s about empowering founders instead of acting like their boss. And I hope I’m right.
VN: I know exactly what you mean. There are a few of those firms where I’ve tried to interview them or get their quotes for a story and it’s just like, “well, I have no way of contacting you. I don’t know anybody who knows you and I guess I’m never going to speak to you, because I don’t know how to reach you. You don’t even have an email address on your website. I guess it’s not going to happen.” So, even from a journalist’s point of view, I know exactly what you’re talking about.
NM: I’m sorry to say that’s what I’m talking about. But hopefully that’s changing. I think it is, to a degree.