The Full Ratchet: Venture Capital Demystified

Ash Fontana of Zetta Venture Partners joins Nick on a special Crisis Coverage installment to discuss The AI Investing Playbook; Why "Dev Tools" for Data Scientists is the Next Great Opportunity; When Fund Returns Don't Fit the Power Law; and Ash's Favorite Investment Heuristic from Naval Ravikant. In this episode, we cover:

  • Zetta III was announced recently, a $180M fund for founders building AI-first companies.
  • You went from $60M -> $125M -> $180M... how was the fundraise different this time around?
  • Quickly can you give us your definition of an AI-first company?
  • What will you be doing differently with the new fund and how does the pandemic affect your approach?
  • Tom Tunguz just mentioned that in the data they're analyzing they are seeing a drop in spend on Machine Learning Infrastructure.  How much of a concern is this to you and your portfolio companies?
  • With the launch of the new fund, you outline focus areas both Applications as well as infrastructure and tools...Is the application-layer ready to leverage AI in a significant way or is there still a lot headway that needs to be made at the infrastructure level first?
  • Carlota Perez has written about technology cycles and how new technologies typically go through this installment phase, w/ rapid development and heavy investment, followed by crash and subsequent recovery leading to the deployment phase...  in your estimation where are we in the tech life cycle of AI and is it really ready (or will it be ready over the next 3-7 years) for mass deployment?
  • How effective are the AI models today when much of the input data, generally speaking, is flawed?
  • Talk about the next 3-5 years for Data Science... we've seen significant advances in developer tools and systems for software but I still feel like we're at very early stages in evolution, efficiency and scalability of data science tools/fundamentals.
  • Does your fund returns follow the power law?
  • Part of the advantage to AI-first startups is the supreme data moat that they can build, preventing others from gaining traction w/ competitive solutions. While this is an advantage for the startups that get a head start (and their investors) is there an adverse impact on other startups that are founded later and don't have the extensive data sets?
  • Many of the startups you invest in are "deep-tech" and will not monetize and grow ARR the same way many familiar SaaS or transactional businesses will.  What are the major gating factors to raise each of a Seed Round, a Series A and a Series B, in these longer cycle tech-first approaches?
  • You've create a Playbook on how to build an AI-first company.  It's evergreen with plans to update regularly as you work w/ companies...  I wonder if you might give us the basics... What do AI-First companies have in their DNA and when building a company, what's the sequence and major building blocks required at the early stages?
  • Last time you were on the show you mentioned you learned a lot of great heuristics and mental models from Naval Ravikant. Can you give us a couple of these that have been really valuable in helping you quickly frame startup investment potential?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Tomasz Tunguz of Redpoint Ventures joins Nick on a special Crisis Coverage installment to discuss SaaS Strategies, Sector Data, and the $ Ceiling for Deals over Zoom. In this episode, we cover:

  • September of 2015 was the last time we had you on the program...  bring us up-to-speed on major milestones and changes since then?
  • Has your thesis changed at all?
  • Aside from the effects of the pandemic now, what has been the biggest change in SaaS investing since then?
  • Lots of varying advice from so-called experts... some suggesting to deep cuts across the board, extend runway out for a few years... others saying now is the time to lean-in, expand and take advantage of opportunities that are created by the crisis.  You put together a pretty simple two by two decision-matrix for startups.  Can you talk through this and how you're providing different counsel to startups in different positions?
  • If you're vetting a startup for a Series A that has benefited from the crisis, how do you disentangle or segregate temporary or non-sustainable revenue sources from the steady-state?
  • Have you adjusted your vetting criteria or expectations around metrics due to the crisis?
  • What's something you look for and analyze that is less common?
  • What's your take on situations where there is an agreed MRR but the contract is structured such that the bulk of the contract value is paid upfront.  On one hand is a great boost to working capital but how do you look at that from an MRR standpoint?
  • Any tactical advice for founders/sales teams w/ regards to structuring new customer contracts in this environment?
  • Is there a maximum $ contract size that you think can be closed over the phone?
  • To determine the sectors impacted most by COVID-19, you looked at Roger Lee's data on Layoffs.  We've discussed a lot of the impacted sectors anecdotally here on the show... according to the data, what has been impacted most?
  • Are there some sectors where we'll see a lagging effect... due to factors like sales cycles maybe we don't see the effects yet but will over the coming quarter or two?
  • You've discussed sectors and categories that this crisis might accelerate... aside from the obvious like teleconference, telehealth, grocery delivery, video streaming, etc... what are some non-obvious areas that may get a big boost?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


On this special segment of The Full Ratchet, the following Investors are featured:

  • Aydin Senkut
  • Steve Glickman
  • Ash Rust

Each investor illustrates a critical lesson learned about startup investing and how it's changed their approach.

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.

 

Direct download: 137_Investor_Stories_137__Lessons_Learned_Senkut_Glickman_Rust.mp3
Category:general -- posted at: 12:00pm EDT

Richard Kerby of Equal Ventures joins Nick on a special Crisis Coverage installment to discuss the Tactical Advice for Raising VC Fund 1, Why Not to "Raise the Bar," and a Framework for Startups Adjusting to COVID-19. In this episode, we cover:

  • Walk us through your background and path to Venrock
  • Why'd you leave to launch Equal?
  • You, Rick and the team just launched a $56 million Fund 1 at Equal Ventures in February...congrats on the final close! Tell us a bit about your thesis and how you differentiate?
  • You invest in retail, insurance, supply chain and the care economy. From afar those seem unrelated - how'd you arrive at those four categories... is there a common thread?
  • What is the best tactical advice you'd give to someone raising a fund?
  • What's the biggest mistake you made during the raise process that prospective fund managers should do their best to avoid making?
  • So you're early in the fund cycle w/ multiple years of initial check deployment in front of you... has the deployment strategy changed at all given the current environment?
  • Many investors are talking about and tweeting about "raising the bar” for investments... due to the pandemic and recession. Are you "raising the bar" at Equal?
  • Many famous investors opine on the importance of market size when making investments. What's your position on market size and how does one estimate an accurate market size in categories that have not yet been created?
  • You recently published your framework for COVID-19 Scenario Planning on Medium. Walk us through this framework and how it's applied.
  • What impacts has the virus had on your incubation arm at Equal?
  • Do you see this being a permanent change in incubators once this passes?
  • Diversity in venture is terrible... what is Stealth Mode and how are you trying to improve diversity?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Elizabeth Yin of Hustle Fund joins Nick on a special Crisis Coverage installment to discuss Investing after 1 Zoom Meeting, 2nd & 3rd Order Effects of the Virus, and Why "Market Pull" is Critical. In this episode, we cover:

  • Tell us a bit about your background and path to venture
  • Why'd you leave 500 and start Hustle Fund?
  • What is the thesis at Hustle Fund?
  • From a macro standpoint, how do you think the pandemic effects the venture landscape?
  • What were some trends you were following, prior to the virus, that have accelerated in this environment?
  • What are some that have regressed?
  • What are some non-obvious sectors or business types that you're bullish on?
  • Due to maybe second and third order effects of the virus, what are some sectors you are bearish on?
  • You’ve said that you can make a decision after one Zoom conversation in 48 hours. Without much time to conduct diligence on the company and its founders, how are you able to get conviction so quickly?
  • Many of us are trying to figure out how to invest w/o meeting founders in-person... what are some of the key things you’re listening that help you make a quick decision w/o having met the founder?
  • NFX's launched a new application process where startups can apply for funding, give up 15% equity and receive a funding decision in 9 days? What are your thoughts?
  • You've stated that long term success for you is in changing the way that early stage VCs invest and think about investing. What's wrong w/ early stage investing and how do you see it changing over the next decade?
  • I appreciate your contrarian belief that the best startups will be founded outside the Bay Area. Why do you think this is the case?
  • Are there specific areas/geos you're focused on?
  • I want to talk about this concept of "market pull"... Can you define “market pull” for the listeners and how you assess whether a startup has it or not?
  • What advice do you have for investors/fund managers as we proceed amidst a very uncertain future?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


On this special segment of The Full Ratchet, the following Investors are featured:

  • Adeyemi Ajao
  • Oren Klaff
  • Leo Polovets

Each investor discusses sectors, drivers and/or trends that may have significant impact in the future and are potentially positioned for outsized-returns.

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.

Direct download: 136_Investor_Stories_136__Whats_Next_Ajao_Klaff_Polovets.mp3
Category:general -- posted at: 12:00pm EDT

Patrick Gallagher of Tuesday Capital joins Nick on a special Crisis Coverage installment to discuss VC Firm Survival, How Seed Investing Scales, & A Glimpse at the Road Ahead. In this episode, we cover:

  • Walk us through your path to venture
  • How did things first come together for Crunchfund w/ you and Michael Arrington?
  • Why did Michael leave and why did you rebrand Crunchfund to Tuesday?
  • Gives us the highlights of your thesis?
  • How do current events effect your approach going forward?
  • Anything you'll avoid/be much more cautious investing in?... or anything you're leaning into?
  • Some have said that many seed venture firms will not survive the current crisis.  I think there may be more than 1000 seed firms currently...  Do you think the volume of seed players reconciles as a result of this correction?
  • What is your reserve strategy?  How much and how do you make decision as to how you deploy reserves into current portcos?
  • Why the partnership with Frog and what does that mean for your portcos?
  • Aside from design, branding, storytelling... what is an area that is significantly under-utilized as an area of value that VCs can provide to starutps?
  • I believe you're in Airbnb and Uber... was it difficult to invest in their later rounds while you had a young seed-focused fund?
  • Do you believe seed funds can scale?
  • Why do you think there are so many people that want to do this job?  The numbers aren't good... it takes a long time to establish yourself, most funds fail and even the successful ones take a long time to make money.
  • Before we wrap things up, what would you say to a young individual that wants to make a career in venture capital?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Darren Bechtel of Brick & Mortar Ventures joins Nick on a special Crisis Coverage installment to discuss The Built World in Crisis. In this episode, we cover:

  • Background and path to venture?
  • South Park... must be a story behind the name there?
  • Overview of the thesis at Brick & Mortar?
  • Just have to say... I suspect that the impacts of this crisis on the built world will be more profound that we can possibly imagine... and I won't pretend to know what those might be. Can you talk a bit about what you're seeing and what that could mean for the future?
  • Circling back to your path to venture... How did your family react to your pursuit of a career in VC in lieu of the family business?
  • Walk us through your first angel investment -- was it opportunistic or were you looking for startup investments actively?
  • How'd that one turn out?
  • Prior to founding the firm, were there any existing firms in the space that you looked to for inspiration?
  • Talk about your first fundraise... you had access to a lot more capital than you closed. Why didn't you raise more?
  • What was the biggest mistake you made when launching your first fund?
  • Now that you're nearly 5 years into Brick and Mortar, is Built/ Construction tech where you expected it to be and are you as bullish on it now as you were then?
  • Do you think a major infrastructure bill gets passed? Trump has been talking about this for years and it seems like, with the current stimulus, now is his opportunity?
  • I have to imagine this will be a big tailwind for some of your portcos (and prospectives)?
  • Safety has been an area of interest that you've spoken about in the past. How does that apply in the context of your investment focus and does that change w/ the current crisis?
  • What advice would you give to a founder in the built technology space and how might that advice differ from the standard advice given to SaaS or consumer tech companies?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.

Direct download: 215_215._Crisis_Coverage_w__Darren_Bechtel_-_The_Built_World_in_Crisis.mp3
Category:general -- posted at: 5:00pm EDT

Welcome back to TFR for the first Investor Stories Cram Session. In these special releases, we have aggregated the Investor Stories from previous episodes. In this installment, the following investors are featured:

  • Jonathan Struhl
  • John Greathouse
  • Joanne Wilson
  • Semil Shah
  • Bryce Roberts
  • Troy Henikoff
  • Jason Heltzer
  • Christopher Mirabile
  • David Brown
  • Brad Feld

Each investor highlights a situation where they decided not to invest, why they passed, and how it played out.

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Somesh Dash of IVP joins Nick on a special Crisis Coverage installment to discuss Late Stage Impacts and Prioritizing Mental Health. In this episode, we cover:

  • Quick background and what led you to venture/IVP?
  • Overview of the firm and your focus?
  • Covid impact on later stages
  • The 2008 crisis... '08 was still strong for C round funding, steep dropoff in 2009, stayed pretty low in 2010, returning to fairly strong levels in 2011... thoughts on timing, severity and duration of impact on later stage funding?
  • Directional impact on average valuations at late stage?
  • Thoughts on exits?
  • What do you think happens in the secondary market?
  • What do you think happens with the well-funded, late stage companies in markets that are highly dependent on social interaction, mobility, travel, etc.?
  • Reasonable to complete deep diligence in a completely remote environment?!
  • You've been w/ IVP since '05... best recollections of changes in strategy made at IVP in '08/'09?
  • Suggestions on how early-stage VCs should adapt the playbook?
  • Best moves startups made to survive and/or thrive at that time?
  • Biggest mistakes you've seen CEOs make?
  • Investment in Lyra's Series C....
  • Mental health now more than ever... expectations for industry amidst WFH/social distancing?
  • Tips for delivering hard news? -- furloughs, layoffs.. especially remotely
  • Suggestions for leaders to help their people through this?
  • How to keep team morale high?
  • How are you adapting communication or work habits at IVP to better keep engagement of your people, your portcos and your LPs?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Semil Shah of Haystack joins Nick on a special Crisis Coverage installment to discuss VC Fund Management in a Pandemic World. In this episode, we cover:

  • Last time we had you on was Nov. 2017... quick update on you and Haystack since then?
  • LP interaction - are capital call defaults a serious issue to consider in this environment?
  • How do you think investment dollar volume adjusts in 2020 vs. '19?
  • I know you've had a lot of calls w/ friends and mentors lately... what are you hearing from the veteran investors right now?
  • What feedback or insights have surprised you?
  • What actions have you taken since the crisis hit to adjust your own strategy?
  • How do you see the value of face-to-face interaction playing out in the VC-Founder interaction during pitches moving forward?
  • How are you prioritizing reserves when triaging?
  • In the case of a fund running low on dry powder right now, what are your thoughts on reopening a fund?
  • In what cases should an early stage company change their business model to address the changing environment?
  • What are your thoughts on GTM, or changes in GTM, in this environment?
  • I saw that you guys are Crowdsourcing a list of startups who have changed their business model to help fight covid-19.  What have been the most interesting so far?
  • Over/under on duration?

To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


Samir Kaji of First Republic joins Nick on a special Crisis Coverage installment to discuss Relief $ for Startups via CARES Act, EIDL, PPP; & How an Extended Downturn Affects Emerging VC Funds. In this episode, we cover:

  • Startups...
    • The CARES Act became law on 3/27, but many are having trouble making sense of it and how it applies...
    • Let's start out w/ the two types of loans that are available to small businesses...
    • First off, can you explain the difference between the Economic Injury Disaster Loan Program (EIDL) and the Paycheck Protection Program (PPP)?
    • EIDL - No forgiveness potential and and requires personal guarantee?
    • PPP - Forgiveness potential and no personal guarantee?
    • Affiliation...  Dan Primack was writing about how the 500 employee rule and how much of Private Equity portfolio companies will be excluded b/c of how the language is written.  Can you explain the "affiliation issue?"
    • How can this be enforced/checked... so many obscure LLCs used for investment in companies... hard to verify.
    • April 3rd - Is this the date that PPP applications are available?
    • What advice do you have for startups right now, to be prepared and get to the front of the queue?
    • How will seed stage be impacted?
    • Some of the best companies (Uber, AirBnB) first took institutional capital after the 2008 crisis; is now the time to be aggressively investing?
  • VCs...
    • How are the existing funds w/ committed capital adjusting?
    • Will we see a lot of attrition / VC firms shutting down?
    • What are the impacts on firms that are actively raising?
    • Advice for those planning to raise a fund in the next year?
    • What do VCs and LPs need to hammer out before moving forward in this environment? (projections/protocol for capital calls, projections for investments, communication plans, etc.)
  • LPs...
    • What are you hearing from institutional LPs?
    • How about the family offices?
    • Is it still in a crisis/panic mode or have some allocators put together a solid investment plan going forward?
    • If you had to estimate, what % of capital commitments will default and/or be adjusted down?
    • Final thoughts and advice for startups and investors?


To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


David Horowitz of Touchdown Ventures joins Nick on a special Crisis Coverage installment to discuss How Corporate VC Will Respond. In this episode, we cover:

  • What is your current view of the venture market given the current crisis?
  • Corporates have a history of pulling back in economic downturns, what will happen now?
  • This is your 3rd economic downturn, What is different about this economic period vs. prior recessions?
  • Are there advantages to new corporate funds vs. existing corporate funds?
  • Committed capital vs. not committed
  • You told me you believe corporations are more important in this environment than startups why?
  • What advice do you have for start-up companies on dealing with corporations?
  • Fair that those discussions or partnerships slow down?
    What is your prediction when things return to normalcy?


To listen more, please visit http://fullratchet.net/podcast-episodes/ for all of our other episodes.

Also, follow us on twitter @TheFullRatchet for updates and more information.


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